Friday, March 09, 2007
Finding the Bottom: Low Risk Entries Using the MACD and ATR.
The second chart shows the MACD continue making higher highs above the trigger line while the ATR shows the volatility increase and then continue the primary downtrend. AIG goes on to make 10 points in 2.5 months.
14 for ATR and standard 12/26/9 for MACD. You can adjust the ATR and add a moving avg. and get some interesting readings.
By the way the new PC phrase for illegal Mexicans is "border challenged people".
Enjoyed reading this weeks commentary.
I daytrade, and in such a short timeframe, the only thing the MACD tells you is whether a stock is strong or weak. It works -I know plenty of traders who won't take a trade unless the MACD is sloped in that direction. On the other hand, it doesn't work in in range-bound markets. It's a trend indicator.
Speaking of daytrading, my conviction is that the daytrader's edge is speed and small size (relative to funds). The best scenarios for daytraders are when funds are "forced" to position themselves quickly, because daytraders are quick enough to get in and out in a hurry -and don't need to have more than several thousand shares on in a thick stock to make good money for themselves. This is the simple brilliance of dummy trading (as evidenced in some of the trader blogs I'm sure you've read).
I'm not a "dummy trader", but their idea is great. A good example is ICE on Wednesday. It was taken off the GS conviction buy list. It sold off in the morning on volume, formed a clear rising flag in the middle of the day on sharply lower volume, and when it broke the bottom of that flag it was an easy short.
My thinking is that one should exploit one's edge -I'd be curious to know what your trading style is. I don't use any indicators. I watch the ES and the tick to get an idea of market strength or weakness, and then I short the sectors I follow that are vulnerable or go long the momentum sectors accordingly. I trade steels, oils, brokers, exchanges, semis -whatever evidences a capacity to move intraday.
I'm changing my style a bit however in order to take advantage of news events, etc. I've made some money in the subprime sector lately and it has been relatively painless -when things go out of wack like that, stocks tend to trend strongly.
I realize that this is contrary to what the "experts" say a daytrader should be doing in that the ETF price movement isn't as volatile but it does limit risk and you won't stroke out at an early age.
I have followed the gold stocks since the mid-80's and have generally gotten a good read on their behavior patterns. I also trade the Semis,Oils (OIH,XLE ETFs) and Biotechs (thru BBH,IBB).
I generally use relative strength (or weakness for a short) and the MACD I outlined above.
The only thing I agree with Cramer on is that OIH is easily manipulated by the Hedge funds and I believe the gold stocks are manipulated relative to the price of the underlying metal. The trick is trying to go with the flow and not try to be "smarter" than the market which is immpossible.
I agree that to be successful one has to have an edge and for me that is to specialize only in certain sectors and know them inside and out and forget all of the other noise.
I generally trade based on underlying assumptions, which I realize is a bit idiotic for a daytrader, but it's the position I'm in and the read that I'm best at. I catch it on a sector and I can play it for days -and the ETF's represent the index, so I'm not subject to inscrutable action in an individual stock (although XOM's dominance of the XLE caused me some crap when XOM was bulletproof).
Thanks for the take on the market.
BTW I also want to be long water given this huge "so called" drought that the global warming mongers are portraying. I love capitalizing on stupidity.