Chart study (beginner) check list

One thing you seem to have figured out is that you can over use the lower studies. It is best to settle on 2 lower studies that makes the most sense to you and go with them. I use 3 moving averages SMA's for 10, 30, and 200. I get a feel for short, intermediate and long term trend direction with them. Then I use MACD and Stochastics but, RSI is just as good with the MACD. I do think the MACD is an important study in terms of momentum and I always pay attention to it. Using too many studies will just confuse you with contrary indicators. Some of the studies might say negative while other studies show positive. That's why it is best to pick maybe 2 that you understand and don't overthink it.

 

Jrich, indicators are derived from, they are all derivatives of two or more of 3 data sources, price, volume, and time. Price, volume, and time are the "dog". Indicators are the "tail". Don't expect the tail to wag the dog. But indicators can help you to identify your edge. If you can't explain your edge, then you don't have one.

It's not enough to have a large tool box full of tools if you don't have something in mind for them to help you. At the same time, learning about the tools opens your mind to new possibilities and may help you find your edge.

 

Jrich, I assume you understand how a moving-average is computed and plotted. But have you ever considered that the way almost everyone plots them is wrong? Take the 20-day MA; each point represents the average of the previous 20 data points. But when it is plotted the newest point is plotted at the current date/time. For mathematical correctness, the newest 20-day MA point should be plotted 1/2 of time distance back in time, or 10 days back. A decent charting platform will allow you to offset an MA, try it and you will see that when you do offset an MA half the length it will center the MA in the price stream. So, the default plotting method, that almost everyone uses, plots the MA offset into the future 1/2 the length of the MA. That's not to say it can't be useful to you.

So, a technique introduced in the 60's by cycle-analyst and aero-space engineer, JM Hurst, was to use 2 MA's one twice as long as the other. Say, the 20 and 40-day MAs (what you choose to use depends on the time frame and your needs). Offset them both to be mathematically correct, that is back in time 1/2 the length of the MA. Where they cross is exactly the price and time of half the move of the shorter MA. If you try this you will find that you have to extrapolate the longer MA in order to predict the future time and price of the shorter MA.

Years ago I tried Hurst's cycle techniques but did not find my edge, mainly because I did not understand market structure. For example the technique described above is useful in a trading range but useless once the price begins to trend since both MAs begin to run parallel to each other. It worked well for Hurst in the 60's because the market in general was in a secular bear trading range for years and years. But it was helpful to study his work and have it in the toolbox.

 

You will win some and lose some. Your edge is what makes you money over the long term. When you play black jack, you have an edge if you can count aces and face cards. You will lose some hands and win some, but in the long term you could have 0.1% advantage. With an edge in the stock market, your advantage is much better than playing black jack.

I use the TDA-Trader app also, when mobile, but not for nightly and weekly chart studies. TDA's Think or Swim platform can offset MAs. The chart below is a tradingview.com free chart. It will do it too as you can see.

Regards MA offsets, below, the brown line is the default 20-day MA. The cyan line is the 20-day MA also, but offset back in time 1/2 the length of the MA, or 10 days. Notice how the cyan line is centered in the price data; mathematically correct and more useful for cycle analyses, but the brown line is the one all the eyeballs are watching.

 

I don't use TDA, so I'm guessing here: There's a way to change the color of the MAs. Go to those settings, and look around for the "offset" setting. I like what Onepoint272 says about "It's not enough to have a large tool box full of tools if you don't have something in mind for them to help you".

 

Thanks ADA. One indicator I find useful sometimes is a 3-day rate-of-change (ROC) of an MA. If you know differential calculus you can especially appreciate this and recognize that it is a first derivative of the moving-price-average function, but calculus it is not necessary to understand what it does. I use it mostly on a 5-day MA. So the 3-day rate-of-change of the 5-day MA tells me about the slope (the rate of change) of the MA; whether it is steepening or flattening. Now I could just zoom-in on the chart, squint, and see that the MA is starting to flatten out and getting close to turning over, but the 3-day ROC of the MA is a quick visual of what is happening.

Below is an example. Note how the 3-day ROC appears to lead the price (at the purple vertical lines). Now, I would not have bought GPRO prior to the ER for other reasons, because like Gil I rely mainly on price and volume, e.g., it had relatively high volume going into the ER but not much price appreciation indicating that it was being unloaded by the smart to the dumb. But the 3-day ROC of the 5-day MA was a red flag to take a very close look and think twice.

It works sometimes, but remember price is the dog, the indicator is the tail.

 

Here's some basic MA stuff to get you started on using them. The 50 sma is a good one to have. In my charts I have the 50 sma (green) and the 20 sma (purple). Look at AMD, which has stayed above the 50 sma for months, and look what it did this week during earnings report


So a stock that stays consistently above the 50 sma is likely one that has support.

But here I warn you that is not always the case; look at SNA (who had an executive on Cramer's show this week)

As Onepoint272 has mentioned, when you see a large amount of volume with little price appreciation then beware that is large interests selling out at high prices.

You can watch what happens with DIS this week, earnings on Tuesday. This one has stayed above even the 20 sma

 

That Snap-On executive, what a tool. I wonder if the insiders were selling.

On DIS, looks like the upward thrusts (rallies) have been getting shorter and shorter in this uptrend...."shortening of thrust". The big interests getting more and more anxious to sell into the rallies.

 

I take exception to that market myth, ".....only predict how people will react". It depends on what people you are talking about. The dumb people, that is, the ones that don't have connections, don't have intimate knowledge, which is just about everyone in the public and mutual funds, how they react doesn't matter to me, EXCEPT in a mark-up or mark-down phase. But in mark-up and mark-down phases I'm just trying to stay with the trend. The decision points are usually in the trading ranges and what the public thinks or does means nothing. The trading range is where the big boys operate; where they are either accumulating stock away from the public or distributing stock to the public. My job is to figure out which.