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DETECTING HIGH-
VOLUME BREAKOUTS
Identify patterns in seconds 8

SWINGING NCR
A breakdown of a recent
momentum swing trade 20

A SIMPLE FOREX
TREND-FOLLOWING
STRATEGY
A strategy need not be
complicated 26

INTERVIEW
David Cox 30

WHEN NOT TO SHORT

Review this basic principle
of trend trading 40

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 CONTENTS APRIL 2021, VOLUME 39 NUMBER 5

6 Explore Your Options

by Jay Kaeppel
The Traders’ MagazineTM Got a question about options?

EDITORIAL
FEATURE ARTICLE
editor@traders.com 8 Detecting High-Volume Breakouts
Editor in Chief Jack K. Hutson by Markos Katsanos TIPS
Production Manager Karen E. Wasserman Looking at hundreds of charts for
Art Director Christine Morrison high-volume breakout patterns can
Graphic Designer Wayne Shaw be tedious and time-consuming.
Webmaster Han J. Kim Here is an indicator that will help
Contributing Editors John Ehlers, identify these patterns in seconds.
Anthony W. Warren, PhD. 37 Market Rap
Contributing Writers Thomas Bulkowski, Martin Pring, 17 Algo Q&A by Emilio Tomasini
Barbara Star, Markos Katsanos, Leslie N. Masonson,
Karl Montevirgen
by Kevin J. Davey “Unserious” thoughts on serious
Got a question about system or algo topics in finance.
trading?
OFFICE OF THE PUBLISHER
Publisher Jack K. Hutson
38 Swing Trading Volatile Reversals
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Project Engineer Sean M. Moore by Carley Garner In this month’s column you will
Here’s how the futures market learn tips for trading secondary
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 Explore Your Options
GOT A QUESTION ABOUT OPTIONS?
Jay Kaeppel has over three decades of experience in the options markets. He
was a head trader for a CTA firm, an options trading software developer,
and is a portfolio manager for an investment management firm. He is
presently Senior Research Analyst for Sentimentrader.com. He is the author
of several books, including The Four Biggest Mistakes In Option Trading;
The Option Trader’s Guide To Probability, Volatility, And Timing; and
Seasonal Stock Market Trends. Send your questions or topic suggestions
to Jay Kaeppel at jay@sentimentrader.com. Selected questions will appear
in a future issue of S&C.
Jay Kaeppel

BENEFITS OF A COLLAR STRATEGY?
I read recently about a strategy known
as a “collar,” whereby you simultane-
ously sell a call and buy a put on a
stock you hold. Is this a good strategy,
and under what circumstances does
it makes sense to use?
There is no such thing as a “good”
strategy or a “bad” strategy. With
any option trading strategy, it really
comes down to how you use it and
when. That said, you are correct
that entering a collar on a stock
involves:
month the question is pretty straight-
forward: “For how long do you want
to hedge your position?” Here there
is no “correct” answer.
As a rule of thumb, you will
ideally hold a collar for the shortest
reasonable period of time possible,
for two reasons:
• Profit potential is limited while
the collar is in place
• Longer-term options are often less
liquid and/or have wider bid/ask
spreads than short-term options
Arguably the most common use
of a collar is prior to an earnings
announcement that a trader is unsure
about, as a way to limit the potential
for getting hurt by an unfavorable
earnings surprise.
As we will discuss in a moment,
With any option trading
strategy, it really
comes down to how you
use it and when.

• Holding long shares of stock

• Holding a long put
• Holding a short call

Entering a collar typically gives a

OPTIONSANALYSIS.COM
trader a defined amount of risk and
a defined amount of reward for as
long as all three legs of the position
are held. The two primary decisions FIGURE 1: “TRADER” A COLLAR DETAILS
a trader faces regarding entering a
collar are:

• Which expiration month to use?

• Which options to use?

A collar is essentially a “hedging”

strategy, in other words, more often
than not, a trader uses this strategy to
reduce the amount of risk exposure
they have in a given security for
a specific period of time, with the
understanding that they will also be
limiting their profit potential during
this time. In choosing an expiration FIGURE 2: “TRADER A” COLLAR RISK CURVES
6 • April 2021 • Technical Analysis of Stocks & Commodities
 Explore Your Options
there are essentially two types of
collars—the type you pay for and
the type that you don’t. The type that
you pay for raises your breakeven
point and the type you don’t pay for
tends to lower your breakeven. If you
choose to put on a short-term collar,
just know that if you pay money to
enter that collar you may be raising FIGURE 3: “TRADER B” COLLAR DETAILS
your breakeven price and may not
be allowing the underlying security
much time to rise to your breakeven
price.
Let’s clarify some of this with two
example collars—one you pay for
and one you do not. On 12/22/2020
Microsoft (MSFT) was trading at
$223.94 and the 14-day RSI has
reached a potentially overbought
level of 65.27. Let’s say that Trader A
and Trader B each own 100 shares of
MSFT stock and both are concerned
that a pullback may occur over the
next 3 weeks. FIGURE 4: “TRADER B” COLLAR RISK CURVES
Trader A is hoping for some further
upside price action and chooses the
following trade:

• While holding long 100 shares

of MSFT
• Buy 1 Jan15 222.5 put @ $5.18
• Sell 1 Jan15 235 call @ $1.92

Trader A must pay out the difference

between the two options so he pays
$326 ($5.18 - $1.92 x 100 shares).
The particulars for this position
appear in Figure 1 and the risk curves
in Figure 2 (all Figures are courtesy
of www.Optionsanalysis.com).
Trader B’s primary objective is to
limit the risk of any near-term decline
so chooses the following trade:
• While holding long 100 shares
of MSFT
• Buy 1 Jan15 222.5 put @ $5.18
• Sell 1 Jan15 225 call @ $5.45
Trader B receives the difference be-
tween the two options and so takes
FIGURE 5: EXPECTED P/L FOR BOTH COLLARS IF HELD UNTIL OPTION EXPIRATION
in a credit of $27 ($5.45 - $5.18 ×
100 shares).
The particulars for this position
appear in Figure 3 and the risk curves
in Figure 4.
So, Trader A paid to enter a collar
while Trader B did not pay to enter
a collar. To get a true sense as to
what these two positions achieve,
let’s overlay the risk curves for the
Trader A collar and the Trader B
April 2021
collar. Figure 5 displays the expected
profit/loss for both trades if held until
Continued on page 19
So, which one is “the
better trade”? In
reality there really is
no such thing.
• Technical Analysis of Stocks & Commodities • 7
8 • April 2021 • Technical Analysis of Stocks & Commodities
 INDICATORS

The Volume Positive Negative (VPN) Indicator

Detecting High-Volume
Breakouts
Looking at hundreds of charts for high-volume break- More specifically, the indicator is calculated ac-
out patterns can be tedious and time-consuming. Here cording to the following formula:
is an indicator that will help identify these patterns
in seconds. VPN=(VP–VN)/MAV/PERIOD*100

Is
there anything more satisfying for a trader where VP and VN are the sum of positive and nega-
than capturing a huge breakout? The usual tive volume during the indicator period and MAV
practice for breakout entries is to simply is the moving average of the total volume over the
buy new highs. This method, when used same period.
in isolation, will often result in false breakouts. It is Each trading day, the volume is classified as positive
therefore better to wait for volume confirmation before if the average stock price is higher than yesterday’s
entering the trade, as high-volume breakouts usually average price by more than 1/10 ATR (average true
last much longer. range), and the opposite for negative volume. If the
In this article, I will show you how to detect breakouts average price difference is between +/- 0.10 ATR, the
using only volume, sometimes even before price breaks volume is ignored.
out, by introducing a new volume breakout indicator. The average or typical price is the average of the
I will then ascertain its efficacy by testing. day’s high, low, and close.
Finally, the indicator is smoothed by taking the
The volume positive negative three-day exponential moving average.
(VPN) indicator
This indicator, as its name suggests, com-
pares the difference between the volume
on up days (positive) and the volume on
down days (negative) with the total volume
as follows: The sum of the negative volume
is subtracted from the sum of the positive
volume and divided by the average volume
over a specified period (usually 30–40
days). It is then normalized by dividing
by the period and multiplying by 100.
The indicator can thus oscillate theo-
AMIBROKER

retically between +/-100 but most often

between +/-80. Positive values above a FIGURE 1: VOLUME POSITIVE NEGATIVE (VPN) INDICATOR. The VPN indicator is shown
INGA POSLITUR

certain critical value (0–20) are bullish on a chart of Ideanomics Inc. (IDEX), a company investing in the electric vehicle (EV) market.
In the bottom pane you can see the 30-day VPN indicator. Buy arrows are displayed when
and negative values are bearish. the indicator crosses over 10.

by Markos Katsanos
April 2021 • Technical Analysis of Stocks & Commodities • 9
 Examples
In the chart in Figure 1, you can see that
the indicator (except for a brief moment in
August 2020) crossed over the critical value
four times. The first time in 2019, Ideanom-
ics, Inc. (IDEX) was up 14% during the next
week, the second time the stock was up 31%
in three days, the third time, in June of 2020,
it surged 430% in two weeks, and the last
time, at the end of October 2020, it was up
280% during the next 18 days.
FIGURE 2: VPN (30-DAY PERIOD, CRITICAL VALUE OF 10). This shows an example In Figure 2, you can see a chart of Green
chart of Green Power Motor Company (GP) from February through November 2020. In the Power Motor Company (GP), a Canadian
bottom pane you see the 30-day VPN indicator. Buy arrows are displayed when the indicator company that develops and manufactures
crosses over 10.
electric buses. The VPN indicator crossed
over the critical value two times in 2020.
After the first crossing in May, the stock
surged 1,067% during the next three months
and after the second time, it was up 124%
in six days.
In these examples, I used a period of 30
days and a critical value of 10, but these are
not written in stone. Sometimes, in order to
filter out price or indicator whipsaws, it may be
better to increase the period to 40 days or the
critical value up to 20, or both. This will filter
out weak signals, thus reducing drawdowns,
but it will also delay the signals or miss out
on certain weak breakouts altogether, thus
FIGURE 3: INCREASING VPN PERIOD TO 40, CRITICAL VALUE TO 20. The chart displays
AdvisorShares Pure Cannabis ETF (YOLO) from February through November 2020. In the
reducing profits as well.
third pane you see the 30-day VPN indicator, with green vertical lines indicating crossings over In the chart in Figure 3 of a cannabis ETF,
10. In the bottom pane you see the 40-day VPN indicator, with blue arrows indicating when you can see that by increasing the VPN period
the indicator crosses over 20. Using the slower VPN period reduces signals, thus avoiding to 40 and the critical value to 20 (bottom
whipsaws, but also can reduce profits.
window pane), the signals were reduced from
five to two, thus avoiding the whipsaws dur-
ing the summer of 2020 and the drawdown
in October 2020. The signal in April 2020
was, however, two weeks late, thus reducing
profits from this trade.
This indicator, based on my experience,
works best on small-cap and active stocks
in popular thematic or trending industries,
like renewable energy, electric vehicle (EV)
stocks, vaccine stocks, special purpose acqui-
sition companies (SPAC), and others, at the
time of this writing (in November 2020).
If you use this indicator to trade large-cap
or S&P component stocks, don’t expect any
FIGURE 4: LARGE-CAP STOCK WITH 30-DAY VPN. In this one-year chart of Apple (AAPL)
through November 2020, the bottom pane displays the 30-day VPN indicator, with the vertical
explosive breakouts like the ones described
line indicating a crossing over 10. In the case of a large-cap stock, a breakout can last for in the first three examples. In these cases, the
months, as in this example. breakout can last up to four months (see the
10 • April 2021 • Technical Analysis of Stocks & Commodities
chart of Apple in Figure 4) or even worse,
you may get a lot of false and misleading
signals. In the chart of Walmart in Figure
5, the 30-day VPN crossed over the critical
value seven times in 2020. Of those seven
times, only three preceded a significant (that
is, more than 8%) breakout. The slower 40-
day VPN was more accurate but produced
only one signal in August 2020.
Generally, it is more difficult to predict
large-cap stock breakouts using volume alone
because of other factors affecting trading
decisions such as index buying, fund portfolio
rebalancing, share buybacks, and so on. FIGURE 5: LARGE-CAP STOCK, 30-DAY AND 40-DAY VPN. The chart is of Walmart (WMT)
Once a long position has been entered, from December 2019 through November 2020. In the third window pane you see the 30-day
your next concern should be to apply an exit VPN indicator, and in the bottom pane you see the 40-day VPN indicator. Generally, the slower
strategy. 40-day VPN produces fewer false signals, but signals are infrequent.
The obvious exit signals would be to sell
if the indicator starts trending down by crossing under its trades, mainly during the coronavirus meltdown in
moving average or when it crosses under zero, thus indicat- the market in March 2020.
ing that the negative volume exceeds the positive volume. • Finally, a 15-day time exit closed out trades if none
Using the above exit conditions in isolation, however, did of the above conditions were triggered before that.
not produce the best results in testing and should be used
in conjunction with other price-based indicators for more Since this indicator works best on small-cap and currently
timely exits. active and popular stocks, I evaluated its performance
using two different stock lists: The first one included the
Testing method Russell 2000 component stocks, and the second a list of
To evaluate the usefulness of the VPN indicator, I designed 100 popular trending stocks that I added in my watchlist
and tested a simple trading strategy with the following during the last six months. This included EV and renew-
rules: able energy stocks and ETFs; coronavirus vaccine and
diagnostic stocks; stay-at-home and reopening stocks; and
Long conditions cannabis and bitcoin stocks and ETFs. You can see a list
• A long position is initiated when the 30-day VPN of these stocks in Figure 6.
crosses over 10 In order to include a wide sample of market conditions,
• The 50-day moving average of the volume should I calculated the performance metrics during the previous
be greater than the moving average 50 days ago, one-, two-, five-, and ten-year period segments. The ini-
indicating current interest in the stock tial capital was $100,000, the trade size $10,000, and the
• The five-day RSI should be less than 90, thus filtering maximum open positions were limited to 10. Signals were
out extremely overbought stocks executed the next day at the open and commissions were
• The stock price should be above its 30-day moving one cent per share. In addition, I filtered out illiquid stocks
average. by limiting the minimum share price to $1, the volume to
100,000 shares, and the trade size to 5% of the volume.
Exit rules Finally, in case of more entry signals than the maximum
• The stock is sold if the VPN crosses under its 30- allowable number of open positions or available funds,
day moving average while the price is more than 3
ATR (average true range) below the highest of the
last five days
The indicator works best on small-
• To reduce drawdown in a bear market, I added a
market-derived condition that stopped open trades cap and active stocks in popular
when the index was down more than 15% and below thematic or trending industries.
its 150-day moving average. This closed out open
April 2021 • Technical Analysis of Stocks & Commodities • 11
trades with higher ratio of volume/average Ticker Name Ticker Name
30-day volume were preferred. ABT
AL
Abbott Laboratories
Air Lease Corporation
LI
LAKE
Li Auto Inc
Lakeland Industries Inc
In the sidebar “AmiBroker AFL Code For ALB Albemarle Corp LIT Global X Lithium ETF
Volume Positive Negative (VPN) Indicator,” ALT Altimmune Inc LUV Southwest Airlines Co
ANH Anworth Mtg Asset Corp MARA Marathon Patent Group Inc
I provide the AmiBroker AFL code for the APT Alpha Pro Tech Ltd MAR Marriott Internat Inc A
VPN indicator and test code. AXTI Axt Inc MELI MercadoLibre Inc
AYRO AYRO Inc MJ ETFMG Alternative Harvest ETF
To evaluate the efficacy of my VPN strategy, BATT Amplify Advanced Battery Materials ETF MGM Mgm Resorts International
I compared its performance with the standard BA Boeing Co MRNA Moderna Inc
benchmark buy & hold method, which involved BH
BEEM Beem Global MSTR Microstrategy Inc
Biglari Holdings Inc NCLH Norwegian Cruise Line Holdings
buying and holding an equal dollar amount BKNG Booking Holdings, Inc NETE Net Element Inc
($100,000) of the iShares Russell 2000 Index BLNK Blink Charging Co
BNTX BioNTech SE NIO
NK
NIO Inc
NantKwest
ETF (IWM). BLDP Ballard Power Systms Inc NLS Nautilus Inc
To choose the best values for the VPN pe- CAN Canaan Inc
BTBT Bit Digital Inc NSA National Storage Affiliates Trust
NVAX Novavax Inc
riod and maximum holding period (time exit), BWEN Broadwind Inc PBD PowerShares Global Clean Energy ETF
I calculated the system performance (profit CBAT CBAK Energy Technology Inc PLNT Planet Fitness Inc
CGC Canopy Growth Corporation POOL Pool Corp
factor) for the last 10 years on the R2K stocks CLOU Global X Cloud Computing ETF RCII Rent A Center Inc
for VPN periods ranging from 20–50 days and CODX Co-Diagnostics Inc RCL Royal Caribbean Group
CLX Clorox Co RIDE Lordstown Motors Corp
holding periods from 5–100 days. CPSH CPS Technologies Corporation REGI Renewable Energy Group, Inc
In the 3D optimization chart in Figure 7, you DKNG DraftKings Inc ROKU Roku Inc
can see that VPN periods from 30–40 days DIS
DOCU DocuSign Inc RIOT Riot Blockchain Inc
The Walt Disney Company RVP Retractable technologies Inc
produced the best results. Selecting the best DQ DAQO New Energy Corp. SABR Sabre Corp
time exit was, however, more complicated than DRI DTE
Darden Restaurants
Dte Energy Co
SHO Sunstone Hotel Investors Inc
SOLO Electrameccannica Vehicles Corp Ltd
that, as the profit factor fluctuated considerably DVAX Dynavax Tech SLG Sl Green Realty Corp
during the post-signal period. After enlarging ENPH ETSY
Enphase Energy Inc
Etsy Inc
SOYB Teucrium Soybean Fund
TBIO Translate Bio Inc
the graph, however, I noticed that for the 30- ERIC LM Ericsson Telephone Company THCB Tuscan Holdings Corp
day VPN period, the profit factor spiked in FCEL FuelCell Energy Inc TCO Taubman Centers Inc
FSR Fisker TLRY Tilray Inc
increments of about 20 days, the first spike FUN Cedar Fair (L.P.) TRTX TPG RE Finance Trust Inc
occurring 15 days after the signal and the last GM General Motors Company TSLA Tesla Inc
one in a little more than 70 days.
GP GreenPower Motor Company Inc TTWO Take-Two Intera Software
GNRC Generac Holdings Inc UBER Uber Technologies
This is because stocks tend to pull back or HLT Hilton Worldwide Holdings Inc UAL United Airlines Holdings Inc
consolidate for at least some time after the IBUY Amplify Online Retail ETF
HYRE HyreCar, Inc VICI VICI Properties Inc
VIR Vir Biotechnology Inc
first breakout. In the chart of GP in Figure 2 IDEX Ideanomics, Inc VBIV VBI Vaccines Inc
you can see an example of this phenomenon. JKS JMIA Jumia Technologies AG
Jinko Solar
WKHS Workhorse Group Inc
XPEV XPeng Inc
The breakout trajectory in May 2020 wasn’t KNDI Kandi Tech Corp WYNN Wynn Resorts Ltd
a straight line but developed fully in five seg- KRG LAC
Kite Realty Grp Tr
Lithium Americas Corp
ZM
ZTO
Zoom Video Communications Inc
ZTO Express (Cayman) Inc
ments. During the first leg, the stock was up a FIGURE 6: LIST OF 100 ACTIVE STOCKS AND ETFS USED FOR THE TEST. Since the VPN
moderate 27% in 15 days, during the second leg indicator works best on small-cap and active stocks, I evaluated indicator performance using
the stock surged another 60% in 16 days after two different stock lists: Russell 2000 component stocks, and 100 current and recent trending
a 10-day consolidation, during the third leg the stocks, which are shown here, as of the time of this writing in November 2020. When using
stock was up 64% in 20 days, during the fourth the indicator, the list of active stocks should be updated, with newly active stocks replacing
those that have fallen out of favor.
leg it was up 33%, and finally during the last
leg it surged 151% in 10 days after a 19% pullback. The
complete breakout lasted a total of 67 trading days with
the stock surging more than 1,000% from $1.9 to $21.
I will show you how to detect
The performance of the 40-day period VPN was more breakouts using only volume,
consistent but only for longer holding periods of 55–70 sometimes even before price
days after the signal. breaks out, by introducing
To calculate the test statistics in Figures 8 & 9 I decided a new volume breakout
to use a 30-day VPN period and a 15-day exit. This didn’t indicator, the VPN.
produce the best profit factor but was sufficient to detect
at least the first leg of the breakout.
12 • April 2021 • Technical Analysis of Stocks & Commodities
How is futures margin different
from equities margin?
When you trade futures, you often wind up with a lot of questions. That’s why, at TD Ameritrade, we have
on-demand education, futures specialists ready to talk day and night, and an intuitive trading platform.
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System evaluation
In the table in Figure 8 you can see the test
simulation results of a one-, two-, five-, and 10-
year backtest on the Russell 2000 stocks.
The system managed to beat the buy & hold
investor easily with the 10-year test produc-
ing more than double the buy & hold profits
with half the risk. The one-year test was even
better, producing almost 10 times the profits
of buying and holding the IWM ETF.
It was only profitable, however, for about
50% to 55% of the trades. This is quite enough,
however, to make money consistently, as the
average winning trade was 1.5 to 2 times
the average loss. The risk metrics, however,
were on the high side, with the Sharpe ratio
below 0.80 and the system drawdown 18%
to 27% of equity. The Sharpe ratio is calcu- FIGURE 7: 3D OPTIMIZATION CHART. A 3D optimization chart of the system performance
lated by dividing the difference between the on the R2K (Russell 2000) stock list is shown for the 10-year period from 2010 to 2020. The
system was optimized for values of the holding period (exit) from 5 to 70 days on the X-axis
average return and the risk-free rate by the and VPN periods from 20 to 50 days on the Y-axis. The profit factor is plotted on the Z-axis.
standard deviation of returns. In this case, Parameter combinations producing a profit factor > 1.5 protrude above the waterline (blue
returns were very volatile, resulting in a low horizontal plane).
Sharpe ratio. The largest losing trades were
caused by two Biotech stocks: Aravive (ARAV) in 2017 beginning of April 2020.
and OncoCyte (OCX) in 2020. The largest drawdowns In the table in Figure 9 you can see the performance of
occurred during the sharp correction at the end of 2018 100 active stocks (a list of these stocks can be found in
and during the coronavirus-related market plunge in the Figure 6) using the same system. In this case, the perfor-

VPN PERFORMANCE (R2K)

DURATION 1 YEAR 2 YEAR 5 YEAR 10 YEAR
SYSTEM BUY & HOLD VPN BUY & HOLD VPN BUY & HOLD VPN BUY & HOLD VPN
Net Profit $13,600 $130,200 $22,500 $193,500 $54,030 $258,000 $150,700 $365,000
CAR (Comp. Annual Return) 13.6% 129.7% 10.7% 71.3% 9.0% 29.0% 9.6% 16.6%
Total Number of Trades 1 184 1 341 1 818 1 1603
Percent Profitable N/A 50.5% N/A 52.5% N/A 52.7% N/A 53.4%
Avg. Win/Avg. Loss N/A 2.36 N/A 2.03 N/A 1.55 N/A 1.40
Profit Factor N/A 2.41 N/A 2.24 N/A 1.73 N/A 1.60
Max System Drawdown % -41.1% -27.0% -41.1% -19.2% -42.3% -29.3% -42.3% -18.3%
Max System Drawdown -$43,100 -$32,700 -$46,500 -$35,300 -$61,400 -$55,700 -$99,850 -$54,200
Largest Loss -$5,920 -$5,920 -$5,920 -$8,160
Reward/Risk 0.32 4.0 0.48 5.5 0.88 4.6 1.51 6.7
CAR/MaxDD 0.33 4.8 0.26 3.7 0.21 1.0 0.23 0.9
Sharpe Ratio 0.82 0.74 0.52 0.46
From 11/25/19 11/25/19 11/25/18 11/25/18 11/25/15 11/25/15 11/25/10 11/25/10
To 11/25/20 11/25/20 11/25/20 11/25/20 11/25/20 11/25/20 11/25/20 11/25/20
Stock list IWM RUSSELL 2000 IWM RUSSELL 2000 IWM RUSSELL 2000 IWM RUSSELL 2000
No of stocks 1 2000 1 2000 1 2000 1 2000
Initial capital $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Dollars per trade $100,000 $10,000 $100,000 $10,000 $100,000 $10,000 $100,000 $10,000
Max open positions 1 10 1 10 1 10 1 10
Max time exit - days 366 15 731 15 1827 15 3653 15
The reward/risk or recovery factor is the net profit divided by the maximum system drawdown. Values over 2 are considered good. The CAR/MaxDD is the compound
annual % return divided by maximum system % drawdown. Values over 2 are considered good. The Sharpe ratio is a measure of risk-adjusted return of investment. Values
over 1.0 are considered good, and values over 2.0 are considered very good. This is calculated by subtracting the risk-free rate of return from the annualized average
percentage return and dividing by the annualized standard deviation of returns.
FIGURE 8: SYSTEM PERFORMANCE ON RUSSELL 2000 STOCKS. Here, you can see the system’s performance during the last one-, two-, five-, and
10-year periods through November 25, 2020 on the Russell 2000 stocks. The system outperformed buy & hold by a wide margin.
14 • April 2021 • Technical Analysis of Stocks & Commodities
AMIBROKER AFL CODE FOR VOLUME POSITIVE NEGATIVE (VPN) INDICATOR
// VPN Indicator
// Created by Markos Katsanos
Period = Param("VP Period", 30, 5, 100, 10 );
SMOOTH=Param( "SMOOTH", 3, 1, 10, 1 );
VPNCRIT=Param( "VPNCRIT", 10, 0, 40, 5 );
MAB=Param( "MA BARS", 30, 10, 200, 10 );
MAV=MA(V,PERIOD);V=Nz(V,1);MAV=IIF(MAV>0,MAV,1);
MF = Avg - Ref( Avg, -1 );MC=.1*ATR(PERIOD);
VMP = IIf( MF > MC, V, 0 ) ;
VP = Sum( VMP , PERIOD);
VMN = IIf( MF < -MC, V, 0 ) ;
VN = Sum( VMN , PERIOD);
VPN=(VP-VN)/MAV/PERIOD*100;
VPN=EMA(VPN,SMOOTH);MAVPN=MA(VPN,MAB);
dynamic_color = IIf( VPN >= VPNCRIT, colorGreen, colorRED ) ;
Plot( VPN, "VPN(" + PERIOD + ")", DYNAMIC_COLOR , STYLETHICK );
Plot( MAVPN, "MA",colorGREEN, styleDashed );
Plot(VPNCRIT,"CRIT",colorBLUE);
//VPN SYSTEM
//Copyright Markos Katsanos 2020
SetBacktestMode( backtestRegular );
Posize =10000;SetPositionSize( posize, spsValue );
PosQty = 10; SetOption( "MaxOpenPositions", PosQty );
IE= 100000;SetOPTION( "INITIALEQUITY", IE );
RoundLotSize = 10;
SetOption("AllowPositionShrinking", True );
SetOption("CommissionMode",3);
SetOption("CommissionAmount",.01); //0.01$ per share
SetOption("MinPosValue",1000);
SetOption("MinShares",10);
SetTradeDelays( 1, 1, 1, 1 );
BuyPrice =OPEN;
SellPrice = Open;
timeexit =Optimize("exit",15,5,70,5);
Period =Optimize("VPNPERIOD",30,30,40,10 );
VPNCRIT=Optimize("VPNCRIT",10,10,20,10); //
//Price , Volume and Liquidity Filter
MinC = Param( "Minimum Share Price", 1, 0, 2000, 1 );
MinVol = Param( "Minimum Volume", 100000, 0, 1000000, 50000 );
MinVC = Param( "Min Turnover(Vol*C/1E6)", .5, 0, 10, 1 );
LQD=C>Minc AND MA(V,5)>MinVol AND MA(C*V,5)/1000000>MinVC ;
//INDEX
IndexCode = ParamStr( "Index", "IWM" );
IND = Foreign( IndexCode, "C" );
//VPN
MAV=MA(V,PERIOD);V=Nz(V,1);MAV=IIF(MAV>0,MAV,1);
MF = Avg - Ref( Avg, -1 );MC=.1*ATR(PERIOD);
VMP = IIf( MF > MC, V, 0 ) ;
VP = Sum( VMP , PERIOD);
VMN = IIf( MF < -MC, V, 0 ) ;
VN = Sum( VMN , PERIOD);
VPN=(VP-VN)/MAV/PERIOD*100;
VPN=EMA(VPN,3);MAVL=Ref(MA(V,PERIOD),-3);
BUY = LQD AND MA(V,50) >Ref(MA(V,50),-50) AND
Cross(VPN,VPNCRIT) AND RSI(5)<90 AND C>MA(C,PERIOD);
Sell=(IND<MA(IND,150) AND ROC(IND,10)<-15) OR
(Cross(MA(VPN,PERIOD),VPN) AND C<HHV(C,5)-3*ATR(PERIOD));
Short=False;
Cover=False;
ApplyStop( stopTypeNBar, stopModeBars, timeexit ); // time exit
MAVL=Ref(MA(V,PERIOD),-3);//MAVL=Nz(MAVL,1);
POSITIONSCORE=V/MAVL;
//EXPLORATION
Filter=Buy;
AddTextColumn( FullName(), "FullName");
AddTextColumn( SectorID(1), "Sector");
AddTextColumn( IndustryID(1), "Industry");
AddColumn(Close,"Close",1.2);
AddColumn(Volume,"Volume",1.0); AddColumn(MAV,"MAV",1);
AddColumn(Volume/(MA(Volume,50)+.001),"V/Vave",1.2,IIF( Volume/
(MA(Volume,50)+.001) > 4, colorGreen, colorBLACK ));
AddColumn(VPN,"VPN",1.2);
AddColumn((REF(C,TIMEEXIT)/REF(O,1)-1)*100,"PERF",1.2);
//PLOT
SetChartOptions( 0, chartShowArrows | chartShowDates );
Equity(1);
SetOption("EveryBarNullCheck", True );
Plot( C, "Price", colorDefault, stylecandle | styleThick );
PlotShapes( IIf( Buy, shapeUpArrow, 0 ), colorBLUE, 0, Low );
PlotShapes( IIf( Sell, shapeDownTRIANGLE, 0 ), colorRed, 0, High );
// Custom text labels displayed with PlotText
fntsize = 11;
dist = ATR(20);// y-offset
PlotTextSetFont( "", "ARIAL", fntsize, BarCount-2, 0, -1 );bkcolor = -1;
bi = Barindex();fvb = FirstVisiblevalue( bi );lvb = LastVisiblevalue( bi );
for ( i = fvb; i <= lvb; i++ ) {
if( Buy[i] ) PlotText( "Buy", i-2, L[i]-dist[i], colorBLUE, bkcolor, -20);
if( SELL[i]==1 ) PlotText( "SELL" , i, H[ i-1 ]+dist[i], colorRED , colorDe-
faulT );
if( SELL[i]==5 ) PlotText( "TIME EXIT" , i-3, H[ i-3 ]+dist[i], colorOrange
, bkcolor,10 );
if( SELL[i]==3 ) PlotText( "PROFIT TARGET" , i, H[ i ]+dist[i], colorRED,
colorDefaulT );}
GfxSelectFont("Times New Roman", 10, 600, True );
GfxTextOut( "VPN ", 5, 19);
GfxTextOut( "Created By: Markos Katsanos", 5, 41 );
Title = Name() + " " + Date() + " Open="+O+ " High="+H+" Low="+L+"
Price = " + Close +" Volume= "+V
+" BarIndex "+BarIndex()+ " Signal : " + WriteIf( Buy, "Buy ", WriteIf( Sell
== 1, "SELL",
WriteIf( Sell == 3, "Profit target",
WriteIf( Sell == 5, "Time stop", "none" )) )) ;
April 2021 • Technical Analysis of Stocks & Commodities • 15
 PERFORMANCE (WATCH LIST) followed immediately by equally strong corrections or a
DURATION 1 YEAR 2 YEAR 5 YEAR 10 YEAR sideways consolidation.
SYSTEM VPN VPN VPN VPN

The bottom line

Net Profit $125,260 $126,300 $163,000 $188,200
CAR (Comp. Annual Return) 125.0% 50.4% 21.3% 11.2%
Total Number of Trades 114 198 420 717 There is no holy grail in trading success, but sometimes a
Percent Profitable 62.3% 57.1% 54.1% 53.8% different perspective can make a big difference. Trading
Avg. Win/Avg. Loss 2.53 2.21 1.93 1.58
on price action alone often results in false signals, whereas
Profit Factor 4.17 2.94 2.27 1.84
Max System Drawdown % -13.9% -13.8% -14.0% -28.3% trading high-volume breakouts will certainly improve your
Max System Drawdown -$20,700 -$20,700 -$20,700 -$30,600 odds of success. The system presented in this article is not
Largest Loss -$3,715 -$3,715 -$3,850 -$3,850 a complete trading strategy; it was designed to assess the
Reward/Risk
CAR/MaxDD
6.0
9.0
6.1
3.7
7.9
1.5
6.2
0.4
efficacy of the VPN indicator. The accuracy of this system,
Sharpe Ratio 1.9 1.3 0.9 0.7 however, can be further improved when used in concert
From 11/25/19 11/25/18 11/25/15 11/25/10 with other noncorrelated indicators or patterns. In trading
To 11/25/20 11/25/20 11/25/20 11/25/20 this or similar systems, you should keep in mind that an
Initial capital
Dollars per trade
$100,000
$10,000
$100,000
$10,000
$100,000
$10,000
$100,000
$10,000
increase in volume leads to an increase in volatility and
Max open positions 10 10 10 10 risk. Trading successfully depends foremost on careful
Max time exit - days 15 15 15 15 risk management, combined with technical trading signals
FIGURE 9: SYSTEM PERFORMANCE ON WATCHLIST OF ACTIVE that frequently work out in your favor.
STOCKS. Here, you can see the system’s performance during the last one-,
two-, five-, and 10-year periods through November 25, 2020 on a list of 100
active thematic stocks. For an explanation of the risk metrics, please see
Markos Katsanos is the author of Intermarket Trading
the legend in Figure 8. Strategies published by John Wiley & Sons and is a Con-
tributing Writer to Technical Analysis of Stocks & Com-
mance was substantially better, and this was achieved with modities. He can be reached at markos.katsanos@gmail.
lower risk. During the most recent one-year period until com or through his website, http://mkatsanos.com.
the end of November 2020, these stocks produced profits
more than double the initial equity with 62% accuracy and The code given in this article is available in the Article Code
less risk, despite the market plunge in March 2020. section of our website, Traders.com.

Trading tips
One important factor in maximizing profits is trading the
right stocks. These are stocks in a popular industry or in a
high relative strength sector, and in any case, active stocks
with a recent increase in volume. You should also keep
in mind that successful trading depends on careful risk
management, which in this case is higher than usual.
A method for minimizing risk is to trade a modest num-
ber of five to 10 stocks of relatively small size rather than
trading just one or two stocks with large position sizes.
If you missed the initial breakout, waiting to play the
post-breakout uptrend can be another way of profiting
from a high-volume breakout. What is especially tricky is
determining how and when to enter a position in a stock
that has already made a strong move as these are sometimes
Stocks tend to pull back or
consolidate for at least some
time after the first breakout.
See our Traders’ Tips section beginning on page 48 for imple-
mentation of Markos Katsanos’ technique in various technical
analysis software and trading platforms.
Further reading
Katsanos, Markos [2003]. “Detecting Breakouts,” Tech-
nical Analysis of Stocks & Commodities, Volume
21: April.
[2003]. “Detecting Breakouts In Intraday Charts,”
Technical Analysis of Stocks & Commodities, Vol-
ume 21: September.
[2004]. “Using Money Flow To Stay With The
Trend,” Technical Analysis of Stocks & Commodi-
ties, Volume 22: June.
Calhoun, Ken [2015]. “Managing Breakout Trades,” Tech-
nical Analysis of Stocks & Commodities, Volume
33: November.
[2016]. “High-Volume Breakouts,” Technical Analy-
sis of Stocks & Commodities, Volume 34: January.
‡AmiBroker
‡See Editorial Resource Index

16 • April 2021 • Technical Analysis of Stocks & Commodities

 Algo Q&A
ALGORITHMIC TRADING
Have a question about system or algo trading? Kevin J. Davey has over
25 years of system trading experience. Davey is a full-time trader, and he
also teaches and consults via his Strategy Factory online workshop (https://
kjtradingsystems.com). He is the author of several bestselling trading books,
including Building Winning Algorithmic Trading Systems and Introduc-
tion To Algo Trading. Send your questions or topic suggestions to Kevin
Davey at kdavey@kjtradingsystems.com. Selected questions will appear
in a future issue of S&C.
Kevin J. Davey

LIFE ON EASY STREET?
I don’t get it. I just started trading a
few months ago with a Robinhood
account, and I am up +52% already.
I missed trading Gamestop though,
bummer! Why do you say trading and
algo trading are so hard? It seems
pretty easy to me.
We live in interesting times, for
sure. There is now a whole generation
of traders and investors who think
stocks do nothing but go up—just
look at the performance of the Nas-
daq since the financial crisis ended
in 2009.
Long forgotten are the crashes of
2008, 2011, and 1987. There were
plenty of other crashes more than
30 years ago, too. Yet many today
have forgotten about all those ter-
rible events.
Surely the parabolic returns will
continue, right? Heck, even my
middle school aged kids have doubled
their money in the past two years
trading stocks, and they are not yet
financial geniuses (although I think
they have a good teacher!).
One year ago this time, it seemed
like the world was going to end.
Covid-19 was sweeping the globe,
and stock markets were tanking.
The Nasdaq dropped over 30% in
less than one month. Older inves-
tors started to panic, selling all their
stocks and buying S&P and Nasdaq
put options.
That decision turned out to be a
big mistake, as the stock market just
took off in late March 2020 and has or later, good trading skills will be
not looked back. required to succeed in the markets.
And with the performance these What’s a good plan to do this?
past 12 months, I agree: investing and First, mentally convince yourself that
trading look pretty easy. But it will not things will change eventually, and the
last, that I can guarantee. I just don’t easy money will disappear.
know when the music will stop, and Second, educate yourself on how to
frankly nor does anyone else. actually trade, not just buy a stock and
For most trading, especially in watch it rise, as many do today. There
futures, for every dollar one person are tons of books, articles, videos and
makes, another person loses a dollar. courses on how to read charts, how
With the stock market, all the holders to interpret technical indicators, and
of stock can profit when the market how to create trading algos.
only goes up, and the only people who Third, put that education into prac-
lose are the short sellers of stock. tice. If you enjoy chart reading and
The point is, usually the money interpreting, start to do it in real time.
made by one party is lost by another. Practice trading with that method.
And eventually, the losers run out of If you like to program algorithms
money. instead, this is a great time to begin
History shows again and again how that journey.
markets that go haywire eventually The point is, now is a perfect time
come back to reasonable levels. The to improve your trading skills, be-
problem is trying to determine when cause eventually trading will again
and where it will all end. be difficult. Those properly prepared
That is when trading becomes for the hard times will be the traders
tough. Creating algo strategies that who succeed long term.
move to the sidelines, or that take
advantage of bear markets, is not
an easy task. Yet it
is a critical one for
anyone wanting to
be in the markets
long term.
Even though trad-
ing seems very easy
right now, preparing
for tough trading
times is a great FIGURE 1: PARABOLIC. The parabolic performance cannot continue
thing to do. Sooner forever!
April 2021 • Technical Analysis of Stocks & Commodities • 17
 FUTURES FOR YOU
INSIDE THE FUTURES WORLD
Want to find out how the futures markets really work? Carley Garner is
the senior strategist for DeCarley Trading, a division of Zaner, where she
also works as a broker. She has written five books on futures and options
trading, with the latest being Trading Commodity Options...With Creativ-
ity (July 2020), as well as A Trader’s First Book On Commodities (third
edition, October 2017) and Higher Probability Commodity Trading (July
2016). Garner also authors widely distributed e-newsletters; for a free
subscription, visit www.DeCarleyTrading.com. To submit a question, email
her at info@carleygarnertrading.com or via www.DeCarleyTrading.com.
Selected questions will appear in a future issue of S&C.
Carley Garner

BITCOIN FUTURES AND OPTIONS:
A BETTER WAY TO SPECULATE IN
CRYPTOCURRENCIES?
The answer to that question likely
depends on who you talk to. As a
member of the futures industry ad-
vocating for such products, I believe
traders with ample risk capital are
better off using the CME Group suite
of cryptocurrencies to gain exposure
to price risk in that space. My rea-
soning isn’t self-interest, but market
integrity and money safeguards.
I’ve written about this in previous
columns, so I will keep it brief. Fu-
tures and options traded on the CME
Group, regardless of the underlying
asset, come with an exchange guar-
antee. In other words, through margin
requirements and regulations, the
exchange, with support from the NFA
(National Futures Association) and
CFTC (Commodity Futures Trad-
ing Commission) can ensure that all
market participants with profitable
trades will be properly compensated
in profits and can withdraw profits
from their account without doubts.
In short, there is no counterparty
risk (assuming the chosen brokerage
firm is following all of the rules and
regulations regarding the segregating
of client funds from the firm’s capital).
When buying or selling cryptocur-
rencies off-exchange (outside of the
regulated futures exchanges) several
things could go wrong preventing
a successful trader from ultimately
18 • April 2021 • Technical Analysis of Stocks & Commodities
benefiting. For instance, if traders
on the other side of a transaction
are unable to cover their losses and/
or the off-exchange brokerage itself
cannot meet the obligations owed
to profitable traders, an impressive
account balance might merely be
mythical. It is fun to look at, but the
ability to withdraw the gains is not
necessarily a guarantee. There is
much more to it than this, and such
an occurrence is somewhat rare, but
it is worth noting.
The bitcoin futures
contract comes
with a hefty margin
requirement that prices
most retail traders out
of the market.
Back to the CME Group futures and
options in which all transactions are
guaranteed: Cryptocurrency traders
have access to bitcoin futures, options
written against the bitcoin futures,
and Ether futures. As is always the
case with newly listed products,
liquidity is an issue. Further, active
market participation by the average
retail trader is thwarted by large
contract size, margin, and risk. Nev-
ertheless, if you are a well-capitalized
cryptocurrency speculator with a
high tolerance for risk, these are great
products. That said, although options
are listed against bitcoin futures, they
are not yet tradable.
The CME listed bitcoin options in
early 2020, just before the Coronavi-
rus fallout, and has yet to build suf-
ficient daily trading volume. Timing
probably worked against the product
listing success, but the lack of trading
interest can also be attributed to the
massive contract size. For instance,
the bitcoin futures and, therefore, the
options written against them, come
with a contract size of five bitcoin.
This means if bitcoin is trading
at $40,000, the contract is worth
$200,000. On the surface, this doesn’t
seem excessive. After all, the E-mini
S&P has a similar valuation if the
index is trading at 3,900.00 ($50.00
× 3,900.00 = $195,000). That said,
the S&P volatility isn’t quite up to
par with that of bitcoin; accordingly,
the bitcoin futures contract comes
with a hefty margin requirement
that prices most retail traders out of
the market.
At the time this column was writ-
ten, the margin for a single bitcoin
futures contract was $114,125! This
might seem excessive, but it isn’t. To
put the volatility into perspective, the
2020 low in bitcoin was just under
$5,000 per coin and as of February
12th of 2021, the contract high was
$49,500. Thus, the contract had trav-
eled roughly $45,000 in less than a
year. Because each futures contract
represents five coins, a trader long
 FUTURES FOR YOU
or short would have made or lost
$225,500. Additionally, there were
several weeks in between in which
the coin traveled $10,000 to $15,000
or $50,000 to $75,000 per contract.
Because the futures follow the cash
market, bitcoin product—which
trades around the clock seven days per
week and without price limits, or even
rules and regulations—the futures
contract is free to fluctuate wildly
without intervention. Accordingly,
the exchange and brokerages require
proper margin to be posted to ensure
transactions can be properly backed
with available risk capital, enabling
the market to function properly.
Similarly, bitcoin options are so
expensive they essentially price out
retail traders. In mid-February 2021,
with bitcoin trading near $48,500, an
at-the-money call and put expiring
in about 40 days would cost a trader
by about $7,700 before that option
could be profitable at expiration. In
short, even if the trader chooses the
correct direction, if bitcoin moved
anything less than $7,700, the trader
would lose money despite being right
in the direction. On the other hand,
if the trader is wrong in the direc-
tion and holds to expiration, the loss
Similarly, bitcoin
options are so
expensive they
essentially price out
retail traders.
would be $38,000 plus transaction
costs! No thanks.
In early 2021, the CME Group
launched ether futures to meet
customer demand for additional on-
the second-largest cryptocurrency
by market capitalization and daily
volume. The contract size is 50 ether;
at the time of this writing, each coin
was worth about $1,800, leaving the
contract size at $90,000. Not sur-
prisingly, the margin requirement is
relatively high at $46,060.
In a nutshell, the CME Group’s
cryptocurrency suite of products
(bitcoin futures, bitcoin options, and
ether futures) provide speculators
and hedgers a regulated (Commod-
ity Futures Trading Commission)
environment without counterparty
risk and without the need for a digital
wallet (because contracts are cash-
settled, not deliverable). However,
while the marketplace risks have
been removed (or at least mitigated)
by these on-exchange products, the
price risk is substantial.

Explore Your Options

roughly $38,000. This means the exchange cryptocurrency choices.
underlying bitcoin futures must move At the time of the listing, ether was

KAEPPEL • If MSFT declines in price Measure Trader A Trader B

Continued from page 7
option expiration in 24 days.
The table in Figure 6 displays the
comparative facts and figures regard-
ing these two approaches.
The differences in the two positions
are fairly obvious:
• If MSFT advances in price dur-
ing the life of the collar, Trader A
stands to make more money
during the life of the collar,
Trader B stands to lose less Cost to Enter pays $326 takes in $27
money Maximum Profit Potential $784 $133
Maximum Risk (-$466) (-$117)
So, which one is “the better
trade”? In reality, there really Breakeven Price $227.16 $223.67
is no such thing. Trader A and FIGURE 6: COMPARING THE TWO APPROACHES
Trader B both made decisions
regarding their top priorities (Trader so) and entered trades designed to
A, limiting risk while still affording achieve their objectives.
some upside; Trader B, limiting risk
to the highest degree possible without
laying out additional money to do

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April 2021 • Technical Analysis of Stocks & Commodities • 19

 A Look Inside A Trade
Swinging NCR
Here’s a breakdown of a recent momentum swing trade—
from the initial search for a trade, to reading the chart,
to researching the market context, the reasons for the
buy, and the reasons for the exit. Was it successful? We
find out. (Spoiler alert: It was.)
by Thomas Bulkowski
T
he articles I enjoy reading most in Technical
Analysis of Stocks & Commodities maga-
zine have the theme “Anatomy of a trade.”
In these articles, the author will dissect a
trade he’s made and explain what he did right
and what he flubbed. I like to read about the
trading styles used by the authors of these articles and
their approach to buying and selling a stock.
This article is my contribution to this category. It
will describe a swing trade I made in the stock of NCR
Corporation (NCR).
Looking for a buy
In the fall of 2020, I was flush with cash and looking to
put it to work making money in the stock market. I went
to Fidelity.com, which is the website of a large brokerage.
20 • April 2021 • Technical Analysis of Stocks & Commodities
There, you can do research on sector performance, even
without opening an account or registering. They show US
sector and industry performance including weightings
and recommendations (see “Further reading” at end).
In their list of sectors, information technology placed
first for performance with a year-to-date gain of 35.5%.
In last place was energy (down 50.4%) as of October 30,
2020. Those two extremes highlight two different trading
styles that can be used to take advantage of them. Buy-
ing the IT sector would be a momentum play. Buying
an energy stock would be bottom fishing.
In previous visits to the website, I noticed that the energy
sector remained at or near the bottom of the performance
list. Some will say that bottom fishing (buy low, sell high)
is like trying to catch a falling knife. Your pocketbook or
wallet can get bloody trading or holding a stock making
new lows, hoping the downtrend will reverse. Of course,
if you time it right, the profit potential can be amazing.
To put it another way, a trend in motion tends to stay
in motion. Energy stocks might continue to drop, so I
didn’t think the time was correct to search that sector
JIRIS/SHUTTERSTOCK
for a buying candidate. I chose a momentum trade: Buy
high and sell higher. The risk is that you buy high and
sell lower when upward momentum reverses.
 ANATOMY OF A TRADE

Drilling down
In the stocks I follow, 27 of B
them came from the IT ser-
vices sector. That includes
both stocks and exchange
traded funds (ETFs). ETFs A
are terrific for avoiding what I
call “single stock risk.” That’s
when the stock disappoints the
market and price tumbles up
to 66%, and perhaps more,
often at the opening bell. Have
a high flyer that misses the
consensus earnings estimate?
Look out below.
The impact from a wounded
FIGURE 1: LONG-TERM UPTREND. This ETF shows a long-term uptrend. Buy-and-hold would work well
stock on an ETF holding the for this security.
stock will be much less than
that suffered by the stock A
itself. ETFs are wonderful
D
for participating in a rising
market when you view indi- E
vidual stocks as too expensive
to buy.
I already owned a few high- C
tech ETFs, which have been
following the market upward.
I show one of my favorites in
Figure 1 (weekly scale). At
point A, the tech sector took
a hit along with the rest of the
market during the COVID-19
scare. The ETF recovered in B
a nice run upward, but moved
FIGURE 2: NO LONG-TERM UPTREND. NCR stock did not show a consistent long-term uptrend, suggesting
sideways at B, struggling to a swing trade would work best.
find a direction. That hesita-
tion represented either a buy-
ing opportunity or a disaster, depending on an upward or buy and hold.
downward breakout from the region, respectively. Figure 2 shows a stock moving horizontally for 7 years,
Notice the upward trend from the lower left of the chart albeit with several tall price swings. This stock might be
to the upper right. It’s not a smooth climb, but for trad- a good candidate for swing trading, but not buy-and-hold
ers seeking to buy the dip, there were plenty of buying for a decade or longer.
opportunities along the way. The stock peaked at A and then dropped, bottoming at
I paged through the securities in my database and B during the COVID-19 scare. If you combine peaks A
looked for anything that caught my interest. Many times
I’d stop on a chart pattern, since that’s how I like to trade
the market­—that is, by using chart patterns.
I looked at the chart of NCR. Figure 2 shows it on A trend in motion tends to
the weekly scale. Before I slice and dice the chart, stay in motion.
compare Figures 1 and 2. Figure 1 shows a nice, steady
uptrend. It represents the kind of security you want to
April 2021 • Technical Analysis of Stocks & Commodities • 21
 procedure might help even
the distance.
Recently, though, point C
shows the stock recovering,
perhaps breaking out upward
from a loose area of conges-
tion (the sideways move after
B, shown by the green line).

Opening bid
Figure 3 shows NCR stock on
the daily scale. Although this
is a cleaned-up version of what
I saw (meaning I removed
chart patterns and quarterly
earnings announcements), it
FIGURE 3: ENTRY POINT. I bought on the last price bar on the right of the chart. Why? made me pause my search for
an IT stock to trade. Why?
Qtr Qtr Qtr I show volume on the chart
but most of the time I don’t
show it. It’s distracting, and
E
I don’t think it adds much
G
F
value. You may think other-
D C
wise, which is why I show it
A
on this chart. Just remember
that for every share bought,
B one is sold. If an institution
wants to sell 100,000 shares,
they might be dumping it
on another institution that
wishes to buy.
The chart shows the stock
trending higher going into the
FIGURE 4: ASCENDING TRIANGLE. This chart shows the stock pierced overhead resistance and started start of 2020 and being ham-
to climb. mered in March, dropping
from a high of almost 30 to
with D and E, it looks like a head-and-shoulders top chart a low below 11, a drop of 71%, far below the Nasdaq’s
pattern. D and E are the shoulders with head A between drop of 33%.
them. It’s not a perfect example because the symmetry Figure 4 highlights what caught my eye. Before I get to
of the two shoulders about the head suggests a surgical that, let me describe the difference in this figure from the
prior one. First, volume is gone. I’ve already explained
why. Second, I show the dates of the quarterly earnings
announcements at the top of my home-brew chart. I want
All three components (market, to see how the stock behaves after the announcement and
industry, stock) were trending it’s also a visual cue to tell me another announcement
in the same direction, which might be coming soon. Those announcements are the
is what I like to see. Think of “Qtr” phrase near the top of the chart. I highlight the
it as rowers all pulling in the timing at A, B, and C.
same direction. At A, the stock gapped lower. At B, it recovered, and
at C, it dropped the day after the announcement but
recovered thereafter.
22 • April 2021 • Technical Analysis of Stocks & Commodities
 Look at the two red lines. The top one is flat and the
bottom one slopes upward. If you know about chart
patterns, you’ll recognize this pattern as an ascending
triangle. Those break out upward 63% of the time ac-
cording to statistics I complied for my new book.
I didn’t pay attention to the bottom red line. I don’t
think I even saw it when I looked at the chart. Rather,
what drew me to this stock was the horizontal move
shown by the top red line starting from D. It’s what I
call a flat-base breakout.
At F, price broke out upward but then threw back to
the red line and continued lower going into the earnings
announcement. After that, it recovered and now, at E,
the stock was above peak G. This told me the stock was
moving up, maybe recovering from the sharp loss from
January to March.
I chose this stock to trade.
NCR: A closer look
I knew NCR as National Cash Register, so how are
they a high-tech company? To find out, I visited yahoo.
com for a profile. It states, “NCR Corporation provides
software and services worldwide. The company operates
through banking, retail, hospitality, and other segments.”
NCR’s website claims that “NCR has become the global
leader in Multivendor ATM Software and the world’s #1
POS (point of sale) software provider for the retail and
hospitality industries.”
The day before I bought, I filled out my trading plan.
My computer fills out some of the blanks, including
looking at the price trends over 1, 2 and 6 months. The
market was trending higher over all three periods (which
is good). Stocks in the industry were also trending higher,
mostly, from 19 up and 8 down six months ago, to 24
up and 3 down over the prior month. The stock was up
in all three sample periods. In other words, all three
components (market, industry, stock) were trending in
the same direction, which is what I like to see. Think of
it as rowers all pulling in the same direction.
My computer program flagged a warning about volume
not rising consistently over the prior 3 weeks, suggesting
a higher failure rate for the chart pattern. As I mentioned,
I don’t place a lot of emphasis on volume, so I ignored
the warning.
Performance against the S&P 500 was rising, which
is helpful when trying to beat the market. In this case,
with a high-tech stock, a comparison with the Nasdaq
would have been a better gauge. Oops.
In my checklist, I have an item asking for the date of
the next earnings announcement. It’s one of those items
I check because I don’t want to buy within 3 weeks of an
A volatility stop
determines how volatile
the stock is and adjusts
the location appropriately.
announcement. As I mentioned, bad news can send a stock
tumbling, so I usually avoid buying a stock within the
3-week warning period. Yes, the chart did show earnings
to be about 10 weeks out (based on how close the prior
one was to the current date), but my guess is I was in a
hurry to fill out the template and forgot to check.
I searched the chart for resistance and found some at 30
to 33 from the summer of 2019. I don’t show that on the
chart, but it’s an area where the stock moved sideways,
bouncing within that price range.
About the weekly scale, I wrote this: “Sharp drop in
early 2020 led to a soft rebound in a hot industry. I can
ride it back up. That’s the plan.”
Here’s where it gets a bit confusing. With swing trades,
I use a stop. For buy-and-hold, I don’t. For the stop
location, I used Kaufman’s volatility stop at 21.95, for
a potential loss of 11.6%, based on the closing price of
24.84. A volatility stop determines how volatile the stock
is and adjusts the location appropriately. In this case, I
considered the stock a long-term holding and didn’t place
a stop-loss order with my brokerage. However, in the
trade type, I also considered this a swing trade, which
requires a stop. Later, we’ll see that this was a trade that
didn’t need a stop.
The chart pattern traded was a flat base with a second
buy reason of diversification. I like to hold a diversified
portfolio of stocks.
Here’s what I wrote as a buy reason: “11/16/2020. I’ve
a lot of cash so I’m looking to deploy some of it. I’ll buy
shares of this and maybe swing trade it to 30–33 (where
it should reach resistance). It’s breaking out of conges-
tion (making a new high since the stock went sideways
to slightly up from the March low). It’s not an impressive
performer, so that’s why I don’t really trust the stock. I’ll
cut the recommended position size by 44%. [The 44%
number is not something I planned, but it’s a sign that I
cut the recommended position size almost in half].
“I can see a recovery to the low to mid-30s easily
enough. S&P says hold as of 11/2/20, so report is recent.
Says risk assessment is high, which is something I’ve not
seen before. Ford ranks it 2. I see this recovering as [the]
economy recovers from COVID-19. The stock is part of
April 2021 • Technical Analysis of Stocks & Commodities • 23
 Sold I sold a day after the stock
Qtr Qtr Qtr A peaked, making for excellent
timing. The stock has dropped
Resistance since, which I find reassuring.
The high-and-tight flag hasn’t
confirmed yet, either, but it
may by the time you read
Bought this. In a HTF, price needs to
double in two months, which
it did from the October 29 low,
and breakout upward.
There’s an old saying that
goes, “It doesn’t matter at what
price you buy, but it matters
at what price you sell.” Notice
that in this article I spent a
FIGURE 5: EXIT POINT. The stock pushed through overhead resistance between the two green lines. The lot of time planning the buy
trade entry was about 2 weeks late, but the exit was timely.
(probably an hour or two, real
time) but selling happened
IT services, which is hot and I expect will continue to quickly, mostly on feel. Regardless, I’m happy with how
be hot. That’s why I chose this stock, too.” the swing trade went because I made 53%.
I bought the stock the next day at the market open and
received a fill at 24.39. Stocks & Commodities Contributing Writer Thomas
Bulkowski is a private investor and trader with almost
This way to the exit 40 years of market experience and considered by some
Figure 5 shows that the stock cooperated and climbed to be a leading expert on chart patterns. He is a best-
at a good clip. The stock blew through what I thought selling author of several books including Encyclopedia
of as overhead resistance from 30 to 33, shown here of Chart Patterns, Third Edition (new for 2021). His
between the two green lines. However, on December 7, website and blog, www.thepatternsite.com, have more
2020 (A), I considered selling. From my notebook, “Stock than 900 articles of free information dedicated to price
reached a high last price bar, meeting resistance from pattern research.
Jan ’20 peak. Most likely it’ll move sideways to down,
consolidating for a month or two before a continued Reading & resources
move higher. Analysts are tripping over themselves to Bulkowski, Thomas [2021]. Encyclopedia Of Chart Pat-
raise their price targets. Why they did it on the same day terns, Third Edition, John Wiley & Sons.
is a mystery I haven’t explored.” Fidelity markets and sectors: https://eresearch.fidelity.
I checked the company’s website and on December 2, com/eresearch/goto/markets_sectors/landing.jhtml
2020, the company issued a press release titled, “Wintrust Fidelity sector and industry weighting and recommen-
Selects NCR Digital First Banking Platform.” Maybe the dations: https://eresearch.fidelity.com/eresearch/mar-
analysts pondered that news for a day before adjusting kets_sectors/sectors/si_weighting_recommendations.
their price targets and recommendations the next day. jhtml?tab=sirecommendations
On January 8, 2021, about midway into the trading Kaufman, Perry J. [2020]. Kaufman Constructs Trading
session, I decide to sell my shares and received a fill of Systems (print and ebook editions), Amazon.
37.35. In my notebook, I wrote, “I think this has peaked [2003]. A Short Course in Technical Trading,
so it’s time to get out at the top. The Dow [industrials] John Wiley & Sons.
was up 212 points (0.7%) yesterday and the Nasdaq up
327 (2.6%). This is a high-tech stock that went down. It’s
down 40 cents when I sold it. Reason for sale: weakness.
Overvalued? It shows a high-and-tight flag, suggesting
the flag will build here and then price will rise 10% to
15%. However, many HTFs fail to confirm...”
24 • April 2021 • Technical Analysis of Stocks & Commodities
NEUROSHELL TRADER ADDS
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April 2021
In addition, another new feature
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• Technical Analysis of Stocks & Commodities • 25
 Trading Forex Like An Athlete
A Simple Forex
Trend-Following Strategy
A strategy need not be complicated. The strategy given
here is for swing trades in the forex market.
As
by Azeez Mustapha
a runner, you could be a sprinter or a
marathoner. However, you could also
choose to be somewhere in between, such
as a 10-kilometer runner. This analogy
can relate to forex trading, where the
sprinter is regarded as a daytrader, the marathon run-
ner a long-term investor, and the 10-kilometer runner a
swing trader.
The daytraders of the forex world are concerned with
taking trade opportunities for a relatively short term.
The long-term investors, as the name suggests, are in it
for the long haul, meaning they can stay invested in a
particular instrument for a year or years.
With swing trades, trades are executed and held for
a few days to a few weeks. Swing trading can be said
26 • April 2021 • Technical Analysis of Stocks & Commodities
to be a perfect middle ground between daytrading and
long-term investing.
The strategy I’ll demonstrate in this article is one that
I have found to be a tested and trusted trading strategy
for swing trading. I’ll present the strategy particulars
following some introductory comments and a quick
review of the nature of swing trading.
Swing trading vs. daytrading
The idea behind swing trading is to identify relatively
long-term trends and try to amass substantial profits
RUNNER: UMERDEARTIST/10K SIGN: TECHNICSORN STOCKER
within it. Swing trading can produce larger profits per
/ SHUTTERSTOCK/COLLAGE: CHRISTINE MORRISON
trade compared to daytrading. But swing trading is ex-
posed to market volatility, risks, and commission rates,
so swing traders need to be aware of this reality to avoid
having their profits getting swallowed up.
Swing trading and daytrading share many similarities,
but the major difference between the two is time.
The timespan for holding trades differs. Daytraders
execute and hold trades for minutes or hours at a
 FOREX TRADING

time, never exceeding a day.

Daytraders make use of
shorter timeframes for their
analysis, from one-minute to
hourly charts.
Swing traders, on the other
hand, execute and hold trades
for a few days to weeks and use
longer-timeframe charts, from
hourly to daily charts.
Both trading methods
have inherent risks. In
daytrading, because of the
shorter timeframe involved
for trading, profits can easily
get swallowed up by spreads

TRADINGVIEW
and commissions. This leads
to daytraders carrying out FIGURE 1: DETERMINING TREND DIRECTION. Using three moving averages of different lookbacks helps
significantly more trades than to reveal a trend break. For trend trading, the three moving averages should be well fanned-out and not
swing traders, since they have criss-crossing.
to make up for the costs. As an
additional means to offset these costs, daytraders look focuses on one of those factors—the trading strategy.
for opportunities to leverage their portfolios. Leveraging I find that traders often feel the need to overcomplicate
provides the opportunity to make significantly more their strategy. In my opinion, the simpler the strategy, the
profits with a smaller amount of capital. However, better. Having a simple trading strategy with a frequent
leveraging can also become counterproductive, with winning edge is my goal. Keep in mind that no strategy
the possibility that the trader could lose huge amounts, can guarantee a loss-free trading career.
making it easier to blow up his trading account. Now, I’ll describe what I find to be a very efficient and
The time commitment for each trading approach is also effective swing trading strategy. I call this strategy the
an important difference. Daytrading requires the trader “forex trend-following strategy.” As its name suggests,
to be present in the market all day, looking for possible this strategy only works in market conditions that are in
trading opportunities to replace the closed positions. This a visible trend (either bullish or bearish).
means that trading, for daytraders, becomes a full-time
job, allowing the trader little or no time to do anything Forex trend-following strategy
else. For this reason, daytraders can end up becoming This strategy requires just three moving averages, thereby
overly concerned and worried about the outcome of their leaving your screen free of clutter and distractions, allow-
trades. This could inadvertently cause traders to get more ing you to see the trends develop. However, you should
emotional in their trading, which would undoubtedly lead be sure to carry out proper backtesting to truly get a feel
to poor decision-making. for it. This strategy is quite easy to understand and adopt,
In swing trading, however, traders carry out fewer and it follows three basic steps. The steps include:
transactions and do not necessarily have to be in the
market at all times. Open positions can be monitored 1. Determining the trend direction. You can do this by
periodically or with alerts. This allows swing traders using the 8-, 13-, and 21-day simple moving averages
to operate with a level head, making trading more (SMAs). (Ensure the SMAs are set to three different
efficient. colors for easy identification.) This helps show more
But if swing trading has these important advantages clearly any trend breaks above the moving averages. For
that can help make trading success more attainable for this strategy, the SMAs should be well fanned-out and
many, why do traders still lose money? not criss-crossing.
Simply put, the three key factors affecting the success The trend has to be at least three candles long as a
of any trader include trading psychology, money confirmation that the move is indeed a trend developing.
management, and use of trading strategy. This article You can see this clearly in the chart in Figure 1.
April 2021 • Technical Analysis of Stocks & Commodities • 27
 2. Establishment of high-
probability entries. In this
stage, we should be looking
for a pullback into the array of
SMAs. We look for particular
candlestick patterns in the
pullback to confirm an entry.
The candles we should be
looking out for are the bullish
engulfing or bullish pin bars
for bullish trends and bearish
engulfing or bearish pin bars
for bearish trends.
After the pullback and
the formation of the desired
candle, we expect the price
to continue in the trend. You
can see an example of these
FIGURE 2: ESTABLISHING A HIGH-PROBABILITY ENTRY. Look for a pullback into the array of SMAs and
the formation of the desired candle. developments on the chart in
Figure 2.

3. Risk management. This

FIGURE 3: SET YOUR STOP. Risk management includes establishing how much to risk, establishing your your stop to the entry point
entry and exit point, and setting your stop. In this example strategy, your exit/stop-loss should be set 3 pips after 1 × risk is achieved. This
below the confirmation candle.
The idea behind swing trading
is to identify relatively long-
term trends and try to amass
substantial profits within it.
28 • April 2021 • Technical Analysis of Stocks & Commodities
step establishes how much you
should be risking, your entry
and exit points, as well as when
to adjust your stops.
For a bullish trend, your
buy entry will be 3 pips above
the confirmation candle, that
is, the candle that pulls back
into the array of SMAs. Your
exit/stop-loss should be set 3
pips below the confirmation
candle. The confirmation
candle establishes what your
risk would be.
As the trend resumes, your
next move would be to move
will mean you are in a risk-free
trade. You can subsequently
decide to take profit at 2 × risk or apply a trailing stop.
Figure 3 shows what this looks like on the chart.
Note: This strategy works on the daily, 4-hour, and
hourly timeframe. However, I recommend using the
4-hour timeframe.
Principles to always keep in mind
For the strategy explained in this article, here are some
necessary rules to observe. These help swing traders
navigate the trading world efficiently and effectively:
1. Limit your losses. It can be very damaging when trad-
ers get so attached to a trade that they refuse to close the
trade even when it is a losing one. Minimize your losses
as much as you can; keep in mind there will always be
more trading opportunities in the future.
2. Do not risk more than 1% per trade. Practice effec-
tive money management by risking no more than 1% of
your total portfolio on a single trade. Trading by such
discipline will drastically reduce your chances of blowing
up your account and will set you up for success.
This might seem to be a slow way of growing your
portfolio, but it has been proven time and again that
this money management strategy is the surest way to
avoid going bust and will help you become a successful
trader.
3. Mental stops. When you’ve been in the forex market
for a while, most times, you begin to develop something
like a sixth sense for breakouts, reversals, or change in
trends. This “intuition” can be very efficient and can
save you from unnecessary losses. So while trading, try
to include mental stops at the right places.
4. Conduct proper historical analysis. Always carry
out adequate market analysis before getting into any
trade. Analyzing the historical activity of a forex pair
you might be following could give you a good idea of
what the price may do next.
5. Always obey your set rules. This is the most important
rule of all. Making sure you religiously follow your set
rules and strategy is undoubtedly one of the surest ways
to succeed as a trader.
Strategy snapshot
Strategy name: Forex Trend-Following Strategy
Trading style: Swing trading and short-term
Instruments: All currency pairs
Timeframe: Daily, 4-hour, and hourly
Indicators: Simple moving averages (8, 13, and 21)
Buy signal: When the price in an upward trend
retraces, touches, and closes above the 8, 13, or 21
SMA
Sell signal: When the price in a downward trend pulls
back, touches, and closes below the 8, 13, or 21 SMA
Exit rule: A position is closed out when the stop or
take-profit is hit
Position sizing: No more than 1% per trade
For this strategy, the SMAs
should be well fanned-out
and not criss-crossing.
Risk: Will be determined by the confirmation candle
Entry: 3 pips above the confirmation candle for bull-
ish trends and 3 pips below the confirmation candle
for bearish trends
Stop-loss: 3 pips below the confirmation candle for
bullish trends and 3 pips above the confirmation
candle for bearish trends
Take-profit: 2 × risk, or trailing stop
Risk-to-reward ratio: 1:2 and above
Breakeven rule: Bring the stop to entry once 1 × risk
is realized
Trailing stop: Whatever amount you see fit.
Azeez Mustapha is an analyst at Instaforex Companies
Group and a blogger at Advfn.com, and as well as a
freelance author for trading magazines. He is a trading
signals provider at some websites. He can be reached via
email at azeez.mustapha@analytics.instaforex.com.
‡TradingView
CHARTING THE STOCK MARKET
The Wyckoff Method
Charting The Stock Market describes and illustrates
one of the best pioneering technical analysis methods.
This book takes the reader step by step through the
Wyckoff method: first, the basic principles; second, ex-
amples of the method applied to the bond market; third,
an outline of the steps to put the method to use. Details
of the Wyckoff method covered in this book include:
Point & fi gure charting, Stop orders,
Relative strength and weakness, Wave charts
& intraday, Forecasting, Stock selection criteria,
Group stock behavior, Price/volume chart
reading & analysis, Trends
Edited by Jack K. Hutson • 208 pages, 6x9 inches, chart illustrations, indexed.
$14.95 plus $6.30 shipping & handling. ISBN: 978-0-938773-06-1
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April 2021 • Technical Analysis of Stocks & Commodities • 29
 INTERVIEW

Portfolio Manager, Technical Analyst, And Educator

A Discussion
With David Cox
David Cox, CFA, CMT, FCSI, FMA, BMath is a Portfolio Manager at
CIBC Wood Gundy in Waterloo, Ontario, a role he started in May 2003.
As part of the Cox Daggett Advisory Group at CIBC, he manages several
discretionary portfolios, as well as regularly conducts educational forums
and workshops for clients. He manages assets using a fundamentally
screened yet technically driven investment process that uses both trend-
following and swing trading techniques. Moreover, for the past 15 years,
he has written “Monthly Market Chit Chat,” a monthly e-publication that
reviews the key current market trends using charts and commentary, as
well as offers a weekly webinar on the markets for both clients and other
interested parties. He has delivered many presentations, seminars, and
courses on technical analysis to various groups over the years including
the CFA Institute. He has also contributed at least five webcast presenta-
tions to the Chartered Market Technicians (CMT) Association and was
a past speaker at its annual symposium for its members.
He is one of a relatively small group of individuals worldwide holding
both the prestigious CFA (attained in 2001) and CMT (2008) designations.
Before starting his career at CIBC Wood Gundy, he spent several years When everyone agrees, I
as a quantitative analyst at an investment management firm, where he per- want to look for an excuse
formed research, testing, and analysis on a variety of economic models to to be on the other side.
drive signals and make decisions for its global equity fund. Cox graduated That excuse tends to be
from the University of Waterloo in 1998 with a degree in mathematics.
Cox is active on Twitter and can be found at @DavidCoxWG or reached
some form of technical
by email at david.cox@cibc.ca. evidence.
Stocks & Commodities Contributing Writer and ETF Columnist Les-
lie N. Masonson interviewed David Cox in early December 2020 via an email exchange to discuss his extensive
investment career, portfolio analysis, technical analysis focus, and overall educational efforts.

When and how did you
first become interested
in the stock market?
In grade six, I was part
of a group that learned
about stocks and had to plot share
prices. I seem to remember Ford being
the one that I plotted and each week
(technical analysis!), I was eager to get
the newspaper to get the new price.
After that, it wasn’t until university
bought three stocks at the time that all
had strong growth. I was also buying
and rolling call options every 4–6
weeks on a big telecommunication
company that was listed on the To-
ronto Stock Exchange (TSX) whose
stock seemed to be going straight up.
I remember netting $400–500 every
time I rolled it. It seemed fun!
After obtaining your Bachelor of
What were your responsibilities?
I was responsible for developing
and testing models that drove the
decision-making for the $1.4 billion
global futures fund. We built a variety
of models: value, momentum, and
other factor-based models that would
help us decide whether to overweight
or underweight the various countries
relative to the benchmark. I had to
apply the combinatorics and optimi-
SMILEUS/SHUTTERSTOCK

that I started to look at the market and Mathematics at the University of zation theories that I had learned at
was focused on finding companies Waterloo in 1998 you began your university. It was really challenging
that had strong earnings growth. I career as a quantitative analyst. work at the time but seemed like a
30 • April 2021 • Technical Analysis of Stocks & Commodities
great opportunity for a young recent
graduate.
You obtained your Chartered Fi-
nancial Analyst (CFA) designation
in May 2001 and your Chartered
Market Technician (CMT) in 2008.
Why in that order?
The CFA designation was manda-
tory for someone in my role at the
institutional firm I worked at, and
so wasn’t really an option (although
I was already keen on getting it, since
a friend of mine in university had
started it during our last year). It was
very relevant and I spent the winters
studying at night and then applying
what I learned at the office the next
day. I wasn’t really aware of the CMT
designation at the time, and it wasn’t
until I started getting interested in
technical analysis, more specifically,
that I stumbled upon the CMT Asso-
ciation (formerly Market Technicians
Association) a few years later.
As just mentioned, you have a dual
CMT and CFA designation. Only
about 284 people in the world hold
both of these designations. Why
did you decide to obtain both of
them?
I think it is a very powerful combi-
nation. The running thought amongst
the dual holders is that it takes a CFA
designation to get a job, but a CMT
designation to keep one. I began to
realize that fundamentals were slow
to change and stock prices could cra-
ter before the fundamentals showed
any trouble. I needed to make more
disciplined investment decisions
and the CMT designation was very
practical in my role as a portfolio
manager.
What are the FCSI and FMA des-
ignations and why did you obtain
them?
The FCSI and the FMA stand for
“Fellow of the Canadian Securities
Institute” and “Financial
Management Advisor,”
respectively. Both des- It’s easy to buy a stock,
ignations are offered by but selling stocks that
the Canadian Securities have peaked is crucial
Institute. I was in pursuit and/or selling a stock that
of designations back then, is weighing down your
and it seemed like gaining portfolio is important.
the FCSI was another way
to stand out in Canada as
an advisor by demonstrating broad ago and finally made that happen at
competence and achievement in a va- the start of 2020. As such, we are
riety of different investment-related now able to separate our responsi-
and licensing courses. The FMA is bilities to clients and better make
a planning designation that covers use of our skillsets in the day-to-day
case studies of helping clients out management of client finances. My
with planning matters, which was responsibilities include everything
also relevant to what I felt I needed related to the investment process:
to offer clients. research, portfolio management,
stock screening, risk management,
How and when did you become in- trading, communication (about our
terested in technical analysis? investment process and our market
Sometime around 2005, I remem- view), and client contact. Basically,
ber buying a small TSX-listed stock I’m responsible for managing all
for clients. It looked like it was go- the assets but I am also assisted in
ing to the moon (and it was) and I all those responsibilities by Conor
remember top-ticking the price for a White, Associate Investment Advi-
client at $16.12. Then it traded down sor, who came on board in the fall
to $9 about a week later and it was of 2018.
rather painful. I decided there must
be a way for me to have known or Your client list includes mostly high-
expected this price change, and I felt net-worth individuals, corporate
that I needed to learn how to sell a clients, and business owners. What
stock that had peaked before it fell percentage of your clients are still
so dramatically. I thought learning with you from the time they initially
more about technical analysis would signed on?
help and that’s why I went into the My very first client is still a client
CMT program. and I’ve had many clients who’ve
been with me for more than 15 years.
In May 2003, you were hired as an When my family moved from Brit-
investment advisor at CIBC Wood ish Columbia to Ontario in 2011, the
Gundy, where you have been for decision was made to significantly
almost 18 years. What are your reduce the number of clients that I
responsibilities at the Cox Daggett had out west. I knew that it would be
Advisory Group? challenging to maintain my service
I was initially hired as an invest- level while keeping the same number
ment advisor and went on to pursue of clients, and especially from afar.
discretionary licensing as a portfolio
manager around 2006/2007. My part- What is the most important concern
ner, Donald Daggett, and I discussed to them as a group—return, risk, or
merging our practices several years a combination of both?
April 2021 • Technical Analysis of Stocks & Commodities • 31
 is a very flexible portfolio often out-of-sync and trading in a
that is capable of going countertrend style.
We prefer our stocks to anywhere, anytime. There After spending the year compil-
have rising institutional is no geographic or capital- ing all the data and analyzing it,
sponsorship, but no matter ization bias—the portfolio we realized that it was easier to
what the fundamentals say, has been predominantly make decisions when dealing with
if the stock doesn’t make long US stocks for many strong stocks in strong sectors, and
technical sense, it won’t go years because of the strong the changes immediately started to
relative performance ver- bear fruit.
into a portfolio. sus our own domestic
market, not to mention What other types of portfolios do
liquidity preferences that you manage?
Our clients know that, over time, are easier to accommodate on the A large-cap trend-following port-
it’s the risk management that is the US exchanges. When we decide to folio (“Equity INtrend”), a portfolio
most important element for their buy or sell a stock, we like to execute of ETFs (“ETF 6/16”), an income/
portfolios. Sidestepping trouble keeps immediately so we know there is a balanced portfolio, and a new, more
them emotionally in check and helps market there. concentrated portfolio that only buys
them stay calm when the headlines The retooling was overdue and a high-volume breakouts that is called
turn nasty and/or the market drops. huge step forward. When my associ- “INvertigo.”
ate, Conor, started in the fall of 2018,
Can you describe your trading he set off to analyze the charts and What types of securities do you buy
approach, which I understand is compile the data for thousands of for your clients?
technically driven with a propri- trades that had been done over the North American-listed securities
etary use of stops to reduce risk and years. The results were eye-opening. that are greater than $1 billion in mar-
protect profits? When you analyze and look at trans- ket cap and generally have $20MM+
Yes, we screen stocks fundamen- actions, you can learn a lot. What you in daily dollar volume.
tally and appreciate characteristics think you’re doing in your investment
like strong revenue/earnings growth. process can look different on a chart How do you adapt to changing mar-
We prefer our stocks to have rising with the actual timing and frankly, it ket conditions and the possibility
institutional sponsorship, but no mat- became an obvious matter of needing that any correction could end up
ter what the fundamentals say, if the to do more of what was working and turning into a bear market?
stock doesn’t make technical sense, less of what wasn’t. We are flexible, we are extremely
it won’t go into a portfolio. We are nimble, and we’re quick to adapt.
flexible, nimble, and are capable of In the past, this portfolio purchased We’ve shown time and time again the
dealing with rapidly changing mar- some of its stocks in weak sectors willingness to move to 100% cash in
kets in a matter of minutes. When and downtrends, but now the focus client portfolios. As I explain to new
we get into a stock, we know where is on only buying strong sectors clients, by the time they’ve decided
we’re getting out (or at least what in uptrends. Can you elaborate they’re worried about something,
would have to happen for us to exit). on why you decided to change the we’ve probably long since taken
Market context is of course crucial criteria? action by mitigating risk and have
and having a bigger-picture view is Basically, the data showed that it already started to get ready to be bull-
essential to making bottom-up stock was a much lower probability of suc- ish again. The fact is, many investors
decisions. cess by trading stocks and/or sectors are driven by fear and sometimes even
that were in downtrends. Gap downs greed and think like the herd, which
Can you briefly explain your “Tech- and getting stopped out happened is very dangerous in investment
nically INsync” portfolio that is more quickly, not to mention there is management. Stocks may fall quickly
offered to your Canadian clients? more mental capital used when trad- and negativity builds. Inevitably, the
I understand that it has been avail- ing against the trend. I had a client technicals start offering evidence to
able for a decade, but was retooled or two ask me many years ago why the contrary and alert us to be on
in 2018–2019. the portfolio was called “Technically the lookout for the market to stop
The Technically INsync portfolio INsync” when it seemed like we were going down and to start going back
32 • April 2021 • Technical Analysis of Stocks & Commodities
up. Usually, at those times, the news
is often so poor and that those who
wait for the narrative to change never
participate and “buy low” like they’ve
heard they’re supposed to do.
Each month you provide a Monthly
Market Chit Chat where you review
current market and sector condi-
tions. When did you first begin of-
fering that service and who is the
intended audience?
I first wrote the “Monthly Market
Chit Chat” in March 2005. I’ve
maintained the distribution list over
the years and each week, I tend to
have new subscribers email me to get
onboard. It’s really for anyone who
wants to take the monthly pulse of
the investment markets. I talk about
the big picture, the trend, and discuss
things like market breadth, character-
istics, and where the relative strength
is and isn’t.
What do you typically cover in your
weekly online webinars?
I have an investment process that
covers a lot of ground every morning
and by the time the week is coming to
an end, I try to touch on the relevant
factors, risks and opportunities fac-
ing investors—where the key asset
classes are at, sector rotations that
are underway, and try to establish a
foundation for having a market view
by analyzing market breadth.
The market was hitting lows at
the end of March 2020 during the
pandemic. How did you decide to
become almost fully invested at that
scary time?
We have an “Is it a bottom?”
checklist, and the ingredients were
in place. The market was oversold,
the percent of stocks hitting new lows
stopped going down ahead of price,
the volatility index (VIX) showed
some signs of upside exhaustion,
bullish divergences were in place,
leading stocks started to emerge and
stopped going down, and the supply
seemed to be diminishing despite the
lower prices we were still getting. It’s
a matter of looking for the ingredients,
not watching the news or the analysts
in the media and not being biased
by the views of others. Again, it was
easy in late March to be negative like
most, but it wasn’t profitable to stay
negative after stocks bottomed. You
have to keep an open mind and even
while the speed and magnitude of the
crash were historic in many regards,
you have to know (and believe) that
the majority of stocks will eventu-
ally stop going down. It’s also worth
pointing out that it’s easier to buy
stocks on sale when you have cash
and weren’t badly hurt by the prior
selloff. Those who ride their stocks
down can be emotionally scarred,
making it extremely unlikely they
will buy low when the time comes,
not to mention that they don’t have
cash on the sidelines to use.
Do you subscribe to fundamental
screening and technical screening
software? If so, how do you use it to
provide purchase candidates?
I’ve been a subscriber to screening
software for many years. It allows us
to screen stocks for both fundamental
and technical criteria, and it provides
a lot of key data and characteristics
on a single page, allowing us to work
through stocks in a very efficient
manner. We have a variety of screens
and then take those screen results and
use our charting software to monitor
the constituents to look for entries
and opportunities each day.
April 2021
For fundamentals, do you use an-
other source for data, and which
numbers are most important to
you?
We get fundamental data from one
source. I like to see top- and bottom-
line earnings growth numbers, debt,
return on equity, institutional spon-
sorship, industry relative strength and
relative strength of the stock itself (we
like strong stocks).
What about software platforms for
trading and testing?
I’ve used the same trading and
testing software for many years. It’s
very easy to use, flexible, and allows
me to create my own market breadth
data and customized indexes. Also,
the visualizations are lots of fun.
Our testing has always been in real
time and there have been thousands
of trades over the years. I’ve always
preferred to analyze real trade data
rather than hypothetical situations,
which may or may not have been
possible in real time.
Do you prefer using daily or weekly
charts, and under what circum-
stances?
For many years, I really focused ex-
clusively on the daily charts because
that’s where the decisions were being
made. But there is so much noise at
that level, it’s become crucial to have
a weekly view of the markets, our
stocks and so forth. What looks weak
on the daily chart can look like a blip
on the weekly, so it’s been a huge value
add to ensure we’re always looking
at the weekly charts before making
decisions. Sometimes, when making
decisions during the day, we’ll watch
the hourlies for signs of entry as the
shortest-term chart we’d see.
You are a big fan of using “slope.”
Can you explain what you mean?
Indeed I am. Basically, many
technicians will use moving aver-
• Technical Analysis of Stocks & Commodities • 33
 ages, but I’ve found that prices can
come down and touch the averages,
penetrate them, and reverse. The
slope of the moving average is an
improvement because it further cuts
down on noise. The slope tells me if
the moving average itself is rising
or falling. For the most part, we buy
stocks that have rising 50-day mov-
ing averages. But I analyze a lot more
slopes than just the 50-day. I prefer
the really good stocks to have rising
20 EMA (exponential moving aver-
age) slopes, and so if a strong stock
or ETF suddenly experiences a 20
EMA that turns down, we like to
screen it away. A 20-day EMA slope
is just looking at whether the 20-day
average today is higher or lower than
it was 20 days ago.
You’ve said that you like to keep
things simple. Is that accomplished
by using a 13/34 EMA crossover on
a weekly chart, MACD, RSI (5) and
simple candlestick charts?
I always need to know if we’re going
up or down. That really is a crucial
question. I think a 13/34 EMA does
indeed allow us to stand back in the
big picture and know which side is
winning. That said, a 13/34 EMA is
much too slow for me at turning points
and we’re capable of getting ahead
of it, so to speak, so not sure it’s that
simple. I use 8/20 EMA’s to define
the short-term, 20EMA/50SMA to
define the intermediate-term and I use
50/200-day and 13/34-week to define
the longer term. Given our preference
for strong stocks in strong sectors, a
stock with bearish 20EMA/50SMA
conditions is likely subject to re-
moval if still sitting there somehow.
When strong stocks are all breaking
down, it’s usually a sign of market
trouble, which puts us into heavier
cash weightings long in advance of
a longer-dated 13/34-week moving
average cross.
34 • April 2021 • Technical Analysis of Stocks & Commodities
What are the extreme levels of RSI
you use to indicate that a change in
trend is about to happen?
I’ve continued to build on my in-
terpretation of RSI over the years. I
always want to be aware of the short-
term RSI, as a way of knowing if I’m
chasing or not (and likely late to the
scene). If a stock is RSI(5) overbought
(that > 70), I’d prefer a pullback, but
that said, there are ways of using RSI
differently depending on conditions.
For example, if the stock is coming out
of a prior downtrend and then moves
for the first time to overbought, I see
this as bullish. The vice versa is also
true. So again, it’s not as simple as
saying RSI is at a given level and it’s
bullish/bearish; context matters. At
the heart of my use of the RSI, I need
to know if the trend is up or the trend
is down and that is the case whether
we’re talking about indices, sectors,
or stocks. When I look at sectoral and
industry group strength, the groups
with the highest RSI are the strongest
ones (strong sectors are good!) and
the weak ones are just that, weak.
So using RSI in context with the
short/intermediate/long-term trend
is crucial to its interpretation.
How accurate have you found RSI
and MACD histogram divergences
to be compared to other tools on
your weekly charts?
On a weekly chart, I like to have
some moving averages, of which I
can monitor their respective slopes. In
addition to that, the RSI and MACD
histograms are indeed my favorites.
When extended stocks start to show
divergences on the weekly, I start to
watch for daily signs of exhaustion
and I am likely to tighten my stops
and or reduce my tolerance for poor
(price) behavior.
Do you use just technicals for in-
vesting in North American ETFs, or
some fundamentals as well?
We seek to determine the trend
and both the absolute and relative
strength, and then invest accordingly.
The market of ETFs continues to
expand, which is rather exciting. It’s
always fun to find thematic ETFs
and industry ETFs that allow for
easy exposure to areas that can be
otherwise difficult.
How do you use stop-loss orders
(or other approaches) to protect
against losses?
Every day, I come into the office
with a spreadsheet of all our stop
levels. That’s not to say that we’d
necessarily wait until they trigger
(we always reserve the right to ap-
ply market context and judgment to
what is seemingly appropriate). For
example, if things in a given stock are
moving along favorably and suddenly
a big bearish engulfing pattern shows
up, we’ll often walk away. I’m also a
big fan of looking for unusual price
movement and I usually define that as
2 ATRs against price, so if two-day
range happens in one bad day (against
us), it’s usually a sign that sellers are
getting aggressive. I prefer to get out
of the way and let them do what they
want with the stock. Most of our stops
are planned using volatility with a
given amount of movement against
the prior trend being used to gauge
our need to exit.
On new positions, we set stops on
a percent decline from our purchase
price. At worst, we will have walked
away by the time we experience an
8% loss. In our Technically INsync
portfolio, our target loss is -6%,
meaning if we buy a stock and it
doesn’t work out right away and we
find ourselves down 6%, it really is
easier to push sell, stand back and
look at other opportunities. Selling
positions by adhering to a planned
stop-loss strategy really frees up an
investor and preserves mental capital.
There have been times when a stock
doesn’t seem to be behaving well, and
I’ll look at a moving average or two
and try to get the context.
You’ve commented over the years
that you don’t want to give back
the gains that you made in previ-
ous years. What methods or tools
do you use to accomplish that goal
to protect your profits?
Years ago, I grew tired of watching
gains turn into losses and I’m really
not a fan of that happening. So I’m
very aware of how much gain we have
in all our stocks and mark these gains,
manually, throughout the day so I can
get a real pulse for our portfolios and
how they’re behaving. If a stock gives
back 50% of the gain, it’s a pretty good
excuse to seriously consider selling
it—that is, if we’re +20% on a stock,
and I know I really don’t want a loss,
I’ll be giving it a good hard look if it
pulls back and suddenly we’re only
up 8% to 10%.
In one interview you’ve given, you
indicated that you took the prices
off the chart and instead used the
8EMA/20EMA looking for cross-
overs. I assume that eliminates the
noise of price and makes it easy
to see what is actually going on,
correct?
Absolutely. Daily charts have a
lot of noise and checking a larger
timeframe on the charts eases your
decision-making. Often, stocks move
up and down and bounce around and
they can go above and below all these
averages and lines, and that’s why I
like to sometimes remove price itself
and focus on the moving averages.
You can see the slopes, you can see
the differentials between
two moving average lines,
and get a clearer sense of Sometimes when making
whether things are rising decisions during the day,
or falling without getting we’ll watch the hourlies
caught in noise! for signs of entry as the
shortest-term chart we’d
You’ve mentioned that
“selling is much more im-
see.
portant than buying.” Can
you explain why that is?
It’s the selling that determines
whether you make a profit or a loss.
It’s easy to buy a stock (it’s the buy-
ing process that most people spend
most of their time on), but selling
stocks that have peaked is crucial (in
hindsight) and/or selling a stock that is
weighing down your portfolio is im-
portant. Investors can often improve
a portfolio by eliminating baggage
yet most will focus the majority, if
not all, of their energy on finding
the perfect stock with the best story.
I think this really misses the point
and makes it tougher to achieve your
actual objective.
Personally, what trading mistakes
did you overcome to become a profit-
able swing and trend trader?
In downtrends, gap downs are
more frequent and trying to swing
trade an entry in hopes for a bounce
is challenging. I also think it costs
far more mental capital than I was
accounting for.
You’ve mentioned “mental capi-
tal” a few times. Can you explain
why it’s an unappreciated part of
investing?
Making frequent investing deci-
sions takes mental energy. And
actually following through on the
decision and investing with real
capital is not the same as hypotheti-
cal environments. Decisions that add
more mental burden can cost far more
than the financial capital at risk and
can even end up affecting the next
April 2021
decision. We never want to be affected
like that—it’s too costly. Some ways
of trading, or some timeframes, can
be very mentally draining and I’m
always thinking about this. I don’t
have a great way to measure it, but
I did certainly conclude that trading
countertrends takes a lot more mental
energy than trend-following.
How have the markets changed
since you began your career?
Markets are much more correlated.
Diversification isn’t the same any-
more, equity markets move together
in risk-off/risk-on fashion. Funda-
mentals matter less in my opinion.
I think in the 1990s you could rely
on buying “good” companies that
made money and paid a dividend
and you’d be fine. But today, those
“good” companies might have stocks
that are falling, with some even fall-
ing for many years. Markets are very
fast and headlines can move markets
without notice. We’ve also seen things
happen like the 2010 flash crash that
I’ll never forget. All of which leads
me to always say that in my opinion,
“anything can happen.” Stocks can
crumble without notice and they can
go to the moon and then can reverse
course. There is no bell at the bot-
tom or top.
Psychology is crucial to being a
market participant. We’re all human
and we’re all emotional by nature.
We get caught up in it and you need
to separate yourself from the herd
at turning points. When everyone
• Technical Analysis of Stocks & Commodities • 35
 Alexander Elder is a big contain the knowledge and under-
fan of MACD histograms standing of how to build and manage
When extended stocks start and no doubt, his work has a trading approach out there—what
to show divergences on the been an influence on my could I really add?
weekly, I start to watch for own. The idea of investing
daily signs of exhaustion on the correct side by using What are the most important factors
and I am likely to tighten “Elder candles” to guide that investors should be aware of to
my stops and or reduce my you is very useful. With become successful investors?
tolerance for poor (price) the idea being that you’re Beware of news and media head-
above a given moving aver- lines. Don’t let yourself justify losses
behavior. age and the MACD histo- and waste time trying to rationalize
gram is ticking upwards, why the market isn’t correct. It’s easier
meaning the momentum to make money in a portfolio if you
agrees, I want to look for an excuse of your timeframe is going in your stick to only investing in stocks that
to be on the other side. That excuse direction. are rising. The more stocks you have
tends to be some form of technical William O’Neill’s methodologies in your portfolio that are going down
evidence. are crucial in understanding ideas and/or sideways, the harder it will be
like demand & supply and how they to make it (the portfolio) rise. Keep it
What is your view on using market create support & resistance. Inves- simple. Keep your losses small and
timing vs. buy-and-hold? tor’s Business Daily and Marketsmith invest in securities that are going up.
I think buy & hold doesn’t work. were the ones that really moved me It sounds simple, but it works.
Maybe it used to, but all stocks and toward understanding institutional
markets go up and then go down. sponsorship and how important it is. Statement by CIBC World Markets Inc.:
There is too much uncertainty to When more big investors are piling in, This information, including any opinion, is based on
various sources believed to be reliable, but its accuracy
justify holding forever. What if a debt capital is there to push shares up. cannot be guaranteed and is subject to change. CIBC
bubble causes a massive resurgence Both Martin Pring and John and CIBC World Markets Inc., their affiliates, direc-
tors, officers and employees may buy, sell, or hold a
of fear in the years to come? I think Murphy have been huge influences position in securities of a company mentioned herein,
it’s inappropriate for investors to use in looking at the big picture and its affiliates or subsidiaries, and may also perform
financial advisory services, investment banking or
hope as an investment strategy, but understanding intermarket analysis other services for, or have lending or other credit
as the market declines, that’s what and sector rotation. relationships with the same. CIBC World Markets
Inc. and its representatives will receive sales com-
some do—they hope it will work missions and/or a spread between bid and ask prices
out. I’d rather identify the trend and You’ve been following the markets if you purchase, sell or hold the securities referred to
above. © CIBC World Markets Inc. 2021. David Cox
accept it. Don’t fight it, but accept it for over 20 years. What are three is a Portfolio Manager with CIBC Wood Gundy in
and manage risk like a hawk. key lessons you’ve learned? Waterloo. The views of David Cox do not necessarily
reflect those of CIBC World Markets Inc.
1. Small losses are better than
Who were the most knowledgeable big ones.
traders and technicians that you’ve 2. Anything can happen. S&C Contributing Writer Leslie N. Ma-
followed over the years, if any? 3. Price is the most important sonson is president of Cash Management
I follow the work of several techni- indicator. Resources, a financial consulting firm
cians and have a great respect for the that focuses on ETF strategies. He is
work of so many in the field. I pay Are you planning to write a book an active ETF trader, and the author of
attention to the work and insights about your approach to investing Buy—Don’t Hold: Investing With ETFs
of several, including: Martin Pring, and trading? Using Relative Strength To Increase
Alexander Elder, J.C. Parets, Lowry I’ve been asked a couple of times Returns With Less Risk; and All About
Research, Bill O’Neill/IBD, Larry over the years to write a book, but Market Timing, as well as Day Trading
Tentarelli, Ian McMillan, and the have just been too busy juggling all On The Edge. His website is https://
late Jon Boorman. of the responsibilities in life and be- buydonthold.com, where he writes a
ing there for my four kids. Perhaps monthly blog. He can be reached at
Did your reading of technical analy- I’ll consider it more seriously in the lesmasonson@yahoo.com.
sis books lead you to focus on any future, but in many ways, there are
particular indicators? already so many timeless books that
36 • April 2021 • Technical Analysis of Stocks & Commodities
 MARKET RAP
THE WORLD OF RETAIL TRADING
Emilio Tomasini is an adjunct professor of corporate finance at the
University of Bologna in Italy and is a professional trader. He has au-
dited over 5,000 accounts of traders during 13 years of a real-money
trading competition, giving him unique insights into what helps a retail
trader to succeed. He has expertise in technical analysis and trading
Emilio Tomasini
system design. In this column, he shares his sometimes “unserious”
thoughts on serious topics in finance. In his writings, he hopes to help the retail trader better understand the leap
from unprofitable to profitable trader, firmly believing that the right answers can come only if the right questions
are asked. At his website at www.emiliotomasini.com, he offers some of his expertise in a free video course.

THE ODYSSEY OF A STILL-STRUG-
GLING COMMODITY TRADER
There are some questions for which
there are no easy answers. In the
business of trading, this is particularly
true. The hard reality is there are
never any conclusive answers about
our trading methods—we can test
whatever methodology we like, but
tomorrow will bring a different day.
For traders, there is a certain
amount of underlying fear in our
job that is ever-present, simply be-
cause we know that the relationship
between our actions and the possible
outcomes is out of our control.
A question such as, “What is the
best way to make money in trading?”
can put us in anguish, because even if
we are making money in the markets,
we know that the methods we are
using at this moment may not be the
most profitable or most efficient at any
particular point in time. Imagine that
your child wanders into your trading
room as you are working and starts
asking questions about your work and
how you make money. Now you’re
really in a mess! In order to answer
your child honestly, you suddenly
must put aside all of your painfully
accumulated sense of certainties to
reveal that there are really no set an-
swers and that you do not really know
in the end if what you are doing will
succeed. Just as you would put trust
into a forecast for snow when the sun
is shining high in the sky, you must
trust to some degree that your careful
process will succeed in the end.
After all, it’s impossible for any
trader to test and experiment with
everything; life is too short for that.
The truth is, if this or that pattern
has been working so far, there is no
guarantee it will work tomorrow.
Do we admit that to our child? Do
we tell the true story? Hmmm…
The only actual truth is that markets
change and traders have to change
with them. The technology changes
and the whole world changes. Would
There is a certain
amount of underlying
fear in our job that is
ever-present, simply
because we know
that the relationship
between our actions and
the possible outcomes
is out of our control.
you have ever imagined that one
day bitcoin would come out of that
marvelous hat of history?
A trading technique is always a
product of its time, and putting things
in historical perspective is key, and
helps us to more fully appreciate its
potential.
This “Market Rap” column is one
that I have written for the last 20
years, with it appearing in various
financial magazines over the years.
In it, I have always tried to exam-
April 2021
ine the darker side of trading (and
through that process, maybe look for
some answers). As the organizer of
a longstanding real-time, real-money
trading competition in Europe, which
ran for nearly 20 years in a row, I have
been privy to the inner workings of
traders and their trading accounts,
totaling around 5,000 traders from
every corner of the world. What I
saw were things that I believe others
can learn from, either in the way of
mistakes to avoid or successes to be
emulated. Those collected experi-
ences are what I try to share with
readers.
These trading competitions have
been an experience with retail trad-
ing. The definition of the modifier
“retail” is sometimes muddied but it
simply means that you trade with your
own money. The term is usually used
in contraposition to “institutional
trading.” Institutional traders deal
with the bank’s money or customers’
money. That is a completely different
story and a different world. When you
trade your own hard-earned money,
you feel the risk deep in your bones.
And this feeling is unique.
The inspiration for my writings
originally came from what I still
consider today (after its publication
some 20 years ago) as one of the best
trading books around: Market Rap:
The Odyssey Of A Still-Struggling
Commodity Trader by Art Collins.
Continued on page 39
• Technical Analysis of Stocks & Commodities • 37

Swing Trading Volatile Reversals
In this month’s column you will
learn tips for trading secondary
breakouts following the initial big
move up and back down.
by Ken Calhoun
W
ith extreme volatility in
stocks like GameStop
(GME), you may be won-
dering how to best ap-
proach trading these instruments
in a sensible manner. The answer is
often found using simple technical
chart patterns like cups.
Entering bear cup pivots
You will often hear about stocks that
have moved up sharply due to news
headlines or other factors. It is usually
FIGURE 1: VOLATILE BREAKOUT AND REVERSAL (TLRY). Here is an example of bottom-fishing a pivot entry off cup support.
38 • April 2021 • Technical Analysis of Stocks & Commodities
TRADING ON MOMENTUM
Bear Cup Pivots
unwise to chase new highs, because
high-volatility charts often have
price action that drops back down
again to prior support levels. This is
where we want to plan our entries.
For example, in Figure 1, Tilray Inc.
(TLRY), you can see that the first
breakout, a bullish cup occurred on
February 3rd near $25/share. We
will use that resistance area to plan
a potential first entry if price drops
back down to $25 and then reverses
upwards. This is known as a “bear
cup reversal” pattern and is often the
best way to trade volatile charts after
their first big up-and-down move.
Step-by-step action plan
Here’s how you can start using this
strategy:
Step 1: Scan for stocks that have
had price action moves that have at
least doubled in price and dropped
back down quickly (within 5 trading
days) as seen in Figure 1.
Step 2: Identify the bottom of the
bear cup that this pattern forms;
this becomes the price at which
you will look to enter your position
on a pivot.
Step 3: Enter your position 0.40 (40
cents) above the pivot price and use
an initial stop no further than $2
beneath this value. In Figure 1, we
are waiting for price to drop down
to $25; we would enter a pivot over
$25.40, using a value of $23.40 as
the initial stop-loss.
eSIGNAL

Step 4: Your exit target in this setup
is a mean-reversion one, that is, a
50% retracement of the previous
breakout. In Figure 1 this would
be roughly ($65 - $25) = $40/2
= $20, adding $20 to our $25.40
entry yields an exit target of $45.40/
share.
Insights: Why this
technique works
As usual, traders often buy support
and sell resistance. Using earlier
support levels that are relatively
obvious can help you develop an
intelligent trading plan when trading
volatile charts. If your experience is
like mine, you may have bought too
late in a breakout, only to get stopped
out on a subsequent pullback or
MARKET RAP
reversal. Instead, I have found it better
TOMASINI/MARKET RAP
Continued from page 37
The title is illuminating, isn’t it? In
the book, Collins narrates his story
as a trader and his background of
belonging to a family of quantitative
traders. The book is both entertaining
and informative, with technical de-
tails unfolding throughout the pages
of the book. In it, he illustrates how
markets change.
This book depicts the story of an
average trader, like me—or like any
of the 5,000 independent traders I
audited in my trading competitions.
The term “still-struggling” suggests
that the author does not consider
himself successful. But how do we
define “successful?” What is the
benchmark or what do we compare it
to? If there is always a better way to
do something at any given moment,
how do we know if we are doing a
good job? Since I know myself how
difficult it is in general to survive in
TRADING ON MOMENTUM
to be patient and wait for a reversal
off of a major support level, because
that is a price level that is likely to
attract more traders and produce a
winning trade.
High-volatility charts
often have price action
that drops back down
again to prior support
levels.
Trade management tips
When trading highly volatile charts,
it is especially important to trade
lighter size to minimize your risk.
The good thing about buying right
above a major cup support level is that
trading the markets decade after de-
cade, I would say that success means
that in the long run, you managed to
make money.
That is my idea of what it means
to be successful in trading. We all
are “still struggling,” since there is
no peace in that long war that is the
It’s impossible for
any trader to test
and experiment with
everything; life is too
short for that.
trading experience. In my pursuits, I
am not afraid to ask those questions
that may have no answer. I am not
easily impressed by the colorful and
dazzling innovations that our indus-
try launches in the markets every
day—technologies, software, trading
products, trading instruments, trad-
ing methodologies, events, and so
on. My interest in is deconstructing
April 2021
you will soon know if the trade is a
winner or not, and if it goes against
you, your stop-loss value should be
minimal. I often look at these types
of charts with caution and skepticism,
because of the extreme ranges. But
I have learned that they can make
some of the best winning trades, when
traded carefully with tight stops and
position sizing.
Ken Calhoun moderates a popular
live trading room for active traders.
He is the founder of TradeMastery.
com, an interactive webinar site
for active traders and is a UCLA
alumnus.
the process and deconsecrating the
“everything is simple/you can do it
easily” aura that always seems to
be hovering over our heads in the
financial industry.
There is no human enterprise that
is much more difficult than trading
your own money. You are fighting
against the markets and against your
ego as well as against the feelings you
are perceiving in yourself, which are
deeply pervasive. An institutional
trader won’t feel them the same way
that a retail trader will. Trading is a
serious business, and like Gregory
Millman wrote in his 1995 book
The Vandals’ Crown, “To become a
lawyer or a surgeon you need to study
and practice for at least a decade.” The
same could be said for trading, since
trading is just as serious a business as
all other serious professions.
So do not call it a “game.” It can
be a humbling experience.
• Technical Analysis of Stocks & Commodities • 39
 Pay Attention To These Signs
The Time To Short A Stock Is
Not When It’s In An Uptrend
With the madness surrounding stocks like GME, it seems
that now is a good time to go over this basic principle
of trend trading.
by Stella Osoba, CMT
We
all want to believe we have an edge
and that often means that we convince
ourselves we see or know something
that others have missed. But a good
principle to follow is as the title of this
short article says, the time to short a stock is not when
it is in an uptrend. Instead of constantly guessing what
the stock or stock market will do next, simply go with
the trend.
For illustrative purposes, let’s take a look at the chart
of Micron Technology, Inc. (MU). Figure 1 shows MU
trading above its recent low of $34.69. It traded sideways
for several months as accumulation was taking place,
40 • April 2021 • Technical Analysis of Stocks & Commodities
dipped to a higher low of $42.99, and proceeded to form
a new trend. The gap up on September 14, 2020 might
have been a clue as to the change in trend, as might have
been the golden cross (marked on Figure 1). A golden
cross forms when the 50-day moving average crosses
above the 200-day moving average.
The golden cross acted as support as price reacted to
just above this level and then proceeded to rise. Figure
1 shows a spinning top form as price closes above the
previous high. To a contrarian, this bearish signal might
have sounded alarms. But reread the title of the article.
Once we have determined that MU is in an uptrend, the
time to short is not now. There needs to be more evidence
SUPPHACHAI SALAEMAN/SHUTTERSTOCK
that the new trend has in fact reversed.
Figure 2 shows what would have happened if you had
allowed yourself to get shaken out of your long position.
The spinning top did not result in a trend reversal. After
two days of sideways trading, price quickly begins to
rise and then gaps up, showing that the uptrend is still
 TECHNICAL ANALYSIS
STOCKCHARTS.COM

FIGURE 1: DAILY CHART FOR MU 11/9/2020 FIGURE 2: DAILY CHART FOR MU 12/9/2020

in effect and is strong. A short on the spinning top as a

signal would have quickly resulted in losses.
After a strong move up, price began to trade sideways.
Looking at the chart and the distance price has moved
from the 50-day moving average (see Figure 2), it might
be tempting here to put on your contrarian hat once again,
exit your position and maybe even attempt a short trade.
But would this be wise? Figure 3 shows that after a quick
sideways move, there was indeed a reaction but not one
deep enough to dislodge the current trend. The uptrend
still continued after the reaction completed its move
and prices proceeded higher still. A negative divergence
appears in Figure 3. A negative divergence can be bearish.
So once again, you must pay attention for signals from
price that the uptrend is not only weakening, but is also
reversing before a short position would make sense.

Stella Osoba is a trader and financial writer. She is a

frequent contributor to Technical Analysis of Stocks
& Commodities magazine and Traders.com Advantage
as well as other financial publications.
‡StockCharts.com
‡See Editorial Resource Index
FIGURE 3: DAILY CHART FOR MU 2/3/2021
April 2021 • Technical Analysis of Stocks & Commodities • 41

2020 Master Trader Program:
Superperformance Workshop
With Mark Minervini
MINERVINI PRIVATE ACCESS, LLC
Product: Master Trader Program
Superperformance Workshop
Email: Workshop@minervini.com
Contact: Bob Weissman, 917 268-
1800
Website: Minervini.com
Price: $5,000
by Leslie N. Masonson
O
ver the past 37 years, Mark
Minervini learned the keys to
profitable trading by studying
over 10,000 best-performing
stock charts and developing hard-
and-fast trading rules, all of which
helped to catapult him from novice
to supertrader. He states that his suc-
cess in trading comes from following
specific trading rules using simple
bar charts. His methodology includes
stage analysis combined with a tech-
nical/fundamental approach.
Minervini won the US Investing
Championship in 1997 with a gain
of 155%. Furthermore, he achieved
a remarkable average return of
220% per year from 1995 through
2000—that’s a 34,000% total return.
He was one of the traders featured
in Jack Schwager’s Stock Market
Wizards: Interviews With America’s
Top Stock Traders.
Minervini himself is the author
of three books about his trading
principles, and his latest book is
on peak performance. (For more
about Minervini’s background and
trading approach, see my interview
with him in the June 2020 issue of
42 • April 2021 • Technical Analysis of Stocks & Commodities
PRODUCT REVIEW
this magazine as well as information
about him found on his website at
minervini.com.)
According to Minervini, his trading
approach includes pinpointing strong
stocks in uptrends, buying the cream-
of-the-crop highest relative strength
stocks near 52-week highs, and im-
mediately cutting losses. He avoids
weak stocks and bottom-fishing.
Background on workshop
Minervini has hosted his Master
Trader Program for the past 10 years
and it’s now in its 11th year, with
the 2021 workshop scheduled for
November 13–14 & 20–22, 2021.
Due to the coronavirus pandemic, the
2020 workshop was the first one to be
held in an online virtual format. (The
This 30-hour program
provided Minervini’s
37-year time-tested
approach to successful
trading and investing in
the stock market.
2021 workshop is also scheduled to
be virtual.) The program workshop
costs $5,000 and is designed for both
new and experienced traders looking
for a consistent approach to making
money buying individual stocks.
The workshop offers Minervini’s
methodology, principles, insights,
and guidance.
The 2020 workshop, held in Novem-
ber 2020 and which I attended virtu-
ally, was sponsored by MarketSmith,
an Investor’s Business Daily (IBD)
product, and by Minervini Private
Access, a subscription-based daily
live trading service for those inter-
ested in receiving up-to-the-minute
stock and market analysis daily from
Mark Minervini and his team in real
time. The former offers an online
equity-focused platform that provides
analysis capabilities using the prin-
ciples of William O’Neil, founder and
chairman of IBD. (See my review of
MarketSmith in the October 2020
issue of this magazine.)
In past years, the event was held
over a concentrated three-day period
in Myrtle Beach, SC. This time, in
November 2020, it was a virtual
event over Zoom with attendees from
65 countries. Bob Weissman from
Minervini Private Access was the
event coordinator. He ensured it went
off smoothly, on schedule, with no
glitches that I noticed.
Prior to the webinar’s start, Weiss-
man emailed attendees a 446-page
workbook as a PDF file containing
all of the pertinent presentation
material in two volumes (Figures 1
and 2 show the key subject areas).
This encompassed over 200 pages of
charts, diagrams, tables, and bullet-
pointed key points, rules, and more.
All those attending had to agree to
keep the material confidential for
their own use.
The 2020 event was held over two
weekends—November 14–15 and
21–22, 2020, and on one weekday,
November 23, 2020. That day was
devoted to watching for the methodology.
Minervini trade his best Minervini was an early
candidates using his user of Daily Graphs,
disciplined rules. On IBD, and MarketSmith.
the weekend days, the Moreover, Minervini
program ran from 9 am contributed three “trend
to about 1 pm, and was templates” to the plat-
then rebroadcast later the form (Figure 3). Users
same day from 6 pm to 10 of MarketSmith can
pm for the convenience add to Minervini’s tem-
of the worldwide audi- plates or develop their
ence in different zones. own criteria. Minervini
Attendees could also designed his criteria to
choose to rewatch the FIGURE 1: WORKSHOP TOPICS, PART ONE. The key subjects taught in the help identify his “power
later broadcast for rein- first half of the workshop kick off with Minervini’s SEPA methodology, followed play” trade setups and
forcement. These ses- by a review of fundamentals, pivot points, time compression, and the well-known
“early turners” as well
cup-with-handle pattern, which was first described by William O’Neil.
sions were not available as to identify stocks
to attendees for viewing in confirmed uptrends
after November 22, nor that meet his “stage 2”
were they available as a criteria.
recording. On the workshop’s
Questions and an- weekend days, Min-
swers were addressed in ervini was joined by
separate sessions on No- special guest instructor
vember 17 and 19, with David Ryan, three-time
replays on November US Investing Champion-
18 and 20, respectively. ship winner and devotee
This approach permit- of William O’Neil. Ryan
ted the live weekend worked under O’Neil’s
morning material to be tutelage for many years,
presented without inter- FIGURE 2: WORKSHOP TOPICS, PART TWO. The second part of the workshop learning about O’Neil’s
builds on the first by identifying bases, power plays, squats, selling rules and climaxes,
ruption with a predefined the daily routine, and an emphasis on risk management and position sizing.
C-A-N-S-L-I-M meth-
completion time. Ad- od. Ryan has 45 years of
ditional questions were market experience, so his
taken during the No- insights were welcomed.
vember 23rd live trading Also joining a few of the
session from 8:30 am to sessions with his insights
4:00 pm. was Mark Ritchie II, a
Minervini uses the prior graduate of this
MarketSmith platform to program and now part
prepare watchlists of pur- of Minervini’s team.
chase candidates from According to Ritchie,
specific scans he created, he became a successful
using MarketSmith’s trader by following the
comprehensive database principles taught in the
and analytical capabili- program, and Ritchie
ties. Minervini highly was profiled in one
recommends the Mar- of Minervini’s books,
FIGURE 3: TREND TEMPLATES. Three trend templates developed by Minervini and
ketSmith platform along found in the MarketSmith program can be used to help isolate the best-performing
Momentum Masters: A
with his books to have stocks meeting stringent criteria. Screens can also be customized with fundamental Roundtable Interview
a complete package and technical criteria and saved as custom templates in the program. With Super Traders With
April 2021 • Technical Analysis of Stocks & Commodities • 43
 Minervini, Ryan, Zanger leaders, institutional
& Ritchie. favorites, cyclicals, and
On November 23 of turnaround situations.
the workshop, which Thirteen charts were
was a weekday, Irusha highlighted showing the
Peiris, CMT and pre- price action of stocks
mium group manager in different categories.
at MarketSmith, joined Then Minervini pin-
the discussion and high- pointed the important
lighted some of Mar- criteria that the best
ketSmith’s features. and worst candidates
had shown, with a focus
Weekend morning on valuation, and with
sessions charting examples.
Throughout the four Considerable time was
morning weekend ses- FIGURE 4: LULULEMON, 2010–2014. You can see a buy point in early December spent on the concept of
sions, I found that Min- 2010 as the stock breaks out to new highs out of a multimonth base on increased the stock price matura-
ervini and Ryan com- volume into a stage 2 accelerating uptrend. Then LULU stalled in March 2012 (stage tion cycle, described as
mented on the presenta- 3), going sideways for months before collapsed in January 2014 (stage 4 ). having stages 1 through
tion’s slides with insight- 4. Minervini learned
ful remarks. All charts displayed were this concept from its developer, Stan
in the simple open-high-low-close The workshop Weinstein, whom he met in 1990.
format from previous time periods offers Minervini’s How to ascertain a change in stage
and demonstrated the characteristics was clearly spelled out by providing
that illustrated the points they were
methodology, explicit transition criteria based on the
discussing. Minervini mentioned that principles, insights, stock being above a group of moving
he prefers bar charts to candlestick and guidance. averages and increasing higher highs
charts because of their simplicity. in price. The importance of trading
Minervini instructed about 75% of the any challenges in comprehending the with the trend was hammered home
time with Ryan providing his input material and following the discussion. throughout all weekend sessions.
for the remainder. Their interchange Since no questions were allowed dur- Minervini then provided a trend
was enlightening and they worked ing the morning sessions, the speak- template with eight key criteria to
well together. ers were able to move at a good pace identify the “stage 2 uptrend,” which
As each subject was introduced, without being sidetracked. he considers crucial to buying a stock
it was explained with appropriate The first weekend session on No- at the right price. These criteria
charts showing the concept being vember 14 began with the introduc- include a stock surpassing a group
described. The quality of the slides tion of the SEPA system (Specific of four common moving averages
in the presentation was excellent from Entry Point Analysis), which was de- that are above each other, being a
the standpoint of readability, ease of veloped by Minervini and is the basis percentage above its 52-week low,
understanding, and logical sequenc- of his trading philosophy. Its goal is and being within a certain percentage
ing. The use of colored bar charts obtaining big gains, minimizing risk, of its 52-week high and high relative
and MarketSmith charts using daily and maximizing compounding. The strength ranking. The chart in Figure
price bars, moving averages, volume method teaches that the way to ac- 4 of Lululemon demonstrates a stock
bars, buy and sell points, stops, and complish those goals is by being very coming out of a base, hitting a new
other components were very helpful selective in the stocks to purchase, high and then accelerating higher,
in quickly identifying all the key employing exacting trade execution, then entering stage 3, and finally, col-
elements to consider. and managing positions once they lapsing in stage 4. This template is one
Clearly, the presentation was care- are in place. Next up was an in-depth of the three included in MarketSmith
fully prepared beforehand to make discussion of the key characteristics that were developed by Minervini.
sure the key points were all covered in of the types of companies that could Figure 3 shows how to locate the
a coherent fashion. I didn’t experience be considered for purchase: market template in MarketSmith.
44 • April 2021 • Technical Analysis of Stocks & Commodities
 The next subject area focused on
fundamentals, including earnings
estimate revisions, the critical im-
portance of earnings acceleration to
future stock performance, breakout
earnings, earnings report evaluation
criteria, and earnings surprises. The
importance of increasing profit mar-
gins was illustrated on charts show-
ing price performance compared to
profit margin growth. In summary,
Minervini clearly explained the im-
portance of having the earnings per
share, revenue, and profit margins
growing at double digit rates. The
last few subjects covered at day’s
end were stocks emerging early from
bear markets, stocks hitting new high
ground, and what stock action to look
at during a correction to identify early
winners once the correction is over.
The second weekend session kicked
off with a discussion of Minervini’s
signature volatility contraction pat-
tern or VCP, as he coined it. This
refers to a stock’s price tightness on
the right side of the chart just before
an explosive move higher. This pat-
tern occurs over 95% of the time, so
traders need to pay attention to look
for it. The VCP occurred in virtually
all the greatest stock performers; that
is why Minervini uses it as a bedrock
principle. Supply and demand were
reviewed with numerous charting
examples, pinpointing the VCP and
the exact buy points.
Next up was identifying pivot
points (buy points) and how to time
the entry, followed by how to buy
at higher and higher pivot points
within a base. Minervini’s signature
“cheat and low cheat” and key buy
points were shown on multiple charts.
Natural versus unnatural price reac-
tions and bounces were explained
and illustrated. The importance of
holding a stock through a normal
shakeout was explored so that large
gains are not missed. The four key
points about bullish confirmation
signals and breakout criteria were
depicted in multiple charts.
Bearish signal criteria were then
explored with examples to show
traders how to become aware of
these negative market signals. The
commonalities of the bearish action
on all the charts were made crystal
clear.
The November 21st morning ses-
sion covered multiple topics including
how to identify a primary base after
an IPO (initial public offering), the
power play (which is an explosive
move on big volume due to news
of some kind), squats (a breakout
attempt), and reversal recoveries.
Minervini mentioned that he has
20,000 pages of model books of the
best-performing stocks and IPOs,
The last weekend
day’s session covered
the critical topic of
risk vs. reward in
depth and turned out
to be the icing on the
cake of all the formal
presentations.
and has ingrained the key patterns
in his head (since they are similar)
so that he instantly recognizes them
on current charts.
Ritchie participated in this session
as a speaker. He provided his own
insights on how he trades the market
following Minervini’s principles.
A list of seven specific sell rules
were provided so that traders can
identify stocks topping. This is criti-
cal to not overstay your welcome as
the market can change direction with
violent moves down when the good
times end. This encompasses count-
ing the number of bases in the stage 2
run-up, climax price action, reversals,
churning, and volume considerations,
among others.
April 2021 • Technical Analysis of
General rules for selling or reduc-
ing a swing trade were provided
with separate rules on selling into
strength or weakness. Moreover,
this was followed by a discussion of
17 sell alert criteria to be cognizant
of. Then Minervini’s daily routine
was discussed, focusing on evening
preparation screening and handling
the upcoming pre-market. The end-
of-the-day segment was titled “Put-
ting it All Together,” which brought
home the key points of the day.
The last weekend day’s session on
November 22, 2020, covered the criti-
cal topic of risk vs. reward in depth
and turned out to be the icing on the
cake of all the formal presentations.
I felt as though this in-depth session
conducted by Minervini alone was
worth the price of admission. Many
traders fail to understand or manage
their risk controls, leading to poor
results.
Here, Minervini covered the sub-
ject of buy and sell rules, the climax
run, the daily routine, controlling
your trade, monthly trade tracking,
win/loss ratios, stop management,
tracking your trading results, building
position size and guidelines, using
a trading report card, trading and
contingency planning, 14 key trad-
ing rules, and finally, eight keys to
superformance.
Trading day
As mentioned, the only weekday of
the workshop was dedicated to live
trading examples. For this session,
which was on Monday, November
23, 2020, from 8:30 am to 4 pm,
Minervini projected an eSignal
screen with multiple watchlists, buy
alerts, key market averages, and
some ETFs. The first trade made
was in a TDAmeritrade account that
displayed with a $1 million balance.
He used an additional screen (which
wasn’t displayed) for execution via a
TradeStation account.
Stocks & Commodities • 45
 After commenting on each section
of the screen and its data origins,
he waited for the market open to
assess the opening activity and to
identify any buying opportunities,
which would be stocks on his lists
that are coming out of bases and are
big movers. As the day progressed,
Minervini made a number of pur-
chases that worked out well and one
or two that he closed out with small
losses. Overall, he had a positive day.
He was clearly robotic in his trade
management and execution, that is,
he followed his entry and exit rules
exactly. No emotion was evident,
even with a 25% gain on GRAY from
an early morning entry on that day.
True to his described methodology,
he seemed to wait for the right time
and then acted. He stated that if no
trades meet his criteria he does not
trade, and he mentioned that happens
some days. He does not force trades
for the sake of trading.
David Ryan, Mark Ritchie II,
and Irusha Peiris all participated to
some extent in the day’s event with
Minervini leading the commentary.
He answered additional attendee
questions during slow periods in the
market and stressed the importance
of following the rules and not forc-
ing a trade. He also commented that
trading is all about skill and timing
and that a trader should become a
specialist in learning how to use
MarketSmith in combination with
the principles taught during the two
weekend sessions. He stressed that
it’s not necessary to use indicators
such as stochastics or MACD or
even candlesticks. He stated that us-
ing bar charts and keeping it simple
does the job.
Peiris gave a short tutorial on
weekly charts, and Ryan described
the CANSLIM approach with some
chart examples, then pinpointed a
few features of MarketSmith that he
found most useful, such as being on
46 • April 2021 • Technical Analysis of Stocks & Commodities
the lookout for the “blue dot” feature
on a chart during a bear market to
pinpoint a potential bottom, and
looking for stocks with new highs
on the relative strength line.
Minervini spent time reviewing
his parameters for a number of his
stock screens. He showed one screen
with his specific criteria for earnings
per share, sales and profit margin
acceleration, relative strength rating,
minimum current price, percent off
price high, and average volume of a
certain time period.
Ryan spent time spelling out how
he goes about selecting a stock, the
criteria he uses, and what he has
learned about trading discipline.
He urged attendees to not give up
I found that the
Master Trader Program
Superperformance
Workshop provided
the methodology
necessary to be
profitable.
on stock trading just because they
had a few losing trades. Instead, he
suggested keeping those stocks on
a watchlist to see if they become
buyable candidates if they meet the
rules. He mentioned that every trader
should keep a logbook of trades and
concentrate on what they did wrong
so that corrective action can be taken.
Otherwise, the same mistakes will be
made over and over again. According
to Minervini and Ryan, emotions
must be taken out of the equation or
the process won’t work.
Question & answer
sessions
Each of the weekend morning ses-
sions produced hundreds of ques-
tions from attendees, with many
that could not be answered because
of the volume. They were addressed
in separate sessions between the two
weekends. Weissman selected and
read the questions and Minervini
and/or Ryan responded. The ques-
tions were restricted to the subjects
previously discussed in each morning
session, since many other questions
would likely be answered by the end
of the last day.
Many of the questions from attend-
ees posited hypothetical situations
that wouldn’t be under consideration
as a possible trade in Minervini’s
method since they did not meet the
criteria that were set. Ryan bluntly
underscored this principle when he
said: “Never buy a stock in a stage 4
downtrend.”
Assessment of workshop
In total, this 30-hour program pro-
vided Minervini’s 37-year time-tested
approach to successful trading and
investing in the stock market. Even
though roughly half of his trades lose
money, the other half are winners,
which more than makes up for the
losses. He shows how he tilts the odds
to at least 2:1 upside with appropriate
risk management techniques. His key
to success is securing relatively large
profits on the winners while keeping
the losers small.
The entire Minervini methodol-
ogy is provided in this program with
nothing held back. Anyone new to
trading, as well as experienced trad-
ers who are not performing to the
level they wish, could benefit from
this workshop. He emphasizes that
there is no “holy grail” to impart.
Minervini recommends that those
traders following his approach should
not try to change his rules or weave in
contradicting strategies from outside
sources, as this will not only dilute
the method but may even result in
unfavorable results.
Although the $5,000 price of this
program is substantial, most traders
will lose much more than that over
a trading lifetime or even on just
one trade, and that can be weighed
against the value provided, which in
my view is substantial. Interestingly, a
number of attendees have repeated the
workshop six or seven times over the
years, even though they are already
very good traders, according to Min-
ervini. It suggests they find value in
the workshop and use it to reinforce
their skills. Minervini reminds us of
the importance of skill reinforcement
and that learning the nuances can
have good payoffs.
I have attended many expensive
trading programs over the last 30
years, and I found that most do not
provide the value or content expected.
And certainly, they typically did not
provide a complete program with all
the nuts and bolts needed to master
the markets. I found the Master
Trader Program Superperformance
Workshop to be an exception, as it
provided the entire methodology
necessary to potentially be profit-
able. It does this by laying out all
the essential steps, rules, buy and
sell criteria, selection screening vari-
ables, and rationale that any novice
or experienced trader can implement
Trading Perspectives
and work to replicate—as long as
FRIESEN
Continued from page 62
in. The month itself performs at a
positive 1.42% on average.
You can create additional action-
able ideas by looking at how ETFs,
sectors, industries, and stocks per-
form in that month. Looking at Figure
5, which shows odds and performance
averages for some liquid stocks for
the month of April, I can spot an
opportunity here to consider a trade
using MSFT long against IBM short,
The entire Minervini
methodology is provided
in this program with
nothing held back.
they keep their emotions out of the
equation.
S&C Contributing Writer Leslie
N. Masonson is president of Cash
Management Resources, a financial
consulting firm that focuses on ETF
strategies. He is an active ETF trader,
and the author of Buy—Don’t Hold:
Investing With ETFs Using Relative
Strength To Increase Returns With
Less Risk; and All About Market
Timing, as well as Day Trading On
The Edge. His website is https://
buydonthold.com, where he writes a
monthly blog. He can be reached at
lesmasonson@yahoo.com.
Further reading
Masonson, Leslie N. [2020]. “The
Keys To Success With Mark
Minervini,” interview, Technical
Analysis of Stocks & Commodi-
ties, Volume 38: June.
[2020]. “MarketSmith,” pro-
duct review, Technical Analysis of
and I could choose to investigate this
relationship further.
In summary, when markets are
going up seemingly forever, being
an investor is easy and long-only
traders can come to believe they are
very talented. But the market is not
always generous and it experiences
corrections, down years, and long
periods of consolidation, chop, and
whipsaw. Career traders—so that they
can continue to perform well even
in tougher markets—can help them-
selves by increasing the number of
strategies and tools at their disposal,
April 2021 • Technical Analysis of
Stocks & Commodities, Volume
38: October.
Minervini, Mark [2017]. Think &
Trade Like A Champion: The
Secrets, Rules & Blunt Truths Of
A Stock Market Wizard, Access
Publishing Group LLC.
[2013]. Trade Like A Stock
Market Wizard: How To Achieve
Super Performance In Stocks In
Any Market, McGraw-Hill.
[2015]. Momentum Masters:
A Roundtable Interview With
Super Traders With Minervini,
Ryan, Zanger & Ritchie II, Access
Publishing Group LLC.
[2019]. Mindset Secrets For
Winning: How To Bring Personal
Power To Everything You Do, Ac-
cess Publishing Group LLC.
Moore, Sean [2011]. “MarketSmith,”
Quick-Scan, Technical Analysis of
Stocks & Commodities, Volume
29: September.
O’Neil, Willian J. [2009]. How To
Make Money In Stocks: A Winning
System In Good And Bad Times,
4th ed., McGraw-Hill.
Penn, David [2001].: “William J.
O’Neil,” interview, Technical
Analysis of Stocks & Commodi-
ties, Volume 19: October.
The entire group of
instruments may
rise or fall, but you
can make money
from the relative
change between the
instruments.
so that they can perform the needed
research and can generate actionable
ideas daily, weekly, and monthly.
Stocks & Commodities • 47
 The focus of Trad-
ers’ Tips this month is
Markos Katsanos' ar-
ticle in this issue, “De-
tecting High-Volume
Breakouts.” Here, we
present the April 2021
Traders’ Tips code with
possible implementa-
tions in various software.
The code for the following Traders’ Tips selections
is posted here:
• Traders.com → S&C Magazine →
Traders’ Tips
At Traders.com you can also right-click on any
chart to open it in a new tab or window and view
the chart at a much larger size.
The Traders’ Tips section is provided to help read-
ers implement a selected technique from an article in
this issue or another recent issue. The entries here
are contributed by software developers or program-
mers for software that is capable of customization.

if MAV <= 0 then

MAV = 1;

F TRADESTATION: APRIL 2021 TRADERS’ TIPS CODE if Period <> 0 then

VPN = ( VP - VN ) / MAV / Period * 100;
In his article in this issue, “Detecting High-Volume Breakouts,”
author Markos Katsanos introduces an indicator called volume _TASC_2021_APR_Fx = VPN;
positive negative (VPN) that attempts to minimize entries
Indicator: TASC APR 2021
in false breakouts. The indicator compares volume on “up” // TASC APR 2021
days versus the volume on “down” days and is normalized to // Detecting High-Volume Breakouts
oscillate between 100 and -100. Shown here is EasyLanguage // Markos Katsanos
code for a function, the indicator described in the article, and inputs:
a sample strategy for educational purposes. Period( 30 ),
Smooth( 3 ),
Function: _TASC_2021_APR_Fx VPNCrit( 10 ),
// TASC APR 2021 MAB( 30 );
// Detecting High-Volume Breakouts
// Markos Katsanos variables:
VPN( 0 ),
inputs: MAVPN( 0 );
Period( numericsimple );

variables:
MAV( 0 ),
VP( 0 ),
VN( 0 ),
VPN( 0 );

switch ( BarType )
begin
case 2,3,4: { Daily, Weekly, or
Monthly bars }
MAV = Average( Volume, Period );
VP = SummationIf( TypicalPrice -
TypicalPrice[1] > 0.1 *
AvgTrueRange( Period ),
Volume , Period );
VN = SummationIf( TypicalPrice -
TypicalPrice[1] < -0.1 *
AvgTrueRange( Period ),
Ticks , Period );

default: { all other bars }

MAV = Average( Ticks, Period );
VP = SummationIf( TypicalPrice -
TypicalPrice[1] > 0.1 *
AvgTrueRange( Period ),
Ticks , Period );
VN = SummationIf( TypicalPrice -
TypicalPrice[1] < -0.1 *
AvgTrueRange( Period ),
Ticks , Period ); FIGURE 1: TRADESTATION. A TradeStation daily chart of Walmart Inc. (WMT) displays the indicator applied in the
end; subgraph and the strategy inserted.

48 • April 2021 • Technical Analysis of Stocks & Commodities

VPN = XAverage( _TASC_2021_APR_Fx( Period ), Smooth ); and Close > Average( Close, Period ) then
MAVPN = Average( VPN, MAB ); begin
Buy next bar market;
if VPN >= VPNCrit then end;
SetPlotColor[1]( 1, Green )
else // sell
SetPlotColor[1]( 1, Red ); if VPN crosses under MAVPN
and Close < Highest( Close, 5 )
Plot1( VPN, "VPN" ); - 3 * AvgTrueRange( Period ) then
Plot2( MAVPN, "MA", Green ); begin
Plot3( VPNCrit, "CRIT", Blue ); Sell next bar at market;
end;
Strategy: TASC APR 2021 Strategy
// TASC APR 2021 // time exit
// Detecting High-Volume Breakouts if BarsSinceEntry = BarToExitOn then
// Markos Katsanos Sell ( "Time LX" ) next bar at market;

inputs: To download the EasyLanguage code for TradeStation

Period( 30 ),
Smooth( 3 ), 10, please visit our TradeStation and EasyLanguage support
VPNCrit( 10 ), forum. The files for this article can be found here: https://
MAB( 30 ), community.tradestation.com/discussions/Topic.aspx?Topic_
RSILen( 5 ),
MinC( 1 ), ID=190289.
MinVol( 100000 ), A sample chart is shown in Figure 1.
MinVolAvgLen( 5 ), This article is for informational purposes. No type of
VolAvgLen( 50 ),
MinVC( 0.5 ), trading or investment recommendation, advice, or strategy
BarToExitOn( 15 ), is being made, given, or in any manner provided by TradeS-
VolDivisor( 1000000 ), tation Securities or its affiliates.
RSIMaxVal( 90 );
—Chris Imhof
variables: TradeStation Securities, Inc.
VPN( 0 ), www.TradeStation.com
MAVPN( 0 ),
RSIVal( 0 ),
LQD( false ),
BuyCond1( false );

VPN = XAverage( _TASC_2021_APR_Fx( Period ), Smooth );
MAVPN = Average( VPN, MAB );
RSIVal = RSI( Close, RSILen );
switch ( BarType )
begin
case 2,3,4: { Daily, Weekly, or Monthly bars }
// Price, Volume and Liquidity Filter
LQD = Close > MinC
and Average( Volume, MinVolAvgLen ) > MinVol
and Average( Close * Volume, MinVolAvgLen )
/ VolDivisor > MinVC;
// buy conditions
BuyCond1 = LQD and
Average( Volume, VolAvgLen ) >
Average( Volume, VolAvgLen )[50];
default: { all other bars }
// Price, Volume and Liquidity Filter
LQD = Close > MinC
and Average( Ticks, MinVolAvgLen ) > MinVol
and Average( Close * Ticks, MinVolAvgLen )
/ VolDivisor > MinVC;
// buy conditions
BuyCond1 = LQD and
Average( Ticks, VolAvgLen ) >
Average( Ticks, VolAvgLen )[50];
end;
// buy
if BuyCond1
and VPN crosses above VPNCrit
and RSIVal < RSIMaxVal
F METASTOCK: APRIL 2021 TRADERS’ TIPS CODE
Markos Katsanos’ article in this issue, “Detecting High-
Volume Breakouts,” introduces his volume positive negative
(VPN) indicator. Here is the formula to add that indicator to
MetaStock.
Volume positive negative (VPN) indicator:
pds:= Input( "Periods", 5, 100, 30);
apr:= Typical();
at:= ATR(pds) * 0.1;
vpd:= If( apr >= Ref(apr, -1) + at, V, 0);
vnd:= If( apr <= Ref(apr, -1) - at, V, 0);
VP:= Sum(vpd, pds);
VN:= Sum(vnd, pds);
VPN:= (((VP - VN)/Mov(V, pds, S))/pds) * 100;
VPN;
Mov(VPN, 3, E)
—William Golson
MetaStock Technical Support
www.MetaStock.com
F ESIGNAL: APRIL 2021 TRADERS’ TIPS CODE
For this month’s Traders’ Tip, we are providing the “Volume
Positive Negative Indicator.efs” study based on the article
in this issue by Markos Katsanos, “Detecting High-Volume

April 2021 • Technical Analysis of Stocks & Commodities • 49

 Breakouts.” The author has designed
the indicator to help identify high-
volume breakout patterns.
The study contains formula pa-
rameters that may be configured
through the edit chart window
(right-click on the chart and select
“edit chart”). A sample chart dis-
playing the indicator is shown in
Figure 2.
To discuss this study or down-
load a complete copy of the for-
mula code, please visit the EFS li-
brary discussion board forum under
the forums link from the support
menu at www.esignal.com or visit
our EFS KnowledgeBase at http://
www.esignal.com/support/kb/efs/.
The eSignal formula script (EFS) is
also available for copying & past-
ing from this magazine’s website at
Traders.com.
—Eric Lippert FIGURE 2: ESIGNAL. Here is an example of the study plotted on a daily chart of AAPL.
eSignal, an Interactive Data company
800 779-6555, www.eSignal.com

F THINKORSWIM: APRIL 2021

TRADERS’ TIPS CODE
We have put together a study based on
the article by Markos Katsanos in this
issue titled “Detecting High-Volume
Breakouts,” which introduces the
volume positive negative (VPN) in-
dicator. We built the study referenced
by using our proprietary scripting
language, thinkscript. To ease the
loading process, simply click on FIGURE 3: THINKORSWIM. The study is shown plotted on a chart of IDEX from June 2019 till November 2020.
http://tos.mx/eFC5Tjn or enter it into
the address into setup→open shared
item from within thinkorswim then choose view thinkScript
study and name it “VPN_indicator” or whatever you like and
can identify. You can then add the study to your charts from F WEALTH-LAB: APRIL 2021 TRADERS’ TIPS CODE
the edit studies menu from within the charts tab. We added the VPN oscillator based on Markos Katsanos’s
The example chart in Figure 3 shows the study on a chart article in this issue to the TASCIndicators library (built-in
of IDEX over a period from June 2019 till November 2020. Wealth-Lab 7). To execute the trading system, paste the code
Please see Markos Katsanos’ article in this issue for more below into a new C# strategy window.
details on how to utilize the indicator. The code is available for copying and pasting from this
—thinkorswim
magazine’s website at Traders.com in the Traders’ Tips sec-
A division of TD Ameritrade, Inc.
www.thinkorswim.com tion.
using WealthLab.Backtest;

50 • April 2021 • Technical Analysis of Stocks & Commodities

using System;
using WealthLab.Core;
using WealthLab.Indicators;
using WealthLab.TASC;
using System.Drawing;
using System.Collections.Generic;

namespace WealthScript1
{
public class VPNStrategy : User-
StrategyBase
{
public VPNStrategy()
{
AddParameter("VPN Period",
ParameterTypes.Int32, 30, 5, 100, 10);
AddParameter("Smoothing
Period", ParameterTypes.Int32, 3, 1,
10, 1);
}

public override void Initialize(
BarHistory bars)
{
period = Parameters.
FindName("VPN Period").AsInt;
smoothPeriod = Parameters.
FindName("Smoothing Period").
AsInt;
vpn = VPN.Series(bars, period, FIGURE 4: WEALTH-LAB. Sample trade signals are shown on a chart of AMC Entertainment (AMC) based on the
smoothPeriod); VPN indicator.
maVPN = SMA.Series(vpn,
period); {
maVolume = SMA.Series(bars.Volume, 50); if(bar > LastPosition.EntryBar + 15)
rsi = RSI.Series(bars.Close, 5); ClosePosition( LastPosition, OrderType.Market,
maPrice = SMA.Series(bars.Close, period); 0, "Time-based");
atr = ATR.Series(bars, 14); else
{
PlotTimeSeries( vpn, "VPN", "VPN", Color.Black); if(vpn.CrossesUnder(SMA.
PlotIndicatorLine( maVPN as IndicatorBase, Color. Series(vpn,smoothPeriod), bar) && bars.Close[bar] < High-
Blue, 1); est.Value( bar,bars.High,5)+atr[bar]*3.0)
DrawHorzLine( 80, Color.Green, 1, default, "VPN"); if(indexRoc[bar] < -15 && index[bar] < indexMA[bar])
DrawHorzLine(-80, Color.Red, 1, default, "VPN"); ClosePosition( LastPosition, OrderType.
Market, 0, "Normal exit");
for (int i = 0; i < bars.Count; i++) }
{ }
SetSeriesBarColor( vpn, i, vpn[i] > 0 ? Color.Green : }
Color.Red);
} TimeSeries vpn, maVPN, maPrice, maVolume, rsi, atr,
indexRoc, indexMA;
index = GetHistory( bars, "IWM"); int period, smoothPeriod;
indexRoc = ROC.Series(index.Close, 10); BarHistory index;
indexMA = SMA.Series(index.Close, 150); }
}
PlotBarHistory( index, "IWM");
PlotTimeSeries( vpn, "VPN", "VPN", Color.Black); —Gene Geren (Eugene)
PlotTimeSeries( indexMA, "Index MA", "IWM", Color. Wealth-Lab team
Black); www.wealth-lab.com

StartIndex = 150;
}

public override void Execute(BarHistory bars, int bar)

{
if (!HasOpenPosition(bars, PositionType.Long)) F NINJATRADER: APRIL 2021 TRADERS’ TIPS CODE
{ The VPN indicator and VPNSystem strategy based on Markos
if(vpn.CrossesOver(10,bar)) Katsanos’ article in this issue are available for download at the
if(maVolume[bar] > maVolume[bar-50])
if(rsi[bar] < 90) following links for NinjaTrader 8 and NinjaTrader 7:
if(bars.Close[bar] > maPrice[bar])
PlaceTrade( bars, TransactionType.Buy, Order- NinjaTrader 8: www.ninjatrader.com/SC/April2021SCNT8.zip
Type.Market); NinjaTrader 7: www.ninjatrader.com/SC/April2021SCNT7.zip
}
else Once the file is downloaded, you can import the indica-

April 2021 • Technical Analysis of Stocks & Commodities • 51

 tor/strategy into NinjaTader 8 from
within the control center by select-
ing Tools → Import → NinjaScript
Add-On and then selecting the
downloaded file for NinjaTrader 8.
To import into NinjaTrader 7, from
within the control center window,
select the menu File → Utilities →
Import NinjaScript and select the
downloaded file.
You can review the indicator and
strategy source code in NinjaTrader
8 by selecting the menu New →
NinjaScript Editor → Indicators or
Strategies folder from within the
control center window and selecting
the VPN or VPNSystem file. You
can review the indicator’s source
code in NinjaTrader 7 by selecting
the menu Tools → Edit NinjaScript
→ Indicator or Strategy from within FIGURE 5: NINJATRADER. The VPN indicator and strategy are displayed on a daily WMT chart from February 2020
the control center window and se- to September 2020.
lecting the VPN or VPNSystem
file.
A NinjaTrader chart giving an
example of the indicator and strat-
egy are shown in Figure 5.
NinjaScript uses compiled DLLs
that run native, not interpreted, to
provide you with the highest perfor-
mance possible.
—Chris Lauber
NinjaTrader, LLC
www.ninjatrader.com

F NEUROSHELL
TRADER: APRIL 2021
TRADERS’ TIPS CODE
The volume positive negative (VPN)
indicator described by Markos Kat-
sanos in his article in this issue can
be easily implemented with a few of
NeuroShell Trader’s 800+ indicators.
Simply select new indicator from FIGURE 6: NEUROSHELL TRADER. This NeuroShell Trader chart displays the volume positive negative indicator and
trading system.
the insert menu and use the indica-
tor wizard to create the following tem, select new trading strategy from the insert menu and
indicators: enter the following in the appropriate locations of the trading
strategy wizard:
MF Momentum( Avg3( High, Low, Close ), 1)
MC Mul2( 0.1, ATR( High, Low, Close, 30 ) ) BUY LONG CONDITIONS: [All of which must be true]
VP Sum( IfThenElse( A>B( MF, MC ), Volume, 0 ), 30 ) CrossAbove(VPN(High,Low,Close,Volume,30,3),10)
VN Sum( IfThenElse( A<B( MF, Neg(MC) ), Volume, 0), 30 ) A>B(Momentum(Avg(Volume,50),50),0)
VPN ExpAvg( Mul2( Divide( Divide( Sub( VP, VN ), Avg( Volume, A<B(RSI(Close,5),90)
30 ) ), 30), 100 ), 3 ) A>B(Close,Avg(Close,30))
MAVPN Avg( VPN, 30 )
SELL LONG CONDITIONS: [1 of which must be true]
To implement the volume positive negative trading sys- And2(CrossBelow(VPN(High,Low,Close,Volume,30,3), Avg(VP
N(High,Low,Close,Volume,30,3),30)),

52 • April 2021 • Technical Analysis of Stocks & Commodities

 A<B(Close, Sub(Max(High,5)
,Mul2(3,ATR(High,Low,Close,30)))))
And2(A<B(Russell 2000 Close,
Avg(Russell 2000 Close,50)),
A<B(%Change(Russell 2000
Close,10),-15))
BarsSinceFill>=X(Trading Strat-
egy,15)

NeuroShell Trader users can go

to the Stocks & Commodities
section of the NeuroShell Trader
free technical support website to
download a copy of this or any pre-
vious Traders’ Tips.
—Marge Sherald,
Ward Systems Group, Inc.
301 662-7950,
sales@wardsystems.com
www.neuroshell.com FIGURE 7: OPTUMA. This sample chart displays the volume positive negative (VPN) indicator on XLC (SPDR Com-
munications Services Select Sector ETF).

F OPTUMA: APRIL 2021 TRADERS’ TIPS CODE

Here’s a formula for implementing in Optuma the volume
positive negative (VPN) indicator as described in Markos
Katsanos’ article in this issue, “Detecting High-Volume
Breakouts.” The formula is for VPN(30):
$PERIOD=30;
P1 = MA(BARS=1, CALC=HLC);
MC = ATR(MULT=0.10, BARS=1);
MAV = MA(VOLUME(), BARS=$PERIOD);
//Positive Volume;
VMP = IF(P1 > P1[1]+MC, VOLUME(),0);
VP= ACC(VMP, RANGE=Look Back Period,
BARS=$PERIOD);
//Negative Volume;
VMN = IF(P1 < P1[1]-MC, VOLUME(),0);
VN= ACC(VMN, RANGE=Look Back Period,
BARS=$PERIOD);
//Calc Smooth VPN;
VPN = (VP-VN)/MAV/30*100;
MA(VPN, BARS=3, STYLE=Exponential, CALC=Close)
FIGURE 8: TRADERSSTUDIO. The VPN indicator is shown on a chart of Apple Inc.
The bar/volume colors for positive, negative, and (AAPL).
neutral (black) volume are based on the rules given in
the article. Blue vertical lines are when VPN crosses “VPN” along with the plot indicator “VPN_IND.” Figure 8
above 10. A sample chart is shown in Figure 7. shows the indicator on a chart of Apple Inc. (AAPL).
—support@optuma.com, Optuma.com
'Detecting High-Volume Breakouts
'Author: Markos Katsanos, TASC April 2021
'Coded by: Richard Denning, 02/18/2021
F T RADERSSTUDIO: APRIL 2021 TRADERS’
function VPN(period,smoLen)
TIPS CODE 'INPUTS:
The importable TradersStudio file based on 'period = 30
Markos Katsanos’s article in this issue, “Detecting High- 'smoLen = 3
'vpnCrit = 10
Volume Breakouts,” can be obtained on request via email to 'maLen = 30
info@TradersEdgeSystems.com. The code is also available Dim Price As BarArray
on this magazine’s website at Traders.com in the Traders’ Dim MAVol As BarArray
Dim MAV As BarArray
Tips section. Dim MF As BarArray
Code for the VPN indicator is provided in the function Dim TR As BarArray

April 2021 • Technical Analysis of Stocks & Commodities • 53

 Dim ATR As BarArray
Dim MC As BarArray
Dim VMP As BarArray
Dim VP As BarArray
Dim VMN As BarArray
Dim VN As BarArray

'FORMULAS:
MAVol = Average(V,period)
MAV = IFF(MAVol>0,MAVol,1)
Price = ( High + Low + Close )/3
MF = Price - Price[1]
TR = max(H-L,max(C[1]-L,H-C[1]))
ATR = Average(TR,period)
MC = 0.1*ATR
VMP = IFF(MF > MC, V, 0)
VP = summation(VMP,period)
VMN = IFF(MF < -MC, V, 0)
VN = summation(VMN,period)
VPN = (XAverage(((VP-VN)/MAV/
period),smoLen))*100
'------------------------------------------------
Sub VPN_IND(period,smoLen,vpnCri
t,maLen)
'INPUT DEFAULTS:
'period = 30
'smoLen = 3 FIGURE 9: AIQ. The VPN indicator is shown on a chart of Tesla Motors Inc. (TSLA).
'vpnCrit = 10
'maLen = 30
Dim theVPN As BarArray MF is Avg - valresult(Avg,1).
Dim maVPN As BarArray ATR is simpleavg(max( [high]-[low],
theVPN = VPN(period,smoLen) max(val([close],1)-[low],
maVPN = Average(theVPN,maLen) [high]-val([close],1))),period).
plot1(theVPN) MC is 0.1*ATR.
plot2(maVPN) VMP is iff(MF > MC, V, 0).
plot3(vpnCrit) VP is sum(VMP,period).
End Sub VMN is iff(MF < -MC, V, 0).
'------------------------------------------------ VN is sum(VMN,period).
VPN is (expavg(((VP - VN) / MAV / period),smoLen))*100.
MAVPN is simpleavg(VPN,maLen).
—Richard Denning
info@TradersEdgeSystems.com —Richard Denning
for TradersStudio info@TradersEdgeSystems.com
for AIQ Systems

F AIQ: APRIL 2021 TRADERS’ TIPS CODE

The importable AIQ EDS file based on Markos Kat- F THE ZORRO PROJECT: APRIL 2021 TRADERS’
sanos’ article in this issue, “Detecting High-Volume TIPS CODE
Breakouts,” can be obtained on request via email to info@ It is estimated that about 6,000 different technical
TradersEdgeSystems.com. The code is also available at this indicators have been developed over the years. However,
magazine’s website at Traders.com in the Traders’ Tips sec- few of them are based on volume. In this issue, Markos Kat-
tion. sanos proposes a new indicator for detecting high-volume
Code for the VPN indicator is set up in the AIQ code file. breakouts, and he tests it with a trading system based on the
Figure 9 shows the indicator on a chart of Tesla Motors Inc Russell 2000 index.
(TSLA). The volume positive negative (VPN) indicator calculates
the difference of up day volume and down day volume, di-
!Detecting High-Volume Breakouts
!Author: Markos Katsanos, TASC April 2021
vided by the total volume. A day is an up day when its typi-
!Coded by: Richard Denning, 02/18/2021 cal price—the average of high, low, and close—is higher than
yesterday’s typical price plus 1/10 ATR. The opposite is true
!INPUTS:
period is 30. for down days. The result is multiplied by 100 and smoothed
smoLen is 3. with a 3-day EMA. The C code for this indicator is:
vpnCrit is 10.
maLen is 30. var VPN(vars Volumes,int Period)
V is [volume]. {
var Dist = 0.1*ATR(Period);
!FORMULAS: vars TypPrices = series(TypPrice());
MAVol is simpleavg(V,period). var Vp=0,Vn=0,Vtotal=0; int i;
MAV is iff(MAVol>0,MAVol,1). for(i=0; i<Period; i++) {
Avg is ([High]+[Low]+[Close])/3. if(TypPrices[i] > TypPrices[i+1] + Dist)

54 • April 2021 • Technical Analysis of Stocks & Commodities

 Vp += Volumes[i];
else if(TypPrices[i] < TypPrices[i+1]
- Dist)
Vn += Volumes[i];
Vtotal += Volumes[i];
}
return EMA(100*(Vp-Vn)/Vtotal,3);
}

In his article, the author shows a

chart with the VPN applied to Id-
eanomics Inc. (IDEX), a supplier to
electric vehicles. Here is the code
for replicating his chart:
void run()
{
BarPeriod = 1440;
StartDate = 20190501;
EndDate = 20201231;

assetAdd("IDEX","STOOQ:IDEX.
US"); FIGURE 10: ZORRO PROJECT. Here, the VPN indicator is applied to a chart of Ideanomics Inc. (IDEX), a supplier to
asset("IDEX"); electric vehicles.
vars Volumes = series(marketVol());
plot("TPR",VPN(Volumes,30),NEW,RED);
plot("Threshold",10,0,BLACK);
}
The resulting chart is displayed with a threshold line at
10% (Figure 10). The VPN crossing this line is designed to
be a buy signal. We can see that the signals are valid, but a
bit late. They catch only the top of the price peaks. It’s pos-
sible that it would be better to smooth the indicator not with
an EMA but with a filter with less lag, such as a two-pole
lowpass filter or one of John Ehlers’ zero-lag filters.
In our replication of his test we’ll use walk-forward opti-
mization. As in the article, we invest 10,000 per stock and
allow a maximum of 10 open positions. For comparison with
a benchmark, we invest the same amount in a Russell 2000
ETF (IWM). The C code for the trading system is as fol-
lows:
void run()
{
setf(TrainMode,SETFACTORS); // skip OptimalF calculation
setf(PlotMode,PL_ALL|PL_BENCHMARK);
set(PARAMETERS);
NumWFOCycles = 5;
NumCores = -2;
BarPeriod = 1440;
StartDate = 2011;
EndDate = 2021;
LookBack = 150;
UpdateDays = 5; // don't download all again every day
assetList("AssetsRussell2000");
assetAdd("IWM","STOOQ:IWM.US"); // Russell2000 index ETF
int Period = optimize(30,30,40,10);
var Threshold = optimize(10,10,20,10);
// Sell after 15 days,
// or when a Russell2000 15% drop and a value below the 150-
day SMA indicates meltdown.
LifeTime = optimize(15,5,70,5);
asset("IWM");
int Meltdown = ROC(seriesC(),10) < -15 && priceClose() <
SMA(seriesC(),150);
// Use Russell2000 index (IWM) as benchmark
static var StartPrice;
if(is(LOOKBACK)) StartPrice = priceClose();
var Benchmark = 10*10000/priceClose() * (priceClose()-Start-
Price);
plot("Russell2000",Benchmark,AXIS2,PURPLE);
for(listed_assets)
{
asset(Asset);
if(Asset == "IWM") continue; // don't trsde the index
vars Volumes = series(marketVol(0),100);
vars Prices = series(priceClose(),30);
vars Signals = series(VPN(Volumes,Period),2);
// Filter out when price was below 1
// or 5-day average volume below 100000
// or the 5-day average product of price and volume below
500000.
bool Filter = Prices[0] < 1
|| SMA(Volumes,5) < 100000
|| SMA(series(Volumes[0]*Prices[0],5),5) < 500000;
// buy when the VPN crosses over 10%
// and its 50-day volume average is above its previous 50-day
average,
// its 5-day RSI is below 90, and the price is above its 30-day
SMA.
bool Buy = crossOver(Signals,Threshold)
&& SMA(Volumes,50) > SMA(Volumes+50,50)
&& RSI(Prices,5) < 90
&& Prices[0] > SMA(Prices,30);
// Sell when the VPN crosses below 30-day SMA while price is
more than 3 ATR below 5-day high,
// or when a market meltdown is immiment
bool Sell = (crossUnder(Signals,SMA(Signals,30))
&& Prices[0] < HH(5) - 3*ATR(5)) || Meltdown;
if(!Filter && Buy && !Sell && (Train || NumLongTotal < 10))
enterLong(10000/Prices[0]);
else if(Sell)
exitLong();
}
}

April 2021 • Technical Analysis of Stocks & Commodities • 55

 We have added code comments
for the various buy, sell, and filter
conditions. The first start of this
system will be slow because the
histories of all 2000 stocks are
downloaded. The Russell 2000 as-
set list is set up to load them from
Yahoo. Subsequent starts are fast-
er. The profit curves are plotted in
the chart in Figure 11, blue for the
trading system and purple for the
benchmark.
We used 10 years of history, but
the backtest started only in 2017
due to the preceding WFO training
periods.
The VPN indicator and the trad-
ing system can be downloaded from FIGURE 11: ZORRO PROJECT. Here is a sample equity curve for the system against a benchmark.
the 2021 script repository on https://
financial-hacker.com. The Zorro platform can be download- please follow these steps:
ed from https://zorro-project.com.
• Right-click on the link to the Excel file, then
—Petra Volkova
The Zorro Project by oP group Germany • Select “save target as” to place a copy of the spreadsheet
www.zorro-project.com file on your hard drive.
—Ron McAllister
Excel and VBA programmer
F EXCEL: APRIL 2021 TRADERS’ TIPS CODE rpmac_xltt@sprynet.com
In his article in this issue, “Detecting High-Volume Break-
outs,” Markos
Katsanos pres-
ents an indicator
that looks at the
balance of up and
down volume as
the first step in
identifying a
breakout trading
opportunity.
Figures 12
and 13 show a
sample chart
of the indica-
FIGURE 12: EXCEL. Green bars mark where the VPN crosses above the user-specified VPNCrit threshold marking possible breakouts.
tor based on the
formula.
A spreadsheet
i mplem ent i ng
the formula giv-
en in the article
can be found
at this maga-
zine’s website
at Traders.com
in the Traders’
Tips section.
To download
the spreadsheet,
FIGURE 13: EXCEL. Here, the chart uses full-on shading while the VPN is above or below the VPNCrit value.

56 • April 2021 • Technical Analysis of Stocks & Commodities

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April 2021 • Technical Analysis of Stocks & Commodities • 57

 FUTURES LIQUIDITY

T
rading liquidity is often over-
looked as a key technical
measurement in the analysis
and selection of commodity
futures. The following explains how to
read the futures liquidity chart pub-
lished by Technical Analysis of Stocks
& Commodities every month.
Commodity futures
The futures liquidity chart shown be-
low is intended to rank publicly traded
futures contracts in order of liquidity.
Relative contract liquidity is indicated
by the number of dots on the right-hand
side of the chart.
This liquidity ranking is produced by
multiplying contract point value times
the maximum conceivable price motion
(based on the past three years’ historical
data) times the contract’s open interest
times a factor (usually 1 to 4) for low or
very high volumes. The greatest number
of dots indicates the greatest activity;
futures with one or no dots show little
activity and are therefore less desirable
for speculators.
Courtesy of CBOT
All futures listed are weighted equally
under “contracts to trade for equal dol-
lar profit.” This is done by multiplying
contract value times the maximum pos-
sible change in price observed in the last
three-year period. Thus, all numbers in
this column have an equal dollar value.
Columns indicating percent margin
and effective percent margin provide
a helpful comparison for traders who
wish to place their margin money ef-
ficiently. The effective percent margin
is determined by dividing the margin
value ($) by the three-year price range of
contract dollar value, and then multiply-
ing by one hundred.
Stocks
Trading liquidity has a significant ef-
fect on the change in price of a secu-
rity. Theoretically, trading activity can
serve as a proxy for trading liquidity
and equals the total volume for a given
period expressed as a percentage of the
total number of shares outstanding. This
value can be thought of as the turnover
rate of a firm’s shares outstanding.

Trading Liquidity: Futures

Contracts to
Effective
Commodity Futures Exchange % Margin Trade for Equal Relative Contract Liquidity
% Margin
Dollar Profit
S&P 500 E-Mini (Mar ’21) CME 6.2 14.1 3 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>>>>>
10-Year T-Note (Mar ’21) CBOT 1 7.6 12 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
Russell 2000 E-Mini (Mar ’21) CME 3.2 5.6 2 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
Crude Oil WTI (Apr ’21) NYMEX 8 4.9 2 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
5-Year T-Note (Mar ’21) CBOT 0.5 4.5 16 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Ultra T-Bond (Mar ’21) CBOT 4.5 15.6 4 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Nasdaq 100 E-Mini (Mar ’21) CME 6.7 11.9 1 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
T-Bond (Mar ’21) CBOT 2.7 14.2 7 ••••••••••••••••••••••••••••••••••••••••••••••
Ultra 10-Year T-Note (Mar ’21) CBOT 1.5 8.5 8 •••••••••••••••••••••••••••••••••••••••••••
2-Year T-Note (Mar ’21) CBOT 0.1 3.1 21 ••••••••••••••••••••••••••••••••••••
Gold (Apr ’21) COMEX 6.7 18.8 3 •••••••••••••••••••••••••••••••
Soybean (May ’21) CBOT 2.3 5.3 4 •••••••••••••••••••••••••••
Euro FX (Mar ’21) CME 1.4 11.7 12 ••••••••••••••••
S&P 500 VIX (Mar ’21) CFE 47.2 21 4 •••••••••••••••
Soybean Meal (May ’21) CBOT 0.9 2.6 3 •••••••••••••••
Corn (May ’21) CBOT 6 13.1 18 ••••••••••••
Dow Futures Mini (Mar ’21) CBOT 6.3 14.7 3 •••••••••
Eurodollar (Jun ’21) CME 0.1 3.3 33 ••••••••
Gasoline RBOB (Apr ’21) NYMEX 6 7.5 3 ••••••••
ULSD NY Harbor (Apr ’21) NYMEX 5.6 8.1 4 ••••••
Australian Dollar (Mar ’21) CME 2.2 7.3 9 ••••
Natural Gas (Apr ’21) NYMEX 12.1 16.8 11 ••••
S&P Midcap E-Mini (Mar ’21) CME 5.9 10.8 2 ••••
Silver (Mar ’21) COMEX 13.1 22.7 3 ••••
Sugar #11 (May ’21) ICE/US 5.8 12.4 25 ••••
British Pound (Mar ’21) CME 3.4 17.7 13 •••
High Grade Copper (Mar ’21) COMEX 4.8 9.4 4 •••
Canadian Dollar (Mar ’21) CME 1.5 10.7 20 ••
Coffee (May ’21) ICE/US 8.6 22.9 11 ••
Cotton #2 (May ’21) ICE/US 6.3 13.2 10 ••
Japanese Yen (Mar ’21) CME 2.3 28.8 23 ••
Live Cattle (Apr ’21) CME 3.6 11.1 14 •• CBOT Chicago Board of Trade, Division of CME
Platinum (Apr ’21) NYMEX 7.8 14.1 6 •• CFE CBOE Futures Exchange
Wheat (May ’21) CBOT 6.2 16.5 17 •• CME Chicago Mercantile Exchange
30-Day Fed Funds (Feb ’21) CBOT 0 2 23 • COMEX Commodity Exchange, Inc. CME Group
Bitcoin Futures (Feb ’21) CME 46.2 49.4 1 • ICE-EU Intercontinental Exchange-Futures - Europe
Crude Oil Brent (F) (Apr ’21) NYMEX 6 7.9 4 • ICE-US Intercontinental Exchange-Futures - US
Hard Red Wheat (May ’21) KCBT 6.3 14.3 16 • KCBT Kansas City Board of Trade
Lean Hogs (Apr ’21) CME 5.7 10 11 • MGEX Minneapolis Grain Exchange
Mexican Peso (Mar ’21) CME 6.3 28.2 41 • NYMEX New York Mercantile Exchange

New Zealand Dollar (Mar ’21) CME 2.2 8.5 12 •
2104
Palladium (Jun ’21) NYMEX 12.6 19.2 1 •
Trading Liquidity: Futures is a reference chart for speculators. It compares markets “Relative Contract Liquidity” places commodities in descending order according to
according to their per-contract potential for profit and how easily contracts can be bought how easily all of their contracts can be traded. Commodities at the top of the list are easi-
or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only est to buy and sell; commodities at the bottom of the list are the most difficult. “Relative
when compared to others in the same column. Contract Liquidity” is the number of contracts to trade times total open interest times a
The number in the “Contracts to Trade for Equal Dollar Profit” column shows how volume factor, which is the greater of:
many contracts of one commodity must be traded to obtain the same potential return In volume
as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price 1 or exp –2
In 5000
Excursion).

58 • April 2021 • Technical Analysis of Stocks & Commodities

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April 2021 • Technical Analysis of Stocks & Commodities • 59

 Trading Perspectives
SOME PERSPECTIVES ON THE EQUITIES WORLD
Rob Friesen is a professional trader and president & COO of Bright Trading
(www.stocktrading.com), a proprietary trading firm hosting independent
trader/members, an online trading school, and utilizing the StockOdds da-
tabase (www.mystockodds.com). Courses on advanced hedged trading and
basket trading are offered at www.hedgedtrading.com. This column shares
his thoughts and outlooks on trading, locating opportunity, probabilistic
outcome, and maintaining perspective throughout industry changes. He can
be reached at robfriesen@brighttrading.pro or via stocktrading.com. Rob Friesen

WHAT DO WE DO WHEN from futures prices being higher than their desired timeframe, if at all.
VOLATILITY DECLINES AGAIN? the spot price. So how do we adapt to lower
Looking back over history, increases Traders who take positions in long volatility?
in volatility are short-lived. The de- volatility instruments, waiting for an Traders’ income can decline but
cay that comes after those spikes is event to occur, are going to find they investors may still be okay if markets
pronounced and predictable. Traders suffer erosion of capital usually be- keep rising under lower volatility.
who bet on increasing volatility often fore they benefit from a spike, or the I have discussed relationship-based
miss the window of it occurring as it move higher may never occur within trading styles such as pairs in the past
increases rapidly due to “surprises.”
Once the catalyst has been largely
factored in, volatility retreats.
It is evident that the long periods of
chop and low volatility occur more
frequently than the brief periods of
elevated volatility (see Figure 1).
We have just come through a period
of increased volatility that spiked
March 23, 2020 and has been declin-
ing ever since (see Figure 2). The most
recent spike in volatility in January
2021 has assisted in the spectacular FIGURE 1: CBOE VIX (VOLATILITY INDEX), 30-YEAR CHART. As you can see in this long-term
moves of stocks, especially any that chart of the VIX, long periods of chop and low volatility occur more frequently than do brief periods
of elevated volatility, such as the volatility spike that occurred on March 23, 2020.
became short squeezes. Yet even this
most recent spike in volatility show-
cases a lower high with the likelihood
of volatility trending lower still.
Keep in mind that volatility in-
struments that can be traded have
a decay component (not consistent
due to market conditions), so the best
decay you get is after a significant
spike. Traders who hold long in the
aftermath or during long periods of
contracted volatility will likely fight
that decay.
The decay is a fundamental is-
sue due to the construction of the
exchange-traded products using de-
rivates that have eroding time value, FIGURE 2: CBOE VIX, ONE-YEAR CHART. A period of increased volatility began with a spike on
and due to the contango that comes March 23, 2020 and then generally declined. Recently, a volatility spike occurred in January 2021.
60 • April 2021 • Technical Analysis of Stocks & Commodities
 Trading Perspectives
in this column, and here I’ll expand
on that by looking at a method to in-
crease earnings during these periods,
a method known as a “3-way.”
What is a “3-way” in equities
trading? It is about having three in-
struments that are related, possibly
peer stocks or simply a good fit that
makes sense. This increases your
opportunity through a variety of
combinations. You can create three
pairs out of these or trade them three
at a time in a variety of ways.
By grouping these related stocks
together in your watchlists, you can
easily spot which stocks changed
the most from the previous close, or
the percentage change from today’s
open. If you watch spread prices and/
or spread charts, it can make it even
easier to see what combination has
the greatest discount or premium, and
what is choppy or trending.
Two stocks could be traded long
against one short or two shorts against
one long. If you also have a reference
symbol like an ETF to place with
each grouping, you could choose
which is the best of the three stocks
to trade against that ETF or choose
one or two of the three to form your
triad combo.
In Figure 3, I show a one-day snap-
shot as an example of this, using our
StockOdds screener. But you could
do this daily to screen for symbols
versus the respective sector ETF,
helping you to prepare in advance
for the next day.
The screen in Figure 3 displays a
few components within the Energy
Select Sector SPDR Fund and shows
the performance move of the relation-
ship (symbol/ETF) and the subse-
quent odds, average performance, and
Sharpe values for what probabilities
are being presented for the next day.
CVX is presented as the most bull-
ish opportunity while COP is the
most bearish and XOM is slightly
above neutral. Note: In the 2,000-
FIGURE 3: STOCK VS. ETF PAIRS PERFORMANCE SCREEN. In this example screen, a few
components of the Energy Select Sector SPDR Fund are shown with the performance move of the
relationship (symbol/ETF) and the subsequent odds, average performance, and Sharpe ratio values
to gauge next-day probabilities.
day lookback period chosen for this
screen, CVX has only ended up in the
performance bin range of -1.75 to -2
five times, so that is quite rare.
The ranking from strongest to
weakest would be: CVX, XOM, XLE,
COP. Some possible combinations of
positions arising from this set would
be as follows:
• Long CVX and short COP as a
pair
• Long CVX and long XOM and
short XLE as a 3-way
• Long CVX and short COP and
short XLE as a 3-way
• Long CVX and long XLE and
short COP as a 3-way
(Capital balance or balance by aver-
age true range of each component)
How can we adapt to
lower volatility? Here,
I’ll look at a method
known as a “3-way”
that can be used to
increase earnings
during periods of low
volatility.
Other combinations are also pos-
sible, but those are the ones I would
consider. For those traders who do not
like shorting stocks due to squeezes
or merger risk, they might be more
comfortable with shorting XLE, the
ETF. For long-only traders, I would
recommend dialing into the underly-
ing commodity and the daily context
of the energy group to make sure you
can be on the right side of the macro,
and if so, CVX in this example looks
April 2021
to be the best choice as a long trade
based on the statistical comparison of
those three stocks against XLE.
As volatility declines, it is impor-
tant to research and provide yourself
with a variety of choices. Be prepared
to act on discount or premium, and
know your subsequent probabilities
to support your decisions.
The holding time for trades can be
intraday, swing trades, or long-term
trading around a core position.
Here’s an example. Say you start
out with long CVX, long XOM, and
short XLE. Say CVX rockets up—
doing what you wanted it to do—but
XOM is lagging or becomes even
more discounted. In that case, you
could sell your long position of CVX
and transfer the capital to XOM and
increase your short on XLE or short
COP to split risk. The mindset is one
of always asking, “Where could the
best return on capital come from?”
By the way, on the day after the
screen shown in Figure 3, here is how
those symbols performed:
CVX. . . . 3.51%
XOM. . . . 1.23%
COP. . . . 0.39%
XLE. . . . 1.27%
XLE and XOM were in a close foot
race, with CVX soaring, and COP
the lagger of the group. And that is
pretty much in keeping with how we
ranked them.
Please understand: When working
within a group, the entire group may
rise or fall, yet you can make money
from the relative change between the
instruments. When you short a stock
in the group, it doesn’t mean it has to
• Technical Analysis of Stocks & Commodities • 61
 Trading Perspectives
trading as a business, you focus
on that production, the utility side
of trading, creating scale through
the compounding of probabilities,
and you need a constant stream of
actionable ideas. To earn more, you
must create an abundance of avail-
able choices, showcasing the odds
and the best discount or premium to
fade or go with.
You can also compound signals
and the subsequent odds and perfor-
mance from those. One of the things
that professional traders consider is
seasonality. As we approach each
event, day, week, or month, make
sure you know what season you are
FIGURE 4: SEASONALITY (APRIL)—IWM VS. SPY. The Russell 2000 generally sputters in April in and what history has to say about
relative to the S&P 500. Overall, the month of April performs at a positive 1.42% on average. it. This doesn’t imply that we have
our head in the sand concerning news
or macro catalysts, but rather that we
respect that history repeats itself, and
seasonality underpins much of what
goes on day to day. Seasonality is
a reliable backdrop and context for
building trades.
What about seasonality for the
month of April? It embodies a heavy
earnings season and is the last month
of what’s popularly known as “the
best six months of the year” for
investing, which is said to run from
November 1 to April 30. During those
six months, small caps have generally
outperformed large caps.
Figure 4 shows various seasonality
FIGURE 5: SEASONALITY (APRIL)—ODDS AND PERFORMANCE AVERAGES FOR LIQUID statistics for the month of April on
STOCKS. Looking at how ETFs, sectors, industries, and stocks perform in a given month (in this SPY (SPDR S&P 500 ETF Trust) and
example, focusing only on the month of April from 2012–2020) can help you to create actionable IWM (iShares Russell 2000 ETF)
trade ideas.
using our StockOdds database. We
go down; it just has to perform worse would be at greater risk for reversals can observe from this snapshot of
than your longs. The question arises: or surprise catalysts against your metrics that the Russell 2000 is softer
Why not go long everything in the long dollars. Career traders focus on in April historically relative to the
group? You could, but you must be reducing risk of ruin and lowering S&P 500. This makes sense to me,
more correct in that case, and you variance in their trading account. as the market factors in everything
If you can make money from rela- that it knows and can anticipate, so
Looking back over tive change day in and day out while as we enter the final month of the
history, increases in being hedged, it becomes more like so-called “best six months,” traders
volatility are short- running a business than taking shots are acting decisively to factor that
on direction.
lived.
And speaking of thinking of your Continued on page 47
62 • April 2021 • Technical Analysis of Stocks & Commodities
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