Technical Analysis: Moving Averages

• If I have any insights about moving averages, I'll put them here.

Trade Alert: BOT 20 CREE @ $62.6994

Stock Symbol - CREE
Entry Price - $62.6994
Stop Loss - $60.00
Profit Target - $68.00
PT:TL Ratio - 2.11
Other Notes: Position size was rounded up to 20 shares from recommended value of 17.

Screenshots:
Did not take all the screenshots, because ToS platform was having problems with accepting my order(s) and I was preoccupied with figuring out what was going on.
30D 60MIN:

Follow-Up:
Tues. July 6, 2010 - Evening of purchase
It appears that I bought this stock at the peak of the first run of the trend breakout.
Should have waited for the price to come back down toward the trend line and turn over in the stochastics and MACD.
The share price has come close to the stop loss a couple times, but the conditions still look good for a bull run.
At a loss of $34.79 at time of writing. After-hours trading shows some buying interest. We'll see if it means anything.

Wed. July 7, 2010 17:10
CREE moved like a beast today on relatively heavy volume.
The move is likely to continue if the market keeps truckin' toward 1060 or higher. Next resistance at 1066, but if bounce takes us to upper trend line, that will be at around 1080-1100 before another retreat. (breakout of trend extremely doubtful. current sentiment is weak.) A good jobs number tomorrow could help propel us upward within this channel.
Stop Loss order lifted to $64.75 which locks in a bit of profits. I'll be keeping a close eye on the stock, and am planning on exiting the trade far before the share price reaches that stop.
Profit Target order also increased to $69.00. Will likely take off half here and set a tight stop on the rest if conditions are good.

Just remember: When Diagnosis Changes, Modify Treatment.

Notes

• All those stocks in your watch lists that are lookin' tasty down at the bottom of channels and wedges are going to fall out. This is a sneaky market, methinks.
• Stop going 100% long!
• Why is it that I can go against my rules without even noticing it?
• Breakouts from trends tend to retrace back to the trend line before continuing the move.
• Do more stock research!
• Avoid any stock whose fundamentals have been impaired.
• Ah!
• If you plan to be in a stock for a particular amount of time to achieve your profit goal, but the majority of the profits rush in far before you expected them to, it probably makes sense to get out (or at least scale out) of the trade, because you now already have far more to lose than gain. Drop half, set tight stops on rest, sounds like a good plan in many circumstances
  

Goals

• 4% portfolio growth per week
• Friday evening weekly reviews to monitor performance
• Earning a living from trading in 12 months from July 2010, or by July 2011

Identifying Broad Market Trends

Signals of an Emerging Downtrend

• Watch individual stocks, especially the leaders, for signals of a downturn.
• If an otherwise winning system gets stopped out ~5 times in a row, this is another signal

Signals of an Emerging Rally

Technical Analysis: Volume

Volume (and relative volume) is a very important indicator that can help to choose entry times and determine whether or not there could be conviction in a move of share price.

• If one period's (usually day) bullishly engulfs a previous period, but volume does not do the same, the move is likely to be a fake-out
•  Market Wizards, David Ryan:"When a stock that has been moving up starts consolidating, you want to see volume dry up. You should see a downtrend in volume. Then when volume starts picking up again, it usually means a stock is ready to blast off."

Trends and Position Within Them

Types of Trends:

• Channel
• Falling
• Rising
• Flagging
• Wedge
• Falling
• Rising
• Flagging
• Embedded Trends

Trading with Trends:

• If, having broken out of a trend, a stock re-enters the base, it is extremely likely to make its way back to the bottom of the base. Continue to honor original stop loss level, but consider cutting position size in half.
• Reversals of trend are relatively low risk, and give clear cut sell signals in the event the trade isn't going the right way.
• Breakouts and changes of direction require above average volume to be taken seriously. Of course, other indicators should be used.
• Depending on overall market condition, there may not be enough 'oomph' to really start a rally from a trend breakout. Wait for the retracement to the trend line before getting in for a better risk/reward play.
  

Stock Selection

Technical Analysis:

• Moving Averages [outside link]
• Price Movement / Support & Resistance
• Stochastics [outside link]
• Moving Average Convergence Divergence (MACD) [outside link]
• Volume & Average Volume
• Trends and Position within Trends
• Patterns
• Multi-Indicator Setups

Fundamental Analysis:

• Low Debt to Equity
• High Earnings Per Share (and high within EPS rank)
• Sustainable dividends is often an indicator of a healthy stock, but value of dividends should not have any impact on whether or not a trade is made. Dividends are minute in the scheme of things and mean almost nothing within the context of short->medium term trading.
• Significant Free Cash Flow
• Avoid stocks under $10 (but not religiously)
• Look for stocks with relatively low shares outstanding. Supply/Demand dictates that much more money is required to move price of stocks with higher shares outstanding.
• < 30 million*
• Institutional Ownership can be a boon or a bane. 
• Stick to stocks at levels of 1-20%*
• Buying at new highs (upon breakout of a trend) avoids falling prey to a situation in which many buyers who got in toward the top of the last upswing, in a channel for example, and waited with a loss for some time for the price to return again, create resistance at the old highs thru mass selling.
• Avoid stocks with high P/E relative to broader market - strong earnings trend very important*
• In a bear market, play the stocks for which the fundamentals have not been impaired.
  

News Environment:

• News can move a stock in unpredictable ways.
• No stock is immune, but it could be valuable to consider which stocks are most prone to news-related price movement and organize these somehow.
• Bear Market: Bad news crushes, Good news is all but ignored
• Bull Market: Good news rallies, Bad news is all but ignored

Macroeconomic Analysis and World Events: 

• ES-mini movement
• Regularly analyze the overall market as if it were an individual stock.
• Advancer-Decliner Ratio should be high and trending upward when planning to go long.
• Federal Reserve action
• Regulatory environment in relation to the overall market and individual stock or sector
• Natural Disasters in relation to individual stock or sector
• Trends within the indexes will have a large impact on trading strategy.

Finer Points:

• Bear markets present an opportunity to spend more time researching & selecting stocks that have the greatest likelihood of large moves upon reversal of trend. Plan ahead for the rebubble.
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*according to David Ryan's recommendation in Market Wizards

Risk/Loss Tolerance

Risk:


- All trading involves risk. Some trades are not going to be profitable.
- Risk management must be a primary consideration in a trading strategy in order to ensure minimal losses on those trades that do not go as planned, and to remain solvent thru particularly difficult markets.

• The transaction cost of any individual trade must not exceed 25% of Net Liquidated Account Value 
• Scale in to the relatively risky trades.

Loss Tolerance:

- The Maximum Tolerable Loss must be determined before any trade takes place. The Stop Loss Total will then be divided into the MTL to determine the size of the position which will maximize profit opportunity while also staying within a conservative Loss Tolerance.

• Each trade must not risk more than 2% of Net Liquidated Account Value
  

Determining Stop Loss Level

Stop Loss will be set based on values displayed by:

• Average True Range
• Trend Lines (and measured moves based on trend lines
• Moving Averages
• Pivots
• Recent highs and lows
• Historical highs and lows
• Position within a pattern

- Wherever there is a convergence of these values, there is probably a good stop loss level.

- Stop loss target should be somewhat below any support level/range that is used to set it. This helps to avoid getting taken out just before the expected bounce.

- Stop loss should be a set level until trade has begun moving in the right direction, at which point it will be switched to a trailing stop.


- A stop loss level is pointless if it is ignored. Do not hold a loser.