Saturday, June 30, 2007

800 Posts

And I'm out of here - everyone have a great life.

Marlyn Trades

Sunday, June 10, 2007

Cross Overs Are The Key

If your chart doesn't show the 4, 8 and 21 EMA then go fix it - I'll wait. We'll get to the reason why in a little while.

I have spent an inordinate amount of time over the past several weeks looking for something that I've already found - the best method to swing trade stocks when you are working is the cross over pattern. Put your stop (mental or actual) below the candle that crossed and let them run.

Some examples -

We'll start with Kraft Foods (KFT) - two crosses in two months - both profitable. Note that I have the MA 200 drawn on some of these charts - I'll use that later to show you something that might be important.

I don't particularly care for the first KFT cross over (which is actually the second in 4 days) simply because it has too much thrust. I prefer the kind like that on 5/16 because it is a more gentle ascent. Although both were profitable the second one is actually a lot better and may not be done yet.

Exiting a cross over is up to you - I expect 3% to 5% and after that everything is golden. My stop is always just below the crossing bar because the beauty of the cross over is - it works or it doesn't. I use a close as a trigger to sell the stock. In other words an intra-day move below the candle will not cause me to sell but a end of day close below the candle definitely will. While some folks have studied it and think that a pull back is OK I prefer the ones that go straight up.

Note that a cross over must open below the EMA 4, 8 and 21 and close above them. I do permit a composite (across two days) cross but to be honest I prefer those that happen all in one day. No hesitation normally means that the stock is going to go up.

Here is Natural Gas Services Group - NGS.

Another stock with two cross overs showing - the one on 4/25 was almost a failure but no candle closed below the cross over. However, if you missed the first one the second one had to ring a bell somewhere. You can see this one takes a normal trajectory - up, sideways, up, sideways - and that is the mark of a healthy advance. The last several days are almost saying - sell me - I'm done. I wouldn't be surprised to see a pull back next week. Which is just fine since we are well over the 5% gain at this time.

For the cultists - here is Microvision - (MVIS)

Another stock with two cross overs in two months - the first one being a composite. You can see by the price action after the composite that the traders weren't too sure about this one and let it slide to the 4 before taking it up again. Then it hit a patch of 4 days down. Any stock that goes red for 4 days in a row becomes suspect in my book and you can see that after the next three days it posted a cathedral of dead money on 4/05 and that would have been a good time to dump it.

MVIS put another cross over in play on 5/17 and has done pretty well since then although that "cross on the hill" that it printed on Friday suggests that it is going to back out some more.

The question of the hour is - why would anyone play any of these stocks without a cross over? - Most likely the answer is - impatience. And impatience is the reason why many traders go broke instead of rich.

Here's another - Nutrisystems - NTRI

NTRI was obviously a great buy on 3/15 when it crossed over. That was a nifty 42% ago. And that's the power of the cross over. Will they all come up that high that fast? Not necessarily but enough of them will that you can make some nice money just for being patient.

Here's another one that I bought - Live Nation - LYV

The cross over on 5/30 was followed up by a nice jump in price. And I sold it on Thursday at end of the day.

Now here's one more - I told you the 200-period moving average would show up again -

Two cross overs and the first one closed over the MA 200 and it came back down. It didn't close below the crossing bar however so the trade could have remained in place. But after a couple of false starts it crossed over below the 200 and took off - coincidence - probably - but who knows. I'll play cross overs either side of the 200.

Now here's why you need to have the EMA 4, 8 and 21 - while I have tried just about every other combination and method of moving average known to man these three averages test the best for cross overs. I haven't tried MA 50 or 20 or 200 and for all I know those averages are perfectly fine for this purpose and if they are - great. But I like the fact that these three averages vary in their relation to one another in a manner that suggests - volatility. When the averages converge it suggests that volatility is damping out and when they diverge it suggests that the volatility is excessive and needs to come back.

So instead of looking at the three averages as just three more lines on a chart - start looking at them as a function of volatility and they might start making more sense to you.

They have to be EMA you know because only EMA has the sensitivity to the price that is necessary to become a proxy for volatility.

I'm working on a filter that measures the variance of the three averages and then uses the ATR as a base to determine if I can find a better measure of volatility than Bollinger's amazing Bands. The variance of the average for those of you who want a real challenge is the averages difference with itself day to day and then comparing the three differences with each other to see if a rationale statement of fact can be made in regard to the discrete events. I have a feeling that that should be the subject of yet another post (if it pans out).

I'm now using several different cross over filters - but they are all just riff on the main one which is
show stocks where close is between 15 and 35
and average volume(90) > 500000
and open < ema(21)
and open < ema(8)
and open < ema(4)
and close > ema(21)
and close > ema(4)
and close > ema(8)
and close > open
and close 3 days ago < ema(21)
and close 5 days ago < close 3 days ago
and close 5 days ago < ema(90)
and add column atr(10)
and sort on column 5 ascending

Now here's a little secret although how it could be a secret I haven't a clue but here goes anyway - pick any 100 stocks, put up a 3 month daily chart for each of them and most, if not all will show at least one cross over in that time period. For proof I offer the A's and B's of the NASDAQ tech 100.

You can do the rest.

The asterisk on BBBY says that there were many failed cross overs for this stock - fortunately I'm not a big fan of BBBY either as a business or a stock so no matter. The double asterisk on BIIB says that there was a cross over on 5/17 that failed 2 days later. On 5/21 BIIB crossed again profitably.

You might also note that AKAM and APOL both crossed on Friday. Not a recommendation - just an observation.

That's all for this week end - I've got to get back to my research - so much to do so little time to do it.

Saturday, June 09, 2007

Taking Advantage

Trading is about taking advantage of any edge you can find. We were given a gift this week and I hope some of you took advantage of it.

The gift was three down days in a row. And solid down days they were too. After the third day the up/down ratio sat at 17% and when it gets that low everyone knows that the market is oversold to a fault. The second thing that everyone should know is that the 401K money started coming in around Wednesday or Thursday.

So with an influx of must-use cash and an oversold market what are the odds that we have an up day on Friday? That's right - about a gazillion to one and we did - hope you didn't bet against.

I whipped together a quick filter on Thursday night in honor of the event - I called it 3 Days Up
show stocks where close is between 12 and 20
and average volume(90) > 100000
and close 2 days ago > close 3 days ago
and close 1 day ago > close 2 days ago
and close > close 1 day ago

Notice two things - first I deviated from my normal 15 - 35 and second I dropped my volume requirement by 400000. My rationale was this - I wanted to catch stocks that were swimming up stream against the current and I wanted them to be small stocks. In other words I wanted the stocks that institutions were buying for their 401K clients. This is, of course, an entirely different aspect of analysis and I won't get into it at the present but it is something I've been watching for awhile and I will write about it someday - but not now.

Anyway this filter, as simple as it is, tests very nicely - 66% win percentage, 1.91 reward/risk and 80% ROI compared to the SPX of 1.54% ROI for the same period.

It is also the kind of filter that you could use to pick day trades in an oversold market because these stocks weren't sold - they were bought.

And here are the 9 picks it made for Friday morning with a column showing how those stocks did during the day on Friday. Because of the tenuous nature of the open on Friday - just about any of these could have been bought before they made their run.

I've annotated the results to indicate how you might have rationalized a buy of the several winners and you can look up the charts yourself.

I gave IRIS a cross over but it wasn't on the 15-minute chart but rather on the 10 minute. I don't normally switch time frames myself but some people do as a matter of course.

So out of 9 picks you could have played 7 with only one loss. RDWS would have paid off because you would have been buying it below open and the result is as of Thursday's close.

Bottom line - take advantage of what the market gives you. Keep the week of the month in mind - we all know that this week and next is 401K week and the following week is options week and the market behaves pretty consistently regardless of its overall direction in accordance with those hard and fast facts.

And if you get another 3 days down in the future - don't forget 3 Days Up.

More later about cross overs.

Friday, June 08, 2007

I'm Sorry

I think I owe all of the happy holders of GOOG a big apology and that guy I ripped up last month for buying GOOG for all of his clients - I apologize from the bottom of my - wait a minute - let's look at this from a technical perspective. I present GOOG -

and, as you can see there was a big ol' cross over on 5/16 and I don't know how many times I've written about cross overs on this site but I do know it's been more than once. So - seeing that cross over if you didn't jump aboard the GOOG express then you have no one to fault but your... - wait a minute - let's look at this from yet one more perspective -

Had you owned GOOG on 4/23 and seeing this -

An AAPL cross over and had you remembered what I said back in April that AAPL would see 90 before it saw 100 and that it was coming off of 90 and had you sold your GOOG shares on 4/23 you could have bought 5 AAPL shares for every GOOG share you owned on that date.

But let's say, for the sake of argument that you kept your GOOG shares instead of selling them and GOOG has gone from the 480 where it was on that date (4/23) to 515 where it finished today you would have earned - 7% plus. On the other hand, had you sold your GOOG on that date and bought 5 AAPL shares for every share of GOOG that you sold you would have bought AAPL at 94 and today you would be looking at 32% appreciation except that you would own 5 times the number of GOOG shares and that would mean that in comparison to GOOG you would have gained 160% on your GOOG money.

Maybe I'm not sorry after all for telling people to dump the albatross and to use cross overs as a buying indicator. The most powerful indicator there is - a cross over unless it is a cross over that is following a BOB.

Sunday, June 03, 2007

Buying In a Market Boom

The most difficult thing in the world is to trade during market booms - yes you can day trade and be successful as long as you stay within the constraints of a few hours. But the trading community is so skitterish during market run-ups that they are ready to sell and buy (in that order) anything on just about any news.

I wrote this on stockbee awhile back (I still like that guy) and it was so simple and profound I thought I'd open the BLog and repost it here: Buying all time highs or other high mark is a sucker's play - yes every once in awhile you will make some coin (witness GOOG which traded at all time highs for several months and then, suddenly, stopped and is now just so much dead money).

But many times you will be the bag holder in a very bad trade (PNTR comes to mind immediately - put up a 1 year chart of PNTR and imagine the guy who bought at 24).

Never buy a stock unless you have two numbers in mind - both exits - one above the price you paid and one below. If you hold above the upper number be ready to dump if it retraces to your target and never hold below your lower number.

If you follow that simple approach you can buy any stock at any price at any time. Remember learning how to trade is learning how to lose - anybody can learn how to win - it's the losing that is troublesome.

If you adhere to that last paragraph and just apply some selection discipline you can make money in any kind of market - up or down.

Stockbee has a number of methods that he uses to buy stocks that have retraced some from their all time highs. This is known as buying stocks in the Trader's Action Zone (TAZ) which is highlighted on Taz Trader's site where you can also pick up some great tips for trading. Both of these sites are on my link list.

Come back about once a week because I'm working on a method whereby wage slaves such as myself can still short-term trade with only one or two visits to the market every day. Eventually I'll get it and I will publish it here.

Tuesday, May 22, 2007

Leaving The BLog Up

Yes indeed - for as long as blogger permits.

Monday, May 21, 2007

The Last Wrap

As they say - all good things must come to an end and most bad ones too. I've been putting this off for a few days and I can no longer delay the inevitable.

When I retired I never stopped working I just did some other things such as trading full time. I've made a living trading on a daily basis, I've learned over the several years that I've done it how to do it. In the beginning I made every mistake known to man and a few more besides. What I've learned is that a couple of simple approaches done over and over again will make a lot of money in today's market. Cross overs, BOBs, pivot points, RSI(2), and ATR(10) have been my life for several years now.

I spent my working years in the service of my country – first because I didn’t know what I wanted to be when I grew up (still don’t) but then, eventually, because it became important. The result of that misspent youth is that I possess some skills that are not that readily available among the general population and because of that I have been called once more to serve my country.

Oh - how I wish it were that noble. Truth of the matter is a friend of mine has a unique job that I can do and I said yes. The hours are long, the work is excruciatingly boring, the rewards are great, and the pay is excellent. Hey – that sounds like trading! It isn’t.

The problem is I have to discontinue Filteringwallstreet. That’s because the nature of the job doesn’t provide the time to do the background work necessary to write the posts.

I'm going to miss this. Trade smart and always remember Rule 1 – nobody knows nothing – including me.

Goodbye friends.