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james_gsx

YM, ES and DJIA Analysis

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Alright, seeing as how the last AAPL thread seemed to do pretty well with people offering their inputs I thought we could give it a shot with a current weekly chart of the Dow.

 

From my newbie perspective, I see a doji but the week still finished up on strong volume. The week opened low near support and the bulls pushed the market higher only to panic and fall back to support. This week came with stronger volume and the market panicked early, then the bulls regained strength to finish at support. Now what's weird IMO is how the week before looks like the bears took control yet we finished higher, and this last week the bulls took control yet we finished lower. How would you take this? I see a lot of indecision, well emotion taking over. You could make the argument that the weeks before we saw a lot of people get shaken out on big volume, and then a ton of indecision to follow with just as strong of volume following after. I guess we wait for confirmation?

 

I know how I'm going to play this already, but from a purely candlestick/volume view how would you perceive it?

djiaweeklyaug20.jpg.15524ea5b80227d15eb718d1bfd6fab9.jpg

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Its going to be hard to answer this without referring to the recent Fed interest rate cut. On candles alone there looks like theres plenty of buying pressure but that was sparked off by the aforementioned intervention. After 3 weeks of steady falls people have been buying in at bargain basement prices and the Fed announcement boosted things along nicely.

 

On the candles alone I would say that we are going higher again. The strong volume on that last candle is telling. Even though it's red I would see it as being red simply on behalf of a late sell off by profit taking (I haven't checked the intraday charts so I'm assuming) which made the candle close lower.

 

Edit: I just noticed that its a monthly chart! Silly me. Anyhow that doesn't really change my oppinion. I think we'll be going back up again.

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James,

My view is this - there was a really nice looking shooting star to go short about 5 candles back and now we have a large hammer, which appears to be a possible pullback to the SMA as well.

 

In TRADITIONAL candlestick analysis, there is a possible buy here. The next step is to decide how/when to play this, which we'll discuss in another thread when I get a chance to put the thread together.

 

attachment.php?attachmentid=2429&stc=1&d=1187533307

 

PS

I have one favor to ask - when posting charts, can you zoom in on the price action you are referring to? See my screenshot for an example. Reason is that I had trouble viewing your screenshot to see the price action that you were asking about so I had to hop over to stockcharts to get the chart. It just makes it more convenient for everyone if we can just view your chart easily. If you need a free version of SnagIt, check this thread out - http://www.traderslaboratory.com/forums/f18/free-snagit-7-a-2170.html

5aa70df3cd80a_djiatl.png.a201e3003501e82f510dba934a9391df.png

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James,

Here's some follow up to our discussion here.

 

DAILY DIA CHART

 

attachment.php?attachmentid=2526&stc=1&d=1188054909

 

 

On the daily chart, we had a hammer that you simply do not see that often occur around August 20th. I don't trade stocks/etf's anymore, so I was just using the free version of stockcharts.com here. But look at that hammer - monster volume, right @ the 200 SMA... WOW. :D

 

ONE VERY IMPORTANT NOTE ON THIS CHART - Look at the next day after the hammer. NO RETRACEMENT into the body of the hammer. If you saw this and said 'I'll wait till it comes down a little to go long...' you are still waiting. THIS IS WHY PLANNING YOUR ENTRIES IS VITAL. If you saw that hammer and did not play it b/c of poor planning, you just cost yourself a gorgeous trade.

 

 

 

WEEKLY DIA CHART

 

attachment.php?attachmentid=2527&stc=1&d=1188054909

 

Here's the weekly chart James. As you can see, we have some bullish confirmation here. I personally was never a fan of trading off the weekly as I thought that was just too much time to elapse (or wait!). No matter how you planned to enter this trade, you *should* be long. Again, planning is key here b/c there was a retracement on the next candle to just below the real body of the hammer. If you were waiting to cherry pick it at the bottom, you are still waiting...

 

 

IN SUMMARY

We have two very nice hammers on the DIA daily and weekly charts. I would much prefer to play the daily as I think it's easier to manage the trade each day and use the weekly as some help or guidance. In my opinion, the daily DIA hammer trade has been a success. Again, it's all about how you MANAGE the trade once the hammer has done it's job. There's a million ways to manage this trade, so we'll leave that part up for discussion elsewhere on the forum.

5aa70df68e108_tldiadailyhammer.png.398b3ed606c936fe49e9d024857aa5af.png

5aa70df69749f_tldiaweeklyhammer.thumb.png.24e049a84af7a9a7d5fab3943a08f056.png

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One follow up to my DIA post b/c it got me thinking... This is the beauty of the forum - I did not play either of those hammers in my personal accounts as I was too wrapped up in to the day-to-day moves on the ES. Now think about this - had I just loaded the boat on the DIA hammer (buying the DIA, options, maybe the YM....) I could have had a stress free trade for DAYS.

 

Just something to think about.

 

The candles are very powerful on a daily chart in my opinion. And the reason I say this is that on a daily chart, you just need an EOD software to quickly scan these and then you have all night and the next morning (until 9:30am EST) to plan your trade out. That's pretty powerful stuff if you ask me.

 

Bottom line is that we are all here to make money. I'm not saying candlestick analysis is perfect, but when you get a hammer like that DIA trade, that can literally make your YEAR if played properly. It's all about risk and how much you are willing to take on a trade like that. In my opinion, trading on a daily chart with that type of a hammer just requires you to pull the trigger and let it rip. I'm of the belief that if you are swing trading (which I don't blame you) and a pristine setup appears, you have to be willing to 'load the boat'. I learned that phrase from another trader that I worked with years ago that would routinely make large 'bets' using the daily charts. He could afford to do this b/c he had plenty of time to do his homework and plenty of time to allocate his accounts and manage the risk. VERY different than day-trading futures.

 

Some food for thought today class. ;)

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And out of curiosity, I decided to see how a daily YM chart looked. Big surprise. ;)

 

attachment.php?attachmentid=2528&stc=1&d=1188057814

 

 

Now, before anyone goes out and starts trading the YM on a daily chart, keep a few things on mind when swing trading the YM:

 

1) Overnight margins apply, which are set by the exchange.

2) Make sure your risk is planned out in advance. On this trade, I would have my initial stop at the bottom of the hammer. In our example here, that's literally an approx 400 pt stop. Yes, 400 pts.

3) B/c of that leverage and risk in this trade, the DIA trade may be more appropriate based on account size. Or a mix of vehicles could have worked too - some DIA shares, some call options and some YM contracts. My best guess is that the best risk/reward was probably in the DIA call options on a per share/contract basis.

5aa70df69b260_tlymdaily.png.b6d9ef9fda78dcbc3fa5f9754b6075ed.png

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Brownsfan, whats your thought on the decreasing volume as the markets rise? It looks like we are at the upper trendline of a new bearish trend. I see how bullish the candle is, but what about the volume?

 

djiadailyzoompn9.jpg

 

djiaweeklyzoomkb4.jpg

 

Sorry, I zoomed in on the candles on snagit but for some reason they aren't posting like they were when I saved them.

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James,

My thought is this - if you went long on the hammer, you remain long as price continues to rise. You made an excellent observation that the volume is decreasing, so I would be watching this closely. I personally would consider staying long until a bearish pattern formed AND confirmed the following day.

 

Excellent observation.

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Sorry, I zoomed in on the candles on snagit but for some reason they aren't posting like they were when I saved them.

 

SnagIt is a little tricky on the zooming thing...

 

 

attachment.php?attachmentid=2536&stc=1&d=1188137639

 

 

Let me know if that's not clear.

5aa70df6cce32_tlsnagitzoom.thumb.png.de78cc39bb66c913dbbfe1333b9e9bcc.png

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Thanks Brownsfan, and good feedback - just follow the market and listen to what it's telling you. AKA confirmation.

 

Whether you planned it or not James, you found a great example here in the DIA/YM potential plays. I just wish now we would have discussed this BEFORE the hammer appeared!

 

Here's one piece of advice - when there's a large rally or selloff, watch those daily charts like a hawk. We all know that those rallies/selloffs are usually the result of some news and people overreacting. Candlestick analysis can help immensely at giving you some idea when that overreacting may be ending. These hammers we found are perfect examples. Candlestick analysis will never get you long at the bottom or short at the top, but it can get you pretty close to those levels in my opinion.

 

I have to say, after looking at some of these charts (I was looking at other indexes as well, just didn't post the charts here), it's hard to argue with taking a longer term approach on some of these trades - you pay a lot less in commissions and make more money. Think about it... if I played that hammer on the YM or ES, I would have to go into the trade with some acceptable risk parameters, but once I was comfortable with it, I could sit back and relax. I really don't know what I'd do with my time then! :unsure:

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James,

Check out this thread - http://www.traderslaboratory.com/forums/f2/cftc-reports-of-commitment-of-futures-2325.html

 

Interesting... with price rising on low volume and the amount of shorts increasing, the question becomes who wins and when? Were 'they' increasing price so to be able to load up on short positions? Are 'they' going to then unleash the fury on the bulls or will those bulls step right in and do what it takes to find the stops of the bears?

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One thing that could explain the light volume is the vast array of economic news coming this week. For example we have the GDP, CCI, FOMC minutes, and Consumer sentiment all in the same week, so I would imagine volume is reflecting that and the rise in price is due to people buying ahead. Most likely we'll get a report that says, "everything is fine!" markets will rally then later shit will hit the fan. Should be an interesting week, good find on that candle btw.

 

I also believe that the charts can "tell the future" if you know what I mean. For example I've seen charts setup before earnings that give me an idea of which way the stock will move when it's announced. Sometimes I'm right and sometimes I'm wrong, usually once I'm wrong I see something in the chart that I should have noticed. I believe we're seeing the same kind of setup in the Dow right now.

 

Thanks about the technician job. That would be a fun thing to do since I love reading charts. For the record, I'm 19 and future plans are to move to a popular trading city and work at a fund or a big bank so I can trade.

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Thanks about the technician job. That would be a fun thing to do since I love reading charts. For the record, I'm 19 and future plans are to move to a popular trading city and work at a fund or a big bank so I can trade.

 

I would STRONGLY recommend you start building a portfolio now then. Keep detailed notes, with annotated charts and print them on nice paper and start creating a binder of your work. You want to walk into an interview at the bank or hedgie and say 'I've been conducting market analysis since I was 19, here's my work, all of which is detailed out for you. While I know I have a lot to learn, I wanted to provide you an example of how serious I am about the markets and in turn, working for your firm.' ;)

 

You think anyone else (esp younger candidates) would have a portfolio of their work since they were 19? As long as you aren't going up against me, I think you'd have a good shot at standing out. :tongue: And that's all the interview is about - standing out.

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James,

Let's look at today's candle on the DIA...

 

attachment.php?attachmentid=2556&stc=1&d=1188248694

 

 

Some things we need to consider here:

 

1) Really low volume. How convinced are you that the bears had this or that the bulls took the day off?

 

2) We have a bearish shooting star in candlestick terms, near the SMA. Could be forming a classic pullback.

 

3) Assuming we were long on the hammer, do we exit the hammer? Do we initiate a new short?

 

Those are the questions any candlestick trader would need to answer here. I personally would consider exiting my long if the low of the shooting star was taken out tomorrow. I can't tell on stockcharts the exact price levels here. I need to see about getting EOD data into Multicharts as that would make things a lot easier.

5aa70df763b84_tldia.thumb.png.a6b14e8af58d0522641c401a5a1ea736.png

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I think we're going to get another wave down to shake any early longs out and suck some new shorts in. The weak volume rally is what is telling me that this recent move up is not the real thing. We'll form either a head and shoulders or double bottom and then rally to new highs. I'm of the persuasion that this is a correction and not the start of a bear market. The reason is simply the amount pessimism is too great for this to be a bear market. Bear markets don't happen when everyone expects one. Also the price action during this correction looks bullish from a vsa perspective so I would say that the pros are buying this correction like they did the last one in march.

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I think a major difference after Feb 27th was that price kept moving higher after the initial major pullback. Here, we saw price top at 14,000 (it struggled to get there after 13,700). Then it fell and has been making lower highs since then, and there are clear trend lines and we are finding support against one now.

 

Although this isn't purely technical, some important things are going on tomorrow that may have an impact. We have CCI numbers being released and the FOMC minutes.

 

After seeing classic resistance today I would be very cautious about going long.

 

To Brownsfan.

1 - today I think everyone took the day off lol

2 - I agree, especially since we found immediate resistance at Fridays high.

3 - Personally I would exit a good portion of my long position and tightened my stop. Maybe buy a DIA put as a hedge in case of a pullback.

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James,

 

Well, we have some nice candlestick action here since you started this thread. Almost looks too easy... :D

 

attachment.php?attachmentid=2567&stc=1&d=1188349807

 

At this point:

 

1) All LONGS should be closed.

 

2) A new trade to go short was confirmed today rather quickly and easily. As of now, the classic candlestick pullback to SMA worked rather easily. Now it's a matter of trade management. Could be a little to no risk trade in one day. I like those! :thumbs up:

5aa70df7e360d_tldiadaily.png.e4c16a853f9559c0afee9b99fae767b0.png

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I think we could see another down day to the 200 SMA tomorrow which is around 12,900. I think the volatility is back and so is the volume. From the latest swing high/low we are at a .382 retracement and I don't see any reason why that would hold.

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What an interesting day today... very bearish day on Tue and the end result for Wed was a very bullish day. Now, if you watched the price action as it unfolded today, you saw some bearish activity at the start and a few little pullbacks, but the bulls took it in the day, esp from 2:30pm est on.

 

Here's today's dia chart with some analysis:

 

attachment.php?attachmentid=2582&stc=1&d=1188437020

 

After looking at that chart, here's my plan of attack:

 

If still short, have to pay attention the rest of this week. At most the stop should at the top of the shooting star. At best, you may have been trailed out today, which is fine. Today was a major bullish push and I would have no problem seeing that this short just didn't have it this time.

5aa70df839347_tldia.png.99b1da5e575a01940fd81b101edfa952.png

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Notice how the candle couldn't break the low of the shooting star, and had less volume. It has to make you wonder if it could be a bull trap, I think watching the rest of the week would be a good plan of attack, and be ready to exit any short/long position.

 

GDP numbers are released tomorrow, pay attention to that.

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