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Trading Price Action Reversals: Technical Analysis of Price Charts Bar by Bar for the Serious Trader by Al Brooks

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CHAPTER 22

Daily, Weekly, and Monthly Charts

Although daily, weekly, and monthly charts can generate intraday signals, they occur so infrequently that they become a distraction for a day trader and should be ignored. The most common signals are those based on yesterday's high and low, and you can see them on a 5 minute chart. However, there are frequently price action entries on these longer time frames, but because the signal bars are so large, far fewer contracts can be traded if the risk is to be the same as for a day trade. Also, overnight risk may mean that you should reduce your contracts even further or consider trading option strategies that have a limited risk, like outright purchases or spreads. A day trader should trade these charts only if they do not occupy his thoughts during the trading day, because it is easy to miss a few day trades using large volume while nursing a trade of far fewer contracts or shares based on the daily chart, and these misses can more than offset any gain from the daily signal.

Although all stocks form standard price action patterns, stocks of very small companies that have little institutional ownership have a significant risk of unusually big moves up and down. They tend to be more volatile, and in stock market terminology, these stocks are called high-beta stocks. For example, you would not expect Wal-Mart (WMT) to jump 1,000 percent in a month, but when a small drug company gets its one drug approved by the Food and Drug Administration ...

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