ELLIOTT WAVE

A flat correction differs from a zigzag in that the subwave sequence is 3-3-5, as shown in Figures 1 and 2. Since the first actionary wave,

Fibonacci studies: arcs, fans, retracements, and time

Overview: Leonardo Fibonacci was a mathematician who was born in Italy around the year 1170. It is believed that Mr. Fibonacci discovered..

Indicator

The Negative Volume Index (“NVI”) focuses on days where the volume decreases from the previous day. The premise being that the “smart money” takes positions on days when volume decreases

Basic Technicals

MACD technical analysis MACD technical analysis stands for moving average convergence/divergence analysis of stocks.

Fundamental Analysis

Doubling Stocks Review: Is this a scam? If you are looking for the truth about doubling stocks this is a necessity. One always thought there was something wrong with a doubling of stocks.

Monday, February 22, 2010

Indicators_oscillator

An oscillator is an indicator that fluctuates above and below a centerline or between set levels as its value changes over time. Oscillators can remain at extreme levels (overbought or oversold) for extended periods, but they cannot trend for a sustained period. In contrast, a security or a cumulative indicator like On-Balance-Volume (OBV) can trend as it continually increases or decreases in value over a sustained period of time.

As the indicator comparison chart shows, oscillator movements are more confined and  sustained movements (trends) are limited, no matter how long the time period. Over the two year period, Moving Average Convergence Divergence (MACD)fluctuated above and below zero, touching the zero line about twelve times. Also notice that each time MACD surpassed +80 the indicator pulled back. Even though MACD does not have an upper or lower limit on its range of values, its movements appear confined. OBV, on the other hand, began an uptrend in September 1998 and advanced steadily for the next year. Its movements are not confined and long-term trends can develop.
There are many different types of oscillators and some belong to more than one category. The breakdown of oscillator types begins with two types: centered oscillators which fluctuate above and below a center point or line, and banded oscillators which fluctuate between overbought and oversold extremes. Generally, centered oscillators are best suited for analyzing the direction of price momentum, while banded oscillators are best suited for identifying overbought and oversold levels.
Centered Oscillators
Centered oscillators fluctuate above and below a central point or line. These oscillators are good for identifying the strength or weakness, or direction, of momentum behind a security’s move.In its purest form, momentum is positive (bullish) when a centered oscillator is trading above its center line and negative (bearish) when the oscillator is trading below its center line.MACD is an example of a centered oscillator that fluctuates above and below zero. MACD is the difference between the 12-day EMA and 26-day EMA of a security. The further one moving average moves away from the other, the higher the reading. Even though there is no range limit to MACD, extremely large differences between the two moving averages are unlikely to last for long.
MACD is unique in that it has lagging elements as well as leading elements. Moving averages are lagging indicators and would be classified as trend-following or lagging elements. However, by taking the differences in the moving averages, MACD incorporates aspects of momentum or leading elements. The difference between the moving averages represents the rate of change. By measuring the rate-of-change, MACD becomes a leading indicator, but still with a bit of lag. With the integration of both moving averages and rate-of-change, MACD has forged a unique spot among oscillators as both a lagging and a leading indicator.Rate-of-change (ROC) is a centered oscillator that also fluctuates above and below zero.
As its name implies, ROC measures the percentage price change over a given time period. For example: 20 day ROC would measure the percentage price change over the last 20 days. The bigger the difference between the current price and the price 20 days ago, the higher the value of the ROC Oscillator. When the indicator is above 0, the percentage price change is positive (bullish). When the indicator is below 0, the percentage price change is negative (bearish).
As with MACD, ROC is not bound by upper or lower limits. This is typical of most centered oscillators and can make it difficult to spot overbought and oversold conditions. The ROC chart indicates that readings above +20% and below -20% represent extremes and are unlikely to last for an extended period of time. However, the only way to gauge that +20% and -20% are extreme readings is from past observations. Also, +20% and -20% represent extremes for this particular security and may not be the same for other securities. Banded oscillators offer a better alternative to
gauge extreme price levels.
Banded Oscillators
Banded oscillators fluctuate above and below two bands that signify extreme price levels. The lower band represents oversold readings and the upper band represents overbought readings. These set bands are based on the oscillator and change little from security to security, allowing the users to easily identify overbought and oversold conditions. The Relative Strength Index (RSI)and the Stochastic Oscillator are two
examples of banded oscillators. (Note: The formulas and rationale behind RSI and the Stochastic Oscillator are more complicated than those for MACD and ROC. As such, calculations are addressed in separate articles.)
Stochastics/RSI
For RSI, the bands for overbought and oversold are usually set at 70 and 30 respectively. A reading greater than 70 would be considered overbought and a reading below 30 would be considered oversold. For the Stochastic Oscillator, a reading above 80 is overbought and a reading below 20 oversold. Even though these are the recommended band settings, certain securities may not adhere to these ranges and might require more fine-tuning. Making adjustments to the bands is usually a judgment call that will reflect a trader’s preferences and the volatility of the security.
Many, but not all, banded oscillators fluctuate within set upper and lower limits. The Relative Strength Index (RSI) is range-bound by 0 and 100 and will never go higher than 100 nor lower than zero. The Stochastic Oscillator is another oscillator with a set range and is bound by 100 and 0 as well. However, the Commodity Channel Index (CCI)is a banded oscillator that is not range bound.

Conclusions:
Centered oscillators are best used to identify the underlying strength or direction of momentum behind a move. Broadly speaking, readings above the center point indicate bullish momentum and readings below the center point indicate bearish momentum. The biggest difference between centered oscillators and banded oscillators is the latter’s ability to identify extreme readings. While it is possible to identify extreme readings with centered oscillators, they are not ideal for this purpose. Banded oscillators are best suited to identify overbought and oversold  conditions.
Courtesy Copyright StockCharts.com .This content copyrights protected  Written by Arthur Hill.

Friday, February 19, 2010

Williams %R

Williams %R  is a technical analysis oscillator showing the current closing price in relation to the high and low of the past N days (for a given N). Its purpose is to tell whether a stock or commodity market is trading near the high or the low, or somewhere in between, of its recent trading range.

The oscillator is on a negative scale, from -100 (lowest) up to 0 (highest), considered unusual since it is the obverse of the more common 0 to 100 scale found in many Technical Analysis oscillators. Although sometimes altered (by simply adding 100), this scale needn’t cause any confusion. A value of -100 is the close today at the lowest low of the past N days, and 0 is a close today at the highest high of the past N days.

Buy-/Sell-Signalling

Williams used a 10 trading day period and considered values below -80 as oversold and above -20 as overbought. But they were not to be traded directly, instead his rule to buy an oversold was
*  %R reaches -100%.
* Five trading days pass since -100% was last reached
*  %R rises above -95% or -85%.
or conversely to sell an overbought condition
*  %R reaches 0%.
* Five trading days pass since 0% was last reached
*  %R falls below -5% or -15%.
The timeframe can be changed for either more sensitive or smoother results. The more sensitive you make it, though, the more false signals you will get.
Courtesy  Copyrigh@wikipedia.org.

Bollinger Bands

Developed by John Bollinger, Bollinger Bands are an indicator that allows users to compare volatility and relative price levels over a period time. The indicator consists of three bands designed to encompass the majority of a security’s price action.
1.  A simple moving average in the middle
2.  An upper band (SMA plus 2 standard deviations)
3.  A lower band (SMA minus 2 standard deviations)
Standard deviationis a statistical term that provides a good indication of volatility. Using the standard deviation ensures that the bands will react quickly to price movements and reflect periods of high and low volatility. Sharp price increases (or decreases), and hence volatility, will lead to a widening of the bands.
IBM
The centerline is the 20-day simple moving average. The upper band is the 20-day simple moving average plus 2 standard deviations. The lower band is the 20-day simple moving average less 2 standard deviations.
Settings
Closing prices are most often used to compute Bollinger Bands. Other variations, including typical and weighted prices, can also be used.
Typical Price = (high + low + close)/3
Weighted Price = (high + low + close + close)/4
Bollinger recommends using a 20-day simple moving average for the center band and 2 standard deviations for the outer bands. The length of the moving average and number of deviations can be adjusted to better suit individual preferences and specific characteristics of a security.
Trial and error is one method to determine an appropriate moving average length. A simple visual assessment can be used to determine the appropriate number of periods.
Bollinger Bands should encompass the majority of price action, but not all. After sharp moves, penetration of the bands is normal. If prices appear to penetrate the outer bands too often, then a longer moving average may be required. If prices rarely touch the outer bands, then a shorter moving average may be required.
A more exact method to determine moving average length is by matching it with a reaction low after a bottom. For a bottom to form and a downtrend to reverse, a security needs to form a low that is higher than the previous low. Properly set Bollinger Bands should hold support established by the second (higher) low. If the second low penetrates the lower band, then the moving average is too short. If the second low
remains above the lower band, then the moving average is too long. The same logic can be applied to peaks and reaction rallies. The upper band should mark resistance for the first reaction rally after a peak.
For WMT, a 20-period simple moving average proved to be a bit too long for the Bollinger Bands. Notice the wide gap between the lower band and the higher low in March. Through trial and error, a 12-period simple moving average appears to offer a better fit.
For general timeframes, Bollinger recommends a 10-day moving average for the short term, a 20-day moving average for the intermediate term and 50-day moving average for the long term.
Use
In addition to identifying relative price levels and volatility, Bollinger Bands can be combined with price action and other indicators to generate signals and foreshadow significant moves.
Double bottom buy: A double bottom buy signal is given when prices penetrate the lower band and remain above the lower band after a subsequent low forms. Either low can be higher or lower than the other. The important thing is that the second low remains above the lower band. The bullish setup is confirmed when the price moves above the middle band, or simple moving average.
T provides an example of a double bottom buy signal. The stock penetrated the lower band in late September (red arrow) and then held above on the subsequent test in October. The October breakout above the middle band (green circle) provided the bullish confirmation.
Double top sell: A sell signal is given when prices peak above the upper band and a subsequent peak fails to break above the upper band. The bearish setup is confirmed when prices decline below the middle band.
Sharp price changes can occur after the bands have tightened and volatility is low. In this instance, Bollinger Bands do not give any hint as to the future direction of prices. Direction must be determined using other indicators and aspects of technical analysis. Many securities go through periods of high volatility followed by periods of low volatility. Using Bollinger Bands, these periods can be easily identified with a visual assessment. Tight bands indicate low volatility and wide bands indicate high volatility. Volatility can be important for options players because options prices will be cheaper when volatility is low.

SBUX provides an example of the bands tightening before a big move. In November, the bands were relatively wide and began to tighten over the next 2 months. By early January, the bands were the tightest in over 4 months (red circle). A little over a week later, the stock exploded for a 10+ point gain in less than 2 weeks.
Conclusions
Even though Bollinger Bands can help generate buy and sell signals, they are not designed to determine the future direction of a security. The bands were designed to augment other analysis techniques and indicators. By themselves, Bollinger Bands serve two primary functions:
To identify periods of high and low volatility
To identify periods when prices are at extreme, and possibly unsustainable, levels.
As stated above, securities can fluctuate between periods of high volatility and low volatility. Being able to identify a period of low volatility can serve as an alert to monitor the price action of a security. Other aspects of technical analysis, such as momentum,
moving averages and retracements, can then be employed to help determine the direction of the potential breakout.
Remember that buy and sell signals are not given when prices reach the upper or lower bands. Such levels merely indicate that prices are high or low on a relative basis. A
security can become overbought or oversold for an extended period of time. Knowing whether or not prices are high or low on a relative basis can enhance our interpretation of other indicators and assist with timing issues in trading.
Courtesy Copyright StockCharts.com .This content copyrights protected  Written by Arthur Hill.

Tuesday, February 16, 2010

Williams %R-1

Developed by Larry Williams, Williams %R is a momentum indicator that works much like the Stochastic Oscillator.It is especially popular for measuring overbought and oversold levels. The scale ranges from 0 to -100 with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold.William %R, sometimes referred to as %R, shows the relationship of the close relative to the high-low range over a set period of time. The nearer the close is to the top of the range, the nearer to zero (higher) the indicator will be. The nearer the close is to the bottom of the range, the nearer to -100 (lower) the indicator will be. If the close equals the high of the high-low range, then the indicator will show 0 (the highest reading). If the close equals the low of the high-low range, then the result will be -100 (the lowest reading).



(Click here to see a live example of Williams %R)
Typically, Williams %R is calculated using 14 periods and can be used on intraday, daily, weekly or monthly data. The timeframe and number of periods will likely vary according to desired sensitivity and the characteristics of the individual security.
It is important to remember that overbought does not necessarily imply time to sell and become oversold and remain oversold as the price continues to trend lower. Once a security becomes overbought or oversold, traders should wait for a signal that a price reversal has occurred. One method might be to wait for Williams %R to cross above or below -50 for confirmation. Price reversal confirmation can also be accomplished by using other indicators or aspects of technical analysis in conjunction with Williams %R.One method of using Williams %R might be to identify the underlying trend and then look for trading opportunities in the direction of the trend. In anuptrend, traders may look to oversold readings to establish long positions. In a downtrend, traders may look to overbought readings to establish short positions.
The chart of Weyerhauser with a 14-day and 28-day Williams %R illustrates some key
points:
1.14-day %R appears quite choppy and prone to false signals.
2.28-day %R smoothed the data series and the signals became less frequent and more reliable.
3.When the 28-day %R moved to overbought or oversold levels, it typically
4.Remained there for an extended period and the stock continued its trend.
Some good entry signals were given with the 28-day %R by waiting for a move above or below -50 for confirmation.
Courtesy Copyright StockCharts.com .This content copyrights protected  Written by Arthur Hill.

StochRSI

Developed by Tushard Chande and Stanley Kroll, StochRSI is an oscillator that measures the level of RSI relative to its range, over a set period of time. The indicator uses RSI as the foundation and applies to it the formula behind Stochastics. The result is an oscillator that fluctuates between 0 and 1.
The New Technical Trader, Chande and Kroll explain that RSI sometimes trades between 80 and 20 for extended periods without reaching overbought and oversold levels. Traders looking to enter a stock based on an overbought or oversold reading in RSI might find themselves continuously on the sidelines. To increase the sensitivity and provide a method for identifying overbought and oversold levels in RSI, Chande and Kroll developed StochRSI.
Developed by Welles Wilder, RSI is a momentum oscillator that compares the magnitude of gains to the magnitude of losses over a period of time. Developed by George Lane, Stochastics is a momentum oscillator that compares the closing level to the high/low range over a given period of time.
Formulas



From the formula above, it can be seen that StochRSI is the Stochastics formula applied to RSI; that is, it’s an indicator of RSI. StochRSI measures the value of RSI relative to its high/low range over a set number of periods. When RSI records a new low for the period, StochRSI will be at 0. When RSI records a new high for the period, StochRSI will be at 100. A reading of .20 would mean that the current RSI was 20% above the lowest level of the period, or 80% below the highest level. A reading of .80 would mean that the current RSI was 80% above the lowest level of the period, or 20% below the highest level.
Courtesy Copyright StockCharts.com .This content copyrights protected  Written by Arthur Hill.

Monday, February 15, 2010

A popular use for moving averages is to develop simple trading systems based on moving average crossovers. A trading system using two moving averages would give a buy signal when the shorter (faster) moving average advances above the longer crosses below the longer moving average. The speed of the systems and the number of signals generated will depend on the length of the moving averages. Shorter moving average systems will be faster, generate more signals and be nimble for early entry. However, they will also generate more false signals than systems with longer moving averages.
For Xircom, a 30/100 exponential moving average crossover was used to generate signals. When the 30-day EMA moves above the 100-day EMA, a buy signal is in force. When the 30-day EMA declines below the 100-day EMA, a sell signal is in force. A plot of the 30/100 differential is shown below the price chart by using the Percentage Price Oscillator (PPO) set to (30,100,1). When the differential is positive, the 30-day EMA is greater than the 100-day EMA. When it is negative, the 30-day EMA is less than the 100-day EMA.
As with all trend-following systems, the signals work well when the stock develops a strong trend, but are ineffective when the stock is in a trading range. Some good entry points for long positions were caught in Sept-97, Mar-98 and Jul-99. However, an exit strategy based on the moving average crossover would have given back some of those profits. All in all, though, the system would have been profitable for the time period.
In the example for 3Com, a 20/60 EMA crossover system was used to generate buy and sell signals. The plot below the price is the 20/60 EMA differential, which is shown as a percent and displayed using the Percentage Price Oscillator (PPO) set at (20,60,1). The thin blue lines just above and below zero (the centerline) represent the buy and sell trigger points. Using zero as the crossover point for the buy and sell signals generated too many false signals. Therefore, the buy signal was set just above the zero line (at +2%) and the sell signal was set just below the zero line (at -2%). When the 20-day EMA is more than 2% above the 60-day EMA, a buy signal is in force. When the 20-day EMA is more than 2% below the 60-day EMA, a sell signal is in force.

There were a few good signals, but also a number of whipsaws. Although much would depend on the exact entry and exit points, I believe that a profit could have been made using this system, but not a large profit and probably not enough to justify the risk. The stock failed to hold a trend and tight stop-losses would have been required to lock in profits. A trailing stop or use of the parabolic SAR might have helped lock in profits.
Moving average crossover systems can be effective, but should be used in conjunction with other aspects of technical analysis (patterns, candlesticks, momentum, volume, and so on). While it is easy to find a system that worked well in the past, there is no guarantee that it will work in the future.
Courtesy Copyright StockCharts.com .This content copyrights protected  Written by Arthur Hill.

Tuesday, February 9, 2010

Fundamental Analysis – Part 1

Fundamental analysis is the examination of the underlying forces thataffect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock’s current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies.
Even though there is no one clear-cut method, a breakdown is presented below in the order an investor might proceed. This method employs a top-down approach that starts with the overall economy and then works down from industry groups to specific companies. As part of the analysis process, it is important to remember that all information is relative. Industry groups are compared against other industry groups and companies against other companies. Usually, companies are compared with others in the same group. For example, a telecom operator (Verizon) would be,compared to another telecom operator (SBC Corp), not to an oil company (ChevronTexaco).

First and foremost in a top-down approach would be an overall evaluation of the general economy. The economy is like the tide and the various industry groups and individual companies are like boats. When the economy expands, most industry groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer. Many economists link economic expansion and contraction to the level of  interest rates. Interest rates are seen as a leading indicator for the stock market as well. Below is a chart of the S&P 500 and the yield on the 10-year note over the last 30 years. Although not exact, a correlation between stock prices and interest rates can be seen. Once a scenario for the overall economy has been developed, an investor can break down the economy into its various industry groups.
If the prognosis is for an expanding economy, then certain groups are likely to benefit more than others. An investor can narrow the field to those groups that are best suited to benefit from the current or future economic environment. If most companies are expected to benefit from an expansion, then risk in equities would be relatively low and anaggressive growth-oriented strategy might be advisable. A growth strategy might
involve the purchase of technology, biotech, semiconductor and cyclical stocks. If the economy is forecast to contract, an investor may opt for a more conservative strategy and seek out stable income-oriented companies. A defensive strategy might involve the purchase of consumer staples, utilities and energy-related stocks.To assess a industry group’s potential, an investor would what to consider the overall growth rate, market size, and importance to the economy. While the individual company is still important, its industry group is likely to exert just as much,or more, influence on the stock price. When stocks move, they usually move as groups; there are very few lone guns out there. Many times it is more important to be in the right industry than in the right stock! The chart below shows that relative performance of 5 sectors over a 7-month time frame. As the chart illustrates, being in the right sector can make all the difference.
Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more detailed analysis. Investors are usually interested in finding the leaders and the innovators within a group. The first task is to identify the current business and competitive environment within a group as well as the future trends. How do the companies rank according to market share, product position and competitive advantage? Who is the current leader and how will changes within the sector affect the current balance of power? What are the barriers to entry? Success depends on an edge, be it marketing, technology, market share or innovation. A Imparative analysis of the competition within a sector will help identify those companies with an edge, and those most likely to keep it.
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Saturday, February 6, 2010

“How do I calculate a Fibonacci extension?”

The first wave in an Elliot sequence is wave 1.Later on when we want to calculate a Fibonacci Extension calculation,remember,this is the area at which we will start our calculation.we start our Fib Exe at the beginning of a new Elliott Wave Sequence.
Wave 2 is always related to Wave 1…

The most common retracements we look for in a typical Wave 2 pullback are either a 50% or 62% retracement of wave 1…
While we are on the subject of Wave 2′s,here are a some statistical information behind wave 2′s.
We typically expect only 12% of wave 2′s to hold 38% retracement of wave 1….

We anticipate 73% of Wave 2 retracements between 50% to 60%….

We anticipate 15% of Wave 2′s to retrace below the 62%….

once we have seen evidence of Wave 2 holding,we can use the Fibnacci Extension to calculate some wave 3targets.
Wave 3 is related to wave 1.Typing we monitor for the following Fibnacci relationships:
Wave 3=
either 1.62xlength of wave 1
or 2.62xlength of wave 1
or 4.25xlength of wave 1
The most common multiples of wave 1 to wave 3 are the 1.62 and 2.62 numbers.(if Wave 3 is extending , we typically monitor for 4.25 or higher ratios.)
Courtesy Copyright The Advanced GET Trading Strategies .This content copyrights protected By Marc Rinehart.

Friday, February 5, 2010

Technical Analysis – Part

Focus on Price:
If the objective is to predict the future price, then it makes sense to focus on price movements. Price movements usually precede fundamental
developments. By focusing on price action, technicians are automatically focusing on the future. The market is thought of as a leading indicator and generally leads the economy by 6 to 9 months. To keep pace with the market, it makes sense to look directly at the price movements. More often than not, change is a subtle beast. Even though the market is prone to sudden knee-jerk reactions, hints usually develop before significant moves. A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.Supply, Demand, and Price Action:Many technicians use the open, high, low and close when analyzing the price action of a security. There is information to be gleaned from each bit of information. Separately, these will not be able to tell much. However, taken together, the open, high, low and close reflect forces of supply and demand.





The annotated example above shows a stock that opened with a gap up. Before the open, the number of buy orders exceeded the number of sell orders and the price was raised to attract more sellers. Demand was brisk from the start. The intraday high reflects the strength of demand (buyers). The intraday low reflects the availability of supply (sellers). The close represents the final price agreed upon by the buyers and the sellers. In this case, the close is well below the high and much closer to the low. This tells us that even though demand (buyers) was strong during the day, supply (sellers) ultimately prevailed and forced the price back down. Even after this selling pressure, the close remained above the open. By looking at price action over an extended period of time, we can see the battle between supply and demand unfold. In its most basic form, higher prices reflect increased demand and lower prices reflect increased supply.
Support/Resistance:
Simple chart analysis can help identify support and resistance levels. These are usually marked by periods of congestion (trading range) where the prices move within a confined range for an extended period, telling us that the forces of supply and demand are deadlocked. When prices move out of the trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning.
Pictorial Price History:
Even if you are a tried and true fundamental analyst, a price chart can offer plenty of valuable information. The price chart is an easy to read
historical account of a security’s price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following:
Reactions prior to and after important events.
Past and present volatility.
Historical volume or trading levels.
Relative strength of a stock versus the overall market.
Assist with Entry Point:
Technical analysis can help with timing a proper entry point. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy. It is no secret that timing can play an important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance or buying near support levels can improve returns.
It is also important to know a stock’s price history. If a stock you thought was great for the last 2 years has traded flat for those two years, it would appear that Wall Street has a different opinion. If a stock has already advanced significantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend reversal.
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Wednesday, February 3, 2010

Elliott Wave Theory_Trends

The cult of Elliott Wave Theory intimidates the most experienced traders. But don’t let wave voodoo stop you from adding importantelements to your chart analysis. Strong trends routinely print orderly action-reaction waves. EWT uncovers these predictive patterns through their repeating count of 3 primary waves and 2 countertrend ones.
Wave impulses correspond with the crowd’s emotional participation. A surging 1st Wave represents the fresh enthusiasm of an initial breakout. The new crowd then hesitates and prices drop into a countertrend 2nd Wave.This coils the action for the sudden eruption of a runaway
3rd Wave.Then after another pullback, the manic crowd exhausts itself in a final 5th Wave blowoff.
Traders can capitalize on trend waves with very little knowledge of the underlying theory. Just look for the 5-wave trend structure in all time frames. Locate smaller waves embedded in larger ones and place trades at points where two or more time frames intersect. These cross-verification zones capture major trend, reversal and breakout points.
For example, the 3rd wave of a primary trend often exhibits dynamic vertical motion. This single thrust may hide a complete 5-wave rally in the next smaller time frame. With this knowledge execute a long position at the 3rd Of A 3rd,one of the most powerful price movements within an entire uptrend. While waves seem hard to locate, the trained eye can uncover these price patterns in many strong uptrends.
Many 3rd waves trigger broad Continuation Gaps. These occur just as emotion replaces reason and frustrate many good traders. Since common sense dictates the surging stock should retrace, many exit positions on the bar just prior to the big gap. Use timely wave analysis (and a strong stomach) to anticipate this big move just before it occurs.
4th Wave corrections set the sentiment mecanics for the final 5th wave. The crowd experiences its first emotional setback as this countertrend generates fear through a sharp downturn or long sideways move. The samemomentum signals that carry traders into positions now roll over and turn against them. The greedy crowd ignites a powerful December rally in AMGN.

Note the embedded 5 wave patterns, typical with surging up trends. The 3rd of a 3rd identifies the most dynamic momentum expected in a sharp price move.
As they prepare to exit, the trend suddenly reawakens and price again surges. During this final 5th wave, the crowd loses good judgment. Both parabolic moves and aborted rallies occur here with great frequency. Survival through the last sharp counter trend adds an unhealthy sense of invulnerability into the crowd mechanics. Movement becomes unpredictable and the uptrend ends suddenly just as the last greedy participant jumps in.
When trend finally turns back through old price, skilled traders then use past action to identify effective momentum and swing trades. Battles between bulls and bears leave a scarred landscape of unique charting features. For example, gaps provide one of the most
profitable setups in all of technical analysis. Continuation gaps rarely fill on the first try, except with another gap. Use a tight stop and execute your trade in the direction of support as soon as price enters the gap on high volatility.
Past breaks in support identify low risk short sales. The more violent the break, the more likely it will resist penetration. Head and Shoulders, Rectangles and Double Tops leave their mark with strong resistance levels. These patterns often print multiple doji and hammer lows prior to a final break as insiders clean out stops at the extremes of the pattern.
Clear Air prints a series of wide range bars as price thrusts from one stable level to another. Rapid price movement tends to repeat each time that trading enters its boundaries. Potential reward spikes sharply through these unique zones. But watch out. Reversals tend to be sharp and vertical as well. Tight stops are advised.
Pattern Cycles recognize that important features may not be horizontal. What the eye resolves as uptrend or downtrend contains multiple impulses shooting out in many directions. The most common of these is the Parallel Price Channel.
Use these price extremes to enter contrary positions with stop losses just on the other side of the parallel trendlines.
Courtesy Copyright The trade@hardrightedge.com.This content copyrights protected by Alan Farley

Pattern Cycles_Tops

Tops
No trend lasts forever. Inevitably, crowd enthusiasm outpaces a stock’s fundamentals and rallies stall. But topping formations do not end up trends all by themselves. These stopping points may only signal short pauses that lead to higher prices. Then again, they could be long-term highs just before a major breakdown.
What hidden patterns can you use to identify and trade reversals before your competition sees them? Successful short-term traders get in the reversal door early and allow the herd to trigger sharp price movement. Familiar trend-change formations, such as the Head and Shoulders and
Double Tops, take so long to develop that many profitable entries pass before they finally signal an impending break to the waiting crowd.
First Rise/First Failure offers traders an early method to identify reversals following new highs or lows in any time frame. FR/FF identifies the first 100% retracement of a dynamic trend move within the time frame of interest. In order for any trend to continue,
price movement should find support near a 62% retracement, measured from the starting point of the last thrust that pushed price to the new high or low. From this pullback, trend must base and test its extension before it can break out to further continuation highs or lows.
Cross-verification rings a loud bell. Note how the uptrend line broke on the same bar as the violation of the 62% fib retracement following
this late 1998 AMZN explosion. The familiar triangular shape of First Rise-First Failure makes identification easy when flipping through many price charts.
100% retracement violates the major price direction and terminates the trend it corrects. Completion also provides significant support/resistance, where bounce trades can be initiated with low risk. From this point, continuation trends may reawaken in the next larger time frame by a new break through the 38% (prior 62%) S/R and continued push past the 62% retracement, toward a test of the high/low extension.
Bounce reversals represent superb entry points when the 100% violation coincides with a 38% or 62% retracement of the next higher dynamic time frame. However risk: reward requires careful measurement, as the trade may develop more slowly than expected. In other words, a successful position must be held through expected congestion at the 38%-62% zone before it can access a profitable retest of the double top/double bottom extreme.
Allow minor testing violations for all major Fibonacci retracements before taking positions. Specialists and Market Makers know these hidden turning points and conduct stop-gunning exercises to take out volume just beyond the breaks. And watch out for trend relativity errors.Bull and bear markets exist simultaneously through different time frames. Limit FR/FF trades to the time frame for which the retracement occurs unless cross-verification supports other setups.Every popular topping formation has its own unique pattern features.But all tell a common tale of crowd disillusionment. Whether printed in the manic highs and lows of the Head & Shoulders or the slow capitulation of the Rising Wedge, the final result remains the same. Price breaks sharply to lower levels while unhappy shareholders unload positions as quickly as they can.
Early in a rally, value and improving fundam entals attract knowledgeable holders. But as an uptrend develops, the motivation for new participants becomes vastly different. News of a stock’s rise generates excitement and attracts a greedier crowd. These momentum players slowly outnumber the value investors and stock movement becomes more volatile. The issue continues upward as this frantic buying crowd feedson itself well beyond most reasonable price targets.
Both fire and ice will kill uptrends. As long as the greater fool mechanism holds, each new long allows the previous one to turn a profit. Eventually changing conditions force a final end to the upside action. A shock event can suddenly kill the buying enthusiasm, forcing a sharp and immediate reversal. Or the trend’s fuel just runs outas the last interested buyer enters one last position.
Many traders mistakenly assume bulls turn into bears immediately following a dramatic, high volume reversal. They enter short sales well before the physics of topping and decline rob the crowd of its momentum.In fact, these early shorts provide fuel for the sharp covering rallies seen in most topping formations.
Skilled traders wait and measure the process of crowd disillusionment before they enter large short sales. Decline characteristics can be predicted with great accuracy using pattern analysis. While they wait, the repeating character of the topping event provides a natural playground for swing positions.
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Tuesday, February 2, 2010

Overview of Fibonacci and Elliott wave Relationships

We start with the price distance of each wave.To be able to able to apply successfully Fibonacci Extension calculation we need to review this basic wave labeling relationship with price.
The price distance of each wave is measured as a vertical distance from the begining of the wave to the end of the wave.The length is measured in price points or units.
Length of wave 1 and 2….
We start with the price distance of each wave.To be able to apply successfully Fibonacco Extension calculation we need to review this basic wave labeling relationship with price.
The price distance of each wave is measured as a vertical distance fron the begining of the wave to the end of the wave.The length is measured in price points or units.
Lenth of wave 1 and 2…
Length of Wave 3…

Length of Wave 4…
Length of Wave 5…
Now before we start on how to calculate a Fibonacci  Extension’s acually are,How does it relate to Elliott wave theory…..
Fibonacco ratios are mathematical ratios derived from tshe Fibonacci sequence.The Fibonacci sequence is the work of leonardo Fibnacci,circa 11so ACE.The Fibonocci sequence is used in many applications,including engineering,space studies,stock market actions, and many other fields.
Fibonacci is a priven approach for measure price movement relationships.for Elliott Wave theorists,it means Fibonacci numbers are tools to help guide us in our interpretation where we think price movements will go,based on human’fear and greed’actions,reactions,or overreactions factors.
The most common Fibonacci ratios used in the stock markets are:
1 – 1.618 – 2.618 – 4.23 – 6.85 (multiples)
0.14 – 0.25 – 0.38-0.5&0.618.(ratios)
There are other numbers but these are the ones we tend to focus on for defining at least the short-term wave patterns.
Our ultimate goal here is to return to the question,”How do i calculate a fibonacci extension?”But we need to continue to work with some basic , yet very important information if we want to finally see how fibonacci extension calculations interplay in all this…
Hove you ever wondered why wave counts are labeled when and were?Do you wonder the same about wave projections?
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