AlexAndrews
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Good questions. First off, I didn't know it was going to go down. This is a very important point. However, a descending triangle - especially following a fall - is usually followed by a further fall (basically continuation of the larger market direction). The correlation is even higher when it breaks down through the base of the triangle. I do not know the actual statistics to back this up, but triangular consolidations are very strong indicators. As to the target price, that is simply calculated by measuring the height of the triangle (in this case, about 50 points), and subtracting from the base level of the triangle (in this case, ~9860).
There's no great shakes to this system, but, once you can recognize the patterns, it does require the discipline (a) to wait for a stong consolidation pattern to form, and (b) to wait for the break-out from the pattern rather than try and anticipate it (very tempting to try and make a few more points, but you can get caught out when the formation does not complete as you anticipated). In addition, as I mentioned earlier, you need to get a bit of prior experience as to what happens shortly after the break-out to trade it properly and confidently. This is not something that can be easily taught, rather it is something that needs to be learnt by observation.
Hope that is of some help.
Alex
There's no great shakes to this system, but, once you can recognize the patterns, it does require the discipline (a) to wait for a stong consolidation pattern to form, and (b) to wait for the break-out from the pattern rather than try and anticipate it (very tempting to try and make a few more points, but you can get caught out when the formation does not complete as you anticipated). In addition, as I mentioned earlier, you need to get a bit of prior experience as to what happens shortly after the break-out to trade it properly and confidently. This is not something that can be easily taught, rather it is something that needs to be learnt by observation.
Hope that is of some help.
Alex
SOCRATES
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I told our American cousins this would happen as early as the 4th, as the most probable likely outcome of background market action.AlexAndrews said:
With this outcome you describe above, notice that the development downwards from the triangle you mention is a ragged decline, but accompanied by above average volume.
This means it may go further or be stopped.
It is weakness, but at this stage in the proceedings it is not as weak as the action that preceded it. The volume is not enough to stop the move dead in its tracks but enough to
slow down the progress it would have otherwise made.
AlexAndrews
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The weakness as it hit 9820 seemed to be petering out when I was watching, which is why I would have closed a short position there rather than hoping for my target of 9810 to be reached. I'm still not particularly good at correlating the significance of volume with price action (notable exceptions being "blow-off tops" and captiulations) - I just tend to trade the price action.SOCRATES said:
Alex
AlexAndrews
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Another short-term consolidation seems to be forming in the DOW. Looking on the 5-minute chart, the DOW has bounced fairly consistently between ~9810 and ~9855 for quite some time. Might be worth watching the action once it breaks one of these levels (I'm not set up yet to trade the move, unfortunately).
Alex
Alex
Carpe,
Trading the stock indices successfully is very difficult. You`re up against professional traders and market makers whose aim is to take your money! If you follow another trader`s strategy, even though it may work for them, it may not necessarily work for you (e.g. you may panic if a trade starts losing money, or you may take your profits too early). There are no easy ways to achieve consistent success, but there are lots of easy ways to lose money.
I suggest you don`t consider trading atall until you`ve at least made a detailed study of technical analysis, from which most trading strategies derive. A good start is "Technical Analysis of the Financial Markets" by John Murphy or "Technical Analysis of Stock Trends" by Edwards & Magee.
Trading the stock indices successfully is very difficult. You`re up against professional traders and market makers whose aim is to take your money! If you follow another trader`s strategy, even though it may work for them, it may not necessarily work for you (e.g. you may panic if a trade starts losing money, or you may take your profits too early). There are no easy ways to achieve consistent success, but there are lots of easy ways to lose money.
I suggest you don`t consider trading atall until you`ve at least made a detailed study of technical analysis, from which most trading strategies derive. A good start is "Technical Analysis of the Financial Markets" by John Murphy or "Technical Analysis of Stock Trends" by Edwards & Magee.
AlexAndrews
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I would seond tradertim's comments most strongly.
Going back to the DOW consolidation, when the lower level at 9810 was breached, I wouldn't have gone short (even if I could have done) as it just didn't look/feel right. I can't explain why, which is why I have said it is important to spend some time experiencing these breaks before using them to take positions. As the DOW then seemed to continue to drop, I thought my instinct had been wrong, but I would rather not take a trade which didn't seem right - opportunity loss I can deal with
Anyway, the subsequent action has nullified the consolidation formation, so back to waiting for another to form. (I wonder if 9800 will continue to hold?)
Alex
Going back to the DOW consolidation, when the lower level at 9810 was breached, I wouldn't have gone short (even if I could have done) as it just didn't look/feel right. I can't explain why, which is why I have said it is important to spend some time experiencing these breaks before using them to take positions. As the DOW then seemed to continue to drop, I thought my instinct had been wrong, but I would rather not take a trade which didn't seem right - opportunity loss I can deal with
Anyway, the subsequent action has nullified the consolidation formation, so back to waiting for another to form. (I wonder if 9800 will continue to hold?)Alex
FWIW - I think in order to trade -You need to "learn". Read up material and also go to a Seminar about what you want to trade and the instruments that can be used -Working trades on tips is just a way to get on the "rubbish tip" best advice is dont rely on tips -go and get knowledge.Same analogy as Buying a car -You need to know the make,engine size(can you handle it etc) what fuel it takes etc and do you have the "licence to get on the road" otherwise you will become a cropper.
rgds
zarif
rgds
zarif
AlexAndrews
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To be fair Zarif, carpe's initial post asked for a strategy for trading indices, not for tips. I still think the "consolidation-breaks" strategy is highly suitable because it is (a) simplicity in the extreme, and (b) very reliable (with caveats - see previous posts). The only investment it requires is some experience observing the behaviour when breaks occur in order to be able to identify the tradeable contenders, and little else. Anyway, I think I've said enough on the matter. Anyone interested in learning more about it can always PM me.
Alex
Alex
Second income trader
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I'm interested in starting trading the indices, and was considering spread betting on the FTSE. However I see that the average spread of a FTSE100 Dec contract is 13 points whilst the Dow contract is 16 points, which as a %age is a smaller spread, and therefore more preferable to trade than the FTSE100. Does that make sense?!
Yes it does but take care kensitp. There's more to it than the spread, though keeping overheads under strict control is businesslike.
The Dow is often said to be far more volatile than the FTSE, so more difficult to make sensible entries / exits.
Don't forget the SB firms don't just have spread to make their costs back, they also have the bias, being the amount the spread is ahead or behind the underlying index, depending on which way they think its going to go. You will see spreads totally separated from the current index value, the index value standing totally outside the bid or offer spread. So having a tight spread is comforting, but no real help if the bias starts 20 points off the index.
And the Dow is not traded at times to suit everyone - its risky to be in a market you can't monitor.
London and New York are different markets with different influences on their behaviour and different constituents. they move in different directions more often than thought, at least often enough to make for painful drawdown.
Why not paper trade for as long as you can stand it, until your success rate is good and consistent, then try small stakes until your money management is established.
Be lucky!
The Dow is often said to be far more volatile than the FTSE, so more difficult to make sensible entries / exits.
Don't forget the SB firms don't just have spread to make their costs back, they also have the bias, being the amount the spread is ahead or behind the underlying index, depending on which way they think its going to go. You will see spreads totally separated from the current index value, the index value standing totally outside the bid or offer spread. So having a tight spread is comforting, but no real help if the bias starts 20 points off the index.
And the Dow is not traded at times to suit everyone - its risky to be in a market you can't monitor.
London and New York are different markets with different influences on their behaviour and different constituents. they move in different directions more often than thought, at least often enough to make for painful drawdown.
Why not paper trade for as long as you can stand it, until your success rate is good and consistent, then try small stakes until your money management is established.
Be lucky!
peto
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Yes
The disadvantage of any given spread is generaly less the larger the index, because of the likely larger daily moves the larger index makes.
But where have you found these spreads? They're horrendous and unless you plan to trade very long time periods then you will never survive with them. Look in the 'Broker Reviews' elsewhere on this site for spread betters with spreads of 3 or 4 points. Futures brokers will bring this down to 1 point or so, but you'll need to gain plenty of experience and knowledge first.
The disadvantage of any given spread is generaly less the larger the index, because of the likely larger daily moves the larger index makes.
But where have you found these spreads? They're horrendous and unless you plan to trade very long time periods then you will never survive with them. Look in the 'Broker Reviews' elsewhere on this site for spread betters with spreads of 3 or 4 points. Futures brokers will bring this down to 1 point or so, but you'll need to gain plenty of experience and knowledge first.
I just thought I would offer an opinion.
I see a lot of criticism of SB on the different boards about how expensive the spreads are etc.,
Let me float my own philosophy.
Trading is a business
All businesses involve risk of loss.
Assume betting £1 per point on the Dow.
Spread=10 points. This £10 is your outlay.
The dow moves in your direction and you chicken out and close for a 50 point profit on a day with a 90 point move in your direction.
Don't cry into your beer.
How many businesses will give you a 500% return on outlay in one day or even one week?
As for the risk of loss? Every business loses at some time, on some deal.
You are not FORCED to look at the screen as your losses move through the £300 barrier as I did on one day I would rather forget.
I see a lot of criticism of SB on the different boards about how expensive the spreads are etc.,
Let me float my own philosophy.
Trading is a business
All businesses involve risk of loss.
Assume betting £1 per point on the Dow.
Spread=10 points. This £10 is your outlay.
The dow moves in your direction and you chicken out and close for a 50 point profit on a day with a 90 point move in your direction.
Don't cry into your beer.
How many businesses will give you a 500% return on outlay in one day or even one week?
As for the risk of loss? Every business loses at some time, on some deal.
You are not FORCED to look at the screen as your losses move through the £300 barrier as I did on one day I would rather forget.
Second income trader
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Thanks
Thanks for the replies guys, this is a fantastic site! The spreads I quoted were guaranteed stop losses with IG Index. The guaranteed stop loss does add a premium of about 3 points I think.
Thanks for the replies guys, this is a fantastic site! The spreads I quoted were guaranteed stop losses with IG Index. The guaranteed stop loss does add a premium of about 3 points I think.
Second income trader
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Guaranteed Stop Loss
Lol nice analogy! Could you expand on that though, is it because trading the indices are less risky thatn an individual stock e.g. it can't get suspended etc.?
Thanks
sidinuk said:
Lol nice analogy! Could you expand on that though, is it because trading the indices are less risky thatn an individual stock e.g. it can't get suspended etc.?
Thanks
kensitp,
The vast majority of the time a stop will be honoured exactly by the sb company. The only time you need worry is if the market really flies as the result of an economic announcement (quite rare these days for the indexes to move too far though, but it can't be discounted) or when the sb co is closed and can't exit your trade until they open(over the weekend). So be flat on Friday night and don't trade around economic announcements and all you need worry about is Osama Bin Ladan being 'captured' sometime just before the US elections.
So basically a guaranteed stop will make you feel more comfortable in your trade and every now and again you'll be glad you had it but you'll pay very dearly on the 95/100 trades where you didn't really need it. Much like an extended warranty on an electrical item which only has a 5% chance of actually breaking down but for which you paid 25% of the price for.
Remember, trading is all about probabilities.
The vast majority of the time a stop will be honoured exactly by the sb company. The only time you need worry is if the market really flies as the result of an economic announcement (quite rare these days for the indexes to move too far though, but it can't be discounted) or when the sb co is closed and can't exit your trade until they open(over the weekend). So be flat on Friday night and don't trade around economic announcements and all you need worry about is Osama Bin Ladan being 'captured' sometime just before the US elections.
So basically a guaranteed stop will make you feel more comfortable in your trade and every now and again you'll be glad you had it but you'll pay very dearly on the 95/100 trades where you didn't really need it. Much like an extended warranty on an electrical item which only has a 5% chance of actually breaking down but for which you paid 25% of the price for.
Remember, trading is all about probabilities.
I agree stops are a must when SB on the Dow etc but take care where you set your stop!kensitp said:
I have been stopped out alot recently by strange intraday spikes that don't show on the underlying market (I now this has been discussed on another thread recently).
My point being on a good day even being careful with your stop position you can find yourself looking at losses!!
P.S I also use IG and not sure if this happens with other SB firms.
