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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chris who wrote (7189)	3/21/1998 1:35:00 PM
From: Robert Graham	Respond to of 42787

Interesting...a few comments: It is not the "high" value of MF that supports accumulation, it is its behavior of a MF indicator with the price of the stock that is important, particularly any divergences that can be very revealing. Also the relative strength grouping provided by IBD is not the same as the Chaikin Money Flow Oscillator. IBD relative strength ranking is a measure of relative strength that statistically groups stocks into rankings. Any MF indicator is not a relative strength indicator. The Chaikin MF is being confused with the IBD RS rankings in this post. The simple following of MAs through the "MA ratio" is unnecessarily complex and can misrepresent the risk involved in the trade. Of course if you make the 10 day MA significant in your analysis, you would want to price of the stock above this MA. A method using this ratio would be weighted to lower priced stocks and also misrepresent the risk factor involved as the strength of the stock. Just look at the chart with a 10 day MA overlayed on the price of a stock. Is the price above or below its 10 day MA? If it is significantly above, you know that the stock price cannot sustain its slope. The risk inherent in such a trade is the distance between the price of the stock and a key MA which may be turn out to be the 10 day MA or even the 20 day MA of the stock. A key MA in my terms is an MA that has provided proven points of S&R to the price action of the stock. IMO a trader always needs to evaluate a risk of a trade and compare it to the (realistic) profit potential. This is something that I am finding that many traders do not understand. I like the book "Trader Vic: Methods of a Wall Street Master" by Victor Sperandeo because it is one of the few books that attempt to quantify this risk. I do ignore his economic theories and his soapboxing over the economy that I find in the book. I define speculation as the undertaking of risk that is much greater than the risk the trader is aware of. This usually comes in the form of the trader taking what I term as "unecissary" risk. This is a good litmus test in differentiating intelligent trading from speculation. Lets say you are presented with two methods, method "A" which lets say can generate a 50% profit, and method "B" that can generate a 80% profit that comes with twice the risk where you can lose twice as much money on the downside. Now if you use tight stops, method "B" works less frequently. Either method can make you substantial money if played correctly. Which one would you choose? Promoting "MA ratios" where anything above 100% is "extra credit" promotes this form of unnecessary risk taking as the trader looks to higher and higher MA ratios. Bob Graham