In the following chart , I change the indicator from the standard 12,26,9 to a much faster- 3,16,9 You can input any numbers you want-to test. The faster indicator captures the price swing off the turn at the low better than the slower indicator- but it comes at a price- more frequent signals that react to a minor price move that does not work out- This is similar to using a faster chart to capture a turn at the low end of a move, and finding that the fast chart can register more false moves- ahead of the slower time frame. If the move succeeds, the faster move gives an earlier- lower priced entry. But it requires more times at Bat and more strike outs- Babe Ruth was remembered for his home runs, not for all the times he struck out- Indicators- like the MACD - may show when momentum is starting to decline- both buying and selling- As can be seen by the chart, Price can go much higher- even when the indicator suggests it should be going in the other direction- In this present chart, indicators are bearish- the fast is sub 0 line, and the slower is near 0- but price is moving higher at today's close-
Friday 3.06.15 Isn't it curious how good news (Positive Jobs report!) but weak wage growth - causes the market to react and sell-off! Dow down almost 300 pts, along with the S&P down 1.5%, Nasdaq -1.24% - Gold down -2.5% - so much for Gold as a safe haven trade! Hasn't it been known for forever that the Fed would raise rates and it would be a sign the US is growing when they do so???? AAPL is pushing out AT&T that has been a Dow component since 1916! The market is choosing to select what information to digest and react to. They'll look at the FED to give some indication of whether or not a rate increase is now sooner than later because of this one positive data release. Dollar is increasing.- Good for the consumer- Gas prices are still down- Good for the consumer. I've been selling some this week in the investment account, while things were a bit higher. Hoping to be positioned with a larger cash position, protecting some profits, and thinking about transferring to a Vanguard brokerage account . After a deeper down day today, I can appreciate that I was taken out of most of my positions previously. In the IB account, I elected to raise the PJP stop and it was hit near the close. This locked in a 5% or so gain and PJP is not immune to deeper declines. I had a small amount of freed cash, and made an initial entry in DUG as it had gapped up today. There is something refreshing about having a clean slate- particularly in turbulent moments- The downside is that one will miss the upside continuation if one is not prepared to jump back in. Historically, Greater upside has been the market reaction following initial sell-offs in recent years-for the most part- There was that drop in 2011- It is interesting that the Utilities sector also sold off sharply today- It has been in decline for the prior month- Generally consider a "safe" sector- XLU also is comprised of dividend payers. It had been a go-to- defensive sector , gaining in Jan , while the SPY was flat- XLU got selling and decline as the money rotated OUT of xlu into SPY. Sector rotation, as smart money repositioned itself . With this week ending defensively lower, SPY down -1.5% for the week, XLU down 4% this week! Pharma down, Biotechs Down No place to Hide! Maybe go for the strong dollar? For now, a larger cash position is not a bad thing- I don't think i have to be afraid i will be left out in the cold with a huge rally over the next couple of days. .
Watching CNBC and Carter Worth- chartist this pm- He is drawing comparisoms with the market at the past 1999- 2,000 highs and the present day market- explaining that we are still - adjusted for the CPI- inflation- 30% below where we were back then. This suggests an upside Bias should be considered as justified by the high cost of a past purchase. When my significant other explains that the handbag purchase she just made is a good value, because it is 30% below the price of the last Louis Viton handbag she bought last year- I get a similar warm feeling inside. That is justification for the purchase because it is a value compared to a past Egress. Perhaps, it is just a lesser egress, comparatively to the initial purchase at exponential pricing. The Market in 2,000 was ridiculously priced, and we should not consider today's market value justified based on a CPI adjustment over the past 15 years- That assumes there was some price validity as a benchmark starting point - way back then- when price was so elevated. It is an unfair comparisom to compare the highs of the 2000 mania to where we should be now. It makes good TV perhaps- and suggests/justifies better days are ahead- but it is feeding misleading data- A market price level in and of itself should be evaluated on many other relevant metrics- I hate to sound like some kind of fundamentalist- but some of those other metrics might be PE- price to earnings - When i listen to the CNBC broadcasts, I often hear terms like- earnings are lowered, US stocks are near full valuation, Valuations are cheaper in Europe, and more so in the Emerging markets. Conversely, there are a lot of pundits that suggest the US is where the market strength lies- Only time will tell who is correct. Perhaps these are valid considerations over the longer term. Some price charts this weekend - if time allows
3.7.15. Finally some Sun and a bit of warming this Saturday- Lots of spring things to do outside- but took time for a chart of BRKB and volume as an indicator of what is to follow. While this is a 2 hr chart, it captures both uptrending and some downtrending periods- You could consider each bar as representing a single period's price action. This could just as easily be a 1- 2 year daily chart. Is volume a good indication of what will follow? Perhaps-sometimes-maybe - is my initial response- If you have high volume, you should see a corresponding higher move within that bar with a favorable close- and perhaps this is the way volume should be viewed- How did price respond to the higher volume? If price went higher, but closed just up slightly for the day- yes that was a high volume- and a higher close- but the real story may have been that despite the high volume, as it was not able to hold it's highs, there was not enough underlying buying strength to keep it high going into the close. If there are no additional buyers willing to step up- even on a high volume bullish close at the highs of the day (some examples in the chart) Price declines and goes lower. Is it true that SOME high Volume moves indicates the trend will go higher- - there are examples in the chart. sometimes true. not always. Is it true that low volume breakout moves will fail? In this chart example, Feb 6- notice that -following a bullish volume move higher, consolidation, the 'breakout' above the high of the consolidation range occurs on several bars with low volume. Once the move was 'extended' and higher, the majority of the Herd jumps in and moves it up higher- over the next several bars-closing at the high on good high volume- The buyers that were in there earlier- were selling their shares at higher prices to the high volume -somewhat late-momentum buyers (HERD) . At the next bar, there was no one willing to step up and pay higher- so price declined as precipitously as it had moved higher. In Fairness, I am picking and choosing this to be an example of why volume needs to be viewed not only on it's own, with price reaction to confirm,, But we never can know- or say with certainty - that such a positive response will find the follow through on the next bar, the next day, over the course of the next week.a Big sell-off can occur on small volume- 2.13. Climax volumes-I think- are more reliable- They speak to the high momentum- and the price bar confirms that the price move in that direction may be exhausted- at least for the moment- and that can often lead into a reversal of the trend trade as a good opportunity to get an early entry. This is seen as an intraday move with the trend much further initially, but has a much tighter close- One can find within this chart pros and cons depending on their perspective, and what they want to 'see' . Like anything in TA we choose to employ in making our trading decisions, we often simply decide something is needed or beneficial, without challenging our beliefs and doing some actual backtesting to determine if our belief has any merits when repeated over multiple signals where the indication occurs. We often get told by other traders what to use- Each of us needs to decide what is 'right' for ourselves. One can find the examples they seek to favor their position- in one period of time- or in one particular stock or ETF- For anything to be truly relevant, it should be explored across different and wider time periods and trending periods- and in different positions- To have a so called "Robust" approach, it should prove valid on many fronts technically. Cannot simply pick and choose one stock, one type of period- without seeing that it also applies across the board on other stocks and other periods- When we challenge ourselves to do this type of homework-extensively- not just here and there- we need to be something of an analytical skeptic - setting our bias and preconceived notion aside, and recognize when we see results that do not meet our expectations- That does not prove our premise that Volume is of no application- It simply makes us look closer and do a deeper analysis. Perhaps we then take an indicator- like Volume if we so choose to study it, and look to see how reliable it has been in conjunction with signifying a move in a downtrend, an up trend, or in a consolidation- We may come to a conclusion that surprises us- perhaps we can find examples of low volume, multiple tighter consolidating bars often precede expansive moves? A volume study should also look for examples other than the one we are trying to 'prove'. We may find something different altogether waiting underneath when we explore and turn the rock over. For myself- I'll now pass on an in-depth further "study" of volume as a primary indicator relative to my own trading. I "see" volume- without having volume itself on my charts in the sense of the momentum I can visualize as price moves away from the ema line. Bigger price move, increasing gap in the space, momentum is increasing. Climax volumes at peaks are also usually evident in the chart- as described within- Look for a "shooting star" or a 'hammer' at the top or bottom of an extended momentum move- Perhaps, take volume OFF the chart- study the price chart and test yourself to see if you can find what the volume should be showing on certain price action periods. Maybe, even, PRINT out the chart- circle the price action- label what you think the volume should be at points XY and Z and then print out another chart with the Volume on it- Sounds like homework, and most of us have been past all that school type stuff decades ago. We just want to Trade Now that we've gotten to be this far along in life., LOL! Me Too! But, I'm trying to instill a bit of Rigor in myself- Not there yet- still struggling but now and then I feel like I'm making steps in the right direction. If we just trade on instincts-discretion- we may believe we are a good trader- and 'successful- but that may be mostly under certain market trend conditions- By testing our methods, and those indicators that we may use over different charts, different conditions, we'll discover perhaps what is valid- under what conditions of trend? when we should be trading- Perhaps What we should be trading- and perhaps when we should not be trading at all- For those traders caught & still long, this has not been a good way to end the week- but it's a relatively minor decline from the recent highs. One has to ask what is the plan for next week if the markets don't Rally higher . Can't seem to attach a chart here- perhaps too long winded- next post
another way to view volume without clutter is to add it to the renko chart. this is also a good way to have a 'clean ' chart- using a hi-lo Renko that captures the significant price movements . It allows one to introduce an indicator- in this chart volume- to see if it looks promising within a method to assist in entry or exit decisions. next chart- another look at Renko with some other indicators.
Some traders trade on price and price alone- Price Action (PA) is likely both an art and an acquired skillset to interpret that would take many thousands of screen hours and actual trading to develop into becoming a consistently successful trader. Few (myself included) are capable of developing the skillset and mindset to succeed on that level . Those that do acquire that higher level of understanding of price action deserve the higher rewards. It likely comes at a much higher price in terms of time, dollars ,and effort than most of us imagine or would care to expend. For the rest of us- Using TA- there are lots of available training wheel types of devices that the rest of us seek to employ to improve our trading - develop our consistency- to achieve more profitable trades and smaller winning trades Different chart types, bar types, and different indicators can all be selected. Even the simple moving average is just an indicator- produced -but lagging- the price action. In our search to become better traders, we seek to use indicators to define to us graphically what price is doing and perhaps we can "learn". So we apply terms like overbought, oversold, and crossovers as having some type of meaning the trader can choose to react to. These levels are all usually relative- A good momentum up move can remain overbought for weeks, Months on end and be the very best trade one hangs onto for their year's big winner-Or it can sell-off quickly- The indicator does not need to be reacted to- just because it is at a specific level- of over...... "Oversold" does not mean that it is a good value to buy at that level- It is just saying that selling is at a very high momentum level- and that that level could abate, selling momentum can slow- yet price could still go lower! Point I'm trying to make for those that struggle with indicators, is they should not be taken literally in all instances. As an ex indicator Junkie, I try to learn to work with as few inputs as possible- trying to not forget to actually look at the price bar itself-The indicator smoothes out what the individual bars may be saying, 'averaging' across a period of multiple bars- If one uses an indicator- one should learn what it represents-and learn to study it's impact in one's approach- http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators Indicators- since they smooth, average, and lag price action- will not get us into or out of- a trade at the very top or the very bottom. You can adjust the time frames to be faster- and more reactive- or slower and less reactive. Some common indicators- Moving averages- simple or exponential, Stochastic oscillator- MACD, (moving average convergence/divergence), DMI (directional Movement indicator) RSI (relative Strength Indicator) and hundreds similar versions. Even a RENKO chart could be viewed as an indicator i think- because it provides the same smoothing assessment of what price has done- While i don't think I can backtest RENKO effectively ofer large price swings over time, I am still intrigued by it's possible application- particularly over the shorter term time frame- Understanding the impact of a backtest if price moved by 50% is one thing, If price has moved by just 10% that backtest range is much more valid. Also, if price is now in the mid range between a higher and lower period, The backtest results would be even more balanced. All that said, I want to study RENKO a bit more- and to understand it's use better. Since Renko is an indicator- and hides price action, I will give an example of adding a couple of other indicators to work along with Renko. and my initial thinking. Keep in mind, this has not been subject to any "backtest" I start off with a just a single moving average- I make it a fast enough period so it does not wait to turn after too many bars decline-. I think a 5 ema is relatively very fast- one can use faster or slower- or combinations if they choose. Just Renko above or below the moving average line gives a good indication of trend. The MACD :I will just use the histogram itself, and plot a moving average line on the histogram. http://stockcharts.com/school/doku....rs:moving_average_convergence_divergence_macd The ADX- DMI measures strength and direction http://stockcharts.com/school/doku....ical_indicators:average_directional_index_adx If the use of an indicator reduces losing trade entries by 20%, but gets into winning trades a bit slower- Is that a good thing? One has to assess whether a restraint on one's discretion will result in more profitable entry/exits over time - Initial chart: will discuss it in the next post
In the above chart with the standard indicator time frames- and waiting for the 0 line cross on the MACD- the 0 line cross may give a delayed entry, while the ADX14 was also several bricks later. If I was just using the Renko chart and the 5 ema as my control value, my rule for a long entry following a decline would be a buy-stop entry 2 brick values above the ema, with a 1 brick value stop-loss under the ema- Essentially, a trailing stop at 3 brick values would be attached to the entry order. The follow up question is whether adding an indicator for confirmation to place the trade would improve the results, reduce whipsaw entries- and at what cost? since this is not a smooth up trending chart, the analysis here - if a method could be developed in this chart to be break-even-profitable- it would likely do well in trending times. Note that the black line on the ADX indicator is running sideways at a low value. this measures the strength of the trend (up or down) - Trend is indicated to be flat. On the next chart, I will use the ema value with a 2 brick value buy-stop entry. I will consider that my buy-stop is in place as a trailing order to automatically fill on 2 bullish bricks- not needing both bricks to be above the ema. However, for accuracy, I am not considering the low value of the 1st bullish brick-Since the 1st bullish brick starts below the ema, my buy-stop order will assume to be filled higher than the high of the 2nd bullish brick. I think this would likely reflect an actual fill value in real trading. I will use a trailing stop loss of 3 atr values - In real trading, this stop would become a market order to sell based on 3 atr values above the last bullish brick. Since price would have likely gone above the top of the last brick, my stop-loss order would likely be tighter than the brick top value suggests- I will subtract from that last brick high 3 atr values to determine the sell value. tHE END RESULT OF THAT APPROACH- With staying with a set of entry and exit rules , the 1st 5 trades looked promising. There were 2 small winning trades, 2 small losing trades, and then I captured a very nice big trending trade and rode it for the entire run. Nice 3.8% gain over those trades with the downside risk limited on each and every trade! Then I got chopped up on the remaining 5 trades - all being losers, wiping out my gains and even putting me negative a small amount. Sound familiar to anyone else? In Hindsight- one would say- well- You can see by the chart that's a choppy market- You should have only taken the trending trade for the gain- LOL! It's easy to think we've got something that works when we look back at past charts. I can print money using past charts I bet! We all can- Now that I found out i lost money on the 10 trades in this chart, do I decide that method- RENKO is crap and toss it and try something new and different? Let's dig into it a bit deeper- leaving the entry and exit rules exactly the same, but see what the addition of an indicator might do to prevent me from taking each and every entry on price brick signals alone......
Got to watch 3 back to back sessions of HOUSE OF Cards- Good show- on NFLX . Getting back to some last charting this Saturday pm..... In response to a couple of questions i received- In this recent group of charts, I'm trying to teach myself- and share the process as i interpret it.- to view & study my chart entry and exit levels as though I had a more methodolgical set of rules and criteria for entry and exit- as opposed to a more general set of rules based roughly on price movement alone. Renko charts are being viewed presently- I have doubts about the inability to properly view them over larger price swings, but I do think they provide a potentially beneficial way of viewing price action compressed into the essential movement. BRKB is an actual recent position that I and a friend test shared, and will do again in the future. (I lost a bit on my last initial entry) . I will return to Spy related charts in the future- BRKB was on the plate and it became the subject de jour. I enjoy the challenge of trading- I'm not very good at it. Caveat Emptor- Buyer Beware- But I've been doing it on and off for some time. But it was always a sideline distraction- As i now step into deeper waters-and try to now strep up my game- this open thread on ET for example- I hope to put a bit of Rigor in what has been a long term discretionary- here for the moment- only approach, and gradually corral that and eventually come out of the end procsess a more disciplined trader/investor. I hope I can-on occaision- share something that will prove beneficial to any reading this thread, and perhaps just provide a bit of challenge to the comfortable mindset now and then. Better late than never giving it a shot. Back to the questions at hand: What i am trying to illustrate is a systematic approach to studying the way a trader might take his indicator- give it importance- and try to trade around it- How do you actually study it? Do You have a favored approach- are there any rules? Is there something resembling in your (my) trading that tells me when I can take a trade and when I cannot? Most of us are "discretionary" traders- meaning we want full flexibility to make a decision as to when we will enter and when we will exit. That is why we - collectively- you and i fail. As traders. It is likely that the majority of persons reading this thread have not been around since 2007 . Perhaps not since 2011? for any that are more recent newcomers to the Market- We are living on rarified oxygen in this Fed generated Bubble of financial engineering- and it may not unwind as smoothly as we all hope. This current subject matter is discussing how does one trade when a market is not a trending benevolent songstress.... In looking at the present chart of study- BRKB is the example- it seems to be a perfect study- Not trending- up and down. The 1st study was price action- and an initial set of rules to enter and exit. That study 'proved' to be a failure- with a total of 10 trades- one large winner- and a final sequence - based on price action alone- of 5 losing final trades in a row. This largely represents my own overall trading experience of the past month or two- So, If i can challenge myself objectively- and find an improved method- that may require a certain set of criteria be met before initiating a trade- but it is counter to my impulse to have the "freedom' i desire- (define that as unwillingly to have the personal discipline- the lack of rigor) . If one indeed imparts rigor to one's trading- One is not giving up control- they are exercising it. The examples, the indicators etc; I am not declaring this as a method one should use in their own trading- Simply, this is perhaps a method of exploration- one may choose to do their own analysis on what is important to them. Traders will not execute the same trading approach identically- despite how successful the approach may be- The "turtle' study took what was a positive long term approach and taught it to 20 or so traders- All of the same teachings, rules etc- and there were 20 different interpretations of what was taught. And 20 different results- I think was the end conclusion. If that same process was "taught 'today and executed by computer, it would be flawles in it's execution, and results would have little variation over a mechanical systems approach. Had to throw that last bit in- This is not a workable 'system' despite the initial improvements in the results. This is a 1st step in the analysis and comparison that is required if one adopts a Rules based approach. Looks darn promising though!
Looking at SPY- The 1st chart is of Spy -candlesticks- and the indicators on a 'faster' setting than typical. Notice it generates 7 possible BUY signals - as both indicators make the cross- the MACD above the 0 line- the adx green over red. I think I made the adx a bit faster in this example- to catch up with the MACD. Notice that I did not put in the red sell signals- but there was a high proportion of losing trades. Also- it needs to be evaluated where a sell-stop should be employed on a bar or candle chart. In the follow up RENKO chart, only 4 trade crossoveres were generated- 1 would have been a loser, 3 would likely have all gained. I need to repeat that anyone reading this should not take what I am posting as a finite method appropriate for their situation & trading- I'm just exploring Renko with some confirming indicators - If some one finds this of interest, they could backtest their past 20 or so trades and see if the initial results look promising. I somewhat think with Renko, the stop loss should be a number of ATR values trailing, or 1 or 2 ATR s below the ema. I say that because the price can go higher -even if the macd diverges and goes below the 0 line. The ADX indicator- once it has reached a higher level, will take a series of red bars before crossing the -DI line- The numbers I have used here for the indicator values are based on accellerated choices on my part- As is my choice of a 5 ema on the Renko- If one chose to loosen the stop a bit, one could select a slower ema- 7, 10, 20- and slower indicator values as well. There are a lot of variables available. If one had a desire to hold a longer term position- one could/should employ a slower chart- 4 hour- daily- even weekly- One could also select slower indicator values appropriate for their duration . In my Investment account- I should use the daily chart and appropriate indicator values. If I desire to hold a position for some longer duration- as an investment more so than a trade, I should not use the HI-LO- setting on Renko- but exclude the noise and select the CLOSE setting. If I had a trading program that could input RENKO based on % vs price- that would be my selection- once I understood what the present ATR value is in %. That is a simple calculation for anyone following this thread- Take the ATR value divided by the present price.- move the decimal to the right 2 places. That is the %. You could then drop back and chart specific earlier periods based on the lower price back then, and check the ATR value then- it will be smaller- but price will be lower- Calculate the % at that earlier chart- By learning to use %, vs dollar amounts, it keeps everything relative. That also works for one's present trading -gains and losses-