The Best Traders in The World Miss Trades

One of the numerous benefits that are afforded to traders via Twitter, StockTwits, and blogs are different trading styles. Some traders use fundamentals and are more concerned with free cash flow than head and shoulder price patterns. Others may be trend followers who screen for breakouts and new highs with little concern for anything else. While others may seek patterns, cycles, sentiment, or major events that could move a market or security.

Each trader has their own way of viewing the market and by the use of social media you become exposed to tens if not hundreds of different trading styles. This can be a great way to learn but it also can toss you like a buoy in a storm.

You don't need to be this guy to be a successful trader

You don’t need to be this guy to be a successful trader

If you follow me on Twitter/StockTwits or read my blog (which I assume you do since you’re reading it now!) then you know I don’t post trade recommendations. Simply put, I do not write or tweet to make you money. Sorry. I write to express my views and provide (hopefully) unique chart setups that I find interesting or important. However, there are others on social media that post every entry and exit from a position. Some may follow that trader into a trade and others may sit ready to pounce when the trade goes wrong. I suppose that’s what makes a market.

No one trading style can catch every major move in the market. If you stick to fundamentals then you likely missed the momentum names in 2013 like Netflix and Tesla. If you look for mean reversion you also were likely disappointed in 2013 with few major dips to pick up. And if you weren’t concerned with extreme value in 2009 then Citi and Ford probably weren’t in your portfolio.

And that’s okay!

If you set the expectation level to ‘perfect’ then you might as well leave this business all together. The best traders in the world miss trades, and so will you. You’re suppose to. The idea of curve-fitting your strategy to pick up every winner, no matter if it’s an earnings pop, a momentum divergence, or a 3-week breakout is a fools game.

Developing a system or a process that works for you should take time and effort. Learning the psychology behind trading can be a critical and is often an overlooked step. Twitter, StockTwits, and trader blogs can be a great resource to learn and challenge your way of thinking. But understanding that you can not be the wearer of all hats and be successful in the long-term is critical.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Are Internet Stocks Ready To Bounce?

With the recent period of weakness I’ve begun looking for some setups of markets testing support and showing signs of potential mean-reversion, and I think the First Trust Internet ETF ($FDN) looks interesting here. This is the topic of my post for TraderPlanet this week.

Here’s a piece:

I think the Internet index is showing a great example of a potential mean-reversion. On May 18, 2012 I wrote a blog post looking at the Average Directional Index (ADX), specifically the Minus Directional Indicator (-DI) that makes up half of the overall ADX indicator for the S&P 500. ADX is often used to measure trend strength and help forecast potential trend changes. I prefer to use it for signals of when a short-term trend may be overdone by monitoring the level of the -DI (the red line on the bottom panel of the chart below). Back in May ’12 the S&P was off by about 7% from its 2012 high but the -DI had broken above 40 which had previously marked an intermediate lows for the equity index. Price in fact bottomed and we saw an uptrend for the next four months.

Read the rest: Are Internet Stocks Ready To Bounce? (TraderPlanet)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 3/7/2014

I hope everyone had a good week last week, I apologize for my lack of activity on the blog or on Twitter/StockTwits. I was in NYC for the Market Technician Association annual symposium. This was the first year I’ve attended the event and it was well worth the trip. We heard some excellent speakers from Ned Davis and Greg Morris to John Murphy and Ralph Acampora. JC Parets wrote a great post yesterday with some highlights from the event, definitely worth a read. It was awesome meeting many of you that I’ve connected with through Twitter and my blog as well as lots new traders from all over the world that came to the conference.

While I was away I did not get to spend nearly as much time watching the markets as I would have liked. Reviewing the price movement, we had some increased selling on Friday as the S&P 500 ($SPX) broke back through the previous March high. Equity bulls would have preferred to see that level hold as support. While it ‘felt’ like a panic selling as we cut through would-be support, we only saw roughly 70% of volume come from selling and 60% of issues trade down. Typically we see these numbers hit 80% or 90% during panic selling.

Equity Trend

The up trend is still intact for the S&P 500 ($SPX). If the sell-off that began on Friday continues I’ll be watching the previous low set in March to hold as potential support since the March high has already failed. We closed out trading last week with price just a few cents under the 20-day Moving Average, which I believe is positive for bulls as some would argue that the MA was not ‘fully’ violated just yet.

equity trendEquity Breadth

A few weeks ago I showed a chart of the number of New Highs minus New Lows totaled for the week. I mentioned that while the Advance-Decline Line was still showing strength, this indicator, that looks at the number of New Highs, was making lower lows. With the new all-time high in price last week for the S&P 500, we yet again saw another new low in the net number of New Highs minus New Lows (not shown).

As the chart below shows, the Advance-Decline Line held up well during heavy selling on Friday. This measure of market breadth is still above its short-term trend line and well above its long-term trend. The Percentage of Stocks Above Their 200-day Moving Average confirmed the higher high last week and stayed above its level of support on Friday. From a breadth standpoint, things still appear positive with the Advance-Decline Line still above its March high.

equity breadthEquity Momentum

Once again we saw another lower high in the developing divergence in the Relative Strength Index (RSI). In my opinion, momentum is currently the biggest concern for the uptrend in the equity market. While we still have fairly strong breadth as mentioned above, momentum has continued to weaken. On any further selling I’ll be watching the 49 level as support for the RSI indicator as marked by the dotted blue line. The MACD momentum indicator is also still showing a negative divergence, although it was able to make it above its March high which is slightly positive for stocks.

equity momentumBonds

It’s been a few weeks since I’ve discussed the bond chart, specifically the iShares 20+ Year Treasury ETF ($TLT). Price continues to trade in a range between $109 and $105. We did see a false breakout two weeks ago, but $TLT quickly fell back into its range. Looking at momentum and volume we are getting two different messages. With the Relative Strength Index (RSI), a negative divergence has continued to develop as it makes lower highs.

However, the On Balance Volume indicator, which adds up the number of shares traded on up days and subtracts volume on down days to measure buying and selling pressure, appears to be showing a bias towards buyers as more shares appear to be traded on positive days. The 50-day Moving Average continues to act as support during short-term sell-offs and since its current rising, is a positive area of support for those bullish on bonds.

TLT60-Minute S&P 500

The 60-minute chart for the S&P 500 ($SPX) has been giving us a lot of clues during the choppiness of trading these past few weeks. I’ve been watching the channel on this short-term chart with resistance at the March highs around 1880 and support at the March lows near 1840.We broke above resistance momentarily and were unable to turn resistance into support last Friday.

As the equity market challenged and broke through the previous high we saw a small negative divergence of lower highs created on the Relative Strength Index. This signaled that buyers may not have been as strong as many would have hoped. While the MACD was able to break its negative trend, Friday’s selling pushed it back under as sellers took over. One positive note is the trend line off the February and March lows. Selling on Friday was halted when this trend line as shown on the chart was hit and I’ll be watching this week if this trend line can hold up and buyers take back control of the S&P. If the trend line breaks then we’ll likely see a test of the March low which will act as a line in the sand before the start of a short-term down trend.

60 min spxLast Week’s Sector Performance

The energy sector ($XLE) was the strongest relative performer last week. I discussed the chart for energy in March 24th’s Weekly Technical Outlook. Utilities ($XLU), consumer staples ($XLP), and industrials ($XLI) were also positive last week. Consumer cyclicals ($XLY) and the financial sector ($XLF) were the worst performers.

Weekly sectorYear-to-Date Sector Performance

Not much as changed YTD as it pertains to sector performance. Utilities ($XLU) and health care ($XLV) continue to lead for 2014. With consumer cyclicals ($XLY) the worst performing sector for the year.

YTD Sector perfMajor Events This Week

This is a pretty light week for economic data with the FOMC minutes likely to garner the most attention. Commentators will likely be interested in reading further detail about the Fed dismissing unemployment as a critical trigger for interest rate policy.

Monday: Consumer Credit
Tuesday: JOLTS Report
Wednesday: FOMC Minutes
Thursday: Jobless Claims
Friday: Producer Price Index

 

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.