If we are in a sideways pattern, some traders will abandon moving averages
or another trend following method.
I am basically a Trend Trader. I am looking for a trend and will accept the
problem of whipsaw associated with sideways markets.
I also realize that we have a market of stocks, not necessarily a stock
market.
My point here is to find indicators and pattern that you can establish
sound systematic strategies knowing that they working better during some
markets and not as well in others. Over the long run, if your strategies
have sound foundation and cuts losses, you should prevail in the long run.
Some of these stocks are breaking out to new highs and others are breaking
below support. The only strategy that makes sense to me is to evaluate each
stock separately and stay the course with your plan.
Today, September 23, 1999, most stocks broke down. This includes the major
market index’s.
Channel Breakouts
Channel Breakouts are a popular method of trading stocks. The principal
behind a Channel Breakout is that when a stock trades above the highest
price or below the lowest price in the last N (number of periods) number of
periods, a new trend may be starting to take place.
This channel trading method can be used in any number of periods from
minute bars to weekly time frames.
The results of using such a method will often result in a stock moving
above a defined resistance or below a defined support area.
I feel that with any pattern, indicator, or strategy, the key is to
recognize when it works and when it doesn’t. A pattern or indicator
tested over a long period of time may only have a 50-50 chance of working
out in a trader’s favor. A key to successful trading is to limit
losses with stops and recognize when the pattern or indicator did not
perform as expected.
I like using a 20 period breakout.
Let's look at the breakdown in the S&P 500, $SPX
After bouncing off support on August 10, 1999, we saw a tradable bounce and
the S&P try to rally to new highs.
I think it is clear that it has broken support and many fund majors and
market timers will be exiting positions.
Dow theorists will say that today's action in the Dow, whose chart looks
similar to the S&P, has now confirmed a signal to a down market.
By trading moving average crossovers or channel breaks, a trader should be
short this market.
Look at channel breakdown in your stocks.
