Market Detective

Innovative Technical Analysis Software for Traders

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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 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.

Market Detective Technical Analysis Chart of Gold

For an extra advantage with your End of Day trading, use the special "Build Intraday Bar" feature of Market Detective:

Market Detective Build Intraday Bar Dialog Box

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.