APPLIED MATERIALS - HOW TO DETERMINE WHEN A STOCK IS FAILING
Basic Trading Techniques Explained (For This Example I Charted Applied-Materials)
I believe AMAT-is a failing stock. I have prepared this tutorial for you for two reasons: to keep you from losing money in a bad position, and to allow you to set up a chart of your own. Then, when you see a "hot tip" on TV, you can determine if the financial asset is worth YOUR MONEY.
1. Establish the direction of the trend. An effective way to do this is to use a 150 to 180 point regression line. This can be weekly, daily hourly (any time duration you wish to trade). Nevertheless, a 15-minute chart is not nearly as strong as a daily or weekly period. You can base the regression line on the close, but I like open, high, low, close divided by four.
2. Use a price channel, two if possible. Most trending stocks repeat within a channel. I like a 20-day channel, and I have found that if a 20-day channel is violated on the low side, this triggers “sell stops” from traders. The next channel is a 50 day. If this fails on the low side, the established trend may reverse.
3. Ichimoku Cloud. This is a great indicator and I recommend that you use it.
4. Mean reversion. If you study financial instruments, in this case stocks, they tend to oscillate up and down around the “mean”, or the regression trendline. If a stock is at the upper band of a 20-day price channel, do not chase it, because it is likely to “revert to the mean”. Better yet, if you have an up trending stock, let it fall (at least) to the lower band of the 20 day price channel. Why? Because the price will tend to “revert to the mean”.
5. ADX. The ADX is a green line, red line, and black line. If the green line is on top, the trend is up. If the red line is on top, the trend is down. The black line indicates the strength of the trend. For example, if the black line is rising, the trend (up or down) is getting stronger. Always use some form of trend quality indicator. Another such “trend quality” indicator is “Aroon”.
6. RSI or Stochastics RSI. These indicators will guide you in the “mean reversion” you plot. For example, the RSI at 80 will tell you that what you are plotting is “over-bought”. Caution: an RSI indicator, in something that is “breaking out to the upside”, can remain over-bought for long periods. You should use some of your other indicators, such as the “Awesome Indicator”, to guide you on trend reversal. The "AO" is a series of green and red horizontal bars that show you strength and weakness in a stock.
7. The Choppiness Index (CHOP) is an indicator designed to determine if the market is choppy (trading sideways) or not choppy (trading within a trend in either direction). CHOP is not meant to predict future market direction; it is an indicator to be used to for defining the stock’s trendiness only. Higher values equal more choppiness, while lower values indicate directional trending. This is used with….chop zone.
8. I use a chop zone indicator that is green for up-trend, red for downtrend, and white for no trend. If you combine this color-coded format with #7 above (choppiness), a green color with a “chop” indicator line that is falling would indicate a strong trend. If the chop line breaks below the lower band, this indicates a statistically significant event (up for green, or down for red). This will tell you that the trend is very strong.
Today’s Wisdom: “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” Warren Buffett
I hope these trading tips help you.
May all of your trades go well.
I believe AMAT-is a failing stock. I have prepared this tutorial for you for two reasons: to keep you from losing money in a bad position, and to allow you to set up a chart of your own. Then, when you see a "hot tip" on TV, you can determine if the financial asset is worth YOUR MONEY.
1. Establish the direction of the trend. An effective way to do this is to use a 150 to 180 point regression line. This can be weekly, daily hourly (any time duration you wish to trade). Nevertheless, a 15-minute chart is not nearly as strong as a daily or weekly period. You can base the regression line on the close, but I like open, high, low, close divided by four.
2. Use a price channel, two if possible. Most trending stocks repeat within a channel. I like a 20-day channel, and I have found that if a 20-day channel is violated on the low side, this triggers “sell stops” from traders. The next channel is a 50 day. If this fails on the low side, the established trend may reverse.
3. Ichimoku Cloud. This is a great indicator and I recommend that you use it.
4. Mean reversion. If you study financial instruments, in this case stocks, they tend to oscillate up and down around the “mean”, or the regression trendline. If a stock is at the upper band of a 20-day price channel, do not chase it, because it is likely to “revert to the mean”. Better yet, if you have an up trending stock, let it fall (at least) to the lower band of the 20 day price channel. Why? Because the price will tend to “revert to the mean”.
5. ADX. The ADX is a green line, red line, and black line. If the green line is on top, the trend is up. If the red line is on top, the trend is down. The black line indicates the strength of the trend. For example, if the black line is rising, the trend (up or down) is getting stronger. Always use some form of trend quality indicator. Another such “trend quality” indicator is “Aroon”.
6. RSI or Stochastics RSI. These indicators will guide you in the “mean reversion” you plot. For example, the RSI at 80 will tell you that what you are plotting is “over-bought”. Caution: an RSI indicator, in something that is “breaking out to the upside”, can remain over-bought for long periods. You should use some of your other indicators, such as the “Awesome Indicator”, to guide you on trend reversal. The "AO" is a series of green and red horizontal bars that show you strength and weakness in a stock.
7. The Choppiness Index (CHOP) is an indicator designed to determine if the market is choppy (trading sideways) or not choppy (trading within a trend in either direction). CHOP is not meant to predict future market direction; it is an indicator to be used to for defining the stock’s trendiness only. Higher values equal more choppiness, while lower values indicate directional trending. This is used with….chop zone.
8. I use a chop zone indicator that is green for up-trend, red for downtrend, and white for no trend. If you combine this color-coded format with #7 above (choppiness), a green color with a “chop” indicator line that is falling would indicate a strong trend. If the chop line breaks below the lower band, this indicates a statistically significant event (up for green, or down for red). This will tell you that the trend is very strong.
Today’s Wisdom: “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” Warren Buffett
I hope these trading tips help you.
May all of your trades go well.