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This is a user-specified price interval in a point and figure chart that is required for the chart to move. It is the amount of price movement that is required to create a new X or O column on the chart.

This week I want to share with you one of the most enlightening moments in my learning process related to the use of trendlines. When I decided to educate myself about technical analysis and the markets there were no online trading seminars. There were no seminars at all, but if there were they wouldn't have been online since there was no internet. However, there were market letters that that came by snail-mail that did some education along with trade recommendations. All used trendlines in the analysis. Let's review what is taught about the use of trend lines and questions I had after using them. Trend line Analysis: A trend line needs at least two connecting points. A trend line with three or more points is stronger The trend line connecting points shouldn't be too close The trend line shouldn't be too steep or shallow An uptrend line will act as support A downtrend line will act as resistance A trend line once broken will have the opposite effect The break of a long existing trend line changes the trend Questioning the validity for trendlines: Should trendlines be drawn from bar extremes or the closes? Are trendlines drawn in a higher time frame stronger? Are intersecting trendlines a stronger reference point? Are trendlines valid in all time frames, even a 1-min.? Is a trend line drawn on an Arithmetic scaled chart more valid than those on a Semi-log scaled chart? Is the break of a trend line really a change in the trend? How many times can a trend line be redrawn? Can extending a line really predict where prices will reverse? My conclusion about the use of trendlines is that while widely used and have the potential to effect price movement on market indices especially, they are subjective as reference points of support and resistance at best and not needed. If you have used trendlines, had one break, seen prices reverse back in the original direction and you then redrew the line like I have. The question that came to my mind was, is it possible to "connect the dots" again and locate support and resistance? It didn't make sense, not common sense. The answer was no. The enlightening moment came when I realize that the analysis of support and resistance is not to be done diagonally, it has to be done horizontally. It was so simple, but all the hocus-pocus analysis taught made it so hard to get to that point. Besides the basic Trend Line there are Gann lines, Gann Box lines, Regression Channel lines. Median Lines, Andrews Pitchfork Lines, Fibonacci Circle lines, Fibonacci Fan Lines and it goes on and on. It should be no surprise why so many are confused about the use of technical analysis. Been there or there right now? Here what to do, simply look to the left and stop drawing lines! Let's review the trend lines and the real coming overhead resistance on some of the broader market indices. In the chart above of the S&P 500 ETF symbol SPY, I drew the downtrend line. Clearly, prices ignored it like it was not there. Actually, it is only there for those that drew it, so it only exists as a reference point for them, in their minds; it's not real. What is real is the area in red, which is there for everyone. Somewhere in that box sellers are going to overcome buyers. Will that be for a day, two days? How far will prices drop? That's the unknown. Right now there is no pattern to suggest that. The only thing known is that the area to the left is resistance and the move up has the greatest odds of stalling in the box. In the chart above the Nasdaq 100 ETF QQQ, I drew the downtrend line and we see that prices did stall at the line before moving higher. Was the line the reason? No it was not, it was the small area of price resistance to the left. Resistance does not mean prices have to go lower. Especially, when prices have fallen for a while as these did into an area of Major Support (MS) (not shown) where buyers will show up. The Qs entered into the area of price resistance Friday and sellers are going to show up in there. The 200-MA is also in the box and while subjective as a reference point of resistance, it is a widely followed point of reference. Notice the number of overlapping candles that are directly to the left of it and the unfilled gap. n the chart above of the Russell 2000 ETF symbol IWM, I drew the downtrend line. Odds are prices are going to stall there and trend line users will point to that. Why will prices stall there? Because price resistance is to the left and the other markets are coming into resistance also. It just happens to work out this way once and a while. Technical analysis does not have to be complicated; however, we have a tendency to follow what is when it comes to the markets. I did years ago, but eventually realized the majority of what is taught is nonsense. I don't know how all this nonsense started, but it's been going on a long time and continues. Most do not side-step this black hole on the way to finding the truth, if they ever do. You don't have to or can get out of it now. Greg Capra President & CEO Pristine Capital Holdings, Inc.

There are three possible trends in the market: uptrend when the price of the asset is heading up, downtrend when the price of the asset is headed downwards, and a sideways or range-bound trend when the price of the asset is neither heading upwards or downwards. Trends are best determined by using long term time charts such as the daily charts.

Daily Charts are one of the most common charts used by technical traders, as these charts give traders an idea of the sentiment activity that is seen during each trading session, rather than in one section of a trading session.

Many trading systems are based on candlestick formations that are found on Candlestick Charts. Many of these are reversal patterns that show market indecision, and these trading systems can be identified quickly for short term strategies.

IS MY SYSTEM WORTHLESS? First part here In this second part of the topic, we begin to really address how to operate your trading system Part ONE asked the question: “Is the Trading System I bought useless?” in the context of “Comparing “Hindsight with Reality.” What I meant was this: It is very easy to throw together a few Moving Averages and a few Indicators, and call it a SYSTEM; and then it is just as easy to find a chart the demonstrates how good this system functions, in choosing winning trades. The scam system vendor from a nice, bright Internet site, is really coming up with great trades … in HINDSIGHT. He is NOT showing you the trades AS THEY HAPPEN. What I am doing, is the reverse. I am “cherry picking” a section of a chart where the system worked nicely, purely to illustrate THE WAY TO OPERATE A SYSTEM, not to prove that the system actually works. My approach is to show you how to read the chart at the right hand edge of your screen, candle-by-candle as the price reveals itself. That is the contrast between “Hindsight Trading” and “Reality Trading.” In the last paragraph of the last post, I said: “But notice that the MACD histogram has crossed UNDER its signal line, and is falling. This tells us MOMENTUM is slowing … nothing else. Next, the RSI is still ABOVE 50, and parallel to the 50 line. No conclusions to be drawn there either. We need to wait another hour, to see what price is going to do.” Refer to Chart 1 below We don’t have that situation yet, so we need to wait until we do see the fast MA, the 5, cross the slowest MA, the 34. In fact it does not happen until 7 hours later, at the close of the candle illustrated below. There is a decisive move down, and after the candle closes, we can see that the MA’s have actually crossed. So, after waiting patiently – I call it “stalking” the trade – we finally have the alert AND the trigger. Refer to Chart 2 Note: This MA crossing might not have been seen on the “entry candle” until the candle actually closed, and certainly had the following candle been a rallying candle, the MA cross may even have disappeared – thus triggering a whipsaw situation, but not necessarily negating the trade. These are the risks of trading. Had the 4H chart remained in a downtrend, we would not have been stopped out of the trade. That’s for another day. We enter the trade immediately the new candle opens. We can expect some draw-down because as mentioned earlier, price is dynamic – it ebbs and flows like a living thing, as it progresses. There are two other things to take note of here: The MACD histogram has crossed DOWN through the zero line, and the RSI has not only crossed down through the 50 line, it has revisited the 50 line and then dropped sharply away again, in the direction of the possible new trend. In this style of trading, you do not know where your take-profit level will be. You only know you are a part of a very good trend, and you claimed your entry at an excellent point in a pullback. These trades can run for days, because they are based on the 4H charts, which are les susceptible to “noise” in lower TF. It would be easy to say here that our trade made about 130 pips, based on the crossing of the medium MA – the 13EMA, by the fast, or 5EMA on the 1H chart. But this is not the case, unless you have enough experience to use skilled discretion in closing the trade. The trade actually closed out with around 70 pips, based on the system rules. I closed the trade at that point so as to illustrate two things: The first is that we can have an arbitrary rules-based strategy to tell us the conditions under which we will close the trade, no questions asked! The second thing is that we can use our thinking (discretion) and experience, to remain in “good” trades long enough to extract the maximum pips, but not so long that we give back more pips than we really needed to. Refer to chart 3 below, for an arbitrary closing signal … the crossing of the fast and the medium speed EMA’s: Closing the trade here gave us around 70 pips, as we said, but had we managed the trade from the 1H chart, we would have made around 120 pips – far better it seems than the pips made following the 4H chart. Or so we think … we are not finished with this lesson yet. Which is the best strategy for trade management, and why? Refer to closing point on the 1H chart. chart 4 below. The better action here is to remember to check ALL TF before making a decision about closing this trade. If we checked the DAILY chart, we would see that the DOWNTEND is still strongly intact, and we are experiencing a pullback on the 4H chart, but not a true signal to close the trade. The best situation is to remain with the 4H chart, and manage the trade from there. Why? Because the RSI has NOT crossed the 50 line, and the MACD has NOT crossed the zero line. Further, on the 4H chart, the MACD is very flat – it does not look like it is really wanting to rise much further. You will notice we are not losing many pips in the pullback. Experience teaches us that if we follow rules in trading, we can come out of scary trades as a winner. In this case, we have the CONFIDENCE of a powerful DAILY trend backing us. So what you may think is an error, in not using the lower TF – the 1H – to manage the trade, is actually just consistent application of the rules. Failing to do this, could well have cost us hundreds of pips at other times. By the way – by applying this same strategy to the DAILY chart, we could have scooped about 550 pips, and the trade was still running. Maybe we could have made more pis .. maybe fewer … we don’t know until our trades are closed out. Refer to this nice DAILY Chart, chart 5 below. There are 550 pips in that trend at the point we see it. Trading is full of hypothetical situations. You can only make your rules and stick to them. The situation about the trend continuing down in the higher Daily TF, could have been written in your journal as a post-trade comment, and certainly an important case made for the future, to allow for such circumstances in the rules. There is no substitute for screen time … and more screen time. One swallow does not make a summer, and one great trade that works out, by manipulating the rules, does not invalidate the rules. Rules should only be amended when a benefit to do so can be demonstrated consistently over time. If you can bend and break the rules so easily, then they are not rules at all … they are guidelines! I can tell you, good traders don’t have “guidelines” … they have iron-clad rules! Finally, had we been trading the DAILY charts, through following what is going on in the WEEKLY TF, and taking entries from the 4H charts, we might have enjoyed a trade of between 1000 and 2000 pips … and the trend is still running. A bit better than 70 pips … or 120 pips! Longer trends have immeasurable benefits to us – the least of all is the stress-free method of trading. I hope I have been able to show the benefits of a few things here: 1) Higher TF trades can be just as successful as scalping the very fast TF and with less stress 2) Trading decisions are made from the reality of the right-hand-edge of the screen, not hindsight, or setups 20 candles earlier 3) Using multiple TF can be of huge advantage to traders regardless of style 4) Following the rules strictly can actually have an enormous positive impact on your account 5) Rules can be amended based on consistent evidence from your trading journal 6) Following the rules strictly has an enormous reinforcing effect on the traders confidence in his method, and in his ability as a trader. CONCLUSION A traders failure to understand and apply a system consistently and accurately, speaks more about his lack of attention to detail and rules, than it does about the efficacy of the strategy employed. Rather than blame the system for failing to deliver the profits promised on the website, traders should first of all be certain they are trading a simple system – one that they can easily understand, without too many indicators and filters. We have seen how a simply devised forex trading strategy DOES have the ability to make pips, without the need for more complications.Then it is easy to accept responsibility for our own trading decisions, and NOT blame a strategy that is over-size for our current skills. Quite often it is the eagerness of traders to overtrade, that is at the root of their problems. There are many virtues successful traders need to have, and the chief amongst them would have to be patience, focus and discipline to follow simple rules. A poor system in skilled hands can do as well or better, than a sophisticated system in unskilled hands. And how do you get the skills? Certainly not from a system purchased over the Internet! Skill is developed, not purchased. You acquire forex trading skills through screen time, practice, working under a successful mentor, engaging in forum conversation with quality contributors, learning about what drives the forex market, understanding your indicators through and through, watching what happens to price on different TF simultaneously, and of course the golden trio: focus, commitment and consistency. In one word, these three qualities add up to … discipline! I hope you enjoyed this two-part series of posts. next post will be much shorter, but I will post something useful to your trading bottom line. Posted in my blog: http://forexapplepie.com/

Hi folks, anybody knows a charting software that is comparable in quality to Bloomberg's ? Bloomberg's charting tools are top notch: they're powerful, user friendly and a pleasure to look at. Unfortunately they are bundled with all the rest (news, analysis etc..) and thus far too expensive. What's the closest match to Bloomberg's charting tools in your opinion ? I know that Investor RT and Multichart offer some functions I am interested in (eg: dynamic regression lines with fixed start dates). Any other name ? Thank u ! Franco

As expected, the Bank of England left its benchmark interest rate unchanged at 0.5% and also announced that it will continue with its “emergency” bond-purchase program as is; with target holdings set at 200 billion pounds. The GBP/USD pair remained above the 1.5400 mark following the announcement and has risen to levels as high as 1.5475 going into the 15:00 GMT fixing hour on Thursday. Today’s high, coupled with yesterday’s high slightly above 1.5530 still keep the GBP/USD pair just below the 38.2% Fib retracement levels of 1.5562 on the 4-hour charts from its August 6th top. If this holds as a level of resistance for the remainder of the week and the 4-hour MACD continues to decline, entry levels along the 1.5520-1.5470 range could be seen as attractive for opening short positions in the pair going into Friday. Profit targets of 110-200 pips, for hopes of collection early in next week’s trading, could be set at the 1.5360-1.5320 range. For those with a broader perspective, if the 1.5320 is reached again either Friday or next week, this would place the GBP/USD near the 38.2% Fib retracement levels from its rise off mid-May bottoms. The daily chart also shows the daily MACD leveling off. There is no particular trade being setup in my mind with this information, just something to keep in mind if you prefer the broader view of the daily rather than hourly charts. As usual, these observations are solely my opinion and do not constitute any form of investment or trading advice.