Stochastics and MACD Histogram for daytrading?

<a href="http://www.flickr.com/photos/23623637@N05/3475501784/" title="Picture 10 by BT24_7, on Flickr"><img src="http://farm4.static.flickr.com/3619/3475501784_19ce8569b0.jpg" width="500" height="313" alt="Picture 10" /></a>

There are trading systems that go short on stochastics below 20, rather than using it as a reversal signal as stocks can stay oversold a longtime.

Above is my answer, it's a custom indicator I created to determine accumulation/distribution. I provided a 1-minute chart of SWHC on the 4/24 gap up. The ND=negative divergence or distribution, the PD= positive divergence or accumulation and the LND= leading negative divergence.

You can see where the ND leads to a downside reversal, the PD an upside reversal, The gap had a clear ND and thus destined to fail. This one of the few indicators I think has predictive power.
 
Quote from BT247:

<a href="http://www.flickr.com/photos/23623637@N05/3475501784/" title="Picture 10 by BT24_7, on Flickr"><img src="http://farm4.static.flickr.com/3619/3475501784_19ce8569b0.jpg" width="500" height="313" alt="Picture 10" /></a>

There are trading systems that go short on stochastics below 20, rather than using it as a reversal signal as stocks can stay oversold a longtime.

Above is my answer, it's a custom indicator I created to determine accumulation/distribution. I provided a 1-minute chart of SWHC on the 4/24 gap up. The ND=negative divergence or distribution, the PD= positive divergence or accumulation and the LND= leading negative divergence.

You can see where the ND leads to a downside reversal, the PD an upside reversal, The gap had a clear ND and thus destined to fail. This one of the few indicators I think has predictive power.
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Could you explain the indicators you use??

BTW I have been making fewer trades but wait for a perfect set up. MACD, although lagging, I wait for indicators to draw closer together, I am also using RSI, and CCI, to collaborate undersold and oversold, along with the Stochastics, a double peak or bottom, or reversal (first whipsaw), and the next time I am all in.

I have had 7 successful trades in a row, with stocks that have a natural violatility.

I prefer no news that would otherwise that would make the stock unpredictable!!
 
Quote from BT247:

There are trading systems that go short on stochastics below 20, rather than using it as a reversal signal as stocks can stay oversold a longtime.
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From my real time chart observations, this actually seems like a fairly low risk entry, shorting just as the fast stochastic approaches the 20 or going long as it approaches the 80. The reason being that the price push at these areas is often the most violent as more people throw in the towel at the extremes. So you generally get a quick strong move in the same direction and can lock in some profit regardless of whether the price ends up pivoting or staying overbought/oversold for a longer period of time.

I think the key is use the 20 and 80 as the triggers (not the 10 and 90), because the few times I've shorted a stock oversold below the 10 because it looked really weak and I thought for sure it would break down, I end up stopped out at or close to break even as the price reverses.

Quote from pstallone:

BTW I have been making fewer trades but wait for a perfect set up. MACD, although lagging, I wait for indicators to draw closer together, I am also using RSI, and CCI, to collaborate undersold and oversold, along with the Stochastics, a double peak or bottom, or reversal (first whipsaw), and the next time I am all in.
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Paul, I, too, have found double peaks/bottoms to be one of the best reversal indicators I've seen.

I'm going to add RSI and CCI to my charts; I've never used them, but heard good things.
 
the best way to use mach and stochs are to find +/- divergences in price. Last week I called a dow top the day before the market fell 200 + points because I saw a divergence on the macd histogram and stochs were deeply overbought. It can be a powerful tool, but use them only for confirmation because like all indicators they are lagging.

let price be your guide. I myself like to use fibs, then check to see where stoch/ macd are to help confirm if I should take the trade or not.

Look at CAT, there are many many charts that have these divergences, but price is everything because i can fine tune my entry, and like I said macd is just to confirm my decision to go short.
 

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Here is another example of cat, and a divergence that led to a 22point drop

these work great for daily charts but i cant say much on an intraday basis.
 

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re: pstallone
Email me and I'll give you the specifics. I've found not better indicator on multiple timeframes that will give you this kind of information this gives, I have several others I use as well for stops, buy,hold and sell.

I try to make my trading as objective as possible and reduce discretionary or arbitrary opinion to enter trades.


<a href="http://www.flickr.com/photos/23623637@N05/3476210147/" title="Picture 14 by BT24_7, on Flickr"><img src="http://farm4.static.flickr.com/3650/3476210147_fcaafb52b6.jpg" width="500" height="313" alt="Picture 14" /></a>

Above is BAC before the pop. At "A" there's a positive divergence (smart money tip-off). At "B" selling into strength. At "C" another negative divergence-selling the stregth. and "D" another negative divergence. I think BAC is done for now. Plus there's a small bear flag right now. I think we see a re-test of the April lows. The whole market looks ready to rollover-SKF would seem to be a good choice in the near term-maybe longer. The Bear Market Rally seems to be over.
BT 24_7 at Yahoo.com
 
Quote from NoDoji:

From my real time chart observations, this actually seems like a fairly low risk entry, shorting just as the fast stochastic approaches the 20 or going long as it approaches the 80. The reason being that the price push at these areas is often the most violent as more people throw in the towel at the extremes. So you generally get a quick strong move in the same direction and can lock in some profit regardless of whether the price ends up pivoting or staying overbought/oversold for a longer period of time.

I think the key is use the 20 and 80 as the triggers (not the 10 and 90), because the few times I've shorted a stock oversold below the 10 because it looked really weak and I thought for sure it would break down, I end up stopped out at or close to break even as the price reverses.



Paul, I, too, have found double peaks/bottoms to be one of the best reversal indicators I've seen.

I'm going to add RSI and CCI to my charts; I've never used them, but heard good things.
More...

I have learned to love whipsaws! 2 whipsaws in a row, and I'm in! I have never seen 3 in a row! (Stoch)
 
The posted chart is a result of using indicators to get the automated annotated signals. Price was NOT part of the logic input since that would violate the proposition of just using indicators of price to trade.

Compare it to your own efforts to come to understand where more work needs to be done.

One rule was used: Stay on the right side of the market.

This rule was supported by a couple of truisms:

Price change is used to make money, and

You have to be in the market all of the time to extract the market's offer.

I know this post is too complex and too lengthy.

NB: In modern times (after the invention and application of the PC) all defaults on all indicators had to be adjusted to take into account the changes in data transmission and it relative "freshness compared to "before PC's".

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Edit: if you want (to not be a purist), you can use a HH (Hershey Hinge) to take out the "losses on the consequtive bar trades.)
 

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The prior graph makes a few points regarding how often a person has to trade to make money of how long getting rich takes.

To consider the above the best standard, in my opinion is the daily range for a day. Here it looks like 20 to 25 points and you could subtract the low from the high to find out.

This brings up how a day works. The daily range appears at some point in the day. It seems natural to me that a person who doesn't want to work at it too hard would only ride along for each traverse of the range and let it go at that. Maybe this would be 2 to 4 trades a day. to get the way to do this depends on only one thing: timing. Indicators were invented for timing long before PC's. It may be true then, that timing 2 to 4 trades a day does not take a pc to succeed. In my experience it just took a telephone or sitting in a broker room that had a ticker running and a wall where prices and stuff were posted.

If you look at the chart you see the traverses of the range traded and the intervening HH's weren't. By adding price analysis you could pick off the smaller traverses within the range of day traverses. Indicators will do this for you as well.

finally lets say you want more than the first amount of profits (2 to # times the H-L) or the second additional amount of profits (over 3 times the H-L), then you have to trade the traverses of the traverses of the traverses. This fractal within a fractal within a fractal is as difficult as using indicators on individual fractal each in the same manner.

The above paragraph brings up the problems that are being experienced in this thread. People are jumping fractals all the time and because they get signals from different fractals consecutively, they get their nuts busted a lot of the time. Do not use a method that jumps fractals.

Lastly, now that this was brought up, has anyone figured out that indicators do about three distict functions? Since they do it is probably apparent that you cannot mix one kind of function with another to be doing one job. Each job must only be done by its associated function.

What happens if you run a business that requires three jobs and you only work at one of the jobs? You fail fairly soon and go on to something else. Should we divide the work in this thread so teams can do ech job? Should each person do three jobs?


Maybe the bst thing is to use an ATS and have it handy so you can see how your job (s) are going. Look at your Earth Day charts and see how they compare to the one I posted. Or everyone post thier Earth Day charts and we all can help each other fix what is busted on each chart. Hey, what don't you like about the basic chart level of trading I posted? No time on the sidelines? Sorry about that.
 
I'd like to add another observation regarding use of stochastics to time price pivot points. If you are looking to enter a trade when price reaches an overbought or oversold condition after the first 90 minutes of trading have passed, chances are strong that price will look to test either the previous high/low, or the high or low of the day. It's wise to be patient for that test, or use a very tight stop, because any hitch in the intended price trajectory will almost always indicate that price test coming. In fact, I've seen this enough times that I believe it's actually a valid trade to take the opposite side of the trade you're waiting to set up.

I attached a chart from a recent trade where I made the mistake of shorting at overbought before waiting for the test of the previous resistance level. Since price already formed a higher low, chances were good it would search for a higher high, and in fact it did, just barely. I stayed in this particular trade back to break even, because I used a loose stop, but my better options would have been to wait for the test of the high, or to go long and catch a nice move.

Paul, this chart shows what I mentioned earlier about catching the rest of a move from the 80 to the long side, or from the 20 to the short side. Look how much of a move upward there was from the point when the %K line just reached the 80, until the test of resistance was over, almost .50 cent move to the long side.
 

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