http://www.enthios.com/fpdb/images/universal/040819.png
http://www.enthios.com/fpdb/images/universal/040817.png
http://www.enthios.com/fpdb/images/universal/040816.png
Updated Equity Curves
These are entirely theoretical and represent the potential for improving performance by optimizing exit strategies.Three examples of exit strategies use here are Keltner, "Best target", and "best stop".
http://www.enthios.com/fpdb/images/E2006-02-03-1144.png
http://www.enthios.com/fpdb/images/E2006-02-03-1143.png
http://www.enthios.com/fpdb/images/E2006-02-03-1146.png
http://www.enthios.com/fpdb/images/E2006-02-03-1145.png
Disclaimer:
This does not purport to represent the teachings of Robert Fischer or Robert Miner.To learn more about Fischer, buy his book "Fibonacci Applications and Strategies for Traders," on Wiley.To learn more about Miner, check out his web site http://www.dynamictraders.com/ .
To learn more about the application of these and other Fibonacci methods, read our new book, New Frontiers in Fibonacci Trading.
There are many ways to use Fibonacci to estimate wave targets.Some of them are listed in my Fibonacci Primer.However to calculate the target of Wave 3 based upon the amplitude of Wave 1, there are two very different ways of applying Fibonacci. Fischer uses one, and Miner uses another.I use both, and like to see where the Fischer and Miner methods coincide.In both cases, the Fibonacci calculations are based upon the amplitude of Wave 1, represented in the drawing below as line AB.The difference though is in where those calculations are then applied.Fischer applies them to point A (the beginning of Wave 1), whereas Miner applies them to point C, the end of Wave 2 / beginning of Wave 3.The first example shows how Fischer applies Fibonacci.
Fischer:Calculations on Wave 1 (AB) are then applied to point A to determine the Fibonacci target for potential Wave 3 (CD)
http://www.enthios.com/fpdb/images/fischer1.png
Fischer takes the length AB, multiplies it by 1.382 or 1.618, and ADDS that to point A to get the target for D.
[*]Note that the exact same targets can be achieved by taking the length AB, multiplying it by 0.382 or 0.618, and adding it to point B.
For example, if A is 500 and B is 600, and if we are using the Fibonacci ratio of 1.618, then the target forD (potential Wave 3) is either:
((600-500) * 1.618) + 500 = 661.8 OR
((600-500) * 0.618) + 600 = 661.8
[*]Note that it makes NO DIFFERENCE what point C (Wave 2) is.Now let's look at how Miner applies the Fibonacci sequence:
Miner: Calculations on Wave(AB) are then applied to point C to determine the Fibonacci target for potential Wave 3 (CD):
http://www.enthios.com/fpdb/images/miner1.png
Miner takes the length AB (just as does Fischer), then multiplies it by (typically) 1.0, 1.27 and 1.618, and adds that to point C, which is the end of Wave 2 and the beginning of potential Wave 3.Examples:
Taking the first chart, if B is 600 and A is 500, and if C has retraced 50% of that range to 550, and assuming we are using the Fibonacci ratio of 1.27, we would calculate as follows:
((600-500 * 1.27) + 550 =677
[*]With Miner, it makes a very big difference what point C (Wave 2) is.
[*]Note, however, how close the Miner 1.27 calculation is to the Fischer 1.618 calculation.This is often the case.When this is the case, i.e. when two different methods converge to create a close target zone, it strengthens the predictability of that zone as a Wave 3 exhaustion zone.
[*]Miner also uses 100% of Wave 1 (AB), applied to point C, as an important predicator for Wave 3.Simply put, the measured move of AB is often the same as the potential measured move CD.It is very interesting how often the Miner "Measured Move" comes close to Fischer's Fibonaccitarget of 1.382:
Fischer:((600 -500) *1.382) + 500 = 638.2
Miner:((600-500) * 1.0) + 550 = 650
This actual chart from 7/22 shows the difference between Fischer and Miner, and also how they often line up quite well:
http://www.enthios.com/fpdb/images/JN158.png
[*]Turning points are labeled the same as the previous two examples, i.e
AB = Wave1
BC = Wave2
CD = Wave3
[*]The Fischer calculations of 1.382 and 1.618, shown in magenta,are based on AB and applied to A. [*]Note that the Fischer calculations of 2.236 and 2.618 - also based on AB and applied to A - provide a good target for the Wave5 extension (EF).[*]Miner calculations of 1.0 and 1.272, shown in lime green, are based on AB and applied to C.Note how they overlap with the Fischer calculations.[*]Wave2 (BC) retraced to 61.8% of Wave1 (AB).In summary:
[*]Great minds to not think alike, but there are more then two ways to skin a cat.[*]Mix Fibonacci trading methods, not metaphors.[*]There are many other ways to use Fibonacci to target exhaustion points.Major retracements are perhaps the most dependable.
Happy trading!
This is a standard setup, basically "open domain." After the first hill (small wave), you can draw a trend channel that follows the bottom of the hills.You can also use Fibonacci to calculate where the top of the third hill will be, but that's not as important as what follows.After the third hill, go short if/when prices drop down out of the trend channel.Add shares when they cross the 50% retracement line.Exit half when 1.272 is reached, and exit the rest at 1.618.
http://www.enthios.com/charts/images/3HillsReversalRetrace.gif
This trade, if you traded two contracts, entered short at 1751, added another at 1748, covered one at 1734 and another at 1727.5 for 37.5 points.
3PB CHARTING
This page deals with following the 3pb method, quick and easy, on QCharts, using the Line and Ray drawing tools.One advantage of Qcharts is that if you draw on a chart for a particular stock, the drawing will always remain there, as long as you save the Workspace and keep the same Chart window open within that Workspace.The really nifty thing is that you can change stocks within that window, and if you come back to a chart that you had drawn 3pb or retracements (or anything else) on, those drawing will be saved.
I keep a running 13min, 3pb chart of the Nasdaq Composite, $COMPX.With this, I can tell at a glance if we are long or short, and how close to the break price we are.You can also do this for any stocks that you may be following.I use three tools:
[*]Line Draw tool, thick Red, for showing a new low price.[*]Line Draw tool, thick Green, for showing a new high price.[*]Ray Draw tool for showing break prices and latest high or low.I'll step through this, chart by chart, starting on the first trading day of the millennium.
Be sure that Grid and Cursor Tracking or switched on (Right-click -> Format) in the chart.
First couple of candles are down candles:
http://www.enthios.com/charts/images/3pb01.jpg
Select the Ray Tool from the Drawing Menu .Click once, holding the pointer at the bottom of body of the first down candle.Without moving the pointer, click again to send the ray perpendicularly out to the right.Your chart should look like this:
http://www.enthios.com/charts/images/3pb02.jpg
The next candle closed above the previous one, so it is not an important price.Skip it.Draw red lines connecting each successfully lower price, as shown here:
http://www.enthios.com/charts/images/3pb03.jpg
Once you have three new prices in a range - or four, if you are starting out fresh - you can then draw the break price and the latest new price with the two Ray Lines:
http://www.enthios.com/charts/images/3pb05.jpg
[*]Your break price is any subsequent price that break above the upper violet Ray line.[*]Any candle the closes below the lower Violet ray line, becomes a New Low.At this point, you the redraw the two ray lines, moving the break price (upper line) and new low (lower line) successively lower.[*]Remember, break price is always the third new price back, as shown above.Now let's move forward in time.There were no new prices until the end of the day, when finally $COMPX broke to the long side:
http://www.enthios.com/charts/images/3pb06.jpg
[*]Note that in the above chart, we have only one new high.Remember that the break from short to long is not confirmed until we have two new highs.[*]Therefore you do not need to change the two Ray lines until a second new high is confirmed.This chart shows you, at a glance, that (a) one price has broken (the last candle that is above the top violet Ray line), and (b) the new price is still the bottom violet Ray line.If a new low is established below that lower Violet line before a second new high, then we resume short.As you can see in the next chart, this is exactly what eventually happened - we resumed short:
http://www.enthios.com/fpdb/images/3pb07.jpg
At this point, we "move the down markers" accordingly:
http://www.enthios.com/charts/images/3pb08.jpg
[*]Now how it is easy to count back three prices to get the break price - it's simply three Lines back. You can number these if you want to keep track of how many new low's (or high's) you have in a series; these have fibonacci significance, particularly at 8 and 13 new prices.[*]There are two ways to "move the markers" - the two Violet lines that form your break and new prices.You can choose the Selection tool in the Drawing Menuhttp://www.enthios.com/trading/images/select.jpg then click on the Ray line and drag that line to a new location, or you can simply remove the ray line by Right-clicking on the line and choosing Remove:
http://www.enthios.com/fpdb/images/RemoveLine.jpg
I prefer the latter because it is sometimes cumbersome to move existing Ray lines with the mouse.
An example of breaking from short to long (and staying long)
As the market closed on Thursday 1/6, Nasdaq was short with a break price of 3786:
http://www.enthios.com/fpdb/images/breaklong01.jpg
At 10:09 on Friday 1/7, it broke long with one new high at 3799.We did not change the "first down markers" because it was only one new high, and had not yet been confirmed. Then at the next time point, 10:22, we got our second new high, confirming that we were now long:
http://www.enthios.com/fpdb/images/breaklong02.jpg
Now we can move the markers. After two new highs, the new high (top Violet line) is set at the second new high of 3811.20; break price remains at the previous new low of 3720:
http://www.enthios.com/charts/images/breaklong03.jpg
After one small down candle, we then see our third new high - barely - at 3811.86.At this juncture, we move the break price up from the previous low to the penultimate low at 3751.89:
http://www.enthios.com/charts/images/breaklong04.jpg
Time passes and there are no new prices, high or low, until we reach our fourth new high of 3816.37 at 14:29.At this point, we move the break price (lower Violet Ray line) up to the third price back, which is the First New High of 3799.17:
http://www.enthios.com/charts/images/breaklong05.jpg
TOPS
Take Off Pattern Structure
A 3 candle structure, where the low of the 2nd candle is lower than the low of the 1st candle. The low of the 3rd candle is higher than the low of the 2nd candle and the close of the 3rd candle is higher than the close of the 1st and higher than the close of the2nd candle.
This structure is a trigger to go long, and is a subset of the MSL
http://www.enthios.com/trading/images/topssm.gif
TOPS http://www.enthios.com/trading/images/mslsm.gif
standard MSL
MSL
Market Structure Low - a pattern of three candles made up of a low, a lower low, then a higher low.It is best if the higher low (third candle in the sequence) is also an up candle.Typicallyused as a long trigger.
http://www.enthios.com/fpdb/images/msl.gif
See also: TOPS, MSH, MSL-MSH
MSH
Market Structure High - a pattern of three candles made up of a high, a higher high, then a lower high.It is best if the lower high (third candle in the sequence)is also a down candle.Typicallyused as a short trigger.
http://www.enthios.com/fpdb/images/msh.gif
See also:MSL, MSL-MSH
A few notes about trading MSH and MSL's.No trade should be made in isolation of other information.As always, be sure to be aware of the longer term trend, of any support/resistance in the area, and of other candlestick patterns forming or emerging.
This is the most basic trading pattern.It's where we get "buy low and sell high" from.Market Structures are the first sign of a reversal.They consist of three candles.
A Market Structure High (MSH) is a reversal formation at the top of a range. It is made up of a high, a higher high, and a lower high.Ideally, the third candle which confirms the MSH should be a down candle.
http://www.enthios.com/trading/images/MSH.gif
The short entry trigger is the low of the third candle. A logical initial stop-loss would be the High of the MSH: the top of the second candle.
A Market Structure Low (MSL) is the opposite.Long entry trigger is on the high of the third candle
http://www.enthios.com/fpdb/images/msl1.gif
Failed Market Structures are also excellent triggers. In the example below, we went short on the MSH trigger at the top.We then covered once we had moved into consolidation in the ledge.Once a MSL formed, we were ready to go long on the trigger of the third candle.However, in each of the three cases, the long trigger was not tripped. Instead, prices dropped below the low of the MSL (the second candle in the series).That then becomes a trigger to re-enter the short, as shown below.
http://www.enthios.com/fpdb/images/FailedMSL.gif
You will note that on the first failed msl, there might have been a long trigger on the last candle of that Ledge.If so, the trade would have been stopped out at the MSL failure or, if the trader is using a "continuous trade" method, would have reversed short.
Another way to play this trade - particularly if one has noticed a pattern of "ledges" such as above, and is short from the top - would be to stay in the trade for the entire "ride" down, and simply raise one's stop to the previous MSH point at each subsequent step down, as shown in the same price sequence, below:
http://www.enthios.com/fpdb/images/RaisingStops.gif
When you see a wave pattern developing, a cross of the 40 period moving average can be a good trigger.Criteria:
[*]Candle must be completely above the 40pma.[*]Candle must be an up candle for long trade.[*]Go long on breakout of its high.[*]This works best when prices are swinging above AND below the 40pma line.http://www.enthios.com/fpdb/images/40pmaCross.gif
In this example, prices stayed above the 40pma line and entered into an extended Wave pattern, as shown below:
http://www.enthios.com/charts/images/40pmaWave.gif
This is generally used as a filter for whatever trading system you use. So if the filter is long, you take long trades only during the rest of the day. John Clayburg's website which shows more info: http://www.clayburg.com/four_steps_contents.htm
The calculation is simple; I have it rigged up in a spreadsheet.
5minHi
5minLo
5minHi+5minLo/2 = Avg5min
60minHi
60minLo
The formula is (60minHi - Avg5min) / (60minHi - 60minLo) If this is < 0.5, the 5:60 trend is short; if it is > 0.5, the 5:60 trend is long.
http://www.enthios.com/charts/images/560.gif
What it tells you is that there is a 75% chance that during the first hour of the day, either the high or the low for that day will already have been reached. If more price action was on the "long" side of the5-min average, then it is likely you will see new highs, so the filter is to trade longs only.
Another way to verify this is to draw a line in your chart at the average of the first 5-minute period (or at the Open price, if you are lazy).Count the number of 5-min candles that close above this line, during the first 60 minutes, and the number that close below this line, as shown here:
http://www.enthios.com/charts/images/02061037.gif
Clayburg also talks about the importance of observing the direction of the last candle in the 60-min period; if it is down, then consider that in relation to what the overall filter is telling you. But he does not elaborate on what interval the candle should be; I assume it is a 5-min candle but frankly I don't use that advice anyhow.
There are many derivations of this filter. Usually, the average of the first 5 minutes is very similar to the Open price, particularly for the futures.So you can just use the Open price as your initial guide line.
The ADX is an excellent indicator for telling us when to trade in a trend (use moving averages or similar buy-the-dip strategies), and when to trade a consolidation (use oscillators). A recent article in the May 2004 issue of Stocks & Commodities Magazine led me to create an alert in Ensign that simplifies the process and tells you, relatively easily, which of your methods to use for current market conditions. Ensign users can download the template here:TRENDFILTER.dat
The Filter uses five indicators that are standard for the ADX study in most charting programs.If you use a different charting program than Ensign, you can probably create similar alerts for your charting program.
The five alerts are shown below in the key.They appear, in the chart below, along the top of the ADX study pane. Note how some of them overlap in the chart shown below. They can be used to give you a heads up to a change of trend, and to confirm that you are in a trend or just moving sideways.
Bars are colored by the histogram of the DI+ and DI- indicators, and can be used for trading when prices are in a trend.
Enjoy!
A key to the indicators:
http://www.enthios.com/fpdb/images/R064.png
How they look:
http://www.enthios.com/fpdb/images/trend.png
[*]Bollinger Bands set to 20 moving average, 2 standard deviations.[*]In up trend, exit the long trade when the BB is penetrated or touched (only 3.5% of all closes are outside of the bands).[*]Trigger for short entry on long reversal is the first down bar after the BB is penetrated.[*]Trigger for long entry on short reversal is the first up bar after the BB is penetrated.http://www.enthios.com/fpdb/images/BollingerReversals.gif
Refrain from entering trade if too close to the middle moving average.In the second short trade in the above example, we were fortunate in that the trigger was not hit.
Box Points are use by the Pit Locals as trade "pause points" and, as such, are useful points for exiting a trade.According to RAL, these pertain particularly to the S&P500 and the underlying "es" emini contract.Major box sizes are 17.6 points, and minor box points are 1/4 of that, or 4.4 points.According to Nitro, they are best based on the previous night's settlement price. I don't know of a charting program that can recreate these lines automatically, but there is away to enter the numbers semi-automatically in Erlangerquote using the simple spreadsheet calculator that I have attached here, in combination with the Retracement Tool in Raven. See instructions below.
The box points can also be transposed onto the Nasdaq100 "Nq" emini contract by dividing the Es settlement price by the NQ settlement price and applying that ratio to the 4.4 box size.This currently yields a nq box size of about 5.75 points. However I find that box points are not as significant for the nq.
Click Here to use the Excel-based Box Points Calculator.
Some people find that it is useful to generate box points from an intraday high or low.The Excel-based calculator also generates these automatically, if you input the respective MSL and MSL numbers.
Generating the box points in Raven using the Excel-based Box Points Calculator:
[*]Input the previous night's settlement price for the ES and the NQ contracts, in B4 and B5 as shown below.These can be found at http://www.cme.com/market/quote/.Small/sp.html and http://www.cme.com/market/quote/.Small/nq.html, respectively.
http://www.enthios.com/charts/images/InputHere.gif
[*]The Box points will be calculated in columns I and O for the NQ and ES, respectively, as shown here:
http://www.enthios.com/fpdb/images/NQBox.gif
[*]Set up your Retracement Tool as follows (use any colors you wish!)
http://www.enthios.com/charts/images/1m_Box.gif
[*]Draw the tool, anchoring it at the first Box Point at (1195.90, in this example) and extending it down to the Settlement Price (in this case, 1191.50).Be sure to draw the numbers precisely.The easiest way to do this is to maximize the chart to fill the entire screen, as shown in the example below.As you draw from the first Box to the Settlement Price, you will notice that the other positive Box Points are all automatically created! The thick vertical blue line, below, shows the anchor points of the Retracement Tool.
http://www.enthios.com/fpdb/images/CreatingBoxPoint.gif
[*]Now repeat the same step, this time drawing from the Box -1 (1187.10, in this example) up to the Settlement Price.This will create the negative box points.
[*]Your chart should look like the two below: [*]Note also that I have some 1/2 boxes in there as well, which show up as dotted lines.[*]Note the clear significance of the box points both in the morning session and the afternoon session.[*]At appears as if these are much more significant for trading the S&P emini (es) than for the Nasdaq emini (nq).http://www.enthios.com/fpdb/images/MorningBox.gif
http://www.enthios.com/fpdb/images/AfternoonBox.gif
For more information on Candlestick Patterns, visit the StockCharts.com Candlesticks Tutorial, or buy "Japanese Candlestick Charting Techniques," by Steve Nison.Nitro and Ral advise that these patterns are not as reliable on anything less than the 13 minute.Some patterns, such as stars and haramis, are rarely seen in intraday trading because they require a gap between the close of one candle and the opening of another; with electronic trading and fluid price movements, gaps rarely occur between intraday candles.
Candlestick.com also has an excellent page.
Other sources of information on Candlesticks, courtesy Citizen's inexhaustible link library:
http://www.altavest.com/candlesticks.html
http://www.hardrightedge.com/wizard/tl4.htm
http://www.hardrightedge.com/wizard/tl3.htm
Patterns shown here:
[*]Dark Cloud Cover (Bearish) and Piercing Pattern (Bullish)[*]Engulfing (Bullish and Bearish)[*]Hammer and Hanging Man[*]Shooting Star and Inverted Hammer[*]Dragonfly and Gravestone Doji[*]Harami and Harami CrossClick this Link to a Ravenquote Quotesheet that has some of the Candlestick Patterns as formulas.I'm not sure if they are correct.
Dark Cloud Cover (Bearish reversal)
[*]Down candle opens above previous up candle[*]Strong body that closes near the low[*]Closes below midpoint of previous up candlehttp://www.enthios.com/fpdb/images/DarkCloud.gif
Piercing (Bullish Reversal)
[*]Up candle opens below previous up candle[*]Strong body that closes near the high[*]Closes above midpoint of previous up candlehttp://www.enthios.com/fpdb/images/PiercingBullish.gif
Summary of both patterns in one series:
http://www.enthios.com/fpdb/images/Piercing.gif
Engulfing Patterns (Bullish and Bearish)
[*]Market must be in clearly definable trend, not in consolidation.[*]First candle is color of the trend (i.e. down candle in down trend), OR doji; second candle is color of the reversal.[*]Second candle body "engulfs" previous body. Here is a Bullish Engulfing:
http://www.enthios.com/fpdb/images/BullishEngulfing.gif
Detail is shown here:
http://www.enthios.com/charts/images/BullishEngulfingDetail.gif
Here is a Bearish Engulfing:
http://www.enthios.com/charts/images/BearishEngulfing.gif
Hammer
[*]Appears at bottom of trend, "hammering" for bottom.[*]Body is at upper end of candle range[*]Long lower shadow at least 2x thebody[*]No, or minimal, upper shadow[*]Color is not important http://www.enthios.com/fpdb/images/Hammers.gif
Hanging Man
[*]Same as Hammer but appears at top of trend, signifies weakness; wait for bearish confirmation.[*]Body is at upper end of candle range[*]Long lower shadow at least 2x thebody[*]No, or minimal, upper shadow[*]Color is not importanthttp://www.enthios.com/fpdb/images/HangingMan.gif
Shooting Star
[*]Reverse of Hanging Man; yet also appears at top of trend or top of trading range.[*]Small body at lower end[*]Long upper shadow at least 2x the body[*]Ideally, gaps away from previous bar.http://www.enthios.com/charts/images/ShootingStar.gif
Inverted Hammer
[*]Same candle as Shooting Star; reverse of Hammer; yet also appears at bottom of trend or trading range.[*]Small body at lower end[*]Long upper shadow at least 2x the body[*]Important to wait for bullish confirmation (such as gap above candle body).http://www.enthios.com/charts/images/InvertedHammers.gif
Gravestone Doji
[*]Best for calling tops; more bearish than shooting star[*]Open and close price are same; tall shadow.http://www.enthios.com/fpdb/images/GravestoneDoji.gif
Dragonfly Doji
[*]Open and close price are same, long shadow below indicating reversal.[*]Best for calling bottoms; stronger than hammer. http://www.enthios.com/fpdb/images/DragonflyDoji.gif
Harami
[*]Reverse of a Bullish Engulfing[*]Also known as "Inside Day"[*]Body must be within the body of the previous candle[*]Potential Reversal indicatorhttp://www.enthios.com/charts/images/Harami.gif
Harami Cross
[*]Same as Harami but the second candle is a Doji[*]Stronger reversal indicator than Harami
Other Sources:
The Price Histogram chart (shown below) is a graph that plots time on one axis and price on the other to give a visual impression of market activity. This representation takes the form of a statistical bell curve, just like your high school teacher used. Most students scored in the middle of the bell curve with C's, while fewer received A's and F's. Similarly, the majority of a day's transactional volume takes place in a common range of prices with less trading on the day's extremes. A few definitions:
The areas of the Price Histogram's bell curve showing the greatest depth (the point of the pennant) indicate prices where trading spent the most TIME, thus establishing VALUE for the day (price x time = value). This 'longest line' is called the Point of Control.
The Value Area (VR) - shown in blue in the chart below - is simply the price range where 70% of the days business was conducted.
[*]Note that many of these daily Structures resemble pennants.[*]Note that the widest point of the pennant- the tip - is the price range at which the stock or index spent the "most amount of time" during that day.This is the Point of Control (POC) and is indicated each day with a solid white line.[*]Note how on each day, at some point during the day, the price tends to reach the Point of Control of the previous day. [*]What these charts are telling us is that at some point during the trading day, prices will almost always return to the Point of Control of the previous day.[*]Notice how in these examples, although the price usually reaches the previous day's Point of Control, it rarely exceeds that. This is particularly the case in a trending market.[*]On the otherhand, while the structure is forming during the day, if you notice that prices move more than 16 points above (or below)the Point of Control of the previous day - you will usually be looking at a consolidation day.What this says is that in a daily trending stock or index, chances are that once prices have retraced back to the Point of Control of the previous day, chances are they will continue back in the direction of the overall trend.
http://www.enthios.com/charts/images/E_68.png
It is safest to play the breakout of a congestion area in the direction of the previous trend.Often times however a breakout occurs in the opposite direction.If prices come back to this congestion area after a contrary breakout, there will likely be stops lined up at the "other end" of the previous congestion area.Often it is best to wait for these stops to get taken out, rebound, then trade on the second attempt trough prior congestion , when those prices are no longer there.
http://www.enthios.com/charts/images/ContraryCongestionFakeout.gif
Here is a perfect illustration of a Cup & Handle formation, courtesy of Garth:
[*]Once this formation is in place , there will likely be a breakout above the "Rim".[*]The size of the breakout can be estimated as the "Depth" of the cup, adding that to the value of the Rim. In this example, the calculation would be:
* Rim (249 ¾) – Cup Bottom (232 ¾) = Depth (17)
* Rim (249 ¾) + Depth (17) = Breakout Target (266 ¾)[*]Entry Target is when the FIRST FULL CANDLE BODY on the handle exceeds the Right Rim Level (249 ¾), as indicated in the chart.[*]Suggested stop for this stock is 8% of Depth, i.e. 8% of your expected gain. (See the red line in the chart below) That’s an 11.5:1 reward: risk ratio. Not bad. But choose your stop based upon your own comfort level with the stock in question.[*]Be sure to notice how volume dries up near the bottom of the cup and handle, then spikes during the breakout.[*]Notice how entry point was ALMOST triggered at 13:11 when the shadow, but not the body, of the candle hit the Entry Target. If we had entered here, we would have been stopped out.[*]Notice however made the target exactly. Because this occurred at eod, one might have speculated that it would have gapped higher post market. In this case, it didn’t. Because we touched on the target and dropped back down, smart money would have gotten out at 260-263, or at least pared down at this point and held smaller shares for potential gap. http://www.enthios.com/charts/images/cuphandle.gif
If you configure the Retracement Tool to 200.0 (on the right side), you can use it to do this calculation for you automatically.See the section on Advanced Retracement Tool.This is how it would look:
http://www.enthios.com/fpdb/images/cuptool.gif
Here's an example of an impending breakout of a trading range - the first trading range of the day.
The dark blue line shows the high of the session. As we approach that line, the likelihood of a breakout beyond that becomes increasingly possible.We could set a trigger "just on the other side of the fence," say about 2552.But that's also where everyone else is lined up, and it's a great place to pick up suckers to sell shorts to.Even if the trading range is broken, there's a very good chance that we will drop back below that before heading on back through - and we may just expand the range slightly.Of course, there's that chance that we will simply "blow on through..."
Just playing the momentum move up to the Trading Range breakout point is a nice little trade in itself.So let's get in early, and ride the wave to the breakout point.Assuming we get there, we can decide what to do next.First let's get there:
There were no msh's on the 3min or 5min chart, so I used the 1min chart to find a msh just 10 points below the breakout point, and set my trigger one tick above:
http://www.enthios.com/charts/images/TR_Breakout_01.gif
Here is what happened next:
Indeed we did test the Blue Line on a pullback, but we had our stop set at the 2538 entry price, with nothing to lose.If we had dropped much further below, we might have taken a 2-3 point profit on the stop.But we didn't.We surged on back through, giving us an opportunity to raise our stop to 2564 fairly quickly.We ended up taking a conservative exit at 2564 for a $520 trade.
http://www.enthios.com/charts/images/TR_Breakout_02.gif
As it turned out, the futures contract price continued on up...but that was another trade altogether...
I got this from Citizen who got it from someone else, etc.Nothing you see on any of these pages is original and exclusive.You may see some methods that have been tweaked a bit, though.
The Enthios Cross is very simple, particularly compared to the various "Guerilla Trading" books out there.It very simple; the problem is that when you insert human intelligence, fear, greed and emotions, the method breaks down. You can develop your own variations on this method but here is how it works:
Use a one-minute chart with 5 and 15 period moving averages, preferably ema's.(See illustration below)
Trade only in the direction of the 13minute trend.You can determine whether the market is long on a 13minute basis, using different methods.13min 3pb, 13min 5 and 15 ma's, and 13min market structures are three that I keep an eye on.Be sure to use a continuous basis, i.e. one that takes into account the fact that the futures trade 24 hours.
On the 1min chart, when the 5 period ma crosses above the 15 period, you enter a long trade.You exit that trade when the 5 period crosses back down below the 15 period.The reverse applies for shorts.So if the 13min trend is long, each time the 1min ma's cross up, you enter a trade.Enter on the first candle after a candle has closed at the point where the ma's have crossed over.
This 1 minute chart shows the 5 period ma as blue, and the 15 period ma as red.I have overlaid the 13min 5 and 15 ma's as light blue and pink, respectively, to show you whether we are "long" or "short" on a 13min basis.
The chart below shows a 100 point trade - worth $2,000.This is an extreme but gives a good reason to use the Enthios Cross method to stay in any trade, including trades that you may have entered on other criteria.Quite often you can get 30 points out of a trade before the ma's cross back down.
http://www.enthios.com/charts/images/EC010103-02.gif
In all fairness, this method has its flaws.It really should be used only on strong trend days.On weak trend days, MSL/MSH scalping or range trading may be more appropriate.On weak trend days, the 1minute 5/15 moving averages tend to whipsaw up and down, throwing you out of a trade just after you have gotten in.
If waiting until the lines cross over, and suffering through a 20 point ($400) wiggle, scares you too much, I have developed a variation on this called the Trigger Cross.This too is simple.I use it for entry, exit, re-entry, and stopping out:Instead of waiting for the moving averages to cross over, you look fo the first candle to close above the fast moving average.Apply this for all four methods:
[*]Entry
High of first candle after ma's cross up. Set trigger for high plus one tick.
[*]Exit
If the body of a candle prints below the slow (15 period) moving average (or above, in a short trade) then use the low of the candle as the exit trigger.
[*]Re-entry.
If an exit is triggered above, but the lines do not cross down and you want to get back in the trade, simply take the high of the first candle whose body closes above the fast (5 period) moving average (this is a reverse of the Exit method).
[*]Stops
When a new msh is confirmed, raise the stop to the previous msl.Examples of all these methods are found in this one trade:
http://www.enthios.com/charts/images/EC_Triggers_01.gif
Who was WD Gann?And who was John Galt?
This shows step-by step how to draw Gann lines.This example uses the Nasdaq Emini contract andis based upon morning settings on a one-minute chart using the first 13-minute period, as per RAL.However you can use the same methods to set Gann angles over any time period, starting at any point.
For an easy way to draw Gann lines on Erlangerquote (formerly Ravenquote) (takes only a minute), click here.
The basic method is that you calculate the High and the Low over your chosen time frame - in this case, the first 13 minutes of the trading day.That range becomes the "Box size" of the "Y" axis.In this case, the High was 1606 and the Low was 1583, so the "Y" size (vertical) is 23.Because time is your horizontal "X" axis, you choose one "Box size" as 23 minutes. The calculator shows the time markings for the first 11 boxes.You can also download the calculator by clicking on the link below.Now let's get started.
http://www.enthios.com/charts/images/GannCalculator.gif
Excel Spreadsheet with Time ("Y" axis) calculations for Gann Angles.
This shows the high and low of the first 13 minute period.Draw horizontallines to show these, as shown below.In Erlangerquote (formerly Ravenquote), use the "Extended Line" tool which extends the lines in both directions. http://www.enthios.com/charts/images/GANN01.gif Now you need to draw the vertical lines of the first box. Because the box size is 23 points "high", it is also 23 minutes "wide."Because the market opens at 9:30, the first box is drawn at 9:53, as shown below: http://www.enthios.com/charts/images/GANN02.gif Now draw your first Gann Line, a simple 1x1 or 40 degree angle.In Raven, use the "Ray" tool which extends the line in one direction.Start the line at the top of the box, and extend it down to the lower right hand corner of the box.The ray extends beyond that, creating the first Gann angle. http://www.enthios.com/charts/images/GANN03.gif Now draw the next box to the right.This is simply a further 23 minutes, i.e. 9:53 + 23 = 10:16.Then you can draw a 1 x 2 line down, originating in the upper left hand corner of the first box, and ending in the lower right hand corner of the second box, as shown below.The line extends onward, but you anchored it at the lower right hand corner of the second box.Note how prices followed this line down, then left the line at the end of the second box. http://www.enthios.com/charts/images/GANN04.gif Now draw Gann Lines upward from the same first box, this time originating in the Lower Left Hand Corner.Draw your first 1 x 1 line up through the Top Right of the First Box, and your 1 x 2 line through the Top Right of the Second Box,as shown below.Note how prices followed the 1 x 1 line up, and reversed at the end of the second box. http://www.enthios.com/charts/images/GANN05.gif You can also extend boxes downward, every 23 points, as shown below.This allows you to draw a 2 x 1Gann Line downward, intersecting with the Box that you drew. Note how prices at the open followed this 2 x 1 line down and reversed at the half-box. http://www.enthios.com/charts/images/GANN06.gif This is a summary of the lines you have drawn.The blue labels show where you anchored each line. http://www.enthios.com/charts/images/GANN07.gif As time progresses, you can continue to draw lines and time boxes. Note how each line acts as support and resistance and, once prices move from one line to the next,they then tend to follow the slope of that line.Note also how often times reversals occur at the vertical box lines (time), or at half boxes. http://www.enthios.com/charts/images/GANN08.gif Note also that you can draw the horizontal box point lines all at once using the Retracement Tool on Qcharts or Erlangerquote (formerly Ravenquote).The setup is shown here: http://www.enthios.com/charts/images/BoxPointsSetting.gif Continuing, here are two illustrations of using the boxes for targets. Once you see a possible 1-2-3 reversal setting up (see numbers, in the chart below) then you can calculate your targets for wave3 and possibly wave 5, using either the Gann Lines and Boxes (first chart below), or a Fibonacci-based wave target (second chart below). http://www.enthios.com/charts/images/BoxWaveTarget.gif http://www.enthios.com/charts/images/Wave5Hit.gif Back to top
These are three methods suggested by RAL.The point is, you can try different methods and find one that suits your stocks, index, futures or trading style.The three examples below show the same S&P emini contract for March 30, 2001 using the three different time-scale methods but all based on the opening 13-minute price range. They are all 5 minute charts, although the first one also shows a 1 minute version, because that is easier to view, as you shall see:
The examples are:
[*]"Y = X" y = opening 13 minute price range (points), x = same number in minutes[*]"30 Minute" y = opening 13 minute price range (points), x = 30 minutes[*]"Scaling Price"y = opening 13 minute price range (points), x = "scaling price" (in this example 45 minutes per calculation)
[*]Y = X
y = opening 13 minute price range (points), x = same number in minutes
This shows the chart as a 5minute, full-day chart - same as the next two methods.However it becomes clear that the box size is relatively small because of the small price range in comparison to minutes.The method still works, though, but seems to be only useful for the first trading session, 9:30-11:00.
http://www.enthios.com/charts/images/Gann1min-01.gif
This is the same chart, same scale, but shown on a 1 minute chart.You can see the Gann angles clearly.
http://www.enthios.com/charts/images/Gann1min-02.gif
[*]30 Minute
y = opening 13 minute price range (points), x = 30 minutes
This has the same vertical scale as the other ones, but uses a standard 30 minute period.This is useful because you can view it easily on a 5 minute chart (5 being a denominator of 30), and you can also view it on a 60 minute basis.Note in this example, the Y scale is till based upon the price range of the initial 13 minute period.You may with to use the price range of the initial 30 minute period instead.I'll include such a chart at the bottom of the page.
http://www.enthios.com/charts/images/Gann30min.gif
[*]Scaling Price
y = opening 13 minute price range (points), x = "scaling price" (in this example 45 minutes per calculation)
This uses ral's formula for scaling the horizontal axis to the size of the opening 13 minute trading range.In this case, the Y scale becomes 45.64 and so I used 45 minutes, which conveniently can also be viewed on a 5 minute chart.
http://www.enthios.com/charts/images/GannScalingPrice.gif
[*]Another option is the 30 minute square using the initial 30 minute range as the Y scale. In today's example, that range was Hi 1165.5, Low 1158.75, range 6.75.
http://www.enthios.com/charts/images/GannRQ05.gif
This is a nice example of how well the Gann angles work:
[*]These are drawn on the S&P emini, based upon the initial 30 minute trading range with the time size also in 30 minute increments.[*]It is a 1 minute chart.[*]The first chart shows the initial lines.[*]The second charts shows the entire day.[*]I use bars here in order to compress the 1 minute chart into an entire day.[*]The solid blue lines were drawn on time box angles based on the initial 30 minute range, i.e. interesting the black 100% horizontal line to create the "major" angles (1:1, 1:2, 1:3, 1:4, etc.) [*]The blue dotted lines were drawn to intersect the next box down, the 200% horizontal line, and represent "minor" angles (2:3, 2:5, 2:7, etc).[*]You can see the importance of each line type and you can also see the importance of the "vertical" box sizes: observe what happened at the 100%, 200%, and 300% horizontal lines.These are fractals of the initial 30 minute range.
http://www.enthios.com/charts/images/0402Gann01.gif
http://www.enthios.com/charts/images/0402Gann02.gif