How a Simple Line Can Improve Your Trading Success
by ilene - January 20th, 2011 1:14 pm
Elliott Wave International’s Jeffrey Kennedy explains How a Simple Line Can Improve Your Trading Success.
The following trading lesson has been adapted from Jeffrey Kennedy’s eBook, Trading the Line – 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. Now through February 7, you can download the 14-page eBook free. Learn more here.
"How to draw a trendline" is one of the first things people learn when they study technical analysis. Typically, they quickly move on to more advanced topics and too often discard this simplest of all technical tools.
Yet you’d be amazed at the value a simple line can offer when you analyze a market. As Jeffrey Kennedy, Elliott Wave International’s Chief Commodity Analyst, puts it:
“A trendline represents the psychology of the market, specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control. Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic or extremely pessimistic.”
In other words, a trendline can help you identify the market’s trend. Consider this example in the price chart of Google.
That one trendline — drawn between the lows in 2004 and the lows in 2005 — provided support for a number of retracements over the next two years.
That’s pretty basic. But there are many more ways to draw trendlines. When a market is in a correction, you can draw a trendline and then draw a parallel line: in turn, these two parallel lines can create a channel that often "contains" the corrective price action. When price breaks out of this channel, there’s a good chance the correction is over and the main trend has resumed. Here’s an example in a chart of Soybeans. Notice how the upper trendline provided support for the subsequent move.
For more free trading lessons on trendlines, download Jeffrey Kennedy’s free 14-page eBook, Trading the Line – 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. It explains the power of simple trendlines, how to draw them, and how to determine when the trend has actually changed. Download your free eBook.
This article was syndicated by Elliott Wave International and was originally published under the headline How a…
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DiggGold Mania
by Chart School - October 22nd, 2010 3:08 pm
Gold Mania
Courtesy of Allan
Allan’s “Trend Following Trading Model,” is based on his trend-following trading system for buying and selling stocks and ETFs. Most trades last for weeks to months. Allan’s offering PSW readers a special 25% discount. Click here. For more details, read this introductory article.
Long Downside Wick…Dollar testing support
by Chart School - October 15th, 2010 2:25 pm
Long Downside Wick…Dollar testing support
By Chris Kimble
Downside wicks usually take place at market lows or at support. The chart below, highlighting several downside wicks and a bullish falling “PATTERN” was the reasons to go long the 5oo index on 9/1 (see post here).
Click on Chart to Enlarge
The S&P 500 had its best September in 70-years bouncing off this support, after it created these “downside wicks.”
The U.S. Dollar is testing key rising support and created a fairly long “DOWNSIDE WICK” yesterday, in the chart below.
Click on Chart to Enlarge
With the Dollar on support, only 3% Dollar bulls and now with this long “downside wick” taking place, all the more respect for this pattern is at hand and understand that a rally in the Dollar, could be ugly (see post here) for many asset classes!!!
KEEP STOPS TIGHT TO PROTECT GAINS…
Video: The Versatility of the Wave Principle
by ilene - October 15th, 2010 1:59 pm
Video: The Versatility of the Wave Principle
Timeless Trading Lesson
In the video below, EWI senior analyst and trading instructor Jeffrey Kennedy shows how the Wave Principle can help you identify a high-probability trade set up regardless of the direction of the larger trend.
This timeless educational video was taken from Jeffrey’s renowned Trader’s Classroom series and is being re-released because of its valuable lesson. If a few minutes isn’t enough, get more FREE practical trading lessons from Jeffrey Kennedy in his latest eBook.
Bullish….Bearish… or Neither
by Chart School - September 24th, 2010 4:50 pm
Bullish….Bearish… or Neither
Courtesy of Chris Kimble
Am I Bullish, Bearish or Neither?
Choice “C”…Niether!
I am of the opinion, being Bullish or Bearish are emotional states of mind. They are NOT STRATEGIES. I believe that we should invest in each asset on its own individual merits/patterns, not based upon some global macro prediction.
Did I suggest to buy the 500 index (see post) and become “BULLISH” on 8/29 because the economy was fine? NO! Bought the 500 Index due to these conditions…Bottom of channel support and a falling wedge and by the way, the fewest investors bullish since the March 2009 low. NOTHING MORE!
Did I harvest the S&P 500 position and become “BEARISH” yesterday (see post) , after an 8% gain in three weeks, because something is bad about the economy? NO! Harvested due to Fibonacci resistance at the top of a trading range. NOTHING MORE!
Did I buy Silver a month ago (see post) because something is wrong with the dollar or that inflation is going to go wild or….NOPE! I bought Silver on an upside breakout from a favorable pattern, an ascending triangle . NOTHING MORE!
Why own Emerging Markets or Brazil right now? Falling channel breakouts! (See Post) NOTHING MORE!
Why own High Yield mutual funds? A breakout of a flag pattern and above moving averages (see post) . NOTHING MORE!
Why BUY HOME BUILDERS XHB (see post) when so many people are BEARISH on this industry? Because of rising channel support plus a sizeable falling wedge after a 30% decline. NOTHING MORE! (Current gain of over 12%!)
Will we buy the 500 index and other global markets (see post) on an upside break of these long-term falling channels? YES!!!
My goal is to try to provide solutions, that will help investors “inflate portfolios, regardless of market direction by way of the Power of the Pattern!” I will leave the Bullish or Bearish elements of this business to people much smarter than myself.
Chris
Bullish….Bearish… or Neither
by ilene - September 24th, 2010 1:29 pm
Chris, on being neitherish, i.e., how he views the markets. – Ilene
Bullish….Bearish… or Neither
Courtesy of Chris Kimble
Am I Bullish, Bearish or Neither?
Choice “C”…Niether!
I am of the opinion, being Bullish or Bearish are emotional states of mind. They are NOT STRATEGIES. I believe that we should invest in each asset on its own individual merits/patterns, not based upon some global macro prediction.
Did I suggest to buy the 500 index (see post) and become “BULLISH” on 8/29 because the economy was fine? NO! Bought the 500 Index due to these conditions…Bottom of channel support and a falling wedge and by the way, the fewest investors bullish since the March 2009 low. NOTHING MORE!
Did I harvest the S&P 500 position and become “BEARISH” yesterday (see post) , after an 8% gain in three weeks, because something is bad about the economy? NO! Harvested due to Fibonacci resistance at the top of a trading range. NOTHING MORE!
Did I buy Silver a month ago (see post) because something is wrong with the dollar or that inflation is going to go wild or….NOPE! I bought Silver on an upside breakout from a favorable pattern, an ascending triangle . NOTHING MORE!
Why own Emerging Markets or Brazil right now? Falling channel breakouts! (See Post) NOTHING MORE!
Why own High Yield mutual funds? A breakout of a flag pattern and above moving averages (see post) . NOTHING MORE!
Why BUY HOME BUILDERS XHB (see post) when so many people are BEARISH on this industry? Because of rising channel support plus a sizeable falling wedge after a 30% decline. NOTHING MORE! (Current gain of over 12%!)
Will we buy the 500 index and other global markets (see post) on an upside break of these long-term falling channels? YES!!!
My goal is to try to provide solutions, that will help investors “inflate portfolios, regardless of market direction by way of the Power of the Pattern!” I will leave the Bullish or Bearish elements of this business to people much smarter than myself.
Chris
‘I Love the Delusion of the Markets at this Point in the Cycle’
by ilene - September 7th, 2010 11:36 am
‘I Love the Delusion of the Markets at this Point in the Cycle’
Courtesy of Michael Panzner at Financial Armageddon
Since I started publishing Financial Armageddon in late-2006, I’ve often railed against the incompetence and tomfoolery of highly-paid Wall Street "strategists" (note the double quotes). Many of these so-called experts are clueless data-regurgitators or ivory tower economists with above average communications skills. Indeed, it seems to me that most of the "stars" of the forecasting game are simply being rewarded for having the gift of gab, rather than their ability to look past the trees and size up the layout of the forest.
But as with most generalizations, there are exceptions. Surprisingly — yes, I am cynical — a very small number of those who know what they are talking about, have something intelligent to say, and know how to translate their insights into clear and interesting prose have been recognized as such. I am referring in particular to Albert Edwards, the number-one ranked global strategist for I-don’t-know-how-many-years running, and his sidekick Dylan Grice, who placed second overall in the 2010 Thomson Reuters Extel Survey, both of whom are members of the strategy team at Societe Generale.
In his most recent Global Strategy Weekly, Mr. Edwards touches upon two topics near-and-dear to my heart: the real state of the economy and the utter cluelessness of most equity investors [italics mind]:
The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious.
The notion that the equity market predicts anything has always struck me as ludicrous. In the
…
The Hindenburg Omen was triggered today!
by Chart School - August 13th, 2010 3:39 am
The Hindenburg Omen was triggered today!
Courtesy of MICHAEL ECKERT
The Omen finally got triggered today, first, a quick refresher of what the Omen is:
It is a set of conditions that, when met, greatly increases the odds of a large sell-off or crash of the markets. In fact no crashes in the last 22 years have happened without a confirmed Hindenburg Omen. Nevertheless, a confirmed Hindenburg Omen does not guarantee a crash. It only increases the chances of a severe market correction. The probability of a crash since 1985 after two or more HO signals are confirmed is 27%. On the other hand, without a confirmed HO, Bulls can sleep better at night knowing that most likely they will not awaken to the market being down 10%.
According to the traditional definition, a "Hindenburg Omen" occurs when the daily number of NYSE New 52 Week Highs and the daily number of New 52 Week Lows are both so high that the lesser of the two is greater than 2.2 percent of total NYSE issues traded that day. Why is this negative? Under normal conditions, there can be large number of stocks, setting new 52 week highs, or a large number setting 52 week lows, but not both. Things become out of balance when large numbers of stocks are setting new highs and new lows at the same time. Having one sector soaring, and another setting new lows is not good in the balance of a healthy market.
Two other sets of conditions have been added to the HO definition to filter out false readings. Here is a summary of what traders look for in identifying a HO signal:
1-The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows are both greater than 2.2% of total NYSE issues traded that day.
- The smaller of these numbers is greater than 69. This is a function of the 2.2% of the total issues (as of 7-12-2010, 69 issues are required for the 2.2% rule). Thus if 69 issues are making both new highs and lows, then the 2.2% rule has been satisfied.
2-The NYSE 10 Week moving average is rising.
3-The McClellan Oscillator is negative on that same day.
4-The new 52 Week Highs cannot be more than twice the new 52 Week Lows (but the new 52 Week…
Charts From the Future: 5% Rule Update
by Phil - July 25th, 2010 11:15 am
Yawn!
As I said in our last 5% Rule Update, way back on May 5th, I’m not a big fan of TA. We have our 5% rule and it serves us well enough but that’s a statistical analysis, not a technical one. The only TA I put a lot of stock in is Fibonacci Retracements but that, also, is really statistical science and has nothing to do with trying to predict the movement of squiggly lines on a chart.
The 5% Rule does NOT tell you which way the market is going. It does tell you where the resistance points will be. Of course, knowing that and knowing what kind of bounces to expect and knowing where a proper breakdown or break-out occurs is kind of useful and, when it coincides with the tea leaves that are read by the "real" TA guys – you can really have something good to go by!
Unfortunately, the 5% Rule is not really a RULE because it requires a cynical background in statistics, especially regarding aberrant values or "outliers" and a general understanding of market history as well as current market events because all need to be taken into account in order to give you accurate "consolidation levels" from which we base out chart movement.
The great Harry Houdini used to enjoy amazing audiences with demonstrations of the supernatural, especially when he would pull back the curtain and reveal the frauds that others were passing off as reality. That’s how I feel about TA - we can use these very simple scientific "tricks" to project the movement of the market and others can paint their charts and dress them up in whatever language they wish to make it unique but, to me, it still all boils down to the fundamentals with the underlying movement governed by normal regression patterns influenced by capital flows and sentiment.
Whatever you want to call it, here’s our chart from May 5th, where I said: "So what lies ahead? Most likely a retrace back to 1,100 (25% of our run) but if that holds and we consolidate a bit, I will be downright bullish. I will also be impressed if we hold 1,145, which was our last breakout line but, for now, we have a 3.75% drop from 1,218 but a poor bounce yesterday indicates we are likely to get down to a 5% pullback from 1,218 to 1,157 and…
Dark Horse Hedge: Market Musings
by Chart School - July 8th, 2010 2:11 pm
Dark Horse Hedge: Market Musings
Courtesy of Scott Brown at Sabrient, co-author with me of The Dark Horse Hedge
The SPX continues to trade below both the 50 and 200 day moving average (MA) but yesterday rallied to close above the once solid support level of 1040. The market bounce off the lows of July 2 also correlated with the Dark Cross formation which occurs when the 50 Day MA crosses the 200 Day MA downward. As we discussed in the Dark Horse Hedge, this has not traditionally held up as a good foreshadower of bearish activity. Nonetheless, it is worth noting that it took place.
With a low volume rally on Wednesday, and the lack of any follow through midway through Thursday, combined with the rally lacking any real quantifiable economic basis, the charts lead us to believe that Wednesday’s action was a relief rally so far. To begin even a modest short-term uptrend, the SPX will need to hold above the July 2 close of 1023 on any downward close and then break the close of Wednesday at 1060 or close today, whichever is higher. The 14 day RSI is slightly bearish at 41.68 and would need to cross 50 to become a bullish technical signal. As one other confirmation of the weak technical chart, I have added the 12-26-9 MACD which is currently -17 with the bullish signal line being a break of 0.
So in conclusion, the SPX had a earnings foreshadow or relief rally on Wednesday, with Volume below the 50-day MA. The index itself is remains securely below both the 50 and 200 day MA which have crossed. The confirmation by RSI and MACD lead us to believe that based on our reading of the current chart, the rally of Wednesday will have to retest 1040 and more importantly 1022 before it can move higher. If the next down move breaks 1022 and seeks what should be technical support from Sept 2009 of 995, we are technically in a downtrend.
The DDH started with a 67% SHORT tilt last Thursday which is confirmed through this chart analysis. On Tuesday, both LONG positions were up and the 4 SHORT positions were down creating the “Perfect Storm” for that day. DDH attempts to build a L/S portfolio with the best fundamental companies held as LONG positions and the worst fundamental companies held…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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