I don't mind sharing my indicators, but I use instinct above all else. So I don't know how much of use they can be to others.
Among the short term indicators, perhaps the most reliable is how many standard deviation a stock (or index) is from its moving average. This works both on the up and down direction and is a measure of how fast something has moved. I use this to take a contrary position. There has to be at least a 4 sigma move for me to consider the position, though I prefer a 6 sigma. This type of thing doesn't happen often, but there are at least a couple of good trades every year.
On a broad base measure, I like to look at the percentage of stocks that are 2 standard deviations above (or below) their 200DMA. If you get say a quarter of stocks being 2 sigma above the 200DMA, then it is a good bet that you are approaching the breaking point. The caveat is that this could go on for a while, but the odds are heavily with you.
For my regular trend watch, I chart stocks on a 3 day time frame and use Bollinger Bands in along with fast stochastics, MACD, and William's %R. My volume indicators are modified Chaikin's money flow which I like much better than OBV (but is used the same way) and price-by-volume.
But the single most important thing is using my instincts. I look at a stock and fallow it around for weeks the way a hunter fallows his prey. I learn its habits and quirks. I try to see how it moves in relation to its industry and the general market. Then I form a thesis for the position I take (long or short). The thesis is always formed based on fundamentals but uses TA for assistance. If at any time the stock stops behaving as I expect it in relation to the "character" I have understood of it, then I am out. Also, I constantly reexamin the thesis. If it is not unfolding as I thought, again I am out.
My current thesis is that (a) it is getting time for semiconductors to resume their up cycle. I expect this to happen around May. IF that happens, I will favor chips over equipment because I think it will still be a buyers market. MXIM, TXN, XLNX are among my favorites.
I made good money of all things on YHOO (which I never touched during the bubble). This is because I believe in the promise of Internet and I think the few surviving companies will rip the benefits in peace. Similarly, I will load up on NT and some of the telecoms. But they have to behave or they are out.
My point here is that I have ideas as to why I want to own the stocks that I own. My ideas seem damn reasonable to me. In fact, my character flaw is that I can be so evangelical about my picks that sometimes I fail to see the most obvious flaws. The way I protect myself against this is re-evaluating my view against what is happening in the real world. If things are not unfolding as I expect them, then I re-examine everything from scratch. (OT: I wish Washington would do the same thing :)
Sun Tzu |
