Author: The INO.com Team

Traders Toolbox Lesson 4: How to profit and use pivot areas effectively

Posted on by The INO.com Team

Over the years, I have found certain areas of support and resistance to be especially effective in trend analysis. These special levels have been given the term pivot areas. These are areas which, once reached, act like a pivot man in basketball. The pivot man is faced with the choice of which direction to send the play; once the decision has been made and the ball has been passed, the play generally continues in that direction. When a market reaches a pivot area, a decision needs to be made to go higher or lower, and once a decisive close has been made away from or beyond the pivot area, the direction is likely to continue.

A good example of a pivot area is the 5040 level on the weekly hog chart. When the market has approached this level, it has either clearly turned or definitely con- tinued the existing trend with very little consolidation. Other examples include the 550 level in soybeans, 500 area in silver and sugar, 5500 area in cattle, 1500 level in soybean oil, the 80-00 area in Treasury bonds and the 205 level in soy- bean meal. Many markets exhibit pivot areas especially well on Gann (contract specific continuation) charts.

The Symmetry In The Market Is Incredible

Posted on by The INO.com Team

Today's guest blogger comes from the popular MYSMP.com site and it's creator Kunal Vakil. Kunal is a man who is plugged into the market literally!! I asked him to give his unique perspective on the market...and it's symmetry.

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First off, I want to thank Adam and Trader's Blog for allowing me to post my materials on Trader's blog.

Today, I want to share my thoughts on the S&P 500 and where I see it heading before this bear market is over. And, yes, we are in a bear market. Not only has the Dow Jones already fallen 20% off its highs of last year with the S&P 500 nearly there as well, but the price action in the broad markets has been that of a bear market. It is typical to see sharp sell-offs and ferocious bear market rallies which make even the bears capitulate, all before the market begins a move lower again. Big volume down, and low volume up. This is precisely what we have seen since the top at 1576.09 on the S&P back in October of 2007.

Now, let's talk about the culprit a little. We know that the banking index has been decimated with the exacerbating write-downs and credit quality issues due to the unscrupulous practices of many bankers and loan brokers. Many banks have lost over 50% of their value, and the beating continues. As we review the daily charts of the major banks, one can easily see a pattern that is definitive of a bear market, lower highs and lower lows. From looking at these charts, it is my firm opinion that the worst is not over yet. We are probably half way through the write-down cycle. Now what does this mean for us as traders?

Well, here is what I am watching very carefully. I want to see some of the major banks (ie. C, LEH, MER, MS, GS, FNM, FRE) start to show signs of strength relative to the entire market. I want to start seeing them make higher lows and higher highs. I want to see a base building process develop within these stocks. I want to see volume lighten up to the downside and increase to the upside. When these developments start to take place, we can start to look for long entries in these stocks. Is the US banking sector going to fall to 0? NO!, but don't try and catch a falling knife, stay patient. Remember, Cheap can always get cheaper...and it has.

Moving back to the S&P 500, I want to now walk you through a few charts that will illustrate where I think this market is headed by the Sept./October timeframe. This period historically provides some dynamite buying opportunities and it looks like this year wont disappoint.

On longer term charts, especially index charts, Fibonacci retracements and extensions offer good points of support and resistance. Here you can see that the S&P has a major support area at the 1171 area. I will show you why this is a very important level.

Our next chart is another weekly chart of the S&P, however, this time notice the Fibonacci extension. Notice the initial move off the top and the subsequent rally off that reaction low created an extension target between 1353 to 1248. Notice how the 1.382 and 1.618 levels held the two lows set in January and March and the market showed its weakness by extending down to the lower end of that zone.

The next chart shows you the current extension that we are watching now. It starts with the December 2007 highs going down to the March lows and the retracement up is at the May highs around 1440. Now, notice the extension targets. The 100% extension takes us down to 1173.65, very close to the 50% Fibonacci retracement level in our first chart.

One final point in terms of symmetry that I want to make here. Back in 2003 when we were looking for a breakout in this market, the 1165 to 1175 range was a key pivotal area we watched. It represented the neckline of a massive W bottom, which some would call an inverted head and shoulders. This area is going to provide massive support on the way down.

All things considered, I am looking for another 100 point drop in this index before I can see a true bottom being put in. Remember, you want to watch the leaders on the way up and the way down. The banks have been providing that leadership and are showing no signs of letting up. Therefore, we are not bottom picking here. The speculative soul in me believes that the shoe is going to drop with one of the big banks out there. Time will tell but until then, be safe and protect your downside risk.

All the best,

Kunal Vakil

MYSMP.com

How to trade successfully in any market

Posted on by The INO.com Team

Happy Q3.

In this short video we will be looking at five key components that you need to be successful in your trading in Q3. The ones we have picked out today are not on every pro trader's list, so I think they will surprise you.

We consider these five components to be incredibly important to anyone's trading success, most of all yours.

If you have the time check out our other Traders Whiteboard lessons. We now have a total of eight lessons that you can benefit from and they're available here.

All the best in trading,

Adam Hewison

Traders Toolbox Lesson 3: Change is inevitable

Posted on by The INO.com Team

The most powerful ally you can have in trading and analysis is the trend. A market may stay in a given trend for a long period of time, but change is inevitable.

Since change is inevitable, it is important to be able to identify when or where a market may turn. I use an analytical tool called terminal areas to identify a time or a place in the market where a trend potentially may change. Terminal areas are the single most powerful tool I possess.

The word "terminal" is defined as, at or reaching an end. It can also mean a stopping point. The importance of terminal areas is that these are the only places where a market can make a major turn. Very simply, a market cannot make a major change in trend unless it is in a position to do so. When a terminal area is reached, and if the end of the trend is at hand, the old trend will die and a new trend will be born. However, reaching a terminal area does not mean a trend change is automatic. Since terminal areas also serve as a stopping point, a market may experience an interruption of trend instead of a change in trend. An interruption of trend will develop as a congestion area or a sideways pattern, preceding continuation of the trend.

There are six primary areas which can be termed terminal. These are: 1) Major retracement levels, primarily 25%, 38%, 50%, 62%, and 75%; 2) congestion or sideways areas of the past, preferably from weekly, or even longer-term, charts; 3) old highs and lows, again from longer-term charts; 4) trendlines  natural trendlines, Andrews lines, Gann angles or whatever your preferred method of drawing trendlines; 5) gaps caused by market action, not those created by the changing of contract months on a continuation chart; and 6) critical points in time, such as cycle turns, anniversary dates, Fibonacci counts, etc.

The combination of several terminal areas greatly enhances the probability of a major turn. Combine two terminal areas and you have a point which has as much as three times the influence of a single terminal area. Three converging terminal areas have the potential to be as much as nine times more powerful than a single area. Occasionally, a convergence of four legitimate terminal areas will occur. This development can evolve into the "home run" type of move.

Terminal areas which have the greatest impact for a major trend change are found on long-term charts. Also, I have found the combinations which have the highest reliability in forecasting a turn usually include a major time point.