Friday, June 20, 2008
Oil Settles Back, Indices Fall Further
We love it when a trend follows through. One of the core tenents of technical analysis is, "prices move in trends." Trends don't follow a straight line. They are more like two steps forward, one back. A zig zag. Prices zig zag inside the trend. They fluctuate.
Dave's Insight: One of the key responsibilities of a trader is to determine the difference between price fluctuation and trend change.
You've heard us say it before and the good news you'll hear us say again and again and again.
Why? Because it is reality. As a trader you need to stay focused on reality!
Oil has settled back to being up just under $3 for the day and is still trading inside its pennant. We'll let the breakout, up or down, out of the pennant tell us the next direction that oil is going to move. Of course with the intermediate and long term trend of oil up, a breakout to the upside is more probable.
With the DJIA down over 200 points, most stocks are moving down.
Take a look at these charts...
Friday's Action
Watchlist
Moving Up: IPI, USO, CF, DECK MEE
Moving Down: BIDU, SOHU, FSLR, MA, AAPL, DRYS, AMZN, GS, MTL, RIMM, SCHN, NUE, BTU, POT, FWLT, IBM, STRA, MER, CELG, NKE, MS, PCLN, JASO, UAUA, ESRX, V, EBAY, GRMN, LEH
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13 comments:
Aloha Dave
As always, thanks for the posts.
Question that I find to be the toughest thing so far in trading.
HOW do I "determine the difference between price fluctuation and trend change".
Depending on your choice of long term, intermediate and short term trends and then add intraday swinging and volatility in the markets where from day to day you get 400+ point moves, it's been tough. Not tough in a trending market but in this market the last 8 months, it is.
Or another thought would be "How do you know when to switch from one timeframe to another"?
Any insight that would help?
john
John,
The key is a break below support in an uptrend and break above resitance in a down trend. Price movement above support in an up trend is fluctuation. Price movement below resistance in a down trend is fluctuation. For a short term trend it is the recent short term support for an up trend and the recent short term resistance for a down trend. For an intermediate term trend it will be the intermediate term support or resitance.
I am going to ask everyone to read this comment to find out if others are struggling with this issue.
Dave
Dave,
I would be interested in hearing more on this topic.
Trader Drew
Dave - I had been struggling with this over the past month or so, until I started watching your trading rooms again. Your rules and emphasis on trend, support, and resistance cut thru my confusion, and I feel I am reading the charts more clearly and starting to plan several moves in advance, whether that's up, down or sideways. If there are others on this blog that do not have access to those trading rooms or need a refresher, I think your presentation of that in this forum would be appreciated, as you have hands-down been the most effective teacher/trader to help me in my education.
On another note, I see a head and shoulders breakdown with volume on SOHU today with a price target at 60-61. Do you agree?
Thanks for all you do,
Pam
You have said... "repetition is the key to learning". I am eager to learn and your efforts would be much appreciated.
Thursday morning in the audio chat you used the recent uptrend in BTU to illustrate this point and I found that to be particulary insightful.
Thanks, Fulvio
Dave:
I also have similar challenges with the difference-maybe I'm setting stops to tight, but at times, end up "forecasting" properly and miss the move.
Any help is very much appreciated.
Thanks
Robert
CANI_212
Dave, Your explanation is very helpful and examples would be even more helpful. Definitely depends on where we see support and resistance, which at times can be difficult to determine.
I too would most appreciate any help you can give on this topic. It's so frustrating right now because my short-term trades seem to be getting nowhere despite the fact that I am trading with the trend. I try to use trailing stops but the intraday volatility stops me out frequently only to go back in the direction that I had forecasted the very next day or even a few hours. Maybe it would be better to just set an initial stop and then leave it alone until it gets closer to it's target or stops out at the initial price you put into the machine. I'm putting in long hours trying to find the right way to trade in this market and basically getting nowhere.
Thanks for all the help you give us on your blog, in your trading rooms and in the Active Investor Talk. It is greatly appreciated by many!
Gailyn
Dave,
I can relate to John's comment here. Entry into trades are ok and I can handle that but setting stops and exiting has been a struggle. I an giving back most gains and even more lot of the times.
I would love to hear what and how I can get better at may be changing my time frame, like some other folks are talking about taking their signals now from the hourly charts. Any guidance here would be very good.
apreciate all that you do.
Dave,
Anything you have to say regarding this would be appreciated. It seems easier to discern on the indices vs. individual stocks in this volatility. I mean you can go from being up 10% after a short time to being just slightly up to being negative. I try to raise stops to break even but after being up strong that sucks. You did give examples in the trading rooms but as stated above and by you on more than one occasion, repeat, repeat, repeat. If anyone is reading this post just chime in with a simple "Yes tell me more Dave" so that Dave can see the support he has and the thirst for knowledge that exists by the very fact that you read the site.
Dave you remain on fire.
Patrick Lynch
Dave,
I agree with the need for further instruction - with lots of examples so we can see exactly what to look for and how to think through the trade. This does seem to be a learn able skill but I need lots more practice to get it right. Thanks for your willingness to teach us!!
Tom Culp
YES, TEACH US MORE, DAVE!!!
Dave,
John's question is right on target. Movements in this down trending market appear to me to be so violent that it is difficult to maintain focus. If you would also direct some attention to how to manage options. I tend to be primarily on the buy side and find myself down more than predicted when stops are set on the underlying. I know that the answer will be changes in implied volatility but how do you take advantage of that or at least not get beat-in up by it? Along with a drop in the win/loss ratio, I believe my option losers are bigger and, although I don't have good data, it seems the winners are smaller (may reflect an attitude of take profits when you've got them but may also have to do with option pricing).
Dave, thanks for your help. Your blog is a much appreciated addition to your trading rooms.
Gary H.
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