Combining Fundamental & Technical Tools
None of us has a crystal ball. We are only trying to increase our probabilities for the correct buy and sell timing. I'm using DDS in my example, but my illustrations and comments apply to hundreds of stocks on a daily basis.
First question: is the stock moving in an upward channel even in this lackluster year? Sure, an experienced trader has an eye for the answer. However, TV provides a way to overlay a 2-standard deviation (reddish) channel on top of a 1-standard deviation (bluish) channel. The better the "behavior" of a stock, the closer it will hug the inside of the channel. Then when the price approaches or extends through the top or falls through the bottom of the 2STDEV channel, you are likely going to see a reversal.
I (and you) can go though dozens, even hundreds of stocks in a short period of time by using an initial test as to whether the channel is sloping in the desired direction. But that's just the first test.
Is this stock a good candidate for trading both long and short? Here's where the Zig-Zag indicator is of great help. I have modified someone else's work to take away the tedium of counting bars and measuring changes.
If the story doesn't jump out and slap you, look a closer look.
It is said that some of the best traders never buy at the bottom nor do they sell at the perfect top. You can't legislate a trend change just like you can't pray up the market. Been there, done that.
Yet, when you can determine that a good stock (to be defined by fundamentals shortly) moves nicely up and down in an upward or even flat channel, why not use information to your advantage?
Even though it is perfunctory for a stock to go down immediately as soon as I go long, Mr. Market's way of keeping me humble, wouldn't it help you to know that stocks like DDS have had 11 "round-trips" just this year alone?
If you could capture just half of these 10% to 52% swings in both directions in such a short period of time, why wouldn't that kind of trading appeal to you?
Hey, 6.05% YTD isn't bad. But count the swings, add up the peaks and valleys (always obediently staying within the channel this year) and take from 20% to 80% of the maximum potential earnings you would have made. Nice profits, huh? In other words, trade when you can confirm a trend reversal has likely occurred.
What more do I need to get the odds on my side? Plenty.
I pay a lot of attention to volume. Not only do I have volume bars, but the buy-sell pressures as well as the big players stepping in to push above the average volume are big deals! DDS hit the bottom of the channel on Thursday. Oversold? Then the price bounced up on Friday with volume 48% above average. It got my attention. In fact, I use the TV community's script to market the triangles above and below the candlesticks to mimic the Investors Business Daily "accumulation and distribution day count) applied to single stocks.
Equally important, the short-seller volume tells me a little more about the price signals. Those are the blue bars under the volume bars. There are always short-sellers. In this case, there is an average of 8.53% of the daily volume made up of short sellers. But on Thursday, they stepped in and tried to drive down the price to their benefit. Or at least hoped they could. Then on Friday they released their grip as the price rose. I try to understand if a price rise is due to a short-squeeze. The traps in investing are endless, but analytical tools can help spot many of them.
Is DDS a good company worthy of me risking my money?
As you can see in the three charts across the top of my chart, I have many fundamental metrics. I also have the ability to go back for many years of history as I want.
I know you might be thinking there are many places in TV to find all kinds of fundamental data. True. And I do look at all of the data when doing a deep dive. But I like to have everything in front of me I possibly can to study a chart as if I'm in a museum gazing intently at a painting to gather details and making an interpretation.
To the right of the channel you can see my attempt to compile a number of fair value metrics and their history. I am infatuated with fair value and other valuation measures. I also am frustrated that they can be so wide apart even though I realize the variety of assumptions involved. Still, it's just another gut-check I have. Plus, I've got more work to do here, including my own valuation estimates. Put them all in a can, shake them up and let them spill out on the table. Reach in and pull a number out randomly. Yeah, that's my difficulty in the pseudo-science of valuating a stock. My three tables across the top are my go-to numbers. Price to Book Ratio, Debt to Equity Ratio, Price to Earnings Ratio, Net Cash from Operations and EPS, all in the historical context, tell me most of the info I need to mesh into "value" I compute in my head.
What about an independent third-party rating on a stock? If you are a subscriber to IBD's digital data, you can download a variety of their ratings on about 9,000 stocks. I wrote my own script to pull those ratings into my chart. It gives me comfort and confidence to be in a stock that meets all of my criteria PLUS is rated highly by IBD. BTW, I don't share anything I'm showing you except to my grandkids I'm training to invest in the stock market. This illustration is for contest purposes only. However, I will tell you that my charts are great teaching tools. I am not a professional trader. I'm just an average person with an above-average level of analytical curiosity. I was a heavy TradeStation devotee for 20 years and attended many of their coding workshops. TradingView has opened up an entirely new field of vision for me.
Lastly, you can tell in my last two panes that I am constantly wanting to know where the "competition" is and how the sectors are rotating on a daily, weekly and monthly basis. If you aren't watching the USD, WTIC, Bitcoin, Gold and the VIX, you may not appreciate that your stock is not the problem: it's the things that compete with stocks and are driving the bus. There are many "markets," and money flows to the places its most loved.
In the right-hand panel where TV shows so much great information, I wanted to point out my favorite. If a stock is consistently revealing positive surprises in their earnings and revenue numbers, I like that. A lot.
You can probably tell I'm particular about information formats and colors. They help the eye see things I would likely miss.
I'm in great debt to the many TV script writers. If you take the time to look through the vast library provided by the TV community, you will find most of my tools used. I've looked at every single offering from the TV community. I do have a few of my own developed by KioseffTrading, a coder very familiar with TV. He has listened to my needs and developed exactly what I want in short order within a reasonable fee. Plus, he has a great can-do attitude.
Lewis F. McLain, Jr.
Comment:
I'm not sure how the QQQ chart got posted, but it is not supposed to be part of my submission. Is Team TradingView able to delete? LFM