The Investor Sentiment - Equity and investments forum for Sri Lankans
Search
 
 

Display results as :
 


Rechercher Advanced Search

Latest topics
» ලිට්රෝ ගෑස් මිල ඉහළට
Yesterday at 11:00 pm by nihal123

» LIOC.N0000 (Lanka IOC PLC)
Yesterday at 10:19 pm by LSE

» යුනිටි ප්ලාසා හිමිකමෙන් 23% ක් රේණුකා යටතට
Yesterday at 7:39 pm by nihal123

» CB Governor offers key insights
Yesterday at 6:37 pm by malanp

» Sri Lanka Hambantota Port JV to be operational from November
Yesterday at 5:17 pm by Ethical Trader

» Plantation sector updates
Yesterday at 4:49 pm by mymoney

» SAMP.N0000 (SAMPATH BANK PLC)
Yesterday at 4:28 pm by The Invisible

» Plastic-degrading fungus found in Pakistan rubbish dump
Sun Sep 24, 2017 8:54 pm by කිත්සිරි ද සිල්වා

» CSE HOLIDAY LIST 2018
Fri Sep 22, 2017 5:20 pm by Rana

» Dividend Announcement
Fri Sep 22, 2017 5:19 pm by Rana

» SPEN.N0000
Fri Sep 22, 2017 3:01 pm by LSE

» Laughter the Best Medicine
Fri Sep 22, 2017 2:51 pm by Ethical Trader

» ට්‍රම්ප් "මොළය අවුල් වූ මැරයෙක්" - කිම් ජොන්ග් අන්
Fri Sep 22, 2017 2:37 pm by Ethical Trader

» No one must die of cancer
Thu Sep 21, 2017 11:14 pm by කිත්සිරි ද සිල්වා

» ට්‍රම්ප්ගේ දේශනය "සුනඛයෙකුගේ බිරීමක්"
Thu Sep 21, 2017 6:05 pm by Ethical Trader

» ලංකා බැංකුව, මහජන බැංකුව සහ ශ්‍රී ලංකා ඉන්ෂුවරන්ස් කොටස් වෙළෙඳපොළට
Thu Sep 21, 2017 6:01 pm by Ethical Trader

» ලංකා සිමෙන්ති කොටස් ගනුදෙනුවල අසාමාන්‍ය හැසිරීමක් – සභාපති කරුණු පහදයි
Wed Sep 20, 2017 8:06 pm by nihal123

» උතුරු කොරියාව විනාශ කරනවා - ජනාධිපති ඩොනල්ඩ් ට්‍රම්ප්
Wed Sep 20, 2017 12:33 pm by Ethical Trader

» In the Meantime, Within Our Shores !
Wed Sep 20, 2017 8:41 am by කිත්සිරි ද සිල්වා

» Nanodegrees
Tue Sep 19, 2017 11:40 pm by Backstage

» Picture of the day - for diss-cuss-ion and deb-ate.
Tue Sep 19, 2017 10:51 pm by Backstage

» පර්පෙචුවල් පලිසේනට බෝනස් කෝටි 10 ක්
Tue Sep 19, 2017 6:41 am by CK

» Be prepared for dry weather: Experts
Mon Sep 18, 2017 10:27 pm by nihal123

» නමක් පමණක් ඇති සමාගමකට ඩොලර් මිලියන 600 ක් රැස්කර ගත් චමත් පලිහපිටිය
Mon Sep 18, 2017 3:38 pm by nihal123

» කොටස් මිල ඉහල යාම ගැන ලංකෙම් ඩිවලොප්මන්ට්ස් වෙතින් කරුණු විමසයි
Mon Sep 18, 2017 3:35 pm by nihal123

» ධම්මික රුපියල් බිලියන 12.5කට සිංගර් ශ්‍රී ලංකා මිලට ගැනීමට තීන්දු කරයි
Sun Sep 17, 2017 2:05 pm by Danidu

» උතුරු කොරියාව ජපානයට ඉහලින් තවත් මිසයිලයක් විදියි
Fri Sep 15, 2017 5:46 pm by Ethical Trader

» උතුරු කොරියාවෙන් ඇමෙරිකාවට බිහිසුණු තර්ජනයක්
Thu Sep 14, 2017 5:59 pm by Ethical Trader

» කොටස් වෙළෙඳපොළට ප්‍රාග්ධන බදු නැහැ – නව බදු අයකිරීම් 2018 අප්‍රේල් 01 සිට ක්‍රියාත්මකයි
Thu Sep 14, 2017 11:42 am by Ethical Trader

» සන්නිවේදන සමාගමක් මූල්‍ය සමාගමක බලය අල්ලයි
Tue Sep 12, 2017 8:57 pm by nihal123

» උතුරු කොරියාව සම්බන්ධයෙන් රුසියාවේ පිළිවෙත කුමක්ද?
Tue Sep 12, 2017 5:50 pm by Ethical Trader

» ශ්‍රී ලංකාව උතුරු කොරියාවට එරෙහි සම්බාධක 'උල්ලංඝනය කරලා'
Mon Sep 11, 2017 6:55 pm by Yin-Yang

» වෙළෙඳ දැන්වීමක මස් බුදින ගනේෂ දෙවියන්, බුදු හිමියන් සහ යේසුස් වහන්සේ
Mon Sep 11, 2017 5:48 pm by Ethical Trader

» 'සයිබර් බුලින්' විඳ එයට එරෙහි වී සම්මාන ලබන ශ්‍රී ලාංකික තරුණිය
Mon Sep 11, 2017 11:57 am by Ethical Trader

» NDB.N0000 (NATIONAL DEVELOPMENT BANK PLC)
Sun Sep 10, 2017 8:02 am by spw19721

» APLA.N0000 (ACL PLASTICS PLC)
Sun Sep 10, 2017 7:56 am by spw19721

» සිල් රෙදි නඩුව: හිටපු ජනපති ලේකම්, TRCSL සභාපති සිරගෙට
Fri Sep 08, 2017 12:35 pm by Ethical Trader

» PAYE බදු නිදහස් සීමාව ඉහළට
Fri Sep 08, 2017 10:24 am by nihal123

» V 2025 - A Country enriched
Thu Sep 07, 2017 1:53 pm by Danidu

» අනුෂ පැල්පිට - ලලිත් වීරතුංගට වසර තුනක සිරදඬුවම්
Thu Sep 07, 2017 1:22 pm by nihal123

» පොහොසත් රටේ කොටස් වෙළෙඳපොළට 2025 දී වෙන දේ
Thu Sep 07, 2017 10:57 am by Ethical Trader

» ‘දැන් ඉතිං වළක් කපන් වැළලෙන්න තියෙන්නේ‘ - බුකියේ ගිය රස කතා
Thu Sep 07, 2017 10:49 am by nihal123

» ශ්‍රී ලංකාව යළිත් පරාදයි
Thu Sep 07, 2017 10:38 am by Ethical Trader

» ශ්‍රී ලංකා ක්‍රිකට් වලට මොකද වුනේ? - සනත් කතා කරයි
Thu Sep 07, 2017 10:31 am by Ethical Trader

» බැඳුම්කර කොමිසම ඉදිරියේ හෙළි වූ කරුණු මොනවාද?
Thu Sep 07, 2017 10:22 am by Ethical Trader

» සිංගප්පූරුවේ Ube, ටෝක්යෝ සිමෙන්ති හිමිකම අඩකින් අඩුකරයි
Wed Sep 06, 2017 1:31 pm by nihal123

» Donkey Sex
Wed Sep 06, 2017 10:54 am by Backstage

» එළුවන් නළුවන් වෙලා
Wed Sep 06, 2017 10:16 am by Backstage

» "තේරුණේ දැන් තමයි"
Tue Sep 05, 2017 1:58 pm by jiggysaurus

» Whatever happened to the monastic Sangha?
Tue Sep 05, 2017 1:56 pm by jiggysaurus

September 2017
SunMonTueWedThuFriSat
     12
3456789
10111213141516
17181920212223
24252627282930

Calendar Calendar

Disclaimer


Information posted in this forum are entirely of the respective members' personal views. The views posted on this open online forum of contributors do not constitute a recommendation buy or sell. The site nor the connected parties will be responsible for the posts posted on the forum and will take best possible action to remove any unlawful or inappropriate posts.
All rights to articles of value authored by members posted on the forum belong to the respective authors. Re-using without the consent of the authors is prohibited. Due credit with links to original source should be given when quoting content from the forum.
This is an educational portal and not one that gives recommendations. Please obtain investment advises from a Registered Investment Advisor through a stock broker

11 Rules for Anyone Who Uses Charts

View previous topic View next topic Go down

11 Rules for Anyone Who Uses Charts

Post by Ethical Trader on Sun May 04, 2014 6:02 pm

11 Rules for Anyone Who Uses Charts
By Michael Kahn

As I often say about my wine savvy, I know just enough to be dangerous. For many traders, the same holds true with regard to charting and technical analysis.

They know enough to use an RSI (relative strength index) to gauge momentum but really don’t know why they use a parameter of 14. And they use the same process day in and day out because they heard it once in a webinar or read it once in a book.

Trading teachers will tell us to find something that works and stick with it. I contend that unless you understand the “why” and not just the “what” you are setting yourself up for trouble down the road. After all, markets evolve and what worked yesterday may not work today.

This missive is not about deconstructing technical indicators. Rather, it is to get the reader to think about the spirit of the analysis and letting the charts speak to them. Any other method implies that traders are making the market conform to their own biases.

The market hates that and it will make you pay dearly for trying.

Let’s start with RSI and the 14-parameter. Why do so many traders use it? The answer is that is the default setting on the first applications of charting software that came out a few decades ago. There was reason behind it as Welles Wilder, the creator of RSI, was using half cycles in his favored markets as the basis. But once software coders and inexperienced product marketing managers got something in their heads it seemed to be set for life. Even today, many software programs do not let the user change the default parameter to something different.

Of course, indicator parameters should be in sync with the market and time frame in which they are being used. But it goes beyond that. Because markets evolve, indicators can behave differently than they did when they were newly created. Today, “everyone” sees what they think are overbought and oversold levels at the same time and act accordingly. How many times in recent memory have signals simply failed just because everyone – the herd – is taking the same action?

Rather than over-think an indicator or even a chart pattern, here are some rules that will make your life easier and more profitable. They are all rooted in keeping it simple and more importantly letting the market do all the thinking. All you have to do is turn off the news and absorb the message.

Rule 1 - If you cannot see trends and patterns almost instantly when you look at a chart then they are not there. The longer you stare, the more your brain will try to apply order where there is none.

If you have to justify exceptions, stray data points and conflicting evidence then it is safe to say the market is not showing you what you think it is.

Rule 2 – If you cannot figure out if something is bullish or bearish after three indicators then move on. The more studies you apply to any chart the more likely one of them will say “something.” That something is probably not correct.

When I look at a chart and cannot form an opinion after applying three or four different types of indicators – volume, momentum, trend, even Fibonacci – I must conclude that the market has not decided what it wants to do at that time. Who am I to tell it what it thinks?

Rule 3 – You can torture a chart to say anything you want. Don’t do it.

This is very similar to Rule 2 but it there is an important point to drive home. You can cherry pick indicators to justify whatever biases you bring to the table and that attempts to impose your will on the market. You cannot tell the market what to do – ever.

Rule 4 – Be sure you check out one time frame larger than the one in which you are operating (a weekly chart for a swing trader, a monthly chart for a position trader).

It is very easy to get caught up in your own world and miss the bigger picture getting ready to smack you.

It can mean the difference between buying the dip in a rising trend and selling a breakdown in a falling trend.

Rule 5 – Look at both bars (or candles) and close-only line charts to see if they agree. And look at both linear and semi-logarithmic scaled charts when price movements are large.

Short-term traders can ignore the latter since prices are not usually moving 30% in a day. But position traders must compare movements at different price levels.

As for bars and lines, sometimes important highs and lows are set by intraday or intra-week movements. And sometimes intraday or intra-week highs and lows are anomalies that can safely be ignored. Why not look at both?

Rule 6 – Patterns must be in proportion to the trends they are attempting to correct or reverse. I like the trend to be at least three times as long as the pattern.

A three-day correction is not sufficient to get a six-month trend back on track. And a three month pullback after a six month rally is probably a new trend, not a correction.

Rule 7 – Patterns should have symmetry. A triangle should look like a triangle and not a mile high and an inch wide (or vice versa). A head-and-shoulders should look like a central peak with two smaller but equal peaks around it.

Rule 8 – Price rules but it is better when volume, momentum and structure (patterns) agree. Sentiment is a luxury because it is often difficult to quantify.

No matter how strong the case built on indicators and the environment surrounding the market may be, there is no change in condition until price action reflects it. How many times has an overbought market become even more overbought?

Rule 9 – Always confirm one type of analysis with another type. For example, confirm RSI not with MACD but with on-balance volume or relative performance.

There are hundreds of indicators but only a handful of truly unique types. Be sure you do not try to prove your case with a variation on the same set of input data. Most momentum indicators are quite similar so be sure to look at at least the three types listed in Rule 8.

Rule 10 – Don’t get hung up if all your indicators do not agree. They never will all agree and you will end up missing every opportunity. Therefore, pretend you are a trial lawyer gathering a preponderance of evidence, not guilt beyond a shadow of a doubt.

Rule 11 – If a stop is hit you must honor it. All big losses start out as small ones. No exceptions. Feel free to re-analyze a trade that got stopped out to see if you would enter anew but never justify holding on to a loser.

Again, nothing here is rocket science but these rules force you to let the market talk. After all, that is our job as traders, reading the signs and acting accordingly.
http://www.tradingmarkets.com/

(Copied from a post by Sriranga)
avatar
Ethical Trader
Top contributor
Top contributor

Posts : 2661
Join date : 2014-02-28

Back to top Go down

Re: 11 Rules for Anyone Who Uses Charts

Post by SRIAS on Sun May 04, 2014 8:08 pm

Good one Ethical Trader.

Thanks.

SRIAS

Posts : 18
Join date : 2014-05-02

Back to top Go down

Re: 11 Rules for Anyone Who Uses Charts

Post by smallville on Sun Oct 19, 2014 8:28 am

Yes.. important.. Thanks Smile

_________________
I take risks as a Trader and I select stocks based on Tech and daily Cash in/out. Therefore, my methods may not suit u.. so DYO analysis before making any decisions.
avatar
smallville
Top contributor
Top contributor

Posts : 1722
Join date : 2014-02-23
Location : Trying to figure out..

Back to top Go down

View previous topic View next topic Back to top


 
Permissions in this forum:
You cannot reply to topics in this forum