I'm wondering if, playing an overreaction is just out and out gambling, or is there some kind of possible "edge" there? I'm thinking of "legitimate" overreactions, ["rumor" for example] as opposed to one based in some fact [earnings, etc]. MSO comes to mind. The stock fell more on rumor [and bounced back some]. The risk is, there may be fact to it, in the end; although one would try be out way before... any thoughts? Mark
9 times out of 10 you can make money fading an extreme. Its that tenth time that will turn your hair white.
Earnings a fact??????? You must not have any accounts in your family!!!!!! The only fact is that earnings were reported. The rumor, the news, the facts are not important. Buyers and sellers reactions are. You can try to anticipate the reaction but often what appears good turns out to be bad. At least this has been my experience. The price tells all. PS How do we know if it is OVER REACTION OR UNDER REACTION?
What time period are you considering? Intraday? I can't comment there. However, I have been considering trading the same scenario. Only longer- three to 15 days. From what I have seen it is not gambling. So far, I know: 1)every "overreaction" isnt fadable, 2) volume has to perform 3) it is a viable strategy 4)you can get burned badly without money-management I am in the early stages of understanding these price reactions. However, I did find some information on the subject matter here under "great new pattern." You may find it a useful start. Also, in regards to the things I look at now, I don't think they will trade successfully forever. Hope this helps or at least encourages you.
PS How do we know if it is OVER REACTION OR UNDER REACTION? [/B][/QUOTE] excellent point I hadn't thought of Mark
i think a complex non-linear model of market phenomena might help, to wit: if it looks good, trade it. if it doesn't work, get out. if it works, get out before the gap is filled. if it's moving too fast for your thyroid, better just sit it out. <a href="http://www.elve.net/rtips01.htm"> <img src="http://www.elve.net/traf/icecard.gif"width= 50 height=45></img></a>!caution! better be quick. what sometimes happens to me is that a limit order is ignored and a market order gets filled when the specialist moves the price so far in the direction of the correction that he takes my edge away. he fills there for a reason: it's often the extent of the move, the first part of it, anyway. then you're sitting there wondering if it's going to continue or fade... he's willing to fill there because he doesn't see himself taking a loss at that point... going in the direction of the overall trend for the day can be a plus. imho. much more can be (and has been) said about this by much smarter people...
Would think it a little tough on individual stocks - but indexes, on report days (cpi, ppi, fomc, etc.) can work quite nicely. Bonds and notes are great - bonds make a one minutes spike of 10 - 12 point then start to retrace jump in and out and you just made 5-8 points. ALMOST always works. Make 'em pretty, Chris
Possibly not what you want to hear, but I have "traveled" down the road you are looking at.RESULTS: I did not become a profitable trader until I watched and watched and watched the price action and eventually came to recognize several reliable (66+ %) chart patterns.
VictorS. What have you learned about volume? I've had a difficult time finding anything about volume in my research. JJ
JJ, sorry it took so long to respond, but I usually visit this website on weekends. Anyhow, when it comes to volume and price moving fast and heavy it isn't too smart to fade. Keep in mind I am speaking in context of this thread. I am surprised there aren't more on this board trading the "overreactions." I would like to see this board kept alive.