M*****g
发帖数: 3145 | 1 【 以下文字转载自 Stockcafeteria 俱乐部 】
发信人: Meixing (继续睡。。。), 信区: Stockcafeteria
标 题: The Trend is Your Friend --zt(保命贴）
发信站: BBS 未名空间站 (Tue Aug 17 15:39:10 2010, 美东)
When charting stocks, Exchange-Traded Funds, futures, commodities,
currencies or ANYTHING, identifying trendlines is where it all begins.
Simply stated, the trend is the direction in which the market is moving.
The market’s trends are characterized by a series of zigzags that resemble
a series of waves with peaks and troughs. The direction of those peaks and
troughs is what signifies a trend.
There are three trends:
* Uptrends
* Downtrends
* Horizontal trends
An uptrend shows a series of higher peaks (highs) and higher troughs (lows).
A downtrend shows a series of lower peaks, and lower troughs.
A horizontal trend (aka, a neutral trend) shows horizontal, or equal, peaks
and troughs, and reflects a period of indecision. This is also known as the
consolidation phase.
Stocks or indices trade sideways as the bulls and bears slug it out, and
eventually the previous uptrend or downtrend continues, or moves in the
opposite direction.
Relationships Among Trends
When studying charts, you’ll find that there are many different trends all
existing at the same time. You’ll find that some trends tend to overlap
each other. And you’ll find trends within trends within trends.
For example, after identifying a long-term trend, you will find intermediate
-term trends within it. When you zoom in, you’ll find short-term trends
within the intermediate trends, and so on.
Every trend is a small part of the next larger trend.
Where many people make a huge mistake is when they fail to realize the
enormous importance of identifying the trend of the time period that they
are trading in as well as the next larger trends.
This gives you a much-clearer perspective. It's like driving across the
country and, not only looking at a map of the town you're in, but also
looking at the map of the state, and then the country.
The larger trends have a major impact on the smaller trends within them.
Therefore, whatever trend you are using for timing purposes (intermediate,
short-term, etc.), you must always determine and trade in the direction of
the next longer trend.
Another analogy is having to guess what the weather will be like in three
days from now (without any help from the media).
Knowing what's happened in the last few days is a big help. Knowing what
season you're in is definitely going to help.
(And knowing what part of the world you are in helps, too, but that is a
good analogy for discussing the difference between different sectors.)
Back to Trendlines...
You can profit from a security's decline (with bearish positions like short-
selling a stock or buying a put option), or from an advance (with bullish
positions like buying a stock or a call option).
You should buy a security (or, what I prefer to do is buy an in-the-money
call option on the security) when the market is oversold in an uptrend, and
sell short a security (or, what I definitely prefer is to buy an in-the-
money put option on the security) when the market is overbought in a
downtrend.
It’s just as easy to profit from stocks or indices that do nothing but
trade flat, using very simple options strategies, as it is to profit from an
increase or decrease in volatility.
Repeating myself is probably even more annoying for me than it is for you.
But I can’t stress to you enough how important this is, so I’ll repeat:
Whatever time frame you are looking at when viewing a chart, you must zoom
in and zoom out:
* Zoom out to identify the direction of the next larger trend, and the
next one after that.
* Zoom in to time the best execution on your trades.
I find that the best way to approach the trading process is to start with
the long-range charts (with a time frame of several years) and then work
your way toward the shorter-term charts (like one-year charts, and then move
to six-month and three-month charts).
When You're Ready to Start Charting...
It's also helpful to start with monthly and weekly charts for the longer-
term view. Then check out the daily chart, which will be the chart that you
base your trading decision on.
Then, for even-more-precise timing (i.e., finding the best time of the DAY
to enter your trade), check out the intraday chart. Checking the intraday
chart is especially useful when trading options where a 2% movement in the
stock could mean a 10% difference on the option.
So if you think you’ve found a good trade based on the chart, zoom in and
out.
The definitions of the different trends’ time frames tend to be ambiguous.
Let’s start with the three basic trends that we’ll be focusing on.
* Near-term trend (aka, short-term trend) = Days to Weeks
* Intermediate trend = Weeks to Months
* Long-term trend (aka, major trend) = Months to Years
Many will argue that “Dow Theory,” which is the cornerstone of the study
of technical analysis, suggests that the "major trend" is defined as more
than one year.
In the late 1800s, Charles Dow proposed a great deal of the theories of
technical analysis that exist today. (Respect to Chuck.)
But since people these days can’t seem to agree on the definition of each
of the time frames, we’ll go with what the average technician will say, and
we’ll keep in mind that they are ambiguous terms.
Profit From The Trend
Remember the law of physics: "A body in motion tends to stay in motion ...
until a force or obstacle stops or changes that motion."
The reason for charting is to identify trends early and act on them by
trading in the direction of that trend. The idea is not to try to
anticipate what the market will do next -- but, instead, to simply go with
what the market is currently doing.
The focus should not be on why the market is doing what it’s doing, but on
what is occurring. It should be on where prices are in relation to the
current trend.
The mistake that many traders make is that they anticipate or guess what the
market’s next direction will be. Charts show us the market’s current
condition. They reveal pictures of bullish or bearish psychology.
Charts show us a picture of human nature, which doesn’t change.
This is why, when it comes to charts, you’ll find that history repeats
itself. And that’s why the key to coming as close as we can to knowing the
future is in understanding where we are in relation to the past.
If you can correctly interpret exactly what the market is telling you and
act swiftly, you’ll only become more and more comfortable and confident
with experience.
The first step in reading charts is in understanding where the key levels of
support and resistance are found, and that's why trendlines are so
important. On Oct. 5, we were pretty certain the stock market would stop
selling off (reversing lower) and would reverse back up and move higher.
How did we know this?
Well, you can see the bear market bottomed out in March, 2009. We simply
extended the (green) line from that March low to the following low made in
July (green arrow).
The low in July did NOT tell us we had a CONFIRMED uptrend line until the
recent peak was penetrated (red arrow and red circles showing the high that
needed to be broken before it's a confirmed trendline).
Then came the recent sell-off. People were nervous. But on Oct. 5, 2009
the market told us it wasn't finished with the advance yet when it bounced
off the trendline (blue arrow).
Let's go over some current examples:
Below is the most recent chart of Apple Inc., and I chose this example to
show you how trendlines that had been acting as an upwards slanting support
level become an upwards slanting resistance level once violated.
I drew a very thin up trendline with a small black arrow pointing to
original support in early 2009, and once that very thin up trendline was
violated, it acted as resistance 5 or 6 times through the end of the year,
as indicated by the small thin red arrows.
Another, more obvious, thing happened when the thin up trendline was
violated; a new trend line was formed (the thicker more obvious one). The
thicker black arrows point to times when Apple found support, and if we
extend that line up, even after the up trend line was violated, we realize
it becomes a point of resistance.
If you look to the left, we see the same thing. Old up trendline became a
new support level about 9 or 10 months later! It's truly amazing to me how
trend lines can be so relevant so much later in the game -- sometimes over a
decade!
Here's a recent 5 year chart on Goldman Sachs. You can see the up trend
line, which was tested a couple of times early in 2009, turned out to be a
support level in early 2010. Once that trend line was violated at $160.00,
the stock seemed to have the rug pulled out from under it as it slid right
down to $130.00.
Here's a 5-year chart of Cisco Systems. From 2006 - 2007 we had a tentative
up trendline, and when it was violated (blue circle) the stock dropped like
a rock from $34.00 - $22.00, almost without stopping for a rest. From that
point we draw a down trend line by connecting the 2007 high to the next 3
major highs made in 2008 until the exact opposite scenario of the prior
scenario occurred: The down trendline was penetrated and that stock charged
higher by 55%.
And of course you can see in early 2010 how the up trendline was violated,
but there was so much momentum in the stock that it continued higher,
realizing where its limits were (the old up trendline which then became a
new resistance level).
Finally, I'll zoom into the same stock chart and look at some detail. But
instead of talking about it and pointing out all of the events, do an
exercise by finding all of them on your own...
Okay, just one thing I'll mention: I added an "S" at all support levels.
There is a lot more to learn in technical analysis. It's important to use
these indicators in conjunction with one another. (That is, don't base
trades solely off the trendlines.) |
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