The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Which Trading Pattern Works Best?
01/03/2013 8:00 am EST
Jeff White talks about why finding the right chart pattern for your personal style and the current market environment is what counts.
Cup and handles, head and shoulders, breakout patterns, trend lines; sometimes we become masters of all kinds of trades and not really great at any one single type of trade. Jeff, what would you recommend a trader do when focusing on all these types of patterns that are available out there?
You know when I got into trading I started studying up on everything I could. I read everything I could. I followed as much information and just absorbed whatever I could so that I could learn this and become good at it as quickly as possible. What I found was it’s easy to become overwhelmed, especially just even taking a technical approach, aside from the fundamentals and trying to study any of that. I understood that there were lots of chart patterns and different setups that I wanted to learn, and so I would go in and I would try a couple of them on a particular day and the next day try something different, and it was just kind of a matter of…
Everyday something different.
Right, throwing out random types of plays. What I’ve really learned over the years is that I need to be focusing on honing my skills on the trades and the types of plays and setups that are working right now. The market conditions change continually. What’s working right now may not or probably will not work in a month or two. I need to be understanding that right now we’re in a market correction, for example. I need to be skilled at trading the short side. I need to be watching for failed bounces, and so those are the plays I need to focus on. I can deal with breakout momentum types of plays later when the market is rewarding those. It’s really a matter of getting my skills improved when the current conditions are rewarding them.
Are you a two-time frame chart-type trader when you look at these things? Are you looking at one-time frame chart for the trend or the correction and then going down to a lower time frame chart to get an entry?
Often times I will do that. I really pay very close attention and I give the most importance to a daily chart. So, I find my trade candidates that way. I will often identify some intraday momentum that’s maybe running a little bit too hot as a signal to me that’s it time to lighten up, so I will pay attention to that, but I give the most importance to a daily chart.
Do you have any favorite financial instruments around? You’re a stock trader so you’re watching the stock market. Are you looking at the large-caps, the medium size company, or are you trading penny stocks? What are you looking at?
I do avoid penny stocks. I want to be really primarily avoiding single-digit stocks and low-volume stocks, and by that I really don’t like to trade anything that averages less than about half a million shares per day.
Okay. You want to be able to get out.
So I’m looking for things that are liquid issues and then I’m just working my way through a pretty extensive watch list every night. I like to look through lots of charts. I feel like it gives me a better understanding of where the broad market is. I can get that from an S&P 500 chart, but when I spend time digging through a lot of individual issues I get a better feel for how pervasive is the strength or weakness or indecision right now. I like to dig through the charts, and then it’s just a matter of finding stocks that look like they’ve got good potential with limited risks and an easily identifiable exit should this trade happen to fail.
Well, how big is the watch list?
It’s about 750 stocks.
Okay, so we’re talking about a significant. Now you’re not necessarily looking at every one of those?
I am. It takes me about 45 minutes to go through it, and that’s been a skill that I’ve built over time. I used to look at a chart and it would take me a minute or two to decide what I was looking at, but as I’ve practiced that everyday I became better at it, and I became more efficient to where I can go through more stocks in the same period of time or look at the same number of stocks in a shorter period of time. What I’ve just chosen to do is look at more stocks. I can cherry pick the best looking setups out there and then go with those.
Related Articles on STRATEGIES
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...