The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Simplest Methods Often the Best
01/02/2013 6:00 am EST
Veteran trader Harry Boxer shares some of the reasons why he has found that the most basic method are all a trader really needs.
One of the simplest and most effective ways to find good opportunities is using trend lines. My guest today is Harry Boxer to talk about that. Harry, most traders often times, especially new traders, look for very complicated indicators and things, but often times the most simple thing, a trend line, is the best to use.
Right, well, in my seminars I usually—people always ask me, there’s only a couple indicators on your charts, so, and I use simple stuff that Worden Brothers supplies on their TC 2000 charts, but I’m a big trend line drawer. I think that you always should connect tops and bottoms and see what the trend looks like. It’s incredible how often stocks will move up in a 45-degree angle following a channel, and often times when the stock pulls down to the bottom of a channel, it’s an opportunity either intraday or even on daily charts, but what I also do is I keep the trend lines over a period of time, because something that was a major top or bottom months or weeks ago, when the stock comes back up to that level, it’s incredible how often and invariably that level is a resistance level or a support level, if it’s coming down, and so if you keep those lines on your chart, you don’t have to redraw them in all the time, you just leave them there until the price either penetrates or bounces off.
Now, are you looking for confluence on, say, an hourly chart and a daily chart where you like to see the trend lines match up at a certain price level?
Yeah, well, let’s put it this way; the more trend lines that meet at a certain point, the more valid it may be, especially if there’s moving average there as well, so it’s almost like MACD, moving average convergence divergence. When you look at trend lines—if you’re looking at a major channel that’s going up and a stock breaks that channel, it usually is breaking the moving average or near it at the same time, and it’s amazing how often it’ll snap back to that level, fail, and roll over, and then a new downtrend has started. The same thing happens on the upside when a stock breaks to the upside, it’ll invariably pull back that first pullback and many times is the best time to buy a stock on an intermediate- or longer-term basis because it had that major thrust or breakout and then it pulls back on lower volume and tests that point, and if it’s successful and starts to move up again, and volume increase, that could be a great place to consider buying a stock.
I know a lot of traders use a trend line on the bottom between the bottom—the bottom part of where the next high is and then the top also to create a channel that way. Do you trade that between those two?
I do, but I found that Tom DeMark came up with a theory and I’ve used it over the years, that when you—when a stock thrusts off the bottom and then pulls back, do not draw the trend line off of those two lows, because a bottom—that first thrust is so sharp, it can’t keep that angle of ascent, so what he’ll do is he’ll draw trend lines off of the next low and the next high, and you’d be surprised how the angle is changed, as opposed to the initial thrust up and then it—sometimes it’ll thrust up straight up and then move down, but then the angle changes, so I find that when you draw the lines from the second bottom up, it usually is more accurate over a long period of time.
Finally, how far back do you go? I know some traders trend—do a monthly chart and draw a trend line there just to see where things are.
Yeah, well that’s the point. Even though I’m a short-term trader, and I do have intermediate positions, I go back as far as I can. I’ll take a monthly chart and I’ll go back 10 to 15 years to see was there a significant top 10 years ago at that level, and how much volume was there? I mean, people—my institutional guys—clients of mine are always saying well, what does 10, 15 years mean? How significant is it? It can be very significant and it’s incredible how if you look at a chart over a period of time, there may be three peaks 10 years apart, but they acted as resistance for the chart, and it was unable to get through that level.
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