Market direction indicators, 4

Continuation of discussion about How Markets Really Work: A Quantitative Guide to Stock Market Behavior

Large Range Days

Over the short term (1 day and 1 week later), following a price drop of 2% or more, the market goes up.

New 52 Week High/Low

Over the short term (1 day and 1 week later):

When New Lows outnumber New Highs, the market goes up;

When New Highs outnumber New Lows, the market goes down.

...cont'd tomorrow...

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Market direction indicators, 3

Continuation of discussion about How Markets Really Work: A Quantitative Guide to Stock Market Behavior

NYSE Advancers vs Decliners

Over the short term (1 day and 1 week later), following:

Consecutive days of NYSE Decliners outnumbering Advancers, the market goes higher;

Advancers outnumber Decliners and the market is already under its 200-day moving average, the market goes down;

Advancers outnumbering Decliners by 2 to 1 or even 3 to 2, the market goes down;

Volume

Over the short term (1 day and 1 week later), following:

Largest volume (of the last 10 days) on the same day of the largest range (of the last 10 days), the market goes up.

...cont'd tomorrow...

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Market direction indicators, 2

Continuation of discussion about How Markets Really Work: A Quantitative Guide to Stock Market Behavior

Three or more consecutive Higher Highs or Lower Lows

In general, Larry observed that over the short term (1 day and 1 week), it’s better to short sell after 3 or more consecutive higher highs and that it’s better to buy after 3 or more consecutive lower lows.

In particular, over the short term (1 day and 1 week later), following:

Three or more consecutive higher highs, the market goes down, especially when the market is already below its 200-day moving average; and

Three or more consecutive lower lows, the market goes higher;

...cont'd tomorrow...

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Market direction indicators, 1

If your trading strategies include a short-term one in which you buy breakouts to new highs or short sell breakouts to new lows, then you urgently need to take a look at the empirical research data complied in How Markets Really Work: A Quantitative Guide to Stock Market Behavior

I don’t know if Larry Connors is same guy as Laurence A. Connors, but if he is, then he’s also the co-author of the popular trading book Street Smarts: High Probability Short-Term Trading Strategies

This week I’ll discuss some of the conclusions by Larry in his book How Markets Really Work: A Quantitative Guide to Stock Market Behavior

Breakouts to New Highs/New Lows

In general, Larry observed that over the short term (1 day and 1 week), it’s profitable to buy new market lows (instead of highs) and to short sell new market highs (instead of lows).

In particular, over the short term (1 day and 1 week later), following:

a) 5- and 10-day breakouts to new highs, the markets declined;

b) 5- and 10-day breakouts to new lows, the markets rose;

c) 5- and 10 day breakouts to new highs when price is under the 200-day moving average, the markets declined;

d) 5- and 10 day breakouts to new lows when price is above the 200-day moving average, the markets rose.

...cont'd tomorrow...

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Seven Common Issues, part 5

cont'd discussion about frequently occuring ways to trash an account that were discussed in Tools and Tactics for the Master DayTrader: Battle-Tested Techniques for Day, Swing, and Position Traders

7. Amending your trading plan or system while having an open position in a trade entered into pursuant to that trading plan or system.

...back next week...

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Seven Common Issues, part 4

cont'd discussion about frequently occuring ways to trash an account that were discussed in Tools and Tactics for the Master DayTrader: Battle-Tested Techniques for Day, Swing, and Position Traders

5. Complacently using a system that had been working, but that does not perform well in current market conditions.

6. Getting a winning trade by deviating from your system, especially by failing to exit on a stop loss or by adding to a losing trade.

...cont'd tomorrow...

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Seven Common Issues, part 3

cont'd discussion about frequently occuring ways to trash an account that were discussed in Tools and Tactics for the Master DayTrader: Battle-Tested Techniques for Day, Swing, and Position Traders

3. Switching time frames while in a trade.

4. Failing to enter a in a timely fashion upon seeing a trade signaled by your entry criteria.


...cont'd tomorrow...

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Seven Common Issues, part 2

cont'd discussion about frequently occuring ways to trash an account that were discussed in Tools and Tactics for the Master DayTrader: Battle-Tested Techniques for Day, Swing, and Position Traders

1. Failing to cut losses.

2. Failing to let profits run.

...cont'd tomorrow...

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Seven Common Issues, part 1

Nothing new ever happens in trading. Accounts are routinely trashed in the same way over and over again. This week, I’d like to review seven of the ways traders commonly trash their accounts, often to the point of giving up on trading. These are seven items that traders need to continuously condition themselves to counteract.

The ideas for these routine ways to trash an account are discussed in Tools and Tactics for the Master DayTrader: Battle-Tested Techniques for Day, Swing, and Position Traders

For a simple method for conditioning yourself to counteract these seven items, see my website page entitled "Replace Discipline" at http://LeisurelyCashFlow.Googlepages.com

...cont'd tomorrow...

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Manias, panics and crashes part 3

...cont'd from yesterday...

Continuation of discussion about Manias, Panics, and Crashes: A History of Financial Crises

Were you surprised by the SEC’s recent sudden move to limit short selling in the stock market? You wouldn’t be if you had read this book. Chapter 10 reviews what governmental authorities in jurisdictions around the world have done during past bank crises. Here’s my summary of that chapter in list form. Don’t be surprised if some or all of the following occur as the current bank crisis plays out.

1. Do nothing.

2. Penalize speculators.

3. Allow banks to deliberately neglect, refuse or delay payment of lawful debts and obligations to their depositors and creditors.

4. Allow banks to pay their debts and obligations in a manner that is inconvenient to their depositors and creditors, such as by payment in coins. This of course is a form of delay in payment as it takes more time to count the coins than large denominations of money.

5. Allow banks to pay their creditors with promises to pay instead of with cash.

6. Halt trading and close markets.

7. Create new official holidays so banks can remain closed for business longer, thereby delaying and hindering their creditors.

8. Prohibit or suspend publication of information about banks. That’s what the SEC tried to do recently in threatening criminal prosecutions against anyone who disparages financial firms.

9. Allow banks to delay or suspend making public any information about their financial position.

10. Limit the amount by which prices can change on trading markets.

11. Require trading to be halted or suspended after designated price change limits are reached.

12. Legislate moratorium on payment of debts or particular types of debt.

13. Deliberate neglect in enforcing laws so that banks can continue carrying out illegal activities they need to engage in to avoid going out of business.

14. Allow non-bank organizations to buy the debts of the banks at a discount.

15. Encourage or take part in organizing bail outs of failing firms.

16. Provide guarantees for the indebtedness of failing firms.

...off Friday, back next week...

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Manias, panics and crashes part 2

...cont'd from yesterday...

Continuation of discussion about Manias, Panics, and Crashes: A History of Financial Crises

The author, Charles P. Kindleberger, observed that in the three decades since 1970, bank failures worldwide were systemic and involved most (and in some cases all) of the banks and financial institutions in the countries where they occurred.

Generally, the chain of events is as follows: business prosperity, then easily available credit, then spending surge, then price increases, then an event that pauses price increases, then asset selling, then price declines. Banks that financed the spending spree are left with losses when assets are sold for less than the amount of the bank financing supplied to purchase the asset sold. Such losses then become a crisis when the banks become insolvent.

Chapter 1o of the book describes the usual domestic responses to bank insolvency.

...cont'd tomorrow...

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Manias, panics and crashes

Threats by the SEC to use criminal prosecution to punish rumor mongers who dare to disparage banks is official confirmation that the banking crisis in The People’s Republic of America is in full swing. For a preview of how this crisis is likely to play out, in this week’s series of blogs I’m reviewing Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics)

SEC Threat
http://www.nytimes.com/2008/07/14/business/14sec.html?ref=todayspaper

...cont'd tomorrow...

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