Here's a demonstration of how I trade.
Now this is not a trading thread, but since I discussed my algo, I am going to demo it at work using WOLF (which we also have touched on).
But first let's understand some important basic rules:
#1 The job of this algo is to help you make the most money and minimal losses given a particular stock. The algo doesn't tell you what to buy or sell. It is your job to have picked the right stock. If you are on the wrong side of order flow, no force on earth can help you make money. The best that you will get is lower losses.
#2 It is not user friendly with a polished user interface. Building a good UX is time consuming and since this is for my personal use, I saw little reason to build a UX. So I will explain how to read it in the steps below. Be patient.
#3 There are two important parts to the algo: The upper indicators, and the low indicators. TradingView doesn't provide an easy way to integrate the two. So you just need to read them together like you read charts on other sites. This should not be a big deal. But what I want to emphasize is that just because the upper panel says buy or sell or the lower one says bullish or bearish, it doesn't mean you should act on it. It is the entirety of the picture that counts.
#4 Timeframe matters a lot. It should be obvious that stocks zigzag. What is often a buy or sell for a day trader is the exact opposite for a longer term position. In general, medium term positions in stocks (read 1 - 3 months) should not use a shorter bar than 3 hours. Of course you can use other bar sizes for confirmation, but the shorter the bar size, the bigger the noise. So you'd better know how to filter that out. On my trading screen I have a 15 second bar size that I use quite often. But it comes with a lot of specialized routines that I wrote for it.
#5 For the upper indicator, the colored lines represent investor positioning. Red line is where the sellers come in and the green line is where the buyers come in. When these lines are trending, it is a good idea to not fight that trend. Where they flatline, you can assume a support/resistance is there. So a simplified rule is to buy on strength at a *flattened* green line and sell on weakness at a flattened red line. But this is an oversimplification. When a stock breaks below a flattened green line, then the floor is broken and it is not a good idea to catch that falling knife. Furthermore, the green line will soon enter a downtrend, and as I said earlier, it is a bad idea to fight the trend line nearest to you.
#6 The lower indicators are momentum indicators. They are all my creation and are *similar* to RSI but different in implementation. Read them as you would read RSI. Each have a different purpose. The top one is absolute (think RSI). The middle one is context sensitive and tries to predict trend changes (think stochastic of RSI). And lower one is trade dollar weighted (think money flow index).
#7 It is the entirety of the picture (along with your understanding of the fundamentals and your timeframe) that counts. No single indicator is to be trusted on its own. As you look at the WOLF chart below, you will find plenty of false signals in both upper and lower panel. I have highlighted the 4 signals (2 buys and 2 sells) where the upper and lower panel where in agreement and the price action itself confirmed the reading (one bar after the signals were given).
#8 Nothing is certain in the stock market. Even negative oil can happen. Let that sink in and always know when to reverse a position.
Using this, 3 days ago I bought WOLF at $7.59.
Happy chart reading.
PS You may want to save this chart for future reference so you can read other charts that I post.
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