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Mikey's Short Term Trading Rules

1) Make up a list of stocks, commodities or ETF's to trade. This list should be names that have good earnings and high relative strength.
2) Monitor this list and throw out the weaker names
3) Buy only stocks or ETF's that are intermediate and daily up (green) and the market is Daily and intermediate term up (green)
4) Buy pullbacks on these stocks to the 20 and 50 day averages
Usually you get 4 to 6 20 day pullback buys and 2 or 3 50 day pullback buys in an intermediate term trend
5) More agressive traders can buy the 7 day average in the first 3 to 8 weeks of the uptrend.
6) Buy pullbacks not runups. A buy should not be easy or exciting but difficult and somewhat scary. DO NOT CHASE
7) Place stop at 5% below the buy price. Do not remove
8) Sell 3 to 5 days after the stock price takes out its most recent 2 week high with at least 15% gains
9) Uptrends that are 12 weeks or more may be ripe for a correction. The first 2 pullbacks to the 50 day are usually safe.
Intermediate term uptrends and downtrends generally last from 8 to 16 weeks with 12 weeks being the norm.
10) Shorting is a viable strategy in downtrends for experienced traders only. In general, reverse the above rules
11) Tweet Mikey @themarketshadow with questions or ideas

Monday, October 20, 2008

Two Technical Indicators.

A technical indicator is a tool that a trader uses to help him determine the future direction of a market. Some indicators are used to follow the established trend and some are used to spot a reversal in trend.
The idea most traders use is that the trend is your friend. Do not assume that the current price trend will change and that is usually the case. The longer the trend the more difficult it will be to change.

The technical tool I use to project trend is the moving average. It ia a simple average of a prior number of periods. I use the following time periods. The time periods I use are the 10,20,50,90 and 200. I will use the average of these time periods for 60 minutes, 1 day, 1 week, and 1 months time periods.
The 60 minute helps me with inteaday time periods. The daily helps me with 2 to 3 month time periods. The weekly and monthly average help me with the long term trend.
Remember the long the trend the more likely is is that it will remain intact.

The other tool I use is the VIX. I uses this to help me spot a potential reversal in trend over a certain time period. In a bull market it will trade between 10 and 20. At 20 there is too much fear and expect a rally to reverse a short term downtrend. At 10 there is too much optimism and expect a reversal down in price to correct the excess of optimisim that exists at that time. In a bear market the Vix will trade between 20 and 40. When it is trading above 40 pessimism is too great and the market will tend to reverse bad to the upside for a tradeable rally in a bear market and when it trades at 20 it will tend to top and reestablish the downtrend.

Where are we now ..all my moving averages are falling but the VIX is saying that the public and the traders are way too pesimistic. Therefore, I am looking for a tradeable upside rally in a bear market.
My definition of a Bull market. When all the long term moving averages are tilting up.
A bear market is when all the long term moving averages are tilted down

The 200 day average now 11867 and falling rolled over on the hit of Jan 23 of 2008.
The 200 week average 11726 just turned down this month.
The 200 month average is rising at 8472 and just bounced off of it this last week.

Prices even though they are in a bull or bear market will tend to come back to their long term moving averages.

The fact that the 200 month is rising and is still in a solid uptrend and the fact the the VIX is off the charts indicating that the public is freaking out tells me we have an intermediate bottom that is tradeable and I want to be a buyer now.
What I think just happened is that we are entering a major bear market but that we are was oversold and are do for a very tradeable upside rally.

In the future I will post these averages when I make my trades.

Where we are now in the short term to intermediate term

We are trying to bottom in here now we have the traders looking down for a possible retest and the news is bad. The VIX is still very elevated and I am comfortable being long. I don't think we get a retest here.
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