Thursday, December 4, 2008

Update to Cross Currents Article - Stochastic

So there we were yesterday evening, overbought on the 60, 30, 10, and 5 minute stochastic – I took a small short position. This morning we dumped, then retested the upper boundary at SPX 875. I had my stop set at 876 and was nearly pipped, but stayed safe by a whole half point! As the stochastic got more overbought, I actually added a little to my short position.

Now let’s take a look at where we are; the following snap-shots where taken at about 9:05 this morning. Let’s start with the 5 minute SPX, you can see that the fast stochastic has reached oversold, but not the slow, yet. Do I sell my position?

Well, let’s now look at the 10 minute stochastic. Just reaching oversold on the fast, but the slow is not even half way down. Do I sell?

Now let’s look at the chart that I key on for short term trades, the 30 minute. Here you can see that we still have not issued a sell signal, but the fast is heading out of the overbought range and is pointing pretty much straight down. Do I sell? NO, I am going to wait and even if the shorter time frames oscillate up, I am not going to sell until either the 30 minute fast reaches the oversold line or I get stopped out, whichever comes first. Win a fair amount or lose a teeny amount. Play that oscillator game enough in the correct fashion (do NOT be a pig) and your profits will outweigh any small losses you have. That’s just me, and it’s just one technique that I use. It’s a good technique here because I DO NOT have a good technical target otherwise besides the bottom boundary of that bear wedge.

CAUTION: the day’s price action “feels” bullish to me and some of my indicators are mixed. Keep it small do not be a hero (when it comes to trading, heros are zeros).

Good luck with your day,