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Strategies & Market Trends : Technical Analysis - Beginners -- Ignore unavailable to you. Want to Upgrade?

To: Chris G. who wrote (7370)	12/31/1997 10:18:00 AM
From: David R. Evans	Read Replies (1) \| Respond to of 12039

Hello Chris, Richard has given you good advice. Anytime you start having problems trading or your results just do not seem right, the best thing you can do is simplify. Trading is not as complicated as most people make it out to be. It's a battle between you and yourself. We find an indicator like Dahl that gives us GREAT results and what do we do with it? We change the hell out of it. We look at the screen and say, "well, that's nice but I just couldn't stay with a stock THAT LONG!" So we get in there and add this indicator and take away that indicator and change this length and change that length and before you know it we lose track of where we are and what it was we wanted to do. That's when you need to simplify.. Go back to the EMA's that looked so great on the screens. Dust off your "CORE SYSTEM" that you loved so much and made you so much money. Revisit your time frames and make sure they still suit your mentality. I've found that in most cases it's the time frames that get people in trouble. People are making money longer term BUT they decide they just can't sit back without trading. They must trade shorter term so they start changing all their indicators ( in real time) and before you know it they are losing money. That's when you need to simplify.. Go back to your favorite stock and just look at the chart. Where is it that you want to get in and out? Put Dahl on it and really question the need for anything else. If you still need anything else start with Moving Averages and little by little add indicators that coincide with the buy and sells you want. Mix longer term with shorter term BUT realize why you are doing it. You are not looking for buy signals from ALL your indicators. You get the buy signals from the shorter term indicators and DIRECTION from the longer term ones. Why look at longer term when you want to trade shorter term??? Because the TREND IS YOUR FRIEND!!!!!!!!! The easiest way to make shorter term money is to ride a LONGER term trend a short distance.. The other important thing to do when your trading is not what it should be is to BACK OFF.. DO NOT jump into the market with real money unless you have a TRUSTED SYSTEM by your side. Never buy a stock unless you know when you will be selling it. The worst thing you can do is jump in without thinking. You will find yourself turning winning trades into losing trades with great regularity.. Why? Because you do not know when you are selling. Please note that when I say you must know when you are going to sell I do not mean a date or a price necessarily. You could go in and say that you will sell if the stock falls to 10 or raises to 20 and that's fine. I do not like to put real numbers on my sells because I like to let the stock tell me when to sell. I use a series of indicators to let me know when it's time to get out. This is because I like to ride the train as far as it will go. Now that I've rambled on and probably bored most of the people out there I'll end this chapter of the lesson. I owe you more information Chris and I'll start working on it right now. Boy it's nice to be home in front of the computer. I'll get back to you with a rundown on IBM which just gave me a StochRSI (14) hit. Dave Evans

To: Chris G. who wrote (7370)	12/31/1997 12:22:00 PM
From: David R. Evans	Read Replies (5) \| Respond to of 12039

Hello Chris, I'm back as promised with a "little" write-up on IBM. I picked IBM because most people have it in their database or they at least know about it. The techniques and theories presented here will work for most stocks whether they are big or small. The first thing I want you to do it set up your screen as follows: The bottom screen should be a price chart of IBM with at least the entire year of 1998 showing. The screen on top of that should be StochRSI (14) with lines at 30 and 70. The screen on top of that should be StochRSI (8-5) with lines at 30 and 70. The screen on top of that should be Insync Index with lines at 49 and 81.The screen on top of that should be Dave's New System (DNS) with lines at 3, 5, and 8. The screen on top of that should be Dahl's Primary trend with a line at 0. OK, so now we can proceed with step one. Please remember that the real step one is filling your database with the type of stocks that fit what you want to do. If you decide that the market is favoring big cap stocks then fill your database with the best big caps you can find. If the smaller Caps still turn you on then you must have a database filled with GOOD small cap stocks. RS & EPS > 80 is still the best ticket in my book but this book is your so you must write it your way. Now we are off and running. IBM gave us a hit with StochRSI (14) because it crossed UP THROUGH the 30 line. I use this as my initial "must look at" signal. Click on the little box in the upper right hand corner of the StochRSI (14) screen to explode it's screen. Now you can really see the StochRSI (14) cross up through 30. While you have this box exploded please notice two other things. The last down turn of StochRSI (14) never touched the 30 line. It was obvious that it was a down turn then an upturn BUT according to the StochRSI (14) rules you would not have been in IBM because it never dropped down through the 30 line. IBM made a nice run but you would have missed it. The opposite is also true. Unfortunately we do not have an example of it on the screen BUT just imagine one of the upturns never reaching the 70 line. Say it just got up to 60 then turned down. If you were just following StochRSI (14) you would be holding during a downturn and giving back a lot of what you had just gained. These are the two major faults of StochRSI. It is one of the best indicators for entry and exit BUT it does have shortcomings that must be accounted for. OK so now we are ready to continue our buy quest so click on the box in the upper right hand corner of the StochRSI (14) screen so it will go back to normal size. Our next indicator is the StochRSI (8-5) (Thank you Andy). For IBM to be a buy StochRSI (8-5) MUST be above 30 and moving UP. If StochRSI (8-5) is moving down I move away. Why? StochRSI (8-5) is a very short term indicator. It will give you a buy signal much quicker then SRSI (14). I want to make sure that the real SHORT term trend is going my way before I buy. I do not want to buy and be in a hole right from the start. Before we move on let's explode the StochRSI (8-5) screen and take a closer look. As you can see StochRSI (8-5) has just crossed the 70 line. THAT'S OK... I just want to make sure it's moving UP. You can also see that there are many times when it does not hit 70 on it's move up or hit 30 on it's way down. That's OK also because I'm using it for short term DIRECTION in this case.. OK so now let's click on the box again and get the StochRSI (8-5) screen back to normal size so we can continue. Our next screen is Insync Index (Thank you Richard). I want Insync to be crossing UP THROUGH 50. It does not have to be crossing on that very day BUT it must be moving in that direction or all bets are off. Now it's on to Dave's New System (DNS) I would say thank you Dave but that would be tacky so I'll say thank you all who contributed to my TA education and application. In this case, I am looking for DNS to be MOVING UP. I do not care what level it is at as long as it is moving UP. Yes, I realize that this is not the normal way to use DNS but you must remember that I am only looking for direction, not a buy and sell.. To explain this would take too much space and complicate the issue so I'll leave it for another post.. OK so now we move on to Dahl (Thank you again Richard). Dahl, in my opinion, is one of the best longer term indicators available. That's why I included it in DNS and why I separated it out for this buy screen. In this case, I do not care if it's above or below the 0 line, I just want it moving UP!!! When I explode the Dahl box I really do not see everything I would like. I see Dahl trying to level off so it can change direction BUT in reality it is not moving up. Now it's decision time. No one ever promised us fair so we must stand up and make a decision. Everything up to this point looked good so we must decide if we want to move ahead or move on to another stock. Dahl is not saying NO in this case but he is not saying yes either. I would categorize him as saying MAYBE.. Alright so for the sake of this exercise let's move on and see what we can see. Usually at this point I would move into GET and continue the investigation but I realize that many of you out there do not have GET so I'll stay in MSWIN a little longer. Also remember that you can do all of this in WOW. There are two other indicators I want to look at before I move on but the screen is too crowded to add any more so let's eliminate a few. Click on the x box in the upper right hand corner of the Dahl box to eliminate Dahl. Now do the same with DNS, Insync, and both StochRSI's. We are now left with just the price screen. Before we put up any more indicators lets take a quick look at FIB and see what he has to say.. Select your Fibonacci Retracement tool and draw a line connecting the low of 4/4/97 to the high of 12/8/97. Do these lines hold up??? You had better believe they do. Just look at the Month of May and see how they served as support and resistance the entire Month. And where are we now? Sitting a little above support of $102. So why did I stop and look at FIB? Well, before I jump into the stock I want to get an idea of where support and resistance might be. If I'm coming up on resistance I might want to wait a little while to ensure I break through it. OK so now I have my price chart in front of me and I'm ready to put my favorite EMA's up. That's right, my old 5-13-40's with the 5 in red, the 13 in blue and the 40 in green. At first glance this may be another warning sign because they are not in the formation I would like. It's very obvious to me that I need a closer look. It's time for the ZOOM BOX. Let's zoom in on the last 30 bars or so and take a closer look at the 5-13-40. OK so we have the 40 on top of the 13 with the 5 day pulling up the rear. The 5 day is definitely turning around and looks like it's ready to make it's move up through the others. I would guess it would be another week or so before we will see the formation we would like so once again we need to make a decision. Do we move on or do we move out??? At this point I say move on because my fingers are starting to hurt and I would hate to think it was all for nothing. So we decide to move on and start looking at out two remaining indicators, MACD (8-17-9) and MACD (13-34-89). Once again you can see that I am mixing two different time frames to get an idea of both trends. First I put up the MACD (8-17-9) in a separate box as a Histogram. How? In the Color/Style box for the MACD (8-17-9) select Style and click on the histogram. Now you can easily see a break through of the 0 line. This is what I LOVE to see. On the same day I received the StochRSI (14) buy signal I also get a 0 line break through with MACD (8-17-9). This is a very powerful signal. Now I want to see the longer term MACD to get my Trend Direction. Select the MACD (13-34-89) and put it in a separate box ABOVE the MACD (8-17-9). Change it to a histogram also and let's see what we have. If you didn't already please take the zoom off the screen and display the entire year of data again. This is another case where we are not looking for a buy signal, just direction. Is the MACD (13-34-89) moving in the right direction? I would say yes it is. It is under 0 BUT moving up. That's all we are looking for in this case. Now I will move on to GET and see what it has to say. In GET I put up IBM and select a few tools. First let's turn on XTL and Cardinal Values. With XTL black and no Cardinal Value in my way I'll assume I'm not ready to run into any major resistance yet. Now let's put CCI up and see if it's telling me anything. Oh yes, CCI broke through 0 two bars ago and is in sync with StochRSI (14) and MACD (8-17-9). Now for the big test. Let's put up Optimized Parabolic SAR and see where we are. Please remember that when you use Parabolic SAR in GET you must Optimize it every day. Here's where we fall short. Optimized Parabolic SAR is Above Prive which is telling me I should move away from this one and wait for a few day to ensure the move. Now I'm at that old decision point again. If I put FIB Retracements up in GET connecting the low of 4/3/97 to the high of 12/8/97 I see strong support at $101.13 which is a 25% retracement of that move. If I draw a small short term regression channel from high of 12/8/97 to the low of 12/19/97 I see that price has indeed broken out of the channel and through the resistance at $101.13. Now what??? At this point you can start throwing all the indicators you want at IBM and you will still get a mixed picture. I would guess that it will move up short term (next day or two) but I'm just not sure of the longer term. The beauty of TA is there is always another stock to look at so in this case I'd just move on to the next stock in my list. When I ran my StochRSI (14) explorer last night I got 30 hits so I have plenty of candidates to look at. The bottom line is I will not buy a stock I am unsure of. I realize that many of the stocks I reject will go up and that's fine with me. As long as my results are good I never look at the stocks I reject. I always review my results to make sure I am making good decisions but I never second guess. Did this answer some of your questions??? I hope so because my fingers are bleeding now.. Let me know if this helps.. Dave Evans