Thought I'd post these charts showing the current H6-M5 spread that I was tempted to take - but abstained. (Also in an attempt to bring some karma back home as I hope to bring back some discussion to T2W on what I think are real trading issues, rather than needless discussions on spread betting for 1p a point)
A lot of people are jumping on the 'I dont use indicators' band waggon at the moment for no other reason than it seems the current fashion to think in this way.
I wanted to show that indicators do have their uses if we know how to use them properly. Admitidly, the majority of my positional or day trading is relatively indicator free.
So here we have 2 charts. One weekly and the other daily. As the spread chart gives us so little to go on - just the line - not even bars or volume, I find indicators can be used to give a little more clarity to what is going on. Both charts look strong when just looking at the line and I was tempted to open a position until further examination....
The RSI is useful when comparing 2 related charts as it is a true oscillator that is bound between 0-100. Therefore if A has a reading of 55, while B has a reading of 67, B is obviously the stronger candidate. Obviously there must be some sort of relationship between A & B (like 2 stocks in the same sector, or in this case 2 calendar spreads of the same instrument for any comparison to be valid). However, this wasnt necessarily the reason for posting these charts.
As I said, they both look strong when viewed as just line charts, yet both the weekly and daily charts are showing divergence with their RSI. RSI can be misleading. any oscillator can diverge for a long period before the trend finally finishes. However, when used with Bollinger Bands, more meaning can be determined. In this case, the weekly chart shows a high in November just outside the bands, followed by 2 higher highs inside the bands. So there is confirmation from a volatility indicator and a momentum indicator of potential weakness emerging. I have found this to be a very reliable indication of the end of a trend before. The same situation can also be seen in the daily chart - more confirmation.
So I have left this spread alone and search continues further on down the curve for something a bit stronger. Z6-Z5 may be better..... Learning how to reject trades is as important (if not more so) than learning how to find trades. Patience is the key in trading.
Of course, having posted this, the spread is undoubtedly going to go through the roof - such is life! I should point out though that my objective for a spread trade is to ride the trend for weeks if not months. I am not interested is a quick few ticks. I want 20-30 ticks. When you take into account the incredibly low margin for these positions (about $439 per spread I think), large positions can be built up over time. Good things come to those who wait - and take the trouble to do some work and look beyond the envelope.
A lot of people are jumping on the 'I dont use indicators' band waggon at the moment for no other reason than it seems the current fashion to think in this way.
I wanted to show that indicators do have their uses if we know how to use them properly. Admitidly, the majority of my positional or day trading is relatively indicator free.
So here we have 2 charts. One weekly and the other daily. As the spread chart gives us so little to go on - just the line - not even bars or volume, I find indicators can be used to give a little more clarity to what is going on. Both charts look strong when just looking at the line and I was tempted to open a position until further examination....
The RSI is useful when comparing 2 related charts as it is a true oscillator that is bound between 0-100. Therefore if A has a reading of 55, while B has a reading of 67, B is obviously the stronger candidate. Obviously there must be some sort of relationship between A & B (like 2 stocks in the same sector, or in this case 2 calendar spreads of the same instrument for any comparison to be valid). However, this wasnt necessarily the reason for posting these charts.
As I said, they both look strong when viewed as just line charts, yet both the weekly and daily charts are showing divergence with their RSI. RSI can be misleading. any oscillator can diverge for a long period before the trend finally finishes. However, when used with Bollinger Bands, more meaning can be determined. In this case, the weekly chart shows a high in November just outside the bands, followed by 2 higher highs inside the bands. So there is confirmation from a volatility indicator and a momentum indicator of potential weakness emerging. I have found this to be a very reliable indication of the end of a trend before. The same situation can also be seen in the daily chart - more confirmation.
So I have left this spread alone and search continues further on down the curve for something a bit stronger. Z6-Z5 may be better..... Learning how to reject trades is as important (if not more so) than learning how to find trades. Patience is the key in trading.
Of course, having posted this, the spread is undoubtedly going to go through the roof - such is life! I should point out though that my objective for a spread trade is to ride the trend for weeks if not months. I am not interested is a quick few ticks. I want 20-30 ticks. When you take into account the incredibly low margin for these positions (about $439 per spread I think), large positions can be built up over time. Good things come to those who wait - and take the trouble to do some work and look beyond the envelope.
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