Charting 101
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     holycow
Member
Username: holycow
Post Number: 2333
Registered: 08-2004
Rating: 
Votes: 2
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| | Saturday, July 01, 2006 - 02:18 am: |  
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1) KISS - don't mess up your chart with 20 million lines and 30 million indicators - spend sometimes going through your chart and choose the MOST SIGNIFICANT line(s) or indicator(s) to highlight a particular "pattern/trend".
2) Keep note on why you think that line/indicator is important. Keep track of the date/time you made such observation because you want to revisit this observation later to confirm/review your study - that way you will learn from your mistake or success.
3) Always DOUBT your analysis. Have an open mind, and always be prepared to REDRAW the lines and revise your conclusion because... hey you are only human, learning through trial and error is painful but there seems to be no better way.
4) Stick to one or two indicators and understand them well. Support and resistance line/level should be considered as more significant than a sloping trend line but this depends on many factors like volume associated with each contact, the number of times contacts are made, etc. Use your discretion but use it carefully.
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 2598
Registered: 08-2004
Rating:
Votes: 2
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| | Sunday, August 13, 2006 - 01:28 pm: |
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Today's lesson from Professor Cow...
Market Trend... so what's a market trend? What makes a trend? And why trend is important?
1) Understanding market trend is important because...?
1.1) everyone is talking about it, so it's cool if you can also talk the talk like everyone else...
1.2) market trend represents and indicates the direction of the market, it shows whether the market is rising, falling or moving sideway, ie, not going up or down.
It's good to "visualise" market trend this way - consider the local market as a lagoon and the global flow of monies as ocean tides. At high tide, various streams of ocean current (hedge/investment funds, etc) find their way and flow into the lagoon, raising the water level (up, and in a sustained state, hence a trend), and raising all the boats (stocks, sp going up due to inflow of money) docking inside lagoon. nb... I could be wrong in assuming large inflow of foreign funds here.
For e.g, ASX has been in an uptrend in the last 3.5 years with the "inflow" of foreign funds.
1.3) a reverse of 1.2) is a down trend with current outflows and the water level subsiding; but before this can happen, the water level in the lagoon "usually" goes through a period of directionless flow whereby "new inflows" and the "old outflows" are caught in a "state of flux" - this state usually is unsustainable and will resolve itself into: a) a net inflow if the local economy/biz shows it can continue/support its growth in the future; b) a net outflow if it can't support the high level of investment...
I think the ASX is going through this phase of market currently.
1.4) Why trend study is important?... because you don't really want to trade/go against the trend. Why?.... because if you do go against the trend, you are likely to lose - it's like you are choosing to swim against the tide, you'll be overcome eventually. If the tide turns out to be a tsunami, you're dead before you even know it! That's why you want to study the overall market trend.
The corollary is you want to swim with the current and let it carry you along. It's much easier and take much less effort. Trade with the trend is the way to go.
1.4.1) If you like to trade by sector, you want to watch the sector trend that you are trading in... because you don't want to trade against the sector trend either. Why?
Here's an example - con-dis sector is facing one of its toughest trading period in history due to a combination of factors - a) the legacy of a recent housing boom that had sucked in a lot of spare cash from the consumers; b) the high petrol price that is draining the remaining spare cash from the consumers, instead of spending it on con-dis items, they are "wasting" it on petrol; c) the threat of interest hike and the fear it generates, plus the perception that this threat is not likely to disappear soon... so in short, the fundamental issues facing this sector is causing many companies in this sector failing miserably and many are now facing the music... with the latest "victim", CCL getting a haircut. Not too long ago, it was GUD.
... the point is, there will be more losers in this sector than winners from now on until the "business/trading environment" changes (eg: interest rate pauses or drops, crude drops), otherwise, you are not likely to see a trend change. If you choose to trade long in this sector then you are trading against the sector trend, and you will find it hard(er) to pick a winner and make $$$ in your trade unless you choose to short the stock.
1.5) If you choose to trade individual stock without considering the sector and overall market trend,... well, I can see you winning in the last 3.5 years. You can even thumb your nose to what I am saying here. In a bull market, rising tide raises all boats... so don't let your success in the last 3.5 years misled you into thinking that you can ignore what is being said here. I'd suggest you spend sometimes verifying the needs to check your stock against its sector trend as well as the overall market trend.
Remember we are talking about the 80/20 rule here - the 80 percent is what we are talking about in general.
2) So....as a chartist or TAer, what do you use to determine the market trend?
2.1) you should use at least a few indices to help you with your trend study... you use:
2.1a) XAO, XJO or XKO to help with your overall market trend. XMD and XSO if you have narrow and specific focus.
2.1b) XFJ, XMJ, XNJ, XSJ, XDJ, XPJ to assist with 2.1a) as well as with your sector trend.
2.1c) use individual stock chart for individual stock analysis.
2.1d) use weekly data if you are talking and trading trend
2.1e) use MA wisely, by this I mean you know why they are there sitting beside the price bar for
2.1f) use one or two indicators on your weekly data to spot early change of trend (through +ve, -ve divergence for example)
2.1g) use daily data to "confirm" what you are seeing in the weekly chart
2.2) when we talk market trend, we are implying a "sustained period" of occurence; which usually means long(er) time frame. When you say you are a trend rider/trader, you are implying your trading method stretches over a longer period to be effective. Agree?
When you quote Weinstein and when you are talking his stages 1 to 4, and if your trading method were to evolve from his concept, AND if you are using multiple MA's and are using MA cross overs as your basic setup, you are indeed a mid to long term trend trader... agree?
Hence you should be conscious of this fact - trend trading implies mid to long term trades and it has been very successful in the last 3.5 years. But now the market has moved from a (up)trending phase into a "trendless" (sideway) phase in the last 3.5 months - if you have been trading in the last 3.5 months using you "old" trend riding method you might/could be using the wrong tool/method in an environment which is not trending, and hence you are finding winning to be more elusive than the past.
May be your time frame is wrong?
May be your method is too "slow"? - MA is a slow, trend following "indicator".
May be your profit expectation is wrong? - you want to ride to the end but the environment simply does not allow that because it has changed.
May be your trading psyche is not ready? - because you are still living in the "time warp" of the past uptrending market environment and you are still doing what you have learned which has a proven record of success in THAT environment. But NOW, it's different.
May be it's a good idea to try something different like a new trading method for a trendless/sideway market?
May be it's a good idea to do NOTHING and SIT this trendless market out and wait for it to either swing back to its old uptrend so you can continue with your proven tested method?
There are a whole lots of "may be" but it's important to recognise this FACT - the market has moved into a stage/phase where: a) it could be just taking a pause, going sideway before moving back into its old uptrend again, b)*** it could be going through a prolonged period of sideway movement before resolving itself into either an up or down trend depending on the "slow" but fundamentally important factors such as higher interest rate, higher fuel cost, etc; c) it could be going through a pause before moving down with a deeper correction - no one can rule this out because of the past 3.5 years of market gain - the bull has become fat and lazy.
If you find it hard to trade in the current market condition, tell yourself this - may be you need to give the market more time? Let it resolves itself into something (like a trend) you can identify, recognise and trade in with your current method. You simply do nothing.
Tell yourself this too - may be this is a new market environment that you have not come across before and requires you to ADAPT to a new trading strategy. This will take time and it needs patience for you/anyone to switch over to a slightly different mindset in terms of time frame and expectation.
If scenario b) above is turning out to be the case, you may be looking at a prolonged period of do-nothing which is not a bad idea if you like fishing. But if you can't sit around and do nothing and if you don't like fishing, then you have no choice but to adapt yourself to the market... this is almost like going back to school one more time... this time, you are trying something different, something new. And here's a general approach:
1) find and develop a new trading method
2) paper trade to verify and confirm if the method works
3) try a "real" single trade... yes, just a small trade that you can afford to lose and manage it through
4) if your real trade turns out to be a loser, go back to paper trade as in 2) until you build up enough confidence in the method again, move on to 3)
5) repeat 2) to 4) until you have a set of good enough record... and CONFIDENCE
6) at all times check the overall market trend because... as you know, different market condition requires different trading approaches.
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HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 2714
Registered: 08-2004
Rating: N/A
Votes: 0
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| | Friday, August 25, 2006 - 05:28 pm: |
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Prof Cow's Lesson on Indicator - RSI(Relative Strength Index)
1) if you are good in maths and numbers, here are the links for you to work out what is RSI in mathematical term...
RSI#1
RSI#2
RSI#3
2) The MOST IMPORTANT consideration in using RSI, or in using any other indicator is this - they are derivatives of price/volume (one way or other).
So let's get this right - who's the boss - the price/volume is the dog, the RSI and other indictors are the tail. The dog wags the tail... and not the other way round.
Your starting point should be the price/volume chart and the relationship between price and volume; then if you are looking for more supporting clues, such as, for example - what's the momentum like in the last nth periods, then you cross check with RSI. The objective is to use RSI to confirm your analysis.
3) A very important consideration in using RSI is the word "Relative" - you have to see it "relatively", ie, relative to the price/volume pattern and relative to its past similar occurences. In other words, you try to spot repeated pattern in RSI as well as in your price/volume chart.
4) The rest... the usual Overbought/oversold, crossing of 50, +ve/-ve divergences, etc... they are all useful observations but let me repeat here - you apply them in a relative context. So not all oversold mean oversold, and not all overbought represent overbought - it depends on at which stage of stock rally that you are deriving this conclusion.
5) It's a good idea to combine RSI with Bollinger Band, and the general rules are:
5.1) when the price touches the upper BB and RSI is below 70, it is an indiction that the trend will continue;
5.2) if the price touches the upper BB and RSI is above 70 approaching 80 (say), the trend may reverse and decline;
5.3) swap the above with lower BB and 30 in RSI, you'd get the reverse interpretation;
5.4) again, apply these rules in a relative context if you can.
6) Does RSI work? Yes - it does! But only if you have been applying it consistently and after you have developed a level of confidence in. I think the keywords here are CONSISTENCY, RELATIVITY AND REPEATIVITY (if there's such word).
HC
"... if you've got a chart, I have an opinion!"
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