Whatcha think? (Basic charting stuff & some questions)

Discussion in 'Technical Analysis' started by NuclearCricket, Feb 2, 2018.

  1. Which of the two trend lines is drawn correctly, if any?
    The solid line feels more accurately placed from what I've read, but the price gap & all the blank space makes me second guess.

    2018-02-02-TOS_CHARTS (Tendlines).png

    ATVI made a new high the other day, so there's nothing to the left of the chart going back since forever. I've read that buying when price returns to the trend line is a decent idea. Would it be sound strategy wise to buy at where I place the "alternative buy"? Or, since there's a decent amount of support below would buying there be "more correct?"

    If I placed a buy at support #1, my risk area seems fairly straight forward and 1:2 risk/reward would put my profit target up at around $77. Correct?
    But what about if I bought at the "alternative buy?" Would my risk be from there down to support #1 and my profit target be way up at $79.46?

    If I do the whole implied volatility thing based on todays close to, say, next Friday (Feb 9th) the std deviation movement range would be between $75 and $67.
    MATH: (71.42*0.4482*2.236)/19.104 = 3.746
    Seems like a coin toss.
    2018-02-02-TOS_CHARTS.png

    Whatcha think? What can I do better? Any additional information to include in making the decision that I should be using? etc, etc...

    If it matters to anyone, I'm papertrading. Because don't be stupid with your money.
     
    murray t turtle likes this.
  2. lcranston

    lcranston

    If the gap is giving you pause, refer to a longer-term view, in this case the weekly. Doing so not only avoids the gap issue but it enables you to see what the "true" trend is, if any. As for buying when price returns to the trend line, that depends on whether or not you are investigating a mean-reverting instrument. If you aren't, then whatever "trends" you might see are likely going to be very short-term. This instrument appears to be mean-reverting over a longer term, which is a big plus in terms of locating your trading opportunities well in advance.

    As for "support" and "where to buy", uptrend lines are drawn under swing lows. They're drawn under swing lows because those are the points or levels at which buyers see value and reverse the price movement to an upward thrust. That these points so often make straight lines possible is a function of mean-reversion. Your most recent supports in this example are therefore the beginning of December and the end of December as these are the points at which buyers reversed price. If you are anticipating buying at one of these levels, consider the weakness that would have to exist in order for price to fall that far. Is buying weakness part of your trading strategy? If so, how has that worked out for you? Yes, resistance can become support -- such as in this case a return and test of that last range ending in January, what you have labelled as "support 1" -- if traders are hot for this particular issue and see the test as an opportunity to take part in the move that they missed and buy that test. However, that ship has likely sailed since all this took place a month ago.

    Your nearest and soonest trading opportunity is likely to be a test of the upper limit of the weekly trend channel, which is around 77. Yes, you could buy here with the understanding that the profit potential may be limited and that those who bought two months ago are in the process of selling in anticipation of a vapor lock if and when price hits the upper limit of the weekly, but as long as you have your stop in place, your risk is minimal. And there's always the potential short opportunity to look forward to.

    As for the lines I've drawn, the dashed line is what the trend line would have looked like before December 5. Whether you bring it down to include December 5 and 6 is entirely up to you as that drop can legitimately be considered an anomaly given that it recovered almost immediately, probably news of some sort, though in this case, whether you bring your trendline down or leave it where it was makes little difference in terms of the current target (keep in mind, though, when futzing with the lower trend line, that the low of December 5 is where buyers saw value and reversed price, and that matters). Also consider that, if price does reverse if and when it reaches the upper limit of that channel, it is more likely to return to the lower limit of that channel than to reverse off that range top at 67+.

    But then you never know, no matter what the books (websites, blogs, articles, videos) say.

    upload_2018-2-2_23-44-17.png
     
    Last edited: Feb 3, 2018
    NuclearCricket likes this.
  3. tomorton

    tomorton

    All lines drawn over price are just constructs. Although they use price data they are just your analysis of what the market did. So its impossible to say the market turned when price hit a given line because its impossible to prove that's why the market turned.

    However, these particular lines are still useful, not in predicting what the market WILL do but in guiding what you COULD do. So each makes sense if you have rational strategies to trade using each one as a reference.
     
    murray t turtle and SunTrader like this.
  4. %%
    Since the gap held, either trend line looks fine. Most likely goes to $75 or more.On a weekly chart the gap is nothing+ plenty of buyers came in that day + it held thru the week; it could have peaked @ that gap, so i see your unfounded cause for concern. NOT a prediction; with tech stocks/QQQ moving uptrend again, plenty of buyers in FRI + Monday. AS strong as that one is, let it run as much as you can, or to tighten stops , rather than target on a strong stock.:cool:
     
  5. zhucap

    zhucap

    Why not wait for the price to pull back to $68 or closer to Support #1? In addition to being right, we don't want to be caught chasing... Chart #2 looks overextended. Look for a better risk / reward to pull the trigger. My 2c