Unpredictable Price Drop or just lack of Experience ?

[JamesStr]

Hello, I need your help

I'm new in swing trading but I read a lot of materials before jumping in ! Got a few sucess first week (+3%), lost all during the second week (non-rational decision, stress haha). I'm now more careful with my trades, I'm doing 3% so far for the third week.

I notice that there's some chart pattern that I failed "to predict" Like a sudden drop, but everything was indicating an uptrend. Or a big triangle consolidation from nowhere.

Here's the first one AMD : https://www.tradingview.com/x/R33UX7F3/

The 14th everything was fine, big green candle that cross 8EMA - stoch was great. There was a hammer confirmed a few days before and it did touch the Bollinger wave. But on the 15 and 16th, there was a pullback from nowhere.

==> is it possible to predict it with some tools ? Or was it at least possible to be pretty sure that it was going to continue to raise after a few days ?

Second : NLSN https://www.tradingview.com/x/TgYlrM6U/

Same here, during the last four days, you can see price touched a strong resistance line (and the Bollinger before that) - Piercing Line and a good confirmation. Even more the price did cross the 8EMA...

But there's a drop the two last days.

Could I've predict that or it's just a part of probability that I have to deal with :/ ?

I'm using : Stoichastic RSI Bollinger Waves 8EMA (sometimes 3EMA and 34EMA to see crossover) Japanese Candles

I did check MACD or 20-50 SMA but I find the indicators I'm currently using less laggy and more accurate.

Maybe there's others tools that I don't know yet that can indeed predict (in the sense of making me more alert) about these sudden drop. Because for now, it's just unavoidable...

Thank you for everything
James

ps : I'll make a presentation post - just wanted to post this first ^^

 

[timsk]

Hi James,
Welcome to T2W.

. . . I notice that there's some chart pattern that I failed "to predict" Like a sudden drop, but everything was indicating an uptrend. Or a big triangle consolidation from nowhere. . .

I suggest you try to free your mind from the idea that price 'ought' to do XYZ or 'should' do XYZ - especially if it's based on technical indicators. None of them predict what price will do in the future. They merely 'indicate' (hence the name) what price has done in the past and, based on this, what it may do in the future. Note emphasis. It's no stronger than that: the only certainty in trading is uncertainty.

. . . is it possible to predict it with some tools ? Or was it at least possible to be pretty sure that it was going to continue to raise after a few days ?

No and no. Generally speaking - for most traders - it's all about probability rather than prediction. There are exceptions to this of course. For example, traders made (and lost) money based on the 2016 referendum result. Those who 'predicted' that the leave vote would prevail and set themselves up accordingly cleaned up big time with their shorts. The majority expected the opposite of course and, assuming they positioned themselves long the market - will have lost because they got their prediction wrong.

Could I've predict that or it's just a part of probability that I have to deal with :/ ?

The latter. Now you're thinking along the 'right' lines. I say 'right' - but keep in mind there is no right or wrong: just generally agreed principles. But even these can be contentious, e.g. the use of a stop loss. I'd guess that 80%+ of T2W members would say stop losses are absolutely essential, but there are a vociferous minority who argue the exact opposite and claim that stop losses are the spawn of the devil. You have to work out what's right and wrong for you - don't accept the word of others - including me.

Maybe there's others tools that I don't know yet that can indeed predict (in the sense of making me more alert) about these sudden drop. Because for now, it's just unavoidable...

It depends what you mean by 'tools'. If you're referring to the multitude of technical indicators, I'd be surprised if you find one that predicts price movement in the way you'd like. That's not to say there aren't useful indicators out there that you've yet to learn about that may well assist your trading, just none that are some magic silver bullet that will make you consistently profitable.

Lastly, if you don't yet have one, you need to develop a rigorously crafted and tested trading plan. This is one of the agreed principles that close to 99% of all traders will tell you. Traders who don't have one and make money consistently are about as rare as rocking horse poo. Once you have a trading plan in place, all the concerns you've outlined in your opening post will, to a greater or lesser extent, largely be eradicated.
Tim.

 

[sminicooper]

Timsk's comments at #2 are pure gold dust and every new trader would do well to heed them. I don't recall reading anything as honest in most "expert" text books.

 

[Brumby]

The golden rule in any analysis IMO is about context. The obvious question to ask is where demand and supply sits in the overall picture. The first box I have highlighted represents selling pressure aka as supply. The second box represents buying aka as demand. It is obvious just by the price bars that supply exceeds demand simply by how quickly prices are going in one direction. Typically when we see a bearish sell off as in box one, we note how prices recover in the subsequent rally to determine how we position for the next move. Corrective rally typically recovers in an a-b-c manner to 62 % - 76 % area where it is considered a sell zone to trade the next leg down. There is no certainty in trading - just probabilities. The probability factor is based on the nature of price behaviour when it reaches a trade location when risk reward is optimal. However if the price rally is not corrective in nature but impulsive then the trade strategy changes.

 

[counter_violent]

Hello, I need your help

I'm new in swing trading but I read a lot of materials before jumping in ! Got a few sucess first week (+3%), lost all during the second week (non-rational decision, stress haha). I'm now more careful with my trades, I'm doing 3% so far for the third week.

I notice that there's some chart pattern that I failed "to predict" Like a sudden drop, but everything was indicating an uptrend. Or a big triangle consolidation from nowhere.

Here's the first one AMD : https://www.tradingview.com/x/R33UX7F3/

The 14th everything was fine, big green candle that cross 8EMA - stoch was great. There was a hammer confirmed a few days before and it did touch the Bollinger wave. But on the 15 and 16th, there was a pullback from nowhere.

==> is it possible to predict it with some tools ? Or was it at least possible to be pretty sure that it was going to continue to raise after a few days ?

Second : NLSN https://www.tradingview.com/x/TgYlrM6U/

Same here, during the last four days, you can see price touched a strong resistance line (and the Bollinger before that) - Piercing Line and a good confirmation. Even more the price did cross the 8EMA...

But there's a drop the two last days.

Could I've predict that or it's just a part of probability that I have to deal with :/ ?

I'm using : Stoichastic RSI Bollinger Waves 8EMA (sometimes 3EMA and 34EMA to see crossover) Japanese Candles

I did check MACD or 20-50 SMA but I find the indicators I'm currently using less laggy and more accurate.

Maybe there's others tools that I don't know yet that can indeed predict (in the sense of making me more alert) about these sudden drop. Because for now, it's just unavoidable...

Thank you for everything
James

ps : I'll make a presentation post - just wanted to post this first ^^

As a trader you cannot predict or control price and no amount of indicators will tell you anything about what price will do next.

So, the only thing you can do is control your response and actions to the unfolding events.

 

[Mr. Charts]

Price movement is not simply what has gone before as demonstrated on charts and applied dubious indicators. Current happenings such as stock, sector, overall market, general economic, political pressures and rumours can and do influence price movements so the concept that charts will tell all is basically flawed. Understanding price action is also a huge help.
As has been said, this is a probability business and as such cannot be viewed with 100% predictability.
If it was you wouldn't have two sides to every trade because one side was always "right".

 

[timsk]

. . . For example, traders made (and lost) money based on the 2016 referendum result. Those who 'predicted' that the leave vote would prevail and set themselves up accordingly cleaned up big time with their shorts. The majority expected the opposite of course and, assuming they positioned themselves long the market - will have lost because they got their prediction wrong.

Hi James,
Just wanted to add to my comment about prediction as, upon re-reading it, I don't think I made the point as well as I could have.

Other members may disagree but, in broad terms, I think it's fair to say that when it comes to prediction, traders who go in for it do so based on the market's reaction to news. Generally, this is an announcement that is known in advance. In my example, everyone knew after the referendum that the result would be announced and it would go one of two ways. The trick (in this case) wasn't working out how the market would react, but in working out (i.e. predicting) the referendum's result.

There are any number of scheduled news announcements - some of which can have a dramatic impact on the market(s) affected. A word of caution though: this is a high risk strategy and one usually adopted by traders who have a very detailed knowledge and understanding of the market they're trading and, moreover, they tend to rely on fundamental data much more than they do on technical analysis. This is essential so that you know whether or not the market has (or hasn't) already factored into its price the announcement that comes out. Many inexperienced traders are left bewildered when their prediction is right (e.g. that the BoE would raise interest rates for example), only to find that the market then falls rather than rises. This happens because the announced rate hike was widely predicted and, possibly, wasn't as high as the market expected.

So, what's the 'safest' way to trade the news? IMO, it's not to bother trying to predict the announcement, but to wait and see (or hear) what the announcement is and then watch carefully to see how the market reacts to it. In other words, trade the market's reaction to the news rather than the news itself - or what you think the market will do if your prediction is correct.

I hope all that adds some clarity and hasn't just confused you even more!
Tim.

 

[wallstreetwarrior87]

Agree to many points made above.

Just my 2 cents worth -

I like to change the words predicting/probability with "likelihood".

It doesn't seem to put as much pressure on the old grey matter when making a call on direction, or what you think the market may do.

But as has already been said, the best we can do is control ourselves once the trade has been opened.

When I have a minute I will use the first chart (advance micro stock) as a quick example of likely price action.

 

[wallstreetwarrior87]

here we go - this is Advanced micro devices.

Now look at the action that will catch everyone's eye, this is what they see, this is what will cause them to make a decision.

At the time of the chart attached, which is the up day you mention, does it not seem likely due to what everyone can see, that it is not out of the question to test the 1st attempt of a potential upmove from here.

Down trend , then a sub down trend, so it is unlikely to go off the bat upside from where you mention. Dont take my word for it, look at as many similar examples as you can within the same CONTEXT.

It happens over and over, therefore it is highly likely to occur, but not CERTAIN. That is the difference, expect the unexpected, and control your actions.

No need to bring in any technical jargon, just a bit of common sense will be sufficient!

 

[Mr. Charts]

Hi James,
Just wanted to add to my comment about prediction as, upon re-reading it, I don't think I made the point as well as I could have.

Other members may disagree but, in broad terms, I think it's fair to say that when it comes to prediction, traders who go in for it do so based on the market's reaction to news. Generally, this is an announcement that is known in advance. In my example, everyone knew after the referendum that the result would be announced and it would go one of two ways. The trick (in this case) wasn't working out how the market would react, but in working out (i.e. predicting) the referendum's result.

There are any number of scheduled news announcements - some of which can have a dramatic impact on the market(s) affected. A word of caution though: this is a high risk strategy and one usually adopted by traders who have a very detailed knowledge and understanding of the market they're trading and, moreover, they tend to rely on fundamental data much more than they do on technical analysis. This is essential so that you know whether or not the market has (or hasn't) already factored into its price the announcement that comes out. Many inexperienced traders are left bewildered when their prediction is right (e.g. that the BoE would raise interest rates for example), only to find that the market then falls rather than rises. This happens because the announced rate hike was widely predicted and, possibly, wasn't as high as the market expected.

So, what's the 'safest' way to trade the news? IMO, it's not to bother trying to predict the announcement, but to wait and see (or hear) what the announcement is and then watch carefully to see how the market reacts to it. In other words, trade the market's reaction to the news rather than the news itself - or what you think the market will do if your prediction is correct.

I hope all that adds some clarity and hasn't just confused you even more!
Tim.

I agree completely.
As far as stocks are concerned, how the results compare to consensus market expectations is critical, more so than in a simple comparison to previous results.
Sometimes you get a rumour driven run up in price as results date approaches and even if the results are better than consensus, the price might well fall as profits are taken.
Trade the market action, not your opinion.

 

[Brumby]

I'm using : Stoichastic RSI Bollinger Waves 8EMA (sometimes 3EMA and 34EMA to see crossover) Japanese Candles

I did check MACD or 20-50 SMA but I find the indicators I'm currently using less laggy and more accurate.

Just an add on.

Based on the mixture of technical tools that you are using, it is symptomatic in my view of typical self directed effort in learning how to trade using technical analysis. I am not stating it to demean your effort but to highlight something significantly problematic with your approach. Basically you are attempting to merge a bunch of tools without having a holistic view of how your tools would fit into a trade plan.

Your trade plan needs to address :
1)Your trade rationale. What is the set up and trigger leading to the entry? Are you trading the resumption of a trend; Price reversal flow (reversion to mean); or simply a range trade?
2)Which technical signals are you using for entry and exit? Is it Stochastic, RSI, Bollinger Waves, 8EMA (3EMA and 34EMA crossover) or Japanese Candles?
3)Do you have protective stop and price targets determine? How is it related to the tools in (2)?

If you don't have clarity on the tools and their signals for your trade decisions, you will flounder in the face of price action that goes against your trade direction.