Thursday, August 16, 2007

How To Use Twitter Trader

By now, most readers are aware that I post comments on the market via the Twitter application. The latest five comments appear on the blog home page; the full list of comments can be accessed via my Twitter page or by subscribing to my page as an RSS feed.

During times such as recently, when I'm on the road and with limited computer access, my Twitter comments will mainly occur before the start of trading and after the market close. The goal of these posts is to help traders prepare for the coming trading session. When I'm actively following markets and trading myself, I also use Twitter to comment on the market intraday and aid with that day's trade.

Most of my posts will cover one of three areas:

1) Relevant trading ranges, support/resistance levels: points to look for either breakout trades or reversions to the range mean.

2) Indicator levels: assessments of market strength and weakness.

3) Correlated markets: what is happening in markets and sectors relevant to the broad stock market.

These three areas are ones that I draw upon to determine whether my leaning will be to buy dips, sell rallies, or expect range bound trade.

The indicators I follow break down into measures of:

1) Strength - How many stocks are making fresh new highs and lows?

2) Momentum - How many stocks are trading above and below their volatility envelopes (Demand vs Supply) and how many are trading above their intermediate-term moving averages?

3) Sentiment - Are traders predominantly lifting offers, hitting bids, or displaying little short-term bias (NYSE TICK).

4) Leadership - Are key sectors participating in rallies/declines or breaking out of ranges?

In general, when the indicators point to distinctive (and growing) strength or weakness, I expect near-term continuation of that move. When the indicators are losing strength and momentum at new price highs or lows, I expect range bound trade and eventual reversal. These are hypotheses I work with; not fixed, rigid conclusions.

The purpose of the comments is decision support: to provide information for you to generate your own trading ideas. If there is additional information you'd find helpful, by all means comment to the blog or send me an email.

Thanks for your continued interest!