Nevermind, it's not working... don't have time right now to set it up on a public server, but for those who are interested it's a rather lengthy document on drawing channels written by Jack (I believe). Send me a pm with an email address and I'll send it to whoever wants it. - The New Guy
Clym/Mike, I've read some or maybe all the posts you suggested and I'm attaching my first attempt at a channel based on what I read. Please let me know how I screwed up. Thanks, Doug
Doug: First a very strong disclaimer that I'm also still learning; maybe just a little ahead of you on Channels. I learned by reading lots of content on the net and doing quite a bit of experimenting. That being said, I took 3 screen shots for the same stock and did a 3 page writeup that outlines how I would approach the channels for this. I think it is a bit too bulky to paste in here so I have attached it as a word file. If you (or anyone else that is interested) can't read it let me know and I'll see if I can convert it to a different file type. Also, as I mentioned I am still learning so I'd be happy to get constructive comments from anyone that thinks my approach is off base. Mike
One more things to potentially clarify my thinking as outlined in the prior message and document. My current thinking (always changing) is that we scan the stocks for dryup over a period of days with the goal of generating a return over a number of days. I believe (still to be reviewed) that this normally only going to happen within a good daily channel. Therefore, my current thinking is that I will not enter a Hershey trade with a large goal (7% to 10%) unless it sets up that way by being at the bottom of a well defined daily channel. Nevertheless, there may be times when you have a Hershey signal and you are not at that point or the daily channel isn't that well formed. In that case I may look at the 60 or 30 min channels and try to establish a good entry position, thinking I may only be in this for a smaller (1% to 3%) gain if I am correct. In the prior message I focused very much on one stock in one situation but wanted to add this overall thought. Mike
I think as far as the FRV rule is concerned, I like to follow the logic. The more a stock is in dry up with very little movement, experiencing a volatility contraction or pause, the moment it starts moving with volume follow through and it reaches First Rising Volume without reaching a climatic final burst, there is a strong tendency for the stock to continue it's upward path at least until the next day before experiencing another pullback. You could always get in the stock again afterwards. I think it is a good thing to respect the upper boundary of a channel especially if the stock has moved upward with semiweak volume. PETS was a good example last week while still providing a couple of profitable intraday trades. If PETS were to breakout out of the channel with volume force and attain a new 52wk high without achieving climatic volume numbers, then it would be a good stock to get in as soon as the breakout of the channel was confirmed. Thanks for everyone's contributions. I'm learning a lot from them and find them very helpful. Good Trading and Merry Christmas!!
I suggested that I continually modify my thinking as I learn more and given a lack of a real life I did some research tonight. I went back to Spytraders Excel spreadsheet (in prior journal) and looked at most of his top 10 trades and most of his 10 worst trades (in terms of return). (I plan on doing more but I ran out of patience tonight). My goal was to see, in retrospect (for me), where his best and worst trades fell into the channels. Also, to see if holding through lack of FRV would have been good or bad. Anyway, I noticed a few things new tonight in doing so... 1. He made his money by having a reasonable number of very good trades (20 out of about 100 were over 7% and many over 10%) while having only 10 trades worst than 2% loss and only 2 at 5%. Therefore, he managed his losses tightly and gave himself room to make good money on many trades. 2. Of his good trades he didn't always enter at the bottom of the daily channel, which had been my plan (but is hard to do). More than 50% of the time he was towards the middle of the channel. BUT, each time he was succesful there was at least (ballpark) 15% upside before hitting the upper channel from where he entered; sometimes more. .... During the time he was in the stock and in most cases thereafter it never cracked above the top; therefore you need to leave room to make money when buying in. 3. His best winning trades were either buying into a daily uptrend or in 2 cases buying into a stock the day it broke out of a clear daily downtrend. 4. Of his worst losses (again not too many; good for him!), about 50% were because the entry was near the top of the daily channel. 5. Of the other worst losses a few could have been gains had he not gotten stopped out (they looked like good entries). There was also one that was an odd entry because it looks like it was below an up channel (meaning a breakdown had occured). Anyway, attached is a word document containing pictures and a little commentary of each of the top 10 best gains from his spreadsheet and worst losses (I missed a couple). I tried to draw channels as they would have existed at the time of the trade. I put a box near the start of the trade and in most cases a yellow line at the price point. Based on all of the above and subject to further review of more trades my channel rules are as follows: 1. If you can find one that is breaking a clear daily downtrend channel get in! These gave him his best 2 gains. 2. If you are in an uptrend, make sure you are no worse than in the middle of the uptrend and/or that you have at least 15% (or more) to the top of the channel. If you enter with less, no at what % you will need to sell since it likely won't break thorugh the top. (My old rule was to get in only at the bottom of an uptrend but clearly this is not necessary and rarely happened for him). 3. Don't take a trade if the daily trend is down (unless there is a clear breakout). 4. Don't take a trade if you are near the top of a clear daily channel (inverse of #2). 5. Don't take a trade if you are at a breakdown below the bottom line on an upward sloping channel (breakdown). For me this continues to be a work in progress to refine my understanding. If you have comments or observations I'd love to hear them. Meanwhile between sitting on my butt and eating Xmas cookies I have gained 2 lbs this week and need to work on THAT stop loss. Mike
Good work Mike! I think it greatly emphasizes channel location and the need to address any possible official rule modification. As far as FRV, you have noted a few trades where FRV was not hit but stock continued healthy course on the lower to mid level of channel. Not all the indicators will line up perfectly all the time, but I have looked at trades hitting FRV since August and 80.77% had positive continuation before a profit protective stop was hit. One interesting area of study perhaps would be what % of avg daily range must be hit before temporary reversal happens? 1.5x? 2x or 3x? When DU trigerred trade was 5 day avg range lower than 60 day? Was the previous day's range lower than the 5 day avg? Hopefully the continued discussions could bring this system to an even higher level or help create other systems for these ranked stocks.