S&P Trading Technique

[tradergap]

I recently read about a simple trading method for the S&P 500. Buy signals are generated when the 1 min, 2 min, and 10 min stochastics point up.

Exit and sell signals are generated when the 1 min, 2 min, and 10 min stochastics turn down. Due to the simplicity of this method I am interesting in testing this out.

Both entries and exits are not based on price but on indicator signals.

Has anyone heard of this trading tactic? How reliable would you think this is?

[luke24.5]

Indicators tell you what has been happening. They ahve nothing to do with what is about to happen. The ONLY thing that moves the market is supply & demand, or what some call support and resistance.

Indicators don't matter.
News doesn't matter.

When the market reaches a point of resistance (supply) it will retrace or sell off until it reaches an area of demand or support.

I know of people who trade nothing but price.

I know of traders who trade market profile based patterns and use only volume to determine wuply and demand. But they're essentially looking for the same thing. Who enters the market when price reaches a previous point where supply or demand rests.

Check out The Scientific Investor website and download their free primer.

[Soultrader]

tradergap, read through the posts on the forums and you will see that some traders here rely soley on price and nothing else. Trading indicators can be profitable but what are you going to do once they no longer work?

Price is king. Market conditions change everday and that is why system trading must be tweaked constantly. Once you learn to trade price, you will be light years ahead of the game compared to other traders.

I have also heard of that stochastic tactic but I highly doubt it is a good system to follow. If every single indicator in the world showed bullish signs, the entire world must be a buyer. Who is left to buy?

[tradergap]

Thank you for the replies. As a new trader starting out in this learning process I have only studied how to apply indicators. Looking for convergence and divergence or using multiple indicator confirmations....

As mentioned, the number one trading strategy seems to based on price.

My question is: How long will it take for a new trader to understand market action from price only?

Do I observe price and focus on support and resistance levels? How do I derive these levels?

Thank you.

[Soultrader]

I can not give you an exact time it may take for you to learn the markets based on pure price action. I can give you an example from my own experience though.

I learned trading while working at my old job at the office. Because I was unable to install any trading platforms, I would simply visit sites like futuresource.com | Futures & Commodities Quotes, Charts, News & Analysis to get delayed quotes and a 15 minute delayed candlestick chart. Obviously these charts do not have advanced technical analysis so the only thing I was able to look at was a candlestick chart. Absolutely no volume or any other technical indicator.

The only way for me to update the charts and quotes was by refreshing my browser. So I would reload my browser every 15 minutes to obtain fresh information. This went on for approximately 4-5 months and in the meantime I began to try to predict price. Since it was a browser based chart, I could not see the actual price movement. All I could see was where price would be in the next 15 minutes.

This pain in the butt method actually helped me learn price action immensley. I began to write down trades or predicitons on where price would be in the next 15 minutes. I started to realize that prices will move from one level to the next once support/resistance is broken. So I began to look for key support and resistance levels using a 5 minute, 15 minute, and 60 minute chart.

I also noticed how overnight S/R levels acted as key pivots for the trading day. Eventually I worked on this skill set to study market profile and came up with my own trading style based on pivots and MP. I no longer use a 5 minute, 15 minute, and 60 minute chart.

I use a 233 TICK chart and a daily chart for most of my trading. I have also applied more advanced pivot point trading techniques into my arsenal. But initially, I was kind of forced to learn the markets just by observing price.

I am sure you have the luxury of real-time data. Start by taking all your indicators off. Apply a candlestick chart and a time of sales and just sit there and watch it all day.

Enough absorption by your mind and you should start to recognize patterns. Force your brain into autopilot. Trading should be as easy as driving a car. First year drivers are usually reckless. In Japan, cab drivers are the best drivers. Why? Experience in a dense city.

Commit at least 3 or more months understanding market action based on price. Trust me this will all pay out in the end. Good luck.

[tradergap]

Originally Posted by luke24.5 I know of traders who trade market profile based patterns and use only volume to determine wuply and demand. But they're essentially looking for the same thing. Who enters the market when price reaches a previous point where supply or demand rests.

I would like to ask one question regarding support and resistance. If I was to analyze the markets and look for support and resistance levels, should I observe past events to predict the future?

From my understanding pivot points are not derived from past information?

[Soultrader]

Originally Posted by tradergap I would like to ask one question regarding support and resistance. If I was to analyze the markets and look for support and resistance levels, should I observe past events to predict the future? From my understanding pivot points are not derived from past information?

I think you got it mixed up tradergap. The market is one big auction place of human emotions. Human behavior repeats itself. That is why price patterns still work to this day.

Pivot points are also data derived from the past. You take the previous days close, high, and low to come up with daily pivots. This is still past data.

Key support and resistance levels with high volume can act as key reversal points. Try learning crowd behavior and you will have a better understanding of market psychology. One of my favorite crowd psychology books is, The Crowd by Gustave Le Bon.

[Visionary]

Great book by the way. It was recommended by a trading friend also.

[Soultrader]

Originally Posted by Visionary Great book by the way. It was recommended by a trading friend also.

Have you read Extraordinary Popular Delusions and The Madness of Crowds by Charles Mackay?

Great book reflecting historical events of greed. One popular story is the tulip mania in Holland where people would trade their house for a couple tulips. Booms and Busts.... this cycle will always exist. It is in our nature.



Extraordinary Popular Delusions and The Madness of Crowds

[Robert]

Originally Posted by luke24.5 Indicators tell you what has been happening. They ahve nothing to do with what is about to happen. The ONLY thing that moves the market is supply & demand, or what some call support and resistance. Indicators don't matter. News doesn't matter. When the market reaches a point of resistance (supply) it will retrace or sell off until it reaches an area of demand or support. I know of people who trade nothing but price. I know of traders who trade market profile based patterns and use only volume to determine wuply and demand. But they're essentially looking for the same thing. Who enters the market when price reaches a previous point where supply or demand rests. Check out The Scientific Investor website and download their free primer.

Hello Luke,

I am interested in learning more about trading with price action. How long does one take to fully understand the movements of the markets with price only?

The reason I say this is because I just recently started learning to trade on a short term basis. I have read several books that teach trading with indicators. But reading through some of the posts in this forum, I noticed that many traders disregard indicators as part of their trading methods.

I would like to start learning on the right track. Any advise would be appreciated. Thank you