First, it was Citigroup disappointing with their earnings shortfall, and this, along with less-than-stellar retail sales numbers for December, sent stocks roiling on Tuesday. The Dow and S&P finished the day lower by more than 2%. To add insult to injury, Intel's lackluster earnings release after hours pummeled those shares, setting in motion a plunge in the stock index futures. Translation - the market's in for more selling (at least in the early part of the year).
Can things possibly get any worse? Yes, they can. People seem to possess very short memories. After all, it's only been 4 years since we suffered through one of the worst Bear markets (caused by the technology-led recession) in history. How bad did things get then? From the...
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Articles
Getting Started Technical Analysis Technical Analysis: What you need to know before you start charting
This article is aimed at all those new to trading and we look at the basics of what technical analysis actually is.
What is Technical Analysis?
Technical analysis is the study of price data and statistical indicators that are formed by market activity. Market activity illustrates the flow of supply and demand. This supply and demand is a reflection of beliefs and opinions translated into human behaviour and specifically, herd mentality. Therefore, technical analysts would argue, price patterns and indicator signals can be categorised based on historical data with a reasonably high expectation that they will occur again at some point in the future. This argument is based on the theory that human behaviour is innate and, although it...
Given my background as a scalper in the equities market for eight years I am often asked if those same techniques are applicable to the FX market. First, it is important to define how one defines scalping. First, recalling my days as a floor/screen based trader of equities in the 90s the definition was a technique whereby a trader could profit from very short-term moves in the marketplace by using a combination of 1 & 5-minute charts as well as a keen sense of tape reading. When I made the transition to the FX markets exclusively back in 2001-02 I was keenly aware that this type of hyper strategy had 2 shortcomings:
It was not scalable
A scalping technique may not be conducive to the FX markets
While point 2 may be open to...
With the Dow making new highs last week, we are now well and truly into unchartered territory. So how should you define the new targets?
The action over the last week satisfies an expectation we have had for the year 2006: a fresh all-time high. The move into new-high territory was not an easy breakout. In May, the DOW crept to within 90 points of an all-time high and thereafter sold-off to lose 8% of its value throughout the next couple of months - this was one of the strongest pullbacks the market had since the major low in 2002. In July, the market found its footing and once again made a second run for its all-time high. It has been all-up ever since and into today. Here's a toast to the Bulls for a well earned victory! Now it's...
In my view, we are still in a secular bear market and currently at a point of extremely high risk. We have now passed the period of seasonal strength for the year - a time when spirits are high and the market performs better than at any other time on a historic basis. A study in the December 2002 issue of the American Economic Review reported that the average stock market returns from Halloween through May Day (the so-called "winter months") were significantly higher than equity returns from May Day through Halloween (the "summer months"). The findings were that the summer months' returns have averaged so much less than those of the winter months that almost all of the stock market's long-term returns have been produced during the...
Pivot Points have been used by floor traders at the major equities and futures exchanges for a long time. Traders found that the price tended to hover near the pivot level and trade in between the pivot and support and resistance levels generated by a simple calculation based on the previous day's high low and close. One advantage of using Pivots is they are a predictive indicator as opposed to lagging.
Predictive Vs Lagging Indicators
The majority of technical indicators most traders use such as moving averages and RSI are lagging. Meaning they are telling us what has already happened, or at best, what is happening in real time. Few indicators are predictive; one type of predictive indicator is Pivot Point study. Pivot Points use old...
Market Profile is a powerful statistical analysis tool developed by J. Peter Steidlmayer and the CBOT during the 1980s. This article introduces traders to the Market profile tool and goes over the basic uses and functions.
Introduction:
Market profile is a technical analysis tool developed by J. Peter Steidlmayer in conjunction with the Chicago Board of Trade in the mid 1980s. Market Profile is a statistical analysis of time and price to create a graphical representation of a trading session or multiple trading sessions. Price is plotted on the vertical axis, and time is plotted on the horizontal axis. Market Profile essentially puts a daily bar or candle under a microscope. By looking at a bar with the naked eye, all we know is where...
A few weeks ago I talked to 15 different traders: 5 of them have been trading for less than a year, 5 of them have been trading for 1-2 years, and 5 of them have been trading for over 2 years. I asked each of them if they use volume in their trading, and because they know how important I think volume and price action are, they all responded "yes".
Having established that all 15 of these traders are using volume, I wanted to know exactly how they are using it and whether or not they are using it correctly. I remember as a newer trader I always would say that I was using volume but I really didn't know how to properly utilize volume. So I spend just a minute or so showing each of these traders a chart and asked them to analyze exactly...
Since my last Special Alert which was written at the start of May with the theme of SELL IN MAY AND GO AWAY, I have had a lot of calls and e-mails asking if I had written another since. I had not because I saw no reason to veer from the message in the prior Alert. The early May Alert was probably the most technical Alert I have written and I concentrated on the monthly charts. That is not something I usually do. Typically, I only refer to a monthly chart when I think that "bigger picture" viewpoint is seriously worthwhile. My focus was almost exclusively on the monthly charts because I believe the April 26th high was the orthodox top for the recent "reprieve rally" that began with the March 2009 low. When I went over my monthly charts...
W D Gann had a number of approaches to predict market action. His techniques have been regarded as complex and difficult to implement & understand due to the lack of clean information he left. His 'Harmonic Rule of 1/8's is not to be confused with his more widely recognized 'Square of 9s' method.
Gann's Rule of 1/8's is based on specific arithmetic geometry, more specifically 'fractal arithmetic geometry'. When that 'geometry' is constructed properly, (Gann referred to them as 'Octaves, Squares or Boxes), we can apply a set of rules that has predictive capabilities in any market that can be plotted. Does the predictive outcome, using the rules, work all the time? NO. Losing is part of trading. As traders, we attempt to eliminate...
Still growing amongst the Western and European traders, the Ichimoku Cloud (or Ichimoku Kinko Hyo = One Glance Balance Cloud Chart) was originally developed pre-WWII by a man named Goichi Hosada. Because of the war, his research was halted and then later finished in 1968 whereby he published a 1,000 page, four volume body of work releasing the Ichimoku Cloud to the world under the pen name Ichimoku Sanjin.
Originally built for the Japanese stock markets, the indicator has made its way out of the land of the Eastern sun and into the trading world at large, being applied and used widely in the Commodities, Futures, Options and FOREX markets. Part of its success is its ability to find trends and reversals well before they begin.
The...
Here is an example of using the Bar-by-Bar method to read the market based on its own actions via Wyckoff Method of Market Analysis. This example shows how to integrate background conditions or market structure, trend lines, multiple time frames, and the individual bars as it unfolds on the chart. This is from the S&P e-mini market on 3 and 15-minute time frames. The method is applicable in any market on any time frame.
Chart 1
Background - Price rallied after the open, and then spent an hour reacting in a slow drift down. Volume was less on the reaction than the volume on the rally off the AM lows (seen by the red line). Spreads were also generally narrower on the reaction, and as the reaction progressed, volume receded. A...
In my view, we are still in a secular bear market and at a point of high risk. However, we are now in the seasonally strong time for the year - a time when spirits are high and the market performs better than at any other time on a historic basis. A study in the December 2002 issue of the American Economic Review reported that the average stock market returns from Halloween through May Day (the so-called "winter" months) were significantly higher than equity returns from May Day through Halloween (the "summer months"). The findings were that the summer months' returns have averaged so much less than those of the winter months that almost all of the stock market's long-term returns have been produced during the winter months. The obvious...
For daytraders and scalpers looking for a quick trades or even a bit longer hold from 5 minutes to 1 hour, it's not easy to do. When day trading stocks, not knowing which way the market will go or the sentiment of the next few minutes is the fastest way to go broke. So watching the breadth such as the composites such as NASDAQ, DOW, or S&P 500 is a fundamental tool used to day trade effectively. Getting an idea what the immediate sentiment is crucial is seeing when and where the buyers or sellers are coming. Believe it or not, stocks are not islands and are not random. Participants move in and out for reasons others prices of stocks. There is always a correlation to some type of data, be it news or other related stocks. So finding a...
Many traders do not use volume in their market analysis and trading. They rely on price bar patterns and technical indicators. Price alone can be misleading and technical indicators frequently signal miss-fires. Understanding the interaction of price and volume can help put the trader on the right side of the market regardless of the trading method used. Here is a recent example of how the S&P e-mini market unfolded. Reading the interaction of price and volume led to both intraday and swing trades.
Background: 60-Minute Chart
The S&P e-mini market had reacted into early February from its highs in January 2010. The reaction was well-defined on the hourly chart (Chart 1) by the trend lines AA and BB, which together formed a channel. Line...
Time and time again, I have said that all humans were never designed to become consistently profitable traders. There are many reasons why the majority of individuals fail to make regular profits from Forex trading, but in the end, it all stems from the simple fact that most people are completely unaware of the difference between perception and reality.
Ever since people began to speculate in the money markets, there has been this common belief that only the top guys in Wall Street have the experience and knowledge to do it successfully. The average Joe has always been advised to stay well away from making their own trading and investing decisions and instead hand over their hard-earned cash to the experts in the institutions to make...
I have previously discussed the fractal nature of markets and specifically the fact that there are always smaller tendencies contained within the larger more dominating trends. Also the old Wall Street maxim "buy low, sell dear," adding that though this concept is seemingly easy to understand, the reality of putting it into practice is a bit more challenging.
In this article, I'm going to elaborate on the notion of buying when prices are moving lower, and selling, or shorting, when prices are heading higher, all within the context of a trend. This concept is sometimes hard for new traders to understand, as it seems to run contradictory to trading in the direction of the line of least resistance.
I often get a bewildered look from...
The danger signal has been on my Alerts since August 6th and some people have asked for me to explain why since the market has been going up since that time. First of all, my objective in writing these is not to be a short term trading service, it is to provide you with a big picture look of where we are in the overall cycle and what that is likely to imply. That is why I frequently refer to "the sequence of events in the cycle". Let's go over that for a moment. If I was talking about seasons and began advising my readers to prepare for a hot summer, everyone would wonder whether I had lost my mind because we are in November and the proper comments would have to do with winter, not summer. Everyone knows "the sequence of events" in the...
A month ago we reviewed gold and our conclusion was that the fifth attack on the $1,000/oz level in two years was highly likely to lead to a decisive upside breakout. We looked and saw that a suspected massive short position in gold was likely to lead to an explosive rally, as shorts were forced to cover. We analyzed the weekly chart (below) as well as a daily chart to come up with our target of $1,300 - $1,500/oz.
Keep in mind that targets can be dangerous if we hold to them with an iron fist. The key fact is that gold is in uptrend. A target is merely a device to help formulate a trading plan in the direction of that trend.
Last month we recommended trading gold futures and stocks from the long side and offered several tactical...
I began putting the DANGER signal on my Special Alerts to "alert" everyone to Danger (duh). I know this stage of the market well as I have seen it time and time again in many different markets. As I said over and over, "the job of this rally is to draw in as many players as possible" (and then give them a thorough drubbing for being so foolish). There were two "turning points" to potential tops (August 7 and mid September). Both were tops, but only temporarily (very temporarily).
MARKET TOP - (The title of this article), I can't get much more "up front" than that it means that everything I was looking for to produce a market top had occurred and that anything beyond that would send me back to the drawing board. I now think the odds are...
One of the most regular and largely misunderstood phenomena of trading, particularly for newer traders, is the gap. What precisely is a gap? What causes one to happen? And most importantly, how should one trade a gap when it occurs?
In this article, I'll answer these questions, and delve into identifying higher probability assessments for trading gaps.
First, a gap is the discrepancy between one day's opening price and the prior day's closing price. The chart below clearly illustrates a large gap in the E-mini Russell 2000 (TF) which occurred on Monday, March 23. Note that the Russell closed at 397.40 on Friday the 20th, and opened at a price of 410.20 the following Monday, forming a 12.80 point up gap.
By any standard, this would...
For many of you, your trading and investing career is just beginning, and for others like me, it has been going on for a long time. My career began during the greatest bull market of all time, from 1990 - 2001. That market taught me a very important lesson that I want to share with you. It will help you understand trending markets, range bound markets, and above all, help you to control your emotions.
If you have been watching the stock market at all since late 2007, you have seen a period of high prices followed by a severe sell-off during 2008 and 2009. Hopefully, you did not buy or hold any stocks during this time, but if you did, you should have learned a valuable lesson. This lesson is no different than the first time you touched...
It's the first week of the month in Extended Learning Track (XLT) class. This is always a good week because new traders get exposed to the lessons that will shape their trading strategy for years to come. While they don't know it yet, I know that what they learn in week one is the key ingredient for their success. Using price action alone, we cover exactly how to quantify demand (support) and supply (resistance), the "odds enhancers" that give us our objective probability score on each trading opportunity, and a set of rules for entry and exit during week one. The information we cover is applicable in any time frame which allows us to keep things very simple and rule-based.
I really don't use any indicators or oscillators myself and...
Part of the learning process is for you to understand the different types of traders. In essence there are two, and these are a fundamental trader or a technical trader. For you to succeed as an online trader you must understand the differences. Both have very different views in the techniques they use to assess market conditions and the direction an instrument may take.
Whilst there is some overlap, these are two very distinct methodologies, and you need to be comfortable with one or the other. You will come across this terminology all the time. Whilst there are huge differences in the approach, it is safe to say that most large financial institutions now employ both methods as both have their strengths and weaknesses. Fundamental...
From birth, we are conditioned to trade incorrectly. We naturally run from things we are fearful of and are drawn to things that make us feel good. If you take this action in trading, you are headed for trouble which in the trading world means losses. For example, if your invitation to buy into a market comes only after an uptrend is well underway, all the indicators are pointed up, and the news is good on that market, where do you think price is in that market? Yep, it's likely very high. To buy here completely goes against how you make money buying and selling anything and is very high risk. Never forget, when you buy, many people have to buy after you and at higher prices or there is no chance you will profit in your trade. To obtain...
Markets quite often exhibit tendencies that, for the astute trader, may translate into profits. One such tendency is what I refer to as the "rubber band effect." Markets tend to overshoot, similar to a rubber band that's stretched to its extreme and snapped back to its normal tension; so, too, do the markets. In mathematics, it's known as reversion to the mean. This theory is based on a phenomenon stating that when the price of any market deviates substantially away from its medium price, the odds are enhanced that it will revert or move back towards the average. This pattern is repeated quite often in the markets and is extremely worthwhile in identifying, as it may uncover some very attractive risk/reward opportunities.
The...
I'd like to walk you through a trade that was placed in October, using a technique that might seem a little unusual - the use of intra-market relationships and correlations to create trading opportunities in the Forex market. Sound complicated? It's really not, so please sit back and enjoy as we explore the use of the stock market as a leading indicator to trade Forex.
On Monday, October 13, 2008, the Dow Jones Industrial Average skyrocketed to its biggest point gain ever, a whopping 936 point move. The 11.1% gain was the biggest in percentage terms since 1933, and the fifth largest percentage gain in the history of the index. Similar moves were also seen on the S&P 500 and the NASDAQ, as the markets celebrated the end of capitalism as...
In a previous article I mentioned that my analysis involves monitoring price action, in order to gain an insight into the short term sentiment of the market. Determining who is in control at that time - the bulls or the bears. And assessing how they're likely to respond to changes in the market.
I thought today I'd prepare a quick article to give an overview of how I analyze price. Those of you who know me know that I'm a great fan of candlestick charting. However, price analysis is much more than just watching for your favorite candlestick patterns. Too many people just teach the candlestick patterns, which are fine, but in my opinion there's some essential analysis missing that an astute trade needs to consider BEFORE they look at...
Recently, I wrote an article about trading and gambling. Specifically, how trading is the one form of speculation on the planet that allows you to stack the odds in your favor before putting any of your hard earned money at risk. That discussion was fine but now I want to look at how we qualify the difference between some higher probability opportunities and lower ones as knowing the difference is a key to success.
In the Extended Learning Track (XLT) - Futures Trading and Forex Trading programs, a market situation we are often faced with is a gap. We use a simple checklist based on objective information to determine exactly what action to take (or not to take). The checklist helps us determine the probabilities, risk, and reward. Here...
Did you know that there is a whole 'other world' of technical analysis that most novice traders are either totally ignorant of, or fear to go due to the fact that it might actually require some work?
Well, there is! And I'd suggest that if most novices fear to go there, then perhaps it might be worth some investigation.
What is technical analysis? For most novice traders it seems to be one of, or a combination of, the two following approaches:
The art of defining recent price action through classical charting techniques such as the Dow Theory definitions of an uptrend and downtrend, and recognition of patterns such as channels, triangles, head and shoulders, cup and handles, and on and on, or
The art of representing price action...