The Anatomy of a Correction

 

MetaStock SPRS Series - Week 120 - TechniTrader® Stock Discussion for MetaStock Users - The Anatomy of a Correction - May 27, 2013
By: Martha Stokes C.M.T.
 

Were you surprised by the big move down on Wednesday May 22, 2013?

It should not have been a surprise, in fact, if you had been using the proper indicators and technical as well as relational analysis you would have started preparing for this correction about a week before it happened.

A student just wrote on Wednesday to tell me he had pulled 98K profits just as the stock market turned that day. He had learned how to anticipate and prepare for corrections days ahead of the actual event.

To be a truly successful trader you need to learn how to read the relational patterns as well as technical patterns that expose what is really going on, who controls price, when that control begins to weaken, who is opposing the controlling market participants, and when their strength is going to overwhelm the other.

By understanding the dynamics of each market participant group, how they trade, where they trade, and when they trade you begin to see a much more important perspective than just a candlestick pattern or a crossover indicator.

Traders who make significant profits in the market are always vigilant about seeing the broader picture.

Below is the Dow chart:

The NASDAQ chart:

The S&P 500 chart:

The first thing to notice is the angle of ascent, the runaway trendline pattern with no support, and the support levels nearby. In addition, volume and TechniTrader® Quiet Accumulation TTQA reveal who controls price and if the large lots that are selling as price moves up tell you a great deal about how long this trend can sustain and when the shift of dominance occurs. Yes, large lots were selling for profit as smaller lots were buying speculatively for the past week.

The large lots taking profits were extremely careful in the beginning, allowing the zeal and exuberance of the less informed and uninformed smaller lots and smaller funds to continue to drive price upward even as the large lots were taking profits.

This is often a hard concept for many retail traders to accept. They assume that the pros are still buying but the indicators tell all. Charts do not lie. They reveal patterns that expose who is doing what.

When you reach this level of sophistication in your analysis then you will be reaping the financial gains that come with such expertise in analysis.

Trade wisely, 

Martha Stokes, C.M.T.

For more information email: info@technitrader.com
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2013 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Main Article: MetaStock Monitor MAY - JUNE 13

Social Trading the Dow
Contributed by eToro

"The Dow Jones Reaches a New Record High" - This headline is hardly news anymore, due to US stocks reaching new all-time highs approximately twice a week, since the beginning of 2013. Nowadays the media is more likely to consider a week without record highs for the Dow as breaking news.

With that said, many analysts and traders remain skeptical about the reasons behind these dramatic moves. The US economy is certainly not performing better than ever before, and although data releases indicate recover (albeit a slow one), there are still plenty of reasons for investors to be concerned.

At the same time, Wall Street investors are singing an old and merry song, which goes something like this:

Money is cheap and credit is loose, time to invest, give the economy a boost.
What can we buy or what can we sell, when bond yields are low and real estate is stale.
Corporations will grow long term and short, so equity shares are the best to report.

We can see the strong sentiment very clearly by glancing at this chart.

You don’t need any lines to see the clear upward trend, but when will it end? And what can you do to prepare for it?

Social trading offers an interesting solution for dealing with bubbles such as this. As long as the bubble keeps inflating, it makes sense to take advantage of the upward momentum, however, if you know the downfall is imminent you also have to hedge your positions in the opposite direction.

This is where social trading comes in.

Social trading links traders from all over the world into one big network. It empowers traders to use each other’s skills and collective wisdom to trade smarter together.

Across a broad social investment network there will be traders on both sides of the fence and some who are sitting on the fence.

For example;

Robysms61 from Switzerland has a moderate following of almost 10,000 traders. Currently 3,705 of them are copying his trades with their real money accounts. He strongly believes this entire rise is a big bubble and is holding short positions on the Dow Jones and S&P 500. His Dow Jones target is currently at 13,000 just around that big gap from New Year’s weekend. (Here are Robysms61's results.) 

On the other there is Schultieboy, a new trader from Holland. In just 2 short months this trader has managed to quadruple his initial investment and is currently holding some very green long trades on several different stock indices. (Here are Schultieboy's results.)

A wise investor knows diversification is key so, by copying both these traders, we should be able to profit from both points of view and trading timeframes.

Another cool advantage of investing socially is being able to gauge the overall sentiment, or the "Wisdom of the Crowd."

Since the beginning of the year, the social sentiment on the eToro network has been growing increasingly negative when it comes to the stock market. Point in fact: at the moment, 96% of our top traders are selling the S&P 500.

The following chart demonstrates the overall bearish exposure on the S&P of all the traders in the eToro network on a weekly basis since January 2013.

The black line is the monthly moving average, where we can see the bearish trend starting to emerge.

In the words of John Maynard Keynes, a very famous economist,"the markets can stay irrational longer than you can remain solvent."

As long as the markets remain irrational, the only rational thing to do is to spread your investment to cover all possible scenarios. This is the number one reason to diversify as much as possible.

You can achieve maximum diversification by copying diverse investors who are in turn diversifying their own portfolios. This way, whatever happens in the world your exposure will be spread out and much safer.

To learn more about social trading, visit www.etoro.com.

About the Author:

eToro is the first global market place for people to trade currencies, commodities and indices online in a simple, transparent and more enjoyable way.

eToro’s vision is to become a global market place for all people to invest and manage their funds in a simple and transparent way.

eToro is committed to maintain the world’s largest and most trusted investment network, designed to financially empower individual investors through a simple, innovative trading platform and an active social trading community.

Today, eToro empowers over 2.75 million users in more than 140 countries worldwide to manage their funds through their innovative online investment platforms and active trading community, with thousands of new accounts created every day.

For more information on eToro, please visit their website.

Support Tip: MetaStock Monitor MAY - JUNE 13

Support Tip

How do I control how an indicator is scaled?
Contributed by MetaStock Support

Adding indicators to charts in MetaStock is as simple as dragging and dropping. But what about scaling for the indicator? When you add an indicator to an inner window or copy or move an indicator to another inner window, it is likely that the other inner window's y-axis scale will not be compatible. If this is the case, MetaStock displays the Scaling Options dialog so that you can choose how to handle the scaling when the plot is overlaid.

For this example, we will use a chart of Apple and a Stochastic Oscillator for the indicator.

Let's take a look at the available options:

For any indicator scaling you want to execute, you must do the following steps regardless of which scale you choose.

1. After opening a chart in MetaStock, drag and drop the indicator anywhere on the chart. You will know the indicator is going to be applied in the chart when the price bars turn pink.


2.  After setting the parameters of your indicator, select "OK." You will be asked what you want your scaling options to be. Here are the scaling options and how to apply them.

1) Display New Scale on Left

1. For this example, we select "Display new scale on left."

2.  After selecting "New scale on left" and clicking "OK" the indicator will appear over the prices on the chart. Notice the new scale on the left side of your chart. This scale is directly related to the plotted indicator. Since the Stochastic Oscillator is based on a scale of 0 - 100, you will notice this is the scaling used on the left with blue overbought and oversold lines at 20 and 80.

2) Display New Scale on Right

1. For this example, we select "Display new scale on right."

2. After selecting "New scale on right" and clicking "OK" the indicator will appear over the prices on the chart. Notice the new scale on the right side of your chart. This Stochastic Oscillator scale has replaced the pricing scale. Since the Stochastic Oscillator is based on a scale of 0 - 100, you will notice this is the scaling used on the right with blue overbought and oversold lines at 20 and 80.

3) Merge with Scale on Right

1. For this example, we select "Merge with scale on right."
   *** If you have a scale on the left side that appears with every chart you open, you can follow the same steps to merge with that scale. If you do not, the "Merge with scale on left" will remain grayed out.

2. After selecting "Merge with scale on right" and clicking "OK" the indicator is “merged” with the current right scale. Notice the scale on the right side of your chart now displays from -50 to 750 so that it can display both the pricing for Apple as well as the range for the Stochastic Oscillator. So you’re now able to see Apple and the Stochastic Oscillator in the same chart.

4) Overlay without Scale

1. For this example, we select "Overlay without Scale."

2.  After selecting "Overlay without Scale" and clicking "OK" the indicator scale will use the price scale on the chart to plot the Stochastic Oscillator (in this example.) Notice the pricing scale on the right side of your chart is unchanged with the addition of the Stochastic Oscillator. The Stochastic Oscillator is still based on a scale of 0 - 100 with blue overbought and oversold lines at 20 and 80. However, for this example it is using pricing values rather than the 0 - 100 scale. This is useful if you are only concerned with comparing relative movments between the plots.

Please note: You can change the scaling of any indicator already in your chart by right clicking on the indicator and selecting "Scaling." This will display the Scaling Options dialog and allow you to select the desired method.

Slauson's Slant: MetaStock Monitor MAY - JUNE 13

A Stop for All Seasons
Contributed by John Slauson

A lot of traders focus on perfecting the perfect entry signal. The thinking is "If I can time my entry well, then a profit is a natural by-product." However, anyone who has traded knows this could not be further from the truth. 

I believe many systems could be improved with effective stop losses. It would not surprise me if a monkey throwing darts at a stock chart could generate entry signals that turned consistent profits IF an effective stop loss were used for exits. 

A little-known indicator in MetaStock is the IntelliStop. I developed this indicator about 10 years ago to be used as a universal exit signal. It is essentially a trailing stop with a unique twist; it automatically tightens and loosens based on directional volatility.

Volatility (as measured by standard deviation) is non-directional - meaning a sharp upward move has the same impact on the volatility value as a sharp downward move. Intellistops separate upside volatility from downside volatility. Why?

Upside volatility is considered a positive condition for long positions; whereas downside volatility is a negative condition. High upside volatility will cause Sell IntelliStops to tighten in anticipation of a return to normal volatility thereby locking in gains. A sharp downside pullback counteracts the temporary increase in volatility generated by a sharp upside move.

IntelliStops were created with the following principles in mind: let losses die quickly (play defense first), let profits live long, and strive for average profits that outpace average losses by a factor of two. Are IntelliStops the perfect application of this principle? No. But they can be effective.

The following chart shows the Adaptick IntelliStop indicator (Level 2 setting) overlaid on the QQQ. Note that an IntelliStop only resets when it is hit, as illustrated below. This is standard trailing stop behavior. The circled bar penetrated the active stop value, causing it to reset/recalculate on the current bar's low.

To plot the Adaptick IntelliStop indicator on a chart, simply drag and drop the indicator named "zAdaptick - IntelliStop Buy (1,2,3,4, or 5)" or "zAdaptick - IntelliStop Short (1,2,3,4, or 5)" from the Indicator Quicklist and drop it on top of the price plot.

An intellistop should be used the same way you would use any other stop. Using the chart above as a reference, here is an example: Let's say I purchased the QQQ at $68.50 using the monkey's dart and the current price is $73.03. I want to lock in my unrealized gains of $4.53 with an IntelliStop. The current value of the IntelliStop is $71.34. I could place a Good-til-Canceled (GTC) Sell Stop Loss order as shown below (This is Fidelity's order ticket; yours should be similar).

After placing a Stop Loss, you will need to monitor the IntelliStop closely in MetaStock in order to adjust it as necessary. Of course, the stop will never go down in the case of long positions, or up in short positions.

So take a look at IntelliStops. They may improve the performance of your trading systems.

But remember, trading isn't monkey business.

About John Slauson

 

John Slauson began his career with MetaStock in 1988. In 2000, he left and started Adaptick, a company that provided training and developed popular MetaStock add-ons ICE, FIRE and PowerStrike. Over the years, he's worked closely with industry experts like John Bollinger, Steve Nison, John Murphy, and Greg Morris. In 2008 he returned to MetaStock as a Product Manager.

Power User Tip: MetaStock Monitor MAY - JUNE 13

MetaStock Power User Tip

Bollinger Bands - Part 2
Contributed by Breakaway Training Solutions

In this second video of a three part video series on using Bollinger Bands, Kevin Nelson shows you how to create your own custom indicator to help determine when your Bollinger Bands are narrowing. This could be used to help find stocks going through periods of congestion.

http://youtu.be/0nsI-3y1jYc

For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@breakawayts.com.

About Kevin Nelson

 

Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry. 

©Breakaway Training Solutions, Inc. 2013

Consistent Techniques for Trading the Markets Using MetaStock

How to Use Relational Analysis

MetaStock SPRS Series - Week 119 - TechniTrader® Stock Discussion for MetaStock Users - How to Use Relational Analysis - May 20, 2013
By: Martha Stokes C.M.T.
 

Take your stock pick selection to the professional level.

The professional traders process are substantially different from how retail traders approach the market. One area is how they choose what stocks to trade.

Some retail traders use strictly technical analysis, looking for a divergence, convergence, crossover, overbought, or oversold indicator pattern. Some retail traders prefer to use Gann lines, others use Elliot Wave, and some use candlestick patterns.

But what retail traders do not realize is that, this is a narrow focus technical analysis strategy. Consequently they miss many aspects of the analysis that hamper their profitability, and create chronic losses.

"Relational Analysis™" is what professional traders use which drives their profits and reduces their risk of whipsaw trades and losses. "Relational Analysis™" encompasses a simple methodology of analyzing the stock chart in a way that identifies relational values that expose who is in control of price, how that market participant groups is trading, and what that means for near term price action.

Instead of focusing on just one or two indicators or one candlestick pattern, the "Relational Analysis™" quickly accesses what has been going on recently, what aspects of the market data are revealing strength or weakness within the pattern, and how this has affected price. This provides invaluable information that tells the retail trader how price is likely to behave and move.

The chart GPS below is an example.

Chart 1

Using "Relational Analysis™" the comparison and relationship between candlestick patterns over time, volume bars average, and TechniTrader® Quiet Accumulation TTQA the large lot versus small lot indicator written by TechniTrader® Staff for MetaStock Charting Software, quickly expose several things.

First there was a shift of sentiment in TTQA in the summertime, along with a bottoming pattern, and quiet volume. This is all indicative of Dark Pool activity as they prefer to buy in early, often during August and then ride the momentum action of the fall or winter.

The Gap on high volume is High Frequency Trading HFT action, after that group discovers Dark Pools have been buying this stock.

However even after the HFT action the Dark Pools are back in again, buying in quietly unnoticed. Then their buying subsides and suddenly HFTs trigger on a news event. This is the huge red volume in December.

Now, relational analysts know that HFTs one day patterns create a surge of VWAP small funds orders which chase the HFTs. So the high TTQA is not giant Dark Pools but smaller funds selling into the buy zone of the giant Dark Pools. You can see the newest type of bottoming formation on GPS, the basing pattern that halts the downward action immediately after the HFT spike of red volume.

Basing patterns on the short term are well known to relational analysts who recognize this as another Dark Pool buy zone. Then the stock price action settles into their price range and TTQA shifts again to a buying quiet accumulation mode. As the Stock starts to move up out of the Dark Pool buy zone, the quiet accumulation slowly ceases.

What Relational Analysis™ provides is a deeper understanding of what is actually going on with a stock rather, than the superficial perspective that most retail traders have been taught.

By incorporating "Relational Analysis™" to expand your technical analysis skills to the professional level, you will begin to see the results professionals take for granted.

Trade wisely, 

Martha Stokes, C.M.T.

For more information email: info@technitrader.com
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2013 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Dark Pools

MetaStock SPRS Series - Week 118 - TechniTrader® Stock Discussion for MetaStock Users - Dark Pools - May 13, 2013
By: Martha Stokes C.M.T.
 

I recently held a webinar for MetaStock® users and encourage them to write in requesting topics for this forum. I am happy to write about specific topics of interest to you, just email info@technitrader.com with your request and I will put it in my queue.

This request was regarding Dark Pools.

Dark Pools are a relatively new term for a commonly used practice of several decades. The reason it is now more in the news than ever before is the fact that more and more giant funds-hedge, funds, mutual funds like Vanguard, market makers like Goldman Sachs, and Sell side like State Street are using the Dark Pools.

The IOSCO recently reported the total shares of stock traded on Dark Pools accounted for 12% of the total volume on all platforms. This included exchanges, ETNs, ATS and other professional platforms. That is up from about 2% before 2000.

Contrary to popular myth, neither Dark Pools nor High Frequency Traders HFTs account for 70% of all trades on the stock market platforms.

That figure was inaccurately and misleadingly used to incite retail side trader's emotions.

At this time 70% is the total number of automated orders coming from all venues and all sources. That includes many retail side trading systems, and retail brokers who sell to you out of their inventory rather than placing your order into the exchanges.

Dark Pools are here to stay and they do affect intraday trading greatly as their orders are delayed report orders. This means that pre-trades do not reflect Dark Pool activity.

Dark Pool activity is reported to the National Clearing House. All are documented, recorded, with transfer of title and issuance as required by law. All that data is fed into the Data Feed Providers for both the professional side and the retail side such as Reuters, and ends up at the end of the day in your charts.

So learn to identify volume, accumulation or distribution large lot indicators, and price action that exposes where the Dark Pools are buying or selling. Then you can enter when they are accumulating, which is long before the HFTs discover that accumulation and ride the runs up.

Here is a chart example of these patterns in SAIA:

Chart 1

The trick is that Dark Pool transactions are intended NOT to disturb price, no matter how large the lots are over time.

So price is NOT the most important indicator. Large lot indicators versus small lot indicators are most important, IF you want to find the Dark Pool activity.

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
http://technitrader.com
MetaStock Partner

©2013 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

The Changing Landscape of Technical Analysis

MetaStock SPRS Series - Week 117 - TechniTrader® Stock Discussion for MetaStock Users - The Changing Landscape of Technical Analysis - May 6, 2013
By: Martha Stokes C.M.T.

Most Technical Analysis books were written in the 1970’s -1990’s, which by technology standards is a very long time ago. As technology has reshaped the Market Participant Groups Cycle and how different groups access and trade or invest in the financial markets, this invariably has altered technical patterns.

Unfortunately most retail traders are still using the older books and reference manuals when they first start learning technical analysis. Years later often 20 years or more, these retail traders are oblivious to the technical pattern changes as they are simply not aware of them or are so focused on searching for the patterns they are accustomed to finding in abundance, that they skip over the new technical patterns that expose pre-momentum and pre-velocity action before price moves.

This can cause late entries, whipsaw trades, and lower profitability. Many retail traders grumble about lower profits and more difficulty finding great stocks to trade. They blame it on what they have been told is happening in the markets which is that volumes are declining for the big exchanges, Dark Pools are taking all the liquidity, and High Frequency Traders are causing all the volatility. Most of this information has been inaccurately reported, and leads to misinformation.

Retail traders, especially those who have been in the market for decades and learned the older style of technical analysis are now at an extreme disadvantage. They have spent a lot of money and time learning technical patterns that are slowly but steadily disappearing, or are altering sufficiently to be unrecognizable.

A prime example is the huge decline in true "Head and Shoulders," and "Inverse Head & Shoulders" Patterns.

To read my full report go to: http://bit.ly/XqA2pD

H&S tops and Inverse H&S bottoms used to be so common that everyone knew these patterns and could quickly at on them. This created sufficient liquidity for strong momentum runs up and down depending upon the pattern.

Unfortunately, these have been replaced by Platforms, Stairsteps, Velocity tops, and Velocity bottoms. Rarely do you find a true H&S pattern, and often these are distorted and harder to recognize. When they do form, they frequently fail. Instead of indicating a top, it is merely a correction that adjusts out before the pattern can break though the neckline, or the head is so minor that there is insufficient downside point gain to create a full downtrend pattern. Mostly what would have developed into an H&S pattern ends up becoming a Trading Range.

BOBE is the chart example below:

Chart 1

Why have the older style technical patterns changed or slowly disappeared?

The Market Participant Groups have expanded. Where once there were only three Market Participant Groups there are now nine, with a tenth group possibility of emerging in this decade. This massive Market Participant structural change inevitably shows up in charts and the technical patterns.

Each new group with their own unique technical footprint is causing the landscape of technical patterns to change. What once was will not return. As a retail trader, learning these newer patterns is critical to improving your success. Otherwise you will fall further and further behind.

The market structure is continuing to change at an unprecedented pace. This will continue to alter known technical patterns and create new patterns as technology alters how the institutions, Buy Side, Sell Side, High Frequency Traders, Hedge Funds, Small Funds, retail crowd, and others trade stocks, options, and derivatives.

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
http://technitrader.com
MetaStock Partner

©2013 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.