Most Useful Technical Indicators
- Thread starter Investorsources
- Start date
Investorsources, thanks for this interesting thread. I've just started reading it.
What you're describing are setups. They tell what'll be the probable price action. To pin-point when to open your position you have to use entries. They confirm that the price action started in your favor, and that you're not too late to benefit from the probable future price action.
You may want to browse this article that makes the distinction between setups and entries, and explains why using both increases your chances of success:
http://www.elitetrader.com/tr/index.cfm?s=17&t=75
I disagree with you on money management. I recommendQuote from kut2k2:
Stock prices have non-stationary noise. If they were all noise, you wouldn't be able to trade them. Money management means squat without an edge. Good indicators will give you that edge. Mediocre indicators won't.
Van Tharp's "Trade Your Way To Financial Freedom".
There are a lot of articles about tape reading. One of them is this one: http://www.clifdroke.com/info/tapereading.mgi
"Strictly defined, tape reading is the practice of interpreting price-to-volume configurations of listed securities on the various stock exchanges. Since trading volume is an extremely important (and frequently overlooked) element of stock trading, a major premise of tape reading is that buying and selling interest can most readily be identified and measured by looking at a stock's volume at any given time in relation to its trading range. In classical tape reading, price and volume are given equal weighting and each element can never be analyzed without the other.
...
Tape Reading seems to us: The science of determining from the tape the immediate trend of prices.
It is a method of forecasting, from what appears on the tape now, what is likely to appear in the future."
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Investorssources;
Like Investors Busoness Daily says,50 dma,200 daily moving averages. Hand copied price data is most helpful, wise.
And you may want to check out /test many more dma;
CCI is a good one,have used it,
prefer moving averages more than CCI ,
CCI is more useful to shorter time frames.
$35 was a logical buy on SMH;
in this weak market for longs,$ 33.98,which is below 200dma,
could be a good sell, on many time frames
Do exspect some excellant uptrends in 4th quarter tek,semi sector ,oil/gas sector;
and much more wild swings up/down this year than normal,
so trading smaller when much more volitility is exspected.
DIA has spent so much time below 200 dma this year ;
looks more polar bearish than ever.
Basically, the idea is to determine what set-up you are going to trade based on (i.e. S/R, trend, etc.) and then use the other indicators as your price entry point.
That is a very good analysis, but lacking in some general ways.
First off, You choose a stock/index which you feel is fundamentally sound. Second, you choose to buy the stock when it reaches oversold conditions based on whatever indicators you choose. However, the entry, although great in the way it is explained, is merely telling us to enter based on another indicator from another subset of S/R indicators, for example.
Correct me if I am wrong, but the professional day trader will look at a stock in the above example and base his entry on something immediate as price action. What that article talks about is more swing trading or even trend trading, where they base their entry on a set of conditions which in the end are again based on technicals. The pro trader will base his entry on what the market is telling him at the time and he will only look at stocks in the oversold or overbought state so that mathematically his odds are that he will score a profit.
So, basically, when looking at the SMH at its current level. We have the following information:
It has crossed its 200day Moving averages (SMA and EMA) last week and had been trending lower still.
The MACD is at -1.0 the lowest its been all year.
The Stochastics are reading the stock at 20
The RSI is approaching 20
So, say that you are happy with what you see for a long set-up and you want an entry now. A pro-trader will enter when there is significant weakness and the trend has changed based on price action. What would a normal trader do. Wait until the stochastics cross back above 20 and hold. I mean the coke example in the article is all well and good, but in hindsight you are looking at a way not to miss a move. I am looking at a way at declaring a bottom as vociferously as possible so as to yield a potential trade to the upside and then get out quickly when the trend changes direction again. I have seen the RSI cross back above 20 many times, only to have the stock revert back down and guess what, youre caught because you thought your entry was signaled when the RSI crossed 20. Whatever indicator you use, this can happen.
I believe that, without looking at what is going on each and every day on a minute by minute, tick by tick basis, you can only look at the above set-up and assume that conditions are oversold and it is time to enter. Waiting for a potential trend to change (i.e. The stochastics or RSI has crossed back above 20) is basically a recipe for disaster no different than simply buying the stock when the stochastics are below 20. I mean, it would stand to reason that if the indications are oversold, at some point, all things being equal (i.e. markets not crashing, terrorist attacks), the stock will rebound.
That is a very good analysis, but lacking in some general ways.
First off, You choose a stock/index which you feel is fundamentally sound. Second, you choose to buy the stock when it reaches oversold conditions based on whatever indicators you choose. However, the entry, although great in the way it is explained, is merely telling us to enter based on another indicator from another subset of S/R indicators, for example.
Correct me if I am wrong, but the professional day trader will look at a stock in the above example and base his entry on something immediate as price action. What that article talks about is more swing trading or even trend trading, where they base their entry on a set of conditions which in the end are again based on technicals. The pro trader will base his entry on what the market is telling him at the time and he will only look at stocks in the oversold or overbought state so that mathematically his odds are that he will score a profit.
So, basically, when looking at the SMH at its current level. We have the following information:
It has crossed its 200day Moving averages (SMA and EMA) last week and had been trending lower still.
The MACD is at -1.0 the lowest its been all year.
The Stochastics are reading the stock at 20
The RSI is approaching 20
So, say that you are happy with what you see for a long set-up and you want an entry now. A pro-trader will enter when there is significant weakness and the trend has changed based on price action. What would a normal trader do. Wait until the stochastics cross back above 20 and hold. I mean the coke example in the article is all well and good, but in hindsight you are looking at a way not to miss a move. I am looking at a way at declaring a bottom as vociferously as possible so as to yield a potential trade to the upside and then get out quickly when the trend changes direction again. I have seen the RSI cross back above 20 many times, only to have the stock revert back down and guess what, youre caught because you thought your entry was signaled when the RSI crossed 20. Whatever indicator you use, this can happen.
I believe that, without looking at what is going on each and every day on a minute by minute, tick by tick basis, you can only look at the above set-up and assume that conditions are oversold and it is time to enter. Waiting for a potential trend to change (i.e. The stochastics or RSI has crossed back above 20) is basically a recipe for disaster no different than simply buying the stock when the stochastics are below 20. I mean, it would stand to reason that if the indications are oversold, at some point, all things being equal (i.e. markets not crashing, terrorist attacks), the stock will rebound.
I know from the beginning that I'll be right sometimes and wrong sometimes So, I try to improve my odds opening a trade based on a two or three time frames setups, and an entry signal. I enter only if my reward / risk ratio is acceptable, based on my stop-loss and exit target. I trade mostly in the trend or divergence direction, with a pre-defined time frame: I get out if the time is out even if neither my target nor my stop were hit. Although I'm flexible, I try to stick with the plan I wrote down before opening my trade, when I was less biased.
If I have a setup but I can't enter, I don't chase it. There'll be others.
I consider market direction, beta and volatility too.