Patterns and Indicators
When contemplating a trade there are any number of chart patterns and trade indicators that we at Wanderer look for. No single trade is going to tick every box, so what we try to do is tick as many as we can. Flipping through your watchlist is time consuming at first, but over time you'll be able to flip through them quickly scanning for charts showing your favorite set-ups. When I go through my charts, the first thing to catch my eye are the chart patterns. From there I can pause my clicking, and look closer to see what other indicators support a trade. Here's a list of the things I watch for in a chart.
Chart Patterns
- Breakout—One of our favorite indicators, as it shows that previous strong resistance levels have been broken and bulls are in charge. Breakout
- KISS-50—A great one to show us that a trend has reversed off of an important moving average. KISS-50
- Double-B—Provides us with great reward-to-risk trades. Double-B
Trade Indicators
Those were the major chart patterns that initially interest us in a stock chart's setup. After that we look to combine other pieces—indicators—to build a strong case for the trade. I won't say that these fall in any particular order of importance, exactly, but when I quickly scan a chart these are the things that jump out at me. The more of these that present a case for our trade, the better. It isn't an all or nothing proposition, it's more like we are trying to use as many of these as possible to create a strong base for our building.
- Recent Wanderer Signal—This one is easy—our Wanderer indicator gives you a green arrow right under the chart's candles to let you know something good is brewing.
- Rising 20- and 50-Day Moving Averages—Shows us that there is short-term momentum that should continue.
- Rising 200-DMA—In addition to the short-term moving averages showing us current momentum, the long-term average confirms buyer support as well.
- Non-Stretched 200-DMA—Historically, a 200-DMA will act as a rubber band. When a stock gets too far away it will snap back. If it's too far from the 200-DMA it's likely due for a pullback before it can run higher again.
- Solid nearby support—Ideally, the moving averages will be piled up underneath the current stock price, or there will be previous support from old lows. If so, then the shorts are going to have to work hard to push through that support to knock us out of the trade. Support
- Legitimate Target—We can't simply create an imaginary target. We look for legitimate target levels that the stock will likely run to before hitting resistance. This number is an important key to determining our reward-to-risk, and whether we should enter the trade.
- Strong Volume—A stock that is rising on strong volume shows that the bulls are in control. As volume fades, the number of buyers is fading, and bears may begin to wrest control back.
- Death Cross / Golden Cross—The 50-DMA crossing the 200-DMA. The direction that the 50 is moving as it crosses the 200 is a short-term indicator of what we could expect to see continue.
- Fundamental News—This comes at the bottom of the list. If it's on CNBC, then we're already the last to know. Generally, retail traders will not learn about positive fundamental news until the market has absorbed it.
Beyond these, all traders will develop their own indicators or chart patterns that they use to help them make solid trading decisions. RSI, MACD, bull flags, cup and handles, the list goes on and on and on. In the end, what matters is that your indicators help you make trades with strong reward-to-risk. Find what works for you, and stick to it.