Multiple Time Frames
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Andrew,
That's a great question, when does one buy the pullback? I guess it depends on the overall context - are you buying intraday or for a longer-term position? If it's the intraday cycle and the market is down big, then I like to wait until 3:30 before buying. I'm counting on one of two things - intraday traders that are covering short positions or bargain hunters. It's no guarantee, but it's playing the probabilities - a statistical bet. Note that on up days, I like to get in a little earlier, perhaps as early as 2 pm.
I keep a matrix of twin charts: a 5-minute chart of the Nasdaq composite over 3 days and a daily chart of the Nasdaq over 60 days (also applicable to each individual stock). On each, I track the 50-period moving average. For example, if you look at the Nasdaq 5-minute chart the past 3 days, you'll see how the index bumped up against the 50pma as resistance, representing opportunities to short each time. If you look at the daily chart, you'll see how the Nasdaq has pierced or bounced off the 50pma and come back the last half dozen times until today.
On that same 5-minute chart, I'll be watching to see when the Nasdaq crosses above the 50pma, pulls back, and then makes a higher low.
You'll find that there are intraday, weekly, and quarterly cycles (Jenna's Market Gems is by far the best for quarterly cycles imo). Two books especially useful are Yale Hirsch's annual Stock Market Almanac and Norman Fosback's Stock Market Logic. Hirsch covers the best days for buying (e.g., lately Monday), and Fosback covers lots of seasonality such as end-of-month buying patterns.
If I could offer the one best piece of advice ever received, it would be to look at the market over multiple time frames. For example, if you pull up the monthly Nasdaq over the past 5 years, it was a clear signal to take some long profits off the table. On the daily Nasdaq chart, you would have seen a beautiful double top.
Best of luck.
WS |
