Can one define an edge by only using the basic TA tools of price charts and Support/Resistance? Here's the hypothesis:
Using only candlesticks, volume, and market analysis, attempt to find an edge in the equities markets.
I began this quest a few years ago, and spent a good amount of time on it. Here's what I found so far:
Market analysis helps in swing trading - When trading longer than 1 day, an analysis of the market/sector/industry you are trading helps. You may have a great looking pattern, but if your industry/sector/market is going the other way, you'll have to have a real strong pick for it to go like it should.
Other indicators - I have purposely excluded other indicators and oscillators. I have learned how many indicators work, and agree that it makes certain things easier, if you know their limitations. Sentiment indicators also have their place. However, for the past few years, I have attempted to get my eyes used to spotting reliable patterns, and found that indicators tilt my thinking. I have not found this tilt to be reliable (yet).
I'll leave it at that, await your comments, and add to it more later.
Comments
Finding patterns like "head and shoulders" and "inverted head and shoulders" is a powerful trade setup and a safer bet for large share size.
What i'm looking for is a software package that helps with risk/reward analysis and computes that automatically,
cause we want to be in this game for the long haul.
I found this software www.mtpredictor.com but I haven't found anyone that is using it. Not that i don't trust their testimonials, I would feel safer meeting someone that has used it with success.
If anyone has used mtpredictor please respond to this post.
[Account Value x Risk Amount (in decimal form)] / [Entry Price - Stop Price of Stock] = # of shares to buy
ie: 10K Act. Value, willing to risk 1/2% of total account per trade, Buying stock ABC at 55.50 with a stop at 52.50.
(10,000 x .005) / (55.50 - 52.50)
risk $50 per trade / $3 risk per 1 share = buy 16-17 shares.
If you set up a spreadsheet in excel when you change your account size, or you want to change your risk amount you just change the number in the box and the total # or shares automatically updates.