xjo - weekend charting and chat - 28 mar 2014, page-19

gj0201,

Basically, I look at the overseas leads, and our previous day's percentage change, and get some ideas from a few commentators. It's a feel thing to some extent. For example:

If I remember rightly, last week, I saw the ASX 200 had been holding up okay in spite of some bad news and leads. I saw the US was down 0.70% overnight, yet we had been up 0.70% the previous day. So you would think we would erase our 0.70% rise. Also, the iron ore price had risen which would stop bad falls. But the AUD was up, which should stop big rises too. So I settled on a 0.70% fall. Then I allow another 0.20% fall, as backup.

Lo and behold, CMC's CFDs collapsed from 5376 to 5303 at 9.50am. I figured they were catching someone with a big buy order at 5315 with a 10 point stop - wiped that out in a few seconds! At first, I thought such a huge drop might have been bad news just before open that I wasn't aware of, so I waited for 4 minutes, and it had settled down. I think I bought at 5315 - an obvious bargain compared to the previous close of 5376.

So basically, I now look for bargains rather than probabilities - 60/40 chance of moving my way is no good, even though you might have a lucky streak. You need 75/25 chance of it moving your way, so that's what I'm looking for now.

Yes, I want reversals from highs and lows, often using support and resistance points. In the past, it would seem to have probably reached a high or low for the morning - usually within the first 40 minutes - and I'd jump on. It worked well for a while and I made a huge killing one week. Then it stopped working - momentum took the market further (momentum is the big danger for swing traders, but great for trend following, which never worked for me).

So now if I think it "should" be at the high or low for the morning, I don't immediately jump on. I wait for it go another 10 points further and for some dojis to appear. In other words, I wait for a bargain. If there's no bargain that morning, then I don't trade that day. So instead of trading maybe twice per day, it's now 3 times per week. I've also widened my stop from 5 points to 10 points, which seems to be working better too.

Note that CMC often give big bargains pre-market, but you've got to watch it for a few months to get a feel, and beware of last minute news. Never jump on in the first minute cos the moves are too extreme. I use their one minute chart.

I'll update you guys as I learn more and get more experience.