Sunday, February 23, 2014

Active-Trader - TC2000 v12.4.5

Welcome back, Active Traders and Wealth Builders.

Keeping on top of the stock market can be a challenging task.  There's so much information out there, and its constantly changing.  It can be a challenge to just to get your head around it let alone make sensible trading decisions.

One of the tools I use to tackle this mountain of data is TeleChart 2000 abbreviated TC2000.   I've been a customer of the Worden Brothers for more than 20 years and their products continue to improve and deliver more bang for the buck.

Recently, the Worden's delivered TC2000 v12.4.5.  This version contains a raft of improvements, and I want to touch on one item here which is the ability to plot fundamentals on price charts.  This capability was present previously only with an additional data package, but its now provided in the core TC2000 Gold Service which costs about $299 per year which includes unlimited access to the price database including unlimited real-time streaming charts and market scanning.

The thing about fundamentals is that they don't change nearly as often as price.  Most financial data is delivered only once per quarter or only 4 times per year.  Once piece of fundamental data which does change daily is the short interest ratio - that is the number of days of typical trading volume it would take to cover all short positions.  In the chart above, we can see that Short Interest in TSLA is trending higher, but it is a relatively low level compared to historical values.  Note that tops in Short Interest would seem to precede tops in price. To come to a different conclusion, the level of short interest in TSLA is at relatively low levels compared to historical levels.

Another one that I find interesting a plot of net earnings.  This figure is reported quarter and its very easy to get a long term view by plotting this on a monthly chart.  Take a look at this chart of Synaptics (SYNA) with the net earnings plotted in red at the bottom of the chart.  Are earnings keeping pace with the rising stock price?  You bet they are.  I took a new position in this company this week in both my TradeStation and E*Trade accounts and I expect higher prices ahead.

Using these charts, its very easy to get a long-term look at the earnings growth trends for all of the companies in your portfolio. I was able to get a look at this information for all 82 stocks in my portfolio in less than 10 minutes.  And from that brief exercise, I call tell you that stock prices are absolutely correlated with net earnings.  

Take a look at these graphs for your favorite stocks and use this information to your advantage.  Have a great and profitable week ahead.

Sunday, February 16, 2014

Active-Trader - Into the Black

Welcome back Active Traders and Wealth Builders.
This past Friday my E*Trade accounts finally came into the black for 2014.

Recall we had a solid 2013 but then stocks sold off hard on the first day of the year, and for most of the month of January.   Most of this past week gains can be attributed to Facebook which is my largest individual stock position and a monster trend in the making.

Unfortunately, my TradeStation account is still down for the year but staging a recovery.  The above gains are paltry considering the performance of my mentor John F Carter.  Having just completed my first full year as a member of Simpler Option,  I have learned much from my association with Mr Carter, and it well worth the $147 per month.

Here is a quick summary of the key points:

1) Don't expect anything from the market.

Coming into trading with a mindset like "I need to make $1000 a day trading" is totally wrong.  Instead, wait for the market to show its hand before taking any action.   A great JC quote which sums it up is "Don't anticipate, participate."   If you take your time picking trades properly from Tuesday-Thursday, you will most likely get paid on Friday.  See #3 below for more on that.

2) Don't trade all the time.

JC has no problem sitting and watching the markets all day and if he doesn't see any setups, he doesn't take any trades.  It sounds simple enough, but he trades only when he sees a setup in the making.

I read a great quote in my first every edition of thinkMoney (magazine from Thinkorswim):

Day-trading is like owning a Bed & Breakfast.  Most people do it until they run out of money.

3) Most trading takes place between Tuesday and Friday.

Most positions are opened late in the day on Tuesday, Wednesday and Thursday when JC is live in the room.  Friday is mostly for closing out positions opened the prior 3 days or preferably letting them expire worthless. Every Friday is payday in the world of weekly options and you want to be on the receiving end of the transaction.

This one took me a while to finally sink in.  Most of the time, stocks that have great looking charts on Fridays give you a much better entry point between Tuesday and Thursday of the following week.

4) Sell Premium

If you are bullish sell put spreads,  If you are bearish sell call spreads.  If you are really bullish or bearish, use the proceeds from selling the spreads to finance directional positions.

5) Sell Premium at +1 and +2 Standard deviations.  JC does this by treating the Market Maker Move at 1 SD and just multiplies by 2 for the 2 SD.  He will be happy to take in 50 cents on a 5-dollar spread.  That's right, he's making $50 with a max loss of $450!  Terrible Risk to Reward ratio, but highly likely to pay out.

I haven't brought myself to do this yet, but this past week I sold puts in NFLX for 0.80 credit for a 5 dollar spread and it worked out okay.

6) Size properly.

JC has no problem risking 5% of his account on a position that he has some conviction in.  I'm still sizing too small for my account size, but i'm slowly starting to make my way out of 1-lot syndrome.

Also, it was my first full week of trading with 100% awareness if the Voodoo levels. Remember in last week's post I said next resistance in PCLN was the treeline at $1261 a full 65 points away?  Well PCLN did that move and then some! Next targets in PCLN are the snow lines at 1300 and then 1322.  And above that you can see the 423% of the original wave 1 move which would be the top of wave 5 at 1361.

Facebook (FB) also responded well to the Voodoo levels as shown in the graphic above left.  We have a few snow lines to get through at 68 and change and 69.37 with the next tree-line up at $71.60.

Voodoo has changed by whole perspective on price action and i'm never going to look at a chart the same way again.  Using Voodoo I had profitable trades in PCLN and FB.

As for next week, GOOG looks very interesting.  We close above the psychologically strong $1200 price level and for this week, we have resistance at 1210 and support at 1192.  The next major upside target is 1240.

You can position for a move to the 1240 level by buying an in the money call debit spread such as the 1200/1230 call debit spread for as close as you can to a 1x1 risk reward ratio.  For example, you would pay no more than $1500 for the spread (which is your max loss) for a maximum profit of $1500 if it goes fully in the money in your favor.

And thus are my predictions for the future, use them to your benefit and have a great week ahead.

Friday, February 7, 2014

Active Trader - Voodoo Clues - Part 3

Welcome back Active Traders and Wealth Builders.

It was truly an amazing week, not because I made a pile of cash in the markets although I did okay.  The real reason is that after 25+ years of looking at the markets, I see prices in a completely new light now that I know how to calculate the Voodoo lines.

Recall from last week's post Voodoo Clues - Part Two, that I found a video which explains the logic of the Voodoo lines. We got as far as calculating the red lines and ran out of time. In this post, we're going to wrap it up and show some examples about how truly amazing a discovery this really is.

Note that when you draw the red lines, it divides the prices up into 4 unevenly sized regions.  These red lines are called the "fire" lines and are the most significant areas of support and resistance on the chart.

As for an example, check out the way prices first paused at the 281.1% line at 1102 and pulled back.  Later, note how this area, once breached became an area of support which has since contained prices on the downside.  And note how prices are now camped out just below the treeline at 1200 and once they break $1200, the next target is ....  $1261.  How that's for predicting the future?

At first I had a hard time drawing the lines.  But after a little bit of practice, it comes very easy.  Whenever I see a chart on Simpler Options video, I pause the video and make note of where the red lines are.  With as little information as a single red line (and a rudimentary knowledge of Elliot Wave) I can find Wave 1 and everything else is mechanical from there.

Using Thinkorswim charting to draw the lines is a snap. Simply select the top to bottom of Wave 1, then hide all but the 0%, 100%, 161.8%, 2.618% and 423.6% lines.  The graphic on the right shows the configuration for the fire lines.

The next step is to further subdivide the 4 regions between the red lines at the 0.382 and the 0.618 lines.  Those are the green lines which JC calls the "tree" lines. Now sub-divide those regions once again at the 0.382 and 0.618 levels and color them white to get what Carter calls the "snow" lines.

Within a day or 2, I calculated the Voodoo lines on most of the popular charts I look at.  This was very exciting stuff.  Not only did I save the $995 to buy the Voodoo lines indicator, I saved $50 a month in on going maintenance charges for the rest of my trading life!  Now you can understand why I don't like to spend money on indicators!

Using my new found knowledge, I did swing trades in AZO and NFLX on their breakouts to new all-time highs.  Unlike the past, I knew in advance when to take profits!

Here's another one of my favorites, Facebook.  I'm loaded up long.  Use this information to you own benefit and have a great weekend.

Sunday, February 2, 2014

Active-Trader - Voodoo Clues - Part Two

Welcome back Active Traders and Wealth Builders.

In this post, I want to delve further into how the Voodoo lines are calculated.  We know from last week's post that Voodoo lines are a very valuable tool for identifying hidden areas of support and resistance.  While I did not purchase the indicator, I have seen it work first hand many times with almost eerie accuracy.

Further research indicates the Voodoo lines indicator was originally called FibGrid and marketed by First Wave Trader.

The name FibGrid in itself gives some pretty good clues as to how the indicator works.  I struggled with some Fib Tools in ThinkorSwim and then did what every good information worker does - they just ask Google!  Using that I came across a marvelous video found here which basically lifts the lid on the way the indicator works.  Its based on Elliot Wave principles, so if you are not familiar with Elliot wave, do some research here.

1) First step is to zoom out to a weekly or larger time frame and look for a major low that corresponds with the bottom of wave 1 in an 5-wave bull market advance

2) Second, identify the point at which wave 1 ends and gives way to wave 2.  In the example above, that corresponds to point 1 on the chart shown in white.

3) Next, use the Fibonacci extensions tool to measure the distance from the low up to the top of wave 1.  That corresponds with 100% of the high to low move of wave 1.  The low itself represent the first red line and the top of wave 1 represents the second red line.

4) Next step (and here's where it gets really cool), configure your Fibonacci extensions tool with these ratios 0%, 100%, 161.8%, 261.7% and finally 423.5%.  Those 5 red lines represent the 5 most powerful lines in the sequence and will act as areas of both support and resistance.

Knowing that, I figured it would be a snap to fire up ThinkorSwim or Tradestation and replicate the results I grabbed from some screen shares from Simpler Options and videos shown by John F Carter.  This is where it got sticky - where exactly does wave 1 begin and end?  Are the intra-day high and low values included, or just the closing values?

With some trial and error, I was able to replicate the red lines for SCTY with about 10 cents or so.

This is a marvelous discovery and probably the biggest revelation about and indicator since I cracked Range Bands earlier in this blog.

Check back later for part 3 where I delve into the green and white lines.