Do Or Die

What primarily distinguishes random graphs to real price history is outliers- in reality, markets often stagnate at one level or may move in one direction for extended period of time. Plotting an ROC for a random chart vs real chart will show remarked difference. Also, if you plot candlesticks charts with the random data, any trader using candlestick charts will be able to tell the difference in a wink

The stuff here is written from a stock trader’s perspective; however, you can go through appropriate concepts on price behavior to fit for other markets. The Internal Relative Strength (IRS) of a Stock is a generic concept measured by most oscillators. This thread discusses many oscillators from scratch. Constance Browne discusses RSI in detail in her book Technical Analysis for Trading Professionals (Ch. 1,3 and 8 only, poorly written). William Dunnigan did a chart pattern based research (Repeat Signals) which is effectively same as oscillator divergences. Divergences in detail are also covered here; while you can see here a real time example to anticipate a divergence before market actually marked bottom. The other important application of IRS is in identification of Trading Regimes. A relevant book is Trading Regime Analysis: The Probability of Volatility. Comparative Relative Strength (RS) refers to comparing one instrument's performance with another to establish a lead/lag relationship. See this thread for practical application. The most effective application of RS is Sector Rotation. A large number of books in past decade discuss the sector rotation model, however, the first major books were S&P's Sector Investing: How to Buy The Right Stock in The Right Industry at The Right Time and The All Season Investor by Martin Pring. The other important use of RS studies is in Intermarket Analysis and Active Asset Allocation. Technical Analysis: The Complete Resource for Financial Market Technicians by Pring Martin is reference book which gives a comprehensive view in RS. GLOSSARY Relative Strength literally means how a stock is performing comparative to past period or a related market. It is commonly used for comparative relative strength. Comparative Relative Strength (RS) means looking for appropriate relationships between a stock and its competitor; or between the stock and a related market like its peer group or stock market index. Internal Relative Strength (IRS) means comparing performance of a security with relation to performance in a past period. Divergence is a condition where the internal RS of a stock increases (decreases), though its prices may appear to be at same level. In more generic terms, divergence means that the price of one instrument may be moving in different direction relative to an index or oscillator. Rotational Trading means maintaining a long (short) position in stocks which are relatively strongest (weakest) in the related market. Oscillator is a technical analysis indicator which is moves within a defined range. Trading Regime refers to market phases which tend to favor one set of strategies to another; i.e. in a particular trading regime certain set of strategies will be more profitable. The seven major Stock Sectors are Consumer Staples, Health Care, Utilities, Financials, Technology, Consumer Discretionary and Industrials; the last 4 usually lead the market while the first 3 lag with the market. Energy tends o be independent from the stock business cycle. Business Cycle means one complete bull and bear market wave. The Stock Market tends to be a leading indicator for the entire business cycle which is a macro economic event. Please use the hyperlinked threads for discussion, this thread will serve for collection of resources only.

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Mistake #1: Allowing Room For Subjectivity Click on the picture to enlarge illustration on how subjectivity can make you go nuts. A lot of biases can be done away if the entire trading methodology is clearly defined. When you write down rules for each of your observation and beliefs it is the first step towards objective/mechanical trading. Maintaining a Journal can help a lot in being organized. Mistake #2: Complicating Your Trading As a common sense rule, no one wants to work for one hour if the same result can be achieved in 5 minutes. Yet traders complicate things unnecessarily. A common example is using 3-4 oscillators and looking for confirmation on each of them. This problem comes because people do not work on an indicator from scratch. If you are willing to sit down and work each of your trading ideas/methods/indicators from scratch you can find out which all have overlapping elements and appropriately eliminate them. Mistake #3: Neglecting The Bigger-Picture Perspective This is similar to giving too much importance to a price pattern or indicator signal without referring to immediate time frames. Refer here on how watching three time frames can have a significant improvement in your trading. Mistake #4: Trading on Small Time Frame Starting to trade on a time frame which does not gives you enough time to think and re-asses your trades can be stressful and expensive at the same time. Except very few people, starting with swing trading can be much more profitable than starting with daytrading. Mistake #5: Acting On Generalizations One-liners by intelligent people may sound effective, but they cannot be taken down as rules! Market did not appreciate world's greatest genius like Einstein, and it definitely does not like the one line generalization by your favorite trader. Examples are: ‘Chart Patterns do not work anymore.’ ‘Such pattern/indicator has accuracy of x%.’ ‘It’s all about price action, indicators only follow price and are lagging.’ ‘Such and such method/indicator is useless.’ ‘Fundamental Analysis does not work.’ ‘Volume leads the prices.’ Mistake #6: Trying to Learn TA From Analysts and Journalists Many people with vast amount of trading related information are not able to make money through their trading. This is very common. For the thousands of trading books available on Amazon if you carefully research on the biography of authors, you will be surprised to see how few actually have trading as their primary source of income. Typical examples are Jake Bernstein and Bob Pretcher. See here for a list of trading 'gurus'. Mistake #7: Getting Religious About a Method Flexibility and Adaptability are the prerequisite for this game. Howsoever great a method/indicator may look, always keep working to refine it. A common example is going by the magic retracement numbers of 0.38, 0.62 etc. Sorry to disappoint, but the market does not confines to couple of rules.

Hardly anything changed last week.

The stock with the best performance is relatively strongest; the stock with 5th best performance has RS rank of 5 and so on To plot RS as an indicator, most software use the formula= Stock_Price/Base_Index_Price *100

Similar to time independent charts like Range Bars, Kagi, Renko and PnF charts; Wilder (the author of RSI indicator) developed Accumulation Swing Index (ASI). People may find it a slight improvement over line charts. The methodology for ASI: SI(i) = 50*(CLOSE(i-1) - CLOSE(i) + 0.5*(CLOSE(i-1) - OPEN(i-1)) + 0.25*(CLOSE(i) - OPEN(i)) / R)*(K / T) ASI(i) = SI(i-1) + SI(i) Where: SI (i) — current value of Swing Index technical indicator; SI (i - 1) — stands for the value of Swing Index on the previous bar; CLOSE (i) — current close price; CLOSE (i - 1) — previous close price; OPEN (i) — current open price; OPEN (i - 1) — previous open price; R — the parameter we get from a complicated formula based on the ratio between current close price and previous maximum and minimum; K — the greatest of two values: (HIGH (i - 1) - CLOSE (i)) and (LOW (i - 1) - CLOSE (i)); T — the maximum price changing during trade session; ASI (i) — the current value of Accumulation Swing Index.

"Say you want to compare RS for last 30 days. (Simply) calculate % change of stocks in last 30 day . With this data alone you can rank stocks by their relative performance. For a more 'visual' RS score, subtract that by % change of base index in last 30 days. I prefer subtraction to division because division tends to unnecessarily amplify relative performance."

Dunnigan researched extensively on technical analysis before his major publication in mid-1950. However, similar to most other technical analysts in his era he was neglected because fundamental analysts largely criticized research on price behavior. The study of his methods may be interesting for traders who focus on Price Action based studies. His major publications are: Selected Studies in Speculation, Dunnigan, 1954 New Blueprints for Gains in Stocks and Grains, 1956 One-Way Formula for Trading Stocks and Commodities, 1957 He initially published two systems- breakouts and n-day swings, but both underperformed the market even though the apparent net result was positive. He realized that there was nothing wrong in methodology, but the trading regimes simply did not favor them. His next system, the Percentage Wheat Method, combined a n% penetration and a 3-day swing, introducing the time element into his work and perhaps the first notion of thrust, a substantial move within a predefined time interval. With the n%, 3-day swing, a buy signal was generated if the price of wheat came within n% of the lows, then reversed and moved up at least an additional (n+0.5)% over a period of at least 3 days. For Dunnigan, the swing method of charting represented a breakthrough; it allowed each market to cut down noise and develop its natural pattern of moves. He had a difficult time trying to find one criteria for his charts that satisfied all markets, or even all agro commodities. His research on percentage swings did not help. Swing method of charting refers to fixed range bar charts which are drawn 'independent' of time axis. He finally came up with Thrust Method which was fairly successful. Dunnigan's Thrust Method: Downswing is defined as a decline in which the current day's high and low are both lower than the corresponding high and low of the highest day of the prior upswing. The reverse effect of having both a higher high and low would result in a change from a downswing to an upswing. The top and bottom of a swing are the highest high of an upswing and the lowest low of a downswing, respectively. It should be noted that a broadening or consolidation day, in which the highs and lows are both greater or both contained within any previous day of the same swing, has no effect on the direction. In addition to the swings, Dunnigan defines the five key buy patterns: 1. Test of the bottom-where prices come within a predetermined percentage of a prior low 2. Closing-price reversal-a new low for the swing followed by a higher close than the prior day (similar to Engulfing Bull in candlesticks). 3. Narrow range-where the current day's range is less than half of the largest range for the swing 4. Inside range-where both the high and low fall within the prior range 5. Penetration of the top--by any amount, conforming to the standard Dow theory buy signal For short selling, the above conditions are reversed. An entry buy signal was generated by combining the patterns indicating a preliminary buy, with a thrust the next day confirming the move. The Thrust was defined as a variable price gain based on the price level of the market (similar to ATR multiple). Because of the risks, the market was asked to give evidence of a change of direction by satisfying two of the first four patterns followed by a thrust on the next day. Two key situations for repeat buy signals are: 1. A test of the bottom followed by an inside range (interpreted as market indecision) 2. A closing price reversal followed by an inside range One-Way Formula Based on his conclusions that the Thrust Method was too sensitive, causing more false signals that brought down the profitability, Dunnigan modified the confirmation aspect of the signal and made the Thrust into the preliminary signal. He also emphasized longer price trends which smooth performance could reduce signals. With the upswing and downswing rules remaining the same, Dunnigan modified the Thrust to require its entire range to be outside the range of the prior day. For a preliminary buy, the low of the day must be above the high of the prior day. This is a stronger condition than his original thrust, yet only constitutes a preliminary buy. The confirmation occurs only if an additional upthrust occurs after the formation of, or test of a previous bottom. There must be a double bottom or ascending bottom followed by a thrust to get a buy signal near the lows. If the confirmation does not occur after the first bottom of an adjustment, it may still be valid on subsequent tests of the bottom. For the One-Way Formula, repeat signals are identical to original confirming signals. Each one occurs on a pullback and test of a previous bottom, or ascending bottom, followed by an upthrust. Both the initial and repeat signals allow the trader to enter after a reaction to the main trend. The Dow approach to penetration is still allowable in the event all else fails. The refinement of the original thrust method satisfied Dunnigan's problem of getting in too soon.

The Amibroker code for choppiness index is: range = Param("Periods", 14, 5, 252, 1 ); MaxH = Max(H, Ref(C, -1)); MinL = Min(L, Ref(C, -1)); HMax = HHV(MaxH, range); LMax = LLV(MinL, range); TR = ATR(range); SumTR = (Sum(TR,range)) / (HMax - LMax); logsum = log10(SumTR); LOGn = log10(range); Choppiness = 100 * logsum / LOGn; Plot (Choppiness, "Choppiness Index", colorBlack, styleLine); For the sake of reference, there is another indicator called b-indicator. Amibroker code: function PiecewiseEMA( array, range, sincebar ) { factor = IIf( sincebar, 1, 2/(range+1) ); return AMA2( array, factor, 1-factor ); //ama2( ARRAY, SMOOTHINGFACTOR, FEEDBACKFACTOR ) } // parameters smoothing=Param("smooth",4,0,100,1); //m=4; n=250; // generate reversal signals based on EMA crossover rule Lpf1 = EMA( C, 7 ); Lpf2 = EMA( C, 15 ); CrossPoint = Cross( Lpf1, Lpf2 ) OR Cross( Lpf2, Lpf1 ); Periods = BarsSince( CrossPoint ); // variable bar sum DC = Close - Ref( Close, -1 ); CPC = Sum( DC, Periods ); // smooth CPC by piecewise 4 bar EMA Trend = PiecewiseEMA( CPC, smoothing , CrossPoint ); // noise DT = CPC - Trend; Noise = 2 * sqrt( MA( DT^2, n ) ); // alternative 'linear' noise calculation // Noise = 2 * MA( abs( DT ), n ) ); BIndicator = (abs(Trend)/(abs (Noise)+abs(Trend))) * 100; Plot( Bindicator, "Bindicator", colorBrightGreen, 1); PlotGrid( 0 ); PlotGrid( 20 ); PlotGrid( 40 ); PlotGrid( 60 ); PlotGrid( 80); PlotGrid(100); //--Tomasz Janeczko, AmiBroker.com GraphXSpace = 3;

Another attempt to measure internal RS: The Choppiness Index was mentioned by Bill Dreiss in early 90's. The CI calculates the relative position between the Sum of daily trading ranges during a given period of time against the total range for that period. Bill Dreiss says "high CI readings can be used to indicate that a consolidation is about to end and a position should be entered or a breakout anticipated." Similarly, low readings in the CI correspond closely with the end of strong impulsive movements either up OR down, while High readings occur after significant consolidations in the price. Extended periods of trendless price movement are reflected in extended periods of above-average readings of the CI. It's a little more complicated was to measure internal RS and seemingly less effective (see attached chart).

Excel can be really good... you can get all data from yahoo and templates are around the web for popular indicators. If you can afford some time to learn get a strategy design software like Ninjatrader.

Economic Indicators are among the most talked and closely watched pieces of news in the investment world. Practically every week there is some announcement that affects investors' predictions about the future of the economy. The important application of economic indicators is the study of Business Cycles. Idealized Business Cycle in Stocks Leading economic indicators are those which are believed to change in advance of changes in the economy, supposedly giving you a preview of what is going to happen before the change actually occurs. The other two broad type of indicators are coincident (which move along with business cycles) and lagging (which trail behind the economic cycle. Let’s take a look at two widely tracked composite of leading indicators. OECD Composite Leading Indicators "The OECD CLI is designed to provide qualitative information on short-term economic movements, especially at the turning points, rather than quantitative measures... In practice, turning points in the de-trended IIP have been found about 4 to 8 months (on average) after the signals of turning points had been detected in the headline CLI. Potential leading indicators are classified to one of four types of economic rationale, that can be used to assess their suitability as leading indicators. Early stage: indicators measuring early stages of production, such as new orders, order book construction approvals, etc. Rapidly responsive: indicators responding rapidly to changes in economic activity such as average hours worked profits and stocks. Expectation sensitive: indicators measuring, or sensitive to, expectations, such as stock prices, raw material prices and expectations based on business survey data concerning production or the general economic situation/climate e.g. confidence indicators. Prime movers: indicators relating to monetary policy and foreign economic developments such as money supply, terms of trade, etc" FRED Leading Index for the United States FRED stands for Federal Reserve Economic Data. "The leading index for US (supposedly) predicts the six-month growth rate of the state’s coincident index. In addition to the coincident index, the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill." Here are the two leading indicators composite overlayed with S&P 500 (click to enlarge). Suprise! the S&P 500 leads the leading indicators composite. For the average stock investor, the leading indicators may serve no other purpose than scaring him to sell at the market bottoms.

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When I first saw you post about penny stocks I though that its usual gambling in which beginners are tempted. But I must admit the model is impressive. I never really traded in penny stocks and its good to read your posts.

It is better to be quotable than to be honest.

. A witty saying proves nothing. .

One man's noise is another man's information. The problem is with your strategy. Selecting the right TF is only part of the strategy. Re-work your strategy from scratch, and it should become clear which TF you need to focus.

These is my best contribution so far: Concepts in Technical Analysis Introduction to Understanding Volatility The Heck About Trading for a Living Trading Journals- Some Information And Downloads Relative Strength - Internal Moment of Truth for Stock Investors Trading Regime Analysis Using RSI List of ETFs for Sector Rotation The Sin of Predicting and Anticipatory Trading Call it chest thumping or whatever, but I'm giving something first time to an open community. So it means a lot to me.

Say you want to compare RS for last 30 days. First calculate % change of stocks in last 30 day . With this data alone you can rank stocks by their relative performance. For a more 'visual' RS score, subtract that by % change of base index in last 30 days. I prefer subtraction to division because division tends to unnecessarily amplify relative performance. I do not recall how O'neil calculates but this is what it is. BTW, are you calculating it in Excel?

Please put things in rules when you're asking anyone to program. Assuming we're using the 9 SPDRs to test, do you mean? At each month, buy top 3 based on last six months performance At each month, sell if any spdr falls below the rank of 4 'past six month performers' Both rules will contradict each other, because if we're buying top 3 performers we need to sell if their performance drops below top 3 (not top 4).

Market Overview Charts: These can be very helpful for stock traders. Heatmaps are the simplest and can be drawn easily in Excel 2007. Treemaps are a improved version of heatmaps where components are weighted as per their importance. Relative Performance charts are my favorite. Even more customization can be used for technical information.

Please give your reasons why you prefer certain type of graphs. Market Profile Charts: These supposedly give better visuals for PV analysis by plotting volume along with price levels. Each of attached charts are different, click to enlarge.

See last few posts for example. http://www.traderslaboratory.com/forums/technical-analysis/10509-moment-truth-stock-investors-4.html#post126037 As the market stabilizes, Technology and Financials will outperform- they did last week and will continue so until S&P starts crashing again. IBM and AAPL both look good for short-term. For 2-3 months holding, many ETFs mentioned here were selling cheap, so no harm in buying the moment market takes support. Currently I have hardly 20% of money in pure investments, rest is short-term to mid-term trading.

Hi, Technical Analysis can help only if you can identify patterns which are non-random. So the important part is identifying profitable patterns- either through graphs or through machine learning. Lets talk about discovering patterns through data visualization (using graphs). To clarify: I'm using the word 'pattern' in a broad sense and not just the classic chart patterns. Trend itself is a pattern- the way you define a trend should suggest that prices has a high probability to continue in the direction of the trend; if they don't then trend does not exists. Similarly how a trend first starts, establishes and gets exhausted is all about patterns in price behavior. So let's revise pros and cons of some available charts. Please help building a proper list by mentioning why you use a particular plot style. I will mention some not-so-popular plot styles tomorrow. Line Chart Pros: Filters out daily/minute ranges by plotting only close value. Some people find this helpful. Cons: People who seek more details would go for O/H/L/C charts Bar Chart Pros: Plots the O/H/L/C values for each day, as well as the price ranges over a quarter or year depending on the number of bars you plot. Cons: Single color; color are more catchy to eyes than just data points Candle Stick Chart Pros: The most popular- plots daily ranges in a way that it is easy to identify each bar pattern, also uses different colors for easier visualization Cons: None really, depends on how comfortable a trader is with this plot style Range Bar Chart Pros: Plots each bar according to a preset range and hence filters out time details Cons: Absence of relevant information- internals retracements within the bar range are chalked out. Rules for plotting: Each bar is the same height because the range is constant. The close of a bar is always at the high or low of the bar. The open of a bar is always one tick below or above the close of the preceding bar. The time period covered by each bar varies. All gaps are filled with inserted 'phantom' bars. Equivolume Bar Chart Pros: Plots the bar size in proportion to volumes- hence more information in the same plot Cons: None really, depends on how comfortable a trader is with this plot style Heikin-Ashi Chart These are not really price charts but may come under the category of price derived indicator. Each bar is calculated with formula (below) to emphasize existence of trends Open = (open of previous bar+close of previous bar)/2 Close = (open+high+low+close)/4 High = maximum of high, open, or close (whichever is highest) Low = minimum of low, open, or close (whichever is lowest) Renko Charts These have predetermined range bars (bricks) similar to range bar charts. Pros: does not have intra-bar hi/lo like range bar charts Cons: internals retracements within the brick range are chalked out. Kagi Charts These are another form of time-independent charts. The thickness of the Kagi line changes depending on price action. The Kagi line is plotted up (or down) until prices reverse by a specified amount. These are not just price plots- can be categorized under derivatives. Point and Figure Charts Another price derived chart which follows the following rules: Use the high when another X can be drawn and then ignore the low. Use the low when another X cannot be drawn and the low triggers a 3-box reversal. Ignore both when the high does not warrant another X and the low does not trigger a 3-box reversal. Use the low when another O can be drawn and then ignore the high. Use the high when another O cannot be drawn and the high triggers a 3-box reversal. Ignore both when the low does not warrant another O and the high does not trigger a 3-box reversal.