DreamTai Trading Software Blog: May 2010

Monday, May 31, 2010

Questions regarding the RubberBounce Setup video

Thank you for all your comments regarding the RubberBounce Setup video.
Here are a few question and answers.

0 What type of stocks is this method applicable?

This is applicable to trending stocks which are smoothly sloping upwards or downwards at an angle of 30 to 60 degrees.
If a stock is moving sideways or in a zigzag manner, this does not work.

1. Can you please give me the PDF for this video.

Sure. Please download it from

http://www.dreamtai.com/videos/rubberbounce/rubberbounce.pdf

2. Does this work all the time?

Nothing works all the time.

3. Is this a complete system? Can you make a system for me?

No, this is just a tip or an idea. You have to work on it and create it a system you are comfortable with.

Even if I create a system, you may not be comfortable with it, because I do not know about your risk profile and investment goals.

The basic premise of this system is that in a strong up trending market, to attain minimum risk and maximum profitability, we should buy during pullbacks.

Now, you can experiment with different time frames, with different stocks and different instruments (stocks, futures or forex) with different moving averages till you come up with a system you are comfortable trading.
You should back test the system to see if it worked profitably in the past. Then you should paper trade for some time to see how it performs in the real world.

Next, you should work on the risk management aspects. You should decide which is the best place to place a stop loss order. You should decide whether to place a price based stop or a time based stop or a trailing stop or a combination.

Next, you should decide on the target price and when to take profits.

You should decide if you want to scale in and out of the trades or buy/ sell all the lots in one go.

You should study the risk reward ratios of the past trades to get a reasonable estimate of how the system performs and what is the expected returns from this system.
Based on this, you can make a guess-timate on how much money you may be able to make in a given timeframe.

This is hard work, but it pay off in the long run.

4. Can we automate this idea?

Automation does not work in real life. You need human judgment, you need to study the charts and the price action before jumping into the trades.
It is true that computers can give you the signal, but you have to study the chart and then make the decision.

5. Don't the big Wall Street financial institutions have automated trading systems?

Yes they have automated trading in a way, but these systems are constantly being monitored and adjusted by the traders, who are paid millions of dollars in bonuses for their efforts.
If it was completely automated, there would be no need of human traders and human intervention.

Sunday, May 16, 2010

Stock market status as of May 16, 2010

The Dow Jones Index looks bearish. But to really know the status of the index, let us look at the underlying components of the Dow Jones index to see if we can try to see where the market is headed in the coming weeks.

It is easy to analyse the components of Dow Jones index, since there are only 30 stocks.

So, I added the 30 stocks to DreamTai, loaded the data and analysed the charts.

And.....the picture does not look bullish. Many of the stocks are below their 20 and 50 days moving averages.

Based on the Power Rankings, I selected the six most bearish stocks..that is the six stocks with the most negative power rankings.

They are as follows:

1. HPQ Power Ranking =-4.01
2. AA Power Ranking =-4.0
3. JPM Power Ranking =-3.8
4. BAC Power Ranking =-3.5
5. AXP Power Ranking =-3.47
6. MRK Power Ranking =-3.3

Here are the charts for these six weak stocks. I have added comments on these charts also.

HPQ