Trading Tips
Tips
for trading with the Market Detective market timing indicator:
1) Don’t trade flat or low volume
stocks (< 500,000 shares/day). It’s about as
exciting as investing in CDs, with little to no chance
for profits. Trade only volatile stocks with historically
high percentage movements. In today’s market there
are many hundreds of such stocks. The Market Detective
Indicator shines on a volatile chart. The consecutive ‘S’
and ‘L’ signals outnumber the ‘R’
signals by many multiples. This is how you steadily grow
your capital week after profitable week.
2) Don’t ignore reversal signals.
They preserve your capital, and make you a role model
money manager. If you are a conservative trader and don’t
like going short, you must still take the 'R' reversal
signal to exit a long position. You can then wait out
the stay-short 'S' period and go long on the next green
‘R’ signal. Internet brokerage commissions
are so cheap that you can exit a long position today and
reenter it very shortly thereafter on the next green 'R'
signal. Exiting and reentering often is just good money
management, and the only fool-proof way to preserve your
capital. However, for maximum profits take each and every
‘R’ reversal signal. Go long after being short
on a green ‘R’ signal, go short after being
long on a red ‘R’ signal.
3) Don’t become complacent after
entering a position. Get hyper and be ready to reverse
or get out of your position on the next bar. That’s
the most difficult movement in short term trading. You
may have to take two or three small losses in a row to
catch the next big payday. But without it there is no
preservation of capital clause in your master
plan.
4) Don’t trust your emotions or
long term belief system. Practice being an unemotional
technical analyst, not a prophet. Greed and fear and complacency
are always at the root of poor judgment. Trust the Market
Detective market timing signals much more than your gut
feelings and hunches.
5) Once you learn to trust the Market Detective
indicator, you should never buy a stock that's falling
in price just because you think it is undervalued or it
has hit a bottom. If you want to go long, wait until the
stock begins to move back up after an intraday bottom
AND buy only at or soon after the Market
Detective green 'R' reversal signal. Your goal is supposed
to be to catch about 70% of each market swing, not an
impossible 100%! By buying in a downtrend you are breaking
the Golden Rule of market timing, as you cannot predict
when the market will reverse itself. It may continue to
drop for days. You have to wait for the market to tell
you that it is reversing, otherwise you are just wishing
and hoping and praying that the market goes back up. How
effective has the buy and hope trading strategy
been across the spectrum of your trading life?
6)
Don't sell a stock that's rising in price AND
that has an 'L' stay long signal displayed on the last
bar. You need to wait for the red 'R' reversal signal
to exit your long position. You may guess right and pocket
more change on the extremely rare occasion that you do
catch the top and the stock reverses soon thereafter.
But what if the stock climbs to new and higher highs?
You will have cheated yourself out of easy profits. By
exiting at the reversal point you will still have caught
most of the move (70% ain't bad). By trying to catch every
top and bottom you will be nothing more than a hunch player
and gambler as opposed to a disciplined trader.
7)
Increase your general knowledge of Japanese Candlestick theory by visiting Steve Nison's
www.candlecharts.com website. If possible, read his famous book "Japanese Candlestick Charting Techniques", which is considered the bible of candlestick trading. I used this book for reference in the development of my MDI study, and refer to it often.
Respect
the irritatingly logical short term market timing signals:
Just
consider the chart of the continuous Gold futures contract
below. For every two adjacent, or nearly adjacent and
opposing "r" reversal signals that would have
lost you a small percentage of capital, there were many,
many more "l" stay-long and "s" stay-short
signals that would have made you big percentage gains
over the 7 month period shown. Before my invention of
the Market Detective indicator in April, 2003, and because
of the imminent Iraq war, I relied heavily on just my
belief that gold had to go up before and during
the war. This obstinate attitude led me to take on another
losing gold stock trade. Gold did go up sharply between
December, 2002 and late January, 2003. But alas, from
late January, 2003 to April, 2003 gold did the exact opposite
and descended from above $380 to $320. I wasn't the only
one who thought that because of the war gold would break
through the $400 mark and stay there, several Gold bug
gurus that I followed reinforced this longer term forecast.
They were wrong, I was wrong, and it's just another example
of how wrong it is to be a long term forecaster and trader
that's married to a contrived belief system. Had I had
my Market Detective indicator then, and trusted it like
I do now, and used it as my personal, unemotional, and
irritatingly logical consultant, I would have gone short
near the very top in late January, thereby increasing
my capital very significantly. Instead I eventually had
to sell another gold stock at a loss. Such is the plight
of the intermediate to long term speculator. Preserve
your capital and maximize your income by respecting the
short term market timing signals.
For
an extra advantage with your End of Day trading, use the
special "Build Intraday Bar" feature of Market
Detective:
In
order to gain a trading advantage from the real time activity
of the current trading day, Market Detective has a special
feature called 'Build Intraday Bar', that displays the dialog
box shown, and that allows you to append and manage a new
intraday bar placed on end of your chart. On a standard
price bar chart this bar will be displayed as a bold, doublewidth
bar for clarity, while on a candlestick chart the intraday
candlestick will look normal. A "+" character
will be displayed just to the top right of this last price
bar to serve as an indicator that this bar was manually
added. I use my online Ameritrade brokerage account to obtain
the real time stock quotes for the current day, that I then
enter into the price controls shown. I check the current
intraday quotes periodically and update this Intraday bar
to appreciate the significance of today's price action.
I keep my MD indicator study active, and if I get an 'R'
reversal signal late on this current day, I may make a trade
right there and then, instead of waiting for the next day.
If
you have had difficulty making steady profits in real time
stock trading, then you owe it to yourself to slow down,
and widen your trading time frame a bit to end-of-day. This
will also save you your real time operation expenses if
you decide to do only end-of-day trading. And, given that
over 90% of real time day traders eventually go broke, then
I have to believe that weekly profits are a much more practical
and achieveable goal than intraday profits.
