Spydertrader's Jack Hershey Equities Journal II

[foible]

Quote from cnms2:

Have you read Spydertrader's journals I and II? Do you trade the method he described? If you did, I probably don't understand what you asked. If you didn't, I don't know what you trade.

Hmmm... not good! I thought I was right on track, vanilla Hershey Equities method, but if my thought process is confusing others, there must be a big disconnect. Hopefully it's just my ability to communicate.

Let me explain.

From what I understand, we wait for stocks to enter dry up, place them onto a watch list, then enter after their pro-rata volume exceeds a threshold to indicate that they will be entering First Rising Volume. In this case, Spydertrader has refined it to include Lower Band Dry Up (LBDU) as the signal.

TSCM exceeded LBDU very early in trading, so that's good.

Next, we look for the %K of the slow stochastics to be above 80 (which it was) and MACD to be positive (which it was). So in that sense, all of the "planets" were aligned.

So that's what I meant when I said that it was signaling a buy on this scale.


But, in later exploration, JH and Spydertrader added in channels, so that we would enter towards the bottom of a channel to give the stock the greatest room to move. In this case, both TSCM and PWEI were very near the top of the channel on the 30 minute chart - a danger sign. But on the daily chart, they had a lot of room to move - a positive.

Further, large block trades were considered to be warning signs, and there were some large block trades going on.




So my confusion stems from the conflicting signals. I'm not certain how to prioritize these yet, and haven't developed the intuition to decide when a block trade can be ignored or not. As it turns out, the trade I passed on (TSCM) turned out to be the big winner as it cleanly broke out of its channel, and the trade I took (PWEI) is still very much channel-bound.


I know that we can't definately predict which stocks will go up, but I'm curious to see how others handle conflicting signals. In this case, very large block trades, conflicting channels on different scales, and aligned planets (volume, stoch & MACD).

Does that make a sort of sense? I'm trying to stick to the vanilla rules as much as possible and only add to in once I've got some experience and success.

 

[stevegee58]

Yikes. It's going to be a potentially busy day on Tuesday 5/30 with 19 stocks in dry-up and 2 on Bruno R buys (actually 3 but one overlaps both lists)

 

[Spydertrader]

Quote from foible:

So my confusion stems from the conflicting signals. I'm not certain how to prioritize these yet, and haven't developed the intuition to decide when a block trade can be ignored or not. As it turns out, the trade I passed on (TSCM) turned out to be the big winner as it cleanly broke out of its channel, and the trade I took (PWEI) is still very much channel-bound.

Thank you for providing additional detail to your original post. I think I now understand your concerns: How does one take action when a trader receives (what appears to be) conflicting signals from the system rules?

According to my records (using QCharts data) price fell at $27.05 USD when actual volume exceeded calculated LBDU Volume with respect to PWEI. Setting aside the 'block trade' concerns for a moment, the $27.05 Signal price places PWEI at the bottom of the current channel. In addition, we have a significant increase in volume coming into PWEI (hence the volume signal), while at the same time, pushing price higher (See Attached).

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1084882>

Moving to TSCM, we see a similar set up on the Daily Chart. Even if one chose to avoid entry until price broke from the lateral channel, TSCM price still remains in the bottom third of the uptrend channel at time of entry. In addition, we have a positive MACD Histogram alerting us to a change in trend (See Attached).

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1084883>

The system itself trades on a Daily timeframe. We use lower time frames (or fractals as Jack calls them) to enter and exit a trade. Review your own channels and compare them to what I have drawn in here. When I first started drawing in channels (on the advice of nwbprop) I often drew them incorrectly. The incorrect channels sometimes prevented me from entering a trade, and also kept me in trades where I should never have gone. Only after seeing what others had done (and practicing over and over again), did I begin to develop a sense of the appropriate location for the correct channel lines.

If I had to make a guess. I'd say your channels show a different trend on a different time frame or you simply placed the lines at a different location than I have shown above.

In an effort to avoid any confusion, I added the channel lines used in both charts above prior to the open on Friday.

With respect to block trades, I agree one should always remain suspicious when noticing these signals on a T & S Sheet. I often avoid trades entirely when a block trade appears. However, if you feel 'avoiding block trades' causes you to 'miss out' on potential profits, simply alter your risk assessment slightly, and enter on smaller size. Nothing says a trader can't '"test the water" before jumping into the pool. I do it all the time - entering with much smaller size.

One needs to keep in mind why the rule set in Journal One contains the parameters it does. The system tries to insure a beginning trader can take the trades where the highest probability of success exists. As the trader progresses and gains experience in the market, the intermediate or advanced trader uses a slightly different rule set - taking on additional risk in an effort to improve the reward. However, to the intermediate or advanced trader their experience mitigates what a beginning trader sees as increased risk.

Whether or not the time has arrived for a trader to take on the additional risk depends solely on where a person finds themselves along the path of experience and their individual psychology. By example, some individuals look at my trades and view them as too conservative, while others, find my methods risky. It all depends on perspective.

I hope you found the above information helpful.

- Spydertrader

 

[Spydertrader]

Attached Chart

 

[cnms2]

foible,

I guess that Spydertrader's reply fully answered your questions.

From my trading perspective I'd add that to enter a trade I firstly identify a favorable setup, and then I wait for an entry signal.

To identify a setup I'm looking for my trading time frame (i.e. daily or half-daily) to trend in the same direction with the next larger time frame. Once I identify a favorable setup, I refine my entry on a smaller time frame (i.e. 30 minute bars).

I use the same kind of analysis on the various time frames, but I weight differently some of its elements.

 

[Spydertrader]

Quote from stevegee58:

Yikes. It's going to be a potentially busy day on Tuesday 5/30 with 19 stocks in dry-up and 2 on Bruno R buys (actually 3 but one overlaps both lists)

Keep in mind that overall volume levels decline significantly around Market Holidays. I recommend exercising the same caution outlined in this post made on Monday after the 2004 Thanksgiving Holiday and the same analysis for last year.

- Spydertrader

 

[foible]

Quote from Spydertrader:

[...]The system itself trades on a Daily timeframe. We use lower time frames (or fractals as Jack calls them) to enter and exit a trade.

Can you clarify this, please?

In http://www.elitetrader.com/vb/showthread.php?s=&threadid=38777&postid=859367#post859367 you say:

Set the chart to monitor on a 30 minute time frame. Add the following under the candlestick price chart: Volume, MACD Histogram (5,13,6), and Stochastics (14,1,3).

You have a signal to go long, once volume exceeds the low band threshold for an equity, price is higher than previous day, MACD Histogram is positive and Stochastics (%K) is above 80.

So I understood that our entry signals (stochastics & MACD) are based on the 30 minute chart, and not the daily. But looking closer at your charts that you post above, they are daily and not 30 minute. This makes sense in that we're targeting a multi-day move, so we are most interested in the channels on the daily chart.

But how should we try to align the stochastics & MACD for entry? Do we want them to signal a buy on both fractals? Just 30 min?

If I had to make a guess. I'd say your channels show a different trend on a different time frame or you simply placed the lines at a different location than I have shown above.

Got it in one. I was drawing the channels on the 30 minute chart, and not the daily. Thinking about it now, the reason why the daily channels are most important seems obvious, given the nature of the system.

With respect to block trades, I agree one should always remain suspicious when noticing these signals on a T & S Sheet. I often avoid trades entirely when a block trade appears. However, if you feel 'avoiding block trades' causes you to 'miss out' on potential profits, simply alter your risk assessment slightly, and enter on smaller size.

That's very good advice, thanks.


BTW: I've been reading the Phantom's Gift that you linked above. Excellent stuff! There is a lot of very good advice in there. Thank you for passing on the link. I'd recommend that anyone (new or old) read through it, even if only the first few chapters.

 

[cnms2]

Thanks for this link Spydertrader.

I kind of disagree with rule #1:

• In a losing game such as trading, we shall start against the majority and assume we are wrong until proven correct! (We do not assume we are correct until proven wrong.) Positions established must be reduced and removed until or unless the market proves the position correct! (We allow the market to verify correct positions.)

At least when you're trading a momentum system.

I'm not a fan of rule #2 either:

• Press your winners correctly without exception.

Especially the "adding to your position once a trend has established itself". I don't enter before I'm confident enough about the trend. Scaling in a large size position is another thing.

 

[Spydertrader]

Quote from foible:

Can you clarify this, please?

Each night, we create a list of stocks to monitor the next trading day. In the evening, we review Daily Charts in an effort to notice price, volume and indicator patterns which allow us to anticipate an upcoming change in (or continuation of) price trend. However, how do we know when to enter into a trade which should provide the highest probability of success? We do so by monitoring on a lower fractal (time frame) and awaiting a volume signal. The linked instructions you cited refer to monitoring on a 30 minute chart. The indicator settings which confirm a volume signal also refer to the 30 minute chart. In other words, we trade on a daily time frame, but enter and exit on lower time frames (30 minute chart). Some individuals prefer hourly or 15 minute charts for entry and exit.

In contrast, the 'Bruno R Set up, uses Stochastics and MACD Histogram levels based on a daily chart and not on a 30 minute chart.

I hope the above provides some clarity for you, but feel free to let me know if you require additional clarification.

- Spydertrader

 

[Spydertrader]

Quote from cnms2:

I kind of disagree with rule #1

I'm not a fan of rule #2 either:

I don't mean to imply that I agree with everything outlined in the interview with Phantom of the Pits. However, some of the aspects of trading described in the article linked above has helped me trade much smarter.

- Spydertrader