YM, ES and DJIA Analysis

[james_gsx]

Alright, seeing as how the last AAPL thread seemed to do pretty well with people offering their inputs I thought we could give it a shot with a current weekly chart of the Dow.

From my newbie perspective, I see a doji but the week still finished up on strong volume. The week opened low near support and the bulls pushed the market higher only to panic and fall back to support. This week came with stronger volume and the market panicked early, then the bulls regained strength to finish at support. Now what's weird IMO is how the week before looks like the bears took control yet we finished higher, and this last week the bulls took control yet we finished lower. How would you take this? I see a lot of indecision, well emotion taking over. You could make the argument that the weeks before we saw a lot of people get shaken out on big volume, and then a ton of indecision to follow with just as strong of volume following after. I guess we wait for confirmation?

I know how I'm going to play this already, but from a purely candlestick/volume view how would you perceive it?

[Nick1984]

Its going to be hard to answer this without referring to the recent Fed interest rate cut. On candles alone there looks like theres plenty of buying pressure but that was sparked off by the aforementioned intervention. After 3 weeks of steady falls people have been buying in at bargain basement prices and the Fed announcement boosted things along nicely.

On the candles alone I would say that we are going higher again. The strong volume on that last candle is telling. Even though it's red I would see it as being red simply on behalf of a late sell off by profit taking (I haven't checked the intraday charts so I'm assuming) which made the candle close lower.

Edit: I just noticed that its a monthly chart! Silly me. Anyhow that doesn't really change my oppinion. I think we'll be going back up again.

[brownsfan019]

James,
My view is this - there was a really nice looking shooting star to go short about 5 candles back and now we have a large hammer, which appears to be a possible pullback to the SMA as well.

In TRADITIONAL candlestick analysis, there is a possible buy here. The next step is to decide how/when to play this, which we'll discuss in another thread when I get a chance to put the thread together.



PS
I have one favor to ask - when posting charts, can you zoom in on the price action you are referring to? See my screenshot for an example. Reason is that I had trouble viewing your screenshot to see the price action that you were asking about so I had to hop over to stockcharts to get the chart. It just makes it more convenient for everyone if we can just view your chart easily. If you need a free version of SnagIt, check this thread out - http://www.traderslaboratory.com/for...-7-a-2170.html

[james_gsx]

Will do Brownsfan, and thanks.

[brownsfan019]

Here's the follow up thread I referenced earlier - http://www.traderslaboratory.com/for...ther-2279.html

[brownsfan019]

James,
Here's some follow up to our discussion here.

DAILY DIA CHART




On the daily chart, we had a hammer that you simply do not see that often occur around August 20th. I don't trade stocks/etf's anymore, so I was just using the free version of stockcharts.com here. But look at that hammer - monster volume, right @ the 200 SMA... WOW.

ONE VERY IMPORTANT NOTE ON THIS CHART - Look at the next day after the hammer. NO RETRACEMENT into the body of the hammer. If you saw this and said 'I'll wait till it comes down a little to go long...' you are still waiting. THIS IS WHY PLANNING YOUR ENTRIES IS VITAL. If you saw that hammer and did not play it b/c of poor planning, you just cost yourself a gorgeous trade.



WEEKLY DIA CHART



Here's the weekly chart James. As you can see, we have some bullish confirmation here. I personally was never a fan of trading off the weekly as I thought that was just too much time to elapse (or wait!). No matter how you planned to enter this trade, you *should* be long. Again, planning is key here b/c there was a retracement on the next candle to just below the real body of the hammer. If you were waiting to cherry pick it at the bottom, you are still waiting...


IN SUMMARY
We have two very nice hammers on the DIA daily and weekly charts. I would much prefer to play the daily as I think it's easier to manage the trade each day and use the weekly as some help or guidance. In my opinion, the daily DIA hammer trade has been a success. Again, it's all about how you MANAGE the trade once the hammer has done it's job. There's a million ways to manage this trade, so we'll leave that part up for discussion elsewhere on the forum.

[brownsfan019]

One follow up to my DIA post b/c it got me thinking... This is the beauty of the forum - I did not play either of those hammers in my personal accounts as I was too wrapped up in to the day-to-day moves on the ES. Now think about this - had I just loaded the boat on the DIA hammer (buying the DIA, options, maybe the YM....) I could have had a stress free trade for DAYS.

Just something to think about.

The candles are very powerful on a daily chart in my opinion. And the reason I say this is that on a daily chart, you just need an EOD software to quickly scan these and then you have all night and the next morning (until 9:30am EST) to plan your trade out. That's pretty powerful stuff if you ask me.

Bottom line is that we are all here to make money. I'm not saying candlestick analysis is perfect, but when you get a hammer like that DIA trade, that can literally make your YEAR if played properly. It's all about risk and how much you are willing to take on a trade like that. In my opinion, trading on a daily chart with that type of a hammer just requires you to pull the trigger and let it rip. I'm of the belief that if you are swing trading (which I don't blame you) and a pristine setup appears, you have to be willing to 'load the boat'. I learned that phrase from another trader that I worked with years ago that would routinely make large 'bets' using the daily charts. He could afford to do this b/c he had plenty of time to do his homework and plenty of time to allocate his accounts and manage the risk. VERY different than day-trading futures.

Some food for thought today class.

[brownsfan019]

And out of curiosity, I decided to see how a daily YM chart looked. Big surprise.




Now, before anyone goes out and starts trading the YM on a daily chart, keep a few things on mind when swing trading the YM:

1) Overnight margins apply, which are set by the exchange.
2) Make sure your risk is planned out in advance. On this trade, I would have my initial stop at the bottom of the hammer. In our example here, that's literally an approx 400 pt stop. Yes, 400 pts.
3) B/c of that leverage and risk in this trade, the DIA trade may be more appropriate based on account size. Or a mix of vehicles could have worked too - some DIA shares, some call options and some YM contracts. My best guess is that the best risk/reward was probably in the DIA call options on a per share/contract basis.

[brownsfan019]

And the daily ES chart...

[james_gsx]

Brownsfan, whats your thought on the decreasing volume as the markets rise? It looks like we are at the upper trendline of a new bearish trend. I see how bullish the candle is, but what about the volume?





Sorry, I zoomed in on the candles on snagit but for some reason they aren't posting like they were when I saved them.