Using the regression channel to trade a seed waveReview:
A seed wave is the first wave in the reversal of a prior trend. It is called the seed because it usually forms the “growth seed” for subsequent waves. That can be measured using the Fibonacci growth factors.
A seed wave is best if it is “symmetrical” and occurs within a relatively limited time period. Generally, the ideal time period is between 5 and 13 bars/candles, from the start of the wave (W0) to the end of the first correction wave (W2), i.e. from trough to trough. 5 and 13 are Fibonacci numbers, but there are no rules that say you must stick to them religiously. They are just a guideline.
Referring to this 8-min chart of the Emini:
Anchor the Fibonacci target tool from W0 to W1, as shown. This will give you the W3 targets of 138.2% and 161.8%. Note how W2 retracement was to 50% of W1. This is very common. If the retracement is not within the latitude of 38.2% to 61.8% retracement, then something is amiss.
Anchor the Regression Channel tool from W0 to w2. Again, ideally this should be no more than about 15 bars/candles. If it is more, then change the chart to a higher time interval. The reason you anchor it from W0 to W2 is that you want to capture one full cycle trough-peak-trough (or vice versa), to establish both the trend and the two-standard deviation range.
http://www.enthios.com/fpdb/images/regchannelwave.gif
If prices move below the lower edge of the regression channel, and if you have already entered the trade, consider taking a stop. There are different methods to do this. One is to stop when prices touch. Another is to stop one tick below a candle that closes outside of the channel. You need to figure out what works best for you. In this example, one candle did close below the channel, but there were no prices below the low of that candle. If prices move below the regression channel before you have entered the trade, then it probably wasn’t a good idea to enter the trade in the first place.
Another stop method is to stop out when the previous MSL is taken out. It is ok to have a series of MSL’s en route to the target, but those should all be successively higher MSL’s. If you have prices drop below a previous MSL, triggering a potential stop, but if prices are still within the regression channel, then use your discretion whether to stay in the trade or not.
Note the consolidation box. It is normal for prices to go into consolidation after any big price move. Trade entry is also subjective. W3 does not “register” until prices exceed the high of W1. That means, you are not sure of the reversal of trend from down to up, until the high of the first wave is exceeded by another, higher wave. The problem with waiting to enter here is that your stop is quite far away.
Before continuing, please read the disclaimer closely.
The "Retracement Scalp" method is based on one of the fundamentals of price movement in the markets:When the trend changes direction, there is usually a correction from that change before it resumes.The only questions are (a) how to determine a trend change, and (b) how to calculate the amount of retracement that is safe before entering the trade.This chart is calibrated to work on the S&P E-mini, though there is no reason why it should not work on other instruments with someminor changes.Please refer to the key below which explains the trade methodology.
http://www.enthios.com/fpdb/images/RSChart.png
(1)Trend changes from short to long.This is shown both by the MACD oscillator in thelower window, and is also reflected in the change in colors of the Price Bars.Also, an alert box (yellow box) is drawn above the high of the first bar where this occurs.At the same time, a pop-up alert informs you that the trend has reversed long, together with a wave sound:c:\ensign\sounds\up.wav .If you ad a file to this folder with the name "up.wav" then you will hear the sound alert.You can also disable it.The settings for this alert are shown below.
(2)Prices then cross below the Moving Average or retrace to 38.2% of the previous range. Here, the 38.2% retracement was hit first. Note that the range is drawn from A to B.In this example, it was initially drawn fromA to B1.
A Green Arrow appears, as shown, to indicate when prices have crossed below the moving average line while the trend is long.
If prices hit the 31.8% retracement line first, use that to place a Limit Buy order.Target +1, Stop -1.25.If scaling out, use +1 for the first contract (C1) and the Fibonacci Wave target of 138.2% for the second contract (C2).
Here, the trade went long at 821.25.
(3)C1 exited at 822.25 for a profit of +1. At this point, move a stop up to entry price (break-even) and use the Fibonacci Wave target for C2.
(4)C2 stopped out even.
(5)Trend went briefly short, then back long again, setting up for this retracement long entry as indicated by the green arrow, 821.5.
(6)C1 exited at 822.5 for +1, and stop on C2 moved to 821.5
(7)C2 exited at the Fibonacci Wave target of 138.2%, 824.5. Note both the retracement value of 38.2%, and the wave target of 138.2%, are created by the Fibonacci Levels tool which is setup as shown here:
http://www.enthios.com/charts/images/Sep644.png
Trend change alert dialog box: http://www.enthios.com/charts/images/Sep645.png
Andrews PitchforkHere is a method for trading using Andrews Pitchfork, with a tip of the hat to NQoos, who in turn tips his hat to Alan Adrews. Be sure to visit NQoos.com, where Jim has a wealth of great trading info.
http://www.enthios.com/fpdb/images/NQoos_Andrews1.png
http://www.enthios.com/fpdb/images/NQoos_Andrews2.png
http://www.enthios.com/fpdb/images/NQoos_AndrewsTLSellsetup3.png
http://www.enthios.com/fpdb/images/NQoos_TLBuySetup.png
Another method:
http://www.enthios.com/fpdb/images/NQoosFavoriteAndrewsSetup.png
Trading with the Virgin POC
Here I will discuss three topics:The Price Histogram study, the Virgin POC option for that study, and a method for trading with the Virgin POC that I call the Universal Method.You can see a record of recent trades here: http://www.enthios.com/blog.htm Price Histogram
The Price Histogram is my favorite tool for two reasons:It is intuitive, and it is extremely effective.There is no hocus pocus or mathematical wizardry; no need for exponentials, or smoothing, or weighting.The Price Histogram simply shows you what you should be able to see with the naked eye: where the market was most "comfortable" trading, over any given period.It is also rare among technical indicators because it is leading, not lagging.It is a leading indicator because it tells you, quite far in advance, where the market is likely to turn.Moving averages and oscillators cannot predict; they can only suggest, and never in advance, that the market is overbought or oversold.Lagging indicators are also notoriously bad at keeping you out of sideways chop.
Traditionally, the Price Histogram study (or others, sometimes referred to as a Market Profile) has been applied to a 30-minute chart to provide a histogram of market activity for one day.Unless I am looking far back in time, I prefer a 5-minute chart because it is more precise.The chart below shows a 5-minute Price Histogram study.
http://www.enthios.com/fpdb/images/PriceHistogram/price_1.gif
The histogram on the left side of the chart is drawn during the day in five-minute increments. The length of each horizontal line in the histogram represents the amount of time that the market spent at that corresponding price.Thus if the market spends a great amount of time at a particular price, the histogram line for that price will be longer.The longest line in the histogram is the one price where the market spent the most amount of time. It is called the Point of Control or, alternatively, the Control Point.Most traders refer to it as the 'POC' for short. In this chart, you can see that the POC lies at 1183. The beauty of the Price Histogram is that even if it was not there, you could probably still look at the chart and guess that the most amount of time was spent in the region of 1182~1184.
What is significant about the POC?Traders collectively remember it, consciously or subconsciously.That's all.No math needed.And the more time that the market trades at a particular price, the longer - or greater - that memory.Psychologically, the POC acts as a center of gravity.In this chart, the POC for October 12, 2005 was 1183.Let's scroll down and look at what happened on both the day before, and the day after, October 12.
This next chart shows what happened on the day before, and after, October 12.It is an excellent, albeit ideal, illustration of the power of the Price Histogram.Don't worry.I will also show you what can go wrong.
http://www.enthios.com/fpdb/images/PriceHistogram/price_2.gif
The POC on 10/11 was 1193.Even without the histogram and the POC line, you should be able to see that the market spent most of the day in the 1191~1193 band.At the end of the day, the market closed almost 5points below the POC. Overnight it gapped down slightly but then, for whatever reason, started to head back up.It is important to recognize that we cannot predict whether the market will go up or down.We can only be reasonably sure that as the market moves closer to a POC line, the gravitational "pull" of that line increases. What happens when prices hit the line?The same that happens to any object with weight when it comes into contact with the source of gravity: it bounces. If it bounces hard enough - as in a tennis ball hitting a tennis racket - it will return very quickly from whence it came.On the morning of October 12 you can see that the market moved back up to touch the previous day's POC. Bullish traders tried to push it beyond, but not for long: that is the strength of the POC. This also illustrates that the POC is not exact; most people familiar with price action are aware that when prices reach a turning point - be it a previous high, low, or congestion range - that point usually will not act as an exact ceiling or floor.What happens at that point depends very much upon the players in the market at that point in time, and that means that what happens is random.Some traders may try to move the market higher by buying. If the collective "will" of the market is in agreement, then the market will move past the POC. This does not happen often.Because it does not happen often, astute traders can turn that knowledge into a profitable trading system. That is exactly what I have done. What usually happens instead is that the market may try to move past but then the buyers will dissipate, and sellers will take over.Notice in the above chart that the exact same event occurred on October 13.The market closed below the POC, then moved back up the following day. When prices hit the POC, buyers turned to sellers and the market turned back down.
Point of Control Formation
The histogram tends to form a bell curve, although it is not always symmetrical.Because it is "turned sideways", it more closely resembles a pennant.If the pennant has a sharp "tip" protruding off to the right, that indicates that prices traded for a long time in a relatively limited range and so the "gravitational pull" of the resulting POC will be quite strong.If the pennant has a blunt tip, then the POC is not well defined and should be treated accordingly.Sometimes a pennant can have two tips, one just slightly lesser than the other.In this case, although the indicator only shows one POC, there are two POC's.Therefore it is helpful to pay attention to the actual shape of the histogram and draw your conclusions accordingly.
http://www.enthios.com/fpdb/images/PriceHistogram/price_3.gifhttp://www.enthios.com/fpdb/images/PriceHistogram/price_4.gifhttp://www.enthios.com/fpdb/images/PriceHistogram/price_5.gifhttp://www.enthios.com/fpdb/images/PriceHistogram/price_6.gifIn the Properties dialogue box shown below, the default setting is for a Time based profile.There are options for Volume-based, and Candle-based.Typically the Time and Volume based profiles generate POC's that are almost exactly the same.You can check this by running two overlapping studies, one for Time and one for Volume. I usually do not show the histogram on the second study, only the POC. In those cases where the Volume-based POC is different from the Time-based POC, I will consider both as viable. http://www.enthios.com/fpdb/images/PriceHistogram/price_7.gif
The Virgin POC A 'Virgin' POC is one that has not been touched by prices on subsequent days.It is a term that I came up with but its significance was first brought to my attention by a friend, Jim Swartz, who some of you may know as NQoos.The logic is simple: as described above, a POC acts as a center of gravity for the market.As prices move towards a POC, its gravitational pull becomes greater.Two things happen:the likelihood of prices moving towards that POC increases, and the likelihood of the market bouncing, or reversing, at that point increases.But what happens after prices hit the POC, retrace, then move on through?In that case, the POC is no longer virgin.Psychologically, the market no longer sees it as a significant support or resistance pivot.Traders may still see the prices that originally formed the POC as a congestion zone, but they will also note that prices moved through that congestion, and so it has been 'broken.'It is no longer virgin.It is less dependable as a turning point.Again, there is no hocus pocus to this; it is just simple common sense.
The 'Virgin POCs' option in the Price Histogram study draws the POC line to the right until such a time as it is visited by prices, at which point it is no longer Virgin.The significance of the Virgin POC (or "VPC", as I call it) is shown clearly in the 30-minute chart (below) that shows the Price Histograms for each day over the past five months.
The black circles show where a VPC clearly and obviously acted as a price attractor and reversal point.In addition, many other VPC's on this chart also acted as support/resistance but you would have to consult the individual intraday chart to see the price action.In the next section, we will look at several examples of intraday action relative to a Virgin POC from a previous day.
http://www.enthios.com/fpdb/images/PriceHistogram/price_8.gif
The Universal Method
http://www.enthios.com/fpdb/images/PriceHistogram/price_9.gifSo how can we trade with this knowledge?If prices move up toward a Virgin POC from below, you could simply short the VPOC.If prices move down toward a Virgin POC from above, you could simply buy the POC.I am a bit more cautious.I look for confirmation from lagging indicators.In this case, it does not hurt that they are lagging indicators, because they are used to confirm a leading indicator.For this I use an oscillator.It really does not matter which oscillator you use: MACD, CCI, RSI, and Stochastic will all tell you when the market is overbought or oversold, or at least when it is beginning to 'turn.' Of course, they will not tell you with any confidence whatsoever, whether the market will actually turn.That confidence comes from the Virgin POC. I use a stochastic as my oscillator.Rather than using the cross of the %K through the%D line, instead I look at the %K lines on two separate stochastic studies: a very slow one, and a fast one.I use 81 as the moving average for the slow stochastic, and 9 as the moving average for the fast stochastic.When the slow stochastic is above the 65 band, then a cross of the 9 stochastic from above signals a short.When the slow stochastic is below the 35 band, then a cross of the 9 stochastic from below signals a long.
This chart shows a full oscillation of the slow stochastic, and the buy and sell signals generated by crossed of the fast one. I have created an Alert Study that places an arrow on the chart and generates a warning sound, whenever the fast stochastic crosses the slow from below and the slow is below 35, or when the fast stochastic crosses the slow from above and the slow is above 65.
To understand how I combine the Virgin POC with two oscillators, let's walk though a trade that occurred recently, on October 20.As with all of my trades, these were posted, and time stamped, to my web site as they occurred. On October 20, the S&P E-mini opened at 1197.75.The next chart below shows what I call the "Natural Trading Range" (NTR): bound by a Virgin POC above, and a Virgin POC below, the open price.It was posted at the beginning of the day, as a sort of "road map" for the trading day. We have no idea whether the market will go up or down.We only know that as prices approach ONE of the two Virgin POC's, that VPC will act as a price attractor and will pull prices towards it.Will prices be pulled all the way to a VPC?Maybe. Maybe not.We may have to wait two days. All we know is that if prices touch a VPC, then look at the lagging stochastic oscillators to confirm trade entry.Our leading indicator, the Natural Trading Range created by the Virgin POC's, tells us we will either look for longs in the 1178 area, or for shorts in the 1211.25 area.
http://www.enthios.com/fpdb/images/PriceHistogram/price_10.gif
It was not until 3:28 pm that prices finally hit the VPC below.When prices hit the VPC, I did not go long.Instead, I checked to see that the slow stochastic (pink) was below 35.Then I waited for the fast stochastic to cross up.That was my signal to go long.The dotted line shows the intended direction of the trade. http://www.enthios.com/fpdb/images/PriceHistogram/price_11.gif
I tend to be conservative, so I use various trade management techniques. One is to observe the Keltner bands.Keltner Bands are simply a moving average of the average trading range. They tell you when prices are within the average range, and when they are outside of it.For me, it is common sense that when prices move to the other end of the average trading range, I should take at least half of my profit there, as shown below.This was a quick trade; six points in six minutes. http://www.enthios.com/fpdb/images/PriceHistogram/price_12.gif
I then look to exit the remaining amount when the slow stochastic has reached above 65 and the fast stochastic crosses down, generating a sell signal.Note I only use this to exit the trade.I would not take a short unless it was at a VPC. http://www.enthios.com/fpdb/images/PriceHistogram/price_13.gif
Trade management is also important.Once I take a profit on the first half at the Keltner band, I will move my stop to break-even.The following trade illustrates how the break-even stop comes in handy: http://www.enthios.com/fpdb/images/PriceHistogram/price_14.gif
That is the Universal Method, in a nutshell.Of course, the astute trader will employ judicious trade management.It pays to keep a record of all trades, and not just the trades, but what happens during a trade: the high point and low point, as well as the time of day, the Keltner band touches, and anything else that is relevant.With this information organized in a spreadsheet, you can optimize both your stops and your targets.You can also determine which times of day are most effective, and when not to trade.You can also determine whether certain days of the week are less effective than others.Knowing where the optimum stop lies is very important.Here is an example of the practical application of this knowledge: http://www.enthios.com/fpdb/images/PriceHistogram/price_15.gif
This is an introductory chapter from an upcoming book, scheduled to be published this summer, tentatively called "The Enthios.com Guide to Fibonacci and Beyond"
Everything in nature is made up of building blocks.
Just as the universe is made up of atoms, so the market is made up of basic units called Market Structures.
And just as there are two basic part to an atoms – protons and electrons – so in the market there are two types of structures, Market Structure High and Market Structure Low.
Most price movement in the market can be defined in terms of MSL’s and MSH’s, and the ranges that are found in-between them.
Likewise, everything you find at enthios.com is, for the most part,defined in terms of MSL’s, MSH’s, and the building block that they form together, 1-2-3 Reversals.
Market Structure Low (MSL)A Market Structure Low (MSL) is the first sign of a potential reversal in prices from a downtrend to an up trend.
It is usually made up of three price bars (or candles): A low, a lower low, and then a higher low.
The “Low” is measured from the actual low of the candle, not the closing price.
Ideally, as shown in Figure1, the Low and Lower Low will both be “down” bars (where the closing price is lower than the open price), whereas the third bar, the Higher Low, will be an up bar.
Figure 1 - MSL
http://www.enthios.com/fpdb/images/msl.gif
The MSL is actually triggered when prices subsequently move above the high of the third candle, as shown by the dotted line.
Of course, it is dangerous to enter a long trade simply on the trigger of a MSL.
But this book is filled with ample opportunities to use the MSL and MSH as triggers for different trades.
A MSL can also be made up of two bars or candles when they both have the same low. This is known as a double bottom, as shown in Figure 2.
Again, ideally the first bar of the double bottom will be a down bar, and the second will be an up bar.
In this example, the second is a doji (open and close were the same), which is neutral.
Figure 2: Double Bottom MSL
http://www.enthios.com/fpdb/images/msl-double.gif
Market Structure High (MSH)The opposite of a MSL is a Market Structure High (MSH).
It is the first sign of a potential reversal in prices.
A MSH is usually made up of three price bars (or candles): A high, a higher high, and then a lower high.
The “High” is measured from the actual high of the bar, not the closing price.
Again, the MSH is triggered short when prices move below the low of the third bar in the MSH pattern.
Figure 3: MSH
http://www.enthios.com/fpdb/images/msh.gif
1-2-3 Reversal PatternsThe next important building block is made up of MSL’s and MSH’s.
Just as a MSL is the first sign of a potential reversal in prices, the combination of a MSL, a MSH, then a MSL that is higher than the first one, is a confirmation pattern that a down trend has reversed into an up trend.
This is illustrated in Figure 4.
Figure 4: Upside 1-2-3 Reversal
http://www.enthios.com/fpdb/images/123.gif
Note that the MSL trigger on the higher MSL is the first point of entry for a reversal trade, however the reversal is not confirmed until prices move above the high of the previous MSH.
The difference between a MSH and a Swing HighSome of my trading friend have pointed out that a MSH is exactly the same as a Swing High.That probably is the case. Certainly every swing high is made up of a MSH at its apex.However there are some instances where a MSH is not a swing high.
The following is re-printed from http://www.ensignsoftware.com/newsletter.htm , the monthly newsletter for Ensign users.It is an excellent primer for price action.
Price Action - The Footprint of the Money
Judy MacKeigan - Buffy
"What is Price Action?" is a frequently asked question by aspiring traders.Traders who ask, feel it is a well kept secret when all they receive for an answer is: 'Swing highs, swing lows, test of top/bottom, etc., are all price action.' The answer still leaves them in the dark. Understanding price action enables a trader to minimize questionable entries and improve exits.Price action is the footprint of the money.
Let's start with the very basics. The bars on the following chart are labeled as traders commonly referred to them.
http://www.enthios.com/fpdb/images/Image42.gif Up Bar:is a bar with a higher high and higher low than the previous bar. The bars marked off are in an up trend.Notice how the close is higher than the open until what turns out to be the last bar of the trend where the close is lower than the open.There were more sellers then buyers on the last bar.
Down Bar:is a bar with a lower high and lower low than the previous bar. The bars marked off are in a down trend.Notice how the close is lower than the open until what turns out to be the last bar of the trend where the close is higher than the open.There were more buyers then sellers on the last bar.
Inside Bar:also called a narrow range bar, is a bar with the high that is lower than the previous bar and low that is higher than the previous bar.Some traders do not consider an inside bar that has either an equal high or an equal low as an inside bar, others do.Inside bars usually represent market indecision.As on any bar, the closer the open and close are to each other shows just how undecided the market is as neither the buyers or sellers are in control.Buyers are in control on the inside bar marked on the chart because the close is at the top of the bar.
Outside Bar:also called a Wide Range or Engulfing Bar, is a bar with a high that is higher than the previous bar and with a low that is lower than the previous bar thereby engulfing the previous bar.Since the open and close are close together on the marked bar, neither the buyers or the sellers are in control and the market is undecided which way to go.
When the open is in the bottom quarter/third of the bar and the close is in the top quarter/third of the bar, it is said to be bullish engulfing with the buyers in control.When the open is in the top quarter/third of the bar and the close is in the bottom quarter/third, it is said to be bearish engulfing with the sellers in control.
Another definition used for this bar – especially if candlestick charts are used - is that the open and close have to engulf the previous bars open and close and not just the high and low of the bar. With this definition, the wide range bar or engulfing bar does not need to have a higher high or lower low to qualify.The first definition most probably came about with bar charts where it is harder to notice the open and close.
The following chart has the swing highs and lows marked in both an up trend and a down trend.Price on a given time frame is in an up trend if it is making a higher highs (HH) and a high lows (HL) and in a down trend if it is making lower highs (LH) and lower lows (LL).If price is doing anything else, it is in a consolidation pattern - range, triangle, pennant, rectangle etc.
http://www.enthios.com/fpdb/images/Image43.gif
The trend is considered in place until price is no longer making higher highs and higher lows in an up trend or lower highs and lower lows in a down trend.After a trend is broken, there is usually a period of consolidation that is easier to see on a lower time frame.With practice, you will be able to visualize this going on without looking at the lower time frame.
When price is in a consolidation pattern that is often referred to as chop, it is usually in a range with no trend pattern to the swing highs and lows.
http://www.enthios.com/fpdb/images/Image44.gifThe above chart shows how an exact test of high or low may mean a change in trend as it failed to make a higher high on test of last swing high or a lower low on test of last swing low.
[*]Price was making HHs and HLs until price tested the prior swing high at A.[*]Price made a LL and LH until price tested the prior swing low at B.[*]Price made a LH (The bar that does not touch line at C) until price tested the prior swing low at C.[*]Price was making HHs and HLs until price tested the prior swing high at D.It is possible for one time frame to be in one trend and another time frame to be in a different trend or show consolidation.This is where the phrase 'trend within a trend' regarding price action and the different time frames comes from.An example would be that while price may be rising on a daily chart, the intra-day chart will show retracements, corrections of various types and consolidation periods
The true meaning of this and how it can influence your trading, eludes many.The following exercise is an excellent way to learn what the phrase 'trend within trend' means visually.
http://www.enthios.com/fpdb/images/Image45.gifPull up a 15 minutes chart and mark the highs as higher high (HH) or lower high (LH) and the lows as lower low (LL) or higher low (HL). (The note tool was used in Ensign to mark these charts.)You can also print out the chart and mark it by hand.Use red lines if price in a down trend and green lines if price in an up trend.Remember price is in an up trend if it is making HH - and HL and in a down trend if it is making LH and LL.If price is doing anything else, it can be a consolidation pattern - range, triangle, pennant, rectangle etc.
Points labeled 1-4 on the example chart are in a down trend.Points labeled 5-8 are in an up trend.
Now take the same chart and change the time frame to a 5 minutes chart, keeping the colored notes and numbers from the 15 minute by using the padlock with the L to lock lines in Ensign.Mark the new highs and lows with green numbers for an up trend and red numbers for a down trend.
http://www.enthios.com/fpdb/images/Image46.gif
Now we can see by the yellow HH and LL what trend is on the 15 minute at the same time we are able to see the trend on the 5 minute.
Both charts are in a down trend until the 5 minute makes a HH at the first green #1.The down trend is broken when the LH at black #3 is exceeded.Price then goes on to make a HL starting an up trend that continues until price makes a lower high at the red #1.The 15 minute just made a HH at the black #5 and will not make a HL until black #6.At this point, we are expecting a HL on the 15 minute, and are waiting for a long signal on the 5 minute.Some traders would take the entry on the pair of reversal bars at red #2, others would wait until the last swing high at red #1 is exceeded.
The time frames are now in agreement (shown by green #1-#4) up to the black #7 HH.After the HH at #7, the 5 minute goes into a down trend (shown by red #1-#6) to what is still a HL on the 15 minute at #8.So, while the 15 minute price action shows only two trends, the 5 minute shows five different trends!
While you may trade the trends on the smaller time frame, waiting for price action to show it is going to move in the same direction as the larger time frame is trading with the trend.The trend is your friend!
TECHNICAL CHART PATTERNS CHARACTERISTICS
Obtained from the book by Thomas N. Bulkowski, Encyclopedia ofChart Patterns
Note! Some analysts believe that technical analysis chart patterns typically occur slowly over a 3 months to 4 months time span, and that you should only seriously use a weekly chart profile setting and at least one-years worth of weekly time plots.Be sure to test these patterns in the time frame that you prefer to trade and compare their average failure rates with the ones printed below.
TOP 10 BULLISHTECHNICAL CHART FORMATIONSWITH HIGHEST MOST LIKELY RISE!AVG.
FAILURES %
AVG. RISE %
LIKELY RISE %
1. Rounding Tops6%
41%
30%
2. Broadening Formations, Right Angled
& Descending19%
27%
25%
3. Scallops, Ascending25%
33%
25%
4. Head-and-Shoulders Bottoms,
Complex6%
37%
25%
5. Horn Bottoms11%
37%
25%
6. Head-and-Shoulders Bottoms5%
38%
25%
7. Double Bottoms3%
40%
25%
8. Wedges, Falling2%
43%
25%
9. Rectangle Top, Up Breakout2%
52%
25%
10. Flags, High and Tight17%
63%
25%
TOP 10 BEARISH TECHNICAL CHART FORMATIONS WITH HIGHEST MOST LIKELY DECLINE!
AVG.
FAILURES %
AVG. DECLINE %
LIKELY DECLINE%
1. Pennant, trend down34%
17%
25%
2. Scallops, Descending3%
24%
20%
3. Head-and-Shoulders, Tops, Complex8%
27%
20%
4. Diamond Tops25%
21%
20%
5. Broadening Wedges, Descending41%
24%
20%
6. Rectangle Tops, Down Breakout0%
20%
20%
7. Hanging Man6%
27%
17.5%
8. Bump-and-Run Reversal Tops19%
24%
17.5%
9. Broadening Tops, Down breakout4%
23%
15%
10. Triangles, Descending4%
19%
15%
http://www.enthios.com/fpdb/images/New_Folder2/imageFTP.JPGPATTERN CHARACTERISTICS
#1 Bullish! One of the most bullish and dependable chart pattern with only a 6% failure rate and an average positive rise of 41%. The average rise was 30%. These pattern chart formations are often long enough to appear on the weekly charts and daily charts.Pattern Shape - Rounded half-moon shape. The stock price trend curves beginning from the lower left price point upward to the top of the dome then the price trend rounds over and moves down again to a lower price support area.Trading Tactics - The average trade for entry should occur on the right side of the dome when the price closes above the dome or at crest for the more aggressive investors.WINs® -This pattern has an upward bias and is ideal for writing covered calls and/or leaps spreads. It is possible to time your writes and get higher premiums for your writes. Legging into a spread would be more aggressive.http://www.enthios.com/fpdb/images/New_Folder2/imageM03.JPG
PATTERN CHARACTERISTICS #2 Bullish! Contrary to popular belief, more chart patterns with right-angled descending broadening formations break out upwards than downwards.Pattern Shape - Looks like a megaphone, tilted downward, with the top the formation horizontal & bound on the bottom by a down ward biased sloping trendline.Trading Tactics - The upper price tags must form a horizontal line. There is no consistent volume pattern for this formation. Note! Prices can break out in either direction, usually with a rise in volume that soon tapers off.WINs® - This pattern works great with determining the strike prices for CCs and LEAPs spreads. The back and forth movements make the option premiums higher. Watch out for the third and fourth up move to gapping prices!http://www.enthios.com/fpdb/images/New_Folder2/imageHDM.JPG
PATTERN CHARACTERISTICS #3 Bullish! Ascending scallops appear when the stock prices are moving higher over 3, 6, or more months. Pattern Shape - Ascending formations have a J shape and have two price peaks with a rounded price recession in between.Trading Tactics - Ascending scallops often show a U-shaped volume trend that gets heavier over time. You can average down or leg into a CC or LEAPs spreads.WINs® - Watch out for gaps pass your CCs strike prices. LEAPs spreaders should go short one month out to avoid being called out or having a run-a-way position. http://www.enthios.com/fpdb/images/New_Folder2/image8PS.JPG
PATTERN CHARACTERISTICS #4 Bullish! This formation had only a 6% failure rate which is outstanding. When the neckline slopes downward at indicated, the stock performs better.Pattern Shape - A H&S bottom with multiple shoulders, multiple heads, or (rarely) both. The head is lower than the shoulders but not very much.Trading Tactics - Usually higher volume on the left side of shoulders than the corresponding shoulders on the right side. Great stock to play up and down with calls and puts or shorting.WINs® - Great stock to generate considerable premiums with up the down cycles before allowing the stock to appreciate in value and cash out.http://www.enthios.com/fpdb/images/New_Folder2/image7SA.JPG
PATTERN CHARACTERISTICS #5 Bullish! Great CCing pattern for stock price rise when the horn lengths are at least twice as long than most spikes over the prior year. Pattern Shape - Use the weekly profile to locate two downward spikes in the horns separated by a week worth of time.Trading Tactics - The left spike shows higher than average volume and thus more volatility.Some horns appear near the end of uptrends, so watch for the trend to change!WINs® - Horns will usually not mark the end of the downtrends, but they will be close. Prices might continue to drift down for $1 or so then head upward. Let the trend be your friend!http://www.enthios.com/fpdb/images/New_Folder2/image751.JPG
PATTERN CHARACTERISTICS #6 Bullish! H&S Bottoms are quite easy to spot and they can be very profitable. H&S bottoms meets its price targets 83% of the time.Pattern Shape - A three-hump formation with the center hump below the other two. The three humps and two minor rises should be well defined.Trading Tactics - The line slanted to the right is the neckline. The price usually advances above the neckline and stages an upside breakout. WINs® - Volume is usually highest on the left shoulder or head and diminishes on the right shoulder. Upward breakouts occur usually with high volume. A low volume breakout is not an indictor of an impending failure. http://www.enthios.com/fpdb/images/New_Folder2/imageU0O.JPG
PATTERN CHARACTERISTICS #7 Bullish! A double bottom occurs after a downward price trend. High volume commonly occurs on the first bottom.Pattern Shape - Shaped like a big upper case W that usually takes approximately 4 months worth of time to complete the formation pattern.Trading Tactics - 2/3s of the double bottom throw back to the breakout price. Therefore, consider waiting for the throwback and reversalfor prices to head upward again.WINs® - Bottoms humps that are closer together usually show larger price gains and breakouts. It is suggested that you average down or leg into positions with sideshows.http://www.enthios.com/fpdb/images/New_Folder2/image8UT.JPG
PATTERN CHARACTERISTICS #8 Bullish! The failure rate for falling wedges is very low at 10% while the average rise of 43% for this indicator suggest a profitable formation to trade. The highest price after the breakout is approx. the beginning of the trendlines.Pattern Shape - Two drawn downward-sloping to the right side trendlines that eventually must intersect. Use the trendline feature to draw the lines. Most formations have at least five touches. 3 on one side and 2 on the other side.Trading Tactics - Most falling wedges has a minimum duration of 3-wks or more. Anything less is most likely a pennant. Formations rarely exceed 4 months long. WINs® - Be ready to cover when the falling wedges come to an intersect. It may be possible to buy PUTs as side shows for the more aggressive investors.http://www.enthios.com/fpdb/images/New_Folder2/imageQ4C.JPG
PATTERN CHARACTERISTICS #9 Bullish! - This tricky pattern fails only 2% of the time! The average rise is an astounding 52% with a likely gain between 20% to 30% for late comers.Pattern Shape - Stock pricesoscillates between two horizontal trendlines before breaking upward. Looks like bridge iron support structures.Trading Tactics - The price will bounce up and down within a price range. This pattern does take time to form and you can milk deep ITM CCs or LEAPs spreads depending on your investing style.WINs® - Follow the standard approach of writing CCs at the peaks and allowing the price to drop before you cover cheap. This will protect your downside and free you up when the price begins to move upward again.http://www.enthios.com/fpdb/images/New_Folder2/image1NM.JPG
PATTERN CHARACTERISTICS #10 Bullish! The price gaps upward after a consolidationregion of several days to several weeks long. This occurs after the stock doubles in price.Pattern Shape - During a flag phase, prices can slowly drift downward as much as -20%. Prices move sideways for 3 to 5 weeks.Trading Tactics - Buy after the breakout is the safest course of action. Wait for prices to rise above the highest high in the flag.WINs® - You can buy and hold or average down your position. Let the trend be your friend. http://www.enthios.com/fpdb/images/New_Folder2/pennants.jpg
PATTERN CHARACTERISTICS #1 Bearish! This patters fools many investors. Prices usually go against the prevailing trend. In other words, the price will eventually fall as the smart money exists. Pattern Shape - There are two patterns which are related. Flags: price action bounded by two parallel trendlines.
Pennants: the two trendlines converge to a point.Trading Tactics - These formations usually form near the midpoint of a steep, quick price trend. If you do not have a strong advance or decline leading to the chart pattern, ignore the formation.WINs® - This kind of pattern last a total of 3-weeks max. Volume usually trends downward throughout the formation. "Volume precedes price!" http://www.enthios.com/fpdb/images/New_Folder2/Image215.jpg
PATTERN CHARACTERISTICS #2 Bearish! Prices peak, curve downward and around, then form a lower peak. Look for previous 52-week lows or previous lower price support levels for clues. This is a good pattern to go short with only a 3% failure rate and an average decline of 24%.Pattern Shape - The price pattern looks like a letter-J reversed. There is no discernible volume trend for descending scallops. "Prices falls by it's own weight" is the term used to describe the downward price drift.Trading Tactics - This is considered a short-term pattern up to 3 months time or less. WINs® - This is a good LEAPs puts pattern to leg into or writing deep ITM CCs if you wish to remain long. PUTs sideshows are also profitable.http://www.enthios.com/fpdb/images/New_Folder2/Image2t7.jpg
PATTERN CHARACTERISTICS #3 Bearish! One of the most easy patterns to spot and one of the most profitable! Takes as long as three months to form.Pattern Shape - H&S tops have multiple heads, shoulders, or both. Trading Tactics - Pull-backs average 64% and formations with downward sloping necklines or higher left shoulders perform better.WINs® - When prices closes below the neckline, a breakout occurs. For those cases with a steep, down-sloping neckline, use the lowest trough price as the breakout point.http://www.enthios.com/fpdb/images/New_Folder2/Imaged20.jpg
PATTERN CHARACTERISTICS #4 Bearish! Prices usually trend up to the formation. Diamond tops need not form at the top of a price chart!Pattern Shape - Diamond pattern forms after a downward price trend. Trendlines surrounding the minor highs & lows resembles a diamond.Trading Tactics - Should you locate a diamond pattern and later discover that it may be a head & shoulders top, don't worry! Both formations are very bearish!WINs® - Diamonds will sometimes form after a quick run up in prices. The reversal will usually erase these gains and return prices to where they were before the run-up.http://www.enthios.com/fpdb/images/New_Folder2/image6gl.jpg
PATTERN CHARACTERISTICS #5 Bearish! Descending broadening wedges act as a consolidation of the prevailing trend. The volume tends to increase over time.Pattern Shape - Price pattern looks like a megaphone titled downward. Both trendlines slope downward with the lower trendline having a steeper slope.Trading Tactics - This formation acts as a consolidation of the trend. If prices are moving down, prices usually continue down after a downside breakout.WINs® - If the formation is especially broad, buy as the lower trendline and sell at the top. Alternatively, sell short at the top trendline once prices are heading down and close the position after it rebounds off the lower trendline.http://www.enthios.com/fpdb/images/New_Folder2/image95H.JPG
PATTERN CHARACTERISTICS #6 Bearish! Prices trend for as long as 3 months up to the formation then oscillate with pull-backs that aver 55% between two horizontal trendlines before breaking out downward. Pattern Shape - Two parallel trendlines for the highs and the lows. Looks like bridge iron support structures.Trading Tactics - The actual price will bounce up and down within a price range. This pattern does take time to form and you can milk deep ITM CCs or LEAPs spreads depending on your investing style. WINs® - Follow the standard approach of writing CCs at the peaks and allowing the price to drop before you cover cheap. This will protect your downside and free you up when the price begins to move upward again.http://www.enthios.com/fpdb/images/New_Folder2/IMAGEPS3.jpg
PATTERN CHARACTERISTICS #7 Bearish! The price trend begins as a negative downtrend that leads to a bounce forming a megaphone appearance with higher highs and lower lows that widens over time. Then, the breakout is upward usually off the moving average line.Pattern Shape - Looks like a bull-horn and usually takes less than three months to form. Volume usually follows price; rises as price rises, falls when prices fall.Trading Tactics - Partial rise at the end of the formation predicts a downside breakout 67% of the time and partial declines predicts an upside breakout 80% of the time.WINs® - Once recognizing a broadening formation, go long at the low and buy after the stock makes its turn at the low. Likewise, go short at the high prices start heading down at the top.http://www.enthios.com/fpdb/images/New_Folder2/Imageann.jpg
PATTERN CHARACTERISTICS #8 Bearish! Pricesrise steadily along a trendline, bump up, round over, then declines through the trendline and continues downward.Pattern Shape - If the trendline is flat or nearly so, it is not a good bump-and-run reversalcandidate. The typical trendline was a 30-degree angled line.Trading Tactics - Waiting for the breakout improves investment performance. The close should be above the down-sloping trendline before you buy the stock.WINs® - When prices rises to the old high, consider selling it if the stock shows weakness.http://www.enthios.com/fpdb/images/New_Folder2/Imageb3n.jpg
PATTERN CHARACTERISTICS #9 Bearish! The price trend begins as a positive uptrend that leads to a pull-back forming a megaphone appearance with higher highs and lower lows that widens over time. Then, the breakout is upward usually off the moving average line.Pattern Shape -Looks like a bull-horn and usually takes less than three months to form. Volume usually follows price; rises as price rises, falls when prices fall.Trading Tactics - Partial rise at the end of the formation predicts a downside breakout 65% of the time and partial declines predicts an upside breakout 86% of the time.WINs® - The breakout can occur in either direction and, in several cases, prices move horizontally for several months before staging a definitive breakout.http://www.enthios.com/fpdb/images/New_Folder2/Imageo7p.jpg
PATTERN CHARACTERISTICS #10 Bearish! Prices trend downward then form lower highs and higher lows following two sloping trendlines that eventually intersect. The breakout is downward with a 57% average pullback.Pattern Shape - Prices trend downward then form lower highs and higher lows following two sloping trendlines that eventually intersect. Looks like a triangle on its side.Trading Tactics - Triangles with high volume breakouts show larger losses. Pullbacks are more likely to occur after a high volume breakout.WINs® - Unknown ahead of time. You must wait for the breakout before investing.
TECHNICAL TERMS DEFINED:
FAILURE RATE:Percentage of formations that do not work as expected. The numbers apply to formations once they stage a breakout (confirming the formation).REVERSAL
OR
CONSOLIDATION:The letter R appears if the majority of formations act as reversals of the price trend and the letter C appears for consolidations. If both R and C appear in an entry, then the chart pattern has no overriding majority of either type.THROWBACK,
PULLBACK:A throwback is an upside breakout that returns price to the top of the formation or trendline boundary. A pullback is a downside breakout that returns prices to the bottom of the formation or trendline boundary LIKELY RISE
OR
DECLINEComputed by measuring the individual percentage rise or decline for each formation and tabulating a frequency distribution of the results. The most likely rise or decline is the range with the highest frequency and usually excludes the rightmost column.
Mary is an excellent Fibonacci expert over in the EChat room.Here is an excellent guide to her applications of Fibonacci and Gartley.
[*]Basics[*]Gartleys[*]Equal Moves[*]MOFs, Slings, Test Trades and Waves[*]More on Elliot Waves (Updated 1/20/05)The BasicsTypical Elliot Waves
http://www.enthios.com/fpdb/images/Mary/MaryTypicaElliotWAves.png
Using Elliot, part 1
http://www.enthios.com/fpdb/images/Mary/MaryUsingElliot1.png
Using Elliot, Part 2
http://www.enthios.com/fpdb/images/Mary/MaryUsingElliot2.png
Using Elliot, Part 3
http://www.enthios.com/fpdb/images/Mary/MaryUsingElliot3.png
Typical Gartley
http://www.enthios.com/fpdb/images/Mary/MaryTypicalGartley.png
Elliot vs. Gartley - basic
http://www.enthios.com/fpdb/images/Mary/MaryElliotvsGartley.png
Elliot vs. Gartley - real
http://www.enthios.com/fpdb/images/Mary/MaryElliotvsGartleyReal.png
[ 本帖最后由 hefeiddd 于 2008-4-20 16:12 编辑 ]
Examples and more explanations:1
http://www.enthios.com/fpdb/images/Mary/May1.png
2
http://www.enthios.com/fpdb/images/Mary/May2.png
3
http://www.enthios.com/fpdb/images/Mary/May3.png
4
http://www.enthios.com/fpdb/images/Mary/May4.png
5
http://www.enthios.com/fpdb/images/Mary/May5.png
6
http://www.enthios.com/fpdb/images/Mary/May6.png
7
http://www.enthios.com/fpdb/images/Mary/May7.png
http://www.enthios.com/fpdb/images/Mary/May8.png
8
http://www.enthios.com/fpdb/images/Mary/May8.png
9
http://www.enthios.com/fpdb/images/Mary/May9.png
10
http://www.enthios.com/fpdb/images/Mary/May10.png
11
http://www.enthios.com/fpdb/images/Mary/May11.png
12
http://www.enthios.com/fpdb/images/Mary/May12.png
Mary on trading Gartleys:
http://www.enthios.com/fpdb/images/gartleyw1.png
http://www.enthios.com/fpdb/images/gartleyw2.png
http://www.enthios.com/fpdb/images/gartleyw3.png
Wolf Wave alias W4
http://www.enthios.com/fpdb/images/MAY25.png
Mary on Wolf Waves and more, from 3.16.2004http://www.enthios.com/fpdb/images/Mary/WolfWaves.png
http://www.enthios.com/fpdb/images/Mary/WW2.png
http://www.enthios.com/Lessons/Maryscharts/mary.htm
http://www.enthios.com/fpdb/images/Mary/WW3.png
MOF's, Slings, Test Trades and Waves (6/17/2004)
This is an excellent illustration of some Slings and MOF's.
http://www.enthios.com/fpdb/images/Mary_Mofs.gif
More on Elliot Waves (updated 1/20/05)
http://www.enthios.com/charts/images/MAY%20E%20Elliott-PA%20pattern%20concept.png
http://www.enthios.com/charts/images/MAY%20E%20Elliott-PA%20(1).png
http://www.enthios.com/charts/images/MAY%20E%20Elliott-PA%20(2).png
http://www.enthios.com/charts/images/MAY%20E%20Elliott-PA(3).png