Hmm- I think I see what you are saying when you refer to a "trend" you mean a very strong single move in one direction or another, correct? not like a trending channel that has been going on all day, where it will hit the top of the channel, reach overbought and then pull back- hit the bottom, reach oversold and then bounce off the bottom of the channel... what you are describing is a strong move, like a total freefall.. where the stock will hit 90-100 on the stochastics and then just go sideways in the stochastics.. bouncing around in heavily overbought/oversold until the strong move is over.. is this what you mean? IE: you better have another reason to enter *besides* just the stochastics.. like making a higher low, and then taking out the recent tops.. Am I understanding you correctly?
Yes, exactly. Stochastics are fantastic when price is moving in a channel. You can pretty much guarantee yourself one winner after another. Some examples of this were my WTR trades late last year and my AIPC trades this year, not a single losing trade among them. But if you're using this indicator to pick a top or bottom, you need additional confirmation such as near term S/R levels, and you need to have your plan in advance if the expected reversal doesn't happen. Lower highs and higher lows are my preference for entering a trade. Here's a good study for that: Look at any intraday chart and determine the initial trend that's set in the first 30 minutes of trading. (I use a 3-min chart.) For example, look at ILMN yesterday. By 10:00 a.m. the trend will likely be to the downside because price has retrace over 50% of initially established gain. This means you would look to short any rally that fails to break previous resistance. The first real rally reaches an overbought peak at 11:00 a.m. Short at that point and take profits at oversold or trail a stop and let the trade ride until the trend breaks.
- $303 Offer 68.97 BDX on open, missed by very little, didnât chase unfortunately, then hesitated to play the lower high for some unknown reason. 11:09 a.m.: Long GILD @ 44.65 oversold and stalled after a long drop, stop @ 44.45, just below the LOD, triggered for an $89 loss. 11:58 a.m.: Long GILD @ 44.55 oversold, pivot off higher low, pullback from higher resistance above the converged MAs, stop @ 44.40, just below the low of the pivot bar. I started watching the L2 and thinking about the chart and what should and should not happen to indicate further strength and I stopped myself right there and asked myself: âAre you willing to pay $85 to find out if this is a decent long trade?â And the answer was âYesâ, so I left my original stop in place and patiently allowed the trade to play out. My instincts (low volume) told me to take the nearly $100 profit @ 44.73, but I stuck by my guns, stop eventually triggered for a $79 loss. This convinced me that I prefer to take my small profits from overbought to oversold (and vice versa). That's worked for me the entire first quarter this year and I will stick with it. If done with GILD today, Iâd have $90 profit on second trade, re-entered close to where I was stopped out and then taken $300 profit on that trade. Tried to short OC @ 13.15 overbought failure to make a new high, no shares available. Nice short, too. AXP hitting the hi ticker hard and I hesitate for a moment at 19.50 thinking of where Iâd place my stop and by the time that thought is done, it dropped .50 cents a share. 3:16 p.m.: Short AMP @ 22.78 on overbought run up, SPY overbought, stop @ 22.98, hit for a $103 loss. Iâm very pleased with my disciplined trading this week, but Iâm only taking a tiny portion of my setups. One example being BDXâs very early lower high, beautiful short. Another example, my husband decided to trade midday and asked me what was good. I told him I was watching URS (it was @ 42.89 as I was contemplating a trade) and instead of shorting the pullback from overbought a few minutes later at 1 p.m., I decided to wait for a lower high. My husband shorted immediately when I called it and made a nice profit. I never put on the trade because it fell straight down to 41.85 without any lower highs to think about. Also I didnât stick with GILD, which was due for serious buying at some point in the day as it continued to wash out the weakest hands and approach a very major support level. Sure enough, I looked at it late in the day and it double-bottomed and made a beautiful run up on real volume. So my two small scratch trades were nothing compared to the eventual profitable trade this wouldâve produced. Iâve been in this space before and it took me over a month to climb out. Fortunately, I have a very nice vacation coming up, obviously much-needed.
The problem with trading the overbought/ oversold levels on the stochastics are that they can remain in these extreme levels for some time. You'll need to have more of a reason for getting into a trade than simply seeing that its >= 80 or <= 20
I only use stochastics as a signal, and I seek confirmation from: the market in general, overall stock trend, volume, and lower high/higher low. My biggest problem is failing to take all my setups. By only taking a few of my setups, I do not reap the fruits of the overall success of my trading strategies. I just completed a spreadsheet of the trades that set up for me today, trades that I was ready to go with, but I did not act upon immediately because I was thinking instead of acting. Using the price at which I was ready to put on the trade and then using a most conservative exit point, I left behind $1160. And with ideal stop management, I could've added $525 to that; however, I can tell it will be a while before I master ideal exits.
As for thinking instead of acting, I invite input from everyone on how you handle the mental game. When you get a signal, or a preferred setup is ripe, do you act immediately? I have a bad habit of waiting, looking for more confirmation, etc, and often the opportunity is quickly lost.
Doj, I'm gonna have to file this one under "D" for "dumb question". A setup is a setup. It's either there or it isn't. If it's there, why in the world would you diddle around until it isn't? You either trust it & act, or you over-think & regret. Assuming you've backtested, there's no reason to wait for additional confirmation. Take your trades - in sufficient quantity to let the laws of probability work their magic. "Just Do It". You're still thinking too much. Use your edge & make your trades. Simple. (You do have an edge, right?) P.S. Keep patting yourself on the back when you make good trades. A good trade is a good trade, regardless of the outcome.
Not being a day trader i can afford to wait a day or two max before taking a trade, but usually if I think there is a strong move in the works, I act as soon as i can, trading at market. no matter what tf, waiting for too much confirmation can be a problem from anyone, and I'd imagin its especailly a problem for day traders as time is of the essence. This is why having a solid trading method in place is important, because you will have the confidence to place the trade. I trade fibs, and use stochs, and a macd histogram as well..heres what my confirmation would be like: 1. Is price at a current fib level? 2. Is the major trend up/ down? (this determins the direction of my trade) 3. is price forming some type of pattern? 4. did price break previous candle highs or lows? 5. is there a + or - divergence on the histogram or stochs? 6. did price break a major s/r level on daily/ weekly? now i dont use all these at once, as most the time i dont need too, but having at least 3 reasons is nice. Here is a chart of ISRG that I took. The confirmation was: 1. breakout from TL 2. My entry candle broke previous candle high 3. Stohastic crossed 50 line 4. Price was near a 50% retrace (blue line) from its previous trend (purple line) Also I dont think you should take EVERY trade you see. Be picky and filter out the best trades. Sometimes you miss good trades, but thats just part of it.
Thanks for your reply ND- that cleared up a few things for me "Here's a good study for that: Look at any intraday chart and determine the initial trend that's set in the first 30 minutes of trading. (I use a 3-min chart.) For example, look at ILMN yesterday. By 10:00 a.m. the trend will likely be to the downside because price has retrace over 50% of initially established gain. This means you would look to short any rally that fails to break previous resistance. The first real rally reaches an overbought peak at 11:00 a.m. Short at that point and take profits at oversold or trail a stop and let the trade ride until the trend breaks." Thanks for the example- that helps alot. I hadnt put that idea of 'retracing more than 50%' of a gain being an overall bearish sign into my trading- but that is a good technique. one question- regarding stochastic "crossovers" do you pay much attention to whether the fast line is crossing over the slower line.. or do you just take note over whther things are in the overbought/oversold zone, and then go by price action from there (failure to make lower lows, etc)
Interesting, I look at the same chart and choose a long swing trade entry on the very same day as you, but for different reasons: 1. A period of steady price consolidation establishes very strong support at a higher low. 2. The day you entered the trade is the day price broke through the 20-day MA on decent buying volume. So it seems we have confluence from all angles on the trade Now I have a question for you: Are you holding this position through tomorrow's earnings or will you close it out?