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augieboo

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Alias Born 05/13/2002

augieboo

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Tuesday, 08/13/2002 9:25:06 PM

Tuesday, August 13, 2002 9:25:06 PM

Post# of 241
EDDIEWW ON TRADING METHODS
http://www.siliconinvestor.com/stocktalk/profile.gsp?id=8018039

Anyway, to begin with a few basics and definitions. I primarily trade only the QQQ, long and short. While not as volatile as many individual issues, I'm willing to give up some potential gains in favor of limiting event risk and the possibility of having a long cut in half overnight. I don't have a gambler mentality - I'm very risk averse. Unless otherwise noted, I'm giving my method for long trades. For my short method, just turn everything upside-down. -g-

Time frames:

long-term = few months several years. Weekly monthly charts

Intermediate-term = several days few months. 60min daily charts

short-term = couple hours several days. 15min 60min charts

day-trade = 5 minutes couple hours. 5min charts

Each trading periodicity is informed and cautioned by all the longer periodicities.

I make two distinct types of trades: momo trades, where I jump on after I recognize a turn on (at least) the 60min chart, and anticipatory (spec) trades. All trades begin as day-trades with tight stops. Initial entries are always partial positions that are added to whenever I can add while maintaining a stop above breakeven. If we have a period where short-term trading is very choppy, I'll get stopped out a lot and often go away for a day or two until the charts clean up. The basic idea for me is to gradually migrate a trade from the initial day-trade to a short-term trade, where I can tolerate normal short-term pullbacks without getting too close to my stop. I used to day-trade exclusively, but I've found that to be too tiring and stressful. Now I want very much to migrate up the time-curve so I don't have to spend so much time and attention.

If trading were costless (no commissions), maximum profits would come from staying as close to the price action as possible. Commissions vs. throw-weight determines the most efficient periodicity to trade.

Spec Trades
I never enter a spec trade with more than 1/4 to 1/3 a full position. I look for setups where price will close or drop-and-stall at obvious support so that a reasonable stop can be set very close. If price is dropping toward support during the day rather than at the eod, I set my bid a little below support to catch the big guys "running the stops". I wait for a stall at or below support before entering intraday. If price is dropping to obvious support at eod, I may enter just above support to make sure my trade gets executed, especially if the daily, as well as 60min charts are very oversold and the drop is long in the tooth. I will add to my position if the spec trade turns into a momo trade. Momo trade rules then apply. I never used to do spec trades at all, but I have had some good success with them in the past couple of months. The first couple times must be considered a deviate character fault -g-, but since they worked out the method has been added to my acceptable arsenal. If I enter and exit on spec, and get it just right, it really improves the % gain a lot over momo trading. I've done better on spec entries than exits, though. I usually get scared out too soon.

Momo Trades
A momo trade is signaled by the 60min candle exceeding the highs of the last 2 60min candles or by a confirmed hammer, morning star, etc. While the signal comes from the 60min chart, I'm timing entry off the 5min chart. If the 5min is already substantially overbought, which is often the case, I will wait for a bull flag to form and break out for my entry. Commonly, my initial stop will be just below the low of the 5min flag. Assuming price runs for me a bit, I will keep moving my stop up to just below each successive 5min bull flag. Positions are added to when I can do so and still keep a reasonable stop in-the-money. Gradually, my stop will lag far enough below current price to allow for a pullback or flag on the 60min chart. At this point, usually on the first or second day of a trade, I'm golden. If the trade goes really well, I'll eventually get to where a pullback or flag on the daily chart is tolerable. Bliss! I frequently get stopped out early in a trade. My calculations show that I can be stopped out of about 70% of my trades and still make money. If I go through a period approaching that rate, I will take a break from the market for a few days to a few weeks until the charts clear up.

The intense times for me are the first hour or so, when I could still be stopped out for a loss, and at eod of the first day or two of a trade, when a tough decision must be made to hold or not.

Considerations, Cautions, and Contraindications
As I mentioned earlier, I'm not a gambler by nature, I'm a chicken and a tightwad. Excessive caution has cost me much more, over time, than actual trading losses. The following considerations are constantly moving targets whose influence and parameters change with changing overall market conditions and experience. This is still very much a learning experience for me. The following list is not in order of importance, since each one's importance will change according to the situation in the longer periodicities as well as where I am in a trade.

I don't have access to any info or indicators that aren't commonly available and used. The only thing I use that may be a bit unusual, but might not seem so to Larry Dudash, is Linear Regression, which I use in a very different way than HAL does.

Linear Regression
I've always used LR as a long-term analytic tool, as reversion to mean is a powerful and acknowledged phenomenon in nature. Lately, I've been keeping a 250 period LR on all my periodicities as a general ob/os indicator. I use such a long series because price will more likely revert to a long-series mean than the mean revert to price. I become more cautious and move my stops a bit closer when price gets substantially away from the LR.

Ultimate Oscillator
An ob/os oscillator, available with my charting sw, that combines the results of standard 7, 14, & 28 period oscillators. I have no idea why it should be so, since all oscillators are backward looking, but this one very often leads price - sometimes by several candles.

Stochastics
I sometimes have a stoch(15,5) on screen, primarily when looking at daily candles, as an addition to the Ult. Osc.
The best setup for me is when a 60min turn is signaled from deep oversold and the daily and weekly are oversold as well.

Moving Averages
I keep 5e/8s MAs on my chart for reassurance. The nicest setup is when there have been a few low-volatility candles drifting sideways so that my main signal coincides with or is immediately followed by a crossover. This is an old, sentimental favorite courtesy of Thomas Carr (Dr Stoxx now) on the BTTT thread.

Volume
The most important way I use volume bars is on the 5min when timing entries. Often the last candle in a given direction will have substantially increased volume which seems to signal very short-term exhaustion. I also watch volume in longer periodicities to confirm rallies. I consider increased volume on a rally a positive signal. The obverse is not particularly so. I'm much more willing to accept the validity of a slump on low volume than a rally on low volume. So lack of volume is a caution primarily for a long trade. I should point out that I trade QQQ mostly off the $ndx chart (less noisy). My sw doesn't give intraday volume data for the indexes, so I switch back and forth between QQQ and $ndx for entry timing.

Horizontal Support/Resistance
When thinking of Horiz S/R, I consider the compx, spx, & indu right along with ndx. I look for s/r at previous turn levels, fibs of them, and at round number levels, especially on ndx and compx. I've found that if a fib retrace coincides with a round number it can make for a very successful spec entry.

Trendlines
I try to keep intermediate-term TLs in mind, but I don't give them much weight. My primary use of TLs involves day-trade breakouts from flags for timing momo entries.

Accumulation/Distribution
I follow trin & tick, and trinq & tickq, and interpret them in the standard fashion. I don't think they're terribly useful except as short-term reassurance of other tools.

Sentiment Indicators
Even though I trade QQQ, I pay pretty close attention to VIX, and a bit less to VXN and QQV. I get very reluctant to hold longs over a weekend, or even overnight, when VIX gets below 20. Obversely, I'm reluctant to hold shorts with VIX over 40. This one is an example of how parameters change over time. A couple months ago my reluctance threshold for shorts was VIX 35. I do pay some attention to the various sentiment polls as contrary indicators, but not a lot. As for the COTs, I find it difficult to interpret the commercial's position in a useful way, first of all because they are delayed and therefore apply to my long-term and intermediate-term outlooks rather than the short-term that I usually trade. Secondly, I always wonder how much of their position is primary, and how much is simple hedge against opposite position in the underlying. Call me wary of the COTs.

Max-Pain
QQQ, along with a few other individual tech issues, typically have a huge OI and Max-Pain is a magnet for them. I try to always be aware of where M-P is. If price is too far, or gathering some momentum, away from M-P in the last 7-8 days before expiry I look for signs of delta hedging as a consideration.

E-Wave
I haven't looked at more than cursory instructive material for E-Wave methods, or tried to establish my own counts. It's obviously a complex methodology, and I wish to evaluate it a bit before I try to incorporate it. I follow the discussions on CFZ E-W and Raptor's Den to get a sense of what they see and how it works out.

Event Risk
I prefer to be flat on days of FED meetings unless it's a slam-dunk already priced in as it was in June, just as I used to always be flat for earnings announcements when I traded individual companies. I hate it when the FED bastards pull a surprise intermeeting move!

OPO (other people's opinion)
There are some posters here on SI who's opinions I don't ignore, especially when they don't agree with mine. I rarely defer to them, but they will keep my finger closer to the panic button.

Well, you asked for it, you got it. Sleeping pill, huh?
Catcalls and comments welcomed.

eddieww


(:

augie




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