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Jim,
If I'm long a stock in an up trend channel and the stock closes below
that channel, I'll sell the stock the next morning. I then erase the top of
the channel and draw a Trader Vic type Horizontal Channel (HC) for the trend
reversal test. The Trader Vic HC top is draw with a horizontal line through
the recent high. The bottom is draw with a horizontal line through the
preceding minor low. I wait for a breakout of the HC.
If the stock breaks through the top of the HC, that is a trend continues
signal and I'll redraw the bottom of the up trend channel form its original
point through the last low. I'll replace the top with a parallel line through
a high which doesn't intersect any other data. I usually won't take a take a
new position in the stock here unless I really like it. I prefer entering on
short term trend reversals off the bottom of intermediate term up trend
channels.
If the stock breaks through the bottom of the HC, I'll construct a Raff
Regression Short Term Down Trend channel. This is the place Trader Vic says
it's OK to short a stock. Since the market is biased to the upside, I require
more. I'll only short if the short term trend reverses to the down side and
the intermediate term trend is also down. I also want the fundamentals to be
bad - high PE, high debt, and negative earnings surprises.
In general, I like to trade when the short term trend reverses in the
direction of both the intermediate and long term trends or when the
intermediate term trend reverses in the direction of the long term trend. I
prefer to enter a position shortly after the stock bounces off the channel
wall, but will take a position when an intermediate term trend breaks.
Hope that was a little clearer.
Jim
-----Original Message-----
From: J.F. DeWilder
Sent: Thursday, July 03, 1997 9:03 PM
To: Jim Greening
Subject: Re: Weekly Pick
Jim Greening wrote:
>
> > I've found that the market likes to shake stops out by spiking down
> through a whole number and then rallying back up. That's why I don't like
to
> set stops with my broker, but would rather use mental stops. I set my
mental
> stops at the 3/4 point below the trend line on long positions and require
that
> the stock closes below that stop. Then I'll close the position the next
day.
> I have some friends that even require two or three closes below the stop to
> avoid being shaken out, but one is enough for me <G>.
> If a stock breaks out of a well defined intermediate or long term up
> trend and then continues up, I'll erase the top of the old up trend channel
> and start a new short term channel from the low before the breakout. For a
> Raff Regression short term channel that hasn't been well confirmed, I'll
> stretch the channel.
>
> Jim
> Jim,
Thanks so very much for your advice. I was ( and still am to a certain
extent) using oscillators as I had described some months ago. Recently,
I had nmy lunch eaten when I shorted a stock. In retrospect, it looks
like I unknowlingly shorted into a long term uptrend. Oh well, live and
learn.
That, in a nutshell, sparked my interest in channel trading. I bought
both of Trader Vic's books, have read both of them, and am now in the
process of digesting the information. Your advice clarified some
confusion I previously had.
For a point of clarifciation, in my last question, I was assuming that
the stock broke the bottom of the uptrend channnel. From your answer, I
believe that you inferred that ...but I just wanted to make sure.
As I progress, I will ask some more questions, over the MetaStock
listserve, about channels. Thank you for your time and knowledge.
Jim
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