Ask a Technical Analyst

[thehun69]

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.

[stinkypete]

what's your track record

[thehun69]

Last 5 year average approximately 35% annual return.

[thehun69]

and no, I'm not showing personal statments.

[Objectothis]

Which technical analysis patterns or indicators do you believe work?

[yellowbastard]

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

[mrbaseball]

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?

[thehun69]

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

[/ QUOTE ]

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.

[thehun69]

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

[/ QUOTE ]

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.

[thehun69]

[ 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?

[/ 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.

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.