Welcome to the Trader-X blog!

> TRADEthemove.com - my thoughts
> meditationSHIFT (formerly "tad")- just say "om"

Wednesday, June 01, 2005

How I Trade, and Analyzing Charts

I will post "charts of interest" on a regular basis. Most of these charts reflect set-ups that I trade on a daily basis, though some may be charts and set-ups I do not trade but think are worthwhile to highlight.

I currently trade several different set-ups, but all are based on Price/Volume analysis and simple Fibonacci analysis. I use candlestick charts and am a student of candlestick formations and patterns.

I normally trade set-ups on 30 and 15-minute charts. In general, I look for stocks that are moving strongly (up or down), pause (or pullback to key areas), and set-up with narrow range or inside bars. I also look for stocks that are moving strongly in one direction and reverse at an area of support, or reverse and move back through key areas that will trigger a trade for me.

This is a very high-level description of what I look for - see the charts on this site for more information.

I also swing trade a few set-ups. I analyze weekly charts of stocks that have doubled over the past 15, 30, and 60-days. When you are looking for stocks that are poised to "explode", they have usually already doubled in value - whether it is from 1 to 2, 4 to 8, 10 to 20, et cetera. Think about it - you have a stock that runs from 4 to 80, so it has doubled several times. I look for specific set-ups based on candlestick patterns and Fibonacci numbers.

--- White lines (on some charts black lines) - denotes the Fibonacci lines I use, as well as the 50% retracement. The white lines represent the high and low of the move they are drawn over, and 38.2, 50.0, and 61.8%, as well as 1.382 (line above the high) and -.382 (line below the low).
--- Blue line (solid) - 34 period EMA on the associated chart.
--- White line (solid) - 5 period EMA on the associated chart.

--- NR - narrow range, narrowing range; for me, I search for patterns that include bars narrowing in range - particularly after a wide-range bar(s). The more bars narrowing in range, the more I take notice (NR3 = narrowest range of the last three bars, NR5...five bars, NR7...seven bars). Narrowing range bars indicate consolidation and often lead to a big move when price breaks out of the narrowing range.
--- NRM - narrowest range bar of the morning
--- OR - opening range; for me this is defined as the high/low of the first 15-minutes unless otherwise noted on the chart.
--- IB - inside bar; a bar with a high that is lower than the previous bar's high and a low that is higher than the previous bar's low. By definition an IB is also a NR bar.
--- Hammer bar, or hammer-type bar, or hammer-like bar - you can find "textbook" definitions of the hammer candlestick pattern on the web. For my purpose, it usually has a tail/lower wick twice as long as the real body (open-close), and I prefer it to be green (close greater than open) with little to no upper wick. One difference for me is that I do not only take hammers that occur in a downtrend or pullback; hammers that occur in an uptrend are just as powerful if traded properly.
--- MA/MA's - moving average(s), usually referring to the 34 and 5 periods.
--- FE/Fibonacci extension - I use this term to refer to the 1.382 (line above the high) and -.382 (line below the low).
--- Retracement Zone - the 38.2, 50.0, and 61.8% retracements of the associated high and low.
--- Answer the questions/answer the three questions/the three questions - the questions I ask about every trade, preferably in advance of actually taking the trade:
1. What did I see?
2. What is the entry?
3. What is the exit? (yes, I try to answer this before entering the trade)

, , , ,

No comments: