AAPL / SPY: HOW RELATIVE STRENGTH GUIDES TRADING BEHAVIOR
I just wanted to post my observation of AAPL and how it was relatively strong to the SPY. This kind of intraday observation can be extremely helpful when considering the context of the market environment and factoring that information into your trading decisions.
The SPY represents a broader market of stocks, If it is strong, generally stocks should be going higher, if it is weak, stocks should be going lower. What happens if the SPY is weak, but your stock is not going lower? That is a sign of strength. Obviously there are buyers holding the stock up in the face of a weak market. What happens when that weak market reverses? Your stock should be the first to go to new highs, This can be very useful information for trading stocks intraday.
The concept of relative strength is nothing new and it is does not serve as a complete methodology. I enter a trade based on my setup, my validation and my perspective. This concept of relative strength adds to my perspective and let's me know that I should be looking to buy a stock that is strong in the face of a weak ,market. The sign of strength of obvious when the SPY was pushing new lows while AAPL refused to push lows.
So when do you enter this stock? And what type of expectation is reasonable as far as profit potential? That will all depend on the parameters defined by your methodology. I used 5 minute charts because I was interested in day trades, and AAPL happen to be hovering around a large time frame Fibonacci level which presented a significant support. Once I saw it failing to push lows in the face of the weak SPY, that was enough information to know to avoid shorts and look for longs.
To learn more about how I integrated my methodology into this trade scenario, read my article at unconventionaltrader.com/relative-strength-trading-aaplspy
The SPY represents a broader market of stocks, If it is strong, generally stocks should be going higher, if it is weak, stocks should be going lower. What happens if the SPY is weak, but your stock is not going lower? That is a sign of strength. Obviously there are buyers holding the stock up in the face of a weak market. What happens when that weak market reverses? Your stock should be the first to go to new highs, This can be very useful information for trading stocks intraday.
The concept of relative strength is nothing new and it is does not serve as a complete methodology. I enter a trade based on my setup, my validation and my perspective. This concept of relative strength adds to my perspective and let's me know that I should be looking to buy a stock that is strong in the face of a weak ,market. The sign of strength of obvious when the SPY was pushing new lows while AAPL refused to push lows.
So when do you enter this stock? And what type of expectation is reasonable as far as profit potential? That will all depend on the parameters defined by your methodology. I used 5 minute charts because I was interested in day trades, and AAPL happen to be hovering around a large time frame Fibonacci level which presented a significant support. Once I saw it failing to push lows in the face of the weak SPY, that was enough information to know to avoid shorts and look for longs.
To learn more about how I integrated my methodology into this trade scenario, read my article at unconventionaltrader.com/relative-strength-trading-aaplspy
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