Spydertrader's Jack Hershey Equities Journal II

[Spydertrader]

Quote from mephistoII:

Regarding my #2 area: why is this a FBO and what is its' significance? Is it in relation to the previous FTT seen in my #1 area?

Correct. Price failed to 'break out' of the Green up channel following an FTT (also in Green lactated at your circled 'Area One'). The FBO remains a significant point to observe because Beginner Traders exit on an FBO, and Intermediate or Advanced Traders reverse at these points.

Quote from mephistoII:

Regarding my #3 area: I view this as a volatility expansion, and would draw a new parallel TL as shown (this discussion disregards any other info as provided in volume/indicators). I do not understand the labeling of your succeeding #2 point - it appears to me that price has traversed perfectly to the Right TL and again reversed. Where you have marked your #3 point and FTT (my #4 area) I would be inclined to mark as #1??

The (circled) area you have labelled as 'Three' does show volatility expansion on the up trend (thick green lines). Three different down trends (of varying pace) begin their decent at the high (Orange, Brown and Red Thick Lines). The first (fastest pace) trend we encounter (Orange Thick Lines) makes a low right on the Green Trend Line (Orange Point Two). From there, price moves higher - creating a "Point Three" Down Channel. As price continues to increase its pace downward, we see an additional (Orange) volatility channel to the downside (Green 1, Brown and Red 2). When price breaks through the right side (top) of the Orange trend line, we see a new trend develop - of somewhat lesser pace (Brown). Later in the day, a higher low and an additional price break out (this time of the Brown Channel) creates an additional Point Three (Red Channel).

If you continue to have difficulty 'seeing' the overlapping trends, take a step back (push your chair away from your desk) and look for a dominant trend. Eventually, you'll be able to constantly refocus your field of view - shifting your eyes between forest (major trends) and trees (skinny lines).

If you haven't read through Jack's Channels Document yet, you might consider doing so. Afterwards, draw some trendlines on a Final Universe Stock. By using a Final Universe Stock to locate the trends, you can have others provide input to you, as well as, nail down the trend line drawing skill. Then, move back to the futures in an effort to practice searching for the FTT.

Quote from mephistoII:

I apologize for these undoubtedly assinine questions - its very hard to even ask an intelligent question when totally lost in the maze. I read in a post that it can be difficult to understand this stuff in hindsight - does that exacerbate my problems?

No need to apologize. My initial attempts at drawing trend lines resulted in horribly wrong trends (See Journal One). If not for the friendly advice of Nwbprop, I might still find myself stuck and unable to escape the maze.

Quote from mephistoII:

Thanks to anyone who dares to lead me out of the darkness...

Believe me. You'll lead yourself out of the darkness, and the credit will belong to you for doing so. I'm just a guy handing out flashlights is all.

- Spydertrader

 

[restan]

Buffalow, thanks for your information. to all trading here, i might just mention that i held NVEC for about 2 years while it traded in a slow negative channel. as luck would have it, once it showed
a small forward movement, i sold it--thereby missing the nice recent run-up.

 

[bi9foot]

Just a quick question. The Chartscripts use 3 times average DU to calculate FRV while Jack's unusual volume table use 0.6 *65dayAvgVol.

Has anyone compared if the two values make a significant difference?

The nice thing about using 0.6 of Avg volume is one can quickly pick off stocks approaching 0.22 of FRV using the unusual volume column in QCharts to use the green rule that triggers a long or short entry.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=1298249">

 

[spooz_trader1]

In case anyone is having trouble coming up with a channel similar to Spyder's cool orange channel from Friday, here's how I do it. I try to draw channels as "mechanically" as possible.

Notes:
1) Please note my scale & bar width is different than Spyder's. Sorry.
2) I purposely left out BO's, FBO's, FTT's, etc. Exercise for the interested reader...
3) I used Paint and redrew the channel lines for every snippet. So, they are probably off a little from snippet to snippet. Sorry.
4) I'm using pink lines where I think things are interesting. Normally, I use the default color and "thicken" the lines as "good" channels appear/hold.
5) I hope I'm not "inventing" a method that is incorrect here. I'm learning too...
6) Your mileage may vary.

Here we go...

Snippets (1) thru (3) are pretty straight-forward as the tape contains price.

On (4), the tape is broken. I mechanically draw a "temporary" new channel in pink by using the bar tops. By temporary, I mean that the channel might not be valid for very long.

Sure enough, on (5), I adjusted the pink channel to contain price. This channel holds up for another bar. On (7), price BO's this channel.

On (8), I mechanically draw a new pink channel. Again, this channel may not hold up for very long as we are currently in a retrace/BO.

On (9), I adjusted the pink channel as shown. And again on (10). Note: from this point on, I'm going to leave out the "older" tapes.

This channel holds for a while so I'm feeling pretty good about it (hey spooz, you have a good channel!).

Skipping ahead in time on (14), price expands the down channel.

And on (15), we start to retrace (L2R). One comment here is that Jack's channel doc says that sometimes the left channel line work better if drawn from bar 2 (of the tape) instead of bar 1. On (1), I chose bar 1. On (15), I chose bar 2. Unfortunately, this isn't "mechanical" and is more "art".

I hope this helps anyone who is getting started with drawing channels. Of course, I'm open to feedback so that I can refine my technique.

spooz

 

[mephistoII]

Hello Spydertrader - thank you for your efforts to help - it's very apparent you have ingratiated yourself to many here! I forgot to mention in my previous post that I have read all the links you provided to me earlier, including Channels for Building Wealth v2.2.pdf. Perhaps if Mr. Hershey had opted for a "Look, Jane - see Sally run" format, I would be better off - hahaha.

I still sense that I am harboring some fatal flaws in my logic, and would like to "talk" through a trade as I would see it on your previous chart whcih I marked up. A laborious approach for you I am sure, but I don't know how else to discuss. (Again, I will direct this to anyone with the requisite knowledge [for ex., Pointone] in hopes of lessening such demands on Spyder's free time ).

OK, let's say that I am long the mkt from somewhere to the left of the screen, in response to the upsloping green trend channel. I barely maintain my position when price spkes downward through the right green TL (5th bar from the far left), but the stop holds and I am encouraged w/ the appearanace of the reversal bar accompanied w/ good volume.

At circle #1, my conviction waivers again, once seeing an apparent FTT, so I enter into "exit" mode, and will drag the stop to just below the channel. Luckily, the mkt seems to find support at circle #2 (FBO) and I sit on my hands.

Price again traverses to the left TL, showing more strength w/ a higher high, so all seems well, and I am prepared to wait out the next pullback. Question here - I'm assuming (while looking forward to the ensuing pullback) when price fails to traverse "against" (i.e., L to R) the prevailing trend direction, one can take this as a further sign of strength, and would not notate such a point as a FTT??

Great, price has now not only resumed its upwared path, but has sprouted legs and expanded the channel with another new high, at circle #3. Big Question here - I do notice that this move has occurred on declining volume. Is this the pre-eminent warning sign that a possible extreme has now printed?? This is where I become lost -this high surely cannot be considered a FTT?? - as that would argue against the definition of such (i.e., not only did price fully traverse the channel, it actually created a wider channel at this point) But, does not one label a FTT as the #1 point, and continue to look for #2 and 3 points, so as to discover a change in trend??

Copying Spydertrader's comments:

"Three different down trends (of varying pace) begin their decent at the high (Orange, Brown and Red Thick Lines). The first (fastest pace) trend we encounter (Orange Thick Lines) makes a low right on the Green Trend Line (Orange Point Two). From there, price moves higher - creating a "Point Three" Down Channel."

My question:

If price "makes a low right on the Green Trend line" and "moves higher" , is this not the expected action we would be looking for within the up channel at this particular point in time?? To say another way, I would be more inclined to add to my long position at such a point - heheh. So, simply, why would we label this point as a #2 ??

I will stop here - if anyone can unravel my confusion concerning this high at circle #3, hopefully I can continue on again in my studies - without the handholding Thanks, and regards ...

P.S. I will heed your advice, ST, for using a Stock selection in subsequent queries, IF I can create a chart. I am using Sierra charting pkg, and they have supposedly recently added historical stock prices - I've just never tried to bring one up yet.

Hope everyones' teams win today, provided ya ain't backin' the Bengals tonite (as he sheepishly mumbles in embarrassment)...

 

[mephistoII]

Quote from spooz_trader1:

In case anyone is having trouble coming up with a channel similar to Spyder's cool orange channel from Friday, here's how I do it. I try to draw channels as "mechanically" as possible.

spooz

Hi spooz - just found your offering, after airing my dirty laundry - lol. Thanks for doing so, as I commence to work my way through your discussion.

Cheers ...

 

[Ezzy]

Spooz,

That sereis looks great. Textbook drawings. On some I typically wait another bar before drawing them in to avoid too many redraws, #4, #8 & #9. On #9 or #10, I would most likely re-draw the uptrend, which later turns the lateral into more of a pennant.

The whole lateral from bars 9 through 10 is interesting because of the volume formation. Normally it's tough to read because usually bars 8 and 10 would have increasing volume (based on their volatility). In this case bar 8 is up on lower volume, P/V indicates temporary retrace. On bar 9 volume drops, then picks up on bar 10. To me that is a possible shift in the PV relationship. It would have been a little more muddy if it had closed a tick or two higher.

After that price starts walking down the right trendline, and if the minor upternd was drawn, you have a BO down on bar #13 of the minor uptrend or pennant.

>>>One comment here is that Jack's channel doc says that sometimes the left channel line work better if drawn from bar 2 (of the tape) instead of bar 1. On (1), I chose bar 1. On (15), I chose bar 2. Unfortunately, this isn't "mechanical" and is more "art".<<<

The first bar has a very large range so it wouldn't be unusual to use the second bar for the channel and it's a better fit. If the volatility of the channel increases, you just re-draw the left channel line. If you get a FTT you might pick up on it sooner than if you started with the larger channel. It's a good call here.
Sometimes I start with a wider channel and narrow it as I see the price contained by the second bar.

EZ

 

[Ezzy]

Quote from mephistoII:

snip - Great, price has now not only resumed its upwared path, but has sprouted legs and expanded the channel with another new high, at circle #3. Big Question here - I do notice that this move has occurred on declining volume. Is this the pre-eminent warning sign that a possible extreme has now printed?? This is where I become lost -this high surely cannot be considered a FTT?? - as that would argue against the definition of such (i.e., not only did price fully traverse the channel, it actually created a wider channel at this point) But, does not one label a FTT as the #1 point, and continue to look for #2 and 3 points, so as to discover a change in trend??

snip -
If price "makes a low right on the Green Trend line" and "moves higher" , is this not the expected action we would be looking for within the up channel at this particular point in time?? To say another way, I would be more inclined to add to my long position at such a point - heheh. So, simply, why would we label this point as a #2 ??

I'll give it a shot here. The channels Spydertrader has are carry over channels. Sometimes price continues to follow these the next day. (I'm not refering to longer term channels that are your longet term perspective - S/R) So they are a possible guide.

Attached is a chart without any carry over, except for a hint of a long term chanel line at the top (pink).

The thick green lines are the main trading channel here. The lighter green lines are a possible re-draw. Using this chart you might still anticipate the resume but have more reservation because it is also breaking out down. Volume has been dropping the whole way up, we're near midday, and the MACD seems to be going flat.

To confirm the uptrend resume you would want to see volume picking up.

Regarding the FTT left to right question: FTT is only going right to left. The higher low you refer to is an opportunity to draw a steeper channel as the pace of the move is picking up.

I'm not trying to contradict anything on Spydertraders chart. Just a different take. Hope this helps.

Regards,

EZ

 

[mephistoII]

Muchos gracias, spooz and EZ!

Spooz, your bar by bar presentation was extremely helpful. Is it correct to surmise that the action within the latest "tape" is the key to uncovering where price may go next? In other words, one shouldn't become complacent while in an existing channel, because price is dynamic, and solely dependent on the next bar?

And, EZ, I think your comment "So they are a possible guide" serves to drive home this very idea. Also, your clarification of "FTT is only going right to left" was very helpful. This must be a rule, which I will attempt to locate with further rereads of the Hershey "C for BW. pdf".

Thanks again, gentlemen, for the push up the learning curve.

Best to ya ....

 

[bi9foot]

I am adding RBAK to my final universe.

The chartscripts don't give it a rank but I did the analysis manually and I get 5 cycles in the last 6 months.

Rank of 6.33
Avg Vol: 3,040,300
Float: 55.7 Million
EPS: 75
RS: 84

Not sure why the chartscripts didn't pick it up, I will take a look at the code when I get a chance.