please share your thought process when you are looking at charts

[mute9003]

Whoa mama
Just to point out that "keep it simple" concept requires massive amount of data to narrow it down to simple trading technique both of you seem to have ridiculous amount of understanding of the details and inner workings of the market that simply runs in your head as a background process analyzing all info and giving you the simple outcome...
New traders have a bag of potatoes and a lambo this weekend running in the background
Analyzing stocks and giving them the "seems legit" buy now outcome. Which to my understanding is heavily used by institutions to create an attractive chart for noobs to trigger the "lambo this weekend" program and buy at the wrong time.
Just my 2 cents

 

[longandshort]

I guess that depends on what the price is doing when the last share is liquidated. My guess is it might increase as there isn't the supply. When there is nothing for sale buyers have to bid up the price to find sellers.
I can look at a chart and see what has happened.
All you know is that someone has to liquidate a large block of stock. If I own the stock I'm out when it starts to drop. Sure I can get caught with a gap down but unless you are the only one who has the information I'm not sure you can unload your position any faster than I can.

It also depends on who else is in the market for the stock. I've seen large blocks of stock traded without the price moving. I can't possibly know why other traders are making moves. All I can do is react to what they are doing.

Stocks increase in price because there are more people wanting to buy than there are willing to sell. If a stock is increasing in price the likelihood is it will continue to do so. What els do I have to know?

the losses on your gap-down trades will more than offset the smaller trading victories. it is possible to mimic the convexity of an option with rules but implementation challenges means you are still at risk of adverse selection without any due diligence.

 

[longandshort]

If you're looking at a chart and wish to do that, then I recommend following these steps:
1. know that stock prices are autocorrelated, momentum is a known phenomenon, but it is hard to capture this autocorrelation on shorter time frames because the data is noisy (stocks bounce around)
2. ultimately, flow (orders to buy/sell) creates a market for each price, but price sensitivity varies for different investors -- ETFs are not price sensitive at all, large mutual funds are price sensitive within a range, and HFT are sensitive within fractions of a penny
3. therefore, trading is acting as a middleman between the extremely price sensitive and the less price sensitive
4. the price sensitivity to information will be around liquidity -- you can observe patterns in liquidity on a long-term chart (higher volumes around the quarter, some random spikes due to liquidations or outside shocks, higher volumes around major new information, etc.)
5. you should see those big changes in volume as your exits, which means you need to have an understanding of the direction the stock will take between now and then
6. because of market impact, large investors (in aggregate) may take weeks in order to build positions, so monitoring the average volume at time, and changes in it, is useful -- but it should support momentum in the direction of a major informational event
7. as long as the major information was not already priced in, and the major information must effect 1) future free cash flows (revenue, capex, margins, etc.) or 2) discount rates (interest rates, risk, etc.)
8. if the stock rallies on stale news, you can fade it, and vice versa
9. if the stock rallies due to new information, if the information is material, you should expect: analyst revisions and updates, higher volumes (above avat), higher option implied volatility
10. you can ride this wave of momentum, and expect prices to move more randomly once the marginal boost to volumes has diminished
11. you should hold to the catalyst (earnings/merger announcement/product release) unless new information comes out that counters your view

Essentially buy the rumor sell the news.

 

[deaddog]

Essentially buy the rumor sell the news.

Or buy stocks that are going up and sell them when they stop going up.
You can use a chart to see which stocks are going up and when they stop.

 

[longandshort]

Or buy stocks that are going up and sell them when they stop going up.
You can use a chart to see which stocks are going up and when they stop.

at what timeframe? i've posted lots of backtests showing that these "simple" strategies don't work. any type of momentum return is going to be time varying, so you need to do more work than what you can do on a simple chart

 

[Handle123]

"Please share your thought process when you are looking at charts"

Look: If price alone is all you have as sourche of information then the only thing you can do is bet on the return distribution of price itself as well as the return distribution of inflection points.

Meaning:
If you draw lines and count how many times the line was rejected or pierced by price and by how much, that is your return distribution of that particular line. For almost all lines you draw there is zero positiove expectancy, hence you just waste commissions in the long run...

I think most humans get charts wrong, we define a chart as entire chart as the past. But "past what", what exactly does a chart represent, most would say it is numbers of price of an instrument, but is this truly correct? Quants tests for numbered patterns, but they seem to lose track of the whys. Trendlines, chart patterns, Fibonacci, Gann, Wyckoff, all of it is truly worthless if unless there is more volume on one side then the other side to push price. There is always some volume on heavier traded instruments on nearly every second, but if there is not huge volume to push price, price waffles.

When I look at a chart, first thing I am scanning is there something in recent past I should not take a trade, like perhaps a "Megaphone", this tells me not to take breakout trades but buy low and sell high instead of entering in the middle. Has the market traveled too far in current trend.
Is price building a wedge, is price dropping like a stone or is it going lower smoothly, is there divergence between price and volume, at least a third of my viable signals not taken cause of patterns where the stats tell me if I take my signals, probability drops to 50/50 or worse. If a trader don't have the answers before and during a trade, they need to wait. There really is something to doing 10,000 hours of screen time.

Haddaway - What Is Love - YouTube

 

[MrMuppet]

"Please share your thought process when you are looking at charts"



I think most humans get charts wrong, we define a chart as entire chart as the past. But "past what", what exactly does a chart represent, most would say it is numbers of price of an instrument, but is this truly correct? Quants tests for numbered patterns, but they seem to lose track of the whys. Trendlines, chart patterns, Fibonacci, Gann, Wyckoff, all of it is truly worthless if unless there is more volume on one side then the other side to push price. There is always some volume on heavier traded instruments on nearly every second, but if there is not huge volume to push price, price waffles.

When I look at a chart, first thing I am scanning is there something in recent past I should not take a trade, like perhaps a "Megaphone", this tells me not to take breakout trades but buy low and sell high instead of entering in the middle. Has the market traveled too far in current trend.
Is price building a wedge, is price dropping like a stone or is it going lower smoothly, is there divergence between price and volume, at least a third of my viable signals not taken cause of patterns where the stats tell me if I take my signals, probability drops to 50/50 or worse. If a trader don't have the answers before and during a trade, they need to wait. There really is something to doing 10,000 hours of screen time.

Haddaway - What Is Love - YouTube

yeah probably. But I'd rather spend 10.000 hours on figuring out how I can buy something for 5$ and sell it or something similar for 10$ because there is already someone waiting for it to buy it at 10$. But it's just me...and probably the entire financial industry.

 

[Leob]

"Please share your thought process when you are looking at charts"



I think most humans get charts wrong, we define a chart as entire chart as the past. But "past what", what exactly does a chart represent, most would say it is numbers of price of an instrument, but is this truly correct? Quants tests for numbered patterns, but they seem to lose track of the whys. Trendlines, chart patterns, Fibonacci, Gann, Wyckoff, all of it is truly worthless if unless there is more volume on one side then the other side to push price. There is always some volume on heavier traded instruments on nearly every second, but if there is not huge volume to push price, price waffles.

When I look at a chart, first thing I am scanning is there something in recent past I should not take a trade, like perhaps a "Megaphone", this tells me not to take breakout trades but buy low and sell high instead of entering in the middle. Has the market traveled too far in current trend.
Is price building a wedge, is price dropping like a stone or is it going lower smoothly, is there divergence between price and volume, at least a third of my viable signals not taken cause of patterns where the stats tell me if I take my signals, probability drops to 50/50 or worse. If a trader don't have the answers before and during a trade, they need to wait. There really is something to doing 10,000 hours of screen time.

Haddaway - What Is Love - YouTube

DEEP!!

 

[deaddog]

at what timeframe? i've posted lots of backtests showing that these "simple" strategies don't work. any type of momentum return is going to be time varying, so you need to do more work than what you can do on a simple chart

At what time frame? isn't that like asking how high is up? I buy a stock that is rising. I sell it when it stops rising. It might be the same day if it turns around. It might be 5 days or 2 weeks or 2 years before it stops rising. As the position moves into profit I tend to give it more room.

A stock I have just bought doesn't get much room. A stock I have held for a couple of weeks gets a chance to back and fill. (A swing low or a trend line becomes the stop) A stock I have held for a couple months has more room if it continues to act as I expect it to act.

AS for your back-tests, I'm a little suspect. You did one for me on Canadian stocks that wasn't anywhere close to reality. It chose stocks that were not making new highs and missed stocks that to me were obvious. When I asked about it I didn't get a response.

I realize to someone with your training the system seems way to simple to work but I've traded it successfully for some time now and it did keep me out of a couple major downturns.

 

[deaddog]

at what timeframe? i've posted lots of backtests showing that these "simple" strategies don't work. any type of momentum return is going to be time varying, so you need to do more work than what you can do on a simple chart

Let me explain how I use charts to swing trade stocks.
I do the majority of my research after the market has closed.

I have cash. That means I have recently closed a position.

I need to find a stock to buy. My strategy is simple, buy stocks that are going up. The best place to look for them is stocks that are making new highs.

Scan for stocks making new highs.

Choose the nicest looking chart pattern. (That's arbitrary but any stock that makes new highs will probably work) I prefer to find stocks breaking out of a long basing period on increasing volume. Next would be a stock in a steady up trend. I like stocks that have more volume on up days than they do on down days.

Buy the stock. Set a stop and base the position size on where that stop is. Honor your stop!! Don't keep it if it doesn't continue to act like you think it should.

Selling is the hard part and something I continue to tweak. Where to get out? I'm never getting out at the top. The price has to move against my position to trigger a stop. I am toying with setting arbitrary targets and scaling out. That way I can lock in some profit, protect my capital and still let a portion of the position run.

Rinse and repeat!!

Why is it important to know what the company or the economy is doing? If it's not doing well the stocks won't be making new highs.
I'll let the guys who can afford to hire the best researchers and do in-depth economic assessments drive up the price and then go along for the ride.