Need Guidance - TA/Momentum Based Strategy

[tech/a]

EW can be handy

 

[Rypieee]

Chasing price.
I presume (correct me if wrong) That this means you don't place an order or buy if price trades over a pre determined entry price before you've taken a trade.

When discretionary trading having a hard and fast rule that could leave you at a disadvantage I personally think is not the best policy.

Pixel changed my mind when one day he told me about a friend of his who relished finding stocks that had taken off. They wouldn't be put off by a move above a resistance area.
I had to admit that I had watched many fly past me --- so I investigated.

I came up with the following rules for trading price which had moved away from an ideal entry.
Often this happened and Ill bet you'll be nodding when I say your nightly scan turns up a runner that you seemingly missed.
Firstly I'm not advocating taking every trade where you have to do some chasing.

(1) Never trade a price that has risen 30% or more (From your ideal buy price) before you see it.
(2) Gaps are good.
(3) Be aware of close resistance less than 6 mths.
(4) Beware of Massive volume-- moderate volume is preferable.
(5) Look for past price action which indicates effort to get price moving long term in your direction.

Here is a chart with all of the above.(Bottom Chart)

And then there is the question of position sizing and risk management.
The chart below is how I like to do it.(Top Chart)View attachment 69681 View attachment 69680

Hey Tech/A,

Really appreciate your post there! I don't place buy orders in the market the same way that I don't set stop losses in the market. I do have the stop loss levels in mind and I check my portfolio throughout the day to see if the market has stopped me out.

I remember setting stop loss orders when I first begun but at that time, my stop loss levels were too tight/close to my entry price and I kept getting stopped out for no reason... Now that I have more room with my stop losses, I am not getting stopped out as often and my trades tend to do better - given that they have more room to performance. I might consider putting stop loss orders again the in the future should I feel comfortable with my stop loss settings. (At the same time, I have some sort of conspiracy theory that market makers can force prices down through the day to fill their orders before bring it back up and not having a stop loss helps to avoid such a situation, or lose me a lot of money by not adhering to my stop loss LOL)

With my buy orders, I set this rule for myself that I cannot buy a stock until after 12pm everyday (sounds silly doesn't it) and the reason behind that is because I want to miss out on the emotional part of the trading hours which is the opening of the day. I used to have a list of stocks ready to go every Monday morning that I would want to purchase in and I could not wait to get into the stock - over time, I realised that buying in the morning actually meant that I am buying the stock at the highest point of the day (most of the time). After 12pm, I would set my buy order at my pre-determined entry price and wait for the order to fill.

I am going to take into account your practices regarding position entry seriously too because I have also experienced certain stocks running away from me and in fact, shooting the lights out with its rate of increase (makes me sad).

(1) Never trade a price that has risen 30% or more (From your ideal buy price) before you see it.
(2) Gaps are good.
(3) Be aware of close resistance less than 6 mths.
(4) Beware of Massive volume-- moderate volume is preferable.
(5) Look for past price action which indicates effort to get price moving long term in your direction.

Could you please elaborate on point 1,4 and 5?
1) Never trading a price that has moved 30% beyond my pre-determined entry price? If I found an opportunity and I set my buy price at $1.00, I cannot pay above $1.30 for the stock? OR If i found a stock that recently broke out and it moved up 30% already, to remove that out of my potential buys because it has already "exhausted" it's move?

4) I always had the thoughts the a strong breakout coupled with strong volume was a good sign? I am no expert in volume analysis but from a B/O point of view, strong movement with strong volume = good sign? I got this from Leon Wilson's Business of Share Trading book

5) Could you elaborate on point 5 for me, I don't quite understand that..

Thanks for sharing your pointers with me Tech/a, it will assist me in my development

 

[Rypieee]

Here is what I think and I keep going back to the strong levels which can be calculated.

Now if your stock has had a good run up and is now consolidating in a sideways movement we can recalculate further strong levels both on the upside and downside and these are marked on the chart.

From here I we need to wait to see which way the stock is likely to break.

I will also try and work out what EW we are currently on if I can..... as it is not always obvious , this would give me some confidence as to where I am now and which way it is likely to move and how far it is likely to fall using EW Theory and in combination with the strong levels which have been calculated. As I have said previously I need to see at least 15% if not I stay out.

If I cannot work out the EW I may use Cycles Theory and in what phase I am in to make a trading decision,it just all depends.

Hey Triathlete,

I have read on the very basics of Elliot wave theory and Dow theory, no idea on how to use fibbs lines or what cycle thoery is. Have you got any good resources and I can read about them? When I have some time, I shall do some google searches about them and maybe watch a few videos on them to understand it better.

From my very basic understanding of EW, I know price moves up in 5 stages and down in 3 stages, do you try and determine which stage you are sitting at and making a subtle prediction over where it could go from here on out?

Also with EW, the one thing that I notice (im not expert) is that you can perform EW over a 1 year chart, 3 year chart, 5 and 10 year chart and each of them could be telling you that you are in a different stage?

 

[Boggo]

Hi Rypieee
I don't want to derail where you are with tech/a etc but I thought I would just insert a bit of info on with an EW example that I am currently watching. I won't be entering into an EW discussion.

EW can be a pita, only works probably 25% of the time on 25% of the market and can't be back tested.
From the 480 stocks that I track in the All Ords there are just 7 with a reasonable EW pattern at the moment !
One of those is TLS, I have included a chart of a pattern that has passed but if you look at the TLS thread elsewhere you will also see what I am watching for at the moment.
As Triathlete is saying, EW can give you a big picture of where a stock may be or may go to.

(Chart of TLS ABC pattern below and some basic EW rules - click to expand)

 

[Rypieee]

Blue sky will eventually see resistance
How would you spot it?

For me there are 3 things to watch for
Attempting to predict where they could fall I have found to be as effective as swimming against a rip.

(1) Volume
(2) Range
(3) Tests

I have found you can pick the rip and see how to get out if it.
There are some key things to look for within the 3 indicators.
Often 1 and 2 will be very clear
At other times 3 may come into play

Perhaps you or someone could work through 1-3
If their findings are similar to my own

In a blue sky scenario whereby I do not have a clue as to when the next resistance level would hit based on previous price levels/actions, I would watch out for the following details.

1)Should the trend slow down into consolidation, I would watch volume during that period to see possible distribution. That is all I got on volume analysis haha

2) Round numbers help me in every instances, not just in blue sky scenarios. If a $4.10 stock was sitting on it's highest high and was moving towards $5.00, I would trail my stop loss levels as the price rises towards $5.00. I tend to be more careful with my stop losses as price moves towards round numbers like $1, 2, 5, 10, 20, 30 and so on because I have a belief that people tend to like round numbers I sometimes set my profit taking levels before those round numbers at times to avoid possible resistance.

I'm not sure if my volume analysis can be further improved on - I'm sure that there is more than what I know regarding volume analysis.

I'm not sure how range can help in determining possible resistance or forecasting potential downturn but from logical assumption, wider ranges represent less buying compared to a tighter range because there isn't a point of support to close the slip in the SP?

3rd one - Test - I'm not entirely sure what this means haha

 

[Triathlete]

Hey Triathlete,

I have read on the very basics of Elliot wave theory and Dow theory, no idea on how to use fibbs lines or what cycle thoery is. Have you got any good resources and I can read about them? When I have some time, I shall do some google searches about them and maybe watch a few videos on them to understand it better.

From my very basic understanding of EW, I know price moves up in 5 stages and down in 3 stages, do you try and determine which stage you are sitting at and making a subtle prediction over where it could go from here on out?

Also with EW, the one thing that I notice (im not expert) is that you can perform EW over a 1 year chart, 3 year chart, 5 and 10 year chart and each of them could be telling you that you are in a different stage?

Here is where you can find information regarding EW......www.elliottwave.com

The book:
Merriman on Market Cycles : The Basics by Raymond A. Merriman

A comprehensive and clearly understandable text about the art of determining cycles lengths and recognizing patterns within those cycles. A book for those who want to improve their timing skills by integrating cycles analysis with technical studies. Includes listing of long-term and short-term cycles in U.S. and Japanese Stock Markets, Gold, Silver, T-Bonds, Interest rates, Currencies, and Grain Markets.


website below.
www.mmacycles.com

 

[tech/a]

There is a lot to VSA which you don't/wont find in books
It is a fascinating field one which I have spent 20 yrs watching and analysing. Much is personal experience but I'm sure over time you'll see what I have seen. While conventional VSA is a good starting point it really is prep school.

Could you please elaborate on point 1,4 and 5?

1) Never trading a price that has moved 30% beyond my pre-determined entry price? If I found an opportunity and I set my buy price at $1.00, I cannot pay above $1.30 for the stock? OR If i found a stock that recently broke out and it moved up 30% already, to remove that out of my potential buys because it has already "exhausted" it's move?

This is a rule of thumb. Moves particularly with very high volume of 30+% in one session are to be looked at with suspicion. Very often a sign for a short play. The greater the % the riskier a buy is.

4) I always had the thoughts the a strong breakout coupled with strong volume was a good sign? I am no expert in volume analysis but from a B/O point of view, strong movement with strong volume = good sign? I got this from Leon Wilson's Business of Share Trading book

It can be but if volume is very high 5+ times average and range is 5 X average (see 1)
Strong volume with a gap moderate range finishing on a high is ideal. There is a lot then to come from the analysis of the up coming bars which you should in most cases be trading!---not looking!

5) Could you elaborate on point 5 for me, I don't quite understand that..

Price wont normally rise without some effort being seen on the buy side and also can be spotted with the lack of effort or desire from the sell side. you should become proficient at spotting effort from buyers and withdrawal from sellers (Who want to hold to make profit)

Some charts to illustrate and part explanation of 5
Ill do some more up when I get time.(They take a while!) That's why mentors like to be paid!

Click to expand

 

[Rypieee]

There is a lot to VSA which you don't/wont find in books
It is a fascinating field one which I have spent 20 yrs watching and analysing. Much is personal experience but I'm sure over time you'll see what I have seen. While conventional VSA is a good starting point it really is prep school.

Could you please elaborate on point 1,4 and 5?

1) Never trading a price that has moved 30% beyond my pre-determined entry price? If I found an opportunity and I set my buy price at $1.00, I cannot pay above $1.30 for the stock? OR If i found a stock that recently broke out and it moved up 30% already, to remove that out of my potential buys because it has already "exhausted" it's move?

This is a rule of thumb. Moves particularly with very high volume of 30+% in one session are to be looked at with suspicion. Very often a sign for a short play. The greater the % the riskier a buy is.

4) I always had the thoughts the a strong breakout coupled with strong volume was a good sign? I am no expert in volume analysis but from a B/O point of view, strong movement with strong volume = good sign? I got this from Leon Wilson's Business of Share Trading book

It can be but if volume is very high 5+ times average and range is 5 X average (see 1)
Strong volume with a gap moderate range finishing on a high is ideal. There is a lot then to come from the analysis of the up coming bars which you should in most cases be trading!---not looking!

5) Could you elaborate on point 5 for me, I don't quite understand that..

Price wont normally rise without some effort being seen on the buy side and also can be spotted with the lack of effort or desire from the sell side. you should become proficient at spotting effort from buyers and withdrawal from sellers (Who want to hold to make profit)

Some charts to illustrate and part explanation of 5
Ill do some more up when I get time.(They take a while!) That's why mentors like to be paid!

Click to expand
View attachment 69734 View attachment 69735 View attachment 69736

Hey Tech/a,

Thanks for the charts and I appreciate the time you have put into your replies, has opened up my eyes to more possibilities that I have yet to look into. You have made it easy for me to understand what you are trying to put across and can see why you have those rules set into place for yourself.

I am no volume expert and I do intend to try and learn more about volume analysis to couple it up with my T/A knowledge, any sources to recommend for me to start on? In the mean time, I shall suss out whatever I can on the internet.

Your last point of the reply "Price wont normally rise without some effort being seen on the buy side and also can be spotted with the lack of effort or desire from the sell side. you should become proficient at spotting effort from buyers and withdrawal from sellers (Who want to hold to make profit)"

Could you please elaborate on that? I get that in order for prices to rise, buyers will need to overwhelm sellers in order for the price to push up OR sellers have to be withdrawing as you mentioned (increased demand or decrease supply - basic economics). How can you read that from the charts? Do you combine the price action and volume to tell you an underlying story invisible to the untrained eye?

I have actually ordered the book " Japanese Candlestick Charting Technique" to teach myself more about how to read candle sticks, I have very basic skills at the moment, hoping that in time, I will be able to be proficient at candlestick reading

 

[CanOz]

This one graphic says so much....

 

[Rypieee]

View attachment 69738 This one graphic says so much....

Hey Canoz,

That does give a very good picture of the underlying asset, Wow!
Liquidity = number of open orders on the market at the time?

What is "High volume + "HFT only" liquidity = flash crash"?
I am guessing that it means the HFTs ate up all the liquidity in one swoop (high volume coupled with an instant nil-liquidity) to crash the price?

 

[tech/a]

Can
It's a nice graphic

Which is very clear once all the action has passed

There were 2 good trades on the chart
One long
One short

If I was to use this in my trading how can I tell when conditions
Have altered
How can I be sure that it's not a blip but something
that will sustain.
Does the software show something at or around the
Areas of change that would alert me to a change that was potentially tradeable

Always looking for things that are easily applied in a practical way

 

[CanOz]

That is likely a custom program from the nanex owner, Eric hunsader. He's a recognized expert on HFT. The information regarding liquidity is available via a dom and depth recorder. They're becoming more popular as part of trading platforms. There are three or four around now....Bookmap, jigsaw, etc.

 

[tech/a]

Can
I've never been any good at reading DOM
I find myself predicting shadows
Particularly liquid markets DOM changes dramatically in 20 seconds
Making any long term prediction (3 min)
I find impossible in fact I find it very distracting from what I'm reading in range
Volume and pattern
I've even tried to see what these guys on you tube see
Clearly blind !

 

[CanOz]

Can
I've never been any good at reading DOM
I find myself predicting shadows
Particularly liquid markets DOM changes dramatically in 20 seconds
Making any long term prediction (3 min)
I find impossible in fact I find it very distracting from what I'm reading in range
Volume and pattern
I've even tried to see what these guys on you tube see
Clearly blind !

It's not just a DOM, it's a depth recorder...displays liquidity as a heat map.

 

[tech/a]

That's all well and good but from a practical point of view I can't see how it would be tradeable.
Would look pretty and interesting to look back on but if your sitting there with a buy in mind I can't see how it would be timely
We are looking for change which is easier to see after that change has occurred and confirmed.

 

[CanOz]

That's all well and good but from a practical point of view I can't see how it would be tradeable.
Would look pretty and interesting to look back on but if your sitting there with a buy in mind I can't see how it would be timely
We are looking for change which is easier to see after that change has occurred and confirmed.

I think you’re still misunderstanding what the depth recorder is showing you. It shows you where buyers/sellers have had their resting orders in the past and when the depth gets to that level you can see in real time if the orders are still there. As price gets to that level, you watch the for the reaction of the buyers/sellers or lack or reaction, you want that liquidity to be real and effective to stop and turn price. There are many different scenarios to trade off of, even times where a larger player will hit the resting orders and then cause a stop run that may result in a new trend. Because of the change to the laws on spoofing, the possibility that the resting orders in the book are real liquidity now is greater. The liquidity is real and you can see it. Search on Youtube for VeloxPro Bookmap and watch the video to see what I mean. It is literally looking inside your bars / candles. I can’t see an experienced technician like you finding this useless information.

 

[Trembling Hand]

I have actually ordered the book

We all have - trading books. They rarely offer much practical help with trading. And sometimes they actually make reading a market and trading harder if you believe the nonsense. If someone with unknown trading ability writes a book and 1000s of other unknown punters purchase it and give the thumbs up you can fall into the trap of actually going looking for the rubbish you see printed without having a clue if the patterns offered an edge ever let alone in your time frame and market.

What are you doing each day to test and learn stuff about the market? Are you trading now? Live or Sim? Have you a reliable system for collecting what you actually are doing stats, thoughts, successes and failures?

Its better to spend 1 month testing real application than 1 month planning and talking about basics. Cuz if you are going to trade in a discretionary fashion getting your head around the basic stuff is years off from profitability.

IMO of course.

 

[peter2]

Ryan, you've received a lot of interesting info in this thread but don't let it distract you from your goal. I agree with TH in that you should continue trading your plan and see if you've are able to apply it in real time. You'll probably need six months before you'll have enough completed trades to start making some informed decisions.

As you're starting you must restrict your losses to small amounts and keep your portfolio heat at comfortable levels. A lot of small losses add up. That's why I use a market filter and don't start as many trades when the market is going down.

Your first task is to see if you can keep your losses small. If you can't do this, abandon trading.

Once you can keep your losses at comfortable levels then you can review the effectiveness of your chart selections, entries, position sizing and of course your exits. You may find that a basic understanding of EW or VSA may help in some of these secondary but important aspects. They may help you discover "your" trading style.

As tech/a as mentioned, "enjoy the journey".

 

[tech/a]

Thanks Can I'll have a look.

As I said not my area.
To be honest I'm happy where I am.
For me it's simple / clear / repeatable.

I realise as I make up those charts that I could explain for chart after chart
What my brain sees in 60 seconds and when trading in seconds.
Not only that but what to do/ when to do it/ plan A,B,C

The often seen adage of find something that works for you
Prove it,then trade it. Is very true.

So while I can show "a" direction I'm certain that over time it won't be
YOUR way of trading.
Think wysiwyg once said that a chunk of a number of traders here would be the ideal approach.

Well for many that's what it will be.

 

[Trembling Hand]

Thanks Can I'll have a look.

As I said not my area.
To be honest I'm happy where I am.
For me it's simple / clear / repeatable.

I realise as I make up those charts that I could explain for chart after chart
What my brain sees in 60 seconds and when trading in seconds.
Not only that but what to do/ when to do it/ plan A,B,C

The often seen adage of find something that works for you
Prove it,then trade it. Is very true.

Yep. Funnily I use a DOM but don't like the new price action tools. Partly cuz i trade thinner order books and can see what I want to see without any extra bells and flashing lights.

You only need to know what you need to know. But as you have said that is the journey.