I received a very good question asking about the most efficient ‘workflow’ pattern and specifically how I read and interpret the analysis from Stops and Targets. I am going to use the symbol @ES (S&P 500 Futures) from Stops and Targets for my example here, but it works the same way for any of the other thousands of stocks, futures, ETF’s, or indexes…
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The Chart
The first place my eye always goes is to the chart. There is a LOT of information that can be gleaned from the chart with just a quick glance. For example, by looking at the candlestick bar I can see the current price (2144.75), that daily price action is so far mildly bearish (the candle body is red but very narrow), and I can also see that although the candle body is red–current price is just above yesterday’s close, which is indicated by the dashed blue line. So, just by glancing at that candlestick bar I was able to process in a split second what would have taken comparatively much longer by looking at a typical open/high/low/close textual readout.
Once I have the current daily bar price action in mind it is time to put that into context and again the best way to do that is to continue focusing on the chart. I look at the three primary trend lines and see that two are green and one is red. In a fully bullish market LT (long-term) will be on the bottom, IT (intermediate) is in the middle and ST (short-term) is on top. That can only happen after a long period of upward trending and that is what we see here–so I immediately know that the long-term trend of this symbol has been bullish. I also know that intermediate support lies at the IT line (2100.25). In the example above, price is currently below ST so I know that we currently have a short-term pullback in a LT/IT bullish uptrend.
Current price is between a red and green line so I also know that we have a trading range with ST bearish against IT bullish forces. Stops and Targets calls that a BEAR 1 type of market.
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Datafeed Area
Next, my eyes dart over to the datafeed area and I quickly take in the color of the price (green) and the current price (2144.75) and change from the previous close (+.50). My mind says, gap up open that has sold back to near the previous close. Next I glance at the timestamp (date and time) to be sure the data is current. I saw from the chart that the range was small–but if I am interested to know the precise numbers I glance at the range. Volume isn’t very meaningful early in the session but becomes much more important at the close–so I don’t even bother looking there yet. So, with a quick look here I have now reinforced my visual interpretation (right-brain function) with a textual/logical representation (left-brain function). That is total absorption of data and I am still under 3 seconds in most cases when the price action is boring, as it is here.
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Trading Range/Signals
Next, my eye moves to the trading range/signals block in the top middle of the page. Again, I am reinforcing what I already saw in the chart by confirming the rating of Bear 1. Check. I can see the range information also by looking at the second column and as I surmised from the chart–we have a market that is boringly-rangebound.
What I am most interested at looking for in this block is whether there has been a new signal today. That information is shown in the third column… and so far, the answer is no. A new signal in any timeframe will always be indicated in the third column by showing ‘TODAY’ and the text is color coded red for a bearish signal or green for bullish. Since there is no new signal shown, I am finished analyzing this particular security.
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Summing It All Up
So, in about 5-10 seconds I have completely sized up @ES. If I were a broker using Stops and Targets as tool to talk to a customer I would probably say something like this to my client…
ES is currently up half a point at 2144.75 but has sold off a bit after a gap up open and is near the bottom of the daily range. It is currently in a short-term pullback in a strongly trending long-term and intermediate term bull market so the short term timeframe is in play but at the current price the risk/reward ratio is not favorable for entering a new trade. The short-term trading range is between 2107.75 to 2172.75.
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I can tell the short-term timeframe is in play because there is a red down arrow indicated on the short-term tab. So, let’s open that tab and see what it says…
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Trading Ideas
So, what if that same client was looking for a trading idea for today? Well, you could follow the analysis suggested on the short-term tab and suggest a bearish entry between 2147.50 and 2159 (shaded red on the chart), looking to target 2113. However, one has to keep in mind that the IT and LT trends are up and also that price is currently near the dead center of the short-term trading range (2107.75 to 2172.75), so probably not the greatest trading odds here, but if you want to enter a trade then that is my suggestion as the best available option.
I don’t know about you–but if I knew a broker that could make those kinds of well considered analysis and trading suggestions in just a few seconds after looking at any one of thousands of symbols…I would be very impressed. So, here’s a pro tip for you aspiring brokers…use Stops and Targets to help your clients.
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Try It Yourself
Hopefully you will find today’s post useful and informative. Try this workflow pattern out yourself and see how quickly you can size up a random symbol that you were otherwise unfamiliar with. Once you find one that has an interesting setup –then read ALL of the analysis information and don’t forget to consider the big picture trading setup.
For best odds of success, don’t mix trends in your longer-term trading. If you want to be bullish, then buy stocks where all three trends are up. If you want to trade on the short side then find stocks where all three trends are down.
…my .02
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