Posts Tagged ‘chart patterns’

5 Ways the Wave Principle Can Improve Your Trading

By Elliott Wave International

5 Ways the Wave Principle Can Improve Your Trading 

Jeffrey Kennedy brings more than 15 years of experience to his position as Elliott Wave International’s Senior Analyst and trading instructor. He knows firsthand how hard it can be to get simple explanations of a trading method that works — so he shares his knowledge with his subscribers each month in the Trader’s Classroom lessons.

Here’s an excerpt from The Best of Trader’s Classroom, a free 45-page eBook that gives you the 14 most critical lessons every trader should know. Download the full eBook free here.

Every trader, every analyst and every technician has favorite techniques to use when trading. But where traditional technical studies fall short, the Wave Principle kicks in to show high-probability price targets. Just as important, it can distinguish high-probability trade setups from the ones that traders should ignore.

Where Technical Studies Fall Short
There are three categories of technical studies: trend-following indicators, oscillators and sentiment indicators. Trend-following indicators include moving averages, Moving Average Convergence-Divergence (MACD) and Directional Movement Index (ADX). A few of the more popular oscillators many traders use today are Stochastics, Rate-of-Change and the Commodity Channel Index (CCI). Sentiment indicators include Put-Call ratios and Commitment of Traders report data.

Technical studies like these do a good job of illuminating the way for traders, yet they each fall short for one major reason: they limit the scope of a trader’s understanding of current price action and how it relates to the overall picture of a market. For example, let’s say the MACD reading in XYZ stock is positive, indicating the trend is up. That’s useful information, but wouldn’t it be more useful if it could also help to answer these questions: Is this a new trend or an old trend? If the trend is up, how far will it go? Most technical studies simply don’t reveal pertinent information such as the maturity of a trend and a definable price target — but the Wave Principle does.

How Does the Wave Principle Improve Trading?
Here are five ways the Wave Principle improves trading:

1. Identifies Trend
The Wave Principle identifies the direction of the dominant trend. A five-wave advance identifies the overall trend as up. Conversely, a five-wave decline determines that the larger trend is down. Why is this information important? Because it is easier to trade in the direction


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Which Way Wednesday – Pattern Recognition Special

Head and shoulders, knees and toes.

Sorry, I can’t think head and shoulders without adding the second part thanks to the darned Wiggles, which my kids were raised on – better than Barney, at least…   The head and shoulders investors care about is the chart pattern (from the Chart Store) and, frankly, I could make a knees and toes case by extrapolating the left side of this disaster (which was actually a great bull run but would not be as much fun if we flip it). 

TA is all about symmetry and pattern recognition, two things that are hard-wired into the pleasure center of the animal brain to help us develop cognitive skills early in life.  Humans love finding patterns – it makes us happy.  In this particular case, the fact that stocks go up and down and then get overbought and then get oversold as they correct to the mean has been cleverly identified by one primate (and I hope he gets a copyright fee) as a "head and shoulders" pattern and all the other media primates gather around the great obelisk and they howl and shriek at you every day and they cast their bones and make proclamatiotion as to what it foretells

Unfortunately, Technical Analysis has so many devout followers that it often becomes a self-fulfilling prophesy.  Even worse (and certainly more significant) than the head and shoulders pattern is the coincident "death cross" or "dark cross" that is being formed on our indexes (see yesterday’s post) as the 50-day moving average falls below the 200-day moving average, as indicated on this chart from Barry Ritholtz:

Mary Ann Bartels, Chief Bone-Caster at BAC, made the follwing prediction about the pattern she was seeing:

June 23, 2010 marked the 1-year anniversary of last June’s bullish Golden Cross of the 50-day moving average above the 200-day moving average. This Golden Cross signal preceded a 12-month return of 22.4% on the S&P 500. The average 12-month return for the 42 Golden Crosses that have occurred since 1928 is 9.6%. More importantly, the June 23, 2009 signal occurred during the NBER recession that began in December 2007 and Golden Crosses associated with recessions show a much stronger average 12-month return of 19.5%. The average 12-month return for the S&P 500 over the same period is 7.2%…

The bearish counterpart of the Golden Cross is called a Dark Cross. This signal


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A Classic “Fade The Gap” Day

A Classic “Fade The Gap” Day

Courtesy of David at allabouttrends.net

“What’s so special about 1130? It’s downtrendline resistance and a 50% fibonacci level” [Click here for a video on Fibonacci retracements.

One look at the SPX chart below tells the story, all in a news driven pop based upon the Yuan.

Sure enough the opening gap took us right to those levels.

So are the markets really up today or are they down? Just look at the two charts below.

 

So in answer to the question of whether we are up or down for the day — how about BOTH?  To those who have been in the market before Friday’s close yes it’s up.

But to those who had to chase the market at the open and REACT AFTER THE FACT the market is down. This is what they mean when they say “Fade The Gap”. Folks going into today we were overbought to begin with and the Chinese Yuan news was just the icing on the cake to set up the fade the gap and lock in some gains.

Think about it, anyone who basically bought anything today is basically down from their entry.

Moral of the story — listen to the charts and above all NEVER CHASE BUSES BY REACTING. 

The markets are stretched and hitting key resistance levels and a lot of individual stocks are also showing this — AKAM, SNDK,NFLX — all have technical indicators and nano-timeframe toppiness showing up as well. Right now we are going slow and protecting what we have.

“What Do I Need To See To Make Me Take A Trade”

You would do yourself well by printing off that phrase and pasting it to your monitor somewhere to keep you focused and to ingrain it in your subconscious.

On the long side it’s all about “Pullbacks Off Highs” patterns.  It’s really all you need to know and how to trade them of course.

To learn more, sign up for our free newsletter and receive our free report — “How To Outperform 90% Of Wall Street With Just $500 A Week.”

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Adam at Market Club put together a lesson on Fibonacci retracements, an important tool many traders use to determine turning points in the market. Like all tools, it has its flaws and should be…
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Playing the Gap: Identifying and Trading Gaps

Playing the Gap: Identifying and Trading Gaps

Courtesy of Pharmboy

Gaps are very profitable technical indicators.  A gap is an area on a chart where no trades take place and these are caused by fundamental or technical events that usually occur after the market closes and before the market opens, also known as ‘non-regular trading hours’ (NRTH’s).  There are four basic gap types:  area, continuation, breakaway and exhaustion.

Gaps are significant for many reasons:

  1. Gaps tell traders that something occurred during NRTH’s.  Typical events include: earnings announcements, FDA approvals, analyst upgrades/downgrades, company press releases and other significant events that may cause investors and traders to place orders to buy or sell during NRTH’s, causing an order imbalance.
  2. The type of gap will help you determine the probability of the stock’s direction in the short and intermediate term.
  3. Gaps are profitable.  Traders can take advantage of the imbalance of orders by either “catching the momentum” or “fading the gap”.  When riding a gap, the traders are betting that the stock will continue in the direction it gapped.  When a trader fades a gap, they are betting that the gap will “fill” and move opposite of the gap’s opening direction.

Types of Gaps

Area Gaps

Area gaps are usually small and unimportant.  They are also referred to as “common gaps” because they occur so frequently.  Characteristics of area gaps are that they are fill very quickly. When the word “fill” is used, traders are referring to the gap’s closure.  The gaps usually occur in trading ranges and they form on very low volume.  Because of the low buying volume of the stock, the gap cannot sustain itself, thus filling relatively quickly. 

The easiest way to determine if a gap will fill is to watch the first 30 minutes of the day.  If the candlesticks appear to be fading in the opposite direction, it’s very difficult to stop it.  This is because many others see the same fade and will jump on board.  Remember, a gap does not have to fill on the same day of the gap.  These types of gaps are unpredictable and are hard to trade.  Figure 59 an example of an area gap.

Figure 59.  Area gap.

Continuation Gaps

Continuation gaps are extremely important because they “continue” a trend.  They are also known as “runaway” or “measuring” gaps and they do not fill quickly.  These…
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Basic Technical Patterns: The Foundation of Common Pattern Identification

Pharmboy’s latest chapter in his TA eBook – Chapter 7! - Ilene 

Links for previous chapters:

1. Understanding Market Cycles: The Art of Market Timing (Chp. 1),

2. Dow’s Theory of Markets (Chp. 2),

3 & 4. Fundamental vs. Technical Analysis and Types of Technical Trading (Chps. 3 & 4).

5. Stock Charting Basics: How to Read & Understand Stock Charts (Chp. 5 here.) 

6. Using Moving Averages for Long and Short Trades (Chp. 6)

Basic Technical Patterns: The Foundation of Common Pattern Identification

Courtesy of Pharmboy of Phil’s Stock World 

History tends to repeat itself, and trend lines, triangles, and other patterns do work in TA.  Charts show the collective opinions of all market participants for that day, month, or whatever timeframe that is used.  Charts are direct evidence of the trader’s beliefs and feelings, and each movement reflects a bit of human emotion (or at least it did before speed trading – HAL9000).  So, it should be no surprise that patterns repeat themselves over and over.

In Figure 1 below, typical up trends and down trends are shown.  These zigzag patterns are seen all the time, but why do they form?  Let’s say someone bought a stock at a certain point.  If that stock went up, but pulled back to the original purchase price, they will often think that it’s an opportunity to buy more at their original price, thus adding to their position.  This is also the same for shorts when they are able to short a stock at the same price they shorted previously. Then why do peaks form? People sell (or cover) to take profits.  Obviously, any increase in selling will pull the stock back.  Those who bought at a lower level may start buying again.  This repeats and repeats until 1) there is no more stock left for people to buy, or 2) there is too much supply and not enough buyers.  On a larger scale, this is how bull and bear markets begin and end.

Figure 1  Typical up and down trends.

The following basic chart…
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Same Day. Same Event. Same Market. Different Story!

Same Day. Same Event. Same Market. Different Story!
"There is no group more subjective than conventional analysts." — Robert Prechter. 

By Vadim Pokhlebkin, courtesy of Elliott Wave International 

Elliott wavers sometimes hear the criticism that patterns in market charts can be "open to interpretation." For example, what looks like a finished 1-2-3 correction to one analyst, another analyst may interpret as 1-2-3 of a developing impulse, with waves 4 and 5 on the way.

Does this happen? Absolutely. (Although, there are always tools an Elliottician can employ to firm up the wave count.) But here’s the real question: What’s the alternative?

Typical alternatives amount to analysis of the fundamentals: Jobs, interest rates, CPI, PPI, what Ben Bernanke said on Tuesday — it all goes into the pot. Result? Well, if you think it’s clear and unambiguous, guess again. Here’s a fresh example.

On the evening of February 18, in a surprise move, the Federal Reserve raised its discount rate — the interest rate at which it lends money to banks. The next morning the S&P futures were pointing lower; everyone was bracing for a weak day — because, as conventional thinking goes, higher interest rates are bad for business, the economy, and ultimately for the stock market. Friday morning, stocks indeed opened lower and major news headlines confirmed: 

  • Wall St opens weaker after Fed move
  • … Investors Wary After Fed Move
  • Stocks Open Lower After Surprise Fed Move

But around 11am that same morning, the DJIA turned around and moved higher. Now look at what the headlines from major sources were saying after lunch on February 19:

  • US stocks bounce back; Fed move viewed in positive light
  • US Stocks Up A Bit On Fed Discount Rate Increase
  • Stocks Higher After Fed Move

What was a "bearish move" by the Fed in the morning morphed into a "bullish" one by the afternoon! Same event. Same market. Same day. Completely opposite interpretation!

This brings to mind the answer EWI’s President Robert Prechter once gave when asked about the objectivity of Elliott wave analysis. Bob said:

"I always ask, ‘compared to what?’ There is no group more subjective than conventional analysts who look at the same ‘fundamental’ news event -- a war, the level of interest rates, the P/E ratio, GDP reports, you name it — and come up with countless opposing conclusions. They generally don’t even bother to study the data.…
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Zero Hedge

Mysterious Drone Swarm Breached Secure Airspace Over Largest Nuclear Power Plant In US

Courtesy of ZeroHedge View original post here.

A mysterious incident related to a serious breach of secure airspace over America's largest nuclear power plant has been unearthed through Freedom of Information Act documents gained from the government.

It's leading to new fears that America's energy infrastructure is prone to attack and potentially being knocked offline, akin to the drone and missile attack which temporarily halted all Saudi oil exports last year at Aramco's Abaqaiq oil processing facility. Forbe's presents the asto...



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Phil's Favorites

Video: Who controls pandemic data?

 

Video: Who controls pandemic data?

Public data is vital to the functioning of a democracy. Witthaya Prasongsin / Getty Images

Courtesy of Julia Lane, New York University

Editor’s note: When the Trump administration ordered hospitals to report COVID-19 data to the Department of Health and Human Services rather than the Centers for Disease Control and Pre...



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Biotech/COVID-19

Video: Who controls pandemic data?

 

Video: Who controls pandemic data?

Public data is vital to the functioning of a democracy. Witthaya Prasongsin / Getty Images

Courtesy of Julia Lane, New York University

Editor’s note: When the Trump administration ordered hospitals to report COVID-19 data to the Department of Health and Human Services rather than the Centers for Disease Control and Pre...



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ValueWalk

A Solid Month For Most Hedge Funds

By Michelle Jones. Originally published at ValueWalk.

June was another good month for hedge funds, although not as good as May. The Eurekahedge Hedge Fund Index gained 1.38% in June as the global equity market drove gains among hedge funds. However, hedge funds underperformed the MSCI ACWI IMI, which was up 2.7% for June. The tech-heavy NASDAQ was up 4.05% in June, while the S&P 500 gained 0.87%.

Q2 2020 hedge fund letters, conferences and more

According to Eurekahedge, final asset flow numbers for May reveal performance-based gains of $27.3 billion and $300 million in inflows. Performance in June was still...



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Digital Currencies

Twitter Says "Human Error" And "Spear-Phishing Attack" Responsible For Massive Bitcoin Hack

Courtesy of ZeroHedge

Twitter suffered from a major hack about two weeks ago and has now said that its staff was tricked by "spear-phishing", which is a targeted attack to trick people into simply handing out their passwords. 

Twitter staff were targeted through their phones, according to a new report from the BBC. The attacks then allowed hackers the ability to Tweet from celebrity Twitter accounts. Twitter has said it was "taking a hard look" at how it could improve its permissions and processes.

"The attack on July 15, 2020, targeted a small number of employees through a phone spear phishing attack. This attack relied on ...



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Kimble Charting Solutions

Gold Could Be Forming A 9-Year Bullish Cupping Pattern, Says Joe Friday!

Courtesy of Chris Kimble

Is Gold forming another long-term bullish cupping pattern? Sure could be!

Is the long-term pattern complete? If history is a guide, it would suggest not yet.

When gold attempted to break above its 1980 highs, it first needed to form a “handle.” It did so by declining around 30%, which most likely shook out a good deal of gold traders, thinking that a double top was forming.

Gold is currently testing its 2011 highs at (2), where it looks to be forming a bullish cupping pattern over the past 9-years.

J...



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The Technical Traders

ARE THE MARKETS ABOUT TO TURN?

Courtesy of Technical Traders

Deborah Honig from Adelaide Capital asks Chris the question on everyone’s mind – where are the markets heading? Where is the ‘big money’, the early movers in the market, going? Chris and Deborah also look at the technicals for Gold and Silver and discuss whether Gold and Silver are starting a big run-up now, or should we wait before taking positions?

Learn more about our latest research and alerts on Gold, Silver, Oil, and Equities at www.TheTechnicalTraders.com.

...

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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Chart School

US Dollar Cycle Review

Courtesy of Read the Ticker

If investors can correctly forecast the US Dollar then their portfolio will be standing on better ground.

Jesse Livermore said investors must familiarise themselves with all matters of the market. The sine wave cycle below shows regular tops and bottoms and if the investor ignores this repeating phenomena it could be at their peril. If you decide to do so, you best have a good technical or fundamental reason.

The sine wave cycle below was found with readtheticker.com 'Cycle Finder Spectrum' use of 'Bartels' logic. Yes it is mathematics, but within the site RTT Plus service we also examine the dollar fundamentals  (like: inflation, money s...

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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.