An Excerpt from the Timely Trades Letter.
Trading is based on being positioned to profit if the stock, or the market, does the usual thing in a given situation. Since stocks often bounce from support, candidates with a larger distance to support from the entry are more attractive because they have more ‘room to run.
I apply the concepts of support, resistance, and accumulation to the market itself to determine if trading is appropriate. If I am trading shorts and the market is approaching support I become cautious. The reason is that the market often bounces or bases near support and thus shorts would be less attractive. When the market is clearly trending and well away from support I will use larger position sizes in my trades than when the market is approaching a support level. I cannot influence what the market does, but I can react to it and reduce my risks by taking smaller position sizes when the market is approaching a support level.
The upper Bollinger Band will often act as resistance to market moves, particularly in trading range markets. This tendency to retrace from the upper band during trading range conditions is something that can be used as part of a traders money management strategy. In strongly trending markets the market may ‘ride the bands’, but it is quite common for the market to base or retrace when hitting the upper band during a trading range environment. Since I always want to be positioned to profit when the market does the normal, or usual, thing I take profits on positions when they approach the upper band during a trading range environment.
There are a variety of interesting pullback systems for traders. Pullbacks are one of the bread and butter techniques of trading because they occur frequently and can be found in most market conditions. Most traders should have more than one pullback system in their trading tool box. There are interesting pullback systems based on the percentage of retracement, pullbacks to key moving averages, pullbacks for a specific number of days, and pullbacks with specific volume patterns.
Volume analysis is an important part of trading. Volume measures the interest in a move. It isn’t necessarily the absolute level of the volume that is key, it is often the volume pattern or the recent changes in volume that tell the story. My youngest daughter played soccer through high school and college, we attended a lot of interesting soccer games. If I was talking to someone at the game and all of a sudden the crowd noise increased significantly, we both know to quickly look on the field because something important was happening. For stocks, volume is like the crowd noise. The level of noise, or volume, changes depending on the importance of what is going on in the game.
Strong stocks tend to move up to lots of cheering, or volume; and they tend to retrace or pullback on light volume. The light volume pullback is not necessarily a significant change in behavior, which is noted by the quiet crowd or low volume. As stocks go through a rhythmic cycle up upward movement followed by brief retracements and then a continuation of the upward movement, we can use volume clues to determine of the retracements are a normal part of the stocks rhythm, or the beginning of a change in trend. .
Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money. Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques. Steve teaches a weekly web seminar on specific trading techniques and market analysis through Power Trader Tools.
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I apply the concepts of support, resistance, and accumulation to the market itself to determine if trading is appropriate. If I am trading shorts and the market is approaching support I become cautious. The reason is that the market often bounces or bases near support and thus shorts would be less attractive. When the market is clearly trending and well away from support I will use larger position sizes in my trades than when the market is approaching a support level. I cannot influence what the market does, but I can react to it and reduce my risks by taking smaller position sizes when the market is approaching a support level.
The upper Bollinger Band will often act as resistance to market moves, particularly in trading range markets. This tendency to retrace from the upper band during trading range conditions is something that can be used as part of a traders money management strategy. In strongly trending markets the market may ‘ride the bands’, but it is quite common for the market to base or retrace when hitting the upper band during a trading range environment. Since I always want to be positioned to profit when the market does the normal, or usual, thing I take profits on positions when they approach the upper band during a trading range environment.
There are a variety of interesting pullback systems for traders. Pullbacks are one of the bread and butter techniques of trading because they occur frequently and can be found in most market conditions. Most traders should have more than one pullback system in their trading tool box. There are interesting pullback systems based on the percentage of retracement, pullbacks to key moving averages, pullbacks for a specific number of days, and pullbacks with specific volume patterns.
Volume analysis is an important part of trading. Volume measures the interest in a move. It isn’t necessarily the absolute level of the volume that is key, it is often the volume pattern or the recent changes in volume that tell the story. My youngest daughter played soccer through high school and college, we attended a lot of interesting soccer games. If I was talking to someone at the game and all of a sudden the crowd noise increased significantly, we both know to quickly look on the field because something important was happening. For stocks, volume is like the crowd noise. The level of noise, or volume, changes depending on the importance of what is going on in the game.
Strong stocks tend to move up to lots of cheering, or volume; and they tend to retrace or pullback on light volume. The light volume pullback is not necessarily a significant change in behavior, which is noted by the quiet crowd or low volume. As stocks go through a rhythmic cycle up upward movement followed by brief retracements and then a continuation of the upward movement, we can use volume clues to determine of the retracements are a normal part of the stocks rhythm, or the beginning of a change in trend. .
Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money. Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques. Steve teaches a weekly web seminar on specific trading techniques and market analysis through Power Trader Tools.
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