A Discounted View

Over the past ten years I tried a variety of trading styles before eventually finding my niche. Throughout that time many mistakes were made during my development as a trader. Looking back on a decade of learning I can identify five key areas that I wish I understood better. For new traders, putting these principles to work now may expedite your path to consistent profitability. 1)      Spend more time studying your trades Studying your trades is simply one of the best ways to enhance your learning process. After collecting enough trade data to analyze your strategy  (typically, 50-100 trades), you will begin to see patterns in your decision making or in your automated system that may be limiting your upside potential. As a general rule, trader and system developer Perry Kaufman advises  the more data the better when analyzing a system. In effect, the Law of Large Numbers states that there will be less chance of randomness in your analy...

Currently, the S&P 500 (SPX) is consolidating near its recent all-time highs. The index has not been at these levels since the end of February 2017. Since then SPX consolidated through time by around -3.00%. A pull back of this magnitude is perfectly normal for a market in an uptrend . In fact, the lack of damage done to the price trend during this decline could be seen as a sign of strength. That is, sellers are not aggressively offering prices lower but buyers are eagerly bidding into any countertrend move . Moreover, two weeks ago SPX gapped up two days in a row. During this move the price exhibited strength  as the gap up over both days absorbed a meaningful amount of the pull back in only two days. Additionally, the upper boundary of the SPX’s Bollinger Bands was penetrated by closing price both days. When price penetrates a Bollinger Band it is often a precursor to an extended trend in the direction of the penetration. No indicator works all the time. How...

For the second time in 2017 Gold (GLD) is testing resistance at its 200-day simple moving average (200SMA). Traders use the 200SMA  as an important trend indicator. For example, identifying the slope of the 200SMA or the price relative to this moving average are useful trading techniques . After rallying from late December 2016 to late February 2017, Gold encountered its first test of the 200SMA. Subsequently, the price backed off to previous support before touching its 200SMA again this week. In doing so, Gold formed a higher low at 114 which may be constructive for price action in the near-term. Specifically, if Gold can close above its 200SMA look for another 10 points of potential upside or a retest of the 52-week highs around 130 over the coming weeks to months. However, continued faltering at the 200SMA should be taken as a sign of weakness and offer traders an opportunity to get short Gold in line with the longer term trend. Zooming out to one order of magni...

Recently, Crude oil (Crude) traded below its range it had formed over the past three months.   Typically narrow trading ranges like the one exhibited by Crude are followed by swift expansions. This time was no different. One technical tool that is used to measure a trading range is Bollinger Bands. Bollinger Bands were developed by noted Technician John Bollinger. They are volatility  bands that are placed two standard deviations above and below a moving average. As such, the bands naturally widen when price ranges expand and narrow when the standard deviation of price decreases .  In practice, a 20 period moving average is used to plot the average value of price over the past twenty days. Then, the 20 period standard deviation is subtracted and added to the midpoint value to create the lower and upper bands, respectively. Traders can use the upper and lower bands as well as the moving average to generate trade signals . For example, when Crude closed bel...

Despite the media bringing attention to the stock market lately with the Dow Jones Industrial Average (INDU) making an all-time high by closing over 20,000 it is nothing more than a transitory news item in the scheme of a trading strategy. Instead of focusing on the INDU eclipsing 20,000 think of it as just another number like a memorable birthday. It is more important to focus on the market structure leading up to and currently surrounding these new all-time highs. Structurally, the start of 2017 looks far different than 2016. Last year, trend indicators were implying that prices would be heading lower rather than finding a bottom in the months to come. For example, the slope of the 50, 100, and 200-day simple moving averages were all trending flat to down with shorter time frame moving averages leading to the downside. MACD exhibited a bearish crossover and MACD-H displayed a bearish turn lower. Additionally, price failed to make a new high during the latter months of 2015 which...

Atlassian Corp (TEAM) had its initial public offering (IPO) in December 2015. Since that time the price has displayed interesting behavior from a long perspective . During the beginning of 2016 TEAM declined rapidly along with the rest of the market  as global economic fears were pervasive among market participants. Since that decline, TEAM found support  in early February 2016 as seen by the two reversal candlesticks  on the weekly chart.  The weekly reversals in price  were accompanied by an increase in volume both weeks which indicated that $20 is a meaningful level of support  from a weekly bar perspective. In mid-May 2016 TEAM formed a higher low around $22 and also exhibited a reversal candlestick at this level. Upon clearing prior resistance  in June 2016 volume accelerated again for four weeks indicating conviction in the move higher . Zooming in one order of magnitude shorter, the daily chart shows that after the breakout out ...

The price of ResMed Inc. (RMD) recently broke out of a resistance barrier on multiple timeframes. First, the monthly chart shows a clear break of resistance near the $60 level. Historically, this behavior in RMD and other stocks is constructive for a long set up . You can see from the past 10 years of monthly price data that RMD has a tendency to trend, consolidate for a while, and then trend again . At the point of breakout, a long position was unconfirmed by MACD, a trend indicator , but with further price improvement it exhibited a bullish crossover. Additionally, comparing RMD’s lows in its most recent range bound consolidation with MACD-H confirms its advance leading up to its breakout. Second, after zooming in one order of magnitude  shorter to the weekly time frame you can see a more granular view of the breakout from the monthly chart. From a trend perspective  we now see the price above its 40-week moving average ( 200SMA ) and a fairly consistent bottom ...