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 CONTENTS June 2011, Volume 29 Number 7

12 Straightening The Curves 43 Futures For You

by Austin Passamonte by Carley Garner
Here’s a strategy that shows you Here’s how the futures market
how to consistently make a small really works.
profit on one contract, using crude
oil contracts as an example. INTERVIEW
44 Conquering Your
FEATURE ARTICLE
Trading Fears With REVIEW, website
16 Daytrading Cup Breakouts Corey Rosenbloom 54 • ONE44
by Ken Calhoun Review: Commodities trading
by Jayanthi Gopalakrishnan and platform for S&P 500, Nasdaq
Here’s how you can daytrade Bruce Faber
momentum trades. eminis, euro, yen
The founder of afraidtotrade.com,
a website dedicated to helping 58 • The Wizard
25 Top 10 Candles That Work traders overcome their trading Quick-Scan: Timing system that
by Thomas N. Bulkowski fears through education, Corey picks high-probability trades in
Which candlestick pattens trend Rosenbloom began investing in four markets
the most in 10 days? 1998 during the runup to the mar-
ket top in 2000. He began his blog DEPARTMENTS
to share some of his experiences
28 Entering The Price Zone TIPS
and define his strategies. 6 Opening Position
by Walid Khalil and David Steckler 8 Letters to S&C
In this second part of the series, 52 Q&A 57 †Traders’ Glossary
we introduce the price zone oscil- 63 Traders’ Tips
lator (Pzo), a complementary by Don Bright
indicator to the volume zone oscil- This professional trader answers 72 Traders’ Resource
lator (Vzo). a few of your questions. 74 Advertisers’ Index
74 Editorial Resource Index
36 Routing Your Orders 60 WM Elliott Wave And 76 Books for Traders
by Don Bright The Explosive Stock 77 Futures Liquidity
With growth and mergers taking by Ryan Henry 79 Classified Advertising
place among exchanges, traders Using the Elliott wave theory, you
can find stocks that are ready to 80 Trade News & Products
need to be aware of how to route
their orders. skyrocket.

39 Explore Your Options 78 TCA Classic Short Sell Setup

by Tom Gentile by Jamie Theiss
Got a question about options? Here’s an example of a classic
short setup for daytraders.
40 Advanced OCA Orders
by Heinz Popovic
Here are some simple ideas and
concepts to automate stops, using
“one cancels all” orders.
This article is the basis for Traders’ Tips
TIPS
this month.

TCA WM
These articles – and articles like them – n Cover art: Mario Zucca
can be found online at www.traders.com n Cover concept: Christine Morrison
Copyright © 2011 Technical Analysis, Inc. All rights reserved. Information in this publication must not be stored or reproduced in any form without written permission from the publisher. Technical Analysis of
Stocks & Commodities™ (ISSN 0738-3355) is published monthly with a Bonus Issue in March for $64.95 per year by Technical Analysis, Inc., 4757 California Ave. S.W., Seattle, WA 98116-4499. Periodicals
postage paid at Seattle, WA and at additional mailing offices. Postmaster: Send address changes to Technical Analysis of Stocks & Commodities™ 4757 California Ave. S.W., Seattle, WA 98116-4499 U.S.A.
Printed in the U.S.A.

4 • June 2011 • Technical Analysis of Stocks & Commodities

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investment advice, recommendation or strategy, is made, given or in any manner endorsed by any TradeStation affiliate. • Please visit our website www.tradestation.com for relevant risk disclosures. • Past
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 June 2011 • Volume 29, Number 7
March 2006 • Volume 24, Number 3 O
Opening Position
PENING POSITION

The Traders’ MagazineTM

The Traders’ Magazine TM

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EDITORIAL
EDITORIAL
editor@traders.com
editor@traders.com
Editor in Chief Jack K. Hutson

O
old, silver, and oil — what a trio! They
Editor in Chief Jack K. Hutson
Editor Jayanthi Gopalakrishnan
Editor Jayanthi Gopalakrishnan
Managing Editor Elizabeth M.S. Flynn
Managing Editor Elizabeth M.S. Flynn just keep
nce againchugging
we got aalong, but I’m
reminder not
of just
Production Manager Karen
ProductionManager KarenE.E.Wasserman
Wasserman sure why. Investors flock to the precious met-
how sensitive the financial markets
Director Christine
ChristineMorrison
als
are.because
We sawthey feel insecure about equities.
Art
Art Director Morrison a major selloff in the Japanese
Graphic Designer Wayne
GraphicDesigner SharonShaw
But we’re not seeing that weakness reflecteda
Yamanaka
Staff Writers
Editorial Dennis
Intern D. Peterson,
Emilie Rommel Bruce Faber
markets, which — as expected — triggered
Webmaster Han J.David
Technical Writer Kim Penn in equities,
domino not yet
effect on anyway.
markets And what about
throughout the
Contributing Dennis John
Staff WritersEditors Ehlers, Bruce Faber
D. Peterson,
Anthony W. Warren, Ph.D. the rise in oil prices? Well, that started after
world. Add disappointing earnings numbers
the
fromLibyan crisis, but and whyyou prices
havecontinue
Webmaster Han J. Kim
US corporations a situa-
Contributing EditorsDon
ContributingWriters Bright,
John Thomas
Ehlers, KevinBulkowski,
Lund,
Martin
AnthonyPring, Barbara Ph.D.
W. Warren, Star
to rise is a mystery. Clearly, it’s not because
tion that just got worse. So what started off as
Contributing Writers Don Bright, Thomas Bulkowski,
Martin Pring, Adrienne Toghraie of any decrease in the supply of oil; there’s
a strong year ended up correcting, and rather
OFFICE OF THE Publisher plenty
rapidly.ofIit.must So itadmit
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tions are healthy for any market, behaving the way
you have a 2%they are.
drop, Theyyou
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Jack K. Hutson of whack and there are too many question marks. I don’t know about you,
Prior to the Federal Reserve’s F OMC meeting, I usually take a look at thebut that
yield
Credit Manager
Project Sean M.
Engineer Linda
Industrial Engineer
Moore
Eades
Jason
Gardner
K. Moore
Hutson
makes me jittery.
curve. At present, it’s looking a little flat, and given that the general consensus
Karen
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thatfar
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is going aretoconcerned, asideJanuary
tighten at their from some 31st hiccups
meeting,such I amasconcerned
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Controller Mary K. Hutson
downgrade of US government debt by Standard & Poor’s, they seem to beAnd
that the yield curve may be heading in the direction of being inverted. continuing
if that
Accounting Assistants Jane Leonard
Controller Mary K. Hutson
Advertising Sales
4757 California Ave. S.W.
to move higher and breaking to new highs. All this action is going on in the midst
were to happen, that would not be a good sign for the US economy. I’m not
of negative economic news. Although the performance of the financial markets is
ADVERTISING SALES
Seattle, WA 98116-4499 suggesting that we are going to go through a recessionary period. But given that
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it seems as if
else,
National Sales Manager Edward W. Schramm
advert@traders.com the rate at which the markets are rising is just too fast. This doesn’t help to explain
it helps to preserve your capital.
Summer L. Davis
why the markets are behaving so strangely. Maybe all the liquidity the government
Advertising Sales
National Sales Manager Edward W. Schramm
Classified
Classified &&Web SalesChris
WebSales ChrisJ.J.Chrisman
is flooding into the market is leading us to believe that the markets are healthy.
Chrisman

So
Production CoordinatorKaren
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Moore
Even though with thatwe have
in mind,seenyouslightcanimprovements in fundamentals
see why it’s important to designsucha as em-
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system that gets you out of the market at the right time. When access to rise in the markets.
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important to be thorough with the different types of orders, front-end software, and in 2007. That’s enough
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Agnes
Daytrader” starting on page 22, addresses the various options that are available and

T
WEBSITE
Website
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http://www.traders.com how you can take advantage of them.
Staff members
Staff members may may bebe emailed
emailed through
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theInternet
Internet But before getting to the stage of placing that trade, you need to understand the
marketheyoubestare
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it could be worse than what we saw in 2008 to early 2009.
Only when you know what the structure of the market is will Makeyourisk
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6 • June 2011 • Technical Analysis of Stocks & Commodities

8 • March 2006 • Technical Analysis of STOCKS & COMMODITIES

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 The editors of S&C invite readers to submit their opinions and information on subjects The author writes in his article, “I
relating to technical analysis and this magazine. This column is our means of communi- talked to a girl about candlesticks and
cation with our readers. Is there something you would like to know more (or less) about? told her that since a bearish harami
Tell us about it. Without a source of new ideas and subjects coming from our readers, this occurred today, the price would likely
magazine would not exist. close lower tomorrow.” This brings out
Email your correspondence to Editor@Traders.com or address your correspondence a misunderstanding that many, including
to: Editor, Stocks & Commodities, 4757 California Ave. SW, Seattle, WA 98116-4499. All the author, understandably have about
letters become the property of Technical Analysis, Inc. Letter-writers must include their full using candlesticks. They think that in
name and address for verification. Letters may be edited for length or clarity. The opinions the next session, the market will do what
expressed in this column do not necessarily represent those of the magazine.—Editor the candlestick signal implies. This is
not the proper way to use candlesticks.
One must be willing to risk the high or
Combining RSI with RSI WHAT YOU DON’T KNOW low of the candlestick signal when they
Editor, ABOUT CANDLESTICKS make the trade, and not assume the next
I am a subscriber Editor, session will go in their favor.
to your magazine First, I want to compli- For example, at our company, one ap-
and a student of ment you on your excel- proach to taking a trade that we teach is
technical analysis lent magazine. I read it by using our Nison Candlestick Scanner
over the last 18 years. The subject is for- each month. Next, I would software (reviewed in the November
ever evolutionary and seldom do I come like to point out some is- 2010 issue of S&C) to find hammers. Our
across an insight that can truly inspire sues I have with the March 2011 article trading strategy is we do not usually go
and reflect upon the artistic nature that by Thomas Bulkowski, “What You Don’t long on the hammer (since we don’t make
many professionals, working on charts, Know About Candlesticks.” the assumption that the next session is
can possess. Peter Konner has done a The author says he tested 103 candle- going to rally). Instead, we wait for a cor-
wonderful job with the aspects mentioned stick patterns. As one of the original re- rection to the lower part of the hammer’s
in his January 2011 article (“Combining searchers of candlesticks in this country, shadow before buying. This gives us a
Rsi With Rsi”) and in its most simplest I can say there are nowhere near 103 trade with lower risk, since we are closer
form. I just have one question for him: valid candlesticks patterns. The reason to the stop-out level of the hammer’s low.
the rationale behind using the parameters I say “valid” is because well-intentioned There are other considerations we also
for the weekly Rsi of 17 and 5. educators can make up their own candle- take into account before deciding to buy
Syed Rehan Ali stick patterns, but all the candlestick or not (for example, if one of the Western
signals that I present in my educational indicators we follow is also giving a buy
Author Peter Konner replies: materials have been refined and used by signal). But the key point is, when there
In my article, I briefly described the generations of traders in Japan. is a candlestick signal, it does not mean
optimization performed on the model. I I agree with the author’s reference to one should use it for a trade. Buying and
admit that it was a very sketchy test, but going with the primary trend. This brings selling on every candlestick signal is, as
my subsequent optimizations show that out an important concept: Candlesticks the Japanese proverb says, “Like leaning
five and 17 weeks for the Rsi periods are a tool and not a trading system. One of a ladder against the clouds.”
are correct. my Japanese resources said it well: “Ad- Steve Nison
On a normal weekly chart I use a justments to trading using a candlestick
five-week Rsi combined with a simple signal must be made, because to know Author Thomas Bulkowski replies:
moving average (MA) of 40 weeks (buy where you stand is more important than An encyclopedia, by definition, is sup-
when Rsi rises above 60 and the price pattern recognition.” In other words, you posed to be comprehensive, so I included
is greater than its simple moving aver- should not use candlestick patterns in candlesticks found through numerous
age Sma(40), sell when Rsi falls below isolation, whether for trading, investing, sources, both online and in print. They
40 and the price is below its Sma(40)). or testing. number 103, but I decided not to include
The five weeks was therefore given as a For example, let’s say there’s a hammer additional candlesticks that resemble
starting point, and I then had to find a that has a close of $20. The low of the traditional chart patterns. I did not
slower Rsi by simple backtesting. hammer is $18, and your target is $19 create any of the candlestick patterns
Same story goes with the moving (that is, a resistance area). If you buy on that I cover in my book Encyclopedia
averages of 10 and 40 weeks. Initially, the hammer at $20, your risk (stop-out Of Candlestick Charts.
these periods were chosen because of level) is $2, and the potential reward is I agree that some candlesticks are so
their simplicity, but my more thorough only $1. This is a trade one should not rare that even finding them is difficult,
testing showed here as well an almost take due to the poor risk/reward aspect. but that shouldn’t preclude me from
perfect correlation. So, this hammer should not be used as looking for them and testing those that
a buy signal. I find. What about new developments in
8 • June 2011 • Technical Analysis of Stocks & Commodities

+Letters 1106.indd 1 4/25/11 7:55:28 PM

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++Full pg Ad Template.indd 1
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4/14/111:44:04
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AM
 the field? Gregory Morris, for example, MORE ON CANDLESTICKS Author Thomas Bulkowski replies:
added a candle line to confirm a bear- Editor, That’s essentially what I found when test-
ish engulfing pattern, which he calls a I read Thomas Bulkowski’s ing candles. You might look at my free
three outside down candlestick. Why not article on candlesticks in the program, Patternz, that will find all the
test it and include it in the book even if March 2011 issue (“What candles in my Encyclopedia and many
generations of Japanese traders haven’t You Don’t Know About chart patterns. It’s not Vista/Windows 7
traded it? To suggest that some candle- Candlesticks”) and it was a compatible, but maybe you can get it to
sticks be excluded simply because they real eye-opener. It confirmed some of my work on your setup. Perhaps it can be of
are new will tend to limit development suspicions about candlesticks in the real use. Also, my website at http://thepattern-
in the field. world of real trades with real money. site.com will give you an idea of candle
Years ago, when I first began learn- A few years ago I watched a video about behavior as outlined in my book, too.
ing about candlesticks, I thought that a a piece of software for candlestick patterns
reversal candlestick, such as a bearish that was new at the time. In it, the video JM INTERNAL BAND
harami, meant that the price trend would author commented that just like a stand- Editor,
turn from up to down. Testing shows that’s alone indicator at random points, candles I enjoyed Koos van der
not true. I use a close that is above the work 40% of the time. I have no definition Merwe’s article in the
top of the candlestick pattern to signal an of “work” other than I made money off the December S&C, “JM
upward breakout and a close below the trade compared to the risk. I am currently Internal Band.” I like the
bottom of the pattern to signal a down- considering buying Steve Nison’s candle simplicity of the concept.
ward breakout. In a test of 20,000 bear- scanner software for futures trading. Unfortunately, backtesting using Stock-
ish harami, I found that 8,122 break out What I am finding, at least at this Fetcher does not allow me to duplicate
upward, and 7,189 break out downward point with certain single-bar candles, his results. I have tried backtesting us-
in a bull market. Thus, the candlestick is that trend has very little to do with ing very favorable time periods such as
pattern isn’t bearish, but bullish 53% of the outcome of the trade. I looked at a 2009. I noticed that other readers have
the time. That’s what I call near-random. daily chart of Potash Corp. (Pot) for written to S&C to report not being able
In a bear market, the up/down breakouts my recent trade. (I think it’s called an to duplicate his results either.
number 2,342 to 2,347, respectively. The “inverted hammer” here in Mississippi This makes me wonder whether there
candlestick acts randomly. Those who but “shooting star” by the academicians are criteria other than the ones given in
build a trading system on the belief that who so often write about trading but in the article. Please help me identify the
a bearish harami is bearish could be in fact never actually trade.) I am finding problem, since I would really like to use
for a difficult time. that my personal preference, at least for the JM internal band system.
I wrote my Encyclopedia to give an now, is for hammers, dojis, and engulfing Bill Kloss
unbiased, statistical appraisal of the bars. I also am finding that overlaying
performance of as many candlesticks traditional Western technical analysis Author Koos van der Merwe replies:
as I could find. If the trader wishes to on candlesticks is basically useless I ran MetaStock Enhanced System Tester
layer on Western indicators to improve for trading. I am not bright enough to to determine performance. When I run
performance, then good for him! How understand multibar candle signals, and the JM strategy as I write this using
someone trades with candlesticks is frankly, just as with traditional Western Portfolio Tester in OmniTrader, I get a
entirely up to the individual. pattern recognition (which was formerly return on investment (Roi) of 19.81%.
Thanks for writing. my expertise in the weekly and monthly Not bad, considering the market has
degree), “beauty is in the eye of the be- been down for the past few weeks. I
Editor: Steve Nison is president of Can- holder,” and I never met a “hindsight” suggest that you play with the strategy.
dlecharts.com and the author of Japanese pattern I did not love. I must say it has been very kind to me
Candlestick Charting Techniques. He has I truly look forward to Bulkowski’s over the years.
written several articles for Stocks & next article and in the meantime I plan
Commodities over the years. (See Trad- to order his book on candle patterns. ERRATA: ArtWORK CREDIT
ers.com to search for past articles.) Randolph Bolen The credit given for
the artwork on page
38 of the May 2011
that accompanied the
article “Context Is Ev-
erything” issue was
incorrect. The artist
who should have been credited was Ken
Smith. We regret this error.
“First of all, by ‘liquid assets’ we don’t mean fuel.” S&C

10 • June 2011 • Technical Analysis of Stocks & Commodities

+Letters 1106.indd 2 4/25/11 7:56:31 PM

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anywhere, anytime

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mobile_stocks_7x10.indd 1 11-03-28 2:33 PM

++Full pg Ad Template.indd 1 4/19/11 9:22:06 AM

 such as “Trade every signal, take
every trade without exception,
trade well and profits will follow”
are common beliefs that are only
partially true at best. The world of
swing or trend trading, where entry
signals and actual price move-
ments are scattered or limited, is
an entirely different world from
short-term or intraday trading.
Working between the bells of the
pit or the Globex sessions of the
electronic markets offers numerous
potential price swings inside each
period of operation.
That said, it is not like anyone
can expect to trade every minute
of every day with real opportunity
all the way. Financial markets only
offer limited profit potential inside
any given period of operation.
Long-term cumulative results
can be broken down into bell-
curve distributions of data. One
end of the curve represents low-
volatility, limited-range sessions,
while the opposite end represents
high-volatility, wide-range ses-
sions. That leaves the fat part in the
middle, which represents a majority
of sessions where price ranges,
volume, and volatility levels fall
inside some degree of assigned
historical norm.
A few sessions from long-term
samples will be dull, low-range,
and light-volume events. Little
opportunity for solid profit poten-
tial exists inside those sessions.
Trade entry signals confirm with
no follow-through of favorable MARIO ZUCCA

price movement. Those are the

days where nothing but chop-and-
pop, drift-and-grind tapes wind
Small Steps For Profit
Straightening The Curves
their way across the screens all
session.
On the other end, we have those
wide-range, high-volume, wild-
Consistently making a small profit on one contract is the first step to becoming a volatility sessions where entry
successful trader. Here’s a strategy that shows you how to do that using crude oil signals flash all over the place. One
contracts as an example. big move follows another and every
trade signal precedes big-profit

A
by Austin Passamonte moves every which way. Day(s)
like those can offer an entire week’s,
xioms and clichés have made their way around the trading world for eons. They if not an entire month’s, worth of
are now commonly accepted as gospel, and a lot of them are true. But others potential profits.
12 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Passamonte.indd 1 4/27/11 4:35:01 PM

 DON’T RUN AFTER EVERY TRADE Month Crude Total Gross End
Wild times and dull times in any financial market are memo- oil (CL) cents gain balance
rable. It is our nature to recall unusual or extreme events. One 1 500 $5,000 $5,000
But the majority of times fall into the category of average, Two 2 500 $10,000 $15,000
run-of-mill type price behavior. Three 4 500 $15,000 $35,000
Most sessions fall into the body of a bell curve, which is the Four 8 500 $40,000 $75,000
fat part where price movement remains inside historical norms. Five 8 500 $40,000 $115,000
Day after day, we can expect price movement to contain some Six 12 500 $60,000 $175,000
sort of average range with limited distance covered by price. Seven 20 500 $100,000 $275,000
Overtrading is usually a result of unrealistic expectations Eight 25 500 $125,000 $400,000
of the market. Those who attempt to trade through every

MICROSOFT EXCEL
Nine 40 500 $200,000 $600,000
wiggle and twist of the markets throughout the trading day Ten 50 500 $250,000 $850,000
(and overnight sessions too) are working without a defined Eleven 50 500 $250,000 $1,100,000
edge. Financial markets only offer brief windows of ineffi- Twelve 50 500 $250,000 $1,350,000
cient “opportunity” for profits through any period, regardless FIGURE 1: MAKING 500 CENTS CONSISTENTLY. Here you see how making 500
of their personal trading approach. Sideways congestion for cents on one contract can result in significant profits when you start adding to your
mean-reversion trades taken at extremes or directional markets position size.
offering trend-type trades are in each case only available in
limited fashion.
Trying to force the issue or impose your will on any financial
Trying to force the issue or impose
market never works. More often than not those traders find your will on any financial market
themselves trying to catch highs or lows during trend periods never works.
or directional swings during sideways congestion periods.
No one can be all things in any market, nor can anyone catch (ticks) per calendar month (on average) for each single crude
every possible price move available. oil (CL) contract traded. That’s the only meaningful goal to
fixate on. If you do that consistently, month over month, you
START SMALL can add to your contract size as account balance permits.
Retail traders think along the lines of trading one-lot futures With a beginning account balance of whatever amount
contracts forever while squeezing every possible cent from seems reasonable and prudent, the ability to grind through
each price move. That fixation soon becomes a prolonged each trading day, week, and month to arrive at the destination
quest to take every possible trade setup. From picking high of +500 cents CL per contract would result in a gross gain of
and low turns to trend continuation setups to quick counter- +$5,000 per CL contract before costs. How you realize this
trend fades on pullbacks against the trend, most retail traders amount is a different story. Hopefully, you do it using a dis-
try to amass an array of tactics and tools that point out every ciplined and methodical approach. The point is it can happen
tick and trade. mathematically. You start with one contract and move to two,
Those who survive that stretch of their starry-eyed discov- then four, then eight, then more. By adding to your contract
ery period emerge with the realization that no one is perfect.
All traders make operational errors almost every day; all
traders experience net-loss sessions, and all traders are on a
never-ending path of continual learning and discovery. This
profession is much more about maximizing a few correct ac-
tions and decisions than it is about being right all the time.
The few who survive their trip eventually realize that suc-
cessful careers are not built on trading one contract of any-
thing for a gazillion points or cents each day. They turn their
attention to the real path of success, which is to add to their
contract size through the process of deliberate, methodical
account growth over time.
In the world of crude oil futures traders, being able to ac-
complish the feat of averaging +500 cents per calendar month
on a long-term basis may not seem like much. But consider-
ing that crude oil futures commonly offer one or more price
swings that exceed +100 cents each day, you could make
several thousands of cents each month.
The data in Figure 1 assumes just one constant amid a bunch
of variables: the ability of a futures trader to book +500 cents For more information circle No. 1

June 2011 • Technical Analysis of STOCKS & COMMODITIES • 13

+1106 Passamonte.indd 2 4/25/11 5:59:09 PM

 TRADING FUTURES

Month Crude oil Total Gross gain End balance

of us have experienced in real time more than once. There are
(CL) cents
also the proverbial “fat-finger” trade errors that blast price
action through unimaginable spikes or slams before returning
One 1 100 $1,000 $1,000
to the norm. Unlike artificial or accidental trades that usually
Two 2 100 $2,000 $3,000
get undone in the world of stocks, errant trade orders in the
Three 4 100 $4,000 $7,000 futures world are usually left to stand.
Four 8 100 $8,000 $15,000 The brief but extreme and sometimes unbelievable price
Five 8 100 $8,000 $23,000 moves will work greatly in our favor or catastrophically against
Six 12 100 $12,000 $35,000 us, depending on our prudent use of stops. Most traders bristle
Seven 20 100 $20,000 $55,000 at the mention of “random chance” involved in this profession
Eight 25 100 $25,000 $70,000 because they would like to believe that all things are under
Nine 40 100 $40,000 $110,000 control. But that’s simply not the case. We can adjust our
Ten 50 100 $50,000 $160,000 business plan approach to manage all conceivable happenings
Eleven 50 100 $50,000 $210,000 possible. Some things simply cannot be controlled.
Twelve 50 100 $50,000 $260,000
We have trending markets, sideways markets, and volatile
markets. There are news events, exogenous events, individual
Figure 2: performance results when making 100 cents consistently.
Here you see that making 100 cents consistently per contract and adding to your distractions, and errors. These are all part of the long-term
position size results in a very profitable trading experience. ride, but day in/week out, all of it tends to average out. Your
primary objective is to reach (or surpass) a reasonable monthly
Analysis of STOCKS & COMMODITIES magazine goal and gradually increase trade size. Mathematically speak-
size and grinding out +500 cents per contract each month, ing, it is simple. Realistically speaking, it all depends on your
h approval or changes:
you’ll find that the law of mathematics takes over and your trading approach.
trading results will improve.
You don’t have to make +500 cents per contract. You can Make the smart choice
6-938-1307 • email: KMoore@Traders.com
even do well if you are able to consistently book 100 cents Do you want to strive for every last cent possible from every
per CL contract on a monthly basis (Figure 2). It goes without possible trade while turning one contract? Or do you want to
saying that anyone who wants to make a serious income needs focus and concentrate on sustained performance and increase
PROOF #1to focus on consistent performance and then incrementally
adding to their trade size.
your contract size gradually? There is no mathematical differ-
ence in whether you trade one, two, or five futures contracts.
What matters is your ability to make consistent profits.
Expect hurdles along the way
Let’s not forget that grinding out consistent gains Austin Passamonte is a full-time professional trader who
includes unexpected variables that no one can con- specializes in emini stock index futures and commodity mar-
trol. Power outages, Internet outages, exchange kets. His trading approach uses general technical analysis
feed connections, and market halts due to sudden and proprietary chart patterns. He trades privately in the
economic or global news are a few factors many Finger Lakes region of New York. He may be reached at www.
coiledmarkets.com.

Suggested reading
Passamonte, Austin [2010]. “Trading The Russell 2000 Emini,”
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14 • June 2011 • Technical Analysis of Stocks & Commodities

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 16 • June 2011 • Technical Analysis of Stocks & Commodities

+Calhoun 1106.indd 1 4/25/11 4:24:12 PM

 INDICATORS

A Strategic Approach

Daytrading Cup Breakouts

Here’s how you can daytrade momentum trades. cup high at 45.65, with the exit generated when the
price action crossed back under the 35-step MA at

E
ntering and exiting intraday trades using 47.8.
precision technical trading signals has The chart setup is a one-minute, two-day chart
been popular with both retail and insti- with the time set to display data from 7 am to 4
tutional traders, since it limits overnight pm Eastern time. The reason for showing so much
risk exposure. The primary elements of premarket data is to be able to see gaps, cup pat-
professional daytrading include scanning terns, and trends (with volume) before the start of
for volatile breakouts during the first hour of the the trading session. Focusing on premarket price
trading day, setting specific technical entry signals action helps successful daytraders develop a spe-
to initiate new trades, and using careful risk manage- cific price-based entry strategy for trading once the
ment to scale in and out of positions once they’re market opens. It is usually not a good idea to enter
initiated. Daytrading stocks, eminis, forex, and new positions premarket because of wide spreads
exchange traded funds (Etfs) all require different and lower liquidity.
entry and exit signals. Daytrading round-trip durations should be any-
where from several minutes to 45 minutes per trade,
The two-day high stock cup entry with the majority of stock daytrades from two to 15
The strongest entry pattern in daytrading equities is minutes in length (since the market often pivots in
relatively simple. Entries are set using new high price 10- to 20-minute segments during the opening hour).
breakouts roughly at 0.35 or so above the prior day’s Many new daytraders hold their positions too long
highs during the first hour of
the market open, following a MCP
cup breakout above a 35-step
Moving average (35)
53.00
(as in, 35-period) moving 52.50

average (MA) crossover on a

52.00
51.50

two-day, one-minute chart on

51.00
50.50

high volume.
50.00
49.50

In this intraday breakout in

49.00
48.50

Molycorp Inc. (Mcp) in Figure

Exit signal: 35-step 48.00
Ma crossover after pullback 47.50

1, you can see that a bullish

47.00
46.50
Entry trigger: 45.65
cup was formed between 44.7
46.00
(0.35 above cup high) 45.50
Bullish premarket cup
and 45.3 during the premarket,
45.00
above prior day’s high 44.50

slightly above the prior day’s

44.00
inga poslitur

43.50

high. A long entry signal is

43.00
Volume

generated at 0.35 above the

200k
150k
100k
50.0k
eSignal

by Ken Calhoun Figure 1: Molycorp Inc (MCP) Daytrade. Here you see long breakout signals indicated by an entry trigger 0.35 above
premarket cup high on a two-day high continuation pattern.

June 2011 • Technical Analysis of Stocks & Commodities • 17

+Calhoun 1106.indd 2 4/25/11 4:24:39 PM

 INDICATORS

n Using market internals to help

AA
decide which sectors and which
16.75
directional bias (long or short)
to trade in.
16.70
NASDAQ Composite
at 2-day low, so long Price-related safety buffers, as ex-
Although this Alcoa (AA) 16.65
breakouts should be
avoided plained in the Mcp example in Figure
chart had a two-day high
breakout, the broad market 16.60
1, include using 0.35 above the prior
internals were short, indicating
day’s cup patterns for entries. Using
any breakout would likely 16.55
retrace and not continue.
16.50 market internals requires traders to
Avoiding false breakouts
requires using both chart 16.45
look at several additional signals to
patterns and market internals. put the markets in context before
16.40 taking on a daytrade.
16.35 Market internals and the two-
day pattern of the broad market
Arms Index (TRIN) is
Volume over 1.0 indicating 250K indexes (such as the S&P or Nasdaq
short bias 200K
Composite) are also often used to
11 • Technical Analysis of STOCKS & COMMODITIES magazine 150K
determine how much size to trade.
100K
50.0K If, for example, the S&P is range-
act Karen Moore with approval or changes: bound inside the prior day’s high-
low range, then a lighter share size
should be traded. Similarly, check-
6) 938-0570 • fax: 206-938-1307 • email: KMoore@Traders.com ing the Arms index (also known as
Figure 2: Alcoa Inc (AA) Avoiding false breakouts. Since the NASDAQ Composite and the Arms index (TRIN)
were short-bias, a false breakout was avoided in this two-day high AA chart. Trin) is important; if Trin is less
than 0.7, then more size is traded
PROOF #1 for long-bias entries, and if Trin is
instead of scaling in and back out with speed and precision. over 1.5, then more size is traded for short entries.
Stop-losses for stock daytrades are no more than 0.4 of a Similarly, when you are scanning for which stocks to trade,
point, with exit targets of 0.7 to 1.5 points. it is best to check the sector percent changes to see which
sectors are strongest during a given market day. In the chart
Avoiding false stock breakouts of Alcoa Aluminum (AA) in Figure 2, you can see a false
Getting into a daytrade only to see it quickly reverse against the breakout entry was avoided since the Nasdaq Composite
trade is a common problem that intraday traders face. Filtering and Arms index signals were showing a short bias, despite a
to help avoid false breakouts involves several components: breakout attempt. Had you just purchased the stock because it
was taking out new highs, you would have taken a stop-loss,
n Setting price “safety buffers” outside of obvious sup-
since it pivoted back into its trading range shortly after the
port/resistance levels, and
initial breakout attempt.
Combining the market internals with specific daytrading
chart breakout patterns is an overlooked, yet essential compo-
nent. Simplistic software scanners often cause false breakouts
and stops because they only look at individual technical signals
(moving average crossovers, new highs, and other patterns)
Advanced algorithms deliver without taking the more important broad-market internals
low lag, low noise analysis. into account when generating signals. Astute traders know
that it takes a thoughtful combination of technical signals
with individual chart pattern signals to generate actual trading
entry and exit criteria.
Now featuring
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Combining market
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internals with specific
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Data Calculator, Genesis TradeNavigator and TradersStudio.
daytrading patterns
is an essential
www.jurikres.com • 800-810-3646 • 719-686-0074
component.
For more information circle No. 9

18 • June 2011 • Technical Analysis of Stocks & Commodities

+Calhoun 1106.indd 3 4/25/11 4:25:13 PM

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++Full pg Ad Template.indd 1 3/23/11 8:35:15 AM

 INDICATORS

Navigating the emini

(ES #F - Emini S&P 500, 1) Dynamic, 0:00-24:00
Daytrading the emini (ES)
129650 can be challenging due to the
129600 frequent pullbacks and choppy
129550 nature of this particular instru-
129500 ment (especially after 10:30 am
129450 ET). Fortunately, cup pattern
129400 breakouts during the opening
129350 hour of the market can provide
129300 solid trading opportunities
129250 when careful technical signals
129200 are used to help traders deter-
Entry trigger: 3 ticks
above cup high 129150 mine when to enter new posi-
“Micro cup” bullish cup pattern 129100 tions. For example, in the emini
129050 S&P 500 chart in Figure 3, an
129000 entry set three ticks above the
Volume 128950 cup high generated a winning
128900 buy signal.
128850 The best chart to use when
128800 daytrading the emini ES is sim-
ply a one-minute candle chart,
“Major cup” bullish cup pattern
from 8:30am EST - 9:30am ET 128750
which reveals upcoming day-
Figure 3: EMini S&P 500 (ES). Spotting cup breakout patterns in the ES requires traders to look for both micro and major cups;
trading breakouts one candle at
best entries occur with embedded cups, as shown during the open. a time during live markets. Buy
signals are generated when two
criteria are met:
1 The opening breakout is above a prior one-minute
CHF AO-FX candle high following a bullish cup upside break-
0.90900 out
0.90850
0.90800 2 This “micro” cup also follows a “major” cup that
0.90750 formed during the 8:30 am to 9:30 am ET premarket
0.90700 session (Figure 3).
0.90650

Bullish cups look like the letter “U” and are best seen
0.90600
0.90550
USD/CHF Long entry #2 at 0.90500 using one-minute premarket ES charts for emini traders.
40 pips above cup high
0.90450 Daytrades for the emini ES are best done using a faster
0.90400 scalping method, in which round trips last anywhere
0.90350 from one minute to seven minutes. Exit signals for long
0.90300 positions include one-minute shooting star candle charts,
0.90250
one-minute hammers for shorts, and/or price retracement
of no more than three ticks against the initial position.
0.90200
0.90150
0.90100
Stop-losses for emini ES daytrades are three ticks, with
0.90050 exit targets of five to 12 ticks.
0.90000
0.89950 Forex five-minute cup breakouts
USD/CHF Long entry #1 at
40 pips above hammer high
0.89900 The two strongest forex daytrading long-bias signals
0.89850 are generated with five-minute hammers and bullish cup
5-minute hammer 0.89800 breakouts. For example, in the chart of the US dollar/
0.89750
Swiss franc (Usd/Chf) in Figure 4, you can see the first
long entry signal is set 40 pips above the hammer high
0.89700

and the second entry at 40 pips above the major bullish

cup high. Using a false breakout filter of 40 pips like
Figure 4: USD/CHF FIVE-minute candle chart. Looking for both hammers off of intraday this for intraday trades can help currency traders stay
lows as well as using cup breakout continuations with a 40-pip false breakout filter can help
identify forex entries.
clear of choppy entries and get in on stronger continu-
ation breakouts.
20 • June 2011 • Technical Analysis of Stocks & Commodities

+Calhoun 1106.indd 4 4/25/11 4:25:38 PM

 something

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++Full pg Ad Template.indd 1 2/18/11 11:49:22 AM

 INDICATORS

for more volatile, strong-trending

FAZ daytrade breakouts.
43.40
Advanced daytrading
43.20
with ETF hedges
One popular daytrading strategy
43.00

involving exchange traded funds

42.80

Entry trigger: 42.55 42.60

(Etfs) simply calls for initiating
simultaneous long positions in Etfs
(0.35 above cup high) 42.40

Bullish premarket cup

42.20
that move opposite one another during
above prior day’s high 42.00
the opening 20 to 30 minutes of each
41.80
day’s open. Then the trader scales out
41.60
of the one that is going against him/
41.40
her and into the one that is profitable
41.20
on increasing size. The chart of Direx-
Inset: FAS (Direxion Daily
41.00 ion Daily Financial Bear 3x (Faz) in
Volume Financial Bull 3x) Figure 5 shows how it moves up while
Moves opposite of FAZ
100K its opposite Etf, Direxion Daily Fi-
nancial Bull (Fas), which can be seen
in the inset, moves down in the same
50.0K

direction and technical pattern.

Using the same entry strategies—
that is, 0.35 above a bullish cup above
Figure 5: FAZ/FAS ETF pair trading. Trading both instruments for triple-leveraged volatile ETFs can provide experienced the prior day’s highs—generated a
traders with professional hedge pair trading patterns to daytrade.
win in the Faz chart. You can initiate
a small-share trade in each instrument
While a five-minute candle chart gives the strongest sig- and add to the winner once it continues.
nals, forex traders who trade larger sizes should also use Experienced traders may want to initiate simultaneous long
a one-minute candle chart as well to keep an eye out for positions during the first three to five minutes of the market
countertrade pivots. Initial stops for currency trades are set open in both Etfs without waiting for a cup pattern confir-
at 40 pips for intraday trades, with exit targets of 70 to 150 mation. Those traders may want to scale into the winner by
pips for daytrades. adding to it, then stopping out of the one going against them,
In addition, daytrading cup breakouts in currency pairs so that they are leveraged into the winner and out of the loser.
is best done when the seven-day chart is at a new high That way, the trader can capture a volatile breakout correctly
for confirmation (days following those that the average and be in the trade regardless of market direction, since they
directional movement index [Adx] is over 30), providing have “mirror image” trading patterns.

Position sizing and

trade management
Daytraders are encouraged to use position
sizing in addition to technical analysis, which
involves starting off all new positions on
very small sizes (10 to 50 shares for stocks, a
single emini ES contract, a mini-lot in forex)
and scaling up by adding to positions only
after they are profitable by a predetermined
amount. Originally pioneered by trading psychologist Van K.
Tharp, the concept of position sizing simply means adding to
winning positions and scaling out of losing ones, versus “all
or nothing” trades.
So for a typical stock daytrade, a trader may initiate an initial
position of 100 shares or less, then double it to a 200-share
GLEASON/CHIVERTON

trade once it is in the money by, say, 0.3 to 0.5, to leverage

up. The benefit of this approach is that it allows you to use
slightly wider stops and have less risk per trade, since lighter
“The fear is part of the thrill.” daytrading size makes for smaller capital at risk.
22 • June 2011 • Technical Analysis of Stocks & Commodities

+Calhoun 1106.indd 5 4/25/11 4:26:06 PM

 It also has the benefit of instilling more confidence to pull As an intraday trader, putting volatility to work for you
the trigger and get into new positions, since the trader knows means using technical signals and nimble risk-management
less capital is at risk. Once a trade starts to be profitable, the tactics to generate trading entries and exits over thousands of
trader can decide to add to it, tighten a trailing stop, or add to trades. Daytrading successfully involves a focused approach to
the winning position. That way, stops can be kept much smaller combining technical breakout signals with position sizing and
since less size is traded during the initial position entries. market internals to make for a strategic approach to trading.

Trading like a Ken Calhoun is a producer of multiple award-winning trading

professional daytrader courses and video-based training systems for active traders.
After trading millions of dollars worth of He is the founder of DaytradingUniversity.com, a popular
equities and making thousands of trades, online educational site for daytraders.
several key insights start to emerge based on
technical trading entries and exits in actual Suggested reading
MARCH 2011 • Technical
trading experience: STOCKS
Analysis ofJayanthi,
Gopalakrishnan, & COMMODITIES
and Bruce magazine
R. Faber [2011]. “Trading
Momentum With Ken Calhoun,” interview, Technical Analy-
n It’s best to trade only on “out” days, in which the broad
Please contact Karen Mooresis of Sapproval
with tocks & Commodities, Volume 29: March.
or changes:
markets are trading outside of the prior day’s high–low
Tharp, Van K. [2006]. Trade Your Way To Financial Freedom,
range and to initiate new positions only in continuation
McGraw-Hill.
cup pattern two-day high orphone:low breakouts
(206) during the • fax: 206-938-1307 • email: KMoore@Traders.com
938-0570 ‡eSignal
first hour of the market.
n The use of position sizing helps control for market
conditions (up, down, consolidating) by focusing on
leveraging into only those trades that are successful, PROOF #2
gradually acting based on technical signals (and open
unrealized P&L in the trade) as it moves. S&C

n Tape reading when you are daytrading stocks can also

make a big difference; tape reading means looking at
how fast the transaction price moves through support and
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June 2011 • Technical Analysis of Stocks & Commodities • 23

+Calhoun 1106.indd 6 4/25/11 4:26:41 PM

 They’re The Trendiest

Top 10 Candles That Work

Which candlestick patterns trend the most in 10 days? price bars or shorter), their trend often does not lead to a big,

MIKE CRESSY
long-duration move. I would make that statement based on
by Thomas N. Bulkowski working with chart patterns, where the tallest ones outperform
their shorter brethren, but also from testing more than 100

In my last article, I described 13 candlesticks that worked candlestick types using daily price data and 4.7 million lines
best as reversal or continuation patterns. That means price (a candle line is a single price bar).
closed above the top of the candle pattern or below the I decided to measure the price move from the close of
bottom of it, signaling a reversal or continuation not just the day the candle pattern ended (not the breakout) to one,
once, but reliably in thousands of cases. However, just because three, five, and 10 trading days into the future. This article
a candle acts as a reversal 66% of the time doesn’t mean that discusses the 10-day performance results in a bull market. For
price moves far beyond the candlestick boundaries. details on other varieties, such as bear market performance
This article discusses candles that perform best over time over five days, please refer to my book Encyclopedia Of
— that trend furthest — but they may not be good reversal Candlestick Charts.
or continuation candidates.
Up breakouts:
Start at the beginning Collapsing doji star
Doing research on candlesticks means making decisions on The top-performing candle with an upward breakout is the
how to test them. How do you determine the best performance? collapsing doji star. I show the ideal configuration in Figure
Since candles are often short-duration patterns (most are three 1. It’s a three-line pattern with an uptrend leading to the start
24 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Bulkowski.indd 1 4/25/11 3:57:04 PM

 of the candlestick. The first line is white, but it can be
Collapsing Three Bearish
tall or short. What matters is that it gaps above the next breakaway
doji star black crows
candle — a doji.
A doji has no body, meaning that the opening and
closing prices are the same (or nearly so). Often, you
see doji that look like plus signs or crosses on the price
chart but more rarely as minus signs in thinly traded
stocks (called a four-price doji).
The shadows (the thin line on the top or bottom of a
candle, also called wicks) of this doji should not overlap
Concealing Identical
the shadows of the adjacent candle lines. The last bar is

CHARTS BY THOMAS BULKOWSKI

baby swallow three crows
a black candle that gaps below the doji, like that shown
in Figure 1.
The good news with this candle is that price climbs
an average of 7.32% over the 10 trading days after the
candle ends. If you prorate that for a full year, that’s a
gain of almost 200% using 260 trading days annually.
The bad news is that the gain is probably wrong. Why?
Because I only found 16 examples out of nearly five Figure 1: Up breakouts. Here you see the top-performing candlesticks with upward
breakouts.
million price bars searched. Thus, if you can find the
candle, the performance may not meet your expecta-
tions.
in the pattern is a tall black one with a close that parks within
Three black crows the gap between the first two candle bodies. Again, ignore the
Three black crows is a candle pattern that is easily remembered. shadows of the first two candles when looking for the gap.
Look for the candle in a rising price trend followed by three Since this is a five-line pattern with strict identification
tall black candles, each closing at a new low (relative to the rules, a guess that it’s rare would be a good one. I found 36.
prior candle). In this case, “tall” means a candle that is taller Upward breakouts from those 36 in a bull market posted gains
than the average candle height over the past week or two. averaging 6.66%. It’s likely that additional samples will cut
The last two candles must open within the body of the prior into that gain, so keep that in mind.
candle and all should close near the low.
Figure 1 shows an example of what the ideal three black Concealing baby swallow
crows should look like. Note how the candle lines overlap The concealing baby swallow is another rare candle pattern.
and trend downward. Since price is dropping in the three-line If you want to search for one, begin with a downward price
pattern, it is easy for price to close below the bottom of the trend. The first two candles are black marubozu ones, mean-
pattern, staging a downward breakout. Thus, the pattern acts ing they don’t have any shadows. The third line is another
as a bearish reversal of the uptrend. black candle with a tall upper shadow. The candle gaps open
However, the best performance, placing second among all downward and it trades into the body of the prior day, like that
the candlestick types in a bull market, is when price breaks shown in Figure 1. The last candle in the pattern is another
out upward. Over 10 days, the average gain is 6.95%. Upward black one that completely spans (engulfs in candlespeak) the
breakouts are rare, happening 22% of the time, but they are prior candle, including the shadows.
worth looking for. I found just four concealing baby swallows in the 4.7 mil-
How often does this candle appear in the wild? It’s not as lion lines searched, but the one with an upward breakout in a
plentiful as hair on a gorilla, but it ranks 60th out of 103, where bull market did well. The gain averaged 5.92%.
a 1 ranking is the most plentiful. That’s very good compared This candle pattern also doubles for one of the five top-
to other candles mentioned in this article. performing candles with downward breakouts, so I count it
twice. Downward breakouts show losses averaging 7.10%,
Bearish breakaway placing it third on that list.
The bearish breakaway is complicated since it is composed
of five candle lines. Begin with an uptrend leading to the start Identical three crows
of the candle. The first day should be a tall white candle. The Rounding out the top five is the identical three crows pattern,
second candle is another white one, but price gaps between its but it should not be confused with the three black crows. For
body and the prior candle’s body. The shadows can overlap, the identical variety, look for the candle pattern in a rising
but the bodies shouldn’t. The middle candle can be any color, price trend. Then find three tall black candles with the last
but it has a close that’s higher than the prior candle. two openings at or near the prior candle’s close. I show an
Line 4 is a white candle with a higher close. The final line ideal example in Figure 1.
June 2011 • Technical Analysis of Stocks & Commodities • 25

+1106 Bulkowski.indd 2 4/25/11 3:58:33 PM

 CANDLESTICK CORNER

Bearish Mat hold Concealing This article discusses candles

3-line strike baby swallow
that perform best over time,
but they may not be good
reversal candidates.
an ideal example of it in Figure 2.
When I tested this pattern, I found that it acted
as a bullish reversal 84% of the time instead of
a bearish continuation as theory suggests. I base
3 white Bullish
soldiers the interpretation on where price closes in rela-
abandoned baby
tion to the candle. Since the candle closes near
the top of the pattern, it is easier for an upward
breakout (close above the highest line) to occur
than a downward one (a close below the bottom
of the pattern). If an upward breakout happens,
then the candle acts as a bullish reversal.
The bearish three-line strike is another rare
candle. I found only 85 of them. Those with
Figure 2: down breakouts. These candles perform best after price closes below the bottom downward breakouts saw price drop an average
of the pattern. of 8.81%. Again, that number is likely to change
with additional samples.

This candle is not as plentiful as three black crows. I found Mat hold
just 921 of them. Those that broke out upward in a bull mar- In second place for performance is the mat hold with an
ket (178) gained an average of 5.67%. Most of the time this average drop of 7.21%. This candle pattern looks a lot like a
candle will break out downward, so it acts as a bearish reversal rising three-methods candlestick. The difference occurs with
79% of the time. An upward breakout would mean a bullish the gap on the second candle.
continuation. In the mat hold, look for the pattern in a rising price trend.
The first candle is a tall, white-bodied line. Bar 2 has price
Down breakouts: gapping open upward, but it closes lower. It is a small black
Bearish three-line strike candle that must remain above the prior close. Ignore the
The following candlestick patterns do best af- shadows when locating the gap.
ter breaking out downward. The top performer The third line in the pattern can be any color, but line 4 is
is a bearish three-line strike candle, and I show black. Both candles have small bodies with the closing price
easing lower. The bodies must remain above the low posted
by the first candle.
The last line in the pattern is a white candle that closes
above the highs of the prior four candles. It’s often a tall one
but need not be. I think of the mat hold as a small version
of a rise/retrace/rise pattern. In chart pattern–speak, it is a
miniature measured move up.

Three white soldiers

Three white soldiers is the complement of the three black
crows pattern. Look for three tall white candles to appear in
a downward price trend like that shown in Figure 2 by the
thin price bars. Each candle line in the three white soldiers
pattern must have a higher close and close near the high for
the line. The last two candles must open within the body of
the prior candle.
Downward breakouts from this candle pattern are one-
fourth as frequent as those with upward breakouts. However,
“Give it a rest, Howard. The company will
CONDRON

survive without you for a few days.” Continued on page 35

26 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Bulkowski.indd 3 4/25/11 3:59:14 PM

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TASC_p-tasc_02_17_11.indd 1 2/23/11 2:01 PM

++Full pg Ad Template.indd 1 2/23/11 1:14:43 PM
 The Closing Price Is All

Entering The Price Zone

In this second part of the series, we introduce the price Price zone oscillator = 100 x (CP/TC)
AYA KAKEDA

zone oscillator (Pzo), a complementary indicator to the

volume zone oscillator (Vzo). where:
CP (Closing position) = X-days Ema (± close)
by Walid Khalil and David Steckler

In
our last article, we introduced a new oscillator that
and
provides better guidance to buying and selling levels
for securities: the volume zone oscillator (Vzo). This TC (Total close) = X-days Ema (close)
time, we introduce a similar, complementary indica-
tor: the price zone oscillator (Pzo). See sidebar, “Price Zone The price zone oscillator
Oscillator,” on page 29. Like Vzo, Pzo has overbought and oversold levels. It is use-
The formula for Pzo depends on only one condition: If ful for identifying at which zone (bullish or bearish) price is
today’s closing price is higher than yesterday’s closing price, positioned. Pzo is useful in uptrends, downtrends, or sideways
then the closing price will have a positive value (bullish); market conditions. Please review the daily chart in Figure 1 of
otherwise it will have a negative value (bearish). Dia, the Dow Jones Industrial Average Spdr, with Pzo.
28 • June 2011 • Technical Analysis of Stocks & Commodities

+Khalil_Steckler 1106_PZO.indd 1 4/25/11 5:12:37 PM

 Just like with Vzo, the price crossing
the 60-day exponential moving average
DIA - Daily ARCX L=105.34 -0.33 -0.31% B=105.29 A=105.35 O=105.48 Hi=106.07 Lo=105.17 C=105.44 V=5,076,068 Mov Avg Exponential (Close, 60, 0) 103.51

114.00
(Ema) is the determinant between bullish 112.00
(above the Ema) and bearish (below the 110.00
Ema) conditions. When the 14-day aver- 108.00
age directional movement index (Adx) is 106.00
below 18, the action is considered to be
105.44
104.00
sideways regardless of whether price is
103.51
102.00
above or below the Ema. 100.00
Also like Vzo, the components of Pzo 98.00
are a 60-period Ema; a 14-period Adx; and Price Zone Oscillator (14) 29.23 60.00 40.00 15.00 -5.00 -40.00 -60.00 0.00 80.00
seven oscillator zones, at +60 (extremely 60.00

overbought), +40 (overbought), +15, zero,

40.00
29.23
15.00

‑5, ‑40 (oversold), and ‑60 (extremely

-5.00

oversold).
-40.00
-60.00
ADX w/Level (14, 18 Black) 17.29 18.00 18.00
40.00

Uptrend system rules 35.00

30.00

When price is above the 60-day Ema and

TRADESTATION
25.00
20.00
Adx is greater than 18, buying signals are
17.29
15.00

issued when:
Figure 1: price zone oscillator. The components of the PZO are a 60-day exponential moving average
n Pzo crosses from below ‑40 to above (EMA), 14-period ADX, and seven oscillator zones at +60, +40, 0, -5, -40 and -60.
‑40 (oversold reversal)
n A retracement down from +40 that fails to reach ‑40 is n A positive divergence appears at an extreme level and
common during an uptrend. Pzo will not reach the lower Pzo breaks above ‑40
boundary and will rebound from a low above ‑40. Thus,
Price rises above the 60-day Ema and Pzo goes above
crossing from below zero to above zero generates a buy
n
zero.
signal. To reduce whipsaws, you can wait for a crossing
from below zero to above +15.
Nontrending system rules
Nontrending conditions exist when the Adx is less than 18. On
There are three selling conditions during a long position:
the following charts, when the Adx is below 18 it appears as
n When Pzo goes above +60 and starts to go down black crosses. When that is the case, the relationship between
price and the 60-day Ema is ignored. Vzo rarely reaches +60
n When a negative divergence appears at an extreme level
or ‑60 when the Adx is less than 18.
and Pzo breaks below +40
When the Adx is less than 18, buy signals are issued
n When price goes below the 60-day Ema and Pzo goes when:
below zero.
n Pzo crosses up from below ‑40 to above ‑40
Downtrend system rules
When price is below the 60-day Ema and Adx is greater Price Zone Oscillator
than 18, sell short signals are issued when: Plot2(+60, “+60”);
TradeStation: Plot3(+40, “+40”);
n Pzo crosses from above +40 to below +40 (over- Plot4(+15, “+15”);
Input:Period(14);
bought reversal) Plot5(-5, “-5”);
Vars: MV(0), R(0), VP(0), TV(0),
n A retracement up from ‑40 that fails to reach +40 PZO(0); Plot6(-40, “-40”);
is common during a downtrend. Pzo will not reach Plot7(-60, “-60”);
the upper boundary and will fall lower from a MV = iff(DataCompression >= 2, Plot99(0, “zero”);
zone below +40. Thus, crossing from above zero AbsValue(Close), Ticks);
to below generates a sell short signal. To reduce R = Sign(Close - Close[1]) * MV; MetaStock:
whipsaws, you can wait for a crossing from above VP = XAverage(R, Period); Period: =Input(“Y” ,2 ,200 ,14 );
zero to below ‑5. TV = Xaverage(MV, Period); R :=If(C>Ref(C,-1),C,-C);
CP :=Mov(R,period ,E);
There are three covering/closing conditions during if TV <> 0 then PZO = 100 * VP / TV; TC :=Mov(C,period ,E);
a short position: PZO :=100*(CP/TC);
Plot1(PZO, “PZO”); PZO
n Pzo falls below ‑60 and starts to go up
June 2011 • Technical Analysis of Stocks & Commodities • 29

+Khalil_Steckler 1106_PZO.indd 2 4/25/11 2:49:00 PM

 INDICATORs

DIA - Daily ARCX L=105.34 -0.33 -0.31% B=105.29 A=105.35 O=105.48 Hi=106.07 Lo=105.17 C=105.44 V=5,076,068 Mov Avg Exponential (Close, 60, 0) 103.51
n Pzo crosses from above to below ‑5.
114.00
There are two covering/close condi‑
112.00
tions during a short position:
110.00

108.00 n Pzo falls below ‑40, use the close/

106.00
105.44 cover rules for when Adx is greater
104.00
103.51 than 18
102.00
100.00 n Pzo never falls to ‑40, cover/close
98.00 when it closes above +15.
Price Zone Oscillator (14) 29.23 60.00 40.00 15.00 -5.00 -40.00 -60.00 0.00 80.00

See sidebar, “Price Zone Oscillator 60.00

40.00
Strategy for TradeStation,” on page 34.
BUY SELL 29.23
15.00

With this knowledge you can now

-5.00
-20.00

make sense of the chart of the Dia with

-40.00
-60.00
ADX w/Level (14, 18 Black) 17.29 18.00 18.00
40.00 Pzo in Figure 2. It’s similar to Figure
1, except it is annotated with buy & sell
35.00
30.00

information.
25.00
20.00

On February 16, 2010, Dia powered

17.29
15.00
15.00

through and closed above its 60-day Ema

Figure 2: OSCILLATING SYSTEM. On February 16, 2010 DIA closed above its 60-day EMA. The ADX was 28 (first yellow ellipse). The Adx was 28 and
and PZO closed at 3.28. That was the buy signal. The trade remained long till mid-March when PZO closed well Pzo closed at 3.28 after several days of
above +60 and the next day closed below it. That was the sell signal.
trading below zero (the black horizontal
scale line). That was the buy signal (blue
n Pzo crosses from below to above +15. rectangle, labeled “Buy”). The trade remained long into March
when Pzo closed well above +60 and the next day closed below,
There are two selling conditions during a long position: on March 19 (blue rectangle, labeled “Sell”). That was the signal
to exit the trade for a gain of 4.4%. This hypothetical trade used
n Pzo rises above +40, use the sell rules for when Adx is closing prices for its entry and exit, so we have to remember
greater than 18 that past performance does not guarantee future results.
n Pzo never rises to +40, sell when it closes below ‑5. Note how in late May–early June, Pzo was making higher
highs (green up arrows) during the same time Dia was pulling
When the Adx is less than 18, sell short signals are issued back (blue up arrows): the May 25 and June 8 price lows are
when: within five cents of each other. Was this a buy signal? No. The
Adx was greater than 18 and Dia was trading below its 60-day
n Pzo crosses up from above +40 to below +40 Ema. Pzo properly crossed from below to above ‑40, but without
price being above its 60-day Ema, there was no buy signal.

Divergence
Divergence is one of the most useful tools
in the technical analysts’ toolbelt. But di‑
vergence is not just between price and an
indicator, although that is how it is com‑
monly applied. Divergence can also appear
between two indicators.
With a few exceptions, price ordinarily follows volume.
A major exception to this is that below-average volume is
considered bullish when it occurs at major bottoms after a
significant decline, because by then most buyers are afraid
to get back into the market.
Most of the time, Pzo and Vzo are in sync with each other.
But since price usually follows volume — that is, Pzo lags
GLEASON/CHIVERTON

behind Vzo — price usually catches up. And when price runs
ahead of volume — as in, Vzo lags behind Pzo — price usu‑
“So basically, we all have to start stabbing each ally pulls back. When Vzo is ahead of Pzo (in that Pzo lags
other in the back instead of our customers.”
Vzo), this is a bullish divergence between the two oscillators.
30 • June 2011 • Technical Analysis of Stocks & Commodities

+Khalil_Steckler 1106_PZO.indd 3 4/25/11 2:50:46 PM

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++Full pg Ad Template.indd 1 12/17/10 8:28:29 AM

 AAPL - Daily NASDAQ L=263.32 0.25 0.10% B=0.00 A=0.00 O=263.19 Hi=264.50 AAPL - Daily NASDAQ L=263.32 0.25 0.10% B=0.00 A=0.00 O=263.19 Hi=264.50
(right chart) lagged behind at 42.90,
285.00 a bearish divergence between the two
280.00
280.00 oscillators. Confirmation that Pzo
270.00 275.00 would not catch up came the next day
260.00 270.00
when Aapl made a bearish engulfing
candlestick and both Pzo and Vzo
250.00 265.00
263.41

closed lower.
260.00
240.00
103.51255.00
230.00 253.21
250.00
At times the divergence is bullish,
220.00 245.00 with Pzo lagging behind Vzo. An
210.00 240.00 example of this can be seen in Figure
PZO = 51.46
Price Zone Oscillator (14) 51.56 60.00 40.00 15.00 -5.00 -40.00 -60.00 0.00
VZO = 42.90
80.00
4, a daily chart of Tlt, the 20+ year
Treasury bond exchange traded fund
60.00 Volume Zone Oscillator (14) 55.10 60.00 40.00 15.00 -5.00 -40.00 -60.00 0.00
51.56 55.10
40.00
(E ).
40.00
15.00 15.00 tf
On July 13–14, the Pzo closed at
-5.00 -5.00

‑45.01 and then rose above ‑40. The

-40.00
-40.00
-60.00
-60.00 ADX w/Level (14, 18, Black) 20.90 18.00 18.00
V , however, only fell as low as
ADX w/Level (14, 18, Black) 20.90 18.00 18.00
45.00
45.00
zo
‑39.53 (first yellow ellipse in right-hand
40.00
40.00
35.00
35.00
30.00
30.00
25.00
chart) before rising, making a bull‑
ish divergence. Price tends to follow
25.00 17.29
20.90
20.90 18.00
volume, which it did over the next six
18.00

FIGURE 3: DIVERGENCE. When there is a divergence you can consider going long or short regardless of the rela- days before Tlt topped out and then
tionship between price and EMA. On June 18, 2010, the PZO closed at 51.46 and the VZO lagged behind at 42.90. undercut its July 13th low on July 29.
This is a bearish divergence between the two oscillators.
Both Pzo and Vzo made higher lows in
the same time period, creating a bullish
TLT - Daily ARCX L=102.05 -1.76 -1.70% B=102.00 A=102.27 O=102.75 Hi=103.26 TLT - Daily ARCX L=102.05 -1.76 -1.70% B=102.00 A=102.27 O=102.75 Hi=103.26 divergence between price and the two
oscillators.
Tlt began climbing again, and on
110.00 110.00

August 11, Pzo was only 22.60 (sec‑

108.00 108.00

106.00 106.00
ond blue ellipse) while Vzo had raced
104.00
104.00 ahead to 40.62 (second yellow ellipse),
102.27
102.27
102.27
103.51101.88 a clear bullish divergence between the
two oscillators. This is a clear example
101.88
100.00
of volume leading price. Tlt’s price
100.00
98.00
98.00 Bearish divergence gapped open higher just three days
Bullish divergence
Price Zone Oscillator (14) -12.92 60.00 40.00 15.00 -5.00 -40.00 -60.00 0.00
Volume Zone Oscillator (14) -23.30 60.00 40.00 15.00 -5.00 -40.00 -60.00 0.00 80.00 later. Note, however, that neither Pzo
PZO = 22.60
60.00
50.00 VZO = 40.62
60.00 nor Vzo reached +60.
Between August 19 and August 24,
40.00 40.00
30.00

price made a higher high while Pzo

15.00 15.00
-5.00
-5.00
made a slightly higher high (blue
12.92
30.00 23.30

rectangle) and Vzo made a double top

-40.00
PZO = –45.01 50.00 -40.00
-60.00 VZO = –39.53
high (yellow rectangle). This marked
ADX w/Level (14, 18, Black) 21.55 18.00 18.00 -60.00
ADX w/Level (14, 18, Black) 21.55 18.00 18.00

not only a bearish divergence between

30.00 30.00
24.00 24.00
the two oscillators but also between
21.55 21.55
18.00 18.00

price and Vzo. Since Pzo did not reach

FIGURE 4: THE 20+ YEAR T-BOND ETF (TLT). If you look at the PZO and VZO side-by-side, you will notice that +40 while Vzo did, a trader might
sometimes there are bullish divergences whereas other times there are bearish divergences. have waited to see if Pzo (and price)
would catch up with Vzo, the way it
When Pzo is ahead of Vzo (that is, Vzo lags Pzo), this is a did after August 11. However, the bearish divergence between
bearish divergence. Vzo and price made it unlikely that Pzo would catch up with
Unlike the opening long and short rules for Vzo and Pzo, when Vzo, and Tlt’s price headed lower from there.
the Adx is above 18 (price needs to be above the 60-day Ema to
open a long position and below the 60-day Ema to open a short Price and volume
position), when there is a divergence you can consider going The purpose of these two articles is to introduce a new method
long or short regardless of the relationship between the price through two unique but complementary oscillators: Vzo and
and Ema (see Pzo and Vzo charts of Aapl in Figure 3). Pzo. Each aims to reveal two important aspects in the market,
On June 18, Pzo (left chart) closed at 51.46 while Vzo namely, price and volume. By following the interpretations of
32 • June 2011 • Technical Analysis of Stocks & Commodities

+Khalil_Steckler 1106_PZO.indd 4 4/25/11 2:52:28 PM

 Alexander Elder

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++Full pg Ad Template.indd 1 4/21/11 9:45:57 AM

 PRICE ZONE OSCILLATOR STRATEGY FOR TRADESTATION

With appreciation to Aapta member Bob Fulks for his if MP >= 0 and Price < xEMA then begin
invaluable help in coding the Pzo and Vzo strategies for if xMin crosses under +40 then SellShort(“SELL SHORT1”)
TradeStation. next bar at market;
Our two articles explain there are three sell (or cover) if xMax crosses under 0 then S2_SU = TRUE;
signals when the Adx is greater than 18. One of these signals if S2_SU and xMin crosses under -5 then SellShort(“SELL
is to look for a divergence between price and the Vzo or SHORT2”) next bar at market;
Pzo. Because determining divergence is part art, part sci- end;
ence, this signal was not written into the code. if MP < 0 then begin
TradeStation users will see that a buy signal may be fol- if xMin[1] < -60 and xMin > xMin[1] then
lowed by a sell short signal, rather than two signals: sell (the BuyToCover(“COVER1”) next bar at market;
buy) and a sell short. Likewise, a sell short signal may be if Price > xEMA and xMax > 0 then BuyToCover(“COVER2”)
followed by a buy signal, rather than two signals: cover and next bar at market;
a buy. TradeStation’s notation system is to show the net posi- end;
tion; for example, from -100 shares to +100 shares means end else begin // ADX < 18 cases
cover the 100 shares sold short and then buy 100 shares. if MP <= 0 then begin
if xMax crosses over -40 then Buy(“BUY3”) next bar at
PZO strategy: market;
Input: PlotMode(1), Price(Close), UsePZO(TRUE); if xMax crosses over +15 then Buy(“BUY4”) next bar at
market;
Vars: xADX(0), xEMA(Price), xVZO(0), xPZO(0), xMax(0), xMin(0), end;
B2_SU(FALSE), S2_SU(FALSE), MP(0); if MP > 0 then begin
if xMax > +40 then begin
MP = MarketPosition; if xMax[1] > +60 and xMax < xMax[1] then Sell(“SELL3”)
next bar at market;
xPZO = PZO(14); if Price < xEMA and xMin < 0 then Sell(“SELL4”) next
bar at market;
end else
xADX = ADX(14); if xMin < -5 then Sell(“SELL5”) next bar at market;
xEMA = XAverage(Price, 60); end;
if MP >= 0 then begin
if UsePZO then begin if xMin crosses under +40 then SellShort(“SELL SHORT3”)
xMax = xPZO; next bar at market;
xMin = xPZO; if xMin crosses under -5 then SellShort(“SELL SHORT4”)
next bar at market;
end; end;
if MP < 0 then begin
if xADX > 18 then begin // ADX > 18 cases if xMin < -40 then begin
if MP <= 0 and Price > xEMA then begin if xMin[1] < -60 and xMin > xMin[1] then
if xMax crosses over -40 then Buy(“BUY1”) next bar at BuyToCover(“COVER3”) next bar at market;
market; if Price > xEMA and xMax > 0 then
if xMin crosses over 0 then B2_SU = TRUE; BuyToCover(“COVER4”) next bar at market;
if B2_SU and xMax crosses over +15 then Buy(“BUY2”) end else
next bar at market; if xMax > +15 then BuyToCover(“COVER5”) next bar at
end; market;
if MP > 0 then begin end;
if xMax[1] > +60 and xMax < xMax[1] then Sell(“SELL1”) end;
next bar at market;
if Price < xEMA and xMin < 0 then Sell(“SELL2”) next bar at if xMin crosses under +15 then B2_SU = FALSE;
market; if xMax crosses over -5 then S2_SU = FALSE;
end;

34 • June 2011 • Technical Analysis of Stocks & Commodities

+Khalil_Steckler 1106_PZO.indd 5 4/25/11 2:52:55 PM

 INDICATORs

the two oscillators, you can get clear buy/sell signals as well strategist at Premiere Securities, Cairo, Egypt. He teaches
as capturing the direction of the money flow in the security technical analysis at the Egyptian Society of Technical Analysts
or market. The oscillators also aid in analyzing and defining (Esta). He may be reached at waleedkhalil@live.com.
strengths or weaknesses within the current trend and specifi- David Steckler is a member and a past president of the
cally, with the use of divergences, you can anticipate impor- American Association of Professional Technical Analysts
tant turning points in the trend. By using the two oscillators, (Aapta). He is also a member of Ifta and a former member
overbought and oversold areas for price and volume can be of the Market Technicians Association (Mta). He may be
identified and used for trading. reached at DSteckler@aol.com.
During trending conditions, volume (Vzo) tends to lead
price (Pzo); conversely, as the trend loses strength you will Suggested reading
frequently find that volume lags price. Look for the Adx to Edwards, Robert D., and John Magee [2007]. Technical Analysis Of
begin losing strength as a confirmation that the trend may be Stock Trends, 9th ed., W.H.C. Bassetti, ed. Amacom.
coming to an end. Keep in mind that price and volume action Granville, Joseph E. [1969]. Granville’s New Key To Stock Market Prof-
at trend reversals — for example, V-bottoms and tops — can its, Prentice Hall/Simon & Schuster Professional Publishing.
mimic the behavior of nontrending action. Khalil, Walid, and David Steckler [2011]. “In The Volume Zone,” Tech-
When volume starts lagging behind price and Adx begins nical Analysis of Stocks & Commodities, Volume 29: May.
to weaken, a Vzo/Pzo bearish divergence can give traders Murphy, John J. [1999]. Technical Analysis Of The Financial Mar-
advance warning and they can adapt their plans for nontrend- kets, New York Institute of Finance.
ing price action. When Adx begins rising and volume again ‡TradeStation
leads price, the Vzo/Pzo bullish divergence enables traders
to enter trades earlier and position themselves either for a See our Traders’ Tips section beginning on page 63 for commentary
resumption of the trend or the initiation of a new trend. on implementation of Walid Khalil’s and David Steckler’s technique
in various technical analysis programs. Accompanying program code
Walid Khalil, Cfte, Mfta, is a member of the International can be found in the Traders’ Tips area at Traders.com.
Federation of Technical Analysts (Ifta) and chief technical S&C

TOP 10 CANDLES THAT WORK

Continued from page 26 My previous article discussed the best reversal or continu-
ation candles, and this one reviewed the best performance
three white soldiers with downward moves drop an average over 10 days. Can we combine those two features? What are
of 6.41%. That’s quite tasty for a 10-day trip. the top reversal or continuation candlesticks that also lead to
strong trends 10 days later? Answering those questions will
Bullish abandoned baby be the subject of my next article.
The last candle pattern in the series is a bullish abandoned
baby. It is another rare one, happening just 293 times in 4.7 S&C Contributing Writer Thomas Bulkowski (who may be
million candle lines. Downward breakouts sport average reached via email at tbul@hotmail.com) is a private investor
losses of 6.04% measured 10 days after the candle ends. with 30 years of experience and considered to be a leading
With additional samples, I would expect the performance to expert on chart patterns. He is the author of several books, the
deteriorate, so keep that in mind. most recent of which is Encyclopedia Of Candlestick Charts.
For identification, look for the pattern to appear in a down- His free website and blog have more than 500 articles dedicated
ward price trend. The first line is a black candle. The second to price pattern research and is at www.thepatternsite.com.
one is a doji that gaps below the shadows of the two adjacent
lines, like that shown in Figure 2. The final day is a white Suggested reading
candle that gaps above the prior doji. Bulkowski, Thomas N. [2008]. Encyclopedia Of Candlestick Charts,
John Wiley & Sons.
That’s a wrap _______ [2005]. Encyclopedia Of Chart Patterns, 2d ed., John Wiley
So there you have it, five candle patterns that perform best after & Sons.
upward breakouts and five that perform best after downward _______ [2006]. Getting Started In Chart Patterns, John Wiley &
breakouts. Unfortunately, many of the best performers are so Sons.
rare that you are unlikely to encounter them in your normal _______ [2002]. Trading Classic Chart Patterns, John Wiley & Sons.
trading. My guess is more samples will show that the rare _______ [2011]. “What You Don’t Know About Candlesticks,” Tech-
candle patterns won’t perform as well as in lab tests. Thus, if nical Analysis of Stocks & Commodities, Volume 29: March.
you want to trade these candle patterns, then stick with the three _______ [2011]. “Investment Candlesticks,” Technical Analysis of
crows, either black or identical, for upward breakouts, and the Stocks & Commodities, Volume 29: May.
mat hold or three white soldiers for downward breakouts. S&C

June 2011 • Technical Analysis of Stocks & Commodities • 35

+Khalil_Steckler 1106_PZO.indd 6 4/26/11 8:27:02 AM

 Exchanges, ECNs, And Market Centers

Routing Your Orders

Changes in structure cause changes in order routing. And called these days, and asked about basic order routing these
BRIAN TAYLOR

with growth and mergers taking place among exchanges, days, with a little historical perspective. Most of this article
traders need to be aware of how to route their orders. was written before the Nyse Euronext announced its merger
with Deutsche Borse, two of the world’s biggest exchange
by Don Bright operators, so I’ll be writing another article altogether about
those two.

B
ack in the good old days, we just set up orders and clicked
buy, sell, or sell short. We didn’t have any concerns Overall order routing (from the start)
about where the orders were going, because it didn’t The Nyse traces its roots back to 1792, when 24 stock brokers
matter. It didn’t matter because there were basically signed the Buttonwood Agreement, a document stating that
only two destinations, Nyse and Nasdaq. Of course, we they would trade certain goods only with each other. From
also had Amex and a few regional exchanges, but overall, it that beginning, believe it or not, the Nyse stayed more or
didn’t matter because we were not being charged additional less intact for approximately 200 years, growing by leaps and
fees from alternate destinations. bounds, vowing only to trade to each other in the exchange.
I recently talked with some of the top people at the various Then in 2006, the Arca electronic trading group was brought
market centers, which is what most destinations prefer to be under the Nyse’s wing, and then in 2007, they merged with
36 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Bright routing.indd 1 4/25/11 6:32:59 PM

 Euronext, bringing about the first truly global marketplace.
In 2008, they brought the American Stock Exchange (Amex) What can you take away from
on board. Along the way, the London International Financial this? Treat your trading as a
Futures and Options exchange (Liffe) added a new dimension business, be sure you know the
to their futures and options executions.
How do all the mergers and reorganizations in recent years “game,” and make sure you have
affect the order routing? Here’s where things get interesting. the best tools.
Various firms may have slightly different pricing due to volume
tiers and other variables. Some retail firms may include some
of these costs in their ticket charges, but many do not. to see. You were a liquidity provider. Without those willing to
A standard trade going to the Nyse to buy 1,000 shares of take such a risk, there would not be an open marketplace.
GE by paying the asking price of, for example $20.30, has a Now, since the exchanges need to make money, they would
fee of $2.10 (21 cents per hundred). This is over and above charge those who were “taking” liquidity — that is, those
what your brokerage charges you for commissions. If you’re paying to hit bids or take out offers. There was a differential
an active trader, perhaps buying and selling 20 times per day of about 10 cents between what you would get paid and what
(40 trades, or 40,000 shares), your cost could be around $84 you would pay. This was okay for a few years, but with the
per day. This type of trading is very common, but things are advent of flash trades, subpennies, and high-frequency trading,
changing. I use the Nyse as the most liquid example, but this model in itself has become obsolete. This had an impact
obviously, most market centers charge similar fees. on overall liquidity.

Dark pools of liquidity Inverse ECNs

There’s liquid, and there’s dark pools of liquidity. What is that, So we now get to the inverse Ecns. Why would someone pay
you ask? These are pools of liquidity that are not displayed; us to hit their bids or take their offers? Seems counterintui-
basically bids and offers that traders cannot see, run by broker- tive, doesn’t it? In this fast-paced technology-driven market,
ages and exchanges. For my purposes, as examples, I’ll use the many are willing to pay to be first in line. If you’re sitting on
SigmaX (the Goldman Sachs dark pool) and Bats Exchange.
These pools can have “midpoints,” or simply bids and offers
at half-penny increments. If you were to route to SigmaX or
Bats “Mid,” you could save a full half penny in pricing. For
those 1,000 shares, you were trying to pay $20.30 but filled
at the price of $20.295. That may not sound like much, but
instead of paying $2.10 to Nyse, you saved $5.00. That is a
$7.10 difference in your favor. Do that 40 times in a day, and
you save $284.
Of course, you won’t always get that half-penny savings,
but since you can route your orders to check or “ping” that
option first, why not? My random sampling showed that about
20% of my trades in GE were at a midpoint.
Ray Pellecchia Jr. of Nyse Euronext made a comment about
this that you should also consider: “Of course, there are risks
in this strategy. By working away from the displayed markets,
you can miss a displayed quote. And at a broad level, too much
trading in the dark discourages the display of liquidity and
can harm price discovery in the primary market, on which the
other markets rely as a reference price.”
Midpoints would be the first stop for our immediate or
cancel (Ioc) order type that we send off with our automated
router, thanks to Goldman’s Seeker program. If we are not
filled at a midpoint, then we go to inverse electronic com-
munications networks (Ecns) next. But before that, we must
consider liquidity.

Providing vs. taking liquidity

For several years, traders have been paid to park or rest their
orders on Ecns and exchanges. That made sense: You were the
one willing to place and keep your bid or offer for the world For more information circle No. 17

June 2011 • Technical Analysis of Stocks & Commodities • 37

+1106 Bright routing.indd 2 4/25/11 6:33:42 PM

 TRADING TECHNIQUES

a bid, hoping to get paid for providing liquidity, you may not n Park on Nyse since they too pay you $1.30 per 1,000
get hit because the other side doesn’t want to pay to hit your shares for resting orders.
bid. This dried up liquidity, and the liquidity providers were
simply missing trades. The phenomenon of “paying a little This is simple “get in, get out” type of daytrading — route
to make a lot” came about. You might pay a small fee to be
to midpoint, but miss it, then go to Nqbx (Nasdaq Boston)
the first one to buy or sell at your chosen price limit. Just ask
and get paid $1.40 vs. paying Nyse $2.10. You save $3.60
any trader, and they’ll tell you that “I was on the bid, it traded
per trade on 1,000 shares.
there, but I didn’t get filled, cost me money.” If shares are not available at midpoint, go to Nqbx, then
2011 • Technical Analysis of StockS & commoditieS to Cbsx (Cboe stock exchange), Ybats, Edgea, and so on.
Smart order routing Check the places that pay you first with a nano-second Ioc
Now let’s go the best of both worlds. We can send order. If nothing is available, then have your router go to a place
ntact Karen Moore with approval
Ioc ordersortochanges:
ping market centers in the order we where you have to pay to take liquidity as a last resort.
want them to
6-938-0570 ext. 312 • fax: 206-938-1307 go. So if• we’re hitting
email: bids or taking
KMoore@Traders.com In the few months since we started using this new smart
offers, we only go to destinations that will pay us routing system, I estimate that our one-million shares per
or give us midpoint pricing. month traders are making/saving $2,000 to $4,000 per month,
S&C
When we see action in the market we want in which is not bad. Even new traders who only trade 200,000
proof #1
quickly, but then we are willing to wait for the shares can save a few hundred dollars every month.
price to come to our exit point: What can you take away from this? Treat your trading as a
business, be sure you know the “game,” and make sure you
n Route to midpoint versus Nyse taking fee = Save
have the best tools.
$7.10 per trade of 1,000 shares

n Park on Arca versus Nyse taking fee = Save $4.10 Don Bright is with Bright Trading (www.stocktrading.com), a
per trade of 1,000 shares, or professional equity corporation with offices around the US, and
writes a monthly Q&A column for Stocks & Commodities.
The author thanks David Harris, the Ceo of Cboe/Cbsx;
Joe MeCane, executive vice president of Nyse Euronext;
David Herron, Ceo of the Chicago Stock Exchange; Brian
Hyndman, senior vice president, transaction services, the
Nasdaq Stock Market; Bryan Harkins, Coo of Direct Edge;
and Gene Davidovich, director of sales at Direct Edge. These
people, along with some friends within the industry, helped
put together this piece.
®
+
S&C

Thank you for voting

NeuroShell Trader #1
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9 yeArS In A row!

Just announced
New 6.0 & Power User versions

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38 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Bright routing.indd 3 4/25/11 6:36:12 PM

 Explore Your Options

Got a question about options?

Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com),
an education and publishing firm dedicated to teaching investors how to minimize
their risk while maximizing profits using options. To submit a question, post it to
our website at http://Message-Boards.Traders.com. Answers will be posted there,
and selected questions will appear in a future issue of S&C. Contributing analysis
is by senior Optionetics strategist Chris Tyler.

Tom Gentile of Optionetics

Weekly Options ing expiration, so the maximum time in Sixth Cents

I’ve noticed the more active large-cap the contract’s life will be six or seven Of the factors that affect an option such as
stocks are offering options that expire trading sessions. Weeklys aren’t listed time to expiration, stock and strike price
weekly. Can you give some background when the regular cycle is setting up with and supply/demand characteristics,
on how these contracts work and how the front month entering its final week of which do you see as most critical?
they might differ from standard listed life. That makes sense, as putting a fresh Let’s start by outlining the six char-
calls and puts on equities? weekly contract on the board would be acteristics that form the basis for option
Good question. What you’re seeing redundant as the two contracts would be prices. A trader needs to know the stock
listed in names like Apple (Aapl), Gen- the same other than open interest. price, strike price, time to expiration,
eral Electric (GE), Google (Goog), and dividends (if any), interest rates, and
other highly liquid, large-cap stocks are Interest-ing Call implied volatility.
weekly options. The exchanges and your If interest rates are climbing, is it true All are important in how an option
broker can provide you with an up-to- that call prices go up? I thought the is priced, but interest rates is the least
date listing. This product will continue market acts adversely to rate increases, important and only becomes challenging
to grow, given the strong response from so if share prices went lower, why would for longer-term contracts. The same could
option traders for this new offering. calls increase? be said about dividends. Only if your
With these contracts, there are similari- I believe you’re mixing information, contract were priced for several of these
ties, as “weeklys” are standardized con- which while related are separate and not cycles should a trader need to consider
tracts in most ways. For one, the models necessarily correlated matters. If traders its impact more thoroughly.
used to generate prices for regular con- believe monetary tightening will threaten Stock and strike price and time to expi-
tracts are the same as for the weeklys. corporate profits, then market prices ration are easily defined variables with no
The weekly is simply a means by are apt to go lower. On the other hand, “what-if” unknowns, but are very critical.
which to allow traders to place positions if investors see that same policy action The first two form the basis for whether
on a very short-term contract when none as curtailing potential inflationary pres- the option has intrinsic and/or extrinsic
would otherwise be available if the front- sures and/or because economic demand value, while the latter influences just how
month contract still had two to about five warrants such measures, then the market much extrinsic or time value might exist
weeks of life remaining. This also means could react bullishly. at any given time. The more time left in
the risks (and rewards) surrounding the How the market reacts aside, call prices a contract’s life, the greater the chance
theta and gamma are heightened, as they will increase in value when interest rates for some extrinsic value to exist.
would be with regular contracts. increase. This is because a long call has Then there’s implied volatility. Implied
Another similarity is the multiplier for positive rho, the greek associated with volatility (IV) is traders’ collective vote
calls and puts. Each contract represents interest rates. A positive rho factor will on current and forecasted conditions for
100 shares of the underlying instrument. increase the premium of the option by the contract based off the underlying
American-style exercise is another shared that amount per one-point shift up in volatility (statistical or historical). IV is
characteristic. The right to exercise early interest rates. the most consistently challenging vari-
if you’re the contract holder and the Why? It comes down to theoretical able, as it can truly be a wild card as far
obligation to take assignment, if you’re pricing. When the long call is fully hedged as pricing is concerned.
short, are factors. directionally on a risk-neutral basis, the Turns in investor sentiment and shifts
Finally, weeklys also expire on Fridays. trader’s natural offset is short stock. When in IV such as increased fear resulting in
If there’s an exchange holiday for an rates increase, the added interest taken in higher IV levels shouldn’t be underesti-
“expiration Friday,” the weekly’s life will from the short stock inventory means the mated. If you have an understanding of
be cut short by one day and expire at the call will be more valuable and therefore those six factors, you’ll have a more solid
close of business that Thursday. priced at a premium to the same call in sense of how all those “cents” combine for
As for the differences, weeklys are a lower rate environment. the total premium of an option contract
listed on the Thursday or Friday preced- at any point in time. S&C

June 2011 • Technical Analysis of Stocks & Commodities • 39

+1106_Gentile_Tyler_QA.indd 1 4/25/11 4:11:54 PM

 My Trade Watchdog

Advanced Oca Orders

Here are some simple ideas and concepts to trader in Europe watching the US market, it is even more

victor MARCHAND Kerlow

automate stops, using “one cancels all” orders. difficult, due to the time difference. I don’t want to spend
all my evenings in front of one screen, let alone multiple
screens.

E
by Heinz Popovic As a result, I use “one cancels all” (Oca) orders to secure
my positions and create flexible exit scenarios. A standard Oca
very trade demands a stop-loss order. I cannot enter order consists of two legs — one to take profits at a predeter-
a position without a stop because the size of every mined target and the other to limit a loss. Once either of the
trade is limited by the distance from entry to stop. Since my orders is triggered, the other one is canceled.
trading horizon is anywhere from several days to several I use Oca orders to set a larger group of orders that are
weeks, I move stops in the direction of the trade once the connected and only one of them will be filled; I want to use
price moves in my favor. limit orders whenever possible. Think of using a trailing
Modern platforms provide the ability to use trailing stops, stop order. This means that when the stop price is triggered,
moving stops in the direction of your trade. When the price a market order is issued. Such an order will most likely add
moves against you, that triggers a stop and you are out with another small loss due to slippage. Using a trailing limit order
only a small loss or even with a profit. This method is often can solve this problem. The trouble is that a trailing limit order
used for profit-taking, especially when you expect the market might not get filled if prices jump across it in a fast market.
to move quickly in your direction. My solution is to set a second order that is a classic trailing-
No matter how you decide to move your stops, there are stop order slightly below the trailing-limit order. A trailing
some additional concepts to help protect your trades. Think stop can follow the trailing limit order at two cents below. If
of a watchdog that guards your positions while you are not in your trailing limit order is not filled, you will most probably
front of your computer. Even if you sit in front of the screen, exit on a trailing stop order. In addition, you could also set
you cannot monitor too many tickers at once. For me, as a a hard stop that is not moving. If you are afraid of overnight
40 • June 2011 • Technical Analysis of Stocks & Commodities

+Popovic.indd 1 4/27/11 4:36:06 PM

 HAL@SMART - 01/26- 01/28 15:16:48 5 min bars

3 days 5 min bars 18

44.75 Buy
Sell
44.50 Alert 44.78 T C

44.25 Trailing LMT &

trailing STP until
44.00 Monday evening
in case 44.8 is
reached. Trailing LMT &
43.75 trailing STP
-1 ATR following
43.50

43.25

43.00
Sell STP - inactive - not yet transmitted
42.75 42.75 T C

42.57 T C
42.50 Stop 1
42.25
Sell STP - inactive - not yet transmitted
42.00 42.00 T C
900.0K

41.75 Stop 2
for gap
41.50 Securing
at least
breakeven
41.25
Entry Sell STP - inactive - not yet transmitted
41.00 40.75 41.00 T C

Buy LMT - inactive - not yet transmitted

40.75 40.75 T C

40.70 HAL@SMART
Price axis locked. Click lock icon to reinstate auto-scale

1.0M

1.25M
500.0K

750.0K
250.0K
1.2M Volume
1.1M
1.0M
900.0K
800.0K
700.0K
Volume

600.0K
500.0K
400.0K
300.0K
200.0K

INTERACTIVE BROKERS
100.0K
01/27 01/28

FIGURE 1: CREATING ADVANCED EXIT STRATEGIES. Here you see where you should place your stops, trailing limits, and trailing stops if you enter your position
at 40.75.

gaps, you might even set several such hard stops. them activated, depending on the market situation.
All of these orders are connected in one OCA group. This I use Interactive Brokers (IB), where this can be done via
means that as soon as one of these orders is filled, all other alerts. You can create a set of trailing orders that are only ac-
orders are automatically canceled. tivated after a certain price is reached within a defined time.
This allows you to create orders for a fast rising or falling
CREATING ADVANCED EXIT SCENARIOS market. If the market moves slower, it triggers another set of
If you are not in front of the screen, you can still create advanced trailing orders.
exit scenarios. I am not referring to programming a trading With OCA, no matter how many orders you place, only one
system, but putting together some simple ideas and concepts of them will fill, exiting your position in a better way than if
that can be used on many brokerage platforms. you left the market on its own. For example (see Figure 1):
Imagine that you want to prepare yourself for several sce-
We are long 200 shares of Halliburton (HAL), entered
narios: a sharp decline, a sharp rally, and a normal increase.
■
on Wednesday at $40.75.
You could create a set of different trailing orders and have
June 2011 • Technical Analysis of STOCKS & COMMODITIES • 41

+Popovic.indd 2 4/29/11 10:48:47 AM

 FREE
REAL WORLD

n Since then, it moved up to $44 and closed on Friday

at $43.88.
We secure the position with the following stops:

30-day trial!
n

• Initial stop limit at $42.75 because we don’t want

to give away more than that from our profit.
• Second stop limit at $42 in case there is a large Just click on the
negative gap that would jump over our $42.75 initial
stop. Traders.com Advantage
• Ultimate stop at $41 in order to at least break even
column header at
if the market gaps across both limit stops. Traders.com.
n We would normally expect the stock to move below
$44.80 on Monday and would like to pull up our trail‑
ing profit, taking orders with one average true range
(Atr) from the present price. Therefore, we set a pair
of trailing orders as follows:
• Trailing limit order that follows the price by ‑1 Atr
trigger, with a limit order $0.01 below the trigger.
This order should work out if enough liquidity is
available.
• We secure this with a trailing stop order that will
fire a market order $0.03 below the limit trigger.

n If the stock shoots up to $44.80 or higher during the

Monday session, we expect this region not to hold for
long and therefore set another pair of trailing orders
with a tighter trailing distance. This second order is
Real-world technical analysis —
only valid until Monday market close — again, one for all the timely trading tips
trailing limit order followed by a trailing stop order. you could want!
All orders are created within one Oca group. Overfill
protection must be set the same in all orders within the Oca DAILY UPDATES ON:
group! • Charts
An Austrian trader, • Indicators
Heinz Popovic is a • Currencies
graduate of a traders’
camp and a member of
• Stocks
the SpikeTrade group. • Commodities
He may be contacted • And How-To Advice
at europe.trading.
blog@gmail.com.
One-year subscription is $64.99*
Suggested To order call toll-free:
reading 1-800-832-4642
E l d e r, A l e x a n d e r or online:
[2002]. Come Into My
Trading Room, John
www.TRADERS.com
Circ@Traders.com
Wiley & Sons. Ph: 206-938-0570 • Fax: 206-938-1307
‡Interactive Brokers *Washington state residents add
sales tax based on your locale.
Use code TA10A3
S&C

42 • June 2011 • Technical Analysis of Stocks & Commodities

+Popovic.indd 3 4/25/11 5:09:44 PM

 FUTURES FOR YOU
INSIDE THE FUTURES WORLD
Want to find out how the futures markets really work? DeCarley Trading senior analyst
and broker Carley Garner answers your questions about today’s futures markets.
To submit a question, post your question at http://Message-Boards.Traders.com.
Answers will be posted there, and selected questions will appear in a future issue of
S&C. Visit Garner at www.DeCarleyTrading.com. Her books, Commodity Options
and A Trader’s First Book On Commodities, are available from FT Press.
Carley Garner

HEDGING PRICE RISK contract represents 5,000 bushels). Doing nothing proposal; I suggest using standard
Is there a way to hedge price risk in the so locks in the sales price and eliminates technical analysis techniques to determine
futures market without giving up potential the risk of adverse price movement from overbought and oversold market condi-
for favorable price movement? the time the hedge is established to the time tions. There are ways to implement partial
The goal of a perfect hedge is to it is offset (at the time of the sale of the hedges, or sell option premium around
eliminate the price risk exposure in any crop). However, it would also prevent the a futures hedge to mitigate the frustra-
particular market. In doing so, however, farmer from benefiting from higher corn tion of hedging too early and producing
the end user also gives up any favorable prices during the same time frame. Simply income to the hedger. By taking the best
price movement. stated, although this form of insurance of both worlds, producers can reduce,
Hedging is like any other form of insur- doesn’t involve an initial cost or premium, but not eliminate, the price risk while
ance; consumers pay a premium to insur- a long option hedge would, but there is a giving themselves the opportunity for a
ance companies to protect themselves from substantial opportunity cost in the form blockbuster year.
unfavorable events that will likely never of forgone price improvement. In the case of a short hedger, futures con-
occur. In other words, it isn’t possible to The optimal course of action is an at- tracts can be sold short incrementally as the
enjoy the benefits of protection without tempt to take the best of both worlds. For market rallies into technically overbought
giving something up. But that doesn’t mean instance, failure to use the futures markets levels. On the flip side, as prices fall into
that the hedge itself can’t be strategic. to hedge price risk exposure in the cash oversold territory, it might be prudent to
Whether you are a producer or a user market is equivalent to cash market specu- sell out-of-the-money puts against already
of commodities, you can purchase price lation. In other words, a soybean farmer established short futures hedges. Note that
protection in the form of a long option. For who isn’t hedging is essentially wagering this strategy should only be done in volatile
instance, if your business consumes large on higher grain prices. and oversold market conditions.
quantities of gasoline and is vulnerable In some circumstances, this might make In addition, the timing of the hedge
to higher energy costs, you can purchase sense. For example, if soybean prices are should be in accordance with seasonal
insurance against prices moving beyond a at seasonally or historically low levels, it tendencies. Specifically, grain prices tend
certain point by buying a call option. Doing seems wise to leave some upward price to rally from the October lows, suffer from
so will be expensive, but it does provide potential or maybe opt not to hedge at all. a February break, and then rally into mid- to
absolute protection above the strike price On the contrary, if prices are near all-time early summer. Therefore, it doesn’t make
of the option and leave the door open for highs, it is imperative that most of the price sense to attempt to hedge in November at
falling prices. As appealing as this sounds exposure is hedged. I recall speaking to a time when prices tend to be supported.
on paper, I don’t believe it to be the best wheat farmers in 2008; as wheat prices On the other hand, placing incremental
way to hedge. After all, options have a were peaking near $13, many farmers hedges during the spring rally could be a
limited life span, and the money spent were holding out for higher prices ($18 winning strategy.
buying protection when it is not needed was the pipe dream) rather than locking in Once short futures are in place, sudden
will certainly act as a tax against any a fantastic year, or at least hedging some spurts of downside volatility might create
favorable price movement. of their price risk. an environment in which your hedge can
Perhaps a better way to establish a price Ideally, a hedge should only be estab- produce income through premium col-
hedge is a modification of a simple long lished if prices are expected or are likely to lection, or simply selling puts at distant
or short futures hedge. For instance, a move unfavorably. Unfortunately, without strikes. This is similar to a covered-call
corn farmer expecting a yield of 20,000 a crystal ball it is nearly impossible to strategy in stocks, but it is in the opposite
bushels in the autumn might want to lock know when a hedge is optimal and when direction. Because the hedger is short
in the sales price of his crop well before to simply let the market work for you. In futures, there is no risk other than the pos-
harvest. Traditionally, a farmer would essence, you can’t control the market but sibility of losing the benefits of the futures
simply sell four September or December you can control how you react to price hedge below the strike of the short put.
(depending on expected time horizon and movement.
preference) corn futures contracts (each Hedges don’t have to be an all-or- S&C

June 2011 • Technical Analysis of Stocks & Commodities • 43

+1106_Garner_FuturesQA.indd 1 4/25/11 4:28:16 PM

 INTERVIEW

Afraid To Trade?

Conquering Your Trading Fears

With Corey Rosenbloom
Corey Rosenbloom, CMT, is the founder of www.afraidtotrade.com, a website dedi-
cated to helping traders overcome their trading fears through education, and is the
author of The Complete Trading Course (John Wiley & Sons, 2011), which outlines
how to combine foundational principles, analysis techniques, and trade setups into
a broader perspective. He began investing using fundamental analysis in 1998
during the runup to the market top in 2000, and the ensuing bear market opened
his awareness to the field of technical analysis as a way to enhance performance
and manage risk more effectively. Having also incorporated sector rotation and
intermarket analysis into his investment and trading strategy, Rosenbloom switched
to shorter time frame trading tactics to capture additional edge from the price
action and trends. He began writing the afraidtotrade.com blog to share some of
his experiences and define strategies, which detail his unique style of incorporat-
ing both the larger perspective of intermarket analysis with the shorter, intraday
trading strategies that can be employed to minimize risk.
STOCKS & COMMODITIES Editor Jayanthi Gopalakrishnan and Staff Bruce R.
Faber interviewed Rosenbloom via telephone on April 4, 2011.
Traders who are unbiased
orey, tell us how you got in- the early success in the first few years.

C terested in trading. While I was in college, the stock market

and not scared to
I credit my father, who crashed. We lost money, but not to the take advantage of the
is an investor, and who was extent that many others did. We had unexpected are in the
constantly prodding me to study busi- friends here in Huntsville, AL, who got best position.
ness. We would talk stocks each evening, involved in the tech bubble and they
though what really got me into it more lost almost everything, because they got
than just for fun was a stock market involved in that mania. They made a lot I use charts as a way to time my entries
challenge in my high school. That got of money quickly, but they lost it just as and exits. Once you have identified a
competitive and the entire class partici- quickly. We were able to sidestep that. good company, you have to ask how
pated, and our team placed quite well, My dad instilled in me that I shouldn’t and when you actually purchase it. You
with most of us taking the challenge very just enter a trade because I thought it was could buy on a pullback, but what does
seriously. That got me motivated. Dad interesting or hyped-up, or the price was a pullback mean? What are some indi-
helped in terms of looking at stocks and low. It is all about price, fundamentals, cators that help you with that? As I got
he focused on investment style, similar and values. So do what works and stay more involved in technical analysis, it
to that of Warren Buffett. He would read away from what doesn’t. Sure, we lost really energized me and I found I liked
company prospectuses and focus on the money in that period, but we had early pattern recognition and solving puzzles.
fundamentals of the company. success, and that got me hooked. The charts addressed all the things I liked.
That was before I discovered and Of course, around that time in 2003, the
started to practice charting. Of course, When did you get interested in chart- markets were in a recovery phase and
the market went up in 1998, 1999, and ing? almost everything was going up.
2000. We did not get involved in the tech In college. I got involved in technical So with my father’s fundamental
market bubble. We stayed away from analysis through visiting StockCharts. analysis–investing style and the runup
the stocks we did not understand. If we com, reading books by John Murphy and into 2000, technical analysis came into
could not talk about it, or understand it, Martin Pring. I got involved in a hybrid the picture as a way of showing me how
or read the fundamentals of it — and strategy where you select companies with I could sidestep the down moves. From
a lot of those companies did not have good fundamentals but use the charts too. there, my love of technical analysis grew
fundamentals at that time — we just did If the stock is a good fundamental buy and I moved away from fundamentals
not take part. but the stock is trending down, maybe it over the next decade.
It was good to have that runup and is not a good time to go long that stock.
44 • June 2011 • Technical Analysis of STOCKS & COMMODITIES

+Rosenbloom Interview.indd 1 4/25/11 4:30:07 PM

 WITH ALL THESE INDICATORS ...
MACD HISTOGRAM RSI FIBONACCI FORCE INDEX TRIX

WILLIAMS %R CHAIKIN OSCILLATOR AROON AROON OSCILLATOR ROC

ATR CCI PVO ACCUM/DIST STOCHASTICS

CMF BB WIDTH %B OBV DPO

ULTIMATE OSCILLATOR SLOPE STOCH RSI MFI STD DEV

MACD VOLUME ADX PRICE PERFORMANCE PPO

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 INTERVIEW

Have you moved away from the funda- With uncertainty comes fear. For me, breaks. There are lots of ways to make
mentals completely? the title was a catchy name that rhymed, money. They are not necessarily easy,
Almost. I traded a hybrid strategy described my interest, was related to my but they can be learned over time. The
from 2004 to 2007 with my father’s education, and had elements of psychol- psychological aspect of it is the disci-
account and mine, but we would look ogy associated with technical analysis. pline. How do you put these positions
at it together. We would ask questions Over the course of the first few months on in the context of uncertainty? Which
like, “Why is this company important?” I expanded my content. My knowledge indicators do you use so you do not get
“What are the fundamentals?” I would and experience have expanded as well. too much information, overloading you?
show him the charts and tell him that It encapsulates more material on inter- A lot of it will depend on an individual’s
the stock was not a good buy or that we market analysis and charting analysis, personality, experiences, risk tolerance,
should wait for a pullback or breakout, so I transitioned the website into more and susceptibility to negativity. Psychol-
or wait for an indicator to give a signal of an educational analysis and daily ogy is much harder to work on than
before we put on a position. commentary to help me share ideas learning strategies, I think.
As I got more successful with the and get feedback. So the objective of
charts, I moved away from fundamen- afraidtotrade.com is to overcome your What are some of the common fears
tals. I found the charts to be a lot more fears with education. that traders have besides the fear of
fun. I still have some knowledge about losing money?
the fundamentals, but I am exclusively You studied psychology in college. Do The fear of losing money is the big-
a technical trader at this point. you think that background helped you gest because it speaks to all of us. In
tackle some of those emotional issues a presentation I went to, the speaker
How did you come up with the name of that come up so often in trading? asked, “What does money mean to
your website, Afraidtotrade.com? Absolutely. When you trade, you get you?” People said security, happiness,
When I was trading in college, I met excited. You don’t see the downside of a good retirement, a boat, travel, and so
people who were doing similar things. it. It is fun. You see others being suc- on. Some people said power. So money
We got a group together, and about 2006 cessful at it and you think you can be means all of these things to us. The
or so I developed a private website for like them too. And usually you do make speaker said, “When you are in a los-
us to share strategies and comments, some initial successful moves off your ing trade, what you are losing are these
which was almost like a forum. It had first few trades. things such as your security, your power,
links, different ideas, information on But eventually, something will happen your self-confidence.” Losing money is
indicators, and we all posted on it. It was and your overconfidence will lead you to a great fear, but it goes deeper than that.
a place to put information we could all make poor decisions. You will overlever- It is our ego. It’s our personality. It’s our
access. age, overcapitalize, trade too frequently, dreams and aspirations. So losing is a
My parents suggested that I not limit and then something goes wrong. That very deep-seated emotion that threatens
it to my friends. Given the blog world traumatic experience brings people to our security.
was kicking in, I thought it would be a come to a fork in the road — a decision Then there is also the fear of missing
good idea. My influences were people point. If you’re lucky, and this is what out. As the markets rally higher and
like “Trader Mike” Seneadza and Brett happened to me, the initial success or pas- break through resistance levels, traders
Steenbarger, but there were not a lot of sion that got you interested in trading will on the sidelines are going to be neutral.
them. Initially, I wanted to get the ideas be enough to overcome that temporary, Why? Because they see the market going
out there for the public. Because I kept in almost inevitable setback. Those who up on a lot of bad economic news. So
touch with people I met at Traders’ Expo, had a good experience early on will be on the one hand they want to go long
it grew much quicker than I expected. able to overcome the setbacks because and buy the market and profit from the
As for the name, “afraid to trade” they have the motivation, experience, upward movement, but on the other
was something I experienced. We all go and passion. hand they think the market looks toppy
through periods of excitement when we Those who don’t have that end their and suspect that the moment they open
make money, but we also lose money in careers early. Maybe they will come back a long position, it will reverse. These
trading. Trading is a balance between to it later in life, but if the first thing they fears can lead us to jump in at the last
fear and greed. I lean toward the fear experience is fear without any initial suc- minute. You see the price going up and
more than the greed. I tend to be more cess, it’s very difficult to overcome that you just can’t take the chance that you’ll
overcautious and conservative with fear as the market is seen as a volatile, miss out.
financial investments. threatening place. Then there’s the fear of failure. Los-
So “afraid to trade” is a very com- But trading strategies are an important ing money is one issue, but failure goes
mon thing. Losing money is scary. The component. These can be easy to learn. along with that. By failure I mean you
markets are unpredictable. You can’t just Strategies include indicators such as may not have fulfilled your goals or
say, “Tomorrow the market will go up, stochastics and relative strength index dreams, or your spouse and your friends
so I am going to make a lot of money.” (Rsi), or chart patterns such as trendline may be disappointed in you. So it is a
46 • June 2011 • Technical Analysis of Stocks & Commodities

+Rosenbloom Interview.indd 2 4/25/11 4:42:22 PM

 social component in that you are losing and are harder to overcome. It’s a fear and I got 5% of a 10% move. I would
money, or your friends and colleagues mentality that develops over a lifetime look at that and tell myself my efficiency
are making money and you aren’t. So the of experiences. Some people may need was 50%.
main fears are the loss of money, fear of to have that extra push to get them The more you do that, the more you
failure, and the fear of missing out. over it from someone like a mentor or can see what you are doing and realize
A smaller fear is the fear of when to a counselor. They can then adapt their where you are making errors. You can
take a profit. That is not a fear that most trading strategies and maybe wait for recognize if you are entering too early or
people obsess over, but once you begin more information before taking trades or too late, if emotions are becoming more
to progress into a successful trader it get in smaller positions to build positive of a factor than they need to be, and then
becomes more important. When do you experiences. You shouldn’t just walk of course, if you are exiting too early or
exit a profitable position? You don’t want away and never trade again. too late. It gives you an opportunity to
to exit too early, but you also don’t want look at your experience. You are able to
to exit too late. The better you get as a What else can they do? see things you missed while you were
trader, the more fears and the more issues Journaling helped me. I am not talking in the trade. The more you see it and the
come into being. The best fear to have about making notes of my profits and more you participate in it, the easier it
is when to take a profit successfully. losses, but I would print out the charts gets, and over time you will become a
each day. Then I would overlay the en- less fearful trader.
Is there a way to overcome these fears? tries and exits I took and write what was
I think so, but it depends on personal- possible in the trade. I just looked at the You mentioned some mistakes you
ity. A person with more resilience has a chart and catalogued and identified. made. Can you give us an example?
better chance of overcoming temporary Let’s say the stock broke out to a new The one I will never forget is when
setbacks. A lot of the market wizards in high and I entered a position. Then say I was up about 25% going into 2004.
Jack Schwager’s books talk about their the market went up 10%, but I got scared There was a stock I was watching very
bad experiences, but they all overcame because there was a reversal candle or aggressively, PetMeds Express (Pets).
them. A lot of that was personal forti- something that got me out of the position I think it had moved from $2 or $3 to
tude, or just a lot of experiences with a
positive outlook. A positive attitude and
prior positive experiences go a long way
in how you treat temporary setbacks in
your personal or professional lives.
It’s also how you frame or shape that
loss. The loss should be proportional to
the emotional pain itself. It depends on
individual differences, of course. You
experience the temporary pain because
you are processing that loss. You’ll want
to relive that moment and process it as
you learn what went wrong so it doesn’t
happen again. Make a distinction between
a standard loss in the market that is normal
and a loss caused by any number of errors
that stem from not following your trading
plan. A trader should not pretend that a bad
loss didn’t happen, but instead learn the
lessons that experience has to offer.

How?
You have to reframe it so it’s a learning
experience: “With this loss, I’ve joined
the ranks of traders who have lost money
quickly. So I have to bounce back from
this and not make this mistake again.”
Most losses are not random. They come
from mistakes such as overcapitalization,
overtrading, and overconfidence. Other
losses are chronic or personality based For more information circle No. 21

June 2011 • Technical Analysis of Stocks & Commodities • 47

+Rosenbloom Interview.indd 3 4/25/11 4:42:57 PM

 INTERVIEW

$10 in 2003. The fear of missing out on So what did you do? with momentum. Buying stocks that are
that move got into my head. The market Over the weekend I called friends and breaking out and expecting momentum
was in rally mode. It was coming off the colleagues, and met with my trading to continue is a high-risk strategy. I
bottom. I had been watching the stock group, and decided to sell half the posi- was also looking at earnings and future
and one Thursday, a magazine released tion. The fundamentals were still good projections and it was working out well.
their list of top 100 best small-cap stocks, and the chart was good. So I decided to But this one stock just did not.
and that stock happened to be at the top hang on to it as long as possible but sell The good thing is that I enjoyed initial
of the list. So what did I do? half because it was under our breakeven success. My father supported me and
point. That is not supposed to happen my friends supported me. If I did not
I’m afraid to ask! with a stock that is the no. 1 growth have that support, it would have been
My father had, after my early suc- story of the small-cap world. So I did a lot more difficult. After all, you are
cess, helped fund my account. So I had that first thing Monday morning. It had isolated day in and day out. Trading is
a larger account to trade with and this actually gapped down at that point, so I very individual, but having the support
was my first trade after a large increase was down about $3,000 of real, locked- from a group of people got me through
in my personal account. I thought the in money. I held it for the remainder this difficult time.
stock was going to make my year, so I of the week and was down more than
put everything I had into this stock. It expected, so I killed the position. By After your time off, did you go back to
was so obviously not the correct thing the end of the week, that one fateful trading with a different approach?
to do. Initially, the stock went up. I think position had taken my trading account I did. I started small and had success
I had $2,000 of profit by lunch the next down over 35%. from that. I attribute my early success
day, Friday, and toward the close it was to what got me through that particular
back down to breakeven. Eventually, it That must have hurt! point. I learned a couple of different
had fallen to a loss of $1,000 before the I did a lot of soul-searching after that. things from that experience; one is that
close. It was the first time I had lost that I took some time off. That was devas- you can make a lot of money quickly by
much money in an actual account. tating. I was following strong stocks trading. But you can also lose it just as
easily. So discipline became much more
important, as did risk management, and
exercising careful position management.
Fortunately, I learned this early enough
in my career.

Would you say the support you received

from your friends and family helped you
frame your loss in a positive way?
Yes. They supported and encouraged
me. I framed it as a temporary setback
and not something that marked the end
Sneak preview … of my career. In the grand scheme of
things, it was an outcome of a single
trade and monetarily speaking, it was
not that big of a loss. It was so hurtful
because it forced me to challenge many
Comparing Seven How High Might Crude Go, of my assumptions about the ease of
Money Flow Indicators Technically Speaking? trading at that time.
by Markos Katsanos by Dean Rogers Actually, that is when I began to trade
A plethora of money flow indicators will Here’s a look at the NYMEX crude oil options. I left stocks at that point and
clutter your desktop and can sometimes front-month contract focusing on the use of traded options. Options gave me the op-
confuse you with contradicting signals. But wave projections and retracements. portunity to trade smaller sizes but with
do they have any predictive value and which a similar leverage. In hindsight, had that
one works the best? magazine not published their list of the
top small-cap stocks that day, I might not
have had that loss. But at some point I
would have experienced a similar one.
…Coming soon! The support I received from friends and
family was the biggest factor, but other
factors that got me through were personal
48 • June 2011 • Technical Analysis of Stocks & Commodities

+Rosenbloom Interview.indd 4 4/25/11 4:43:57 PM

 motivation, early success, and a love for time frame and try to determine what I
this game. can expect from volatility, the higher time
frame support and resistance levels, or
Do you trade full time now? expectations. I call them “if-then” state-
I do, but what I have done is move ments. For example, if the S&P breaks
away from stocks. From 2004 to about above this level, then it is likely to go to
2006, I was trading using a fundamental/ the next level, which is above that level
technical strategy. I was doing some on the higher time frame. So I will play
hedge-style trading with my father. We that with the S&P futures as the market
would look at the strongest stocks from moves toward that target. Or I may be
his perspective, and then look at them less active or hedge my positions if it
from my chart-based perspective, with does not move as I expect it to, based
some sector rotation in there too. I then on the higher time frame analysis.
began to hedge and got my dad to look My analysis has benefited my trading
into short-selling. Short-selling is an ag- because I can look at a market from an For more information circle No. 20
gressive method, but it was nice to make unbiased perspective. When you are in
some profits in a declining market. a position, any negative information you trends, moving averages, and price. The
That worked out well until about 2007, get tends to be pushed away and positive narrative also comes through the news.
when the market got choppy. I think information tends to be overweighed. So Is the market bullish or bearish? Can we
it made a new high that February and having a more unbiased position allows expect quantitative easing? The narrative
then fell precipitously. Then the market for better objective analysis in a lower dictates how I can play the market and
would go up and make a marginal new frame. The markets became more volatile what strategy I should look to use.
high, and then fall back again. It was a in 2008, so daytrading strategies worked
broadening formation. better for me than swing trading over the You mentioned waiting for a pullback
At this point I was making very few last couple of years. and markets that go up and up and
decisions on stocks since we were swing people have a fear of missing out.
trading. After deciding we would let the So your trading style changes with the What are your thoughts on the metals
stocks ride for the rest of the week or way the market behaves? markets?
month, I had spare time, so I embarked Yes, especially in terms of volatility The narrative will dictate what I will
on daytrading. I still swing trade a little and market structure. In 2000 the market do. The narrative right now is QE2
but not nearly as much as I used to. was bullishly exuberant. Everything — that is, quantitative easing, second
Eventually in 2008, I moved from was going up, but in 2001 and 2002, the round. So as of April 2011, QE2 has
stocks to sectors, from sectors to sector opposite happened. Those technology been rumored, initially at the Jackson
exchange traded funds (Etfs), and then stocks that went up the most came down Hole speech in August 2010, and we
from that to the Dow Etfs, the diamonds. the hardest. Between 2004 and 2007 we saw how the markets moved higher in
I traded that intraday, and then moved had a range market, technically. It was response to the possibility. There has
to trading the S&P. Before the large better to swing trade than daytrade, and been this nonstop rally. The Fed at that
volatility in 2008 I transitioned to trad- even better to use a hedging strategy. The point had a dual mandate. They have to
ing futures, which is what I have been market was creeping up, but not impul- bring unemployment down as low as
doing since 2008. sively. Swing trading worked well. possible. Then there’s price stability.
I am risk adverse so I don’t like to be In 2007–08 the narrative was with the When they made those decisions, there
highly positioned over many months, housing market, and it eventually became was a fear of deflation and a double-dip
given that in today’s markets things hap- the financial crisis, and no matter what recession. The QE2 policy was designed
pen so quickly. This offers opportunities the news or fundamentals said, the charts to boost inflation and thwart deflation.
and ways to manage risk. If you are look- were sending a picture of bearishness. You have to understand markets in the
ing at only one market, it cuts down on Any kind of shorting strategy worked context of QE2, what it really did and
some of the analysis — I used to annotate well on the narrative of the financial bear what it was designed to do.
50 or more stock charts a day — but with market collapse. The opposite was the Now, the metals markets. The benefit
futures, you are trying to piece together case in 2009 and even in 2011, which of gold and silver is that you have the
the intermarket relationships. is the quantitative easing. The bailouts uncertainty factor. Whenever the market
and support from the Federal Reserve is uncertain, gold will be a bullish bet.
What do you mean by “intermarket has kept the market rallying. So keeping Of course, gold rises with a recovering
relationships”? an intraday focus, as opposed to swing economy. What we have now is a recov-
I piece together various sectors and see trading, has helped a lot. ering economy, which is also bullish for
how movements in the various sectors af- The charts reveal what is going on in metals. You also have the stimulus and
fect the stock market. I look at the higher the higher time frame narrative — the policies, not just of the Fed, but global
June 2011 • Technical Analysis of Stocks & Commodities • 49

+Rosenbloom Interview.indd 5 4/25/11 4:44:59 PM

 INTERVIEW

governments. They are stimulating their position sizes relative to the current of
economies, which is almost like adding the trend or the current of the supply-
fuel to a fire. So of course those markets demand imbalance. These are things I
will be going higher until either the QE2 monitor, and by 11:00 am central time
is pulled out or the economies decline. (CT), I reassess the market. So I am trad-
It is almost a perfect storm of enough ing the bias, trading what is happening,
uncertainty in the global sphere, and I what I am expecting, and I will pause
don’t see an end to it until something and reconsider based on what happened
changes significantly. QE2 dictates these from the open to lunch.
markets until there is a change. Then we I try to see if I missed any news events.
will probably begin to see new impulse Then, depending on what happened in the
highs. That has been the case since morning session, I will look to play what
August 2010, and some of the markets I call the one o’clock breakout — that is,
have been up 80%, 90%, 100%. 1:00 pm CT. After lunch the markets tend
to be more active, so I get ready for that. If
Describe a typical trading day. need be, I play the breakout. If it is a range
Each morning I wake up at least two day, I will be much less active and less
hours before the market opens to get a likely to play the movement at the close.
sense of what happened overnight and If it is a trend day, I will be more likely to
to prepare for the day. I exercise a little, play the expected continued movement.
get my heart rate up and get my brain in The day’s structure dictates my trading
the right mode. I watch the news, look strategies and how active I am.
at the overseas market, and watch what
is happening. I have a checklist in terms What do you do after the market closes?
YOUR ONLINE of what I am expecting for the trading I assess my performance, make my
day. If the overseas market is active, it journal entries, and write my subscrib-
RESOURCE increases the odds for a trend day and I’ll ers’ report. I have been doing that for
FOR be more active in positioning that day.
If there is any kind of big news event
four years now. I take the day’s structure
and print my entries and exits for the
TECHNICAL or big market moving event before the subscribers. I list four or five trades in
open, I’ll note that and prepare for the the futures market or the S&P or Spy
ANALYSIS volatility expected. And of course, when and describe why they were important,
the market actually opens, if there is a how to manage them, what you could
gap, it will most likely be impulsive. I’ll see in advance, what took place — that
look to see if the internals are confirm- is, breakout, retracement, momentum
ing. I am looking for confirmations or impulse, momentum fade. So we get
nonconformations. If I see confirmations the benefit of learning and seeing these
I will fade the gap, and if I see noncon- things over and over again.
formations, which will be indicative of After that I catch up on phone calls
a range day, I will use more fade-style and emails. I come back to the markets
strategies. I look at Bollinger bands. in the evening and set up for the next day.
If there is a gap, confirmation from I am looking at 30-minute, 60-minute,
internals, confirmation from volume, and daily charts for levels for expecta-
and confirmation from leading sectors, tions on the lower frame. These will
then I am more likely to play a trend-day guide my next day. I look to see if I can
style, which is my favorite. That is where expect a range or trend day, high- or low-
I make the most money. volatility structure day, and if the market
The market will have lots of telltale moves with expectations, I’ll be active.
signs, like overnight sessions, premarket If it does not, then I will be less active.
news, large relative gap, nonfill of the I will even be sitting on the sidelines if
gap in the first hour. At that point, you it’s very choppy and opportunities have
can trade the momentum moves. I sup- left the market.
pose I am a momentum trader at heart.
The market needs to go into a trend-day Do you consider yourself to be a dis-
mode where retracements and breakouts cretionary trader?
become buyable so you can have larger I am a discretionary trader, almost
50 • June 2011 • Technical Analysis of Stocks & Commodities

+Rosenbloom Interview.indd 6 4/25/11 4:46:00 PM

 exclusively. I do a lot of research on stop- a surging market, resistance from bears speaking with us, Corey.
losses. That is what helped me overcome who are covering their shorts. The new
fear. I am looking at different strategies to bulls are coming in and they are adding to Related reading
figure out the expectations. I know people positions or are just putting on new ones. Gopalakrishnan, Jayanthi [2006].
who are quantitative purists. They will That creates a temporary, yet powerful, “Michael ‘Trader Mike’ Seneadza:
do their research and base their trades on positive feedback loop. I don’t know From Swing Trading To Daytrading,”
quantitative research. It almost defaults any other way to find that except from interview, Technical Analysis of
to fade-style, mean-reverse strategies, observing and seeing it multiple times. Stocks & Commodities, Volume
OCTOBER
which is fine. But sometimes 2010I•don’t
the trend Technical
know ofAnalysis of STOCKS
any kind of indicator & COMMODITIES
24: July. magazine
is going to overrule them. So a lot of or quant method that can find that for _____ [2005]. “Brett Steenbarger,”
times research has itsPlease
importantcontact
place inKaren
you.Moore with approval or changes: interview, Technical Analysis of
a trader’s life, but ultimately, we make In fact, that kind of maneuver occurs Stocks & Commodities, Volume
money based on our decisions, psychol- because things failed when they should 23: July.
phone: (206) 938-0570 • fax: 206-938-1307 • email: KMoore@Traders.com
ogy, and proper application of what we not have. So traders are popping out of Murphy, John J. [1991]. Intermarket
have learned. I will do my research and their stops. That leads to a good move Technical Analysis, John Wiley &
have the knowledge of quantitative re- for those who are able and positioned Sons.
search, the knowledge of what is likely to take advantage of that. These big
PROOF #1[1999]. Technical Analysis Of
_____
to work and what is not, but at the end unexpected moves happen a lot. When The Financial Markets, New York
of the day, I am looking to play supply the market does something it should not Institute of Finance.
and demand. have, then those traders who are unbiased Pring, Martin J. [1985]. Technical
One of the best trades that happened and not scared to take advantage of that Analysis Explained, McGraw-Hill
is something I call “pop stops” because unexpected, yet profitable, move are in Book Co.
the stops are popped. It is when the the best position. Schwager, Jack [2006]. Market Wizards,
market makes an expected move — for Marketplace Books.
example, it comes up to a resistance That’s food for thought. Thank you for
S&C
level and there are divergences, such
as a reversal candle. This makes people
think the market is going to move lower.
A quantitative technical analyst would
say the market has great odds of moving
lower. The stop is placed just above the Come visit one of the most popular trading
resistance level and the target is much
larger than the stop. A quant trader would chat rooms for Breakout Trading.
take a short and that would be the end.
But I am looking at supply and de-
mand. If the odds favor a move, I may
position into that, but I will also be objec- Breakout Trading Bull Flags
tive. My favorite saying is, “A market
that should do something, but does not,
tends to lead to a bigger than expected
move in the opposite direction.” Momentum Stocks Pivot Points
That is because people have taken the
correct decision based on their research
or models. However, the supply and
demand relationship was stronger in Swing Trading Key Reversals
the other direction. So when the market
breaks that resistance level, it does some-
thing it should not do based on common
charting wisdom. That leads to a bigger Home of DAN ZANGER, world record holder for
move for popped stops. parlaying $10,775 into $18 million in 18 months!
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traders are stopping out, which makes a
positive feedback loop of, in the case of
June 2011 • Technical Analysis of Stocks & Commodities • 51

+Rosenbloom Interview.indd 7 4/25/11 4:46:18 PM

 Q&A
SINCE YOU ASKED
Confused about some aspect of trading? Professional trader Don Bright of Bright
Trading (www.stocktrading.com), an equity trading corporation, answers a few of
your questions. To submit a question, post your question to our website at http://
Message-Boards.Traders.com. Answers will be posted there, and selected questions
will appear in a future issue of S&C.

Don Bright of Bright Trading

END-OF-DAY CLOSE IMBALANCES market close, and again 10 minutes can always enter the Moc order clear
Mr. Bright, I attended one of your classes before the close. Those who see these until the bell.
last year and found it very helpful. One imbalances may enter an order to offset Our traders have a nice addition to
of the things you taught was how to read or pare down the excess. Traders would our trading platform that updates the
and respond to end-of-day market close be able to enter buy orders to offset the number of shares initially published.
imbalances. If I recall, you said these imbalance. Generally, by the 10-minute We may see an initial 500,000 to sell,
imbalances were put out twice during listing, the imbalance would be smaller, but within five minutes we may show
the last half hour of trading. Is that still or sometimes even reversed. the actual imbalance as only 100,000,
the case? Have there been any changes This information can be valuable to the which gives a heads-up as to where the
to your thought process regarding how trader of the specific stock, or even the price may be going.
to treat them? —Edwin G. exchange traded fund (Etf) trader who Some of the havoc I mentioned occurs
may want to see, for example, the list when a stock goes from a big sell imbal-
Don, I want to thank you for your column of all the Dow Jones Industrial Average ance to a big buy one, right before the
and your help on the various Internet (Djia) stocks to find out what the senti- bell. You may be expecting a few-cents
boards. You had posted at some point ment is for the end of the day. If there are downtick in the final price, but due to a
that there had been major changes in the many more sells than buys, you can pretty last-minute order, the price may rise, pos-
market on close imbalances and even a much count on a downward bias. sibly causing a loss. The Nyse has added
new order type. Can you expand on this an order type called closing offset (CO).
a bit? —Tradercat1975 If there are many more This allows the trader to enter an order
to offset the imbalance if there happens
Let me go into more detail on the
sells than buys, you can to be more assistance than expected. If
end-of-day strategies and specifically pretty much count on a you see 500,000 to sell, you sell some
the market on close imbalance. To start downward bias. short, then place an order to buy Moc
with, during the day, many institutions — which means you are now locked into
and other trading entities submit orders This methodology has changed con- a flat ending position. But what if there
to either buy or sell shares of specific siderably since last year, and yes, we are so many shares that there ends up
stocks, with pricing to be the last trade even have a new order type added to the being an actual buy imbalance? In hopes
of the day — basically, a market order mix. We now have only one published of completing as many share orders as
for the final print each day. These orders imbalance at 15 minutes prior to the possible, the Nyse will allow for you to
can be submitted and even canceled market close. This regulatory imbalance also enter a buy order as CO. This can
until the cutoff time, which used to be can still be offset with Moc orders by be valuable to the active trader.
20 minutes before market close. At this traders. To summarize, be sure your platform
time, no cancellations will be accepted The problem with trading based on this allows you to see the published end-
and the orders are still live. The Nyse information would be that by the actual of-day imbalances, even if for no other
specialist firms would take the total buy closing time, the stock would have so reason than to see the sentiment of the
orders and total sell orders and publish much assistance, the imbalance could market for just before the final bell. Be
the net result for traders to see. have reversed from a sell to a buy, causing aware of the rules for entering, cancel-
For example, if there were 500,000 havoc for traders at the bell. Our traders ing, and offsetting these imbalances
buy orders in GE at market (end-of-day generally trade from the information, but when trading the last few minutes of the
price) and one million shares to sell at not necessarily using actual Moc orders. day. The daytrader should be especially
market on close (Moc), there would be We often see a knee-jerk reaction to a aware of this daily activity. Much like
an excess of 500,000 shares to be sold big share size imbalance go along with a the opening-only play, the Moc play is
at that final price. Again, this would hit, then cover the trade before the close. part of the traders’ arsenal.
be published 20 minutes prior to the If the stock is still going our way, we S&C

52 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Bright Stocks QA.indd 1 4/25/11 4:09:58 PM

 TAKE ADVANTAGE
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TradersAdv_DUDE_2010.indd 1 2/4/10 9:57:11 AM

 product review

One44
Ehrenberg Analytics
141 W. Jackson Blvd, Suite 1710b
Chicago, IL 60614
Phone: 800 339-7918
Email: support@trade144.com
Internet: www.trade144.com
Product: Commodities trading plat‑
form for S&P 500, Nasdaq eminis,
euro, yen Figure 1: one44 gann analysis. Using Gann terminology, namely 2x1 angles as support or resistance, this
Requirements: Windows XP/Vista/7; message cautions the trader that if the S&P 500 emini goes below 1279, you can expect that this commodity
has turned bearish.
1 GB memory; 3.0 Ghz processor or
more
Price: $299 a month software that allows you to square a drops down to the 1x1 line, you would
chart? For the S&P 500 emini, you build expect price to touch and continue back
by Dennis D. Peterson a chart where time (x-axis) and price up. Breaking the 1x1 line is considered
(y-axis) are equal units, and in the case to be an important event. You can draw

O
ne44 is a commodities trading of the S&P 500 emini, Nick Ehrenberg’s other lines from your pivot peak or val‑
platform that gives buy and sell chart is six feet tall. In fact, on what ley such as the 2x1 (26.25 degrees) or
recommendations for four very One44 calls its dashboard is a section 1x2 (63.75 degrees). The importance of
active commodities: Standard & Poor’s called Market Outlook, and one of the these lines is that they act as points of
500 and Nasdaq minis, euro, and yen. tabs is “1x1 angles” (Figure 1). resistance or support.
After downloading, just log in each time Once you have constructed a Gann From my own experience, the easiest
you want to use One44. Why just four chart, you can draw a Gann fan from examples are found with volatile stocks
commodities? That’s because One44 a pivot peak or valley. The line at 45 or commodities. I did a quick Google
is predicting where price will turn, and degrees is considered a major point of search for the most volatile stocks and
some of that prediction requires trading resistance or support. It is referred to as came up with Patriot Coal Co. (Pcx).
experience. That experience comes from the 1x1 line. If price is above the 1x1 Using MetaStock, I attached a Gann
Nick Ehrenberg, a veteran of 30 years of line, the price series is expected to be fan at a past peak of Pcx (Figure 2).
analysis provided to a select few of the bullish, and if it is below the 1x1 line, it MetaStock lets me input the rise and run
Cme floor traders. One44 was created is considered to be bearish. If your 1x1 for Gann fans, and I used a rise of ‑14
to let a broad spectrum of traders see the line originates from a valley and price and a run of 93. It is the price change
analysis. But you might still be asking,
“Why just four?”
The reason is that Ehrenberg Analytics
uses Gann charts. Most traders, myself
included, have looked at Gann theory and
just written it off as unreliable. Lurking
in the background was the problem of
squaring the chart. Platforms that I was
familiar with at the time let you approxi‑
mate a squared chart, but that is as close
as you could get. To actually square a
chart, you need to be able to use equal
units of time and price. (Wave59 is one
example of software that allows you to
do so.) Now you might want to know,
“What’s the performance history?”
One44 shows its history, and you will
see it makes a profit on two out of every
Figure 2: daily pcx with gann fan attached. Using MetaStock’s Gann fan, with a rise of ‑14 and a run
three trades. of 93 attached at a price peak, note how prices follow A and B and the fan line to the right of B. The conjecture for
So what do you do if you don’t use Gann fans is that when prices cross above the 1x1 line, they will be bullish, and this is certainly true in this case.

54 • June 2011 • Technical Analysis of Stocks & Commodities

+PR One 44.indd 1 4/25/11 4:54:36 PM

 from the peak where I attached the fan
to the low some 93 days later. This is
not as good as squaring the chart, but it
does often work.
The first thing you might notice is
that line A forms resistance (or support,
depending on your perspective) as prices
drop. Prices then move over to B and
drop down some more. They then jump
to the next line to the right and briefly
follow it down as well. When prices
cross above the 1x1 line, they turn bull-
ish. Keep in mind, I only arrived at this
result because I knew where the bottom
was and it allowed me to “force” the
solution. Lacking a crystal ball, the next
best thing is a squared chart.
Intersections of Gann fans can also
mark pivots. This is the theory, and there
are excellent examples of price behaving
in just this fashion. As traders, we know
we can always find examples to fit just
about any theory. As a result, Ehrenberg
Analytics uses other indicators as well,
but Gann fans are an important one. You
can find this type of discussion in the
Market Outlook tab.
One final point: When I looked into
Gann fans a few years back (see “Gann
and Fibonacci, Parts I, II, and III,” April
12, 2001, on Traders.com Advantage), it
made sense to include Fibonacci retrace-
ments because there were intersections
FIGURE 4: EMINI S&P 500 PRICE LADDER. A
of the two, Fibonacci retracement lines series of red rectangles ending with current price
FIGURE 3: EMINI S&P 500 PRICE LADDER.
and Gann fan lines, that were significant Current price is identified in an enlarged rectangle. identify an active short trade. Note that the red
in predicting pivots. As it turns out, one Green and orange/red markers at the ends of price rectangle on the right contains the price where
of the other tools that Ehrenberg uses is rectangles mark the high and low of the day. Near the short started.
Fibonacci retracement lines. the top of the ladder, red rectangles mark resistance
Even so, it is not something you could and hence a shorting opportunity. At the top left is
the market symbol and below that are open, high,
through the resistance or support?
easily mechanize, as there are intersec- and low prices. The blue price in the upper left is A stop-loss is identified on the ladder
tions that make no sense. But you are left the amount of market movement since the open, by coloring the small “bookend” rect-
with a few that you need to consider, and and blue indicates an increase. Rectangles on the angles on either side of price in yellow.
that’s where experience plays a role. The right identify resistance and support levels, with
1331 seen on the right matching the red rectangle
Figure 3 identifies the high and low of
result of all of this is on the dashboard price in the ladder. the day in the same way, using green and
with a Market Outlook and Messages, an orange-red coloring (see 1327.50 and
along with swing charts and price lad- 1326.00). Mind you, the day in commodi-
ders. Let’s take a look at the ladder. not as much as current price. Typically, ties is a long one, since on weekdays the
above or below the current price are electronic market only shuts down for 45
Price ladder three rectangles with price on a red or minutes, between 3:15 pm to 3:30 pm
As the name implies, a price ladder is a green background. Red marks resistance, CT and 4:30 pm to 5:00 pm CT. When
series of rectangles stacked one on top whereas green marks support. These are a trade is active, price ladder rectangles
of another with a price in each (Figure used for the simulated trades. Because will get colored to show where the trade
3). The current price is identified in the One44 is constantly predicting where started, and of course, the current price
middle of the ladder with an enlarged price will turn, it needs to get in and out (Figure 4: series of red rectangles).
rectangle. Prices a tick above and below of trades when it hits resistance or sup- Support and resistance are shown in
the current are enlarged as well, but port. So what happens when price goes rectangles on the right side above and
June 2011 • Technical Analysis of Stocks & Commodities • 55

+PR One 44.indd 2 4/25/11 4:54:53 PM

 product review

Ehrenberg Analytics
does a meticulous
job of keeping track
of their performance.

in a day, so you could see two or three

swing charts as pivots are hit or missed
and readjusted.
With a nearly continuous stream of
short-term Market Outlook messages,
as well as very frequent messages, Eh-
renberg Analytics keeps a finger on the
pulse of the market. When levels are
FIGURE 5: EMINI S&P 500 SWING CHART. The red arrow marks the time for the entry. The horizontal red line busted, meaning price goes through re-
identifies a pivot value. The red and green vertical lines are the expected price range for movement up (green) sistance or support and hits a stop-loss,
and down (red). This is typically available about 9:00 am ET but may be available much earlier if market conditions you’ll want to react within 15 minutes
are showing significant volatility.
or sooner. Otherwise, you can expect to
have an hour or so to react, or just close
below current price. One44 refers to expected pivot value. Vertical green your trade out at the end of the day. It
them as selling and buying levels. There and red lines are drawn to illustrate the just depends on how fast the market is
can be one to three rectangles and they expected price increase or decline from moving, and where Ehrenberg thinks
contain price levels. The top rectangle is the pivot value. support and resistance are located.
the scalping price, then one below that The swing charts are generally issued One44 doesn’t tell you where to exit.
is the three- to five-handle price, and the by 9:00 am ET anticipating Nyse and They expect you to be your own money
bottom one is the large reaction price. Nasdaq market opens. But if European manager and perhaps take money off the
If it is not obvious, you can hover your or Asian markets are showing abnormal table when you’ve gotten some profit,
mouse pointer over a rectangle on the activity, the prediction could come out but they always tell you where the next
right to find out the level. In the case a couple of hours earlier. In addition to pivot is expected.
of Figure 4, there are two selling levels the swing chart, One44 has a narrative Not only that, One44 has a voice
and two buying rectangles. The second called Market Outlook. You saw it in morning message called the Morning
from the top selling level rectangle is Figure 1 as a Market Outlook with the Call, which gives an overview of where
in red and indicates the entry level for 1x1 tab chosen, but the other two tabs Ehrenberg Analytics thinks the market
the trade. are arguably more important. The short- is going to go today relative to the com-
term tab is giving you what Ehrenberg modities it supports.
Swing charts Analytics expects the market to do in
Swing charts are an integral part of the next hour or so. This text is sent to Summary
using One44. In some ways, it would your cell phone if you supply your phone Ehrenberg Analytics does a meticulous
be more appropriate to have started the number. job of keeping track of their performance.
review with a swing chart, but there is Here’s what is happening. There is a You can find it on their website. Two out
nothing too unusual about its appear- long-term market outlook to give you an of three profitable trades is something
ance. It is the information drawn on it idea of where the market is going to go to brag about. You are given a market
that is interesting, and knowing a price over the next few days or weeks. Each day outlook on a daily basis, which allows
helps you understand how the pieces starts with short-term Market Outlook you to find out about both short- and
are connected. For each day you’ll see messages telling what is expected. On long-term expectations. Take a look!
a chart like the one in Figure 5, one for normal days — that is, days when there
each of the four commodities. What’s is no unusual activity — you will get a Dennis Peterson is a Staff Writer for
drawn on the chart is the point where swing chart about 30 minutes before the Stocks & Commodities.
price is expected to pivot. The arrow Nyse and Nasdaq opening. The swing
marks the time at which the prediction chart generally works for the day. But the ‡One44 (Ehrenberg Analytics)
is made, and a red horizontal line is the market is moving maybe 1.5% to 2.0% S&C

56 • June 2011 • Technical Analysis of Stocks & Commodities

+PR One 44.indd 3 4/25/11 4:55:37 PM

 At-the-Money (ATM) — An option whose
strike price is nearest the current price
(such as a gravestone or long-legged
doji) depend on where the opening
Save
over
of the underlying deliverable. and close are in relation to the entire
Average Directional Movement Index range. Doji lines are among the most
(ADX) — Indicator developed by important individual candlestick
J. Welles Wilder to measure market lines. They are also components of

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trend intensity. important candlestick patterns.
Average True Range — A moving aver-
age of the true range.
Elliott Wave Theory — A pattern-
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Backtesting — A strategy is tested or the stock market follows a rhythm or
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the strategy is applied to new data to waves down to form a complete cycle
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Bid and Ask — Highest price and lowest are referred to as a “correction” of the
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Bollinger Bands — Bollinger Bands and price targets may be projected.
copy of the
widen during increased volatility Engulfing Pattern — In candlestick
and contract in decreased volatility, terminology, a multiple candlestick professional
and when broken, are an indication line pattern; a major reversal signal
that the trend is powerful and may with two opposing-color real bodies traders’
continue in that direction. making up the pattern. (Also referred
Breakaway Gap — When a tradable
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to as tsutsumi.)
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Breakout — The point when the market Exchange-Traded Funds (ETFs) — Col-
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Call Option — A contract that gives the sold as a package on an exchange,
buyer of the option the right but not principally the American Stock Ex-
the obligation to take delivery of the change (AMEX), but also the New
underlying security at a specific price York Stock Exchange (NYSE) and
within a certain time. the Chicago Board Options Exchange
Candlestick Charts — A charting (CBOE).
method, originally from Japan, in Fade — Selling a rising price or buy-
which the high and low are plotted ing a falling price. A trader fading
as a single line and are referred to as an up opening would be short, for
shadows. The price range between example.
the open and the close is plotted as Fibonacci Ratio — The ratio between
a narrow rectangle and is referred to any two successive numbers in the
as the body. If the close is above the Fibonacci sequence, known as phi
open, the body is white. If the close is (f). The ratio of any number to the
below the open, the body is black. next higher number is approximately
Carry Trade — A forex strategy in which 0.618 (known as the Golden Mean
market participants purchase curren- or Golden Ratio), and to the lower
cies with high interest rates and sell number approximately 1.618 (the
those with low rates. inverse of the Golden Mean), after
Covered Call — Selling a call option the first four numbers of the series.
while holding an equivalent in the The three important ratios the series
underlying tradable. provides are 0.618, 1.0 and 1.618.
Doji — A session in which the open 206-938-0570 • Fax: 206-938-1307
and close are the same (or almost the www.TRADERS.com • Circ@Traders.com
same). Different varieties of doji lines Continued on page 62

June 2011 • Technical Analysis of STOCKS & COMMODITIES • 57

+PR One 44.indd 4 4/25/11 4:55:58 PM

 QUICK-SCANS
The Wizard screen, highlights both the short- and all buttons (not shown), all stocks that
Internet: www.thewizard.com long-term trend of the Dow Jones 30, meet the criteria based on the filtered
Phone: 877 396-8130 Standard & Poor’s 500, Nasdaq 100, choices will be displayed. In Figure 1,
Email: support@thewizard.com as well as the Russell 2000, the 10-year four stock prebuys are shown — Aapl,
Product: Timing system that picks Treasury bond, and the US dollar. Xrx, Txn, and F — with your prebuy
high-probability trades in four markets The program always trades with the price and stop price. When you click on
with complete trade details trend. The user can view a yearly calen- the ticker symbol, you see a chart with
Price: $499 for the first month and then dar by month and day for every market green and red bars pinpointing the trend.
$99 per month thereafter for stocks and buy and sell call by just clicking on the If you click the trend arrow for any of
exchange traded funds; same pricing for short- or long-term trend arrows. Each these four stocks for the short- or long-
futures and forex combination; $499 day is color-coded red or green. Figure 2 term trend, the complete trend history of
for first month and $159 a month for illustrates the trend history for the S&P buy and sell dates is provided in daily
all four markets. 500 for most of 2010. Green indicates calendar format.
a bullish trend and red a bearish one. In addition, you can choose particular
The Wizard offers self-directed investors The first tab, “Create a scan,” high- ticker symbols to evaluate by using the
an end-of-day investment decision- lighted in white in Figure 1, provides “Search for symbols” tab. Moreover, the
making and market timing system that filtering criteria. These include selecting price range of the securities selected can
provides specific buy and sell points for among the four investing markets. You be controlled by inputting minimum and
investments in four markets tracking need to select either a daily (signals maximum prices, as well as a minimum
over 9,000 stocks, 900 exchange traded that usually last a few days to weeks) volume option. These optional choices
funds (Etfs), 70 futures contracts, and 24 or weekly (signals that can last several reduce the large universe of stocks to a
forex pairs. The entry and exit decisions months or more) time frame. You then manageable listing.
are based on key support and resistance select a conservative or aggressive scan
levels. The program also pinpoints high- type. The latter results in profits being Sector and industry
probability trades in all these markets taken on a trade all at once, while the con- trend analysis
based on the simple concept of following servative scan takes profits periodically Individual stocks are assigned to a related
the trend. Historical backtested and live based on predetermined profit targets set sector. The program provides a ranked
data for the market calls for each invest- by the program. listing of the strongest sectors, industries,
ment vehicle provided is in a color-coded By selecting presell, prebuy, or scan and stocks. Thus, investors can correctly
annual calendar format
going back up to 20 years.
The program indicates not
only when to buy and sell,
but also the exact price to
do so, and the appropriate
price for stops and target
prices.

The Wizard
home page
Given that all we know
is this program is based
on trends, it’s probably a
good idea for the investor
to first view the market
trend on the home page
(Figure 1). The next step
is to select one of the three
scan strategies to pinpoint
viable stocks, either for
going long or for shorting,
with the exact entry and
exit signals for execution
in a brokerage account. Figure 1: the wizard home page with create a scan results. MarketTrends in the upper right corner of the screen
MarketTrends, in the up- highlights both the short- and long-term trend of the Dow 30, S&P 500, NASDAQ 100, as well as the Russell 2000, the 10-year
per right corner of the T-bond, and the US dollar.

58 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 QS Masonson.indd 1 4/25/11 6:04:14 PM

 QUICK-SCANS

Wizard always
trades with the
trend.

position themselves in
the sectors, industry, and
stocks that are breaking
out and rotating to the top
of the listings. This can all
be accomplished by using
the “Browse sectors” tool
(available only for stocks).
It provides a color-coded
trend of 15 sectors for the
last 10 weeks showing the
strongest sectors on the
top of the screen and the
weakest at the bottom,
with the long- and short-
term trend shown for each
sector. Highlighting the
sector name will reveal all
its industry components.
Likewise, clicking on the
industry will bring up all
stocks in that industry, in-
cluding any prebuys or sells Figure 2: trend history for the s&P 500. Green indicates a bullish trend, and red, a bearish trend.
with preset entry or exit
prices shown. trend, the stop price, the number of days with commentary and enhancements,
the trade has been in force after a prebuy as necessary. The blog has been posted
Predetermined or presell signal was originally given, since May 2008. Currently, Trade King,
power scans and the trade profit. A detailed quote and MB Trading, and OptionsXpress have
The last screening tool is the “Pow- chart is available. partnered with TheWizard.
erScans” tab, which provides custom
scans incorporated into the software. The Portfolios and watchlists Leslie N. Masonson may be reached at
scans are grouped separately for each of You can create multiple portfolios and lesmasonson@yahoo.com.
the four investing products. The prebuy watchlists to track your investments. In ‡The Wizard
and presell signals are instantly provided addition, there is a blog that is updated S&C
once the criteria are selected.
For those users focusing on forex,
the program provides not only daily and
weekly signals, but also signals based on
different intraday time frames including
15, 60, 120, 240, and 480 minutes. All
the signals are provided at the end of
the day for execution the next day or
when the designated buy or sell price is
reached.
No matter whether it’s stocks, Etfs,
futures, or forex that is used as the
investment vehicle, the program offers
complete information on the exact entry “We now have a high-risk income fund and growth fund, as well as a low-
and exit price, the long- and short-term risk tax evasion plan, a high-risk tax evasion plan, and a tax-deferred plan.”
June 2011 • Technical Analysis of Stocks & Commodities • 59

+1106 QS Masonson.indd 2 4/25/11 6:05:25 PM

 Elliott Wave And The Explosive Stock
Using the Elliott wave theory, you can find reaction is that the market didn’t like the company’s sales

BRUCE WALDMAN
stocks that are ready to skyrocket. figures in eastern Tunisia. Personally, that’s not a game I want
to play. Fortunately, we don’t have to play that way.
by Ryan Henry There is a way to identify stocks that are ready to make strong
price moves right away, regardless of earnings announcements

W
e all have one goal in mind in this trading game: or the newswire. Elliott wave theory is the answer. We don’t
We want to find winning investments that leave need to go through the pain of wondering how an event will
our accounts better off than where they started. affect a company’s stock price. What Elliott wave theory does
Many traders seek to accomplish this goal by is clue us into a stock’s intentions long before everyone is
digging through financial statements, news articles, and trade reading about it.
magazines in search of companies with exploding earnings or First, let’s talk about the basics of using the theory. That
industry-changing innovations in the works. No doubt, these will allow us to look at how a successful trade is executed in
things create a ton of potential in terms of a company’s stock the real world using this trading method.
growth. But we have no way of knowing how the market will
react to even the most promising headlines. Elliott wave theory
Just watch how the price of a stock changes after it beats The Elliott wave theory is a pretty complicated one, one
earnings. Sometimes it goes up, but it can just as easily go that is based on the predicted way a herd behaves over time.
down. If you’re lucky enough to find a stock that will beat You could spend most of your waking hours studying and
expectations, the only solace you’ll get to a negative market understanding the details and nuances of it all. But in the end,
60 • June 2011 • Technical Analysis of Stocks & Commodities

+WM Henry.indd 1 4/25/11 4:57:27 PM

 it all boils down to some simple
ROST (Ross Stores, Inc.) Nasdaq GS
concepts you can put to use by 1-Sep-2010 Open 50.26 High 51.37 Low 49.80 Close 50.98 Volume 2.7M Chg +1.47 (+2.96%)

the time you’ve finished reading 5

ROST (60 min) 50.98
B 58
57
this article. 3 56
At its base, Elliott wave is all
55
3 54
about identifying price patterns 53
52
as they play out on a chart. The 4 4 51
theory tells us that there are two 50
49
A
and only two types of price move-
C 48
ment that can occur at any given 1 1 47
46
time on a chart. There is trending 45
or impulsive movement, which is 2 44
the price action that occurs in the 2 43
42
direction of the dominant trend. Sep Oct Nov Dec 2010 Feb Mar Apr May Jun Jul Aug Sep
This type of price action is strong
and direct, and it plays out in five Figure 1: ross. Despite a monstrous advance in the preceding 17 months, the Elliott wave pattern on Ross Stores
indicated massive gains were still on the way.
phases or waves. The other type of
price movement is countertrend or
corrective movement. Again, this is the type of price action
that occurs against the dominant trend. Unlike the impulsive We all have one goal in mind in the
movement, corrective movement tends to be slower and
normally plays out in three phases or waves. trading game: We want to find winning
When we use Elliott wave to trade, the goal is simple: for investments that leave our accounts
a long-side trade, we want to find a stock that has exhibited better off than where they started.
impulsive upside movement followed by corrective downside
movement. If we can find that, we know that more impulsive
upside movement is on the way. This may seem like a solution embarked on a large pullback that persisted for four months.
that is too easy for the difficult problem of finding consistent Unlike the trending upside action, the pullback was less direct.
wins in the stock market. But after you watch the same thing And most important, the decline played out in three phases
play out time and time again, you’ll understand that the old as denoted by the Abc labeling on the chart.
Kiss adage (“keep it simple, stupid”) has something to it. Since three-wave moves are countertrend moves, it could
Let’s look at a real-world example of how Elliott wave can only mean that the trend was still up. At this point, the stage
sniff out big price moves before they happen. was set for another enormous five-wave advance. As a rule,
we look for the pending five-wave advance to be similar
Elliott waves and ROST in size to the initial five-wave advance — in this case, 16
Ross Stores (Rost) is a stock that had been on an impressive points. As soon as price began to advance again, it was time
run for over a year and a half at the time this particular trade to go long.
setup came to be (Figure 1). In fact, the stock had gained 174% From there, it was just a matter of waiting for the gains to
in the 17 months leading up to the high it recorded in April
2010. For many traders, a move
this big would be a deterrent since ROST (Ross Stores, Inc.) Nasdaq GS
a stock can only climb so high, 17-Dec-2010 Open 63.64 High 63.94 Low 62.95 Close 62.96 Volume 1.5M Chg -1.05 (-1.64%)
ROST (60 min) 62.96 3 66
but the Elliott wave pattern told 3 64
a different story. 4
62

During the first four months of 5 4 60

B 58
2010, Rost traced out a trending 1 1
3 56
or impulsive Elliott wave pat- 3
1
3 2
54
tern. The pattern is made up of 4 2 52
4 4
five phases or waves overall. In 2 50
addition, each of the advancing A
C
48
phases is composed of its own five 1 1 46
phases. This is exactly the type of 2 44
price movement we want to see to 2 42
confirm an established uptrend. Sep Oct Nov Dec 2010 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Once the five-wave pattern Figure 2: ross. Ross Stores explodes to the upside, following through on a very clear Elliott wave pattern that portended
completed in late April, the stock another big upleg.
June 2011 • Technical Analysis of Stocks & Commodities • 61

+WM Henry.indd 2 4/25/11 5:01:05 PM

 TRADER’S NOTEBOOK

come in. Ross Stores embarked on another enormous five- Suggested reading
wave advance that is still finishing up (Figure 2). The advance Henry, Ryan [2011]. “Trend Tracking With Elliott Wave,”
is about 17 points so far, or about 34% of the stock’s value. Technical Analysis of Stocks & Commodities, Volume
This is just one example of a successful trade using Elliott 29: Bonus Issue.
wave, but it happens over and over again. As long as you’re _____ [2011]. “Follow The Market Herd With Elliott Wave,”
able to identify impulsive and corrective price patterns, you Technical Analysis of Stocks & Commodities, Volume
too can use the Elliott wave theory to find stocks that are ready 29: January.
to explode. ‡StockCharts.com

Ryan Henry is author and lead analyst at www.wavespeak.com, Current and past articles from Working Money, The Investors’ Maga-
an investment analysis firm that boasts an enviable eight-year zine, can be found at Working-Money.com. This article was first
track record. Wavespeak provides market index forecasting and published online on March 10, 2011.
stock trade recommendations through a newsletter that is pub-
lished three times a week. Wavespeak’s analysis is driven by the
Elliott wave theory, but includes consideration for Fibonacci
mathematics, intermarket relationships, breadth, volume, and
money flow analysis. Wavespeak provides samples of current
market forecasts and a free newsletter on its website. S&C

Continued from page 57

Moving Average — A mathematical of the underlying asset closes at or
Gann Theory — Various analytical procedure to smooth or eliminate the near the exercise price of the contract
techniques based on price, time, fluctuations in data and to assist in upon expiration.
and pattern to project changes in the determining when to buy and sell. Premium — The price a buyer pays to
direction of the markets. Developed Moving Average Crossovers — The point an option writer for granting an op-
by legendary trader W.D. Gann. where the various moving average tion contract.
Gap — A day in which the daily range lines intersect each other or the price Put Option — A contract to sell a speci-
is completely above or below the line on a moving average price bar fied amount of a stock or commodity
previous day’s daily range. chart. Technicians use crossovers to at an agreed time at the stated exercise
Heikin-Ashi — A Japanese visual tech- signal price-based buy and sell op- price.
nique that eliminates irregularities portunities. Relative Strength Index (RSI) — An indi-
from a normal chart, offering a better Moving Average Convergence/ Diver- cator invented by J. Welles Wilder and
picture of trends and consolidations. gence (MACD) — ­The crossing of used to ascertain overbought/oversold
Heikin means “average” or “balance” two exponentially smoothed moving and divergent situations.
in Japanese, while ashi means “foot” averages that are plotted above and S&P Emini — Electronically traded,
or “bar.” below a zero line. The crossover, smaller-sized ($50 times the S&P
In-the-Money (ITM) — A call option movement through the zero line, 500) contracts of the Standard &
whose strike price is lower than the and divergences generate buy and Poor’s 500 index.
stock or future’s price, or a put option sell signals. Stochastics Oscillator — An overbought/
whose strike price is higher than the Near-the-Money — An option with a oversold indicator that compares
underlying stock or future’s price. strike price close to the current price today’s price to a preset window of
Long — Establishing ownership of of the underlying tradable. high and low prices.
the responsibilities of a buyer of a Out-of-the-Money (OTM) — A call Volatility Index — A widely used measure
tradable; holding securities in an- option whose exercise (strike) price of market risk. Sometimes referred to
ticipation of a price increase in that is above the current market price of as the “investor fear gauge.”
security. the underlying security or futures Zigzag — In a bull market, an Elliott
Money Flow — A number of technical contract. three-wave pattern that subdivides
indicators that incorporate volume Pairs Trading — Taking a long position into a 5-3-5 pattern with the top of
and price action to measure buying and a short position on two stocks in wave B noticeably lower than the
or selling pressure. Calculated by the same sector, creating a hedge. start of wave A. In a bear market, this
multiplying the day’s volume by its Pin Risk — A risk that an option or pattern will be inverted.
average price. futures contract faces when the price S&C

62 • June 2011 • Technical Analysis of Stocks & Commodities

+WM Henry.indd 3 4/25/11 5:03:52 PM

 strategy is based on the code for an EasyLanguage strategy
For this month’s Traders’ Tips, the focus is
already provided in the article by the authors.
Walid Khalil and David Steckler’s article in
this issue, “The Price Zone Oscillator.”
To download the EasyLanguage code, go to the TradeStation
Code for the price zone oscillator for Platform and EasyLanguage Support forum (https://www.
MetaStock and TradeStation is already pro- tradestation.com/Discussions/forum.aspx?Forum_ID=213)
vided in Khalil and Steckler’s article. Sub- and search for the file “Pzo.Eld.”
scribers will also find the same code at the A sample chart is shown in Figure 1.
Subscriber Area of our website, www.Trad- This article is for informational purposes. No type of trading
ers.com. Presented here is an overview of possible im- or investment recommendation, advice, or strategy is being made,
plementations for other software. given, or in any manner provided by TradeStation Securities or its
Traders’ Tips are provided to help the reader imple- affiliates.
ment a selected technique from an article in this issue. —Mark Mills
The entries are contributed by various software develop- TradeStation Securities, Inc.
ers or programmers for software that is capable of cus- A subsidiary of TradeStation Group, Inc.
tomization. www.TradeStation.com
Readers will find all the code listings that accompany
the following Traders’ Tips at our website, Traders.com.
Provided here is some discussion of the technique’s im-
plementation by the Traders’ Tips contributors as well as F BLOOMBERG: PRICE ZONE OSCILLATOR
some example charts. The chart in Figure 2 shows the price zone oscillator (Pzo),
To locate Traders’ Tips at our website, use our site’s which is described in “Entering The Price Zone” in this issue
search engine, or click on the Traders’ Tips link from our by Walid Khalil and David Steckler as a followup to their
home page. For past Traders’ Tips, click on the “Stocks
article last month, “In The Volume Zone,” which presented
& Commodities” link from our home page in the red box
on the left, then click on the “Article Abstracts” link in the
their volume zone oscillator (Vzo).
red box on the left, then click on the issue of interest, then Last month in Traders’ Tips, we presented a sample chart of
on “Traders’ Tips.” the Vzo with a bullish signal. This month, we show the Pzo
in what looks like a bearish setup (Figure 2).
In their article, the authors lay out the “downtrend system
rules” that, when applied to General Dynamics (GD), show a
setup for a possible continuation of lower prices in the stock.
F TRADESTATION: PRICE ZONE OSCILLATOR On April 8, the Pzo crossed from above 40 to below 40 (red
In “Entering The Price Zone” in this issue, authors Walid circle). The price of GD moved below the 60-day Ema, and
Khalil and David Steckler present the price zone oscillator the Pzo proceeded to break below zero and continued under
(Pzo). The authors intend for this indicator to complement -20, which would, according to the authors, help reduce
the indicator they introduced last month, the volume zone possible whipsaws in the market on the short side. Time will
oscillator (Vzo). tell whether this particular signal results in a profitable trade,
We have prepared EasyLanguage code for a function and that result should be revealed by the time you read this.
(“Pzo”), an indicator (“Pzo oscillator”), and a strategy (“Pzo
strategy”), which can be seen at Traders.com. The code for the

Figure 1: TRADESTATION, PRICE ZONE OSCILLATOR. Here is a TradeStation Figure 2: BLOOMBERG, PRICE ZONE OSCILLATOR. This chart shows General
daily chart of the DIA with the PZO oscillator, 60-bar EMA, and Custom 2 Lines Dynamics (GD) from November 2010, when an uptrend began, through mid-April
indicators applied. The Custom 2 Lines indicator is being used here to plot ADX(14) 2011, when the stock appears to have rolled over and may be beginning a new
and a horizontal line at 18. trend lower.

June 2011 • Technical Analysis of Stocks & Commodities • 63

+Traders_Tips_1106.indd 1 4/25/11 6:08:55 PM

 Using the CS.Net framework within the Stdy<GO>
function on the Bloomberg Terminal, C# or Visual Basic code
can be written to display the price zone oscillator. The C# code
for this indicator is shown at Traders.com.
All Bloomberg code appearing in Traders’ Tips can also be
found in the sample files provided with regular Sdk updates.
The studies will also be included in the Bloomberg global
study list.
—Bill Sindel, Bloomberg, LP
wsindel@bloomberg.net
www.bloomberg.com/professional

Figure 3: eSIGNAL, WATCHLIST. The formula code for the watchlist (“Price­
F MetaStock: PRICE ZONE OSCILLATOR ZoneOscWL.efs”) outputs the state of the oscillator (supersold, oversold, negative,
Walid Khalil and David Steckler’s article, “Entering the flat, positive, overbought, superbought).
Price Zone,” offers a new indicator and suggests some rules
for trading it. Shown at Traders.com is the code for a system
test based on those rules and the steps for entering the code
into MetaStock.
—William Golson, MetaStock Technical Support
Thomson Reuters
MetaStock.com

F eSIGNAL: PRICE ZONE OSCILLATOR

For this month’s Traders’ Tip, we’ve provided two formulas,
PriceZoneOsc.efs and PriceZoneOscWL.efs, based on the
formula code given in Walid Khalil and David Steckler’s
article in this issue, “Entering The Price Zone.”
Figure 4: eSIGNAL, PRICE ZONE OSCILLATOR
Both studies contain a formula parameter to set the number
of periods, which may be configured through the Edit
Chart window. The PriceZoneOsc.efs code set is designed
for the chart, which displays the oscillator (Figure 3). The
PriceZoneOscWL.efs formula is designed for the watchlist F WEALTH-LAB: PRICE ZONE OSCILLATOR
(Figure 4), which outputs the state of the oscillator (supersold, The price zone oscillator system, as presented in Walid Khalil
oversold, negative, flat, positive, overbought, superbought). and David Steckler’s article in this issue, “Entering The Price
The watchlist study also contains additional parameters to set Zone,” has now been made available as a free download to
the type of output, font color, and custom colors for each of Wealth-Lab users. To start exploring the potential of this
the oscillator states. oscillator to switch gears and trade in both trending and
To discuss these studies or download complete copies of the range-bound markets, simply click the download button in
formula code, please visit the Efs Library Discussion Board
forum under the Forums link from the Support menu at www.
esignal.com or visit our Efs KnowledgeBase at http://www.
esignal.com/support/kb/efs/. The eSignal formula scripts (Efs)
are also available for copying and pasting from the Stocks
& Commodities website at Traders.com.
—Jason Keck
Interactive Data Desktop Solutions
800 815-8256, www.eSignal.com/support/

Find the complete collection of

Traders’ Tips and code at our website, Figure 5: WEALTH-LAB, PRICE ZONE OSCILLATOR. This sample Wealth-Lab
www.Traders.com. Developer 6.2 chart shows the price zone oscillator strategy applied to a daily chart
of Walt Disney Co. (DIS).

64 • June 2011 • Technical Analysis of Stocks & Commodities

+Traders_Tips_1106.indd 2 4/25/11 6:09:24 PM

 Figure 7: TC2000, PRICE ZONE OSCILLATOR. Here is a daily chart of Rubicon
Technology (RBCN) with the 60-period exponential moving average of price; the PZO
Figure 6: AMIBROKER, PRICE ZONE OSCILLATOR. Here is a daily price chart of with oscillator zones; and the ADX. The watchlist also shows columns for “Price above
the DIA (upper pane) with 14-period price zone oscillator (middle pane). the 60-day EMA,” “ADX above 18,” and “PZO crossing up through -40.”

Wealth-Lab’s “open strategy” dialog.

Although implementation of this new oscillator, which was
developed by the authors as a complement to their volume F WORDEN BROTHERS TC2000: PRICE ZONE OSCILLATOR
zone oscillator (Vzo) that they presented last issue, is fairly The price zone oscillator (Pzo) presented by Walid Khalil and
straightforward, the accompanying system rules have to David Steckler in their article in this issue, “Entering The Price
function in different market regimes and cover such events Zone,” has now been made available in the TC2000 indicator
as positive and negative price/oscillator divergences. The library. To add the indicator to your chart, just click the “Add
complexity of their implementation is hidden in an additional indicator” button and select it from the list.
library named “Community components,” available for In the chart in Figure 7, we’ve plotted the 60-period
download to Wealth-Lab customers from our site, www. exponential moving average of price plus the Adx with the
wealth-lab.com (see the “Extensions” section). period and smoothing set to 14. These additional indicators are
In Figure 5, users can see the divergence lines drawn on used to evaluate the system rules explained in the article.
the chart (the traditional way) and as a “binary wave” to be The oscillator zones on the Pzo are marked using plot
used by mechanical trading systems. guides on the Pzo. To add/edit the plot guides on an indi-
—Robert Sucher cator, click on the name of the indicator and select “Edit
www.wealth-lab.com plot guides.” You can add and customize plot guides on
any indicator in the system to mark significant levels. Once
you’ve set up the plot guides the way you want them, click
on the indicator and select “save.” You now have your own
F aMIBROKER: PRICE ZONE OSCILLATOR customized version of the indicator available to you in the
In “Entering The Price Zone” in this issue, authors Walid indicator library.
Khalil and David Steckler introduce the price zone oscillator Using the QuickSort/Add Column feature, you can find
(Pzo), which is very similar to the volume zone oscillator stocks meeting the various Pzo system rules. In Figure 7,
(Vzo) that they introduced in their article in the May 2011 we’ve added columns to find stocks that pass the uptrend buy
issue, “In The Volume Zone.” rules. The stocks with three checkmarks next to them met
Pzo can be easily implemented using AmiBroker Formula the following criteria: price is above the 60-day exponen-
Language. A ready-to-use formula for this indicator is shown tial moving average; Adx is above 18; and the Pzo has just
at Traders.com. To use it, enter the formula in the Afl Editor, crossed up through the -40 level. This evaluation all happens
then press “Insert indicator.” To modify the averaging period in real time in TC2000.
of the price zone oscillator, click on the chart with the right For more information or to start a free trial, visit www.
mouse button and select “parameters” from the context menu. TC2000.com. Users can access their watchlists, scans, and
The code also includes system rules that can be tested in the chart templates while away from their computer using the
Automatic Analysis window. new TC2000 Mobile app (see www.TC2000.com/Mobile).
A sample chart is shown in Figure 6. —Patrick Argo
—Tomasz Janeczko, AmiBroker.com Worden Brothers, Inc.
www.amibroker.com www.TC2000.com

June 2011 • Technical Analysis of Stocks & Commodities • 65

+Traders_Tips_1106.indd 3 4/25/11 6:13:20 PM

 AND2( A>B(Close, ExpAvg(Close, 60), A>B(PZO, 0) )
AND2( A<B(ValueEntryActivated(ADX(High, Low, Close, 14, 14)),
18), A>B(PZO, 15))

If you have NeuroShell Trader Professional, you can also

choose whether the parameters should be optimized. After
backtesting the trading strategy, use the “Detailed analysis”
button to view the backtest and trade-by-trade statistics for
the strategy.
Users of NeuroShell Trader can go to the Stocks & Com-
modities section of the NeuroShell Trader free technical
support website to download a copy of this or any previous
Traders’ Tips.
A sample chart is shown in Figure 8.
—Marge Sherald, Ward Systems Group, Inc.
301 662-7950, sales@wardsystems.com
Figure 8: NEUROSHELL TRADER, PRICE ZONE OSCILLATOR. This NeuroShell
www.neuroshell.com
Trader chart shows the price zone oscillator and corresponding trading system.

F AIQ: PRICE ZONE OSCILLATOR

I coded both the price zone oscillator (Pzo) and volume
F NEUROSHELL TRADER: zone oscillator (Vzo) from Walid Khalil and David
PRICE ZONE OSCILLATOR Steckler’s article in this issue (“Entering The Price Zone”) and
The price zone oscillator (Pzo) described by Walid their article in the May 2011 issue (“In The Volume Zone”). I
Khalil and David Steckler in their article in this issue can be also coded the system that uses the Pzo or Vzo indicator.
easily implemented with a few of NeuroShell Trader’s 800+ At the top of the code is an input called “usePzo.” When
indicators. Simply select “New indicator” from the Insert this input is set to equal “1,” then the indicator and system
menu and use the Indicator Wizard to create the following use the Pzo. If set to any other value, then the indicator and
indicator: system use the Vzo oscillator. I had to use my own interpre-
tation of what the divergence sell/cover rules of the authors’
Multiply2( 100, Divide( ExpAvg( Multiply2(
NumPosNegMom(Close,1,1), Close), 14), ExpAvg(Close, 14) ) ) system mean since the exact code for this part of the system
is not given in the article. Also note that the nontrending case
To set up a trading system based on the Pzo, select “New is provided with this code, but tests of the rule “BuyNoTrnd”
trading strategy” from the Insert menu and enter the following showed that trading only when the market is trending was
in the appropriate locations of the Trading Strategy Wizard: the better choice. As a result, my tests shown here were only
of the trending portion of the system, as I had done in last
Generate a buy long market order if ONE of the following is month’s tests.
true: I ran a backtest using the Portfolio Manager module from
AND3( A>B(Close, ExpAvg(Close, 60) ), A>B(ADX(High,
Low, Close, 14, 14), 18 ), OR2( CrossAbove(PZO, -40), 1/1/1998 to 4/8/2011 using the Nasdaq 100 list of stocks. In
CrossAbove(PZO,0) ) ) Figure 9, I show the test results of simulated trading on the
AND2( A<B(ADX(High, Low, Close, 14, 14), 18 ), OR2( Nasdaq 100 list of stocks, using the following parameters
CrossAbove(PZO, -40), CrossAbove(PZO,15) ) )
for capitalization:
Generate a sell long market order if ONE of the following is
true: 1) Maximum positions per day = 3
AND2( A>B(PZO, 60), A<B(Momentum(PZO,1), 0 ) 2) Maximum total positions allowed = 10
CrossBelow(PZO, 40)
3) Choose candidates using Adx values in descending order
AND2( A<B(Close, ExpAvg(Close, 60), A<B(PZO, 0) )
AND2( A<B(ValueEntryActivated(ADX(High, Low, Close, 14, 14)), 4) Size each position at 10% of total account equity recomputed
18), A<B(PZO, -5)) every day.

Generate a sell short market order if ONE of the following is For the test period, the average annual return was 11.3%
true:
AND3( A<B(Close, ExpAvg(Close, 60) ), A>B(ADX(High, with a maximum drawdown of 67.7% on 2/7/2003.
Low, Close, 14, 14), 18 ), OR2( CrossBelow(PZO, 40), In the May 2011 Traders’ Tips column, I ran a similar test
CrossBelow(PZO,0) ) ) using the Vzo indicator and the results were slightly better
AND2( A<B(ADX(High, Low, Close, 14, 14), 18 ), OR2(
CrossBelow(PZO, 40), CrossBelow(PZO,-5) ) ) than using the Pzo indicator with this system. The short-side
test was unsuccessful, as the system lost all its capital during
Generate a cover short market order if ONE of the following the early years of the test. Those results are not shown. I tried
is true:
AND2( A<B(PZO, -60), A>B(Momentum(PZO,1), 0 ) adding an index trend filter, but this did not save the short
CrossAbove(PZO, -40) side from total loss.
66 • June 2011 • Technical Analysis of Stocks & Commodities

+Traders_Tips_1106.indd 4 4/25/11 6:13:43 PM

 Figure 10: TRADERSSTUDIO, PRICE ZONE OSCILLATOR/VOLUME ZONE OSCIL-
LATOR SYSTEM. Here is the equity curve from the Tradeplan module that resulted
from a backtest of the PZO/VZO system using equal equity sizing, trading all signals
Figure 9: AIQ SYSTEMS, PRICE ZONE OSCILLATOR. Here is a sample PZO system from a list of 74 stocks similar to the NASDAQ 100.
equity curve trading longs only using the NASDAQ 100 list of stocks compared to the
SPX index for the test period 1/1/1998 to 4/8/2011.

The code and Eds file can be downloaded from www.

TradersEdgeSystems.com/traderstips.htm. It is also shown at
Traders.com.
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

F TRADERSSTUDIO: PRICE ZONE OSCILLATOR

Shown at Traders.com is the TradersStudio Figure 11: TRADERSSTUDIO, SYSTEM DRAWDOWNS. This shows the underwater
equity curve from the Tradeplan module that resulted from a backtest of the PZO/
code for the Pzo and Vzo indicators and related systems VZO system using equal equity sizing, trading all signals from a list of 74 stocks
from Walid Khalil and David Steckler’s articles, “Entering similar to the NASDAQ 100.
The Price Zone” in this issue and “In The Volume Zone” from
the May 2011 issue. One of the inputs to the Pzo system is
called “usePzo.”
When this input is set to equal “1,” then the indicator and
system use the Pzo. If set to any other value, then the indicator
and system use the Vzo. Since my tests showed that trading F STRATASEARCH: PRICE ZONE OSCILLATOR
the short side of the system resulted in net losses, I have The price zone oscillator, as described by authors Walid Khalil
also provided an input called “allowShorts” that will disable and David Steckler in their article in this issue, “Entering The
shorting if set to anything other than “1.” In the tests I ran, Price Zone,” proved to be a very nice indicator in our tests.
I set “allowShorts” = 0 so that shorting was disabled. The Using the authors’ uptrend system rules against the S&P 500
system code provided here for TraderStudio is based on the
TradeStation code provided in the article and, as noted in the
article, the divergence exit is not coded.
I ran a backtest using the Tradeplan module from 1/1/1992
to 4/15/2011 using a “Nasdaq 100–like” list of stocks, which
contained 74 stocks. I used a Tradeplan that divided the capital
into 74 equal pieces so that all signals could be taken. In
Figure 10, I show the Tradeplan equity curve and in Figure
11, I show the Tradeplan underwater equity curve. For the
test period, the compound annual return was 5.04% with a
maximum drawdown of 24.52% on 3/11/2003.
The code can be downloaded from the TradersStudio website
at www.TradersStudio.com→Traders Resources→FreeCode
or www.TradersEdgeSystems.com/traderstips.htm. The code
is also shown at Traders.com.
—Richard Denning
info@TradersEdgeSystems.com Figure 12: STRATASEARCH, Price Zone Oscillator. An oversold reversal can
for TradersStudio be seen in the center panel, when the PZO crosses from below -40 to above -40.

June 2011 • Technical Analysis of Stocks & Commodities • 67

+Traders_Tips_1106.indd 5 4/25/11 6:14:13 PM

 FIGURE 13: TRADECISION, PRICE ZONE OSCILLATOR. Here we see the volume
zone oscillator and price zone oscillator plotted on a chart of Google (GOOG) with
buy and sell signals generated by the PZO trading strategy. Figure 14: NINJATRADER, PRICE ZONE OSCILLATOR. This NinjaTrader chart
shows the PZOStrategy and related indicators applied to a daily chart of Apple Inc.
(AAPL).
stocks from 2003 to present, the system generated an annual
return of roughly twice the S&P 500 index. Drawdowns were ous article.
significantly lower as well, meaning the system had both higher To recreate this indicator in Tradecision, use Tradecision’s
rewards and lower risk than the index. Function Builder to set up the Pzo function by using the code
However, one noticeable issue was that the percentage of we’ve prepared for Tradecision, shown at Traders.com.
profitable trades was only about 32%. Similarly, the maximum To import the strategy into Tradecision, visit the area
consecutive losses was 26, a value that most traders would “Traders’ Tips from Tasc Magazine” at www.tradecision.com/
have trouble accepting. support/tasc_tips/tasc_traders_tips.htm or copy the code from
In our second test, we took the base Pzo indicator and ran the Stocks & Commodities website at www.Traders.com.
it through a search for supporting trading rules. In just a few A sample chart is shown in Figure 13.
hours, we were able to find combinations of supporting trading —Yana Timofeeva, Alyuda Research
rules that raised the percentage of profitable trades over 70%. 510 931-7808, sales@tradecision.com
www.tradecision.com
Annual returns increased even further, and drawdowns were
held at a minimum. In the end, our conclusion is that the Pzo
can be a very helpful indicator, but it becomes significantly more
powerful when paired with the proper supporting rules.
StrataSearch users can import a plugin for the price zone F NINJATRADER: PRICE ZONE OSCILLATOR
oscillator from the Shared Area of the StrataSearch user forum. The PzoStrategy and the PrizeZoneOscillator, as presented in
The plugin contains a chart, strategy setup, and all the settings “Entering the Price Zone” in this issue by Walid Khalil and
needed to run the Pzo in an automated search for supporting David Steckler, have now been implemented for NinjaTrader
trading rules. as an automated strategy and indicator available for download
at www.ninjatrader.com/SC/June2011SC.zip.
//********************************************************* Once downloaded, from within the NinjaTrader Control
// Price Zone Oscillator Center window, select the menu File→Utilities→Import
//*********************************************************
period = parameter(“Period”); NinjaScript and select the downloaded file. This file is for
R = if(C > ref(C, -1), C, -C);
NinjaTrader version 7 or greater.
CP = mov(R, period, E); You can review the strategy source code by selecting
TC = mov(C, period, E); the menu Tools→Edit NinjaScript→Strategy from within
PZO = 100 * (CP / TC); the NinjaTrader Control Center window and selecting
“PZOStrategy.”
A sample chart is shown in Figure 12. You can review the indicator source code by selecting
—Pete Rast the menu Tools→Edit NinjaScript→Indicator from within
Avarin Systems, Inc. the NinjaTrader Control Center window and selecting
www.StrataSearch.com
“PriceZoneOscillator.”
NinjaScript uses compiled Dlls that run native, not
interpreted, to provide the highest possible performance.
F TRADECISION: PRICE ZONE OSCILLATOR
A sample chart implementing the strategy is shown in
In their article “Entering The Price Zone” in
Figure 14.
this issue, authors Walid Khalil and David Steckler introduce —Raymond Deux & Ryan Millard
the price zone oscillator (Pzo), a complementary indicator to NinjaTrader, LLC
their volume zone oscillator (Vzo) described in their previ- www.ninjatrader.com
68 • June 2011 • Technical Analysis of Stocks & Commodities

+Traders_Tips_1106.indd 6 4/27/11 4:37:36 PM

 F TRADE NAVIGATOR: PRICE ZONE OSCILLATOR
Trade Navigator offers all the features you need to recreate and
test the indicator and strategy presented in “Entering The Price
Zone” by Walid Khalil and David Steckler in this issue.
First go to the Strategies tab in the Trader’s Toolbox. Click
on the New button. Click the New Rule button. The step-by-
step instructions for creating all the entry and exits rules are
shown at Traders.com.
After you have all of the entry and exit rules set up, go to
the Settings tab in the Strategy editor. Type in the following Figure 16: SHARESCOPE, PRICE ZONE OSCILLATOR. Strong signals can be
code: seen given by the oscillator entering and then exiting the +/- 40% levels.

&R := IFF (Close > Close.1 , Close , Close * -1)

&CP := MovingAvgX (&R , period , False)
&TC := MovingAvgX (Close , period , False) place each close-to-close difference in the context of an overall
&PZO := 100 * &CP / &TC price move in order to deduce bullish or bearish phases.
&PZO The Updata code based on this concept in both indicator
and system form has now been added to the Updata Library
Genesis Financial Technologies is providing this strategy and may be downloaded by clicking the Custom menu and
as a special downloadable file for Trade Navigator. To access then either Indicator or System Library. Those who cannot
it, click on the blue phone icon in Trade Navigator, select access the library due to a firewall may paste the code (shown
Download Special File, type “SC1106,” and click the Start at Traders.com) into the Updata Custom editor and save it.
button. The library name is “Entering the price zone,” the A sample Updata chart implementing the new indicator is
strategy name is “Entering the price zone,” and the indicator shown in Figure 15.
name is Pzo. —Updata support team
—Michael Herman support@updata.co.uk
Genesis Financial Technologies www.updata.co.uk
www.GenesisFT.com

F SHARESCOPE: PRICE ZONE OSCILLATOR

F UPDATA: PRICE ZONE OSCILLATOR This script for ShareScope replicates the price zone oscillator
This tip is based on “Entering The Price Zone” by (Pzo) described by Walid Khalil and David Steckler in their
Walid Khalil and David Steckler in this issue. In their article, article in this issue, “Entering The Price Zone.” As you can
the authors present the price zone oscillator (Pzo), which is a see on the chart in Figure 16, strong signals are given by the
companion indicator to the volume zone oscillator (Vzo) that oscillator entering and then exiting the +/- 40% levels.
they introduced in their article last month in the May 2011 —Tim Clarke
S&C (“In The Volume Zone”). Their new indicator seeks to www.sharescope.co.uk

ShareScope code for PZO

//@Name:PZO
//@Description: Draws the Price Zone Oscillator
//Author: Phil Tolhurst, ShareScript Support
// Care has been taken in preparing this code but it is provided without
guarantee.
// You are welcome to modify and extend it. Please add your name
as a modifier if you distribute it.

function init()
{
setSeriesColour(0,Colour.Black);
setSeriesLineStyle(0,0,0);

setSeriesColour(1, Colour.Blue);
setSeriesLineStyle(1, 0, 0);

setSeriesColour(2, Colour.Green);
setSeriesLineStyle(2, 0, 0);

setSeriesColour(3, Colour.LightGreen);
FIGURE 15: UPDATA, PRICE ZONE OSCILLATOR. This sample Updata chart shows the setSeriesLineStyle(3, 1, 0);
14-period price zone oscillator as applied to the share price of Apple Inc. (AAPL).

June 2011 • Technical Analysis of Stocks & Commodities • 69

+Traders_Tips_1106.indd 7 4/27/11 4:45:17 PM

 setSeriesColour(4, Colour.LightBlue);
setSeriesLineStyle(4, 2, 0);

setSeriesColour(5, Colour.DarkGrey);
setSeriesLineStyle(5, 0, 0);

setSeriesColour(6, Colour.LightBlue);
setSeriesLineStyle(6, 2, 0);

setSeriesColour(7, Colour.LightRed);
setSeriesLineStyle(7, 1, 0);

setSeriesColour(8, Colour.Red);
setSeriesLineStyle(8, 0, 0);
}

function getGraph(share, data)

{
var TITLE = []; TITLE[data.length-1] = undefined; //Sets Title
Colour
var EOB= [60]; // Extremely Overbought
var OB = [40]; // Overbought FIGURE 17: TRADESIGNAL, PRICE ZONE OSCILLATOR. Here is the price zone
var POS15 = [15]; //Positive fifteen
var ZERO = [0]; //Zero Line oscillator and strategy on a daily chart of Apple Inc. in Tradesignal Online.
var NEG5 = [-5]; //Negative fiften
var OS = [-40]; //Oversold
var EOS = [-60]; //Extremely Overslold

var CP = []; //Closing Position

var TC = []; //Total Close
var PZO = []; //Price Zone Oscillator F Tradesignal: PRICE ZONE OSCILLATOR
var period = 14; The price zone oscillator (Pzo) introduced by Walid Khalil
and David Steckler in their article in this issue, “Entering The
var CPmaCalc = new MA(period,MA.Exponential);
var TCmaCalc = new MA(period,MA.Exponential); Price Zone,” can easily be used with our online charting tool
at www.tradesignalonline.com.
for (var i=0;i<data.length;i++)
{
Along with this new indicator, we’re also offering a strat-
if (i==0) egy based on the price zone oscillator. To download it, go to
{ www.tradesignalonline.com and check the “Infopedia” sec-
CP[i] = CPmaCalc.getNext(data[i].close);
TC[i] = TCmaCalc.getNext(data[i].close); tion for the Lexicon. You will then see the indicator and strat-
continue; egy that you can make available for your personal account.
}
else Click on it and select “Open script.” The indicator and/or
{ strategy will be available immediately for you to apply to
if (data[i].close<data[i-1].close) any chart you wish. See Figure 17 for an example.
{
CP[i] = CPmaCalc.getNext(data[i].close*-1); —Team Support, Tradesignal GmbH
} support@tradesignalonline.com
else www.TradesignalOnline.com
{ www.Tradesignal.com
CP[i] = CPmaCalc.getNext(data[i].close);
}
TC[i] = TCmaCalc.getNext(data[i].close);
}
if (TC[i] == 0)
{
PZO[i]=0; F VT TRADER: PRICE ZONE OSCILLATOR
} Our Traders’ Tip this month is based on “Entering The Price
else Zone” in this issue by Walid Khalil and David Steckler. In this
{
PZO[i] = (CP[i]/TC[i])*100 second part of their series, the authors introduce a comple-
} mentary indicator to their volume zone oscillator (Vzo) called
EOB[i]=EOB[i-1]; the price zone oscillator (Pzo).
OB[i]=OB[i-1]; The Pzo uses several overbought and oversold levels (+60,
POS15[i]=POS15[i-1];
ZERO[i]=ZERO[i-1]; +40, +15, 0, -5, -40, and -60) to help the trader determine
NEG5[i]=NEG5[i-1]; whether the price is in a bullish or bearish zone. Khalil
OS[i]=OS[i-1]; and Steckler write that the Pzo is useful in uptrending,
EOS[i]=EOS[i-1]; downtrending, and even nontrending (ranging/sideways)
}
setTitle(“PZO:”+(PZO[data.length-1].toFixed(2))); market conditions and go on to describe four different trading
return[TITLE,PZO,EOB,OB,POS15,ZERO,NEG5,OS,EOS]; methodologies for utilizing the Pzo in those various market
} conditions.

70 • June 2011 • Technical Analysis of Stocks & Commodities

+Traders_Tips_1106.indd 8 4/25/11 6:18:44 PM

 Figure 18: VT TRADER, PRICE ZONE OSCILLATOR. Here is an example of the
prize zone oscillator (PZO) on a EUR/USD one-hour candlestick chart.

The VT Trader instructions for recreating the price zone

oscillator can be seen at Traders.com.
To attach the indicator to a chart (Figure 18), click the right
mouse button within the chart window and then select “Add Figure 19: Excel, PRICE ZONE OSCILLATOR. Here is the PZO on a chart of
Indicator”→“TASC – 06/2011 – Price Zone Oscillator” from Barclays 20-year Treasury ETF.
the indicator list.
We’ll be offering the price zone oscillator (Pzo) for down-
load in our VT client forums at http://forum.vtsystems.com
along with hundreds of other precoded and free indicators
and trading systems. To learn more about VT Trader, visit
www.vtsystems.com.
Risk disclaimer: Forex trading involves a substantial risk of loss
and may not be suitable for all investors.
—Chris Skidmore
Visual Trading Systems, LLC
212 871-1747, info@vtsystems.com
www.vtsystems.com

F MICROSOFT EXCEL: PRICE ZONE OSCILLATOR

In their article in this issue, “Entering The Price Zone,”
authors Walid Khalil and David Steckler extend the concept
of the volume zone oscillator (Vzo) that they presented in
their May 2011 S&C article, “In The Volume Zone.” With
this issue’s article, they extend the concept into the price
Figure 20: Excel, PRICE ZONE OSCILLATOR. This second attempt is a much
dimension with a complementary indicator called the price better approximation of Walid Khalil and David Steckler’s chart from their article in
zone oscillator (Pzo). this issue.
The Excel spreadsheet I am offering this month is thus built
on the foundation of last month’s and allows us to perform
visual comparisons of price and indicator action, similar to content. You may view the macros after you open the spread-
what is presented in Khalil and Steckler’s article. sheet by using Alt-F11 to open the Vba-integrated develop-
I selected the symbol Tlt for this Traders’ Tip so we can ment environment.
approximate the chart that the authors present in Figure 4 of To download the “PriceAndVolumeZoneOscillator.xls”
their article in this issue. By comparison, my chart (Figure 19) spreadsheet file, go to Traders.com.
has a lot more data visible. My chart in Figure 20 is a better —Ron McAllister
approximation of the authors’ Figure 4. EXCEL and VBA Programmer
To arrive at a chart similar to Figure 20, set cell A11 to rpmac_xltt@sprynet.com
148 and cell A12 to 53 and click the green button. For this
S&C
button to work properly, you will need to enable Vba macro

June 2011 • Technical Analysis of Stocks & Commodities • 71

+Traders_Tips_1106.indd 9 4/25/11 6:19:21 PM

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The information in Traders’ Resource is the most accurate at the time of posting and is subject to change. Because the vendors posting to Traders’ Resource are responsible for their own listing, Technical Analysis, Inc. declines any and
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72 • June 2011 • Technical Analysis of Stocks & Commodities

+TR-Data Svcs.indd 1 4/25/11 6:24:16 PM

xx • June 2010 • Technical Analysis of Stocks & Commodities
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 RS Advertiser Page RS Advertiser Page
Editorial Resource Index
BROKERAGES Software Product PAGE
Microsoft Excel 12
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eSignal 17
etrade.com neuroshell.com TradeStation 28
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stockcharts.com
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100 Stocks & Commodities 42
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100 Stocks & Commodities 50
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100 Stocks & Commodities 53
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1 ActiveTick LLC 13 100 Stocks & Commodities 57 How to reach us
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8 eSignal 15 Investors’ Magazine, call toll-free 800
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9 Jurik Research & Consulting 18 0570. Or e-mail us at circ@traders.com.
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12 NinjaTraders, LLC 7 SW, Seattle, WA 98116-4499.
Do your magazines arrive tattered
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18 MetaStock 27 Single back issues from the current
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prepaid. Prior years are available as a
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vectorvest.com/sc articles can be purchased from the Online
Store at our website, Traders.com.
To receive information on the products and services listed in the Editorial and Advertisers’ Indexes, go to: Traders.com/reader/ These
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omissions or errors.

74 • June 2011 • Technical Analysis of Stocks & Commodities

1106_Ad Index.indd 2 4/28/11 8:58:16 AM

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June 2011 • Technical Analysis of Stocks & Commodities • 75

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76 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Books for Traders.indd 1 4/25/11 4:02:22 PM

 FUTURES LIQUIDITY

T
rading liquidity is often over- very high volumes. The greatest number three-year period. Thus, all numbers in
looked as a key technical of dots indicates the greatest activity; this column have an equal dollar value.
measurement in the analysis futures with one or no dots show little Columns indicating percent margin
and selection of commodity activity and are therefore less desirable and effective percent margin provide
futures. The following explains how to for speculators. a helpful comparison for traders who
read the futures liquidity chart pub- Courtesy of CBOT wish to place their margin money ef-
lished by Technical Analysis of Stocks ficiently. The effective percent margin
& Commodities every month. is determined by dividing the margin
value ($) by the three-year price range of
Commodity futures contract dollar value, and then multiply-
The futures liquidity chart shown be- ing by one hundred.
low is intended to rank publicly traded
futures contracts in order of liquidity. Stocks
Relative contract liquidity is indicated Trading liquidity has a significant ef-
by the number of dots on the right-hand fect on the change in price of a secu-
side of the chart. rity. Theoretically, trading activity can
This liquidity ranking is produced by serve as a proxy for trading liquidity
multiplying contract point value times All futures listed are weighted equally and equals the total volume for a given
the maximum conceivable price motion under “contracts to trade for equal dol- period expressed as a percentage of the
(based on the past three years’ historical lar profit.” This is done by multiplying total number of shares outstanding. This
data) times the contract’s open interest contract value times the maximum pos- value can be thought of as the turnover
times a factor (usually 1 to 4) for low or sible change in price observed in the last rate of a firm’s shares outstanding.

Trading Liquidity: Futures

Commodity Futures Exchange % Margin Effective Contracts to Relative Contract Liquidity
% Margin Trade for Equal
Dollar Profit
Eurodollar Interest Rate CME 0.1 1.7 5 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>>
3 Mo Euribor Interest Rate LIFFE 0.1 1.1 3 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
Short Sterling LIFFE 0.1 1.4 6 ••••••••••••••••••••••
Mini S&P 500 Index CME 8.6 17.5 8 ••••••••••••••••••••••
30 Day Federal Funds CBT 0.0 0.1 1 ••••••••••••••••••••••
Crude Oil - Light Sweet NYM 6.2 8.8 3 ••••••••••••••••••••
DJ Euro Stoxx 50 Index EUREX 12.0 18.5 10 ••••••••••••••••••••
3 Yr. Cmmnwlth T-Bonds SFE 0.0 0.5 1 •••••••••••••••••••
Natural Gas NYM 9.2 4.4 3 ••••••••••••••
Brent Crude Oil IPE 4.4 6.4 3 •••••••••••
Corn CBT 6.3 8.4 9 •••••••••
S&P 500 Index CME 8.6 17.5 2 •••••••••
Gold 100 troy oz NYM 4.5 8.3 3 ••••••••
10 Yr Treasury Notes CBT 1.8 13.3 16 ••••••
5 Yr Treasury Notes CBT 1.3 9.7 17 •••••
Gas Oil ICE-EU 4.4 8.0 5 •••••
Soybeans 5000 bushels CBT 7.0 11.5 6 ••••
RBOB Gas NYM 5.8 7.5 3 ••••
2 Yr Treasury Notes CBT 0.5 6.9 17 ••••
Xetra DAX-30 Stock Index EUREX 6.4 12.7 2 •••
10 Yr German Euro Bund EUREX 1.4 14.2 15 •••
FT-SE 100 Index LIFFE 5.1 19.3 10 •••
Heating Oil #2 NYM 4.8 7.7 3 •••
Mini Russell 2000 CME 3.5 6.7 6 ••• CBT Chicago Board of Trade
Silver 5000 troy oz NYM 5.3 6.6 1 ••• CME Chicago Mercantile Exchange including
2 Yr Euro Schatz EUREX 0.4 7.8 35 ••• the International Monetary Market (IMM)
5 Yr German Euro BOBL EUREX 0.9 10.4 19 •• CMX Commodity Exchange, Inc. CME Group
Wheat - Soft Red CBT 9.9 15.5 10 •• EUREX European Exchange, Zurich & Frankfurt
CAC-40 Stock Index MATIF 8.3 13.6 8 ••
ICE-EU Intercontinental Exchange-Futures - Europe
Sugar-World #11 CSCE 14.9 23.1 16 ••
ICE-US Intercontinental Exchange-Futures - US
Long Gilt LIFFE 1.9 14.4 11 ••
KCBT Kansas City Board of Trade
Aust. Share Price Index SFE 5.0 12.6 5 •
Cotton #2 NYCE 11.5 14.9 4 • LIFFE London International Financial Futures and
Mini-Nasdaq 100 Index CME 7.6 13.5 10 • Options Exchange
3 Mo EuroSwiss LIFFE 0.0 1.6 9 • MATIF Marché à Terme International de France
US Treasury Bonds CBT 3.1 22.5 16 • NYM New York Mercantile Exchange
Soybean Oil CBT 5.8 9.1 12 • SFE Sydney Futures Exchange
Copper NYM 5.4 8.1 4 •
Coffee C CSCE 6.9 10.3 4 •
Mexican Peso CME 5.1 5.6 7 •
Cattle - Live CME 0.3 0.7 15 •
Euro Currency € CME 2.3 16.0 10 •
Australian Dollar CME 2.7 6.4 6 •
Japanese Yen ¥ CME 4.0 12.0 5 •
Swiss Market Index EUREX 7.3 14.0 7 • 1106
Trading Liquidity: Futures is a reference chart for speculators. It compares markets “Relative Contract Liquidity” places commodities in descending order according to
according to their per-contract potential for profit and how easily contracts can be bought how easily all of their contracts can be traded. Commodities at the top of the list are easi-
or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only est to buy and sell; commodities at the bottom of the list are the most difficult. “Relative
when compared to others in the same column. Contract Liquidity” is the number of contracts to trade times total open interest times a
The number in the “Contracts to Trade for Equal Dollar Profit” column shows how volume factor, which is the greater of:
many contracts of one commodity must be traded to obtain the same potential return In volume
as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price 1 or exp –2
In 5000
Excursion).

June 2011 • Technical Analysis of Stocks & Commodities • 77

+1106 Futures Liquidity.indd 1 4/25/11 4:10:49 PM

 DAYTRADING

Classic Short Sell Setup

Here’s an example of a classic short setup
for daytraders.

by Jamie Theiss

F
igure 1 is an example of a classic
short setup for daytraders. This
is a real bread & butter strategy
used time and again. To set up this Monday
morning trade, the premarket news was
bearish with rumors of the country’s credit
rating likely to be downgraded. All the mar-
ket averages were down. So the bears were
growling and sentiment was weak. Broad-
Comm (Brcm) is one of 20 or so stocks I
follow daily and at the open it frequently
puts in a nice red bar, as do most of the other
stocks I watch. So this time I stalked it for
an entry to the short side.

Three-bar pullback

Blackwood Pro
On the five-minute chart, Brcm put in a nice
three-bar pullback to the declining moving
averages. Green is the eight-period simple Figure 1: brcm, five-minute. Stalking BRCM on the five-minute chart for a short sell setup when a red
bar takes out the low of a green bar below the declining moving average lines.
moving average (Sma), while the blue line
is the 20-period Sma and the red is the
200-period Sma. I was waiting for a red bar to take out the
low of a green bar. This happened at $37.54 and my protective You don’t want to be overexposed
stop was placed a cent above the entry bar at $37.70. This in case of a sudden reversal.
gave me a 16-cent risk on the trade. If we used, for example,
$100 as our risk per trade, our position size would have been the same time, I was comfortable riding this particular trade
630 shares, which I always round down to an even lot size of to its intended target. In addition, there were several stocks
600 shares to account for slippage and costs. putting in similar patterns. It was a challenge not to take too
Depending on your trade management system and trailing many similar sell setups. You don’t want to be overexposed
stop method, a minimum of a 1:3 risk reward is easily ob- in case of a sudden reversal.
tained. As the market, expressed by the Qqqqs, was falling at There was bearish sentiment at the open, so we looked for
short entries below the moving averages. We had to make sure
to position size correctly in accordance with a protective stop
point and risk amount per trade and then let the trade edge
play itself out. We had to be mindful not to let our excitement
cause us to become overleveraged by taking too many similar
setups. The moral of the story? Take profits according to your
written trading plan’s rules.

Jamie Theiss is a full-time trader who daytrades stocks, swing

trades forex, and from time to time position trades commodi-
ties. He may be reached at jamie_theiss@yahoo.com.

This article was first published online as a Traders.com Advantage piece

on April 20, 2011. For this and similar pieces, visit Traders.com.
“Here’s a little blues song I wrote about S&C
lost loopholes and lost entitlements...”

78 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 TCA Theiss.indd 1 4/25/11 6:42:45 PM

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 TradeStation Group agrees to be TradeStation offers electronic order because there are no third-party fees to
Acquired by Monex Group, more placement and execution and enables link the fxTrade trading engine with the
TradeStation Group and Monex Group clients to scan the markets and design, MT4 user interface.
have agreed for a subsidiary of Monex test, optimize, monitor and automate
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stock of TradeStation for $9.75 per futures, and forex trading strategies.
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Traders will be able to automatically Free iPhone App
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or even place a trade, the moment the Power Tools, a free iPhone app that can
trader’s rule or trigger is met. Traders give all investors access to investment
now may also have TradeStation monitor decision-making tools previously avail-
their open positions and continuously able only to Wall Street professionals.
perform risk assessments, so that, in a Chaikin Power Tools distills diverse and
fast market downturn or upturn, the ap- complex financial information on any of
propriate action will automatically be 5,000 stocks into intuitive green (bullish)
executed. Version 9.0 includes dozens and red (bearish) displays, making criti-
of other popular enhancements. The cal stock market data easy to understand.
company plans to provide continuous www.monexgroup.jp/en
The centerpiece of Chaikin Power Tools
updates over the next few months to is the Chaikin Power Gauge rating, an un-
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The company also announced its new analyzes complex data based on financial
subsidiary, TradeStation Forex, a Cftc- metrics, earnings performance, expert
registered, Nfa-member retail foreign opinions and price/volume activity, and
exchange dealer (Rfed), a state-of-the- distills it into a concise, intuitive display.
art retail forex offering. TradeStation Investors can execute stock trades from
Forex uses the agency broker model for the app through their mobile brokerage
retail forex. It will own and operate the partner, optionsXpress.
company’s forex business for all existing www.tradestation.com/forex
and new customer accounts. This new
offering will feature a screen interface for OANDA Builds Bridge
traders to place forex orders, the ability to MetaTrader 4
to design, backtest, optimize, and auto- Oanda Corp. now offers its competitive
mate custom-designed and third-party advantages to traders who use Meta-
forex trading strategies and ideas, along Trader 4 (MT4). When they set up an
with the functionality of TradeStation’s Oanda trading account or demo account,
market scanning engine. MT4 traders can continue to use their
TradeStation is an online brokerage favorite MT4 tools and benefit from
firm and trading platform, a leader in the Oanda’s spreads, fxTrade execution,
active trader market. TradeStation won in and business model. Oanda has licensed
its categories for trading system (stocks), MetaTrader’s electronic trading platform www.chaikinpowertools.com

trading system (futures), institutional with automated trading capabilities to be

platform, professional platform, online used with Oanda spreads. The Oanda CQG partners with japanese,
analytical platform, and real-time data fxTrade platform bridges directly to russians for routing, licensing
in Stocks & Commodities’ Readers’ MetaTrader using their technology, Cqg has entered into an order routing
Choice Awards. which helps keep costs low for traders service broker contract with Dot Com-
80 • June 2011 • Technical Analysis of Stocks & Commodities

+1106 Trade News.indd 1 4/25/11 7:00:02 PM

 modity, Japan’s largest online commod- New MetaTrader 5 terminal
ity futures broker. This agreement will for iPhone
allow Dot clients to place orders directly MetaQuotes Software Corp. an-
to overseas commodity markets as well nounced that it had released a new ver-
as Japanese domestic commodity mar- sion of the MetaTrader 5 mobile terminal
kets, including the Tokyo Commodity for the Apple iPhone. The new iPhone
Exchange (Tocom) and the Tokyo Grain provides mobile traders with the possibil-
Exchange (Tge) by direct market access ity to track price dynamics in real-time
through the Cqg Trader and Cqg Inte- mode. The MetaTrader 5 mobile terminal
grated Client trading platforms. now supports full-fledged charts for all
In other news, Cqg has signed a soft- financial instruments that are available
ware licensing agreement with Alor, for smartphones and tablet PCs. In addi- www.djindexes.com
making Cqg’s trading front ends avail- tion to the current quote, traders can see
able to Alor’s customers throughout previous values as well, facilitating more New Bollinger Bands DVD
Russia. Through the partnership, Alor accurate and faster trading decisions with Now Available
customers gain access to Cqg’s trad- the help of up-to-date price analysis. Bollinger on Bollinger Bands 2011
ing platforms. Cqg Integrated Client Quotes are shown as a sequence of bars, features more than nine hours of mate-
combines order routing functionality, candlesticks, or a line. The MetaTrader 5 rial taped at a two-day seminar in Los
consolidated global market data, and iPhone supports minute as well as daily Angeles. The DVD set has trader and
decision-making tools in one application. time frames, enabling traders to assess analyst John Bollinger’s latest work,
Cqg Trader is an execution platform for the influence of various market trends. including new indicators that have never
traders who do not require charting and A total of 2,000 to 4,000 bars can be been taught elsewhere, the company
analytics. shown on a chart, which is equal to five said. Bollinger bands can be applied in
to 10 years of price history. all the financial markets. The theme for
the seminar was “Bollinger Bands: The
Past, The Present and The Future.”

www.cqg.com

www.BollingerBands.com
www.metatrader5.com
VantagePoint Expands Coverage
DOW Indexes, UBS Add to Canada, United Kingdom
Commodity Indexes Market Technologies announced that
Dow Jones indexes are adding eight its market trend forecasting software,
commodity subindexes to the Dow VantagePoint, now covers the benchmark
Jones–Ubs Commodity Index family indexes on the Toronto Stock Exchange
www.commodity.co.jp/english/ that measure an opportunity set, exclud- and London Stock Exchange and has
ing commodities such as agriculture, expanded VantagePoint’s coverage of the
livestock, or grains. Also launching are US markets with the addition of two new
indexes that exclude the other major com- exchange traded funds (Etf) categories
modity sectors within the broad index: that are devoted to currencies and com-
industrial metals, precious metals, soft modities. The new Etf categories, the
commodities, petroleum products, and addition of the Canadian and United
agriculture/livestock. In addition, the Kingdom indexes, extend the interna-
DJ-Ubsci series consists of the Dow tional reach of VantagePoint.
Jones–Ubs Commodity Index making
www.alor.ru up 19 commodities; the eight previously
existing subindexes; and 28 single com-
modity subindexes.

June 2011 • Technical Analysis of Stocks & Commodities • 81

+1106 Trade News.indd 2 4/25/11 7:03:05 PM

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