SB on Stock Indices

AlexAndrews

Member
91 2
I would echo the points Split makes in his post. I spent a fortnight a couple of years ago spreadbetting the DOW, and, because of the buy/sell spread, I wouldn't take a position unless I had a target move of at least 50 points. I was generally only doing £2/point, but I still managed to trun a pretty good profit. I guess my advice would be not to try and trade every move, just the meaningful ones.

Alex
 

CarpeUK

Active member
175 0
AlexAndrews said:
I would echo the points Split makes in his post. I spent a fortnight a couple of years ago spreadbetting the DOW, and, because of the buy/sell spread, I wouldn't take a position unless I had a target move of at least 50 points. I was generally only doing £2/point, but I still managed to trun a pretty good profit. I guess my advice would be not to try and trade every move, just the meaningful ones.

Alex

Thanks Alex but that is the problem i dont know any strategy's to track any good moves so if you know any good strategy's then please let me now.
 

AlexAndrews

Member
91 2
Trading Strategy

CarpeUK said:
Thanks Alex but that is the problem i dont know any strategy's to track any good moves so if you know any good strategy's then please let me now.

The strategy I employed was one based heavily on that advocated by SignalWatch (which used to send out free T.A. on the main US indexes each day, but I don't think does any more) and is similar to one outlined by an earlier poster. Specifically, I would trade break-outs from well-established consolidations, primarily in the DOW. Although very simple, it actually requires quite a lot of discipline, and I would also recommend studying the movement and behaviour of such break-outs for some time prior to trading them in order to reduce the chance of being caught in a fake move - there are definitely a few little tricks to be aware of. Although I haven't traded for some time, I would still put my confidence in this system. Generally speaking, when it comes to short-term trading based on T.A. I am a strong advocate of KISS.

Hope that is of some help.

Alex
 

AlexAndrews

Member
91 2
FWIW, the DOW currently appears to be completing a descending triangle formation (look at the 5-minute chart). If it breaks down through the base (at ~9860), it should continue down to the 9810 level. This is not advice to go short, but should be an interesting exercise into the validity of this formation.

Alex
 

AlexAndrews

Member
91 2
And there we go, it's hitting 9809 as I write. Personally, if I had been trading the move, I would have closed the short when it first hit 9820.

Now 9805.

Alex
 

CarpeUK

Active member
175 0
AlexAndrews said:
And there we go, it's hitting 9809 as I write. Personally, if I had been trading the move, I would have closed the short when it first hit 9820.

Now 9805.

Alex

How did you know it was going to go down and to be more specific ho did you know to what price? was you looking back at hisyotrical data then checking it agains what is happening now or something?
 

AlexAndrews

Member
91 2
Good questions. First off, I didn't know it was going to go down. This is a very important point. However, a descending triangle - especially following a fall - is usually followed by a further fall (basically continuation of the larger market direction). The correlation is even higher when it breaks down through the base of the triangle. I do not know the actual statistics to back this up, but triangular consolidations are very strong indicators. As to the target price, that is simply calculated by measuring the height of the triangle (in this case, about 50 points), and subtracting from the base level of the triangle (in this case, ~9860).

There's no great shakes to this system, but, once you can recognize the patterns, it does require the discipline (a) to wait for a stong consolidation pattern to form, and (b) to wait for the break-out from the pattern rather than try and anticipate it (very tempting to try and make a few more points, but you can get caught out when the formation does not complete as you anticipated). In addition, as I mentioned earlier, you need to get a bit of prior experience as to what happens shortly after the break-out to trade it properly and confidently. This is not something that can be easily taught, rather it is something that needs to be learnt by observation.

Hope that is of some help.

Alex
 

SOCRATES

Veteren member
4,966 134
AlexAndrews said:
FWIW, the DOW currently appears to be completing a descending triangle formation (look at the 5-minute chart). If it breaks down through the base (at ~9860), it should continue down to the 9810 level. This is not advice to go short, but should be an interesting exercise into the validity of this formation.

Alex
I told our American cousins this would happen as early as the 4th, as the most probable likely outcome of background market action.

With this outcome you describe above, notice that the development downwards from the triangle you mention is a ragged decline, but accompanied by above average volume.
This means it may go further or be stopped.

It is weakness, but at this stage in the proceedings it is not as weak as the action that preceded it. The volume is not enough to stop the move dead in its tracks but enough to
slow down the progress it would have otherwise made.
 

AlexAndrews

Member
91 2
SOCRATES said:
With this outcome you describe above, notice that the development downwards from the triangle you mention is a ragged decline, but accompanied by above average volume.
This means it may go further or be stopped.
The weakness as it hit 9820 seemed to be petering out when I was watching, which is why I would have closed a short position there rather than hoping for my target of 9810 to be reached. I'm still not particularly good at correlating the significance of volume with price action (notable exceptions being "blow-off tops" and captiulations) - I just tend to trade the price action.

Alex
 

AlexAndrews

Member
91 2
Another short-term consolidation seems to be forming in the DOW. Looking on the 5-minute chart, the DOW has bounced fairly consistently between ~9810 and ~9855 for quite some time. Might be worth watching the action once it breaks one of these levels (I'm not set up yet to trade the move, unfortunately).

Alex
 

tradertim

Member
68 5
Carpe,

Trading the stock indices successfully is very difficult. You`re up against professional traders and market makers whose aim is to take your money! If you follow another trader`s strategy, even though it may work for them, it may not necessarily work for you (e.g. you may panic if a trade starts losing money, or you may take your profits too early). There are no easy ways to achieve consistent success, but there are lots of easy ways to lose money.

I suggest you don`t consider trading atall until you`ve at least made a detailed study of technical analysis, from which most trading strategies derive. A good start is "Technical Analysis of the Financial Markets" by John Murphy or "Technical Analysis of Stock Trends" by Edwards & Magee.
 

AlexAndrews

Member
91 2
I would seond tradertim's comments most strongly.

Going back to the DOW consolidation, when the lower level at 9810 was breached, I wouldn't have gone short (even if I could have done) as it just didn't look/feel right. I can't explain why, which is why I have said it is important to spend some time experiencing these breaks before using them to take positions. As the DOW then seemed to continue to drop, I thought my instinct had been wrong, but I would rather not take a trade which didn't seem right - opportunity loss I can deal with :cool: Anyway, the subsequent action has nullified the consolidation formation, so back to waiting for another to form. (I wonder if 9800 will continue to hold?)

Alex
 

zarif

Active member
133 2
FWIW - I think in order to trade -You need to "learn". Read up material and also go to a Seminar about what you want to trade and the instruments that can be used -Working trades on tips is just a way to get on the "rubbish tip" best advice is dont rely on tips -go and get knowledge.Same analogy as Buying a car -You need to know the make,engine size(can you handle it etc) what fuel it takes etc and do you have the "licence to get on the road" otherwise you will become a cropper.
rgds
zarif
 

AlexAndrews

Member
91 2
To be fair Zarif, carpe's initial post asked for a strategy for trading indices, not for tips. I still think the "consolidation-breaks" strategy is highly suitable because it is (a) simplicity in the extreme, and (b) very reliable (with caveats - see previous posts). The only investment it requires is some experience observing the behaviour when breaks occur in order to be able to identify the tradeable contenders, and little else. Anyway, I think I've said enough on the matter. Anyone interested in learning more about it can always PM me.

Alex
 
 
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