Here's one of my favorite chart patterns

Posted on June 9, 2008February 25, 2010 by The INO.com Team

Head and Shoulders Formations

One of the oldest and most reliable of all chart formations is the Head and Shoulders Formation. This formation takes place usually after a trend has been established and in place for some time. It can in rarer instances take place in a continuation pattern and still be effective. The two formations we are going to look at today are a Head and Shoulders Top (HAST) and a Head and Shoulders Base (HASB). Both of these formations have a high degree of accuracy and usually portend a major change in direction for a market.

A normal Head and Shoulders Top (HAST) or Head and Shoulders Base (HASB) has a right shoulder, a head, a left shoulder, and a neckline. More complicated formations have double heads or double shoulders and, in some rare instances, triple shoulders. Both a Head and Shoulders Top (HAST) and a Head and Shoulders Base (HASB) have a neckline, and a Head and Shoulders formation should only be considered completed when the neckline is broken.

Once the neckline is broken, it is possible that prices can set back and retest the neckline. It is perfectly normal and healthy for a market to do this. Care must be taken that the retest of the neckline does not exceed by too much the original neckline and thereby abort the formation.

As a general rule, if the market sets back through its neckline and violates the left shoulder formation, it should be viewed as invalidating the original buy or sell signal. In order to predict the extent of a move a measurement is taken from the top part of the head to the neckline. The Head and Shoulders Target Zone (HATSZ) is created when you add or subtract this distance from the neckline, depending on whether it’s a Head and Shoulders Top (HAST) or a Head and Shoulders Base (HASB).

See how many chart formations show up in MarketClub. This type of formation occurs in stocks, futures, forex, metals and mutual fund markets.

Every Success,

Adam Hewison

Co-Founder, MarketClub.com

A sell signal in crude oil are you crazy?

Posted on June 6, 2008February 25, 2010 by The INO.com Team

I get to eat some humble pie.

As many of you know our "Trade Triangle" technology issued a signal to go short crude oil on 6/4. The question was whether this was a good signal or a bad signal. The truth is it was a good signal, why do I say that? The bottom line is when you're trading with discipline you must take the signal and try not to over think it. If crude oil had moved down to $120 and then down to the $115-110 level we would have looked like heroes. Instead crude oil had its largest percentage move in seven years.

The last two days in crude oil have been extraordinary by anyone's imagination and you have to respect the market.

One of my heroes in the market was a gentleman named Bernard Baruch. You basically don't hear about him anymore, but his teachings about the market are extraordinarily useful. You may want to read his book, "Baruch: My Own Story," which I highly recommend.

One of my favorite sayings that Baruch gets credited for goes like this: "The main purpose of the stock market is to make fools of as many men as possible." Well that certainly happened to me this week on the blog when I issued that signal on crude oil. Would I do it again? You bet, because I know the odds are in my favor in the long run.

If you've been reading this blog for any length of time you know that we stress diversification and discipline in trading. When you do that, you really do win out in the long run. We have had hundreds of profitable signals trading crude oil and our gains in crude oil in Q3, Q4 and Q1 have been outstanding. Now, I agree with you with this last trade in crude oil was a doozy. But only seeing this occur every 7 years is not such a hardship.

Many traders would be afraid to take the next signal right after a big loss, but sometimes that's the best time to do so. Many of you may remember the gold signal and how that worked out.

The key to the market, is to be consistent in your approach. Many traders will trade a market and then suddenly say it's not working, and go onto something else. Then the very market they were following has an enormous move that they were waiting for.

Getting back to our sell signal in crude; would we take the same signal again? Absolutely! Not to take the signal would be a mistake because that could have been a signal that could be very profitable for us. No one knows the future, the only way to successfully achieve profits in the marketplace is to approach it with a game plan and a roadmap that has been successful over the years. Traders come and go, but human emotion is the one constant in the marketplace.

As we have stressed in our Traders Whiteboards Series, diversification, discipline and the use of stops are some of the most powerful tools you can employ in your quest to make money in the market. It doesn't matter if this is crude oil, Apple, Dell or the Euro

Another one of my favorite Baruch saying is this, "Do not blame anybody for your mistakes and failures." He also said this: "Whatever errors I have committed, whatever follies I have witnessed my private and public life have been the consequence of action without thought."

Here is my last comment on the Bernard Baruch and you can apply this to any market: "Without control over your emotions, there is very little chance for profitable success in the stock market."

Well that's about it. That's about as much humble pie as I can eat at one sitting.

Every success in the markets, have a great weekend.

Adam Hewison
Co-creator of MarketClub.com

Attitude = Altitude in trading

Posted on June 6, 2008February 19, 2010 by The INO.com Team

One of the most important tools that a trader possesses is his or her mind. Attitude can either make or break you as a trader.

To become a successful trader it begins with believing in yourself and having a winning attitude.

Everyone wants to be a winner, at least they think so. Unfortunately, most are not willing to perform the tasks necessary to become a consistent winner.

Winners generally achieve success by being focused on a goal. Being focused allows winners to remain committed to the tasks at hand. Most winners perform a lot of hard work, including a willingness to deal with sometimes mundane duties. Most of all, winners perform with an "I am responsible for both my failures and successes" attitude.

So, where does the would-be trader start to become a success? By focusing on the tasks at hand. Most of all, treat trading as a business. And, as in any business, money management is critical.

Money management, next to trend, is probably the aspect of trading most overlooked by smaller investors. Man, by nature, is an optimistic creature and the amateur trader often acts instinctively. Unfortunately, this instinct or optimism is often the undoing of the smaller trader.

When a person enters a trade, he does so with the hope that it will be a winner. When the position goes against him, he keeps thinking (or hoping) "it will come back." He knows he should have a stop in place, but hope keeps telling him to stay just a little longer since everybody knows, "you always get stopped out the day the market turns." Eventually, hope turns into frustration, desperation and, finally panic which prompts the trader to issue a GMO (get me out) order.

If the trader hasn't learned his lesson by this point, he develops the "I have to get it back" syndrome. He generally rushes into another poorly planned trade, throwing good money after bad.

Winners show several different characteristics. They enter the market knowing they can be wrong and, in fact are wrong as often as they are right. They have learned markets don't run on hope. They understand markets tell them when they are right or wrong. When a trader is losing money and getting worse, the market is telling them to get out.

Bad Trades

A bad trade is like a dead fish:The longer you keep it, the worse it smells.

Good Trades

When a trade is making money, the market is telling them they are right and to let the position ride.

Don't ever do this ...

Winners don't add to, or "average", losing positions. They dump the trade and go looking for a new opportunity. Successful investors may add to the winning trades. When ahead, they press their advantage while remembering that at any time the market can turn on them and prove them wrong.

In trading keep your mind clear and do not get emotional about a trade. Remember you are not married to a stock rather you are in the dating game.

Learn more about common sense trading.

Adam Hewison

Co-founder of MarketClub