Stocks & Commodities V. 22:10 (22-27): A Tale Of Two Indicators by Andrew Tomlinson
Product Description
Stocks & Commodities V. 22:10 (22-27): A Tale Of Two Indicators by Andrew Tomlinson
What do you do when two apparently similar indicators give opposite signals?
On July 6, 2004, I was feeling pretty pleased with myself. The stock market was falling and my short positions were making money for the first time in a couple of months (hey, stay on one side of the market for long enough and you’re sure to be right sooner or later). One of my short positions, Micromuse (MUSE), gapped down 20% at the open on a revised outlook. When I checked the market later in the day (I trade from home, so the first day after a long weekend is an orgy of grocery shopping and ferrying the kids here and there — you get the picture — so being glued to the broker’s screen is not really an option), I saw that the stock had traded down another 18% before starting to swing up again. No reason for swift action, I decided (my experience as a non–daytrader is that I lose money if I make snap judgment calls during the trading day). I chose to wait for my day’s-end review before planning my next steps.
WHAT I FOUND
That evening, I opened up MetaStock and started to go through my positions. When I got to MUSE, I saw that the price had ended up pretty much where it started, showing a big initial gap down and then a spike reversal (one of those falling-window-doji-hammery-things for candlestick aficionados) on heavy volume.
The surprise came when I looked at my volume indicators. I typically use Chaikin money flow† (CMF), using a nine-day period instead of the 21-day default since I like the greater sensitivity. But I’ve also recently been testing out a couple of other volume indicators, having just finished reading the book Bollinger On Bollinger Bands, which spends some time on the indicator’s use in confirming entry signals. So I also had a 10-day money flow index (MFI) up on my screen.
What do you do when two apparently similar indicators give opposite signals?
On July 6, 2004, I was feeling pretty pleased with myself. The stock market was falling and my short positions were making money for the first time in a couple of months (hey, stay on one side of the market for long enough and you’re sure to be right sooner or later). One of my short positions, Micromuse (MUSE), gapped down 20% at the open on a revised outlook. When I checked the market later in the day (I trade from home, so the first day after a long weekend is an orgy of grocery shopping and ferrying the kids here and there — you get the picture — so being glued to the broker’s screen is not really an option), I saw that the stock had traded down another 18% before starting to swing up again. No reason for swift action, I decided (my experience as a non–daytrader is that I lose money if I make snap judgment calls during the trading day). I chose to wait for my day’s-end review before planning my next steps.
WHAT I FOUND
That evening, I opened up MetaStock and started to go through my positions. When I got to MUSE, I saw that the price had ended up pretty much where it started, showing a big initial gap down and then a spike reversal (one of those falling-window-doji-hammery-things for candlestick aficionados) on heavy volume.
The surprise came when I looked at my volume indicators. I typically use Chaikin money flow† (CMF), using a nine-day period instead of the 21-day default since I like the greater sensitivity. But I’ve also recently been testing out a couple of other volume indicators, having just finished reading the book Bollinger On Bollinger Bands, which spends some time on the indicator’s use in confirming entry signals. So I also had a 10-day money flow index (MFI) up on my screen.
FOR THOSE ORDERING ARTICLES SEPARATELY:
*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.
| Take Control of Your Trading. |
| Professional Traders' Starter Kit |
| All these items shown below only $299.99! |
| Click Here to Order |