Saturday, September 26, 2009
Signs of distribution
It was one of those famous stock traders of yesteryear that said "it's not your thinking that makes the money, it's your sitting". Something like that.
Experience has shown this to be true. For example, if a stock is going to double or triple it's going to take some time, maybe a few months or a year, and the best thing you can do is just sit there. The important thing is to trade stocks according to how they actually move, not force things into an arbitrarily short time-frame. In fact, we can show statistically that as the time frame becomes shorter, the trend becomes less distinct and the relative noise is higher. Another consideration is the bid-ask spread, otherwise known as "slippage". Trading in the short-term you will be playing for peanuts, and the slippage can get out of hand, to the point where it kills any meager profits you might make.
Anyway, back to the point of this post. Most of the time you just need to sit there, but at other times decisive action is called for. Case in point is the recent Climax High signals in the market indexes (last Thursday). This was the first sign of a possible top. The next day clinched it, when we saw "heavy volume at or near a high, without adequate price progress", as described by William O'Neal. This occurred on Friday September 18th, the day after the Climax High signals. It was conspicuously evident in both the Nasdaq and Dow-Jones Industrial Average.
This type of action is a distinctive sign of large-scale distribution. We haven't developed a signal for it, but fortunately it's not hard to see. All you have to do is watch it on a daily basis. Sometimes at a top it will happen several times, but at other times you only get one chance. Don't miss it!
Here's a chart of the Nasdaq Composite Index to illustrate.
Experience has shown this to be true. For example, if a stock is going to double or triple it's going to take some time, maybe a few months or a year, and the best thing you can do is just sit there. The important thing is to trade stocks according to how they actually move, not force things into an arbitrarily short time-frame. In fact, we can show statistically that as the time frame becomes shorter, the trend becomes less distinct and the relative noise is higher. Another consideration is the bid-ask spread, otherwise known as "slippage". Trading in the short-term you will be playing for peanuts, and the slippage can get out of hand, to the point where it kills any meager profits you might make.
Anyway, back to the point of this post. Most of the time you just need to sit there, but at other times decisive action is called for. Case in point is the recent Climax High signals in the market indexes (last Thursday). This was the first sign of a possible top. The next day clinched it, when we saw "heavy volume at or near a high, without adequate price progress", as described by William O'Neal. This occurred on Friday September 18th, the day after the Climax High signals. It was conspicuously evident in both the Nasdaq and Dow-Jones Industrial Average.
This type of action is a distinctive sign of large-scale distribution. We haven't developed a signal for it, but fortunately it's not hard to see. All you have to do is watch it on a daily basis. Sometimes at a top it will happen several times, but at other times you only get one chance. Don't miss it!
Here's a chart of the Nasdaq Composite Index to illustrate.
// posted by gigascanner @ 6:39 AM 
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