ipfmanager (98.28)

So you want to be a trader? Here's how in 4 easy steps!

July 15, 2009 – Comments (5) | RELATED TICKERS: FWLT , BGU , USO

With a market like this i think it's not a bad idea to write some calls and do some trading using the technicals. I've been looking at a few technical indicators that have been working pretty well.  There are great explanations of all of there indicators on the web (links posted below) so I'm not going to go into much detail about the math and how to quantify these.  But here's how I've been using them. In order of my favorites:

1.  The "J" in the KDJ, as well as the KD crossover.  When the J is over 100 or under 0 it is one of the most bullish or bearish signs out there.  The J seems to be a lagging indicator, but it seems accurate for large swings.  Since the J does seem to lag a couple of days it is a better to be used as a confirmation of my next favorite signal...

 2.  MACD crossover.   When the MACD crosses over the signal line it's usually a good sign. Although it may be a little a head of the J, the MACD will lag the market (since by its definition  it needs a couple of bad days to actually trigger the cross over).  This is the main problem with technical guys: they solely trade momentum causing them to miss the bottom and the top.   However  I've noticed the MACD's divergence (difference between MACD and signal line) will show there is a cross over coming, at least in heavy volume.  And by seeing a rising or falling divergence you can try to beat the cross-over, thus picking up a few more bucks per trade.  Although this is quite taboo in the trading world, this is literally the ONLY way to nail the low since the MACD will only cross of the lows or highs. 

3.  Bollinger Bands:   Pretty simple a chart with 3 bands.  One band above the stock price, one below, one average. The indicator is buy low-band crossover, sell high cross over.   Be careful with these-this calc uses standard deviation.  Once you have a quick correction the low band always indicates buy since it has not caught up with the average price and is using a lagging SD.  You can really mistake a low and the band will tell you to keep holding the whole way down.

4.  20-day moving average.  A very good thing to check against before you buy.  Usually it will follow most of the technicals, but if it doesn't there might be something wrong with your trade. 

I'll try to get 3 of 4 indicators working in my favor before I pull the trigger to buy, and 2 indicators, or 1 strong one to sell.    That's pretty much it, in the simplest of forms.  

Here are a couple of links if you have no idea what I'm talking about:

http://www.investopedia.com/terms/m/macd.asp

 http://www.sharechart.com.au/Education/TechnicalIndicators/KDJ.htm

http://en.wikipedia.org/wiki/Bollinger_bands

 Please send me some comments on how you guys use these and which ones your partial too!