Thanks. I think the picture is coming into focus.
Hi Sanjoy, today is Monday which means it's time to look at the IBD top 100. Will you now load up all 100 looking for the power rating? And how do you communicate your results to those of us who look at your blog? I am looking forward to seeing how this works.
When the software tells you to buy, how do you know how many to buy, and where to place the stop? Thanks.
Hi Louis,
Thanks for your questions.
I do not post stock picks regularly to the blog.
Usually I post if there are some stocks I find interesting or if I want to share some articles with all users.
Also, you do not have to buy the picks i show. These stocks are just some stocks i found interesting. It is as if i am saying "Hey!! Check out these stocks.. Some of them may have potential.."
You have to keep the stocks you like in your watchlist and check then daily for the right time to buy
DreamTai does not predict the future. It just tells you the current state of the market and the stocks and you have to make a judgement on whether to buy or sell stock.
Think of DreamTai as a car.
The blue and pink moving averages are like the windshield and the mirrors of the car. It shows you whether you are in an uptrend or downtrend, just like you can see the road on front through the windshield and the road behind you using the rear view mirror.
The green color and the red color of the price bars is just like the speedometer of a car. It tells you whether you are speeding up or decelerating.
The Power Ranking is like the car engine. Higher Power Ranking is like Higher horse power car engine. A stock with higher power ranking will go up more easily.
The quantity to buy and the stop loss order are like brakes of a car to protect you in case of an emergency.
You should risk maximum two percent in any trade.
As a car driver, it is upto you to use these tools properly to rech your destinations. You have to keep looking at the windshield, rear view mirror, speedometer and keep your toe on the brakes while driving to ensure a smooth and a safe ride to your destination.
Similarly, you have to look at these stocks in your watchlist daily and make buy or sell decisions at the right time.
Let me give you an example which will make things much clear.
I had purchased a stock called TTEC.
I had posted about this stock on Jan 4, 2007
Have a look at the link where I had posted about TTEC.
http://dreamtai.blogspot.com/2007/01/dreamtai-stock-trading-software.html#TTEC
Let us analyze why I had picked TTEC.
STEP 1. CHECK THE TREND
QUESTION:
Is the stock above the blue line and the pink line ?
ANS:
Yes, The stock is above the blue line (20 days moving average) and also the pink line (50 days moving average)
Notice how the blue line is above the pink line for many months and the price has also remained above the blue line. This shows that there is a smooth uptrend and there is no resistance created by the bears.
The stock is moving up smoothly in an uptrend.
These 20 day moving average and 50 day moving averages are watched by major banks, financial institutions and hedge funds to make buy or sell decisions.
Here, the financial institutions are bullish on this stock.
STEP 2. CHECK THE BUYING PRESSURE
QUESTION:
Is the Power Ranking strong ?
The Power Ranking denotes how strong the buying volume is.
Usually, the Power Ranking above 3 is considered strong.
Here the Power Ranking on Jan 4 is 2.4 which is a bit strong.
STEP 3. CHECK THE MOMENTUM
QUESTION
Is there a high upward velocity for the stock ?
The bar color just turned green two bars ago.This means, that the stock is accelerating upwards.
If you had been using Stock Kisses pattern, you could have purchased it even when it was red, because you would have bought it when it was touching the 20 day moving average.
Some users like using the Stock Kisses pattern for up trending stocks with high power rankings.
STEP 4. CHECK HOW MANY TO BUY AND THE STOP LOSS
DreamTai also shows how many stocks to buy and where to place the stop loss sell order.
The stock quantity to buy and the stops are calculated such that the maximum loss you suffer is less than 2 percent of your total capital.
So, if your total capital is $100,000, the maximum you should lose in this trade should be $2000
STEP 5. PLACE THE ORDER WITH YOUR BROKER
So, we now place the order to buy TTEC
STEP 6. MONITOR THE STOCK DAILY
As you can see the stock has been rising steadily.
If you follow the stock kisses chart pattern, you can add to your position whenever the stock kisses the moving average.
Finally, in May, the stock started kissing the 50 days moving average, which is all right. No need to be afraid. many stocks in an uptrend frequently kiss the 50 day average also.
But then an incident happened which was a cause for concern. The stock went below the 50 day moving average.
Whenever the stock goes below the pink line, it means that the uptrend is no longer valid and it is the time to say goodbye to the stock.
STEP 7. RING THE CASH REGISTER
So, now, since the stock has gone below the 50 day moving average, we sell the stock and take our profits and search for the next stock to buy.
This completes the complete cycle. i have shown you how we make decisions on whether to buy or sell a stock.
OK, now Practice time:
Here is a stock: NetFlix [NFLX]. Would you buy this stock or short it ?
1. CHECK THE TREND
The stock is without a trend. The moving averages intersect again and again The stock is jumping all over the place, some times above the moving average and sometimes below the moving average.
This shows that the financial institutions are indecisive. They do not know what to do with this stock.
2. CHECK THE BUYING PRESSURE
QUESTION:
Is the Power Ranking strong ?
The Power Ranking is -0.44. Usually a strong up trending stock will have power ranking of +3 and above. A strong down trending stock will have power ranking of -3 and less.
Here, the power ranking is -0.44, which is not very Powerful. So, there is no buying or selling pressure for this stock
Based on this facts, we would not do anything with this stock.
Now, let us look at the market indices.
If the market is weak, then even if we have a strong stock, it will face difficulty going up.
If the market is strong, all the stocks go up smoothly.
The indices started their upwards move from April 2007
See the entry for April 9th in the following link.
http://dreamtai.blogspot.com/2007_04_01_archive.html
All the indices just turned bullish and above their 50 days moving averages on April 9, 2007.
Here is the current market status.
1. Dow Jones Average : Represented by DIA
Still in an uptrend and strong. Moving up smoothly
2. S and P index : Represented by SPY
Still in an uptrend. recently started slowing down
3. NASDAQ index : Represented by QQQQ
Still in an uptrend. recently started slowing down
Hope this article makes it clear on how to use DreamTai. Please feel free to ask questions.
