It’s normal to feel nervous in a market like this after all, the S&P 500 has fallen 17.1% since the start of the year. We’re in correction territory — a decline of more than 10%. And it has many people wondering if a bear market lies ahead.
But just because these fears are normal, doesn’t mean they’re right. The truth is, you shouldn’t waste your time trying to figure out what the market will do next. Instead, let the market tell you when the decline is over and there are a few ways to do this. Today, I want to look at a simple one you could follow on any free charting site…
Time The Next Market Bottom With This
In the past few weeks, we’ve looked at momentum which you can use to sidestep major crashes, stay ahead of the Fed and...
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Articles
In this article, I decided to discuss a simple technique that is often overlooked when traders are reading charts. We are all too quick to look at the squiggly lines that we call indicators and oscillators and dismiss the simplest signal available to us which at the simplest level would be ‘PRICE!’ Price is most commonly displayed for most traders through candle charts. If you are not familiar with the construction of a candlestick, I have included a quick reference below. A green candle usually indicates strength in price and is formed by price closing higher than it opened during that particular time period. Conversely, the red candle indicates weakness due to the closing price being lower than the open for that period.
The problem...
Have you ever just jumped into a trade without understanding the trading environment, meaning whether the market was trending, range bound or close to a major turning point (higher time frame supply or demand) only to have the trade stop out? Of course you have…we’ve all experienced that disappointment in our journey of discovery through this world of market speculation.
To prevent this from happening too often, traders must develop a systematic approach that takes into account the environmental condition on every trade. The objective is to guide a trader into a better decision making process.
Trading Risk, Reward and Probability
The three main factors one must focus on as a trader are risk, reward and probability. In my experience as...
When trading we look to short in supply zones during downtrends and go long in demand zones during uptrends. Easy enough, right?
Theoretically, yes, but the main question is "Which time frame are you using to determine direction?" This week's lesson is specifically applied to you day-traders out there.
First off, let's define a day-trader who, for example in the stock market, is someone who enters and exits the trade in the same trading day, buying 1,000 shares of XYZ in the morning and selling those 1,000 shares in the afternoon.
In the spot forex market, the trading day isn't as clearly defined. For this lesson, we will assume you are looking to be in a trade for a few minutes to a few hours and trading from a 15-minute chart...
One of the most perplexing areas of trading is identifying trends early enough to still have low-risk, high-reward entries. Every book ever written on trading has told us that we should always align our buying or selling in the direction of the trend, and that this is the key to trading success.
In some respects, that may be true, however, most of these books fail to make three very critical distinctions:
When is it too late to join the trend?
What trends are the most important?
When are trends likely to reverse?
To answer these questions, let's first think in terms of keeping it simple and what would cause a trend to end. First, trends in the shorter term are continuously changing.
Shown below is a ten-day look back at a...
Some traders and investors denounce technical analysis (TA) as a superficial study of charts and patterns without any concrete, conclusive or profitable results. Others believe it is a sort of “Holy Grail” that once mastered will unleash sizable profits. These opposing viewpoints have led to misconceptions about technical analysis and how it is used.
Some misconceptions about technical analysis are based on education and training. For example, a trader trained in using only fundamentals may not trust technical analysis at all. But that doesn't mean someone who is trained in technical analysis can't use it profitably. Other myths are based on experience. For example, the incorrect use of technical indicators often leads to losses. That...
Acquiring additional knowledge is not always beneficial when trading financial markets because some information can make us more ardent in our views and opinions, so we make bold predictions that turn out wrong. And incorrect predictions can be costly when real money is on the line, especially when we take positions against the prevailing price movement and in anticipation of a quick and sharp change in price direction, but then the reversal never happens.
Investors, especially short-term traders, are usually better off waiting for the movement in price to confirm a trend or reversal rather than try to predict what is going to happen next. Section two of this article looks at some ways we can rework our thinking to gain a better edge...
The 50-day moving average marks a line in the sand for traders holding positions through inevitable drawdowns. The strategy we employ when price nears this inflection point often decides whether we walk away with a well-earned profit or a frustrating loss. Considering the consequences, it makes sense to improve our understanding about this price level, as well as finding new ways to manage risk when it comes into play.
Formula
The most common formula takes the last 50 price bars and divides by the total. This yields the 50-day simple moving average (SMA) used by technicians for many decades. The calculation has been tweaked in many ways over the years as market players try to build a better mousetrap. The 50-day exponential moving...
Every foreign exchange trader will use Fibonacci retracements at some point in their trading career. Some will use it just some of the time, while others will apply it regularly. But no matter how often you use this tool, what's most important is you use it correctly every time.
Improperly applying technical analysis methods will lead to disastrous results, such as bad entry points and mounting losses on currency positions. Here we'll examine how not to apply Fibonacci retracements to the foreign exchange markets. Get to know these common mistakes and chances are you'll be able to avoid making them and suffering the consequences in your trading.
Don't Mix Reference Points
When fitting Fibonacci retracements to price action, it's...
Starting out in the trading game? Looking for the best technical indicators to follow the action is important. It affects how you’ll interpret trends - both on positions and in the broad averages - as well as the type of opportunities that pop up in your nightly research. Choose wisely and you’ve built a solid foundation for success in speculation. Choose poorly and predators will be lining up, ready to pick your pocket at every turn.
Most novices follow the herd when building their first trading screens, grabbing a stack of canned indicators and stuffing as many as possible under the price bars of their favorite securities. This "more is better" approach short circuits signal production because it looks at the market from too many...
Elliott and Gann have become household names among the worldwide trading community. These pioneers of technical analysis developed some of the most widely used techniques in the field. But how did Ralph Nelson Elliott and W.D. Gann come up with these techniques, and how did they become so successful? Truth be told, it's not as difficult as it sounds! This article takes you through the process of building your own custom indicator, which you can use to gain an edge over the competition.
Background
Recall that the theory behind technical analysis states that financial charts take all things into account – that is, all fundamental and environmental factors. The theory goes on to state that these charts display elements of psychology that...
Although many traders know how to use volume in their technical analysis of stocks, interpreting volume in the context of the futures market may require additional understanding because considerably less research has been conducted on the volume of futures than that of stocks. Here we take a general look at some of the things you should know when looking at volume in the futures market.
Volume Reports and Liquidity
The volume of each futures contract (where individual contracts specify standard delivery months) is widely reported along with the total volume of the market, or the aggregate volume of all individual contracts. These volume figures are reported one day after the trading day in question, but estimates are regularly posted...
Buy and sell cycles reveal hidden intentions of the market's biggest players, as they engage in macro strategies that affect price direction. Investors and traders can identify these cycles through technical tools that measure the persistence of the push behind these cycles and can use these measurements to predict when such cycles will flip over from buy to sell and vice versa. These natural rhythms show their greatest power in major indexes and futures contracts that guide thousands of underlying equities, bonds and forex crosses.
The S&P-500, Nasdaq-100 and Russell-2000 serve this purpose for a broad basket of equities, grinding through easily observed cycles that tell participants how aggressive or defensive they need to be as they...
Elliott Wave Theory was developed by Ralph Nelson in the 1920s. Nelson found that financial markets have movement characteristics that repeat over and over again. These movements are called waves and Elliott Wave Theory is a broad and complex topic, taking practitioners years to master. Despite its complexity, there are elements of Elliott Wave that can be incorporated immediately and may help improve analytical skills and trade timing.
Impulsive and Corrective Waves
Source: www.tradingview.com
Prices move in impulsive and corrective waves. Knowing which wave is likely underway, and what recent waves were, helps forecast what the price is likely to do next.
An impulse wave is a large price move and has associated trends. An...
Whether you consider yourself a technical analyst or not, there are very few investing techniques that do not at least give a nod to the technical side of investing. Some investing styles use nothing but technical analysis, with their practitioners often claiming that they know nothing of stock fundamentals because all they need is in the charts. This segment of investing didn't sprout from nothing and in this article we will look at the men that pioneered the field of technical analysis.
All Things Flow from Dow
Charles Dow occupies a huge place in the history of finance. He founded The Wall Street Journal – the benchmark by which all financial papers are measured – and, more importantly for our purpose, he created the Dow Jones...
Most traders and investors are familiar with the saying "the trend is your friend." But deciding what constitutes a trend often proves challenging because it depends on the trader's preferred time in the trade. Furthermore, once a trend has been identified, the trader must determine its strength.
In his book "The Logical Trader," Mark Fisher describes a number of techniques to help his reader spot trend breakouts and identify their strength. Fisher's ACD trading system uses intraday data to identify the daily opening range for finding trades. Fisher, an independent trader, is the founder of MBF Clearing Corp., one of the largest clearing firms on the NYMEX.
While this intraday ACD technique may not appeal to the long-term trader or...
Channels provide a simple and reliable way for traders to define their entry and exit points within an equity. Although the basic channel-trading rules provide traders with a good idea of where the price is going within the channel, they leave little insight into where breakouts might occur. Identifying patterns known as Wolfe Waves and Gartleys, however, can help predict these breakouts in terms of both their timing and scope (their proportion to the established channel). This article will take an in-depth look at the channelling techniques centered on these patterns and how they can be applied to help you profit.
Wolfe Waves
The Wolfe Wave is a natural pattern found in every market. Its basic shape shows a fight for balance, or...
Hello
traders! This week, my Lesson will show how to use multiple time frames to
trade the Forex market. In the grand scheme of this core strategy, we recommend
using three time frames to help make your investing and trading decisions,
whether you are trading stocks, Forex, Options or futures. The first time
frame, or largest time frame, is to determine where we are in the ‘big
picture’, essentially showing us where the biggest institutions are trading.
The next time frame down shows us the direction/trend between these
institutional levels. And the third or smallest time frame show us smaller
supply and demand zones so we can join the trend in between those the larger
time frame levels. Pretty easy, huh? Let’s get into a bit more...
Short
term trading can be very lucrative, but it can also be risky. A short term
trade can last for as little as a few minutes to as long as several days. To
succeed at this strategy as a trader, you must understand the risks and rewards
of each trade. You must not only know how to spot good short term opportunities
but also how to protect yourself. In this article, we'll examine the basics of
spotting good short term trades and how to profit from them.
The Fundamentals of Short Term Trading
Several basic concepts must be understood and mastered for successful short term trading. These fundamentals can mean the difference between a loss and a profitable trade.
Recognizing Potential Candidates
Recognizing the "right" trade will mean...
Many say that charting is nothing more than predicting the direction of a price between significant support and resistance levels. We know that a support level is a price level which a stock has had difficulty falling below. This is where a lot of buyers tend to enter the stock.
Similarly, we know that resistance is a price level above which a stock has difficulty climbing. This is where a lot of buyers take profits and shorts enter. Typically, a stock's price will range between these levels until it breaks out or breaks down. Hundreds of different methods can be used to locate these areas of support and resistance, but one of the most underrated methods is simply using price by volume, or PBV, charts.
In this article, we explain what...
There are a wide range of books available for learning technical analysis, covering topics like chart patterns, crowd psychology, and even trading system development. While many of these books provide outdated or irrelevant information, there are several books that have become timeless masterpieces when it comes to mastering the art of trading.
In this article, we will look at seven books on technical analysis to help traders and investors better understand the subject and use as possible strategies in their own trading.
Getting Started in Technical Analysis:- Jack Schwager
This book is an excellent starting point for novice traders that covers every major topic in technical analysis. In addition to covering chart patterns and...
Fundamental Analysis Technical Analysis Day Trading & Scalping How to Know the Difference Between Retracements and Reversals
Most of us have wondered whether a decline in the price of a stock we're holding is long-term or a mere market hiccup. Some of us have sold our stock in such a situation, only to see it rise to new highs just days later. This is a frustrating and all too common scenario. Whilst it can't be totally avoided, if you know how to identify and trade retracements properly, you will start to see improvement in your performance.
Retracements Versus Reversals
Retracements are temporary price reversals that take place within a larger trend. The key here is that these price reversals are temporary and do not indicate a change in the larger trend. A reversal, on the other hand, is when the trend changes direction, meaning that the price is likely...
Swing & Position Trading Technical Analysis Day Trading & Scalping Using Fractals: A Guide for Traders
Although prices may appear to be random, they actually create repeating patterns and trends. One of the most basic repeating patterns is a fractal. Fractals are simple five-bar reversal patterns. This article will explain fractals and how you might apply them to your trading strategy.
Introduction to Fractals
When people hear the word "fractal," they often think about complex mathematics. That is not what we are talking about here. Fractals also refer to a recurring pattern that occurs amid larger more chaotic price movements.
Fractals are composed of five or more bars. The rules for identifying fractals are as follows:
A bearish turning point occurs when there is a pattern with the highest high in the middle and two lower highs on...
If you ever look at the volume leaders for the trading day, you almost always will find Bank of America Corp. (BAC). On a day in October 2018, trading volume for BAC totaled 58,868,598. General Electric Company (GE) was even higher: 110,448,094. Those are big numbers, but where do they come from, and what do they mean?
The first part of the question can be answered with ease: market exchanges. The second part requires a little more detail. If you’re a retail investor, read on. While volume is only one tool of many, it adds value to your investing decision.
How it Works
Calculating volume is simply the total amount of shares traded for the day, which includes both buy and sell orders. You can determine the daily trading volume on your...
I was asked the other day about "volatility" by a popular media outlet. The question was: "What should traders and investors do in a volatile market?" I didn't have to think about the answer, I had it before they were halfway done with the question. Simple, if you don't know how to time the market's turning points in advance, don't have money at risk in the market. If you do know how to time the market's turning points, you love market volatility. Recently, the markets have experienced a period of extreme market volatility. During these periods, those who know market timing typically see above average profits and those who don't experience above average losses. No matter what type of trading or investing you are doing, you can't get...
It is rare to hear any long discussion of the stock market without some mention being made of the economic outlook. As of Summer 2018, it's safe to say that the economy has recovered to a certain extent from the recession of 2008. What analysts are now wondering about is if the current good fortune is sustainable or if there's another crash around the corner.
Given that the economists on business TV seem to live to disagree, what should a regular investor do? Just what should an economic recovery look like? Follow these economic indicators for signs of a recovery.
Employment
It is difficult to talk about an economy in recovery if people are not getting back to work. There are such things as "jobless recoveries", where there is enough...
Candlestick patterns provide insight into price action at a glance. While the basic candlestick patterns may provide some insight into what the market is thinking, these simpler patterns often generate false signals because they are so common. Below, we will look at more advanced candlestick patterns that offer a higher degree of reliability. These include the island reversal, hook reversal, three gaps and kicker patterns.
Island Reversal Pattern
Island reversals are strong short-term trend reversal signals. They are identified by a gap between a reversal candlestick and two candles on either side of it. Here is a bullish example. The price is moving down, gaps lower, then gaps up and continues higher.
Here is a bearish example of...
No matter which market you trade – stocks, forex or futures – each second the markets are open provides an opportunity to trade. Yet not every second provides a high-probability trade. In a sea of nearly infinite possibilities, put each trade you consider through a five-step test so you'll only take trades that align with your trading plan and offer good profit potential for the risk being taken. Apply the test whether you're a day trader, swing trader or investor. At first it will take some practice, but once you become familiar with the process, it takes only a few seconds to see if a trade passes the test, telling you whether you should trade or not.
Step 1: The Trade Setup
The setup is the basic conditions that need to be present...
A Google search on VIX yields some unexpected pages: the name of a Czech rock band, a swim wear catalog and the Vienna Internet Exchange. Interesting stuff, but not quite what we had in mind. The CBOE's VIX is a popular market-timing indicator. Let's take a look at how VIX is constructed and how investors can use it to evaluate U.S. equity markets.
What Is the VIX?
VIX is the symbol for the Chicago Board Options Exchange's volatility index. It is a measure of the level of implied volatility, not historical or statistical volatility, of a wide range of options, based on the S&P 500. This indicator is known as the "investor fear gauge," because it reflects investors' best predictions of near-term market volatility , or risk. In general...
Leonardo Pisano, nicknamed Fibonacci, was an Italian mathematician born in Pisa in the year 1170. His father Guglielmo Bonaccio worked at a trading post in Bugia, now called Béjaïa, a Mediterranean port in northeastern Algeria. The young Leonardo studied mathematics in Bugia and during extensive travels, he learned about the advantages of the Hindu-Arabic numeral system. In 1202, after returning to Italy, Fibonacci documented what he had learned in the "Liber Abaci" ("Book of Abacus"). In doing so, he popularized the use of Hindu-Arabic numerals in Europe.
The Fibonacci Number Sequence
In the "Liber Abaci," Fibonacci described the numerical series now named after him. In the Fibonacci sequence of numbers, after 0 and 1, each number is...