Indicators, trading method, monitor configuration

Below are some answers to questions I often get via email (FAQ). At some future time, I want to "clean this up", but for now, I will just put this out here "as is".

1.  Systems:  I do daytrading as well as swing and longer term trades.  Because I daytrade, I have 2 internet connections. One is with Verizon mobile internet, and the other is with Time Warner Cable.  I run them both simultaneously.  This way, if my cable modem / time warner crashes, the Verizon mobile is still running, so I never am without an internet connection.  Some years ago, while daytrading, i lost several thousand dollars because my ISP (comcast in california at the time) went down, and I lost my internet connection and was unable to close out a position. By the time I phoned in the order, it was too late.  I have 3 laptops and one desktop computer. Each laptop is attached to a 30inch monitor (Gateway).  One of the laptops has the Verizon mobile broadband card attached, all the others run from my wireless network from Time Warner cable.  I like laptops because, if the electricity / power goes off, I do not lose my connection. The laptop can run on batteries for awhile. Also, the cable modem/wireless will go down without electricity, but my Verizon mobile broadband will not.  (Mobile broadband is cool.... you can use it anywhere, when you travel, not just home). The desktop is connected to a UPS, so it also can run about 10 minutes without electricity, but the laptop/verizon card is clearly superior for that situation.  The reason i use a desktop is because the desktop lets me attache TWO monitors simultaneously (laptop only allows one monitor).  Actually, each monitor itself has 16 charts on it (4 symbols in 4 timeframes each).  With three monitors, I can view 48 charts (12 symbols).

Two of my laptops are Windows, the other is MacBookPro. I like Macbook pro because it does not crash, and more importantly, a 30inch monitor can be connected with highes resolution (2500x1600).  My Windows laptops only allow 1920x1080 resolution.

2.  I'm not a licensed broker. Everything I learned is self-taught through research, reading, and experience making many mistakes. I do have a blog at http://christopherstockguy.blogspot.com/.  Sometimes I am better at posting graphics and charts there, other days (like today) its a lot of text typing.

3.  Decision making:  First, I study / analyze the equitiy I'm interested in.  I'll try to take a snapshot of one of my monitors so you can see it.  I have it setup so that a single symbol (like SPX SPY QQQQ AAPL IBM etc) always has at least 4 charts in different timeframes.  So, if i'm analyzing SPX, i'm looking at Daily, 60 min, 15 min, and 3min (for daytrade) or Weekly, Daily, 60 min, 15 min for swings. My favorite indicators are on all the charts (all timeframes): 5 MA (moving average), 15 MA, 20 MA, 50 MA.  Those are the moving averages. I overlay the volume on the chart.  The, for each chart, I also have my 4 favorite studies:  Stochastics, RSI, MACD, and MACD histogram. Those are the "computer calculated" pieces. I mostly use candlestick charts because many years ago I was introduced to candle patterns. When I switched from OHLC to candles, at first it was very hard to adjust. But after some time, I got accustomed to the candles and their power.  I do utilize the 100+ candle patterns (actually you only need 10-30 patterns really), but for me, the candles are just another tool. Supplementary information.  If i see a shooting star in an uptrend, but the MACD hist is rising, I don't short based on the bearish shooting star, because the MACD conflicts.  One chart I have bollinger bands on (too cluttery to have it on all of them).

3b. Then, on the chart, in the appropriate time period, I draw appropriate trendlines, ascending triangles, descending triangles, coils, Head Shoulders, etc. Oftentimes I don't need to physically "draw" them because I can "see" the patterns through experience.

3c. I always display ES futures and SPX on my monitors. Usually QQQQ and DOW /DIA/INDU also. I like to compare the ES futures with SPX, particularly for the first 30minutes, since the ES charts often cause gap ups/downs in the SPX. The ES, of course, is smooth.  Also, I usually check the ES futures several times during the night (4:15pm, 5pm, 8pm, Midnight, 3AM, 6AM) though I don't check all those times everynight. Whenever I wake up, I check. Thats why you might see postings in my blog at weird times, like 4AM Eastern time.

3d. By now, I'm sure you can see that I use charts and technical analysis, not fundamentals. This is because, in the timeframes that I trade (minutes, days, weeks... not months or years) the fundamentals don't matter. I trade based on price action. One thing I do watch for in individual equities like AAPL, QCOM, etc is the earnings release dates. I generally do not want to be holding a stock overnight during one of those. I know people that like to play the earnings reports... in general I do not.

3e. Oh, I just remembered, I also look for RSI swing failure reversal patterns, as well as constantly looking for divergences between price and one or more of these: MACD hist, stoch, rsi. Also bollinger bands, McLellan Osc, McLellan Summation (for market breadth), Money Flow are things I look at.

Answers to questions I often get via email

1. i use TDAmeritrade. they also bought ThinkOrSwim so i use the TOS charting usually. but i have accounts at ettrade also.  there are other brokers that i've considered switching too, just never did.  I have a very good negotiated rate at TDA since i do a lot of trades.

2. i just wake up a lot. if i am up, i check. i don't go setting the alarm to wake me up. so yea, i guess i'm a market fanatic. also, i do not trade the futures overnight, though i've considered it.

One Strategy ....

One strategy that works very well for me, for both daytrading and swing trades, is this:

1. Determine whether the DOW / SP500 is in an UPTREND or DOWTREND. (Sometimes it's neither, just moving sideways, as we have seen for the past 7 weeks).

2. Trade in the direction of the DOW / SP500 trend. BUT... find a stock that is performing BETTER than the DOW / SP500 itself. That is, if DOW is in an uptrend, find a DOW 30 stock in a STRONGER uptrend. If DOW is in a downtrend, find a WEAKER DOW 30 stock, one whose downtrend is more severe than the DOW 30 downtrend.  That is, if DOW is in an uptrend, find a DOW 30 stock in a STRONGER uptrend. If DOW is in a downtrend, find a WEAKER DOW 30 stock, one whose downtrend is more severe than the DOW 30 downtrend.

For example, recently DOW was trading sideways, but I felt the reward for shorting was better than for long. I then searched stocks that WERE ALREADY IN A DOWNTREND, but not "too far" down. PG came up as a "weak stock" (which surprised me because it is usually a defensive stock, one that does well in bad economies).  I did the same with SKF (short financials)... financials are weaker.

I am planning on TZA next (though TZA is not in an uptrend, the Russel 2k has not started down yet, but is looking like it might. This is a DIFFERENT, more complex "early entry" strategy).

WARNING: Trading individual stocks (like PG, GE, AAPL, etc) has MORE OVERNIGHT RISK than a wide etf like qqqq spy skf etc. This is because single stocks can GAP UP OR DOWN much more severely. If you are on the right side, that is great of course, but if the gap is against you, it could be disastrous. FOR THIS REASON I PREFER TO ALWAYS HAVE FEWER SHARES (DOLLARS INVESTED) IN SINGLE STOCKS THAN IN A CORRESPONDING MARKET POSTION LIKE SPY QQQQ SDS ETC.  For example, having multiple individual stock positions (e.g. aapl, qcom, ge, pg, etc) is much better than one large position in PG.

Possible monitor cofiguration, chart display

The chart below shows one possible monitor arrangement that I like to use. Each row is a different symbol, with ES futures at the top row. Row 2 is SPX. Other rows show 2 other stocks of interest such as TZA, QQQQ, etc. Using multiple monitors and computers, one can look at multiple stocks. Generally I use 3 monitors like this, with a fourth monitor using a different configuration.

There are 4 charts in each row, each the same symbol but a different timeframe (daily, 60 min, 15min, 3 min). The the time and sales display (black window with red/green prices), followed by two other windows).

So the first row shows 4 charts of ES, in daily, 60 min, 15min, 3 min timeframes. Also, if I maximize a single chart (such as 15 minute ES in row 1), then multiple other studies are shown (stoch, rsi, macd, etc). Due to size restraints, the monitor only displays the first study (stoch) when the chart is small.

The chart below shows one example of a maximized chart, with additional details. The yellow trendlines are hand drawn by me, the other studies are obviously calculated by the computer).

* ChristopherStockGuy is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. For details, see the post from SATURDAY, AUGUST 15, 2009 titled "Disclaimer".