A 5 Min. Chart Tool to ID a Strong Trending Market or Stock
Well its been pretty quite in this thread & since it’s lunch in NY, thought I’d add this.
Grey1’s definition of a Trending Market (INDU), and is called Strategy # 1:
INDU > + / - 50 from Market Open (9:30 ET-NY). A 5 Min Chart utilizing the following characteristics can provide additional confirmation:
My purpose here is to show another tool by using a 5 Min. Chart to ID a very strong Trending Market or Trending individual Stock.
The 5 Min Chart set up is to utilize a 5, 10 & 20 EMA’s (exponential moving average). The strength can be seen very clearly when the following conditions occur:
Trending 5 Min Chart patterns:
1) A strong trending pattern occurs when the 5, 10 & 20 EMA’s are running almost parallel (Up or Down Trend), and the price (candle or bar) does not close beyond the 20 EMA.
2) As the lower 5 EMA is broken, and then the 10 EMA, etc., the trend may be in question of continuing, but usually is due to a minor pull back. This basic pattern is strong, and will more than likely continue to trend.
3) These chart patterns will ascent at a 45-degree angle, when your chart is square in the “X and Y” axis on your monitor (opposite for a downtrend).
4) There are weak Trends as well, with the price of a stock continuing to pull back through the 10EMA, but only to continue back towards its initial trend. This is still a trend and may continue to have frequent P/B’s. It’s better to find another stock, then to make a risky trade in the opposite direction. The appropriate trade is to follow the trend.
The MACCI oscillators are the only indicator that a change in trend may occur, but caution here is due, since in a strong trend, the market/stock may only pull back slightly and then continue its trend. Therefore, never ever take a Short from an upward Trend in a Market and/or Stock. This will save you from many risky entries, since the odds are against bottom fishing or shorting the top of a trend pattern.
Moving averages are a lagging indicator of the price, and in this example is intended to only confirm a Trend, Up/Down. Also, these EMA’s do not indicate any change in direction of market or stock. If I didn't state this Grey1 would probably shoot me - LOL (just joking, but he has stated this previously - MA's cannot indicate a change in direction).
There are five attached 5 Min charts in MS Word (each chart is annotated):
1) INDU ($DJI) from Oct 23rd, showing a Strong Trend Upwards from open till 14:00-ish. (ET-NY).
2) SNDK from Oct 27th, which shows Strong Downtrend.
3) NVDA from 11/1/06, also showing a Strong Downtrend.
4) AAPL from 11/1/06, also showing a Strong Downtrend.
5) CRDN from 11/1/06, showing a Gap Up trend, but not indicated by the 3 EMA’s.
As Grey1 has stated many times, you always Long a stock strong near it’s high (and Short the weakest stock near it’s daily low). You’ll notice from these charts, that trying to short a “strong trend” in a stock, you’d have to short near the HOD – which is wrong.
Hope this helps,
Nas
