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Strategies & Market Trends : Stochastics -- Ignore unavailable to you. Want to Upgrade?

To: Speed Racer who wrote (32)	1/23/1998 4:46:00 PM
From: Wayners	Respond to of 927

I don't think I can tell you what period is right for you. Do you only have enough time to look at charts at night after the close? If you can't watch during the day, I'd say go the short position trader route like I do. I do watch during the day though, so technically I'm cheating. I actually plot this stuff on intraday charts now so I can time entries and exits accurately within the day. That really helps in lowering your risk as well. I use a 5 day stochastic with 12 day simple bollinger bands on stochastics. I use 12 day exponential bollinger bands on price (in a semi-log plot) with a 3 day moving average thrown in to look at moving average crossovers. I also use 12 bollinger bands on bollinger band width to predict future volatility/magnitude of near future price swings. You don't need this last one for now. You should probably use a 12 day stochastic with a 12 day simple moving average on it. Plot price in a semi log chart. Put 12 day exponential bollinger bands on it (for the semi-log plot) and put in a 3 day exponential moving average too. The main thing to watch is the slope of the middle band (the middle band IS the 12 day exponential moving average) as that tells you the trend. Then look at the 12 day stochastic to see if there is a current buying or shorting opportunity. When I was describing SHVA I was using a 5 day stochastic, which is for a really short term view, maybe too short for what you will be able to do. Anyways, try using a 12 day stochastic with a 12 day moving average on stochastics (if you can do it). On the price chart put 12 day, 2 std dev bollinger bands on it. I also like slipping in a 3 day moving average too--but again that's for short term trading. I'd pick either stochastics or RSI. Their both oscillators so there's no reason to use both. I never really liked using momentum either. Just pick either RSI or stochastics. With RSI you get more random movements, but you can use trendlines really well with it. I use a 5 day stochastic because it generally gives me really smooth looking curves which is excellent for predictability. As you increase the number of periods a lot of that smoothness and predictability goes away. Try plotting stochastics with a 200 day period and you'll see what I mean. Yes with different periods like 5 or 14 you will get different results with SHVA and other stocks of course. Remember, the 5 day will get you in and out with smaller profits over a shorter time period. The 14 day will net you possibly larger profits but it takes twice as long to get them and you have stomach more price movements that move contrary to your goals. I did just look at the 12 day stochastic with a 12 day simple moving average on it using today closing data. The stochastics is at 25.7. The 12 day moving average turned down a bit on price, so today's price action if I had a 12 day approach, would be making me a bit nervous and I'd be thinking about a stop loss order to keep me out of trouble or maybe just plain getting out already with a very small loss. There's no reason to push a position when it doesn't look like its going to do exactly what you think its going to do. I think the overall market as I pointed out yesterday had a negative influence. That should continue next week as well. Instead of checking the library, check out the bookstore. There's a lot of books out there on T/A. You can check amazon.com too. I'm really glad you are studying this. I've shown the relationship between price and the oscillators to people showing how the highs and lows correspond to tops and bottoms. You know what, most people just don't get it see it or see the significance of it. It really is incredible. It seems so obvious to me and you too.

To: Speed Racer who wrote (32)	2/3/1998 11:12:00 AM
From: Wayners	Read Replies (1) \| Respond to of 927

Here's a checklist of questions I go through when I'm looking at a potential play. 1. What is the current price trend. You don't ever want to fight the tape. 2. How close is the middle band on stochastics to the 20 or 80 line. When its really close, its often near an intermediate term top or bottom 3. Does stochastics have a hook on the end? Have stochastics already started to reverse? This is really important to avoid waiting for the stock to do what you expect. It can take several days to a week for it to turn around once its above 80 or below 20. Why waste time not making any money? The greatest price velocity occurs after you see the "hook". A hook or left turn above 20 for instance is essential for all buys and vice versa for sells at 80. 4. Is there evidence of a price/volume divergence? Not essential, but its something to look for to confirm a top or bottom. 5. Are stochastics showing an uptrend or a downtrend? Draw a line connecting peaks or bottoms. Upwardly sloping bottoms is an uptrend. Downward sloping tops is a downtrend. Stochastics will peak before price does. If stochastics is on a downslope, momentum is slowing. If stochastics are on an upslope, momentum is building. Make sure you trade doesn't fight what is occuring, i.e. shorting when momentum is building. 6. How narrow are the bollinger bands on stochastics? If they are really narrow, the uptrend or downtrend may have limited life left in it. Are stochastics oscillating with the oscillating getting less and less--then the trend is likely ending. 7. How narrow are the bollinger bands on price? If they are narrowing, you will have limited volatility in the future and will likely ubtain sub-par trading results over the short term. If they are wide or widening then you should be able to trade it. 8. What do your moving average crossover tell you? Is the short term moving average above or below the longer term moving average? If the short term average is below, the trend will be down. If the short term average is above, the trend will be up. Look for flattening out short moving averages as they indicate real short reversal possibiliities. Watch for short term and long term moving average crossovers. 9. Identify support and resistance levels from past highs and lows. Look at the volume at those old points as well. The highest volume points provide the most support and resistance. 10. What is the trend of the middle band on stochastics? Try not to fight the trend unless the band is near the 20 or 80 line. 11. Is price at the upper or lower bollinger band on a neutral trend. Excellent reveral point. Want to pick the top on an uptrend or downtrend (fighting the trend)? Three touches of the upper or lower band often signals the end of a trend. Use price/volume divergence with that too. Has price temporarily gone outside the bands and ducked back in to give a buy/sell signal? 12. Are stochastics overbought or oversold as indicated by the bollinger bands drawn around it? 13. Has price dropped significantly over the last three months and the trend gone neutral for at least 30 day? Good reversal basing pattern on really low volume. Buy at the lower bollinger band at every opportunity--or wait for the breakout and buy on the first dip (safest route). 14. Identify triangles, wedges and head and shoulders whenever possible to get an idea of what may be happening. I find head and shoulders to be the least useful pattern. 15. Want to play the existing steep trend without waiting for a peak or dip? Hop on the trend but place a stop limit order to protect yourself at the previous day's low for buying into an uptrend and place the stop limit order at the previous day's high for shorting into a downtrend.

To: Speed Racer who wrote (32)	2/4/1998 9:14:00 AM
From: Wayners	Read Replies (1) \| Respond to of 927

Here's another idea that is really simple using 5 day stochastics. This is intended for a really short term approach of flipping a stock in only 1 to 3 days tops. The idea is take advantage of the large price moves you typically find right at tops and bottoms. This method has a very high profitability rate. Expect to make somewhere between 1% and 10% on these plays. The best thing is there is NO time wasted waiting for the stock to turn at tops and bottoms. This means you can do a lot more volume in a year and thus make a lot more money. The idea (almost pure momentum) is to find stocks that are already on an uptrend or downtrend. When the 5 day stochastic FIRST gets to the 80 line as the stock is going up on an uptrend, buy in and sell as soon as you have a decent profit and never hold more than 3 days. When the 5 day stochastic FIRST gets to the 20 line as the stock is going down in a downtrend, sell short and buy to cover as soon as you have a decent profit. Again, never allow the short position to stay open more than a few days. Again this is a very high probability play. As always use a stop limit order to protect yourself and make sure that there isn't any earnings release due during the "3 day excursion". Again, and this very important and is worth repeating. Never, ever fight the trend.