What of the key elements to understanding stock price movement is to recognize the need to view charts in different timeframes. As a refresher to this important topic, I will provide an example here as to how crucial timeframe review can be. In looking at the Daily chart of PFG (Principal Financial Group) below you will notice an Inverted Hammer for trading on 6/3/2011:
This candle signals a TR (Trend Reversal) and will require confirmation on 6/6/2011 as to its validity. You will also notice that is has given up the 200 day SMA (Simple Moving Average). Will buyers step in here to buy?
To obtain a clearer view, it is time to expand your perspective and look at other timeframes. In reviewing the Weekly chart below, a much clearer picture emerges as the RED candlestick for the week shows downtrend movement:
A test of the 50 day SMA below appears imminent and is accompanied by some sell volume. Price is also sitting on the lower BB (Bollinger Band).
From this review, I would set a price alert for 29.25 to get long (play the 50 day SMA bounce). What would you do?
This has been a challenging week for most I would guess – including myself. Monday starts out with a bang - so why is that bad? Isn’t that what we want, setups working & all the stocks we are long going up? My experience this year has been that many setups are off to races in pre-market action and thus I do not get a chance to get a good entry. This reality has forced me to adjust my strategy and become a LOT more opportunistic intraday for any day or swing trades that I want to enter.
The new Monday “challenge” is being able to utilize the setups that you work so hard to find prior to the open (and mostly during the weekend scan efforts). Then a day like today comes along and the market goes South like a runaway freight train. Now what?
I found myself once again abandoning the setups that I had planned on working today - to looking for stocks in pre-market that were getting attention. Most of these opportunistic trades come from 3 watch lists that I regularly keep – stocks that I trade often and feel that I know well. I keep them seperated by industry/sectors so that it is easier to keep track.
One thing that this approach forces me to do is keep a clear idea in mind on what I am trying to accomplish – the “it is just a trade” mindset.