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ThomHartleStrategiesAnalysisCollectionVol2

ThomHartleStrategiesAnalysisCollectionVol2

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03/18/2014

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Thom Hartle
Strategy and Analysis collection,
Vol. 2
Thom Hartle Strategy and Analysis collection, Vol. 2
Article 1:
\u201cPutting the squeeze on volatility\u201d
3
(Active Trader, November 2001).
Article 2:
\u201cThe bottom and the Bands\u201d
9
(Active Trader, February 2003).
Article 3:
\u201cRelative volume analysis\u201d
12
(Active Trader, July 2003).
Article 4:
\u201cShort-term oscillator opportunities\u201d
16
(Active Trader, September 2003).
Article 5:
\u201cRetracement tendencies\u201d
20
(Active Trader, March 2004).
Article 6:
\u201cPercent b\u201d
24
(Active Trader, April 2004).
Article 7:
\u201cFollowing the money: Quarterly momentum and ETFs\u201d
28
(Active Trader, June 2004).
Article 8:
\u201cThe market facilitation index\u201d
34
(Active Trader, October 2004).
Article 9:
\u201cThe squat bar\u201d
37
(Active Trader, January 2005).
Article 10:
\u201cHOLDRS: Stock groups in a single trade\u201d
40
(Active Trader, April 2005).
Article 11:
\u201cDissecting T-note futures: Tendencies and characteristics\u201d
43
(Active Trader, July 2005).
Article 12:
\u201cIndex vs. Index: TheQQQQ/SPY spread\u201d
50
(Active Trader, September 2005).
Article 13:
\u201cComparing moving averages\u201d
58
(Currency Trader, November 2005).
Article 14:
\u201cThe ETF money trail\u201d
62
(Active Trader, December 2005).
Article 15:
\u201cFollow the leaders\u201d
70
(Active Trader, February 2006).
Article 16:
\u201cThe intraday MFI\u201d
77
(Active Trader, September 2006).
Putting

eople sometimes com- plain about excessive mar- ket volatility, but volatility is a trading necessity for one

simple reason: Once a position is en- tered, the market has to move to a point where a reasonable profit is available.

Low volatility and sideways markets result in small profits and more losses. High volatility and trending markets mean good trades and more of them. It follows that identifying when a market is moving from a low-volatility environ- ment to a high-volatility environment would improve the odds of profitable trading. The BandWidth Indicator (BWI) \u2014 a derivative of Bollinger Bands \u2014 can be used for this purpose.

Bollinger Band background

Bollinger Bands, developed by John Bollinger, are price envelopes plotted two standard deviations above and below a moving average of the closing prices. (For more information, see \u201cJohn Bollinger: Focus on the markets,\u201dActive

Trader, January/February 2001.) The

price envelope essentially captures his- torical volatility \u2014 identifying bound- aries price is likely to fluctuate between based on past volatility levels. Wide envelopes are indicative of high volatili- ty (upward or downward price trends), and narrow envelopes signify low volatility (sideways price action).

Experienced traders know that a low- volatility market condition often pre- cedes up or down price trends (see the discussion of flag patterns in this month\u2019s Technical Tool Insight). Therein lies the opportunity: If you are patient and wait for a low-volatility situation, you can take advantage of an increase in volatility. Bollinger\u2019s recognition of how the bands contracted and expand-

3
www.activetradermag.com\u2022 November 2001 \u2022 ACTIVE TRADER

Volatility is essential for profitable
short-term trading. The BandWidth
Indicator can help you identify points at
which a market is poised to switch from
a low-volatility to a high-volatility phase.

TRADING Strategies
P
THE SQUEEZE
ON
volatility
BY THOM HARTLE

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