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I Live to Trade, and I Trade to Live...

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zigzagman

Posted: Thursday, August 14, 2008 6:22:27 AM

Rank: Advanced Member

Joined: 8/14/2008
Posts: 314
Location: Memphis

Learning how to trade the Stock Market is without a doubt the best thing that's ever happened to me.

Not only in terms of making a good living at it (and allowing me to work at home), but also in the way it keeps me tuned into what's going on in the world.

I'm fifty-two years old and I'm not worried about getting Alzheimer's, because trading the Market is the best brain stimulation exercise regimen I've found yet.

Over the last fifteen years I've taught myself how to read charts using Technical Analysis, and I've found that charts can actually let you know what's about to happen next.

Charts can give very clear Buy and Sell Signals. But even a master chart technician must know what's going on in the world every day by staying on top of the most recent news. That's why I watch the Stock Market news channel CNBC eight hours a day, five days a week. You must also have a solid understanding of the Fundamental Analysis of each company you trade.

These days, you must be aware that the movements of the Stock Market are tied to the price of Crude Oil. When Oil goes up, the Market goes down, and visa-versa.

In order to be a successful trader of the Stock Market, you must do all of these things:

1) Keep up with the latest news on the financial markets around the world. That includes know when each report on the Economic Calendar comes out, and which carry more weight in their ability to move the Market.

2) Know exactly what is going on with the stocks you trade by knowing the Fundamental Analysis of each company you follow. That means keeping up with their latest News and SEC Filings, knowing when they report their Quarterly and Yearly Reports.

3) Learn to read and understand charts of each company you trade using Technical Analysis. One thing I've learned is Charts Don't Lie. They don't have emotions. Learn what the chart is telling you, and don't let your emotions get in the way of taking the appropriate action the chart is telling you to take.

When I first started trading, I didn't know anything about the Technical Analysis of Stock Market charts. I had spent a few years watching the live streaming charts that came with my Scottrade account that didn't have any Technical Indicators on them. I was getting pretty good at guessing what would happen next just by observing the patterns I saw develop day after day.

My wife had been trading the Market for many years before I met her, and she told me I needed to learn how to read Chart Patterns.

I found a few websites that offered lessons on the subject, and this one became one of my favorites: www.stockcharts.com From this website's Chart School, I learned all about Chart Patterns and all of the Technical Indicators I now use on my charts.

Only after I understood Technical Indicators did I begin to understand why a Chart Pattern would fail to yield the expected result at times. It was because the Technical Indicators said that the Price Per Share (PPS) had moved all it could, and it had met a resistance level.

Once I combined Chart Patterns and Technical Analysis into the reading of a chart I began to have much more consistent success in my trading abilities. It has taken many years of study to get to this point. I started by learning one Technical Indicator at a time until I knew it worked well, and then I would move onto the next one.

Let me give you a little hint here. After learning all about Chart Patterns, one of the first Technical Indicators you should learn is Bollinger Bands. It was the very last one I learned, and it is without a doubt one of the most important ones that I know of. I could have saved myself a lot of pain and suffering, not to mention avoid quite a few trades that didn't go well if I had known all about Bollinger Bands in the beginning of my trading career.

Here are a few examples of the different types of charts I use for doing Technical Analysis. I use different styles of charts because they each have a slightly different look and feel to them, even though the information they give is usually very similar.

This is my favorite style of chart that has every one of the Technical Indicators I use on them. I look at this chart after the Market has closed for the day. I only look at daily and weekly charts with this charting service.

Here is what the charts from stockcharts.com look like. I use this type of chart after the Market has closed for the day because it only allows me to have three Technical Indicators below the chart because I am not a paid member of this website. I also use this charting service only for daily and weekly charts.

This is a chart from my Fidelity Active Trader Pro trading platform. These are the kinds of charts that I use while the Market is open because their information is streaming in real-time. With these charts, I can get one-minute, five-minute, fifteen-minute, thirty-minute, hourly, daily, weekly, and monthly charts.

Here is a screenshot of my four monitor trading platform. I combine elements of the Scottrader and the Fidelity Active Trader Pro platforms.

I don't trade as much as I used to, because I don't Day Trade anymore. It was way too stressful. Now, I pick just the perfect moment to enter Swing Trades. I'm very patient and wait for all of the Technical Indicators to line up and signal that the odds are very good that my trade will go well.

Most of my Swing Trades only last a few days at most. Each one makes me at least a thousand dollars or more because I always buy at least one thousand shares, and when the PPS goes up one dollar, I've made one thousand dollars.

If the trade doesn't go well, the most important rule in trading the Stock Market is to KEEP YOUR LOSSES TO AN ABSOLUTE MINIMUM! The way I trade is that I know exactly at what price I will exit the trade if it isn't going well. I enter my trades as close to the exit point as possible. My favorite entry is at the second low of a double-bottom chart pattern. That way, if the Price Per Share breaks below the first low, I'm out without a doubt.

The most important rule to trading the Stock Market is CAPITAL PRESERVATION, because without money to trade with, you won't be able to LIVE TO TRADE ANOTHER DAY...

If you'd like to learn how to read charts with Technical Indicators, I'll be posting them here with annotations and you can follow along.

If you'd like an analysis of your favorite stock's chart, send me a private message and I'll post the results in the 'Stock Tips' forum.

HAPPY TRADING!

www.stock-market-lessons.com

moxie717

Posted: Thursday, August 14, 2008 11:19:12 AM

Rank: Member

Joined: 8/8/2008
Posts: 15
Location: hsy/pa

Zigag Man, thanks for the info on the charts as a newbie they are so overwhelming that I have been trying to find a way to understand them, keep the info coming. Moxie

wilfee@yahoo.com

Posted: Thursday, August 14, 2008 1:44:11 PM

Rank: Advanced Member

Joined: 7/14/2008
Posts: 34
Location: California

great work..thanks for sharing..

Simple Living High Thinking

Newathis

Posted: Friday, August 15, 2008 10:36:53 PM

Rank: Newbie

Joined: 8/15/2008
Posts: 3
Location: Ontario, Canada

:d/ Thanks for sharing your insight. I am new to investing, but am quickly finding out that alot of what you say is correct. The more I read about events and study charts, the more comfortable I feel in making a decision. I have a long way to go to be as confident as you, but I will keep plugging away.

One thing that bothers me, is that I seem to always be 2 or 3 days late to take full advantage of a trade. Is there a trick, for example, to find stocks where the stochastics are about to make a move or the stock is approaching the 50 day average?

Any ideas are appreciated.

zigzagman

Posted: Monday, August 25, 2008 8:39:10 PM

Rank: Advanced Member

Joined: 8/14/2008
Posts: 314
Location: Memphis

Newathis wrote:

Here's a simple explanation of my strategy in a nutshell...

First, stay away from cheap stocks. They are cheap for a reason. That means if they are on the .OTC (Over The Counter Bulletin Board) or .PK (Pink Sheets) markets, you should avoid them like they are the plague. Most of them are nothing more than outright scams. You are doing nothing more than playing the lottery when you trade stocks on these markets.

Stick with the well known and respected stocks that are on the NYSE, AMEX, or the Nasdaq. I won't play a stock unless it is above $15.00 and has at least 1 million shares traded daily. Most of my favorite stocks are in the $25.00 to $50.00 range, and trade at least 5 million shares a day.

Learn how these four Technical Indicators work at this website:

www.stockcharts.com/chart-school

Then click on "Technical Indicators and Overlays" near the top of the left column.

*RSI-Relative Strength Index
*CCI-Commodity Channel Index
*Stochastics
*Bollinger Bands

One of the things you have to know in order to trade successfully is how important Volume is related to the movements of a stocks' Price Per Share (PPS). The highest days of Volume are found when the PPS tops out, and at bottoms. To sustain a rally, Volume should be very high above normal on the initial move, and remain above the prior average daily volume to sustain the move up. If Volume starts decreasing over time the PPS will usually start trending down until it's fallen far enough to encourage buying again, and the Volume will start to increase again.

After you have mastered the four Technical Indicators listed above and have a good understanding of Volume, you should study the MACD. You need a good understanding of the MACD Histogram, as it is called "the headlights around the corner" because it lets you get a look at what might be coming next before it happens. The MACD also gives some really good Buy and Sell Signals when the fast line crosses up or down through the slow line, and when these lines cross up or down through the zero line. This indicator is best suited for Swing Trading and is not as effective for Day Trading.

This strategy works for Day Trading using the five minute chart, or Swing Trading using the daily chart. Let's use this five minute chart and Day Trading as an example:

First, lets identify the four indicators I mentioned above:

*The RSI is a dark green line and the fifth indicator from the bottom.

*The CCI is just above it. It has two blue horizontal lines marked -200 and +200 with another blue line passing up and down through the horizontal lines.

*Stochastics are the two purple lines near the bottom.

*The Bollinger Bands are at the top and consist of two red lines than enclose the candlesticks and moving averages.

There are four perfect entries during this 1.5 day chart where just about all of the indicators agree with each other and signal a BUY.

Just before 2pm on day one.
At 10am on day two.
At 12:30 on day two.
At 2:15 on day two.

That's because:

*The PPS had broken below the lower Bollinger Band.

*The CCI had dipped below the -200 line and bounced back up through it.

*The RSI had dipped below 40 and rebounded nicely (but when Swing Trading it's best to wait for the RSI to dip below 30 and head up before you get the Buy Signal).

*Stochastics were showing very oversold below 20 and bounced up sharply after hitting that point.

If the PPS can break up through the middle Bollinger Band (not shown on this chart, so you have to imagine it), it will usually head up to touch the upper Bollinger Band where you TAKE YOUR PROFITS as soon as it gets there while the Volume is still peaking.

Notice on this chart that the periods of highest volume happen when the PPS hits the upper Bollinger Band. That's because the people that bought at the lower Bollinger Band are bailing out and taking profits, and then selling short to ride the PPS from the upper Bollinger Band back down to the lower one.

Look at the trade on the first day from just before 2pm to just after 3pm. You buy 1000 shares at the lower Bollinger Band at 30.00 and sell it about 75 minutes later close to 31.00 You just made almost a thousand dollars in just over an hour! YES!!! It makes me want to go back to Day Trading...lol

So you see, my strategy is really quite simple:

* BUY below the lower Bollinger Band when Stochastics say it's very oversold, the RSI is between 30-40 and turning back up, and the CCI has crossed down below the -200 line and is crossing back up through it.

** SELL to take your profits as soon as the PPS hits the upper Bollinger Band.

*** SELL SHORT when the PPS breaks up above the upper Bollinger Band.

**** Then BUY TO COVER your Short when it gets to the bottom Bollinger Band.

***** Rinse and Repeat...lol

Of course, I use ALL of the Technical Indicators on this chart when I trade. When I Swing Trade, I use a charting service that actually allows me to have a lot more indicators on it and I understand and use every one of them. It's taken a number of years to learn about them from a textbook point of view, and many more years of watching them on a day-to-day basis so that I have my own definitions of what makes them work, or not.

Happy Trading,
zz

www.stock-market-lessons.com

Bearman

Posted: Wednesday, October 22, 2008 7:18:53 PM

Rank: Newbie

Joined: 10/22/2008
Posts: 1

I'm not a fan of 'squiggly' lines. These are all lagging indicators. Learn to understand price action and that will be the day you finally get it! When you finally understand price, you won't need anything but candles. I do very well at day trading, although it took loosing over $100K to figure things out. No offense, but all these indicators are great after the fact....not before. All you need to understand is support, resistance, trend lines, patterns and maybe a little Fib retrace. Thats it. Keeping it simple has allowed me to more than make back my $100k loss! I don't mean to downplay this thread, but every trader/broker/market maker and their dog know these indicators....and they use them to steal your money. Ever wonder why 90% of investors loss at the stock market?

I also find it interesting that you pay that much attention to the media. My advice to all traders is to stay way from any media source and listen to your charts.

zigzagman

Posted: Thursday, October 23, 2008 6:06:38 PM

Rank: Advanced Member

Joined: 8/14/2008
Posts: 314
Location: Memphis

Bearman,

I see this is your very first post on this website, and you are of course entitled you your opinion. But your opinion cost you $100K when you first started Day Trading, and it sounds like you've just managed to make your loss back.

I have a strategy that has worked very well for me for many years, and I didn't have to suffer the losses you encountered when you first started out. So why should I listen to anything you have to say? Maybe you should be taking lessons from me, but I feel you're 'proud' of going through the school of hard knocks.

The "squiggly lines" you aren't a "fan of" have worked for me since I started using them when I first started Swing Trading over 15 years ago. Then I figured out that they work just as well for Day Trading. And NO, they are not all lagging indicators. The CCI is my most important indicator for Day Trading, and it can actually show what's going to happen next if you know how to read it right. If you think like a "trader/broker/dealer/market maker", you can use these indicators to your advantage. Maybe that's why you failed at Day Trading when you first began. You were thinking like the sheeple, and not the wolf...

For Day Trading, I primarily use Volume, Bollinger Bands, Stochastics, and the CCI for entries and exits, and chart patterns (which are full of support and resistance trendlines) are very important too. It is my opinion that you MUST also keep up with all of the latest News, to be a fully informed trader.

Candlesticks are basically useless in Day Trading (especially on the one minute chart), except for Hammers at the bottom Bollinger Band and Shooting Stars at the top one (on the five minute chart). They should mainly be used for Swing Trading using daily and weekly charts.

But lately even the candlesticks are making no sense at all on the daily chart:

The tall 936 point white candle of 10/13/08 was followed by a doji, not another white candle like you'd expect. The tall red candle on 10/15/08 was followed by a white candle, not another red candle like there should have been. This Monday's tall white candle should have been followed by another white candle, but Tuesday was a red one. I expected the Dow to fall today and close red after seeing yesterday's red candle, but it rallied this afternoon to close up on the day.

That's because this market for the last few months has been primarily NEWS driven:

The day the House of Representatives failed to vote for the Bailout Bill, I was watching it live on CNBC and could tell the bill would fail before the final tally was in. I went Short on one of my favorite Day Trading stocks, and made a killing that day when I Covered it a few hours later because I was paying attention to the NEWS!

I pay close attention to the Economic Calendar, and at what time the potentially market moving reports come out each day. And as soon as I hear the numbers and compare them to what I've researched as the 'consensus' estimates, I'll Day Trade on that NEWS and almost always with positive results.

I Day Trade in the Extended Hours sessions during Reporting Season after I hear how my favorite stocks reported live on CNBC.

I'll trade a stock based on the Dow Futures in the pre-market session as soon as it's open, and usually end that trade not long after the opening bell with good results.

I could give many more examples of how I've gotten great Day Trade ideas just by watching CNBC all day, and correctly anticipating the trend after a News Report. If you enter a Day Trade and you're NOT paying attention to the News, the market can reverse trend on you in a heartbeat, and you can get burned quickly if you don't have a good exit strategy.

One of my favorite philosophy's is "different strokes, for different folks"...
And I'm not sure why you think I don't "get it"? I get it right more times than not, and I've never lost $100K like you have...

What works for me may not work for you, and I can tell what works for you is not for me...

Happy Trading,
zz

www.stock-market-lessons.com

SoParklion

Posted: Friday, October 24, 2008 6:08:29 AM

Rank: Member

Joined: 9/10/2008
Posts: 18

Mr. Zigzag: Great advice, but do you think that tomorrow's existing homes can offset Europe and Asia tanking overnight?

zigzagman

Posted: Friday, October 24, 2008 9:33:34 AM

Rank: Advanced Member

Joined: 8/14/2008
Posts: 314
Location: Memphis

SoParklion wrote:

Mr. Zigzag: Great advice, but do you think that tomorrow's existing homes can offset Europe and Asia tanking overnight?

In a word: NO!

www.stock-market-lessons.com

Qtrade

Posted: Friday, October 24, 2008 12:12:24 PM

Rank: Advanced Member

Joined: 6/12/2008
Posts: 52

Bearman, could you please explain what you mean by price action? I am curious since all these indicators you tagged "lagging" is just a filtered price or volume. Agree with you on the inappropriate attention to the media.

Quote:

Every trader/broker/market maker and their dog know

... patterns and trendlines too.

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