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Ed,
I basically agree with your comments, although in the truest sense
the EMA(20) yields information on the close only and not the open,
high, or low. In reality, very little else is needed though beyond
EMA's (or some derivation of EMA's) and fundamental strength in order
to select winning possibilities.
Sector selection as you have pointed out is important and will indeed
increase the rewards of your trading. The problem I have with using
published sector stocks is that unless you are part of the selection
process you will be catching the tailend of a ride which only
magnifies Chorlton's problem. In other words you are not leading the
herd but are following it.
Chorlton,
Over the last year in this group we have thrown out a number of new
and innovative indicators that you may find useful. If you go back to
the posts that have been made since January 2005 you will find a
number of useful indicators that can help you in the process of
analyzing stock price performance. Stay away from the exotic
indicators and focus on indicators that yield information which you
can easily understand. A good for instance is the TSI or Trend
Strength Indicator that I posted. This indicator is nothing more than
a number of moving averages which will show you when a trend begins
and when it begins to breakdown. You must seek to understand the
nuances of price movement. Realize that every stock is a little
different in the way its prices fluctuate over time. This is usually
due to the membership of the herds that are participating in the
movement.
As a for instance, I follow a single mature stock. I know the
fundamentals of this stock are sound. I open a chart of this stock
and look at the price movement for the day. The only windows are
price and volume. Next I will open a window with the TSI. Again I
relate the daily activity of the price and the indicator. I look for
a relationship of the two. By doing this over several months I am
able to understand how the indicator works and determine if it is
useful. Once I am comfortable with my understanding of the indicator,
I then apply another indicator which I understand and am comfortable
with. The process of review is again duplicated in order that I have
a solid understanding of the indicators and their message/s to me. I
go through the process once more and then save the layout as a
template. As a basis for my indicator selection I may decide to use
indicators which some guru has outlined in their trading plan. As you
study the philosophies of various gurus you will find that no two
will agree as to the best set of indicators to use in a trading plan.
In the end I believe it is all about your level of understanding and
appreciation of the indicators.
Seek to understand a small group of indicators first and then move on
to portfolio selection.
Hope this helps,
Preston
--- In equismetastock@xxxxxxxxxxxxxxx, "Ed Hoopes"
<reefbreak_sd@xxxx> wrote:
>
> Determining the trend in the presence of noise.
>
> If you look at this problem from an information theory standpoint,
a
> EMA(20) will extract maybe 85% of the theoretical maximum available
> information in the OHLC data. More exotic indicators may increase
> that somewhat. Using this on a random group of stocks will get you
> modest returns AT BEST.
>
> So what is needed is more information.
>
> I have found that information in 2 places so far:
> 1. Use a universe of stocks that have strong fundamentals - there
are
> many sources:
> StockScouter free
> Valueline 100 $$$$
> IBD 100 $$$$
> StockCharts.com 100 free
> etc
> Then apply your favorite trending indicator to these stocks that
> already have built in an upward bias due to fundamentals.
>
> 2. Invest in Sector ETF's - here the value is not as obvious, but
> large players will start buying a sector and it takes them several
> weeks to a few months to build a position, so the trends in these
> groups of stocks will continue for long enough for a small investor
to
> make a profit.
>
> Again, apply your favorite trender to those funds in an uptrend.
>
> These players will 'pile on' for some time, generally several months
> then will do a 'sector rotation' sell what they currently own, and
> buy a sector that has been beaten down and ride that one up. It is
a
> real herd mentality, but for small players, we can ride along and
make
> a decent return.
>
> Uptrends are preferred because most large money players are long
only
> - pension funds, mutual funds, index funds.
>
> Reef-Break
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "vlad" <entinv@xxxx> wrote:
> >
> > Try combination of DMI+ DMI- and ADX.
> >
> > Regards,
> > Vladimir
> > -----Original Message-----
> > From: equismetastock@xxxxxxxxxxxxxxx
> > [mailto:equismetastock@xxxxxxxxxxxxxxx]On Behalf Of
chorlton_c_hardy
> > Sent: Wednesday, December 21, 2005 4:55 PM
> > To: equismetastock@xxxxxxxxxxxxxxx
> > Subject: [EquisMetaStock Group] Help needed with indicator
selection
> >
> >
> > Hi All,
> >
> > I trade UK stocks and currently I am quite successful in
choosing
> > those stocks which continue to make short-term gains in an
Uptrend
> > using certain combinations of MA's to first identify these
stocks.
> >
> > However, the one area where I am having MAJOR problems with is
> > predicting when the current uptrend rise will collapse.
> >
> > So far, I have held on to certain stocks only for them to
suddenly
> > drop in SP which results in my stop loss being hit , or worse
still
> > closing trades only to watch them suddenly shoot for the stars
a few
> > days later !!!!!!!!
> >
> > There may be some scope to modify my stop loss (ie. lower it) to
> > eliminate it being activated but this obviously will have a
knock on
> > effect to my risk:reward ratio.
> >
> > My goal is to identify those stocks beginning a new uptrend and
to
> > ride the tend as much as I can before it falls against my
position.
> > In the instances where the SP then levels off and stays within a
> > short trading range, I am happy to wait 3-5 days to see if the
> > uptrend continues and if not, to close my position.
> >
> > Consequently, can anyone recommend any good indicators to give
some
> > indication as to when a rise may run out of steam or when it is
good
> > to keep a certain trade open??
> >
> > Any help much appreciated as I've run out of ideas and don't
know
> > what to try.....
> >
> > Many Thanks in advance,
> >
> > Chorlton
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