AIQ Opening Bell

I'm Exhausted - Signs of exhaustion in a stock

2012-01-25T13:26:00.000-08:00

In this live hour long recording from a live seminar, Steve Hil, President of AIQ Systems explains how to tell when an up move in a stock is over and it's time to exit poisitions or go short. Steve discusses exhaustion gaps, rising channel breakdowns, doji candlestick, volatility fade, volume exhaustion and more

View recording

AIQ: TREND, MOMENTUM, VOLATILITY, AND VOLUME (TMV)

2012-01-25T09:59:00.000-08:00

A Series Of Indicators Used As One

Making good trading decisions involves finding indicators that cut through the market noise. But how do you do it without collapsing under the weight of information?

Chart analysis is a multidimensional affair; no single indicator can tell the entire story. After spending years cluttering my screen with multiple indicators, I discovered that more is not necessarily better because they sometimes present conflicting information. Often, it takes longer to analyze the information needed to make decisions.

The goal is to integrate the knowledge that indicators provide in order to evaluate the situation that leads to making good trading decisions. That means each trader needs to find those indicators that cut through the market news (and noise) in a way that makes most sense to him or her without collapsing from information overload. Here’s a method I have found useful.

The first step is to determine the categories from which to draw the indicators. For me, that includes trend, momentum, volatility, and volume (TMV). These present a multi-dimensional view of price behavior to supply a more complete picture.....excerpt of Barbara Star’s article in Stocks & Commodities, “Trade Breakouts And Retracements With TMV,”

AIQ SYSTEMS, KELTNER CHANNELS, CCI, AND COLOR-CODED PRICE BARS. Here’s a sample chart of Noble Energy with the TMV indicators.

The AIQ code and EDS file based on is provided at www.TradersEdgeSystems.com/traderstips.htm. The code is also shown below

!TRADE BREAKOUTS AND RETRACEMENTS WITH TMV
!Author: Barbara Star,PhD, TASC February 2012
!Coded by: Richard Denning 12/9/2011
!www.TradersEdgeSystems.com

!CODING ABREVIATIONS:
   C is [close].
   C1 is valresult(C,1).
   O is [open].
   H is [high].
   L is [low].
   H1 is valresult(H,1).
   L1 is valresult(L,1).
   V is [volume].

!KELTNER CHANNEL
   !INPUT:
      keltLen is 20.
   !KELTNER CHANNEL UDFs:
   typ is (H+L+C)/3.
   rangeAvg is simpleavg(H-L,keltLen).
   !Plot the following three functions on price chart
   !as three separte indicators:
      midKelt is simpleavg(typ,keltLen).
      upperKelt is midKelt + rangeAvg.
      lowerKelt is midKelt - rangeAvg.

!ADX
   !INPUT:
      WilderLen is 10.
      !NOTE: Wilder to expontential averaging the formula is:
        !Wilder length * 2 -1 = exponential averaging length

!USED FOR DMI, ATR, ADX, ADX RATE
   avgLen is WilderLen * 2 - 1.

   !AVERAGE TRUE RANGE:
TR is Max(H-L,max(abs(C1-L),abs(C1-H))).
ATR is expAvg(TR,avgLen).
ATRpct is expavg(TR / C,avgLen) * 100.

   !+DM -DM CODE:
rhigh is (H-H1).
rlow is (L1-L).
        DMplus is iff(rhigh > 0 and rhigh > rlow, rhigh, 0).
        DMminus is iff(rlow > 0 and rlow >= rhigh, rlow, 0).
AvgPlusDM is expAvg(DMplus,avgLen).
        AvgMinusDM is expavg(DMminus,avgLen).

   !DMI CODE:
PlusDMI is (AvgPlusDM/ATR)*100. !PLOT (2 lines)
MinusDMI is AvgMinusDM/ATR*100. !PLOT (2 lines).
DirMov is PlusDMI - MinusDMI.
DirMovAIQ is [dirMov].

   !ADX INDICATOR as defined by Wells Wilder
     !PLOT DIdiff as historigram is same as DirMov (AIQ built in indicator):
DIdiff is PlusDMI-MinusDMI.
        ZERO if PlusDMI = 0 and MinusDMI =0.
DIsum is PlusDMI+MinusDMI.
DX is iff(ZERO,100,abs(DIdiff)/DIsum*100).
     !PLOT ADX as single line indicator with support at 24:
ADX is expavg(DX,avgLen).

!VOLUME OSCILLATOR:
   !INPUTS:
volLen1 is 1.
volLen2 is 20.
pctChgLvl is 50.
   !VOLUME OSCILLATOR UDFs:
volAvg1 is simpleavg(V,volLen1).
volAvg2 is simpleavg(V,volLen2).
    pctChgV is (volAvg1 / volAvg2 -1) * 100.
volOsc is iff(abs(pctChgV)>pctChgLvl,1,0). !PLOT

!CCI INDICATOR:
   !INPUTS:
cciLen is 13.
   !CCI UDFs:
   typAvg is simpleavg(typ,cciLen).
   absdiff is abs(typ-typAvg).
   sumD is sum(absdiff,cciLen)/ cciLen.
   CCI is (typ - typAvg) / (0.015 * sumD). !PLOT WITH +100 -100 LINES

!COLOR BAR RULES:
   !INPUT:
trndLen is 8.
   Green if ADX > valresult(ADX,1) and C > simpleavg(C,trndLen).
   Red if ADX > valresult(ADX,1) and C < simpleavg(C,trndLen).

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

January 20, 2012 US Market Review – with Richard Muller, Reuters Equity Analyst and TradingExpert Pro user

2012-01-20T16:30:00.000-08:00

Richard Muller has posted a video update on The Trading Prism website on the major market support and reisitance levels.

View this video

Data Driven Trading...

2012-01-16T15:00:00.001-08:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’.

‘How to Take Money from the Markets’,

and Money-Making Candlestick Patterns.

Analyzing trading patterns is vitally important to trading. Trading without understanding the statistics of a trading pattern is just taking unknown risks, and makes little sense. The trading patterns tested and analyzed in my first two books provide the beginnings of a trading toolbox, and the knowledge of when to use each tool. Without a clear understanding of how and when different trading patterns work, it’s easy to get caught up in fear, greed, group think, etc. However these emotional and non-data driven approaches often lead to losses. Traders need to be first and foremost focused on what the market is doing, and then selecting the most appropriate trading patterns, or remaining in cash, to address the current market conditions. Without previous testing and analysis of trading tools, and how they perform in differrent market conditions, traders are just randomly using tools that may or may not be appropriate for the current market.

It is also very important to have a clear exit strategy before entering any trade. If I don’t know where I want to exit a trade then I don’t take the trade in 1^st place. In trading range markets most stocks tend to pop and drop, if they didn’t the market (which is the summation the large number of stocks ) would be trending. So a trading range environment tells us that stocks are not going to run very far, by definition. I use this information to drive my exit strategy which is more short term in a trading range market then it is a trending market as outlined below. In a trending market, individual stocks tend to pop and then move for a while. The market, the summation of a large number of stocks, is moving or trending because a lot of individual stocks are moving or trending. Once again observing the market conditions tells us how individual stocks are likely to behave, and that tells us how to manage our exit strategies.

Trading should be data driven, not based on emotion, whishful thinking, or hot tips from TV hosts. To be data driven one needs to test and analyze trading tools and find out what really works, and when each tool should be used. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. I have extensively tested several trading systems, the results of this testing on specific trading trading tools are outlined in ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns. The testing process helps us understand how stocks usually behave after forming a specific pattern such as being outside the Bollinger Bands, showing strong distribution or accumulation, or pulling back or retracing during a trend. Understanding what a stock is most likely to do forms the beginning of a trading strategy. Trading without this information is taking unknown risks.

Excellent top down analysis for options trades using TradingExpert Pro

2012-01-11T22:50:00.000-08:00

Today's webinar by Richard Muller, Reuters Equity Analyst, senior instructor at The Trading Prism, and long time AIQ TradingExpert Pro user has been recorded. Richard covered the Expert Ratings on the US markets before moving onto group/sector rotation using AIQ Reports. His stock selection process was geared toward possible options trades. You can view this video at

http://aiqsystems.com/prismjan12.html

Big Picture Market Review FREE webinar with Richard Muller, Reuters Equity Analyst

2012-01-09T19:36:00.000-08:00

JoinRichard Muller, for a live webinar on the current market and a look at someinteresting stocks setting up technically.

Wednesday11th January at 7.00pm London time, 2.00 pm eastern

AIQ: REVERSING MACD

2011-12-12T13:28:00.000-08:00

The AIQ code for the reverse MACD functions and indicators described in Johnny Dough’s article in the Decmber issue of Stocks & Commodities, “Reversing MACD,” is provided at the following website: www.TradersEdgeSystems.com/traderstips.htm, and is also shown below.

In the figure blow, I show a chart of Green Mountain Coffee Inc. with the two PMAC indicators and the MACD indicators. The cyan line is the PMACzero, which is the price tomorrow that would have to be attained for the MACD to equal zero. This indicator has wide swings because sometimes a big move in price is needed to bring the MACD back to zero. The purple line shows the PMACeq indicator, which shows tomorrow’s price that would make MACD the same as it was today. It stays close to the current price. The lower panel shows the MACD (white) and the MACD signal (yellow) indicators.

AIQ SYSTEMS, REVERSING MACD. Here is an example of the PMACzero (cyan) and PMACeq (purple) indicators on a chart of Green Mountain Coffee Inc. with MACD (white) and MACD signal line (yellow) indicators (lower panel).

!REVERSING MACD
!Author: Johnny Dough, TASC January 2012
!Coded by: Richard Denning 11/9/2011
!www.TradersEdgeSystems.com

!ABBREVIATIONS:
C is [close].
H is [high].
L is [low].
O is [open].

!INPUTS:
mfast is 12.
mslow is 26.
msig is 9.

!UDFs:
emaFast is expavg(C,mfast).
emaSlow is expavg(C,mslow).
MACD is emaFast - emaSlow.
sigMACD is expavg(MACD,msig).
len_X is mfast.
len_Y is mslow.
lvl is sigMACD.
alphaX is 2 / (1 + len_X).
alphaY is 2 / (1 + len_Y).

!PLOT THE FOLLOWING AS SINGLE LINE INDICATOR ON PRICE CHART:
PMACDeq is (expavg(C,len_X)*alphaX
   -expavg(C,len_Y)*alphaY)/(alphaX-alphaY).

one_alphaX is 1 - alphaX.
one_alphaY is 1 - alphaY.
PMACDlvl is (lvl+expavg(C,len_Y)*one_alphaY
   - expavg(C,len_X)*one_alphaX)/(alphaX-alphaY).

!PLOT THE FOLLOWING AS SINGLE LINE INDICATOR ON UPPER CHART:
PMACDzero is (0+expavg(C,len_Y)*one_alphaY
   - expavg(C,len_X)*one_alphaX)/(alphaX-alphaY).

20% off selected AIQ store products

2011-11-25T11:37:00.001-08:00

AIQ Education Holiday Sale
20% off your entire order on selected products
through December 14, 2011

Use coupon code holiday2011 when you checkout

http://aiqsystems.com/holiday2011sale.html

Products include:

When Dale spoke to the attendees, everyone's full undivided attention was set on him. He revealed his system that utilizes the power of the MACD (Moving Average Convergence Divergence) indicator, which is the only indicator he uses and swears by because of its astounding results with less risk. As he cuts right to the chase, he laid out the charts and let the simple rules demonstrate how it works and what it is capable of doing for the traders in the room......more

Long-term trading success is achieved using strategies that provide traders with an edge. But how can you prove that a system will show winning trades more often than random chance? You have to put it to the test. Don't make costly mistakes by following the latest trading system blindly. Let Steve's experience and expertise work for you. In this DVD course, he will not only provide you with six new powerful trading strategies, but he will show you exactly how to use each one to maximize profits......more

Data that took Steve Palmquist years to compile and interpret is now at your fingertips. In this breakthrough guidebook, Palmquist reveals the most effective candlestick patterns and indepth information on back testing for optimal success.

Thorough and highly organized, this book teaches you to exploit every move the market makes with cutting-edge chart-reading techniques.......more

Swing Trading: Volume Perspective

2011-11-25T09:50:00.001-08:00

Basic economics dictates thepremise of supply and demand and their ramifications on price. This theoryholds that when demand exceeds supply price will appreciate, and when supplyovershadows demand asset prices will fall. Indeed this holds true when marketsrise and fall as it reflects the urgency of one side of the market to trade asopposed to the other. Yet every trade has a counter party; a buyer and aseller. On the face of it, this clearly indicates that demand and supply areequal, yet that price is rarely static reports to a further dynamic lendingitself to momentum, inertia and urgency.

Markets are able tofluctuate somewhat freely on light volume as prices are pushed around by one ortwo big orders on a quiet trading day. Yet when trading volumes show asignificant increase from the norm, this indicates substantial market interest.Here, buyers and sellers of varying points of view are increasingly interestedin divesting each other of their respective positions.

While 80% of all tradingactivity has been found to be stop loss oriented, this alarming fact points tothe variety of motivations that market participants adopt to investmentdecisions. Some are long term some short term; some are taking profits, somelosses. Amid the confusion, one thing can be certain. When trading volumeexperiences a sharp increase – a dramatic market shift is imminent as the pricehas motivated substantial participants to become involved in decision making.At the end of a prevailing trend, volume will increase markedly, and so themarket confirms this by participation. Rarely would this occur mid-trend as bydefinition a trend needs urgency of either supply or demand to outweigh one thein order to maintain its course.

Proponents of other indicationssuch as technical analysis’ support and resistance, momentum’s MACD index, andmathematics’ Fibonacci numbers will all seek confirmation with an increase involume prior to extending a signal. Primarily as the market needs to besupporting or rejecting a certain price, the absence of volume can hardlysuggest that is the case. Indeed dwindling volumes are more an indication thatthe trend has met a natural end and that a retracement is imminent. Aretraction in trading volume indicates that momentum is slowing and will findmuch profit taking entering the market, which will itself perpetuate movementback to true value.

In this sense, volume israrely an indicator applied in isolation and is keenly attuned to otherindicators and in particular, momentum. Still volume must be adjudged withrelative comparison as some markets have typical volumes that would astoundothers. Volume ought never to be ignored as it indicates the bastion of tradingactivity – participation.

Time Tested Trading Tips... November 20.

2011-11-20T15:00:00.000-08:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’.

‘How to Take Money from the Markets’, and

Money-Making Candlestick Patterns.

I went to the Traders Expo in Las Vegas last week. While walking the floor of the show and talking to traders, I was amazed at the number of people who were looking for a new trading technique because the one they were using was ‘not producing results’ during the last few weeks. There were a lot of slick presentations on trading, but few contained any real data indicating how the system actually performed, or how the results varied by market condition. Trading a tool based on just a few examples is a good way to drain an account. Most of these people only had one trading tool, either focused on stocks or ETFs, and did not trade both. They had no idea how their trading tool performed in different market conditions. They had no idea of how to adapt to the market conditions instead of complaining about them.

Trading the same tool constantly in all market conditions is a good way to drain an account. Moving blindly from one tool to another is also a good way to drain an account. Since stock and ETF trades often work in different timeframes; I have found that trading both is an advantage to me, and lets me participate in both short term and intermediate term movements. Understanding the current market conditions and having that information drive the selection of trading tools, number of positions traded, and position sizing, is one of the keys to success. It takes some time and effort to learn this. The ‘traders’ that are looking for a simple indicator or magic tool that will lead them to riches are asking for trouble.

There are no magic tools. If there were tools that required no effort to learn, and always worked, then everyone would be rich. Trading, like other professions, requires some time, effort, and expense, in order to develop the skills. None of the people complaining about the recent market environment had used that information to adjust their trading styles. In my case, I have been standing aside for a couple weeks as the market has shown unusual volatility in a tight trading range. Both of those conditions are caution signs, and together indicate it is best to sit tight and focus on protecting previous profits until the market picks a direction; which it will when it is ready. None of the people complaining about the market environment and the results of their trading were sitting tight (as the recent conditions called for). They felt that since they were traders they should be trading. When I suggested they should be focused on generating profits, not trades, and the recent environment had the odds stacked against them they were very quiet except for a couple that argued they had to be trading in order to have the opportunity to make profits. I quoted a Kenny Rogers song and told them that successful traders need to ‘know when to hold them and know when to fold them’. Sometimes the best, and most profitable, strategy is to stand aside for a week or so and let the market sort itself out. Traders need to have studied their trading tools and market conditions to know which tool is most likely to be appropriate for the current market conditions.

AIQ: FISHER TRANSFORM STOCHASTIC OSCILLATOR

2011-11-14T18:15:00.001-08:00

The AIQ code for Sylvain Vervoort’s put/call ratio indicator — named the IFTStoch indicator — and the related system from his article in the November issue of Stocks & Commodities, “Applying The Put/Call Ratio Indicator,” is provided at the website noted at the end of this writeup.

The code has been modified from the author’s formulas, which used weighted averaging. That type of averaging is not offered in AIQ as a built-in function and had to be coded long style; the result was very inefficient code that ran too slowly to be of any use. So I modified the formulas by substituting exponential averaging for the weighted averaging. The code now runs fast enough to be useful, and the indicators can be plotted without hanging up the processor.

I believe that the modified code can produce similar results. Although the values are not the same as the author’s values when using the same parameters, the resulting shapes of the indicators are similar.

On my website, I have a “PCratio.dta” data file that can be downloaded and saved into the “C:\wintes32\tdata\” folder. Once the file is saved, go to the Data Manager module and run the utility “Rebuild Master Ticker List” to complete the data file installation process.

Using the system from Vervoort’s article called the SVE_Stoch_IFT, I ran a test on the NASDAQ 100 list of stocks using the Portfolio Manager module. The following capitalization settings were used:

Maximum of 10 open positions
Size each position at 10% of mark-to-market total capital
Take no more than three new positions per day
Compute the mark-to-market capital each day
Choose signals based on the IFTStoch indicator for ranking in descending order for longs.

In Figure 6, I show the equity curve for long-only trading on the NASDAQ 100 list of stocks. The return averaged 19% per year with a maximum drawdown of 50% on March 9, 2009.

The short side, when tested separately from the longs, lost 91% of the initial capital by January 7, 2004, and then ceased to trade due to limited capital. The results of the short-side test are not shown.

I did not attempt to filter the trades using the put/call ratio indicators, since the author did not supply specific code for this purpose.

The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

2011-10-27T08:56:00.000-07:00

Tech bulletin - 10/27/2011

Windows OS automatic update causing corrupted registration

An update from Microsoft may casue your Trading Expert Pro to receive a 'corrupted registration' message. To resolve this issue follow these instructions

- Click on Start, Run (or start and in the search box of) and Type Regedit.

- Double click Regedit to start the Registry Editor.

- Double click H-Key Local Machine.

- Double click Software.

- Double click WoWxxxNode.

- Double click AIQ Systems.

- Double click TradingExpert 32.

- Highlight Registration and then press the Delete key on your keyboard.

Close the Windows Registry, open the TradingExpert main menu. The icons should auto-refresh.

If you are not a myTrack customer, give Barbara a call at 800-332-2999 to get a new key, or click on Applications, Registration and email us the Registration number.

THE JK HILO INDEX

2011-10-07T07:43:00.000-07:00

By Jay Kaeppel

No single indicator will accurately forecast or coincide with every market top or bottom. Here, two indicators have been combined to form one indicator that can increase your chances of identifying buy or sell points.

As a student of the market, I have crunched a few numbers over the years. At the same time I have tried, and cautioned others also, to avoid the temptation to divide one number by another or multiply one number by another simply because we can.

Not every calculation involving market indicators enjoys any real purpose. In addition, many indicators react in a manner similar to other indicators. Almost all overbought/oversold indicators tend to get more oversold as the market declines and more overbought as the market rallies. So stringing together more than a handful of similar indicators does not necessarily provide any additional benefit.

The AIQ EDS code for Jay Kaeppel’s Jkhl indicator discussed in his article in this issue, “The JK HiLo Index,” can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.

AIQ SYSTEMS, THE JK HILO INDEX. This chart shows the JKHL indicator on a chart of the S&P 500 index together with a 200-bar moving average.

! THE JK HILO INDEX
! Author: Jay Kaeppel, TASC October 2011
! Coded by: Richard Denning 8/12/2011
! www.TradersEdgeSystems.com

! HIGH-LOW INDICATORS:
! JKlogic:
NewH is TickerUDF("OCEXCH",[New Highs]).
NewL is TickerUDF("OCEXCH",[New Lows]).
Adv is TickerUDF("OCEXCH",[Adv Issues]).
Dec is TickerUDF("OCEXCH",[Dec Issues]).
Unch is TickerUDF("OCEXCH",[Unch Issues]).
Tot is Adv + Dec + Unch.
PctNH is (NewH / Tot) * 100.
PctNL is (NewL / Tot) * 100.
HLidx is min(PctNH,PctNL).
avgHLidx is simpleavg(HLidx,10).

! JK VERSION OF HIGH LOW LOGIC INDICATOR:
JKlogic is iff(avgHLidx > 2.15 or avgHLidx < 0.40,avgHLidx,1).

! JK NEW HIGH PERCENT:
JKnH is simpleavg(NewH / (NewH + NewL),10).

! COMBINED TWO JK INDICATORS:
!Plot as single line with upper 90 lower 20 support
JKHL is JKlogic * JKnH * 100.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Time Tested Trading Tips... September 12.

2011-09-12T08:57:00.001-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

Serious traders will go through a learning curve as they study market behavior and how their trading systems function. They will have times when they run into situations that have not been experienced or researched and they may be unsure of what to do. This is normal, it is the price of admission to the trading business. My general rule is that when I am unsure I close the position. It is hard to go broke taking profits so my focus is on needing a clear reason to stay in a position, not wondering whether or not I should get out. If there is no clear reason to hold I take profits and move on to another trade.

When trading I am not holding out for the perfect trade, there is no such thing. Trading is about managing risks and I use the current market conditions to determine how many trades to be taking and the appropriate position sizing to use. Setups with more room to run are prioritized above ones with little room to run. Setups triggering on stronger volume compared to the previous days volume are prioritized above ones with lower trigger day volume. Setups with shallower pullbacks are prioritized above ones with deeper pullbacks. I then look at the setups that are triggering and start from the top of the prioritized list and work down until I run out of setups or fill the number of positions I am interested in.

The successful trader has a tool box with a variety of trading tools for use in different market conditions. The trader, like the carpenter, must go beyond just acquiring the tools. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. I have extensively tested several trading systems, the results of this testing on specific trading trading tools are outlined in ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns. The testing process helps us understand how stocks usually behave after forming a specific pattern such as being outside the Bollinger Bands, showing strong distribution or accumulation, or pulling back or retracing during a trend. Understanding what a stock is most likely to do forms the beginning of a trading strategy. Trading without this information is taking unknown risks.

Time Tested Trading TIps, August 29...

2011-08-29T13:40:00.001-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

At a recent trading conference several traders were talking about exit strategies at lunch and one noted that he ‘liked to hold positions for about a week’. When asked why, he had no reason for the decision; it just ‘felt right’ to him. Trading on tips, emotions, or what ‘just feels right’ is unlikely to produce good long term results. Trading should be based on the careful analysis and testing of each trading system that a trader uses. Testing does not eliminate risk or guarantee results, but it can help to give a good idea of how a system has actually performed.

In trading range market environments I generally exit a position if the stock approaches the upper Bollinger Band or a horizontal resistance point. I do not want to hold out for the last dime, I want to be taking profits as the stock approaches resistance. In a trading range market it is generally better to get out too early than too late. It is tough to go broke taking profits. By definition the market usually retraces at resistance. If the market usually retraces from resistance then I want to be out of the position before it does and use the funds for another trade that is just triggering and starting its run.

Eventually almost all resistance areas are broken, but if the stock usually retraces at resistance then I want to go with the odds and be positioned to profit if the stock does the normal thing and retraces. If it does retrace I have my profits and can use them in a new trade. If the stock breaks above resistance I still have my profits and can still take another trade. From a risk management standpoint I am better off to have taken the profits. I am always trying to position myself to profit if the market and my positions do the normal thing. When something unusual happens I may loose a few bucks, but by definition unusual things do not happen often. One of the keys to trading is learning what usually happens in a given situation and then being positioned to profit if it does.

AIQ: THREE BLACK CROWS PATTERN

2011-08-01T11:19:00.000-07:00

The Fibonacci time zones discussed in “Automated Techniques For Intraday Traders” by Andrew Coles in this issue (August 2011 Stocks & Commodities) can be implemented using the Fibonacci time zone chart tool in AIQ with no additional programming required.
Thus, I am instead providing code for the “Three Black Crows” candle pattern that is discussed in Thomas Bulkowski’s June 2011 article, “Top 10 Candles That Work.”

Coding candlestick patterns requires quite a bit of interpretation, since these patterns are described in relative terms like a “tall” candle or “closes in the lower portion of the bar.” Depending on the interpretation given to these relative terms, we can get different results. In my code set, shown below, I provide inputs that allow for some of the adjustments. The three black crows pattern has the following rules:

Must have three tall candles in a row
Pattern occurs in an uptrend and the first candle is the highest high
The last two candles must open in the real body range of the prior candle
All three must close near the low
The last two candles must have lows that are lower than the prior low.

“Tall” means that the bars’ high–low range is greater than the 10-day average range that occurs just prior to the start of the pattern. An uptrend is defined as a linear regression slope of the closes greater than zero. “Closing near the low” is based on how many candle zones are input, which are then used to divide the range of the bar into zones. “Closing near the low” means that the close must fall in the lowest zone. In addition, the author suggests testing in a bull market. Bull market is defined here as when the 200-bar moving average of the Standard & Poor’s 500 is greater than it was 10 bars ago. A bear market occurs whenever it is not a bull market.

I tested the pattern by entering at the close on the day the pattern is complete and exiting at the close six days later. This provides a test with five overnights and five full bars held after the pattern completes. I used the Russell 3000 list of stocks and tested from 1/15/1970 to 6/13/2011. In the table in Figure 8, I show the comparative results of bull, bear, and combined bull and bear. It appears that this pattern works in both bull and bear markets, but there may not be enough signals to build a trading system from just this pattern alone.

This table shows the metrics for the three

black crows candle pattern for the test period

1/15/1970 to 6/13/2011 using the Russell 3000 list of stocks.

The AIQ code is shown here and the Eds file for this technique can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.

AIQ code for three black crows pattern

!TOP 10 CANDLES THAT WORK: THREE BLACK CROWS 
!Author: Thomas N. Bulkowski, TASC June 2011
!Coded by: Richard Denning 6/14/11

!INPUTS:
RangeLen  is 10.
CandleZones  is 4.
HHLen   is 10.
UpTrendLen  is 10.

! ABBREVIATIONS:
C  is [close].
C1 is valresult(C,1).
C2 is valresult(C,2).
H  is [high].
L  is [low].
L1 is valresult(L,1).
O  is [open].
O1 is valresult(O,1).
OSD  is offSetToDate(month(),day(),year()).

!BULL / BEAR MARKET DETERMINATION:
SPXc is TickerUDF("SPX",C).
Bull if simpleavg(C,200) > simpleavg(C,200,10).
Bear if not Bull.

!FUNCTIONS AND RULES FOR THREE BLACK CROWS CANDLE PATTERN:
Range is H - L.
HHoffset is scanany(H = ∧highresult(H,HHLen),HHLen) then OSD.
AvgRng is simpleavg(Range,RangeLen,∧HHoffset).
LowerZoneC if C < L + (Range * 1/CandleZones).
Tall if Range > AvgRng.
BlackCrow1 if Tall 
 and LowerZoneC 
 and slope2(C,UpTrendLen) > 0 
 and  H = highresult(H,HHLen).
BlackCrow2 if Tall 
 and LowerZoneC 
 and O <= O1 
 and O >= C1.
ThreeBlackCrows if valrule(BlackCrow1,2) 
 and countof(BlackCrow2,2)=2 
 and countof(L < L1,2)=2.
Bull3BlackCrows if Bull and ThreeBlackCrows.
Bear3BlackCrows if Bear and ThreeBlackCrows.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Time Tested Trading Tips, July 17...

2011-07-17T17:44:00.000-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

The market has three basic modes. It can be going up, down, or sideways. Over time the markets movement is made up of combinations of these three different behaviors. None of these behaviors lasts for long, the market is always switching between them. This is one of the keys to trading. Traders need to recognize that the market moves between these three modes and have the ability to recognize then the change has arrived and be able to switch to trading tools suitable for the new environment. This is a process I call Market Adaptive Trading. The market will not adapt to us. It does not care what we want or think. Therefor we must adapt to it.

If I know how a trading system, or trading tool as I refer to them, performs in each of the three different market conditions; then I can watch the market to determine what type of condition we are currently experiencing and then use the tools that have shown good results in that type of market condition. This is the process of Market Adaptive Trading. It takes some practice to quickly recognize the current market conditions, but this is a lot easier that trying to predict where the market is going.

No one has consistently predicted where the market is going over the long run. Remember all those empty suits on the TV news shows telling us everything was fine just before the 2008 crash. They did the same thing before the 2000 crash. Not even (or perhaps especially) the experts can successfully predict market direction consistently. However you can learn to look at a chart and tell if the market is going up, down, or sideways. And that is actionable information, as opposed to someone’s guess of where the market is going to be in three months or a year.

Adding VIX as an indicator to AIQ Charts

2011-07-14T16:49:00.000-07:00

As discussed in the free webinar on Thursday July 14, 2011. Recording is available at http://prowebinars.adobeconnect.com/p6efx0lc7kf/

To add the VIX with a 10-day average of the VIX to an AIQ Chart follow these instructions

Click on this link below to download the EDS file required, save it to c:\wintes32\EDS Strategies folder http://aiqsystems.com/VIX_as_an_indicator.EDS
Open AIQ Charts and chart the ticker SPY end of day.
From the menu in Charts, click on Chart, Settings, Indicator Library, EDS Indicators
In the Custom Indicators click on Add
In Look in: locate c:\wintes32\EDS Strategies folder and select the file VIX_as_an_indicator.EDS. Click Open.
In Plot Type, select Histogram with Plotted Line, click Next.
In Histogram with Line Indicator, for Description I use VIX and 10-day. UDF to Plot: select Close_VIX from the pull down. UDF for Line: select VIX_10day from the pull down. Click Finish.
Click on Done in the Custom Indicators screen. The indicator will be at the very bottom in your Indicator Control Panel, click on the indicator to add it to the SPY chart. Note: custom indicators do not have barometers

TIme Tested Trading Tips, July 9...

2011-07-09T11:18:00.000-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

When traders get together and discuss trading patterns or setups someone usually asks why a particular pattern works. To explain trading patterns the market is often described as a battle between the Bulls trying to drive prices up, and the Bears trying to drive prices down. The patterns are the result of this contest between the Bulls and Bears. Some traders will start using a pattern or trading system when they hear an explanation of why it works that makes sense to them. We all have a need to understand why something should work. However, for traders it is more important to know how often a pattern works than an explanation of why it works. Knowing why a pattern works is interesting. Knowing how often a trading pattern works can be profitable. Knowing in what specific market conditions a pattern works best can be very profitable.

In addition to knowing how often a particular trading pattern produces profitable trades, traders should understand if there are observable parameters that can strongly influence results. Some of the questions traders should address before using a trading pattern are: How long should a position be held? What are good profit target points? What type of orders should be used? Where should stop loss orders be entered? There are a number of effective tools for the trader’s tool box. However, like any other tool the user needs to understand exactly what it is designed for, and how to use it effectively. Carpenters can make beautiful things with a table saw; however they need to understand how to use it, and also know when another tool might be more appropriate for the task at hand. They also need to know the safety rules, how to avoid kickback, and the importance of using a push tool. At least the carpenters that still have all their fingers do.

Some traders gain a better understanding of trading patterns, and the environments in which to use them, though experience. After trading for a number of years they begin to understand what variations of a particular trading pattern work best, and which ones are more prone to failure. Experience often produces good results when we are listening closely, however it can be costly.

A less expensive way to develop an in depth understanding of how trading patterns work is by backtesting the pattern. Backtesting also allows us to test how simple variations or changes in the trading pattern effect results. Backtesting can be done over a variety of time periods and even in specific market conditions. The more traders understand exactly how and when their trading patterns work, the more effective use they will be able to make of each tool in the trading toolbox. The Timely Trades Letter provides additional information on trading tools and techniques on a weekly basis.

'The three Vs - Volatility, Volume and VIX' - FREE webinar

2011-07-06T11:09:00.000-07:00

Join Steve Hill for this FREE webinar on how to use the 3 Vs as an indication of exhaustion in an up move or down move.

When: Thursday July 14th, 2011
Time: 4:30pm eastern

Please register for this event at http://aiqsystems.com/3vs.html

Even if you cant make the event that late at night, register, and you will get the link to the recording after the event.

Time Tested Trading Tips, July 2...

2011-07-02T12:40:00.000-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

Many traders are interested in knowing how a trading system did last year, or the year before. If they see these numbers it makes them happy, and they feel that is what they should expect going foreword. When some people evaluate mutual fund, or money manager, performance they want to know how the performance was in each of the last few years. While this seems to make people happy, it does not mean much, or give a realistic expectation of what to expect going foreword. The reason is that the market is not the same from one year to the next. How the market, or a trading system, performed last year may have little to do with how it will perform next year. Looking at annual returns may be interesting, but it does not tell you how and when to use a trading tool.

I know traders who took significant losses during 2008, using techniques that showed strong results over previous years. They had developed these systems by looking at annual results over several years. When 2008 came along, and the market did not look much like it had the previous few years they experienced losses that wiped out the profits of several years of trading. I have seen traders that are looking for the hot hand, and when they find someone with good results in the previous year, they want that person to manage all their money because they think the hot hand will perform again next year. Strong results in the past year or two may have no bearing on next year if the market conditions change.

Rather than look just at annual results, I want to know how a trading system performs in bull and bear markets. No one knows what the market will do next year. Even the ‘expert’ economists have predicted ten of the last three recessions; they usually all over the financial channels telling you we are in a recession, or a boom period, after they have started. Few, if any, consistently predict them in advance. Driving while looking in the rear view mirror can be problematic.

The market has just three basic modes. It can be trending up, a bullish period, it can be trending down, a bearish period, or it can be just moving sideways, a trading range period. During the testing and evaluation of numerous trading systems I have seen that the market conditions, bullish, bearish, or trading range, have a strong effect on most systems. Because of this I have developed different trading systems for each of the three market conditions and refer to the collection of trading techniques as my trading tool box. The markets overall movement is made up of a combination of bullish, bearish, and trading range periods. Years are convent for us to mark time, but the market does not care about them. It simply moves in combinations of bullish, bearish, and trading range periods. It is hard for it to do anything else.

Ugrade to 9.4 - adds overlay indicators to price charts (MACD etc)

2011-06-17T09:17:00.000-07:00

We heard you! One of the most common new feature request we've received this year is the ability to overlay indicators like MACD and Stocjastics on the price chart. TradingExpert Pro 9.4 upgrade now incorporates this feature.

Overlay indicators on Price Chart

Available only in AIQ Charts (rollout into RTalerts is on a future release). You can now display an indicator like MACD, Volume, Stochastic etc directly to the price chart, both real-time and end of day. Simply bring up a chart, right click on the indicator of your choosing in the Control Panel and select 'Overlay this indicator on price plot'.

Currently this feature does not allow you to permanently save the seting for all charts and has to be applied individually. Here's MSFT with 1 minute price bars and the MACD overlaid on the price plot.

Here's MSFT daily price bars and Volume overlaid on the price plot.

Here's MSFT Candlestick chart overlaid with Stochastic indicator.

Candlestick color selector

Hollow and solid candles can now be assigned their own colors. Under Chart, Settings, Colors.

Here's MSFT with hollow candles in green and solid candles in red.

This upgrade is FREE OF CHARGE for clients of the TradingExpert Pro on the monthly lease plan, all other TradingExpert or TradingExpert Pro clients please contact AIQ at 1-800-332-2999 for details. If you are not on the monthly plan and install the upgrade your key number may be invalidated.

Download now through the AIQ store

registration details are required for this upgrade

A Color-Based System For Short-Term Trading.

2011-06-14T14:00:00.000-07:00

Here is the Aiq code based on Edgar Kraut’s article in this issue, “A Color-Based System For Short-Term Trading.” The code is also provided at the websites noted below. I coded the color indicators and three systems that use the indicators. Two of the three systems are discussed here.

I ran backtests using the AIQ Portfolio Manager module from 1/1/1998 to 5/13/2011 trading the Nasdaq 100 list of stocks. In Figure 10, I show the test results of simulated trading using the system that was proposed in Kraut’s article for trading the SPY with the following capitalization parameters:

Maximum positions per day = 3
Maximum total positions allowed = 10
Choose candidates using highest volume on the day of the signal
Size each position at 10% of total account equity recomputed every day

Figure 10: AIQ SYSTEMS, Kraut’s Color-Based System. Here is a sample equity curve for Edgar Kraut’s system trading the NASDAQ 100 list of stocks compared to the S&P 500 index over the test period 1/1/98 to 5/13/11. This original system uses a 1% trailing stop as the only exit.SPX in red.

For the test period, the original system using the 1% trailing stop as the only exit showed an average annual return of 4.95% with a maximum drawdown of 78.52% on 10/9/2002.

Since the drawdown of 78.52% on the original system was more than most traders could tolerate, I added trend and market trend filters and also changed the buy rules and exit rules as follows:

Buy if there is a green or blue bar today and if yesterday there were six consecutive bars of orange or red color and the 200-bar simple moving average of both the stock and the S&P 500 index are higher than they were 10 bars ago.

Exit if there are four consecutive bars of orange or red.

All trades for both systems are executed at the next open after a trade signal occurs. A commission of $0.01 per share round-turn was used. The same capitalization parameters were used in testing both the modified system and the original system.

In Figure 11, I show the test results of simulated trading on the Nasdaq 100 list of stocks using this modified system. For the test period, this modified system showed an average annual return of 20.24% with a maximum drawdown of 31.55% on 5/25/2000.

Figure 11: AIQ SYSTEMS, MODIFIED System equity curve. Here is a sample equity curve for my modified system trading the NASDAQ 100 list of stocks over the test period 1/1/98 to 5/31/11 compared to the S&P 500 index.

In Figure 12, I show the color-based indicators applied to both the price and volume on a chart of Adsk. The arrows on the chart also show a sample trade from the modified system.

Figure 12: AIQ SYSTEMS, MODIFIED System example. Shown here is a chart of ADSK with color studies and arrows showing sample trades from the modified system.

The code and Eds file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.

AIQ code:

! A COLOR-BASED SYSTEM FOR SHORT-TERM TRADING

! Author: Edgar Kraut, TASC July 2011

! Coded by: Richard Denning 5/14/11

! www.TradersEdgeSystems.com

! ABBREVIATIONS:

C is [close].

C10 is valresult(C,10).

V is [volume].

V10 is valresult(V,10).

! FOR COLOR BARS:

Green if C > C10 and V > V10.

Blue if C > C10 and V < V10.

Orange if C < C10 and V < V10.

Red if C < C10 and V > V10.

! FOR UDF IN REPORT COLUMN:

Signal is iff(Green,"Green",iff(Blue,"Blue",

iff(Orange,"Orange",iff(Red,"Red","")))).

! TRADING SYSTEMS:

! ORIGINAL SYSTEM:

Buy if (Green or Blue) .

! Use built-in trailing stop set to 99 for exits

! FIRST MODIFICATION (NOT USED):

Buy2 if (Green or Blue)

and countof((Red or Orange),6,1)=6.

! SECOND MODIFICATION (FINAL SYSTEM):

SMA is simpleavg(C,200).

SPXsma is TickerUDF("SPX",SMA).

Buy3 if (Green or Blue)

and countof((Red or Orange),6,1)=6

and SMA > valresult(SMA,10)

and SPXsma > valresult(SPXsma,10).

Sell2 if countof((Red or Orange),4)=4.

Richard Denning for AIQ Systems
mailto:info@TradersEdgeSystems.com

Time Tested Trading Tips, June 12...

2011-06-12T13:47:00.001-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

During 20 years of active trading experience I have researched, tested, and analyzed a number of trading systems and techniques. Some have shown promising results, some do not. I add tools to my trading toolbox based on their effectiveness. Trading systems are not effective because Aunt Millie or uncle Bob told you about them, they are effective because they work. Most trading systems are affected by market conditions, volume patterns, and other factors. Successful traders know how these parameters affect trading results, so they know when to trade a particular pattern, and when to use another tool in their toolbox.

Making money in the stock market requires knowledge of what to trade, when to trade, and a variety of trading tools designed for different market conditions. Just as a carpenter will use several different tools when building a house, traders will use different tools to build their account. Using the same trading tool in all situations is like trying to build a house with just a hammer. Carpenters have tools designed for specific jobs, and so should traders. Testing and analyzing potential trading systems allows traders to select the ones most appropriate for the current market environment.

Candlestick Charts: Variations of the Doji

2011-06-02T12:16:00.000-07:00

It so happens that the doji is able to teach much of candlestick theory. If an undecided market contemplates retracement or pauses a while to reconsider the trend upon which it has embarked, this of itself will demand no alteration in price. When the market tests various levels and yet returns to its original price the premise is even more securely made. Here it is found that the greater the extension of the shadows on either side of the real body of the doji, the more pronounced the market’s reassessment. That the market has tested vast levels to the upside or to the downside as well is of great relevance to the issue of price discovery. When it has rejected these extremes to return not to a new found level of value but its original opening price, it is not merely a coincidence but an indication that momentum has come to an abrupt halt. For swing traders the doji must be understood in all its forms, for it provides one of the clearest signals for entry into the market or exit thereof.

When the market has tested the downside thoroughly and shows a doji at the peak of the candlestick with a long shadow extending downward, the contention goes to market strength rather than weakness; it has convincingly rejected lower prices and recovered to close at its highs – at its open. Still, the doji is an indication of indecision and needs further confirmation before entering the market. However, while the fact that an upper range has not been pursued balances out any bullish optimism, it may well be that the downside has been preoccupying the market however, and so the Dragon Fly Doji depicted below is inherently a bullish signal. When it occurs after sustained retracement it suggests a reversal is imminent, and when after an upward trending market, the suggestion that the trend has played out its natural course and has come to an end is patent.

Dragon Fly Doji

Similarly, the Gravestone Doji below mirrors the Dragon Fly already discussed. Here the market has given extensive airing to the upside and has yet concentrated price discovery upon not only its lows, but its opening price. That the downside has not been more thoroughly explored is valid, but hardly able to dilute the bearish signal exuded. When at the end of an uptrend it clearly indicates a reversal is likely; when at the bottom of the market - indecision is rife, but any short positions ought to be covered.

Gravestone Doji

Entering the Price Zone

2011-05-26T12:24:00.000-07:00

Original article by Walid Khalil and David Steckler in Stocks & Commodities
AIQ Code by Richard Denning

The AIQ code for Walid Khalil and David Steckler’s article, “Entering The Price Zone”, is shown below. I coded both the Price Zone Oscillator (PZO) and Volume Zone Oscillator Indicator (VZO) (from the prior month’s article by the same authors) along with the system that uses the PZO or VZO indicator. There is an input at the top of the code called “usePZO”. When this input is set equal to “1” then the indicator and system use the PZO. If set to any other value, then the indicator and system use the VZO oscillator. I had to use my own interpretation of what the divergence sell/cover rules of their system mean since the exact code for this part of the system is not given in the article. Also note that the non-trending case is provided with this code but tests of the rule “BuyNoTrnd” showed that trading only when the market is trending was the better choice. As a result, my tests below were of only the trending portion of the system as I had done in last month’s tests.
I ran a back test using the Portfolio Manager module from 1/1/98 to 4/8/11 using the NASDAQ 100 list of stocks. In Figure 1, I show the test results of simulating trading the NASDAQ 100 list of stocks, using the following parameters for capitalization:

1) Maximum positions per day = 3
2) Maximum total positions allowed = 10
3) Choose candidates using ADX values in descending order
4) Size each position at 10% of total account equity recomputed every day

For the test period, the average annual return was 11.3% with a maximum drawdown of 67.7% on 02/07/03.

In last month’s issue, I ran a similar test using the VZO indicator and the results were slightly better than using the PZO indicator with this system.

The short side test was unsuccessful as the system lost all its capital during the early years of the test. These results are not shown in any figures. I tried adding an index trend filter but this did not save the short side from total loss.

Captions:
Figure 1 – PZO system equity curve trading longs only using the NASDAQ 100 list of stocks compared to the SPX index for the test period 1/1/98 to 4/8/11.

EDS Code for Entering the Price Zone:
EnterPriceZone.EDS
(right click and choose Save As)

TIme Tested Trading TIps, May 25...

2011-05-25T11:51:00.000-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

I got an interesting email from a potential trader who was concerned that trading might ‘take too much time’. Apparently the new bailout mentality in the country has people thinking they should be able to make a lot of money quickly with little investment in education, tools, or experience. Trading, like most other professions takes time to learn. It will take a couple of years, not a couple of weekends, to learn the process of trading. It takes time because traders need to see how things work in different market conditions, and it takes time for the market to cycle between these different conditions. On the other side, the actual trading process does not require one to be glued to a computer all day, it can generally be done in minutes. The trading systems I use are based on end of day data. They have been developed and tested by looking at daily patterns, not five minute charts. Since I trade the daily patterns, I do not need to see the five minute charts.

I run the scans, pick the setups, use market conditions to determine whether to focus on longs, shorts, or cash, and then implement the trading plan. It takes me less than thirty minutes to check the setups on the watch list if I do it manually, and less time if I have my broker text me alerts when a setup hits a price level of interest. It takes time to learn trading just like it takes time to learn to be a doctor, engineer, or electrician. Once the trading skills are learned, the actual time spent trading can be quite short.

Holding periods and profit taking should be based on current market conditions. Take profits quickly in trading range markets, and give positions more time to work in trending markets. In non trending markets holding periods are usually not more than a few days. In trending markets holding periods may be several weeks or months. In non-trending markets consider taking profits after the initial pop from the trigger. Look to exit as the stock approaches the Bollinger Band, a recent high, a trend line, or when the market approaches support/resistance.

In order to find out what the usual, or normal course of action is, I have extensively tested several trading systems, the results of this testing on specific trading trading tools are outlined in ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns. The testing process helps us understand how stocks usually behave after forming a specific pattern such as being outside the Bollinger Bands, showing strong distribution or accumulation, or pulling back or retracing during a trend. Understanding what a stock is most likely to do forms the beginning of a trading strategy.

Recording of today's webinar - How to identify signs of exhaustion in an up move

2011-05-19T15:37:00.001-07:00

Thank you for attending today's webinar 'How to identify signs of exhaustion in an up move' is on Thursday May19th, 4:30pm eastern.

If you missed the event or would like to review the session, the recording is now available

Event Recording Link http://prowebinars.adobeconnect.com/p714ln4znk7/

We will be scheduling a second eventcovering using the VIX and Volatility as an indicator of exhaustion inearly June. We'll keep you posted when the event details are available.

Presenter
Stephen Hill is CEO of AIQ Systems. For the past 15 years he has beeninvolved in all aspects of AIQ Systems, from support and sales toprogramming and education. Steve is a frequent speaker at events in theU.S. and Europe, talking on subjects as diverse as Portfolio SimulationTechniques, Advanced Chart Pattern Analysis and Trading System Design.

Time Tested Trading Tips, May 15...

2011-05-15T15:00:00.000-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

Successful traders examine the current market conditions to determine if they are bullish, bearish, or a trading range environment. Traders can determine which of the three modes the market is currently in by looking at a daily chart of the market action over the last year, using the 5X20 moving average filter, or through trend line analysis. I use each of these techniques for my own trading, and publish the analyses and trading setups in the Timely Trades Letter. After determining the current market environment, traders can select the tools from the their trading tool box that perform best in the current conditions. Having multiple trading tools that have been carefully tested and analyzed in each of the major market conditions is a key part of successful trading. If you trade the same tool all the time, or do not adapt to changing market conditions, you may get a lot of practice exercising stops.

Pullbacks are one of the bread and butter techniques of trading because they occur frequently and can be found in most market conditions. Most traders should have more than one pullback system in their trading tool box. There are interesting pullback systems based on the percentage of retracement, pullbacks to key moving averages, pullbacks for a specific number of days, and pullbacks with specific volume patterns. Specific pullback techniques and information on how they perform in different market conditions is covered in ‘How to Take Money from the Markets’. The book also shows specific techniques for adapting trading strategies and techniques to the current market conditions.In addition to adapting to the current market conditions by using the appropriate tools from the trading tool box there are several practical aspects of trading that traders need to master.

Never enter a position without having a plan for exiting the position. If you Do not know where to get out of a position you should not enter it in the first place. In swing trading time frames stocks often run to the next resistance or Support level and then stall. Stocks rarely remain outside the Bollinger bands for long, so when a position reaches the Bands it is often a good place to look at profit taking, especially in trading range environments. There is usually no need to rush in when the markets trend changes. Any trend worth trading does not require you to be in on the first day, by definition. Make sure that your position sizing is such that if all your current positions were stopped out that the total loss is something that is still comfortable. This happens from time to time, wishing it did not will not change it. Be prepared by using sensible position sizes.

How do you know when the move up is over for a ticker?

2011-05-10T12:57:00.000-07:00

FREE webinar Thursday May 19th, 4:30pm eastern

How do you know when the move up is over for a ticker? In this first of two FREE webinars, we’ll discuss several key signs that it’s all over including:

• Exhaustion Gap – how to identify it’s an exhaustion and not a runaway parabola.

• Rising Channel breakdown – you’ve ridden the channel riding out the pullbacks. We’ll cover the key elements that indicate this is not a pullback but a breakdown.

• Doji Candlestick – when it’s identified correctly it really means the move is over.

Sound interesting? Join me for this FREE webinar on ‘How to identify signs of exhaustion in an up move’

Thursday May 19th, 4:30pm eastern

Visit http://aiqsystems.com/webinarexhaustion.html to register.

Steve Hill
AIQ Systems

Time Tested Trading Tips....

2011-05-07T11:48:00.000-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

Trading is about risk management. Traders learn how to manage risk by testing different trading strategies to see how they have performed in different market conditions. Testing trading strategies also helps to identify various volume and price patterns that may improve trading results in each of the three key market conditions. Volume patterns improve the statistics for many trading patterns. Strong volume and price patterns do not guarantee a result, nothing does, but they may improve the odds as demonstrated by the research presented in ‘How to Take Money From the Markets’. Using well researched price and volume patterns can be ways to manage risk. The research can also be helpful in determine which of several trading systems or tools may be the most appropriate for the current market conditions. One way to know what may or may not improve the results for a given technique is to understand how different price and volume parameters, along with different market conditions effect trading results. That is why I wrote ‘How to Take Money From the Markets’.

When the market is rocking I generally just enter strong setups without worrying much about the volume on the entry day. When the market is moving strongly then pullbacks, flags, and some of the other patterns I have tested generally mark pauses in the trend. If the pattern is generally a pause in the trend, then the odds are with me; and I do not need the confirmation provided by strong volume on the day of the trigger. When the market is more uncertain then I want to use additional tools to increase the odds of a favorable result, and I select the most appropriate tools based on the research presented in ‘How to Take Money From the Markets’.

How stocks and the market behave around the Bollinger Bands is very important to understand. Based on extensive testing I have learned to take profits in uncertain markets when my position becomes extended above the upper Bollinger Band. If you want a good lesson on risk management and why I exit positions that become extended above the upper Band take a look at the recent action in SLV. I did not get all the profit from the run up because the extension above the upper band had me out a week before the peak. However I still have my profits, and anyone holding last week took a thirty percent hit. I trade the charts and manage risk based on what I have learned from extensive testing.

VOLUME ZONE OSCILLATOR - Traders Tips

2011-04-29T08:24:00.000-07:00

May's Stocks & Commodities magazine article “In The Volume Zone” by Walid Khalil and David Steckler

has been coded by Rich Denning.

I have coded both the volume zone oscillator (Vzo) and the system that uses the Vzo indicator. I used my own interpretation of what the rules of their system mean since the exact code for the system is not given in the article. The divergence sell/cover rules were especially troublesome to interpret, so my version may not be what the authors intended. In addition, note that the nontrending case is not provided or tested.

I ran a backtest using the Portfolio Manager module from 1/1/1998 to 3/11/2011 using the Nasdaq 100 and also the Russell 1000 list of stocks. In Figure 8, I show the test results of simulated trading on the Nasdaq 100 list of stocks using the following parameters for capitalization:

Maximum positions per day = 3
Maximum total positions allowed = 1
Choose candidates using ADX values in descending order
Size each position at 10% of total account equity, recomputed daily.

Figure Above: AIQ SYSTEMS, volume zone oscillator AND SYSTEM. This shows the equity curve for the VZO system trading long only using the NASDAQ 100 list of stocks compared to the SPX index for the test period 1/1/98 to 3/11/11.

For the test period, the average annual return was 13.5% with a maximum drawdown of 49.9% on 12/31/2002.

The short side test was unsuccessful, as the system lost all its capital during the early years of the test. (Results not shown.) I tried adding an index trend filter, but this did not save the short side from total loss.

The code and Eds file can be found at below or can be downloaded from http://tradersedgesystems.com/aiq/traderstips/traders-tips-may-2011.htm

Interview with Dan Kamhis, AIQ client and ASAP founder

2011-04-19T14:52:00.000-07:00

What does ASAP™ stand for?

ASAP is an abbreviation for Affluence Squared Automation Project™.

I found in my research that the probability of correctly predicting a stock price movement increases as one extends one’s time horizon, so I decided early on that I wasn't interested in day trading. What I was looking for was not just stocks that would go up, but stocks that would go way up and stay up. Hence "Affluence Squared".

What exactly is ASAP?

It is well established that changes in earnings drives stock prices in the direction of the change. Thus if one could ascertain future ramps or declines in earnings, or more generally a coming change in a company’s financial condition, one would have a leg up. To assist a trader in this effort, I created a trading strategy using AIQ TradingExpert Pro.

Specifically, ASAP is a computer-based data collection, analysis and reporting algorithm designed to assist a knowledgeable and qualified investor in uncovering future organizational conditions with precision and understanding which are optimal in quality and timing. ASAP includes both long and short strategies which have been backtested through bull and bear markets.

How does ASAP help the user make stock selections?

It is well-established that the markets are discounting mechanisms. Some traders rely exclusively on technicals, some exclusively on fundamentals, and others some combination of the two. But all these have pitfalls.

Proper entry and exit points can often be mistimed with too heavy a reliance on backward-looking fundamental data. Indeed, retail investors are always mostly wrong at tops and bottoms.

Chart patterns and analysis of price and volume and pivot points can often clue an investor that a company’s condition has turned or remains favorable, often before the fundamentals even show it. Some very basic price and volume rules can do a decent job of picking up breakouts. However, the same exact technical parameters can work in one company’s case and fail in another, or can work for the same company at one time and fail at another.

Therefore, a fundamental data statistic that is “forward looking” would be useful as a differentiator. There does happen to be a legal, broadly available, readily quantifiable, and forward-looking fundamental statistic proven to beat the market indexes – insider buy/sell transactions. This forward-looking data is definable and comparable statistically, automatable over a universe of stocks, and is integrated with our technical strategy. Insider transactions, filtered by a special set of rules designed to maximize their predictive value, elegantly meet the requirements for a successful fundamental differentiator.

ASAP reports and displays on a price chart the actual insider transactions, but more importantly, provides and uses an insider score estimating probabilistic performance relative to the market based on statistical analysis of past similar transactions.

ASAP mostly ignores past fundamental information, except for information that statistically enhances the insider transactions, such as seasonality, market cap, and earnings surprises.

Further, insider information is aggregated for display and strategy use, providing a series of concentrically expanding macroeconomic forward-looking fundamental information.

ASAP includes both long and short strategies which have been backtested through bull and bear markets. Comparisons wherein the only change was the use of insider scores to further differentiate technical entry and exit points show a material improvement in backtest performance.

Who created ASAP and what is their background?

Here’s my brief bio. Mr. Dan Kamhis developed the ASAP mathematical models, proprietary indicators and strategy algorithms. He received a bachelor’s in mathematics from the University of California, San Diego, Magna Cum Laude in 1978. He has over 30 years of software development experience in aerospace simulation and real-time graphics, systems software for Windows and Unix platforms, and over 10 years’ experience in integrated stock strategy and indicator development. He is a patented inventor and published author.

Mr. Kamhis was assisted by Mr. Joe Osgood who programmed an assortment of data collection and database routines. Mr. Osgood received a B. S. in Computer Science from Worcester Polytechnic University in 1973. He has over 30 years of software development experience and is currently a senior software engineer at a rapidly growing medical device company. He is a published author.

Who can benefit from ASAP?

ASAP models real-world phenomena, is empirically tested, and is based on rigorous statistical analysis. Thus, the ASAP solution is scalable, providing tools to assist an investor trading a personal account, or the manager of a large institutional fund.

Can you give actual ASAP backtest results?

Chart 1 shows a six-year backtest covering two bull markets, and a bear.

The stock sample included approximately 5500 stocks which had insider transactions.

A key point is that the strategy is fully invested during the bull market, exits and remains out for the duration of the secular bear, and then leverages back in at the start of the bull, then exits for the correction.

Chart 2 shows the strategy beat the S&P by 35% a year [Gain/Loss (IRR)% Annualized] vs. 1.67% for the S&P for the six-year period.

The round-trip transactions over the six-year period, average three every two weeks (Number of trades: 465).

While the ratio of winners to losers is only 54% / 46% (Probability), the average gain for the winners is 66%, while the average loss is 16% (Average Profit/Loss), leading to a Reward/Risk ratio of over 5.

The annualized ROI (Average Annual ROI) is an astounding 75% a year, due to the fact that the strategy exits the market during bear phases.

Is ASAP versatile enough to allow the user to create new indicators or stock analysis procedures?

Yes. One can adjust the ASAP color strategy and indicators in use. One can also create user-defined indicators and strategies. In fact, a user could wrap the ASAP lists in their own strategy filter and further refine the culling process.

With a source license, one could obtain the strategy itself which gives further flexibility in creating and modifying the ASAP indicators and procedures. And certainly the ASAP developers would be interested in hearing from anyone with any ideas for improvements in the strategy, or if someone was interested in a proprietary custom modification.

How is ASAP different from other programs on the market?

ASAP provides a unique color strategy which applies the notion of gradient changes in condition. Stock and market charts show subtle improvements and deteriorations and this over time provides enhanced understanding of the overall condition and scene, and can prepare for entry and exit.

ASAP is not a repetitive day trading or churn strategy, but is designed to leverage in and out of the market based on the market and stock stage.

The ASAP strategy takes into account the affinities in the market between individual stocks, and their groups and sectors and the market indexes themselves.

ASAP reports and displays the actual insider transactions on a price chart, but more importantly, computes, displays and uses an insider score estimating probabilistic performance relative to the market based on statistical analysis of past similar transactions.

ASAP provides customizable daily and weekly reports indicating stocks which have surpassed their technical pivot points (breakouts or breakdowns) and have qualified insider scores. While ASAP attempts to capture the earliest breakouts in a long-term uptrend, continuation signals are provided for focus on a particular ticker.

A general “Breakout Rank” score is provided ranking all stocks relative to their combined technical and insider score.

Stocks can also be ranked strictly by insider criteria, such as a weighting consisting of insider score and a measure of recent changes to the insider transaction patterns.

ASAP provides a range of selectable stops designed to minimize whipsaws, including investing, trading and climax stops.

Is there an ASAP community?

ASAP is a relatively new package, but there is a growing body of users and proponents.

What are the computer and operating system requirements for ASAP?

Even five-year-old computers can run it pretty well, but ASAP is customizable in this sense. Some indicators are more compute intensive than others. On an older or slower machine, one can limit the use of the more compute intensive indicators to only when the trader is specifically interested in them.

If someone is interested in finding out more about ASAP, what should they do?

They can drop me (Dan Kamhis) a line at trade.asap@yahoo.com, and I’ll be glad to set up a web demo.

Thank you for spending time with us Dan.

An Excerpt from the Timely Trades Letter...April 9...

2011-04-09T10:46:00.001-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

I get emails from traders who just want to focus on swing trading, intermediate term trades, stock trades, or ETF trades. I am not sure how they have decided which is best, since the results of these different techniques can vary with market conditions. It makes more sense to have techniques for stock and ETF trading and be able to make swing trades and intermediate term trades and then adjust the relative account sizes based on what is working in the current market conditions.

Most of the recent ETF selections in the Letter have triggered and moved into profitable positions, which is why I rotated additional funds to the ETF account as noted in previous Letters. I want to move funds into what is working in the current environment. When the market is sluggish swing trading stocks slows down for obvious reasons. However even in sluggish markets we see some of the ETFs moving, so I put more focus there until the market finished resting and decides to move again. When the market is strongly trending there is usually more bang for the buck in swing trading stocks than ETFs so I rotate funds into the swing trading account. This sounds obvious, but sometimes traders get fixated on just one technique and don’t look at the bigger picture.

Adapting our trading tools and techniques to the current market conditions is one of the keys to trading success. Guessing the markets next move, or using the same trading tool (technique) all the time, can lead to poor results. By having swing trading and ETF trading accounts I have the ability to focus on trading ETFs when the market is sluggish and swing trading is slow. I can then move more into swing trading, with less focus on ETFs, when the market is strongly trending again. By just using one tool traders will have periods when they sit in cash for awhile waiting for the market to move.

In the current environment we see energy and commodities moving strongly (check out the strong profits from the recent GLD, OIL, XLP and SLV ETF trades as an example) Since we are seeing strong action in the energy and commodity areas I will look at a couple of swing trades of stocks in these areas if they trigger on increasing volume. There are a number of interesting setups in energy and commodity stocks like the ones in HMY, NFG, CVX, APA, and DVN. Given the markets recent positive volume pattern, shorts are not attractive unless the market starts showing strong distribution

The net change for the last six sessions is less than a one point movement, this is a very tight base. Tight bases often lead to strong moves, so while this is a time to keep the powder dry as noted in previous Letters. It is also a time to get the watch lists up to date and ready for the move that is coming. When the market, or individual stocks, approach a resistance area it is usually a good idea to focus on protecting profits made during the last run. When the market approaches resistance it usually bases or retraces a bit. If most of the time the market stalls, or retraces, around resistance then it is best to lock in some profits; and let the market set up for the next move. If the market breaks above resistance we will still have our profits and can take new positions. If the market retraces from resistance then we still have our profits, and will have avoided potential losses. If you hold when the market approaches resistance you risk losses if the market pulls back. For more market analysis and trading setups click here.

IDENTIFYING CUP FORMATIONS EARLY

2011-04-04T16:17:00.000-07:00

I have prepared the AIQ code based on Giorgos Siligardos’ article in the April issue of Stocks & Commodities magazine, “Identifying Cup Formations Early.” (The code can be viewed at www.Traders.com.) I devised a trading system using the Russell 1000 list of stocks to test the semi-cup formation as an entry technique. The trading rules for the system are as follows:

Entering a long position:

* Using a daily time frame, enter a long position when a semi-cup formation is first detected.
* Enter the next bar at the open using a market order.

Exiting a long position:

* Use a trailing 25% exit, or
* Protect 100% of a 15% or greater profit.
* Exit the next bar at the open using a market order.

Short positions were not tested.

In Figure 9, I show the results of simulated trading on the Russell 1000 stocks, using the following parameters:

1. Maximum positions per day = 3
2. Maximum total positions allowed = 10
3. Choose weakest candidates using 32-bar Aiq relative strength
4. Size each position at 10% of total account equity recomputed every day.

Figure 9: AIQ SYSTEMS, SAMPLE RESULTS FOR semi-cup formation SYSTEM. Here, a sample trading system using 76 actively traded NASDAQ stocks tests the semi-cup formation as an entry technique. For the test period 1/3/2000 to 1/6/2011, the average annual return was 18.8%, with a maximum drawdown of 68.8% on 11/20/2008.

For the test period 1/3/2000 to 1/6/2011, the average annual return was 18.8% with a maximum drawdown of 68.8% on 11/20/2008. Although the return is reasonably good, the maximum drawdown is larger than most could tolerate. With this in mind, I added a very simple market timing technique that added the following rules:

1. Longs can only be entered when the S&P 500 is trading above its 200-day simple moving average for two or more consecutive days.

2. Exit all positions when the S&P 500 falls below its 200-day simple moving average for two or more consecutive days.

For the test period 1/3/2000 to 1/6/2011, the average annual return was 10.1% with a maximum drawdown of 25.6% on 7/17/09 (see Figure 10). The drawdown was significantly reduced by the addition of the simple market timing technique. Although the average annual return was also reduced, the Sharpe ratio increased from 0.47 to 0.75, indicating a less risky approach.

Figure 10: AIQ SYSTEMS, revised results with market timing added. For the refined semi-cup system, over the test period 1/3/2000 to 1/6/2011, the average annual return was 10.1% with a maximum drawdown of 25.6% on 7/17/09.

The AIQ code is available in an EDS file at http://aiqsystems.com/april2011cupandhandle.EDS
save the file to your /wintes32/EDS strategies folder

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

TIme Tested Trading TIps... March 19

2011-03-19T09:38:00.000-07:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

I got a panicked email from a trader worried that the run ‘was over’ and he would not be able to trade long positions for ‘weeks’. First, the market moves in waves. It is normal for it to run up, then pull back then run up again. There is no way to know if a pullback will last a couple weeks, or a couple months. Secondly, traders can generate profits when the market is going up, or down. With the right set of tools it should not matter to a trader which way the market is going. Third, panic is incompatible with trading success. I just look at the markets price and volume pattern, form a trading plan that switches between different tools for different market conditions, and then implement the plan. Panic comes from ‘needing’ the market to go up, and not having a set of trading tools for different market conditions. The market does not care what we need or want, it will do what it wants. This is why we have different tools for different market conditions and switch between them based on what the market is doing. If the market direction is really, really important; it is usually a signal that the trader is using the ‘hold and hope’ approach rather than adapting to the market.

In order to trade confidently in different market conditions traders need to understand exactly how and when their trading patterns work. Testing different tools, and understanding how each trading tool performs in different market conditions, allows traders to make effective use of each tool in the trading toolbox. If traders have not tested their tools in different market conditions they are taking unknown risks. Back testing does not guarantee future results. There are no guarantees in trading, and no way to know if any particular trade will be profitable or not. Backtesting helps remove some of the emotion, hunches, and unknowns in trading. It can show you how a particular system has performed in different market conditions in the past and what types of filters may be most interesting in prioritizing trading opportunities. Examples of six complete trading systems and how they perform in different market conditions is covered in ‘How to Take Money from the Markets’. The knowledge of what to expect from a trading tool, and seeing how different trading tools perform in different markets allows traders to adapt to the market rather than just guessing what to do.

Steve is the author of two trading books: “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not.

"How to Take Money From the Markets, Creating Profitable Trading Strategies" in which he uses the results of extensive backtesting techniques to smash trading myths and get to the truth of what has worked and what has not. The book provides six fully analyzed and tested trading systems and shows how they have performed in different market conditions.

Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques.

The Commodity Channel Index (CCI)

2011-03-16T08:50:00.000-07:00

Some indicators work well in trending markets while others work in consolidating markets. The Commodity Channel Index (CCI) works best in strong trending markets. Unlike other trend following indicators, the CCI is designed to limit whipsaws during choppy markets.

Created by Donald Lambert, the CCI is a price momentum indicator that measures the degree of variance of a security’s price from its statistical mean. Although originally developed for trading commodities, the CCI can be used for equities or indexes as well.

AIQ has a default time period of 90-days in the calculation of the CCI. Time periods that are too short can lead to whipsaws while time periods that are too long result in missed signals. The 90-day time period seems to be a good compromise.

In general, the CCI looks at prices relative to the average price. If the CCI is high, then prices for that security are higher relative to its average price. Conversely, if the CCI of a security is low, then prices are lower than the average price.

In consolidating or sideways markets, the CCI tends to fall within the +/-100 range (the two horizontal lines on an AIQ chart). Whenever the CCI moves above or below this range, then it suggests a strong trend is in place. Therefore, when the CCI rises above +100 it suggests a strong
uptrend is underway and that long positions can be established. Long positions are closed once the CCI falls below +100. Conversely, when the CCI falls below –100 it means a downtrend is in place and short positions can be established. Short positions can be covered once the CCI rises above –100.

The chart above shows the S&P 500 along with its CCI indicator. Notice how this indicator was on a sell signal during the September sell-off. When the S&P 500 drifted sideways from November through April, the CCI was within the +100/-100 range so no signals were fired. This helped to avoid whipsaws. There was a brief sell signal when the CCI fell below –100 in late April and then another sell in late May.

Like other indicators, it is best to use the CCI in conjunction with other technical tools. Modifications to the simple buy/sell rules can be made as well. For instance, if the CCI has fallen to –170 and you have large profits on short positions, then it may be best to lock in some of the
profits rather than waiting for the indicator to rise above –100. Money management rules are important. Still, it is easy to see the value of the Commodity Channel Index indicator.

An Excerpt From the Timely Trades Letter...

2011-03-05T11:28:00.000-08:00

Steve Palmquist.

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

I got an email from an excited trader last Tuesday, when the market was down forty five points. He had just taken large short positions because the ‘market was already down forty points and this was surely the end of the run’. The trading plan outlined in the Timely Trades Letter had us holding off on new trades unless the market broke above the ascending trend line drawn through the lows of 08/31 and 01/31; or moved below the 2670 area, which would set up a pattern of lower highs and lower lows. This trader ignored the trading plan and was trading on CNBC induced emotion. When the market popped up fifty points on Thursday the same trader was in a panic to close shorts and take longs ‘because the pullback was over’. Trading on emotion frequently results in losses.

The trading plan is based on how the market normally behaves. The idea of trading is to be positioned to profit if the market does the normal or usual thing in a given situation. Sometimes the market does unusual things, and then profits are not realized. However, by definition the market most often follows the normal path in a given situation; so that is the way to bet for long term success. In the current case the trend line break on 2/23 indicated that conditions were changing, but it does not indicate an immediate switch from up trend to down trend. Rather than guess what the market is up to, I just took my profits from the recent run on the trend line break and will now give the market a few days to set up again. Trying to consistently guess the markets next move is a losing game over the long run. A better bet is to protect profits while the market is in transition, and then pick up new trades when the market shows its hand. I trade what the market is telling us, not the opinions of the talking heads on TV.

After a trend line break the market may base for a bit, resume the up trend or start a new down trend. If the market is going to start a new down trend then it will by definition have to form a pattern of lower highs and lower lows. For this process to start we will need to see a break below the 2670 area. Until then the market is not in a down trend and short positions carry above average risk. New long positions also carry above average risk since the market just broke below an ascending trend line. The trading plan is to hold off on swing trades until the market picks a direction and either moves back above the ascending trend line or below the 2670 area.

The more traders understand exactly how and when their trading patterns work, the more effective use they will be able to make of each tool in the trading toolbox. Back testing does not guarantee future results. There are no guarantees in trading, and no way to know if any particular trade will be profitable or not. Backtesting helps remove some of the emotion, hunches, and unknowns in trading. It can show you how a particular system has performed in different market conditions in the past and what types of filters may be most interesting in prioritizing trading opportunities. Examples of six complete trading systems and how they perform in different market conditions is covered in ‘How to Take Money from the Markets’

Time Tested Trading Tips, March 2...

2011-03-02T17:29:00.000-08:00

Steve Palmquist

Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.

During 20 years of active trading experience I have researched, tested, and analyzed a number of trading systems and techniques. Some have shown promising results, some do not. I add tools to my trading toolbox based on their effectiveness. Trading systems are not effective because Aunt Millie or uncle Bob told you about them, they are effective because they work. Most trading systems, are affected by market conditions, volume patterns, and other factors. Using a trading technique that has not been analyzed in different market conditions, or failing to match trading techniques to the current market environment is asking for trouble.

The successful trader has a tool box with a variety of trading tools for use in different market conditions. The trader, like the carpenter, must go beyond just acquiring the tools. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. Some tools, like a screwdriver, are fairly easy to learn how to use. Other tools, like a table saw, require a lot more training and experience to get the most out of. Most carpenters serve an apprentice period where they work with, and learn from, someone with years of experience. It is amazing how many people will just start trading their hard earned money without ‘learning the trade’ first.

Parabolic SAR - powerful position exiting tool

2011-03-02T10:14:00.000-08:00

The SAR in this indicator stands for stop and reverse. That means that with this indicator you are always in the market. You simply reverse the position when the stop level is reached. When you are on a buy mode and the stop is reached, then you switch to a sell (or short) mode. If you are on a sell mode and the indicator turns bullish, then you switch to a buy mode.

To see the Parabolic SAR indicator in the TradingExpert system, open a stock chart and click the ParaSAR indicator in the Control Panel. Since this indicator overlays the stock price chart, it is found in the upper half of the Control Panel. The Parabolic SAR indicator is shown in the chart below. The indicator gets its name from the shape assumed by the trailing stops that tend to curve like a parabola. Dots below prices indicate a long position while dots above the prices indicate a short position. The dots represent the stop and reverse points.

As the prices move higher, the rising dots below the price action tend to start out slow and then accelerate with the trend. The slow start in the indicator allows a trend to take place. As the stock moves higher, there is an acceleration factor and the indicator moves faster until it catches up to price action. The same is true for stocks that are falling. This is a trend following indicator so it obviously works best on volatile stocks that are in trends. Even on trending stocks, there will be whipsaws.

For short-term swing traders who deal with volatile stocks such as those found on the Nasdaq, the Parabolic SAR indicator may help improve entry and exit points.

Determining Trend Strength And Turning Points The Spearman Indicator For Technical Analysis

2011-02-09T08:10:00.000-08:00

by Dan Valcu, CFTe

This indicator is a very old statistical tool that even to this day helps determine trend strength and turning points. Here’s how to apply it to your trading.

Technical analysis can be considered both a science and an art; patterns and chart reading represent the artistic component, while technical indicators help us analytically understand trend strength, buy/sell pressure, and divergences. There are perhaps thousands of technical indicators, but few seem to deliver real analytical power and differentiation in this increasingly crowded landscape, especially since many can be perceived simply as intellectual exercises that produce little bottom-line impact.

To narrow down this set of tools, statistics offer a great source of established knowledge for those who want to focus on more tangible and useful indicators. For instance, the tried-and-tested Z-score has become a classic in both statistics and technical analysis.

In this article we will discuss an established concept in statistics originally proposed in 1904, with potential for use in technical analysis: the Spearman’s rank correlation coefficient, also known as the Spearman indicator. Article extract courtesy Stocks & Commodities magazine

The AIQ code for the Qstick and the Psychological Indicators as mentioned in Dan Valcu’s article, “The Spearman Indicator for Technical Analysis”available from TradersEdgeSystems courtesy of Rich Denning

Symmetrical triangle - use Point & Figure charts real-time

2011-01-31T15:55:00.000-08:00

Every trading day, the price of a stock is determined by a struggle between supply and demand. In technical analysis, charting a security is critical because it shows the interaction of supply and demand. The demand fluctuates at any given moment from a variety of factors, some rational and some irrational.

As a stock enters into a period of fluctuation, one of several traditional chart patterns may emerge. The pattern we’ll focus on in this article is the Symmetrical Triangle.

The Symmetrical Triangle pattern has two sloping trendlines that converge to each other. That is, a stock fluctuates up and down but each move is smaller than its predecessor. The descending tops in the price movement are defined by a downward sloping boundary line (resistance line) and the low points in the fluctuation can be defined by an upward sloping line (support line). The top and bottom boundaries need not be of equal length.

With the Symmetrical Triangle pattern, it’s seldom that a clue is given on the chart indicating which direction will eventually be broken. This is an attractive pattern for day-traders. That’s because good tradable moves come after a period of reduced volatility and because the pattern lends itself to tight stops. I’ll explain with an example. The chart below shows a one-minute chart of the S&P 500 Notice that after rallying in the morning, the S&P 500 stalls and begins to move sideways. In the 11:00 hour the index enters the Symmetrical Triangle pattern. Each rally is less than the previous rally and each decline is less than the previous decline.

As the pattern develops, volatility falls. The eventual break came to the upside. After the break, investors had several minutes to act on the signal before the S&P 500 jumped higher. Once the pattern is broken, a tight stop can be placed using trendlines. In this case, the break was to the upside so the stop is placed just below the support trendline (lower trendline). If the break occurred to the downside, the stop would be placed just above the resistance trendline.

Realtime Point & Figure charts can help identify this pattern. Unlike bar charts where the vertical coordinate is based on price and the horizontal coordinate is based on time, the Point and Figure chart is only concerned with price. Since time is not a factor, small fluctuations in price are often not charted. Without these disturbances, it is easier to spot emerging patterns.

The figure below shows the S&;P 500’s Point & Figure chart using the same date as the first chart. The Symmetrical Triangle is seen at the very end of the pattern.

Looking at the last five columns, each rally (the Xs in the chart) is less than or equal to the previous rally and each decline (the Os in the chart) is greater than or equal to the previous decline. In this chart I elected to have a small box size (1.5 S&P 500 points per box) to make the chart more responsive and appropriate for active trading. It is also the reason behind the small Xs and Os. By increasing the box size, the Xs and Os will appear larger on the monitor.

The figure below shows Bed Bath & Beyond (BBBY) using a $0.20 box size. The larger Xs and Os make it easy to spot the Symmetrical Triangle pattern.

In the center of the pattern, BBBY enters a period where each rally is less than the previous rally and each sell-off is less than the previous sell-off. The bearish signal came once BBBY fell below the pattern and the column of Os fell below the previous column of Os. The Symmetrical Triangle pattern is an attractive pattern for active traders because tradeable moves often come after periods of reduced volatility and because the pattern allows for time stops. You can identify the pattern using traditional bar charts or with the real-time Point & Figure charts. Most people find it is easier to identify the pattern using the Point & Figure technique.

If you missed Adrienne Toghraie's webinar today - DON'T WORRY

2011-01-13T17:12:00.000-08:00

My very special guest, Adrienne Toghraie joined us today for an excellent presentation on ‘Modeling Success Qualities of Top Traders’

Adrienne, founder of TradingonTarget and author of 12 books, is an expert on coaching traders and investors to their next level of success by helping them overcome their self-imposed limitations.

This Webinar-workshop was about learning the qualities you need to acquire for running a successful trading business in order to become a master trader. Here are the categories Adrienne discussed:

• Entrepreneur Qualities

• Trader Qualities

• Emotional Stability Qualities

• People Skill Qualities

• Mastery Qualities

Many of you have busy schedules and some missed out on the event, however we have recorded the entire event and it’s available for you to view at

http://prowebinars.na5.acrobat.com/p36555229/
We look forward to seeing you at our next scheduled event on Januuary 26, 2011. I will be presenting ‘How to test a trading strategy using a systematic approach’.

Register now at http://tradingontarget.omnovia.com/registration/pid=51731291740818

Combining RSI with RSI by Peter Konner

2011-01-03T13:34:00.000-08:00

Stocks & Commodities Magazine Traders Tips - January 2011 "Combining RSI with RSI" by Peter Konner

Optimization and stop-losses can help you minimize risks and give you better returns.

You would like to be long in a market that’s trending up, but what about when the trend turns down? Do you exit and just watch from the sidelines, or do you try to trade on the corrections in the downtrend? Here’s a simple combination where you can trade long-term uptrends and short-term corrections, all in one chart.

One of my previous strategies didn’t allow me to enter a trade and stay there in a long and strong uptrend, since the strategy was designed to use the relative strength index (Rsi) on a daily basis. The total return from my Rsi strategy was fair, but there were many trades with little return, especially in volatile markets.

I decided to build a new strategy with these requirements......read more at http://www.traders.com/Documentation/FEEDbk_Docs/2011/01/Konner.html

Rich Denning has coded this indicator for AIQ EDS, you can pick up the code from Rich's website at http://www.tradersedgesystems.com/aiq/traderstips/traders-tips-january-2011.htm

Proper Allocation of Your Assets Is Critical Factor for Successful Trading

2010-12-22T10:58:00.000-08:00

Stock moves are based onfear and greed. Unfortunately,basing buyingdecisions on greed andselling decisions on fearleads to bad decisions. Buying greedand selling fear leads to buying highand selling low. It’s not just theexecution price that is the problem,however. Being controlled by fearand greed leads to bad moneymanagement decisions.Nearly all investors can state acase where they were extremelyconfident about a stock — andwhether it was based on a strongtechnical or fundamental picture,greed takes over and money managementdecisions are ignored.

The stock may be at $10 and youare certain that it will hit $20. As aresult, you load up on the stock witha large portion of your assets.Unfortunately, before hitting $20 thestock falls to $7. You were rightabout the move but wrong on thetiming. Because you had too much money invested, you couldn’tstomach the drawdown and thestock was sold for a loss.

The lesson to long-term successis proper allocation of your assets.In our example, if the investor hadnot loaded up on the stock trade, hecould have ridden out the short-termdecline and enjoyed the benefits ofhis correct projection.

Many traders lose everything inthe markets because they wager aninappropriate percentage of theirtrading capital on a single position.Unfortunately, that single positioninvariably turns out to be the worseof all the holdings. When the tradegoes badly, the adverse effect iscrippling.

Stayingpower isimportant insuccessfultrading. Whilevaluation,trend direction,andtiming are allimportant,proper position sizing is the mostcritical. With proper position sizingyou can be wrong and play anotherday. With bad position sizing, you’llend up with big losses and littlehope of recovery.

Instead of buying from greed,treat every position like it could be aloser. Yes,there ispower inpositivethinking butoverconfidenceleads tobad results.Recall that80% of allmotorists think they are aboveaverage behind the wheel. Shunyour pride and you will make betterdecisions. Don’t attribute winningpositions to smarts and losingpositions to bad luck.

Having a positive attitude aboutyour trading system and your longtermgoals are important. However,overconfidence in any single trade can cause you to mismanage it bytaking on an undue amount of risk.If you believe every trade will be awinner, the need to confirm thatbelief may cause you to stay too longin a trade that has moved againstyou.

It may also prompt you to take aposition size that is simply too large.Staying in a trade longer than youshould or having too much money atrisk is the surest road to disaster.

Trading Indexes With The Hull Moving Average - by Max Gardner

2010-12-22T10:31:00.000-08:00

Stocks & Commodities Magazine Traders Tips - December 2010
"Trading Indexes With The Hull Moving Average" by Max Gardner

The full article is at http://www.traders.com/Documentation/FEEDbk_docs/2010/12/Gardner.html

Rich Denning has coded this indicator for AIQ EDS, you can pick up the code from Rich's website at

http://www.tradersedgesystems.com/aiq/traderstips/traders-tips-december-2010.htm

FREE WEBINAR - Modeling Success Qualities of Top Traders - with Adrienne Toghraie

2010-12-21T15:45:00.000-08:00

01/13/2011 4:30 PM Eastern Time, register at http://prowebinars.na5.acrobat.com/modelingsuccess/event/event_info.html

ADRIENNE is considered an expert by her peers in the financial community for coaching traders, brokers, and investors to their next level of success. Her 11books on the psychology of trading have been highly praised by financial magazines. Adrienne’s public seminars and private counseling have achieved a wide level of recognition and popularity, as well as her television appearances and keynote addresses at major industry conferences. Adrienne has coached some of the most success- ful people in the world. What makes these great people unique? What makes them so success- ful? The answers to these and other questions are explored in her seminars, books, CDs, and DVDs, which form the core of Adrienne’s Modeling Excellence work with professionals who want to reach higher levels of success.

Advantages of creating your own groups and markets

2010-12-08T09:50:00.000-08:00

AIQ's unique group/sector ability allows us to create our own groups from tickers in our database. The ability to create your own markets can take your analysis one step further by building a complete breadth data file of any collection of tickers. There are clear advantages to doing this, find out more in this 40 minute FREE webinar http://prowebinars.na5.acrobat.com/p41065877/

Five recorded sessions from the 21st Annual Traders Seminar in Las Vegas RAW AND UNCUT

2010-11-12T16:31:00.000-08:00

Finally it's happened. After much lobbying from our clients, we've been persuaded to release the raw and uncut recordings from 5 of the sessions at the October seminar in Las Vegas.

The attendees who joined us this year all agreed; this year's seminar was one of the best ever. With these recorded sessions, you hear the speaker and see the presentation or live charts the speaker showed the attendees.

This is the raw and uncut recordings, no editing, it is what it is. Check out the speakers and topic below, then at the bottom of the page, you'll see the price. Attendees for the 2-day seminar paid up to $996 for 2 full days of sessions, so I think you'll agree you're getting a good deal.

Intermarket analysis - Profitable trading strategies for commodities, stocks, bonds and currencies.

I'm exhausted - How to identify when a ticker has exhausted a move up or down and what to do next.

Around the world in 80 minutes - Global equity investment opportunities to capitalize on future trends.

The relationship between commodities and currencies in the context of the MACDI divergence strategy.

The Band wagon - AIQ Bands, Bollinger Bands, Keltner Bands; Effective use of Bands in trading decisions.

More info on speakers and topics at http://aiqsystems.com/vegas2010webinarrecord.htm

5 SESSIONS BUNDLED PACKAGE

Delivered streaming from our high speed server.
Watch them as often as you want, as many times as you want.
ONLY $279

or call 1-800-332-2999

TIme Tested Trading TIps.

2010-10-23T11:48:00.000-07:00

Steve Palmquist

Author of ‘The Timely Trades Letter’ and ‘How to Take Money from the Markets’

During 20 years of active trading experience I have researched, tested, and analyzed a number of trading systems and techniques. Some have shown promising results, some do not. I add tools to my trading toolbox based on their effectiveness. Trading systems are not effective because Aunt Millie or uncle Bob told you about them, they are effective because they work. One way to know if a trading technique works is through testing to see how different time periods, market conditions and parameters effect trading pattern results.

Some tools, like a screwdriver, are fairly easy to learn how to use. Other tools, like a table saw, require a lot more training and experience to get the most out of. Most carpenters serve an apprentice period where they work with, and learn from, someone with years of experience. It is amazing how many people will just start trading their hard earned money without ‘learning the trade’ first. Understanding how to trade requires the ability to recognize basic trading patterns, and also knowledge of the market environments in which they work best.

There are no perfect trading systems, no matter what those slick brochures we all get in the mail say. Trading is a statistical business where it is important to manage risk. Every trading system has a certain percentage of winners and losers. Examples of six complete trading systems and how they perform in different market conditions is covered in ‘How to Take Money from the Markets’

There is no magic to trading. It is about putting the odds on your side and not trading unless they are. This sounds simple, but it takes...

a few years to get good at it. And like most things, while you are learning it is best to work with someone. The learning time is long because traders have to see how things behave in different markets, and learn to trade the odds and not their feelings. See www.daisydogger.com for more information on my trading experiences.

The market will not adapt to us, we must adapt to it. Active trading in a narrow range presents higher than average risk. Traders can compensate for higher risk market conditions by trading fewer positions and using smaller position sizes. Failure to do this can be costly.

I cannot control what the market does, so I have a plan for whichever path it picks and then trade the plan.

Successful trading is not about predicting what the market is going to do. It is about knowing how to react to whatever it does.

Always be thinking about taking and protecting profits.

You do not need to trade every day. Let the setups come to you and take the best ones. When the market is moving there lots of good setups to trade. If there are few setups, or most are failing, then listen to the message of the market.

Never enter a position without a plan for exiting.

Time Tested Trading Tips.

2010-10-23T11:36:00.000-07:00

Steve Palmquist

Author of ‘The Timely Trades Letter’ and ‘How to Take Money from the Markets’

During 20 years of active trading experience I have researched, tested, and analyzed a number of trading systems and techniques. Some have shown promising results, some do not. I add tools to my trading toolbox based on their effectiveness. Trading systems are not effective because Aunt Millie or uncle Bob told you about them, they are effective because they work. One way to know if a trading technique works is through testing to see how different time periods, market conditions and parameters effect trading pattern results.

There is no magic to trading. It is about putting the odds on your side and not trading unless they are. This sounds simple, but it takes...

I cannot control what the market does, so I have a plan for whichever path it picks and then trade the plan.

Successful trading is not about predicting what the market is going to do. It is about knowing how to react to whatever it does.

Always be thinking about taking and protecting profits.

Never enter a position without a plan for exiting.

Using the VIX as an indicator for timing bottoms in SPY

2010-10-20T16:44:00.000-07:00

The VIX is the CBOE Volatility index and is a measure of the implied volatility of the SP500 stocks. Much is mentioned in the financial media on high levels of the VIX during steep down turns in the market. Question is can we make this into an indicator.

a quick overlay of the VIX on the SPY reveals some visual correlations with the VIX. Peaks in the VIX often correlate with bottoms in the SPYand vice verse.

To make use of the VIX as an indicator requires building an indicator using the closing price of the VIX. The EDS code to do this can be downloaded from http://aiqsystems.com/VIXSPY-spread_lasvegas.EDS save this file to c:\wintes32\EDS Strategies.

To add a custom indicator in AIQ Charts, open Charts and go to Charts, Settings, Indicator Library, EDS Indicators. Clickk on Add, locate the EDS file VIXSPY-spread_lasvegas.EDS in your c:\wintes32\EDS Strategies folder.

For Plot Type select Histogram with Plotted Line and click next.

For Description I chose VIX with 10-day av.

UDF to Plot is Close_VIX

UDF for line is VIX_10day

Click Finish and then Done.

The indicator VIX with 10-day av will now be available at the bottom of the indicator control panel.

I chose a 10-day average to help smooth out the fluctuations, a 21-day average may also work.

Here's what it looks like

The arrows on the chart show an interpretation that works well for timing the bottoms of the SPY. I'm looking for theVIX histogram to be 3 or more consecutive spikes above the 10 day average, followed by Change in direction from up to down of the 10 day average. Check it out for yourself and see what you think.

Live webinars from the 21st Annual Traders Seminar in Las Vegas

2010-10-06T08:31:00.000-07:00

Intermarket analysis - Profitable trading strategies for commodities, stocks, bonds and currencies. Donald Dony

Did you know that; Gold leads the commodities (CRB index)? The US dollar usually trends in the opposite direction of the CRB index and Gold? All markets are interrelated and none move in isolation? Bond prices normally move in the opposite direction to stocks (inflationary environment)? All of these and many more inter market relationships will be revealed in Donald's session. Best of all their are ETFs to trade all of them.
Learn more

Around the world in 80 mins - Global equity investment opportunities to capitalize on future trends. Richard Muller

During his presentation Richard will reveal where the best markets are to be trading and why, and the best values in each segment based on his extensive global equity research. Richard's pedigree is unmatched in global equity analysis. Prior to joining Reuters and presenting his own TV show, Richard taught technical analysis to many investors and traders throughout Europe.
Learn more

The relationship between commodities and currencies in the context of the MACDI divergence strategy. Dale Wheatley

Dale has used the special relationship between currencies and commodities to his advantage by trading options on the ETFS. Whether it is the OIl Index, Gold Index, US Dollar index, SPY or others, correlations and leading and lagging factors all play in to finding the right time to be in the right option. Dale uses his unique MACD divergence strategy as the timing mechanism to enter option trades.
Learn more

S&P 500 Set to Touch 1,200

2010-09-28T12:21:00.000-07:00

Richard's TV show on S&P 500 click here

Don't miss Richard Muller at the Las Vegas Seminar October 9 - 10, 2010 call 1-800-332-2999 for special pricing, full agenda at http://aiqsystems.com/vegas2010.htm

Richard Muller is a global equities analyst with Thomson Reuters, where he delivers investment ideas on the Reuters Insider financial TV channel. Richard qualified as a Chartered Management Accountant, and holds a Masters of Science degree in investments, MSc ISIB. Richard is also a power user of AIQ TradingExpert Pro.

Point & Figure analysis on the major markets - Richard Muller

2010-09-20T14:47:00.000-07:00

Don't miss Richard Muller at the Las Vegas Seminar October 9 - 10, 2010 call 1-800-332-2999 for special pricing, full agenda at http://aiqsystems.com/vegas2010.htm

Richard Muller is a global equities analyst with Thomson Reuters, where he delivers investment ideas on the Reuters Insider financial TV channel. Richard qualified as a Chartered Management Accountant, and holds a Masters of Science degree in investments, MSc ISIB. Richard is also a power user of AIQ TradingExpert Pro.

Richards TV show on Point & Figure analysis on the major markets can be seen by clicking here

Keltner Channels

2010-09-14T12:08:00.000-07:00

Keltner Channels are created by employing a moving average of each bar’s volatility from high to low, and then multiplying that moving average by a constant number to adjust the band distances from he moving average line. The moving average period to compute the average range and the average line. I’ve seen a variety of moving averages used, any where between 5 and 20 periods. With the constant used, I’ve seen between 1.3 and 1.9. Interpretation seems to vary based on moving average used.

When the MA is around 10 and the constant is 1.5 – 1.9 then

- When close is above the upper channel it’s time to get out of longs (or go short)
- When close is below the lower channel it’s time to cover shorts (or go long)

When the MA is around 20 and the constant is 1.3 – 1.9 then

- When close is above the upper channel it’s time to go long
- When close is below the lower channel it’s time to go short

My favorite interpretation

Price has to have touched the moving average but the day range must not be more than 50% of the distance from the average to the band. Bands and Moving Average must be trending up. Enter with intraday reversal in the direction of the trend.

I'll be covering more of this indicator and more at the 21st Annual AIQ Seminar in Las Vegas, October 9 - 10, 2010. Visit here for more info http://aiqsystems.com/vegas2010.htm

"Big Picture Market Review: Point and Figure Chart Analysis"

2010-08-31T13:04:00.000-07:00

Richard Muller, AIQ TradingExpert Pro power user and Equity Analyst at Reuters Insider uses point and figure to review the major workd markets on his show click here to view the show.
Richard will be one of guest speakers at this years AIQ seminar in Las Vegas October 9 - 10, 2010

The Hindenburg Omen... Are you Trading Myths or Facts?

2010-08-31T12:26:00.000-07:00

by Steve Palmquist
Don't miss Steve and 5 other speakers at the Las Vegas Traders Seminar October 9-10, 2010
http://aiqsystems.com/vegas2010.htm

The financial press is full of articles about the ‘Hindenburg Omen’ and how it indicates that the market is about to plunge. The Hindenburg Omen is a combination of new 52 week highs and lows, the NYSE’s 10 week moving average, and the McClellan Oscillator. The creator of the Hindenburg Omen compares it to ‘a funnel cloud that precedes a Tornado’ and says it shows there is ‘a high probability that the market is going to crash’. The images of the actual Hindenburg disaster, and a Tornado, are vivid and scary. This plays well in the media, after all their job is to attract viewers for their advertisers, and a lot of financial shows can be; well, boring.

The key issue for any indicator is not the images it brings to mind, but whether or not it has predicted outcomes more often than chance, and hence is a useful trading tool. According to an article on CNBC the Hindenburg Omen has been ‘roughly 25% accurate in predicting big market upheaval since 1987’. That is another way of saying it has been wrong most of the time. Traders need to carefully understand, test, and evaluate every potential tool before considering using it. New indicators come along all the time. Some sound interesting, but the issue is always, ‘how well has it worked, and based on that should I add it to my trading tool box’. The idea of testing and evaluating a tool before using it is a fundamental part of trading. Even a broken clock is right twice a day, being right occasionally proves nothing. Traders need to break through the myths and select tools that have shown some real promise.

There are hundreds of indicators and patterns being used by traders. Many of them provide no more accuracy in predicting market direction than a coin flip. The bigger issue is that many traders do not even know how often the indicators and patterns they use have shown positive results, and how often they have failed. Not knowing this information is like throwing darts in the dark. Effective traders know what percentage of the time their trading techniques work in bullish markets, trading range markets, and bearish markets. Successful traders have multiple tools designed for different market environments and switch between them based on what the market is actually doing, not what the talking heads on TV say it is doing. Are you trading myths or tested results?

The Stochastic indicator is better known and more widely used than the Hindenburg Omen, but traders need to ask the same question before using it. How often does it work, and based on that data is it a valuable tool for trading? I tested the effectiveness of the Stochastic indicator by looking at trades during 2008 when the stochastic was below 20 and then moved above 20. After entry, each position was held for five days and then sold. During 2008 there were more than 26,000 trades in my trading data base of 2,500 stocks and only 41% of them showed a positive outcome.

2008 was a tough year for stocks, and market conditions can effect most trading systems, so I looked at all the Stochastic buy signals during calendar 2007. There were more than twenty thousand stochastic buy signals during calendar 2007, but only half of them were winning trades and the annualized return of all the trades was negative. I also looked at the sixteen thousand stochastic buy signals that occurred during 2006 and found that about fifty one percent of them were winning trades.

I then looked at how the test results for the Stochastic indicator varied based on different holding times and in different market environments. The results of this testing are covered in ‘How to Take Money from the Markets, Creating profitable Strategies’ This book analyzes six ready to use systems and shows how they work, and when they work. Trading systems are not magic, or based on hope. Effective traders use trading techniques that have been fully tested and analyzed. They know exactly how the systems have performed under different conditions and how different filters and variables effect results. When they pull a tool out of the trading tool box they know what to expect, and how to use the tool. This knowledge comes from testing and evaluation, not hopes and dreams.

Effective traders select trading tools based on the markets current environment, and their results of testing trading tools in different market conditions. They know when to trade pullbacks or retracements, whether they should focus on shallow or deep pullbacks, how trading results may be effected by the volume patterns, if the price of the stock or the average volume of the stock effects results, and several other key stock behaviors that can be tested and then used to improve trading results. No one is born with this knowledge, it is gained by testing and evaluating the behavior of stock patterns and trading systems. Traders can do this work themselves using many of the popular software packages that allow writing programs to test different patterns and indicators, or they can review the research presented in ‘How to Take Money from the Markets’. Trading without a clear understanding of how the market and several different trading systems work is like driving blind. Blind drivers usually have a bad outcome. Rather than rely on some new indicator with unknown success rates I will focus on techniques that have been tested and shown to have reasonable success rates. The market may indeed take another leg down, if and when it does there are more reliable indications for traders than the Hindenburg Omen.

Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money.

Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money.

Steve is the author of two trading books:
“Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not.

"How to Take Money From the Markets, Creating Profitable Trading Strategies" in which he uses the results of extensive backtesting techniques to smash trading myths and get to the truth of what has worked and what has not. The book provides six fully analyzed and tested trading systems and shows how they have performed in different market conditions.

Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com
provides additional trading information and market adaptive trading techniques.

U.S. Stocks Struggle to Shake Late-Summer Malaise

2010-08-27T11:51:00.000-07:00

Richard Muller is a TradingExpert Pro power user and Thomson Reuters Insider Equity Analyst. His TV shows cover the full range of tecncial analysis and fundamental research. Check out this clip from August 24th. Click here

Richard will be one of the guest speakers at this years 21st annual AIQ Trading seminar in Las Vegas on October 9 - 10, 2010 details at http://aiqsystems.com/vegas2010.htm Seats are filling up fast. Don't miss out.

Market Minute: August 24, 2010: Underlying support fades

2010-08-25T17:15:00.000-07:00

Donald W. Dony, FCSI, MFTA
Don't miss Donald at this year's Las Vegas seminar click here

Following the August 18 Market Minute titled "S&P participation remains weak", underlying support for the S&P 500 has deteriorated during the last few days. On August 18, the percentage number of advancing stocks within the broad-based index had fallen to 50%. In contrast, at the peak of the bull advance in April, that percentage number was over 75%.

Market conditions have continued to change to the negative side. Currently, only 34% of the stocks in the index are trading over their 200-day moving average. This means that 66% are trending down (Chart 1). When the majority of an index's securities are declining, a downward trend develops. Similar conditions occurred in late 2007 and throughout 2008.

Bottom line: Market support has shifted faster than expected to the negative side. Advancing markets require a clear majority (60%-90%) of their underlying stocks to move higher if an index is going to trend up. When the percentage falls below 50%, markets start to decline.

Investment approach: Models indicate that most indexes trade on an approximate 4-month cycle. As the last trough was in late May to early June, the next probable low can be anticipated in late September to mid-October. With the underlying support for both the S&P 500 and TSX quickly eroding, increasing downward pressure can be expected over the next 4-6 weeks.

Investors may wish to take a very defensive stance this month by increasing cash percentages and raising stops. Good value opportunities are anticipated after this correction in Q4.

Build Lists of Stocks, Easily Track Charts, & Browse Reports Limited to Your Lists

2010-08-12T16:20:00.000-07:00

In the age of the internet, there are lots of sites that give you free stock charts. For many people, a chart is all they need for their trading. Obviously AIQ offers much more than charting, but even if all you need are charts then you’ll love AIQ’s list feature.

This feature allows users to very quickly browse through the stock charts that they are interested in. Every AIQ power user heavily relies on the list feature. Knowing how to create and manage lists allows users to focus on the stocks they want to purchase, to more easily manage a large database, to effortlessly chart their favorite stocks, etc.

TradingExpert Pro comes with the S&P 500 and the AIQALL list. Many other AIQ list files can be downloaded from AIQ’s web page. The web page includes lists of the S&P 1500, Russell 1000, Russell 2000, Nasdaq 100, optionable stocks, etc. The web site is
http:// www.aiqsystems.com/lists.htm

After downloading one of these list files, you can very quickly and easily scroll through charts of the stocks. In AIQ Charts, use the dropdown arrow on the tool bar to highlight a list name. For this example, we’ll choose a list of the Nasdaq 100 stocks. By hitting the Enter key, the Control Panel is replaced by the list of Nasdaq 100 ticker symbols. By clicking on the Explore Right icon on the toolbar (or clicking on the individual ticker symbols), you’ll get a chart of each stock in the list. There is no need to type in the individual ticker symbols. Simply keep clicking the Explore Right icon and you can see every Nasdaq 100 chart in a matter of minutes.

While AIQ places many lists on its web site, some users may have a particular list of stocks that they want to closely track. This might include recommendations from Value Line or a favorite investment newsletter. In this case, users can create their own individual lists. Creating a list is a simple process.

- In Data Manager, click List on the menu bar and then New.
- Enter a name for the list you want to create.
- The list will appear on the left section of the Data Manager window.
- With your list name highlighted, click List again and Insert Tickers. To save time, enter a list of
tickers separated by semicolons.
- Click OK and the list will be created.

If you have a list of ticker symbols in a spreadsheet, TradingExpert Pro can import that list. That means if you subscribe to Investor’s Business Daily’s online service then you can download its top recommendations into a spreadsheet and then import the list into AIQ. To do this, first
save the list to a CSV format. Then go to the Data Manager and create the new list name using the process just described.

- With the list name created, select List and then Import.
- Highlight the CSV file and click OK.

AIQ allows users to merge two lists as well. Some people like to track a list that combines two list files, such as the SP 500 and Nasdaq 100. AIQ’s Advanced List Edit function allows you to merge two lists. You simply open both lists and then drag one list into the other. Be sure to save the new combined list to a new name.

So far we’ve discussed how list files help save time in charting. They are also helpful when you run Reports. When you run reports on your individual list file, only stocks that you are interested in will appear. The noise from other stocks that you’d never buy is eliminated. For instance, you can check for a breakout on AIQ’s Point & Figure Breakout report using your particular list of stocks. There is no need to filter through a bunch of stock symbols looking for the ones of interest to you. To accomplish this, go to Reports

- right-click on Stock Reports. The Global Properties box will appear
- Use the dropdown arrow next to Stock to select the name of the list you want to run and click OK.

We’ll choose to run reports on the Nasdaq 100 stocks. Some reports, however, show many stock choices. To quickly scroll through the list of stocks on a report, you can click the Build Report List icon on the toolbar. This will create a list of the stocks on a report. After naming the list, the first stock on the report will automatically be charted. Click the Explore Right icon to see the other stocks.

Similar to Reports, Expert Design Studio (EDS) scans can be run on individual lists.

- In EDS click the Properties icon and select the appropriate list.
- After the scan is complete, you can chart the stocks by clicking the Chart List icon.

The ability to create and use lists is a basic function of TradingExpert Pro. Although basic, this function is very powerful. It allows you to quickly scroll through charts and enables you to focus on the stocks you are most interested in.

Money Management - Stocks vs Bonds

2010-08-03T12:28:00.000-07:00

Traditionally, equities have commanded a 5% premium over the bond yield, largely due to bonds remaining the asset class that is routinely ignored, and investors preferring stocks and currencies for reasons yet to enjoy proper justification. Not only has this become entrenched in the psyche of investors everywhere, but significantly, the fundamentalist revolution will tolerate it no more.

As history shows us, other stock markets around the world have suffered a number of catastrophic events, to provide the investor with as much as two opportunities to lose 100% of their investment in the past century. The United States however, remains the exception. It is extraordinary that it has not come to the same grim end as the Japanese or European stock markets, and in that respect ought to be treated discriminately.

Simply, the 5% premium in favor of equities is concomitant to the risk that stocks pose vis a vis bonds. If the risk is not reflective of a 5% premium it cannot be justified. Economic growth is achieved through innovation. If there is no innovation to speak of, there will be no economic growth and neither in this situation can a 5% premium be argued. The premium that equity enjoys over bond yields is dependent on inflation; if inflation is rising, bond prices will be under pressure. Due to the fact that equities are a good hedge against inflation, the premium in this scenario however, may well merit some consideration. The incontrovertible truth however, is that fundamental analysis of the real interest rate achieved is mandatory in the counter-revolution that will emerge.

Currently, inflation is targeted by the Federal Reserve to be 1.8% over the next 10 years. The inflationary component priced into the 5-year bond is 1.8% and that priced into the 10-year bond is 2.1%. In the fullness of time, as the economy builds momentum, the target will appear to be more and more inappropriate. See now, when inflation is at 5% it will still receive the familiar rhetoric of a central bank who will insist that their target is 1.8%, in an effort to coerce the market. On this occasion however, the power of suggestion as fortified by efficient markets theory, will prove ineffective. Regardless, the global economy including Europe will set a course along the path of inflation.

Further, there is ambiguity in the real rate of inflation. Hedonic adjustments have been rife, and while it may assist a Central Bank in the discharging of its duties, the real rate of inflation will be considerably magnified. It is intangible anomalies such as these that efficient markets theory fails to consider, and it is precisely what will be required of sound investments in the coming new environment – fundamental analysis. Again, traditionalists have held the view that stocks will outperform bonds however, in the past 10 years bonds have triumphed, with considerable economic growth resulting despite a return being postponed by equities. Growth stock investors have disregarded the importance of dividends in the past, but now alternatives will be available. The divide between fixed interest markets and equity will be a practice of the past. Comparisons will be made between the yield offered by bonds and the dividend yield on stocks.

The mighty confluence July 13 - 15, 2010

2010-07-29T22:49:00.000-07:00

Simple moving averages are not rocket science. They provide a benchmark from which any given days price can be measured for it's degree of deviation from the average. Crossovers of moving averages by price action whether to the upside or downside are not so much buy or sell points as warning signs. Of course it depends on your moving average. Historically a 200-day arithmetic for the NASDAQ has provided a pretty good indication of the long trend. Dramatic breaks through this average often spell a trend change. Now add in a shorter moving average like the 50-day and a little more clarity appears.

Take a look at the NASDAQ going back to early 2006 in the chart below. When the 50-day is above the 200-day and both are rising, this is the time when bulls hold the court.

Conversely when the 50-day is blow the 200-day and both are falling, this is the time when bears reign.

This is not a timing mechanism for entering or exiting, merely a confirmation of which direction the market is going when these averages display this pattern.

In other market conditions these moving averages will be trending differently from each other and the picture is mixed.

So to the last few days July 13 - 15, 2010. We are at a confluence of the 50-day moving average and the 200-day moving average. The 50-day is in a down trend and now just crossing the 200-day. Yet the 200-day is barely turning down, and has been moving back up in the last 2 days. Until there is a clear down trend in the 200-day, with the 50-day still below and also down trending the sweet spot for shorts is still not in place.

One interesting point to note. The price is also very close to the moving average confluence. The last time this setup occurred was back in May 2005. Check out the chart below. Notice the similarities between May 9, 2005 and July 15, 2010?

Back in 2005 the confluence resolved to the upside, with the market rebounding more than 10% in 2 1/2 months, eventually meeting resistance at the prior high. July 2010 more time is required for the averages to play out before we have an idea where the market is headed.

Charting Options symbols in AIQ Charts and RTalerts

2010-07-08T15:22:00.000-07:00

The recent OIC implementation of its new option symbology in February of 2010 finally gave AIQ the opportunity to fully chart options symbols. There are two methods of charting. In AIQ Charts, you can now enter an option symbol and receive a real-time chart (not end of day). In AIQ RTalerts you can add any number of option symbols and see both real-time and end of day charts.

AIQ opted for what we considered the easist to use implementation of the OIC recommendations. For example the SPY July 2010 106 calls can be charted by entering the ticker

SPY JUL10 106 C

Note there is a single space between the underlying ticker, the month/year, the strike price and the call(C) or put (P).

Try it for yourself. We recommend using RTalerts for tracking multiple options, as the capability to see end of day and real-time price charts is limited to real-time only in AIQ Charts. Further developments to accommodate the weekly and quarterly options are being investigated.

Time Tested Trading Tips...

2010-07-03T12:08:00.000-07:00

An Excerpt from the Timely Trades Letter.

Trading is about risk management. I manage risk by adjusting position sizes, and the number of positions I am trading. When the market is trending I am willing to have more funds invested, so I use more trading positions and larger position sizes. When the market is not trending, I reduce my exposure by reducing position sizes, and the number of positions I am trading.

When the market is in a narrow base I might only be trading two positions. That does not imply I only make two trades while the market is in the base, because when a position hits its limit or stop I will replace it with another setup that triggers. It is just that I am only holding two positions at a time; most of my account is in cash or ETFs. Only having a few positions at a time, limits my exposure to the market during periods of market uncertainty.

Testing and experience shown that a three day holding period can be an effective exit strategy during trading range markets and that longer holding times can be used during trending markets. In practice I use this as a guideline and not a hard and fast rule. If a position approaches support or resistance I will generally take the profit whether or not it has been three days. The most likely thing for a stock to do at a key support or resistance level is to bounce or retrace. If the stock is going to bounce or retrace from support or resistance most of the time, then...in the short term the run is over and I am better off to be taking profits.

When a stock approaches support or resistance it is either going to break through or retreat from it. If, based on the definition of support/resistance the stock retreats most of the time then by taking profits in the support/resistance area I will maximize my return and not be ‘giving back’ profits as the stock retreats. In the cases where the stock does not retreat, and moves through support/resistance I will still have my profits and can roll them into another position. I do not need to continue making money on a specific stock, I can roll my profits into whatever is working.

When trading I want to be positioned to profit if a stock, or the market, does the usual thing in a given situation. When the stock does not take the usual path I may lose a little, but since by definition stocks do the usual thing most of the time, that is the way to bet. Since downtrending stocks usually bounce from support, I am better off to take my profits before the stock reacts to a support level by bouncing which would reduce profits on short positions. If I have a long position and the stock is moving up toward resistance, then I want to take profits before the resistance area in case the stock follows the normal pattern and retraces from resistance which would then decrease my profits.

Some traders are reluctant to take profits when a short position approaches support because they do not want to ‘be wrong’ and worry that they will ‘miss out’ if the stock keeps going down instead of bouncing. They are trading on emotion and ego, not logic. If the stock is most likely to bounce at support then most of the time you are better off to close the short position before it gets to support. There is no way to know what will happen on any particular trade. There are not magic indicators or super systems that will tell you the outcome on a specific trade. You are not smart if the trade worked and dumb if the trade failed. Traders focus on managing risk and being positioned to profit if the normal thing happens. When something unusual happens they may lose money, but it is by definition better to bet on the normal thing happening rather than the unusual. If the normal thing for declining stocks to do is bounce at support then I want to take advantage of this knowledge and use it to prioritize trades based on risk/reward, and also to take profits when a short position approaches support.

In a trending market I may be holding 8-12 trading positions, and close to fully invested for the swing trading account, and replacing them when they hit their stops or triggers. I will also be taking larger position sizes and holding the positions longer when the market is trending. The clearer the market direction, the more funds I will have invested. When the market is uncertain I reduce exposure to stocks, and increase exposure to ETFs. The ETFs do not have the same bang for the buck as stocks, but there is usually something trending up and trends are good for the account.

Steve Palmquist a full time trader who invests his own money

in the market every day. He has shared trading techniques and

systems at seminars across the country; presented at the Traders

Expo, and published articles in Stocks & Commodities, Traders-

Journal, The Opening Bell, and Working Money.

Steve is the author of,

“Money-Making Candlestick Patterns, Backtested for Proven Results’,

in which he shares backtesting research on popular candlestick

patterns and shows what actually works, and what does not. Steve

is the publisher of the, ‘Timely Trades Letter’ in which he shares

his market analysis and specific trading setups for stocks and ETFs.

To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com

provides additional trading information and market adaptive trading

techniques.

Developing a Trading log and why you need one

2010-06-06T22:19:00.000-07:00

A trading log is an important element of a successful trading strategy.This presentation, recorded from last week's free presentation will take you through the process of developing a trading log and why a trading log is critical to successful trading. Click on this link to view the archive

http://prowebinars.na5.acrobat.com/p10075144/

During the presentation Steve shared his personal trading log with attendees. This log is available for you to download at the following location

http://www.aiqsystems.com/market log 2010.xls

Time Tested Trading Tips... May 21.

2010-05-21T08:35:00.001-07:00

An Excerpt from the Timely Trades Letter.

The large drop in the market on Thursday was interesting, but the question is always what does it mean, and what is likely to happen next. In order to get some insight into this question I ran a test that looked back over the last three years to see how many times the market was down at least 80 points, and what would happen if I had bought at the opening the next day. The table to the left shows that during the last three years the market was down at least 80 points 16 times. If you bought the market the next day, and sold the following day, you would have been profitable eight times and shown eight losses. Essentially being down more than 80 points has not been predictive of whether or not the market will be up or down in the short run. When the market shows strong down days, like we saw on Thursday, the news media is full of stories about major corrections and the like. The news media’s job is to sell commercials, advertising space, and not necessarily to provide actionable information for traders. The market’s behavior over the last three years indicates that in the short-term it is just as likely to bounce after an 80 point drop as it is to continue going down. Based on this data we need to look elsewhere to determine an effective trading plan.

Extensions below the lower Bollinger band are unusual, as you can quickly verify by just scanning a NASDAQ chart for the last couple of years. The Bollinger bands contain the vast majority of the price action, and movements outside the band rarely last more than two or three days. The market typically moves back inside the lower Bollinger band by either moving sideways for a few days, or bouncing. I ran another test that bought the market every time the NASDAQ closed at least 10 points below the lower Bollinger band. I ran this test over the last 36 months using a one-day holding period to determine whether or not closing below the lower band was predictive of short-term behavior. The results, as shown in the chart to above indicate that during the last three years the market closed at lease 10 points below the lower band 21 times, and buying the open the next day and holding for one day was profitable 12 times and showed losses nine times. 57% of the time the market bounced. This data, along with other extensive testing, is why I take profits on short positions when the market becomes extended below the lower Bollinger band. It’s not a guarantee, but if the market bounces in the short-term 57% of the time then in the long run I am better off to have taken profits on shorts when the market moves below the lower band.

Trading is a statistical business, there are no magic indicators that tell you what is going to happen in a given situation every time. Trading is about knowing how the market, and different stock patterns, usually behave in a given situation; and then being positioned to profit if the market, or the stock set up, do the normal thing. Since by definition they do the normal thing most of the time, over the long run I have a good chance to see profits. On any given trade I do not know what is going to happen, it may be a winner or a loser, but over the long run being positioned to profit when the market or stock position does the normal thing is the way to bet.

Sometimes traders will start trading more aggressively when they are down in an attempt to get back to even. Draw downs are a fact of life in trading. Trading is not like drawing a paycheck. You do not get paid because it is Friday. I research the systems and then use that information when trading. If I have a losing streak I know that is to be expected and just stay focused on using the knowledge and skills that come from fully testing and analyzing trading systems.

Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick

patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs.

To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques.

Time Tested Trading Tips... May 15.

2010-05-15T14:34:00.000-07:00

An Excerpt from the Timely Trades Letter.

Volume patterns have an important effect on many trading systems. Volume measures the interest in a move, it shows how many people are interested in the current price pattern and how they are voting with real money. Rather than listen to the talking heads on the business channels discuss their opinions of what is going on, it is better to look at the volume patterns and see what people are actually doing with their money.

When trading I am not holding out for the perfect trade, there is no such thing. Trading is about managing risks and I use the current market conditions to determine how many trades to be taking and the appropriate position sizing to use. Setups with more room to run are prioritized above ones with little room to run. Setups triggering on stronger volume compared to the previous days volume are prioritized above ones with lower trigger day volume. Setups with shallower pullbacks are prioritized above ones with deeper pullbacks. I then look at the setups that are triggering andstart from the top of the prioritized list and work down until I run out of setups or fill the number of positions I am interested in.

When I go to a trading conference I often ask how many traders are bullish, a number of hands go up. I then ask how many traders are bearish and more hands go up. I then ask how many traders do not care if the market is bullish or bearish, this usually generates some chuckles and a couple of hands. The serious traders do not care whether the market is going up or down, they know it is out of their control and they have tools to deal with both conditions so it does not matter. The traders laughing at this question usually have interesting stories of significant drawdowns from guessing incorrectly. Try not to be bullish or bearish, just focus on where the markets key trend lines and support/resistance levels are and adapt to what the market is actually doing.

Sometimes I will see traders trading weaker patterns because they have had a good winning streak and are ‘using the house’s money’. Nonsense, profits are yours there is no house. Each trade must stand on it’s own. Do not be tempted to trade weaker patterns after a winning streak. Stick to what works. Dance with the one that brought you.

Steve Palmquist a full time trader who invests his own money

in the market every day. He has shared trading techniques and

systems at seminars across the country; presented at the Traders

Expo, and published articles in Stocks & Commodities, Traders-

Journal, The Opening Bell, and Working Money. Steve is the author of,

“Money-Making Candlestick Patterns, Backtested for Proven Results’,

in which he shares backtesting research on popular candlestick

patterns and shows what actually works, and what does not. Steve

is the publisher of the, ‘Timely Trades Letter’ in which he shares

his market analysis and specific trading setups for stocks and ETFs.

To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com

provides additional trading information and market adaptive trading

techniques.

An Overbought/Oversold Indicator for the Market

2010-05-12T11:34:00.000-07:00

When the market is falling and the charts look terrible, your emotions want you to sell. Conversely, when the market is rallying and the news is good, your emotions want you to buy. Unfortunately, this can lead to selling at the low or buying at the high. One way of controlling your emotions is to set some market timing rules based on AIQ’s US score, a unique indicator that can be found on the Market Log report.

While the Expert Ratings on an individual stock can be suspect, the Expert Ratings taken from a large database of stocks are more effective in classifying the health of the market. That is, when a lot of stocks are giving AIQ Expert Rating buy signals, a market rally may be near. Conversely, when a large number of stocks are giving AIQ sell signals, a market decline may be approaching. Expert Ratings are either confirmed” or “unconfirmed.” A confirmed buy signal occurs when a stock has a recent Expert Rating up signal of 95 or greater along with an increasing Phase indicator. The opposite is true for confirmed sell signals. Unconfirmed signals, however, occur when there is an Expert Rating of 95 or greater but the Phase indicator fails to move in the direction of the signal. It is the unconfirmed signals that you should be interested in.

AIQ’s Market Log report lists the percentage of stocks giving unconfirmed signals (US). The US score is found near the top of the report (Figure 1). The percentage of stocks giving unconfirmed AIQ buy signals appears to the left of the hyphen and the percentage of stocks giving unconfirmed AIQ sell signals appears on the right side of the hyphen. In the image below we see that of the stocks giving unconfirmed signals, 95% are on the buy side and 5% are on the sell side. To open the Market Log report, go to Reports and double-click Summary Reports and then Market Log. I run the Market Log report on the S&P 500 database.

It is important to keep in mind that AIQ Expert Ratings fire against the trend. As the market declines, the percentage of stocks giving unconfirmed AIQ buy signals increases. As the market rallies, few stocks give buy signals and more stocks register sell signals.

The US score serves as an overbought/oversold indicator for the market. That is, when the US score 85% or more on the buy side, then that implies the market has recently experienced a sharp decline, is oversold, and due for a rally. Conversely, when the US score shows 85% or more on the sell side, then the market has rallied and is overbought.

Some AIQ users immediately enter the market when the US score moves to 85% or more on the buy side. They exit anytime the US score is 85% or more on the sell side. I don’t recommend this approach because the market can stay overbought or oversold for quite some time. Instead, it may be best to wait for a trend-following indicator such as the Directional Movement Index to confirm the new trend direction.

Rather than using the US score as a strict market timing model, use it as a simple tool to keep your emotions in check. It helps you avoid buying high or selling low. Here is the rule: Don’t turn bearish on the market and sell positions when the US score shows 85% or more buy signals. Similarly, never turn bullish or add positions when the US score shows 85% or more sell signals. This rule sounds simple but your emotions will tell you otherwise. When the US score has a high percentage of buy signals, the market has fallen and news reports are gloomy. That’s when your emotions tell you to bail. You may be selling right at a low, however. You either should have already sold or you should wait until the market rallies enough to where the US score is no longer giving a bullish reading.

When the market rallies it gets easier to buy. News reports are better and you think you may miss a big rally if you don’t immediately buy. Your emotions tell you to buy more but the US score can counteract your emotions. Don’t buy until the market pulls back enough to bring the US score out of bearish territory. Preferably, wait until the US score turns bullish Monitoring the US score on a daily basis gives you a good indication of the market’s health. It helps to control your emotions because it turns more bullish as the market falls and it turns more bearish as the market rises.

.

Ability to Create Industry Groups for Your Special Trading Needs Is Valuable AIQ Tool

2010-05-04T15:48:00.000-07:00

In addition to standard tools, AIQ TradingExpert Pro has some unique features that nearly every user would find beneficial. In this article, we’ll demonstrate the benefits of creating industry groups specific to your trading needs.

TradingExpert comes with two industry group structures, the Standard & Poor’s structure and the AIQALL structure. The software also has the ability to create new industry group structures. Those who use standard analysis tools may think creating industry groups is unimportant, but we’ll show that almost every user can benefit from AIQ’s industry group tools.People who perform a top-down analysis obviously find AIQ’s group analysis capabilities very important. These people first analyze industry sectors and groups and then pick stocks within the attractive groups.

Most people, however, are bottomup traders. They screen a broad database of stocks trying to find attractive trades. The group analysis feature in TradingExpert Pro is important for bottom-up traders as well.

By creating AIQ groups you can crate your own index and control which stocks comprise the index and you can see volume data calculated from the stocks in the index. A similar analysis can be done on the stocks in your portfolio. By creating a group of the stocks your trading system selects, you can see when the system outperforms the market indexes and when the system struggles. It helps tell you when you want to be active in your trading and when you should sit on the sidelines.

Groups can also be created to track mutual funds. By creating industry groups based on the 10 largest stock holdings of the mutual funds, one can analyze these surrogate groups using both price and volume-based indicators.

To create a surrogate mutual fund group, first build a list of the 10 stocks and then create an index for this group of tickers.

Step 1. Create a list name. In the Data Manager, click List and then New. Enter a list name and click OK.

Step 2. Create a group ticker. In Data Manager, click Ticker and New. Enter a ticker for the new group. Make sure the ticker symbol isn’t the same as an existing stock’s symbol. Click Group and then OK. Drag the group name to the left side of the Data Manager and drop it on the list name.

Step 3. Enter the stock symbols that comprise the group. In the panel on left side of the Data Manager window, single-click on the group ticker symbol which appears just below the list name. With the ticker highlighted, click List and Insert Tickers. Enter the ticker symbols that you want in the group separated by semicolons.

The next time you download data, indices for the groups will automatically be calculated. You can also calculate the groups by going to the Data Manager and clicking Utilities and Compute Group/Sector Indices. Highlight the list name and click OK. I repeat, having the ability to create industry groups or an industry group structure for your specific needs is a valuable tool for AIQ users. Whether you use the group feature to spot the rotation of industry groups or whether you use the feature to track the performance of a set of stocks, performing group analysis helps you to better understand the market environment.

Four Chart Patterns Explained

2010-04-23T12:08:00.000-07:00

An advantage of chart pattern analysis is that it is always valid. Mechanical trading systems and indicator readings gain and lose their effectiveness over time but proper chart analysis remains consistent. Chart pattern analysis is subjective, however, so practice helps to achieve reliability. Chart patterns do not call market tops or bottoms. In each chart, the analyst waits for a sign, such as a trendline break, to indicate that the trend has actually reversed. Instead of calling tops or bottoms, pattern analysis gives an early indication as to when a new trend has emerged.

In this article, we will cover four important chart patterns – the Rectangle, Right Triangle, Wedge, and Symmetrical Triangle.

Rectangle Pattern

A Rectangle pattern is formed when a security fluctuates back and forth in a narrow range. One horizontal line is drawn connecting the highs and another horizontal line is drawn connecting the lows. The upper trendline represents resistance and the lower trendline represents support. The more times a trendline is touched and a reversal occurs, the more powerful its support or resistance becomes. When a Rectangle pattern is forming, the security is often said to be consolidating, or in a trading range.

The direction of the breakout from this pattern cannot be predicted. On the bet that the pattern will continue intact, short-term traders can enter long positions when the security is near its lower support line and enter short positions when the security is near its upper resistance line. Stops are placed just outside the pattern. Most traders, however, wait for the eventual breakout from the pattern. Typically, the longer the security remains in the pattern, the bigger the move after the breakout. Ideally, the breakout comes with heavy volume.

In the image below, beginning in the summer 2002, the market stopped falling and a Rectangle pattern was formed.Trendlines are drawn at the upper and lower extremes of the price range.

Right Triangle Pattern

The Right Triangle is a pattern that exhibits a series of narrower price fluctuations. On one side of the fluctuation, the boundary of price action is horizontal. The boundary on the other side slopes toward the opposite (horizontal) boundary. An Ascending Triangle is a Right Triangle with a horizontal top and an ascending bottom. A Descending Triangle is the reverse.

In most cases, it is the horizontal trendline that is broken in this pattern. Therefore, caution should be exercised when a Descending Triangle is developing. Likewise, be ready to buy long when an Ascending Triangle is developing. If the security breaks the sloping trendline instead of the horizontal trendline, then the resulting move has less significance. If the downward sloping trendline on a Descending Triangle is broken, the stock may only rally to its previous reaction high.

The image below shows a daily chart of the Dow and an Ascending Triangle pattern. Notice the four occasions where the high point on the Dow touched the upper trendline but failed to break through it. Each sell-off, however, was less than the previous sell-off. Since this is an Ascending Triangle, this suggests the eventual break will be to the upside. In fact, that’s what happened.

Unfortunately there are false breakouts where a breakout occurs but the security reverses direction and heads lower. When this happens, the upward sloping trendline can work as a good stop loss. If the security crosses this trendline, positions can be closed.

Wedge Pattern

A Wedge is a pattern bounded by trendlines that are not parallel and that both slope in the direction of the overall trend. The range of the price fluctuation narrows as price approaches the point where the trendlines intersect. Wedges are typically formed after a strong upward or downward move. For a stock in an uptrend, a break below the Wedge means the security should begin a sideways consolidation or move lower. The opposite is true for a downtrending stock. Ideally, volume dries up when the security is in the Wedge and then the breakout occurs on heavy volume.

The image below shows the S&P 500 with a Wedge pattern. Since this is an upward sloping Wedge, the pattern is fulfilled when the lower support trendline is broken. That happened on May 19.

Symmetrical Triangle Pattern

Whereas the Right Triangle has one horizontal trendline and one sloping trendline, the Symmetrical Triangle pattern has two sloping trendlines that form two sides of the triangle. Since they slope in opposite directions, the trendlines intersect somewhere around the middle of the existing price range. That is, the price fluctuates up and down but each move is smaller than its predecessor.

The descending tops in the price movement are defined by a downward sloping boundary line (resistance line) and the low points in the fluctuation are defined by an upward sloping line (support line). The upper and lower lines need not be of equal length.

The image below shows the S&P 500 02/17/09, the day the index broke below the symmetrical pattern. Each rally was less than the previous rally and each decline was less than the previous decline. The S&P 500 eventually fell below its support. The pattern turned bearish and the market continued to fall.

We’ve shown several important chart patterns covering recent market activity. Our examples use weekly, daily, and real-time charts. The length of the chart is significant. A completed pattern on a weekly chart implies a long-term move while a pattern on a real-time chart may forecast a move that will last only part of that trading day.

All of our examples use market indexes. The same patterns work for stocks as well as other traded securities.

Market Analysis and Trading Plan.

2010-04-23T10:21:00.000-07:00

An Excerpt from the Timely Trades Letter.

The trading plan from the last Letter was to continue

trading longs while the market remains above the ascending

trend line drawn through the lows of 02/05 and 02/25 and

04/01; with a note that ‘the best time to pick up new trades

is during retests and bounces from this trend line’. I

followed the plan and picked up several long positions on

Mondays trend line bounce. The markets bounce generated

profitable moves in several of our setups including PNRA,

LPX, DLM, AVID, TWX, and HNR. I took profits in DLM when

it hit the upper band, and will continue to use that as

a successful exit strategy on swing trades, until the market

breaks above minor horizontal resistance in the 2555 area.

Since the market is approaching minor horizontal resistance,

I do not want to overstay my welcome in any particular trade;

so I take profits on trades that hit the upper Bollinger Band,

a horizontal resistance area, or are moving up on declining

volume. I would rather take profits on those types of positions

and then put them to work in another stock that is just

breaking out and starting its move.

The market price pattern is positive, it is moving up between

the ascending trend line noted above, which acts as support;

and the upper Bollinger Band, which acts as resistance.

The volume pattern turned positive, since we have now seen

three above average accumulation days in the last ten sessions.

As long as the market remains above this ascending trend line

I will be trading longs and avoiding short positions. When

the market becomes extended above the upper Bollinger Band

I will hold off on new long positions, because significant

extensions above the upper band usually do not last long,

and are typically resolved with a sideways movement or

retracement of the market. No move lasts forever, at some

point this ascending trend line will be broken. If the market

breaks below the ascending trend line, I will stop taking new

long trades and take profits on at least some of any remaining

long positions. A break below the ascending trend line noes

not necessarily imply the beginning of a bearish environment.

Trend line breaks imply that conditions are changing, and

there are three options for the markets next move. The

market may change to a trading range environment, a bearish

environment, or the break may just signal a simple retracement.

If the ascending trend line is broken, the volume pattern at

the time will provide clues on what is next. More on that if,

and when, it happens.

Shorts are not attractive while the market is trading above

the ascending trend line. If the market breaks below the

ascending trend line on light volume I will hold off on trading

shorts unless the market shows follow through or strong

distribution. On a strong volume break of the ascending trend

line I would look at a couple of good volume short triggers.

This is not a time to be aggressively going after shorts since

the intermediate term trend is still positive.

In summary, the markets price pattern is positive, and the

volume pattern just turned from mixed to positive. My focus

for swing trades remains on longs, while the market is above

the ascending trend line. The best time to pick up new trades

is during retests and bounces from this trend line. The least

favorable time to add new positions is when the market is above

the upper Bollinger Band. When the market breaks below this

ascending trend line, or starts to show distribution, I will

be taking profits on most open longs. Short positions are not

attractive while the market is above the ascending trend line.

I am maintaining the watch list of short setups, but will not

be taking short positions.

Steve Palmquist a full time trader who invests his own money

in the market every day. He has shared trading techniques and

systems at seminars across the country; presented at the Traders

Expo, and published articles in Stocks & Commodities, Traders-

Journal, The Opening Bell, and Working Money. Steve is the author of,

“Money-Making Candlestick Patterns, Backtested for Proven Results’,

in which he shares backtesting research on popular candlestick

patterns and shows what actually works, and what does not. Steve

is the publisher of the, ‘Timely Trades Letter’ in which he shares

his market analysis and specific trading setups for stocks and ETFs.

To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com

provides additional trading information and market adaptive trading

techniques.

This newsletter is a publication for the education of short term

stock traders. The newsletter is an educational and information

service only, and not intended to offer investment advice. The

information provided herein is not to be construed as an offer

or recommendation to buy or sell stocks of any kind. The newsletter

selections are not to be a recommendation to buy or sell any stock,

but to aid the investor in making an informed decision based on

technical analysis. Readers should always check with their licensed

financial advisor and their tax advisor to determine the suitability

of any investment or trade. Trading stocks involves risk and you

may lose part or all of your investment. Do not trade with money

you cannot afford to lose. All readers should consult their registered

investment advisor concerning the risks inherent in the stock market

prior to investing in or trading any securities.

AIQ live and archived webinars on your Iphone, Ipod touch and Ipad

2010-04-20T14:21:00.000-07:00

All AIQ webinars use the Adobe Connect Pro platform. The next FREE live webinar is on Monday April 26th at 7pm visit http://prowebinars.na5.acrobat.com/chartpattern/event/event_info.html for details. Adobe has just released the Connect Pro platform for Iphone, Ipod touch and Ipad. You can get this app here http://itunes.com/apps/AdobeAcrobatConnectProMobile. Once installed on your mobile device, simply enter the URL of the event you wish to view. This applies both to live events and recorded events.

TradingExpert Pro and OptionExpert 9.32 released with new option symbology

2010-04-19T17:40:00.000-07:00

Option symbology changes to reflect Options Industry Council new format

The OIC symbol format changes provide a common sense method for option ticker symbols. Several format styles were recommended. AIQ has adopted the following compliant format for options symbols:

Underlying ticker symbol	Month/Year	Strike	Call/Put
XYZ	May10	170	C

For example the Goldman Sachs [GS] May 10 170 call symbol is GS May10 170 C

AIQ Charts real-time, AIQ RTAlerts and AIQ Quotes Barometer will accept the new symbol format. The first screen shot below shows AIQ Quotes/Barometer with several option tickers in the new format, the second screen shot shows the same tickers in AIQ RTAlerts.

This upgrade is for clients of the TradingExpert Pro on the monthly lease plan, all other TradingExpert or TradingExpert Pro clients please contact AIQ at 1-800-332-2999 for details. If you are not on the monthly plan and install the upgrade your key number may be invalidated.

Download now through the AIQ store, registration details are required for this upgrade

If you are also a client of AIQ OptionExpert, please click here for the OptionExpert 9.32 upgrade.

Chart Pattern Recognition and my Favorite Chart Patterns FREE webinar April 26th, 2010

2010-04-13T07:35:00.000-07:00

Join Steve Hill, President of AIQ Systems for an hour long webinar on Chart Pattern Recognition, on Monday April 26th 7pm eastern. Steve will discuss the power of chart pattern recognition in finding trading candidates. Steve will also reveal the most effective chart patterns based on historical research.

Click on this link to register
http://prowebinars.na5.acrobat.com/chartpattern/event/event_info.html

What is risk?

2010-04-07T10:26:00.000-07:00

Risk denotes the probability of an outcome, when an individual places an investment of value in the path of forces outside their control. Straightaway the madness of this practice is revealed, yet the pages of history are littered with those that have brought about the greatest advances mankind has ever made in return for risking something of value.

It may be interesting to note that the volatility of the recent global financial crisis saw the advent of many newcomers onto the BRW Rich List in 2008, and the contention that risk is defined by the market falling is not to the point. Today, due to the very existence of derivatives such as options, swaps and forward rate agreements, an individual can direct risk and return to almost every possible market contingency, regardless of the volatility exhibited.

The Bell Curve represents a distribution of events, with the ‘bell’ representing those events that are most likely; events that are in close proximity to present market price. These resemble at-the-money options.

As we get further away from conditions prevailing at the time, the likelihood of particular events occurring will not only decrease, but will decrease in probability at an increasing rate. These less likely events take their place along the tapering edges of the bell, extending to both extremes. A pricing model attributes time value in this very fashion.

The standard deviation is the unit used to measure the probabilities transgressed from the status quo, to the market price when a particular event occurs. These measured intervals decrease in size, as the two poles of this dimension are approached; the difference between a movement of one standard deviation and two standard deviations will be far greater than that of seven deviations and eight standard deviations.

Primarily, this is due to the fact that there is little difference between probabilities that are small with other probabilities of that class, and similarly, little difference between probabilities that are high with members of that class also. They are described at a high level of abstraction that classifies them broadly as ‘high’ or ‘low’ probability.

However, when events of low probability are compared with those that are of high probability, a happening may be for example, said to be effected by a movement across seven standard deviations. In this event it is a rare occurrence indeed. When volatility is high, it is useful to note that not only are the entire bell and its tapered edges lifted higher on the plane, but the edges of the bell, move closer in gradient to the body. In higher volatility, this is directly due to the indiscriminate application of an increased probability in all possible events. The opposite will be found in low volatility with in this case, the actual bell of the curve becoming much smaller.

Accordingly, a matrix of probabilities is able to be placed in perspective.

Heavily reliant on reason, the contention that price and quality are inexorably attached is well founded in history. Even more so in perfect markets, at very least we can state with confidence that low risk and high risk are not uniformly priced. While the perception of value is a personal value judgment, what is most definite is that markets provide returns that are commensurate with the risk undertaken.

Consideration of the capital needed to fund a position, and also a variety of possible market outcomes must firmly occupy the consciousness of every trader. Insight into one’s own ability to function under the weight of risk is also crucial to profitability, as decision making needs to be carried out as free of subjective influences as possible. At any length, a good rule of thumb will be to allow 25% of risk capital to remain free for unexpected contingencies.

April 6, TIme Tested Trading Tips.

2010-04-06T17:26:00.000-07:00

An Excerpt from the Timely Trades Letter.

The market has been in a tight trading range for two weeks.

When the market is in a tight range most stocks do not move much

if they hit their trigger points so as noted in previous Letters,

tight ranges like this are best left alone. Trying to force trades

when the market is in a tight range will generally just churn the

account. These tight ranges do not last long, and are often followed

by nice tradable moves. When the market moves out of the range, I

will be actively trading in the direction of the break.

When the market is resting in a narrow trading range, instead of

swing trading I spend some time reviewing lessons I have learned

during the last twenty years. Some of the important ones are:

• There is no magic to trading. It is about putting the odds on

your side and not trading unless they are. This sounds simple,

but it takes a few years to get good at it. And like most things,

while you are learning it is best to work with someone. The

learning time is long because traders have to see how things

behave in different markets, and learn to trade the odds and

not their feelings. Read this paragraph again.

• The market will not adapt to us, we must adapt to it. Swing

trading in a trading range environment presents higher than

average risk. Traders can compensate for higher risk market

conditions by trading fewer positions and using smaller position

sizes. Failure to do this can be costly.

* Successful traders adjust their trading style, trading system,

holding Period, and exit strategies based on the current market

conditions. This is a process I refer to as market adaptive

trading. It is better to Learn how to adapt to the market rather

than running from one trading idea to the next looking for the

next super system. Being frustrated that the market is not doing

not what you want often leads to losses. The market does what

it wants, we just need to adapt to it. This will take time to learn,

be patient. Read this paragraph again.

* As a trader I do not care which way the market moves, I can

make money either way. It is important to be able to quickly

react to whatever the market does and not be emotionally

attached to any particular choice.

* I cannot control what the market does, so I have a plan for

whichever path it picks and then trade the plan.

* Successful trading is not about predicting what the market is

going to do. It is about knowing how to react to whatever it

actually does.

* Always be thinking about taking and protecting profits.

* If you are not sure what to do, exit the position. There will be

other good setups.

* You do not need to trade every day. Let the setups come to you

and take the best ones. When the market is moving there lots

of good setups to trade. If there are few setups, or most are

failing, then listen to the message of the market.

* Do not rush in, there is plenty of time to get into a

tradable move when the market changes. If a trend

is worth trading, then by definition you do not have

to be in on the first day.

* Never enter a position without a plan for exiting.

* Do not count your chickens before they hatch. You do not

have a profit until you are back in cash.

* Never trade with money you cannot afford to lose.

* Trading is not a team sport. Stay away from chat rooms and

financial TV. Seek the truth, not support from others with

your point of view.

Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money. Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques. Steve teaches a weekly web seminar on specific trading techniques and market analysis through Power Trader Tools.

This newsletter is a publication for the education of short term stock traders. The newsletter is an educational and information service only, and not intended to offer investment advice. The information provided herein is not to be construed as an offer or recommendation to buy or sell stocks of any kind. The newsletter selections are not to be a recommendation to buy or sell any stock, but to aid the investor in making an informed decision based on technical analysis. Readers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment or trade. Trading stocks involves risk and you may lose part or all of your investment. Do not trade with money you cannot afford to lose. All readers should consult their registered investment advisor concerning the risks inherent in the stock market prior to investing in or trading any securities.