Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Befriend the Trend Trading -- Ignore unavailable to you. Want to Upgrade?

To: KB who wrote (3124)	2/18/1999 7:05:00 AM
From: Dr. Stoxx	Read Replies (1) \| Respond to of 39683

In case the link expires (it has some great charts on it, worth looking at), here is the text: <<Re : Technically quite weak. Looking for a pullback to around 140. (Short Recommendation)America Online is technically weakening right here. This plays out most on the MACD Histogram indicator graph where the bars are tracing out below the centerline of that indicator graph. What does this mean really? MACD Histogram is the difference between the MACD fast line and the MACD slow line. When the histogram traces out below the centerline, this means the fast line is below the signal line. Understanding the fast line The fast line is the difference between the 26 day EMA and 9 day EMA. When the fast line has a negative slope (pointing downwards as it is right here) that means that the gap between the 26 day EMA and 9 day EMA is shrinking. This means that the value of the 9 day EMA is getting closer to that of the 26 day EMA. This means that the rate of increase of prices from a 9 day perspective is slower than the rate of increase of prices from a 26 day perspective. In a nutshell, when the fast line starts to point down, the rate of price appreciation is slowing down. Understanding the slow line The slow line is simply a 9 day EMA of the fast line. This is also called double smoothing. So the fast line is simply averaged out over the past 9 days. This of course creates a line that is more 'smooth' and slower to react. Just as the 13 day EMA on the price graph is smoother than price bars on the price graph, the slow line is smoother than the fast line on MACD. enter MACD Histogram How much is it slowing down? That is quantified by the MACD Histogram. The Histogram gives depth and dimension to what is happening with MACD. Since the bars on Histogram are touching the bottom of that indicator graph, this means the rate of accleration in the increase of prices is slowing drastically. Eyeballing now the price chart - this makes sense. The move from the low in October to the highs in January was a 400 percent move. Since this move was so great, the rate of deceleration is somewhat exagerated. As in, any deceleration in the rate of price increase would cause to MACD Histogram bars to react dramatic and violent. When did the rate of increase in prices start to decelerate? Approximately on January 1. At this time, the MACD fast line started to point down. The fact that the line started to point down does not mean that prices were falling but that _the rate of acceleration in prices_ was decreasing. So the MACD fast line can start to head down simply because the rate of increase slows. So the trajectory of the MACD fast line is not always in the same direction as the trajectory of prices on the price chart. AOL is a great stock. Shorting it here is no way a judgement on its future performance. It is simply a short term trading call. If you own the stock and are sitting on fat long term gain, keep it. If you want to protect that gain or try and optimize your account, perhaps sell some shares short to box in and lock those gains as the stock moves horizontal. Or write some covered calls for income. Or buy a few put options for yucks. But I would not advise selling the stock as the long term outlook has not changed. This continues to be an extroadinary story and the gains this year fully warranted. But now that stock is locked in a range, shorting the recent strength that has pulled the stock up from 140. This trade might be a tad early. Eyeballing the stochastic indicator graph, Feb 1 was a very opportune time to short the stock as stochastic was overbought. Not quite to overbought yet. But getting in here in case the stock weakens quicker than it did back then. kensey >> TC.

To: KB who wrote (3124)	2/18/1999 2:06:00 PM
From: B. J. Barron	Read Replies (1) \| Respond to of 39683

KB.. what i was referring to was a recent new high $ and at the same time as the high an indicator called ADX..its is found in most software packages(aiq, metastock, windows on wallstreet etc)...you want the ADX reading to be > 30 which indicates a strong trend is in place...ADX only shows a trend either up or down so you use assc new high to filter out strong down trends...then i look for $ to dip back to a 20 day moving average (ESA) and would place a buy stop just above the high of the day that it get back to the MA...i usually place the buy stop at the open the next am...if $ continues down i am not filled and continue to watch... if price however begins to retrace itself back toward the previouw high then i m in and now have to watch out for and turn back down...i usually use the previous high as a rought target to exit...unless it goes against me and breaks a stop...hope this helps...BTW the usually time period from high to MA is 5 to 6 days on average...i trade big caps and price > 30 with volume > 100000/day.