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Underexposed - Canadian Stock Journal

  #381 (permalink)
Calgary Alberta/Canada
 
 
Posts: 934 since Feb 2014


matevisky View Post
BBWidth indicator for ninja:
Bollinger BandWidth indicator. - NinjaTrader Support Forum

Chart 1: More down, bigger the explosion. Thus, if we are right with the explosion direction, than we can hold the trade as long as we didnt get a peak. Meaning no need to move the SL, just w8 the outcome...

Chart 2: sudden rise = breakout. It could be fake, this will never tell you it is a fake or not, or the first direction is good or not. Just that it is doing something. Thus we could get better entry if the breakout starting with a fake breakout - pullback...

Chart 3: consolidation will come. Market will not move, tired. Also it could be a good hint: take care after a big trend always a correction is coming. If you dont want to sit through the correction you trend lover bastard, it is a time to scale out

Chart 4: Hey I am doing nothing here just a usual stuff. Most probably slowly trending up or trending down, after a big move. I will not give you great pullback to enter, just small ones. If you looking for an entry here, most probably I will kick you out during the next move... go fish to somewhere else!

(guessing, after some chart reading...)

You are jumping ahead of yourself....slow down puppy ..... I know you are eager but you cannot make ANY guesses until you see the main chart that EACH belongs with.

What I am doing is taking the readers of this thread, step by step through the thought processes I go through when evaluating an indicator... I have not found every indicator to be useful...it took me 10 years to get to where I am today...you cannot make any judgements by what I have shown so far. I have only shown interesting parts of the indicator's chart that I would want to investigate...nothing more...

There is a rhythm to this indicator's chart...is it random or is there useful areas that can improve your trading. In a soon to follow post you will see some good stuff and as we progress, I will build on those observations...

Watch and learn and if you are confused ask a question but don't make any predictions on charts yet...you are only guessing and Technical analysis is supposed to remove MOST of the guess work... otherwise it would be useless.

I looked at that link to Ninja trader that you posted. The BBwidth indicator is available but this discussion was basically on installation. It referred to the B% indicator which is another variation John Bollinger created. I have looked at this in the past but did not see anything in it that I could use.

Patience my friend...

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  #382 (permalink)
Calgary Alberta/Canada
 
 
Posts: 934 since Feb 2014


bobwest View Post
Really interesting work on the Bollinger width. I've used it before, but it's been a while, and I'll have to come back to this post when I can read it in more detail. This is a very interesting post. Thanks for it.

Bob.

Welcome aboard Bob....as the carnival barker says "You ain't seen nothing yet!"

I am just leading you through the thought processes I go through when evaluating an indicator.

I consider Bollinger Bands and BBwidth to be a key to buy/hold/sell triggers. MACD and Slow Sto are other components of the trigger and they will be added as we go along...of the three indicators the BBwidth is the most important....it is the foundation of this chart... the others are support players.

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  #383 (permalink)
Calgary Alberta/Canada
 
 
Posts: 934 since Feb 2014

Investagating interesting patterns in BBWidth


Ok...We have looked at the BBwidth charts themselves.... now lets mate them up with their respective Main charts to see what conclusions we can draw based on those patterns


Chart #1





In this BBWidth chart we were focusing on the fact that the BBwidth line seemed to return to a consistent low value.

When you mate it up to the main chart....see at the edges of those dotted boxes, the major movements of a stock price seem to start when the stock price falls to those levels.

We need some help though in predicting exactly when a stock will undergo a major movement and that will come when we add other indicators....but when we are looking at a main chart and we seemed to have missed an entry, wait til the BBwidth falls to this baseline then take advantage of the next major movement (bull or bear)

Actually, I have found that I can guess pretty closely when the next major movement will occur by simply extrapolating how long it will take for the BBwidth will return to baseline. In this case looking at the end of the chart I would say it will be at least 2-3 weeks before the BBwidth returns to baseline

This might not seem earthshaking but if you are a swing player, you want to be in on the play early...not late.

Chart #2





Ah...when you think that a $200,000/share stock is a dead stock....think again

this stock is active...

So... the beginning of these larger peaks represent a start of a price movement of significance... the higher it rises the bigger the movement (of course at the beginning you cannot judge how high it will rise)

Number 3 is interesting....see that small rise a plateau then large rise??? I call that a head fake... the price seems to be going one way then changes direction in a day or so.

These are not easy to judge on the basis of just a Main chart and BBwidth.... but don't worry, later on we will see how we can figure these problems out....

Number 4 shows us two head fakes before the real direction is decided....it would be nice to resolve this and not be sucked in by a head fake.....trust me...we will be able to figure it out.


Chart #3





Yikes!...those BBwidth rises ARE NOT indicators of a Bullish run (shock and surprise)... they are the start of a movement (shown by the green arrows.

The peaks of the rises though indicates the end of a run.... is it an absolute end....not always they could be a just a rest.

You might say "what is the point of judging a rest??" Well, if you are a swing player, you have a reason to sell on a bull run or cover a short....no guessing involved....no take 10% and run....I believe this could be quite useful in intra-day trading though I don't do this kind of trading and some times shorter time intervals can be a problem but I think it is worth testing.

Chart #4





this is our European stock....unilever

Very tight movement in price (candles are small) this is a European company but listed on the NYSE as an ADS (American Depositary Share) This is a description of this type of share

American Depositary Share (ADS) Definition | Investopedia

this is the real chart for Unilever which is on the London Exchange





As you can see they are quite different... it shows you that ADR and ADS stocks are not really what you think they are....they are not representations of a European stock. I would not put money into such a stock ... Why? because it will not respond as the real stock to Fundamental info (I mean the good stuff...not fluff)....but that is me.

Any way that is not the point of this exercise.

look at Chart 4 and see that those areas we thought were interesting they relate to disorganized movement common in consolidation...you cannot make long term decisions here

You can also see that the start of a rise in a major peak is the beginning of a rise or fall....we can see in 20/20 hindsight which direction will dominate (Bull or Bear)....but that is not enough for consistent , good decisions to be made.

Conclusions:

What have we learned so far?

1. the start of major movements takes place at the start of a rise in the BBwidth when it has fallen to its base line.

2. The end of a major movement takes place when a rise has peaked and reversed direction

3. There is nothing in the BBwidth that can predict if the movement will be Bullish or Bearish

4. There can be false alarms (Head fakes) at the beginning that are annoying


so...as with most indicators...you get some info but it is often not enough to make a good decision on.

Can we improve on this.....??? Of course we can or I would not be doing this exercise.

In the next post we will look at MACD another indicator that people swear by and swear at.... it will be an interesting look at how I use it.

Good trading

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  #384 (permalink)
Budapest, Hungary
 
Experience: Intermediate
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Posts: 469 since May 2013
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Cool. I always would love the behind the scene movies Using the indicator is one thing, getting deeper understand it in different markets, are great. Really great.

Speaking frankly just checking these moves, getting more and more confident about that, dont trade, if the picture is not clear. Really, if there is noise there is no clarity. Love it!

This is good about Stocks. Really. You can check over hundreds of hundreds stock, and simply just selecting it, based on I like it, I dont like it.
My favorit is Chart 1. Really nice and stedy moves. Guessing if we are going to put next to some financial aspect it would be moch more better. I know we are focusing on technical right now

Really looking forward the chart 2 head fake tell... My story in a ranging market was to never bought in a middle. Choose site, and go in at the end of the range, dont think, dont wait comfirmation. So I would be happy to see what is coming next here

Chart 3. No news here. I am intraday trading this was the most similar for me

Chart 4. Not my taste to many zig-zag... but hey, this is what is it...:P

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  #385 (permalink)
Calgary Alberta/Canada
 
 
Posts: 934 since Feb 2014

Nov 3/14 Mid week Status

It has been a rocky week in Canada...it started good on Monday then the TSX lost 147 points yesterday and now it is up nicely today....whew!!!




We are shooting for a 4th positive week. Badger Daylighting is performing fine for 3 days...it should be a good addition...

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  #386 (permalink)
Madrid Spain
 
Experience: Intermediate
Platform: Ninjatrader, TOS
Trading: ES
 
Malthus's Avatar
 
Posts: 247 since Oct 2014
Thanks: 1,222 given, 704 received

Thanks @Underexposed, these kind of interactive learning posts are quite interesting.

Without more indicators or rules It seems really difficult (or not profitable) to trade the breakouts of the bands because of the huge number of head fakes. I'm an intraday trader and I hope we can both benefit from the discussion. I'm looking forward to the next post.


Last edited by Malthus; November 6th, 2014 at 05:49 AM.
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  #387 (permalink)
Calgary Alberta/Canada
 
 
Posts: 934 since Feb 2014


Malthus View Post
Thanks @Underexposed, these kind of interactive learning posts are quite interesting.

Without more indicators or rules It seems really difficult (or not profitable) to trade the breakouts of the bands because of the huge number of head fakes. I'm an intraday trader and I hope we can both benefit from the discussion. I'm looking forward to the next post.

Yes, head fakes are a problem.

You can solve this problem a little bit by not jumping on a trade prematurely. So many traders take a single uptick as a buy signal. Long term traders usually don't fall prey to these traps as we are not trying to squeeze all the blood out of a trade but occasionally it does happen.

If you look at the trades I have made in this portfolio I have not fallen into that trap on buying too often. My losing trades have been with my obsession with the gold stocks .... I have made small profits on them and then incurred bigger losses by hanging on to when the commodity price falls and falls again.... the other losses occurred simply in September when the Canadian market took a severe correction. That is just being caught in collateral damage and is not a problem with the company per se.

You have not see me lose 10% or so right after the buy has been made. I am confident in my buys...you could look at Badger Daylighting... my last buy here.... I announced a buy @ $27.70 on Monday...Tuesday there was a 145 pt. drop in the TSX dragging the price of BAD.TO down to $27.00 and today we are up to $27.99 at last look... long term this will be a good choice...I have owned this company before buying it at $5.00 ten years ago Selling it at about $25 Two years ago....for a 400% gain...then watched it rise to $100 WTF!.... but I don't chase once I sell. It split forward 3:1 and dropped a little as much of its business is oil service related....but now it looks to rebound to me.

But Head fakes are a curse.....I am taking it slow going through a major chart in my arsenal.... my so called "trigger" chart, where I combine a main chart with Bollies and SMA's Plus 3 indices...

We have basically finished the BBwidth indicator when used by itself and you can see that by itself its usefulness is limited....we will next look at MACD and you will see my comments on its usefulness as a single indicator.

BUT then we will see how "Powerful" the BBWidth and MACD become when I use the two together.

I am taking it slowly because if you understand how this is put together you will be much better at interpreting the chart.... it may be slow but hey! it took me years to put this together...you are getting a fast tracked look at this.

You say that you are an intra-day trader....I am not....But I believe that there are many aspects about what I am talking about that could make your intra-day trades more profitable using the chart that I have developed.

You could help me, as can other such traders by trying my methods in your trades, you don't have to put cash into the trades until you are confident in what you are doing....but see if the charts and comments I make as a long term trader apply to your type of trading. If there are problems, identify them with a concrete example and we can discuss them...same thing that those that do commodities and Forex...I look at Forex and it seems to be a lot of guesswork to me as to entries and exits... but I am certain they can be improved using my chart.

Thanks for your comment....My next post will be on MACD and why I use it without a signal line....and why I think the signal line works better for intra-day trading than long term. Then I will show how it is powerful the way I use it with BBwidth.

Good trading.........

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  #388 (permalink)
Madrid Spain
 
Experience: Intermediate
Platform: Ninjatrader, TOS
Trading: ES
 
Malthus's Avatar
 
Posts: 247 since Oct 2014
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Underexposed View Post
Yes, head fakes are a problem.

You can solve this problem a little bit by not jumping on a trade prematurely. So many traders take a single uptick as a buy signal. Long term traders usually don't fall prey to these traps as we are not trying to squeeze all the blood out of a trade but occasionally it does happen.

Perhaps It would be interesting to study the average length of the move after the breakout (when it's a head fake and when it's not), so that you enter at a worse price but with the relative certainty that it's not a head fake.

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  #389 (permalink)
Calgary Alberta/Canada
 
 
Posts: 934 since Feb 2014


Malthus View Post
Perhaps It would be interesting to study the average length of the move after the breakout (when it's a head fake and when it's not), so that you enter at a worse price but with the relative certainty that it's not a head fake.

It is an interesting thought. However, wait and see what I have in mind.

From my limited experience of Intra-day trading...I think head fakes occur more in longer term trades that intra-day. I have a good way of spotting them....but it is done with the full chart and that will take a few days of posts before we get there.

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  #390 (permalink)
Calgary Alberta/Canada
 
 
Posts: 934 since Feb 2014

Why I hate traditional MACD for long term but not intra-day trading


For years I have anecdotally hated MACD for long term daily charts...there were too many false alerts and the good ones lagged too much to be optimal.

Ironically, I found for intra-day charts, the traditional MACD was not too bad .... using the signal line.

What the heck was going on....why are shorter term charts better. First I will show you how MACD is calculated, then why I hate how it is traditionally used in long term (daily/weekly) charts compared to a 5 minute chart. Then I will proposed a reason for the poor performance in daily/weekly charts.

WHAT IS MACD

It is a momentum indicator and is defined by the following calculation this comes from StockCharts chartschool and you should read the article

Moving Average Convergence/Divergence Oscillator (MACD) [ChartSchool]



Quoting 
Calculation


MACD Line: (12-day EMA - 26-day EMA)

Signal Line: 9-day EMA of MACD Line

MACD Histogram: MACD Line - Signal Line

So traditionally the MACD line is a subtraction of the 12dayEMA from the 26dayEMA. Actually it should say 12intervalEMA and 26intervalEMA, where the interval could be minutes to weeks.

The EMA's are customizable and you see many swear by a a different combination but in my trials I could make some combinations act faster or slower but overall 12/26 seemed to be the best. Same thing with the 9 intervalEMA signal line....sure I could make it react faster or slower but the faster gave too many false alarms and the slower was not fast enough and opportunities were missed.

I found the traditional default to be fine for what it was.


Quoting 
Centerline Crossovers

Centerline crossovers are the next most common MACD signals. A bullish centerline crossover occurs when the MACD Line moves above the zero line to turn positive. This happens when the 12-day EMA of the underlying security moves above the 26-day EMA. A bearish centerline crossover occurs when the MACD moves below the zero line to turn negative. This happens when the 12-day EMA moves below the 26-day EMA.

The bolding is mine. This made no sense to me in daily charts look at the one for BAC below (I like using BAC as it usually shows what I want as it has a lot of action and besides BAC is easy to type )

Here is a daily chart with MACD



Really??? The green lines are when the MACD shows a bullish trend....hahaha it has been bullish for weeks before that

And Bullish (red line) fall below the zero line are equally bad...the lag was completely unacceptable. The dotted red line is a more clear indication than the one to the left of it...but it did not give a clearer indication ...the lag was greater. It reminds me of Cramer's predictions where stocks have been bearish or bullish weeks before he says they are...and then they turn.

So this center line alert is useless....right!!! Well not really ....look at a 5 minute chart





Not bad, eh (now you really know I am Canadian )

Yes there is a lag. But you would clearly have made profits by buying at the Green line and selling at the red... 15 cents the first time and about 17 cents the second time

Funny, eh....so terrible for daily charts but not bad for 5 minute chart......WTF is going on???


Quoting 
Signal Line Crossovers

Signal line crossovers are the most common MACD signals. The signal line is a 9-day EMA of the MACD Line. As a moving average of the indicator, it trails the MACD and makes it easier to spot MACD turns. A bullish crossover occurs when the MACD turns up and crosses above the signal line. A bearish crossover occurs when the MACD turns down and crosses below the signal line. Crossovers can last a few days or a few weeks, it all depends on the strength of the move.

Well let's look at the Daily chart for this buy/sell criteria





Well there is a definite improvement there...you would have made money both times...not the maximum amount but at least a comforting swing trade of about 30 cents in the first interval and a better $1.75 in the second...not bad

let's see what we get on the 5 min chart





WOW...you pretty much squeezed all the juice in each trade...a little early on the sell on both trades but not bad and much better than the daily trades.


I think that if day traders...especially newbies with little TA experience used MACD in their charts...and using this signal line/MACD crossovers (WAITING FOR a nice CLEAR crossover) they would not be afraid of milking a intra-day swing and make more from each trade.

But why are shorter interval MACD charts better than longer term charts

This bothered me for years but in preparing this post I had a bright idea....What are the Standard deviations in the long term intervals versus the short term intervals.

Well I am not sure how to compute a Std Deviation of a EMA (it is really an artificial average....but I looked at SIMPLE MOVING averages (SMA)

And this is what I found



Wow.... the Std deviation at a weekly interval on a % of the average is HUGE compared to that of a 5 min interval by a factor of 30-50.

So there is the reason for me anyway....the smaller the interval....the less error in the calculation of the MACD... now it makes sense to me.


DOES that MEAN that MACD is useless in daily charts?
.....nopes...not the way I use it....I ignore all those buy/sell signs...I get rid of the signal line all together.

But I am getting ahead of myself....that will be my next Major post

Good trading........

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