Why I am not a day trader?

Technical systems do work for short time frame as long as it is applied consistently. Therefore it works also for a day trader. For swing trades, I use a weekly, daily and hourly time frames. If I were to day trade, it can be easily changed to daily, hourly and 15 minutes.

So it can be lucrative to be a day trader. Once in a while, you hear someone who is successful although I am not sure on the longer term performance. It  seems tempting and lucrative. One can make all the gains and close it by the end of the day without worrying about your portfolio overnight.

But only a very small minority of day traders succeed. The successful ones normally do quite well. But to get super rich, I have not seen any over longer term. On the other hand, I have seen too many end up losing everything. Big money are made over trades held longer term with clear understanding of the underlying fundamentals. Just imagine if you had bought MSFT, WMT, AAPL, Gold and BIDU in the early days and held it over time or even just trade it with a consistent positive bias over time.

A great example of day traders is the computer algorithms used by big banks with teams of highly sophisticated programmers, mathematicians and super computers. They trade by nano seconds. They have a special internet pipe to the exchange which allows them to do execute trades with such speed. They are able to front run a lot of traders by having visibility to all the trades that are submitted. The computer is able to gage the psychology of the market and trading in the specific directions.The successful rate is more than 90%.

So who am I to fight these computers?  Constantly I am thinking of how to gain an edge over them – at least not the computer but with the crowd that were victimized by the computers. Most of these are very short term traders.

I cannot be a day trader.

First it does not fit my personality. Day trades made are strictly technical. You need to get in and get out. Strict stop loss must be executed. It works strictly on probabilities. A good video gamer may be good for the job!

More important I lose my edge in trading the market. My main competitive advantages are that I understand the longer term fundamentals and I use options to hedge increasing the probability of success. With day trades, all these competitive advantages are no longer valid.

One minor disadvantage is that with a lot of trades, commission can become an important factor although we are paying dirt cheap with on line brokers.

Also, it is my belief that the shorter the time frame, the more random the price behavior and it is more susceptible to manipulation by big money.  The probability of being whipsawed is very high. Big profits are always made by holding longer term.

I do not think my technical system is robust enough to handle day trades strictly. I have mentioned my system allows for more than 50% accuracy. But with fundamental and option hedges I increase my probability to winning to 80% as long as I follow my plan. My technical system also works for longer term trades.

Day trading can be emotionally stressful and addictive. I have seen day traders skipping lunch, get emotionally charged and losing weight.  It has a similar effect like drugs. It looks great short term but long term you suffer from stress, hallucination, withdrawal and all kind of side effects.

One of my key trading objective has been to do the opposite. I am trying to reduce the number of trades.I have different accounts for longer term and short term trades.  I have verified in my account over 15 years that the account that I trade less frequently are the one that makes consistent and good profits. It seems that short term trading only fulfill the gambling instinct inside me and it is not always profitable.

Today,  Bernanke is supposed to make an important announcement. I decided  I am not going to be reactive to whatever the outcome. Many traders are anxiously waiting for the outcome and ready to jump.  Whatever happens, I should be able to adjust my portfolio to longer-term profitability observing the reaction from the market after the announcement. I make sure I do not switch on to CNBC. I will trade what I see. There is minimum stress!

Trading process - a technical perspective

Introduction

I am adding additional detail to the post of “my trading process”. It is a significant post as I am sharing more details of my thought processes using actual trades this week.

It shows my decision process of entering a trade aligning technical with fundamentals with efforts to arrest the volatility and uncertainty of the environment.

Technical analysis has been disputed as some kind of black magic by some fundamentalist.

It is certainly not a science. But it does help to tell the short term psychological and sentiments with volumes, price movements and money flow. It is an important tool at least for my investment style.

It is not a perfect system. Many times, most reasonable technical system will work although I am not a fan of black box with mechanical process and using computer algorithms to automatically execute trade.

Discipline is key part of the system. Most system will work at least 50%. If you combine it with fundamentals and options hedging, you increase the probability of winning in a trade to 70-80%. That is also the reason I believe it is hard to be a very short term trader or day trade as you can factor in the edge you add to the trades with fundamentals and options.

No system that produce 100% or even 90% consistent success. There is a huge element of probability build into every trading process. Key is to identify information that is relevant and make decisions base of knowledge ( technical, fundamentals, sentiments ) and experience.

Premise

Below are some key premises to the trading process:

1. Fundamental is key to long term direction of the stock
2. Shorter term, the direction is influenced by market sentiments, crowd psychology and thus technical indicators is a necessary tool for entry and exit.
3. The process is kept as simple as possible. There is no need to extended and highly complicated analytical tools. Most simple indicators widely available in the market will do the job nicely. The main task is to use them logically for the decision process
4. Market swings to overbought and oversold. It gets extended inevitably from time to time. Efforts are expended to identify these tops and bottoms and ride on the swing. Having said that it is not fruitful effort to try to catch the ultimate top and bottoms
5. Market swings has an uncanny conformation to certain wave patterns. Fibonacci Retracement ( Fib Ret ) is my favorite. It works pretty consistent. But I find Elliot Wave too subjective and thus use it only sparingly. I will elaborate on this with examples later.
6. My key objective of the trade are:

-        Maximize gains or risk to reward ratio

-        Attempt to ride on the short to medium term swing as much as possible. At the same time, I want to stay on position that I am very bullish fundamentally without missing the big gains.

-        Minimize loss with risk control using options, good entry

-        Enhance the probability edge with options and fundamental background for the trade

7. Always trade with a plan. Many traders enter trades in reaction to a news, rumors or comments from friends and analysis resulting in over trading. Do not force into a trade rather wait for a trade to come to you. There must be technical and fundamental basis for entry the trade. Profit targets and time frame are identified. Primary exit and secondary exit are set. Also, it takes a lot of psychological and emotional fortitude or discipline to ensure that you execute the secondary exit. SE is a form of defense and risk control.
8. Trade in the direction of the trend. The trend is your friend. Trade what you see. Often the fundamental and technical can be totally misaligned.

Primary Technical Tools

Listed below are some primary tools used in the technical analysis:

For Trend and momentum directions

-        Moving averages : I use 20, 50 and 200 MA

-        Momentum indicators

o       slow stochastic

o       RSI

o       MACD

o       Volume

-        Candlesticks for directions and most often for reversal signals

-        Multiple time frame

Pattern Analysis

-        Fibonacci Retracement / Elliot wave

-        Classical patterns : saucer, head and shoulder ( or reverse ), double top, bull and bear flag

-        Support / resistance

-        Trend lines
-        Decide whether the trade is in a continuation, reversal or consolidation phase.

Options

-        Implied volatility

-        Spreads and open interest

-        Call / put and put /Call ratios

Most of these indicators are built into my charts. I have a weekly, daily and hour charts for comparison. I shall show how all the tools are used for the decision process using examples from this week trades in a logical and systematic fashion.

As with all traders, there will be mistakes. There will also be losses. Constant attempts are made to ensure losses are kept small. This is a very important part of the trading process. At the same time, I try to let winners run. Using options helps greatly in the risk control processes. It also helps to cushion the volatility.

This could be one way to deal to with all the big computer algorithm high frequency trade (HFT). Using a longer time frames and options to cushion the volatility. Day traders are especially vulnerable to the short term big swings which is becoming more frequent because of HFT.

Order of analysis

1. Determine the fundamental basis for the trade. Align it with the overall market directions. If the overall market is bullish, I will be more bullish bias on trades and vice versa. Fundamental will be the key driver of the direction of a trade LONG term. I have seen it too many times during the Asian crisis, dot.com bubble, credit crisis in 2008 and currently the sovereign debt crisis. It will pay off big time.

If you were able also to latch on the fundamental of such as AAPL, BIDU and Gold, you will be rewarded multiple folds.

Often you may be right fundamentally, the stock can go against you up to 50%, 61.8% and 78.6%. I will elaborate on this later in some examples. The key is to identify the reversal at the right time frame.

Trade in the fundamental direction will yield a much higher reward. It gives a very important edge.

Once the fundamental direction is determined, start the technical analysis. Move on with the next order of analysis

1. Determine the Trend

1. Use multiple time frames to determine the trend. Examples

                                                    i.     If the weekly is bullish, it means  the stock will be up for a few week.

                                                   ii.     If weekly bullish and oversold, a longer term top is near. Daily calls for direction over the next few days and hourly for the direction in the next few hours.

                                                 iii.     If the stock is in the overbought or sold, there will be limited upside an downside to the price

                                                  iv.     Trade in the direction of the longer time frame. Align the short time frame with the longer time frame. If it is weekly bullish, enter the trade upon a daily bullish reversal. 

2. Use trend lines / support and resistance

                                                    i.     Draw  the trend lines.

                                                   ii.     Identify another cycles of ups and downs in times of time if any.

                                                 iii.     Draw the support and resistance lines

                                                  iv.     Determine current direction is an impulse move ( strong direction ) or just a corrective move ( a relief rally or temporary correction). In other words, determine where it is in a continuation, reversal or consolidation phase.

                                              

2. Identify the pattern

-        Pattern analysis is used to identify the phase of the trend. Commonly used technique to do this is Elliot wave. But I feel that it is too subjective. Often, when it is wrong, Elliot Wave technicians will explain it with wave extension, complex wave, irregular waves! I am usually confused. Probably, I am not an expert in this area.

-        I have seen Bob Prechter, a major practitioner of Elliot wave has been wrong for so many years. If you follow Bob in 2000, where he forecasted gold to go down, a period of deflationary pressure, civil riots and a depression, you would have missed the run on the stock market from 2002 to 2006. You may say he is too early but he clearly expected the events to happen in 2003-2006 which happen to be a mini boom because of Greenspan loose monetary policies.

-        However, there are uses for Elliot wave at times although it is subjective. Just do not try to be too precise and wait for confirmation. I use Elliot wave simple to determine whether current phase is impulse or corrective. Also, I can roughly use it to determine a potential top or bottom. Roughly, I try to determine whether it is wave 1-5 or A-C. 

-        Classical patterns can be also used to decide whether there is a possible breakdown or reversal. It is important to note that classical patterns always need confirmation. Also, this can be subjective but it is certainly clearer than Elliot Waves.  Example:  a head and shoulder is not valid until its neckline is broken. Often it is a still a lagging signal.

-        Momentum indicators ( Stochastics, MACD  and RSI ) will give confirmation on the patterns whether there is a breakout, a change of trends. Keep in mind that momentum indicators are very short term. It is used only in line once the trend and patterns are established.

-        The combination of classical patterns with Fibonacci retracement, candlesticks reversals signals, multiple time frame, momemtum indicators and a “subjective” view of Elliot wave will give me a powerful idea of potential reversals. It will be even better if there is volume confirmation.

At this stage, it sounds mumbo jumbo. I hope it will be cleaerr once I give examples of some of the trades I made this week. Also, I believe that over time with more examples I will be able to improve and be clearer on the process.

From the above process, I construct a portfolio of longs and shorts from my watch list. It depends on the market sentiments. If it is bearish bias the longs will overweigh shorts. The reverse will apply if the overall market is bullish bias. Bias of the market is determined from the analysis of the broad indices. Currently, the QQQ has broken its short term bearish trends and thus it is time to add more longs to technology counters.

Options are used to hedge the trades. Bullish trades are hedged bycovered calls and dynamic collars. Bearish trades are hedged by synthetic puts,covered puts and reversed collars.

Stocks are entered on an individual basis based on their directions, fundamentals and relative strengths to the index. It is interesting to note that even in bull market there are always stock that can be shorted. Also, in a bearish market there are bullish trades.

Presto! You have now a hedged and diversified portfolio. To me, this is superior to many of the diversification processes generally taught and also hedging using SPX puts, or inverse ETFs. The only set back is that this requires some maintenance.

Practical Applications

I am going to give a few examples using some of my actual trades executed in the  last 2 weeks.  I entered a number of trades. Only 1 of them needs adjustment so far. I will go into details a few including the one that I need adjustment and exercise my secondary exit.

STD

Fundamental:  Europe is in a crisis.  Problem in Greece is not going to be easily resolved in the near future. Problems should continue to escalate until some real change has incurred not just politician coming out to reassure the market.

This crisis is dangerously similar to 2008 where Lehman’s CEO and Bernanke came  out to reassure the market that everything was fine. The market collapsed a few weeks later.

Technical: Stock has dropped almost 30% in about one month and rallied from $7.15 to 8.26 in 4-5 days. I expect this rally to be short lived.

How do I watch out for the reversal?

First price hit the upper channel resistance on the daily chart. Although the MACD and RSI are showing signs of positive turn, the overall directions of all the oscillators ( MACD, STO and RSI ) are down

More important, is the hourly chart.  When it hits the retracement of 50%, I started to watch it very closely. When the MACD, RSI and STO turned negative I initiated the trade.

1. Trend – it is down. Weekly oscillator is definitely down with no signs of recovery.
2. Daily timeframe : it is bearish as long as it is not breaking the channel
3. Hourly: At 50% retracement, it is a common Fibonacci retracement level. Sometimes it goes to 61.8% and 78.6% maximum. At 50% the oscillator turn, the trade was initiated. It was actually executed when I was exercising in the gym. When I was back, I was actually losing a little money. Immediately, I initiated the SP option.

Trade:

Sell  1000 STD at 8.2

Sell  Dec 7 SP at 0.65.

PE : Let the Dec 7 SP goes ITM and be assigned. ROI : 22.4 % for 3 months.

SE: If stock goes above 9, bull a long call and roll up the SP to 8.

So far the trade is going in my favor. I could be wrong. Over the weekend there is the European Ministerial meetings. They may come out with a huge bold bailout for Greece and all the countries in trouble. But the probability of a long term solution is low. If I am wrong, I will exercise my secondary exit and will continue to manage the trade to lower profitability or a slight loss. This will be illustrated with my trade on CRM

Earlier in the week when the European banks were falling, a trader in Vancouver asked whether I should add to my shorts. I told him to wait although I was bearish as it was greatly oversold.On Friday, I added on to my shorts.

CRM

With the depressing market recently, I am targeting many of the stocks with very high market valuation. These will be the stocks that will fall most in a bear market. NFLX is already one of the victims. So I shorted, LNKD, PCLN, GMCR and CRM. I am negative on all of them because of the high valuation. I cannot understand how LNKD can have a PE of over 1200 and a coffee shop seller has a PE of over 105. These are bubbles that will burst on a negative turn on the market

On Tuesday, everything seems to be falling apart. CRM hourly shows signs of breaking down.

Price on daily chart seems to be hitting resistance.

The signals I ignored on the weekly was MACD and STO were very positive. Weekly charts were negative.

On Tuesday, Sept 13^th I shorted CRM at 124.

Also, sell a Oct 115 SP at 5,12.

My primary exit is to let the SP be assigned.

My SE is to add a short call when it hits 128 and show signs of breaking up.

On Sept 15, when CRM hits 129, I exercised my SE. QQQ turned short-term positive too on Wednesday.

I bought a Nov 135 C and roll the Oct 115 SP to Oct 120 SP reducing the cost of my short.

Longer term, this trade is still very manageable. It is my belief that I will exit the trade with a small profit or just a minor loss. Currently, the stock is very much over bought. It will probably go up to 140 and I shall monitor the overall market to see if it turns long term positive. If so, I will need to reverse my bias for this position from negative to positive. This can be accomplished safely through just adjusting the options.

All the other shorts are doing fine. You can see the PCLN, GMCR and LNKD are showing negative technical signs - hitting resistance, negative on daily and hourly, etc.  Unless the market sentiment changes substantially positive, I should make money from all these trades.

Bullish trades

I bought HD, SINA, AAPL, BMC and AMZN in the middle of the week as the Nasdaq turned positive.  I shall not elaborate on all these trades. Try going through the charts on the multiple time frames, patterns, and trend lines, you should be able to get similar results. The SE should be easily determined. 

Also, I bought quite a few shares on the miners on Thursday - GDX, AUY and GG. Also on Thursday I rolled my calls on SLW which went ITM. The decision was made by a very consistent process.  It was a very interesting signal which I shall elaborate when I have time.

So far, no adjustment needs. I should be able to end positively on all these positions.

Concluding remarks

I will continue to illustrate these further using the same technical methodology and trading process when I enter the trades on the blog.

It is getting late now on Sunday now. I guess I need to retire now to get ready for an interesting day tomorrow.

Gold - finally the correction

Although I am very bullish, I have been expecting a correction for gold.

Finally, the correction came today after a dramatic action by the Swiss National Bank to foolishly peg its currency to the Euro. Officially the currency war has began.

Such action should benefit gold but it went down. The main reason is SNB also sell gold at the same time. Central banks are controlling the debasement of currency and the rise in gold.

So when do I add to my gold holding? I have already 1 position size of gold in my portfolio. I have liquidate the rest waiting a correction accumulate again since I am very bullish on the fundamentals.

The correction should continue for a few more days. Some more triggers may push gold down.

It is now in a small consolidation. If it breaks above the all time high, it will be bullish. If it breaks below 1780, it can go down hard to 1700 or even 1600. Even if it moves to 1450 which I expect to be the maximum, I will load up the truck. Probability is low. All the arguments that gold is in a bubble sound silly. Gold can correct violently but it is no where near a bubble. It will be there some day but not now.

Normally, I do not try to catch a falling knife especially for gold. It can fall hard before recovering and accelerate upwards to all time high.I will wait for some signs of bottom. It could be a quick capitulation down and then recover, a candlestick reversal, or another other short term bottoming patterns.

Probability is that it will go down short term unless European crisis really explodes - Greece default, Italy loses control etc.  This is one time that fundamentals will trump technical. In all my technical analysis, gold has to come down.  But any fundamental event may send it to the moon!

Trading the week ahead

It is interesting to read what I wrote in September last year. There were plenty of bearish news, threats of double dips recession. Companies started to warn about results, slashed forecast and missed expectations. Technically, there was the warning of Hindenburg Omen. SPY dropped below 1100 at the end of August. It was gloomy.

We are seeing the same situation now.

- New York Fed index fell to -7.7, the second lowest since November 2010
- New home sales fell for third month in a row while existing home sales dropped 3.5 percent. Purchase mortgage application volume plunged to lowest since Dec 1996
- ECR ( Econonic Cycle Research Institute ) leading index just slipped below the zero line. At -2.1, its growth rate is the lowest in nine months.
- GDP growth in the second quarter was slashed to a meager 1 % from 1.3 %.
- The non farm payroll in Friday showed zero  job creation which is very negative.

Despite the dismal data and technical indicators, I turned bullish on September 2010 as you can read from the posting.

Over the weekend, I saw a comparison of 2010 versus 2010.
Stock market could go up from here.

The trigger point was QE 2 which send stock up another 12% by the end of the year.

Will the stock market history repeat? Will it go up again after Jackson Hole meeting on September 20th and 21st?





However, I am more bearish this time for a number of reasons:

Most important, there was a clear support at 1100 and it bounced from there. But currently, the price trend is negative. We have clearly broken the 200 MA and the long term trend. Shorter price actions are very weak. If August 9th low is taken out this week, I bet we will an acceleration down.



In July this year, we have an opportunity to break up from support but it failed and moved right down. Although, there was some consolidation patterns in August, it points to a corrective rally in a downtrend. High probability is that the July pattern will repeat and break down especially if August 9th low is decisively taken off.

It seems that it is now all about Europe. Greece continues to be a problem. Bond yields went up to unbelievable level during the weekend pointing to a default. A few countries in Europe has to stop trading for financials.

Economic results are worst this time. GDP of most countries are down globally. This includes Hong Kong, China, France, Germany, and USA.

Besides European problems, we have the US credit downgrade and the Japanese earthquake,

The spread between the LIBOR and short-term Treasuries of 3 months has gone to a 13 month high. The 2 year swap spread ( difference between the 2 year swap and the 2 year Treasury yield ) has hit its highest since July. This was the similar situation during the same time in 2008 that shows that banks would rather lend to Uncle Sam than each other. Also, banks are getting nervous about the ability of their derivatives counterparts to make good on their promises

Junk Bond market suffered its worst collapse sine Nov 2008. Investors took out $2.1 billion from junk funds in one day in early August, the most in the history of the industry. Investors are fleeing risks!

Financial stocks are imploding across the board - exhibiting similar patterns in 2008.

There is also the constitution challenge by the German Court on the European countries bailout on Sept 7th. They may not win but it points to the fragility of the efforts of the European bailout. European banks are falling fast - very similar to what happened in 2008. 

My bet is that the trend is down and we could see a very ugly September and October.

It is impossible to be completely correct. I will trade in the direction of the trend. If Aug 9th low holds and indices bounce up convincingly, it is probably because of additional stimulus by the Fed after their Jackson Hole meeting. This could cause a similar rallies like 2010. But the market price actions has to support the move.

If it happens, I will certainly adjust my positions.

Finally, gold is looking very strong now. I will wait to see how it test the $2000 level. It is at parabolic level now. The rise is almost vertical.

The question is that if the market collapse, will gold stocks and gold fall like what happened in 2008. It does not look similar this time. In 2008, it was a liquidity squeeze. Now it is a flight to safety.

I will not be surprised at all if there is another margin hike and price comes down again.  Normally, I do not not add positions on this kind of ascension on the price.  There should be a correction - even a substantial one but it will be short and sharp. I will certainly add if a correction materializes, I will add to my core position. This is one clear case when technically the chart looks like topping short term but fundamentally, the bullish factors remain. Long term I am still very bullish on the precious metal.

My most common mistakes

Retrospectively,  I try to list down some of the most common mistakes in my trading process especially after a difficult 3 months from May to Mid August. Despite my years of trading experience, I still fall into these traps. I have to remain vigilant to ensure that I avoid these mistakes.

1. Trade without a plan

This is starting a trade without waiting for the right opportunity and entry signals. It is always better to wait for a trade to come to you than to force yourself to make a trade.

A good plan will have fundamentals aligned with technical indicators and clear entry signals.

You need only to trade when there is a high probability trade with minimum risks

2. Do not follow your plan

There is a plan but you failed to follow it especially the secondary exit. Many times, it is counter intuition and against your belief. A secondary exit implies that you are wrong and you cannot accept it.

This can be a very expensive mistake.Most big losses are incurred because of a failure to follow the plan.

3. Over trade.

I try not to spend too much time on the market when it is on.If I stay to watch the market tick by tick, I am almost for certainty make some mistakes.

My typical schedule is I wake up 1 hour before the market opens. I review the news, any reports that come in and my portfolio. I get a feel of what my expectation for the day will be like.

When the market opens , I watch it for a about 1-2 hours. After that, I am off for a tennis game, the gym or do some errands. I am normally back 1.5 hours before the market close.

In the afternoon, I spend a 3-4 hours reading up, listening to reports, participate in chats, going through my portfolio trying to anticipate any change in trading conditions and record all my trades in details. Yes, once in a while I sit down to write my blog.

The common mistake is to over trade or become a trading junkie. It can be very expensive mistake.

I have 3 separate trading accounts and 1 paper trading account. Interestingly, the account which I am least active has the best performance. This result has been verified for many years!

So remember, trade for profit, not for activity; trade for points, not for ticks.

Overview of my trading process

I am attempting to do an overview of my trading process. Most of the ideas are scattered on postings made during the last three years.

This is an effort to organize it properly for those who are interested to have a deeper idea of the whole trading process.

How do I choose a stock?

This write-up gives an idea of my watch list,  some of the reading materials, favorite websites to keep up with what is going on in the market. There is definitely no lack of ideas floating around.

When I found a suitable stock for trading, I will move it either to my bullish or bearish list.

Trading methodology

http://zpring.blogspot.com/2009/01/my-personal-trading-methology.html

http://zpring.blogspot.com/2009/02/investor-or-trader.html

http://zpring.blogspot.com/2011/01/my-trading-process.html

In summary, I am an investor. But I am not a buy and hold investor. I trade. I align market sentiments and technical indicators with the fundamentals. Technical are used to confirm my beliefs on the fundamentals of a company.

An entry signal is given if the fundamental and technical indicators are in alignment, I will decide on various strategies.

From here, options are used to hedge my trade.

Strategies 

The strategies used are very straightforward and simple.

If the market is bullish, I will start with the stock, or stock with put ( married put ) or stock with a short call ( Covered call ). From here I manage the trade as the market changes. It is like a game of chess. You adjust your positions to win. It is written in this post.

The reverse is done if I am bearish.  I have also articulate the approach quite clear in this write-up.

About 10% of my trades are pure options play.  My favorites are credit trades ( verticals ) , Calendar and straddle / strangle.  Normally, I will wait patiently before entering a pure option trade as it requires a lot more maintenance and good timing. Because of my cautious approach, I am 90% successful on most pure options trade. The secret is to wait for the trade to come and forcing myself to do a trade.

In a posting, I have also written some rules for entering a credit trade. 

Many times, there are opportunities to do a very short term trading to capitalize on volatility crush. Usually, most of the trades go well.  But I have to wait for the right opportunity or timing to come along.

Technical indicators

Some of my regular indicators used are:

• Multiple timeframe – weekly, daily and hourly.
• Support / Resistance
• Trend channel
• Patterns – Fib retracement / Fib Fans
• Price actions – candles ( favourites : evening and morning stars )
• MACD / STO / RSI

I start with the multiple timeframes, trend channels and support/resistance to determine a stock.

I use Fibonacci Retracement, candlesticks and price patterns to determine the change in trend.

Finally,  MACD. STO, and  RSI are used only to confirm the directions.

Managing Risks

A key component of my trading is the risk control. Without risk control it nullifies the whole system. It is the Holy Grail of the trading process.

I have 2 write-ups on the risk management process.

http://zpring.blogspot.com/2010_09_01_archive.html

http://zpring.blogspot.com/2010/10/managing-risk-part-ii-set-clear-rules.html

After all trading to a large extent is a game of probability although there is also a substantial part of it are determined by  proper understandings of the fundamentals.

In this blog, you get a good idea of the whole trading process.  I have to admit that many parts are not written with a lot of details or clarity. However, there are lot of real trade examples.  One day, when I decide to write a book, all the ideas will be expanded with details.

Meanwhile, enjoy the blog free of charge.

Two interesting charts on gold and silver