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Wednesday, July 13, 2005
Market Recap
Not much excitement for the major indices today but there certainly was some good moves in some of the stocks that we are watching. Day trades seem to be doing well lately and those who day trade and read our message board are having little more excitement then just watching the indices. Today, the DOW gained 43 points, the NASDAQ traded flat and the S&P gained 2 points, eluding the 1225 resistance level once again. The volume in the market was weak again and the S&P probably will be unable to crack through 1225 unless there is a little more buying conviction.
This lack of volume simply indicates that it is vacation time for many traders so do not be concerned. If the market flattens out and bases on low volume, it would be a very positive sign. The markets look good right now but they need a rest and this is the time of year that we would like to see it rest. If it rests properly with no serious selling, it will form a good base from which to move up and out of when the traders return from vacation and the volume picks up.
The Technical Analysis Critics
Amateur technicians and chart readers believe that when they become proficient at technical analysis, they should be able to look at the chart of any stock and be able to forecast its next move with reasonable accuracy. This is a myth, do not believe it. The critics and proponents of technical analysis that think that it is nothing more than a crystal ball are those who do not understand what an expert chart reader is capable of in this business. You see, there are many more amateur chart readers than there are experts. This is where the myth about TA comes in. The critics see that many people fail at TA, well, that is because there are so many more people using TA these days that really have not fully learned it. So, in sheer numbers, the critics see the masses fail so they think TA is a failure. The critics do not understand that some TA is a failure only because the people using the TA do not understand what they are doing. The unskilled amateur technician has not gained enough experience to understand the true power of correct analysis of a stockchart. The problem is that these individuals think that they can read all 10,000 stockcharts and know by reading it which way the stock will move. This is not the case, even the expert chartist cannot do that.
A Toothpick in a Hay Stack
The expert technician knows that it is only in the minority of charts that they can expect to see the proper set-ups that will better their odds of risk reward. They know that the majority of charts that they analyze will not reveal the proper set ups to warrant the odds of predicting a future direction in price. There are roughly 10,000 stocks trading daily of all the exchanges but of those, there are only roughly 1300 stocks that are over $5.00 that have average volume of over 400,000 shares a day. We like to see at least 400K average because we know that the stock is liquid enough to trade and get out of when we want to. Of these 1300 stocks that meet the price and volume, we are lucky if we can spot 30 charts that have the proper set-ups with the proper risk reward ratio that we look for in a safe entry. This is only 2% of all stocks that meet our filters.
Increase the Odds
Knowing these statistical facts, it is very easy to see why some skeptics of TA think that it simply does not work. They are right in a sense that if we try to apply TA to all 10,000 charts, we will likely fail most of the time. The point here is, the expert knows at first glance if a chart has a possible set-up that would warrant a trade, if it does not, then they do not waste time trying to predict its direction, they simply move on to the next chart. The amateur thinks that they can predict direction on every chart that they look at and this is why they fail. You see, without the proper set-up on the chart, it is impossible to predict which way a stock will go. The expert technician will narrow the odds against failure because they are very selective and only trade the best set-ups. This is what makes an expert technical trader successful and the amateur technical trader a failure. You may find something that is good, but is it good enough? Would the expert take the same trade? A lot of the failure is because some traders are too impatient to wait for the best of the best set-ups before they place the trade.
All Charts Are Not Created Equal
On any given day, stocks are going to either go up, down, or sideways. The question is; was the move predictable prior to the market opening? All charts are not created equal. There are very few charts on any given day that provide clues, patterns, and pictures of supply and demand that are worthy enough to enter a trade. When you hear a pundit knocking TA, remember, it is because many people using it are failing because they do not use it correctly. If you learn to use it correctly, you will increase your odds of being successful.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
Stockcharts Listing
Please vote for us once a day at stockcharts.com.
http://stockcharts.com/def/servlet/Favorites.CServ...
Thank you all for voting.
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