After catching up on some of the recent posts, I thought I would add some thoughts.
Regarding systems, I think it is unreasonable to find any system that works for all types of stocks. It had been suggested that a systems validity is only proven after you test it with random stocks. That however, I feel, is an oxymoron. You try to find stocks that work in your system, not a system that works for any stock. Why, because it doesn't exist. We all gravitate towards systems that we are comfortable with. They will only work with certain types of stocks, and that is the point. Unless you are an day trader or extremely short term trader, you have to expect your system NOT to work with certain types of stocks.
How do you find those stocks? Look at a chart with plenty of data, and see how it moves. Does it moves within trading ranges? Does it trend and rest? Is is prone to volitility? How does it react to MA's? Does it obey support and resistance "rules"? Etc., etc., etc. Often I feel that the word "system" gets confused with "screens," because although there is some overlap, there is an important difference. "Systems," in the sense that you follow them blindly, are not for most. "Systems," in the sense that you use "screens," as Dave has so expertly outlined, to find candidates for your style of trading, are the way to go.
Regarding patterns, well, I like patterns, but not in the classical sense. It is true that head-and-shoulders and others are very subjective. And when they are obvious, they are to everyone, which is why many professional traders say that they fade them. I don't use H&S or any of the funkier patterns. I do however like to see double tops/bottoms, with corresponding volume patterns. I like to see a cup-and-handle type pattern and the variations of it. I really like an ascending triangle, because it makes sense on so many levels (most of all common sense wise). But the "pattern" I like most is the retracement of a breakout. Why, because it makes sense. Breakout on high volume to new high, nice uniform retracement to breakout, with decreasing volume, buy at the breakout price. I also like to see the OBV go to a new high on the original breakout. This pattern makes sense. Enough power to break to new high (hopefully 3 to 9 months, sometimes 12 months) and weak longs sell out. Volume decreases showing short term selling drying up. Breakout point gives you a good support point for a buy, and allows you to sit through the MM's run for the stops (as they often do before resuming the uptrend), but still stay within your 5-10% max loss stop. Sure, some times you don't get back to the brekout point, but you can still use extreme dry up of volume as a buy or just wait for the next stock. You can check your Dahl and MACD to make sure you are with the trend, but usually this pattern won't happen unless they are with you to start with.
Regarding volume, although most on this board don't feel it is a factor, I like it, it makes me feel better when it is with me. But it is only important in certain ways of looking at it. Volume is important at support and resistance (breakouts/pullbacks) and as an longer term confirmation tool. In a trading range it is not as important. After a break out/down into a trend, it is more important to look at overall volume to see if it is confirming trend. Blowoff volume on a reversal up/down day or second of a double top/bottom is nice to see as well.
Regarding divergence, AMEN to what Richard said. Divergence is the most often used example in beginning TA books, but I feel it really works better in futures (RSI divergence for example). Most TA indicators were created for futures.
Regarding Dave, yeah, how the hell can he type so much in a day <g>! Thank God he does though! Richard, Andy, Jack, Chan, etc., too!
BCL
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