When to go long or short

[sammy84]

I'm curious as to what methods ASFers use to determine whether they are long or short on the market. I'm a discretionary trader of micro patterns, however I only enter into long patterns when the XAO is above the 25 day moving average and visa versa. I haven't found a great deal about this in what I have read to date.

Is this method too simplistic and am I using too much of a lagging indicator?
This method has worked relatively well to date, however there is a bit of whipsawing.

Cheers,

Sammy

 

[ivant]

I'm curious as to what methods ASFers use to determine whether they are long or short on the market. I'm a discretionary trader of micro patterns, however I only enter into long patterns when the XAO is above the 25 day moving average and visa versa. I haven't found a great deal about this in what I have read to date.

Is this method too simplistic and am I using too much of a lagging indicator?
This method has worked relatively well to date, however there is a bit of whipsawing.

Cheers,

Sammy

Any method can work, you need to consider other factors like position sizing. A trading system is a complex thing to create.

I do look at news that are about to come out or in the next few weeks and try to understand what kind of news they will be. However, I am still a technical trader, and I look for oversold and overbought conditions.

Have you considered looking at MA crossovers? Maybe do some backtesting to see what the ideal MA length is.

If you are happy with your system though, don't change it

Ivan

 

[beamstas]

Longs in an uptrend
Shorts in a downtrend


I trade the same type of patterns as you

But won't trade a break on the upside long in a downtrend and vice versa

Heres one i posted in the flags topic in stock chat
As you can see, it is trending up, therefore it would qualify for a long position on the breakout of the symmetrical triangle

Cheers
Brad

 

[Mr J]

Is this method too simplistic and am I using too much of a lagging indicator?

Nothing wrong with simple, but MA are certainly lagging. There as many ways to do this as there are traders, it's really just about finding one that suits you. I just use the price action itself.

 

[stevo58]

Curtis Arnold uses 2 trend filters for his continuation patterns which are simple yet effective - the 18 and 40 Day Moving Averages.

His only pre-requisites are that the 18 Day MA be sloping in the direction which you wish to trade and the 40 Day be either flat or sloping akin to the 18 Day.

This combined with some EW analysis helps define with a higher degree of probability whether the trend is on your side before plunging in. I've found this to be fairly useful so far.

Hope this helps

 

[skyQuake]

Longs in an uptrend
Shorts in a downtrend


I trade the same type of patterns as you

But won't trade a break on the upside long in a downtrend and vice versa

Heres one i posted in the flags topic in stock chat
As you can see, it is trending up, therefore it would qualify for a long position on the breakout of the symmetrical triangle

Cheers
Brad

$2.50 T/O Offer. Still a bit cheaper than the t/o offer.

 

[beamstas]

$2.50 T/O Offer. Still a bit cheaper than the t/o offer.

Thanks Sky, i am aware of this.
Here is another one for you sammy

 

[sammy84]

Curtis Arnold uses 2 trend filters for his continuation patterns which are simple yet effective - the 18 and 40 Day Moving Averages.

His only pre-requisites are that the 18 Day MA be sloping in the direction which you wish to trade and the 40 Day be either flat or sloping akin to the 18 Day.

This combined with some EW analysis helps define with a higher degree of probability whether the trend is on your side before plunging in. I've found this to be fairly useful so far.

Hope this helps

I like this idea. I will have a play around with it.

I previously tried using EW, however I find that EW also has a lag effect in that you need certain price targets to be met before you can be sure you have the correct wave count.

What about other market sentiment indicators? So far I only experimented with the Advance/decline, which I only found was useful for picking major tops and bottoms.

Beamstas- I was actually referring to overall market direction, rather then the trend of an individual stock.

Thanks for the responses to date

Sammy

 

[weird]

It's hard.

A few comments, MA and similar will be lagging.

Markets can be defined as having many different states - down, up, sideways, volatile, quite ... volatile and a down market, will probably be much more volatile than in an up market so perhaps different thresholds should be used ... and there will always be surprises.

Very short term daily trading, that is 3 days or less will probably not benefit from lagging indicators as much, however not to say there is not a useful filter.

Always learning ... love finding out new stuff, however unfortunately have never found out anything easily.

My current US trading is not using any general market filter, but as I once read and agreed with, "this is my opinion at the moment, and have the right to change it at anytime", so will continue until I have found something better.

 

[Cartman]

I previously tried using EW, however I find that EW also has a lag effect

Sammy

LOL ---- dont mention that on the E/W thread Sam !!!!!!

Bottom line is, all indicators lag (except Momentum --- sometimes )

Momentum is the only indicator you need if u r trading short term ----- any other time frame is a lottery imho (H/h = humble not honest -- although they are pertty similar eh ??! )

 

[beamstas]

Momentum is the only indicator you need if u r trading short term

Cartman, You talk about Momentum alot but i don't fully understand the concept of using the momentum indicator

For the benefit of me and this thread would you mind explaining how momentum can be used to determine whether to go long or short?

I've never looked at momentum before, ever!

Cheers,
Brad

 

[sammy84]

LOL ---- dont mention that on the E/W thread Sam !!!!!!

Yeah I was careful when writing the post not to open another can of worms. I do think EW is a very useful tool however once you are in a position, and I do still us it at pivotal points where I tighten my stops and might even reduce position size. However it doesn't provide an indicator to start going long, as normally this would still be against the daily trend of the market.

I too would like to know how you use momentum, I have never looked into it with great detail

Sammy

 

[awg]

well i had a look myself....from Incredible Charts site: Indicators A-Z

I did not attach the chart that is referred to, in the example, because I am to lazy, so u will have to look yrself, if u want

.....................................................................................................

Momentum

Momentum measures the rate of change in closing prices and is used to detect trend weakness and likely reversal points. It is often underrated because of its simplicity.

High Momentum readings (positive or negative) occur when a trend is at its strongest. Lower readings are found at the start and end of trends.

Overbought and oversold levels are set separately for each security, based on the performance of the indicator over past cycles.
Trading Signals

Different Momentum signals are used for ranging markets and trending markets.
Ranging Markets

First, you will need to set overbought and oversold levels based on your observation of past ranging markets. The levels should cut across at least two-thirds of the peaks and troughs.
Go long when:

* Momentum crosses to below the oversold level and then rises back above it; or
* On bullish divergences - where the first trough is below the oversold level.

Go short when:

* Momentum crosses to above the overbought level and then falls back below it.
* On a bearish divergence - with the first peak above the overbought level.

Trending Markets

First, identify the trend direction using Momentum or a trend indicator. Momentum tends to stay above zero during an up-trend and below zero during a down-trend.

Only take signals in the direction of the trend.

*
Up-trend: go long if Momentum turns upwards when below zero.
*
Down-trend: go short if Momentum turns downward when above zero.

Exit using a trend indicator.

Trend lines are also drawn on the Momentum indicator. A break in the trend line often occurs in advance of a similar break on the price chart.

Take profits on divergences and trend line breaks.


Example

Dow Jones Industrial Average with 10-day Momentum indicator and Bollinger bands at 2.5 standard deviations around a 21-day exponential moving average.

1. Go long [L] when the MA turns upwards after a bullish Momentum divergence.
2. Take profits [P] on a bearish divergence.
3. Exit [X] when price closes below the MA.
4. Price has started ranging, shown by the fluctuation of price around the MA and Momentum around the zero line. Set overbought and oversold levels based on observation of previous ranging markets. Go short when Momentum turns back below the overbought line.
5. Go long [L] when Momentum crosses back above the oversold line.
6. Go short again when Momentum crosses back below the overbought line.
7. Go long [L].
8. Go short .
9. Go long [L] when Momentum crosses back above the oversold line. The long position is stopped out by a lower Low at [W].
10. Go long again at [W] - the signal is supported by a bullish divergence.
11. Go short .
12. Go long [L]. Price then breaks out of the ranging market and stays above the MA. Switch to trending signals.
13. Take profits [P] on a bearish divergence.
14. Take further profits [P] on a bearish triple divergence. Exit [X] the trade when price closes below the MA.

Setup

The default indicator window is 12 days. To alter the default settings - see Edit Indicator Settings.

See Indicator Panel for directions on how to set up an indicator.

 

[MS+Tradesim]

I might be wrong, but I suspect Cart is talking about the concept of momentum, not a formulaic indicator.

Momentum, as a process, is "felt" and observed better than it can be mapped by an indicator. You see the weight of stopping, reversing or continuing volume flowing into market and when the picture is right you trade with it.

 

[stevo58]

I hear what you say about EW, it does lag but gives me a higher probability where the trend might be heading. If the current state of the trend is a wave c or wave 5, heaven forbid a wave 3 then a profit target can be established for the Risk:Reward. A particularly strong setup is a symmetrical triangle located in a wave 4 scenario, a breakout out of which sets one on the final impulsive wave up.

Here as an example wave 1 should equal wave 5 and if a low risk entry can be had, a reliable risk reward can be calculated. Don't hold me to this, I'm at work, probably shouldn't be writing this and don't have my charts with me but I think ADBE and maybe ANSS in the US might have just broken out via this setup. If its not one of these its another on my shortlist, apologies will look up later.

Agreed about the AD line, all it does is show the strength of the rally or trend doesn't help with much else. One thing I have found useful though is the Put Call Ratio combined with TRIN. Overly bearish readings such as over 0.9 (Preferably > 0.95) combined with a reading of over 2.5 on the TRIN gives a good indication that the market will rally the next day. Easy to say that the over last few weeks I know! But the times where this has happened the NASDAQ has rallied 2% or so. What this gives me when looking at my micro patterns setups etc is an opportunity to tighten stops then if the market does rallies get that stop to breakeven for a free trade so to speak. I've been stopped out at breakeven quite a few times before implementing a trailing stop but have had a few instances where the trend keeps going for a high R:R (WFMI, CAB and CCE as examples recently).

All I'm doing really is trying to skew the numbers and increase expectancy to my favour. These are Nick's words though so can't claim credit there! These methods just give me a higher probability to do it.

I hear what is being said about momentum, seems to be currently grinding to a halt in the US at the moment.

 

[Cartman]

I might be wrong, but I suspect Cart is talking about the concept of momentum, not a formulaic indicator.

Momentum, as a process, is "felt" and observed better than it can be mapped by an indicator. You see the weight of stopping, reversing or continuing volume flowing into market and when the picture is right you trade with it.

well described MS, and very true when you get in the zone ----- i still use a couple of momentum indicators to give me a heads up cause i make too many mistakes without them

good exercise to see whether indicators are set up correctly is to try and trade a chart with no price action (just your indicators) --- because indicators are "smoothed" the patterns become easier to see ---- works for me anyway, but i like to think backwards lol

 

[Nero64]

What about using candlesticks and the the liquid, V shape reversal. No indicators just movement. It absorbs you.

Watch the FTSE first hour trading for 2 weeks and you will see what I mean.