IB, Your Trade on SOXL?

[Arindam]

IB,

Permit me, if you would, to ask why you bought SOXL on the basis of so little technical evidence?

Yeah, on a chart with a 1-month lookback, BarChart flags last Weds, Feb 22, as the lookback low. But look at what else is happening in the chart. TSI --a momentum indicator-- is negative. [Translation: the intermediate trend is DOWN.] The FORCE indicator --which combines ‘price’ and ‘volume’-- is negative. [Translation: sellers are very much in charge.] On the previous three days, prices gapped down each day. [Translation: sellers are dumping SOXL as fast as they can, and that’s a bulldozer you don’t want to get in front of.]

On the positive side, as long as we’re reading the tape, there’s this fact. Gaps tend to get filled. Therefore, it has to be assumed that the selling will beome overdone, if it hasn’t already done so. BINGO! That’s exactly what happens on Thurday, Feb 23. However, look at the candle. That’s a Hanging Man Doji, and that’s a bearish candle pattern.

Combine that piece of evidence with the fact the prices gapped up on Thursday, the expectation for Friday should be a retracement down, which is exactly what happens. But look at the candle. Again, it’s a doji. But this time the upper and lower wicks are almost equal. That says, loud and clearly, BUYER-SELLER INDECISION and a highly probably pivot point.

Quill uses “smiley faces” to make trading decisions and can turn a profit doing so. I can’t, and I don’t even want to try. He makes little to no effott to use Candle Pattern Analysis (CPA). But that’s what I depend on to keep me out of trouble. So, I’d suggest this. If you want to use Quill’s trading system, then write down exactly what you think are the rules he’s using. Then apply those rules to a lot of charts and try to see if they always work, mostly work, or seldom work. If, on average, over a lot of stocks and market conditions, the rules prove to be robust, then you’re good to go. You’ve got a market timing system --which is just one-third of a complete trading system-- whose strengths and weaknesses you understand.

In short, never depend on a single piece of technical evidence to put money at risk. OTOH, when in doubt, for whatever reason(s), get out. The goal of the trading game is to not lose money that foreseeably should not have been lost. That means putting on positions only when the odds of a favorable outcome seem to be in your favor. I’d humbly suggest in buying SOXL on Thursday, you were betting against the odds, not with them. Yeah, today’s price action will probably mean you’ll turn a profit on the trade. I’d still argue that your entry wasn’t well founded. It was 'bottom fishing", not that such trades should be avoided. E.g., I got in and out of UNG on nearly the same set up last week, for a 1-day, 7.5% gain. But doing those kinds of trades with much money is asking for trouble. (IMHO, 'natch)

Arindam

[IBHefty]

Arindam,

Thanks for taking the time to share that analysis. Truth is I don’t have a great plan! The trade is real money but small…enough to keep my attention and maybe learn something I guess. My plan is try to ‘trade like Quill’ lol.

Since Simon Sez III seems to be trading off of a potential bottom, I don’t think TSI or Force would be positive on many of the trades. Plan is to sell after an upper price label appears or exit if end of day price closes below 13.54…which is the price label on 2-22. If TSI 16,8,4 becomes positive during the trade, I will likely then sell if TSI crosses down, or if an upper price label appears. That’s what I got so far! Any critique from you or others is always welcome.

I know how to enter a trade with simon sez III and how to exit a profitable trade if the upper price label appears. All of the descriptions of how Quill enters and exits simon sez III do not mention anything other than looking at the price labels…of course I may have missed some other qualifier. I realize Quill is a very experienced trader so there likely is some more secret sauce…

I’ll look into CPA. Seems like it can be somewhat subjective to me but interesting so I’ll do some research. Thanks again for sharing your ideas.

[Quillnpenn]

Aridam,

I believe IB didn’t mentioned which type of charts he was looking at. It could be Barchart, Stockchart, Tradingview, TOS or perhaps MOOMOO.com, Firstrade.com, TC2000.

We are guessing and we could be all wet. That’s why we try not to ask 21 questions. RE: is the best choice.

I am going to assume IB was looking at the Stockcharts with OHLC bars. I use Stockcharts exclusively for the past 60 + years. I don’t understand candle stix well other than they are Green and Red bars. However, with HAS, GREEN means go and RED means stop. Same for the coloured dots.
However, I use Candle stix as a backup with the aid of the TSI indicators for confirmation.

I can understand IB’s plight, but, IB has to give the charts time by not panicking. We must trust but verify from other sources.

I’ll bet SOXL will go sideways for 8 to 10 days and take off to about 19.00. One catch not aware of is the possible Head Fakes that can happen.

Just a thought,

Quill -

P.s. I would have bought SOXL on 2/23/23 and today had so sell SPXS and bought SPXL and QQQ. I don’t use stops. I know I’ll get yelled at but I have faith in Simon & co.

I don’t know if you guys can see the below chart. I have been using this type of chart for many many years. Back then, I was trading using the 13 over 50 moving average Xovers. But the Price labels seemed easier way of trading. So I made up a bunch of simple rules for buying and for selling and then gave it a name. I have been told by many people at the Motley Fool, I can’t do this and it is meaningless information and not to use it. Tell that to my bank account. Cha- Ching Cha - Ching.

If not https://www.tradingview.com/chart/pLXQT71J/?symbol=CME_MINI%3AES1! from Tradingview. I can 't figure how to place the Price Labels on this chart.

[Quillnpenn]

Man, I am sorry, I can’t win with charts in showing the big picture.
If you can see the QQQ chart, click on to create a large size. click on the X to bring it back to size!

Quill

[Arindam]

“I would have bought SOXL on 2/23/23.”

Quill,

In effect, I bumped IB’s post to the top of the queue, because it raises interesting questions. It was NOT meant as a criticism of him personally, and he didn’t take it that way. It was more a matter of me asking myself whether my rules would have let me do the same trade, which gets me to asking you, “On what evidence would you have bought SOXL on 2/23?”

Here’s a chart of SOXL the day before, on Feb 22.

There is ZERO technical evidence in that chart on Feb 22 that would warrant buying SOXL the following day on Feb 23. ZERO. NADA, ZILCH. For sure, a savvy market watcher --such a yourself-- might guess that SOXL had become oversold and was due for a bounce. But he’d be acting on an informed hunch, not on an explicit set of rules intended to help beginning investors keep themselves out of trouble by only entering confirmed trends.

Why do I think such a rule set is necessary, not just for “beginners”, but for all of us? Because the Fed has totally destroyed whatever tenuous connection there might have been been ‘fundamentals’ and financial assets ‘prices’, so much so, that the tape and technical analysis has become the only thing one can trust, while we all wait for the inevitable crash and correction.

Seriously. Look at that chart again. Why couldn’t Feb 23, your supposed entry day, have been yet another down day? Same-same for the day after that. And it’s not as if we haven’t seen that movie before, where prices go down, down, down. How many of those bets can one make before he/she blows up an account? All of us have heard the following quote. “The Race Is Not Always to the Swift, Nor the Battle to the Strong; But That Is the Smart Way to Bet.” But how many of us are starting to wonder how much longer the Fed can keep stock prices propped up to the ridiculous levels they still are at?

In '98, a consortium of banks --under the Fed’s direction-- bailed out a hedge fund (LTCM) whose failed counter-party trades came within hours of crashing the global financial system. In ‘08. it was the Fed itself that bailed out the banks whose reckless speculation had come within days of crashing the global financial system. When the next crash comes --and it will- who’s going to bail out the Fed? Obviously, the IMF. But when SDR’s replace the $US, there goes US sovereignty and a whole lot of other bad things happen, among them, the final destruction of America’s middle class. I ain’t middle class culturally, and I never wanted to be so. But I’m currently in its upper tiers by financial assets, and I’d kinda like to hang on to that cushion and buffer if I could, not because I want to live "middle class’ but so that my beer-and-bait lifestyle won’t be disrupted. That’s why I obsess about managing market risk. I’m in the trading game, not to get rich, but to defend what I’ve already got. And a pretty obvious way to dampen market risk is to not put on trades for which there is zero evidenece in the tape.

Arindam

[Arindam]

IB,

These days, there are dozens of tutorials on Candle Pattern Analysis. Below, I’ve linked a typical one.

What few of those tutorials go into very much is the historical origins of ‘candlesticks’ (which is just a charting format) and how to make trading decisions based on the patterns formed by groups of those candlesticks. But context is this. CPA was intended to trade Japanese rice futures in a short-term, 1 to 10 day time-frame based based on whether buyers or sellers were in charge for each day. In other words, CPA focuses on the analysis of trader psychology and market sentiment.

Is CPA subjective? Well, what about financial statement analysis isn’t --ultimately-- subjective? For sure, when properly done, another name for ‘financial statement analysis’ could be ‘forensic accounting’. But ask yourself this. “Who does it best?” A computer program, or someone who has “a feel for the data” and can sluice out its possible impacts? A shrewd, savvy human will always beat even the best of programs, just because he/she can make intelligent exceptions, whereas the program will just do what it’s told to do and not a lick more. For lots of things, that kind of mechanical, unimaginative analysis is plenty good enough. But not for complex social interactions where the players cue off of each other. Then, not only do you need to watch what they are doing --as opposed to merely saying-- but make guesses about both. Programmed “expert systems” fail at that miserably.

One of the ways to make guessing price direction concrete is to try to answer this question when putting on a trade. “Why is my counter-party to this trade wrong about the future direction of prices and not me?” That’s why I want to see evidence in the tape, and some of that evidence is buyer-seller psychology that CPA is especially good at analyzing. The killer combo, of course, is to pair the analysis of candlestick patterns with Western-style, technical indicators, which is the pitch that Greg Morris made in his book, the early edition of which was a collaboration with Norm North, who did the programming and who lived down the road from me in Salem and whose programs and scanners I’m still running.

Candlestick Analysis in Trading

[IBHefty]

Thanks Arindam! Looks like a great intro. Much to learn