Wednesday, November 15, 2006
Trading Education
Tutorial
Pattern Cycles: Reversals
No chart pattern better illustrates this slow
evolution from bull market to bear decline than the Descending Triangle. Within
this simple structure, the trader examines how life drains slowly from a
dynamic uptrend. Variations of this destructive formation precede more
breakdowns than any other reversal. And they can be found doing their dirty
deeds in all time frames and all markets.
But why does it work with such deadly accuracy? Most traders don't understand
how or why patterns predict outcomes. Some even believe these important tools
rely on mysticism or convenient curve fitting. The simple truth is more
powerful: congestion patterns reflect the impact of crowd psychology on changes
in price and momentum...
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Global Financial
Technical Indicators
Chande Momentum
Indicator
The Chande Momentum Indicator is closely related to other
indicators such as the Relative Strength Index. It differs from momentum
indicators such as RSI and Stochastics by using information from both up and
down days.
The usual method of interpreting the Chande Momentum Indicator is to look for
overbought and oversold conditions. Generally the overbought level is at +50
and the oversold level at -50. These levels are approximate to the 70/30 levels
on the Relative Strength Index. Either condition is a strong indicator of a
change in the trend of buying/selling.
The CMI is also useful to spot trends, used in a similiar manner as the
Vertical Horizontal Filter (VHF). The higher the Chande Momentum Indicator the
stronger the trend. Buy when a long period CMI crosses above the short period
moving average of the CMI. Sell at the converse...
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Daily Market Commentary
Updated Tuesday, 11/14 for Wednesday's market.
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Key DOW Levels for 11/15
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UP
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Above 12,250
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DN
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Below 12,100
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Huge Late-Day Rally...
- Dow reverses from early lows, rallies solidly through 12,200.
The index rallied fiercely to the Close to eventually end the day with a 86
point gain after rallying 140 points from the day's lows.
- The NASDAQ and S&P each reversed sharply from the day's lows in what
turned out to be a huge rally to the Close. Each index is now breaking into new
territory, so we want to see if these levels can be maintained.
Summary
The Dow ended the day with a huge upside break from a major triangle pattern at
12,165. The pattern projects a 200 point advance from the breakout point, which
indicates there's much more rally left in this index. However, if 12,150 is
crossed, we could see a big failure.
Read More...
