Thanks Darcy2 and rookie30 . . .
When I first saw those lines cross in 2003 or so, I thought there's nothing to this! I'm a tech whiz, install complicated sound & video gear, highly computer skilled, and all that jazz. This was going to be a slam dunk LOL. I was so naive I thought I was seeing how the Wall Street pros traded. I had no knowledge about trading nor Wall Street. None. Zip.
As time went on, the lines crossed. Hmmm... lost money. Lines crossed again.... lost money. After watching the lines crossing a few hundred times and still no joy, somethings wrong here. And many, MANY times those lines never crossed until I looked back. When I tore down the indicators, I later figured out why I could never see the trade set up coming until it was already done even if I watched it candle by candle!
Go to class, makes perfect sense. Come home, nothing makes sense. After loosing half of my original account, I stopped with real money. After about 6 years of working as hard as I could go on it, putting in hundreds of hours, reading til my eye sockets literally hurt, and about the time RTP started, I came home one day, put all my books up, threw out about 125 lbs of research, notes, etc., cleaned my trading room down to the Formica counter tops, and stared at my 4 monitors. I thought "This cant possibly be this hard. I must be missing a huge piece. A piece thats so simple, I cant see it."
Keep in mind that I had attended all of the classes several times over, including all of the advance classes and RTP - all of them. I was one of the first 12 to see the DE technique. Of course, I didnt know what I was looking at when I saw it since I didnt even understand apparently what a trade was. I sure couldnt do one, seemed like. I never did figure out what a knife obvious trade looked like.
I was reading "Trade Like Jesse Livermoore" about that time and in the back of the book is a copy of a few pages of one of his journals. I was looking at it and it hit me like a ball bat - theres NO charts!!!! Its about the price. I'm so focused on the indicators, I'm not paying any attention to what the price is doing.
It would take months to re-wire my brain to really "see" the market - how it really works. I would remember Gary hollering all the time - "Its not a chart thing!". Now I get it. I'm all in the chart looking for the trade - this indicator doing this, that candlestick pattern doing that. The trade is not in the chart. The trade is about observing how market participants react around events. The chart is simply a tool to verify when the aggressive buyers and sellers are motivated to act.
There is no predictive charting method out there. A chart is where traders have been, not where they are going. The only person on the planet that knows where the price is going on the next candle is that person with enough buying or selling power to move the market. We can get a clue using tools like Total View but even then, every set up is a high probability trade, never a guaranteed trade. And as obvious as that is now, it would take me months to years to let go of the idea that somehow I could have seen something on the chart to let me know a bad trade was going to be a bad trade. Thats the struggle a technical mind goes through - looking for the reason something didnt work that "should have".
Now, there are “chart trades” but the odds of the trade working is far greater if there is some major event that attracts the attention of enough traders to participate in the anticipated future expectations of price.
Nobody with enough money to move the price into a decent trend is watching Bobs Diet Drink and Water Hose Company in anticipation of an earnings announcement. But everybody is watching APPL. In APPL, a news, split, earnings, etc. will move the price simply because there are enough big traders ready to buy or sell in anticipation of where the price might be headed. Its the expectation of future price and the resulting order flow that moves the market.
Chart trades without a major event can also work well in a heavily watched stock simply because everyone sees that bullish engulfing candle at the same time at support with some indicator crossing up. Everyone piles in and the momentum begins, with the move / trend completing in a self fulfilling prophecy. Naturally there are many nuances and many trading methods / styles involved here. But essentially everybody is looking for the same thing - that momentum candle, chart pattern, indicator trigger - that signals aggressive buying or selling has started.
But I was all in the chart looking for the setup with no power behind the move. I was trading noise.
Fast forwarding, I stripped the charts down to price action only - just candles and practiced that for a while, learning to see how the traders are thinking "behind the chart" - seeing if I could stay one step ahead of the crowd. I learned how candles from time frame to time frame are being built. I began to put news, events, time of month, etc. together, particularly the morning opens. I'd see an option explode as much as 600% before 11:00 on a .50 stock move. How is that possible? So I dug into how options are constructed and figured out such explosive moves were possible. Those are my favorite trades. I also figured out why a call option fell in value when the stock price shot up.
Over time I put indicators back on the charts once I fully understood how that indicator was constructed and how it can help me. All indicators do for me is smooth out the noise in the price. For swing trading, I simply look for the neutral zones in price movement and then set up a potential trade around what is likely to happen next. If the chart confirms what I suspect, I jump in - assuming the overall market is right, etc.
NEM this morning was a small trade with a 24% gain. The “market tell” was the first 10 min candle that gapped up slightly and closed in the upper range forming a Harami candle. The gap up signaled aggressive buying, the buying was still strong after the first 10 min close because the close was in the upper range meaning buyers were strong. Plus that candle opened in the lower range and the price advanced without looking back forming a tall bodied candle. I didn’t use any indicators. Price only.
I got in at 1.97 in the Sept 30 call after the close of the first 10 min candle. My first stop was the middle of the candle since any trend that is serious will not trade below the mid point of the previous candle. If the price traded below the mid point, I would consider getting out. If the price moved past the mid point too far, I’m gone. The trend is not likely to continue. If you are a Fib trader this all goes to relative strength. I could have gone down to the say 1 min chart, pulled a Fib and judged the retracement, blah, blah, blah. No need for all that – just watch how that 10 min candle is forming.
Look at the 10 min chart on NEM and you’ll see what I mean concerning the mid point. None of those candles in that up trend ever traded below the mid point of the previous candle except # 5. It takes experience to sense price movement but I got out on candle 8, that black doji. I left some money on the table, but I was occupied with other work, so that was good enough. I was out at 2.45 – about a 24% gain.
I was working on another PC and just glanced over there, saw it, and traded it. I am using Strategy Desk and built what I call a trade matrix for my basket of 60 stocks that trade on dollar strikes and the options move well. Instead of clicking through charts after charts, I built formulae and let the PC tell me where the trade is and on what chart.
I have recently turned off Qcharts. Eventually I will go with Esignal but I need a better PC to run it. But for what Qcharts costs, I can get far, FAR more features and for free with Strategy Desk. I just couldn’t justify the cost of Qcharts any longer. To me Qcharts shouldn’t be more than 50 bucks a month. And that symbol leak issue was driving me crazy. SD isn’t perfect but it serves my needs right now. Being able to let the PC find the potential set up, then email me when I need to look at the chart, is a huge time saver. And I love my trade matrix. I can glance at my quote sheet and in just a few seconds know which stock is ready to move, if any are of course.
That’s another thing I learned about myself. I hate assembly line type work. Well, guess what trading is? Doing the same thing over and over and over. I had to develop tools to help me get past that hurdle too.
Well, enough rambling. Time to journal and hit the sack.
