The Basics of Trading

This is a discussion on The Basics of Trading within the First Steps forums, part of the Reception category; Hi all Thank you to iSquared for giving me the idea to do this. Weíve already covered stop-loss setting and ...

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Old Feb 22, 2003, 11:30am   #92
 
FTSE Beater's Avatar
Joined Feb 2002
Setting Price Targets

FTSE Beater started this thread Hi all

Thank you to iSquared for giving me the idea to do this.

Weíve already covered stop-loss setting and risk / reward analysis. The other part is of course price targets.

Your price target (as with the stop-loss) is governed by the time scale your trading in and how long you expect to hold the shares.

Click the image to open in full size.

This ALLD has 3 levels of resistance

322 Ė January support
363 Ė October and December Support
420 Ė High of January and also resistance in early September and back further.

The Short term target is 322, which as I say is the January Support. Itís the short-term target for 2 reasons, 1) Itís the closest to the current price and 2) Itís enough resistance to hold it on a short-term basis (the resistance was only valid for a week), and for a short-term trade, we would expect it to get there pretty quickly.

The Medium term target of 363 would take longer to get to than the short-term target, but thatís what you would expect. For 363 to be hit, it will have to take out 322 and although you would expect price to stop there, it wouldnít hold it back long enough to be a problem.

The Long term target will have to get through both the short-term and medium-term resistance, but as were prepared to hold it in the portfolio for a while, that is not a problem.

Target setting comes down to how strong you think support and resistance is at the various stages. The text books say that the more often a level is tested and the longer the period it is tested over, the stronger it becomes. As Mr.Charts has pointed out in another thread, this isnít strictly the case for there are complex reasons why it doesnít always work, but as a guide I think itís reasonable to assume the longer a support / resistance level holds the stronger it is.

Choosing how long your going to hold shares for, is a very individual thing and take many years to figure out what suits you best. Having an idea of how long your planning to hold your shares though should decide your target.

That is pretty much it for target setting. The only other thing to realise is that changing the target is no different to changing a stop-loss. There must be good reasons for doing it and it can be adjusted as time goes on and the chart develops. Just remember that a stop-loss MUST NOT be changed to add risk, but to protect profits where suitable.

For this week, Iím going to throw it open for you to analyse any share / index etc you like. Ideally a chart with movement and reasonable volume (so FTSE 100 companies). The chart can have multiple resistance / support points, and an idea of how long your planning on holding the instrument for is a good idea. On the same chart you can write in (as I have done with the ALLD one) the short, meduim and long term targets.

I look forward to seeing which charts you choose. If you need a hand posting up a chart, then this thread should help. http://www.trade2win.co.uk/boards/sh...hlight=posting If not then you can always contact me.

Take care
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Old Feb 22, 2003, 4:27pm   #93
Joined Nov 2001
Hi All,

I have never been able to interpret volume successfully. To the point where I do not use it these days. I read in the Feb SFO (an interesting read, by the way) that a spike accompanied by high volume was a good indication that the market was telling me to sell (it was a buying spike). I have taken advantage of the charts on this thread to look at the spikes. They all reversed with good selling opportunities but the volume on all the ones that I examined were low- some very low.

I have seen the market rising with high, medium and low volume.
Falling with high, medium and low volume.
Peaking and bottoming with high, medium and low volume.

Divergence does not help me, either. The market seems to peak in volume halfway up the rise. A student of volume theory could get a signal on the next peak with lower volume, only to see one or two more peaks with even lower volume before the reverse finally comes.

Any comments welcome, please.

Split
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Old Feb 22, 2003, 4:53pm   #94
 
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Joined Dec 2002
Quote:
I have never been able to interpret volume successfully. To the point where I do not use it these days.
and:
Quote:
I have seen the market rising with high, medium and low volume.
Falling with high, medium and low volume.
Peaking and bottoming with high, medium and low volume.
I use volume a lot as a confirming signal for a break of support or resistance. Its especially useful for breaks out of a rangebound situation. If you think about the logic, then the following should apply:

If a break of S/R occurs on low volume, the likilihood that its a false breakout must be higher - simply because the energy behind the move as shown by the volume figure is poor. Even a large move will often fall back just as quickly under these conditions. Conversely, high volume suggest a stronger momentum which is more likely to carry matters beyond that level.

However, a breakout on low volume will sometimes succeed, so what is needed in order to enter the market is a further confirming signal. I tend to require at least one close above the s/r level before committing myself. Two if i think more caution is need.

HTH
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Old Feb 22, 2003, 7:31pm   #95
Joined Nov 2001
Quote:
Originally posted by Les Carlin

If you think about the logic,
HTH
Hi Les,

I agree that volume should be a good clue because, like the actual price, it is real time. Everything else is historical, unless you use number of trades, open positions, etc.

I'll use your argument tomorrow to go over my Sierra charts and I may see some light.

Thanks Split
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Old Feb 22, 2003, 9:57pm   #96
 
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Joined Nov 2000
Volume is a tricky subject! Maybe our resident expert Skim will respond, albeit wrt ES Futures only. I find that it can be deceptive to try and use it to trade. If you use it as a confirmation tool, you will likely do better. I think in a "true" situation, i.e. one that is not being manipulated by the MM's, there are clear cut signs.
Example. watching closely on the ES futures 1 min. you often see the volume slowly dry up from 1500/min down to one or two hundred/min ( doesn't matter if it's up or down ticks or mixture) This invariable leads to a decent move on the price. Getting the direction right is another matter. ES Futs. also respond to divergent volume peaks.- See my ES vol charts.
Hope this helps.
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The views expressed here are my personal views and for your information only. Any expression of likely movement of a share is merely guesswork and is to be treated as such.This information must NOT be used as a basis for making any investment decision.
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Old Feb 23, 2003, 9:53am   #97
Joined Nov 2001
Hi Les and Chartman,

Thanks a lot for your interest. Les, I have done some backtracking on ES futures and am as mystified as ever! It does, as Chartman says, confirm, but that, to my way of thinking, is hindsight. It should work but, in my case, maybe I should leave it alone. The trouble is that I am always looking for an improvement to my trading and will keep going back to double check things.

One minute trading? Mmm! Five minute stuff is hairy enough for me! I have noticed that the volume peaks and rapidly falls away
but, as you say, which way do we trade? Not much of a clue there for me to see. Never mind, I'm still in the game after many years so I must be doing something right.

Regards Split
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Old Feb 23, 2003, 2:02pm   #98
Joined Mar 2001
Volume?

I find volume very useful as a confirming item : mainly for tops and bottoms.. or for indications of trend size:

I run a scan:
Volume = MAX(VOL,50)
or
Volume +Volume.1 >1.95*(MAX(VOL,50).
(which says volume in this bar is the highest of the last 50 or the volume in this and the last bar combined is > 97.5% of the high of the past 50 bars)

and show the result as a yellow triangle in the chart.....it clearly confirms the top in RS 3 min chart at 852.5 and 19.25pm and the low at 845.3 20.30-20.45pm
Attached Thumbnails
volume.gif  
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