Volatility Scuttled the Bears on Quick Reversal
A "Slam-Dunk" turned into a "Big Bear Dunking."
SPY 20 Day, Hourly - 7.20.10 - Market reversed with a vengeance.
Wednesday, July 21, 2010
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DISCLAIMER: Potato Peelings is not a registered Investment Adviser or a Broker/Dealer. The trading of securities may not be suitable for readers of this Journal. You should be aware of the risks inherent in the stock market. Past performance does not guarantee or imply future success. You cannot assume that profits or gains will be realized. The purchase of securities discussed in this Journal may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities, or making any investment decisions. You assume the entire cost and risk of any investing and/or trading you choose to undertake.
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DISCLAIMER
DISCLAIMER: Potato Peelings is not a registered Investment Adviser or a Broker/Dealer. The trading of securities may not be suitable for readers of this Journal. You should be aware of the risks inherent in the stock market. Past performance does not guarantee or imply future success. You cannot assume that profits or gains will be realized. The purchase of securities discussed in this Journal may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities, or making any investment decisions. You assume the entire cost and risk of any investing and/or trading you choose to undertake.
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Recommended Books on "Trading the Markets" - Order @ Amazon.com
- "A Beginners Guide to Day Trading Online" by Toni Turner
- "Day Trade Futures Online" by Larry Williams
- "High Probability Trading" by Marcel Link
- "How to Make Money in Stocks" by William O'Neill
- "Japanese Candlestick Charting Techniques" by Steve Nison
- "Mastering the Trade" by John Carter
- "Reminiscences of a Stock Operator" by Edwin LeFevre
- "Sell & Sell Short" by Alexander Elder
- "The Disciplined Trader" by Mark Douglas
- "The Four Biggest Mistakes in Futures Trading" by Jay Kaeppel
- "Trend Trading for a Living" by Thomas Carr
- "Way of the Turtle" by Curtis Faith
The Potato Trader
- Peter Ballenger
- Memphis, TN, United States
- I have had a long interest and experience in the stock market as a way of making money and building wealth. I am particularly focused on searching for and defining mechanical trading systems that remove emotions from trade decisions as much a possible. Fear and greed are at the emotional heart of financial decisions. It is essential that emotions be kept under reasonable control. "Paralysis by Analysis, Fear of Loss, Anxiety" all play pivotal roles in the lives and decisions of traders and investors alike. "Fundamental Analysis" which is appealing to many often leads to a "Buy and Hold" philosophy which can be deadly once you get married to an investment and "Fundamental Idea." Fundamentalists often ignore market behavior and underlying trends. I have come to the conclusion from experience that "technical analysis" regarding market trends and behavior have proven more profitable for me than fundamental analysis. "Potato Peelings" is devoted to documenting and sharing that pursuit with others. Sweet Potato Swing Trading is just my personal way of visually recognizing Moving Average Crossovers in different time frames.
Sweet Potato Swings
Defining the Potato
What exactly is a "Potato?" The Potato Trader "Potato" is a sweet potato. They come is all sizes but are elongated fusiform bodies being pointed on each end. Our Potatoes are a visual graphic of the space created between the 20 Day Moving Average as it crosses the 50 Day Moving Average either to the upside or downside. This result is a shape much like a sweet potato. Potatoes can be seen in all time frames and can be useful in determining market trends and especially reversals of trend. The market either moves up or down so Potatoes can be called a Bull Potato or Bear Potato. Potatoes do not tell you exactly where the market is going, but much like tracks in the snow, they can indicate a general idea of direction. Another observation is that Potatoes usually last from 3 to 5 days but may be shorter or longer. Using the MACD (Moving Average Convergence Divergence) crossover of the zero line in conjunction with the Moving Averages may help in making specific decisions as to when to enter or exit a trade. A high degree of success can be had by playing the market off of the Potato Skin. Avoid trading within the Body of the potato. We refer to this as the Devil's Den. This area is an active battleground between Bulls and Bears and turbulence, reversals, and volatility can be expected. There are many other useful indicators that can be used as well. For simplicity and avoidance of confusion we have limited our considerations to the MA crossovers and the MACD.
Potato Peelings uses the SPY (S&P 500 Index) as our market preference. It is confusing to try and cover multiple issues and indexes in a Blog of this sort. Most ideas presented here can be applied to other indexes such as the DJX, QQQQ, IWM, etc. The SPY is widely accepted as representative of the market as a whole.
Our preference as a Trading Platform is Think or Swim (www.thinkorswim.com). It offers both Prophet Charts and TOS Charts and very advanced technology that will meet the expectations of even the most experienced traders.
There are many methods and styles used in investing and trading markets. It is most important to have a system that works for you. It is just as important to know WHEN NOT to trade as it is to know WHEN to Trade. Discipline is paramount to being successful. Do not enter a position without having an exit plan and once entered stick to the plan. Loses are inevitable in the market so keep them small. "The only thing worse than being wrong is staying wrong."
Ideas presented here are considered educational and informational and should not be construed as financial advice or recommendations as to market decisions. For specific market advice consult a financial advisor or broker.
Our goal is to find mechanical models that help remove emotions from trading decisions. Fear and Greed are the principle stimuli for our actions. They must be controlled by a combination of a reliable trading system and self discipline. Your feedback and comments are welcome.
Potato Trader
Peter Resnicek, Shadow Trader
"Be on the right side of the trade. Trade to trade well and not to make money. The only thing worse than being wrong, is staying wrong."-B.A.
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Devil's Den
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Take Care in the Devil's Den
In Potato Trading we need to look at the 30 minute time frame to indicate the crossover, but the safer play is to wait on the 60 minute chart to confirm that event. Taking positions before confirmation can be done but at significant increased risk. The "Devil's Den" is that zone between the 10 and 30 day moving averages on the 30 minute chart. It is very tempting to "jump the gun' and get "ahead" of the game. The problem is that confirmation often does not occur and the move reverses. This "Devil's Den" concept is based on our experience doing Potato Trades. The "Devil's Den" idea may not be applicable to other trade methodologies.
Leonardo of Pisa "Fibonacci"
12th. Century Italian Mathematician
Fibonacci Numbers & Formula
Golden Rectangle Formula - Our Logo is the Fibonacci Golden Rectangle
Prime Number 1.618Multiply one side of the rectangle by 1.618 and you get the ideally proportioned shape of the Golden Rectangle (The dimensions of today's Credit Card or Business Card). These proportions are by nature most pleasing to the human eye.
The Fibonacci Sequence:
0,1,1,2,3,5,8,13,21,34,55,89,144 .... to infinity.
Add the two prior numbers to get the next number in the sequence.
Fibonacci mathematics can be applied to price movement and technical analysis in any market and is also applicable in many industries as well as in the laws of nature and biology.
Fibonacci Retracements:
23.6% - First level of retracement. In a strong trending market this level is a frequent bounce point. In a weak trending market it is commonly breached.
38.2% - Level of significant trend erosion if resistance fails here.
50.0% - Critical level of resistance. Serious indicator that the prevailing trend is threatened.
61.8% - If this level is broken it means the trend has most probably changed direction.
These are very basic definitions of Fibonacci levels. There are many variables and fine points that could be elaborated on.
There are numerous sites on the Internet that explain the multiple uses of Fibonacci mathematics. Clicking on the picture will take you to one. You can also type in "Fibonacci" on Google Search and find many sources of information.
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