David White

Closing Update for Tuesday, August 25: Dow Makes It Six Straight Gains

Missing_Link: There are volumes extolling the virtues of all of the indicators I mentioned. I could not possibly do them justice here. The Candlestick method was developed by some Japanese rice traders. It worked very effectively for them (history backs this up). Modern day traders also believe it has merit. By that I mean it gives you better odds than chance alone. I do not have statistics on most of these trading signals. I have heard that using pivots points improves your odds of making the correct decision to about 2/3. If you use other methods on top of this you can improve your odds still further. For instance, if you are thinking of getting into a trade to the downside, it is helpful to have several indicators, which say what you are about to short is over bought. This does not guarnatee a correct decision. A stock could continue to be over bought for a long time. However, it improves your odds of being successful.

Even after you have mastered any number of these technical trading indicators, you can still lose money. Money management is important. Emotion is important. You may stay in a trade too long out of conceit. You may exit a trade too soon out of fear. Discipline is an important factor. Fundamental analysis also helps. On top of all this, some news item can appear unexpectedly to derail a well planned trade. You have to be willing to accept this as part of the process.

If you are having trouble with all technical indicators, it is likely that you are having emotional trading problems. Most traders have been afflicted by this at various times. You need to step back from what you are doing to get a better perspective. For you to blithely decry all technical trading methods because they have not functioned well for you is looking for a scapegoat. If you find all technical trading methods invalid, you are most likely the problem, not the technical trading methods (although some are questionable).

I don't think you will find many professional technical traders who have not found candlestick methods at least a little helpful once they have learned how to use them. As an exmaple, you might get to 67% accurate trades by only trading on pivot points (a day trading tool). You might up that by 5% to 10% by only buying at oversold positions (and only selling on over bought conditions). A candlestick pattern indicating a small lower body with a long upper shadow might help you make up your mind that the market wants to take this stock down. You might help yourself decide how long to stay in a trade by using DMA and/or ADX. This might increase your profitability still further. You can see how I am getting close to 80% or more. Even with this, you can still sabotage yourself with emotions. If you take big losses, you will have to have many wins to make up for them. You have to use money management to avoid big losses (i.e. use stops, etc.). I hope this has been helpful. Good luck.

Closing Update for Tuesday, August 25: Dow Makes It Six Straight Gains

Missing_Link: The VIX works to some extent. It is not fool proof, but it does generally seem to work opposite the major market indices (not always). If you use a combination of indices, you can increase your chances of being correct. For instance in day trading, you might use the VIX, the pivot points, the sma's, the stochastics, the RSI, the ADX, momentum, DMA, #advancing and #declining stocks, up and down volume, volume of your stock, etc. When a lot of these indicators are telling you the same thing, your chances of making the correct decision are improved. Of course, there are never any guarantees. Money management is also an important skill.

The SPY, DIA, and QQQQ are all exhibiting topping patterns. That is another reason to believe they may go down. Of course, all that head and shoulders business of a few weeks ago is a prime example of why you cannot count on any one particular indicator or pattern making you "certainly" correct.

Closing Update for Tuesday, August 25: Dow Makes It Six Straight Gains

Dr. Kris observed that the VIX had a rather dramatic candlestick hammer pattern for today on its daily chart. The shadow below the main body was very, very long. The DIA, SPY, and QQQQ had the reverse, a shooting star pattern for today. These candlestick patterns add to the likelihood that the markets are going down tomorrow. The VIX and the indices above usually move in opposite directions.

Last week the crude stocks were -8.4M barrels (Yahoo Finance). Often the deliveries get delayed by one day, etc. It seems likley that some of last week's decrease in crude stocks will be found this week. Also more might be bought before the "high use" Labor Day weekend. I expect the stocks will be up this week, perhaps dramatically. If so, they will tend to push oil prices down. Oil prices seem already headed that way after today. The oil heavy S&P500 will likley follow oil down.