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Find the Pattern With Better Trades

Find the Pattern With Better Trades

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Published by dec10titanmass

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Published by: dec10titanmass on Jan 22, 2012
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Title:Find the Pattern with Better Trades Word Count:1642 Summary:I am chartist and a technical trader. I believe that the first line of analysis is to find patterns. Line drawingand straight line analysis is the standard. It has been and continues to be the base line tool. Moving averagesand range bands are more recent developments and are observatory. Straight line charting has modeled andbeen used to define patterns and set targets for an awfully long time, and I believe that you can't throw a pileof lumber of a cliff and have it land in the shape of a house. If it looks like a house, some one hasmanipulating the lumber. Keywords:better trades, bettertrades, investing, investments, financial planning Article Body:I am chartist and a technical trader. I believe that the first line of analysis is to find patterns. Line drawingand straight line analysis is the standard. It has been and continues to be the base line tool. Moving averagesand range bands are more recent developments and are observatory. Straight line charting has modeled andbeen used to define patterns and set targets for an awfully long time, and I believe that you can't throw a pileof lumber of a cliff and have it land in the shape of a house. If it looks like a house, some one hasmanipulating the lumber. I want to show you a study that is remarkable in that it shows obvious pattern trading but not in a singlestock rather an entire index, in this case the NASDAQ. The slides here are chronologically sequential andcan not be put together after the fact to make a point. They were annotated and posted as they happened andwere charted in my Trader's Talk Live training sessions. I have a group of students who subscribe to spendseveral hours per week charting and being trained to read and trade off chart patterns. What you will see isthe break of a trend and the steps it takes to morph into a new trend. Note that the lines were drawn before the pattern fully developed, demonstrating that the pattern wasrecognized and laid out before the price played into the lines. Now the pattern could have broken at anytime. The lines did not dictate what the stock / Index could or could not do. Rather the lines showed thepattern and the targets that would be reached if the pattern continued. Each pivot point that was reachedgave an opportunity to trade off the price reaction to a critical decision point. 
 
Feb 23rd the index dropped to recent support rally with the up trend line just below. A lower top also wasformed. We identified the support and noted that the long term line was just below. Now, notice that the next day held support but reached down intraday to bounce off the trend line. As itmoves up it stalls in line with lower tops forming a wedge pattern. Now it is a powerful pivot point asdescending tops collide with a long term support trend line. A move to the upside is a break out the targetwill be 2155. A break in the support line gives weight to the developing down trend. The next day drops right to the support line the break down signals the end of an uptrend that began inMarch 2003 and changed angles in November 2003. It moves on down to the bottom of the trading range of the new trend. This set up is another Obvious Bracket Trade. The Resistance line is defining the currenttrend and the Support and resistance lines show that there is attention being paid to the target points. Thepile of lumber is taking the shape of a nice house. As a double bounce / bottom pounds the support line, the upside target is the top of the range at about 2020.The downside targets would be sliding down the support line or dropping to the next hard price support of 1900, the last major rally point. Two days later, the big gap and drop to 1900 signals the recognition of the support area. Returning toprevious rally points is a common pattern. From here, the market sentiment can be accurately tested. Thepublic is not the critical catalyst here. The big traders here will be testing to see if the public is finishedselling off. If there is equilibrium, the public / market may be ready to follow a lead to the upside. Try as you like, you will not find news to explain what happens the next three days. To quote an analyst onCNBC who speculated at length about what prompted the big move last Thursday," I guess we don't reallyknow". Well, I will tell you this. The folks who lit that fire were careful to choose that day to test fire the rocket. Allof the markets had reached support levels from a trend line / straight line analysis point of view (see thecommentaries for the last three weeks). In our Trader Talk Live sessions we chronicled this as it happened and had opportunities to trade the manystocks that were doing the exact same dance steps. This morning we are right at the next target. We moved there in the first hour and stopped. It has been anhour so far and it is still there. Gee, do you think that maybe the traders already knew that 1995-2000 was
 
the limit of the current pattern and that many traders would be very ready and willing to take profits here atan obvious pivot point? Now will they? I don't know... I am not on the floor. But I don't have to be there tosee the targets. When they get there, there will be a struggle to test the waters. If the buying frenzy will notgive way to some shorting or profit taking there could be a test above the mark to see who wants to play.Either way... the pattern speaks volumes to the premise that in the midst of what may seem like randomnessthere appears to be a guiding hand. Look folks, there is too much money on the line not to have seriousefforts to create some predictability. Most all indicators and averages etc. are following and at best interesting after the fact. Some are predictiveand highly accurate in reflecting behavior but Pattern Analysis of the price action and the targeting the nextlikely TEST of the market sentiment is the closest and most accurate way to get close to the game. You arelikely not the Key trader in a stock or an index fund. Most likely you are not one of the Professionalinstitutional traders that follow the Key Traders or the Fund managers that pick up on the momentumbuilding on the floor. The masses take their Queue long after the test and subsequent direction has begunand your participation in the end will be necessary to move the stock or market on toward the testing point. While I do use a very few indicators (MACD, WRSI, Stochs) they are consultants and are never reason Itrade. The actual movement across a trigger price, whether it agrees with the indicators or not, dictates thetrade. Now the indicators I use are highly accurate but guess what folks... they are never as accurate as theprice. I routinely train my students to trade with out any indicators and they are surprised that theyconsistently make money by only trading price action and patterns. However there is one tool I insist ontrading with and that is Candle Sticks. They is not an indicator, they are my hidden camera in thecompetition's board room. But that discussion is for another day. The pattern tells me when we reach a pivot point (significant price); the indicators give their bestintelligence on the disposition of the trader's momentum and attitude. That lets me set up legitimate criteriato make a trade. If /Then for the upside and If/Then for the down side. Armed with all that, I sit back and letthe Stock / Index do what it will do. The key traders engage the masses and the spark either lights a fire or itdoesn't. I can't know for sure what they will do and while I could say "my indicators suggest ...so I am goingin", is would be a glorified guess that screams "I don't know how to wait for the stock to tell me it's time. Iwill trust the indicator that seems to be right a lot of the time and cross my fingers". I'll tell a secret, the KeyTraders, and the Pros that will follow them, are not looking at range bands, moving averages and overbought /over sold indicators. Their actions are making those indicators say what it says. They are doing a delicatedance with the real momentum of the market, the masses. They do not want to go against the publicsentiment. They want to test / read that sentiment and drive the leading edge of the next cycle of the pattern. I love this stuff! I have many maxims that I use to help keep perspective. "The stock will never listen to you,but it will speak if you learn to listen", "Find the pattern and play it till it breaks", " If there is no pattern,there is no trade". Not all stocks and or indexes have easy patterns to follow but where there is big profit potential, there will

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