Telltale signs of a reverse

M

MGB


I have CyberX2 which shows Level 1 quotes with Level II Island quotes. The intraday chart shows 3-minute bars. CyberX2 doesn't allow me to see closer than 3-minutes.

Consider this scenario where I have 4 negative 3-minute bars followed by 1 positive 3-minute bar.

Is this a buy? I often look for a reverse on an intraday low to minimize the risk. What other telltale signs do you look for to get confirmation before executing to buy 1000 shares? You want to execute on a reverse, not on a continued downtrend.

MGB
 
You have the possibility in CyberX2 to use technical indicators, such as Moving Averages, Stochastics,MACD, Bollinger Bands etc.
As from Cyber's website :

"The CyBerChart feature on CyBerX2 allows you to view daily and intra-day information in real-time. Candlestick or bar, pick the graph style that best suits you. Select from a comprehensive package of studies and technical indicators including but not limited to: Stochastics, RSI (Relative Strength Index), Bollinger Bands and MACD (Moving Average Convergence/Divergence)"


So on 3 minute chart ( which would be my preference for swingtrades anyway over 1 minute charts ), you could use the following indicators :

For ST reversals use slow stochastics - cross up over 20 would be the confirmation.
I use %K=15, %D = 5 , slowing 3 or 5 - whichever fits better to the personality of the stock you trade.
The Standard is 5,3,3 - which I find to choppy on a 3 minute period.

You might also consider using the MACD as a foundation for your decision. Usually, the MACD lags behind Stochastics, but it's signals are more reliable. That is, it gives a signal only when the new trend has already been established.

Stochastics signals are only the first indication of a change in a ST trend.

Please notice, that, depending on the dynamic of a price move, stochastics can ran very fast above the 80 trigger line. If the move turns out to be a trend, stochastics readings will stay in the overbought area. If this happens, don't follow stochastics anymore. Refer to your trending indicators ( MA's, MACD ).

Same is true vice-versa. When a stock is ina downtrend, Stochastics may stay in oversold area for extended periods.
Again, refer to trend indicators in this case.

For further confirmation of your entry and trailing stop, you might use 3 moving averages on your chart :

5-period Simple, 8 period exponential, 13 period exponential.

Use the crossovers of 5/8 MA as entry signals and the 13 period as a trailing stop line.

As praetorian mentioned, volume is also an important indicator.
So if prices go up, but volumes are going down, the top might be near. Watch your indicators for any signs of possible reversals.

But, if you trade intraday, you should also know about the high and low volume times of the day in order to make the correct judgement when measuring volumes.

It is quite normal, that volumes go down significantly between noon and 01.30 p.m.

Finally, you should be aware of major support & resistance zones of the stock you trade. They often mark reversal points.

And a last note : check the action of the sector index in which your stock is listed. If the sector is up and your stock is down - not a really good sign.
It says clearly, that people like the sector, but not this stock ( for whatever reason ).

Hope this helped a bit.

For more info on technical analysis, visit

http://www.equis.com/free/taaz/index.html



 
Thanks... Here's what I see in CyberX2.

For %K, I have a "Period 1" field.
Period 1 = 15

For %D, I have a "Period 1" and "Period 2" fields.
Period 1 = 5
Period 2 = 3

For %D slow, I have a "Period 1", "Period 2" and "Period 3" fields.
Period 1 = 5
Period 2 = 3
Period 3 = 3

For Simple MA, I have a "Period 1" field with an Average field that has four choices; Open, High, Low and Close. I think we're looking for a 5-bar SMA, not 5-day SMA, right?

Also for Exponential MA, I have a "Period 1" field with an Average field that has four choices; Open, High, Low and Close. I think we're looking for a 8-bar EMA, not 8-day EMA, right?

MGB
 
MGB :

You want always look for bars - not for days
( unless you want to analyse daily charts, of course )
1 bar is always reflecting the price action in the period you set at your chart.
If you use 1 minute - you have a bar for each minute, reflecting the "open, high, low,close" for this period of time. and so forth.

The 5SMA and 8EMA is calculated on the "Close" since this is the most recent price of those four.

Stochastic : developped by George Lane

Seems you have the fast and the slow stochastic on CyberX2.
So please don't get confused now, when I explain the difference :
Slow Stochastic = called %Dslow
Fast Stochastic = called %K ( it is smoothed by %D within %K, but this is not the same as a %Dslow stochastic ! )

In the slow stochastic, the %K is removed and replaced by
%D. So %Dslow means a slowed %K stochastic ( which is further slowed by another %D )

Many RT software packages have only 1, the slow Stochastic, integrated, which is the one most widely used and referred to as Standard.

To remember what %K and %D means - just think of :
%K = Kwick
%D = Dawdling ( slower )

For CyberX2, use :

Period 1 in %Dslow should be 15, period 2 = 5 and period 3 = 5 ( or 3 ) whatever works best with any stock on a 3 minute chart.

For scalping, you might need a 1 minute chart and a stochastics setting of %Dslow 15,5,1 or 15,5,3 - depends on the intraday volatility and speed of the price-moves between the price-levels of a stock.

When using Stochastics, please remember :
The most valid buy signals are, if both lines have been below the 20 trigger line ( probably at a level of 10 or even lower ) and both lines turn upwards and cross the 20 line. The%K line ( faster ) will cross the %D line (slower), sometimes a bit before both are crossing the 20 trigger.

A most valid sell signal occurs, when both lines have been well above the 80 trigger line, turn south and cross the 80 trigger line to the downside. Again, the fast line will cross the slower line a bit earlier.

%K %D crossovers in the region between 25 and 75 are not considered as valid stochastic entry signals.
Nevertheless, you will see often, that Stochastics lines don't oscillate to one or the other extreme side.
Most often, this happens, when either a stock remains in a low volatile sideways action or when a stock picks up his former trend without going through a meaningful correction.
Crossovers of %K and %D without crossing trigger-lines are not very helpful in these situations.

Better to look at your trending indicators in this case.

regards


 
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