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

To: Wayners who wrote (248)	2/24/1998 5:16:00 PM
From: sammy levy	Respond to of 927

Wayne Re MPDI-- brokeout to the upside at 6 times avg volume. high 7 3/8 closed 6 3/4. Since I am in at 6 1/8,guess will put a sell stop around 6 1/2 and see what happens. tnks/Sammy

To: Wayners who wrote (248)	2/24/1998 11:50:00 PM
From: Wayners	Read Replies (3) \| Respond to of 927

The following is taken from a private response I gave to somebody on this thread. Thought posting it might help others here also. I've purposely left out who asked the question and the stock we were talking about <<I don't think you did anything wrong in predicting real short term direction. But you need to be able to predict more than just direction to make money short term using TA. You have to get the timing right for your trading timeframe, whatever that is. Some people are comfortable with only holding a position a few minutes, others a day, others 3 to 5 days, others two weeks, one month, six months, a year, 5 years, a lifetime. It all depends on the individual. A buy or sell signal to the guy holding only a few minutes has to get his timing the most precise and the further you go out to the lifetime holder--timing has almost nothing to do with the overall outcome. You have to be able to predict what the future amount of volatility is going to be. Have you ever bought a stock that just simply did not move for days, weeks or maybe even months? That should emphasize the importance of being able to predict the amount of future volatility. That is essential for profits. You may have the direction and timing right--but you'll be pretty unhappy when if you don't make any money or only collect a small amount of money on the trade after holding the position open for 2 to 5 times the lenghth of your timeframe. How would you only like to make a $0.25 on a $50 stock after holding it for 10 solid weeks. I bet you would be pretty unhappy. I know I would be. In your analysis of XXXX, you used a 14 day stochastics. This tells me your goal is to enter and exit a trade within 7 to 14 days. That is your timeframe. I'm going from memory on XXXX. A much longer term trend on XXXX is down--meaning that a 50 day or maybe higher simple moving average on XXXX is sloping downward. This trend is probably the most important thing to help predict future price direction over the next 25 to 50 days. If you randomly buy into a position in XXXX and hold it for the next 25 to 50 days, the probability is relatively high that you will lose money on the trade. It would take an extraordinairy and prolonged price move to keep you from losing money. You absolutely must trade with the trend. The more severe or pronounced the trend is--the more important it is to future direction. In your case with a 7 to 14 day timeframe--you should be looking at a 14 day simple moving average on price and make sure you only trade in the direction of the 14 day simple moving average. If the 14 day moving average is getting lower each day--you should only be looking for a short position. If the 14 day moving average is getting higher each day-you should be looking for a long position. There are no sure things in the stock market. You are simply trying to maximize your odds of winning just like you would in the casino. Luckily for us, peoples trading patterns are very much predictable. Dice throws and cards are not predictable events based on past events. They're mutually exclusive events. So to get the direction right you have to use a combination of the moving average and oscillators like stochastics or RSI. Make sure that the moving average agrees with your oscillator. If stochastics gives you a buy signal AND the moving average is neutral or trending up--the odds are you have the direction of the move called perfectly. If the stochastics gives you a buy signal but the moving average is sloping downward--then I would say that you haven't maximized your odds. Instead you are taking extra risks for no reason. The downward sloping moving average is working against upward price moves--thus reducing your profit potential. Why do that? To get the timing right, the oscillator's signal is a big part of that. I mean its giving you a signal today. You got the stochastic crossover right. That's half the answer. Did you check the 14 day moving average though? The last factor on timing is getting the volatility right. The last item I don't think you checked on XXXX was the future price volatility. If you can chart bollinger bands on price at CBS Market Watch then you can answer that question. Looking at the whole price chart with the bands drawn on price--are the bands real narrow, real wide or somewhere in between. I look for bands that used to be narrow-but which have started to widen up a bit. That's the exact situation XXXX is in now after it broke upward today. Now you can ride it up until the momentum starts to wane. The 14 day moving average is starting to go up--you aren't fighting the trend. Stochastics isn't giving a sell signal, so its still a buy--timing is okay. Bollinger bands are getting wider after being narrow--forward looking volatility is okay. That's all I need to see to know that I would buy XXXX tomorrow. Hope all of this helps.