Posted 10 March 2007 - 11:19 AM
Not much change in market from my previous post. Might be a good idea to give the reason for trading this way. Not really my ideas at all. The ideas of Bill O'Neil as expressed in his book The Successful Investor and in the pages of Investors Business Daily. Especially in the colume The Big Picture on page 1 each day. I read it every day.
O'Neil thinks the market trends by price and volume. And one can follow the big institutions (big money, and smart money) by watching the daily price and volume of markets. That the institutions signal their actions by watching the price & volume of market movements. Thus when volume increases and price increases at the same time it means that institutions are buying. And when price decreases & volume increases institutions are selling. There is a lot more in his book, but it seems to me that that is the basic idea. Thus a big price drop with increasing volume as we got last Tuesday indicates institutions were selling hard. Enough so that it marked an end to the uptrend in the markets. And started a correction, or downtrend in the markets. Then the next day prices rose sharply on increasing volume. Marking Day 1 of a rally attempt. Wait to buy until or if there is a follow through day(day of sharply increasing prices with an increase in volume) on day 4 or later after day 1. Friday was day 4. So now waiting for that follow through day. It has to come without prices undercuting the low of Day 1. Sometimes get the follow through day and sometimes not. But a new uptrend does not start unless or until we do get that follow through day. I will buy after the follow through day and hold while the rally lasts. Other rules for seeing when the uptrend ends, but that is for another day. Those are the basic's for spotting the beginning of an uptrend as I see it from reading O'Neil. I am sure it does not do justice to all of his ideas an this subject. You can read his book and IBD daily to get more, but this seems to me to be the basics of it. I pay little attention to other fundamental or TA. One thing. I only use a small portion of my capital with this method. Most(over 80%) is invested long term in asset allocated buy & hold Vanguard Index Funds.
So now I am just waiting and watching for a follow through day. No way of knowing whether it will come before the low of day 1 is undercut. With this method you spend most of your time watching, not trading. I posted real trades in real time using this method on TT for the last 4 years. It does not always result in profits. Made 8 trades in 4 years. 3 for a loss. 5 profitable. On balance profitable. Anyone interested can check my posts over there to see the results in real time.
Everyone have a good weekend.