Ask a Technical Analyst
 

After the whole "my analysis is better than your analysis" broohaha in the "Please recommend a book" thread, I thought,why not open up this place and start a technical thread.

Please note, I am not responsible for any and all recomendations that I post or advise. What YOU do with your money is YOUR responsibility. I'm just offering some advise.

So, does anyone have any questions, or would like an opinion from a technical point of view? Additionally, I would add, that I will only advise on stocks with a minimum daily volume of over 1-2 million, there and up. I don't play the small small caps, and find that TA works better on stocks that have a wider field of play. As well, no penny stocks, the applicability of TA of TA to those stocks is suspect.

Let's begin.

THE HUN.

Re: Ask a Technical Analyst
 

what's your track record

Re: Ask a Technical Analyst
 

Last 5 year average approximately 35% annual return.

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and no, I'm not showing personal statments.

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Which technical analysis patterns or indicators do you believe work?

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If you had $500k bankroll would you invest it using techincal analysis or use it to play high stakes poker?

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What timeframes do you trade in? Do you daytrade or take a longer term perspective and if longer how long? Do you use and/or believe in blackbox systems or systems of any kind?

Re: Ask a Technical Analyst
 

[ QUOTE ]
Which technical analysis patterns or indicators do you believe work?

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A considerable portion of my analysis is based on Japanese Candlestick charting. If you want to make the best investment of your trading career, go out and buy Japanese Candlestick Charting Techniques by Steve Nisson. Learn the patterns in that book, you have to put in a lot of screen time, but doing that will reap HUGE benefits. Those patterns with very simple momentum indicators like Stochastics or RSI, (I just use slow stochastics to keep things simple and clean, the best is to use as few indicators as possible), will identify high probability trades.

I will give an example of a charting pattern that you can use RIGHT NOW to find on any chart. The best free site for charting is Stockcharts.com (by the way, I don't know how to post links, so if someone can show me how, that would be great). This pattern is called a DOJI. Every candle that you see on a chart represents the open, close, high and low. If the candle is red, it means that it closed lower from where it started, if it is white, it means it closed higher than the open. The open and close represent the body of the candle, the "wicks" represent the high and low of the day. The DOJI is a unique candle in that it opened and closed near or about the same point. So, essentially it looks like a cross. But what does this mean? Like anything else ...context is key, and this is where most academic analysis gets it dead wrong. Most analysis will say, well after this pattern it produces a profitable trade only 20% of the time, so TA is useless bla bla bla. They neglect the context of the pattern. The pattern by itself is meaningless but in the broader perspective of the other patterns, it now has meaning. So what does the Doji mean? If it closed and opened on the same day it means that the bulls and bears pushed the stock up and down all over the day, and agreed in the end at the same price that it started. Now, if for the past 7 days, the bulls were running up the price like a freight train, well they have that momentum, but now, you have a doji. This now means, that the huge momentum that they had has been siginficantly weakened because the bears were able to stop that force. All throughout the day, the bulls have been fighting to push it higher, but the bears foought back and held their ground. Now, the next day is crucial, if after a doji, after a huge price run up, the next day is a downward closing day, now the bears have control, you have a good price reversal, and a nice swing short.

Example: http://stockcharts.com/h-sc/ui (again, need help here) Ok, take a look at May 22, there is a CLASSIC DOJI pattern. From the beginning of May to around May 21 the bulls had a stronghold and pushed that stock right up, but on May 22, what happend to all their strength? They managed to push the stock up as high as 47.50, a relative new high...but they couldn't hold it, the bears fought back and held. The next day, the bears really stepped in. That is where you would want to place your short, once you see that confirmation the next day to show that the bears really now have control. Using stochastics (find indicators, click on slow stochastics, add that in )and you see a nice confirmation to show how that momentum has changed.

Again, that is but one powerful pattern among many.
With candlesticks, always keep the context in mind. I don't use the head and shoulders, or flag patterns, that most traditional TA's will use.

There is a start, get the book.

THE HUN.

Re: Ask a Technical Analyst
 

[ QUOTE ]
If you had $500k bankroll would you invest it using techincal analysis or use it to play high stakes poker?

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I would invest 400K of it using TA and the rest to play hig stakes poker, as I'm a better trader than a poker player, fortunately, or unfortunately, depending on how you look at it. (Especially, since I love the Omaha)

THE HUN.

Re: Ask a Technical Analyst
 

[ QUOTE ]
What timeframes do you trade in? Do you daytrade or take a longer term perspective and if longer how long? Do you use and/or believe in blackbox systems or systems of any kind?

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I tried daytrading once....once.. in fact I worked at a daytrading firm for about a week to figure out that it wasn't for me. Why grind and go nuts for pennies at a time, when you can make your life easier and pick up the dollars with less stress? Making 200 trades a day isn't fun, and especially with the Nasdaq stocks, there is TA involved, but that game, to be really successful is about learning the market maker and playing against him. People don't realize that it is humans you are playing against, and like poker they have tendencies. So, essentially you have to learn the MM, learn how to fade his tricks, and get in his head because the same patterns do come up in many places. I just hated that pace.

For me, I swing trade. That means 1 week is a long term. I like to be in and out within 3-4 days, nice and quick and then move on to the next idea. I can get a good feel with how things will play out in the near future, so holding on for even a week or so, I don't mind, but a month from now, two months, I have no idea what will happen.

I do think black box systems can work and show good returns. The problem with most systems is that the designer will get too carried away and inserts 5000 parameters and this was all done to optimize the results based on the history. I think that a simple system, even the breakout system talked about earlier can be very effective. That being said, I do not use black box systems, because my analysis needs to be seen with my eyes and the context has to be understood. The Doji example I gave earlier is a good example of what I am talking about. A Doji by itself is meaningless, but looking at that chart, seeing where the Doji was (especially as it formed right near the resistance level of $46 bucks), and using Stochastics, leads me to the short. I don't know how that could be programmed into a computer. To me, TA is science, but a lot of art as well, but that comes from experience and a significant amount of screen time.

THE HUN.

Re: Ask a Technical Analyst
 

1. I've heard people say that P/E is a technical indicator. I personally don't, but what do you think about this?

2. Do you trade options/futures and if so, what percentage of your total holdings would be comprised of options/futures?

3. Where do most of your ideas come from? Reading specific sites/newspapers? Random browsing? Or do you have specific companies/sectors that you always keep an eye on?

Re: Ask a Technical Analyst
 

[ QUOTE ]
1. I've heard people say that P/E is a technical indicator. I personally don't, but what do you think about this?

2. Do you trade options/futures and if so, what percentage of your total holdings would be comprised of options/futures?

3. Where do most of your ideas come from? Reading specific sites/newspapers? Random browsing? Or do you have specific companies/sectors that you always keep an eye on?

[/ QUOTE ]

1. PE is a fundamental indicator.

2. My holdings are all in stocks, at the moment. I am slowly getting into options trading as far as volatility trading, but that's ona one off basis. My ideas, do work well with options, and I have done so in the past, but lately, as in the past couple of years, I just wanted to get back to the nuts and bolts of what I do, and get back to stocks only.

3. Typcially, I do have "watch lists" because I've been trading the same stocks over and over and over again, and that is something that I would suggest to anyone that wants to trade to start getting into. Start with 5-10 stocks, any stocks. When I started, I watched the usual suspects of MSFT, CSSCO, INTC, KLAC (I started getting into trading during the techboom). All I did was learn those stocks, learn the patterns and found how the candlesticks, really fit in well in what I was seeing. That way, when I saw INTC get to a certain price and struggle with it, I knew that was a resistence point, and I was ready, so that if it crumbled the next day, my short order was in, and if it broke through, that means it will climb a lot higher and my buy order was in. Since then, my list has broadened tremendously, and I usually trade off that list. Now, from time to time, I will see what is active off of the scan list at www.clearstation.com or at www.stockcharts.com and get some ideas from there as well. But primarily I trade off my list because I know their habits and formations.

THE HUN.

Re: Ask a Technical Analyst
 

[ QUOTE ]
Japanese Candlestick Charting Techniques by Steve Nisson

[/ QUOTE ]

I can second your enthusiam for this particular book. It has been in my personal trading library for years. If you want to learn about candlesticks this is the place to do it.

Re: Ask a Technical Analyst
 

I heard candlesticks TA is fluky and a joke. Obviously you feel differently. In your experience, have DOJIs been consistently reliable, or have you just gotten a couple "big scores"? I thought they were used more as a supplementary TA check, definitely not as motivation for any trade.

Re: Ask a Technical Analyst
 

[ QUOTE ]
I heard candlesticks TA is fluky and a joke. Obviously you feel differently. In your experience, have DOJIs been consistently reliable, or have you just gotten a couple "big scores"? I thought they were used more as a supplementary TA check, definitely not as motivation for any trade.

[/ QUOTE ]

I've done well with candlestick trading on a consistent basis and not on big scores. Most of the major candlestick pattersn are extremely reliable in telling you the market direction. I haven't done any studies on it, but done right, it can give you 70% reliability. Listen, it won't always work out, that is a fact. But the nature of TA is such that you know when you are wrong relatively fast, so it minimizes the losses when they occur. No system is 100% accurate. TA is the motivation for many traders and institutions globally and not just a background or supplementary check to see if it coincides with what the equity analysts say. The people who say it is fluky, or a joke merely don't know how to apply it correctly. They don't understand that the foundation of technical analysis is about CONTEXT.

THE HUN.

Re: Ask a Technical Analyst
 

[ QUOTE ]
I heard candlesticks TA is fluky and a joke.

[/ QUOTE ]

In technical analysis almost everything on it's own seems fluky and a joke. This is why you need to use multiple indicators and ideas and look for situations where they all come together and confirm each other. Any TA indicator is pretty useless on it's own but when in sync with other indicators (and timeframes) can be very powerful.

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
Japanese Candlestick Charting Techniques by Steve Nisson

[/ QUOTE ]

I can second your enthusiam for this particular book. It has been in my personal trading library for years. If you want to learn about candlesticks this is the place to do it.

[/ QUOTE ]

All of Nisson's books are great. Stephen Bigalow also has a great candlestick book called Profitable Candlestick Trading. I have that and that is great too, but a lot of the info comes from Steve Nisson who essentially popularized it in the West.

THE HUN.

Re: Ask a Technical Analyst
 

What do the charts of SPY and VTI tell you right now?
I'd be interested in an opinion for the next few month..

Re: Ask a Technical Analyst
 

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Last 5 year average approximately 35% annual return.

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Is this geometric?

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Last 5 year average approximately 35% annual return.

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What chance do you think there is that your returns can be attributed to luck? This is an honest question, I ask myself this all the time.

Re: Ask a Technical Analyst
 

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Last 5 year average approximately 35% annual return.

[/ QUOTE ]

Do you think you will manage this over the next 5 years ?

Re: Ask a Technical Analyst
 

[ QUOTE ]
What do the charts of SPY and VTI tell you right now?
I'd be interested in an opinion for the next few month..

[/ QUOTE ]

I will get to this tonight, once I set up a photobucket account, or something that can show the chart and all my markings on it to give you a better picture, short answer right now...

SPY - tommorow's action will tip the hat. If we go up, and break past 148, either tommorow or in the next couple of days, then I would suggest a long until 154. If we go down tommorow or in the next couple of days, and break through 144, then 139ish, is the next stop down. So we will see tommorow. This is how I trade. Anticipatory trades are very destructive. Let the market tip its hat and then make your move.

VTI - Same analysis applies. Wait for tommorow, break 148 on the way up, and watch for very low 153, if that,,it will be tight up there. One the way down, look for 139ish...

THE HUN.

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
Last 5 year average approximately 35% annual return.

[/ QUOTE ]

Do you think you will manage this over the next 5 years ?

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I don't see why not. I know that sounds egotistical, but that is an honest answer. I've developed a good feel for the market, I allow the indicators to give me a good representation of what is going, I keep my losses tight (which has helped enormously on the bottom line, and one of the key drivers to those numbers) and stay disciplined. It's taken me a long time to get to this point, I've worked hard, put in more screen time than I like to think about, but that's what has made me successful at this.

THE HUN.

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Last 5 year average approximately 35% annual return.

[/ QUOTE ]

Do you think you will manage this over the next 5 years ?

[/ QUOTE ]

I don't see why not. I know that sounds egotistical, but that is an honest answer. I've developed a good feel for the market, I allow the indicators to give me a good representation of what is going, I keep my losses tight (which has helped enormously on the bottom line, and one of the key drivers to those numbers) and stay disciplined. It's taken me a long time to get to this point, I've worked hard, put in more screen time than I like to think about, but that's what has made me successful at this.

THE HUN.

[/ QUOTE ]

what, in your opinion, is the ballpark maximum amount of capital you could have behind your decisions and still make ~35%/year?

Barron

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
Last 5 year average approximately 35% annual return.

[/ QUOTE ]

What chance do you think there is that your returns can be attributed to luck? This is an honest question, I ask myself this all the time.

[/ QUOTE ]

It all comes down to that old saying in golf, something along the lines of "I guess I'm just lucky when it comes to golf, the harder I work at it, the luckier I get" (I've seen that line attributed to at least 3 golfers) But that applies here. It's not about luck, I couldn't be this consistent with mere luck alone. I worked my ass off to get to this point.

THE HUN.

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Last 5 year average approximately 35% annual return.

[/ QUOTE ]

Do you think you will manage this over the next 5 years ?

[/ QUOTE ]

I don't see why not. I know that sounds egotistical, but that is an honest answer. I've developed a good feel for the market, I allow the indicators to give me a good representation of what is going, I keep my losses tight (which has helped enormously on the bottom line, and one of the key drivers to those numbers) and stay disciplined. It's taken me a long time to get to this point, I've worked hard, put in more screen time than I like to think about, but that's what has made me successful at this.

THE HUN.

[/ QUOTE ]

The market for the last 5 years has been relatively "easy" to predict/fluke compared to historical precedent. I dont think the next 5 years will be so straight forward. There is 450 Trillion dollars (yes massive isnt it) in the credit derivatives market, and that market is going through some turbulence. Knock on effects/contagion of this will be unpredictable at best. I dont think it would be unrealistic for you to revise down your expectations for the short to mid term.

Re: Ask a Technical Analyst
 

What's your take on SYNL. It has tanked in the last few weeks? Is this the bottom or will it continue to freefall?

Re: Ask a Technical Analyst
 

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It's not about luck, I couldn't be this consistent with mere luck alone. I worked my ass off to get to this point.

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This isn't really a satisfactory explanation. You could be consistent with mere luck alone - in fact if there's a lot of people just like also acting randomly you would expect to see some perform "consistently". And working hard at something isn't evidence that your results are dependent on your inputs - I could go up to the mountains with 1,000 friends and we could spend 20 hours a day studying the very best ways to roll dice and when we come back down in a few months one of us will produce consistent results. Does this mean we can draw a direct line from working hard at rolling dice to consistent results at rolling dice?

Re: Ask a Technical Analyst
 

[ QUOTE ]
The market for the last 5 years has been relatively "easy" to predict/fluke compared to historical precedent

[/ QUOTE ]

What has been so easy about the last 5 years that differs from any other random 5 year period?

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
The market for the last 5 years has been relatively "easy" to predict/fluke compared to historical precedent

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What has been so easy about the last 5 years that differs from any other random 5 year period?

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Duh, it's because he knows what happened over the past 5 years but doesn't know what is going to happen over the next 5 years.

Re: Ask a Technical Analyst
 

Can you apply the same analysis to commodities (either as a commodity or a traded fund such as SLV)?

Re: Ask a Technical Analyst
 

[ QUOTE ]
Last 5 year average approximately 35% annual return.

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Is this arithmetic?

Re: Ask a Technical Analyst
 

What do you use to define the underlying trend? I t sounds like you trade short-term swings over a couple of days or so. I assume you only act on signals that will give you trades in the direction of the longer-term trend.

I'm working on a system using oscillators which search for value in a longer-term trend. ie - buying temporary value in a rising market or selling rallies in a falling market.

I've never seriously looked at candlesticks but I'll dig out one of my old books and look further into it.

I'm currently using MACD to find the longer-term trend, and I'm experimenting with it as an oscillator also. I made a post last week which showed what I believe to have been a top, or at least a temporary top in many global stock markets using MACD-histogram divergences.

This opened up a change of tack which allows me to begin trading only from the short side (selling rallies).

How do you decide which side of the market you're going to take? You can go long, short, or stand aside. Only 2 of those options are allowed at any one time (for me) but I know some sytems (such as using parabolic SAR) are either always long or short, and don't tend to have a bias towards longs during uptrends etc. (unless you add filters).

So, do you filter your candlestick indicators to only take trades with the underlying longer-term trend? I know doing this will miss lots of big reversals, but I also believe it reduces your risk significantly.

Re: Ask a Technical Analyst
 

[ QUOTE ]
I tried daytrading once....once.. in fact I worked at a daytrading firm for about a week to figure out that it wasn't for me. Why grind and go nuts for pennies at a time, when you can make your life easier and pick up the dollars with less stress? Making 200 trades a day isn't fun, and especially with the Nasdaq stocks, there is TA involved, but that game, to be really successful is about learning the market maker and playing against him. People don't realize that it is humans you are playing against, and like poker they have tendencies. So, essentially you have to learn the MM, learn how to fade his tricks, and get in his head because the same patterns do come up in many places. I just hated that pace.

[/ QUOTE ]

Nah, daytrading may have been like that 7 or 8 years ago, but not any more. You do 1000 shares a trade, 6 a day, win 4, lose 2, net 25 cents per trade for $500 a day. You don't try to beat the spread, which is impossible anyway with 1 and 2 cent spreads. You play the moves, just like swing trading except smaller.

Another good site for free static charts is bigcharts.com. A great magazine for beginner and expert alike is Technical Analysis of Stocks & Commodities. There are always a couple free systems included, with source code for Tradestation and sometimes Metastock.

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
The market for the last 5 years has been relatively "easy" to predict/fluke compared to historical precedent

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What has been so easy about the last 5 years that differs from any other random 5 year period?

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Is this a serious question?

Re: Ask a Technical Analyst
 

[ QUOTE ]
Is this a serious question?

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Yes. I have no idea how the last 5 years have been easier to predict than the next 5 will be or any other 5 period randomly throughout history?

Re: Ask a Technical Analyst
 

[ QUOTE ]
What's your take on SYNL

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Never step in front of a speeding bus.

Re: Ask a Technical Analyst
 

[ QUOTE ]
[ QUOTE ]
Is this a serious question?

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Yes. I have no idea how the last 5 years have been easier to predict than the next 5 will be or any other 5 period randomly throughout history?

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For certain trading methologies, the last 5 years have been easier 'predict' maybe because of the clearer defined trends and the relative lack of trading ranges in the global stock markets.

'Predict' would not be the term I'd use. I think 'follow' would be better.

Many trading systems rely on a reasonably strong underlying market trend as a back-drop for making trades. Also, placing long trades in a rising market is more +EV than placing shorts in a falling one, since the upside in a rising market is unlimited, whereas the downside in a bear market is limited to 100%.

Longer-term trend followers have done better following the many big trends in markets pretty much across the board. Trading-range markets produce account-eating whipsaws, but trending markets (especially as long as this current bull) are a dream for many traders.

Re: Ask a Technical Analyst
 

[ QUOTE ]
For certain trading methologies, the last 5 years have been easier 'predict' maybe because of the clearer defined trends and the relative lack of trading ranges in the global stock markets.


[/ QUOTE ]

While that may be true for the last year or two I would argue not so for the entire 5 year period. 2002 was very choppy and volatile as we finally bounced off of the bottom for the current bull run. 2003 was basically straight up. 2004 and 2005 where choppy and whippy with smaller ranges and a slight upward bias. 2006 and 2007 have been strong upmoves with only minor corrections (so far!) which were good for the trend following bull.

If you are looking for a trend following bull scenario however the 1995 to the 2000 top was a far cleaner and straighter run from bottom to top with fewer hiccups.

Re: Ask a Technical Analyst
 

wow this is incredible. i have just started spreadbetting the markets using the japanese candlestick method (even though i barely understand them, i just know black is bear and white is bullish and about what the lines mean, but not all the different names etc).

i have been using the system on www.britishbulls.com which also runs www.americanbulls.com

they use solely the japanese candlestick method, nothing else.

they tell you when to:

stay long or short for definite the following day

when to watch the stock on that day to see whether to reverse your position from long to short or vice versa.

i'm spreadbetting becuase although the spread is wider i can leverage a vast amount so my $20K i will soon be investing will be worth around $140K.

could you please explain what is wrong with my plan:

each day i will aim to long 5 stocks and short 5 stocks all based on what the british bulls site says. then whenever the market closes and for the following day, the site says that some of them may need to be reversed the following day (the reversal conditions are like if short and it opens higher and stays higher then go long), so i watch those stocks, checking every 30 mins or so, until i feel it is consistent enough to reverse my position.

ideally i will look at being able to put stops or limits down so it does it automatically if i need to reverse.

so say i wake up when market opens, if it is up or down at open, i take put a sensible reversal stop/limit that would be relevant with the stock reversal criteria.

also i will have the amount i put on each stock weighted with beta.

i would be huuuuugggeeeellllyyyy appreciative if you could reply with your thoughts.

fwiw i'm 23, becoming a trainee accountant in mid oct, till then i have $160k of poker winnings saved up, of which i'd like to use $20k to try out this system. i am free all day every day becuase i play online as a semi job.

many thanks if you can give some feedback.