Sunday, June 14, 2009

Q & A SESSION #3


Here is the 3rd Q & A session:

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1)
Juan

a)
Please comment on your ACAS prospects. In this case, the chart does all of the talking. The most likely target would be around $4.20.


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2)
Victor

a)
How do you go about creating your watchlist for the next day? Already answered.

b)
Also, what futures do you keep an eye on besides the ES & NQ? That's it.

c)
Do you pay any attention to market breadth and TICK/TRIN? I also look at Advance-Declines, New Highs-New Lows, VIX, Put/Call Ratio, and the McClellan occasionally, but only once in a while.

d)
Do you have any idea as to how long it will take for you to reach your first profit-taking resistance level, if so, how do you figure that out? The market decides that, so when it does reach the initial level, you have to make a decision when it gets there. I sometimes have an idea if I look at the chart's past price behavior. For example, if a stock has a tendency to spike 2-3 days straight, and the chart is exhibiting the same setup, then I can reasonably assume that it will do the same as it did before. If it doesn't, then it doesn't.

e)
Finally, what do you think of JASO for a swing play if it pulls back a bit more? Good.


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3)
Goldie

a)
Is there any moving average crossovers that cause explosive stock movement? Crossovers are too late in most cases when trying to time an entry. However, crossovers do indicate further confirmatory movement in that direction in most cases. I like to see the shorter-term MA's intersect with the longer-term MA's, such as the 15-day/20-day on the 50-day/200-day. Typically, the other MA's will "follow" the shorter term MA's and provide additional support for the stock. I personally do not use crossovers often.

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4)
TetonStorm

a)
Do you chart the US Industry Indices and SPDRs for breakout setups then search those setups for individual stock setups or do you just use a broad market search with you price and volume criteria as stated in the 1st Q/A? I do both. Most times, I go straight to the individual stocks. If a large number of stocks in a certain sector are showing similar setups, I will go sector specific and look through the entire sector's components. A good example of this was when I saw a sequence breakout occuring in XTEX, XTXI, AHD, APL, CPE, etc.

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5)
Celticaces

a)
Do you trade futures (i.e. S&P e-minis)? If not, have you looked into the advantages they have over daytrading stocks? I don't trade futures and I am not a primary stock day trader. Every asset class has pros and cons. My skill is in trading stocks, and it works.

b)
Other than tech. analysis of financial markets (murphy), what would you say is your favorite tech. analysis educational material? This is tough to say, but books by any of the following authors are highly recommended: Stephen Bigalow, Steve Nison, Toni Turner, John Netto, John Carter, Alexander Elder, etc. Many more.

c)
With the information overload problem inherent in trading, what have you narrowed your sources/references down to and when do you read them throughout the trading day (or after)? I rarely read other blogs. I read relevant news as they come.A good way to not get overloaded on information is to just focus on the particular stock's chart.


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6)
Andre123

a)
I was wondering how you use MA’s in your trading. Take a stock like ANR. The stock has popped above its 200day moving average. Do you consider this bullish? Yes, but MA's should be used to confirm price, volume, and the setup. ANR has a fantastic chart. The only bearish element in ANR is the fact that the 200-day is still curving down. Still, the chart indicates more upside potential. I answer the general MA question in one of the previous Q&A's.

b)
What if a stock smacks its head on the 200 day and falls(ex:CTIC). Is this bearish? Yes and no. It is bearish if it fails and doesn't make another attempt in short order. A stock may need 2-3 attempts to break through the 200-day. If a stock can flag under the 200-day, then it is usually bullish.

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7)
The 4th Earl of Sandwich

a)
My question is that when you are trading breakouts from patterns such as Triangles, Flags etc. Do you always take a disciplined approach and wait for price to breakout of the pattern and confirm the breakout - or do you ever jump the gun and place a speculative trade whilst the pattern is still forming? In the majority of cases, it's the latter. I need to get in while the pattern is still forming, and I am willing to wait several days for a move to occur. In cases where I am unsure and the odds are 50/50, I wait until the gap up shows a true breakout from consolidation. The pros of getting in early are that you capture the entire move, and you have a buffer against loss. The cons are that you will take a larger loss if a failure occurs, and trading capital could be tied up for several days.

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8)
Loopy Monkey

a)
Wondering what tools you use, like software, trading platform, monitor setup. and do you keep all charts up simultaneously or do you flip through them during the trading day. For my personal accounts, I have three brokers. No software except for the ones that are provided. I have 3 monitors at my home, and 12 at the office. I flip through time frames for each stock. For example, if a stock is looking good on the 1-day, I'd look at it's 1-4 week. How you set everything up is up to you. I trade on my laptop on some days, and it's fine.

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9)
Daniel

a)
How do you protect against “fake out” moves? You can't. They just happen and you deal with them.

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10)
Pin
a)
How do you distinguish between real and fake breakouts? Do you usually wait until the last few minutes before market closes to decide whether to get into the trade or are there certain criteria you look for to determine that it is a real breakout? Breakouts are determined when typically the stock breaks away from a multi-day consolidation. This can be marked by a gap up or an intra-day spike. If you trade high probability setups, it will become very obvious if a stock breaks out or not. I do place trades within the last 10-15 mins, and sometimes very last minute, of the day. I need to get as close to the apex as possible without mising a breakout gap.

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11)
Toronto Canuck

a)
What sort of patterns do you look for when shorting stocks? Remind me to write a separate article on this in the near future.

b)
Also, what indicators do you look at when measuring the strength of the markets? I listed some market breadth indicators above.

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12)
Q

a)
Do you ever do any analysis on ES or do you stick with SPY? ES during non-market hours, SPY during market hours.

b)
How long did it take you to become profitable after you made it a priority to become a good trader? I never had a losing year in trading (when I started at 18). It became a priority when I first started.

c)
Are you ever concerned that stocks will stop obeying the patterns that you follow - i.e. that your edge will erode? Stocks don't "obey" patterns. Patterns are a part of stocks.

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13)
Bill

a)
We’ve been playing a lot of stocks under the 200d MA and popping - as that crowd gets picked over, seems to me the (long) action will be heavier in those over the 200d MA - fundamentally is this the same? Without obvious markers as the MA’s, how you adjust your picks for long opportunities, or is it still high tight flags / volume etc? When a stock successfully reaches the 200-day MA, institutional involvement is key. Same patterns, however, if a stock is under the 200-day MA, it may have a little tougher time breaking out vs. a stock that is already above the 200-day MA. When a stock clearly gets above the 200-day, then it has finally overcome one the largest resistance levels in existence.

b)
I sucked at shorting via ETF’s when I first played with the toxic cesspool that is FAZ sometime last January. Any initial learning steps and / or core principles you’d recommend? I’m leaning towards just using ETF’s for this purpose - at least for a while. I will be doing an article on shorting in the near future.

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14)
BeeRy

a)
What makes you say that there is a big move ahead, can you elaborate? The market has been consolidating for 2 trading weeks. A move is imminent.

b)
Do you have any hedges against the USD? No. IF you want, you can buy precious metals, currencies, and foreign stocks/ETFs/funds.

c)
What are you holding for the long term? I have a separate longer-term portfolio with UNG.

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And here is an updated SPX chart:


4 comments:

Zack said...

Hi John,

I just have 1 question for you. When you say that you dint have a single loosing year since you started trading at the age of 18, I find that incredible. Did you have a mentor? Because that's the only way I see its possible not to bust your account at least once or twice. Just curious.

By the way, you have a wonderful blog and I check it out regularly though I don't trade the US markets.

Regards

John C. Lee said...

Well, remember that I started investing when I was 13. I had 2-3(?) losing years up until when I started trading, but I never "blew up", not even close.

No mentor, self-taught.

Thanks for visiting.

JWC4 said...

Do you use 66% as your maximum retracement, or some other method?

I know you don't have long term positions, but if a long breaks a short term retracement zone do you always sell?

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