Day Trading & ScalpingTechnical Analysis

Redundant Repeatable Chart Patterns

Jerry gives us another of his humourous, educated article on chart patterns using the CCI.

We as traders have been looking for the "Holy Grail" for a lifetime. I doubt there is one folks. But all thru my 65 years on this planet I certainly have tried every known indicator, oscillator, etc to get to that Holy Grail. Well I can tell you all I think I found the Holy part of that statement in the momentum indicator the Commodity Channel Index, CCI for short.

Many traders swear by the Macd, Stoch, Rsi, Obv and on and on. The CCI with a 20 moving average (20) is the best leading momentum indicator I have ever used in my trading life. I will include a series of charts depicting the way I use CCI in the exciting world of daytrading which I do for a living. It takes a monumental amount of testing and backtesting anything we traders try for the first time. I learned of this from a spoos (futures) trader in my real time room 4-5 years ago. He showed me in my real time trading room how to use it and how it compares with the other good tools of the trade.
When I say it’s a momentum indicator, I mean it shows me heavily overbought and oversold levels on the 5 minute chart I use for scalping/daytrading as the volume on the stock in question confirms this stock has bottomed or topped out. On the indicator there is a Zero Line, plus +100 & +250 lines above the zero line and then minus -100 & -250 below the center line. What this tells me is when the indicator is at extremes at the high +250 or the low -250 we are nearing a capitulation spike in the stocks price and it’s getting ready to "reverse". Let’s call it an "Alert" to either exit if you are in the trade long or short, or if not in that trade to buy it or short it as the case may be.

Since the March 2003 outside reversal day on huge volume we have actually been in a very nice technical rebound over the last 3 years or so. During this time frame of course we’ve had our share of corrections. But in all sincerity we have continued to march higher and higher since that all important low. While we are in this rally mode this year I have been buying all dips intraday as the funds continue to pour money in this fire every single month without fail. So for all intents and purposes we can at least see what these charts are telling us as stocks get sold off intraday with force only to rebound surprisingly fast as sellers cease to short or sell, and that pressure relief valve opens up the flood gates of a tradable bounce.

There are very telling signs during the trading day for profitable set ups using this indicator along with volume price and proper entries of that stock. Let me show you actual charts dissecting the anatomy of the trade.

AAPL
There are several signs of a good trade here on AAPL using the 5 minute time frame. First note that spike down on the CCI to below -250
Next, look at that big spike in volume as the sellers "exhaust" themselves
You actually could have bought the 2nd red bar near the lows or the next blue bar for a solid counter trend bounce play.

AAPL
On the very same chart that day after AAPL rallied up nicely off that bullish divergence on the CCI, we see the direct opposite of the earlier chart as the stock is forming a rising wedge high CCI reading at +250
Then it falls out of bed to the downside.

Pretty easy short just below the red 20 ema around 2.30 pm

RMBS
On this chart we get a beautiful picture of what I call a "Bullish Divergence" on the CCI.
At 1.30 pm RMBS makes a lower low in price but the CCI makes a higher low, telling me we are slowing in the sellers move down and it’s setting up for a long side bounce play.
Bounce it did off the buy point at 38.00 I actually took this trade in the Room

ES M6 chart the E-mini futures
This chart is showing a falling wedge, usually bullish with a spike in volume and a nice set up on the CCI.
That black line in the chart is the 200 ema on the 5 minute chart. The stock was a buy above that line at any time.
When the price of a stock falls below the moving averages we say it is going to do a "backside bounce" up into overhead resistance at those ma’s above.

ES M6 rising wedge
Here we see a clear rising wedge pattern which is usually bearish, with a clear bearish divergence on the CCI
As the price makes a higher high the CCI makes a "lower" high signaling a "bearish divergence" on that indicator.
Once the ES broke down thru the up trend line it was a perfect short.
This chart pattern can be used on anything, stocks futures, commodities etc. If you can chart it then you can use it.

SNDK Daily for Swing Trades
If you go thru your daily routine that I teach in my class, and check out all stocks on their Daily charts first thing everyday, then you’re going to catch many solid swing trades.
The buy here was a break over the 20 ema and the break up and thru the Zero Line on the CCI.
That was approximately the 15th of Dec.

NOW check that price then and at the highs of that excellent move.

In closing, I would suggest paper trading these set ups or using small shares till you get the hang of this type of trade. Learn how to draw lines all day long. But most important is the Redundant Repetitive Chart Patterns that I see every single day as I trade. Your morning routine alone can save you a lot of money if you understand what these charts and indicators are telling you. Look first at the daily candle charts for clues to swing long or short. Look for those bullish or bearish divergences on the CCI that can clue you in as to what the proper trade should be. Just remember this please. A consistent winning attitude with some serious chart knowledge can take you a long way. Get into the swing of things each and everyday the very same way when you open the store up for business. Like any great golfer you can depend on that swing under pressure. Same for good traders.

Do not take this Knowledge Lab article lightly, CCI is a wonderful tool and tactic I use successfully every single day I trade, and something I always teach in my online trading classes.

Hope this helps you make a lot of money!

Jerry Olson is the managing partner of the JOG Group LLC a Philadelphia based trading company. He began his trading/investing career 30 years ago. He is now a scalper daytrader hosting his own virtual real time trading room on www.paltalk.com for the last 10 years. He has been published in Barrons Market Watch section 13 times over the last 3 years, and interviewed in Active Trader Magazine twice in 2000 & 2001. He teaches an Online Trading Seminar for new traders, and offers his services to anyone on a free trial basis. He publishes a weekly Sunday newsletter named The Jerry Olson "Point of View" with market direction timing and a list of 20 stocks to trade using candlesticks in conjunction with Point & Figure charting, offers daily pre market updates to all his clients via e-mail, and entrance to his real time room all in one neat package.There are 150 world wide traders in his room on a daily basis, and Jerry calls all his trades, Entries, Stops, & Exits live as they happen intraday!Jerry's trading style is in hi beta NASDAQ stocks using the best trading platform anywhere, the Laser Platform from Genesis Securities. If you are interested in trying Jerry's Room please e-mail jerryo34@verizon.net.

Jerry Olson is the managing partner of the JOG Group LLC a Philadelphia based trading company. He began his trading/investing career 30 years ago. He ...

JumpOff

1
702 14
Nice Article Jerry,
Very clear clear examples of what to look for, and what comes next.. Since all your examples were successful, I thought it might be nice for folks to see what happens when the trade doesn't leap away into the green. I've found that CCI often gives false signals at the start of a new trend after a consolidation.

The first image shows the classic bullish divergence with volume spike. You can't tell it from looking at pictures in hindsight, but the CCI wobbles up and down during the bar formation. So The green line represents an entry after the close of the bar. Until that bar closes, you can't really be sure that it makes the tip of the higher CCI low while price is making actual lower low. The next few bars lift and a profitable trade appears to be under way. So far, so good.

The second image shows 3 different kinds of warning signals that can help you be clear that it is time to exit. The new trend is expanding in strength. CCI divergences that fail, are often excellent opportunities to stop/reverse because the CCI divergence is such a well known entry. There is often a wonderful little cluster of stops just below price's lowest swing low.

JO
 

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eurotrader52

Active member
160 1
Typical "hindsight" textbook article on a classic divergence. I would have liked to see which signals DID NOT indicate actual continuation of moves in the direction of the prevailing trend. Looks like a large number of charts were perused during the creation of the article and "classic" patterns were located, highlighted and expounded upon. False divergences or momentum that has not changed enough to produce major price change (sideways moves) which often result from such "signals" were not mentioned. "Easy" trades were not proven to be easy in real trading time. I would also practice with other indicators such as momentum and Williams%R, etc. Nice attempt though!
 
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Mr. Charts

Legendary member
7,364 1,181
Nice article Jerry and everyone should appreciate the time and effort that goes into writing these articles - I know having written some for K Lab myself.
There are some splendid posts on this site about trading without indicators.
For me personally the patterns must represent trading sentiment / activity and indicators then become virtually redundant once you can read the sentiment and patterns - but we are all different, so respect to you, Jerry.
Very good post, JumpOff. You really ought to write some articles for K Lab.
Richard
 
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samtron

Established member
541 5
Excellent article Jerry thanks for the time and effort.

The only comment I would make is that most of us can talk the talk (thats the easy part) but only few are able to then walk the walk.

(please note this is not meant to detract from Jerry or his excellent article but is just a general comment about trading and trading theory).


Excellent post JO cheers!


good luck
 
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Jerry Olson

Well-known member
361 7
JumpOff said:
Nice Article Jerry,
Very clear clear examples of what to look for, and what comes next.. Since all your examples were successful, I thought it might be nice for folks to see what happens when the trade doesn't leap away into the green. I've found that CCI often gives false signals at the start of a new trend after a consolidation.

The first image shows the classic bullish divergence with volume spike. You can't tell it from looking at pictures in hindsight, but the CCI wobbles up and down during the bar formation. So The green line represents an entry after the close of the bar. Until that bar closes, you can't really be sure that it makes the tip of the higher CCI low while price is making actual lower low. The next few bars lift and a profitable trade appears to be under way. So far, so good.

The second image shows 3 different kinds of warning signals that can help you be clear that it is time to exit. The new trend is expanding in strength. CCI divergences that fail, are often excellent opportunities to stop/reverse because the CCI divergence is such a well known entry. There is often a wonderful little cluster of stops just below price's lowest swing low.

JO
Hi Jump Off

Both examples of your charts are exactly my point! When the CCI bottomed out in the first chart on that hig volume spike, what i call a "Tell", sort of like in Texas Hold Em,'.... :rolleyes: That would have been my entry area. As we can see on your chart it was the perfect spot to go long and make that trade proftable.

The second part of the same chart show what good traders can "see" when taking the same trade again about 1/2 an hour later. Same pattern same results. The use of any group of indicators on any chart makes for interpretation of that picture in the eye's of the beholder. That price low 30 minutes later along with that bullish divergence on the CCI just made for another nice entry on what i percieve as a picture perfect trade.

Of course none of these set ups work all the tine as we both know. I am always watching all throughout the day the S&P futures side by side with my stock charts to keep me abreast of what the market looks like at the moment i want to enter any trade.

But for the most part these set ups, for me anyway ,are the best of the best for scalping intraday.

Thanks for the comments they are appreciated

best regards

jerry
 

Jerry Olson

Well-known member
361 7
Mr. Charts said:
Nice article Jerry and everyone should appreciate the time and effort that goes into writing these articles - I know having written some for K Lab myself.
There are some splendid posts on this site about trading without indicators.
For me personally the patterns must represent trading sentiment / activity and indicators then become virtually redundant once you can read the sentiment and patterns - but we are all different, so respect to you, Jerry.
Very good post, JumpOff. You really ought to write some articles for K Lab.
Richard
HI there Mr. Charts

I fully agree the articles posted on the KLab are good tools and tactics for all traders in all time frames. I think the use of CCI or any other indicators really depends on ones "trust" of that indicator. In other words there are a myriad of other indicators that traders use that certainly are just as good as the CCI.

However for me and the way i scalp i find it the best short term indicator out there. I not only do i trust it, i use it............ :D

good to hear from you, and i have heard wonderful things about you and your charting prowess, kudo's to you.

have a nice weekend
 

Jerry Olson

Well-known member
361 7
eurotrader52 said:
Typical "hindesight" textbook article on a classic divergence. I would have liked to see which signals DID NOT indicated actual continuation of moves in the direction of the prevailing trend. Looks like a large number of charts were perused during the creation of the article and "classic" patterns were located, highlighted and expounded upon. False divergences or momentum that has not changed enough to produce major price change (sideways moves) which often result from such "signals" were not mentioned. "Easy" trades were not proven to be easy in real trading time. I would also practice with other indicators such as momentum and Williams' %R, etc. Nice attempt though!
Morning Eurotrader

CCI is a momentum indicator and not a"hindsight" tool. You cannot use it stand alone. You need some "other" parts to help you make that trade long or short. Many times these trades do not work for various reasons, but that's why we advocate using hard stop loss orders and not "mental ones" on all trades.

When you assess the potential of entering any trade in my humble opinion it has to be with one eye on the futures. We watch and call the e-mini s&p futures ES-M6 all day long live as we go thru the day. When a set up presents itself i think it prudent for any good trader to quickly check if the current trend is moving with you in that trade.

So for all intents and purposes these articles, and redundant chart patterns happen repeatedly because of internals that align properly during the day/ Nothing works 100% pf the time. Stops help.

So to sum ths up it simply means to take that trade if you trust the indicators, use stops, and approximately 60-70% of the time that trade will work.

thank you for the comments

best to you

jerry
 

Jerry Olson

Well-known member
361 7
samtron said:
Excellent article Jerry thanks for the time and effort.

The only comment I would make is that most of us can talk the talk (thats the easy part) but only few are able to then walk the walk.

(please note this is not meant to detract from Jerry or his excellent article but is just a general comment about trading and trading theory).


Excellent post JO cheers!


good luck
Hey Samtron

well unless and until traders bite the bullet and get their feet wet one will never know if anything works or not................... :cheesy:

Best thing for any newbie or any trader is to try it out as the opportunity presents itself. Use small shares and use stops.

this works Samtron

have a good one
 

Mr. Charts

Legendary member
7,364 1,181
Jerry Olson said:
HI there Mr. Charts

I fully agree the articles posted on the KLab are good tools and tactics for all traders in all time frames. I think the use of CCI or any other indicators really depends on ones "trust" of that indicator. In other words there are a myriad of other indicators that traders use that certainly are just as good as the CCI.

However for me and the way i scalp i find it the best short term indicator out there. I not only do i trust it, i use it............ :D

good to hear from you, and i have heard wonderful things about you and your charting prowess, kudo's to you.

have a nice weekend
Hello Jerry,
Thanks for your kind words.
I agree totally with you that whatever works, works and that is really all that matters. We all find our own edges and no edge is superior to another as long as it works for us as individuals.
I know that a few of the people I have trained trialled your chat room for a couple of weeks and I have been told what a good guy you are, hard working, genuine and full of enthusiasm; but that is very evident from your postings ;-)
Good trading and a happy life to you, sir,
Richard
 

Jerry Olson

Well-known member
361 7
Mr. Charts said:
Hello Jerry,
Thanks for your kind words.
I agree totally with you that whatever works, works and that is really all that matters. We all find our own edges and no edge is superior to another as long as it works for us as individuals.
I know that a few of the people I have trained trialled your chat room for a couple of weeks and I have been told what a good guy you are, hard working, genuine and full of enthusiasm; but that is very evident from your postings ;-)
Good trading and a happy life to you, sir,
Richard
Hi Richard

happy they enjoyed the room atmosphere. we do try very hard to keep things in order. Meaning to get the hell out of the trade with a profit.............. :cheesy: Sell too soon and all that good stuff

it's so very hard to hand hold while calling trades live but we try to do the best we can. We do not always win, but i seem to be profitable week to week, so that does pay the bills...

anyway it seems to me we are on the same wavelength here trying to help others make a buck or two.

Thinking we are coming down very fast to a tradeable bottom soon.

we shall see however, as Mrs Market seems a bit peeved right now.............. :rolleyes:

best regards and have a drink on me please....
 

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