Tuesday, November 11, 2008

The Elephant and the Irish Setter

One e-mail I received recently asked me to clarify the reasoning behind the NYAD / GE divergence studies I have posted for the past several weeks.
The best example I can offer is by comparing an elephant to an Irish Setter. The NYAD, like the elephant, cuts a wide swath with considerable momentum and it's trail is easy to follow. While elephants do go rogue occasionally, that is not typical behavior. At the same time I'm reminded of a friend's Irish Setter, a delightful dog, that was a complete airhead, seemed to have the ability to run in several directions at once and seldom responded to voice commands in any meaningful way. Off leash, the dog would disappear for hours at a time, only returning for chow time or inclement weather. Think of the NYAD as home for our divergent Irish Setter stocks.
To date, I have only mentioned GE in conjunction with the NYAD. However, if you set up the 2 minute chart template as I have shown on multiple posts and then examine NYSE stocks like HD, MCD, WMT and VZ you'll quickly see very similar trading possibilities.
And if you really like excitement, load a few NAZ stocks like PCAR and EXPD against the NYAD.
Within an hour of fiddling with the template you'll have a stable of NYAD divergent trading candidates that will keep even the most hyper daytrader busy for a looooong time.
Some readers have commented that my trading style seems boring because I only focus on one or two ETFs at a time and just trade them up and down.
My response is . . . that's what works for me. I get up 15 minutes pre market open and often shut down well before the final bell. If I didn't spend a few hours a day blogging and testing ideas I'd have a lot more time to play golf and still have the same amount of money in my pocket.
I don't spend any time running scans, sorts or RS studies. I seldom read my live news feeds and consider most fundamental analyses generally flawed and after the fact.
And my expectations are pretty dull too. I just try to generate a steady income stream from day to day. I'm content to make .40 - .60 on a couple thousand shares a day with minimal exposure. I seldom have a tremendous day, but I never have a horrendous day. That's just my style of risk management and liking to sleep at night. I've tried lots of different trading styles in the last 23 years, and this suits me just fine. Each trader needs to find their own risk comfort level and their own trading style, whether it be discretionary, systematic, algorithmic, technical, fundamental or (most likely) some hybrid.
Hope these posts provide some ideas to help you find yours.


LP said...

I do like how you tie the internals onto the charts. It helps you see things a bit more clearly. Keep up the great work.

LP said...

Have you ever overlaid options data in the same chart as the SPY or Qs. I noticed something strange a few times. The underlying price moves lower but the ITM options do not and then shortly thereafter there was a reversal. I noticed around 13:00 - 13:30 the SPY December 92 puts (Nov 19 92s as well) moving a lot lower while prices stayed flat or moved slightly lower. Just an interesting observation, nothing empirical. But it also could have been the case of bunnies in the clouds. Unfortunately I can't chart options data w/ IB data.

bzbtrader said...

Great observation which I have also noticed in the Qs and IWM watching while level 2 options. Unfortunately, with Schwab I cannot overlay the options data on the charts, so it's pretty much impossible for me to see the syncronization of those moves.

LP said...

well it's good to know that someone else has noticed this :)

Maybe when data is organized a bit better, we might be able to pull this off.