Posts tagged with: Technical Analysis

Today, I’ll present another simple strategy that new and experienced traders can use right away.  The idea here is to find stocks that have extended too far in one direction and are lined up for a short-term bounce or pullback.  I show you how to filter down a long list of potentially good setups into the ones that are most likely to succeed.

 

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Waveform

(CC image by Creativity103 on Flickr)


Section 1: How to Setup Your Chart

  • Choose timeframe
  • Bar chart with OHLC (open-high-low-close)
  • How to read a bar chart
  • Green OHLC bar

Section 2: Support & Resistance Lines

  • How to spot a trend
  • Uptrend

    Uptrend: Moving averages in alignment

  • Drawing support & resistance lines
  • Slope
  • A trading range
  • Narrowing vs. expanding formations
  • Why it works
  • How to select the best setups

Section 3: Momentum Oscillators

  • What is momentum?
  • Overbought and oversold levels
  • My favorite momentum oscillators

Section 4: The Mean-Reversion Strategy

  • How to do it
  • Why it works
  • Momentum crossovers
  • How to select the best setups

Section 5: Trade Management Basics

  • Protective stops
  • Taking profits

Examples

Example 1 - Macy's (M)

Uptrend within a channel: 1 buy signal, 3 sell signals


Example 2: CMG

Price reaches major resistance level, and conditions extremely oversold: good short-term buying opportunity – but a tighter stop-loss would have been needed to preserve profits.


Example 3: T

Strong buy in AT&T signaled as price reaches long-term resistance AND prior support lines, along with highly oversold conditions


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Today, I’ll present two simple trend-following strategies that new and experienced traders can use right away. I explain two easy methods for trend trading along with my top tips for profiting from these strategies.  I show you how to filter down a long list of potentially good setups into the ones that are most likely to succeed.

 

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Path

(CC image by Anna on Flickr)


Section 1: How to Setup Your Chart

  • Choose timeframe
  • Bar chart with OHLC (open-high-low-close)
  • How to read a bar chart
  • Green OHLC bar

Section 2: A Basic Pullback Strategy

  • How to spot a trend
  • Uptrend

    Uptrend: Moving averages in alignment

  • Trend persistency
  • Wait for a pullback
  • Trade entry
  • Why it works
  • How to select the best setups

Section 3: Moving Average Pullback Strategy

  • What is a moving average?
  • Which moving averages to select
  • Daylight
  • Trade entry
  • Moving average pullback example

Section 4: Trade Management Basics

  • Protective stops
  • Trailing stops
  • Taking profits

 


Resources

The Layman’s Guide to Trading Stocks, by Dave Landry

 

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This week’s trade of the week comes to you from Tuesday’s live trading stream on Twitch:

 

I recommend sector trading as a great place to begin when implementing active trading strategies for the first time.  Researching individual stocks, as you always should before placing a trade, requires browsing through the annual statement, financials, and other investor resources of that company.  It’s extra work, which many traders simply don’t have time for.  Why not start trading sector ETFs instead?

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Today I did a complete top-down and bottom-up analysis of commodities.  You can view the full recording in the two YouTube videos shown below.

Key takeaways:

  • Long-term trend towards lower inflation and/or deflation remains in place
  • Rising USD may provide a short-term impetus for commodity decline
  • I expect base metals (e.g. copper) to be the weakest of all commodities going forward
  • Recent rallies in gold and oil seem driven by fear and geopolitical concerns; likely to be reversed.

For more videos like this, subscribe to my YouTube channel at http://www.youtube.com/c/Torpedotrading1

You can watch these sessions live and interact with me at https://www.twitch.tv/torpedotrading

 

 

 

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The Right Way to Read a Chart

(Part 7 of ten-part series on Financial Truths)

 

Section 1: What is Technical Analysis?

Section 2: Identifying the Higher-Level Trend

Section 3: Pattern

Section 4: Price

Section 5: Momentum

Section 6: Time

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Section 1: What is Technical Analysis?

Section 2: Identifying the Higher-Level Trend

  • Uptrend: Series of rising lows
  • Downtrend: Series of falling highs
  • Diagnosing trend during choppy periods

Section 3: Pattern

  • Trends (same direction as the higher-level trend): typically consist of 5 waves (3 trend waves and 2 corrective waves)
  • Corrections (opposite direction as the higher-level trend): typically consist of 3 waves (2 trend waves and 1 corrective wave)
  • Basic patterns
  • Advanced patterns: Harmonic (e.g. Bat, Butterfly, Gartley)

Section 4: Price

  • Identify high-probability price targets and zones for trade entry/exit
  • Depth of past trends & corrections
  • Fibonacci retracements and projections
  • Pattern completion targets

Section 5: Momentum

  • Stochastics, MACD, or RSI
  • Examine multiple timeframes

Section 6: Time

  • Less precise than the other dimensions, but don’t ignore it
  • Correction periods should be shorter than trend periods
  • Length of past trends & corrections (e.g. 180 months for long-term cycles, 10 months for intermediate-term cycles)
  • Cycle compression/decompression
  • Fibonacci ratios can work on time as well as price
  • Pattern symmetry

 

Real-Life Examples:

Chart 1: Technical Framework in Action

Chart 2: Profitable Harmonic Pattern Set-Up

 

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(Part 5 of ten-part series on Financial Truths)

Section 1: The Efficient Market Hypothesis

Section 2: Who Is Your Competition?

Section 3: What Is Your Edge?

Section 4: The Wrong Ways to Use Technical Analysis

Section 5: Certainty vs. Probability

Section 6: The Winning Way = Big-Picture View + Timing Tools

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Section 1: The Efficient Market Hypothesis

  • Definition and forms: Weak-form, Semistrong-form, Strong-form
  • Why the efficient market hypothesis does NOT hold in the real world

Section 2: Who Is Your Competition?

  • The vast majority of shares are held by institutions or individuals who cannot or do not transact frequently
  • Paper by Edward Wolff of NYU – chart on top of page 15
  • Active vs Passive: Approx. 2/3 of US equity fund assets are classified as “actively managed”, 1/3 passive – statistic from Bloomberg article – but are they really “active?”
  • Who’s actually trading, reacting to new information that should affect prices?

Section 3: What Is Your Edge?

Section 4: The Wrong Ways to Use Technical Analysis

  • Ignoring one or more of the dimensions: Price, Pattern, Momentum, and Time (credit to Robert Miner – I recommend his book)
  • Magic indicators
    • Overbought and oversold indicators ARE NOT trading signals
    • Trading on momentum signals (e.g. Stochastic or MACD crossovers) by themselves will generate losses
    • “Bearish crossovers” marked by red lines would have produced large losses and significant trading costs, if used as signals to go short.

  • Trend-following: generates huge losses at major highs and lows, and repeated small losses in choppy markets
    • A simple method of trading moving average crossovers (20-day over 50-day) produced 6 wins, 11 losses, and lots of trading costs. Awful!

  • Failing to make a trading plan
  • Failing to make a risk management plan or to adhere to your plan
  • Ignoring trading costs and the cost of leverage

Section 5: Certainty Vs. Probability

  • You can never know for certain what the market will do
  • Technical analysis, when used correctly, identifies high-probability zones

Section 6: The Winning Way = Big-Picture View + Timing Tools

 

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