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tradergap

S&P Trading Technique

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I recently read about a simple trading method for the S&P 500. Buy signals are generated when the 1 min, 2 min, and 10 min stochastics point up.

 

Exit and sell signals are generated when the 1 min, 2 min, and 10 min stochastics turn down. Due to the simplicity of this method I am interesting in testing this out.

 

Both entries and exits are not based on price but on indicator signals.

 

Has anyone heard of this trading tactic? How reliable would you think this is?

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Indicators tell you what has been happening. They ahve nothing to do with what is about to happen. The ONLY thing that moves the market is supply & demand, or what some call support and resistance.

 

Indicators don't matter.

News doesn't matter.

 

When the market reaches a point of resistance (supply) it will retrace or sell off until it reaches an area of demand or support.

 

I know of people who trade nothing but price.

 

I know of traders who trade market profile based patterns and use only volume to determine wuply and demand. But they're essentially looking for the same thing. Who enters the market when price reaches a previous point where supply or demand rests.

 

Check out The Scientific Investor website and download their free primer.

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tradergap, read through the posts on the forums and you will see that some traders here rely soley on price and nothing else. Trading indicators can be profitable but what are you going to do once they no longer work?

 

Price is king. Market conditions change everday and that is why system trading must be tweaked constantly. Once you learn to trade price, you will be light years ahead of the game compared to other traders.

 

I have also heard of that stochastic tactic but I highly doubt it is a good system to follow. If every single indicator in the world showed bullish signs, the entire world must be a buyer. Who is left to buy?

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Thank you for the replies. As a new trader starting out in this learning process I have only studied how to apply indicators. Looking for convergence and divergence or using multiple indicator confirmations....

 

As mentioned, the number one trading strategy seems to based on price.

 

My question is: How long will it take for a new trader to understand market action from price only?

 

Do I observe price and focus on support and resistance levels? How do I derive these levels?

 

Thank you.

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I can not give you an exact time it may take for you to learn the markets based on pure price action. I can give you an example from my own experience though.

 

I learned trading while working at my old job at the office. Because I was unable to install any trading platforms, I would simply visit sites like futuresource.com | Futures & Commodities Quotes, Charts, News & Analysis to get delayed quotes and a 15 minute delayed candlestick chart. Obviously these charts do not have advanced technical analysis so the only thing I was able to look at was a candlestick chart. Absolutely no volume or any other technical indicator.

 

The only way for me to update the charts and quotes was by refreshing my browser. So I would reload my browser every 15 minutes to obtain fresh information. This went on for approximately 4-5 months and in the meantime I began to try to predict price. Since it was a browser based chart, I could not see the actual price movement. All I could see was where price would be in the next 15 minutes.

 

This pain in the butt method actually helped me learn price action immensley. I began to write down trades or predicitons on where price would be in the next 15 minutes. I started to realize that prices will move from one level to the next once support/resistance is broken. So I began to look for key support and resistance levels using a 5 minute, 15 minute, and 60 minute chart.

 

I also noticed how overnight S/R levels acted as key pivots for the trading day. Eventually I worked on this skill set to study market profile and came up with my own trading style based on pivots and MP. I no longer use a 5 minute, 15 minute, and 60 minute chart.

 

I use a 233 TICK chart and a daily chart for most of my trading. I have also applied more advanced pivot point trading techniques into my arsenal. But initially, I was kind of forced to learn the markets just by observing price.

 

I am sure you have the luxury of real-time data. Start by taking all your indicators off. Apply a candlestick chart and a time of sales and just sit there and watch it all day.

 

Enough absorption by your mind and you should start to recognize patterns. Force your brain into autopilot. Trading should be as easy as driving a car. First year drivers are usually reckless. In Japan, cab drivers are the best drivers. Why? Experience in a dense city.

 

Commit at least 3 or more months understanding market action based on price. Trust me this will all pay out in the end. Good luck.

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I know of traders who trade market profile based patterns and use only volume to determine wuply and demand. But they're essentially looking for the same thing. Who enters the market when price reaches a previous point where supply or demand rests.

 

I would like to ask one question regarding support and resistance. If I was to analyze the markets and look for support and resistance levels, should I observe past events to predict the future?

 

From my understanding pivot points are not derived from past information?

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I would like to ask one question regarding support and resistance. If I was to analyze the markets and look for support and resistance levels, should I observe past events to predict the future?

 

From my understanding pivot points are not derived from past information?

 

I think you got it mixed up tradergap. The market is one big auction place of human emotions. Human behavior repeats itself. That is why price patterns still work to this day.

 

Pivot points are also data derived from the past. You take the previous days close, high, and low to come up with daily pivots. This is still past data.

 

Key support and resistance levels with high volume can act as key reversal points. Try learning crowd behavior and you will have a better understanding of market psychology. One of my favorite crowd psychology books is, The Crowd by Gustave Le Bon.

 

0486419568.01._AA_SCMZZZZZZZ_.jpg

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Great book by the way. It was recommended by a trading friend also.

 

Have you read Extraordinary Popular Delusions and The Madness of Crowds by Charles Mackay?

 

Great book reflecting historical events of greed. One popular story is the tulip mania in Holland where people would trade their house for a couple tulips. Booms and Busts.... this cycle will always exist. It is in our nature.

 

1897597320.01._AA_SCMZZZZZZZ_.jpg

 

Extraordinary Popular Delusions and The Madness of Crowds

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Indicators tell you what has been happening. They ahve nothing to do with what is about to happen. The ONLY thing that moves the market is supply & demand, or what some call support and resistance.

 

Indicators don't matter.

News doesn't matter.

 

When the market reaches a point of resistance (supply) it will retrace or sell off until it reaches an area of demand or support.

 

I know of people who trade nothing but price.

 

I know of traders who trade market profile based patterns and use only volume to determine wuply and demand. But they're essentially looking for the same thing. Who enters the market when price reaches a previous point where supply or demand rests.

 

Check out The Scientific Investor website and download their free primer.

 

Hello Luke,

 

I am interested in learning more about trading with price action. How long does one take to fully understand the movements of the markets with price only?

 

The reason I say this is because I just recently started learning to trade on a short term basis. I have read several books that teach trading with indicators. But reading through some of the posts in this forum, I noticed that many traders disregard indicators as part of their trading methods.

 

I would like to start learning on the right track. Any advise would be appreciated. Thank you

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Robert,

 

Here are my suggestions... Study Wyckoff. A lot of what you read today about technical analysis is based on Wyckoff's work in the 1920's or so. Another great book on swing trading is "New Blueprints for Gains in Stocks & Grains & One Way Formula for Trading in Stocks & Commodities" by William Dunnigan written in the 1940's.

 

Amazon.com: New Blueprints for Gains in Stocks and Grains: Books: William Dunnigan

 

I also recommend reading some free newsletters from Robert Krausz (one of Schwager's Market Wizards) available at the link below. Specifically the stuff on swings and determining the main trend.

 

Fibonacci Trader - The first Multiple Time Frame Software for Traders

 

Over the years, I've read many books on TA published over the past couple of decades, and except for Market Profile, there is very little out there that is original. My suggestion is to go to the source.

 

Hope this helps.

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Thank you very much ant. I have heard alot of great things about Wycoff and I totally agree with you on sticking with the source. The stock operators of the early the 1920's were the original thinkers of trading philosophy.

 

I will take a look at William Dunnigan's book, a little pricey but will give it a shot. Can you also recommend any market profile books? I did a quick search on amazon but only found two different versions; one by Steidlmayer and one by Dalton. Should I pick up both? Thank you

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Robert, I would only pick up Mind over Markets by Dalton. It's the best book out there on Market Profile - it's excellent, well-written, and inexpensive. I'm looking forward to Dalton's next book coming out Feb. 2007.

 

Buy from Warehouse SUPER Sale and get the $10 coupon.

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Thank you ant. I will start studying Market Profile. I checked with the CBOT website and found some good online recordings on Market Profile. At first glance it seems fairly complicated. It may take some time to fully understand the concept used in market profile.

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I am a newbie on traderslaboratory but have been trading for about 15 years. I keep experimenting with new trading ideas.

 

 

I have been thinking about a straddle on the S&P 500 index (SPX). Any advice. Seems like bid/ask spreads could greatly limit profitability of trades.

 

Any advice on S&P Straddles?

 

Thanks

 

Vito

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I am a newbie on traderslaboratory but have been trading for about 15 years. I keep experimenting with new trading ideas.

 

 

I have been thinking about a straddle on the S&P 500 index (SPX). Any advice. Seems like bid/ask spreads could greatly limit profitability of trades.

 

Any advice on S&P Straddles?

 

Thanks

 

Vito

 

I have always been interested in this strategy as well. Just not familiar enough with options. Anyone know?

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I would like to know how to learn to trade by price action, the best trader I've ever seen uses nothing but candle sticks, price & volume. I'm convinced it is the way the sucessful traders do, but not sure where to look for educational info or what I need to focus on or read. I've watched time/sales as suggested above, but...... Any suggestions on what to read, learn or focus on is appreciated..Thnx

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I would like to know how to learn to trade by price action, the best trader I've ever seen uses nothing but candle sticks, price & volume. I'm convinced it is the way the sucessful traders do, but not sure where to look for educational info or what I need to focus on or read. I've watched time/sales as suggested above, but...... Any suggestions on what to read, learn or focus on is appreciated..Thnx

 

What you're asking is how to learn to interpret Market Generated Data. You mentioned using candles, price and volume. That's three basic studies.

 

1. Candles: Study basic pattern formations. Check the book review forum at this site.

 

2.Price: Not all prices are equal. Study a volume @ price histogram. Mark the Highest volume (Mode) which defines perceived value. Define H vol and L vol points (Chartex.com is free). Then study action on a simulator.

 

3. Volume:Tom Williams Master the Markets is a good start, then study Market Profile which combines Price, Vol & Time.

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I can not give you an exact time it may take for you to learn the markets based on pure price action. I can give you an example from my own experience though.

 

I learned trading while working at my old job at the office. Because I was unable to install any trading platforms, I would simply visit sites like futuresource.com | Futures & Commodities Quotes, Charts, News & Analysis to get delayed quotes and a 15 minute delayed candlestick chart. Obviously these charts do not have advanced technical analysis so the only thing I was able to look at was a candlestick chart. Absolutely no volume or any other technical indicator.

 

The only way for me to update the charts and quotes was by refreshing my browser. So I would reload my browser every 15 minutes to obtain fresh information. This went on for approximately 4-5 months and in the meantime I began to try to predict price. Since it was a browser based chart, I could not see the actual price movement. All I could see was where price would be in the next 15 minutes.

 

This pain in the butt method actually helped me learn price action immensley. I began to write down trades or predicitons on where price would be in the next 15 minutes. I started to realize that prices will move from one level to the next once support/resistance is broken. So I began to look for key support and resistance levels using a 5 minute, 15 minute, and 60 minute chart.

 

I also noticed how overnight S/R levels acted as key pivots for the trading day. Eventually I worked on this skill set to study market profile and came up with my own trading style based on pivots and MP. I no longer use a 5 minute, 15 minute, and 60 minute chart.

 

I use a 233 TICK chart and a daily chart for most of my trading. I have also applied more advanced pivot point trading techniques into my arsenal. But initially, I was kind of forced to learn the markets just by observing price.

 

I am sure you have the luxury of real-time data. Start by taking all your indicators off. Apply a candlestick chart and a time of sales and just sit there and watch it all day.

 

Enough absorption by your mind and you should start to recognize patterns. Force your brain into autopilot. Trading should be as easy as driving a car. First year drivers are usually reckless. In Japan, cab drivers are the best drivers. Why? Experience in a dense city.

 

Commit at least 3 or more months understanding market action based on price. Trust me this will all pay out in the end. Good luck.

 

Off the top of my head I dont think I have ever read a better piece of advice on learning to trade - thanks James.

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Thanks for the help. What is a 233 tick chart & how do you set it? I use Esignal, but not familiar with a 233 tick ch I chart 15 min & use nyse & nasd $vold $add $trin $tick in that order, breadth is king,, add/dec queen. I haven't read a lot about those indicators on the board. My 2 cents is price will always follow the breadth $vold candles, those indicators have worked well for me. Great board guys thnx for the help and input..Steve

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Thanks for the help. What is a 233 tick chart & how do you set it? I use Esignal, but not familiar with a 233 tick ch I chart 15 min & use nyse & nasd $vold $add $trin $tick in that order, breadth is king,, add/dec queen. I haven't read a lot about those indicators on the board. My 2 cents is price will always follow the breadth $vold candles, those indicators have worked well for me. Great board guys thnx for the help and input..Steve

 

You don't happen to trade with thinkorswim do ya? A couple things you wrote there sound shadowtrader-like. I trade with ToS and listen to ST a lot.

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Trade with the trend once confirmed. Use support and resistance / pivots as guideLINES. Intraday chart patters are productive, but again only when confirmed. Price, volume, chart recognition for additional opportunities.

 

I learned long ago that calling tops and bottoms will lighten your account.

 

Trvl.

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No I don't trade with TOS, but I do listen from a link, I've followed Peter "ST" since 03 when he was a moderator in a trading room. Shadow trader rocks! He has helped my trading more than anyone or anything. Shadow Nation! Sorry to see Peter leave, but Brad is doing great job.

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