Dave Landry & Mark Etzkorn
Submitted by rajesh:
what books do advice for a advance study of tech analasys.thanks
raj
Dave Landry:
Is this the raj I spoke with a while back?
See answer to previous question on getting started. I’m a huge fan of the Mgordon books but I have a working relationship with those who author and publish them so I’m biased.
Submitted by Jason R Purvis:
Where would I inquire for info concerning the series 7 lic, what timeframe does it usually take to get one?
Mark Etzkorn:
Contact the Securities and Exchange Commission (SEC). It’s their test; they’ll give you the low-down.
Submitted by dlyness:
Trading systems are comprised of three pieces: entry signals, exit signals, and position sizing. How would you rank these three in importance?
Mark Etzkorn:
Money management/risk control is the most important, which points to position sizing on your list. Entry and exit signals can only be tweaked so much–there are only so many things you can do. How big or small your positions are and how you control losses (where you place stops, etc.) are inseparable concepts. These will determine trading performance much more than entry/exit rules. Great entries/exits and no money management get you nowhere, while great money management and so-so entries/exits might get you somewhere.
This is a simplification, but it gets the point across.
Submitted by Dave Landry:
I’d like to thank ya’ll for participating in tonight’s forum. Once again, you guys asked great questions. I wish I had more time to answer them all.
Thanks Again! Dave Landry
Submitted by Mark Etzkorn:
Submitted by Moderator:
This concludes our Live Forum. Thanks for taking part! Come back next Thursday, May 27, for our next forum.
This forum will be archived shortly for easy review.
Submitted by johnalv:
I’m new to technical analysis. Does “breakout” trading just refer to moves out of trading ranges, or is it something else? How does it work?
Mark Etzkorn:
Yes, “breakout” is commonly used to describe moves out of trading ranges, but it can also refer to moves out of other congestion patterns, like triangles, or moves through other significant support or resistance levels.
A basic breakout trading “system” or approach is to buy when price moves above the highest high of the past N days (say, 40 days) and sell when price moves below the lowest low of the past N days. This is the basis for many longer-term trend-following approaches. By increasing or decreasing the number of days in the breakout, the approach captures longer- or shorter-term trends, respectively.
Submitted by Trial User:
Hi guys,
Keeping in mind that I have some experience in the stock market, what would recommend in reading and experiencing to be a long-term trader?
Dave Landry:
By long-term, IÃm not sure if you want to be around a long time as a trader or a trader who takes long-term positions. For long term positions, I suggest studying weekly or monthly charts.
To be around for a long time, I suggest you make sure you are adequately capitalized, take small risk and learn from your mistakes. Also, remember youÃll never be is dumb as you are now. Therefore, tread lightly and work your way into it. I think there are two parts to technical analysis, the art and the science. On the art side, learn about classical technical analysis (i.e. Technical Analysis of Stock Trends, Edwards and Mcgee) but use caution as it take time to recognize these subjective patterns. For the science side, learn about the different types of indicators. Technical Analysis from A to Z is a good reference for that. Then learn about various set-ups from books such as Jeff CooperÃs Hit and Run trading (1 and 2) and Larry ConnorÃs: Connors on Advanced Trading. IÃd also read, Elements of Successful Trading by Rottela which has some good chapters on trading psychology. And of course, read my nightly outlooks and all of my articles in the traders learning section….
Submitted by Moderator:
Welcome to the tradingmarkets.COM Live Forum, featuring Dave Landry and Mark Etzkorn.
Dave Landry is director of research for tradingmarkets.COM and president of Sentive Trading, a money management and research firm. He writes the Futures Trading Outlook and Stock Market Trading Outlook every night. Dave, who holds a BS in computer science as well as an MBA, entered the trading industry after a successful career in management information systems. Always fascinated by trading, in 1988 he embarked upon an in-depth analysis of the financial markets using technical and statistical analysis. In 1995 he decided to devote himself full-time to the markets, and in 1996 he became a Commodity Trading Advisor (CTA) and founded Sentive Trading. Dave’s trading articles have been published in “Technical Analysis of Stocks and Commodities” magazine and he has authored a number of trading system manuals, including the “2/20 EMA Breakout System.” His work has been included in several books, including “The tradingmarkets.COM Guide to Conquering the Trading Markets,” “Connors On Advanced Trading Strategies,” and “Beginners Guide to Computerized Trading.” Mark Etzkorn is Editor-in-Chief of tradingmarkets.COM. He has spent more than a dozen years in the financial markets as a journalist, editor, researcher, and trader. He began his career on the floor of the Chicago Board Options Exchange, where he apprenticed in the index and equity options pits while working as a freelance writer and editor. He then became a member of the Chicago Mercantile Exchange before assuming a public relations position at the Chicago Board of Trade Clearing Corporation. Mark also served as senior associate editor at “Futures” magazine, writing extensively on technical analysis, trading systems, and software. His 12-month article series on trading system design and testing was reprinted internationally, and his work has been translated into both Chinese and Japanese. He also has worked extensively as a Web site designer and editor for commercial Internet companies. He is author of “Trading with Oscillators: Pinpointing Market Extremes” (1998, John Wiley & Sons), and co-author, ghostwriter, or editor of eight other books. Tonight’s topic is basic technical analysis and trading concepts. To ask a question, simply type it in and hit the “Submit Question” bar–that’s all there is to it. You also can create a short subject heading for your question in the title space (it helps if you do). Past questions appear in the left-hand portion of your screen for easy browsing. This is a moderated forum, so we ask that you respect the other guests and our featured speaker. We try to get as many questions as we can, so please be patient. Shortly after the forum is completed, it will be archived and available for review.
Submitted by elvis:
How do you define ‘after hours trading?’ Thanks for your time. Jerry Elmore Layne
Mark Etzkorn:
After-hours trading simply means trading that takes place after normal daytime trading hours, e.g, after the New York Stock Exchange or Chicago Board of Trade end their floor trading sessions in the afternoon.
After-hours trading usually takes place on some kind of electronic system, either operated by an exchange or a third party. For example, many stocks are traded on Instinet after the NYSE closes, and the Chicago Mercantile Exchange operates its own electronic after-hours trading network, called Globex.
Submitted by gringotico:
Which basic indicators do you prefer for Futures and Stocks?
Dave Landry:
Fishermen know that you canÃt catch fish if the tide isnÃt moving. Likewise, strong trends are my favorite ìindicatorî. I like to see something moving. I then look for something like a pullback or a pattern to enter.
You can use something like ADX to determine trend but for me I find the eye does just a good of job. Stocks making new highs or on momentum lists are a good place to start. Also, stocks on the pullback list are both, in trends and pulling back. I treat pullbacks in futures the same as stocks.
Submitted by Dave Landry:
Hello
Submitted by zipper:
I’ve kept my eye on NDB, as sugested by one of your writers and the stock was in a tight triangle, appeared to break down, showing possible tank. It then moved back into the triangle. Do you trade these after a decisive move out of the triangle i.e., a couple of bars out of the triangle??
Dave Landry:
Ahhh, NDB my own personal nemesis. I would wait for some sort of SUBSTANTIAL break out of the narrow range. Also, if you get a break out and it reverses, it might make a good short. Jeff has dubbed these Triangle Pendulums.
Submitted by Trial User:
What type of technical analysis and trading systems should a new day trader understand for intraday equities trading on the NYSE?
Dave Landry:
See the other answer on beginning daytrading.
My advice would be to study longer term patterns and systems and see how they apply to the shorter time frames. Also, paper trade and keep a traders journal……
Submitted by jazcan:
Re: technical analysis–Are most technical trading strategies useful in both stocks and futures, or are certain techniques only applicable in one or the other?
Dave Landry:
Good question. In general, I think markets are markets. I do think the leverage has a larger effect on the futures. Therefore, you often get a nice move off of a set-up (short-term). On the other hand, I find it more difficult to trade big picture patterns in the futures markets.
Submitted by shane1950:
can you describe a way to use tick and trin indicators to tell the difference between a rally and a pull back in a down trend? thanks …you folks do a great job!
Dave Landry:
I like to take a 3 day moving average of the trin and look for a new high in the average then a reversal. This is the basis of a market timing system I co-devloped with Larry Connors. This is good for about 3-5 days.
As far as tick, you can watch it at extremes intra-day to get a feel if the market is finished selling off. For instance, say it goes -500, -550, -600, -600, -590, -590…a short term bottom may be put in.
Submitted by zipper:
Is there any validity that gaps in charts get covered on a retrace. RMBS has been hot lately, but has a gap in the chart. What’s the expectation?
Mark Etzkorn:
There is absolutely no cosmic force that makes all markets retrace and “fill” all their gaps–it’s one of those old wives’ tales in the trading industry. If you look at charts closely enough, you’ll see plenty of gaps that were never filled–or filled so much later (months or years) that makes it irrelevant for all practical purposes.
But…it is true that markets will often retrace to the vicinity of gaps–the reason some traders use them for price targets under the right circumstances. The thing to pay attention to is the context of a gap. In choppy and trading range markets, there are many gaps that are essentially meaningless. Gaps that occur in trend bear closer scrutiny–markets will sometimes retrace to these levels, especially if they move very fast and become exhausted. But it’s nothing you can count on. Gaps like this more often mean the market is taking off, continuing its trend.
Submitted by sgd7:
I realize that there are many variables to this question, but if a relative of your has been studing T.A. for 1 year and is about to start trading futures, how much would you recomend that they open up their trading accout with to trade properly. Assuming that they have plenty of capital?
Dave Landry:
Tough question to answer.
If you have a mechanical system then I would reccomend at least 3-5 times the worst historical drawdown. Also, your risk should only be 1-2% per trade. and your stop should be far enough away so you will not be guaranteed a loss on every trade (i.e. noise will take you out). Figure out how much money this is and divide it by 1-2%. So if your risk is $1,000 per trade then you minimum account size based on 2% risk should be at least 50k. Also, when learning, I would risk much less than 2%……
Submitted by Crook:
I will appreciate knowing your opinion on purchasing a stock at the open. The type of offer and trade.
Dave Landry:
It’s been said that the eager money buys on the open and the smart money buys on the close. I don’t know how true this is but often you get a reversal on the open. For instance, if the market is up sharply overnight, the specialized might gap a stock higher to draw people in.
Submitted by mikennz:
OK….you wait for a breakout past a prior support or resistance…how do you know if it’s false?….
Mark Etzkorn:
There is no way to know if a breakout is false or not, the precise reason most longer-term breakout traders use additional rules to confirm breakout signals.
The logic behind breakout trading is that the market, by pushing out of congestion or to a new high or low level, is showing sufficient strength (or weakness) to embark upon a trend. But it’s true–the popularity of breakout trading has increased the frequency of false signals. Traders often require extra signals, say three to five closes above (or below) the breakout level, or a move of a certain magnitude through the breakout level before they consider it valid. A quick move back below (or above) the breakout level would be a sign the original signal was false. Using these kinds of confirming signals means you’ll give up more of the price move when the breakout is legitimate, but you’ll also avoid more false breakouts.
Submitted by francine:
IN TODAY’S JEFF COOPER: EMULEX SHOWS INTENSE BUYING WITH A POP-UP OPENING COMING OFF A PULLBACK. IT’S ALREADY UP ALOT SO LOOK FOR BREAKOUTS OF INTRADAY PATTERNS. WHAT DOES BREAKOUTS OF INTRADAY PATTERNS MEAN? WHY COULD PRICES BE MENTIONED TO BE MORE HELPFUL?
Mark Etzkorn:
I can’t speak for Jeff, but I can tell you what “breakouts of intraday patterns” means.
Intraday means occuring in a single trading session–one day. So, he’s referring to chart patterns that set up intraday on a (for example 5-, 10-, or 15-minute chart. Specifically, he’d be referring to “congestion” patterns, that is, those that interrupt the day’s trend. For example, if the market was moving up on a certain day, you might look for price to move sideways for several bars, or “pull back” for several bars. This pause in the trend would allow you to get in the market and attempt to capture the rest of the up trend if and when the market starts moving up again. That way, you’re not chasing a fast-moving market that never slows down or pauses.
Submitted by Jason R Purvis:
Should a good day trader almost always get rid of most of his positions before the close in order to avoid a catastrophic overnight loss?
Dave Landry:
It depends. I’m of the belief that real gains come from holding a position for a few days.
To me there are two types of daytraders, the scalpers and the swing traders. A true scalper is in and out for ºÃs and 1/8Ãs and yes they should close out their positions. The swing/momentum traders are looking for a move that may take hours or a few days to develop. Kevin H. is more active and somewhat closer to a scalper (but he is looking for more than just a scalp) and Jeff Cooper is closer to swing trader. Kevin rarely takes positions home and Jeff does on occasion. It depends on your personal make up. Are you willing to watch a large gain go by with the comfort of not holding overnight? or Are you willing to take the chance of an overnight loss with the chance of catching a much larger move? Also, you can find a middle ground (reduce your position if you are holding overnight).
Submitted by Dominick:
Do you or floor traders use point & figure charts?
Dave Landry:
I don’t but I can see the concept (support and resistance). I recently spoke to a floor trader and he’s seen everything on the floor from pivot points to astrophysics.
Submitted by dbundy:
Do you know if the CBOE or other exchanges are planning after hour trading for options in the near future?
Mark Etzkorn:
No, I don’t know for sure. Check out the CBOE’s web site or give them a call.
But… I know this is a pressing issue in the industry right now, so they’re certainly thinking about it. With the increase in after-hours trading, option exchanges are being put in a position where it might be necessary for them to offer after-hours trading to remain competitive (and take advantage of the opportunities).
Submitted by randy:
What is a good way to get a big losing day out of your mind as you prepare for a new day?
Dave Landry:
I have an idea but they probably won’t publish my answer.
Seriously, first is accept it, realize that markets are very elusive and you will have losing days. Make sure you followed your methodology and your risk control. If you’ve done all of that you should have nothing to worry about. Forget it and move on. Now, if it is still bothersome then take a step back. Unlike a day job, you DON’T have to “go to work” everyday. The markets will always be there. Also, make sure you take a break if you have string of losing days…..something has changed…stop and re-evaulate!
Submitted by Trial User:
With all the different types of technical analysis out there, where is one to start? I’m interested in day trading equities on the NYSE but I’m not sure what I need to study for for intraday trading patterns and movements.
Dave Landry:
I think that patterns are patterns no matter what time frame. Therefore, if you build a good foundation in technical analysis, itÃll apply to daytrading.
By the way, daytrading is an extremely difficult way to earn a living. You might want to start with a short term horizon, i.e. 1 to 3 days and then work your way into daytrading. Also, I would recommend ìlayeringî patterns. That is, look for some big picture pattern or set-up, say a cup and handle or a stock in a strong trend that has pulled back. Then daytrade within that pattern. That way you have something much larger working for you. This is how Jeff Cooper earns his living.
Submitted by Jason R Purvis:
Which tech analys software would an aspiring day-trader consider if he wanted to start “getting serious” about trading
Dave Landry:
Tradestation if you have a programming background. You could get SuperCharts real-time and have others do the programming for you.
Submitted by jasmith:
Could you give me an example of each. How bullish are these trends and when is the time to sell? thanks Jon.
Dave Landry:
I’ll put an example of a pennant in tonight’s outlook, I’ll show Adobe (ADBE).
A pennant is really a mini triangle, it looks like a pennant you would see at a ball game. A flag is a mini sideways consolidation… I don’t have a recent example. Check out Boucher’s article in the Adv. Trader’s learning seciton
Submitted by Jason R Purvis:
Which indicators help best determine pullbacks in “trending” stocks? Jeff likes the fast stochastic in his 5 day method. What others might help confirm the fast stoch readings?
Dave Landry:
I don’t think you need an oversold indicator to trade a pullback. Some of the best moves come from “shallow” pullbacks that don’t even get close to being oversold.
If you’re trying to computerize the pullback then you could use some sort of osc. (the stochastic is fine) or something as simple as percent of retrace. My personal favorite is the tradingmarkets pullback list.
Submitted by Jason R Purvis:
I know this is off the subject, but what type of training does one have to go through in order to be a broker of stocks, and is it possible for a person to open a private broker business without working for a big co?
Dave Landry:
I really don’t know the answer to that question. I do know that there are smaller firms that are always looking for people to sponser.
You will have to get your series 7 liscense.
Submitted by mam12:
If a stock trades in a narrow range for a few days, what analytic tools can be used to judge whether the stock will go upor down eventually?
Dave Landry:
Good question.
Look at a longer term moving average for clues. Say the 50 day is in a strong uptrend then the break may be upwards.
Submitted by stormins:
please explain a pivot or pivot point
Dave Landry:
The word pivot to me means a high surrounded by two lower highs or a low surronded by two higher lows.
A pivot low: | | | A pivot high: | | | The “pivot points” under futures are calculated, and have nothing to do with the above. See article under traders learning section. When I use the term “pivoting” in the Outlooks, I’m refering to somehting that is “turning”, i.e. a stock comming out of a handle or a pullback.