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Strategies & Market Trends : TA Science Projects & Experimental Indicators -- Ignore unavailable to you. Want to Upgrade?

To: Smooth Drive who wrote (232)	12/28/1998 11:30:00 PM
From: ftth	Read Replies (1) \| Respond to of 237

Hi Eric, I haven't forgotten about you, just got kinda busy. Re: <<are there some that you use more than others>> I guess I'd say the 50 day is the most frequent first reference point (but never the last-—I always use more than one indicator), but it depends on the scope of the trade. I plot a 50,89,144,and 200 day as the default on every chart I bring up, and look for “connections.” This just serves as a coarse filter. If, say, I'm just looking to swing trade a stock, I'll look for an MA period that correlates best around the area of previous pullbacks and reversals. If there is none that correlates to my satisfaction, that just means there has been no simple historic pattern so an MA-based trade would be foolish (i.e. on to other methods). The volume is also important, especially for smaller stocks. If there's a clear change in the volume pattern (say, minimal trading volume 6 months ago, and big and steady volume in the past month, I don't use the data from the “low volume era” because the stock has a different behavior now. The participants during the new, big, steady volume era swamp out all the old players influence, so that old data is irrelevant as far as setting the possible behavior of the stock now. In cases like that, where I don't have any solid historical basis (i.e. the historical tendencies of this particular stock) for a trade decision, I move away from the specific-behavior-based trade decisions, and on to the general-behavior-based trade decisions. [See the books by John Hill,Toby Crabel, Larry Connors, et al for short-term pattern trades]. These are the kinds of things you can scan a database for—-specific short-term pattern matches that have worked across all stocks. The specific-behavior-based stuff can't really be scanned for with a fixed scan because the parameters are different for each stock. Depending on the type of trade, a signal may be generated by an intraday o-h-l penetrating the MA of the close. For example, say a stock had a nice run, and has been pulling back constructively for a week or so. On a day when the intraday low takes us down around the 50 day, I look for an abrupt decline and abrupt reversal that pivots at about the 50 day number. It doesn't need to be exact--the key characteristic is that very few trades happened at the low (not shares, but # trades...it could be a large # shares, but the market needed to be taken down to this level to find willing buyers for the seller's position). After that order is crossed and the reversal shows up, I'll jump on some long shares (but seldom a full position because this is an early buy signal). If it reverses again, I won't take more than about a half point loss because the expectation in this scenario is that the couple/few large sellers were the only real overhanging resistance to an upward move, and now that they're gone there is minimal upside resistance to the area of the old high. If it shows any real downward tendency after those sellers are gone, there was more resistance than met the eye, so my call was wrong and I bail. It's a pretty high probability scenario with pretty clear signals if it isn't going to play out according to plan. Risk about a half for reward of 2 (4:1). Sometimes I'll bail at the target; sometimes I'll set a stop after it reaches the target to lock in 2:1 worst case. Just depends on the strength. It also works pretty well on the opposite side (for a breakout failure, where the breakout's strength was really nothing more than short covering of fairly large positions, and not natural buyers or any kind of sustainable rally strength), but in that case the short or put buy position is opened as we pivot downward off the high. These, however, are seldom more that a couple-few days holding time because there's no reason for the stock to tank further than prior support levels. dh