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RE: Beginners Questions - MalcolmSm1th - 2014-02-19
Malaguti, many years ago (and I mean many years ago when the world was in black and white and wearing cordouroy trousers -- yes, the seventies) I ran the college magazine at the polytechnic* and I managed to put the answers to the crossword next to the grid rather than the answer to the previous week's crossword.
I still failed to get one correct result in.
Onto the chart. The Moving Average. Weinstein in his book says that for INVESTORS the moving average has not to be falling (page 14, para 1) for TRADERS it has to be rising. Not falling would be the description that you have described here so for investors this would be acceptable.
- Malc
*Easily the worst college of its era, but someone had to go to Middlesbrough. Oddly enough it won 'The University of the Year' the other year. I am still trying to work out which black hole Oxford, Cambridge, Durham, Bath, Imperial and the rest fell into for those twelve months.
Stan's Don't Commandments - isatrader - 2014-02-19
Because of the previous few posts about the MA, I thought it might be useful to put the list up from page 129 of the book of Stan's Don't Commandments as a refresher, as it's covered on this as well as other useful tips on successfully using the method. They are:
Quote:
- Don't buy when the overall market trend is bearish.
- Don't buy a stock in a negative group.
- Don't buy a stock below it's 30 week MA.
- Don't buy a stock that has a declining 30 week MA (even if the stock is above the 30 week MA).
- No matter how bullish a stock is, don't buy it too late in an advance, when it is far above the ideal entry point.
- Don't buy a stock that has poor volume characteristics on the breakout. If you bought it because you had a buy-stop order in, sell it quickly.
- Don't buy a stock showing poor relative strength.
- Don't buy a stock that has heavy nearby overhead resistance.
- Don't guess a bottom. What looks like a bargain can turn out to be a very expensive Stage 4 disaster. Instead, buy on breakouts above resistance.
RE: Beginners Questions - acito616 - 2014-02-19
(2014-02-19, 11:46 AM)isatrader Wrote: Because of the previous few posts about the MA, I thought it might be useful to put the list up from page 129 of the book of Stan's Don't Commandments as a refresher, as it's covered on this as well as other useful tips on successfully using the method. They are:
Quote:
- Don't buy when the overall market trend is bearish.
- Don't buy a stock in a negative group.
- Don't buy a stock below it's 30 week MA.
- Don't buy a stock that has a declining 30 week MA (even if the stock is above the 30 week MA).
- No matter how bullish a stock is, don't buy it too late in an advance, when it is far above the ideal entry point.
- Don't buy a stock that has poor volume characteristics on the breakout. If you bought it because you had a buy-stop order in, sell it quickly.
- Don't buy a stock showing poor relative strength.
- Don't buy a stock that has heavy nearby overhead resistance.
- Don't guess a bottom. What looks like a bargain can turn out to be a very expensive Stage 4 disaster. Instead, buy on breakouts above resistance.
isatrader,
My breakout would have been set at the 52 week high around $4.75 not the 4.25 you show, odds are my stop would have been at your breakout point. I guess the thousand dollar question is, would I have bought back in a few months later when it reversed and surpassed the new $5 breakout and started its stage 2 continuation move for the 800% run. That's my must difficult trade is the buy back in after I've been stopped out from being early or setting my stops too tight.
jason
RE: Beginners Questions - isatrader - 2014-02-19
(2014-02-19, 02:44 PM)acito616 Wrote: I guess the thousand dollar question is, would I have bought back in a few months later when it reversed and surpassed the new $5 breakout and started its stage 2 continuation move for the 800% run. That's my must difficult trade is the buy back in after I've been stopped out from being early or setting my stops too tight.
That's one of the harder things for shorter term traders, as you'll likely be stopped out of many early Stage 2A moves, as after the initial advance it often pulls back the whole way to breakout point, and like in the CSIQ example it fell back well below the breakout level. So if you trade that early breakout point then you'll need to get back in when it resets up and breaks out again with heavy relative volume, which as you say is hard mentally if you've already had a loss, but necessary as a lot of the best Stage 2 moves have early shakeouts before the momentum phase. But this is why Weinstein's method suggests that traders should focus the majority of their positions on Stage 2 continuation moves that are already in good quality Stage 2 advances, and less so on the investor Stage 2A entry point. So it depends whether you are a trader or an investor to the type of Stage 2 entry point you should be focusing on.
Quiz - isatrader - 2014-02-20
Time for another quiz question for you to have a go at. I've attached is a mystery chart with a set of questions for you to answer, and I'd encourage you to elaborate if you can as it helps in analyzing the Stage.
- Is price above a flat, rising or declining 30 week MA?
- What is the volume doing?
- Is the relative performance versus the S&P 500 above or below the zero line?
- Is the relative performance zero line itself down, flattening or rising?
- Is there significant near term resistance?
- What is the Stage of this stock?
- What is the Stage of the Sector chart?
- What is the Stage of the S&P 500 chart?
- Would you buy this stock? Explain your reasons of what you would do.
RE: Beginners Questions - MalcolmSm1th - 2014-02-20
Thanks again for running this quiz. I hope that my answer is useful.
1. The price is BELOW the moving average. The moving average has just and has just started to decline a little.
2. The volume looks like there's a battle between the buyers and sellers. The volume looked interesting and positive in June 2011 when the stock started to break out above of the historical high at 9s. Since then the volume fell on retracement and then took off. At the moment the volume is spiking but overall it's lower than it is in the summer of 2012. In fact the moving average of the volume is turning.
3. The relative strength is below the zero line. The relative strength had turned in the October of last year. Ths is a negative signal for me.
4. The relative strength zero line itself is flattening out.
5. Near term resistance? Yes, we are experiencing lower highs since August 2012. One can count at least three significant, four if one counts the recent high, higher highs which are all resistance levels. More red lights here.
6. The stock is in stage three and if it drops much further, below the current 28 level, then it will be in an early stage four.
7. The sector could be in a stage 2 or an early stage three. The MA is still rising quite steeply and so this could be a contnutation for the stage 2 or it may signal the start of the stage 2. What happens next depends very soon on whether the price rises and then it's in continuation or if it contnues like it is then we're in stage 3. Either way, I wouldn't be wishing to enter into this sector until I saw what was happenign next.
8. The stage of the S&P chart is still stage 2, though the volume is something to obverse; it's falling slightly.
9. Would I buy this stock? The answer is No. The reason being that the price is below the moving average. I don't care what the rest of the sector, the market, the relative strength is - if it's below the moving average that is simply a big red light for me.
I certainlly wouldn't be buying this stock and if I had it I would be selling it now if I hadn't already sold it in December of 2012. This would have been my selling point because the stop would have risen to the bottom of the first dip after the rise to the next lower high in November. Then the price would have gone below that low in December and done through the moving average. In fact, I can't imagine my being still in this stock in April of 2013 and buying would be the last of my thoughts of this one.
Now, assuming I got out in December at about 28s, what would my progress have been? Ideally I would like to have got in in about March or April 2012 at around 14s Volime increased, rose above the recent high of August 2011, the Moving Average was rising at this time and was below the price.
This to me would have been a nine month holding which more or less doubled in that time. But I would be out and staying out now.
I'm curious to know what this stock is, I know it's not Ferrum Crescent for sure.
- Malc
Quiz Answer - isatrader - 2014-02-20
(2014-02-20, 03:27 PM)isatrader Wrote: Time for another quiz question for you to have a go at. I've attached is a mystery chart with a set of questions for you to answer, and I'd encourage you to elaborate if you can as it helps in analyzing the Stage.
- Is price above a flat, rising or declining 30 week MA?
- What is the volume doing?
- Is the relative performance versus the S&P 500 above or below the zero line?
- Is the relative performance zero line itself down, flattening or rising?
- Is there significant near term resistance?
- What is the Stage of this stock?
- What is the Stage of the Sector chart?
- What is the Stage of the S&P 500 chart?
- Would you buy this stock? Explain your reasons of what you would do.
Thanks to Malcolm for attempting the chart quiz and his excellent analysis of the mystery chart. I don't think I need to add much to his analysis as it covered most of the points very nicely, so I've marked up an up to date chart of the stock, which was AVD (American Vanguard) which is in the $DJUSCX (Specialty Chemicals) sector, and I've highlighted the point that it was at on the previous chart I showed for you to analyze with a vertical grey line, so you can see what happened next to the price and the relative performance and volume.
AVD was below a declining 30 week MA with around average volume for it. The relative performance was weakening below a flattening zero line, and it had formed some near term resistance with a number of lower highs and was testing the lows of the Stage 3 range which had been forming for six months. And hence it would be given a Stage 3B rating, which means late in Stage 3 as it had become increasingly toppy, and so if you were still in it then you should use rallies for at least partial selling at that Stage.
Nine weeks later it broke down into Stage 4A, after first rallying back up to the declining 30 week MA and rolling over. Now almost a year later it's still in Stage 4 and has formed a much larger head and shoulders top, which if it makes a further Stage 4 continuation breakdown below the major support that's formed, it would move into a more serious Stage 4 decline with no support until around the mid teens, although that's quite old now.
Below is the marked up charts.
RE: Beginners Questions - malaguti - 2014-02-21
(2014-02-20, 11:07 PM)isatrader Wrote: Nine weeks later it broke down into Stage 4A, after first rallying back up to the declining 30 week MA and rolling over. Now almost a year later it's still in Stage 4 and has formed a much larger head and shoulders top, which if it makes a further Stage 4 continuation breakdown below the major support that's formed, it would move into a more serious Stage 4 decline with no support until around the mid teens, although that's quite old now.
Apologies for being late again, I can't seem to subscribe to the thread so missed this opportunity; but apart from seeing the logic in the answers the question as to whether the sector is in a stage 2 or stage 3 would depend on whether we could have been shorting this
Don't sell in a strong sector are the words
So our analysis has be on the sector chart and as Malcolm says, its stage 2 or a very early stage 3, but there's no indication of a flattening MA to suggest a 3 yet
Would we still be shorting this stock in this case?
On another topic, this is in relation to page 16/17 where he says that the MOST bullish scenario is where a long term trend has been breached to the upside followed within days of breaking the MA
Here is Gold, would this classify as an example? trend line has been going for a year, with numerous touches and MA (weighted) broken immediately
and does anyone actually use this method, or rather wait for a more "classic" basing pattern? Interestingly the MA on the breakout turns up immediately.
There is of course the added benefit of a large double bottom playing out after 1400 of course