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Spydertrader's Jack Hershey Equities Journal II
- Thread starter Spydertrader
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This is an interesting article that can be related to Jack's "Bruno R" post recently referred by Spydertrader.
Please read the full article with charts at: http://www.traderslog.com/Buying-New-Momentum-Highs.htm
Please read the full article with charts at: http://www.traderslog.com/Buying-New-Momentum-Highs.htm
- <DIV> <H1><FONT face="Verdana, Arial, Helvetica, sans-serif" color=#c00000 size=3>
<B>Buying New Momentum Highs</B></FONT></H1> <P align=left><FONT face="Verdana, Arial, Helvetica, sans-serif" size=2>By Linda Bradford Raschke, </FONT></P> <P align=left><FONT face=Verdana size=2>...</FONT></P></DIV> <DIV> <P><FONT face="Verdana, Arial, Helvetica, sans-serif" size=2>It is ideal to use a true momentum oscillator such as a moving average oscillator as opposed to an oscillator such as an RSI or a stochastic that is set against a fixed scale._ However a trained eye will be able to see the same thing in any oscillator. I have always used <STRONG>the difference between a 3 and 10 period simple moving average</STRONG> and that is what is used in the following chart examples. </FONT></P>
<P><FONT face="Verdana, Arial, Helvetica, sans-serif" size=2>First, before making a trade, it is important to qualify the volatility conditions._The <STRONG>first condition for our trade setup is that volatility has been contracting and the market has formed a "sideways line".</STRONG>_This is analogous to the price trading multiple times back and forth through a fixed level, which is what happens when the market consolidates and forms a chart formation. The ideal breakouts will occur when a trader is able to draw converging trendlines around a chart formation. If price penetrates a trend line, this does not guarantee a true breakout and there is nothing more frustrating than entering a premature breakout. </FONT></P>
<P align=left><FONT face="Verdana, Arial, Helvetica, sans-serif" size=2><STRONG>Once the potential breakout formation is identified, go down to a lower time frame.</STRONG>_ For example, if the chart formation is on the daily charts, go down to a 15 or 30-minute time frame._If a trader sees an extended consolidation on a 5-minute SP chart, go down to a 1- minute time frame. The lower time frame is our trigger to enter the trade. We will <STRONG>buy half a position AT THE MARKET when both the price and the momentum oscillator on the lower time frame make new highs</STRONG>._A bid for the balance is immediately placed a few ticks below the initial entry price._Sometimes the balance of the trade may not be filled in which case the trader can still add on the first pullback from a higher level. But, the main point is: get at least PART of the trade on!</FONT></P>
<P align=left><FONT face=Verdana size=2><STRONG>Momentum precedes price.</STRONG> By waiting for a momentum oscillator to make new highs, a trader has doubled his confidence level that the price action will have follow-through in the direction of the breakout. Short-term momentum precedes longer-term momentum. Evidence that the market is tipping its hand will always be detected on the shorter time frames first. An oscillator will make new momentum highs on a 15-minute chart before it does on the hourly charts. </FONT></P>
<P><FONT face=Verdana size=2>No methodology would be complete with out risk and trade management guidelines. <STRONG>Stops in the case of an upside breakout should be placed at the price level that coincided with the last oscillator swing low</STRONG>. More often then not, the market will make "Three pushes up" and the trader will have entered on the first wave. Since the trade was entered "at the market" (thus costing the trader in efficiency), an effort should be made to exit by placing an offer to remove part of the trade as the price is rising. </FONT></P>
<P><FONT face="Verdana, Arial, Helvetica, sans-serif" size=2>This is not meant to be a trend following method, but rather one more tool in the short-term discretionary trader's toolbox. <STRONG>Taking a piece out of the middle of a momentum</STRONG> move is a form of swing trading too. Swing trading is nothing more then using the markets most immediate price action to forecast the next move or swing â and this can apply to any time frame, be it 1-minute charts or a weekly chart.</FONT></P> <P align=left><FONT face=Verdana size=2>...</FONT></P> <P align=left><FONT face=Verdana size=2></FONT>_</P></DIV>
Three Power Outages resulting from severe weather this morning kept me from entering any trades today. I hope some of you, experiencing nicer weather, made some money today.
- Spydertrader
- Spydertrader
took a position in TRLG today, closed reasonably and met FRV.
some folks might not have it on their radars since it has 4 out of 5 cycles (by my observance).
I'm away from home so my position is smaller than normal.
irrespective of what happens tomorrow, it's nice to be making money right from the start. Hopefully it's a 'good sign'.
entry price 21.09
whoops, i made a booboo, lol. forgot to check the earnings release date...looks like i'll be dumping it tomorrow. (3/15 are earnings)
some folks might not have it on their radars since it has 4 out of 5 cycles (by my observance).
I'm away from home so my position is smaller than normal.
irrespective of what happens tomorrow, it's nice to be making money right from the start. Hopefully it's a 'good sign'.
entry price 21.09
whoops, i made a booboo, lol. forgot to check the earnings release date...looks like i'll be dumping it tomorrow. (3/15 are earnings)
Quote from Dantheman:
took a position in TRLG today, closed reasonably and met FRV.
Nice to see you a little ahead on this one. Keep up the great work. As you already pointed out, remaining cautious during earnings announcements can save significant pain. I recently brought TRLG off the bench (after reaching enough 'market days') and TRLG now finds itself in the Final Universe. In addition, I added NDAQ to the Final Universe this evening.
Good Trading.
- Spydertrader
Sorry for the delay in replying about automating the system (public holiday here in Victoria, Australia).
I am automating the entries, not the entire strategy. The U.S trading day runs from 01.30am to 8.00am currently (due to daylight savings), so I can see the end of the day, but not the open. Unfortunately, I have realised that the bulk of the moves have occurred by the end of the trading day.
To do this, I create a watchlist of stocks in dry up prior to the days open. I use all 5 methods of dry up outlined in Journal 1, since no 'best' method was identified.
I actually scan the past 3 days for dry up and include those stocks where it appears to be only 'just' out of dry up, i.e. the volume in the most recent day was not appreciable larger than the dry up volumes and price hasn't done a great deal.
Once I have this watch list, I then use Amibroker to monitor the 30 min stochastic & MACD as per the hershey calculations on 1 minute bars.
Because my intraday history is less than 65 days, I am using some different calculations for the intraday dry up volume. I am using the previous days volume as the DU Volume. My reasoning is that a dry up day's volume equates to DU Volume. If the stock has reached 50% of the previous days volume by 12.00pm, I automatically enter a trade. A 2% stop loss and 10% profit target are automatically entered via an IB bracket order.
A chart of an order appears below. For ease of reading, the timeframe is set to 5 minute, not 1 minute.
<a href="http://imageshack.us"><img src="http://img131.imageshack.us/img131/3110/growexample3nh.png" border="0" width="734" alt="Image Hosted by ImageShack.us" /></a>
The top two windows are the MACD & Stochastics. The main window has the buy price and stop loss plotted as horizontal lines, once the buy has been triggered. You can also just see the profit target as a green line near the top of the price window.
The bottom window is the cumulative volume. The horizontal dashed line is 50% of the previous days volume (i.e. Dry Up). The vertical dashed line is the cut off time for volume to reach this level. If DU is exceeded prior to the cut off time, all subsequent bars are painted red. The green horizontal line is the FRV threshold, which I currently have set as 200% of DU Volume. If FRV is exceeded, bars are painted green.
As you can see, FRV wasn't reached, so as per the rules below, I'd be exiting on open tomorrow (which I would do automatically as well).
Once I'm in a trade, I apply the following rules.
i) If FRV not reached, exit next day on open (within 5 minutes).
ii) If FRV reached, move stop loss to breakeven at EOD if price is above entry price. I'd rather take a wash and lose profit, than take a loss.
iii) Exit via sell limit if 10% hit.
iv) Exit after 4 days at EOD if none of the above conditions are met.
The attached spreadsheet provides an overview of the trades taken using this method for the past month.
Not all of these have been auto traded (and I am only running this on an IB PaperTrader account until I am ABSOLUTELY sure it works), but I checked each trade on a bar by bar basis, which meant some nice trades were not taken or stopped out. Such is life.
Position size is automatically calculated based on current equity and a 2% risk. Position sizes are rounded down to round lots, e.g. 270 stocks becomes an order for 200.
This is very much a work in progress, so any feedback would be greatly appreciated. If anyone wants the AFL (Amibroker files), let me know but be warned that since I'm constantly tinkering, the code isn't that clean.
I am automating the entries, not the entire strategy. The U.S trading day runs from 01.30am to 8.00am currently (due to daylight savings), so I can see the end of the day, but not the open. Unfortunately, I have realised that the bulk of the moves have occurred by the end of the trading day.
To do this, I create a watchlist of stocks in dry up prior to the days open. I use all 5 methods of dry up outlined in Journal 1, since no 'best' method was identified.
I actually scan the past 3 days for dry up and include those stocks where it appears to be only 'just' out of dry up, i.e. the volume in the most recent day was not appreciable larger than the dry up volumes and price hasn't done a great deal.
Once I have this watch list, I then use Amibroker to monitor the 30 min stochastic & MACD as per the hershey calculations on 1 minute bars.
Because my intraday history is less than 65 days, I am using some different calculations for the intraday dry up volume. I am using the previous days volume as the DU Volume. My reasoning is that a dry up day's volume equates to DU Volume. If the stock has reached 50% of the previous days volume by 12.00pm, I automatically enter a trade. A 2% stop loss and 10% profit target are automatically entered via an IB bracket order.
A chart of an order appears below. For ease of reading, the timeframe is set to 5 minute, not 1 minute.
<a href="http://imageshack.us"><img src="http://img131.imageshack.us/img131/3110/growexample3nh.png" border="0" width="734" alt="Image Hosted by ImageShack.us" /></a>
The top two windows are the MACD & Stochastics. The main window has the buy price and stop loss plotted as horizontal lines, once the buy has been triggered. You can also just see the profit target as a green line near the top of the price window.
The bottom window is the cumulative volume. The horizontal dashed line is 50% of the previous days volume (i.e. Dry Up). The vertical dashed line is the cut off time for volume to reach this level. If DU is exceeded prior to the cut off time, all subsequent bars are painted red. The green horizontal line is the FRV threshold, which I currently have set as 200% of DU Volume. If FRV is exceeded, bars are painted green.
As you can see, FRV wasn't reached, so as per the rules below, I'd be exiting on open tomorrow (which I would do automatically as well).
Once I'm in a trade, I apply the following rules.
i) If FRV not reached, exit next day on open (within 5 minutes).
ii) If FRV reached, move stop loss to breakeven at EOD if price is above entry price. I'd rather take a wash and lose profit, than take a loss.
iii) Exit via sell limit if 10% hit.
iv) Exit after 4 days at EOD if none of the above conditions are met.
The attached spreadsheet provides an overview of the trades taken using this method for the past month.
Not all of these have been auto traded (and I am only running this on an IB PaperTrader account until I am ABSOLUTELY sure it works), but I checked each trade on a bar by bar basis, which meant some nice trades were not taken or stopped out. Such is life.
Position size is automatically calculated based on current equity and a 2% risk. Position sizes are rounded down to round lots, e.g. 270 stocks becomes an order for 200.
This is very much a work in progress, so any feedback would be greatly appreciated. If anyone wants the AFL (Amibroker files), let me know but be warned that since I'm constantly tinkering, the code isn't that clean.
Attachments
Quote from jonnyy40:
Yee Haa One of mine's of to the races while the other is $161 down at the moment.(not for long imo)
I am glad things are working out for you. From a learning standpoint, would you let us know what stocks you have invested in?
If you do not want to disclose, I am cool with that too.
jc
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