Wednesday, January 4, 2012

"There is often a decided shift of power from sellers to buyers that clearly defines the end of a downtrend and the beginning of a bottoming action."

MetaStock SPRS Series - Week 49 - TechniTrader® Weekly Discussion for MetaStock Users: MDT - January 2, 2012
By: Martha Stokes C.M.T.

There is often a decided shift of power from sellers to buyers that clearly defines the end of a downtrend and the beginning of a bottoming action.

Most traders miss these subtle cues that the sell side has lost its downside dominance. This means that many traders end up in sell short positions that quickly become losing trades and often big losing trades.

Chart 1

One of the reasons TechniTrader® developed specific indicators just for MetaStock was to provide MetaStock traders with a set of tools that exposed things the common popular indicators do not. This is one of those instances.

TechniTrader® Quiet Accumulation TTQA clearly defines the end of the selling and the commencement of a bottoming pattern. Also red and green volume bars make it far easier to see whether the buy side or sell side dominates. Often in trading range markets, which has been the condition of the markets for several months now, stocks shift quickly from selling down to bottoming.

If you are a day, intraday or swing trader, recognizing the shift from sell side to bottoming is crucial to your success as a short term trader.

This allows you to identify early on when major shifts of sentiment have occurred.

The other indicators that can really help you identify the shift of power from sell side to buy side are the TechniTrader® Flow of Funds TTFF, and the TechniTrader® Volume Accumulation TTVA. Both below had an overextended downside pattern which precedes a shift of sentiment. These indicators moved in advance of price, angling upward even before price moved up.

Chart 2

MDT has sufficient target points gain potential for a candidate for a position style watchlist. It has not completed the bottom yet, but price is compressing.

Chart 3

And finally in a bottoming stock, you do not want to use stochastic but RSI instead. Stochastic is a good indicator for trading range bound stocks but is not the correct indicator to use when stocks are bottoming.

Switching to RSI allows you to see and monitor the improvement of price in a bottoming condition which is key to determining whether the bottom will move up and complete, or if it will continue sideways for a while longer, OR if the stock is going to retest the lows of the bottom.

RSI/RSI is a TechniTrader® indicator that provides 2 lines which makes it far easier to read RSI than the normal 1 line indicator.

We can see that the shorter RSI has risen above the longer RSI but that it is flat right now.

Using the correct indicators for the current market condition helps you make better stock pick selection, faster, with more reliable results. Always use the appropriate indicators for the market condition that is present at the time you are trading.

We have moving out of a trading range market condition into a platform market condition at this time.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner

©2012 Decisions Unlimited, Inc.

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