Initial jobless claims were reported up this morning at 471k about 25k over the consensus. Equities are continuing their correction and are falling into that crazy drop area experienced on 05/06 when the computers took over. Yes, it is still a correction at this point as the weekly trend has not been broken. By just looking at the daily chart this may not appear to be so since it has fallen under its 200 MA and is nearing it’s low pivot on February 5th that will erase all the gains during the last leg up.
The weekly chart was getting extended well above its 20 and 200 MA and 9 weeks up out of 11 was well past the norm so a correction is certainly in order. How far it corrects will be telling though. Should the daily drag the weekly into a downtrend also it would be very concerning, and while the lower time frames under the weekly are all in downtrends care should definitely be taken on any stock purchases.
How will you know when it is all clear to buy again? You will see the lower time frames begin to form uptrends. Be aware though that this over all rally is long in the tooth and the whippy conditions that brought it down could continue should it go back up.
Lots of drama in the news for today’s gap down. The US Senate is trying to get to a vote on the new financial reforms/regulations, and Germany which has been dragged by their heels into supporting Greece will be voting on the loan package. These stories have been in the forefront of the news for months now.
All the Colorado stocks that have been frequently used as examples are dropping along with the market which is a testament to not fighting the trend in the stock market. ALTH triggered a ell set up today, and CMG, BLL,CROX, and MDC are following through to sell set ups triggered over last few days. LMT has hit a new low today after doing so. One thing can be learned though about buying the best relative strength stocks during a rally. If you pull them up you will see the strongest stocks fell the least so far and the ones to short would have been the ones with relative weakness before the market drop.
Fundamentals alone will not help you see this. In fact persisting in a good scenario for a stock that the market is disagreeing with can hurt you. It is times just like this that that can happen.
How can one set up work for all time frames?
Good traders usually have a single ‘go to’ strategy that they employ over and over. They can get so used to trading this strategy that they don’t even realize they clicked the mouse to buy or sell the stock they are stalking. It is more about trading the strategy ‘well’ than winning on any particular trade.
They watch and wait for the right moment when all the things they need come into alignment. Then they pounce automatically. This favored set up can be intraday, swing or longer term. What will come as a surprise to some is that it does not matter what time frame is on the chart. The bars will all look the same and the opportunities relative to any particular pattern on those bars is the same. In fact you could not tell a weekly chart from a 1 minute chart if not for the time being printed on it. It’s all bars. One after another. And what a technical trader is doing is waiting for the right combination.
What is different is the time available to make a decision. A weekly chart on a favored pullback set up could take 3-4 weeks to set up – plenty of time to decide if it meets your requirements. On the other hand on a 1 minute chart the same set up could align in 3-4 minutes.
It might be compared to flying a crop duster at 60 miles and hour hundreds of feet over a field versus flying a jet at mach 1 just over the tree tops. Its the same, just faster on the 1 minute.
Popular time frames are the monthly, weekly, daily, 60 minute, 30 minute, 15 minute, 5 minute, 2 minute and 1 minute. Lots to choose from. You could trade the 7 1/2 minute also if you wanted to too, but it helps to be looking at the same thing lots of other people are if you know what you are doing.
Of the above time frames the weekly, daily, 60 minute, 15 minute, and 5 minute are the most popular to use. You have probably read from time to time that day trading is crazy. That one cannot trade stocks within minutes and make a profit. You might ask anyone who has that view where they will be next week at any given time. Then ask them where they will be tomorrow at that same time. Then ask them where they will be in 2 minutes. While this might seem to be a goofy analogy to compare to trading it really does get a point across.
Shorter day time trades can have very controlled management. They can feature very small stops and big risk to rewards if done properly, and if something starts to run away from you it can be ended without a lot of damage. There will be more possible set ups that occur on smaller time frames for any given set up simply because there are more candlestick bars.
Some have compared it to gambling with the thought that in the next few moments anything can go up or down. Somehow they must be thinking that it cannot do the same thing over a week or month or so. The only difference its the scale so only money management rules will scale up, but the set up and actions will remain the same. The trend is just as important in both. The stop and target just the same too.
Since most folks look at a stock or market through daily charts because each days trades can be shown in one candlestick bar proper scale can be lost for longer term traders only looking at this. A look at the daily chart of the S&P 500 looks like it really dropped a lot. (It did.) But if you look at the weekly chart again the uptrend is still in effect. It’s not as scarey. A longer term trader hoping to hold for months or even years will have bigger stops and targets. They will not want to be scared out by any one particular daily drop which could be considered just ‘noise’ during such a long time. But it will be an ‘alarm clock’ as it will change trend before the weekly chart will.
On the other hand day traders could take a few shots at the longer term traders saying that with large stops too much is at risk. They will point out the markets of September 2008, March 2000, and October 1987 (among others). Since fear is the stronger human emotion these times prove to be a big test to the longer term holder of stocks. They would remind the person who has this view that holders of stocks in 2009 had no more wealth than holders of the same shares and stocks 10 years earlier. Zero profit. Who would want to risk that over such a long term?
A philosophical trader once described this as a frog in a pot of boiling water. The market just turns up the heat too slowly for the frog to notice until its too late.
You might see how a trader could trade intraday and for a longer term using the same strategy and set up. The only difference is the estimated holding time.
Trade with a plan.