When Two is Better than One
From the Trading Desk of Oliver L. Velez
Today was an exceptional day in the markets, right into the close. While a good part of my morning was spent flying (more like sleeping on the plane) to my Ft. Lauderdale office, I did manage to squeeze in some trading time and would like to share with you my last trade of the day, which happened to be on Ebay (EBAY). The theme of this trade is based on the Mighty Double Bottom, but a quick glance will show you that this stock offered both Double Bottom buy and Double Top sell opportunities. See chart below for details.
For the most part I will let the slide (visual) speak for itself, but I will be recording a very detailed podcast to accompany this post over the weekend. So for now, review the slide and the annotations that accompany it and try to be patient for the podcast that will soon follow.
As a final note, I want each subscriber to this Blog to make sure they individually "subscribe" to each separate post, so that all comments and answers by me get automatically sent to you. Many of you have been greatly enjoying the posts, but if you have not been reading the follow-up Q&As to each post, you are missing 80% of the educational value of my efforts here. I make sure most answers I provide are very detailed and specific. But in order to get them sent to you, you must separately subscribe to every new post I make. I know its an extra step, but I promise you, it will be worth the extra effort.
Happy Trading.
Dear Oliver,
Greatly enjoy this blog, and appreciate the effort you put into it. I see the value of buying on bottoming tails and selling on topping in tails in general, especially at key reversal times. Seems to be doubly so on the second test of the location.
Could you comment on whether this remains the case for subsequent tests. Under some theories of time price opportunity, multiple test establish value at that location and are more likely to "stick" in that location over time.
Thanks Oliver......ken
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Dear Ken:
Yes. Multiple retests of certain price areas often help to strengthen the confidence level amongst market participants, which in turn helps to produce a near self-fulfilling prophesy effect. This can and will go on until the market becomes too one sided, at which point something will give.
But I find that the biggest moves tend to come on the second attempt which is really after the first retest. In fact, this is so much the case, one of the Velez Market Laws I teach is the following: The Second Move is the Big One. Is this true all the time? No. But it's true often enough to make it a permanent part of your belief system.
As I'm fond of saying, your beliefs don't have to be true. They just have to make money. If a trader is losing more often than winning then obviously tier actions are stemming from an erroneous set of beliefs, which have to be replaced. That's what I've dedicated most of my profession life to doing, changing the belief structures of traders. Now I simply do it for "my" traders...the ones who trade my own money.
I hope this helps.
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I find your explanations invaluable! You always make it seem so easy to understand -not that easy to actually see when the stock is moving & ones heart starts to beat faster..but it's getting there!...it's sinking in... I can tell!-- Thank You-
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It takes time Carmen, like all things worthwhile. If this grand activity we call trading took did not take so long to master, trading would be a commoditized business with insignificant amounts of money to be gained, no matter what level of talent one acquired. Who wants that? This is one of the most challenging activities in existence. And only few will ever master it, and to be truthful, I would not have it any other way. While my heart does go out to those who don't make it, despite the hard work, it is still the way it should be.
And trading is not the only area that presents great difficulty. 92% of all restaurants fail in the U.S. That's only an 8% success rate. What's more, the people who try their hand at creating an eatery typically invest far more money on average than most traders trying to make a living from the markets. It's just the way it is and nothing much will ever change it. Just make up your mind that you will be the few, not the many.
I'm here for you to help you in any way to make that your reality.
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I have followed you for many years, but am new to this current forum. Do I assume you are trading in the above trade on 5 minute intervals? Do you trade other intervals?
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We look at six different time frames, three to establish our directional bias and three from which to take our trades. The three trading time frames are the 5-, 2- and 1-minute charts. Now, keep in mind that these are to be used for what I call the "ATM Approach" to trading, which is a high octane income-generating style of market play. It's designed for the person who wants to extract daily income from the markets, as opposed to wealth building. For the accumulation of wealth, the time frames are the Monthly, Weekly and Daily.
We use the same tactics for both wealth and income. We just apply to the time frame most appropriate for the goal at hand. I hope this helps and I hope one day to be able to call you one of my traders. Thanks for the long-term support.
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Hi oliver.. I will be attending your course for master traders program in vegas hopefully in march.
In the mean time though I have 2 questions. How do you choose the right stock to play for the day and also are you using simple moving averages or exp?
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Dear Simon:
We assign a universe of stocks to focus on for each one of our traders. Over time that universe grows and expands, along with the amount of capital I give them access to. So at first, we narrow the traders' focus and then as the skill level grows so does the universe.
But keep in mind that most successful traders take a "specialist's" approach to trading. They focus on maybe 3 to 5 stocks 85% of the time. They learn every tendency, every player and characteristic of the stock(s) they specialize in which gives them a huge advantage over the casual traders/investors of that stock.
I greatly promote that approach over the roaming approach which tends to lead to major opportunity misses. And yes, the moving averages I use are primarily simple. Over 21 years of trading, I've found no clear evidence that the sexier varieties of moving averages work any better than the simple.
I hope this helps and look forward to meeting you Las Vegas in March.
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Oliver
Would you recommend purchasing Traders Library an ongoing 'special' featuring candlecharting DVD's by Steve Nison, which also includes the free part one and part two DVD's by Capra on sale now to furthur study candlestick chart patterns? Also, have you considered doing the same? Developing DVD's on your own for furthur study on candlestick chart patterns.
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Dear Mel:
Steve Nison's first book, Japanese Candlestick Charting Techniques, had a very profound effect on me back in the early 1990's. While I recognized that the Japanese form of charting did not possess any magic per se and provided no additional information than other forms of charts, it did make the relationship between supply and demand (the perpetual tug of war between buyers and sellers) in the market far more visual and easier to interpret. Steve Nison did an outstanding job at bringing the western world's attention to this ancient form of price recording. And today, I'm proud to say I count Steve as a personal friend.
As for Greg Carpa, a partner of mine for many years, you could not find a better tutor/instructor on the art of reading Japanese Candlesticks today. I truly don't think there is a person alive who has reached the height of his understanding in this area. I remember the day (it was actually one late night on the phone) I introduced the concept of Candlestick charting to him after having devoured Steve Nison's book. It was like nothing we had been reading or doing at the time. Like me, he was blown away by what I initially revealed. But over the ensuing years, Greg and I began to take many of the concepts to much more refined levels. And you will see this in his DVD.
This combination of Steve Nison and Greg Capra is a no lose proposition, in my view. You will not need to go further if it is your desire to understand this art form. Just keep in mind that these bar types (or any bar types for that matter) don't magically make one a better trader. Reading market's action via bars of any kind is quite different from trading it. Reading is like being a spectator at a sporting event. To be a player calls for other things in addition to reading. One may learn how to read a book on Golf, but that won't ever make the person play like Tiger Woods. It's one small piece in a rather grand puzzle. Never forget this.
With that said, you have a winner. I promise.
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Hi Oliver,
I will be taking your 2 day course on line in February. At that time will you give us a focus list of stocks to initially work with? Thanks
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Welcome, Brad.
Yes, you will be given guidelines on how to formulate your own list of stocks, in addition to the ones we currently use. Most traders not only focus on too many stocks, they are looking at the wrong ones and don't realize that the quality of your plays begins with the group of stocks you've selected as your core universe. This and many other things will be covered.
You'll be amazed at how much more refined your ability will be to spot opportunity in your stocks...and after only 2 days. You'll never be the same. That is a personal promise.
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what are the 3 most important indicators to use for trading?
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In my world, Priscilla, there are only three indicators that truly matter the most:
1) Price;
2) Price, and
3) Price
While this may sound a bit facetious, I assure you it is not. I only try to make the point that he/she who learns how to interpret the relationship between supply and demand via the price action only really don't need indicators and other squiggly lines. Price is the only thing that matters and it is the only thing that will make a trader money. What's more, too many people forget that all indicators are "derivatives" of price anyway. They are like the sons and grandsons of price, or better yet the employees of price. They are often one and two levels removed from the price and the further one gets away from what matters, the more vague one's decisions will be. Why not cut to the chase and deal with the real thing, versus something "based on the real thing?"
I find that far too many traders have gotten lost in some non-trader's academic, ego trip to create the perfect, no-lose indicator with their name on it. Most indicator creators never traded anyway. Price and a few moving averages (we use the 8ma, 20ma and 200ma) are all you need, my dear. And if you can't get things right with that, moving further away from the price will only make things worse.
I hope this helps.
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Oliver,
You say "price,,price, price" as the only important indicator,in regards to supply and demand. Could you be a little more specific insofar as an example. Are you looking at price vs. level II buying & selling? volume? ma's, a combination of all of those or something entirely different.
Thanks,
Jim
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Dear Jim:
Price, as in pattern recognition, along with some focus on volume at times and moving averages are all I feel a trader needs. Everything else is superfluous and in my experience training traders hurts more than helps. The trader who learns to identify the key supply/demand imbalances that show up via the same price patterns over and over again will never need complex mathematical formulas and confusing and often conflicting squiggly lines to trade.
Price (Charts), volume and perhaps three moving averages. That's it. That's all you need.
I hope this helps.
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