Bullish or Bearish?
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     crj
Member
Username: crj
Post Number: 2
Registered: 01-2006Rating: N/A
Votes: 0
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| | Monday, February 20, 2006 - 07:57 am: |  
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The chart shows a breakout above past resistance (1), and establishment of strong resistance at a higher price (R). The rising wedge should be bullish, but the MACD and stochasitics are horizontal at high levels. Volume is decreasing. I think a breakout is near, but which way? Can this stock go up given the status of the indicators? Is there another indicator that can give me a clue?
I'm new at this, so constructive criticism is appreciated.
John
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peter1
Member
Username: peter1
Post Number: 4
Registered: 12-2005Rating: N/A
Votes: 0
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| | Monday, February 20, 2006 - 07:54 pm: |
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Hi John. Your polite request deserves a response.
I am glad that you are attracted to this chart. Why, because price is going up. I assume that you are looking to trade this long, ie. to buy. Don't forget to start your analysis by looking at the big picture first. So check the chart of the last ten years. You are looking at a stock hopefully recovering from its recent downturn.
Now to the recent price action. Your medium term MAs confirm that price has been trending up. You have identified the latest resistence at about 8.60 and have identified the rising wedge. All of this is bullish, so don't even think about shorting (selling) this stock.
I have to ask if you have a trading plan to trade breakouts? If not, then you must consider writing one. This chart shows a good setup to trade the breakout should it happen, but you must have a plan. This plan should outline the setup and include a few confirmation filters. My plan does NOT include MACD,STO,RSI, but I do want to know if the buyers or sellers are in control. On the ASX I use the OBV indicator, but I am not sure if it is as successful on the US markets.
I believe that there is such an indicator available in the IC charts and you should read all about it. (Twiggs Money Flow - the regulars here should be able to confirm this.)
Next you should have a method to identify where to place your initial stoploss, just in case price goes down. One logical place is below the recent low, at 7.75 but decide for your self.
Next you need a method of calculating your position size, ie how many shares to buy? How much are you going to risk on this trade?
Next decide how you are going to exit this trade, at a set profit target or are you willing to trail your stop?
Can you understand that finding a nice setup is only a small part of this business? Entries don't make the money.
Can you also understand that it doesn't matter what I think about this chart? It is all about whether it conforms to your trading plan. If it does and you are ready then go for it.
ps: Just a note. If you are looking to trade the breakout then wait for it. DON'T pre-empt it and buy before it happens.
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crj
Member
Username: crj
Post Number: 2
Registered: 01-2006Rating: N/A
Votes: 0
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| | Tuesday, February 21, 2006 - 05:28 am: |
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Thanks for the reply.
As for my plan, so far it is based on identifying market/sector/stock trends, primarily looking for stocks that are at lows following a retracement (that's why I am looking at stochastics and MACD crosses to find good entry points). I have a plan for stop losses based on previous lows or maximum risk. I am an intermediate term trader.
The reason for my question is there are many stocks that are well into long upward trends, so they don't fit my initial plan, but appear to have good continuing prospects, so I am trying to find a way to trade them. I have a few examples with rising wedges, but am uncertain how to analyze them to determine the best candidates.
I am acquainted with the Twiggs MF, but haven't used it in this situation. I assume I am looking for the standard buy signal or an upward trend. I am not doing much trading yet, but am testing methodologies, so I will give this a look.
John
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crj
Member
Username: crj
Post Number: 5
Registered: 01-2006Rating: N/A
Votes: 0
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| | Wednesday, February 22, 2006 - 08:37 am: |
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ALGN closed down $0.41 on average volume. I didn't buy. It will be interesting to see where it goes from here.
John
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peter1
Member
Username: peter1
Post Number: 6
Registered: 12-2005Rating: N/A
Votes: 0
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| | Wednesday, February 22, 2006 - 04:32 pm: |
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Hi John. As this forum is for educational purposes I would remind you that once you have completed your trading plan. It is very important to take all the entry signals that you see. You will never know which trade will be the big one. If you try and pick the better looking charts then you will experience similar results to the masses that lose.
Now I realise that it may be impossible to finance all the trade setups. So you will have to include a final selection filter. This final filter should be based around the expected reward for your starting risk. Using this final filter stops you from making arbitrary decisions on which trades look best.
My setups provide many possible trades and I can't take them all. I put my stop orders in and let the market trigger the trades. When I am fully invested, I keep a record of all the trades that start without me. I then paper trade these using the appropriate plan. At regular intervals I compare the actual trades with the paper trades to see if my trading performance is consistent. On many occasions I get scared out of the market and exit early. Guess what, over many trades I should have earned a lot more. Discretionary entries and exits cost me big-time.
Back to ALGN. My entry trigger would be buy if 8.61 is traded with a stoploss at 7.75. This setup has not been triggered so far and if price trades below 7.75 next day, I would just cancel the order and look at the next setup.
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crj
Member
Username: crj
Post Number: 6
Registered: 01-2006Rating: N/A
Votes: 0
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| | Thursday, February 23, 2006 - 03:34 pm: |
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Peter:
Why is the buy trigger at $8.61, and not closer to the resistance line? Are you using the highest price shown on the chart?
I understand the stop loss at the previous support price.
I am finding many stocks that are buy candidates. Finding an efficient way of filtering the best stocks is a priority. My trading plan needs more refining and testing, which is underway.
Thanks for the insights.
John
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