It seems so right – but it goes so wrong!

By: Chris Irvin, Veteran Instructor & Trader at The Wizard

It is the most frustrating thing in the world!  You sift through, what seems like a million different stocks to find the perfect trade.  You time your entry perfectly, and at the moment you enter the trade the chart rolls over on you.  It is like the trading floor has a camera focused on you and everyone is told to do exactly the opposite of what you are doing.  You can almost hear the snickering.

Okay, we all know that doesn’t really happen, but there are times when it sure feels like it.  When we enter or exit a trade, it is as a result of something that convinces you that your stock is going to move in a particular direction for a period of time or the mover has ended.  Continue reading "It seems so right – but it goes so wrong!"

Trends, Retracements and Reversals

By: Chris Irvin, Veteran Instructor & Trader at The Wizard

When we are looking a social media and pop culture it seems that trends change by the minute.  I read recently that the seniors leaving collage this year believe that email is dead.  It is essentially the snail mail of the 21st century and has been replaced by texting.  Waiting for an email response just takes too long.   As I get older, it takes me longer to identify trends, and I often miss the signals that they are coming to an end.  Just ask my kids – they will agree with me.

When it comes to the stock market some people suffer from the same difficulties.  They cannot see the market trends and have a tough time seeing the signals that those trends are coming to an end.  This is a critical skill in the trading world.  The truth is that everything is trending.  It does not matter if you trade stocks, currencies or futures, in some timeframe there will be an observable trend.

In this blog we are going to discuss the definition of a trend, and more importantly how to recognize the difference between “Retracements” and  ”Reversals.” Continue reading "Trends, Retracements and Reversals"

Traders Toolbox: Support & Resistance Revisited...

Trader's Toolbox

At MarketClub our mission is to help you become a better trader. Our passion is creating superior trading tools to help you achieve your goals -- no matter which way the markets move -- with objective and unbiased recommendations not available from brokers.

The Trader's Toolbox posts are just another free resource from MarketClub.


Support & Resistance Example

"Although many of you will find this lesson in one of the most basic concepts of market behavior “old hat”, it never hurts to review. One of the first things a new trader is told (I hesitate to say learns as many never do) is to buy a breakout above resistance and sell a fall through support.

Resistance is the level which holds a market down, while support is an area which props up a market much like a ceiling and a floor. The key is to identify the critical levels. There are a number of methods to determine support and resistance: trendlines, moving averages, retracements, Gann angles, etc. However, simple observation can be an effective means of locating the important areas. A quick glance at the October cotton chart reveals the most basic levels of support and resistance (broken lines)..."

Revisit the Trader's Toolbox Post: "Support & Resistance" here.

Traders Toolbox: Elliott Wave Theory

MarketClub is known for our “Trade Triangle” technology. However, if you have used other technical analysis indicators previously, you can use a combination of the studies and other techniques in conjunction with the “Trade Triangles” to further confirm trends.

Elliott Wave Theory categorizes price movement in terms of predictable waves. Beginning in the late 1920s, R.N. Elliott developed his own concept of price waves and their predictive qualities. In Elliott theory, waves moving with the trend are called impulse waves, while waves moving against it are called corrective waves.

Impulse saves are broken down into five primary price movements, while correction waves are broken down into three. An impulse wave is always followed by a correction wave, so any complete wave cycle will contain eight distinct price movements. Breaking down the primary waves of the impulse/correction wave cycle into subwaves produces a wave count of 34 (21 from the impulse wave plus 13 from teh correction wave), producting more Fibonacci numbers.

Elliott analysis can be applied to time frames as short as 15 minutes or as long as decades, with smaller waves functioning as subwaves of larger waves, which are in turn subwaves of still larger formations. By analyzing price charts and maintaining wave counts, you can determine price objectives and reversal points.

A key element of Elliott analysis is defining the wave context you are in: Are you presently in an impulse wave uptrend, or is it just eh correction wave of a larger downtrend? The larger the time frame you analyze, the larger the trend or wave you find yourself in. Because waves are almost never straightforward, but are instead composed of numerous subwaves and minor aberrations, clearly defining waves (especially correction waves) is as much an art as any other kind of chart analysis.

Fibonacci ratios play a conspicuous role in establishing price objectives in Elliott theory. In an impulse wave, the three principal waves moving in the direction of a trend are separated by two smaller waves moving against the trend. Elliotticians often forecast the tops or bottoms of the upcoming waves by multiplying previous waves by a Fibonacci ratio. For example, to estimate a price objective for wave III, multiply wave I by the Fibonacci ratio of 1.618 and add it to the bottom of wave II for a price target. Fibonacci numbers are also evident in the time it takes for price patterns to develop and cycles to complete.