Saturday, 21 October 2017

How to trade chart patterns

 How to trade the following chart patterns

Only a single variable, price. On price converge a galaxy of influences: fear, greed, desire, ounning, malice, deceit, naivetĂ©, earnings estimates, broker need for income, gullibility, professional money managers’ need for performance and job security, supply and demand of stocks, monetary liquidity and money flow, self-destructiveness, passivity, trap setting, manipulation, blind arrogance, conspiracy and fraud and double dealing, phases of the moon and sun spots, economic cycles and beliefs about them, public mood, and the indomitable human need to be right.

Chart formations are the language of the market.




Saturday, 14 October 2017

MACD Strategy

Long term strategy as simple as 1-2-3, with a two-step entry
  • Step 1 – Find MACD cross on weekly timeframe with price close to 200 MA
  • Step 2 – Switch to daily timeframe and draw horizontal price levels
  • Step 3 – Wait for the price to break at these levels before entry, with wide stops
  • Step 4 – Manage your risk and go with the flow

Example BLU
  1. On the weekly chart,  during the week of 13 July 2015 the MACD signal line crossed the MACD line while the price was closed to the 200 Moving Average.
  2. Then use 14 July 2015 high price as the price level
  3. And enter the trade when this price level is broken, with a wide stop just below lows during June 2015
 
 
Note: On the daily chart the price was also at the 200 Moving Average
 

The two-step entry
  1. Use the weekly MACD as the trigger and
  2. The broken price level as the confirmation entry point

Process Beats Outcome:
Do you want to be right or rich?
You really have no control over the results; you have control over your action.
What can you really control? How much you lose

Tradable “Chart Patterns”

The tradable “chart patterns” are the following:
#CHART PATTERNBR 
1Support and ResistanceXX 
2Trendline Break and ReversalXX 
3Saucer FormationsX  
4Fibonacci Retracements X 
5Price GapsXX 
6Volume Climax and Volume TrendXX 
7ConsolidationsX 
 
These patterns are classified into two basic types: momentum (breakout) and exhaustion (reversal).

1 Support and Resistance
Support and resistance have been used for a very long time by technicians and anyone who watches markets, even fundamentalists! Support is a level or area on the chart under the market where buying interest is sufficiently strong and the invers, selling interest at resistance levels.
It is often difficult to determine whether a support level will hold or be broken. That is why we are discussing this pattern first. It is the weakest and most difficult to use.

2 Trendline Break and Reversal
Trendlines are perhaps the oldest tools known to chartists. Trendlines form across peaks and valleys called pivot points —r elative highs and lows in a chart. As more points form along a line, it becomes more “established.” This means that, when the line is broken,  it  will  likely  follow through with a strong move in the new direction.
The best angle on a line for breaks is 45 degrees. The shallower the angle, the less pronounced any breaks are likely to be. Conversely, for trendline reversals, you want to see a shallow angle formed by the trendline — 20 to 30 degrees or so is best.

3 Saucer Formations
Saucer patterns are fairly rare, but are usually very predictive. The saucer pattern shows a gradual change in trend as it develops. It is important that the formation show a clear arc with tight trading ranges at the bottom of the arc.

4 Fibonacci Retracements
Gann was probably the first trader to use Fibonacci retracement ratios. The Fibonacci number sequence occurs in nature frequently (1, 3, 5, 8, 13, 21, . . .).  Ratios of these numbers to each other form the values 38%, 50%, and 62%. As it turns out, these are very close to the Gann numbers 3/8 (37.5%), 4/8 (50%), and 5/8 (62.5%), which he used over and over in his chart calculations.
The Fibonacci retracement phenomenon happens over and over in markets of all kinds. Essentially, you look at the most recent significant low and high, and make measurements on a move between these points. Measure the 3/8 point (38% of the distance from the last pivot) and look for a reversal there. If it doesn’t happen, move on to the 4/8 (50%) point and finally the 5/8 (62%) point.
A good rule of thumb is to enter a trade on 50% retracement but exit a trade at 38%.

5 Price Gaps
Gaps are basically points of high or low demand. Usually, the pent-up buying or selling pressure that forms the gap will follow through in the general market with more buying or selling.
Breakaway gaps occur at the ends of moves, in the opposite direction. They are usually the most profitable and easiest to trade.

6 Volume Climax and Volume Trend
Volume climaxes are beautiful patterns that are about 90% accurate in terms of predicting a reversal move tomorrow. When they occur, the market will likely move in the opposite direction — we just don’t know how much.
So, when you find a security that exhibits a volume climax, bookmark it and wait for the next one to form!
Volume climaxes are particularly accurate at the end of long moves, near significant market tops or bottoms, or near
Fibonacci retracement points (38%, 50%, 62%).


7 Consolidations
A consolidation is a place where buyers and sellers are very closely matched in numbers. As the battle ensues, others (on the sidelines) notice that the market is consolidating, and begin considering getting on board. As soon as a breakout to the upside (or downside) occurs, the latent buyers (or sellers) usually begin taking positions. You want to look for places where price moves outside the trading range that forms the consolidation, on increasing volume.