Moving averages often act as an area of support in an uptrend or resistance in a downtrend. There are many times that a stock will blow right through an important moving average, leaving those who bought or sold short at that level with losses. Unless you are a systems trader, the correct way to utilize moving averages is as a visual reference point where there is the potential for support or resistance. Like any potential support or resistance area, a moving average gives us a reason to study price action more closely on a shorter timeframe for actual evidence that the supply/demand relationship is changing.
So, here is the answer to the question.. whether you use simple or exponential moving averages is irrelevant. The simple and exponential moving average will generally be quite close to each other and we will have plenty of time to observe the shorter term price action for evidence of trend change using either one. All the charts you see on Alphatrends are simple moving averages because that is what most people look at and I am most interested trying to understand the psychology of the majority of participants.
The official ideas have suggested stop levels which are often 2-3% from the entry price and not everyone is comfortable with stops so far away. The focus of Alphatrends is swing trade setups but those setups often provide excellent day trade opportunities. A day trader who is looking to hold the stock for the initial momentum in the trade will often want immediate action once the stock triggers and will recognize failure of that momentum to materialize well before a swing trader may wish to exit.
The alternative stop level is much tighter than the official stop level and will often times get triggered while the swing trade stop will keep a trader involved longer. It is up to you to decide how to use the stops in your own trading, sometimes it may even be appropriate to stagger your stops so that half of the position is exited on the tighter stop and the other stop will keep you in the balance. As with all the material on Alphatrends, it is hope that you can learn more about market structure and how various participants view the market, this information allows you to be more in tune and ultimately more profitable!
How important is it to know traditional technical analysis patterns like cup and handle, head and shoulders, etc.?
A solid understanding of basic technical analysis, including price patterns, is helpful but more important than remembering pattern names and identifying patterns is to understand the psychology of how those patterns develop and the motivations of participants which may trigger actionable price movement. The daily videos emphasize the psychology of participants and what may cause them to act at certain times for a deeper understanding of how price movement evolves.
If it is not clear whether you should be long or short it typically means that you should avoid trading the stock until the message becomes clearer. There are thousands of liquid individual equities and ETFs to trade, if you have a favorite stock to trade that is fine, but don’t forget that cash is the best position during uncertain times, it allows you to objectively observe the action and have capital ready to deploy when the lower risk trade is revealed by the market.
No, the primary timeframe we focus on is swing trade setups. While there is an active group of participants in the chat room who do day trade, the setups are always presented as swing trades ideas first, these stocks also happen to be great day trading ideas most of the time. It is up to you to decide which timeframe best suits your personality.
I am generally aware of the fundamentals of a company, but about 95% of my decision making is based on technical analysis. As a trader, timing is key and regardless of how good a story may appear. If price action doesn’t support the story I consider it too risky to be involved. As I like to say “Only Price Pays!” So the majority of our analysis should be focused on price action.
I think that analysis of volume for individual equities is much more important than the widely reported trading volume for the indicies. For equities I first look at volume as a measurement of liquidity to determine whether or not I want to get involved in the stock, anything less than 500K shares/day is typically where I cut-off my search for trade ideas.
Once I have found a stock of interest I like to see the general pattern of volume expanding in the direction of the primary trend followed by lighter volume as the stock experiences a corrective move in that trend. To me the volume represents the level of emotions (enthusiasm or disdain) the participants have for the stock. Increasing volume in a rally shows motivated buyers, while the lower volume corrective move indicates that there is a higher likelihood that the selling is simple profit taking and typically not the beginning of a reversal lower, the opposite would be true for a stock in a downtrend. I should point out that volume is a secondary measurement to price action but it is does provide us with a good insight into the collective psychology of the participants.
see www.onlypricepays.com for more
There are obviously a lot of components which factor into being consistently successful but a few of the more important traits shared amongst the best traders are: honest introspection and understanding of your personal psychology, quick thinking and able to be flexible as the market presents new information and a strong ability to be disciplined and follow our plan. For me I think that plan should be based around a solid understanding of market structure and a strong emphasis on risk management.
Candlestick charts are more visually appealing than bar or line charts, beyond that I personally pay close to zero attention to the patterns they form. It is my belief that if you want to understand the message that an individual candle, or a group of them, you can learn a lot more by analyzing the data on a shorter timeframe. The detail from shorter time frames allows for a much clearer interpretation of the action on the larger timeframe.
Remember, the official trade ideas are meant as swing trades and they are simply suggestions, it is never my intent to tell people what to do. When we first get involved in a trade and the stock moves quickly I like to take a little bit of profit quickly. Taking this small and quick gain accomplishes 2 things. First, it allows us to cover all of our transaction costs on the trade. Secondly, it lets us be in a “position of strength” on the remainder of the position and it doesn’t hurt as badly if the stock reverses course and stops us out. The most common level I suggest taking ⅓ of a position off is at or near daily R2 (longs) or S2 (shorts.) There is no perfect place to take a partial profit, but using the mathematically based pivot levels gives us a consistent method to reduce risk. If the initial sale seems early to you or just doesn’t seem worth it then, do what is right for you! Adjust the trade to your risk profile, holding time, goals, etc.. If you have a question, about alternative stops or levels to reduce exposure, simply ask!
There really is no “one best timeframe” to analyze. In order to achieve a true edge in trading it is imperative to study price action on multiple timeframes. A minimum of three timeframes (long , short and intermediate term) should be consulted before entering a stock position. For swing traders these timeframes should be 1- daily chart of 150-200 days for the long term trend recognition 2- 30 or 65 minute timeframe for 30-50 days for risk/reward determination 3- 10/5 or even 2 minute timeframe for 2-10 days to fine tune entries For daytraders the three suggested timeframes are 30/65 minute for long term trend, 10/5 minute timeframe for risk/reward determination and 2/1 minute charts for fine tuning of entry.
It is smart to have an idea where the stock has the potential to go (this is the basis of the reward part of a risk/reward ratio) but remember that a price objective is just there as a guide to help us decide if taking a position is justified. Once we actually enter the trade we have only one job and that is to manage risk! There is an often mentioned phrase that “winners take care of themselves” and to a degree that is true but we cannot sit idly waiting for our target to be reached and fail to lock in profits or to let a winner turn into a loser. The market does not care where we think it should go, it is going to do whatever it does and we need to listen objectively to price action and adjust our position size and stops according to that message.
No, this is not an options trading service. I do not think that options are appropriate for a lot of participants but there are instances when they can be used to reduce risk. There are times when I will mention that I am considering options on a certain trade and fewer instances when I actually disclose an options trade I am in. Generally speaking, options are riskier to trade and should only be used by more experienced traders who fully understand the full risks. You are always welcome to ask about an option strategy you are considering and I will give you feedback on it as I would with an individual stock request.
No, like options, leveraged ETFs have their own unique risks which make them inappropriate for a lot of traders. The End of Day video focuses on the major index ETFs and the kevels mentioned for those markets can be used to trade the leveraged products, make sure you understand how daily compounding can dramatically affect the actual returns of these products versus the relationship you expect to the non-leveraged ETFs. This is an excellent source of leveraged ETFs http://bit.ly/Ztcu29
The official ideas are generally setups which show lower volatility and have more developed patterns which make finding actionable levels easier to identify than the watch list ideas. Official ideas are tracked (with fairly tight stop levels) for swing trades, while the watch list ideas are typically more volatile stocks or ones where the setup has not yet developed fully. We will often “stalk” watch list stocks for a few days and then they will become “official” ideas as the setups become clearer. There are often some very good trades which develop from the watch list ideas but they are best suited to day traders who can watch the action closely throughout the day. Both the official and the watch list ideas are monitored in the chat room throughout the day.
No and neither should you! In fact, there are often stocks which I mention may be a good setup but that I won’t trade myself because the personality of the stock does not match my own personality. I know that stocks which look like “slower movers” are not ones I typically have patience with so I avoid those, but more patient Alphatrends traders often do quite well with them. There are a wide range of stocks covered each day and that is done intentionally to offer up low risk/high potential ideas which fit your parameters. Focus on the stocks which “speak to you” if you don’t understand or are not comfortable with the setup you will be more prone to making emotional (costly) decisions.
No two traders will trade a setup exactly the same and no one will trade all of the ideas mentioned. There are a lot of personal variables which will greatly vary the trading results between various participants (are you comfortable buying on the open or do you wait for a pullback, do you sell partial positions on strength, do you only trade stocks under $10/share or maybe over $50?) The primary goal of Alphatrends is to consistently bring you ideas which are profitable and at the same time do not expose you to large losses. We have all seen “track records” from various sites and when you study them further you realize that most of the time the results were unobtainable. Alphatrends stands on the quality of information brought to you each day in an educational format. If you are unhappy with the way this is handled cancel your account in the first 7 days and you will not be charged.