There are great examples of dojis on the DIA and $COMPQ charts today for those interested. The charts of SPY and IWM are not bad either. For those who want to get more background on what else to look for in a chart to increase the odds that a doji is a reversal, you could use the search feature on the blog page and search for "doji". The Japanese said that the doji represented a market that was tired, in balance, or indecisive. It by no means always leads to a reversal, but it is a classic reversal candlestick, and should give warning.
As a quick recap, here are things to look for......
1) the doji happens at or close to horizontal support/resistance that. This happened today in SPY as the upper shadow moved above the Oct high, but the close was a bit below it. $COMPQ is just below the corresponding highs from Oct.
2) the doji happens after a substantial trending move allowing the market to get tired of that direction. Use past up and downs to gauge this but I would say less than 5 bars is not real significant. Today is 8 up days in a row for SPY.
3) standard oscillators like stochastics or RSI are overbought/oversold. RSI(3) is very overbought right now (around 90) and stochastics is just hitting overbought territory.
4) it is more reliable if the next day closes in the opposite direction of the prior trend
5) reversal candlesticks at the upper or lower bollinger band are at an extreme price and may be more prone to reversal
There are probably some more things we could throw in there, but those are some highlights.
The SPXU trade closed right about the entry level this morning. We got a potential reversal candlestick with the doji, so we may be able to move the stop down if there is downside follow-through tomorrow. But right now, I'm going to keep the stop where it is. I will be quick to move it if there is a sizeable gap down tomorrow or a large down day.
Leave the other trades as is for now.
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http://traderfeed.blogspot.com/2009/11/divergences-on-market-radar.html
ReplyDeleteHere's a post from TraderFeed showing how the base of the rally has been narrowing at each successive peak the last 3 months. Possible bearish implications, but obviously continued strength can correct the divergences.
Why do you have this one greyed out so it's not visible?
ReplyDelete"Open SDS trade entered 7/13/09 for 57.85."
And we don't have a page with a history of all trades like you used to.
I will put the SDS trade back in a couple days.
ReplyDeleteThe list was getting too big for past trades, and I don't attempt to direct traffic to my site in any way, so it's basically the same 20 people or so that follow it, and don't really feel that posting them means a lot to me or anyone else at this point, especially now that most get the posts via RSS feed now which doesn't even include all that stuff.
The blog platform is limited in what you can do. It would be nice like in a conventional website to just have another page where that all is there, but in a blog I would have to publish a new post every time I put the info for a new trade and feel that would be excessive posting.
Here are the last update and closed trades since then
http://stockmarketalchemy.blogspot.com/2009/08/updated-2009-closed-trades.html
-2.25
0.00
5.45
-2.18
-2.99
-3.33
15.15
0.11
3.27