As you do your daily review of the charts of stocks that moved, what exactly are you looking for?
You’re brainstorming ways you could have realistically participated in that move.
The key word there is realistically.
Most traders look at a chart and immediately gravitate towards the area before the big move and try to find a signal there.
Take this chart of RTX from yesterday that appeared on my “Stocks with the Biggest Range” scan in Trade-Ideas:
Most traders try to concoct a strategy signal where the red arrow is pointing, but you’re mostly wasting your time looking for a signal there.
The better approach is to find a signal after some initial movement.
It’s tough to predict which stocks the market will react to (although RTX had earnings that caused this spike – good luck predicting the direction ahead of time, though!)
It’s significantly easier (not easy!) to create a strategy that trades the reaction to some event.
So the first place I would look on this chart is not the red arrow, but the yellow triangle.
Maybe you get lucky and find a trade or two where the red arrow is, but we’re looking for something repeatable.
Something that happens frequently that we can capitalize on.
Tomorrow I’ll go over ideas for signals for a trading strategy from looking at charts.
-Dave
