Munchie "the noob" dude's Virgin Trading journal

Originally Posted by eegozi

Munchie,

As for your time frames ,...read Dr. Alexander Elder's books especially "Trading for a Living" and "Come Into my Trading Room". There he recommends using 3 time frames that differ by a factor of 5. 1 hour and 30 min time frames (2 to 1 ratio) do not give as much info as say 1 hour and 10-15 min time frames together because of them being closer to the factor of 5 apart. I would agree with this. I use weekly, daily, 60 min, and combine info from 5 and 15 min charts. These are close enough to 5:1 ratio of time.

As far as stochastics,...I think that is the most useless indicator. You get LOTS of whipsaws and confusion looking at that indicator in my opinion. It is an oscillator,...so using MACD Histogram (another oscillator) should give you the same information and its already on your MACD chart. Besides, the Histogram is more smoothed and easier to interpret in my opinion than the herky jerky motion of Stoch. Also, again with the time frames you CAN use MACD as your SOLE indicator if you think about it in the concept of the 3 time frames.

For instance, I believe that MACD is a good trend following indicator. But think about what happens to the same MACD on shorter time frames.....You may have guessed it. The MACD on the shorter time frame is nearly equivalent to the Histogram or Stoch (oscillators) on the longer time frame. (So a trend indicator on a shorter time frame roughly coincides with an oscillator on a longer time frame) So Daily MACD will coiincide VERY CLOSELY to the Histogram or even Stoch on the longer Weekly time frame. So in one indicator you have a trend following and oscillator all in one...Thats 2 of the 4 indicators you need.

I recommend not getting fancy with volume indicators. There are only 2 that I have found useful. I use either actual trade Volume for that time frame or Force Index which has an element of price momentum as well as volume in its calculation. Forget about Money Flow, Accumulation/Distribution, OBV, PVO and the others as they are also very herky jerky volume indicators and less useful in my opinion.

I recommend picking whatever sentiment indicator you like,..I follow many just to see if they all agree and they all DO pretty much agree wihin a day or 2 of each other. These will tell you whether you should lean to the long or short side. So just pick one.

I also use EMAs and trend lines (supprt/resist) to help identify a trend more obviously than the MACD. EMAs are also useful for looking at support and resistance levels. They work well when combined with MACD.

For Instance,...lets say you are in a trend and have a profitable position and want to add to it. You see prices dropping toward a 20 or 50 day EMA and dont know where is the best price to buy...which do you choose?...20 or 50 or 150 day EMA as support? Well answer is look at past bounces and look at trend line support (to get an idea of possble support/bounce) and MACD on the NEXT LOWEST TIME FRAME. Remember,...its and oscillator on the longer time frame so it will tell you when the downward pressure is losing steam and as it CURLS BACK UP and giving a buy signal on the LOWER time frame it is usually a good time to buy again and add to winning position.

Good Luck