You must be determined to prove yourself right. Divergences are useful in that they warn of a loss of momentum and often precede a reversal in price. Range is highly correlated with momentum. This is the trade that you can count on to pull you out of a slump. If it is not working after a limited period of time, start taking the position off. They add structure in an otherwise abstract environment. Shorting the first reaction up is an extremely high probability trade.
Linda Bradford Raschke is a world renowned trader with a top-notch track record spanning over three decades. "Trading one day at a time " Learn more about Linda. LBR Market Commentary. Study your own Behavioral Patterns. Sep 03,
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Fundamentals may affect the longer-term trend. Confidence is what will keep you consistently placing the proper trades on a regular basis. Confidence comes from doing your own research, staying involved in the process and taking each moment one at a time, observing a pattern repeat itself numerous times, and gaining experience in execution and organizational skills.
If you continually trade with an edge, you will make money. Stick with one methodology and take all the trades. There are four basic principles of price behavior which have held up over time. Confidence that a type of price action is a true principle is what allows a trader to develop a systematic approach.
The following four principles can be modeled and quantified and hold true for all time frames, all markets. The majority of patterns or systems that have a demonstrable edge are based on one of these four enduring principles of price behavior. Charles Dow was one of the first to touch on them in his writings. An up trend is defined as BOTH a higher high and a higher low, and vice versa for a downtrend. For example, in order to reverse from an up-trend to a down-trend, the market must make a lower low and a lower high and then turn DOWN from there.
If the market is in a well-defined trend, the largest price swings tend to occur in the direction of the trend. When the price is moving in a clearly defined trend, there are numerous strategies for entry based on the small retracements that occur along the way. These reactions allow the trader to find a tight risk point while still playing for a new leg in the direction of the trend.
R A few notes on trends: Once a trend is established, it takes considerable power and time to turn it. The strongest trending action tends to be accompanied by a decrease in volatility.
This could be describes as a methodical eating away of overhead supply, or a slow, steady price deterioration in the case of a downtrend. Just as volatility collapses in the middle part of a trend, price action can become more parabolic in the later stages of a trend.
Momentum Precedes Price If momentum makes a new high or low, the price high or low is most likely yet to come. Impulse indicates an imbalance in the supply demand equation and most often occurs in the direction of the prevailing trend. New momentum highs 12 can be made in both a trending environment, or on a breakout of a trading range. New momentum highs or lows should correspond with a new price high or low as well. Momentum can be defined using a number of different types of calculations or oscillators.
A simple rate of change, such as a 2 or period rate of change is a momentum indicator. Moving average oscillators or an RSI will make new highs or lows when momentum makes new highs or lows. Range is highly correlated with momentum. New highs or lows in a momentum oscillator accompanied by range expansion also confirms new momentum highs or lows. The only exception to this rule is after a market makes a buying or selling climax. This is not a new momentum high or low, but an exhaustion point that creates a vacuum in the opposite direction.
In an already established trend, a mild pullback or consolidation will be more likely then new momentum highs or lows following a breakout. Ideally, there should also be a marked increase in the range. A buying or selling climax indicates that the last buyer or seller has been satisfied. The market then usually begins a process of backing and filling, testing and retracing, and in some cases, has a greater reaction in the opposite direction.
Price is at a new level and nobody has had a chance to get comfortable with the new levels. The market will tend to begin a testing process in both directions until it reaches a new equilibrium level. It is rare that a market immediately begins a sustained downtrend after it has been in an up trend. Thus, a trader should be prepared to trade in both directions for a while after a trend has ended and not be too eager to set positions in the opposite direction.
The process of consolidating back to a new equilibrium point can be a long and drawn out process. This is the most powerful pattern in technical analysis as it creates a vacuum to the other side.
In these situations, the market sharply reverses its direction without the normal consolidation period. This type of pattern does not happen very often, but has powerful forecasting implications when it does. Price action tends to alternate between two different states. The market is either in a trading range environment trying to wind back down to an equilibrium level, or it is expanding in range with impulse, indicating a persistence supply demand imbalance.
This mark up or mark down phase persists until it reaches a new level. One a new level is 13 reached; the testing process will begin all over again as the market winds back down to an equilibrium level. And, once again, when a market has narrowed in range and found an equilibrium level, it is difficult to predict the direction of a breakout.
On occasion, the market will move first in one direction and then move sharply in the opposite direction. Volume is a useful confirmation took that the range expansion is for real. The pattern made by these swings is what is used to define an uptrend or a downtrend. A trader or technician does not care about the fundamental reasons that are behind an up wave or down wave.
The main concern is which waves offer the greatest trading opportunities. When a market reverses the trend from up to down, it must first make a lower high and a lower low, or, a lower low and a lower high, and THEN turn down from there meaning take out the last swing low for confirmation R as ch Any method used to define the trend will have spots of ambiguity as well as signals that fail to generate follow-through.
Any method used to define a trend, will also be confirming a trend reversal well after the high or low of the prior trend has been made. Li 1 Buying a down wave in an established up trend or selling an up wave in an 20 1 2 established down trend.
This is a simple retracement entry in the direction of the prevailing trend. This is a complex retracement formation in the direction of an established trend as opposed to the simple reaction noted in point 1. It should appear as a simple retracement on a higher time frame. When the market makes a new lows after a failed power buy — this is the point of confirmation of a trend reversal as well as a breakout point.
A failure test is a lower high or higher low at the end of a swing. This is a more aggressive type of trade since it is against the prevailing trend and thus a stop right beyond the most immediate swing must be kept in place.
The corresponding chart formation often appears as a long rectangle, triangle or wedge. Breakouts are especially powerful when converging trendlines can be drawn around the chart formation. Percentage up or down from the most recent swing high or low, a price swing low or high that is bordered on both sides by two bars with lower highs or higher lows, range functions, and simple visual inspection are just a few of the methods that can be used. Arthur Merrill expanded on this in his Filtered Waves book published in R Highest high of last 14 bars — 2.
Li nd a A trader wishing to modify parameters can start by varying the ATR function or use the lowest close instead of the lowest low as the point by wish to measure a reversing swing. The market must make BOTH a higher high and a higher low, and then turn up from there. The up trend is confirmed when the last swing high is then taken out.
The market must make BOTH a lower low and lower high and then turn back down. The downtrend is confirmed when the last swing low is then taken out. There can be a downtrend on the short-term time frame and an up-trend on a higher time frame at the same time.
There will be periods where the true trend may appear to be ambiguous. If two time frames are in opposing trends, the market is in a consolidation period and lower leverage should be used. Concentrate on the particular time frame you choose to trade on, but look at higher time frames to determine if a small or large target should be played for as well.
The number one determining factor for which time frame to trade on should be the amount a trader can afford to risk. All chart formations are comprised of variations of the patterns in the waves on some time frame.
They represent areas where buyers and sellers come into temporary balance and the moves out of these balance periods can occur in the direction of the trend, or, in the opposite direction indicating a trend reversal. It is still the patterns in the waves that hold the forecasting value, though. The larger the chart formation, the higher the odds that it will prove to be a reversal formation as opposed to a continuation pattern. Head and shoulders chart formations are one of the most reliable formations when viewed in context of the pattern in the waves.
Triangles, rectangles, wedges, and saucers or rounding bottoms or tops are some other more common classic chart formations. The most important considerations for chart formations is that the waves fluctuate on both sides of a central price level for an extended period, and trendlines can be drawn around the price action. It is also a trap to look for a bull or bear flags after a buy or sell climax. These are often a bit longer in duration than a traditional flag or pennant pattern.
Though this pattern does not occur very frequently, it 18 is one of the more powerful chart formations, as it tends to lead to a sharp swing in the opposite direction. V-Spike reversals do not happen very often, but a trader must recognize the sharp reversal in momentum to the opposite direction and be ready to switch gears. The main points from this section to remember are: Li nd Technical Indicators ig ht 19 98 — 20 1 2 A well-trained eye will be able to see the wave structure as well as chart formations without the use of technical indicators.
However, there are many times when indicators can serve as a crutch for the eye and aid in picking out patterns or adding overall structure to the price data. Bar Chart formations are SUBECTIVE, in that it is easier for the human eye to see what it wants to see or erringly note a bull flag when the market is still in the middle of a trading range. It is difficult for scanning software to apply analytics to either waves or bar charts, but it is very easy to process technical indicators that help narrow the numbers of setups or markets from a large data base.
Understand that there is little statistical edge in any of these tools as their main purpose is to highlight patterns. As a rule of thumb, it is better to use fewer rather than more indicators. Just as continuation patterns have little value while price is in a trading range, moving averages have little value for providing support or resistance in a trading range. The longer the moving average, the fewer times the market will retrace back to it and is best used to highlight the trend on the highest time frame.
A shorter period for the moving averages will contain the many small jiggles along the way. It is preferable to keep the same parameter settings for all time frames and all markets since the eye gets conditioned to see the charts a certain way. Keeping the settings constant will keep your analysis consistent.
We use parameter settings 2. R as ch ke A strong impulse move or thrust is needed to push the price through the Keltner Channels. The market must move greater than 2. Our testing shows that average true range functions are preferable to standard deviation functions, and thus we have found more value in Keltner Channels than in standard deviation bands. They are most useful in active swinging markets and will have less value in a flat, sideways market.
When volatility is low and there are smaller and fewer price oscillations to measure, a turn up or down in an oscillator will be less meaningful. Oscillators are most commonly used to highlight retracements after price impulse, as well as to indicate a loss of momentum which appears as a divergence. They can also be used to indicate an overbought or oversold condition when the market is still in a trading range. On the flip side of the coin, they can be used for confirmation of a 1 Average True Daily Range is the highest high minus the lowest low for the bar plus any unfilled gap area if the range is outside that of the previous bar.
Chester Keltner was a commodity trader and analyst for over thirty years. He was one of the first to pioneer systems using trend following rules. These bands functioned as buy and sell levels by which to enter a position. His original system was traded on a stop and reverse basis, which was mildly profitable to the degree that any trend following system would be.
Since oscillators are a derivative of the price, they highlight information already present in a simple bar chart. They are useful in helping to assess a small amount of data in a brief period of time. Pick one oscillator and stick with it. These two lines are useful in confirming wave structure or highlighting chart formations. The two opposing forces of demand and supply are wrestling to find an equilibrium price level as new information is constantly entering the system.
The majority of the time, new information leads to a push in price. As the information is digested the market reacts back in the opposite direction. The market moves in one direction until it receives new information. Then it reacts back in the other direction as traders digest the new information.
When the market is in a negative feedback mode, there should be active trading and reasonable length of swings in both directions. This is a healthy volatility environment for the shortterm trader. Each new price level serves as a catalyst to advance the price even further in the direction of the prevailing movement.
Often, a vicious cycle is formed as 21 stops are triggered, one side of the market is squeezed, trend following systems add to existing positions, and the cycle repeats forming a runaway price movement. Avoid using oscillators after a volatility extreme such as a buy or sell climax. Avoid using oscillators when the trading range is too narrow and volatility is low.
This indicates an initial buy condition. A chart pattern showing a lower high should always confirm the initial oscillator pattern. Price must serve as the trigger for entry and a stop should always be placed once a trade has been established. There may be times where the oscillator retraces all the way back to the zero line but price does not retrace all the way back to the EMA. This is a sign of strength or weakness in the case of a downtrend. A shallow bull or bear flag will accompany the best setups on the bar chart.
Always remember that oscillator patterns drop off in reliability when there is a narrow sideways trading range. A low ADX reading can be used to filter out potentially false oscillator signals. A Grail setups is distinguished by times when the ADX reached an unusually high level, showing the trend has stronger then average momentum. This is one of the few patterns that indicates a good entry in the middle of a range. It does not matter whether it is above or below zero, but more often then not it will still be below zero in the case of a buy set up.
The pattern should resolve itself with a move out of the small chart formation equal to the move leading into it. In other words, the initial objective is for equal length swings. Ideally, the previous upswing must be greater then the previous downswing in the case of a long set up.
Demand should be overcoming supply. Different software packages calculate the stochastic in slightly different ways, so a stochastic might appear different from one charting application to the next.
This means that price makes a higher high but the oscillator makes a lower high. The best trading divergences will come when the price is near the upper or lower Keltner Channel. This indicates that there has been a good price swing and prices may be short-term overextended.
False signals will appear when the market is just breaking from a triangle formation. Also, do not look at buy or sell divergences in a market where all time frames are making new highs or new lows.
Recognize that this is a countertrend trade. An absolute stop must be used at the time of entry. In the strongest of trend, price will fail to react back in the opposite direction when there is a divergence. Markets that are making new price highs or new price lows usually show multiple failed divergences.
Divergences do not imply an imminent trend reversal, merely a price correction. The best divergence setup will be a loss of momentum to the downside when the higher time frame is still in an up trend or vice versa. Good divergences form after a momentum extreme, 23 and this will occur if price has pushed to the Keltner Channels first. The move or break from a divergence formation should unfold within a few bars at most.
If the market starts to trade sideways for a few bars, the trend is most likely still too strong, and the market can continue on sharply in the direction of the trend.
To repeat, an absolute stop must be entered after initiating a countertrend trade based on a divergence. It is based off comparing the highs and lows of bars and does not use the close of the bar. The stronger the trend, the larger the reading regardless of whether it is an up trend or downtrend. A standard default of 14 is used. There is almost always a corresponding classical chart formation highlighted by a low ADX.
Large moves often occur once the market breaks out from these areas. Price must then retrace back to the period EMA. Sometimes price can run a bit through the period EMA, but it is expected to find support or resistance around this level.
The objective for the trade is a retest of the previous high or low area. However, occasionally a second grail set up if a strong trend resumes. The second grail setup is good only if the ADX has risen to a higher level on the second setup than on the first setup. Very often, divergences in the ADX and the market will precede a trend reversal meaning price makes a higher high but the ADX makes a lower peak.
The best trades occur in situations where the ADX level is high on several time frames. The next retracement will be a bit deeper and pullback to the hourly EMA. After the hourly grail gets its objective, if there is still a rising ADX on the minute chart, then it too tends to get its objective before the trend starts to lose power. A failed Grail signal is an ominous sign and can lead to a greater move in the opposite direction.
Failed grails will occur more frequently when a trader has failed to note that there is not a true trend and in fact, the market is still in an overall trading range environment. Failed grails can also occur if there are momentum divergences on the higher time frame. For example, if a small 5-minute grail Sale setup occurs when the hourlies are in a very strong 24 up trend with a rising ADX this has occasionally happened , it is best not to take the 5minute grail sell.
The last thing to keep in mind is that though this pattern is one of the highest probability trades that can be made, it tends to come late in a trend Thus, play for a smaller objective level and use a tight stop.
Chart 2 - A Trend seldom reverses without warning. Chart 4 - Momentum Precedes Price! Impulse tends to occur in the direction of the trend. Chart 6 - A period ROC is one type of momentum oscillator. As long as momentum makes new highs, continue to buy pullbacks. Chart 8 - A Trend Climax does not necessarily imply a trend reversal. Chart 10 - On this intraday chart, it is easy to see how the market alternates between consolidation periods, and mark-up or mark-down period. Chart 12 - The longer the sideways line, the greater the potential move.
This chart formation also had classic converging trendlines. A Failure Test at the top set up a short sale. The uptrend in still intact after a correction down, and a power buy sets up a long trade. Chart 14 - The Power Buy led to a push to new highs. The downswings are still buying opportunitties. Note the sideways line that has formed though! Volatility is contracting as the swings are becoming shorter in length and duration. The uptrend is still intact.
Chart 16 - The "failed Power Buy" sets the framework for a trend reversal. Upwaves are how shorting opportuntiites. A Power Sell leads to an eventual push to new lows. Shorting the next reaction up in July did not lead to any satisfaction, but the overall trend was still down.
Yet another Power Sell setup formed, leading to a push to new lows Chart 18 — The failure test at the lows set up a buying opportunity. Note how the lows of the swings were relatively close together. A failure Test plays for a small target. The push up still set up a shorting opportunity Power Sell. The failed power sell led to a trend reversal BUY which was confirmed where the trendine is drawn in. A Failed Power Buy led to a trend reversal signal.
The downtrend was confirmed where the middle trend line is drawn. Even though the market then traded sideways for the next few months, technically the trend is down. Chart 20 — The trend has once again reversed from down to up. The potential for trend reversal gave early warning in April. The uptrend was just recently confirmed. This time the swing to the upside is greater then the prior up trend's efforts.
Chart 22 — Heating oil - interesting study - Did the break below support lead to continuation? At what point would the case for a downtrend be questioned? Where was the "Sweet Spot" on this chart? The pattern is preceded by a pole or momentum thrust and leads to a retest back up.
Chart 24 - This "flag" formation is suspect. The market is still in a broader trading range. Chart 26 — U turn sell after three pushes up.
Chart 28 - Three pushes up on the hourly hogs. Charts for Section 1 — Indicators 42 In c. The price should be making a higher low. The opposite occurs for Sell Setups. Chart 31 - More first cross Buy and Sell setups. Shorting the first reaction up is an extremely high probability trade. The chart pattern has the appearance of a Bull Flag.
Chart 37 — Buy Anti - hourly SP. Last upswing greater then previous downswing followed by pause consolidation that has the appearance of a bull flag.
They tend to be smaller chart formations then Buy Antis and are not as common. Chart 43 — Crude - intraday chart. Play for a retracement back to the EMA. A divergence does not imply a trend reversal. Chart 45 - A low ADX highlights accumulation or distribution.
Most traders tend to underestimate the potential magnitude of a move upon a break of the established range. After a high ADX reading, the retracement back to the period EMA tends to lead to a retest of the previous swing high or low.
Note the sideways line at the top. Chart 47 - Be careful using oscillators when there is a low ADX. Time to draw in trendlines and play for a breakout. Professional traders watch the price on a discretionary basis for several key reasons. Tape reading can enable a trader to get a slightly better entry or exit price, as well as provide confirmation a trade is working after initial entry.
Tape reading, or monitoring price action, can also impart information as to how fast a market is moving or if it is losing momentum in a manner that is a different feel from watching a chart. It also is a useful way to monitor relationships, such as those between two markets, as well as information about potential aberrations in the price behavior. LB R G ro up , If a trader who knows what to look for when monitoring price, will always be one step ahead of the crowd.
It is useful to review the basics of tape reading before moving on and study price pivots such as the opening, high and low for the day. Tape reading is something that improves with experience, but a newer trader still needs to know where to begin! This is of course, reflected by patterns of higher highs and higher lows, or vice versa, as well action indicating impulse. So, in addition to noting if the price is moving up or down, a trader is monitoring the overall activity level, which can show up in volume as well.
Where is the current price relative to the most recent swing high and swing low? Is the market moving closer or further away from these levels? Is it struggling to rally back towards the most recent swing high, making little headway over a large period of time, or is it rallying sharply and holding its gains, not giving up any ground in the process? Highs and lows are one type of pivot point and price must be watched relative to a pivot point.
This is because there is they now have a reference point and it is easiest to gauge momentum when it is measured against a reference point or pivot point. How fast is a market moving away from or closer to these points? Note whether price action is contained by these levels and forming a trading range, or if it is trending and making higher highs and higher lows. Lastly, is the market moving with energy and volume?
Or, is it creeping methodically higher or steadily oozing down lower? Both of these last two conditions can be signs of a trend, but each will call for a different trading strategy.
By watching the price relative to another pivot point, a good trader can start to anticipate different trade setups. For example, if the price is just falling short of testing a previous swing high and starts to react down from that level in a sharp, quick manner, the natural assumption would be to look for the market to then test the support levels below.
If it is observed that the price takes out a previous swing high with impulse and activity, a trader can have confidence the up trend is intact and anticipates buying the first pause or retracement, or finding a spot to jump on board if a momentum move is under way and they are not already in a position. That is its job.
If it probes up but no buyers come in to support a further advance, it will test back down to see if buyers reappear at lower levels. If selling brings in volume to the downside, the market will continue lower until the selling dries up or has exhausted itself.
The tape reader monitors price to see if activity and volume increases or decreases in the direction the market is moving. There are many ways to watch the price action for relative strength or weakness. Monitoring the length and duration of a price swing relative to the previous swing sets the basic foundation for swing trading. LB R G ro up , Price can also be watched relative to a specific technical indicator.
If an oscillator pulls back to the lower end of its range, but the price gives up very little ground, that is a sign of strength and the next swing up can be expected to be strong. If price makes a higher high, but a technical momentum indicator makes a lower high, that is a sign of nonconfirmation and market weakness is expected to develop. Since the SPs failed to make a low at a time when other markets were weak, it is likely due to rally.
In the last hour, the bonds close weak at the lower end of their range but the SPs start making higher highs and higher lows. The market is telling you that the SP futures are strong enough to ignore the poor bond close and are going to mount a rally. There have been times where the cash index made a new intraday price low but the futures did not. This, too, would forecast a rally. A later section of this manual will be devoted to intraday market timing based on relationships with market internals.
If the news is bad, or the economic environment negative, yet the price holds firm and shrugs the bad news off, this is a sign of hidden strength. It is also a sign that the market is sold out…there are no more sellers left.
At some point shorts will need to cover. The market is a discounting mechanism. These stocks have a high beta and are momentum leaders. They can very often lead the market indexes by anywhere from 1 to 10 minutes.
They can also lead up or down on a daily time frame. An astute tape reader will watch the market leaders and 54 note when they turn first, and also, when they appear to be tiring or running out of fuel on the upside.
There are many ways to watch price relative to another market, indicator or pivot point. Monitoring changes in relationships involves discretion and judgment and much of tape reading is observing relationships and watching for aberrations or changes in the relationships as a way of forecasting future price action.
Observe what a market is doing and forget about why it is doing it. The price always tells the most immediate supply and demand story and this is the only thing pertinent to short term trading. The market is either moving as expected or it is not. If a trader establishes a position and feels the market should be moving higher but it is not, he should not overstay his welcome. Do not give trades the benefit of the doubt when the tape action does not confirm in a timely manner.
There is a fine line where hope turns into fighting the tape. The price action should tell you right away whether your play is correct or not and the best trades tend to work right away.
This is something that continues to improve with experience and study. This is what is used to determine the trend of the day. For example, a day may have an up close but have been in a downtrend for the day if the close is well below the opening price implying there was a large gap up. The moves off the opening are also where an early imbalance in demand or supply will show up.
There is much we can learn by observing how a market opens and first trades off the opening price. The most immediate goal of the short-term trader is to capture a piece of the main trend for the day. An aberration in volume or range off the opening price increases the likelihood of a trend day.
If the first minute bar of the day is greater than the previous first minute bar of the past 7 days, there are high odds for continuation in the direction of the initial move.
Early range indicates strong supply demand imbalances. If the push into the gap area is minimal or nonexistent in the first 30 minutes, this indicates potential for a strong move IN the direction of the initial gap. If the price is unable to show continuation in the direction of the gap in the first hour, the gap may likely have been a bull or bear trap and set up a trend day in the opposite direction of the gap.
Either way, there is increased likelihood of range expansion after a large opening gap. If there is no price action above the opening price for the first 30 minutes of trading, there are high odds the market will close on its low for the day. Look for the market to either test and reverse off these points, or push through and show signs of continuation. Many times a market will bump up against these support and resistance points several times throughout the trading day.
If support is taken out, does it then become resistance on the next reaction up? If a price rallies up to the previous days high, and then consolidates or trades around that level for a period of time, there are good odds that the price is going to eventually trade higher. The available supply at that level is being absorbed, and if the price breaks through, expect it to run a bit. Sometimes the price will fall just a bit short and sometimes it will just penetrate. A test of this level should be considered an opportunity to take profits.
In a normal trading environment, we would expect the market to initially test the previous days high if the first play is a test to the upside and find a bit of trading around this level or even react back in the opposite direction. If there is a stronger trend in the price and the market is in a mark up phase, expect the price to run a ways through the previous high, providing a better exit level for longs, or before having a reaction in the opposite direction.
This support level is most important in the morning session of trading. After a trend day down, expect that last hour high to provide initial resistance. Do not fade an afternoon breakout. How does the market open relative to initial expectations? This indicates strength or weakness. As long as a market is having consecutive strong closes, look for up-trend to continue.
The up trend is most likely to end when there is a morning rally first, followed by a weak close. A downtrend tends to end when there is morning weakness first, followed by a strong close. Do not look for late day price reversals. However, they are significant when they do happen. The least likely scenario has strong forecast value when it does occur.
Li nd a R as ch High volume on the close implies continuation the next morning in the direction of the last half-hour. In a strongly trending market, look for resumption of the trend in the last hour. This tendency will be more pronounced as the weekend approaches. In general, the afternoon session tends to have a higher degree of trendiness then the morning session.
However, on a light volume day, it is rare that the afternoon trend will be able to sustain itself into the close. C op yr ig ht 19 98 — 20 1 2 If the market makes a dramatic move in the last hour of a relatively lifeless day, be positioned in the direction of that move by the close.
Hold this trade overnight, as there are very high odds of an opening gap in your favor the next morning. The close of a narrow range bar tends not to significant. All indexes then made new momentum lows, which led to a severe decline. Chart 52 - Stay with an existing position as long as there is continued confirmation on multiple indexes. Chart 56 - Unfilled gaps indicate a stronger trend move. Chart 58 - The previous day's high and low are the most visable pivots and set up morning "tests".
Chart 60 - The market alternates between trend off the opening price and rotation around the opening price. The Z day can still have good trading volatility, and often has a wider range then a neutral day.
A Z-day forms a morning coil around the opening price but can have a higher degree of afternoon trendiness. Chart 64 — Here, the open and high and low are overlaid on each days action.
Note how one day, the market will open at one end of its range and close at the other. The next day, it will trade through the opening price several times. Market closes on its high. Another trend day up followed after market held its opening gap for the first hour. Chart 68 — Erasing the Impulse - The least likely scenario leads to a greater move in the opposite direction. Impulse should normally create short term support or resistance.
When the previous day's impulse up was traded through, there was no support underneath. Again, this type of price action does not happen very frequently but has strong forecasting implications when it does.
They could be perceived as short-term Bear Traps. Chart 70 — Morning weakness is followed by afternoon strength. The Outside Up day was followed by two coil days, establishing an equilibrium level at a higher value. The afternoon session confirmed a sharp price rejection and the market came back up through its opening price level. This is a rare pattern. As with most unusual patterns, there is strong forecasting value for a more extreme move in the opposite direction.
The earliest technical analysis, such as Dow, Schabacker, Wyckoff and Gann, as well as many great traders of the first half of this century, wrote about or practiced swing trading to some degree. But to generalize, a good rule of thumb is: Stops are always placed just beyond the previous support or resistance level and tightened as the market reverses its swing.
R as ch ke Swing trading is easier in theory than practice, as is the case with all trading methodologies. The benefit of hindsight when studying chart examples is deceptive. When decisions must be made when markets are open and moving, doubt invariably creeps in to the decision making process. There are frequent trades but only a limited amount of time spent in each trade. Swing trading is more work in exchange for more control and less risk.
Steady profitable trades add up quickly. A trader must accept that the main things that count are the small trades that build up your equity. So, recognize that the initial analysis is just a departure point to get pointed in the right direction. From there, it is truly a matter of seeing what the market is willing to give.
There is nothing more true then the level that the actual price is trading at in the particular moment, despite the level we might wish to see.
This does not mean that you In c. Are you looking to be a buyer or a seller? Do ro up , not put pressure on yourself to day-trade or overtrade when markets are dull. Holding a winning trade throughout the day and overnight usually makes the largest gains.
Then expect the market to run at least 5 days. Sell the first rally after a new low. When I think sell, I sell. When I think stock will go up, I buy. This is because limit orders offer a chance for better fills and less slippage than do market orders.
There are many different philosophies on which type of orders to use and why. Part of it will depend on if you are making a countertrend trade or entering on a small pause or breakout in the direction of the trend.
It will also depend on which market you are trading in. However, when making countertrend trades, or initiating in trading ranges, trade location can be more critical. Limit orders are more appropriate. I place limits just beneath round numbers for sells and just above them for buys. I also place limit orders around where the market is trading when I call the floor.
When the market reaches the price where I want to buy it, I buy it at the market. When it is time to sell, I sell at the market. In fast markets, put in a limit order. Allow for a few ticks slippage, but no more. Do not use market orders in an unstable market. Wait until the price stabilizes. If you price a trade and do not get filled, follow up and take it to the market.
Ask the broker to try to get an average price over a specific time frame — i. For large positions only. The first rule is, get the position on! Gap Openings R G ro up , This is a bad spot to initiate a position.
Better to use a buy or sell stop and force the market to move beyond the gap if you are looking to enter in the direction of the gap. Time can also be used as a qualifier to enter positions after a gap. If the market is still above your initial entry signal after an hour, this is a better spot on which to enter. This applies to longer-term positions only. Place resting orders in the market in case the market gaps up or down big. Always take profits on a large opening gap in your favor.
First place a limit order in the market. See if the market will come to you. Or, if you feel the time has already expired for the trade, exit at the market. The sooner you can get the bad trade off your sheet, the sooner you can start making the money back!
Place a stop order on one side of the price and work a limit order on the other side to exit on a reaction. Always monitor the market for new information. Always be looking for signs of strength and weakness. Exit immediately on any adverse development. Prove it or lose it! Exit a trade if it is not profitable within a certain amount of time. Good trades move in your favor right away.
TIME is a function that can kill a positive expectation. R G When in doubt, reduce the position size. You must learn to recognize as quickly as possible when you are in error. You must be on the lookout for a sign that you are wrong. The minute you realize that you are wrong in a trade, take action to get out.
Place an order immediately. It does not have to be a market order but start to use a pivot or use a market bracketing strategy. PRESS your luck on a trade that immediately takes off! Always follow good trades up with a protective stop order to protect your profits. If you are in a bad position, throw the technical indicators out the window. There is always the possibility of a disastrous loss. Thus, of first importance should be to exit a bad position ASAP.
But they are necessary. The advantage of a fixed money management stop is that its relationship to price action is random. It is unlikely to be placed around a cluster of stops or significant chart point. Stops should fall into two camps.
The first type is the Worst Case scenario. This means that you want to use as WIDE a fixed money management stop as possible. The market has to be able to move in quite a broad range without hitting your stop. The second type of stop is a technical one.
In other words, at the point that your original analysis would be proven wrong. A person performs differently when under pressure. Once I have a resting stop in the market, it relieves the anxiety and I do not feel compelled to watch every tick…I can let the trade do its thing. When I am stopped out, I am usually very glad I was stopped out.
Sometimes I find that by placing a stop in the market it allows me to stay with a trade a little longer. Give the trade a certain amount of time to do its thing.
If it is not working after a limited period of time, start taking the position off. Limited time exposure in the market equates to limited risk.
And of course, the best trades start working right away! This comes from either a lack of confidence or a lack of preparedness. You must accept that your comfort level in making trades will improve with time, experience and practice. Study the charts, study the set ups, and write out your orders or game plan the next day. Do more research until you have truly made that pattern or system your own. The market will then pull you into the trade when your orders are hit.
Any time you use a stop order to enter the market, the odds are quite remote that the market will fill your order and immediately reverse. A novice trader can enlist the aid of his broker to help place resting orders in the market by which to initiate a trade.
This works best when there is a well-defined support or resistance area, or when buying or selling at the moving averages in the direction of the trend. The main point is, start thinking about where you are going to place your orders BEFORE the market gets to your price. Freezing up Every professional has frozen at one point in time. This happens when a trader is blindsided by an adverse price movement. Pick up the phone! Your immediate job is to start managing your position. Do not start looking at charts or trying to analyze the market.
The mere fact that you are frozen indicates that you are on the wrong side of the market. Speed is of the essence. Place a resting stop order away from where the price is trading to limit further losses against you.
Place an order on the other side of the price to exit the trade on the first reaction. If you are uncertain how to deal with a bad trade at a particular moment, at the very least place an order to exit the market MOC.
LB R G ro If you freeze up, you must take some type of action, any action to get the ball rolling again. Close out the mistake and forget about it. This statement is made in the context of volatility. An active, swinging market has more to offer than a quiet market. Usually, the stops will be placed further away than they would be in a quiet market.
Always assume risk if there is a positive expectation involved. Once you have quantified risk, all you have to do is become consistent in your approach. These unexpected, unpredictable events are what make up a large portion of market risk. Much risk-taking rests on opportunities that develop from deviations from the norm or market inefficiencies.
The shorter the time spent in the market, the less the risk. We can control leverage, time exposure, and fixed stops. We cannot control factors such as volatility, overnight events, liquidity factors and execution risk.
One of the keys to good money management is the degree of leverage used. Risk management also encompasses watching the degree of correlation between positions. Always think about putting yourself in a win-win situation. A stronger case can be made 78 for scaling out of positions for trades made on a longer time frame.
For short-term scalps, it is always best to exit the whole position at one time as apposed to trying to scale out. Early risk management techniques were formed for the commercial concepts of insurance and diversification. A trader should think of a stop as a form of insurance.
Constantly weed your garden of the losers. No single trade is ever important. You must have hard and fast rules to protect your capital. If your account equity approaches this level, cut and run. Close the account down and then build it back up to this level. Have you written down goals? Enclosed in the appendix of this manual is an outline for a basic business plan. Your business plan is a pact you make with yourself.
It is your personal blueprint for success. It must include not only your goals but also a detailed plan of how you intend to get there. The first thing your business plan must include is a detailed outline of your trading program.
But this is just a small component to your overall business plan. It must also include everything from how you structure your trading environment to how you structure 79 your life. Your mind and psyche are your main trading assets. How do you plan to protect them throughout the year? Do you have provisions included in your plan for time off? Do you have a safety net to protect yourself from sabotaging yourself if you get stuck in a rut? Many traders have sabotaged their account when they have a momentary relapse and go over the deep end.
A trader can be his own worst enemy. Anxiety and stress are the two biggest factors that can derail a trader. How have you structured your daily habits, your personal relationships, and your financial planning to protect yourself from these? Your business plan should be structured to motivate you to make higher highs in your account equity.
This sounds like a given, but you must truly fight to come back from each draw down. Lbr group Discussion in ' Educational Resources ' started by kserra , Aug 20, I am new here and was wondering if anyone had any feedback concerning the LBR Group website services. I currently employ several of LBR's methods from street smarts and was wondering how good the website was, and what services you would recommend and which you think are not that important.
I noticed the sample stuff she has looks really good, but maybe that is becuase she has merely chosen the better trades to use as samples. I have used the search feature to look for this information, but most of the information I have found is dated, any help concerning how this feature is working for anyone here would be of great assistance. Her chatroom is pretty good for trading Futures. Linda has an uncanny ability to interpret market action.
Any more info, I am not really futures trader, how about her stock picks? Do you think she is helpful as instructor or is it more of a piggyback strategy? Linda and Chris Terry do a great job of teaching. Their chatrooms aren't just "hey follow me".
They both do a great job of helping you to learn to be on your own.
The Mental Edge in Trading: Adapt Your Personality Traits and Control Your Emotions to Make Smarter Investments – Jason Williams, My Favorite Books on Trading & Technical Anlysis Charting the Stock Market: The Wyckoff Method, Hutson, Weis, Schroeder. Feb 05, · LBRGroup published this system in an advisory service between and We also traded it on a mechanical basis for our managed futures program. We stopped trading it mechanically when the overnight volatility became too great during the Asian crisis, though we still use it as a timing indicator. LBR Paint Bars. LBR Paint Bars changes the color of the price bars depending on the trend direction. The trend is determined by the position of 2 volatility lines. The calculation of these lines uses a moving average of the Average True Range and applies it to (plus .