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How To Spot And Profit From A Market's Direction
DALLAS (March 18, 2010)… Phil Storer, long-time stock and commodity trader, says it's wise to stick with the prevailing trend when entering a market, unless there's a good reason to oppose it. No matter how you developed a trading idea, make sure you've identified the market's direction, he advises. In his book, Chalk Talks for Traders - Easy Xs and Os from a Proven Market Pro, to be released in April, Storer says: “to avoid as much subjectivity as possible, have some triggers or price levels that will allow the market to decide when, where, and if you'll enter a trade.” Triggers can be stops, or priced orders that are activated when a specific price is touched. Your order then becomes a market order that will be filled as soon as possible. A stop allows you to place a buy-order above, or a sell-order below, the current price for execution when the market gets there. As a guideline, if a market opens above the high price from two daily-price bars earlier, a sell-stop should be placed two ticks below that high, Storer recommends. And if a market opens below the low of two daily-price bars earlier, a buy-stop can be placed two ticks above that low. A protective stop is meant to give you an initial indication of the risk. As the trade moves into a profit zone, it makes sense to move the stop along with it--to reduce risk and protect your profit. Since stops become market orders when the stop price is touched, you can't know the exact amount of your risk. But the stop is usually filled at the chosen price, give or take one or two ticks. One effective trend-identifier is the “triple jump,” using the extreme price of the last three daily-price bars to measure a trend change. Storer says “for a downtrend, find the bar with the lowest close and count that bar, as well as the two bars preceding it. Use the highest-high for that three-bar period as your downtrend parameter. A trade above the high of that bar indicates a change in the trend from down to up.” But if the market stays at or below that high, the trend is considered to be down. An upside-reversal occurs when a market trades below the previous daily-price bar’s low and then closes above the previous bar’s close, Storer notes. A downside-reversal happens when the market trades above the high of the previous bar and then closes below the close of the previous bar. These occurrences suggest that the market has changed its mind and will start to trend in the opposite direction. If a “failure” happens, use it to your advantage, Storer says. “There's an early hint that a failure will occur when the market moves below the low of the bar preceding an upside reversal, or if the market moves above the high of the bar preceding a downside reversal. That failure-signal can sometimes be turned into an excellent trade, going in the opposite direction.” The “hiccup trigger” is one of the easiest signals to spot and use, Storer says. “It works well for short-term trading and for position accumulation in longer term opportunities, and it really comes in handy if you need to join a fast-moving market in the direction of the trend.” If a market begins to trend, but along the way has a small-range bar with a counter-trend close, you can use a stop to enter the market as soon as it resumes the trend, he says. Storer specializes in providing customized plans tailored to a client's needs and wishes. A desire to win, a disdain for losses and a strong respect for patience and discipline are the qualities that have helped him for decades. He is also the author of Tricks of the Futures Trade, A Guide to Futures Trading by a 25-year Survivor. Article Directory: http://www.articledashboard.com Phil Storer is the director of trading for the commodity division of Dillon Gage Inc., a full service brokerage firm based in Dallas, Texas. For a review copy of Chalk Talks for Traders – Easy Xs and Os from a Proven Market Pro, or to arrange an interview with Storer, please contact: Jo Trizila, TrizCom, at (972) 247-1369 or (214) 232-0078. To pre-order Chalk Talks for Traders – Easy Xs and Os from a Proven Market Pro go to: www.chalktalksfortraders.com/ . |
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