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.

Saturday, October 23, 2010

Bull/Bear Ratio

Bull market
A financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.
A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains). A bullish trend in the stock market often begins before the general economy shows clear signs of recovery. It is a win-win situation for the investors.

Bear Market

A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows.
A bear market is a general decline in the stock market over a period of time.It is a transition from high investor optimism to widespread investor fear and pessimism. According to The Vanguard Group, “While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period.”
Bull/Bear Ratio

A market-sentiment indicator published weekly by Investor’s Intelligence that uses information polled directly from market professionals. This index reflects the sentiments of market participants that deal daily within the financial markets and it gives a more relevant measure.
Courtesy Copyright investopedia.com

Friday, October 22, 2010

Moving Average Convergence Divergence (MACD)

The Combination Oscillator
Developed by Gerald Appel, Moving Average Convergence Divergence (MACD)is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD is a centered oscillator and the guidelines for using centered oscillators apply.
MACD Formula
The most popular formula for the “standard” MACD is the difference between a security’s 26-day and 12-day exponential moving averages. This is the formula that is used in many popular technical analysis programs, including SharpCharts, and quoted in most technical analysis books on the subject. Appel and others have since tinkered with these original settings to come up with a MACD that is better suited for faster or slower securities. Using shorter moving averages will produce a quicker, more responsive indicator, while using longer moving averages will produce a slower indicator, less prone to whipsaws. For our purposes in this article, the traditional 12/26 MACD will be used for explanations. Later in the indicator series, we will address the use of different moving averages in calculating MACD. Of the two moving averages that make up MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger line. A bullish crossover occurs when MACD moves above its 9-day EMA and a bearish crossover occurs when MACD moves below its 9-day EMA. The Merrill Lynch chart below shows the 12-day EMA (thin green line) with the 26-day EMA (thin blue line) overlaid the price plot. MACD appears in the box below as the thick black line and its 9-day EMA is the thin blue line. The histogram represents the difference between MACD and its 9-day EMA. The histogram is positive when MACD is above its 9-day EMA and negative when
MACD is below its 9-day EMA.
Merrill Lynch

What does MACD do?
MACD measures the difference between two moving averages. A positive MACD indicates that the 12-day EMA is trading above the 26-day EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-day EMA. If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates that the rate-of-change of the faster moving average is higher than the rate-of-change for the slower moving average. Positive momentum is increasing and this would be considered bullish. If MACD is negative and declining further, then the negative gap between the faster moving average (green) and the slower moving average (blue) is expanding. Downward momentum is accelerating and this would be considered bearish. MACD centerline crossovers occur when the faster moving average crosses the slower moving average.

This Merrill Lynch chart shows MACD as a solid black line and its 9-day EMA as the thin blue line. Even though moving averages are lagging indicators, notice that MACD moves faster than the moving averages. In this example with Merrill Lynch, MACD also provided a few good trading signals as well.
1.  In March and April, MACD turned down ahead of both moving averages and formed a negative divergence ahead of the price peak.
2.  In May and June, MACD began to strengthen and make higher lows while both moving averages continued to make lower lows.
3.  And finally, MACD formed a positive divergence in October while both moving averages recorded new lows.
MACD Bullish Signals
MACD generates bullish signals from three main sources:
1.  Positive divergence
2.  Bullish moving average crossover
3.  Bullish centerline crossover
Positive Divergence
Novellus
A positive divergence occurs when MACD begins to advance and the security is still in a downtrend and makes a lower reaction low. MACD can either form as a series of higher lows or a second low that is higher than the previous low. Positive divergences are probably the least common of the three signals, but are usually the most reliable and lead to the biggest moves.
Bullish Moving Average Crossover
Novellus

A bullish moving average crossover occurs when MACD moves above its 9-day EMA or trigger line. Bullish moving average crossovers are probably the most common signals and as such are the least reliable. If not used in conjunction with other technical analysis tools, these crossovers can lead to whipsaws and many false signals. Moving
average crossovers are sometimes used to confirm a positive divergence. The second low or higher low of a positive divergence can be considered valid when it is followed by a bullish moving average crossover.
Sometimes it is prudent to apply a price filter to the moving average crossover in order to ensure that it will hold. An example of a price filter would be to buy if MACD breaks above the 9-day EMA and remains above for three days. The buy signal would then commence at the end of the third day.
Bullish Centerline Crossover
Apple

A bullish centerline crossover occurs when MACD moves above the zero line and into positive territory. This is a clear indication that momentum has changed from negative to positive, or from bearish to bullish. After a positive divergence and bullish moving average crossover, the centerline crossover can act as a confirmation signal. Of the three signals, moving average crossover are probably the second most common signals.
Using a Combination of Signals
Halliburton

Even though some traders may use only one of the above signals to form a buy or a sell signal, using a combination can generate more robust signals. In the Halliburton example, all three bullish signals were present and the stock still advanced another 20%. The stock formed a lower low at the end of February, but MACD formed a higher low, thus creating a potential positive divergence. MACD then formed a bullish crossover by moving above its 9-day EMA. And finally, MACD traded above zero to form a bullish
centerline crossover. At the time of the bullish centerline crossover, the stock was trading at 32 1/4 and went above 40 immediately after that. In August, the stock traded above 50.
Courtesy Copyright StockCharts.com .This content copyrights protected  Written by Arthur Hill.

Wednesday, October 20, 2010

RSI

To understand how these two indicators can be used together, we must first for a moment review each of them. Momentum is the measurement of the speed or velocity of price changes. In “Technical Analysis of the Financial Markets”, John J. Murphy explains:
“Market momentum is measured by continually taking price differences for a fixed time interval. To construct a 10-day momentum line, simply subtract the closing price 10 days ago from the last closing price. This positive or negative value is then plotted around a zero line. The formula for momentum is:
M = V – Vx
V is the latest price, and Vx is the closing price x number of days ago.”
Momentum measures the rate of the rise or fall in stock prices. From the standpoint of trending, momentum is a very useful indicator of strength or weakness in the issue’s price. History has shown us that momentum is far more useful during rising markets than during falling markets; the fact that markets rise more often than they fall is the reason for this. In other words, bull markets tend to last longer than bear markets.
For relative strength, determining the true value of an oscillator depends on the understanding of overbought or oversold positions. (See Speed Resistance Lines.) There has always been a little confusion over the difference between relative strength, which measures two separate and different entities by means of a ratio line, and the relative strength index, which indicates to the trader whether or not an issue’s price action is created by those over-buying or over-selling it. The well-known formula for the relative strength index is as follows:
RSI=100-(100/(1+RS))
RS = Average of x days’ up closes Average of x days’ down closes
At the bottom of the chart, the RSI, on a scale of 0-100, indicates that the overbought position is at 70 and the oversold position is at 30. An trader with today’s simple-to-use software may choose to reset the indicators’ parameters to 80 and 20. This helps the trader be sure when making the decision to buy or sell an issue and not pull the trigger too fast.
I have always found that the RSI works best when compared to short-term moving-average crossovers. Using a 10-day moving average with a 25-day moving average, you may find that the crossovers indicating a shift in direction will occur very closely to the times when the RSI is either in the 30/70 or 20/80 range, the times when it is showing either distinct overbought or oversold readings. Simply put, the RSI forecasts sooner than almost anything else an upcoming reversal of a trend, either up or down.

Monday, October 18, 2010

Basic of Stock Market

Initial public offering
An initial public offering (IPO), referred to simply as an “offering” or “flotation”, is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.
An IPO can be a risky investment. For the individual investor it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.
Alternative public offering
An alternative public offering (APO) is the combination of a reverse merger with a simultaneous private investment of public equity (PIPE). It allows companies an alternative to an initial public offering (IPO) as a means of going public while raising capital.
Direct public offering
A company pursues a direct public offering (DPO) to raise capital by marketing its shares directly to its own customers, employees, suppliers, distributors and friends in the community. DPOs are an alternative to underwritten public offerings by securities broker-dealer firms where a company’s shares are sold to the broker’s customers and prospects.
Direct public offerings are considerably less expensive than traditional underwritten offerings. Additionally, they don’t have the restrictions that are usually associated with bank and venture capital financing. On the other hand, a DPO will typically raise much less than a traditional offering.
Equity carve-out
Equity carve-out (ECO or a partial spin-off) is a sort of corporate reorganization, in which a company creates a new subsidiary and IPOs it later, while retaining controlUsually, up to 20% of subsidiary shares is offered to the public. The transaction creates two separate legal entitie – parent company and daughter company—with their own boards, management teams, financials, and CEOs. Equity carve-outs increase the access to capital markets, enabling carved-out subsidiary strong growth opportunities, while avoiding the negative signaling associated with a seasoned offering (SEO) of the parent equity.
Seasoned equity offering
A Seasoned equity offering or secondary equity offering (SEO) is a new equity issue by an already publicly-traded company. Secondary offerings may involve shares sold by existing shareholders (non-dilutive), new shares (dilutive) or both.
Mergers and acquisitions
The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.
Private placement
Private placement (or non-public offering) is a funding round of securities which are sold without an initial public offering, usually to a small number of chosen private investors. In the United States, although these placements are subject to the Securities Act of 1933, the securities offered do not have to be registered with the Securities and Exchange Commission if the issuance of the securities conforms to an exemption from registrations as set forth in the Securities Act of 1933 and SEC rules promulgated thereunder. Most private placements are offered under the Rules know as Regulation D. Private placements may typically consist of stocks, shares of common stock or preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), and purchasers are often institutional investors such as banks, insurance companies or pension funds.
follow-on offering
A follow-on offering (often called secondary offering) is an issuance of stock subsequent to the company’s initial public offering. A follow-on offering can be either of two types (or a mixture of both): dilutive and non-dilutive. A secondary offering is an offering of securities by a shareholder of the company (as opposed to the company itself, which is a primary offering). A follow on offering is preceded by release of prospectus similar to IPO.
Public offering without listing
A public offering without listing, often called a POWL deal or a POWL, is a form of public equity offering by non-Japanese firms in the Japanese market, without the previously required simultaneous listing on a local exchange.
Reverse takeover
A reverse takeover or reverse merger (reverse IPO) is the acquisition of a public company by a private company to bypass the lengthy and complex process of going public. The transaction typically requires reorganization of capitalization of the acquiring company.

Thursday, October 14, 2010

Chaikin Oscillator

The Accumulation/Distribution Line was covered in a previous article; here, we will examine an indicator that stems from the concept behind the Accumulation/Distribution Line: the Chaikin Oscillator – or Chaikin A/D Oscillator, as it is sometimes called – named after its creator, Marc Chaikin. Before reading this article, you may want to become familiar with the concepts behind the Accumulation/Distribution Line.
The basic premise of the Accumulation/Distribution Line is that the degree of buying or selling pressure can be determined by the location of the Close, relative to the High and Low for the corresponding period. There is buying pressure when a stock closes in the upper half of a period’s range and there is selling pressure when a stock closes in the lower half of the period’s trading range.
Methodology
The Chaikin Oscillator is simply the Moving Average Convergence Divergence indicator (MACD) applied to the Accumulation/Distribution Line. The formula is the difference between the 3-day exponential moving average and the 10-day exponential moving average of the Accumulation/Distribution Line. Just as the MACD-Histogram is an indicator to predict moving average crossovers in MACD, the Chaikin Oscillator is an indicator to predict changes in the Accumulation/Distribution Line.
Many of the same signals that apply to MACD are also applicable to the Chaikin Oscillator. Keep in mind though, that these signals relate to the Accumulation/Distribution Line, not directly to the stock itself. Readers may want to refer to our MACD article for more detailed information on various signals such as positive divergences, negative divergences and centerline crossovers.
Just as MACD injects momentum characteristics into moving averages, the Chaikin Oscillator gives momentum characteristics to the Accumulation/Distribution Line, which can be a bit of a laggard sometimes. By adding momentum features, the Chaikin Oscillator will lead the Accumulation/Distribution Line. The CIENA chart (CIEN) confirms that movements in the Accumulation/Distribution Line are usually preceded by corresponding divergences in the Chaikin Oscillator.
1.The July negative divergence in the Chaikin Oscillator foreshadowed the impending weakness in the Accumulation/Distribution Line. This was a slant-type divergence that is characterized by its lack of distinctive peaks to form the divergence. The Chaikin Oscillator peaked about a week before the Accumulation/Distribution Line, and formed a bearish centerline crossover 2 weeks later. When the oscillator is negative, it implies that momentum for the Accumulation/Distribution Line is negative or bearish, which would ultimately be a negative reflection on the stock.
2.The August positive divergence in the Chaikin Oscillator foreshadowed a sharp advance in the Accumulation/Distribution Line. This divergence was longer and could have been referred to as a trough divergence. In a trough divergence, there are two noticeable troughs, one higher than the other, that form the divergence. The bullish, or positive, momentum was confirmed when the Chaikin Oscillator formed a bullish centerline crossover in late August.
Courtesy  Copyrigh@wikipedia.org

Wednesday, October 13, 2010

Open Interest

Concept Of Open interest:
Open interest (also known as open contracts or open commitments) refers to the total number of derivative contracts, like futures and options, that have not been settled in the immediately previous time period for a specific underlying security. A large open interest indicates more activity and liquidity for the contract.
For each buyer of a futures contract there must be a seller. From the time the buyer or seller opens the contract until the counter-party closes it, that contract is considered ‘open’.
Use of Open Interest in Technical Analysis

Many technical analysts believe that a knowledge of open interest can prove useful toward the end of major market moves. For some option traders, open interest indicates the intensity of trading in a financial instrument. If open interest increases suddenly, it is likely that new information about the underlying security has been revealed, which may indicate a near-term rise in the underlying security’s volatility. However, neither an increase in volatility nor open interest necessarily indicate anything about the direction of future price movements. A leveling off of open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
Technical analysts view increasing open interest as an indication that new money is flowing into the marketplace. From this assumption, one could conclude that the present trend will continue. Analogously, declining open interest implies that the market is liquidating, and suggests that the prevailing price trend is coming to an end.
However, according to the definition of open interest in this entry, a change in open interest indicates a difference in the number of buyers and sellers of a financial instrument. Like volatility, it has no directional component, it is just a tally of unsettled contracts.
Open interest is a concept all option traders need to understand. Although it is always one of the data fields on most option quote displays – along with bid price, ask price, volume and implied volatility – many traders ignore open interest. But while it may be less important than the option’s price, or even current volume, open interest provides useful information that should be considered when entering an option position.
So when you are looking at the total open interest of an option, there is no way of knowing whether the options were bought or sold – which is probably why many option traders ignore open interest altogether. However, you shouldn’t assume that the open interest figure provides no important information.
One way to use open interest is to look at it relative to the volume of contracts traded. When the volume exceeds the existing open interest on a given day, this suggests that trading in that option was exceptionally high that day. Open interest can help you determine whether there is unusually high or low volume for any particular option.
Benefits of  Open Interest
By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the day’s activity can be drawn.
Increasing open interest means that new money is flowing into the marketplace. The result will be that the present trend (up, down or sideways) will continue.
Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end. A knowledge of open interest can prove useful toward the end of major market moves.
A leveling off of open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
Open Interest Used for Confirming Indicator
An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.
The relationship between the prevailing price trend and open interest can be summarized by the following table:[3][4]
Price     Open Interest     Interpretation
Rising         Rising                       Market is Strong
Rising         Falling                       Market is Weakening
Falling        Rising                       Market is Weak
Falling        Falling                       Market is Strengthening
Courtesy  Copyrigh@wikipedia.org

Tuesday, October 12, 2010

Money Flow Index

Money Flow Index (MFI) is an oscillator calculated over an N-day period, ranging from 0 to 100, showing money flow on up days as a percentage of the total of up and down days. Money flow in technical analysis is typical price multiplied by volume, a kind of approximation to the dollar value of a day’s trading.
The calculations are as follows. The typical price for each day is the average of high, low and close,
typical\ price = {high + low + close \over 3}
Money flow is the product of typical price and the volume on that day.
money\ flow = typical\ price \times volume
Totals of the money flow amounts over the given N days are then formed. Positive money flow is the total for those days where the typical price is higher than the previous day’s typical price, and negative money flow where below. (If typical price is unchanged then that day is discarded.) A money ratio is then formed
money\ ratio = { positive\ money\ flow \over negative\ money\ flow }
From which a money flow index ranging from 0 to 100 is formed,
MFI = 100 – {100 \over 1 + money\ ratio}
This can be expressed equivalently as follows. This form makes it clearer how the MFI is a percentage,
MFI = 100 \times { positive\ money\ flow \over positive\ money flow + negative\ money\ flow }
MFI is used as an oscillator. A value of 80 is generally considered overbought, or a value of 20 oversold. Divergences between MFI and price action are also considered significant, for instance if price makes a new rally high but the MFI high is less than its previous high then that may indicate a weak advance, likely to reverse.
It will be noted the MFI is constructed in a similar fashion to the relative strength index. Both look at up days against total up plus down days, but the scale, i.e. what is accumulated on those days, is volume (or dollar volume approximation rather) for the MFI, as opposed to price change amounts for the RSI.
It’s important to be clear about what “money flow” means. It refers to dollar volume, i.e. the total value of shares traded. Sometimes finance commentators speak of money “flowing into” a stock, but that expression only refers to the enthusiasm of buyers (obviously there’s never any net money in or out, because for every buyer there’s a seller of the same amount).

Thursday, October 7, 2010

Directional Movement Index (14-day)

Directional Movement
The Directional Movement System is a fairly complex indicator developed by Welles Wilder and explained in his book, New Concepts in Technical Trading Systems.
Most indicators have one major weakness – they are not suited for use in both trending and ranging markets. The key feature of the Directional Movement System is that it first identifies whether the market is trending before providing signals for trading the trend.
Directional Movement System measures the ability of bulls and bears to move price outside the previous day’s trading range. The system consists of three lines:
* The Positive Direction Indicator (+DI) summarizes upward trend movement;
* The Negative Direction Indicator (-DI) summarizes downward trend movement; and
* The Average Directional Movement Index (ADX) indicates whether the market is trending or ranging.
Welles Wilder does not use the standard moving average formula. This should be taken into account when selecting indicator time periods. See Welles Wilder Moving Average.
Trading Signals
A number of different trading systems have developed around Directional Movement. The following rules are based on the system presented by Dr Alexander Elder in Trading for a Living:
Go long when +DI is above -DI and either:
* ADX rises while +DI and ADX are above -DI; or
* ADX turns up from below +DI and -DI.
Exit when +DI crosses below -DI.
See ADX below for further details.
Go short when -DI is above +DI and either:
* ADX rises while -DI and ADX are above +DI; or
* ADX turns up from below +DI and -DI.
Exit when -DI crosses below +DI.
Use stop-losses at all times.
ADX:
Declining ADX shows that the market is losing direction. When ADX falls below both +DI and -DI it signals a lifeless market. Do not trade with DMS until ADX has clearly turned off the bottom. Dr Elder suggests waiting until ADX rises 4 steps off its low (e.g. ADX rises to 19 from a low of 15). The longer that ADX has remained below both +DI and -DI the stronger the subsequent trend is likely to be.
When ADX rises above both +DI and -DI it signals that the market is becoming overheated. Take profits when ADX turns downwards from above +DI and -DI.
Example
14-day Positive Direction Indicator +DI, Negative Direction Indicator -DI and Average Directional Movement Index ADX.

1.  -DI crosses to above +DI so trade only short.
2. Go short when ADX rises above +DI.
3. Take profits when ADX turns down while above +DI and -DI.
Exit short trade and trade only long as +DI has crossed to above -DI.
4. Go long as ADX starts rising while above -DI.
5. Take profits when ADX turns down while above +DI and -DI.
6. Exit long trade and trade only short as -DI has crossed to above +DI.
ADX continues to fall so there are no trades.
7. Trade only long as +DI has crossed to above -DI.
ADX turns up while below +DI and -DI, but does not rise by the recommended 4 steps, so no trade is entered.
8. One view is that you should go long whenever ADX rises above -DI, but ADX has remained very low and flat and it would be advisable not to trade until ADX has risen by at least 4 steps above its recent low.
9. Trade only long as +DI has crossed to above -DI.
10. Go long when ADX rises above -DI.
11. Exit long trade when +DI falls below -DI.
Courtesy  Copyright 2001 – 2010 Vizhon Corporation and its associates.

Wednesday, October 6, 2010

Accumulation Distribution

Accumulation Distribution uses volume to confirm price trends or warn of weak movements that could result in a price reversal.
•    Accumulation: Volume is considered to be accumulated when the day’s close is higher than the previous day’s closing price. Thus the term “accumulation day”
•    Distribution: Volume is distributed when the day’s close is lower than the previous day’s closing price. Many traders use the term “distribution day”
Therefore, when a day is an accumulation day, the day’s volume is added to the previous day’s Accumulation Distribution Line. Similarly, when a day is a distribution day, the day’s volume is subtracted from the previous day’s Accumulation Distribution Line.
The main use of the Accumulation Distribution Line is to detect divergences between the price movement and volume movement. An example of the Accumulation Distribution Line is shown below in the chart.

Volume Interpretation
The basic interpretation of volume goes as follows:
•    Increasing and decreasing prices are confirmed by increasing volume.
•    Increasing and decreasing prices are not confirmed and warn of future trouble when volume is decreasing.
For more in-depth analysis of Volume (see: Volume).
High #1 to High #2
The stock  made an equal high (i.e. Double Top formation) at High #2; however, the Accumulation Distribution Line failed to make an equal high, in fact it made a lower high. On average, less volume was transacted on the move higher at High #2 than occured on the first move higher at High #1; thus, this could be interpreted as there being less strength and conviction behind the rally in the Nasdaq the second move higher. This failure of the Accumulation Distribution Line signaled a strong bearish divergence.
High #3 to High #4
Again, the Accumulation Distribution line made a lower high, even though the Nasdaq 100 this time made a higher high. This bearish divergence warned that the second move to make a higher high in price lacked conviction.
Low #1 to Low #2
The bearish divergence from Low #1 to Low #2 confirmed the later bearish divergence of High #3 to High #4. On average, more volume was occuring on down days than up days, even while the stock was making higher highs and higher lows, which usually is considered a sign of strength.

Monday, October 4, 2010

Andrews Pitchfork

How to Draw The Three Parallel Trend Lines

The first step in constructing the andrew’s pitchfork is selecting a major peak or trough. This major swing point will later be the origin of the median line for the indicator. The next part of the channel is to select the next swing high and swing low pivots after the major swing point. A line is then drawn from the major peak or trough through the middle of the second and third swing points. Lastly a line is extended from both the second and third pivot points parallel to the median line. These three parallel lines give the appearance of a pitchfork.
How to Trading  the Andrew’s Pitchfork
Traders should use the same methods for trading trend lines with the andrew’s pitchfork. We are advantage of the andrew’s pitchfork over traditional trend lines, is that it allows the construction of a trading channel, prior to multiple pivot points at support and resistance lines. When the market is trending strongly, the price will stay primarily near the respective parallel line and gravitate to the median line on small  corrections. Traders can use the pullback to the median line as an opportunity to jump on board of the current trend. When prices fall through the median line, the assumption is that the price will move towards the opposite parallel line. If the second parallel line is broken, this is an early sign that the primary trend is in jeopardy. Conversely, if the price breaks out of the parallel line that is at the extreme of the range in the direction of the trend, then the security is said to be unlimit bought or sold. Traders should wait for the price to come back inside of the pitchfork, prior to attempting to take on new positions. Dr. Andrews believed that the price action will move to the median line 80% of the time while the primary trend is intact.
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