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

To: Jason Loren Bauer who wrote (413)	4/1/1998 9:31:00 AM
From: Wayners	Read Replies (1) \| Respond to of 927

<<My question to you is : you repeat several times, "don't fight the trend". How can I determine what the trend is? Also, is it possible that using the methods I have thus far (which have been very successful), that I bought against the trend but because of my willingness to take profits early, I was still successful. In better terms, do you still get a small pop in share price despite the trend if stochastics and RSI are screaming "oversold".>> The trend is simply the direction that prices have gone over a selected period of time. Moving averages are the best way to visualize what the current trend is. When a stock is making higher highs and higher lows, prices are going up and so does the moving average. For the majority of the time, I only go long when the moving average is flat or going up and I only go short when the moving is down or flat. That's sticking with the trend. Now its just a matter of selecting the moving average that's right for you. I'm going to assume you are using the default RSI of 14 and the default stochastics of 12. For these default values you should use a moving average to follow the trend that is twice the RSI/stochastic values which is a 24 to 28 day moving average. But since it looks like you are only staying in trades for a few day, I'd suggest going to the 5 day RSI or stochastics and a 10 to 12 day moving average as your trend. The exception to the trend following rule is periods of very high volatioity as measured by how wide the bollinger bands are. When the bands are at their widest and they start to narrow again, the volatiliy has peaked and the latest price run is over. When the volatility is high enough in those instances, price will often, but not always move significantly against the trend (direction of the moving average). Its a judgement call to decide when or when not to do that. You seem to be pretty good at it, playing dead cat bounces. That is exactly what you are trying to do--exploit high volatility. Here's my explanations for the price moves you took advantage of: CTXS 3/9- 3/11 Using a 30 day moving average, the trend was only slightly down and you bought at the lower bollinger band. That type of play has a good success rate. I think you got a bounce off of the lower band. $40 was also a good support level based on previous price highs/lows. If you had then sold at the upper band you would have sold at $50 on 19 Mar. Another thing that helped was the decent volatility at the time. TKLC 3/11 - 3/16 RMDY 3/16 - 3/19 During this period the volatility was low and the trend was flat. You bought at the moving average (the middle bollinger band). I think you just got lucky on this one. It could have gone either way unless you were playing a news item or something. ESV 3/20 - 3/23 - OPEC helped big time--On this one the trend was flat and the volatility was low for Enso. You bought on the stochastic hook to the upside very close to the lower bollinger band. That trade has a high rate of success. Price had also bounced off the support level of $25 which also helped. CPQ 3/23 - 3/24 On this one the volatility was quite high and you played the high volatility and the countertrend rally (dead cat bounce). You can see that while you made money going against the trend, look at how much price moved down each time the price dropped in the direction of the trend. The price drops were much larger and more profitable to the short seller than those catching the dead cat bounces--another reason to trade with the trend. Greater profit potential. CPQ looks like a real good short here now. I'd expect the drop to exceed the price rise on the last dead cat bounce. JBIL 3/27 - 3/31 Jabil right now has really high volatility and again you are playing the dead cat bounce. It will work because the volatility is really high. The trend is moderately down. Don't know if it will get past $35 as that is a good resistance level. Price had also ducked back inside the lower bollinger band--a buy signal for us bollinger band heads. LEVL Has high volatility right now and is on a moderate downtrend. I'd rather short it on a stochastic peak, but others will be trying to play the countertrend rally for a few points. $22.50 is a decent support level and price MAY bounce off of the lower band. Bounces depend on the steepness of the trend. Flat trends and decent volatility always bounce. Downtrends and decent volatility bounce a bit less and strong downtrends--don't bounce hardly at all. SVGI Don't readily have access to a chart of it.