The first step is to look at the daily and weekly charts to determine the trend.
I use Medved Quotetracker for my charts. Weekly chart, 3 years, with the 20, 40, and 200 period moving averages and volume and RSI. That's it.
Looking at the weekly chart of HANS, it may look like we're going higher in the next few months, but notice how the RSI made a lower high on that last new high. This is called a bearish divergence, which tells me that it's almost time to short this stock. Also note that we've create an M-top with the second top coming on lower volume. So, in the back of my mind, I'm telling myself to look for a short entry and not a long entry.
For the daily charts, I use the same indicators and I use a 6 month chart. Now, looking at the daily chart, notice how HANS just recently broke the uptrend line at $45. Although RSI is currently at 34.9, which is somewhat low, it seems to me that the trend is changing to the downside, so I can short this stock soon, if not today.
The next thing that I do is look for stocks that have done this before. Check this out:
Looks familiar, huh? If HANS follows RMBS, then we should drop like a brick from here on out. So, let's say that I enter this stock on the following trading at at $42.77. I would put my stop at 10-20 cents above the previous day's high ($45.19), which would put my stop around the $45.35 area. My target? Well, looking at the weekly chart, the first area of support is around the $39 area, so we can cover half there and hold the other half for further downside. I don't normally have a set stop price or a set target price, but I almost always have a general idea of when I want to take profits or losses. Usually, I'll just look for an intra-day bottoming signal to take my profits.
Since, I'm writing this in real-time, I don't know what exactly will happen to HANS. I guess we'll find out in a few weeks or months. My plan is to short HANS on 7/24/2006 for swing trade. HANS is currently trading at $42.77 as of July 23, 2006. Let's see what happens.
Daytrading (2 minutes to 2 hours)
Daytrading and swing trading are very similar, except, I use the 2-min, 15-min, and 60-min charts for daytrading. This is similar to using the weekly and daily charts, except I start at the 60-min and 15-min charts to find the overall trend, then go down to the 2-min charts to look for an entry. The technical analysis is the same though. Here's an example:
Looking at the 60-min chart, I can see that we made a bottom from last Friday through last Tuesday and then from Wednesday till this Friday, we retraced about 60% the high to the bottom. And now, we're going lower again. This 60-min chart tells me what we're probably going lower over the next few days.
Looking at the 15-min chart, I can see that we made an M-top on Wednesday and Thursday. And then on Friday, we had a very bearish drop and a bearish consolidation (sideways action after a drop with very little retracement to the upside). This confirms what the 60 minute chart was telling me. I should be looking to short this puppy. Notice how the RSI is pretty low on the 60-min chart though. This tells me that I should probably wait for the next surge upwards before shorting. It could take a few hours on the next trading day.
Now, I look at the 2-min chart for entries and exits.
On the first sign of an M-top, I short the stock. Then, I cover at the first sign of a W-bottom and reshort on an M-top. If the RSI is too low when the M-top is forming, then I usually just sit back and wait for another entry point. Remember, missed money is better than lost money. So, that's basically it.
It's very important to know the trend of a stock, then when you know the trend, you can go long or short based on this trend. Your chances of success when you follow the trend is much greater than your chances are when you buck the trend. The is always your friend...don't ever forget that.
I know that this writeup is not comprehensive, but if you follow my blog, you'll start to see more and more of how I trade.
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