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Jan 2, 2008 - Combining the timing and trend indicators and using price action to confirm them will increase the probability of a trade going the right way...
From the previous article, the strategy of using a timing indicator with a trending indicator to define and understand market structure was explained. Using SwingTracker, the trader can scan and automate the search process to filter out the stocks that meet the right criteria to make the trade. This is the formula for finding a long entry. VOLUME > 100000 AND MACD15 >MACD15_5 AND STO12_K < 20 AND IQC_1=1
In the results from a scan shows CLWR in a consolidation from price action, but MACD is moving high, something that cannot be detected by simply looking at the price chart alone. The trend has steadily gone up while the Stochastics reading is below 20, this is right time to watch it carefully. Once the Stochastics line begins moving up (usually by a price moving higher and closing higher than previous day), then an entry will be taken.
This stock seems a bit thin but it met the scan’s criteria. If taking a look at the chart, one can see the divergence taking place between price action and the MACD seen from late August to beginning of November. This is the first clue that the stock is changing roles soon. There maybe some accumulation taking place in a very discrete way. Back to the last bar to the right, the MACD is now turning up again and Stochastics is moving up along with the big price spike and closing at the high, this is a positive price action. The momentum is starting to pick up steam and the moment is right for a long entry. Be sure to set a stop loss order.
PGIC is trending down, this is clearly a downtrend. It’s recommended to follow the trend. But in this case, if the long is taken, it’s a counter-trend trade: a very risky trade and requires bigger nerves of steel and a different perspective to take it. However, it’s possible the stocks sellers are near exhaustion, with the prices decelerating. Stochastics is turning up from oversold and MACD has been moving up while prices continues down: a divergence. So the trade might have a good chance, but make sure the stop loss order is place to avoid being wrong BIG. For short scan, here’s the formula: VOLUME1 > 100000 AND MACD15_1 < MACD15_5 AND STO12_K > 80 AND IQC_1=1
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Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.
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