Once you become aware of alternative trading cycles you will begin to look and analyze markets a bit differently. GOVERNMENT REQUIRED RISK DISCLAIMER: FUTURES & FOREX TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISK. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING.ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. With CAN SLIM and Morpheus, both proven to be profitable trading systems over the years, one of the most reliable indicators to re-enter the market after a price correction is the occurrence of a follow-through day.
A follow-through day occurs when one of the main stock market indexes gains at least 1.3%, on higher volume, on or after the fourth day of a bullish reversal attempt off the lows.
Below is a daily chart of Nasdaq Composite that shows the follow-through day that kicked off the dominant, long-term rally the broad market remains engaged in.
Notice that the follow-through day did not happen until Day 21 after the reversal off the low. Again, in order to be valid, the follow-through day must occur on Day 4 or later (not necessarily right on the fourth day). Although aspects of our trading system, such as the timing model, are mechanical and rule-based in nature, discretion still plays a major role in our overall trading strategy. Particularly if you are new to active trading, it is extremely important for you to understand how to properly determine the the size of every stock you buy.
When the stock market is in correction mode (or even in transition), an excellent way to reduce your overall risk is to simply reduce your average position size until the market generates a fresh new buy signal. Decreasing your capital risk exposure during market corrections, while conversely maxing out your maximum dollar risk in overly bullish markets, is the key to consistent risk management that will keep you in the trading business for the long-term. The main point is that the count starts on the first big bullish reversal day that follows a correction, and the count remains just as long as the index holds above the low of the reversal day.
It was the same time period that several online trading companies were launched for individual traders.
There is no strict guideline or magic number as to how many trades each day works and how many doesn't work. This method of analysis will help improve your stocks day trading technique as well as improve your overall trading results. Therefore you must adjust your trading style and learn to trade both trending and range bound trading cycles. For example, when the stock market changes from trending to range bound cycle, both volume and volatility decrease. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. So, with not a little irony, this post will be about day trading.Experienced swing traders are familiar with support and resistance lines drawn from prior lows and highs on a chart. Also, remember the follow-through day can occur at any time after Day 4, as long as those lows are violated.
This is quite different compared to an investor, who buys a stock with the intention of holding the position for the long term and anticipates increasing value over time.
Notice in this example how Hyatt Hotel stock alternates between range bound and trending periods, once you start paying attention to this alternation pattern you will begin taking it into consideration when planning your entry and exit strategies. When markets are beginning the trending cycle, the lows of the day usually occur in the mornings and the highs of the day typically occur towards the closing bell. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. If you have a lot of other things going on, making a lot of trades each day takes a lot out of you and becomes stressful to the point where it is unecessary and counter productive. When analyzing markets from a long term view you gain insight into past trading history and more importantly clues as to how the market may behave in the future. Stock Market is just entered what appears to be range bound market conditions after trending for several months.
You can see by looking at this chart that the stock market was previously trending strongly since September of last year.
If that level is broken in subsequent trading, it becomes resistance once again.There is a simple way to use this same principle in day trading.
It appears that sometimes during the first week of April of this year, the Stock Market entered a trading range cycle. Once I determine the current trading characteristics I immediately look back to see when the market exhibited the opposite characteristics. Before electronic exchanges, floor traders looked at the prior day’s high, low and close to determine important levels for the current day. The basic idea is that price activity is symmetrical, so if price traded $1 below the pivot yesterday it might try to test that range to the upside the next day. The range to the downside in Day 1 (first green box) was tested to the upside four times in Day 2.
When traders talk about a boring day in the markets, it’s often a day that trades between S1 and R1.
Upticks occur when buyers are motivated and accepting offers; downticks occur when sellers are motivated and accepting bids.
Be aware that a cluster of low ticks or persistence of a greater numbers of low ticks than high ticks over the course days indicates big selling. Note that it occurred right at a support level and it was a great day trading signal to get long.High ticks in a bull market are more common. The concept is still that high ticks represent at least short-term exhaustion on the part of buyers.Most trading software includes a tick feed.
Because the price is weighted by volume, it tells you the average transaction price for a period of time, in our case a day. Because its volume weighted, it is more sensitive in the early part of the day.There are two uses for vwap. When price in unable to regain vwap and vwap is in decline, the trend is usually down for the rest of the day. Expect weaker bounces and lower support levels, which offers opportunity for day trading on the short side. Below, the day ended flat after trading between only the pivot and S1 all day.The second use for vwap is that it can act as intermediate support and resistance. Price can find resistance at vwap on rallies later in the day, as well as support at vwap on weakness.
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