Articles

Buy and sell cycles reveal hidden intentions of the market's biggest players, as they engage in macro strategies that affect price direction. Investors and traders can identify these cycles through technical tools that measure the persistence of the push behind these cycles and can use these measurements to predict when such cycles will flip over from buy to sell and vice versa. These natural rhythms show their greatest power in major indexes and futures contracts that guide thousands of underlying equities, bonds and forex crosses. The S&P-500, Nasdaq-100 and Russell-2000 serve this purpose for a broad basket of equities, grinding through easily observed cycles that tell participants how aggressive or defensive they need to be as they...

Although prices may appear to be random, they actually create repeating patterns and trends. One of the most basic repeating patterns is a fractal. Fractals are simple five-bar reversal patterns. This article will explain fractals and how you might apply them to your trading strategy. Introduction to Fractals When people hear the word "fractal," they often think about complex mathematics. That is not what we are talking about here. Fractals also refer to a recurring pattern that occurs amid larger more chaotic price movements. Fractals are composed of five or more bars. The rules for identifying fractals are as follows: A bearish turning point occurs when there is a pattern with the highest high in the middle and two lower highs on...

Trading systems are usually thought of as complex computer programs requiring massive amounts of data to calculate the best entry and exit parameters. But in trading, often the best solution is the simplest. In fact, one of the best known trading systems doesn't even require a computer. Read on as we take a look at the weekly rule system and show you how this simple system can help you profit from a trade. Trend following is a well-known concept underlying many successful trading systems. Probably the first such system was the weekly rule devised by Richard Donchian. Test results for this system were published as early as 1970, and it was found to be the most profitable system then known. Donchian was called the "father of modern...

MACD divergence is discussed in most trading books and frequently cited as the reason for trend reversals, or as to why a trend could reverse. In hindsight divergence looks great; many examples can be found where a reversal was preceded by MACD divergence. Look closely though, and you'll find that many reverses aren't preceded by divergence, and often divergence doesn't result in a reversal at all. So before assuming divergence is a reliable tool to use in your trading, let's dig deeper into what MACD divergence is, what causes it, and how to improve the use of divergence. What is Indicator Divergence? Indicator divergence is when an oscillator or momentum indicator, such as the Moving Average Convergence Divergence (MACD) indicator...

Everyone knows the market data are fractal. You can look at a chart of daily data, look at a chart of weekly data, and the charts basically look the same if the scales are removed. In other words, the amplitude of the cyclic swings scale in direct proportion to the cycle period. I call this effect Spectral Dilation because longer cycle periods have larger swings. The Hurst Coefficient is directly related to the degree of dilation. Fibonccians use the Golden Spiral to show the dilation factor is 1.618. The exact degree of dilation is not important. The fact that dilation exists is beyond question. So, in round numbers, the spectrum amplitude increases 6 dB per octave of cycle period. This “1/F” phenomena seems to be almost...

Why Point & Figure Charts? Point & Figure (P&F) charts are one of the simplest and clearest ways to determining the best time to buy and sell shares. The P&F system represents one of the oldest approaches to share market trading. This method takes the technical analysts approach while monitoring supply and demand for each share and the charts are designed for long-term trading so that the time and cost of trading shares is minimal. How are Point & Figure Charts Constructed? In P&F charts both axis are dependent on price rather than one being based on price and the other on date. The key unit in a P&F chart is the point, or unit of price. The point size may change in value along the y-axis to provide consistent and relative price...

If "volume precedes price" as is often suggested then it should be possible to apply analytical techniques to certain volume attributes that will have some predictive capabilities with regard to future price development. Using various techniques that come under the general heading of money flow analysis it becomes feasible to decide whether a particular security is being accumulated or distributed. A security that is undergoing accumulation can be expected to gain in price and a security that is displaying the characteristics of distribution will probably offer opportunities on the short side. Equally, it can be very informative to see whether there are divergences between the security's price behaviour and its volume behaviour. The...

The author of A Complete Guide to Technical Trading Tactics: How to Profit Using Pivot Points, Candlesticks & Other Indicators, looks at a candlestick formation that can indicate reversal points when used with pivot points and support/resistance levels. There are many trading methods one can employ to actively trade including various mechanical trading systems and manual trading tactics. The constant changing of market conditions can require system traders to adapt and update the parameters for the trading decisions. I often prefer the hands on visual approach which is more of a manual method while employing mechanical risk management techniques. The visual approach is aided by the use of candle charts. The draw back is one must have a...

Breakouts of long bases on strong volume are frequent harbingers of continued price appreciation. Another harbinger, after the initial up-leg, is a low-volume, orderly pullback towards support. Kendle International (KNDL) An analysis of Kendle International's chart illustrates this strategy. As the daily chart indicates, Kendle in February 2005 broke out of a base pattern that extended back almost two years. Some traders, who missed entering early, may have given up on the stock when it doubled by late June, but a closer look at the chart shows why it had more room to move. Kendle's pullbacks were orderly, coming on lower volume and holding near its moving averages, a key sign of more upside to come. Only once did its pullback break...

Open interest is without a doubt the least used bit of market data by chart watchers. Conventional wisdom; prices up on increasing O.I. being bullish, is just as often found to be bearish. What I want to show here is the relationship of O.I. and the buying patterns of the Commercials for the Commitment of Traders (COT) report. I'll begin by showing a chart of gold with an indicator I'm sure you have never seen before, a 13 week stochastics of just Open Interest. Yes, this index is simply an oscillator of O.I. What we see is that, generally speaking, low levels in this index are found at market bottoms. Thinking about it makes sense as what it is telling us is there is little interest, open or not, in the market we are studying. I...

Chart patterns capture the development of crowd emotion and provide potentially high probability trade ideas with well-defined price targets and exact measures of risk management. But patterns - by themselves - do not necessarily lead to consistent outcomes. The development of chart patterns only alerts traders that one particular type outcome is more likely to occur than another. As price moves towards a selected price point, the trader pays more attention to the stock, ready to place a buy order if prices move a few ticks above that level. In other words, chart patterns signal that trading potential and the probability to take action may exist. Chart patterns are an invaluable aid to trading, but only when they point the way to high...

In this article we present a simple trading system that we developed based on the concepts outlined in The 10 Power Principles of Successful Trading Systems. Step 1: Selecting a market and timeframe One of the most popular markets these days is the e-mini S&P, and that's not without a reason: It's a 500 company index. One of the largest in the world and that means you have excellent and consistent liquidity, superb volatility, tremendous leverage and no uptick rule. It's a truly bi-directional market that shorts just as easily and safely as going long. It's a fully electronic market, offering all the advantages of electronic contracts. We decide to trade the market intraday, i.e. we will enter and exit a trade on the same day, because...

My personal trading style is based on a method described in the 1950s by a veteran floor trader named George Douglass Taylor. The "Taylor Trading Technique" is a short-term method for trading daily price movements that relies entirely on odds and percentages. It is a method as opposed to a system. Very few people can blindly follow a system, though many find it easier to be discretionary in a systematic way. Because this short-term swing technique generates frequent trades, it is important to know the correct plays, when to lock in profits, and when to seek the true trend. Taking a loss is merely playing for better position. One trades strictly for probable future results, not for what the market might do. To know the correct play is...

Volume patterns are much harder to interpret than price patterns. The difficulty stems from the clandestine strategies of big market players. These folks tend to move slowly and cover their tracks within the broad noise of daily movement. While price bars tell many tales in a vacuum, volume has little or no meaning without underlying price movement. But don't abandon your volume study just yet. It still adds power to prediction when you apply it judiciously. The importance of volume depends on its location within the overall pattern. For example, heavy volume through a broken trend line suggests the start of a new trend, while the same activity after a long rally or decline predicts a reversal. This counterintuitive logic confuses...

Capturing Trend Days Trend days occur when there is an expansion in the daily trading range and the open and close are near opposite extremes. The first half-hour of trading often comprises less than 10% of the day's total range; there is usually very little intraday price retracement. Typically, price action picks up momentum going into the last hour -- and the trend accelerates. Classic Trend Day - A large opening gap created a vacuum on the buy side. The market opened at one extreme and closed on the other. Note how it made higher highs and higher lows all day. Also, volatility increased in the latter part of the day--another characteristic of trend days. A trend day can occur in either the same or the opposite direction to the...