Contents

Foreword
Preface
Disclaimer
Chapter 1: Be Prepared
Fundamental and Technical Analysis
Conclusion
Chapter : !et"s #et $tarted
Patterns
%olume
Price &omentum
Price and &o'in( A'era(es
Com)inin( the Four Dimensions
Beyond Technical Analysis
Financial Astrolo(y
*eepin( Count
Conclusion
Chapter +: ,ssential Patterns
-pen
.i(h
!ow
Close
Candlestic/ Patterns
Di'er(ence Patterns
Dia(onal Patterns
Patterns Continued
0&1 and 021 Patterns
.ead and $houlders Patterns
3ectan(le Patterns
$aucer Patterns
AB4CD Patterns
#aps
Conclusion
Chapter 5: ,lliott 2a'es
2a'e 1
2a'e
2a'e +
2a'e 5
2a'e 6
,7tended 2a'es
Three82a'e $tructures
Correcti'e +8+86 Patterns
Correcti'e 68+86 Patterns
3ule of Alternation
Fi)onacci 3etracement and Pro9ection
Application of ,lliott 2a'e Analysis
Conclusion
Appendi7: 3atios and 2a'e 3elationship
Chapter 6: %olume
Basic %olume Plots
3eadin( %olume
&oney8Flow :ndicator
Decipherin( Trend with %olume
Conclusion
Chapter ;: *ey :ndicators
&omentum -scillator
<ueuin( Theory of &o'in( A'era(e Crosso'ers =<&AC>
&ACD
A'era(e Direction :nde7
Protecti'e $tops
Conclusion
Chapter ?: Applied $ystems
Catchin( That Trend
Built8:n Color Trend :ndicator
$upportin( &o'in( A'era(es
Trade on Daily $i(nals
Tradin( with :chimo/u
Conclusion
Chapter @: Formulatin( Aour Tradin( Plan
Determinin( Aour Time Frame
$electin( $toc/s
3is/ &ana(ement
Determine ,ntry Points
Determine ,7it $trate(ies
3eality Chec/
Chapter B: Financial Astrolo(y
Csin( !unar Cycles in Tradin(
.ow to Pic/ 2innin( $toc/s
Choosin( the Best Periods for Tradin(
&ar/et Pro9ection
Conclusion
Appendi7 1: 3ulin( Planets of the Datural .oroscope
Appendi7 : ,ffects of %arious Aspects
Appendi7 +: Characteristics of the Twel'e Eodiac $i(ns
Appendi7 5: Formulas in &eta$toc/ Format
#lossary
Bi)lio(raphy
A)out the Authors
:nde7
Founded in 1@F?G Hohn 2iley I $ons is the oldest independent pu)lishin( company in the
Cnited $tatesJ 2ith offices in Dorth AmericaG ,uropeG Australia and AsiaG 2iley is (lo)ally
committed to de'elopin( and mar/etin( print and electronic products and ser'ices for our
customers" professional and personal /nowled(e and understandin(J
The 2iley Tradin( series features )oo/s )y traders who ha'e sur'i'ed the mar/et"s e'er
chan(in( temperament and ha'e prosperedKsome )y rein'entin( systemsG others )y (ettin(
)ac/ to )asicsJ 2hether a no'ice traderG professional or somewhere in8)etweenG these )oo/s
will pro'ide the ad'ice and strate(ies needed to prosper today and well into the futureJ
For a list of a'aila)le titlesG please 'isit our 2e) site at
wwwJ2ileyFinanceJcom
J
Copyri(ht L F1 )y Hohn 2iley I $ons $in(apore PteJ !tdJ
Pu)lished )y Hohn 2iley I $ons $in(apore PteJ !tdJ
1 Fusionopolis 2al/G MF?8F1G $olaris $outh TowerG $in(apore 1+@;@
All ri(hts reser'edJ
Do part of this pu)lication may )e reproducedG stored in a retrie'al systemG or transmitted in
any form or )y any meansG electronicG mechanicalG photocopyin(G recordin(G scannin(G or
otherwiseG e7cept as e7pressly permitted )y lawG without either the prior written permission of
the Pu)lisherG or authoriNation throu(h payment of the appropriate photocopy fee to the
Copyri(ht Clearance CenterJ 3eOuests for permission should )e addressed to the Pu)lisherG
Hohn 2iley I $ons $in(apore PteJ !tdJG 1 Fusionopolis 2al/G MF?8F1G $olaris $outh TowerG
$in(apore 1+@;@G tel: ;6P;;5+P@FFFG fa7: ;6P;;5+P@FF@G e8mail:
enOuiryRwileyJcom
J
!imit of !ia)ilitySDisclaimer of 2arranty: 2hile the pu)lisher and author ha'e used their )est
efforts in preparin( this )oo/G they ma/e no representations or warranties with respect to the
accuracy or completeness of the contents of this )oo/ and specifically disclaim any implied
warranties of merchanta)ility or fitness for a particular purposeJ Do warranty may )e created
or e7tended )y sales representati'es or written sales materialsJ The ad'ice and strate(ies
contained herein may not )e suita)le for your situationJ Aou should consult with a professional
where appropriateJ Deither the pu)lisher nor the author shall )e lia)le for any dama(es arisin(
herefromJ
-ther 2iley ,ditorial -ffices
Hohn 2iley I $onsG 111 3i'er $treetG .o)o/enG DH F?F+FG C$A
Hohn 2iley I $onsG The AtriumG $outhern #ateG ChichesterG 2est $usse7G PF1B @$<G Cnited
*in(dom
Hohn 2iley I $ons =Canada> !tdJG 6+6+ Dundas $treet 2estG $uite 5FFG TorontoG -ntarioG &BB
;.BG Canada
Hohn 2iley I $ons Australia !tdJG 5 &cDou(all $treetG &iltonG <ueensland 5F;5G Australia
2iley8%C.G Boschstrasse 1G D8;B5;B 2einheimG #ermany
:$BD B?@81811@8++B1?8; =.ardco'er>
:$BD B?@81811@8++B1@8+ =ePDF>
:$BD B?@81811@8++B1B8F =&o)i>
:$BD B?@81811@8++BF8; =ePu)>
Foreword
!i/e many practitionersG my collection of )oo/s on technical analysis has (rown o'er the yearsJ
:n the initial yearsG durin( the 1B@FsG when such )oo/s were few and far )etweenG : )ou(ht
almost indiscriminatelyJ !aterG as my /nowled(e of the mar/ets and analytical methods (rewG
my purchases )ecame more selecti'eJ This well8written )oo/G which focuses solely on the
eOuity mar/etsG will occupy an important place on my )oo/shelf alon( with 3o)ert"s first little
(em of a )oo/G lowet 1ools fot 1toJets =1BB?>J
1lmloq 5olotloos fot 5wloq 1toJets has somethin( for the no'ice as well as the seasoned
traderJ The first few chapters ser'e as )oth a learnin( aid for )e(inners and as a refresher
course for the more e7perienced practitionerG while the latter chapters show how to com)ine
and use the indicators and methods discussed to create a tradin( planJ
: found 3o)ert"s inno'ati'e approach to multiple mo'in( a'era(esG which he calls the
<ueuin( Theory of &o'in( A'era(e Crosso'ers =<&AC>G to )e 'ery interestin(J : particularly
li/ed the way he dissects the interplay of lon(8term mo'in( a'era(es to anticipate ma9or
support and resistance le'els and his use of colored candlestic/s to differentiate )etween
trendin( and non8trendin( phases )ased on simple )ut effecti'e conceptsJ
:t is the last chapterG on financial astrolo(yG written )y PeterG that : found to )e most
fascinatin(J .a'in( ne'er e7plored this area )eforeKand not )ein( 'ery esoterically inclinedK:
found the material Ouite easy to followJ The astrolo(y8)ased approach to selectin( stoc/sG in
com)ination with the more accepted methods of analysis alon( with the section on pro9ectin(
future trends )ased on planetary influencesG definitely merits further studyJ : hope the authors
e7plore this fascinatin( new area in more detailG with e7amples from other eOuity mar/ets and
perhaps the currency mar/etsG in a future pu)licationJ
: ha'e /nown Peter since he was a roo/ie )ro/erG and in recent yearsG : ha'e come to /now
3o)ert as wellJ : ha'e o)ser'ed firsthand how their approach to analyNin( the stoc/ mar/et can
produce Ouite e7traordinary resultsJ 3o)ert and Peter ha'e many more inno'ati'e indicators
and methods )etween them and : loo/ forward to readin( their ne7t offerin(J
Ananda Bhaumi/
Pri'ate Ban/er
.on( *on(
Preface
The title of this )oo/G 1lmloq 5olotloos fot 5wloq 1toJets. 5occessfol 1toJloq usloq 1ecbolcol
Aoolysls ooJ lloooclol AsttoloqyG defines its missionJ :t is all a)out detectin( trend and e7plorin(
the )est timin( to tradeJ The first ei(ht chapters are authored )y 3o)ert and co'er
comprehensi'e aspects of technical analysisG includin( a summary on the Theory of ,lliott 2a'e
Principle and the <ueuin( Theory of &o'in( A'era(e Crosso'ersJ The last chapter was
contri)uted )y PeterJ :t introduces the application of financial astrolo(y to pic/in( stoc/s and
cyclesG to findin( the )est period to tradeG and to ascertainin( the )est period of your personal
Part of FortuneJ
The )oo/ co'ers four dimensions related to trend analysis: price patternsG 'olumeG price
momentumG and price mo'in( a'era(esJ The o)9ecti'e is to decipher price trend and to de'elop
the most effecti'e and profita)le method to tradin(J :t will show how to use financial astrolo(y
in lunar cycle tradin(G select stoc/s with the )est potentialG and find the )est time for profita)le
tradin(J AndG it will introduce readers to the emer(in( trend of fusin( technical analysis with
cycle analysis and financial astrolo(yJ
This )oo/ is not a)out day tradin( of stoc/s and is not intended for day tradersJ Day traders
are 'ery short8term players and they ma/e trades durin( mar/et hours in one tradin( dayJ This
is a )oo/ primarily for people who wor/ from 0B to 61 and who do not ha'e the spare time to
monitor their stoc/s closely durin( the dayJ They are more li/ely to )e position traders who
ma/e lon(er8term trades that may last from se'eral days to se'eral monthsG and can only find
time after office hours in the e'enin(J &any of them would li/e to ha'e some sort of technical
analysis method that can help them ta/e )etter care of their tradesG )ut they 9ust do not /now
where to startJ They would li/e to read chartsJ .owe'erG there are so many methods and
systems to pursue that the whole process )ecomes somewhat o'erwhelmin(J This )oo/ is
dedicated to these people who want to )e more proacti'e tradersJ :t will demonstrate a simple
and practical approach to doin( 9ust thatJ :t will not reOuire the purchase of e7pensi'e and
sophisticated softwareG as we are dealin( only with end8of8day data and not real8time dataJ
-ther than the e7amples of charts in financial astrolo(yG we are usin( &eta$toc/ software and
end8of8day data su)scri)ed from data 'endors to illustrate the chartsJ The formulas in the
samples of this )oo/ are enclosed for the )enefit of the readersJ These formulas are not
e7hausti'e or definiti'eT readers can of course amend them to suit their own style of tradin(J
&eta$toc/ also has many other popular indicators and systems a'aila)leJ
-ur purpose is to show swin( traders or nonPday traders a concise method to tradin( and
encoura(e them to ta/e the su)9ect to a hi(her le'elG particularly in confi(urin( the indicators
they will use for tradin(G mana(ement of ris/G and use of financial astrolo(yJ :n financial
astrolo(yG we try to show the application of astro8harmonics and how they are )ein( used with
common technical tools to (i'e an e7tra ed(e in timin( mar/et turnsJ ,'ery trader has his or her
own ha)it of tradin(G such as preferred use of certain indicators and methodsG and mar(in of
accepta)le ris/J &ost tradersG howe'erG depend entirely on the standard formula of a pac/a(ed
pro(ramJ &any of them ha'e (ood ideas of what indicators they would li/e to use in their
tradin(G )ut lac/ the time and patience to implement their concepts into a pro(ramJ -thers are
still e7plorin( different options to de'elop a tradin( pro(ram that suits all their criteriaJ
After countless hours of researchG we ha'e put to(ether the essentials of a practical course
on technical analysis in nine chaptersG as descri)ed in Chapter G !et"s #et $tartedJ 2e feel the
su)9ects co'ered will )e more than adeOuate for tradin( stoc/sJ There are many dos and don"ts
re(ardin( interpretation of analysis that we ha'e encountered in our +6 years of tradin(
e7perienceG and the )oo/ descri)es how to interpret de'elopin( patterns and trendsJ :t also
(i'es e7amples of how mechanical tradin( systems are desi(nedG and how a standard indicator
could )e incorporated into a systemJ Ta/en to(ether with the emer(in( trend of fusin(
technical analysis with cycle analysis and financial astrolo(yG it is hoped the )oo/ may ser'e as a
useful (uide and inspire no'ice as well as 'eteran traders to further their techniOues in the
areas co'eredJ
.ow to (au(e different mar/et scenarios is one of the tric/iest issues facin( traders e'ery
dayJ To help de'elop your tradin( techniOuesG the )oo/ contains many charts illustratin( how to
assess and analyNe different /inds of conditionsJ The charts ha'e )een produced from 'arious
'endors" software pro(ramsJ By the endG traders should ha'e further ad'anced to an all8around
understandin( of usin( technical analysis in formulatin( a profita)le tradin( plan
:n the )oo/G we ha'e demonstrated a simple concept of a tradin( methodJ The stoc/s are
selected at random and are not selected to fit the systemJ The system is not a mechanical or
fully automated tradin( systemG and parameters of the system and indicators are not
optimiNedJ The )asic formulas used in the system are pro'ided for referenceJ The formulas are
simple and easy for traders to useJ :t should )e easy also to ad9ust them for incorporation =with
their personal system desi(n> into their personal tradin( methodJ The pro(ram has a )uilt8in
color trend indicator to alert traders to the state of the stoc/s in the short time frameG and to
'alidate the short8term trend )y the medium8term indicators of the systemJ :n essenceG we
want to trade when the short8term trend is mo'in( in tandem with the medium8term trendG
and trade si(nals are e7ecuted only in the direction of the lon(er trend frameJ The application
reOuires discretionary traders" decisions to anticipate mar/et outloo/ for the intermediate
trendJ :t uses candlestic/ patternsG ,lliott 2a'e PrincipleG 'olumeG and the interplay of three
lon(er8term mo'in( a'era(es to decide whether rele'ant price rallies or corrections are
e7pected to )e short8li'ed or the start of a lon(er trendJ :t is also recommended to include a
protecti'e stop8loss system in e'ery tradin( systemJ There are no standard parameters or
definiti'e methods for applyin( stop8lossJ ,ach trader has to define his own accepta)le ris/ to
set the appropriate stop8lossJ For referenceG the formula of a simple indicator for stop8loss has
)een included to(ether with formulas of the 'arious indicators mentioned in the )oo/J
To a lar(e e7tentG the success of tradin( depends on your frame of mindG money
mana(ement a)ilityG and tradin( methodolo(yJ .a'in( a healthy frame of mind is a prereOuisite
for tradin( stoc/sJ The mind (reatly influences how you trade and how you mana(e your
financial ris/J Tradin( is all a)out ma/in( mental decisionsJ A frame of mind that is ne(ati'eG
tiredG or an7ious is not the ri(ht condition for tradin( anythin(J -n the other handG a healthy
and cheerful attitude and learnin( to ta/e a )rea/ from tradin( are indispensa)le factors in the
unceasin( Ouest to achie'e the )est tradin( resultsJ
3o)ert TJ .J !ee
Peter AJ Tryde
Disclaimer
This )oo/ is sold with the understandin( that neither the pu)lisher nor the authors are en(a(ed
in offerin( le(alG accountin(G or other professional ser'ices or ad'ice )y pu)lishin( this )oo/J
ThusG if le(al or financial ad'ice or other e7pert assistance is reOuired in a specific situationG the
ser'ices of a competent professional should )e sou(ht to ensure that the situation has )een
e'aluated carefullyJ The pu)lisherG the authorsG and any other person connected with the
writin( of this )oo/ disclaim any lia)ility for any losses that may )e sustained as a result of
applyin( the methods su((ested in this )oo/J
This )oo/ should not )e deemed to )e a definiti'e in'estment (uide and should not )e ta/en
to replace ad'ice from a Oualified financial planner or other competent professionalsJ There are
always ris/s in in'estments of almost any /ind and there is no (uarantee that the in'estment
methods descri)ed in this )oo/ will )e profita)leJ $ystem tradin( is a ris/y )usiness and can
result in hea'y lossesJ Do not assume that the theoriesG systemsG methodsG or indicators
mentioned in the )oo/ would )e profita)le or that they will not result in lossesJ The tradin(
systems presented in this )oo/ are for (uidelines only and ser'e to illustrate the relati'e
theoretical results )etween different tradin( systemsJ They were produced from 'arious
technical analysis software pro(rams de'eloped )y 'arious 'endors who are in no way
responsi)le for the resultsJ They do not warrant or ma/e any representation re(ardin( the useG
or the results of the use of their software pro(ramsG or written materials in terms of
correctnessG accuracyG relia)ilityG or otherwiseJ They are not responsi)le for any losses resultin(
from in'estment decisions )ased on information o)tained throu(h the use of the systemsJ
Certain information contained herein has )een o)tained from sources )elie'ed to )e relia)leG
)ut which cannot )e (uaranteed as to accuracy or completenessG and is su)9ect to chan(e
without noticeJ The ris/ of usin( any tradin( pro(ram or method rests with the userJ
C.APT,3 1
Be Prepared
Tradin( stoc/s is 1FF percent mentalJ Tradin( means the )uyin( and sellin( of one or multiple
stoc/s to ta/e ad'anta(e of price fluctuationsG rather than 9ust holdin( on to the stoc/s
indefinitelyJ $uccess as a trader is a difficult achie'ementT it has ne'er )een easyJ Added to thisG
the FF@ financial crisis )rou(ht to the mar/et a new a(e of 'olatilityG as well as new thin/in(
and new approaches in tradin(J :f you do not /now what you are doin(G tradin( will now )e
e'en harderJ
&ar/ets consist of a multitude of in'estors from indi'iduals to institutionsG each with their
own in'estment a(endaJ :n a((re(ateG in'estors" emotions of (reedG fearG hopeG and despair
dictate mar/et fluctuations and directional mo'ementsJ $imilarlyG the psycholo(ical state of a
trader may affect his tradin( results )ecause his emotions influence his decision ma/in(J To
outperform the mar/et and to succeed in tradin(G a trader needs to ta/e char(e of his
emotionsJ To start offG he reOuires a patient and confident mindJ :f a trader is confused a)out
what he is doin(G the pro)a)le win ratio is Nero and he mi(ht as well (i'e up tradin(J The mind
is mischie'ous and it often is the primary cause of failuresJ The mar/et is always creatin( noises
and if a trader fails to control his inner noisesG how can he listen to what the mar/et is tryin( to
tell himU
:n
Fi(ure 1J1
G the .an( $en( :nde7 showed that the mar/et was in an optimistic mood for a)out 66
months from April FF6 to its e7u)erant hi(h in -cto)er FF?J Fear )e(an to ta/e o'er in
Do'em)er FF?G and the mar/et finally crac/ed in Hanuary FF@J The financial crisis struc/
across the (lo)eG creatin( panic amon( in'estorsJ The collapse of confidence lasted a)out 1+
months until the CJ$J (o'ernment )e(an to announce concerted efforts to calm in'estorsJ .ope
returned to the mar/et with the announcements of the (o'ernment"s financial stimulus
pac/a(esJ
F:#C3, 1J1
#reedG FearG .opeG and Despair form the four psycholo(ical states of the mar/etG swin(in(
sentiment states from optimism to pessimism and repeatin( it all o'er a(ainG time after timeJ
After appro7imately ei(ht monthsG the )uoyancy of the mar/et slowed down and in'estors
seemed to return to an an7ious moodJ Dotice that the 'olatility of the mar/etG shown )y the
wide monthly ran(eG was (reater toward the end of the (reed and fear states of the mar/etJ
The top window shows that the momentum oscillator stayed in the o'ersold None for 1
months durin( the state of fearJ Durin( the optimism stateG the momentum oscillator stayed
continually a)o'e the o'ersold line and rose steadily to the o'er)ou(ht NoneG supported )y
increasin( 'olumeJ
The mar/et is always dynamicJ :t is o)li'ious to your wins or lossesJ But too many traders
)lame the mar/et for their failuresJ They do not consider for a moment that their failures are
caused )y a lac/ of preparation and irrational emotionsJ 2hate'er the causeG the )est solution
is 9ust to mo'e on to the ne7t trade with a clear mind and in (ood spiritsJ A (ood trader should
not dwell on the pastJ A trader"s e(o is his (reatest hindrance to )ein( successfulJ The )est
approach is to turn emotion into a positi'e toolJ 2hene'er any ne(ati'e emotions stir in himG a
trader should ta/e it as a wa/e8up callJ .e should not allow such emotion to )lur his 9ud(ment
and derail his tradin( planJ The most common fault in tradin( is o'erthin/in(Kdwellin( on the
past and not /eepin( to the tradin( planJ Besides thin/in( too muchG a trader may )elie'e he is
always correct and will refuse to accept the reality of the mar/etJ ThusG he should ma/e e7tra
effort to understand more of himself and his emotionG so that he will trade )etter and feel
)etterJ
FCDDA&,DTA! ADD T,C.D:CA! ADA!A$:$
2hen a stoc/ price is compared to its intrinsic 'alueG it is termed as 0fundamental analysisJ1
2hen the stoc/ price is loo/ed at from the an(le of supply and demandG it is /nown as
0technical analysisJ1 ,ach method of analysis is 9ust as useful and important as the otherG and
)oth methods should )e used in com)ination when readin( the mar/et and selectin( stoc/sJ
.owe'erG it must )e remem)ered that all analysis ser'es as a means to estimate the 'alue of
stoc/sJ
Fundamentals refer to the financial information reported )y the listed companiesG which is
always historicalJ A fundamental analyst calculates the stoc/"s future worth )ased on the
company"s past reportsG and pro9ects its 'alue and relati'e earnin(sJ Fundamental analysts
study the chan(e in profita)ility of the corporation relati'e to its re'enue trendG costsG and
e7pensesG which will include an analysis of its )usiness competitionG its capitaliNationG and the
stren(th of its )usiness sectorsJ Fundamental analysts should )e aware of the potential ris/ of
chan(e )etween the company"s latest report and its current situationJ :t ta/es (enerally at least
three months from the cutoff date of the financial statements to ha'e the audited results
pu)lishedJ Durin( that periodG many thin(s can happen andG as a resultG the pu)lished results
may not reflect the current state of the company"s financial positionJ DonethelessG one would
)e foolish to i(nore all fundamental analysisJ
Fundamentals are more determina)le and deli'er fewer surprise punchesJ After studyin(
companies with consistent earnin(s and (rowthG it should )e possi)le to forecast these
companies" earnin(s per share =,P$> and the li/ely ran(e of their re'enue and earnin(s (rowthJ
:t mi(ht also )e possi)le to estimate the return on eOuity and the di'idend payout ratio )ased
on each company"s di'idend policyJ .owe'erG it would )e difficult to do so for companies with
'olatile le'els of re'enue and earnin(sJ :n'estors loo/ for steady (rowth in )oth earnin(s and
di'idend payout o'er timeJ This does not mean the in'estment di'idend has to increase each
yearJ The di'idend payout ratio is an important si(nJ :f the di'idend payout ratio starts to ma/e
a series of declinesG )usiness may )e turnin( ne(ati'e and it should tri((er an alert to reassess
the in'estmentJ
Fundamental analysis is more li/ely to )e )ased on a uniform standardG which ma/es it easier
for in'estors to understand the resultsJ Fundamental and technical analyses are not ali/eG )ut
there is a (rowin( trend to com)ine )oth forms of 'aluationJ :n fundamental analysisG the PS,
ratio is the indicator most often usedJ :t indicates the multiples of earnin(s represented in the
current priceJ .owe'erG the indicator has a ma9or flawT it tends to distort if and when the
current information and the cycles of an industry ha'e chan(ed since the latest earnin(s reportJ
:n spite of thisG the PS, ratio has remained a popular and decisi'e indicator used )y many
analysts for 'aluin( stoc/sJ -ther ratios are important as wellG includin( di'idend yield and price
to )oo/ 'alueJ
:n'estors ha'e a tendency to o'er'alue stoc/s )y pushin( their prices to e7treme le'elsG
especially when such stoc/s are in hot demand for one reason or anotherJ :n such instancesG
PS, ratios can )e used as a comparati'e (uide of the stoc/"s 'alue a(ainst other similar stoc/s in
its industryG and when the PS, ratios are well a)o'e a specific le'elG the ratio can )e used to
eliminate such stoc/sJ AlsoG PS, ratios ma/e it practical and easy to search for stoc/s tradin( at
a )ar(ain priceJ $ometimesG stoc/s may ha'e e7traordinarily low PS, ratios )ecause they may
)e priced too conser'ati'ely and the potential for profit is limitedJ -ther timesG 'ery low PS,
stoc/s should )e a'oidedG as there may )e certain undisclosed reasons why they are )ein(
shunned )y /nowled(ea)le in'estorsJ A more sensi)le wayG perhapsG is to tread the middle
pathG pic/in( mid8ran(e PS, stoc/s usin( the PS, of the .an( $en( :nde7 or relati'e sector inde7
as a )enchmar/J There is no sin(le answer in the mar/etJ Additional analysis could include
relati'e studies of the stoc/"s di'idend yield =see
Fi(ure 1J
> and )usiness outloo/ and its mar/et capitaliNation amon( the stoc/s in the same industryJ
F:#C3, 1J
.an( $en( :nde7 with the monthly yield for the past 1; yearsJ
:n
Fi(ure 1J+
G the hi(hs of the :nde7 are mar/ed .1G .G .+G .5G .6G .;G and .?T and the lows are mar/ed
!1G !G !+G and !5J For the past 1; yearsG the :nde7"s PS, ratios ha'e risen se'en times to the
appro7imate multiple of FG four of which occasions =.1G .G .+G and .;> caused ma9or
declinesJ .5 and .? tops ha'e produced smaller corrections compared with other topsJ The
:nde7 mana(ed to hold on to its le'els thou(h the PS, ratios in )oth cases are in the pro7imity
of FT these were the only incidents that did not result in a ma9or declineJ Dote that for the
same periodG the PS, ratio lowsG fallin( )elow a multiple of 1FG offered e7cellent )ar(ains at !
and !5J
F:#C3, 1J+
&onthly PS, ratios of the constituent stoc/s of the .an( $en( :nde7 for the past 1; yearsJ
Technical analysisG on the other handG is the study of directional mo'ement of prices usin(
chartsJ A technical analyst loo/s at a stoc/"s current price mo'ements durin( the tradin( periodG
re(ardless of its fundamental 'alueJ 2hether a stoc/ is e7pensi'e or cheap relati'e to its
fundamental 'alue is immaterialJ The only thin( that matters is the price directional mo'ement
and where it mi(ht mo'e in the futureJ The ar(uments are )ased on two criteria: that all /nown
fundamental information is reflected in the priceG and all chan(es in emotion and sentiment are
shown in the relati'e action of price and 'olumeJ Do matter what the stoc/ is worthG it ta/es
only )uyin( and sellin( to mo'e pricesG without which no trade will e'er )e profita)leJ A
technical analyst does not Ouestion why the stoc/ price has mo'edG )ut howJ .is only concern
is whether the present state of the stoc/ price will )e short8li'ed or will continue for his tradin(
time frameJ .is challen(e is to anticipate the ne7t direction of the stoc/ price and to time his
decisions to either )uy or sell )ased on the correlation of price and 'olume informationG price
patternsG and technical indicatorsJ
BasicallyG a technical analyst loo/s at the mar/et price action and its relati'e price patterns to
determine whether there is a pro)a)le trend to tradeJ The most important point in attemptin(
to read the mar/et is to ha'e an open8minded approachJ :t is disastrous to ha'e a pre9udicial
frame of mind in readin( the mar/etJ :f a trader is )iasedG loo/in( to fulfill his e(oG he can easily
(et a distorted 'iew of the mar/etJ .e may )e tellin( himself that he already /nows what
direction the mar/et will (o inG while the truth is he merely wishes it to (o in that directionJ
:n summin( upG it will )e readily apparent that technical and fundamental analyses ser'e
different purposes and the )est strate(y is to apply the techniOue that is most helpful in ma/in(
the tradeJ ,ach approach can )e used to complement the otherJ A lon(8term in'estor will more
li/ely )e focusin( on fundamental informationG while a short8term in'estor will concentrate on
technical analysisJ :n a )roader senseG fundamental and technical techniOues are all a)out
'aluation of a company and its stoc/J
:t may )e of interest to note that there are software pro(rams that com)ine fundamental
and technical analysis into a hy)rid tradin( methodolo(yJ :n'estors can use fundamental
analysis to screen a uni'erse of securities and identify stoc/s with (ood fundamentals and
(rowth potentialJ They can then use technical analysis to determine the timin( to purchase
sharesG such as near o'ersold le'elsG or after a retracement of prices of a certain percenta(e
from the pea/ of a rallyJ :n this )oo/G we show another approach where financial astrolo(y is
used instead of usin( fundamental analysis to screen sharesJ The shares selected on this )asis
ha'e (reatly outperformed the shares selected on the more con'entional )asisG althou(h it
must )e said that more comprehensi'e research is needed to esta)lish that the superior
performance holds true under a (reater 'ariety of mar/et conditionsJ
The )oo/ presents readers with a )road ran(e of technical and financial astrolo(y indicators
that ha'e )een found to )e effecti'e in (au(in( mar/et trends and approachin( chan(e in
trendsJ The wide ran(e may appear somewhat o'erwhelmin( at firstJ The intention is not for
users to adopt all of these indicatorsG )utG after a thorou(h re'iewG to choose only those that
suit their style of tradin( and which they themsel'es find most usefulJ :n particularG we hope
traders will also find that inte(ratin( some select technical indicators with financial astro
indicators can )oost their resultsJ 2hate'er the approachG it is imperati'e not to o'eranalyNe
the mar/etJ As &ar/ Dou(las pointed out in 1toJloq lo tbe 2ooe =FF1>G 0: /now it may sound
stran(e to many readersG )ut there is an in'erse relationship )etween analysis and tradin(
resultsJ &ore analysis or )ein( a)le to ma/e distinctions in the mar/et"s )eha'ior will not
produce )etter tradin( resultsJ1 2e ha'e found this to )e true as wellG and readers would )e
well ad'ised to ta/e the time necessary to de'elop a simple yet powerful tradin( methodolo(y
of their own that does not in'ol'e o'erly e7tensi'e analysisJ
Another common ha)it )esides o'eranalyNin( the mar/et is the repeated use of the same
type of informationG whether intentionally or unintentionallyG particularly in applyin( multiple
oscillatorsG so that the result of each oscillator re'eals the same type of informationJ .a'in(
one oscillator to confirm another oscillator will not ser'e the purpose if the calculation of the
oscillators is deri'ed from the same informationJ At all cost this must )e a'oidedJ As Hohn
Bollin(erG author of 8ollloqet oo 8ollloqet 8ooJs =FF>G puts itG 0&ulticollinearity is a trap in
which se'eral indicators seem to confirm each otherG )ut really do not )ecause they are each
repeatin( the same messa(eJ A typical e7ample of this is the use of se'eral different
momentum indicatorsJ1
Fi(ure 1J5
is an e7ample of multicollinearity in three oscillators that use the same series of closin(
priceJ
F:#C3, 1J5
A chart showin( an e7ample of multicollinearity in the plots of three oscillatorsJ The second
window is a $tochastic -scillatorG the third window is the 3elati'e $tren(th :nde7 =3$:>
-scillatorG and the fourth window is the 3ate of Chan(e =3-C> -scillatorJ Dote the similarity of
the ups and downs of the three oscillatorsJ
:ndicators could )e cate(oriNed into three main streams as follows:
1J &omentum Cate(ory includes 3ate of Chan(eG $tochastic =V*G VD>G 3elati'e $tren(th :nde7G
Commodity Channel :nde7G 3elati'e &omentum :nde7G Cltimate -scillatorG and 2illiams V3J
J Trend Cate(ory includes &o'in( A'era(esG Para)olic $A3G Bollin(er BandG A'era(e True
3an(eG 2ilders Direction &o'ement :nde7 =ADW>G Trend :ntensity inde7G &o'in( A'era(e
Con'er(ence Di'er(ence and Price -scillatorJ
+J %olume Cate(ory includes &oney Flow :nde7G Chai/in &oney FlowG %olume 3ate of Chan(eG
-n Balance %olume and Price %olume -scillatorG Demand :nde7 and %olume Eone -scillatorJ
Fi(ure 1J6
charts the same stoc/ as
Fi(ure 1J5
with three indicatorsG which hi(hli(ht the directional mo'ement of the stoc/ in a more
meanin(ful wayJ
F:#C3, 1J6
The top window plots the 6F8day and FF8day mo'in( a'era(es showin( the price trendG the
middle window shows the price momentumG and the )ottom window shows the 'olume
transactions of the stoc/J
An indicator that is collinear with another will )asically rise and fall in a)out the same area
and the same appro7imate time frameJ :ndicators that are collinear with each other will not
help traders in (ainin( a proper 'iew of the mar/et and could result in a misleadin( perspecti'eJ
:deallyG traders and in'estors should de'elop three noncorrelated mar/et analysis approachesJ
The first analysis approach is to interpret price mo'ements )y studyin( the inter8reaction of the
'arious indicators selected from each of the three cate(oriesKa momentum indicatorG a trend
indicatorG and a 'olume indicatorJ The second analysis approach could )e of ,lliott 2a'e Theory
and Fi)onacci studiesG and the third approach could include astro8harmonic analysisJ
Besides maintainin( the discipline of applyin( a systematic structure and techniOue in
tradin(G a trader should ta/e note of the followin( important ad'ice from past mastersJ
Do not attempt to ha'e a preset idea of price le'el or attempt to pic/ tops and )ottoms
of a price actionJ Accept that some points may )e sacrificed at the )e(innin( or end of a
trend while waitin( for a setup confirmation that the trend )e(innin( or end are in
placeJ
Cnderstand that trend tradin( can lead to lar(e (ains )ut also to lar(e lossesJ
Tradin( time frame is a /ey element in determinin( trendG )ecause trend can ta/e place
on multiple time8frame le'elsJ
Trends remain in force until they ha'e e7hausted themsel'es and their re'ersals are
confirmedJ !et the mar/et decide when the trend has endedJ
%olume confirms the trendJ
*eep the num)er of stoc/s within a ran(e you can mana(e wellJ
Always ha'e an e7it plan for e'ery tradeJ
:n tradin(G the o)9ecti'e is to win swiftly whene'er possi)leJ :t is all a)out /nowin( how to
handle the trade in accordance with the tradin( strate(y and time frameJ $un Ei"s military
philosophy emphasiNes the uncertaintyG the deceptionsG and the surprises of warfareJ 0As water
shapes its flow accordin( to the (roundG an army wins )y relatin( to the enemy it facesJ And
9ust as water retains no constant shapeG in war there will )e no constant conditionJ1 $o it is with
the mar/etT there is no such thin( as a constant mar/etJ The mar/et chan(es all the timeJ :t is
always tryin( to throw us off )alanceJ Traders ha'e to hear what the mar/et is tryin( to say and
follow its flowT they need to )e responsi'e and fle7i)le in the de'elopment of the tradin(
strate(iesJ A trader must learn to ta/e profits when the trend is o'erJ Do not dra(J The mar/et
has no rulesJ 3emem)erG the a)ility to pre'ent defeat depends on usG or in the words of the
le(endary traderG 2J DJ #ann: 0:f we wish to a'ert failure in speculationG we must deal with
causesJ1
C-DC!C$:-D
This chapter hi(hli(hts two 'ery important issues for e'ery trader who wishes to trade
successfully in the mar/etJ $uccess in tradin( lies with the trader himselfG not the tradin(
system or the tradin( softwareJ A successful trader should ha'e a plan for each trade and
should /now how he will approach each in'estmentJ A successful trader needs to )e patientG to
do his homewor/G and to ha'e tradin( disciplineJ
:f a trader can ta/e char(e of his mind and Ouell the inner dialo(ue that creates all sorts of
contradictionsG and if he can /eep his eyes on the time frame of his tradin( and focus on
principles and techniOuesG he will stand a )etter chance of )ecomin( a successfulG happyG and
confident traderJ
C.APT,3
!et"s #et $tarted
Technical analysis is a rule8)ased tradin( approachJ There are many ways to analyNe mar/et
informationG and the potential 'aria)les are endlessJ A trend is the (eneral direction in which
prices are headedJ :n usin( technical analysisG the o)9ecti'e is to identify the pro)a)le trend as
early as possi)leJ CnfortunatelyG early detection of an impendin( chan(e in trend is not that
easyJ There is no sin(le method or system that does so accurately and consistentlyJ ThusG it
would )e )etter to use a scorecard approach )ased on the collecti'e methodolo(y descri)ed in
this )oo/J :n a )ull mar/etG most stoc/s (o up and in a )ear mar/et most stoc/s (o downJ From
trial and error in our tradin( e7perience and in our researchG we ha'e noted that when a trend
is underwayG four trend8related dimensions (i'e us cluesJ These clues may not happen at the
same timeG )ut usually occur within a span of a few )arsJ The four dimensions are:
1J Patterns
J %olume
+J Price &omentum
5J Price and &o'in( A'era(es
This chapter will )riefly introduce each of the four dimensions that need to )e studiedJ The
purpose of the study is to learn the stren(ths and wea/nesses of each dimensionJ The trader
will then )e a)le to see from the reactions in each dimension where a chan(e in trend ta/es
place and how to use that information effecti'ely in his tradin(J And when the trader has
learned to strin( to(ether all aspects of the four dimensions and to apply their coherent si(nals
in tradin(G he will )e tradin( more confidentlyJ #raduallyG he will realiNe that he is tradin( more
prudently and that the num)er of his trades has )een reduced )ased on this tradin( methodJ
.e will disco'er one of the (olden tenet of master tradersK0&ore trades do not eOuate to
more profitsJ1
PATT,3D$
Patterns are a 'ery important aspect of technical analysisJ They are the shapes or structures of
formations that appear on a chartG includin( dou)le topsG dou)le )ottomsG mornin( starG head
and shouldersG trian(lesG rectan(lesG saucersG and so onJ Patterns are the )ody lan(ua(e of price
e7pressions and offer traders a means of forecastin( pro)a)le price directionJ There are two
ma9or types of patternsKre'ersal patterns and continuation patternsJ 3e'ersal is a formation
pattern that indicates a li/ely re'ersal in trend is ta/in( placeG that isG from a )ullish trend to a
)earish trendG or 'ice 'ersaJ The continuation pattern indicates a temporary price retracement
and on the )rea/out of the patternG the pre'ailin( trend will continueJ Patterns are not
infalli)leJ There is no chart pattern that will tell you with 1FF percent certainty where the price
is headin(J But learnin( the characteristics of each pattern formation and usin( them with other
supportin( indicators will (i'e traders an ed(e in readin( the mar/et and timin( tradesJ The
'arious patterns are descri)ed in Chapter +G ,ssential PatternsG which includes candlestic/s and
classical patternsG and Chapter 5G ,lliott 2a'esG which includes 'arious trian(le patternsJ
Candlestic/ charts place more emphasis on the relationship )etween openin( and closin(
pricesG /nown as the )ody of the candleJ :f the hi(h of the candlestic/ is (reater than the )odyG
it is shown )y a 'ertical line called the upper shadowJ And if the low of the candlestic/ is lower
than the )odyG it is shown also )y a 'ertical lineG the lower shadowJ !on( upper shadows
indicate sellin( pressure and lon( lower shadowsG )uyin( supportJ The lon(er the upper
shadowsG the (reater the sellin( pressureG and the lon(er the lower shadowsG the (reater the
)uyin( supportJ And if the closin( price is hi(her than the openin( priceG the )ody is charted as
a hollow candleJ :f the closin( price is lower than the openin( priceG the )ody is filledJ :f the
closin( price is the same as the openin( priceG it will )e shown as a short dashJ The stron(est
candle will )e a hollow candle =price closes at the hi(h of the day> with no upper or lower
shadowsJ The wea/est candle will )e a filled candle =price closes at the low of the day> with no
upper or lower shadowsJ %arious important candlestic/ patterns are descri)ed in Chapter +J
They are useful in (au(in( mar/et sentiment and can pro'ide 'alua)le information when used
in con9unction with 'olumeJ 2e would want to )e in the trade with a pair of )ullish
candlestic/sJ The )ullishness or )earishness of candlestic/ patterns should not )e determined
on the )asis of a sin(le candlestic/J
#roup patterns are formed )y clusters of price )ars o'er a (i'en time periodJ There are two
types of patternsJ The linear patterns can )e distin(uished as )earish re'ersals =top re'ersal
patterns> or )ullish re'ersals =)ottom re'ersal patterns>G or continuation patternsJ =$ee
Fi(ure J1
J> They include head and shoulders =tops and )ottoms>G dou)le )ottoms and dou)le topsG
rectan(le or line formationsG dia(onal patternsG and trian(lesJ The roundin( patterns are the
)ullish and )earish saucer patternsG or roundin( tops and roundin( )ottomsJ Patterns do not
(i'e outri(ht )uySsell si(nalsJ They indicate mar/et situations and ser'e as setup conditions for
a pro)a)le chan(e in trendJ The patterns descri)ed in this )oo/ appear 'ery freOuently in stoc/
trends and should )e more than adeOuate to detect such pro)a)le chan(es of trend directionJ
A chan(e in trend to the upside should ha'e the support of a )ullish re'ersal patternG and a
chan(e in trend to the downside should ha'e the pressure of a )earish re'ersal patternJ Durin(
a period where prices are under accumulation or distri)ution phasesG mo'ements of prices are
contained within a short tradin( )and li/e a rectan(le patternJ Brea/outs from these patternsG
supported )y 'olume and candlestic/ patternsG would si(nal the start of the relati'e trendJ An
important point to /eep in mind is that traders should not try to )e too critical when
determinin( the formation of patterns )y tryin( to e7actly connect the hi(hs or lows of each
pi'otJ Patterns do not need to )e an e7act fitJ
F:#C3, J1
Chart showin( )ullish and )earish patternsJ
All mar/ets will trend up when the )etter8informed )uyers ha'e completed their
accumulation and will trend down when they ha'e completed their distri)ution to the
uninformed )uyersG who are (enerally the pu)lic participantsJ -ne of the /ey factors that
differentiates )etween informed in'estors and uninformed in'estors is the access to
informationJ Better8informed in'estors ha'e earlier access to information whereas uninformed
in'estors do not ha'e the means to (ather such informationJ The tradin( acti'ities )etween the
informed and uninformed in'estors will cause a series of reactions that tend to ha'e repetiti'e
patterns and cyclesJ ,lliot 2a'e Theory is )ased on the premise of such reactions or
o'erreactions of the collecti'e )eha'ior and emotion of in'estorsJ
,lliott 2a'e Theory has )een around for decadesG )ut there seems to )e no consensus
amon( users as to how wa'e pattern analysis should )e applied for ma7imum )enefitJ -ne
reason is the old ha)it of Nealous practitioners tryin( too hard to pinpoint e'ol'in( price
patterns )y crossin( e'ery t and dottin( e'ery iJ The o)9ecti'e is not to la)el e'ery turn all the
timeG which can ma/e analysis of patterns o'erly complicatedJ The aim of ,lliott 2a'e Theory is
to identify the sta(e of the mar/et and the specific setup of patterns to determine the trend
and its pro)a)le future directionJ
BrieflyG the patterns of mar/et prices are always in the process of formationG unfoldin( in a
set structure of fi'e wa'es in the direction of one lar(er trend and in a set structure of three
wa'es when mo'in( a(ainst that trendJ The three8wa'e structure will correct the mo'ement of
the fi'e8wa'e structureJ A fi'e8wa'e structure is normally la)eled as 188+8586 and a three8wa'e
structure is la)eled as A8B8CJ :n shortG one full ,lliott 2a'e cycle consists of fi'e wa'es and
three wa'esJ :t is easier to (rasp the theory if we thin/ in terms of a set of two root
patternsKimpulse wa'es and correcti'e wa'esJ :mpulse wa'es are those price mo'ements that
are risin( in an uptrend or declinin( in a downtrendJ Correcti'e wa'es are those that are
declinin( counter to a risin( trendG or risin( counter to a fallin( trendJ :n an impulse patternG
there are two countertrend wa'esG 2a'e and 2a'e 5J :n a correction patternG there is one
countertrend wa'eG 2a'e BJ
,lliott 2a'e Theory is a multifractal system in which each cycle can )e part of another cycle
or form part of an e7panded cycleJ :n its raw formG ,lliott 2a'e Theory is a)out forecastin(
price trends )ased on chart pattern reco(nitionG and ser'es as a complement to other technical
analysis toolsJ That isG it is )est to )uy when the mar/et is in an impulse cycleG and to sell when
it is in a correction cycleJ Chart patterns delineate the im)alances of supply and demandT they
are important )ecause they inform traders of the status of the mar/et at any (i'en time and
help to determine the li/ely direction of the trendJ
%-!C&,
%olume is an important component of analyNin( directional price mo'ementsJ :ts importance is
often o'erloo/ed )y traders )ecause it is such a simple indicatorJ %olume is often the precursor
of price trendJ But 'olume )y itself is not a si(nal for entry or e7it of tradesG and a sin(le 'olume
)ar will not )e meanin(ful if it is not compared with its recent historical patternsJ Durin( an
uptrendG 'olume will rise with risin( prices and fall durin( a correctionJ
%olume can also ser'e as a tool for (uidin( wa'e counts and in pro9ectin( e7tensions of
wa'esJ For e7ampleG in a fifth wa'eG 'olume (enerally tends to )e less than that of the third
wa'eJ :f 'olume is (reater than that of the third wa'eG an e7tension of the fifth wa'e is more
li/elyJ :n any )ull mar/etG 'olume tends to e7pand and contract with the momentum of price
chan(eJ Toward the end of a correcti'e phaseG a decline in 'olume often indicates a decline in
sellin( pressure and a low point in 'olume often coincides with a turnin( point in the mar/etJ
The discrepancy )etween 'olume and price spread is another indication to watch for price
re'ersalJ =$ee
Fi(ure J
J> 3isin( prices with low 'olume si(nifies trend wea/ness and increased 'olume on fallin(
prices points to further decline in pricesJ .ea'y 'olume with narrow price spread at new hi(hs
alerts traders to hea'y resistance from sellersG whereas hea'y 'olume at new lows is pro)a)ly a
si(n of )uyin( supportJ 2hether in an uptrend or downtrendG any price mo'ement with a
comparati'e hi(h 'olume will )e deemed stron(er than a similar mo'e with low 'olumeJ
#enerallyG we want to see (ood 'olume on a )rea/out as confirmation of the entrySe7it si(nals
and to distin(uish a true )rea/out from a false )rea/out a)o'e resistance or )elow supportJ
Price patterns and 'olume patterns should )e interpreted con9uncti'elyJ
F:#C3, J
Chart showin( application of 'olume to patterns in the lower windowJ
P3:C, &-&,DTC&
Price momentum measures the speed of the rise or fall of price relati'e to the selected periodG
the results of which are plotted as an oscillatorJ &ost momentum oscillators are plotted with
an a'era(e lineJ 2hen the momentum oscillator crosses a)o'e or )elow its a'era(e lineG it
(enerates a crosso'er si(nalG which is similar to crosso'er in two different periods of mo'in(
a'era(e linesJ The resultin( momentum plot will fluctuate )etween its hi(h and low pointsJ
#enerallyG when the momentum is a)o'e 5FS6FG it is considered to )e in an o'er)ou(ht
conditionJ And when the momentum is )elow ne(ati'e =5FS6F>G it is considered to )e in an
o'ersold conditionJ -'er)ou(ht and o'ersold conditions si(nal that the mar/et is
o'erstretchedJ The center line is the Nero lineG and when momentum is a)o'e the Nero lineG it
indicates stren(thJ 2hen it is )elow the Nero lineG it indicates wea/nessJ :n a )earish mar/etG
when the momentum mo'es from a)o'e to )elow the Nero line and then re'erses in an upward
direction a)o'e the Nero lineG it does not mean the downtrend is o'erJ :t 9ust means that the
downtrend is slowin( downJ Crosso'er at an o'er)ou(ht le'el =o'er)ou(ht re'ersal> indicates
)earishness and crosso'er at an o'ersold le'el =o'ersold re'ersal> indicates )ullishnessJ A
re'ersal indicates an increase or decrease of the price momentum and it may or may not
coincide with a price re'ersalJ 2hen readin(s are at e7treme hi(hsG price momentum is
considered to )e o'er)ou(htG and when readin(s are at e7treme lowsG it is o'ersoldJ 2hen the
oscillator reaches o'er)ou(ht or o'ersold conditionsG it is an alert to pro)a)le chan(e in price
actionsJ And when there is a di'er(ence )etween oscillator and priceG it indicates an imminent
chan(e in the stren(th or wea/ness of the mar/etJ =$ee
Fi(ure J+
J>
F:#C3, J+
Chart showin( addition of momentum indicator in the upper windowJ
There are certain wea/nesses in momentum oscillatorsJ &omentum shows the current state
of the mar/et relati'e to its pastJ Althou(h the oscillator is a deri'ati'e of price actionsG its
directional mo'ement does not represent price trends and does not necessarily mo'e in the
same direction as price actionsJ &omentum oscillators represent momentum trendsJ They are
not stand8alone indicators andG thereforeG do not offer any ad'anta(e when used in isolationJ
But when momentum of different time frames is used to (au(e the mar/etG it )ecomes an
in'alua)le toolJ Time frame is one of the si(nificant decisions we ma/e in our tradin(J As stated
earlierG the tradin( method in this )oo/ is not for day tradin(J Data used are end8of8day data
and traders would only )e loo/in( at the mar/et in the e'enin(J ThusG the time frame for
tradin( will )e lon(er than dailyG and one shouldG thereforeG )e loo/in( at the ne7t hi(her time
frameG that isG wee/ly momentumJ The &eta$toc/ pro(ram can easily con'ert )etween daily
and wee/ly dataJ :t is much easier to see the )roader state of the mar/et usin( wee/ly dataJ -n
the daily chartG it mi(ht appear that the momentum is ma/in( an o'ersold re'ersal =)ullish
re'ersal>G )ut if you loo/ at the wee/ly chartG you mi(ht see that the wee/ly momentum is in an
o'er)ou(ht condition or )earishJ :n such a conditionG it would not )e prudent to ma/e any
trade )ecause the condition is not fa'ora)le and mi(ht pose a ris/J A trade should only )e
considered when there is a )ullish re'ersal in the daily time frame and when the wee/ly
momentum is )ullish and not in an o'er)ou(ht conditionJ :n shortG it means that the two time
frames should a(ree with each other whether in an upward or a downward trendJ
P3:C, ADD &-%:D# A%,3A#,$
The o)9ect of technical analysis is to (et on the fa'ora)le side of the trendJ An uptrend is when
prices are ma/in( 0hi(her hi(hs and hi(her lowsG1 and a downtrend is when prices are ma/in(
0lower lows and lower hi(hsJ1 :n an uptrendG the sum of the rallies will e7ceed the sum of the
declinesG and in a downtrendG the sum of the declines will e7ceed the sum of the ralliesJ To )e
a)le to spot trend re'ersal and to stay with the trend is the hardest part of tradin( )ecause
prices do not mo'e in a strai(ht lineJ -f the 'arious methods applied in technical analysis to
detect trendG mo'in( a'era(e is one of the easiest methods to understand and pro'ides (ood
'isual means of spottin( a trendJ Tradin( si(nals are (enerated when price crosses a)o'e or
)elow the mo'in( a'era(eJ 2hen price crosses )elow the mo'in( a'era(eG it su((ests sellers
are ta/in( control of the mar/etG and when the price crosses a)o'e the mo'in( a'era(eG )uyers
are (ainin( controlJ A trade may also )e si(naled when the shorter8term a'era(e crosses a)o'e
or )elow the lon(er8term mo'in( a'era(eJ Two or more mo'in( a'era(es will allow a trader to
see a lon(er8term trend compared to a short8term mo'in( a'era(eJ
:n this )oo/G we descri)e the use of three sets of mo'in( a'era(es to determine entry and
e7it si(nals and a prospecti'e 'iew of the lon(er trendJ The first set consists of the short8term
mo'in( a'era(esJ The second set is made up of the mid8term mo'in( a'era(esG consistin( of
two mo'in( a'era(es: the B8day and the 1+8dayJ The third set is made up of the lon(8term
mo'in( a'era(esG consistin( of three mo'in( a'era(es: the 6F8dayG the BF8dayG and the FF8dayJ
The first set of short8term a'era(es plots the interactions of two 68day mo'in( a'era(es and
a 1+8day mo'in( a'era(eJ The si(nals (enerated )y the interactions of the three a'era(es will
color the price )arsJ The )lue )ars in
Fi(ure J5
represent )ullish si(nalsG the red )ars represent )earish si(nalsG and )lac/ and red )ars
represent a pro)a)le chan(e in trend =see
Fi(ure J5
>J
F:#C3, J5
Chart showin( the interaction of short8term mo'in( a'era(es represented )y color )arsJ
The second set of mid8term a'era(esG when used con9uncti'ely with the first set of short8
term a'era(esG acts as the si(nals for entry and e7it of tradesJ The second set of mid8term
a'era(es consists of the B8day and 1+8day mo'in( a'era(esJ 2hen the B8day crosses a)o'e the
1+8day a'era(eG andSor the close crosses a)o'e the two mid8term a'era(esG it (enerates an
entry si(nalJ An e7it si(nal is tri((ered when the B8day a'era(e crosses )elow the 1+8day
a'era(eG andSor the close crosses )elow the two mid8term a'era(esJ A stron( entry si(nal is
tri((ered when the price crosses a)o'e the mid8term a'era(esG shown in
Fi(ure J6
)y either a )lue )ar or a )ei(e or )rown )arJ A stron( e7it si(nal occurs when the price
crosses )elow the mid8term a'era(esG shown )y either )ei(eG )rownG or red )arsJ
F:#C3, J6
Chart showin( the addition of second set of mo'in( a'era(es and mar/in(s of pro)a)le trade
si(nalsJ
The third set consists of the 6F8dayG BF8dayG and FF8day mo'in( linesJ The interactions of
these three lon(er8term periods of mo'in( a'era(es play a 'ery important role in decipherin(
the conditions of the mar/et trendJ They show the li/ely support and resistance le'els of pricesG
and indicate whether entrySe7it trades made in the shorter time period will sustain a lon(er
time frameG and they will show the lon(er term outloo/ of the mar/etJ =$ee
Fi(ure J;
J>
F:#C3, J;
Chart showin( the addition of the lon(er8term mo'in( a'era(es to identify lon(er8term
outloo/ of the mar/etJ The three lon(er8term mo'in( a'era(es are con'er(in(G with the 6F8day
a'era(e mo'in( downward to the BF8day a'era(eG and the FF8day a'era(e line mo'in( flatJ
Thou(h the short8 and mid8term appear to )e positi'eG the 'arious a'era(es are not in positi'e
ali(nmentG which li/ely points a non8trendin( patternJ :f there is a rallyG it will )e short8li'edJ
:n accordance with the <ueuin( Theory of &o'in( A'era(e Crosso'ersG whether the outloo/
of the mar/et is )ullish or )earishG price and its 'arious multiple a'era(es should fall in an
orderly ali(nmentJ :n a )ullish trendG priceG )ein( the leadin( indicatorG is always a)o'e its
mo'in( a'era(esG and it is followed in order )y the mo'in( a'era(es of the shortest time period
to the lon(estJ As in the case of the third set of mo'in( a'era(esG when the outloo/ of the
mar/et is )ullishG the ali(nment of price and the three a'era(es should )e in a positi'e
ali(nment =from top down>: firstly priceG then the 6F8dayG BF8dayG and FF8day a'era(esJ :f it is
)earishG the ne(ati'e ali(nment =from top down> would )e the FF8dayG BF8dayG and 6F8day
a'era(esG and lastlyG priceJ The mar/et will cycle continuously from a ne(ati'e ali(nment to a
positi'e ali(nment and )ac/ a(ainJ There are no limits or fi7ed data for the time period and
types of mo'in( a'era(es to )e usedJ ,7pandin( the <ueuin( Theory furtherG a'era(es for
periods of less than 6F days could also )e included in the set for a total readin( of mar/et
conditionsJ
2here there is a ne(ati'e ali(nment of the lon(er8term mo'in( a'era(es durin( a mar/et
declineG and where the correcti'e pattern is not completedG any rally will li/ely )e short8li'edJ
The lon(er8term mo'in( a'era(es will (enerally indicate the resistance pointsJ :n a )ullish
trendG where there is a positi'e ali(nment of the lon(er8term mo'in( a'era(es durin( an
uptrendG and where the impulse wa'e pattern is not completedG any correction will li/ely )e
supported at the le'els of the lon(er8term mo'in( a'era(esG and price will continue its uptrendJ
:n summaryG the rules of the first and second sets of mo'in( a'era(es dictate trade entries
and e7its relati'e to lon(er8term mar/et conditions as indicated )y the lon(er8term mo'in(
a'era(esJ The lon(er8term mo'in( a'era(es will )e a (uide to the pro)a)le support and
resistance NonesG which traders can use in calculatin( ris/Sreward ratios a(ainst entriesJ
C-&B:D:D# T., F-C3 D:&,D$:-D$
2e ha'e descri)ed the usefulness of each of the four price8related dimensions: patternsG
'olumeG price momentumG and price and mo'in( a'era(esJ 2hile an entry or an e7it may )e
considered in terms of each dimension indi'iduallyG a trader who is )iased toward only one of
these dimensions will pro)a)ly e7perience a hi(her num)er of lossesJ But a trader who is
patient enou(h to loo/ for a proper )alance amon( the four dimensions will definitely find
)etter resultsJ
2e ha'e included a simple scorecard in this chapter =see 0*eepin( Count1> for use in
com)inin( the four dimensions as a total approachJ The first step prior to ma/in( any decision
is to see if there is a possi)le tradeJ 2e want to trade in the direction of the hi(her time8frame
trendJ The easiest way is to loo/ at the wee/ly price chartJ There is no need to (o throu(h e'ery
detail in the wee/ly chartJ :t will )e sufficient to loo/ at three factors: the wee/ly price
momentumG wee/ly price and relati'e mo'in( a'era(esG and the position of the current wee/ly
price relati'e to its recent historical pricesJ :f we are considerin( a trade entryG we would want
to see that the wee/ly price momentum is not o'er)ou(htG and is not )earishG and that the
wee/ly mo'in( a'era(e is (ainin( stren(th at a le'el of supportJ Comparin( the current wee/ly
price relati'e to its historical prices will (i'e traders a sense of the pro)a)le mo'eG and where
the si(nificant support and resistance le'els are in a lon(er time frameJ Based on a healthy
)ullish setupG we would then loo/ for the prospecti'e timin( on the daily chart to determine the
price factorJ
B,A-DD T,C.D:CA! ADA!A$:$
For those traders who are /een to ad'ance their s/ills in technical analysis and wish to do a
)etter 9o) in callin( the turns of the mar/etG the ne7t step is to (o into astro8harmonics or
financial astrolo(yJ Financial astrolo(y is as useful as technical analysis in analyNin( mar/etsJ
-'er the past millenniumG astrolo(ers ha'e o)ser'ed how the interactions of 'arious planets in
their or)its affect the mar/etsJ Hust as the &oon is /nown to influence tidesG emotionsG and to
cause swin(s in the mass psycholo(y of in'estorsG the other planetary )odies also ha'e certain
effectsG thou(h each in widely different waysJ :t can ta/e years to learn and master this su)9ectG
)ut there is no dou)t that while technical analysis wor/s well under normal circumstancesG
added astro8economic indicators can impro'e technical analysis to an e'en more pinpoint
accuracy and can forewarn traders of a chan(e in trendJ A )rief section on financial astrolo(y is
included herein as a preliminary introduction to this methodolo(yJ
F:DADC:A! A$T3-!-#A
Chapter B co'ers some )asic aspects of financial astrolo(yG includin( cyclesG selectin( stoc/sG
findin( the )est timin(G and mar/et forecastJ Financial astrolo(y is made much easier today
with computin( softwareJ The de'elopment of financial astrolo(y in com)ined use with
technical analysis to assist in readin( mar/et timin( and mar/et directional mo'ementsG
particularly in the plottin( of planetary mo'ements on price chartsG is (ainin( popularityJ :t is
li/ely that the fusion of these two independent systems will radically chan(e the approach to
technical chartin( in the futureJ
Financial astrolo(y is an analysis of financial matters )ased on the o)ser'ation of planetary
mo'ementsJ After tradin( the mar/ets for some timeG it will )ecome apparent that ma9or
chan(e in trend =C:T> points often coincide with certain astro8harmonic cyclesJ :n factG there is
much e'idence to show that astronomical cycles correlate with mo'es in the financial mar/etsG
as e7plained in Chapter BJ Planetary positionsG which are a'aila)le throu(h astronomical
almanacs on computer pro(ramsG may )e plotted either as a horoscope chart or a(ainst a price
chartJ .owe'erG the interpretation of planetary mo'ements and the e'ents they imply is )est
e7plained )y e7amplesJ
For traders who are new to the su)9ectG it may )e easier to start usin( a chart analysis
pro(ram li/e Trade$tation with an astro add8on moduleJ The followin( charts are e7amples of
plots of the lunar cyclesG the eclipse cyclesG the planets" positionsG the planetary aspectsG and
planetary pairsG produced with add8on modules from
wwwJsoulytionJde
J
Fi(ure J?
shows the plots of the lunar cycles to(ether with an indicator of solar and lunar eclipses in
the lower windowJ The )lue histo(ram )ars represent lunar eclipses and the (reen histo(ram
)ars show the solar eclipsesJ As descri)ed further onG eclipses may increase the effect of either
the new moon or the full moonJ
F:#C3, J?
Chart showin( how the full moon and new moonG called lunationsG often coincide with hi(hs
and lows in the mar/etJ 2hile the new moon =mar/ed )y )lue lines> is a time to )uy and the full
moon =mar/ed )y red lines> is a time to sellG the phase may not always hold true in the short
termJ
5ootce: -me(a 3esearchKTrade$tation Prosuite FFFi at
http:SSfc8cdJcomSome(aJhtm
T $teffen Peter at
wwwJsoulytionJde
J
Chapter BG in the section called 0Csin( !unar Cycles in Tradin(G1 details how a lunar8phased
)uy8sell strate(y will produce returns which su)stantially e7ceed those of a )uy8hold strate(y
only o'er se'eral yearsJ That saidG for those who are acti'ely tradin( the mar/etsG it should )e
emphasiNed that the intention is not to trade on the )asis of moon8phased )uy8sell si(nals onlyG
)ut ifG for instanceG the new moon correlates with a )uy si(nal from a momentum system li/e
stochastics and mo'in( a'era(e crosso'ersG then it lends stren(th to that si(nalJ Con'erselyG if
the full moon correlates with a technical sell si(nalG it would add stren(th to that si(nalJ Cnless
the si(nals are in harmonyG it may )e )etter to limit tradin( or stay on the sidelineJ
Another com)ination is to plot the solar and lunar eclipse pointsG as they Ouite often coincide
with C:TsJ The eclipses ha'e a much more intense focus than the re(ular lunar phasesJ 2hen
the &oon comes )etween the ,arth and the $unG the sunli(ht is )loc/ed either partially or fullyJ
:t is called a solar eclipse and happens at the new moonJ The full moon eclipse is called a lunar
eclipseJ This happens when the ,arth (ets )etween the $un and the &oonG and the ,arth"s
shadow falls on the &oonJ The effect of a solar eclipse is usually stron(er than a lunar eclipseJ
.owe'erG the duration of the lunar eclipse on Hune 16G F11G was 1FF minutesG which is
unusually lon(T only three other eclipses lasted lon(er in the last 1FF yearsJ The lon( duration is
li/ely to stren(then the effect so instead of wee/s it may last for months and when a transitin(
planet aspects the lunation pointG it can tri((er sudden wide price swin(sJ
:n
Fi(ure J@
G the )lac/ lines reflect solar eclipses and the )lue lines show lunar eclipsesJ They are plotted
here on a wee/ly chart of the .an( $en( :nde7 )ut may apply to any mar/etJ The correlation
with C:Ts is Ouite hi(hG so one would always want to remain on alert well ahead of time for the
ne7t eclipsesG such as the ones that too/ place on Do'em)er 6 and Decem)er 1FG F11J
F:#C3, J@
!unar eclipses and solar eclipsesG plotted here on a wee/ly chart of the .an( $en( :nde7J
FurthermoreG a little8/nown )ut 'alua)le techniOue is to show pro9ections BF days )efore
and BF days after an eclipseG mar/ed with dotted linesJ These pro9ections often coincide with
important turnin( points in some mar/etsJ CertainlyG in the case of the .an( $en( :nde7G they
correlate 'ery well with C:TsJ 2ith these pro9ectionsG as shown )y the dotted lines in
$eptem)er F11 =see
Fi(ure J@
>G one can always )e prepared for a possi)le ma9or chan(e in trendJ
The ne7t chart shows how a mar/et often mo'es in ali(nment or within the )oundaries of
planetary positionsG whether (eocentric =as seen from the ,arth> or heliocentric =as seen from
the $un>J The effect of the planets is dealt with in (reater detail in Chapter B under 0Choosin(
the Best Periods for Tradin(J1 CsuallyG the 'arious mar/ets are affected )y different planetsJ
The planets in'ol'ed may also depend on whether one is loo/in( at shorter8term cycles or
lon(er8term cyclesJ The former may )e influenced )y faster8mo'in( planets and the latter )y
slower8mo'in( onesJ
Fi(ure J1F
shows how the aspects of planets may help indicate the possi)le direction of a mar/etJ The
)ars at the )ottom reflect the most common aspectsG such as F de(rees =con9unction>G ;F
de(rees =se7tile>G BF de(rees =sOuare>G 1F de(rees =trine>G and 1@F de(rees =opposition>J The FG
;FG and 1F de(ree aspects are (enerally considered fa'ora)leG whereas the BF and 1@F de(ree
aspects are considered unfa'ora)le or stressfulJ
F:#C3, J1F
Planetary aspects ha'e )een applied to a chart of the .an( $en( :nde7J They are 'iewed on a
heliocentric )asisG which fits the .an( $en( :nde7 and .on( *on( shares )etter than the usual
(eocentric )asisJ -'erlaid on the aspects is the %E- ='olume None oscillator> indicatorG
descri)ed in Chapter 6G %olumeJ %E- is a simple money8flow indicator that can help re'eal
chan(in( conditions of a mar/etJ :n con9unction with the stren(th of the aspect )arsG it may
alert traders to possi)le chan(es in trendJ Dote: :n this chart and other charts hereinG the (aps
appearin( in the histo(ram )ars represent non8tradin( daysJ
Traders may also wish to ta/e note of the tendency of stoc/ mar/ets to react prior to the
moment when two transitin( planets are in an e7act aspect or in con9unction with each otherJ
$o when the planets mo'e within a certain an(le or distance of each otherG a company"s stoc/
horoscope =its price on the first day of listin(> tends to reactKupward or downward as the case
may )eKsome time )efore the actual culmination of the transit ta/es placeJ CsuallyG it is a day
)eforeG )ut sometimes it is earlierJ ThereforeG on the day of the e7act transitG the effect may
already )e o'erJ This (i'es traders a (reat ad'anta(e as they can see the approachin( aspects in
ad'ance and )e ready for the possi)le effectJ
2hy the .an( $en( :nde7 relates )est to a (eocentric 'iew of planetary mo'ements =
Fi(ure JB
>G whereas heliocentric planetary aspects correlate )etter with C:Ts in the same mar/et =
Fi(ure J1F
> is one of the impondera)les of astro8harmonicsJ The main thin(G howe'erG is that the
application wor/s and may pro'ide useful clues for tradin(J
F:#C3, JB
The chart shows (eocentric ephemeris planet lines applied to the .an( $en( :nde7J =The
ephemeris is a set of ta)les listin( the rapidly chan(in( positions of the planets as seen from
either the ,arth or the $unJ> As indicated )y the arrowsG the lower )and of a planet"s tra9ectory
may act as a )uffer to any further correctionJ $hould the mar/et fail to hold at the indicated
le'elG it may fall to the ne7t tra9ectory of the faster8mo'in( planets or the cyan line of HupiterJ
Fi(ures J11
and
J1
offer two e7amples of planet pairin( as they applied to mar/ets such as the Dow Hones
:ndustrial A'era(e and the .an( $en( :nde7J
F:#C3, J11
Chart showin( the effect of the pairin( of &ercury with %enus as applied to the Dow Hones
:ndustrial A'era(eJ The two planets mo'ed to F de(ree con9unction in early &ay and then
mo'ed to separate 9ust )efore HuneJ The techniOue is admittedly preliminary and rather
simplisticJ Further research may re'eal pairin(s of planets that correlate e'en )etter than this
e7ampleJ De'erthelessG it shows another method )y which one can identify possi)le future
C:TsJ DaturallyG the inde7 is also influenced )y other planetsG )ut these two fast8mo'in( planets
correspond Ouite well to shorter8term mo'esJ Dote also the spi/e at the end of Au(ustG which
may indicate the pea/ of an uptrend similar to the one in &ayJ
F:#C3, J1
Chart showin( how %enus and Hupiter often correlate with mo'es in the .an( $en( :nde7 on a
heliocentric )asisJ The spi/e in the )ars at )ottom indicate when transitin( %enus and Hupiter
were in con9unction =F de(rees>G sOuare =BF de(rees>G and opposition =1@F de(rees> to each
otherJ These aspects are usually the stron(est and prices did indeed top at those an(lesJ
Fi(ure J1+
a(ain shows the pairin( of %enus and Hupiter )ut this time on a wee/ly )asis and in 1@F
de(ree incrementsJ That isG whene'er the two planets are in F orG 1@F de(ree aspect to each
otherG it is indicated )y the )lue and red spi/esG respecti'elyG at the )ottom of the chartJ
F:#C3, J1+
The F and 1@F de(ree aspects of %enus and Hupiter on a heliocentric )asis often coincide Ouite
well with turnin( points in the .an( $en( :nde7G )ut not alwaysJ Dote the spi/e appearin( on
-cto)er 1G F11 and compare it with potential C:Ts from the other indicators shown earlierJ All
the dates may )e listed in the Financial Astrolo(y Chec/list at the end of this chapterJ 2hen
two or more indicators of a C:T con'er(eG it (i'es that potential chan(e in trend a hi(her
pro)a)ilityJ
A final e7ample of applyin( technical indicators with astro aspects is shown in
Fi(ure J15
for .$BC .oldin(s =FFF6J.*>J $imilar to
Fi(ure J1F
G the %E- money8flow indicator has )een superimposed on the planetary aspectsG )ut this
timeG the mo'in( a'era(e con'er(enceSdi'er(ence =&ACD> indicator has )een included at the
)ottom as wellJ
F:#C3, J15
Planetary aspects and %E-P&ACD indicators applied to .$BC .oldin(s =FFF6J.*>J :t should )e
noted that the planetary aspect )ars do not indicate any con'er(enceSdi'er(ence with the
share priceJ They only indicate the stren(th of the 'arious aspects of the planets that may alert
traders to potential chan(es in trendJ
The tall )ars indicate when one of the aspects has reached culminationG where the effect is
usually the stron(estJ These e'ents often coincide with C:Ts or acceleration of the trendG as
shown )y the arrowsJ .owe'erG as mentioned earlierG the share or inde7 may react one or two
days in ad'ance of the culmination of the aspectG and it is therefore ad'isa)le to watch the
action in the %E- and &ACD indicators 'ery closely in con9unction with the planetary aspect
)arsJ
DormallyG one should pay attention only to the tallest )arsT that isG those e7ceedin( the (ray
line at @FJ :n some instancesG howe'erG those sli(htly )elow the line also coincide with a chan(e
in trendJ After usin( this method for a whileG traders will find that technical and astrolo(ical
indicators inte(rate in an effecti'e wayG often actin( in confirmation of each other and ser'in(
as a useful early warnin( systemJ
*,,P:D# C-CDT
The Technical Analysis $corecard and the Financial Astrolo(y Chec/list include 'arious points
co'ered in the chapterJ The purpose of these lists is to (i'e traders an easy reference to these
points while interpretin( the mar/etJ A pro)a)le )ullish trend will ha'e a more positi'e readin(
while a )earish trend will ha'e a more ne(ati'e readin(J
Technical Analysis $core8Card
Financial Astrolo(y Chec/list
C-DC!C$:-D
By nowG traders should ha'e a )etter understandin( of the importance of usin( the collecti'e
si(nals of the four trend8related dimensionsKpatternG 'olumeG price momentumG and price and
mo'in( a'era(esKas tradin( (uidelinesJ #enerallyG trade entries occur when the coherent
si(nals of these four dimensions are )ullishG and trade e7its happen when the si(nals are
)earishJ :n additionG this chapter has shown how the addition of financial astrolo(y can help
further determine pro)a)le price direction and chan(e in trendJ But )efore we proceed to the
chapters co'erin( each of the four trend8related dimensionsG here"s a word of cautionJ
After tradin( for some time and ma/in( some profita)le tradesG traders may face one
possi)le dan(erJ Because technical analysis is a rule8)ased approachG the process )ecomes
repetiti'eJ Traders may start to (et )ored with the routine and )e(in to ne(lect their tradin(
rules and methodsJ Boredom may cause traders to either adopt a complacent attitude or
de'iate from their tradin( methodsJ They may easily o'erloo/ the ris/s of tradin(J To o'ercome
this syndromeG traders need to ma/e e'ery trade with attenti'e care as if it is their first tradeJ
C.APT,3 +
,ssential Patterns
The price of a stoc/ that has )een concluded durin( a tradin( period )etween a )uyer and a
seller represents the a(reed 'alue of such stoc/ for that time frame onlyJ :t is an eOuili)rium
point at that moment in timeJ The 'alue willG thereforeG )e (reatly influenced )y e7istin( supply
and demand for the stoc/ durin( that tradin( periodJ The e7istin( supply of stoc/s is the
Ouantity that sellers intend to dispose ofT the e7istin( demand for stoc/s is the Ouantity that
)uyers intend to )uyJ :t does not depend on the num)er of sellers or num)er of )uyersJ ThusG
when the demand is (reater than the supplyG price will rise and when the demand is lesser than
the supplyG price will fallJ A(reed 'alue may fluctuate in a narrow ran(e where su)stantial
'olume durin( the day is )ein( transactedJ This ran(e will then )ecome the accepted 'alue area
or the eOuili)rium NoneJ 2hen price mo'es out of the NoneG 'olatility in price will de'elopG and
if the )rea/out from the eOuili)rium None is accompanied )y hi(her 'olumeG the price 'olatility
on )rea/out will normally )e (reaterJ A solid trend may e'ol'e from such )rea/outsJ
$toc/ prices fluctuate to ma/e the hi(hs and lows of the dayJ The daily ran(e is the distance
)etween the hi(h and the lowJ The wee/ly ran(e is the ran(e )etween the wee/ly =tradin( days
from &onday to Friday> hi(h and lowJ 3an(e is an important factor in readin( price directionJ :f
the price mo'es upward from a low with e7pandin( ran(esG this means the )uyers are )uyin(
a((ressi'ely and o'ercomin( the sellin( pressureJ -n an uptrendG if the price )e(ins to increase
with contractin( ran(eG this means that the )uyers are no lon(er )uyin( as a((ressi'ely as
)eforeG and it is pro)a)ly a si(n of an imminent topJ :t cautions one to raise a protecti'e stop
closer to the current priceJ
:f the price mo'es down from its hi(h with a lar(e daily ran(eG it means that the sellers are
sellin( a((ressi'ely and are o'erpowerin( the )uyersJ #enerallyG the downward mo'ement of
prices with e7pansion of ran(e is a si(n that the downward mo'ement will continueJ :n all
phases of price mo'ementsG 'olume is a (ood indicator of the 'alidity of the mo'eJ :f the price
mo'es down to a new low with the daily ran(e contractin(G this is seen as a si(n that the sellers
are not sellin( as a((ressi'ely as )eforeG there)y si(nalin( that a possi)le )ottom may )e in the
ma/in(J Ta/in( note of these su)tle si(ns will help to understand the flow of the mar/etJ 2hile
a narrowin( of the daily ran(es in a downtrend in price is a warnin( that the pre'ailin( trend is
slowin( downG it does not necessarily mean that the current mo'e has come to an endT
additional confirmation from su)seOuent mar/et action is neededJ 2hen price ran(es are
contractin( as the price mo'es up with unimpressi'e 'olumeG the mar/et is 'ulnera)le to
another downward mo'eJ 3an(e e7pansion and contraction must always )e loo/ed at from the
perspecti'e of what ran(es are doin( now as compared with what they ha'e )een doin( in the
immediate pastJ
-P,D
The open refers to the price of the first trade at which a stoc/ is traded for that dayJ :t plays a
/ey role in the analysis accordin( to the candlestic/ systemJ :f there is )uyin( demandG the
mar/et will open up hi(her than its pre'ious day"s closin(G and if there is a lac/ of demandG the
mar/et will open lower than its pre'ious day"s closin(J :f the price opens hi(her outside the
pre'ious day"s ran(eG the )uyin( demand is 'ery stron(G and if it opens lower outside the
pre'ious day"s ran(eG there is (reat sellin( pressureJ Traders ha'e to )e cautious on such days
and e7pect (reater 'olatility in the price"s mo'ements when it opens outside the pre'ious day"s
ran(eJ
:f the close of the day is hi(her than the openin( priceG then the )uyin( power is stron(er
than the sellin( power of that dayJ To the contraryG if the close of the day is lower than the
openin( priceG then the sellin( pressure is stron(er than the )uyin( power of that dayJ $ee
Fi(ures +J1
and
+J
J A study of the relationship )etween the open and the close of the day will re'eal the
stren(th of the )uyin( power or the pressure of the sellin( power for that dayJ
F:#C3, +J1
Blac/ candlestic/s are formed when openin( prices are hi(her than closin( pricesJ The
illustration shows optimistic )uyers )uyin( at the topG )ut failin( to push prices upwardG and
finally o'ercome )y sellin( pressure toward the end of tradin(J The pessimists won the dayJ
F:#C3, +J
2hite candlestic/s are formed when closin( prices are hi(her than openin( pricesJ Bald or
sha'en headsG which are commonly used in candlestic/sG indicate there are no shadows
e7tendin( from either end of the )odyJ :n this set of candlestic/sG the sha'en head candlestic/
means that the closin( price has closed at the hi(h of the dayJ
.:#.
The hi(h is the hi(hest price at which a stoc/ is traded in a day or in a specific periodJ This is the
hi(hest point of the tradin( period at which )uyers are willin( to )uyJ :t is also the hi(hest point
of the tradin( period at which the supply has o'erpowered the demandT that isG the sellers ha'e
(ained control of the mar/etJ :f the hi(h of the day is at or near the openin( of the dayG then
the sellers ha'e )een the dominant forceG o'erwhelmin( the )uyersJ :f the hi(h of the day is at
or near the close and the open was at or near the low of the dayG then the )uyers ha'e )een in
control for that dayJ Pre'ious hi(hs often )ecome a stum)lin( )loc/ to ad'ancesJ 2hen prices
reach these pre'ious hi(hsG analysts should )e on the loo/out to see if the supply is tryin( to
o'erpower the demand at these le'els a(ainJ
-ne particular area where the mar/et is most suscepti)le to a sudden re'ersal is immediately
after the price has traded up to a new hi(h or down to a new lowJ At these le'elsG we would
e7pect new )uyin( or sellin( to enter the mar/et and it should (enerally cause the mar/et to
continue mo'in( in the same directionJ :fG howe'erG the mar/et )eha'es otherwise and does
not conform to e7pectationG then somethin( is amissG )ecause the price action is not )eha'in(
as would normally )e e7pectedJ
Price cannot continue to (o up if there is no new )uyin( and the price cannot continue to (o
down if there is no new sellin(J A((ressi'e traders may want to act immediately on seein( a
new hi(h or a new low that penetrates a pre'ious pi'ot pointJ This may )e a hi(h8ris/ approachJ
Conser'ati'e traders may wish to wait for the su)seOuent price action to confirm the actionJ
Traders must decide for themsel'es the ris/ they are prepared to ta/eJ
!-2
The low refers to the lowest price at which the stoc/ was traded in a day or in a specific periodJ
This is the lowest price of the day at which sellers are willin( to part with their stoc/sJ They are
not willin( to push the price any lowerJ :t also means that at this low point of the dayG the
)uyers ha'e entered the mar/et a(ain and ta/en control of the mar/etJ
:f the low is at or near the openin( of the dayG the )uyers ha'e )een the dominant force in
the mar/etJ They ha'e forced the price up from the lowJ :f the low is near the close of the dayG
and the open was near the hi(h of the dayG then the sellers ha'e )een in control of the mar/etG
dri'in( the mar/et downJ As with the hi(hsG pre'ious lows will also act as support to stop
further declinesJ 2hen prices reach these pre'ious lowsG analysts should )e on the alert to see
if the demand will attempt to o'erwhelm supply a(ain at a later sta(e near these same le'elsJ
C!-$,
The close is the price transacted at the end of a tradin( day or of a tradin( periodJ This is the
most watched and most freOuently Ouoted mar/et8(enerated price informationJ &ost of the
tradin( strate(iesG indicatorsG and oscillators are )ased on usin( the day"s close as the /ey
componentJ The close is often seen as the result of the stru((le )etween the )ulls and the
)earsJ :f the close is at or near the hi(h of the day and the openin( was near the lowG e'idently
)uyin( power was more powerfulJ :f sellin( pressure was (reater than )uyin( powerG then it
would ha'e caused the mar/et to close down from the hi(hJ :f the close is at or near the low of
the day and the openin( was near the hi(hG then the sellin( pressure was dominant for the dayJ
:f the close is halfway )etween the hi(h and the lowG irrespecti'e of the openin(G then it may )e
assumed that the mar/et is e'enly di'ided )etween )uyin( power and sellin( powerJ :t is
commonG as the mar/et enters a rally sta(eG that the close tends to )e near the hi(h of the
periodG with the open near the lowJ
A do9i is a si(n of a pro)a)le chan(e in mar/et direction and it should )e read in com)ination
with additional candlestic/sJ $ee
Fi(ure +J+
J :t is not a stand8alone si(nalJ A (ra'estone do9i is formed when )oth the open and the close
meet at the low of the day"s ran(eT it (i'es a )earish si(nal when it is found at the top of an
uptrendJ :ts counterpart is the dra(onflyG which is the re'erse pattern of a (ra'estone do9iJ :n a
dra(onflyG )oth the open and the close are at the hi(h of the ran(eJ The dra(onfly has )ullish
propertiesJ
F:#C3, +J+
Four do9i patternsJ A do9i is formed when the closin( price closes at the same price as the
openin( priceG or the price closes e7tremely near to the openin( priceJ The patterns tell of a
conflict )etween the )ulls and )earsG the outcome of which is yet undecidedJ
CADD!,$T:C* PATT,3D$
:n 1BB;G #unduN Ca(inalp and .enry !aurentG from the &athematics Department of the
Cni'ersity of Pitts)ur(hG pu)lished a )rief paperG 0The Predicti'e Power of Price PatternsG1
)ased on samplin(s of candlestic/ patternsJ They concludedG amon( other thin(sG that 0a trader
who has the same information as others plus the /nowled(e of this method will ha'e a
competiti'e ad'anta(eJ1 :t is said that the practice of candlestic/ chartin( was started in
ei(hteenth8century Hapan )y a man named &unehisa .onmaG who controlled a lar(e family rice
)usinessJ .e used this techniOue to monitor the daily mo'ements of the price of riceJ
Candlestic/s chartin( has )ecome increasin(ly popular since its introduction to the 2est in the
1B?Fs )y $te'e DisonG who has pu)lished many (reat articles and )oo/s on the su)9ectG
includin( his earliest )oo/G Iopooese cooJlestlck cbottloq 1ecbolpoesJ
-'er the years and with ad'anced software pro(ramsG candlestic/ analysis has de'eloped
into a more 'isual and descripti'e studyG and candlestic/ patterns can now )e incorporated into
any customiNed tradin( systemJ For instanceG in a customiNed systemG if all candles are plotted
in red color in a downtrendG the software could further decipher and separate the patterns of
the red candlestic/s into )ullish and )earish candlesJ A )ullish candle will ha'e a hollow red
candle while a )earish candle will )e a filled red candleJ %ery often in a downtrendG the
appearance of a hollow red candle si(nifies a support area and pro)a)le re'ersal areaJ -n the
other handG if the candles in a customiNed tradin( system are plotted as )lue in an uptrendG
filled )lue candles will often indicate resistance and a pro)a)le re'ersal areaJ
Candlestic/s plot price mo'ements o'er a set periodJ 3e(ardless of the time frameG a
minimum of two candlestic/s is reOuired to identify the pro)a)le mar/et direction and its
relati'e stren(th and wea/nessJ :dentifyin( patterns that always wor/ is difficultJ 3eadin(s of
candlestic/ patterns should not )e )ased on a sin(le candlestic/ )ut should )e made in
com)ination with other candlestic/sJ Candlestic/ patterns are more predicti'e when the
mar/ets are at e7treme o'er)ou(ht or o'ersold le'elsJ A momentum oscillator would )e a
handy tool to chec/ such e7tremesJ
Fi(ures +J5
to
+J@
show useful patterns that are freOuently found in candlestic/ chartsJ
F:#C3, +J5
,n(ulfin( patterns are similar to outside day patterns in classic )ar chartsJ ,n(ulfin(
candlestic/s are more si(nificant if they ha'e lar(er en(ulfin( candlestic/sJ A )earish en(ulfin(
pattern at or near the top would mar/ the pea/G and when it appears in a downtrend would
seem to indicate further declines of the mar/etJ Bullish en(ulfin( patterns tend to indicate
support areasG especially when occurrin( at the low of a downtrendJ A )rea/out from an
en(ulfin( pattern (enerally is short termG lastin( no lon(er than 1F tradin( daysJ
F:#C3, +J6
Dar/ cloud co'er is a )earish pattern and is (enerally found at the end of a con(ested tradin(
area or at the end of an uptrendJ Piercin( line is a )ullish pattern and is more dependa)le when
it is found at the )ottom of a declinin( mar/etJ These two patterns are easy to missJ
F:#C3, +J;
,'enin( star and mornin( star are )oth three8candlestic/ re'ersal patternsJ ,'enin( star is
found at the end of the uptrendG while mornin( star is a )ottom re'ersal loo/in( upward for the
sunrise or risin( pricesJ
F:#C3, +J?
Three )lac/ crows is a top re'ersal si(nal consistin( of three lon( )lac/ candlestic/s closin(
consecuti'ely lower near their lowsJ Three white soldiers is a )ottom re'ersal si(nal that has
three white candlestic/s closin( consecuti'ely hi(her near their hi(hsJ
F:#C3, +J@
A harami pattern implies the precedin( trend is comin( to an endJ :t is a re'ersal patternJ
.arami patternsG as shown in
Fi(ure +J@
G are the opposite of en(ulfin( patternsJ They are referred to as inside days in )ar chartsJ
2hen a lar(e white candlestic/ is followed )y a small white candlestic/ at or near the top of an
uptrendG it is common for this )earish pattern to )rea/ downwardJ The failure of the second
candlestic/ to push price hi(her outside the ran(e of the first candlestic/ indicates that )uyers
are losin( staminaJ Con'erselyG when a lar(e )lac/ candlestic/ is followed )y a small )lac/
candlestic/G it is a )ullish pattern and is e7pected to )rea/ upwardJ The reason is that the
second candlestic/ mana(es to hold off the downward dri'e of the first candlestic/J &ar/et
practice says to follow the )rea/ from harami patterns when the pre'ious day"s hi(h or low is
e7ceededG )ecause a trend will normally continue in the direction of the )rea/J This pattern is
often tric/y and confirmation of the ne7t day"s candlestic/ is importantJ 2e should also use our
momentum oscillator as a filter to chec/ whether the stoc/ is o'ersold or o'er)ou(htJ
Fi(ure +JB
shows two candlestic/ patternsG han(man and hammerJ .an(man appears after a lon(
uptrend where the mar/et is o'er)ou(htJ .ammer is found at the low of a lon( downward
trend where the mar/et is o'ersoldJ Comparin( the two patternsG han(man indicates a
potential confirmation of an uptrend re'ersalG )ut it is not as dependa)le as a hammer patternG
which occurs at the low of a downtrendJ 2hen it comes to han(manG it is common to see
confirmation in the form of a (ap down the ne7t dayJ .ammer with a lon( shadow shows that
the )ears ha'e failed to push price lower and is more relia)leG especially when its shadow is
much lon(er than its )odyJ 2ith the hammerG a (ap up openin( the ne7t day with stron(
support of )uyin( may )e all that is necessary to enter a tradeJ
F:#C3, +JB
A )earish han(man and a )ullish hammer share the same patternG ha'in( a top8hea'y )ody
and lon( lower shadowJ The color of the actual )ody is unimportantJ The /ey difference is
where they appear in a chartJ
Fi(ure +J1F
shows the application of candlestic/ patterns as descri)ed in the precedin(J
F:#C3, +J1F
Candlestic/ patterns occurrin( at critical points at a turn of trendJ Dote also the increase of
'olume and price pro9ection from the )rea/ of the nec/lineG which )ecomes the resistance line
when price attempts to reenter pre'ious le'elsJ :n the momentum oscillator windowG a )earish
di'er(ence pattern confirms the continuation of the )earish trendT and a )ullish di'er(ence
alerts to the )ottomin( of priceJ
D:%,3#,DC, PATT,3D$
Di'er(ence occurs when the mo'ement of a momentum oscillator does not a(ree with the
price mo'ementJ Di'er(ence (i'es si(ns of the hidden stren(ths and wea/nesses of a price
trendJ Prices may rise and fallG )ut if the momentum oscillator fails to confirm the
correspondin( price trendG the resultin( discrepancy is an ad'ance warnin( of a pro)a)le
chan(e in the price trend in the 'ery near termJ
There are four patterns of di'er(encesJ They are the two classic di'er(encesG comprisin(
)ullish di'er(ence and )earish di'er(enceT and the two hidden di'er(encesG comprisin( hidden
)ullish di'er(ence and hidden )earish di'er(enceJ
Bullish di'er(ence occurs when the price is declinin( while the momentum oscillator is risin(J
This pattern can )e seen (enerally at a mar/et lowJ Bullish di'er(ence occurs when the mar/et
is reachin( a support le'el and is preparin( for an e'entual rallyJ :n the )e(innin( of a )ullish
)uildupG the price fails to show any si(ns of rallyin( as wea/ in'estors are sellin( to stron(
in'estorsJ As more in'estors enter the mar/et and when the accumulation process is o'erG the
price will rallyJ
The other classic di'er(ence is )earish di'er(enceJ Bearish di'er(ence is the opposite of
)ullish di'er(enceJ :t occurs when the price is risin( while the momentum is declinin(J The
pattern loo/s for hi(her hi(h prices and lower low oscillator 'aluesJ Bearish di'er(ence happens
when the mar/et is preparin( for a correcti'e declineJ :n the )e(innin( of the )earish )uildupG
price fails to show any si(n of correcti'e action as wea/ in'estors are )uyin( from stron(
in'estorsJ 2hen more stron( in'estors e7it the mar/et and the distri)ution is finally o'erG the
price will fallJ =$ee
Fi(ure +J11
J>
F:#C3, +J11
Classic di'er(ence patternsJ
Another pair of di'er(ence patternsG /nown as hidden di'er(encesG should not )e i(noredJ
=$ee
Fi(ure +J1
J> !i/e classic di'er(encesG hidden di'er(ences do not appear on e'ery price mo'eG )ut when
they doG they function eOually wellJ They help to /eep the trader on the ri(ht trac/ of the trend
or to anticipate a trend chan(eJ &ost hidden di'er(ences indicate continuity of the pre'ailin(
price trendJ
F:#C3, +J1
The lower panel shows two hidden di'er(ence patterns )etween the mo'ement of price and
the momentum oscillatorJ The first pattern of a hidden )earish di'er(ence occurs when price
fails to continue its upward mo'ement despite the momentum crossin( a)o'e the center lineJ
Althou(h price is tradin( in a downtrendG the momentum is trendin( upwardJ The second
pattern is a hidden )ullish di'er(ence where price is tradin( at a hi(her le'el )ut the
momentum oscillator is at a lower lowJ
The first type of hidden di'er(ence is hidden )ullish di'er(enceJ .idden )ullish di'er(ence
sees hi(her price lows and lower oscillator lowsJ :n a risin( mar/etG a hidden )ullish di'er(ence
is formed when momentum oscillator ma/es a lower low 'alueG )ut the price ma/es a hi(her
lowJ :t occurs mostly durin( correction in an upward trendJ .idden )ullish di'er(ence si(nifies
underlyin( stren(th in the price mo'ement and often is an opportunity for the trader to reenter
the mar/etJ
The opposite pattern of a hidden )ullish di'er(ence is a hidden )earish di'er(enceJ .idden
)earish di'er(ence see/s lower price hi(h and hi(her oscillator hi(h 'aluesJ :n a declinin(
mar/etG a hidden )earish di'er(ence is formed when the momentum oscillator ma/es a hi(her
hi(hG )ut the price ma/es a lower lowJ .idden )earish di'er(ence occurs mostly durin(
correcti'e rallies in a downward trendJ :t si(nifies underlyin( wea/ness in the price mo'ement
and often pro'ides an opportunity for the trader to e7it from the mar/etJ
2hether di'er(ences are classic or hidden typesG they warn of potential trend chan(esJ They
pro'ide opportunities for the trader to reassess his position and to either e7it from the mar/et
or to commit to a new position in anticipation of the trend chan(eJ $ometimesG in a stron(
trendin( mar/etG se'eral di'er(ences may occurJ The more di'er(ences that are occurrin(G the
more si(nificant they )ecomeJ For instanceG at a mar/et topG the (reater the num)er of )earish
di'er(ences appearin(G the (reater the wea/ness of the underlyin( price trendT andG at a
mar/et )ottomG the (reater the num)er of )ullish di'er(ences appearin(G the (reater the
stren(th of the underlyin( price trendJ
:n studyin( di'er(ence patterns )etween the price and the momentumG an important point
to )ear in mind is that the momentum oscillator is displayin( the 'elocity of the price and not
the price trendJ The momentum oscillator does not represent the price trend or the price
directionJ
The trend is reflected in the directional mo'ement of the priceJ :n order to trade )etterG it is
worthwhile to pay attention to di'er(ence patternsJ The /ey is to reco(niNe classic and hidden
di'er(ences when they appear and to ta/e the appropriate actionsJ
D:A#-DA! PATT,3D$
:n her )oo/G 5tteet 5mottsG !inda 3asch/e writesG 0All you need is one pattern to ma/e a li'in(X1
$he then introduces a pattern called Three !ittle :ndiansG de'eloped )y her (ood friendG Bill
2olfeJ -thers call the pattern 2olfe wa'esG three dri'esG three topsG and so forthJ There are
certain applica)le ratios amon( the fi'e wa'es in the dia(onalG )ut for all practica)le purposesG
it has )een found that the pattern is relia)le most of the time without measurin( or countin(
such ratiosJ =$ee
Fi(ure +J1+
J> :t does not matter )y what name it is calledJ As lon( as the pattern (i'es a (ood readin(G it
will )e worthwhile to pay close attention to it when it appearsJ
F:#C3, +J1+
Bearish and )ullish dia(onal patternsJ
The setup of the wa'es in the pattern is symmetricalG and wa'e 6 sometimes ma/es a false
)rea/out mo'e outside the protracted line of wa'es 1 to +J :n other respectsG the pattern is
similar to dia(onal trian(lesG thou(h perfect 2olfe wa'es are rarely found in charts of all time
frames and if there is oneG it would ta/e an inordinate amount of time to find it unless the
trader is prepared to )uy a special pattern8reco(nition pro(ram to trace itJ $ee
Fi(ures +J15
to
+J1?
J The pattern consists of fi'e wa'esG la)eled 1 to 6G and can occur at the end of any
mo'ement that has fi'e wa'esG usually in wa'e C or in a fifth wa'e of an ,lliott wa'e pattern
structureJ
F:#C3, +J15
Bearish dia(onal patternsJ The wa'es of the first )earish dia(onal pattern are mar/ed 1 to 6T
and in the second )earish dia(onal pattern they are num)ered 1 to 6 and the num)ers are
circledJ Dotice in )oth patterns the pro9ection of price tar(et )y connectin( wa'e 1 and wa'e 5
is mind8)o((lin(J FurthermoreG in the second dia(onal patternG there is another wa'elet
dia(onal patternG creatin( a pattern within a patternJ
F:#C3, +J16
Bullish dia(onal patternsJ :n this chartG there are two )ullish dia(onal patternsJ The important
point to note is the dependa)le pro9ection of price tar(et )y the connection of wa'e 1 and
wa'e 5J
F:#C3, +J1;
A )ullish re'ersal after price )rea/s out from the )ullish dia(onal patternJ
F:#C3, +J1?
&onthly .an( $en( :nde7J This chart shows the pro9ection line that )ecomes the ma9or
o)stacle of the )ullish mar/et in FF?J The line is drawn )y connectin( point 1 and point 5 of a
2olfe wa'e patternJ
Fi(ure +J1?
shows another 2olfe wa'e patternG which too/ appro7imately ei(ht years to formJ
PATT,3D$ C-DT:DC,D
Patterns indicate the psycholo(y of a mar/etJ &artin Prin(G in his )oo/G Mottlo ltloq oo ltlce
lottetosG writesG 0The more : wor/ with mar/etsG the more it )ecomes apparent that prices are
determined )y one thin( and one thin( onlyG and that is people"s chan(in( attitudes toward the
emer(in( fundamentalsJ1 Another (reat technicianG #arfield DrewG saysG 0$toc/s don"t sell for
what they are worthG )ut for what people thin/ they are worthJ :f it were not for the fact that
these chan(in( attitudes mo'e in trends and that trends tend to perpetuateG mar/et prices
would )e nothin( more than a random e'entG which would mean that technicians would )e out
of )usinessJ1
There are two (eneral cate(ories of patternsG re'ersal and continuationJ 3eadin( of patterns
is )ased on the three )asic assumptions in technical analysis: prices discount e'erythin(G trend
will continue in the direction of the pre'ious directionG and history tends to repeatJ
2hen prices continue to trend upG they )ecome more 'ulnera)le to profit ta/in( and the
mar/et )ecomes con(ested as sellers and )uyers pit their stren(th a(ainst one anotherJ -n the
other handG when prices continue to trend downG )uyin( support will reenter as prices seem
more appealin( to the )uyersJ :f prices fail to continue in the direction of the pre'ious trendG
they chan(e direction and re'ersal patterns are formedJ The a)ility to detect re'ersal patterns
often offers the )est rewardJ
Continuation patterns allow the mar/et to pause for a time )efore the pre'ious trend
resumesG allowin( traders to (et out of the mar/et or e'en to add new commitments to a
pre'iously esta)lished positionJ
Patterns tell the )eha'ior of a mar/et and they can )e predicti'eJ 3eco(niNin( chart patterns
is a method )y which we can (au(e mar/et trends and turnsJ 3eco(niNin( e'en the most
predicta)le patterns is not easyJ .owe'erG if we are payin( attentionG we should )e a)le to see
that there are certain patterns that occur far more freOuently than othersG and there are certain
stoc/s which /eep repeatin( the same patternsJ
Prices do not mo'e in strai(ht linesJ They fluctuate to ma/e pea/s and trou(hsJ A simple
method to determine the primary trend and trend re'ersals is to o)ser'e the seOuential
patterns of pea/s and trou(hsJ 2hen prices are in an uptrendG each successi'e pea/ and trou(h
will )e at a hi(her le'el than the precedin( le'elT prices will )e ma/in( hi(her hi(hs and hi(her
lowsJ :n a downtrendG each pea/ and trou(h will )e ma/in( lower hi(hs and lower lowsG and
they will )e lower than pre'ious le'elsJ #enerallyG re'ersal patterns e'ol'e when such
succession of pea/s and trou(hs is )ro/enG si(nalin( that a chan(e of trend is ta/in( placeJ
2hen prices (et )o((ed down in con(ested price areasG patterns )e(in to formJ Popular
(roups of patterns include the 0&1 and 021 patternsG the head and shoulders patternsG and the
rectan(le patternsJ
0&1 ADD 021 PATT,3D$
0&1 and 021 patterns =see
Fi(ure +J1@
> are also /nown as dou)le tops and dou)le )ottomsG respecti'elyJ A dou)le top is a pattern for
two successi'e pea/sG which may or may not )e of the same price le'elsJ The pattern loo/s li/e
an &J A dou)le top pattern occurs when the stoc/ fails to continue the uptrend in its second
attempt as it meets resistance pressure from sellers at its hi(hsJ :n a mar/et rallyG sellers
suddenly ta/e control and push the price downwardJ Price )e(ins to retreat to a le'el that is
considered attracti'e for )uyersJ The )uyers enter the mar/et and push the price up to ma/e a
second top where it finds new sellin( pressureG which pushes the price down past its last
trou(hJ 2hen the price declines )elow the low point esta)lished )etween the two topsG a
dou)le top pattern has )een acti'atedJ
F:#C3, +J1@
The chart shows a typical dou)le top patternJ At T1G sellin( pressure pushes prices down to a
trou(hG where prices re(ain )uyin( support and rally to a new topJ At TG prices encounter
further sellin( pressure and retrace )elow the horiNontal trend line to confirm a dou)le top
re'ersal patternJ
A dou)le )ottom is the in'erse pattern of a dou)le top and has two successi'e trou(hsG
which may or may not )e at the same price le'elsJ :t loo/s li/e a 2J :n a dou)le )ottomG prices
must close a)o'e the hi(h point )etween the two )ottoms )efore a tradin( decision can )e
madeJ -nce this occursG the implication is that prices will rally as far a)o'e the hi(h point as the
distance )etween the hi(h point and the two lowsJ
.,AD ADD $.-C!D,3$ PATT,3D$
.ead and shoulders is another popular pattern and it is Ouite a relia)le re'ersal patternJ :t often
has a symmetrical pattern in respect of the price ma(nitude and the time spent durin( the
formation of the patternJ
BasicallyG a head and shoulders top pattern is a )earish si(nalJ :t consists of a pea/ followed
)y a hi(her pea/ and then another lower pea/ that fails to hold the continuin( uptrend with a
)rea/ )elow the nec/lineJ The nec/line is the trend line drawn across the lows of the two
inter'enin( trou(hsJ
The hi(hest pea/ is the head of the pattern and the pea/s to the left and ri(ht of the head
are the shouldersJ The shoulders are priced lower than the head and are a)out the same
distance from the headJ After a stron( riseG the left shoulder is formed when prices face
resistance from sellin( pressure and ma/e a correction to a le'elG which attracts further )uyin(
supportJ 2hen prices )e(in to rise a)o'e the last pea/G or the left shoulderG sellers suddenly
ta/e control of the mar/et and push prices downward )elow the low of the left shoulderG
creatin( the formation of the headJ 2hen prices correct to a)out the le'el of the last trou(h of
the left shoulderG )uyers )e(in to reenter the mar/et to dri'e prices upwardJ This timeG prices
fail to e7ceed the hi(hs of the headJ DormallyG prices will face resistance at a)out the hi(h of
the left shoulder and ma/e a retreat downwardG formin( the ri(ht shoulderJ A head and
shoulders pattern is completed when prices )rea/ )elow the nec/lineJ
#enerallyG 'olume will )e hi(h on the left shoulder and low on the ri(ht shoulderG and will
increase sharply on the )rea/ )elow the nec/line =see
Fi(ures +J1B
and
+JF
>J The e7tent of the )rea/out mo'e can )e estimated )y measurin( the distance from the
head down to the nec/lineG and then pro9ected downward from the point of the )rea/outJ
F:#C3, +J1B
A typical top re'ersal pattern of a head and shoulder formationJ
F:#C3, +JF
A )earish re'ersal pattern of a head and shoulder top with two left shoulders and two ri(ht
shouldersJ Dote that the nec/line )ecomes the resistance line to the su)seOuent rally after
completion of the patternJ
A head and shoulders )ottom is a )ullish re'ersal pattern in a downward trendJ A typical
head and shoulders )ottom has three trou(hs and two pea/sJ The first trou(h is the left
shoulderJ The left shoulder is followed )y a lower trou(hG the headG and then another trou(h
forms the ri(ht shoulderG which is hi(her than the headJ A head and shoulders )ottom is the
in'erse pattern of the head and shoulders top and is considered a positi'e patternJ :t indicates
a pro)a)le chan(e in trend direction from a downward trend to an upward trend when prices
)rea/ a)o'e the nec/lineJ The nec/line is the line that is drawn across the two pea/s of the
patternJ %olume will (enerally )e hi(hest on the left shoulder and lowest on the ri(ht shoulderJ
:t is important that the 'olume at the point of )rea/out of the nec/line is hi(her than the
a'era(e 'olume durin( the formation of the patternJ The increased 'olume at the )rea/out of
the line will re(ister the enthusiasm of )uyers =see
Fi(ure +J1
> and mar/s the end of the downward trendJ
F:#C3, +J1
Two )ullish re'ersal patterns: a head and shoulders )ottom and a dou)le )ottomJ Dotice the
increased 'olume at price )rea/out of the nec/line in )oth casesJ Dote also the nec/line in the
dou)le )ottom pattern )ecomes the supportin( line of the retracement of the price after
completion of the patternJ
:n pea/s and trou(hsG there are two cate(ories of patterns: =1> )ullish re'ersal patternsG such
as dou)le )ottoms and head and shoulders )ottomsT and => )earish re'ersal patternsG such as
dou)le tops and head and shoulders topsJ :n these patternsG the relati'e nec/line is a 'ery
important /eyJ :n a )ullish re'ersal patternG the nec/line is the price"s resistance line durin( the
formationJ After a price )rea/outG the nec/line ser'es as the support line in a retracementJ -n
the contraryG in a )earish re'ersal patternG the nec/line )ecomes the support line durin( the
period of formationG and after the completion of the patternG it is the resistance lineJ
3,CTAD#!, PATT,3D$
Theory is one thin(G )ut (ettin( down to doin( it ri(ht is Ouite anotherJ A rectan(le is one
pattern that is difficult to tradeG particularly when the tradin( ran(e is narrowJ
A rectan(le pattern is a consolidation phase in which the )ulls and the )ears are in a tu( of
warG with neither side in decisi'e controlJ =$ee
Fi(ure +J
J> :t is normally e7pected for prices to continue in the same direction the mar/et was tradin(
in )efore the consolidation )e(anJ An important point to ta/e note of is that the pattern is not
complete until a )rea/out has successfully occurredJ
F:#C3, +J
Two e7amples of rectan(lesJ The first rectan(le shows the force of the )ears pushin( prices
)elow the support le'elJ The second rectan(le shows the )ullsG after a lon( consolidationG
ta/in( control and pushin( prices to a new hi(hJ
3ectan(le patterns are sometimes called )o7 patternsJ Aou do not often hear mar/et
commentators mention them in the newsJ They usually refer to the pattern as a tradin( ran(e
or a consolidationJ =$ee
Fi(ure +J+
J> 3ectan(le patterns represent a period of ran(e tradin( durin( which prices mo'e )etween
two parallel trend lines: the upper resistance lineG which connects the hi(hsT and the lower
support lineG which connects the lowsJ Prices will test the le'els of support and resistance
se'eral times )efore a )rea/out from the upper and lower )oundariesJ -nce prices )rea/ out of
the ran(e in either directionG they are deemed to )e trendin( in the direction of the )rea/outJ
An upside )rea/out from the )o7 is a technical )uy si(nalG while a downside )rea/out is a
technical sell si(nalJ
F:#C3, +J+
Prices fail to )rea/ a)o'e the resistance line in the first rectan(le patternG and finally )rea/
)elow the support line with increased 'olumeJ The second rectan(le shows the stu))ornness of
the )ullsG who hold prices at the support le'el to e'entually o'ercome the )ears" resistanceJ
:n ,lliott 2a'e TheoryG rectan(le patterns are correcti'e wa'es and normally appear as 2a'e
G 2a'e 5G andSor 2a'e BJ
:n (eneralG a rectan(le does not show any particular 'olume patternJ %olume will mostly )e
li(ht as the pattern de'elopsG )ut when e7traordinarily hea'y 'olume ta/es place durin( the
consolidationG it pro'ides an indication of the direction of the future )rea/outJ TypicallyG
'olume will also rise in the direction of the ultimate )rea/outJ =$ee
Fi(ure +J5
J>
F:#C3, +J5
-ne lon( rectan(le o'er a period of a)out 1 monthsJ A lon( waitG )ut worthwhile as prices
catapult to new hi(hsJ
3ectan(le patterns can e7tend for a few wee/s or many monthsJ 2e 9ust ha'e to wait until
prices )rea/ out of the support or resistance lines and (o with the direction of the )rea/outJ
The ma7im that we ha'e learned in tradin( the )o7 pattern is 0Thin/ outside the )o7J1
$ACC,3 PATT,3D$
$aucer )ottom formations )elon( to the (roup of patterns that seemin(ly ha'e cur'e8line or
roundin( turnsJ Prices durin( the period of formationG especially at the roundin( turnsG ha'e
low 'olatility and mo'e narrowlyG formin( a (radual )owl shapeJ $aucer )ottoms are found at
the end of a downward trend and are considered to )e )ullish re'ersal patternsJ The initial
downward slope indicates an e7cess of supplyJ The e7cess supply forces prices downward until
)uyers enter the mar/et at the low price at the )ottomG which increases the demand for the
stoc/J -nce the roundin( is completeG the prices )rea/ out and continue in an upward trendJ
$aucer patterns can also )e referred to as cup8and8handle patterns whenG upon a )rea/out of
the patternG prices retrace to form a ri(ht handle that drifts sli(htly downwardJ This pattern"s
time frame 'aries from se'eral wee/s to se'eral monthsJ The lon(er it lastsG the more
si(nificant it )ecomesJ =$ee
Fi(ures +J6
and
+J;
J>
F:#C3, +J6
:n this chartG the completion of the saucer pattern coincides with the crosso'er of the 6F8day
mo'in( a'era(e =6F8D&A> o'er the FF8day mo'in( a'era(e =FF8D&A>J
F:#C3, +J;
A typical cup8and8handle formation showin( e7treme 'olume upon )rea/out of the ri(ht
handle of the patternJ
As prices mo'e down toward the )ottomG 'olume decreasesG and prices enter a period of
consolidation at the )ottom as tradin( )ounces within a certain ran(eJ A rounded )ottom is
formed as mar/et sentiment shifts (radually from )earishness to )ullishnessJ As mar/et
sentiment )ecomes more )ullishG prices ma/e a (radual upturnG and 'olume increases as
in'estors )ecome more decisi'e a)out the )ullishnessJ :n a saucer patternG 'olume tends to
follow the shape of the patternG and accelerates upon the )rea/out of the patternJ =$ee
Fi(ure +J?
J>
F:#C3, +J?
Prices rally on a )rea/away (ap =mar/ed with a red circle> with (ood 'olume and enter into a
consolidation of a saucer pattern )efore ta/in( off to new hi(hsJ
:n
Fi(ure +J@
G prices )rea/ a)o'e the nec/line of a )ullish re'ersalKan in'erted head and shoulders
patternKand consolidate in a saucer )ottomJ The upward trend ends when the supportin( line
of the )earish dia(onal pattern fails to hold off the sellin( pressureJ Dote also when prices
)rea/ off from each of the respecti'e trend lines of the patternsG 'olume increasesJ
F:#C3, +J@
This chart shows a saucer )ottom as a continuation patternJ
AB4CD PATT,3D$
The AB4CD pattern is a classic pattern found in all time framesJ The pattern was hi(hli(hted as
the #artley Pattern in .J &J #artley"s 1B+6 )oo/G ltoflts lo tbe 5tock MotketJ The /ey to the
pattern is the distinct parallelo(ram of ABCDG where AB4CD and AC is parallel to BDJ =$ee
Fi(ure +JB
J> #artley did not specify any application of Fi)onacci ratiosG )ut in later yearsG technicians
added the applica)le ratios to itJ The important ratios were that B should )e at FJ;1@ of WA and
D should )e at FJ?@; of WAJ
F:#C3, +JB
#artley )ullish and )earish patternsJ
The concept of AB4CD is also mentioned in ,lliott 2a'e TheoryJ :n the formation of fi'e
impulse wa'es =see Chapter 5G ,lliott 2a'es>G when 2a'e 1 is e7tendedG 2a'e + may )e eOual
to 2a'e 6J And when 2a'e 6 is e7tendedG 2a'e 1 and 2a'e + may )e eOualJ ,ach pointG WG AG
BG CG and DG is a si(nificant hi(h or lowJ The points AG BG CG and D represent three consecuti'e
price swin(sJ AB may represent 2a'e 1 or 2a'e + in an impulse wa'es patternG or 2a'e A in a
correcti'e wa'e patternT BC represents 2a'e G 2a'e 5G or 2a'e BT and CD represents 2a'e +G
2a'e 6G or 2a'e CJ =$ee
Fi(ure +J+F
J>
F:#C3, +J+F
Formations of AB4CD patternsJ :n a 'alid AB4CD patternG D is the area for considerin( trade
entries in a )ullish AB4CDG and for ma/in( trade e7its in a )earish AB4CDJ
AB4CD is a 'ery common pattern found in the measurement of mo'ements )etween price
swin(s of .on( *on( stoc/sJ
Fi(ure +J+1
shows two 'ariations of AB4CD patterns: line =1P> 4 line =+P5>G and line =P+> 4 line =5P6>J
&inor 0a)4cd1 patterns often de'elop within a lar(er 0AB4CD1 swin(J
F:#C3, +J+1
Two ma9or AB4CD patterns used to pro9ect support and resistance le'elsJ
:n usin( AB4CD =
Fi(ures +J+1
and
+J+
>G it is not necessary to )e 'ery particular to (et the e7act pointT the purpose of usin( the
pattern is to estimate the pro)a)le support or resistance le'elJ
F:#C3, +J+
An e7ample of a )earish AB4CD patternJ After reachin( the point at DG price ma/es a correcti'e
mo'eJ
#AP$
A (ap is an openin( outside the pre'ious day"s ran(eG creatin( an area where there are no
tradesJ :n an uptrendG a (ap occurs when the price opens a)o'e the pre'ious day"s hi(h and the
space =the area )etween today"s low and yesterday"s hi(h> is not filled durin( the dayJ :n a
downtrendG the day hi(h (aps down )elow the pre'ious day"s lowJ
#enerallyG most (aps are e'entually filledG some on the ne7t tradin( )arG while others may
ta/e a much lon(er time and some may ne'er (et filledJ :t depends on the types of
(apsK)rea/awayG commonG runawayG or e7haustionJ Brea/away (aps are not filled Ouic/ly and
occur when the mar/et is in the early sta(e as prices )rea/ out of a tradin( ran(e or
consolidation areaJ Brea/away (aps mo'e prices into new territory and do not often retreat to
fill the (ap in su)seOuent tradin(J
Brea/away (aps are found mostly in impulse wa'es =2a'e 1> or correcti'e wa'es =2a'e A or
2a'e C>J Brea/away (aps can )e relia)le tradin( si(nalsG particularly when they occur durin(
hi(h 'olumeJ
Common (aps =see
Fi(ure +J++
> de'elop within a trend and reaffirm the con'iction and stren(th of the trend"s directionJ
They are pro)a)ly caused )y (oin( e78di'idend and the (aps (et filled Ouic/lyJ They appear
most often in 2a'e and 2a'e 5G or 2a'e BJ
F:#C3, +J++
Chart showin( 'arious types of (aps in a short rally and a correcti'e A8B8C wa'eJ
3unaway (aps are series of (aps o'er se'eral days with price mo'in( in the same direction of
the trendJ They commonly appear in impulse 2a'e + or 2a'e CJ
,7haustion (aps sometimes si(nal the end of a trendJ :n an uptrendG they de'elop in the last
phase of the )uyin( trendG when practically e'eryone is con'inced of the )ullishness of the
mar/et and )uyers cause the mar/et to (ap hi(herJ FinallyG when there is no one left to )uyG the
uptrend is effecti'ely o'erJ :n a downtrendG practically e'eryone )ecomes )earish on the
mar/etG sellin( increasesG and the mar/et (aps downJ ,7haustion (aps are li/ely to appear at
impulse 2a'e 6 and 2a'e CJ
#aps do not hold e'ery timeJ They )ecome reference points as lon( as they holdJ The lon(er
the (aps holdG the (reater the pro)a)ility of the trend"s continuationJ The farther away from
the pre'ious day"s ran(e a mar/et opensG the (reater the li/elihood that the mar/et has
temporarily o'ere7tended itselfJ 2hen this occursG responsi'e sellers will often try to narrow
the (ap )y sellin( to push prices toward the pre'ious day"s closeJ
The (ap is important )ecause it implies si(nificant chan(es in tradin( ran(e and in the
sentiment of professional playersJ #aps happen when there is an une7pected announcement of
information a)out a company made while the mar/et is closedJ This information may include
earnin(s reportsG earnin(s pre8announcementsG or analysts" ratin(sJ :f the information is
positi'eG it will dri'e a stoc/ price hi(her on the open relati'e to pre'ious day"s closeG and if the
information is ne(ati'eG it will cause the price to (ap down on the openJ
#aps are perhaps indirect /illers of a trend tradin( systemJ Prior to point A in
Fi(ure +J+5
G e'erythin( loo/s positi'eG until the disclosure of a ne(ati'e announcement at the close of
mar/etJ Prices (ap down )y BJ; percent when the mar/et opens on the mornin( of the ne7t
tradin( dayJ #aps may )e caused )y a((ressi'e mar/et players or professional traders who may
ha'e )etter informationJ As an e7ampleG a listed company is reOuired under (ood corporate
(o'ernance practice to disclose immediately any price8sensiti'e information that is not of
pu)lic /nowled(e and which may affect its stoc/ pricesJ .owe'erG such information is
sometimes not released in a timely mannerJ This may cause a difference )etween the time the
company )ecomes aware of the information and the time the information is disclosed to the
pu)licJ ThereforeG timely release of the information may )e delayedJ Durin( this delay periodG
some tactical tradin( could ha'e )een implemented )y smart professional tradersJ 2hen the
information is finally releasedG it may come as a shoc/ to the (eneral tradersG and in turn cause
a (apJ
F:#C3, +J+5
A chart showin( the ha)itual occurrence of (apsG which appear to )e cyclicalJ The (ap at point
A would ha'e cau(ht most )ullish )uyers of the stoc/ )y surpriseJ
#aps occur on all time framesG )ut the lon(er time frames will ha'e fewer (apsJ :n additionG it
is o)ser'ed that stoc/s payin( Ouarterly di'idends and ha'in( listin(s on 'arious e7chan(es
tend to )e more prone to (apsG as shown in
Fi(ure +J+6
J
F:#C3, +J+6
The upper window is the daily chart and the lower window is the wee/ly chart of a stoc/ that
is listed on three e7chan(es and pays Ouarterly di'idendsJ The (aps are mar/ed in the daily
chart )y red diamondsJ
C-DC!C$:-D
:n this chapterG two (roups of patterns ha'e )een descri)edKthe short8term patterns and the
lon(8term patternsJ $hort8term patterns are often re'ersal patterns that show com)inations of
price )ars ran(in( from two to fi'e tradin( daysG and are much easier to identify when
displayed in candlestic/sJ $uch candlestic/ patterns include the mornin( starG e'enin( starG dar/
cloud co'erG piercin( lineG and so onJ They (i'e traders the underlyin( si(ns of in'estors"
confidence and alerts to the pro)a)le chan(e in trend in the near termJ Thou(h a sin(le
candlestic/ may indicate the )ullishness or )earishness of a specific periodG it is stron(ly
recommendedG as descri)ed in the chapterG that tradin( decisions should not )e )ased on one
candlestic/J !on(8term patterns ta/e a lon(er period in their formationsG which may sometimes
)e prolon(ed to se'eral wee/sJ They are the classical patterns ha'in( names that are deri'ed
from their shapesG such as dou)le tops =0&1 patterns>G dou)le )ottoms =021 patterns>G head
and shouldersG saucersG rectan(lesG and so forthJ Compared with short8term patternsG lon(8term
patterns indicate a lon(er8term pro9ection of the underlyin( trendJ Thou(h short8term patterns
may appear more freOuently than lon(8term patternsG traders should not ma/e decisions solely
on the )asis of short8term patterns without ta/in( into consideration other supportin(
indicatorsJ A short8term pattern may )e formed within the o'erall picture of the lon(8term
patternG and when prices show a )rea/out from )oth patternsG the 'alidity of such si(nals is
stron(erJ
:ncluded in the chapter are two specific patterns that )elon( to the (roup of lon(8term
patternsJ Traders should ta/e note of these patterns as they are 'ery useful in the
measurements of price pro9ectionsJ Also hi(hli(hted are di'er(ence patterns and (apsJ The
di'er(ence pattern is not a price pattern per seT it is included in the chapter to stress its
importance as an early warnin( si(nal of an imminent chan(e in trendJ As to the (ap patternsG
these are the fearful patterns that appear more freOuently in penny stoc/sJ There may not )e
any early warnin( from price patterns or indicatorsG as (aps (enerally occur une7pectedly as a
result of a sudden de'elopment or announcement of informationJ This is the ris/ in tradin(J
Traders shouldG thereforeG always ha'e a trade plan to minimiNe their ris/sJ
C.APT,3 5
,lliott 2a'es
,lliott 2a'es ser'e as a road map to understandin( the state of the mar/etJ The most difficult
aspects of learnin( ,lliott 2a'es are the la)elin( of the first countG where to e7pect the li/ely
le'elsG and where to )e(in the ne7t countJ :n countin( ,lliott 2a'esG the most common
difficulties are found in comple7 correction and identifyin( the )e(innin( of 2a'e CG and in
completion of an A8B8C patternJ Cnder certain mar/et conditionsG wa'e analysis can )ecome
e7tremely am)i(uous and 'ery hard to decipherJ But when the count is ri(htG it can )e most
thrillin(J
The ,lliott 2a'e Principle was first presented to the in'estment world in 1B+@ )y 3alph DJ
,lliottJ .is theory is )ased on the premise that mar/et prices are a reflection of crowd )eha'iorJ
,ach wa'e of price mo'ement represents a series of emotional reactions )y in'estorsG which
ha'e certain repetiti'e patterns and cyclesJ
,lliott considered Fi)onacci ratios to )e the most important factors in determinin( the e7tent
of price mo'ementsG includin( the time mo'ements in any mar/etJ Fi)onacci num)ers are 1G 1G
G +G 6G @G 1+G 1G +5G 66G @BG 155G ++G +??G and so forthJ ,ach num)er in the seOuence is the
sum of the pre'ious two num)ersJ A Fi)onacci ratio is the ratio )etween any successi'e
num)ers of the seOuenceJ ,lliott saw that mar/ets mo'ed in wa'es that corresponded to
Fi)onacci num)ersKin series of fi'e up wa'es and three down wa'esJ The fi'e up wa'es and
the three down wa'esG totalin( ei(ht wa'esG are all Fi)onacci num)ersJ
After the first four num)ers in the seOuenceG the ratio tends to appro7imately eOual 1J;1@G
the in'erse ratio of which is FJ;1@J The ratio of 1J;1@F+ +B@@? 5B@B5 @5@F was named )y the
#ree/s as the #olden 3atioJ :n the world of mathematicsG the numeric 'alue is called pblG
named for the #ree/ sculptor PhidiasG who freOuently applied the ratio in his sculpturesJ
Fi)onacci ratios are used to tar(et le'els of support and resistanceJ Tar(et le'els are more
relia)le when they are arri'ed at usin( Fi)onacci ratios than )y other pro9ection approachesJ A
hi(h concentration of pro9ections appearin( in the same areaG or in the pro7imity of the areaG
will )e more dependa)le than that of a sin(le pro9ection tar(et le'elJ The most commonly used
Fi)onacci ratios are FJ+;G FJ+@G FJ6G FJ;1@G FJ?@;G 1J;1@G and J;1@J
Price patterns are always in the pro(ress of formationG unfoldin( o'er and o'er a(ain in a
structure of fi'e wa'es in the direction of one lar(er trendG and a structure of three wa'es
when mo'in( a(ainst that trendJ
:n a fi'e8wa'e structure of an uptrendG the wa'es are counted as 1G G +G 5G and 6J 2a'es 1G +G
and 6 are called impulse wa'esJ 2a'es and 5 are called correcti'e wa'esJ 2a'e will correct
the mo'ement of 2a'e 1G and 2a'e 5 will correct the mo'ement of 2a'e +J :n a three8wa'e
structure of a downtrend =see
Fi(ure 5J1
>G the wa'es are called AG BG and CJ
F:#C3, 5J1
The chart shows the structure of a fi'e8wa'e pattern )ein( corrected )y the A8B8C wa'esJ
The three8wa'e structureG A8B8CG corrects the mo'ement of the fi'e8wa'e structureJ 2a'e A
can )e di'ided into three wa'es or fi'e wa'esT 2a'e B is di'ided into three wa'esT and 2a'e C
is always di'ided into fi'e wa'esJ ,ach of the impulse wa'es and correcti'e wa'es can also )e
further su)di'ided and repeated in a similar patternJ
:n countin( a fi'e8wa'e structure =shown in
Fi(ure 5J
>G there are three rules to o)ser'e:
F:#C3, 5J
This is a chart showin( a fi'e8wa'e pattern of ,lliott 2a'esJ 2a'e CG as shown hereG is
incompleteJ Dotice the )rea/up of prices with hea'y 'olume in early &arch from a line
formation patternJ
1J 2a'e cannot (o )elow the )e(innin( of impulse 2a'e 1J
J 2a'e + is ne'er the shortest wa'e of the three wa'esJ
+J 2a'e 5 does not o'erlap impulse 2a'e 1J
2A%, 1
2a'e 1 is the first impulse wa'e of the fi'e8wa'e structureJ 2a'e 1 is the )e(innin( of the
trend mo'ementJ :t is (enerally accompanied )y a stron( readin( in the momentum oscillatorG
especially when prices ha'e under(one a prolon(ed correctionJ 2a'e 1 is used to pro9ect the
tar(et le'el of 2a'e +J ,7tension of the wa'e means there is a su)di'ision of the wa'e into
another fi'e8wa'e structureJ 2hen 2a'e 1 is not e7tendedG the tar(et le'el of 2a'e + is
normally either =1> 1J;1@ of 2a'e 1 measured from the low of 2a'e G or => eOual to 2a'e 1J
2hen 2a'e 1 is e7tendedG the tar(et of 2a'e + is normally a)out FJ;1@ of 2a'e 1 measured
from the low of 2a'e J =$ee
Fi(ure 5J+
J>
F:#C3, 5J+
Pro9ection of 2a'e =+> is 1J;1@ of 2a'e =1> measured from the low of 2a'e =>J
2A%,
2a'e is the first correcti'e wa'e of a fi'e8wa'e structureJ 2a'e will correct the mo'ement
of 2a'e 1 )ut the correction must ne'er retrace the entire 2a'e 1J DormallyG it will retrace
a)out +@J to ;1J@ percentJ
The correcti'e patterns often found in 2a'e patterns are flats or Ni(Na(sJ :f 2a'e 1 is
e7tendedG the retracement of 2a'e is a)out +@J to 6F percent of 2a'e 1J $ometimes 2a'e
may retrace as much as ?@J; percent of 2a'e 1G )ut it should not retrace more than 1FF
percent of 2a'e 1J :n shortG 2a'e cannot ma/e a new lowJ Accordin( to the 3ule of
AlternationG if the pattern of 2a'e is a comple7 formationG then it can )e anticipated that the
pattern of 2a'e 5 will )e a simple formationJ :f the formation of 2a'e is a simple patternG
then it can )e e7pected that 2a'e 5 will )e a comple7 patternJ
2A%, +
2a'e + is the most forceful wa'e of the three impulse wa'esJ 2a'e + is ne'er the shortest
wa'e of the impulse wa'esJ :ts slope is almost always steeper than 2a'e 1 and is accompanied
)y hea'y 'olume and stron( momentum readin(sJ %ery oftenG a price (ap will occur in the
middle of the wa'e mo'ementG which helps to identify such wa'esJ =$ee
Fi(ure 5J5
J>
F:#C3, 5J5
2a'e Y+Z shows the su)di'ision of another fi'e8wa'e structureJ Dotice the oscillator readin(s
of 2a'e =5> and 2a'e Y5ZG )oth of which show the momentum oscillator fallin( )elow the Nero
lineJ
2hen 2a'e + is not e7tended or is not the lon(est wa'eG then either 2a'e 1 or 2a'e 6 will
)e shorter than 2a'e +J :f 2a'e 1 is lon(er than 2a'e +G then 2a'e 6 will )e the shortest
wa'eJ :f 2a'e 6 is the e7tended wa'eG 2a'e 1 would then )e shorter than 2a'e +J 2a'e + is
the most li/ely wa'e to e7tendJ 2hen 2a'e + e7tendsG the pro)a)le tar(et could )e as hi(h as
1J;1@ or J;1@ of 2a'e 1 measured from the low of 2a'e G ma/in( it the most profita)le
wa'e to )e inJ
2A%, 5
2a'e 5 will often )ecome the first support le'el of the correcti'e A8B8C retracement followin(
the completion of a fi'e8wa'e structureJ 2a'e 5 should not retrace the entire 2a'e +J 2a'e 5
does not retrace past the end of 2a'e 1 or enter the territory of 2a'e J FreOuentlyG the end
of 2a'e 5 is accompanied )y e7treme readin(s in the momentum oscillatorJ The momentum
oscillator will normally drop )y more than BF percent from its hi(hest )ar to )elow its Nero lineJ
2a'e 5 normally retraces a)out +@J to ;1J@ percent of 2a'e +J Trian(le patterns are often
found in 2a'e 5J Accordin( to the 3ule of AlternationG the pattern formation of 2a'e 5 will
alternate with that of 2a'e in time and priceJ
2A%, 6
2a'e 6 is the last impulse wa'e of the fi'e8wa'e structureJ At 2a'e 6G it is most common to
find di'er(ence )etween directional mo'ement of price and the momentum oscillatorJ The
tar(et of 2a'e 6 is normally a)out FJ;1@ of the distance co'ered )y 2a'e 1 and 2a'e +G
plotted from the low of 2a'e 5J
:f 2a'e 6 e7tendsG then the pro)a)le tar(et is a)out 1J;1@ of the distance co'ered )y 2a'e
1 and 2a'e +J 2hen 2a'e 6 does not e7tendG it could )e retraced entirely )y 2a'e A of the
correcti'e A8B8C patternJ
A fifth wa'e"s failure means that 2a'e 6 fails to mo'e a)o'e the end of 2a'e +J A failure in
2a'e 6 could occur when 2a'e + is the e7tended wa'eJ :n such an instanceG 2a'e 6 will relate
to 2a'e 1 in price )y +@J percent to ;1J@ percentJ 2a'e 6"s failure usually happens when it is
the fifth wa'e of a lar(er impulse 2a'e 6 patternJ 2a'e 6 could also de'elop into a dia(onal
trian(leJ A dia(onal pattern de'elopment at 2a'e 6 usually si(nals the termination of the
trendJ =$ee
Fi(ure 5J6
J>
F:#C3, 5J6
A fifth8wa'e failureG endin( in a dia(onal trian(le patternG si(nals the termination of the
uptrendJ
,WT,DD,D 2A%,$
An e7tended wa'e applies to the lon(est wa'e in any of the three impulse wa'esJ ,7tension can
)e e7pected to occur in only one of the three impulse wa'esG either in 2a'e 1G +G or 6J A further
e7tension may also occur in the e7tendin( wa'e itselfJ
:n any e7tensionG the 3ule of ,Ouality applies to the two non8e7tended wa'esT that isG they
tend to )e either eOual in price or related )y a Fi)onacci ratioG or )othJ
Fi(ures 5J;
to
5J@
show e7amples of e7tended wa'esJ
F:#C3, 5J;
2a'e =1> is e7tended where the 3ule of ,Ouality applies to 2a'e =+> and 2a'e =6>J
F:#C3, 5J?
2a'e Y+Z is e7tended and the 3ule of ,Ouality applies to 2a'e Y1Z and 2a'e Y6ZJ
F:#C3, 5J@
The 3ule of ,Ouality applies to 2a'e 1 and 2a'e + in the e7tended 2a'e 6 of Y6ZJ
T.3,,82A%, $T3CCTC3,$
:n a three8wa'e structureG the wa'es are called AG BG and CJ Corrections are always counted as
A8B8CJ The three8wa'e structureG A8B8CG corrects the mo'ement of the fi'e8wa'e structureJ
2a'e B retraces the mo'ement of 2a'e AJ
Price mo'ements in a three8wa'e structure can )e further su)di'ided into smaller wa'esJ
2a'e A can )e su)di'ided into fi'e8wa'e mo'ements or three8wa'e mo'ementsJ 2a'e B can
only )e su)di'ided into three wa'es and 2a'e C can only )e su)di'ided into fi'e wa'e
mo'ements or a dia(onal trian(le patternJ The formation of an A8B8C correction will therefore
consist of two main patterns: A+8B+8C6 or A68B+8C6 =see
Fi(ure 5JB
and
Fi(ure 5J1F
>J
F:#C3, 5JB
Formation of an A8B8C correction =A+8B+8C6> after a fi'e8wa'e patternJ
F:#C3, 5J1F
Formation of an A8B8C correction =A68B+8C6> with e7tended 2a'e 6 in 2a'e CJ
2a'e A is the first correcti'e mo'ement of an A8B8C correctionJ :f 2a'e A is su)di'ided into
a three8wa'e structureG then it si(nals the )e(innin( of an A+8B+8C6 correcti'e formationJ
#enerallyG in an A+8B+8C6 formationG 2a'e B should do one of the followin(:
3etrace appro7imately the entire 2a'e A in the case of a normal flatJ
3etrace appro7imately ;1J@ percent of 2a'e A if 2a'e B is a failureJ
3etrace )eyond the )e(innin( of 2a'e A )y appro7imately +@J percent in the case of
an irre(ular flatJ
:f 2a'e A is su)di'ided into a fi'e8wa'e structureG then it si(nals the )e(innin( of a Ni(Na(
=A68B+8C6> correcti'e formationJ :n a Ni(Na( formationG 2a'e B should normally retrace 2a'e A
)y appro7imately +@J to ;1J@ percent of 2a'e AJ
2a'e C is the last wa'e of an A8B8C correction and is always su)di'ided into a fi'e8wa'e
structureJ The principle of the Three 3ules also applies to a downward fi'e8wa'e structure of
2a'e A or 2a'e CJ FreOuentlyG 2a'e C is the stron(est in an A8B8C correctionJ
:n an A+8B+8C6 =flat> correcti'e formationG 2a'e C will do one of the followin(:
:t will )e appro7imately eOual to 2a'e AJ
:t will correct the entire 2a'e B and will )e (reater than 2a'e A )y appro7imately
1J;1@J
:t will not correct the entire 2a'e B and will end appro7imately +@J to ;1J@ percent of
2a'e A in an irre(ular flatJ
:n an A68B+8C6 =Ni(Na(> correcti'e formationG 2a'e C will do one of the followin(:
:t will eOual 2a'e AJ
:t will )e (reater than 2a'e A )y 1J;1@ in an elon(ated Ni(Na(J
C-33,CT:%, +8+86 PATT,3D$
The A+8B+8C6 patterns consist of normal flats and irre(ular flatsJ
Flats
The characteristics of a normal flat are as follows:
2a'e B terminates close to the le'el of the startin( point of 2a'e AJ
2a'e C closes near the le'el of the terminatin( point of 2a'e AJ
A flat will (enerally produce stron( su)seOuent mo'ementJ A flat formation =see
Fi(ure 5J11
and
Fi(ure 5J1
> may )e composed of repeated flatsG totalin( counts of ? or 11 wa'esJ :n a fi'e8wa'e
structureG when 2a'e is a flatG the su)seOuent 2a'e + can )e e7pected to )e as stron( asG or
stron(er thanG 2a'e 1J 2hen 2a'e 5 is a flatG then 2a'e 6 will )e stron(er than 2a'e 1 and
2a'e +J :n accordance with the wa'e principleG flats will often alternate with Ni(Na(sJ
F:#C3, 5J11
,7ample of a flat formation patternJ
F:#C3, 5J1
Formation of a flat pattern in an A8B8C correctionJ
:rre(ular Flats
:n irre(ular flats =see
Fi(ure 5J1+
and
Fi(ure 5J15
>G 2a'e C tends to )e the stron(est and appro7imately eOuals J;1@ of 2a'e AJ
F:#C3, 5J1+
Formation of an irre(ular flat with an elon(ated 2a'e CJ
F:#C3, 5J15
An irre(ular flat where 2a'e B retraces the entire 2a'e AJ
C-33,CT:%, 68+86 PATT,3D$
The A68B+8C6 patterns consist of Ni(Na(sJ
Ei(Na(s
A Ni(Na( pattern =shown in
Fi(ure 5J16
> consists of three prime mo'ements: a steep decline of 2a'e A comprisin( fi'e wa'esG a 2a'e
B rallyG and a continuation of the declinin( trend )y 2a'e CJ 2a'e C is always made up of fi'e
wa'esJ FreOuentlyG 2a'e C will either )e eOual to 2a'e A or 1J;1@ of 2a'e AJ Ei(Na(s are
correcti'e wa'es and ha'e the same characteristics as those of fi'e8wa'e structuresJ Ei(Na(s
can also )e e7tendedJ
F:#C3, 5J16
An e7ample of a Ni(Na( patternJ
Comple7 Corrections
Comple7 corrections are formations composed of random com)inations of correcti'e patterns
such as flatsG Ni(Na(sG triple flatsG and trian(lesJ They are the most difficult patterns to interpret
in the wa'e principleJ
$ometimes an A8B8C correction is called an W8wa'eJ W8wa'es are used to discern sets of
correcti'e patterns and are mar/ed )etween correcti'e patterns in a comple7 formationJ They
can )e composed of any correcti'e structure formationJ The 3ule of Alternation also applies to
W8wa'esJ 2hen the first W8wa'e is a Ni(Na(G the followin( W8wa'e will not )e a Ni(Na(T it will
either )e a trian(le or a flatJ
Fi(ures 5J1;
to
5JF
are e7amples of comple7 correctionsJ
F:#C3, 5J1;
An e7ample of a comple7 correctionJ
F:#C3, 5J1?
Comple7 correction showin( su)di'ision of wa'esJ
F:#C3, 5J1@
Comple7 pattern of A8B8C correcti'e wa'es separated )y an W82a'eJ
F:#C3, 5J1B
This is an interestin( chart displayin( two trian(les in a tradin( NoneJ The first trian(le =trian(le
points mar/ed in )lac/> is a con'er(in( trian(leG and the second trian(le =trian(le points mar/ed
in red> is the re'erse of the con'er(in( trian(leG a )roadenin( trian(leJ
F:#C3, 5JF
Two descendin( trian(les mo'in( in a downtrend )efore findin( support in a tradin( None at
appro7imately ?@J; percent of WA measured from the hi(h of BJ
Trian(les
Trian(les (enerally are correcti'e wa'esJ Trian(les are patterns occurrin( )etween or di'idin(
two wa'es mo'in( in the same direction: =1> )etween 2a'e + and 2a'e 6G or => )etween
2a'e A and 2a'e CJ Trian(le patterns are characteriNed )y a contraction in price ran(e and
con'er(in( trend linesJ Trian(les are (enerally la)eled alpha)etically as 0aG1 0)G1 0cG1 0dG1 and
0eJ1 The structure of a trian(le is di'ided into fi'e wa'es in which each wa'e is su)di'ided into
three smaller wa'esG formin( an a+8)+8c+8d+8e+ formationJ
A trian(le can occur in 2a'e 5G 2a'e BG and in W8wa'esJ Trian(le patterns consist of
contractin(G e7pandin(G ascendin(G descendin(G and dia(onal trian(le patternsJ 2hile the
shapes of the trian(les matterG the directional price mo'ement is of more importance when it
)rea/s out of the trian(leJ Trian(les can form as re'ersal patternsG )ut normally trian(les are
seen as continuation patterns of the pre'ious trendJ
Fi(ures 5J1B
to
5J6
are e7amples of trian(le patternsJ
F:#C3, 5J1
Dot all descendin( trian(les point to a downtrendG as shown )y this e7ampleJ Be alert for
une7pected mo'ementJ
F:#C3, 5J
An e7pandin( trian(le occurs when there is hea'y 'olatility in price mo'ementsJ
F:#C3, 5J+
An e7pandin( trian(le in an uptrendJ
F:#C3, 5J5
An ascendin( trian(le that fails to stop the downtrendJ
F:#C3, 5J6
Patterns in stoc/s seem to repeatJ This stoc/ has three trian(lesJ The first trian(le is the start
of the declineG the second trian(le fails to hold off the )ears as prices continue to declineG and
the third trian(le is a continuation trian(leJ
3C!, -F A!T,3DAT:-D
The practicality of applyin( the 3ule of Alternation is more useful when it relates to alternate
wa'es rather than ad9acent wa'esJ :n a fi'e8wa'e structureG 2a'e can )e e7pected to
alternate with 2a'e 5 in at least one of the followin( ways:
Pattern of construction
Time of formation
$tren(th and depth of formation
2hen 2a'e "s formation is a comple7 correctionG 2a'e 5"s formation can )e anticipated to
)e simpleJ =$ee
Fi(ure 5J;
J>
F:#C3, 5J;
The 3ule of Alternation saysG if 2a'e is a comple7 patternG then 2a'e 5 should )e a simple
patternJ .ereG 2a'e 5 is a simple correcti'e patternJ
2hen the formation of 2a'e is a simple correctionG 2a'e 5"s formation can )e anticipated
to )e a comple7 patternJ =$ee
Fi(ure 5J?
J>
F:#C3, 5J?
This chart shows the 3ule of AlternationJ 2a'e completes a simple correction in 1 daysG )ut
2a'e 5 completes a comple7 correction in 1;; days =1+@ percent of 1 days in 2a'e >J Dote
that 1+@ percent is 1FF percent plus +@ percentT and +@J is a Fi)onacci num)erJ
F:B-DACC: 3,T3AC,&,DT ADD P3-H,CT:-D
$upport and resistance lines and pro9ection lines are areas where prices are e7pected to meet
pro)a)le )uyin( support or sellin( pressureJ At these crucial pointsG a continuin( trend may
come to either a temporary consolidation or a trend re'ersalJ
:n the &eta$toc/ pro(ramG there are two utilitiesG Fi)onacci 3etracement and Fi)onacci
Pro9ectionG which can )e 'ery useful in identifyin( the le'els of 'arious mo'ements of wa'esJ
Fi)onacci 3etracement will display a series of horiNontal lines relati'e to the selected trou(h
and pea/ of a trend lineJ Aou can add or remo'e le'els as you wishJ The horiNontal lines will )e
useful to mar/ the li/ely retracement or re)ound pointsJ After a si(nificant mo'eG prices will
often re)ound or retrace to ratios of the ori(inal mo'e at or near the Fi)onacci 3etracement
le'elsG such as +J; percentG +@J percentG 6FJF percentG ;1J@ percentG ?@J; percentG and so
forthJ Fi)onacci Price Pro9ection is 'ery popular amon( tradersG particularly those who practice
,lliott 2a'e TheoryJ #enerallyG the 6F percent le'el tends to (enerate a field of (ra'ity around
itJ After a lon( trendG price seems to easily retrace or re)ound to the 6F percent le'elJ :t is a
num)er that is worth remem)erin( in tradin(J
Fi)onacci 3etracement is used to calculate the pro)a)le support or resistance areas of the
current wa'e swin( relati'e to its precedin( swin(J An e7ample of calculatin( 2a'e B is to
determine the Fi)onacci 3etracement 3atios from the len(th of the precedin( 2a'e AJ The
pro)a)le tar(et le'el of a correcti'e wa'e composin( A8B8C is measured a(ainst its precedin(
impulse wa'eG 188+8586J
Fi)onacci Pro9ection pro9ects 2a'e C from the immediate wa'es of 2a'e A and 2a'e BJ
2a'e C is often calculated at ;1J@G 1FFG or 1;1J@ percent of 2a'e AG and 1? percent of 2a'e
BJ The areas where the 'arious pro9ected lines are clustered will )e where stron(er support and
resistance le'els are e7pectedJ 2e often wonder whether there is ma(ic in these num)ers as
they harmoniNe with mar/et mo'esG or they are made real )ecause many traders are ma/in(
decisions )ased on the same num)ersJ :t does not matter what the reality isG as lon( as we
/now how to use the num)ers fruitfullyJ
Fi(ure 5J@
shows the Fi)onacci Pro9ection of 2a'e C )y pro9ectin( the price swin( of WA from the pea/
at BJ The ratios used are 1FFG 1;1J@G FFG and +@J percentJ The chart also shows the Fi)onacci
3etracement ratios of the rally to P from the low of C relati'e to the price swin( of WCJ For the
Fi)onacci 3etracement ratios in the chartG only three ratios are used: +@JG 6FG and ;1J@
percentJ
F:#C3, 5J@
Application of Fi)onacci 3etracement and Fi)onacci Pro9ectionJ Prices mo'ed downward from
W in three swin(sJ Csin( Fi)onacci Pro9ection to plot the pro)a)le tar(ets relati'e to the len(th
of WAG four ma9or ratios were usedK1FFG 1;1J@G FFG and +@ percentJ Prices finally held at +@
percent and made a stron( re)oundJ Fi)onacci 3etracement was used to determine the
pro)a)le resistance le'els of the rally relati'e to the swin( of WCK+J;G +@JG 6FG and ;1J@
percentJ Prices hit the resistance le'el at ;1J@ percentJ
Fi(ure 5JB
shows the application of Fi)onacci 3etracement and Fi)onacci Pro89ectionJ
F:#C3, 5JB
Prices mo'ed from a low of [+J+6 to a hi(h of [?J@? =W> and started to retreat to the low of
[5J6F on &ay +G F11J
:n
Fi(ure 5JB
G plots of the ratios of retracement for the ma9or swin( =-W> from [+J+6 to [?J@? are
displayed )y the Fi)onacci 3etracement to mar/ the pro)a)le support le'els in the downswin(J
The ratios are +J;G +@JG 6FG ;1J@ percentG and ?@J; percentJ :nterestin(lyG at e'ery first test of
prices at these support le'elsG prices ma/e a re)oundJ This chart pro'ides e7cellent e7amples of
symmetry of wa'e mo'ements and application of Fi)onacci ratiosJ The first e7ample of the
Fi)onacci Pro9ection is the pro9ection from point E on Fe)ruary BG F11G of the relati'e swin(G W
to AJ The resultin( tar(et le'els are pro9ected at ;1J@G 1FFG and 1;1J@ percentG as shown on the
chartJ -f the three tar(et le'elsG ;1J@ and 1;1J@ percent closely match the -W retracement
ratiosT ;1J@ percent pro9ection ratio to +@J percent retracement ratioG and 1;1J@ percent
pro9ection ratio to ?@J; percent retracement ratioJ The 1FF percent pro9ection ratio is in
pro7imity to the 1FF percent retracement ratioJ Prices seem to hold when they hit these le'elsJ
The second e7ample is the B 3etracement of A1 to E1G which is an AB4CD pattern =AE4A1E1 in
the chart>J The ratios used are ;1J@G 1FFG and 1;1J@ percentJ 2hen plottin( these three ratios
they often cluster closely to the +@JG 6FG and ;1J@ percent of the ma9or -W retracement le'elsJ
Fi(ure 5J+F
is another e7ample of the application of Fi)onacci Pro9ection and Fi)onacci 3etracement
relatin( to wa'e analysisJ
F:#C3, 5J+F
Application of Fi)onacci Pro9ection on an impulse wa'e patternG 188+8586G and su)seOuent
application of Fi)onacci 3etracement of a correctionG A8B8CJ
:n
Fi(ure 5J+F
G the stoc/ demonstrates a fi'e8wa'e impulse structure that is followed )y an A8B8C
correctionJ Prices )rea/ out from a line formation from a low of 5F cents to [1JF? on Huly 6G
FF? at 2a'e 1 with steady 'olumeJ The stoc/ retreats to ;F cents at 2a'e J %olume
increases sli(htly at the end of 2a'e and on $eptem)er 1?G 'olume suddenly spi/es upG which
is more than triple the 1F8day mo'in( a'era(e 'olumeJ Prices also spi/e up sharply )eyond
2a'e 1G reachin( a hi(h of [1J6 at 2a'e +J At 2a'e +G which is a)out 1+@J percent of 2a'e 1
measured from 2a'e G a stron( force of resistance )loc/s the powerful thrustJ The stoc/ went
into a consolidation period for a)out +F days and reached a low of [1J1@ on Do'em)er to
form 2a'e 5J And on Hanuary 1 the price spi/es up with increased 'olume for another sharp
rally to [1J@; on Do'em)er 1BG FF? at 2a'e 6J The tar(et of 2a'e 6 is [1J@?G calculated at
;1J@ percent of the distance from the start of 2a'e 1 to the end of 2a'e + =[1J6P[FJ5F>
measured from [1J1@ of 2a'e 5J
After completion of the fi'e impulse wa'esG prices start to wea/en into the formation of an
A8B8C correctionJ The pro9ection of the decline is calculated as follows:
Pro9ection usin( 2a'e A and 2a'e B
1J;1@ of 2a'e A measured from 2a'e B
J+@ of 2a'e A measured from 2a'e B
Pro9ection usin( 2a'e B
1J; of 2a'e B measured from 2a'e B
J; of 2a'e B measured from 2a'e B
APP!:CAT:-D-F ,!!:-TT 2A%, ADA!A$:$
The ,lliott 2a'e Principle ena)les traders to formulate a suita)le tradin( strate(y as the mar/et
pro(ressesJ :t pro'ides a tool to effecti'ely monitor the position of the mar/et relati'e to the
trend and the pro)a)le tar(et of the mar/et"s mo'ementsJ
The wa'e principle wor/s )etter if it is applied to mar/et a'era(es and )lue8chip stoc/s that
are supported )y acti'e turno'erJ #enerallyG it is not practical to apply wa'e analysis to thinly
traded stoc/s or penny stoc/s if such stoc/s ha'e no transactions or supportin( 'olumeJ 2hen
turno'er starts to dwindle to practically Nero and prices stay dormant for wee/sG there is no
possi)le way to do any countin( )ecause no transactions are )ein( done and there will only )e
a horiNontal lineJ :t is not practical to (et )o((ed down in detailin( e'ery small wa'e or in
pinpointin( each of the correcti'e countsJ :t is a common mista/e to try to count e'ery mo'eG
which not only o'ercomplicates the matterG )ut may lead to deep confusionJ
2hen re'iewin( the count of wa'esG count the )roadest swin(s firstJ :f the counts total 6G BG
or 1+G the pattern is an impulse wa'e patternJ Then dissect the wa'es to see if a fit can )e
madeJ :f the )road swin(s total +G ?G or 11G the pattern is a correcti'e wa'e patternJ
An ,lliott 2a'e pattern is easier to understand if seen as a set comprisin( an impulse swin(
of fi'e wa'es and a correcti'e swin( of three wa'esJ ,ach pattern can )e a part of another cycle
or can form part of an e7panded cycleJ
Fi(ure 5J+1
shows the )asic patternJ
F:#C3, 5J+1
A rudimentary cycle pattern of ,lliott 2a'esG comprisin( an impulse pattern of fi'e wa'esG 188
+8586G and an A8B8C correction runnin( counter to the impulse wa'esJ :n the impulse patternG
there are two correctionsG or countertrend wa'esG 2a'e and 2a'e 5G and in the correction
patternG there is one countertrend wa'eG 2a'e BJ
2a'e analysis often )ecomes complicated when it comes to analyNin( the correcti'e
patterns of 2a'e G 2a'e 5G or 2a'e BG especially if such patterns are of a comple7 natureG
consistin( of more than three wa'esJ The difficulty arises in determinin( whether the mar/et is
in a trend or in a correcti'e modeG and whether the corrections are completedJ
There is a (uideline (enerally used to determine when a mar/et is ma/in( a correctionJ :f the
mar/et is ma/in( an A8B8C correctionG prices will often ma/e attempts to o'erlap the prior
section as illustrated in
Fi(ure 5J+
J Prices mo'e to new le'els )eyond A and retrace their mo'ements to o'erlap into the prior
ran(e of 2a'e AJ :f prices mo'e )eyond the e7treme of 2a'e BG that will )e a confirmation that
the correction should )e complete and prices should continue their prior trendJ As corrections
are countertrendsG the prior trend in a downward correction will )e an upward trendG and in an
upward correctionG the prior trend will continue in a downward trendJ =$ee
Fi(ure 5J+
J>
F:#C3, 5J+
Two typical A8B8C correcti'e patternsJ :n a downward correctionG prices ma/e a new low )elow
2a'e A and then re'erse their mo'ement upward to o'erlap into the ran(e of 2a'e AJ :n an
upward correctionG prices ma/e a new hi(h a)o'e 2a'e A and then ma/e a downturn to
o'erlap into the ran(e of 2a'e AJ :f prices mo'e )eyond the e7treme of 2a'e BG it indicates the
correction should )e completeJ
The o'erlap (uideline is a 'alua)le clue to identifyin( price directionJ :t ena)les a trader to
identify when the mar/et is in a correcti'e phaseG and com)ined with other tradin( toolsG it may
help plan a tradin( strate(y so that when the correction is complete and the trend resumesG the
trader is ready to enter the mar/etJ 2e would want to )e in a trade when there is a trendJ
Coupled with the application of Fi)onacci 3etracement and Fi)onacci Pro9ectionG the (uideline
should (i'e a (ood indication of the le'els at which prices will find support and resistanceG and
where trade entries and e7its could )e consideredJ
C-DC!C$:-D
The )asic tenet of ,lliott 2a'e Theory is that mar/et mo'ements are )ased on crowd )eha'iorJ
&ar/et mo'ements occur as a series of impulse and correcti'e wa'esG and these mo'ements
can occur in predicta)le cyclesJ A )ullish swin( will )e corrected )y a )earish swin(J The )ullish
swin( will consist of fi'e wa'esG three wa'es up and two wa'es downG and the )earish swin(
will consist of three wa'esG two wa'es down and one wa'e upJ The sum of the wa'es in the
entire cycle will )e ei(ht wa'esJ :mpulse wa'es refer to the wa'es in the )ullish swin(G and are
num)ered as 1G G +G 5G and 6J And correcti'e wa'es refer to the wa'es in the )earish swin(G and
are num)ered as AG BG and CJ :mpulse wa'es are wa'es that mo'e in the direction of the main
trendG and correcti'e wa'es are wa'es that mo'e in the opposite direction of the main trendJ
:mpulse wa'es can )e further )ro/en down into another set of minor impulse wa'esG and
li/ewiseG correcti'e wa'es can )e further )ro/en down into another set of minor correcti'e
wa'esJ The cycle can )e repeated as it e7pands or contracts in accordance with different time
framesJ All such impulse and correcti'e wa'es adhere to the rules of the theoryJ
,lliott 2a'e Theory can )e used effecti'ely when appliedG as descri)ed in this chapterG to a
suita)le tradin( strate(y in which ris/ can )e minimiNedJ -ne difficulty is in identifyin( the
countG and reco(niNin( whether wa'es are impulse wa'es or correcti'e wa'esJ Another
pro)lem is in determinin( which phase of the mar/et the prices are mo'in( in accordin( to the
theoryG in order to predict the ne7t pro)a)le direction and tar(etJ Countin( e'ery wa'e can )e
su)9ecti'eG )ut if the trader can identify the direction of the primary wa'eG he can still ma/e a
profita)le tradeJ .ere are se'eral (uidelines that may help traders to count the wa'esJ
The first (uideline is for (ettin( the counts ri(htJ #ettin( the ri(ht count may )e made more
difficult )y a comple7 structure comprised of impulse wa'es and correcti'e wa'es of ma9or
wa'esG minute wa'esG and su)wa'esG and so onJ TradersG thereforeG should try to identify the
counts on a )est8effort )asisJ Traders should a'oid (ettin( )o((ed down in tryin( to identify
e'ery e7act count and )ein( too concerned a)out (ettin( the wron( countJ 2a'e countin( has
a hi(h de(ree of su)9ecti'ityJ The )est approach to wa'e countin( is to determine the primary
count so as to (et the )i((er pictureJ Doin( a wa'e count of the lon(er time frameG that isG
wee/lyG is a (ood way to find out the state of the mar/etJ This will protect the trader"s position
e'en if he (ets the count wron( in the daily time frameJ
The second (uideline is for locatin( trades that ha'e less ris/ in accordance with the primary
trendG and a'oidin( trades that ha'e (reater ris/J For e7ampleG pic/in( trades at the end of the
fifth impulse wa'e or the )e(innin( of a correcti'e 2a'e C can lead to hu(e lossesJ
The third (uideline is for learnin( to differentiate impulse wa'es from correcti'e wa'esJ
Correcti'e wa'es freOuently tend to o'erlapJ :n an A8B8C correctionG 2a'e C will e7ceed the low
of 2a'e AG and when 2a'e C mo'es )ac/ into the ran(e of 2a'e AG it has made an o'erlap
mo'ementJ 2hen 2a'e C rallies )eyond the pea/ of 2a'e BG the correction is deemed
completedJ :n an impulse wa'e patternG 2a'e 1G 2a'e +G and 2a'e 6 should not o'erlap each
other and should comply with these three rules:
1J 2a'e cannot (o )elow the )e(innin( of impulse 2a'e 1J
J 2a'e + cannot )e the shortest wa'e of the three wa'esJ
+J 2a'e 5 should not o'erlap impulse 2a'e 1J
:f 2a'e (oes )elow 2a'e 1G then the uptrend is in'alidatedJ And if the retracement of
2a'e 5 o'erlaps 2a'e 1G it also 'iolates the rules of the impulse wa'esJ 2a'e + can )e eOual to
2a'e 1G or 2a'e + can )e eOual to 2a'e 6G )ut 2a'e + cannot )e the shortest of the three
wa'esJ This rule is pro)a)ly deri'ed from the o)ser'ation thatG in a stron( mar/et mo'eG the
second upward wa'e =:mpulse 2a'e +> appears freOuently to )e the stron(est of the three
wa'esJ But when 2a'e 1 is e7tended in a stron( trendG 2a'e + will eOuate with 2a'e 6J And
also when 2a'e 6 is e7tended in a stron( trendG 2a'e + will eOuate with 2a'e 1J The
understandin( of these rules will help to distin(uish trendin( wa'es from correcti'e wa'esJ
The fourth (uideline is for chec/in( the slopes of the three impulse wa'es =2a'e 1G +G and 6>J
They will (enerally )e steeper than the slopes of the correcti'e wa'es =2a'e and 5>J :n a
)earish re'ersal of a ma9or mar/et correctionG A8B8CG the slopes of 2a'e A and 2a'e C will )e
steeper than that of 2a'e BJ :n their steep declinesG 2a'e A and 2a'e C will also show stron(
impulse wa'es and 2a'e C will )e the stron(est of the three wa'es in the correcti'e wa'esJ To
distin(uish the impulse wa'es from the correcti'e wa'esG it is helpful to loo/ at the slope of the
relati'e wa'esJ
The fifth (uideline is for loo/in( at the o'er)ou(ht or o'ersold 'alues of the ,lliott 2a'e
-scillator =,2->G which is popularly used to chec/ 2a'e 5J ,2- is a +58period price mo'in(
a'era(e su)tracted from the 68day price mo'in( a'era(eJ The difference is plotted as a
histo(ramJ The concept of ,2- is that the hi(hestSlowest point of the oscillator is related to
the )ullishS)earish 2a'e + of the swin(J 2hen price is in an upswin(G 2a'e + should )e
reflected )y the hi(hest point of the oscillatorG and when price is in a downswin(G 2a'e +
should )e reflected )y the lowest point of the oscillatorJ The correction of 2a'e 5 should )e
o'er when 2a'e 5 crosses a)o'e the Nero line in an upswin(G and the correction of 2a'e 5
should )e o'er when 2a'e 5 crosses )elow the Nero line in a downswin(J
!astlyG in an impulse wa'e patternG the patterns in 2a'e and 2a'e 5 will alternateJ That isG
if 2a'e has a simple patternG then 2a'e 5 will pro)a)ly ha'e a comple7 patternJ This
/nowled(e will help traders to locate 2a'e and 2a'e 5J :n 2a'e 1G 2a'e should )e (reater
in time and price than any correction within 2a'e 1J :n 2a'e +G 2a'e 5 will also )e (reater in
time and price than any correction within 2a'e +J
$ince the pu)lication of the ,lliott 2a'e Theory in 1B+@G research and de'elopment of the
theory has continuedJ The theory has also )een e7panded )y the de'elopment of computeriNed
pro(rams that count the wa'es )ased on interrelated Fi)onacci ratiosJ For e7ampleG it has )een
learned that )oth 2a'e 6 and 2a'e C can end in a dia(onal trian(le pattern or in an e7pandin(
trian(le patternJ 2hether or not a computeriNed count can do the 9o)G the aim of the trader in
usin( ,lliott 2a'e Theory is find those wa'es that wor/ )est for him in his tradin( strate(yJ
APP,DD:W: 3AT:-$ ADD 2A%, 3,!AT:-D$.:P
The followin( are popular Fi)onacci ratios applied to a fi'e8wa'e structureG listed here for easy
reference:
Fi)onacci
3atios
2a'e 3elationship
FJ+@ =1> Correction of 2a'e to 2a'e 1
=> Correction of 2a'e 5 to 2a'e +
FJ;1@ =1> Correction of 2a'e to 2a'e 1
=> Correction of 2a'e 5 to 2a'e +
=+> Pro9ection of 2a'e + if 2a'e 1 is e7tended
=5> Pro9ection of 2a'e 6 on the distance from the )e(innin( of 2a'e 1 to
2a'e +
FJ?@; =1> Correction of 2a'e to 2a'e 1
=> A8B8C correction of fi'e8wa'e structure
1JFFF =1> Pro9ection of 2a'e + to 2a'e 1
=> Pro9ection of 2a'e 6 =non8e7tended>G which is eOual to the non8e7tended
wa'e of either 2a'e 1 or 2a'e +
1J;1@ =1> Pro9ection of 2a'e + to 2a'e 1 if 2a'e 1 is non8e7tended
=> Pro9ection of e7tended 2a'e 6 on the distance from the )e(innin( of 2a'e
1 to 2a'e +
J;1@ =1> Pro9ection of e7tended 2a'e + if 2a'e 1 is not e7tended
The followin( are popular Fi)onacci 3atios applied to a three8wa'e structure:
Fi)onacci
3atios
2a'e 3elationship
FJ+@ =1> 3etracement of 2a'e B to 2a'e A in a Ni(Na(
=> 3etracement of 2a'e C to 2a'e A in a Ni(Na(
FJ6FF =1> 3etracement of 2a'e B to 2a'e A in a Ni(Na(
FJ;1@ =1> 3etracement of 2a'e B to 2a'e A in a Ni(Na(
=> 3etracement of 2a'e C to 2a'e A in a Ni(Na(
=+> Pro9ection of 2a'e C to 2a'e A in a flat or irre(ular flat
1JFFF =1> Pro9ection of 2a'e C to 2a'e A in a Ni(Na(
=> Pro9ection of 2a'e C to 2a'e A in a flat or irre(ular flat
=+> 3etracement of 2a'e B to 2a'e A in a flat
1J;1@ =1> Pro9ection of 2a'e C to 2a'e A in a Ni(Na(
=> Pro9ection of 2a'e C to 2a'e A in a flat
J;1@ =1> Pro9ection of 2a'e C to 2a'e A in either a Ni(Na( or an elon(ated flat
C.APT,3 6
%olume
%olume represents the num)er of stoc/s transacted )etween )uyers and sellers durin( a
specified periodG as shown in
Fi(ure 6J1
J The period may )e one dayG one wee/G or one hourJ The specified len(th of the period
depends on the analystJ :f we wish to arri'e at a short8term 'iew of the mar/etG the price and
'olume should )e analyNed daily or e'en hourlyJ -n the other handG a lon(er8term analysis
would reOuire a lon(er time frameJ To determine the trend of 'olumeG a runnin( record should
)e maintained to compare the daily 'olume with pre'ious fi(uresJ .owe'erG there is no
standard rule as to the reOuisite num)er of days that should )e usedJ %olume is (enerally
plotted as a histo(ram )elow the correspondin( price actionJ
F:#C3, 6J1
The daily 'olume of the stoc/ is shown in the )ottom windowJ Dote the hu(e placement of
shares in -cto)er FFBG which suppresses the scale of the rest of the daily plotsG ma/in( them
difficult to readJ
BA$:C %-!C&, P!-T$
-ne approach to determinin( the 'olume trend is to plot two a'era(e lines of 'olumeG a fast8
and a slow8mo'in( a'era(eJ This has the ad'anta(e of showin( a potential chan(e in trend
when the fast a'era(e line crosses a)o'e the slow a'era(e lineJ =$ee
Fi(ure 6J
J>
F:#C3, 6J
The histo(ram )ars of the 'olume in the lower window are plots of the 8day a'era(eG while
the red line represents the 1F8day a'era(eJ
Another method is to plot a comparison of the lon(er8term a'era(e to a shorter8term
a'era(e )y percenta(eG as shown in
Fi(ure 6J+
J
F:#C3, 6J+
The 'olume is plotted as a percenta(e ratio )etween its 8day a'era(e and 1F8day a'era(eJ
3,AD:D# %-!C&,
%olume is not always easily decipheredJ :s the mar/et tryin( to tell us somethin( when an
e7ceptionally low 'olume occurs in a sin(le dayG or when an e7ceptionally hi(h 'olume was
transacted recentlyU A sin(le 'olume )ar )y itself will not )e meanin(fulJ %olume is always
analyNed in con9unction with the price mo'ement of a stoc/ as it de'elops with the mar/et"s
chan(in( acti'ityJ %olume is the /ey to e'aluatin( price directional mo'ement and shows the
mar/et"s a)ility to facilitate tradeJ :t ser'es as a (au(e of the stren(th of mar/et de'elopment
and shows when such money8flow is either increasin( or slowin( downJ
Cnder normal mar/et conditionsG 'olume tends to e7pand and contract with the price trendT
the mo'ement of price and 'olume should )e similar pro(ressionJ Durin( the upward price
mo'ementG 'olume should e7pandT and durin( the downward price mo'ementG 'olume should
contractJ 2e use 'olume to assess the stren(th and health of the pre'ailin( trendJ The specific
num)er of a sin(le 'olume )ar is not important and the interpretation of 'olume should not )e
)ased only on a sin(le daily )arJ %olume should )e studied in perspecti'e with its recent actionJ
%olume as an indicator will often )e more meanin(ful when a'era(e 'olume is used =see
Fi(ure 6J5
>J
F:#C3, 6J5
The middle window shows the plots of the 8day and 1F8day a'era(esJ The )ottom window
shows the plots of the percenta(e ratio of the 8day and 1F8day a'era(esJ Dotice that the
e7pansion and contraction of 'olume mo'e in line with the price trendJ
The use of 'olume as an indicator is more relia)le when it refers to hea'y turno'er stoc/sJ
%olume of secondary securities with little or no tradin( 'olume will not pro'ide relia)le cluesJ
%olume is the indicator of the mar/et"s a)ility to facilitate tradeJ ,'en in a )ullish mar/etG if
'olume is decreasin(G then the li/elihood of a continuin( uptrend is in OuestionJ A mar/et that
is not facilitatin( trade will not sur'i'e for lon(J
%olume is a com)ination of acti'ity )y )uyers and sellersJ ThusG all mar/ets tend to see/ to
trade at an accepted price le'el that ma7imiNes 'olumeJ :f a mar/et is not allowin( trade at such
price le'elG it will see/ a new le'el that will pro'ide )etter tradin(J ThusG if the price mo'ement
is relati'ely static and 'olume continues to declineG the chances are that the mar/et will )rea/
out of that re(ion in search of new acti'ityJ =$ee
Fi(ure 6J6
J>
F:#C3, 6J6
Prices try to ma/e a second thrust toward the 6F8day a'era(e line )ut the attempt is not
supported )y sufficient 'olumeJ :nsteadG prices )rea/ the support line accompanied )y hea'y
'olumeJ
&ar/et chan(e offers )oth ris/ and opportunityJ The important point is to identify mar/et
chan(e as it is de'elopin(J By usin( 'olume as an added toolG a trader can anticipate mar/et
)eha'ior in the early sta(es of chan(eJ 2hen mo'ements of 'olume and price are not
pro(ressin( in similar orderG it warns of a pro)a)le chan(e of trendJ The firmness of the stoc/
trend is e7pected to wea/en when ad'ancin( price is accompanied )y diminishin( 'olumeG as
decreasin( 'olume indicates a re9ection of hi(her pricesJ And when declinin( price is
accompanied )y a trend in increased 'olumeG it indicates an o'erhan( of sellin( pressureJ The
trend is e7pected to )e stron( when ad'ancin( price is accompanied )y a trend in increasin(
'olumeJ -ftenG a low point in 'olume indicates a Ouiet mar/et or an imminent turnin( point in
the mar/etJ :f the 'olume trend does not e7pand while the price trend is risin(G it is an
indication that the price mo'ement is approachin( a resistance le'elJ As lon( as the 'olume
trend continues to e7pand with the upward price trendG it can )e assumed that further
ad'ances in prices are li/elyJ
DormallyG 'olume will diminish in a declinin( mar/et and e7pand in an ad'ancin( mar/etJ :n
,lliott"s wa'e principleG 'olume pattern at 2a'e will )e less than that of 2a'e 1G and 'olume
at 2a'e 5 will )e less than that of 2a'e +J %olume of 2a'e + will )e hi(her than 'olume at
2a'e 1J %olume at 2a'e 6 can )e lower than that of 2a'e +G indicatin( the termination of the
o'erall wa'e mo'ementJ :f the 'olume at 2a'e 6 is (reater than that of 2a'e +G it indicates
that 2a'e 6 will li/ely )e e7tendedJ
Fi(ure 6J;
and
Fi(ure 6J?
show e7amples of the relationship )etween the 'olume patterns and price mo'ementsJ
F:#C3, 6J?
Price )rea/s upward from a line formation with increasin( 'olumeJ
F:#C3, 6J;
This chart shows the support of 'olume at e'ery rally of the price until the final phase when it
(i'es an early warnin( of trend wea/ness with declinin( 'olumeJ Prices )e(in to trade narrowly
in a sideway mar/et with low 'olumeJ A re'ersal of the uptrend finally occurs when prices dip
downward with increasin( 'olumeJ
%olume increases as the price rallies and decreases as the price pulls )ac/ into a
consolidation patternJ 2hen the price )rea/s upward away from its consolidationG )uyers start
)uyin( hea'ilyG as indicated )y the increase in 'olumeJ 2hen 'olume starts to decline as price
continues its upward mo'eG it (i'es a warnin( that a toppin( of the price is nearJ 2hen price
)rea/s downward with increasin( 'olumeG it si(nals the end of the upward price trendJ
%olume is useful to confirm whether a current mo'e is li/ely to continue or is merely a false
startJ :n (eneralG most mar/et participants are )ullish and are a((ressi'e )uyersJ The stoc/
mar/et is an acti'e )attle(round where a constant )attle is (oin( on )etween the )uyers and
sellersJ %olume analysis may often pro'ide clues as to who is (ainin( the upper handJ
&-D,A8F!-2 :DD:CAT-3
Besides plottin( the 'olume data to monitor the correlation of price and 'olumeG nowadaysG
with the ease of computersG 'arious oscillators ha'e )een de'eloped to Ouantify the
relationship )etween price and 'olumeJ These indicators are (enerally called money8flow
indicatorsJ There are many of themJ The main purpose of price 'olume indicators is to
se(re(ate the total 'olume into positi'e 'olume and ne(ati'e 'olumeG which may re'eal a new
condition of the mar/et when deri'ed from certain calculations with the priceJ A money8flow
indicator can )e used as a stand8alone indicatorG )ut it is )etter to com)ine it with another
price8deri'ati'e tradin( systemJ
Fi(ure 6J@
shows a simple money8flow indicator called 'olume None oscillator =%E->J %E- is easy to
understandJ
F:#C3, 6J@
%olume None oscillator shows a drastic drop on the day of the announcement of a su)stantial
placin( of stoc/sG which causes the price to open with a downward (apJ .owe'erG prices
su)seOuently reco'er and rally )ac/ to the pre'ious hi(hJ
%E- was de'eloped )y 2alid *halil and Da'id $tec/lerJ Details of the indicator and how to
use it are stated in the &ay F11 issue of 1ecbolcol Aoolysls of tocks & commoJltles ma(aNine
and in the ll1A IootoolG FF@ editionJ The ori(inal formulaG to(ether with its proposed tradin(
methodG is also descri)ed in the articlesJ
Certain modifications ha'e )een made to %E- as it is shown in the e7ampleG includin( the
addition of the scale factor to allow the plottin( of daily percenta(e chan(e of mo'in( a'era(e
'olumeJ This allows readers to understand the relationship of 'olume and the concept of
positi'e 'olume as represented )y %E-J %E- is positi'e when the closin( price is (reater than
the pre'ious closin( priceJ A mo'in( a'era(e line is also added to let readers see the )i((er
picture of the money8flow trendJ 3eaders may remo'e the plot of the daily percenta(e chan(e
of mo'in( a'era(e 'olume when they are familiar with the o'erall conceptJ
3eadin( %E- is 9ust li/e readin( any momentum oscillatorJ :ts main functions include si(nals
for trade entries and e7itsJ The indicator is )asically di'ided into four NonesJ The mar/et is
positi'e when %E- stays a)o'e the 6F percent le'el and ne(ati'e when it is )elow 6F percentJ
2hen the mar/et is trendin( positi'elyG the indicator will fluctuate )etween 6F and ?F percentG
the )ullish NoneJ And when the mar/et is trendin( ne(ati'elyG it will fluctuate )etween 6F and
+F percentG the )earish NoneJ :n a tradin( mar/etG %E- will (enerally mo'e )etween its +F and
?F percent linesJ The mar/et is deemed to )e o'er)ou(ht when it is a)o'e ?F percentG and in
an e7treme o'er)ou(ht condition when it is a)o'e @F percentJ -n the contraryG the mar/et is
deemed to )e o'ersold when it is )elow +F percentG and in an e7treme o'ersold condition
when it is )elow F percentJ $i(ns of wea/ness or stren(th in the mar/et are sometimes
reflected in the di'er(ence )etween the indicators and price mo'ementsJ
The horiNontal percenta(e lines ser'e as the si(nal linesJ 2hen %E- crosses from )elow the
+F percent line to a)o'eG a trade entry is indicatedG and when %E- crosses from a)o'e the ?F
percent line to )elowG an e7it entry is indicatedJ 2hen the %E- mo'in( from )elow crosses the
6F percent lineG it also indicates an entry si(nalJ But when %E- declines from a)o'e the 6F
percent line and reenters to cross a)o'e the 6F percent line a(ainG a )uffer line of 6?J6 percent
may )e used as a safe(uard to protect from a whipsaw si(nalJ
Traders must always loo/ at price patterns and their related 'olume patterns to(etherJ :n this
caseG %E- is plottin( the flow of positi'e 'olumeJ The plot should stay positi'e in a stron(
mar/et that is a)o'e 6F and ne(ati'e in a wea/ mar/et that is )elow 6FJ
D,C:P.,3:D# T3,DD 2:T. %-!C&,
A trend directional systemG shown in the middle window of
Fi(ure 6JB
G may also )e incorporated into the 'olume indicatorJ The lower window shows 9ust the
percenta(e plot of the 'olume indicator without the trend indicatorJ 2hen the trend is wea/G
the color histo(ram of the 'olume plot is redG and it is )lue when the trend is stron(J A tall red
histo(ram (enerally at the halfway point of the decline would indicate )earishness in the
mar/etG and a tall )lue histo(ram would indicate )ullishnessJ
F:#C3, 6JB
The difference in the plots of a 'olume indicatorJ The lower window shows the normal plot of
a percenta(e 'olume indicator and the middle window shows addition of a trend system to the
'olume indicatorJ
The formula for computin( an indicator com)inin( 'olume and trend in Trade$tation format
is as follows:
\lotometets lopot]
:nput: %ol!en(th1=>G %ol!en(th=1F>G Percent=FF>G $howTrend&ar/er=True>T
\lopot of votlobles]
%ars:BarColor=F>G $&A=F>G 2&A=F>T
\lopot volome loJlcotot ctltetlo bete]
:f CurrentBar^1 then )e(in
%alue1F4WA'era(e=%olumeG%ol!en(th1>T
%alueF4A'era(e=%olumeG%ol!en(th>T
:f %alueF_^F then %alue+F41FF`=%alue1FS%alueF>
else %alue+F4FT
endT
\lopot yoot system cooJltloos bete]
:f CurrentBar^1 then )e(in
$&A4T+=CloseG 6>T
2&A4T+=TypicalPriceGB>T
:f $&A ^ 2&A then
BarColor4Blue else
:f $&A _4 2&A then
BarColor43ed else
BarColor4Dar/#reenT
,ndT
\lopot plots bete. ttoe/folse]
:f $howTrend&ar/er then )e(in
Plot1=%alue+FGa%olumeaGBarColor>T
Plot=1FFGa1FF Percenta>T
Plot+=PercentGa%olume !imita>T
,ndT
Note: T+ mo'in( a'era(e was de'eloped )y Tim TillsonJ :t is a smoothin( techniOue that is
intended to produce )etter si(nalsJ The function in an ,asy!an(ua(e 'ersion of the formula is
descri)ed in the Hanuary 1BB@ issue of 1ecbolcol Aoolysls of 5tocks & commoJltles ma(aNineJ
C-DC!C$:-D
The aim of this chapter is to show traders the importance of understandin( 'olume in technical
analysis and how 'olume can )e used to identify the chan(e in trendJ 2hen 'olume is used in
con9unction with other supportin( indicatorsG the pro)a)ility of pic/in( a winnin( trade is
increasedJ Price represents the consensus 'alue in a transaction )etween the )uyer and sellerG
and 'olume represents the financial commitmentJ :n shortG 'olume is the liOuidity of the
mar/etG without which the mar/et is sta(nantJ And soG 'olume is deemed to )e the dri'in(
force of price mo'ementsJ #enerallyG a risin( price trend has to )e supported )y a positi'e
'olume trendJ 2hen 'olume fails to support the continuin( risin( priceG it si(nals a wea/enin(
of the risin( price trendJ -n the other handG when the price is declinin( with increasin( 'olumeG
it confirms the continuity of the )earish outloo/J A mar/et is healthy when the trends of )oth
'olume and prices are mo'in( in tandemJ But when the mo'ement of price starts to di'er(e
with the 'olume trendG the continuation of the pre'ailin( mar/et trend is in dou)tJ For
e7ampleG when a priceG tradin( in a narrow ran(eG fails to continue its risin( trend despite hea'y
'olumeG traders should ta/e note as the price may ha'e reached a stron( resistance le'elJ And
in re'erseG traders should also e7ercise caution when hea'y 'olume cannot push the price any
lower and price continues to hold its tradin( in narrow ran(esT it may indicate the price has
reached a stron( support le'elJ 2hen price spi/es up with uncon'incin( 'olumeG the price spi/e
is usually short8li'edJ But when the price spi/es up on hea'y 'olumeG traders should pay
attention to a pro)a)le chan(e in trendG and loo/ for confirmation from other indicatorsJ :n
summaryG the importance of 'olume should not )e o'erloo/ed as it often presa(es price
directionJ
C.APT,3 ;
*ey :ndicators
Price is the only /ey that leads the direction of trendJ There is nothin( on a chart that matters
more than priceJ
Data of daily transactions of prices are (enerally reported with information of the price ran(e
consistin( of open8hi(h8low8closeG 'olumeG and turno'er of sharesJ The information is then
used as the )asis for calculatin( indicatorsJ
All indicators in technical analysis are mathematical attempts to predict the future trend of
stoc/ prices )ased on historical dataJ :ndicators are used as added 'alue to the analysis of price
mo'ements to form )uyin( and sellin( decisionsJ :ndicators are not indu)ita)le and should only
)e used as handy toolsJ :n calculatin( indicatorsG it is important to ensure that price data are
ad9usted accordin(ly if there are chan(es to the company"s eOuities as a result of schemes of
arran(ementsG ri(hts issuesG or )onus issuesJ :t is also necessary to ma/e ad9ustments to the
data when tradin( in the shares is suspendedJ $uch suspension may last from one day to
se'eral monthsJ :f the price data are not ad9ustedG especially when tradin( in the shares is
suspended for a lon( periodG it is not ad'isa)le to do any wa'e count or any readin( of the
indicators or patterns followin( the resumption of tradin(J
Fi(ures ;J1
and
;J
show two charts of a stoc/ whose shares ha'e )een suspended for tradin(J Dote the
differences in the patterns of price and indicators )efore and after ad9ustments of the price
data due to the suspension of tradin(J
F:#C3, ;J1
Tradin( in the shares was suspended for @ daysG represented )y a flat dotted lineJ The red
line represents the 6F8day mo'in( a'era(eJ The lower windows are the 158day 3$: and 'olumeJ
The drawin( of a trend line is meanin(lessG as it has )een distorted )y the suspension periodJ
Compare this chart to
Fi(ure ;J
J
F:#C3, ;J
Data and indicators ad9usted for the suspension on tradin( in the sharesJ Patterns of priceG
indicatorsG and 'olume are showin( the true trendG and the drawin( of the trend line is relia)le
nowJ
A (ood chart layout should facilitate meanin(ful readin( of price mo'ementsJ The layout
should not )e crowded with too many indicatorsJ :t should ha'e informati'e indicators that tell
the different aspects of the mar/etG such as a trend indicator to show the pro)a)le direction of
the trendG a momentum indicator to measure the speed at which price is chan(in(G and a
'olume indicator to measure the stoc/ acti'itiesJ -n no account should the layout ha'e similar
types of indicatorsG whose functions are of the same nature and parametersJ
-scillators are indicators that are constructed so that the results are plotted )etween
positi'e and ne(ati'e le'elsG in which case the centerline is FJ :f a plot fluctuates within a ran(e
of F to 1FFG the centerline is 6FJ
-scillators are useful in identifyin( o'er)ou(ht and o'ersold conditions of the mar/etG and in
di'ul(in( di'er(ence of directional mo'ements )etween oscillators and pricesJ 2hen the
oscillator is a)o'e the centerlineG the interpretation is positi'eG and when it is )elow the
centerlineG it is ne(ati'eJ 2hen the oscillator is positi'e and shows readin(s in the upper
positi'e ran(eG it su((ests that the mar/et is o'er)ou(ht and is due for a correctionJ -n the
other handG when the oscillator is ne(ati'e and shows readin(s at the )ottom of the ne(ati'e
ran(eG it su((ests an o'ersold mar/et that is due for a re)oundJ
An alert to sell is tri((ered when the mar/et is o'er)ou(htG and when the mar/et is o'ersoldG
traders should )e prepared to )uyJ This does not mean that one should rush to )uy when the
mar/et shows the first si(n of )ein( in an o'ersold conditionG or to sell when the mar/et is
o'er)ou(htJ The reason is simpleJ 2hen a mar/et enters initially into either o'er)ou(ht or
o'ersold conditionsG it may continue to remain in such conditions for some timeJ The mar/et
can e'en )ecome more o'er)ou(ht or more o'ersold )efore ma/in( a definiti'e re'ersalJ
ThereforeG it is necessary to /eep an eye on the wea/enin( of price when in o'er)ou(ht
conditionG and the stren(thenin( of price when in o'ersold conditionJ 2hen the oscillator
)rea/s out from its o'er)ou(ht or o'ersold le'elsG it is important to ensure that the )rea/out of
the oscillator corresponds with the directional mo'ement of the priceJ This will help traders
a'oid (ettin( cau(ht in a false )rea/out of the oscillatorJ $ometimesG the oscillator attempts to
)rea/ out early from its o'er)ou(ht or o'ersold le'elsG only to re'erse immediately to its
former le'elsJ
2hen usin( more than one oscillatorG it is important to ma/e sure that the parameters of
each oscillator are differentJ A common error is to un/nowin(ly plot 'arious oscillators on the
same chart with the same parametersG particularly the use of closin( price for all oscillatorsJ
This is tantamount to multiple countin( of the same informationJ As a resultG the readin(s
(enerated )y each of the oscillators tend to )e similarJ A )etter way is to choose different types
of oscillators to complement the tradin( systemsG and use different approaches to analyNe the
directional mo'ement of the mar/etJ :t will not ser'e any useful purpose if the oscillators are
repeatin( the same criteriaJ
&-&,DTC& -$C:!!AT-3
&omentum is perhaps one of the easier oscillators to understandJ :t measures the speed of
price chan(esJ The looqmoo ulctloooty of cootempototy oqllsb defines momentum as 0the
force (ained )y the mo'ement or de'elopment of e'entsJ1 :n technical analysisG momentum is
a techniOue of comparin( prices at different timesJ
A price riseG or a price declineG from one day to the ne7t dayG is descri)ed as a one8day
momentumJ That isG today"s momentum is today"s close minus yesterday"s closeJ
A 1F8day momentum means the comparison of today"s price to the price 1F days a(o: ltlce
YtoJoyZ less ltlce Yptevloos 10-JoyZJ :f today"s price is (reater than the price 1F days a(oG it will
)e a positi'e momentumG and if today"s price is less than the price 1F days a(oG it will )e a
ne(ati'e momentumJ &omentum is also /nown as the rate of chan(e of priceJ
&omentum oscillators include popular classics li/e Appel"s &ACD .isto(ramG $tochasticG
2ilder"s 3elati'e $tren(th :nde7G and 2illiams V3J &omentum is useful in identifyin( early
trend directionJ &omentum has one powerful traitT it trac/s how fast the price trend is mo'in(G
and (ains or losses of speedJ CnfortunatelyG momentum is sometimes not easy to identify
)ecause price and momentum do not always mo'e in tandemJ
:f the price increases on a rallyG the momentum )ecomes positi'e and rises with the priceJ
.owe'erG when the price (ets closer to its imminent pea/ or (oes into a )rac/et mar/etG the
continuin( rally in price will slow down its speedG which will then cause a chan(e in the
direction of the momentumJ &omentum direction will decline insteadJ From thisG we can ma/e
two simple and powerful o)ser'ations: =1> momentum"s trend will not always )e in the
direction of the price trendT and => momentum"s oscillators do not represent price trendsJ
From these two o)ser'ationsG it can )e surmised that re'ersal of momentum will not
necessarily coincide with a price re'ersalJ
&omentum oscillator is useful in depictin( di'er(ence of trend slope )etween the price and
the oscillatorJ A )earish di'er(ence occurs when the oscillator is ma/in( new lows while prices
are ma/in( new hi(hsG and a )ullish di'er(ence occurs when the oscillator is ma/in( new hi(hs
while prices are ma/in( new lowsJ
Fi(ure ;J+
shows the )eha'ior )etween the mo'ements of momentum and priceJ ,1 and #1 show that
momentum trend does not reflect price trendJ &omentum trend will not always )e in the
direction of the price trendJ ,1 shows a dia(onal trian(le in price while momentum is in a
horiNontal ran(eJ #1 shows price declinin( in a downward channel while momentum was
declinin( in a para)olic arcJ #1 also illustrates that we can draw a trend line to price as well as
in momentumJ D1 and .1 show )ullish di'er(ences )etween momentum and priceG and F1G H1G
and *1 show )earish di'er(encesJ F1 is also /nown as a hidden )earish di'er(enceG and such
di'er(ences are not often noticea)leJ &omentum also de'elops pattern formationsT e7amples
of dou)le tops and dou)le )ottoms are indicated )y the circles in
Fi(ure ;J+
J
F:#C3, ;J+
The )ottom window shows the directional mo'ements of momentum of priceJ
Another important point to note isG when prices ha'e declined for a while and start to chan(e
to )ullishnessG the momentum oscillator will respond )y crossin( a)o'e its centerline into a
hi(h 'alue area =compared with its historical threshold>J #enerallyG prices will tend to (o still
hi(herG and momentum will form another hi(hG )ut it will )e lower than its pre'ious thrustJ =$ee
Fi(ure ;J5
J>
F:#C3, ;J5
Directional mo'ement of momentum responds to chan(e in price trendJ After fallin( for the
prior three monthsG price reaches its low in -cto)er FF@ and starts to re'erseJ &omentum
responds with (reat stren(th to a new hi(h at T1J ThereafterG price (oes into a consolidation
)efore risin( a(ain to new hi(hs at T and T+G )ut momentum fails to rise to new hi(hsJ Dotice
the di'er(ence si(nals at A8BG and A8T1J
Con'erselyG if momentum reaches a 'ery low 'alue areaG !1 =compared with its historical
threshold>G and turns upG formin( a hi(her lowG !G prices may not follow momentum direction
and fall furtherJ
Fi(ure ;J6
shows an e7ample of such characteristicsJ Dotice how price continues to fall to !+ )ut
momentum holds at a)out its last lowJ A(ainG note that the trend of momentum does not
always reflect price trendJ &omentum direction will not always )e in the direction of the price
trendJ
F:#C3, ;J6
&omentum reaches a new low )efore priceG as in !1 and !+J The slope of !1 and ! mar/s a
di'er(ence )etween price and momentum mo'ementsJ
&omentum oscillators are often plotted with two lines: the raw data line =orG the fast line>G
and its mo'in( a'era(eJ There are three methods of callin( entry and e7it si(nals usin( the
momentum oscillator: =1> None crossin(G or crossin( of the o'ersold or o'er)ou(ht linesT =>
centerline )rea/G or )rea/in( a)o'e or )elow the centerlineT and =+> crossin( of the a'era(e line
)y the fast lineJ
For those who would li/e to (o further into the su)9ectG they may want to read Momeotom,
ultectloo, ooJ ulvetqeoce )y 2illiam BlauG 1be New 1ecbolcol 1toJet )y Tushar $J Chande and
$tanley *rollG and Mottlo ltloq oo Motket Momeotom )y &artin Prin(J
<C,C:D# T.,-3A -F &-%:D# A%,3A#,
C3-$$-%,3$ =<&AC>
The mo'in( a'era(e has remained the most powerful method for analyNin( and tradin( the
mar/etJ &o'in( a'era(es can )e applied to a wide ran(e of usesG from identifyin( mar/et trend
in any time frameG to detectin( o'er)ou(ht or o'ersold conditionsJ They are easy to use and
form the )asis of many trend tradin( systemsJ There are numerous ways of calculatin( mo'in(
a'era(e mathematically: simpleG e7ponentialG wei(htedG time seriesG 'olume ad9ustedG and so
forthJ -'er the yearsG many new inno'ati'e ideas ha'e )een addedJ The )asic idea is to
smoothen short8term price fluctuations to ha'e a )etter picture of the main trendJ
The periods commonly used for plottin( mo'in( a'era(e lines ran(e from days to 6F daysJ
:n this )oo/G mo'in( a'era(es are cate(oriNed under three (roupsJ The first (roup is the short8
term period from days to B daysG the second (roup is the mid8term period B days to +5 daysG
and the third (roup is the 6F8day to 6F8day (roupJ 2hen a mar/et is in a stron( trendG prices
will cross a)o'e all the a'era(es of these three (roupsG and mo'in( a'era(es lines from each of
the three (roups will also follow suitJ That isG the shorter period will also cross a)o'e the lon(er
periodJ And the order of ali(nment is re'ersed when the mar/et is 'ery wea/J 2hen the mar/et
mo'es to an e7treme le'elG whether )ullish or )earishG prices will lead the directional chan(eG
and will )e followed )y the 'arious mo'in( a'era(esJ This is the first o)ser'ation of the
<ueuin( Theory of &o'in( A'era(e Crosso'ers =<&AC>J That isG when prices ma/e a )ullish or
)earish directional chan(eG its relati'e mo'in( a'era(es should also follow suit and )e in a
seOuential orderJ The shorter period mo'in( a'era(es will also cross a)o'e or )elow the slower
period a'era(esJ :f the price and its mo'in( a'era(es are not ali(ned in a seOuential orderG the
respecti'e rally or retracement most pro)a)ly will )e short8li'ed and prices can )e e7pected to
continue to mo'e in their pre'ious direction or to ma/e further consolidationJ For practical
purposes and ease of usa(eG three mo'in( a'era(esG the 6F8dayG BF8dayG and FF8dayG are
illustrated )elow as e7amples of the application of <&ACJ :t also shows the relationships of
price and mo'in( a'era(e crosso'ersG crosso'ers )etween two mo'in( a'era(esG and the
relationship of price and two mo'in( a'era(esJ
The most popular method of interpretin( a mo'in( a'era(e is to compare the relationship
and crosso'ers )etween a price and its mo'in( a'era(e to determine current trend direction
and to anticipate its most li/ely future directionJ &o'in( a'era(esG thou(h used as a smoothin(
techniOueG also filter out the fluctuations of short8term 'olatility in price mo'ementJ There isG
howe'erG one deficiency in that most mo'in( a'era(es are la((in( technical indicatorsG which
means they tend to trail )ehind the current price in fast8mo'in( mar/etsJ =$ee
Fi(ure ;J;
J> All mo'in( a'era(es ha'e this wea/nessKthe la( effectJ ThusG in a hi(hly 'olatile or non8
trendin( mar/etG tradin( si(nals usin( mo'in( a'era(es tend to (enerate faulty si(nalsJ This will
cause repeated whipsawsG which can pile up tradin( lossesJ
F:#C3, ;J;
Crosso'ers of two mo'in( a'era(e linesJ Dotice the la((in( effect of the intermediate8term
a'era(e as is typical in a 'olatile mar/etJ Circles mar/ the crosso'ers of the two a'era(e linesJ :f
entry and e7it were )ased entirely on the crosso'ers of the a'era(e linesG the la( of the
intermediate8term a'era(e would ta/e out a su)stantial part of the profitJ
A sell si(nal is (enerated when the share price falls )elow the mo'in( a'era(eG and a )uy
si(nal is (enerated when the share price rises a)o'e its mo'in( a'era(eJ The critical element in
a mo'in( a'era(e is the time period used in calculatin( the a'era(eJ The o)9ecti'e of a mo'in(
a'era(e system is to pic/ a trade with a pro)a)le price trend )y )uyin( shortly after the share
price )ottoms and sellin( after it topsJ
Another method is the use of multiple mo'in( a'era(esJ For e7ampleG in a system with two
mo'in( a'era(e linesG a )uy is si(naled when the shorter mo'in( a'era(e crosses a)o'e the
lon(er mo'in( a'era(eG and a sell is si(naled when the shorter line crosses )elow the lon(er
lineJ The shorter the len(th of a mo'in( a'era(eG the more sensiti'e it will )e to short8term
fluctuationsG and the lon(er the len(thG the less sensiti'e to a)rupt fluctuationsJ $horter8len(th
a'era(es la( the mar/et less than lon(er8len(th a'era(es
A study in mo'in( a'era(e will not )e complete without the study of the ei(ht principles
re(ardin( the interpretation of price to mo'in( a'era(eJ The rules are mentioned in 1ecbolcol
Aoolysls of 5tock 1teoJs )y 3o)ert DJ ,dwards and Hohn &a(eeJ The ,i(ht 3ules of &o'in(
A'era(e Crosso'ers =,i(ht 3ules> refer to mo'ements )etween price and its FF8day mo'in(
a'era(eJ The FF8day mo'in( a'era(e is (enerally accepted as the /ey psycholo(y line used )y
many lon(8term in'estorsJ
The ,i(ht 3ules can )e applied to almost any period of mo'in( a'era(eJ
1J :f the FF8day a'era(e line flattens out or ad'ances followin( a declineG and the price of the
stoc/ penetrates that a'era(e line on the upsideG this constitutes a ma9or )uyin( si(nalJ
J :f the price of the stoc/ falls )elow the FF8day a'era(e line while the a'era(e line is still
risin(G this also is a )uy si(nalJ
+J :f the stoc/ price is a)o'e the FF8day line and declines toward itG )ut fails to (o throu(h and
instead turns up a(ainG this is a )uyin( si(nalJ
5J :f a stoc/ price falls too fast and far )elow the declinin( FF8day a'era(e lineG a short8term
re)ound toward the line may )e e7pectedJ
6J :f the FF8day a'era(e line flattens out or declines followin( a riseG and the stoc/ price
penetrates that line on the downsideG this constitutes a ma9or sellin( si(nalJ
;J :f the price of the stoc/ rises a)o'e the FF8day a'era(e line while the a'era(e line is still
fallin(G this also is a sell si(nalJ
?J :f the stoc/ price is )elow the FF8day a'era(e line and rises toward itG )ut it fails to (o
throu(h and instead turns down a(ainG this is a sell si(nalJ
@J :f the stoc/ price rises too fast a)o'e the risin( FF8day a'era(e lineG a short8term reaction
may )e e7pectedJ
Fi(ure ;J?
shows the application of the ,i(ht 3ules on the crosso'ers )etween an @8day mo'in(
a'era(e and a +58day mo'in( a'era(e as well as the plot of a momentum oscillator )etween
the two mo'in( a'era(esJ 2hen the @8day mo'in( a'era(e crosses a)o'e the +58day a'era(eG
the oscillator will )e a)o'e the Nero lineJ
F:#C3, ;J?
The top window displays e7amples from the ,i(ht 3ules principle )etween the interplay of an
@8day mo'in( a'era(e and a +58day mo'in( a'era(eJ The )ottom window shows the
o'er)ou(ht None and o'ersold None of the momentum oscillatorG which is deri'ed from the
difference of the two mo'in( a'era(esJ
3eferrin( to the ,i(ht 3ulesG if another mo'in( a'era(e is plotted )etween price and FF8day
a'era(eG say a 6F8day a'era(eG there will )e two mo'in( a'era(e crosso'ersG a 6F8day a'era(e
and a FF8day a'era(eJ
The interplay of these two mo'in( a'era(esG 6F8day and FF8dayG is popularly used in
considerin( prospecti'e )ull and )ear mar/etsJ 2hen the 6F8day is a)o'e the FF8dayG the
mar/et is considered to )e in a lon(8term )ull phaseG and when the 6F8day is )elow the FF8
dayG the mar/et is considered to )e in a lon(8term )ear phaseJ 2hen the 6F8day crosses from
)elow to a)o'e the FF8dayG it is referred as the #olden CrossG si(nalin( a mar/et chan(e to a
)ullish outloo/G and when the 6F8day crosses from a)o'e to )elow the FF8dayG it is referred as
the Dead CrossG si(nalin( a mar/et chan(e to a )earish outloo/J
#enerallyG the com)ination of two mo'in( a'era(es is effecti'e as well as easy to interpretJ
The faster line trac/s the shorter8term trendG while the slower line trac/s the lon(er8term trendJ
2hen there is a crossin( )etween the faster line and the slower lineG it indicates a pro)a)le
chan(e in trendJ This method of crosso'er is commonly used in de'elopin( automated setup
conditionsG and in a rule8)ased tradin( systemG which will )e discussed in later chapters of the
)oo/J .owe'erG this system alone is su)9ect to whipsaws in a )rac/et mar/et condition and
should )e supported )y a su)seOuent entry condition or )y another supportin( oscillatorJ
:n a crosso'er system of two mo'in( a'era(esG we ha'e three factors: the priceG a short8term
mo'in( a'era(eG and a lon(8term mo'in( a'era(eJ !et"s ta/e the price as the closin( priceG the
short8term mo'in( a'era(e as 6F8dayG and the lon(8term mo'in( a'era(e as FF8dayJ :n a
)ullish trendG the ali(nment of these three factors =from top to )ottom> will )e: priceG 6F8dayG
and FF8dayT the price will )e a)o'e its 6F8day line and the )ottom line will )e the FF8dayJ :n a
)earish trendG the order is re'ersedG with the FF8day at the top and the price at the )ottomJ
2hen the price is )etween the 6F8day and the FF8dayG the interpretation )ecomes less
o)'iousJ Cnder such conditions and su)9ect to other supportin( technical analysisG we may
want to stay on the sideline until the situation impro'esG unless an automated tradin( system is
)ein( usedJ
2hat is )ein( descri)ed so far refers to the application of 6F8day and FF8day mo'in(
a'era(es in a daily chartJ :f it is a wee/ly chartG the time frames for the a'era(es will ha'e to )e
chan(ed to 1F8wee/ mo'in( a'era(e =eOui'alent to 6F8day mo'in( a'era(e> and 5F8wee/
mo'in( a'era(e =eOui'alent to FF8day mo'in( a'era(e>G as shown in
Fi(ure ;J@
J :n a wee/ly chartG the #olden Cross refers to the crossin( of 1F8wee/ a'era(e a)o'e the 5F8
wee/ a'era(e and the Dead Cross refers to the crossin( of 1F8wee/ a'era(e )elow the 5F8wee/
a'era(eJ
F:#C3, ;J@
2ee/ly chart of the .an( $en( :nde7 showin( the Dead Cross on &arch ?G FF@ and the
#olden Cross on &ay G FFBJ
Fi(ure ;J@
is a wee/ly chartJ :t shows the application of the ,i(ht 3ules of mo'in( a'era(e crosso'ers
)etween the 1F8wee/ mo'in( a'era(e =that is 6F8day mo'in( a'era(e in a daily chart> and the
5F8wee/ mo'in( a'era(e =that is FF8day mo'in( a'era(e in a daily chart>J The ri(ht8hand side
of the chart shows the mar/et enterin( a )rac/et condition as indicated )y )oth of the a'era(es
(oin( horiNontallyJ :n such mar/et conditionsG we see whipsaws )etween the 1F8wee/ and 5F8
wee/ lineJ
Fi(ure ;JB
shows a possi)le pattern of mo'ements amon( the three factorsG from a )ullish condition to
a )earish condition and )ac/ a(ain to a )ullish conditionJ
F:#C3, ;JB
&o'ement patterns of price and two mo'in( a'era(e linesJ
2ith three a'era(esG there will )e four factorsJ Csin( the precedin( e7ampleG we add another
medium8term a'era(e of BF daysJ The mo'in( a'era(e system will now consist of priceG 6F8dayG
BF8dayG and FF8day a'era(esJ
Fi(ure ;J1F
shows the <ueuin( Theory of directional mo'ements of price and mo'in( a'era(esJ
F:#C3, ;J1F
&o'ement patterns of price and three mo'in( a'era(e linesJ
There are 'arious scenarios for the interplay of price and its three mo'in( a'era(e linesJ
Fi(ure ;J1F
is one of the scenarios showin( the ali(nment order of the relationship of a'era(es and
priceJ $u)9ect to the 'olatility of pricesG the 'arious respecti'e mo'ements do not necessarily
mo'e at an orderly pace as shown in the ta)leJ Prices could tra'erse the a'era(e lines at the
same timeJ =$ee
Fi(ure ;J11
and
Fi(ure ;J1
J>
F:#C3, ;J11
Daily chart showin( the interplay of three mo'in( a'era(es and price from a downward trend
to an upward trendG and then to a )rac/et mar/etJ
F:#C3, ;J1
Daily chart showin( the relationship of price and its three mo'in( a'era(esG the 6F8dayG BF8
dayG and FF8day linesG are a (uide to the lon(er8term outloo/ of the mar/etJ The crossin(s
)etween the BF8day and FF8day a'era(es confirm the 'alidity of the Dead Cross and #olden
CrossJ The crossin(s )etween the 6F8day and BF8day a'era(es act as setup positions and will
alert a technician to a possi)le chan(e of trendJ
Based on the scenario shown in
Fi(ure ;J11
and
Fi(ure ;J1
G the setup for a )earish trend is when the price is )elow )oth the short8term =6F8day> and
medium8term =BF8day> a'era(esG and the 6F8day crosses )elow the BF8dayJ The setup for a
)ullish trend is when the price is a)o'e the short8term =6F8day> and the medium8term =BF8day>G
and the 6F8day crosses a)o'e the BF8dayJ :n a crosso'er of two a'era(esG ta/e note of the slope
direction of the lon(er lineJ :n a )ullish crosso'erG the lon(er a'era(e line should either )e risin(
or mo'in( in a flatG while in a )earish crosso'erG the lon(er a'era(e line should )e mo'in(
downward or in a flat directionJ The setup position is 'ulnera)le to false )rea/s when prices (o
into a consolidation phaseJ 2hen the 6F8day is )elow the BF8dayG and the BF8day is a)o'e the
FF8dayG it confirms continuin( downward trend of priceT andG 'ice 'ersaG when the 6F8day is
a)o'e BF8day and BF8day is )elow FF8dayG it confirms the continuin( upward trend of priceJ
The ad'anta(e of usin( a three mo'in( a'era(e system is that it pro'ides a wider perspecti'e of
mar/et directional mo'ementsJ For e7ampleG when the lon(er8term mo'in( a'era(es are not in
a Oueue of )ullish ali(nmentG any rally si(nals )y the crosso'ers of shorter8term mo'in(
a'era(es will )e short8li'edJ
The precedin( are e7amples of how to read the pro)a)le trend of the mar/et in the
relationship of mo'ements in different mo'in( a'era(esJ :t is possi)le to add more a'era(es to
the com)inationG which (i'es e'en more possi)ilities of mo'ementsG and these can )e split up
into sets of lon(8term and short8term mo'in( a'era(esJ The set of lon(8term a'era(es will ser'e
as the indicator of the o'erall trendG and the set of short8term a'era(es will ser'e as the entry
and e7it si(nals of the o'erall direction of the main trendG as shown in
Fi(ure ;J1+
J
F:#C3, ;J1+
Two sets of mo'in( a'era(es at wor/J The pair of short8term a'era(es acts as entry and e7it
si(nals for the o'erall mar/etG as indicated )y the set of lon(8term a'era(esJ
There are many ways of usin( mo'in( a'era(es to tradeJ Csin( crosso'ers of a'era(es to
trade may )e the easiest mechanical systemG )ut the method can )affle traders )ecause the
effect from a set of mo'in( a'era(es crosso'ers does not apply consistently to price )eha'ioral
patternsJ This appears to )e more discerni)le in the application of lon(er time frame
a'era(esKfor e7ampleG the crosso'ers of 6F8day and FF8day mo'in( a'era(esJ
!et"s e7amine a chart of the $han(hai A $hare :nde7 =
Fi(ure ;J15
>J The lower window of the chart is the inde7G with a set of three lon(8term mo'in( a'era(es:
the 6F8dayG BF8dayG and FF8day a'era(esJ The upper window shows two oscillators: the line
plot of price to its FF8day mo'in( a'era(eG and the histo(ram of the 6F8day mo'in( a'era(e to
the FF8day mo'in( a'era(eJ 2hen price crosses a)o'e its FF8day mo'in( a'era(eG the line
plot will )e a)o'e the centerlineJ And when the 6F8day a'era(e crosses a)o'e the FF8day
a'era(eG the histo(ram )ar will )e a)o'e the centerlineJ They are )oth momentum plotsJ The
oscillator plots could )e construed as the comparati'e momentum )etween the shorter8term
line plot and the histo(ramG or the lon(er8term periodJ
F:#C3, ;J15
Comparati'e crossin( of a set of lon(8term mo'in( a'era(esJ
There are three pointsG 1G G and + as mar/ed in the chartG which are worth loo/in( intoJ Point
is a common pattern of mo'in( a'era(e crosso'ers inside a contractin( trian(leJ The inde7
)ro/e sli(htly )elow the FF8day on Hanuary @G F1FG at a)out point 0d1 toward the end of a
contractin( trian(le =mar/ed as aG )G cG dG and e>G and mana(ed to clin( fast and 'acillate around
its FF8day a'era(eJ -n &arch +G F1FG the )earish si(n appeared: the 6F8day a'era(e dipped
)elow the FF8day a'era(eJ But instead of declinin(G the inde7 made further ad'ances until
April 1BG when support finally yielded to sellin( pressureJ The ad'ance )y the inde7 followin(
the )earish crossin( of the 6F8day and FF8day a'era(es was a false mo'eJ The three lon(er8
term a'era(esG 6F8dayG BF8dayG and FF8dayG were not ali(ned in a seOuential orderJ
:ncidentallyG the sharp drop on April 1B also saw the )e(innin( of the destruction of the
consolidation patternG a pattern formed )y the contractin( trian(le when the inde7 finally went
)elow the mirror trend line of T!1 toward the mirror line of T!81J
Point 1 and Point + are (ood e7amples of how price reactions can )e contradictory when the
6F8day a'era(e crosses a)o'e the FF8day a'era(eJ :n the first e7ampleG at Point 1G the inde7
went a)o'e the FF8day a'era(e on &arch +G FFBG for the first time after a lon( decline of
appro7imately 15 monthsJ And at W1 on April BG FFBG the 6F8day a'era(e pushed a)o'e the
FF8day a'era(eG pa'in( the way for the inde7 to ma/e a small )ullish run to early Au(ustJ :n
the second e7ampleG at Point +G the inde7 crossed a)o'e the FF8day a'era(e on -cto)er 1G
F1F after a si78month declineJ And at W on Do'em)er 1FG the 6F8day a'era(e made a crossin(
similar to the first e7ample mo'in( a)o'e the FF8day lineJ :f a trade had )een e7ecuted on the
assumption that a )ullish run would follow as in the first e7ampleG the result would ha'e )een
disastrous )ecause the inde7 made a C8turn downward the ne7t day and fell sharplyJ There was
no follow8up )ullish runJ
2hat e7actly happenedU At Point 1 on &arch +G FFBG and at Point + on -cto)er 1G F1FG
the inde7 crossed a)o'e the FF8day a'era(eG which was followed )y the 6F8day a'era(e
crossin( a)o'e the FF8day a'era(e on April BG FFB =W1> and Do'em)er 1FG F1F =W>G
respecti'elyJ :n the first e7ampleG the 6F8day crosso'er (enerated a small )ullish trendG )ut in
the second e7ample the 6F8day crosso'er did not (enerate any )ullish follow8up trendJ The
difference in the effect of the two crossin( is in the stren(th of the inde7"s trend at the time of
crossin(J 2hen the 6F8day a'era(e crossed the FF8day at W1G the inde7 )ro/e out of a )ullish
re'ersal patternG )ut at WG the inde7 was enterin( into a )earish dia(onal patternJ ThusG at W1G
the stren(th of the trend is stron(er than at WJ At WG the inde7 is su)9ect to hea'y resistance
as it has reached the center of a saturated area of resistanceG the contractin( trian(le =a8)8c8d8
e>J :t has retraced o'er ;1J@ percent of the decline from P to < and 1FF percent of the recent
decline from 0e1 to <G and at W its stren(th has wea/enedJ This is noticea)le )y the ne(ati'e
di'er(ence )etween the FF8day price oscillator and the inde7J $uch di'er(ence is often
o'erloo/ed )y no'ice tradersJ
3ule 1 and 3ule 6 of the ,i(ht 3ules on the :nterpretation of Price to &o'in( A'era(es can )e
applied to mo'in( a'era(e crosso'ers )etween a shorter8term and a lon(er8term a'era(eJ For
easy referenceG we ha'e repeated the two rules )elow and su)stitute the word 0price1 with
06F8day a'era(e1 in the rulesJ
3ule 1: :f the FF8day a'era(e line flattens out or ad'ances followin( a declineG and the 6F8day
a'era(e penetrates that FF8day a'era(e line on the upsideG this constitutes a ma9or )uyin(
si(nalJ
3ule 6: :f the FF8day a'era(e line flattens out or declines followin( a riseG and the 6F8day
a'era(e penetrates that FF8day a'era(e line on the downsideG this constitutes a ma9or sellin(
si(nalJ
Another si(nificant and finer reason for the difference in the resultin( effects on the
crosso'er )etween the 6F8day and FF8day a'era(es at Point 1 and at Point + is stated in the
two rulesJ The rules refer to the slope and directional mo'ement of the lon(er8term mo'in(
a'era(eG the FF8day a'era(eJ :n other wordsG when the 6F8day a'era(e crosses with the FF8
day a'era(eG it is important to note the direction and slope of the FF8day a'era(e alsoJ :n the
first e7ample at Point 1G the FF8day a'era(e is rounder and flatter and su)seOuently mo'ed in
the same direction of the 6F8day a'era(eJ :n the second e7ample at Point +G the FF8day
a'era(e has a steeper and strai(hter declineG which reduces the stren(th of the crossin(J ThusG
instead of tradin( at 9ust any crosso'ersG trades can )e implemented when the lon(er8term
a'era(e le'els out and when the shorter8term a'era(e di'er(es and mo'es farther away from
the lon(er8term a'era(eJ :n this respectG perhaps a )uffer could )e added to a'oid whipsawsJ
A trend line is a strai(ht line connectin( a minimum of two pointsJ :n
Fi(ure ;J15
G two trend linesG T!1 and T!G are shownJ The more points a trend line connectsG the more
relia)le it isJ T!1 is the trend line connectin( the low in late -cto)erSearly Do'em)er FFB and
the low in early Huly F1FG which forms the ma9or support lineJ The trend line a)o'e T!1G the
mirror lineG is parallel to T!1J The two linesG T!1 and its parallel lineG form the upward trend
channelJ T! is the downward trend line connectin( the 'arious hi(h pointsG and with its mirror
lineG forms the downward trend channelJ The mar/et is deemed )ullish if prices are a)o'e the
trend line and )earish if prices are )elow the trend lineJ
&ACD
&o'in( a'era(e con'er(enceSdi'er(enceG or &ACDG was de'eloped )y #erald AppelJ :t is a
popular momentum indicator that shows the relationship )etween mo'in( a'era(es of pricesJ
:t has two plotted linesJ The standard confi(uration for &ACDG the first plotted lineG is the
difference )etween 18day and ;8day e7ponential mo'in( a'era(e linesJ The second lineG also
/nown as the si(nal lineG is a B8day e7ponential mo'in( a'era(e of the first lineJ
Fi(ure ;J16
shows the plot of &ACDJ
F:#C3, ;J16
The upper window shows the plot of &ACD and its si(nal lineJ The plot of the difference of the
two lines is shown in histo(ram )arsJ Dote the early si(nals shown )y the di'er(ence of
histo(ram )arsG warnin( of a slowdown of price momentum as it approaches its topJ The lower
window shows the plot of the 6F8dayG BF8dayG and FF8day mo'in( a'era(e linesJ Dote that
price trend turns positi'e upon the crossin( of the 6F8day and BF8dayG holdin( off sellin(
pressure at the BF8day a'era(e lineJ
The )uy and sell si(nals used in &ACD are similar to those used in crosso'ers of mo'in(
a'era(e linesJ 2hen the &ACD line crosses a)o'e the si(nal lineG a )uy si(nal is tri((eredJ
Con'erselyG when the &ACD line crosses )elow the si(nal lineG a sell si(nal is (eneratedJ 2hen
&ACD and its si(nal lines are a)o'e the Nero lineG it indicates )ullishness in the mar/etG and
when they are )elow the Nero lineG it indicates a )earish mar/etJ An indication that an end to
the current trend may )e near occurs when the &ACD di'er(es from the securityJ A )earish
di'er(ence occurs when the &ACD is ma/in( new lows while prices fail to reach new lowsJ A
)ullish di'er(ence occurs when the &ACD is ma/in( new hi(hs while prices fail to reach new
hi(hsJ This &ACD di'er(ence is different from an &ACD .isto(ram di'er(enceJ
&ACD .isto(ram is the difference )etween &ACD and its si(nal lineG and it is worthwhile to
spend more time in (ettin( to /now the indicatorJ DrJ Ale7ander ,lderG in his )oo/G 1toJloq fot
o llvloqG pu)lished in 1BB+G had this to say a)out &ACD .isto(ramJ 0&ACD .isto(ram offers a
deeper insi(ht into the )alance of power )etween )ulls and )ears than the ori(inal &ACDJ :t
shows not only whether )ulls or )ears are in controlG )ut also whether they are (rowin(
stron(er or wea/erJ :t is one of the )est tools a'aila)le to a mar/et technicianJ1 Di'er(ences
)etween &ACD .isto(ram and prices (i'e some of the most relia)le messa(es in identifyin(
ma9or turnin( pointsJ
Positi'e &ACD .isto(ram is plotted a)o'e the Nero line and is formed when the &ACD line is
a)o'e its si(nal lineT ne(ati'e &ACD .isto(ram is plotted )elow the Nero line and is formed
when the &ACD line is )elow its si(nal lineJ &ACD .isto(ram is plotted as 'ertical )ars a)o'e
or )elow the Nero lineJ 2hen the two linesG &ACD and the si(nal lineG are mo'in( away from
each otherG the histo(ram )ars will increase in len(thG a)o'e or )elow the Nero lineJ &ACD
.isto(ram is )asically a fast momentum indicator displayin( the difference )etween two
mo'in( a'era(es and can )e used in con9unction with a slow momentum indicator to form a
hy)rid oscillatorJ =$ee
Fi(ure ;J1;
J>
F:#C3, ;J1;
:n the lower panelG the first oscillator is a fast momentum oscillatorG the &ACD .isto(ramG and
the second oscillator is a slow momentum oscillatorJ The two oscillators form a hy)rid
indicatorJ &ACD .isto(ram will (enerally si(nal an imminent re'ersal in ad'ance of the slow
momentum )y showin( its di'er(enceJ The crosso'er of the two lines in the slow momentum
oscillator confirms the turn of the short8term trendJ Dotice the interplay of the 'arious mo'in(
a'era(e linesG shown in the upper panelG as discussed in this chapterJ
A%,3A#, D:3,CT:-D :DD,W
A'era(e Direction :nde7 =ADW> is a 'alua)le indicator that is widely used )y analysts to identify
whether a trend e7istsG and to Ouantify trend stren(thJ ADW was de'eloped )y HJ 2elles 2ilder
HrJG and pu)lished in his 1B?@ )oo/G New coocepts lo 1ecbolcol 1toJloq 5ystemsJ 2e shall not
(et down to the nitty8(ritty calculations of ADWT it is a'aila)le in all technical analysis software
pro(ramsJ
ADW was de'eloped as part of a direction mo'ement indicatorG which is (enerally plotted
to(ether as two related directional mo'ement linesG the positi'e directional mo'ement line and
the ne(ati'e directional mo'ement lineJ
ADW is an oscillator that fluctuates )etween F and 1FFJ ADW"s 'alueG with a standard 158day
settin(G seldom e7ceeds ;F or falls )elow 1FJ ADW is plotted as a sin(le line and is not a
directional indicatorJ As a rule of thum)G when ADW crosses a)o'e F from )elowG it su((ests
that the price trend is (ettin( stron(erJ -n the other handG when ADW crosses from a)o'e to
)elow FG price trend stren(th is (ettin( wea/er and is enterin( into a non8trendin( mar/etJ
ThusG a hi(h ADW 'alue can indicate a stron( downtrend as well as a stron( uptrendJ
.i(her ADW 'alue represents a stron(er price trendG while lower ADW 'alue represents a
wea/er price trendJ ThusG a risin( 'alue of ADW reflects a stron( trend is in pro(ressG a declinin(
ADW 'alue reflects a wea/enin( trendG and a flat ADW reflects an a)sence of trendJ As a result of
its )eha'ioral patterns in re'ealin( trendin( and non8trendin( conditions of the mar/etG a
trader can use ADW to form a tradin( strate(yJ .owe'erG ADW has its limitationsJ :t la(s price
mo'ements and should not )e used as a )uy or sell si(nalJ :t ta/es appro7imately +F )ars to
esta)lish the 'alue of the ADW with a 158day periodJ
.a'in( said thatG the 'alue of ADW is that it confirms the trend stren(th and not its directional
mo'ementJ 2e would li/e to add that the directional mo'ement of ADW is also important and
should )e carefully o)ser'edJ 2hen the ADW mo'es upG it reaches its hi(h and ma/es a
su)seOuent downward turnJ This pattern is 'ery importantJ The turnin( of direction in the ADW
implies that there is (oin( to )e a chan(e of trend stren(thJ 2hen there is a chan(e in the trend
stren(thG it implies that there will pro)a)ly also )e a chan(e in the price trend and direction
soonJ
ThusG when prices ha'e )een trendin( downward and the ADWG mo'in( in the opposite
direction to priceG rises to reach its e7treme hi(h le'el and then ma/es a turn downwardG we
should )e on the loo/out for a chan(e in price trend shortlyJ -n the other handG when price is
fallin( rapidlyG and the ADW rises to reach its hi(h to ma/e a downward turnG it indicates the
price trend will )e impro'in( soonJ A steep slope of ADW mo'ement shows stren(th while a
slope that is almost flat indicates wea/nessJ
Directional mo'ements often hide the true messa(e of ADW and run contrary to price
mo'ementsG as shown in
Fi(ure ;J1?
J Ta/e note of the uniOueness of the mo'ements of ADWT ADW reaches a hi(h 'alue re(ardless
of whether the price is hi(h or lowJ 2hen ADW crosses a)o'e the alert lineG it warns of a
pro)a)le chan(e of price trendJ At Point +G price is meetin( resistance at the FF8day a'era(e
lineG and ADW is turnin( down and crosses )elow the alert lineG which confirms wea/enin( of
priceJ At Point 5G the 6F8day a'era(e crosses a)o'e the BF8day line from )elowJ This is a )ullish
si(n that is supported )y the fact that price is holdin( well at the BF8day le'el and )y the
su)seOuent chan(e in ADW"s direction from its hi(h as it crosses )elow the alert lineJ
F:#C3, ;J1?
The upper window of the chart shows the interplay of three mo'in( a'era(esG the 6F8dayG BF8
dayG and FF8dayJ The )old line in the lower window shows mo'ements of the three8day period
ADWJ and the 'olume in a histo(ramJ
The formula for the ADW used in
Fi(ure ;J1?
is as follows:
prd:4:nput=aAd7 PeriodaG1G@BG+>T
a1:4:nput=a!oo/Bac/ 1aG1G@BG1+>T
a:4:nput=a!oo/Bac/ aG1G@BG@>T
a+:4:nput=a!oo/Bac/ +aG1G@BG6>T
ad7m:4=ADW=prd>c3ef=ADW=prd>G8a1>cADW=prd>83ef=ADW=prd>G8a>
cADW=prd>83ef=ADW=prd>G8a+>cADW=prd>>S+T
ad7mT
P3-T,CT:%, $T-P$
Fi(ure ;J1@
shows a stron( trendin( stoc/ plotted with protecti'e stopsJ %olume is plotted in the lower
windowJ
F:#C3, ;J1@
Plot of protecti'e stops indicated )y )lac/ dotted lineJ
A'era(e true ran(e is commonly used in the calculation of protecti'e stops =or stop losses>J
A'era(e true ran(e is a 'olatility indicator that measures the stren(th of price reactionsJ That isG
the price mo'ements from low 'olatility to hi(h 'olatility and from hi(h 'olatility to low
'olatilityJ The formula for a'era(e true ran(e is included in all technical analysis pro(ram
pac/a(esJ Protecti'e stops may also )e used as a (uide for trade entries and e7itsJ :n a lon(
positionG a trade e7it is tri((ered when prices close )elow protecti'e stopsJ And when prices
close a)o'e or remain a)o'e protecti'e stopsG a trade entry may )e considered if other
indicators are also showin( support of the pro)a)le positi'e trendJ
There are many stop8loss or trailin( stops systems a'aila)leG )ut (ettin( the ri(ht parameters
and settin(s of such stops can )e difficultJ 2hen the mar/et is choppyG trailin( stops will always
)e tri((ered too soon if the stops are set too close to the price )arsJ And on the other handG if
the stops are set too far apartG traders will pro)a)ly not )e a)le to loc/ in their profits as their
stops will ne'er )e reachedJ
The followin( is a simple formula of the protecti'e stops indicator for reference onlyJ :t is not
recommended to )e used in tradin(J
\Protecti'e $tops !on(]
AtrW:4:nput=aAT3 &ultipleaG1G@BG1J+>T
Period:4:nput=aAT3 PeriodaGG@BG1+>T
!oo/Bac/:4:nput=a!oo/)ac/aGG@BG1+>T
!n(:4Close8AtrW`AT3=Period>T
!n(.i:4..%=!n(G!oo/Bac/>T
!n($i(nal:4:f=!n(_!n(.iGP3,%G!n(>T
!n($i(nalT
C-DC!C$:-D
This chapter discusses fi'e /ey indicators: momentumG mo'in( a'era(esG &ACDG ADWG and
protecti'e stopsG which will help traders to understand the purpose and use of indicators in a
tradin( strate(yJ :n plannin( a chart layoutG traders should ensure that the layout co'ers
different aspects of the mar/etJ A (ood layout should not )e cluttered with indicators )ut
should )e neat and simpleJ Aet it should )e meanin(ful and completeJ BasicallyG the chart will
ha'e a trend indicator to show the pro)a)le direction of the trendG a momentum indicator to
measure the speed at which price is chan(in(G and a 'olume indicator to measure stoc/
acti'itiesJ Traders should a'oid usin( multiple indicators that show the same type of
information in the chartJ
&omentum measures the speed of price chan(e and is used in identifyin( price stren(th )y
the 'ariance of the chan(e in speed of priceJ :t is the )asic concept applied in most indicatorsJ
&ACD is also a momentum indicatorJ :t consists of three plotsJ The first &ACD line is deri'ed
from the difference of two different periods of e7ponential mo'in( a'era(esJ $tandard
parameters are a 18day period and a ;8day periodJ The second lineG the si(nal lineG is a B8day
e7ponential mo'in( a'era(e of the first lineJ The third line is plotted as a histo(ramJ The
histo(ram is the difference )etween the &ACD line and the si(nal lineJ The slopes of the
histo(ram will often di'er(e with the price directional mo'ement to alert traders to pro)a)le
turnin( points in trendJ A trader must ta/e note thatG when usin( momentum oscillatorsG the
trend of the momentum does not always represent the price trendJ &omentum oscillators are
useful in identifyin( o'er)ou(ht and o'ersold conditions of the mar/etJ -'er)ou(ht conditions
reflect the underlyin( stren(th of the mar/etG and o'ersold conditions reflect the wea/enin( of
the mar/etJ As a timin( tool for )uyin( and sellin(G momentum pro'ides more relia)le si(nals
when traders use two different time frame momentumsG daily momentum and wee/ly
momentumJ The o)9ecti'e is to trade when the daily time frame is in the direction of the
wee/ly time frameG unless the momentum is o'er)ou(ht or o'ersoldJ
:n the chapterG two methods of usin( mo'in( a'era(es ha'e )een descri)edJ The first is the
popular method of usin( the crossin( of price and its mo'in( a'era(e as tradin( si(nals for
trade entries and e7itsG which can also )e applied to readin( crossin(s of two different mo'in(
a'era(esJ The second method is a new conceptG the <ueuin( Theory of &o'in( A'era(e
Crosso'ersJ The theory is )ased on the assumption that when there is a trendG the price and its
relati'e mo'in( a'era(es should mo'e in a seOuential order of ali(nmentJ :n a )ullish trendG
price will lead and )e a)o'e the shorter mo'in( a'era(eG which will )e followed )y the lon(er
mo'in( a'era(eJ :n a )earish mar/etG price will also lead the declinin( trendG )ut it will )e )elow
the shorter mo'in( a'era(eG which will )e )elow the lon(er mo'in( a'era(eJ Any chan(e in
seOuential order of ali(nment of the price and its mo'in( a'era(es will indicate a wea/enin( of
the pre'ailin( trendJ A price rally or a price retracement that occurs when there is a disorderly
ali(nment can )e e7pected to )e short8li'edJ The application of the theory will help traders to
assess the pro)a)le ris/ and reward )efore ma/in( trade decisionsG to determine tradin( time
framesG and to form a )etter perspecti'e of the mar/etJ
Two optional indicators ha'e also )een included in the chapterG ADW and protecti'e stopsJ
ADW is used to identify whether a trend e7ists and to Ouantify the stren(th of the trendJ The
common practice is to determine a )enchmar/ that ser'es to identify the trendT the hi(her the
'alue of ADWG the stron(er the trendG irrespecti'e of whether the trend is up or downJ Traders
often (et confused when applyin( this indicatorJ An easier application is to use a shorter period
for the ADW and 9ust focus on the turnin( points of its pea/sJ This method will (reatly help to
catch the chan(e in trend of the mar/etJ
Protecti'e stops are used )y traders as a last resort to (et out of the mar/etJ There are many
methods of formulatin( protecti'e stopsT many of them use a'era(e true ran(e as a /ey
component in the calculationJ Protecti'e stops are discussed in this chapter for traders who
normally opt for ta/in( (reater ris/sJ The application and the method of usin( protecti'e stops
are su)9ect to the personality of each trader and his or her tradin( strate(yJ There are no hard
and fast rulesJ :f a trader has desi(ned his tradin( system to ta/e care of trade entries and e7itsG
there is no need to use another indicator as a reminderJ
C.APT,3 ?
Applied $ystems
There is not (oin( to )e any disa(reement when it is said that the mar/et is comple7 and
chaoticJ $ometimes the mar/et rises dramatically and sometimes it falls drasticallyJ A risin(
mar/et is followed )y a declinin( mar/et that is a(ain followed )y a risin( mar/etG and the cycle
repeats a(ain and a(ainJ But these cycles do not happen or repeat in uniformityJ There is no
relia)le way to predict precisely when the ne7t direction of the cycle will ta/e place or how lon(
it will lastJ Prediction of a lon(er8term cycle is made e'en more difficult )y mo'ements of
smaller cyclesJ ,lliott 2a'e practitioners )elie'e these cycles are the result of psycholo(ical
reactions of mar/et playersJ ,conomists maintain that all these mo'ements and cyclical
patterns are caused )y economic factorsJ Financial astrolo(ists )elie'e these cycles are
influenced )y 'arious planetary mo'ementsJ AetG in its chaotic )eha'iorG the mar/et seems to
conceal elements of orderG displayed at times in symmetrical and harmonic patternsJ
These patterns )ecome the catalyst for technical analysisG which is )ased on the premise that
prices tend to mo'e in trendsJ $imply putG this means that once a trend of the share price is
esta)lishedG the ne7t mo'e of the share price is more li/ely to continue in the same directionJ :n
other wordsG if a share price is firmly esta)lished in a )ull trendG the share price is more li/ely to
continue increasin( rather than decreasin( in the ne7t tradin( periodJ &ost technical tradin(
strate(ies are )ased on this assumptionJ ,'ery trader needs a trendin( mar/et to ma/e moneyJ
:f there is no trend after a trade has )een e7ecutedG there will not )e any profitJ
2ith today"s de'eloped technolo(ies and hi(h8speed computersG more and more eOuity
funds are turnin( to pro(rammed system tradin( usin( superfast computers to catch the trend
)y employin( comple7 al(orithmic information to churn re'enue and profitsJ
.a'in( a tradin( system helps to alle'iate fear and tensionG reducin( the )urden of
discretionary decisions and the anticipation of price re'ersals or )rea/outsJ A (ood trend
system is one that (enerates relia)le trend si(nals most of the timeJ :t will help us to respond
Ouic/ly to price actionsJ
The tradin( method introduced in this chapter is not a fully automated tradin( systemJ :t is a
discretionary trend systemJ The method"s core system is )ased on crosso'ers of price and
'arious mo'in( a'era(es and the synchroniNation of mo'in( a'era(e crosso'ers to reflect
trends in pro(ress and pro)a)le chan(e in trendJ The tradin( method includes two additional
indicators: a 'olume indicator for additional confirmation of trend )rea/outsG and a momentum
indicator to depict the 'elocity of trendJ
CATC.:D#T.ATT3,DD
Catchin( the trendG whether it is an uptrend or a downtrendG is the /ey to profits )ecauseG if we
can catch itG half of our wor/ is completedJ .owe'erG understandin( the forces at wor/ in
trendin( and non8trendin( mar/etsG and the transition from one phase to the other phaseG is
the most difficult tas/J An uptrend means a series of hi(her hi(hs and hi(her lowsJ ,ach hi(h is
followed )y a hi(her hi(h and each low is followed )y a hi(her lowJ A downtrend means a series
of lower hi(hs and lower lowsJ ,ach hi(h is followed )y a lower hi(h and each low is followed
)y a lower lowJ Definin( whether a trend e7ists will )e su)9ect to the tradin( time frame of the
traderJ For instanceG let"s assume a scenario in which a stoc/ closes at its hi(h of [1F with an
openin( of [1FG and that its low for the day is [BJ The tradin( time is four hoursJ 2ith the stoc/
openin( and closin( at [1FG it would appear that there is no trend for the dayJ .owe'erG if we
loo/ at the minute chartG there will )e a downward trend and an upward trend in a period of
four hours" tradin( timeJ At the openin( )ellG sellers push the price downward to [BG the low of
the dayG where it finds support from )uyersG who push the price upward to close at the hi(h to
form a dra(onfly do9i )arJ This e7ample is an illustration of intraday trends and it e7emplifies
that trend is 'alid only for the relati'e time frame in which it occursJ
&ar/et prices tend to )eha'e irre(ularly at different periodsJ A mar/et tends to mo'e from a
well8defined trend to a period of con(estionG and then from a period of con(estion )ac/ to a
well8defined trendJ ,ach phase of mo'ement )etween a well8defined trend and the con(estion
period pro'ides clues to the traders for the ne7t phaseJ At timesG the clues are o)'iousG and at
times they are hidden from our na/ed eyesG ma/in( it harder to see the ne7t directional
mo'ement from the e'ol'in( patternsG which are (enerally formed at periods of con(estionJ
2hen the mar/et is not trendin(G continually ma/in( new hi(hs or new lowsG and when the
spreads )etween hi(hs and lows are narrowG there is no mar(in of profit to )e made if slippa(e
and commission are ta/en into accountJ :n such non8trendin( or sideways mar/etsG mo'in(
a'era(es are often relati'ely flat and price mo'ements may fluctuate )etween two points in a
relati'ely horiNontal mo'ement that can last for a lon( period of wee/s to monthsJ A sideways
mar/et usually occurs at a price support le'el where accumulation ta/es placeG or at a price
resistance le'el where distri)ution ta/es placeJ $uch price patterns ta/e place when )uyers and
sellers are more or less in )alanceG with neither side in controlJ Tradin( )ecomes difficult and
the )est thin( to do is sit )ac/ and wait for the de'elopment of the ne7t trendin( phaseJ
:rrespecti'e of the different types of price formationsG the most important rule in mar/et
tradin( is to ne'er commit any trade a(ainst the trendJ :f the trend of the stoc/ price is headed
downwardG then it is not safe to )uy that stoc/ until the trend has chan(ed directionJ .owe'erG
many am)itious traders still ha)itually trade a(ainst the trend in an attempt to (et in at the
e7act )ottom of the mar/et or (et out at the e7act top of the mar/etJ This is too hi(h a ris/ to
ta/e and the e7tra dollar is not worth the loss that will e'entually sOueeNe the trader out of
su)seOuent price mo'ementsJ 2hate'er may )e saidG the ha)it is still common amon( tradersG
and there is a price to pay for )ein( am)itiousJ Csin( a trade system is helpfulJ A trade should
only )e made when there is a si(nal from the tradin( system that the trend has chan(ed
directionJ :n other wordsG act in accordance with what has happened and do not act in
anticipation of what will happenJ Perhaps there will )e losses for a few points )utG on the other
handG catchin( @F percent of e'ery trend mo'ement will (reatly impro'e tradin( results in the
lon( runJ And as for the )alance F percentG it is )etter left for luc/y traders and am)itious
daydreamersJ :n the systems and 'arious indicators introduced in this )oo/G intraday data are
i(noredJ 2e will not )e dealin( with minute charts or hourly chartsJ 2e will )e usin( end8of8
day data only and will focus on the daily and wee/ly chartsJ
BC:!T8:DC-!-3 T3,DD :DD:CAT-3
Actin( on the trend means we should )e a )uyer when the trend is up and a seller when the
trend is downJ &ost of usG when we are tradin(G hope to identify the trend early and )enefit to
the full e7tent of the trend )y employin( 'arious mathematical toolsJ There ha'e )een many
trend systems de'eloped )ut one of the easiest mar/et tools to identify trend is mo'in(
a'era(esJ :n a stron( trendin( mar/etG mo'in( a'era(es wor/ 'ery wellJ :t is durin( the non8
trendin( mar/et that mo'in( a'era(e systems falterJ
Fi(ure ?J1
shows two wee/ly charts of the same stoc/J The left panel shows the common candlestic/
chartG and the ri(ht panel shows the candlestic/s with a )uilt8in color =B:C> trend indicatorJ
F:#C3, ?J1
The left panel is the normal wee/ly candlestic/ chartG in which the candlestic/ is )lue when the
day close is hi(her than the openin( priceJ The ri(ht panel also shows the wee/ly candlestic/
chart of the same stoc/G e7cept it incorporates a )uilt8in color trend indicatorJ
:n
Fi(ure ?J1
G price mo'ement that is deemed to )e )ullish is shown )y a )lue candleG )earish mo'ement
)y a red candleG and neutral candles are colored in )lac/ and dar/ redJ 2hen the candlestic/ is
neutralG the indicator is undecided as to the continuity of the )ull or )ear trend as there is a
pro)a)ility of a chan(e in trendJ
2hen the stoc/G as in
Fi(ure ?J1
G uses the B:C trend indicatorG the )lue candlestic/s will )e hollow if the price closes hi(her
than the openin( priceG and filled if the price closes lower than the openin( priceJ 2hen price is
assumed to )e headin( in a downward trendG the red candlestic/s will )e hollow if the price
closes hi(her than the openin(G and filled if the price closes lower than the openin( priceJ 2hen
the price is pro)a)ly (oin( throu(h a chan(e of trend from )ullish to )earish or )earish to
)ullishG the candlestic/s will )e either in )lac/ or dar/ redJ .ollow )lac/ or dar/ red candles
reflect closin( prices that are hi(her than openin( pricesG and filled )lac/ or dar/ red candles
reflect closin( prices that are lower than openin( pricesJ
!et"s loo/ at
Fi(ure ?J1
a(ainJ The stoc/ went throu(h a period of consolidation )efore )rea/in( its pre'ious hi(h of
[1J5 with a stron( hollow )lue candleJ Durin( the period of consolidationG the system color
reflected an inherent )ullish trendJ The candlestic/s were mostly colored in )lueG with
occasional dar/ red candlesJ At point AG althou(h the price showed a dipG the (eneral trend was
still deemed )ullishJ At point BG althou(h the price showed a stron( rallyG the candlestic/s color
system did not support the rallyG and the two candles were )oth redJ The rally was short8li'edJ
The concept of the B:C trend indicator is )ased on the intersectin( crosso'ers of three
mo'in( a'era(esJ These three mo'in( a'era(es form a set of short8term mo'in( a'era(es
consistin( of two 68day mo'in( a'era(es and a 1+8day mo'in( a'era(eJ The purpose of the B:C
trend indicator is to si(nal when there is a pro)a)le correction of price mo'ements )y
displayin( neutral8colored =)lac/ or dar/ red> candlestic/sJ 2hen such color si(nals occurG the
indicator is tellin( that the continuin( trend is facin( resistanceJ .owe'erG such si(nals are not
to )e used as an entry or e7it si(nal systemJ 2e ha'e to dou)le8chec/ with the correspondin(
price patterns and the si(nals from other supportin( indicatorsG such as momentum and
'olume indicatorsG for confirmationJ
2ee/ly charts are used to reco(niNe the mar/et structure and to identify the trend that is in
pro(ressJ They are used as preparatory trade positionin( prior to usin( the daily charts for the
e7ecution of trade entries and e7itsJ :n shortG a trader should first refer to the wee/ly charts to
identify pro)a)le mar/et structure and trendG and secondG use the daily charts for timin( of
e7ecution of tradesJ The rule is to trade in the trendin( direction of the ne7t hi(her time frame
of the daily priceG that isG wee/lyJ The o)9ecti'e is to trade when the daily and wee/ly are
trendin( in tandemJ 2ee/ly charts will simplify the readin( of trendT they clear away a lot of
noise inherent in short8term fluctuations while pro'idin( meanin(ful clues with respect to
potential lon(er8term trend perspecti'eJ
$CPP-3T:D# &-%:D# A%,3A#,$
Continuin( with the e7ample of the wee/ly chartG we shall enhance it with further supportin(
indicatorsG includin( two additional sets of mo'in( a'era(es and a 'olume indicatorG as shown
in
Fi(ure ?J
J
F:#C3, ?J
3eadin( of the wee/ly chart is impro'ed with the additional supportin( indicators of a set of
mid8term mo'in( a'era(esG a set of lon(er8term mo'in( a'era(esG and a 'olume indicatorJ
Throu(h trial and errorG it was found that a ;+8wee/ mo'in( a'era(e line correlates closely with
the support and resistance le'els of this stoc/J
Before (oin( into readin(
Fi(ure ?J
G traders need to /now how the wee/ly chart is constructed in the systemJ ,ach )ar of the
wee/ly chart represents the price ran(e of the tradin( days of that wee/J :f the wee/ has three
tradin( daysG the )ar represents the ran(e of the three daysJ The openin( price of the wee/ly
)ar is the openin( price of the first tradin( day in the wee/G the closin( price is the closin( price
of the last tradin( day of the wee/G the hi(h represents the hi(hest price of the wee/G and the
low represents the lowest price of the wee/J
ThusG each wee/ly )ar is a summary of the tradin( days of the wee/G from &onday to FridayG
and tryin( to find which day in the comin( wee/ will )e the )est day to )uy or sell would )e
difficultJ 2ee/ly )ars may often )e 'ery 'olatileG and for those who do their tradin( )ased on
si(nals (enerated )y wee/ly chartsG it is important to ha'e the a)ility to stay with the lon(er8
term trend and patiently sit throu(h the 'olatile periodJ Price dictates all mo'ements of trendG
and there is no one system that is a)le to predict precisely and constantly where the price will
)e headin( in the ne7t periodJ ThusG the system recommends traders use wee/ly charts as
treasure mapsG and as a means of (ettin( on the ri(ht pathJ
DowG let"s loo/ at the upper panel of
Fi(ure ?J
G which shows the wee/ly price mo'ements with B:C trend indicator and four mo'in( a'era(e
linesJ The first pair of a'era(e lines shows the medium8term mo'in( a'era(esG consistin( of a
fast a'era(e in red =3&A> and a slow a'era(e in )lac/ =B&A>J The second pair of a'era(e lines
shows the lon(er8term a'era(esG consistin( of the 18wee/ mo'in( a'era(e and the ;+8wee/
mo'in( a'era(eJ The lower panel is the percenta(e ratio indicator of 8wee/ 'olume mo'in(
a'era(e to 1F8wee/ 'olume mo'in( a'era(eJ There are also two horiNontal linesG a 1FF percent
line and a 16F percent lineJ :f we assume the 8wee/ a'era(e 'olume is 11F percentG which is
a)o'e the 1FF percent lineG it means the 8wee/ a'era(e 'olume is (reater than the 1F8wee/
a'era(e 'olume )y 1F percentJ 2hen the 8wee/ a'era(e 'olume is a)o'e 16F percentG it
means the 8wee/ a'era(e 'olume is (reater than the 1F8wee/ 'olume )y at least 6F percentJ
This is an e7treme le'elG which functions similarly to the o'er)ou(htSo'ersold conceptJ 2hen
the 8wee/ 'olume a'era(e (oes )eyond 16F percentG it is 9ustifia)le to ta/e a second loo/ at
the chartG )ecause somethin( interestin( may )e )rewin(J
Please note that all wee/ly charts and daily charts included in the )oo/ as e7amples ha'e
)een ad9usted for the relati'e period of suspension in tradin( of sharesJ 3eferences to dates in
wee/ly charts will mean the wee/8endin( datesJ
Fi(ure ?J
displays price )ars from Huly 5G FF@G to -cto)er 16G F1FG a period of appro7imately 1;
wee/sJ Prices declined from the le'el of appro7imately [1J56 in early Huly FF@ to a low of [FJ5@
in late -cto)er FF@G where they finally found firm support to ma/e a )ullish trend re'ersalJ
The stoc/ then rallied to a new hi(h le'el of [+J+F in late Hanuary F1FJ Cnder hea'y sellin(
pressureG prices could not sustain the new hi(hs and headed down in a Ni(Na( A8B8C correction
to new low le'els of appro7imately [J1BG where support from renewed )uyin( appearedJ
The )ullish fi'e8wa'e run from the low in -cto)er FF@ to the hi(h in -cto)er F1F lasted
appro7imately ;6 wee/sJ The system will not )e ma/in( any su((estion for tradin( entry or e7it
points from the wee/ly chartG )ut will hi(hli(ht such points as positi'e and ne(ati'e areasJ All
e7ecutions of trades ha'e to )e made from the patterns of the daily chartG whose trend should
)e in tandem with the wee/ly chartT that isG the daily and wee/ly should )oth ha'e positi'e
trendin( patternsJ !oo/ at the wee/lyG trade on the dailyJ
:n the upper panel of
Fi(ure ?J
G there are nine )lac/8circle mar/ers =referred to as B1G BG and so forth> and si7 )lac/8circle
mar/ers =referred to as %1G %G and so forth> in the lower panelJ
B1 indicated a pro)a)le chan(e of trend or a pause of continuin( downtrend when the
candlestic/s turn to )lac/ =neutral position>J %olume was )elow the 1F8wee/ a'era(e )ut
mo'ed in small increments as prices started to )ecome more resilientJ Price initially hu((ed
closely to the 3&A line until the fourth )lac/ )arG when it made a thrust a)o'e the 3&A and
B&A linesJ Please note that the fast 3&A a'era(e did not cross a)o'e the slow B&A a'era(e
until BG with increasin( 'olume (oin( a)o'e the 1FF percent lineJ The 1FF percent line is the
1F8wee/ 'olume a'era(e lineJ The colors of the candlestic/s then chan(ed to )lue and
remained )lue throu(hout the consolidation periodJ Althou(h the 'olume had not shown much
NestG this was the first indication of a positi'e area since the declineJ
At B+G the stren(th for the price support impro'edG and trade continued in a narrow ran(eG
stayin( a)o'e the B&A and 18wee/ lineJ The two si(nal linesG the 3&A and B&A linesG crossed
the 18wee/ lineJ %olume indicated stron( demand mo'in( toward the 16F percent lineJ $ee
the )lac/8circle mar/er =%1> at the 'olume indicatorJ A price pattern of a small )ullish cup8and8
handle formation formedJ The B&A and 3&A lines were trendin( upward and the (ap )etween
the two a'era(es and the 18wee/ line widened and were more 'isi)leJ This was the second
positi'e areaJ
Price continued to trade upwardJ 2ee/ly )ars were showin( lon(er8ran(e )ars and more
noticea)le hollow )ars representin( stron( wee/ly closin( pricesJ At %G 'olume in correlation
with the upward trend went a)o'e 16F percent for the first time since the declineG and at B5G
)oth B&A and 3&A crossed a)o'e the ;+8wee/ a'era(eG indicatin( a )ull trend was in pro(ressJ
Thou(h at B5 there was one )earish )arG it did not penetrate )elow the ;+8wee/ lineJ The 18
wee/ line and B&A a'era(e showed the stron( support of )uyers at this price le'elJ B6
witnessed the crossin( of the 18wee/ line from )elow to a)o'e the ;+8wee/ lineG while the ;+8
wee/ line was mo'in( in a flat directionJ This was the third positi'e areaJ Dote also another
macro )ullish cup8and8handle pattern was )ein( formedJ
Prices went into a 158wee/ consolidation and )ro/e the hi(h of [1J5 and the resistance line
on -cto)er +G FFBG supported the followin( wee/ )y a powerful thrust with si(nificant
'olume (oin( a)o'e the 16F percent lineJ :nterestin(lyG in hindsi(htG it pro'es the (reatest
amount of 'olume (enerally occurs at the halfway mar/ of the trend =see %+>J Cross8chec/in(
with &eta$toc/ Fi)onacci 3etracement plots will also show the retracement is at a)out the 6F
percent le'elG where the hi(h 'olume is concentratedJ
Prices continued to rally )ut 'olume was not supporti'eJ %olume was mo'in( in the opposite
directionJ :t was decreasin(J Price reached the pea/ of [+J+? for the wee/G which showed a
)earish spinnin( top pattern candlestic/G representin( an indecisi'e tussle )etween the )ulls
and )earsG and en(ulfin( the pre'ious wee/"s )arJ The followin( )ars turned to dar/ redG
indicatin( a li/ely chan(e in trend as in B;J .owe'erG the 3&A did not cross )elow the B&AJ
Prices renewed the rally )ut failed to hold on to the (ain and declined a(ain at B?J Dote that
the )ar color chan(ed to dar/ redG 3&A and B&A mer(edG and prices crossed )elow )oth
a'era(esJ This was the first ne(ati'e area after the )ullish rallyJ Prices tried to re(ain their
thrustG as in B@G )ut failed a(ain as )ars turned red and 3&A crossed )elow B&AJ This was the
second ne(ati'e areaJ At BBG prices fell )elow )oth the 3&A and B&A and the 18wee/ lineJ
The )ears had ta/en controlJ This was the third ne(ati'e areaJ Dote that 'olume was increasin(
Ouietly as at %5 in the ne(ati'e areasG and at the two similar )earish patterns of dar/ cloud
co'er candlestic/sG as mar/ed at =1> and =>J
At %6G an alert was sounded when 'olume went a)o'e 16F percent and the two a'era(e
linesG 3&A and B&AG con'er(edG indicatin( a pro)a)le trend re'ersalJ At point =+>G a )ullish
piercin( candlestic/ was formedJ The )ullishness was confirmed )y the followin( wee/"s dar/
red candlestic/ as price crossed a)o'e 3&AG B&AG the 18wee/ lineG and the ;+8wee/ lineJ
Bullish sentiment continued with upsur(e of 'olume as at %;G and prices held firmly a)o'e all
a'era(esG indicated )y )lue candlestic/sJ This was the first positi'e area after the Ni(Na(
correctionJ
:n the precedin( para(raphsG we ha'e detailed the trend system usin( mo'in( a'era(es
co'erin( a )ullish impulse trendG )ullish and )earish re'ersalsG and an A8B8C correctionJ
Althou(h the chart showed a positi'e indication of a pro)a)le new trend in the ma/in(G as at
the last )ar of the wee/ly chartG it should not )e presumed that such trend will rally to a new
hi(hJ
T3AD, -D DA:!A$:#DA!$
There is no Ouestion that spottin( the )e(innin( and end of a profita)le trendG and the stayin(
with the trend durin( its courseG is the most difficult tas/J A trend can )e disrupted )y many
other trends of different time periods )ecause each time frame attracts different (roups of
interactin( playersJ This results in con'er(ence and di'er(ence of the trend throu(h different
time periodsJ
Trends of 'ery short time periods will )e difficult to tradeJ :n order to impro'e their
performanceG successful traders ad9ust their tradin( time frame to match their preferred
holdin( periodJ The purpose is to separate the trend for the specific tradin( time frame from
disruptin( noises as much as possi)leJ 3is/ is defined as the amount of money that a trader is
willin( to ris/G and reward is the anticipated return multiple of the ris/J :t means if a trader is
prepared to ta/e a loss of [1 on his tradeG it would )e worth the ris/ to e7pect a return of [+J :f
a ris/ of [1 is assumed to )e a loss of 1F percentG the pro9ected reward should assume to fetch
a return of +F percentJ The +:1 reward to ris/ ratio is a (ood ratio to use particularly for .on(
*on( stoc/sG which tend to (o into consolidation after a rise of +F percentJ .owe'erG the ris/ to
reward ratio is su)9ect to the personal decision of each traderJ Tradin( time frame analysis of
setup position will identify opportunity and ris/ in most casesJ For e7ampleG when a promisin(
setup appears on the wee/ly chartG a trader should chec/ it to identify the ma9or support and
resistance le'els that may ha'e an impact on the +:1 reward to ris/ ratioG and then use the daily
chart to time the trade e7ecutionJ This is an efficient and safe approach to tradin(J
For easy referenceG let"s recapitulate the precedin( wee/ly chart in
Fi(ure ?J+
=from Hune 1G FFBG to -cto)er 16G F1F> so as to wor/ with the daily chart in
Fi(ure ?J5
=from -cto)er 6G FFBG to -cto)er 16G F1F> for timin( of trade e7ecutionJ A momentum
oscillator is added to )oth the wee/ly and daily charts as a supportin( indicator to the systemJ
F:#C3, ?J+
The wee/ly chart captures the )ullish crosso'er of the medium8term a'era(e linesG as at ,-2
-cto)er +G FFBJ
F:#C3, ?J5
Daily chart of the same stoc/ shown in
Fi(ure ?J+
J The upper panel is the hy)rid oscillator of a lon( and short momentumJ The short momentum
is the &ACD histo(ramJ The middle panel is the chart of the stoc/ price with a B:C trend
indicatorG a pair of mediumPtime frame mo'in( a'era(esG and three lon(er8term mo'in(
a'era(esJ The )ottom panel is the 'olume percenta(e plot )etween a 8day mo'in( a'era(e
and a 1F8day mo'in( a'era(e of 'olumeJ For purpose of e7planation of the systemG end8of8
wee/ references are mar/ed )y perpendicular linesG which will not )e plotted durin( tradin(J
!et"s loo/ at the wee/ly chart in
Fi(ure ?J+
J The stoc/ had )een risin( Ouietly since Decem)er FFB =see
Fi(ure ?J
>G and entered into a rectan(le consolidationJ The consolidation ended at the )rea/out of the
pattern at end8of8wee/ =,-2> -cto)er +G FFBG which started the uptrendG pushin( the price
to a new hi(h of [+J+FJ ThereafterG the stoc/ went into a trian(le consolidation =see the )lue
circles mar/ed 1G G +G 5G and 6>G which failed to uphold pricesJ Price )ro/e away from the
trian(le pattern at end8of8wee/ April BG F1FG and started its downtrend mo'e until end8of8
wee/ $eptem)er +G F1FJ
The upper panel in
Fi(ure ?J+
is the wee/ly momentum oscillatorJ The plot in histo(ram is the shorter time frame
momentum of &ACDJ The line plot is the lon(er time frame momentumJ The shorter time
frame momentum has (reater 'olatility and catches the minor fluctuationJ :t has an ad'anta(e
)y (i'in( early di'er(ence si(nalsJ The lon(er time frame momentum is less 'olatile and
complements the shorter time frame and mo'in( a'era(e system in confirmation of a pro)a)le
trend re'ersalJ
The wee/ly chart in
Fi(ure ?J+
turned )ullish at end8of8wee/ -cto)er +G FFBJ For that wee/G daily prices mo'ed a)o'e
)oth the B&A and 3&AG and the B&A also crossed a)o'e the 3&AJ The lon(er8term mo'in(
a'era(es =6F8dayG BF8dayG and FF8day> were also mo'in( in order of ali(nmentG indicatin( a
pro)a)le )ullish rally =see Chapter ;G *ey :ndicators>J Both short8 and lon(8term momentum
showed )ullish re'ersals confirmed )y increased 'olumeJ This indicates a (ood opportunity to
)uy in response to a pro)a)le chan(e in trendJ A )uy should )e ta/en on the ne7t immediate
tradin( dayG Tuesday mornin(G -cto)er ?G FFB =&onday )ein( a holiday>J The price at the
open of the day was [1J56J A tactical tradin( techniOue is to purchase two lots of the stoc/J The
purpose of this techniOue will unfold as the process of tradin( is descri)ed furtherJ
Prices trended up stron(ly for fi'e wee/s and )e(an to slow down to form a dia(onal pattern
=see mar/in(s 1G G +G 5G and 6 in chart in
Fi(ure ?J+
>J Althou(h the pattern was )earishG prices failed to fall )elow the trou(h at Point 5 of the
patternG and the B:C trend indicator did not show any wea/nessesJ 2ee/ly price mo'ements
indicate a continuin( upward trendT wee/ly mo'in( a'era(esG 3&AG and B&A were di'er(in(G
and lon(8term momentum was still trendin( upwardJ
:n
Fi(ure ?J5
G on 2ednesdayG Hanuary FG F1FG althou(h the B:C trend indicator remained positi'eG price
did not ma/e a new hi(hJ :nsteadG it closed the day with a )earish candlestic/ patternG dar/
cloud co'erJ !on(8 and short8term momentum trends also remained listlessG and to(ether with
the )earish price patternG si(naled a li/ely pause of the uptrendJ This was confirmed on Hanuary
1 with the daily price fallin( )elow )oth the 3&A and B&AG and the chan(e of the color of the
B:C trend indicator to neutralJ A han(man candlestic/ was formed on Hanuary G as price
continued downwardJ The wee/ closed with a wide ran(e )earish spinnin( topG and daily price
fell )elow )oth the 3&A and B&A with increased 'olumeJ !on( and short momentum
continued to )e wea/J :t warned of a correcti'e phase in pro(ressG which was confirmed )y
)oth wee/ly and daily B:C trend indicators to neutral colorJ -ne lot of the position was sold on
&onday mornin( of Hanuary 6G F1FG at [+JF1G /eepin( one lot on hand 9ust in case the mar/et
should turn )ullish a(ainJ
-n Hanuary ;G F1FG the daily price fell )elow the pre'ious )ar closin( priceG 3&A also
crossed )elow B&AG and the B:C trend indicator showed its first red )earish si(nal after a 158
wee/ )ull runJ :t mi(ht )e deemed a coincidenceG )ut a red )ar after a lon( period is often a
portent of further wea/nessJ :t is li/e seein( the first fall of snow as a si(n of the comin( winterJ
Prices trended downward to )rea/ )elow the 6F8day a'era(e lineG and started to settle at this
le'elG 'acillatin( around the a'era(e lineJ 2ee/ly prices did not show any si(n of e7treme
wea/nessG its 3&A still tradin( a)o'e its B&AJ The B:C trend indicator maintained its neutralityJ
-n Fe)ruary +G prices made a )ullish re'ersalJ Prices crossed a)o'e )oth the 3&A and B&AG
and the 3&A also crossed a)o'e the B&AJ !on( and short momentum also made a )ullish
re'ersal with increased 'olumeJ A rally was li/ely to followJ .owe'erG no new position was
added as the reward to ris/ ratio was a)out 1:+T that is to say for e'ery 1F cents to )e (ained
there is a pro)a)le ris/ of +F cents lossJ Also the wee/ly momentum trend remained wea/ and
the two wee/ly mo'in( a'era(esG 3&A and B&AG were con'er(in(G which did not seem to
support the daily price rallyJ And on &arch ;G the last position of one lot was sold at the
openin( price of [J@FG when )oth daily and wee/ly momentum confirmed the wea/ness of the
rallyJ The a'era(e disposal price for the two lots was a)out [JBF per shareG which captured
appro7imately ?6 percent of the uptrend mo'eG from the low of the date of entry to the hi(hest
price reached )y the stoc/J
After the disposalG price tried to rally as at end8of8wee/ April BG F1FG )ut failed to maintain
its momentumJ :t finally crashed )elow its 6F8day mo'in( a'era(e line and its BF8day a'era(e
line for another B8wee/ period of )earish moodJ
At end8of8wee/ Hune 1@G price made an attempt to rallyG )ut was stopped at the resistance
le'el of its 6F8day mo'in( a'era(e =see point circled in red>J There were no )uyin( setups
offerin( a +:1 reward to ris/ ratioJ The downward trend continued till &arch B when prices
made a si(nificant thrust a)o'e the 3&A and B&A linesG supported )y the positi'e mo'ement
of the momentum oscillatorJ Prices went into a tradin( ran(e for one wee/J -n $eptem)er 1?G
the uptrend mo'ement was confirmed when )oth daily and wee/ly charts turned positi'eJ A
)uy order for two lots was entered on the ne7t tradin( dayG $eptem)er FG F1FG at [J56G
which saw a )rea/away (apJ A protecti'e stop would ha'e )een set at [J+6G )ein( the low of
the precedin( )arJ -n -cto)er 15G price spi/ed up to close at the day"s hi(h of [J6?J
The precedin( descri)es a detailed scenario of a tradin( system that applies the concept of
usin( crosso'ers )etween price and its a'era(es and the crosso'ers of different time spans of
mo'in( a'era(es in wee/ly and daily chartsJ The use of wee/ly charts is mainly to filter out
noise created )y daily pricesG and also to a'oid o'ertradin(J The strate(y is to trade in the
direction of the lar(er time frame =the wee/ly trend> and to e7ecute the trade )ased on the
smaller time frame =the daily trend>J
&o'in( a'era(e is perhaps the simplest and most widely used method applied to identify the
trend of price mo'ementJ #enerallyG mo'in( a'era(es are used =1> as a forecast 'alue for the
ne7t pro9ected time periodG => as a means of measurementG and =+> as a supporti'e indicator to
other tradin( systemsJ
The formulas for plottin( 'arious indicators descri)ed in this chapter are in &eta$toc/
formatJ The followin( are the formulas for plottin( the lon( momentum oscillator as shown in
Fi(ure ?J5
J
\0!on( &omentum1]
Prd1:4:nput=a$moothaG1G155G6>T
Prd:4:nput=aA'era(e 1aG1G155G1>T
Prd+:4:nput=aA'era(e 1aG1G155G?>T
7:4:nput=a-scillator &ultiplieraG1G1FFFG1>T
mmt1:47`=&o'=3-C=C!-$,G1G[>Gprd1G$>c3-C=C!-$,G1+G[>>ST
&o'=mmt1GprdG$>T
&o'=mmtGprd+G$>T
The )asic formula for calculatin( the 'arious mo'in( a'era(e lines is as follows:
Period:4:nput=a&A PeriodaG1G+FFGn>T
$F:4:nput=a$lope FactoraG8FGFGn1>T
sma:4&o'=closeGperiodGs> c !in3e($lope=closeGperiod> ` $FT
smaT
The formula for the 'olume indicator is as follows:
prd1:4:nput=aFast PeriodaG1G+FFG>T
prd:4:nput=a$low PeriodaG1G+FFG1F>T
e'p:4:nput=a,7treme %olume Percenta(eaG1G6FFGFF>T
'a'(1:4&o'='olumeGprd1Gs>T
'a'(:4&o'='olumeGprdGs>T
N:4:f='a'(4FGFJFFF1G'a'(>T
%ol3atio:41FF`=%A'(1SN>T
%ol3atioT
1FFT
e'pT
.ere is another e7ample on the tradin( concept of 0!oo/ at the wee/lyG trade on the dailyJ1
Fi(ure ?J6
shows the wee/ly chart of a stoc/ that had declined since Do'em)er BG FF?G from a hi(h of
[6J5FJ :t fell )y appro7imately @;J5 percent to a low of [+J5; on -cto)er +1G FF@J :t made a
three8wa'e rally to a hi(h of [11J6F at lower 'olume on Hune 6G FFBG and continued downward
to a low of [6J6? at the wee/ endin( Fe)ruary 6G F11J
F:#C3, ?J6
2ee/ly chart showin( pro)a)le tradin( ran(e of the stoc/ and the interestin( pro(ression of a
+F8day cycle periodJ
From the wee/ly chartG it is interestin( to note that price momentum has reached its
o'ersold None le'el on three occasions: -cto)er +1G FF@G Decem)er 5G FFBG and Fe)ruary
6G F11J There is a period of appro7imately ;F wee/s )etween each lowJ And the wee/ endin(
Fe)ruary 6G F11G is appro7imately BF wee/s from the hi(h of Hune 6G FFBJ From the low of
Decem)er 5G FFBG to -cto)er G F1FG prices mana(ed to hold at appro7imately 6F percent
to ;1J@ percent of the Fi)onacci 3etracement support NoneG as momentum mo'ed upward to
o'er)ou(ht NoneJ This reflects the impro'ement of the stren(th in priceJ After ma/in( a dou)le
topG momentum fell as prices failed to hold a)o'e the support le'els and reached an o'ersold
position with a low of [6J6? at wee/ endin( Fe)ruary 6G F11J The o'ersold position pro'ides
a setup for traders to loo/ at pro)a)le trade opportunity on the dailyJ
Dow let"s loo/ at the daily chart as shown in
Fi(ure ?J;
J
F:#C3, ?J;
Daily chart showin( the interplay of mo'in( a'era(es and pro)a)le trade entry and e7it si(nals
=upper panel>J The middle panel is the momentum indicatorG with its o'er)ou(htSo'ersold
indicatorJ The )ottom panel is the 'olume histo(ramJ Dote the di'er(ence of )oth momentum
from price and 'olume from priceJ
As early as Fe)ruary 1G F11G the daily price momentum had )een in an o'ersold positionJ For
the ne7t +F daysG momentum did not ma/e any new lowG which reflected the sta)iliNation of
price and depicted a di'er(ence )etween price mo'ementsJ
-n Fe)ruary 5G F11G price made a downward thrust )y a wide ran(e )ar with increased
'olumeG which )ecame the ran(e for the ne7t fi'e tradin( )arsJ This was followed )y fi'e inside
narrow )arsJ An entry si(nal was alerted on &arch 5G F11G when price crossed a)o'e )oth
medium time frame mo'in( a'era(es and momentum also crossed a)o'e the Nero lineJ The
)ullish si(nal was supported )y the )uilt8in8color trend indicator and increased 'olumeJ -n
&arch ?G F11G price traded in a narrow ran(e similar to that of the pre'ious dayG a(ain allowin(
opportunity to enter a trade for two units of the stoc/J
-n &arch @G F11G price made a stron( rallyG crossin( a)o'e the 1F percent )and of the BF8
day mo'in( a'era(e lineJ Price continued its uptrend for the ne7t se'en tradin( daysJ Althou(h
prices had crossed a)o'e the three lon(er time frame mo'in( a'era(esG the 6F8dayG BF8dayG and
FF8dayG showin( an underlyin( stren(th of the trendG the three mo'in( a'era(es were not in
ali(nmentJ This su((ested that the positi'e trend would )e short8li'ed if prices failed to
consolidate at this le'elJ A'era(e 'olume traded had dwindledG and the first si(n of wea/ness in
trend was shown on &arch 1?G F11G when the )uilt8in8color trend indicator chan(ed its )ullish
)lue color to )lac/ and momentum crossed )elow its a'era(e lineJ Followin( thatG on &arch G
F11G price made a )earish hammer patternG and an e7it si(nal was made for one unit of the
trade on the ne7t dayJ
Prices continued to fluctuate in narrow ran(esJ Althou(h the 6F8day mo'in( a'era(e line
crossed a)o'e the FF8day mo'in( a'era(e line on April 16G F11G the BF8day mo'in( a'era(e
line remained relati'ely flat and di'er(ed from the 6F8day and FF8day mo'in( a'era(esJ And
on April ?G F11G the first red )earish )ar appeared and si(naled the e7it of the remainin( one
unit of the stoc/J
T3AD:D# 2:T. :C.:&-*C
The concept of the tradin( method and <ueuin( Theory can also )e applied to :chimo/u
chartin( techniOueJ The complete :chimo/u indicator comprises fi'e linesG Ten/an8senG *i9un8
senG $en/ou span AG $en/ou span BG and Chi/ou spanJ :n
Fi(ure ?J?
G Chi/ou span is not plottedJ Chi/ou span is the closin( price of the current candlestic/G plotted
)ac/ward )y the period of the *i9un8senJ
F:#C3, ?J?
Csin( :chimo/u lines to trac/ trade opportunitiesJ $upport of 3$: and 'olume indicators
appears in the )ottom panelJ
Fi(ure ?J?
is an illustration of how the principles of the tradin( method descri)ed in this )oo/ can also
)e applied to 'arious indicatorsJ As an e7ampleG the chart uses the popular indicators such as
:chimo/u indicatorG 'olumeG and 3$: =relati'e stren(th inde7>J
The popular :chimo/u CloudG shown in
Fi(ure ?J?
G is the filled space )etween the faster lineG $en/ou span AG and the slower lineG $en/ou span
BJ The :chimo/u Cloud often acts as the eOuili)rium None of price mo'ementsG and it mar/s an
area of support and resistanceJ 2hen price mo'es a)o'e the cloudG it is said it has )ro/en out
of the resistance areaG and when price mo'es )elow the cloudG it has fallen from the supportin(
areaJ 2hen prices are tradin( or fluctuatin( in the area of the cloudG it normally indicates a tu(8
of8war )etween sellers and )uyers in a tradin( ran(eG where price mo'ements can sometimes
)ecome unpredicta)leJ :chimo/u Cloud can 'ary in depth and thic/nessJ A thic/er cloud
indicates hi(her past price 'olatilityG and a thinner and shallower cloud indicates lower
'olatilityJ
The Ten/an8sen is the faster line and the *i9un8sen is the slower lineJ An uptrend is tri((ered
when price crosses a)o'e )oth lines and also crosses a)o'e the cloudG as mar/ed in Point A in
Fi(ure ?J?
J Crossin( of the Ten/an8sen from )elow to a)o'e the *i9un8sen si(nifies positi'e si(nalG and
crossin( of the Ten/an8sen from a)o'e to )elow the *i9un si(nifies ne(ati'e si(nalG as mar/ed
)y Point BJ
The <ueuin( TheoryG as it is descri)ed in Chapter ;G will wor/ in :chimo/u chartin( techniOueJ
2hen a trend is positi'eG the 'arious :chimo/u linesG the Ten/an8senG *i9un8senG and the cloud
=formed )y $en/ou span A and $en/ou span B> should also )e in seOuential order to priceJ
2hen any of these lines is not in seOuence with the priceG the trend in pro(ress may )e short8
li'edJ 2hen prices ha'e mo'ed to an e7treme le'elG a chan(e in trend is anticipatedG as mar/ed
)y Points T and T+ in
Fi(ure ?J?
J
2hen price is ma/in( a chan(e in trendG its mo'ements are often hidden in pattern
formations such as di'er(ence )etween the price and momentum oscillatorG price and 'olumeG
price spread and 'olumeG and con'er(ence and di'er(ence of 'arious mo'in( a'era(esJ
Di'er(ence that hints of an impendin( chan(e does not necessarily ta/e place at the e7act
turnin( pointG )ut may ha'e )een in the ma/in( wee/s a(oJ
,7treme le'els of prices or pro7imity of e7treme le'els are often reflected in the di'er(ence
)etween price and momentum oscillatorG as shown in Points T1 and T of
Fi(ure ?J?
J #enerallyG momentum oscillators in an uptrend tend to rally Ouic/ly to o'er)ou(ht le'els
)efore price ma/es its pea/J And as momentum starts to slow down while price catches upG it
will create a di'er(ence )etween the slope of price and oscillatorJ At T1G the momentum
oscillator rallies to its o'er)ou(ht le'elG and retraces (radually to TG where price ma/es its
pea/J
The importance of 'olumeG co'ered in Chapter 6G cannot )e i(noredJ %olume helps to
confirm the 'alidity and the stren(th of the trendJ At Point A of
Fi(ure ?J?
G the rally of price a)o'e the cloud was supported )y increased 'olumeJ At point TG the rally
of price to its pea/ was not supported )y 'olume in comparison to the 'olume at )rea/out or at
point T1J The rally to point T+ also was not supported )y 'olume comparati'e to TG indicatin( a
wea/ness in the rallyJ Althou(h price reached a new hi(h to [1?J1@G the rally was not supported
)y increased 'olume comparati'e to 'olume at the price le'el of [1J;@J :n additionG the
:chimo/u lines and the cloud were not in seOuential orderG indicatin( a wea/enin( or slowdown
of the uptrendJ
Fi(ure ?J@
is another chart usin( only the :chimo/u cloudG two sets of mo'in( a'era(esG 'olumeG and
3$: indicatorsJ Do description of interpretation is )ein( madeG )ut readers are ur(ed to see for
themsel'es how they would ha'e traded in this stoc/J
F:#C3, ?J@
Chart displayin( plots of :chimo/u CloudG mo'in( a'era(esG 3$:G and 'olume indicatorsJ
C-DC!C$:-D
The aim of readin( stoc/ charts is to trac/ tradin( opportunities )y identifyin( price )eha'iorG
which is )ased on reco(nition of past price patterns and price analysisG to anticipate the
pro)a)le outcomeJ
The concept of the tradin( method descri)ed in this )oo/ is for end8of8day =,-D> tradersG
and the method is centered on a trend8followin( conceptJ To reduce ris/sG the method
em)odies as its main tenet the usa(e of two time frames to )etter (au(e trade entries and
e7itsJ The com)ination of the four dimensions related to trendG as discussed in earlier chaptersG
will help traders to identify different mar/et en'ironments and to switch a tradin( strate(y
from trendin( mode to mean re'ersal mode usin( the momentum oscillator and <ueuin(
TheoryJ The method will assist traders to differentiate )etween a mar/et that is in a correcti'e
phase and one that is in an impulse phase and to anticipate areas of support and resistance
le'elsG so they may plan their tradin( strate(y accordin(lyJ
These are the )asic assumptions of the methodolo(y:
2atch the wee/ly and trade the dailyT trade entry or e7it should )e loo/ed at from the
wee/ly chart first )efore ma/in( any entry or e7it tradeJ 2ee/ly charts should )e used
to support the daily charts in determinin( whether the current phase of the mar/et is a
trendin( or non8trendin( phase in the lon(er time frameG and whether the current
phase of the mar/et offers a trade entry with a lower ris/ or a trade e7it that will
safe(uard in'estment 'alueJ
2hen a mar/et is ma/in( a chan(e in trend for the )etterG each of the four dimensional
aspects of trend =price patternsG 'olumeG price momentumG and interaction of price and
mo'in( a'era(es> will also )e ad9ustin( itself in the positi'e directionJ 2hen the trend
has de'elopedG the four dimensions of trend will act in tandem with each other to
sustain the trendJ
<ueuin( Theory on mo'in( a'era(es is not confined to any particular set or (roup of
mo'in( a'era(esJ There are no preset num)ers of mo'in( a'era(es to )e usedG nor is
there any preset period to )e applied to any specific mo'in( a'era(esJ The /ey principle
is that when a stoc/ is in a stron( trendG its 'arious relati'e mo'in( a'era(es will mo'e
to ali(n in seOuential order until price reaches its e7tremes and starts to re'erse the
order of ali(nmentJ A price rally in which its relati'e mo'in( a'era(es fail to follow in
seOuential order will tend to )e short8li'edJ #enerallyG it indicates the mar/et is (oin(
into a correcti'e phaseJ
Do mandatory reOuirements are set in re(ard to the use of indicatorsJ Traders may
continue to use their preferred indicator or indicatorsG which they are familiar with and
which they ha'e used confidently in their tradin(J
A (ood tradin( system is one that (i'es a trader an ed(e in e7ecutin( his tradesG whether in a
'olatile tradin( mar/et or in a narrow8ran(e mar/etJ Desi(nin( a system of trade reOuires
patienceJ A (ood start is to write down your thou(hts on what you want to achie'e throu(h the
systemJ Hust ta/e note that there is not one sin(le tradin( system that will detect precisely the
price mo'ements of e'ery stoc/J ,'ery stoc/ has its own characteristicsG )usiness acti'ities and
prospectsG earnin(s and di'idend ratiosG price mo'ement patternsG (roups of in'estorsG and so
forthJ .owe'erG there is one similarity in e'ery tradin( systemJ That isG when a stoc/ has a
stron( trendG almost e'ery tradin( system is (oodJ $imilarlyG there is no one sin(le oscillator
with identical parameters that will fit across the )oard for all stoc/sG and thou(h most
oscillators are momentum )asedG their results will differ and the 'isual output will also differJ
,'ery opportunity comes with a time elementT time re(ulates opportunityJ &any traders
ha)itually fail at time mana(ementJ &any traders may sit on nonperformin( stoc/s for months
and tie up their in'estment capital while (ood opportunities pass )yG while other traders may
miss ma9or support and resistance that appears on the ne7t hi(her time frameJ :n shortG traders
must ac/nowled(e the importance of time and mana(e time as efficiently as priceG com)inin(
price and time tri((ers for protecti'e stop8loss mana(ementJ :t may )e 9ustified to consider
usin( time to acti'ate trade e7its on nonperformin( stoc/s e'en when price stops ha'e not
)een )reachedJ And it may e'en )e more 9ustified to sell at the time of a )ear crunch and to
enter the mar/et when time aspects impro'e the odds for profitJ
:n in'estments and tradin(G success reOuires three elements: money mana(ementG tradin(
methodolo(yG and understandin( of timeJ Time is the least understoodJ Time has (reat
influence on the mar/et )ecause when the time is upG trend chan(esJ -ne common issue with
time is often seen in the accumulation or distri)ution of a stoc/J 2hen such acti'ity is o'erG
prices will )rea/ out of the accumulation pattern upward or )rea/ out of the distri)ution
pattern downwardJ -ther issues with time include understandin( time in trend continuation
and trend correctionJ Time remains the hardest of the three elements to masterJ Chapter B may
help traders learn more of how to use financial astrolo(y to choose the )est timin( for their
trades and to find the )est time in their personal cycles to tradeJ
C.APT,3 @
Formulatin( Aour Tradin( Plan
:n 1BBG Hac/ $chwa(er pu)lished 1be New Motket wlzotJsJ The chapter titled 0The $ilence of
the Turtles1 co'ers an inter'iew with .arold $eidlerG one of the many mar/et wiNards
mentioned in the )oo/J :n this inter'iewG Hac/ as/ed .aroldG 02hat ad'ice would you (i'e
someone in re(ards to )ein( successful in the mar/etsU1 .arold replied: 0: thin/ the sin(le most
important element is ha'in( a planJ FirstG a plan forces disciplineG which is an essential
in(redient to successful tradin(J $econdG a plan (i'es you a )enchmar/ a(ainst which you can
measure your performanceJ1
Tradin( is an e7ercise in well8planned strate(yJ :t is said that to ha'e (ood tradin( resultsG a
trader needs to spend ?F percent of his time in plannin( and only a)out +F percent in tradin(J
.e formulates a plan and follows it in a firm and disciplined wayJ
The a)ility to ma/e decisions confidently in tradin( is to (et rid of the fear factorJ Fear arises
when there is uncertaintyJ Fear is a hindrance to ma/in( (ood decisions and ha'in( a tradin(
plan will help alle'iate fearJ A tradin( plan does not ha'e to )e complicatedG )ut it has to )e
clearJ :t has to )lend with the trader"s character and thin/in(J
The tradin( plan should include the )asic elements of decidin( the type of trades that suit
the traderG the method of selectin( stoc/sG the conditions for trade entries and e7itsG and the
contin(ent steps to protect capitalJ
:n this )oo/G e7amples of tradin( are not )ased on real8time dataG )ut on end8of8day dataJ
D,T,3&:D:D# A-C3 T:&, F3A&,
First and foremostG as/ yourselfG 0.ow much time will you ha'e to tradeU1 This will determine
the type of trader you are (oin( to )eKa day trader or an end8of8day =,-D> traderJ An ,-D
traderG or swin( traderG can )uy and hold a stoc/ for a wee/ or e'en up to a few monthsJ
Becomin( a swin( trader is the preferred choice for most traders who are usin( end8of8day
dataJ Those who )uy and hold stoc/s for years are /nown as position traders or lon(8term
in'estorsJ
The ne7t Ouestion is to find out how are you (oin( to tradeKwill it )e discretionary tradin(
or system tradin(U The type of tradin( will define the time frameJ Acti'e traders who en9oy a
fast paced style would not find much action in wee/ly or monthly time framesG while less acti'e
traders (enerally find that the e7tremely short time frames are too tedious or ta/e too much of
their timeJ Decide which style )est suits your personalityG and then select the correspondin(
time frameJ
-ne important reminderG re(ardless of whate'er time frame you are (oin( to trade inG you
ha'e to do homewor/J Aou ha'e to do your analysis outside of mar/et hoursG )ecause when the
mar/et opensG you will not ha'e sufficient time to thin/ and deli)erate on the course of your
actionsJ
$ince the data used in this )oo/ are end8of8day dataG the )oo/ addresses issues from the
'iew of swin( tradersG and the tradin( methodolo(y adopted is a com)ination of mechanical
system tradin( and discretionary tradin(G as outlined in Chapter and Chapter ?J $ome swin(
traders are discretionaryT they use technical andSor fundamental analysis to e'aluate each
potential tradeG and ma/e decisions )ased on the rules they ha'e outlined for themsel'esJ :f
they ha'e a (ood intuiti'e sense of the mar/etG they may also use discretionary stopsJ &any
professional traders use discretionary stopsG )ut we would not recommend it for the no'ice or
)e(innin( traderJ
$,!,CT:D# $T-C*$
There are many methods for choosin( stoc/s to tradeJ $toc/s may )e selected on the criteria of
fundamental andSor technical analysisJ The mar/et inde7 may )e used as a )enchmar/ to
choose those stoc/s within a certain ran(e of price8earnin(s ratiosG di'idend yieldG and
consistent earnin(sJ But there is one uni'ersal rule: De'er )uy any stoc/ on hearsay
informationG no matter where the information comes fromG without doin( a study of it prior to
the purchaseJ &ore e7oteric approaches on how to select stoc/s are pro'ided in the ne7t
chapterT howe'erG the methods are not e7hausti'eJ
2hiche'er method you prefer in selectin( stoc/sG do not trade a stoc/ that has no tradin(
liOuidityJ :f a stoc/ is not 'ery liOuidG it means that you may not )e a)le to )uy and sell it at the
'olume you wantG at the price you would li/eG or when you wantJ Tradin( liOuidity is therefore
important to the relati'e siNe of your holdin(J .ere is a simple e7ampleJ :f the a'era(e daily
tradin( 'olume of the stoc/ is a)out 1FGFFF sharesG it would not )e in your )est interest to hold
1FFGFFF shares )ecause you will not )e a)le to dispose of them Ouic/ly when the trend turns
)earishJ ButG on the other handG if the a'era(e daily tradin( 'olume is 1FFGFFF sharesG it should
not )e difficult for you to dispose of your holdin(J
After you ha'e pic/ed the list of stoc/s to tradeG you then ha'e to decide on position siNin(:
the num)er of stoc/s to trade and the dollar 'alue of each stoc/ you feel you will )e a)le to
handle without undue stressJ $hould you focus all your trades on one stoc/G or should you
spread your trades to co'er multiple stoc/sU :t will depend on your capa)ilities and capital
e7posureJ $ome traders may not )e a)le to handle more than 1F stoc/s in their tradin(
portfolioJ .a'in( a di'ersified tradin( portfolio co'erin( a wider selection of stoc/s does not
necessarily mean lesser ris/sJ :n mana(in( a tradin( portfolioG there is a limit to the siNe of
portfolios each person can handle in terms of num)er of stoc/s and 'alueT you ha'e to find the
limit that you will )e comforta)le withJ 3emem)er that in tradin(G ha'in( a lar(e list of stoc/s
may not necessarily (i'e you a )alanced portfolio if you are una)le to focus and mana(e your
stoc/s efficientlyJ
3:$* &ADA#,&,DT
:n tradin( stoc/sG there is no way that a trader can a'oid ta/in( losses on some tradesJ $ome of
the most successful traders are those who are willin( to ta/e a lossJ The Ouestion is how much
of a loss is a trader willin( to ta/eG and does he ha'e the discipline to cut his lossesJ .a'in( a
tradin( strate(y is a (ood startG )ut it will not mean anythin( if the trader has no idea of money
mana(ement in tradin(J &oney mana(ement plannin( is a 'ery important part of tradin( and
has one o)9ecti'e: capital preser'ationJ There are many ris/ mana(ement techniOuesJ :t is up to
each trader to form his own plan of how he will /eep ris/ to a minimum whileG at the same
timeG /eepin( his in'estment at a ma7imum le'el within the de(ree of ris/ he is willin( to ta/eJ
Before a trader commits to tradin(G the ris/ factor of mana(in( 'arious stoc/s should )e
included in the tradin( planJ Tradin( stoc/s is a)out /eepin( ris/s to a minimumJ A trader
should ha'e a realistic profit tar(et that meets his reward to ris/ ratioJ 2hat is the estimated
profit of the stoc/ a(ainst its downside ris/U &any professional traders do not ta/e a trade
unless the potential profit is at least three times (reater than the possi)le lossJ .ow much ris/
is appropriate 'aries with each trader and may )e as hi(h as 6 percent of the total portfolio
'alue on a (i'en dayG or as low as 1 percent of the total portfolioJ $ome traders may prefer
ha'in( different ris/ ratios for each stoc/G )ut will also ta/e into consideration the ris/ factor
a(ainst the a((re(ate ris/ of the tradin( portfolioJ Throu(h trial and errorG a trader has to find
that comfort None in which he can trade confidentlyJ
D,T,3&:D, ,DT3A P-:DT$
.a'in( made your selection of stoc/s does not mean a trade should )e entered immediatelyJ
Aou ha'e yet to determine the specific conditions includin( entry priceG which allow you to
e7ecute your tradeG and initial protecti'e stopsG which allow you to e7it should the mar/et turn
a(ainst youJ This is the challen(eJ
:n tradin(G you need to /now when to en(a(e in a trade and when not to tradeT you do not
need to trade e'ery dayJ Aou cannot )e tradin( all the timeG especially when the trend is a(ainst
youJ Catchin( the trend of the mar/et is the /eyJ .owe'erG the mar/et does not mo'e in trend
all the timeJ 2hen the mar/et is not trendin(G you ha'e to stay on the sidelineJ Aou will win
when you are tradin( with the trend )ecause you will ha'e the support of the trendJ Aou will
lose if you trade a(ainst the trendG whether in a )ull mar/et or in a )ear mar/etJ
Do not o'ertradeJ -'ertradin( means ma/in( trades )eyond your means and a)ilityJ
D,T,3&:D, ,W:T $T3AT,#:,$
Traders ha'e 'arious choices when it comes to e7itin( tradesJ $ome traders use 0trailin(1 stops
as their e7it strate(y of choiceG while others choose to e7it when the stoc/ hits a certain tar(et
percenta(eG or )rea/s throu(h a support or resistance le'elJ $ome traders will choose to e7it
)ased on e7pected news releasesJ The e7it strate(y is one of the most important parts of any
tradin( planG and it is important for traders to ha'e an e7it plan )efore enterin( a tradeJ :n the
e'ent the mar/et turns a(ainst youG do you ha'e a strate(y that will protect your capitalU
Aou must )e ready to ta/e your profits and cut your lossesJ Do not han( on to any )eliefs
)ased on your e(o or your fantasies when the mar/et is not mo'in( the way you e7pected it toJ
3,A!:TA C.,C*
$uccess in tradin( ta/es timeT it is not ser'ed on a platterJ As the sayin( (oesG the fried pi(eons
don"t fly into a trader"s mouthX Tradin(G li/e any other )usinessG reOuires a planJ A trader has to
de'elop his strate(y and must e'aluate and re'iew it constantly to impro'e his performance
and to trade in accordance with optimal ris/ to reward parametersJ The followin( are three
e7amples of chec/lists: =1> Additional Chart Chec/listG => ,7ecution of Trade Chec/listG and =+>
Trade Plan $ummary !istJ The first two chec/lists contain certain /ey reminders that a trader
needs in the course of his tradin(J The third list is a summary for /eepin( a tradin( lo(J The
/eepin( of a tradin( lo( is imperati'e asG after a period of tradin(G it will (i'e the trader an
analysis of how his wins or losses are madeG and it will ser'e as an important study of his
tradin( style and help him ad9ust and impro'e the resultsJ
Additional Chart Chec/list
3eminders Thin(s to Do 3easons
2hat is the mar/et
trendU
Chec/ daily trendJ
Chec/ wee/ly trendJ
Chec/ the sector trendJ
Chec/ mar/et trendJ
Aou ha'e a hi(her pro)a)ility of
winnin( if the stoc/ is )ou(ht in a
positi'e wee/ly trend and the
o'erall mar/et is )ullish tooJ
.ow did you select
the stoc/U
Fundamental 'aluesJ
Technical analysis methodJ
!iOuidity of stoc/J
Choosin( the ri(ht stoc/ will affect
the performance of your portfolioJ
2hat is the newsU Chec/ current political and
economic newsJ
Chec/ current news of the
companyJ
Chec/ stoc/ sector newsJ
!ocal or (lo)al news will affect the
mo'ements of the (eneral mar/etJ
Dews re(ardin( the company stoc/
and its relati'e sector will affect its
price directionJ
2hat is the comin(
newsU
Chec/ comin( economic
newsJ
Chec/ comin( news to )e
announced )y the companyJ
Prices often mo'e ahead of
announcement of newsJ
#o'ernment"s re(ular economic
news can affect the mar/etJ
2hen is the
announcement of
earnin(s and
di'idends to )e
made )y the
companyU
Chec/ announcement date of
earnin(s and di'idendsJ
Chec/ announcement date of
earnin(s of similar sector stoc/G
which may ha'e certain
influenceJ
Prices tend to mo'e prior to dates
of earnin(s announcement and
earnin(s of similar sector stoc/
may affect the stoc/ mo'ementsJ
,7ecution of Trade Chec/list
Chec/ !oo/ for:
2hat is the trendU :s the daily B:C trend indicator positi'e or ne(ati'eU
Are the medium8term a'era(es in tandem with B:CU
.as price crossed a)o'e the medium8term &A"sU
2hat is the wee/ly trend indicatin(U
2hat is the lon(er
time frame
a'era(e indicatin(U
2hat is <&AC indicatin(U
:s the trend indicatin( a short8term or lon(8term mo'eU
2here is the pro)a)le supportSresistanceU
2here is the price relati'e to the lon(er &A"sU
2here is the price
positionU
2here is the price relati'e to the lon(er time frame &A"sU
:s price ma/in( a new hi(hSlow for the tradin( time frameU
:s there a price )rea/ from a )ullishS)earish patternU
2here is the price in relation to Fi)onacci retracements or
pro9ectionsU
2here is the price relati'e to ,lliott 2a'e patternU
2hat is the
response of
'olumeU
:s the uptrend supported )y hi(her 'olumeU
:s the downtrend led )y hi(her 'olumeU
Does the 'olume show any irre(ularityU
2hat is the
momentum
oscillator
indicatin(U
:s there any di'er(ence )etween the oscillator and priceU
2here is the wee/ly oscillatorG o'ersoldSo'er)ou(htU
2here is the daily oscillatorG o'ersoldSo'er)ou(htU
2hat is the
stren(th of the
trendU
:s ADW confirmin( the stren(th of the uptrendSdowntrendU
:s ADW ma/in( a directional turn at its pea/U
Tradin( Plan $ummary !ist
C.APT,3 B
Financial Astrolo(y
This chapter deals with how to ma/e use of the lunar cycleJ The lunar cycle manifests as the
most freOuent and predominant cycle amon( the 'arious astrolo(ical cyclesJ Cyclical patterns
ha'e )een o)ser'ed in many fieldsG such as )iolo(yG astronomyG a(ricultureG and social spheresG
to mention a fewJ :t is well accepted that the phases of the &oon influence people"s )eha'iorG
and scientists esta)lished lon( a(o their relation to the risin( and fallin( of the tidesJ :n Huly
F1FG the 3oyal Ban/ of $cotland pu)lished a report on the correlations )etween the &oon"s
phases and the )eha'ior of financial mar/ets =0$heer !unacy $tarin( at the .ea'ensG1
wwwJr)smJcomSstrate(y
>J The study showed a remar/a)le increase in profits in a lunar8)ased )uy8sell strate(y as
compared to a re(ular )uy8hold strate(yJ
C$:D# !CDA3 CAC!,$ :D T3AD:D#
The lunar )uy8sell strate(y is )ased on )uyin( on the new moon and sellin( on the ne7t full
moon =usually in 15 to 1; days>J 2e Ouote here an e7cerpt from the Ban/ of $cotland report: 0:f
an in'estor had in'ested P$t( 1FFF in FT$, in 1B@5G )y now he would ha'e appro7J P$t( 6G1+F
)y holdin( the inde7G which represents inde7 performanceG whereas tradin( FT$, accordin( to
moon phases would ma/e a )i( differenceJ FirstG consider )uyin( FT$, on the new moon and
sellin( on the full moonG this would result in P$t(1G 11; o'erall fi(ure for the same periodJ :t
means more than dou)le the profitsJ1 :t is noteworthy that the strate(y would ha'e )een e'en
more profita)le for the DAW and the .$:J The result for the $IP 6FF data is also hi(herG )ut that
is )ecause the strate(y was applied since 1B@J
Con'erselyG )uyin( on the full moon and sellin( on the new moon would ha'e considera)ly
underperformed the )uy8hold strate(yJ This supports the theory of a correlation )etween inde7
prices and moon phases )ecause the new moon traditionally sym)oliNes low ener(y or ener(y
accumulationG whereas the time of the full moon is a period of fruitionG hi(h ener(yG and
spendin(J
The influence of planetary cycles on stoc/s has also )een well documented )y 3aymond AJ
&erriman in his seminal wor/G 1be ultlmote 8ook oo 5tock Motket 1lmloqG %olumes 1 to 6G in
which he descri)es how solar and lunar phases correlate to short8term tradin( re'ersalsJ
$imilarlyG Patric/ &i/ulaG usin( Trade$tation software )ac/ in the 1BBFsG tested a lunar8)ased
)uy8sell system com)ined with stochastic momentum on soy)ean futuresG and found that usin(
the new moon for the entry and the full moon for the e7it had the hi(hest correlationJ For the
period testedG the system produced 55 trades with an o'erall ;; percent profita)ilityG with the
lon( trades )ein( 65 percent profita)le and the short trades @@ percent profita)leJ
$o it is Ouite well esta)lished that the phases of the &oon influence the prices of certain
stoc/s and also of some commodities li/e wheatG cornG soy)eansG and sil'erJ For the sa/e of
simplicityG we are only concerned with two of the 'arious $un8&oon phasesG namely when the
&oon forms a F8de(ree con9unction with the $un at the new moon =the $unG &oonG and ,arth
appear in line> and when the &oon is in opposition to the $un at the full moonG or 1@F de(rees
apartJ The $un and &oon are in sOuare aspect =BF de(rees> durin( the first and third OuartersG
in 1F8de(ree aspect durin( a wa7in( or wanin( (i))ous moonG and in a ;F8de(ree aspect
durin( a wa7in( or wanin( crescent moonJ These latter aspects do not ha'e the same influence
as the F8 and 1@F8de(ree aspectsG )ut tend to influence the mar/et upward durin( trines =1F
de(rees>G downward durin( sOuaresG and can influence the mar/et in either direction durin(
se7tiles =;F de(rees>J $ome traders simply add the time of the new and full moon dates to their
chartin( tools to indicate potential turnin( pointsG and a num)er of chart8drawin( ser'ices and
pro(rams now offer this function as wellJ
Fi(ure BJ1
uses Trade$tation software with an add8on module from $oulytion to show the new and full
moon phases as applied to #lo)al W $il'er &iners ,TF =$ym)ol: $:!>G which is traded on the Dew
Aor/ $toc/ ,7chan(eJ :n astrolo(yG the &oon rules sil'erG and it does seem the correlation
)etween the spi/es in )lue indicatin( the full moons =sell>G and the spi/es in red at the new
moons =)uy>G fit well with the price trends in
Fi(ure BJ1
J The )ottom part of the chart shows the lunar =)lue )ars> and solar eclipses =(reen )ars>G
whichG as mentioned in Chapter G may increase the effect of the lunationsJ
F:#C3, BJ1
!unar si(nals applied to #lo)al W $il'er &iners ,TFJ The eclipses shown at the )ottom add
stren(th to the lunationsJ :n some casesG it means that an e7istin( trend may accelerate sharplyJ
:n other casesG it increases the odds of a re'ersalG so the indicator must )e 'iewed in the
conte7t of technical analysis and other si(nalsJ
5ootce: $teffen Peter at
wwwJsoulytionJde
J
!unar cycles are su)9ect to the laws of accumulation and redistri)utionJ The first half of the
lunar month is a process of accumulation in which the mar/et (rowsJ The second half of the
lunar month is often one of redistri)ution and wea/nessJ This pattern wor/s well in a risin(
mar/etG )ut can )ecome a trap if the mar/et enters a )ear phaseG with shares fallin( sharplyJ
ThereforeG if there is no accumulation in the first half of the lunar monthG traders should )e
alert to the fact that there may )e a chan(e in the lar(er trendJ
To test the o)ser'ation that lunar cycle coincides with swin( tops and )ottomsG it is
su((ested that a momentum indicatorG such as stochasticsG is includedJ :deallyG the )uy si(nal in
the new moon phase should coincide with a readin( )elow F in the stochasticsJ A readin(
a)o'e @F should coincide with a sell si(nalJ DaturallyG the correlation doesn"t always manifest
so clearlyG )ut the com)ination is another way of filterin( out those &oon8phased )uy and sell
si(nals that may )e out of sync with the pre'ailin( mar/etJ
!unar si(nals can apply Ouite well to some indi'idual stoc/sG )ut for the most partG it will )e
found that they correspond )etter to ma9or inde7esG commoditiesG and some commodity8)ased
,TFsJ This is mainly )ecause of the &oon"s /nown influence on mass psycholo(yJ .owe'erG one
should not rely only on a lunar8phased )uy8sell pro(ram for tradin(J 2hat the e7amples are
meant to show is that the lunar phase may )e a useful additional indicatorG and that the
correlation with mar/et mo'es is si(nificant enou(h statistically to warrant the inclusion in
one"s arsenal of tradin( toolsJ
To pro'e the point a little moreG a lunar )uy8sell tradin( system was used in the new addition
to Timin( $olution softwareG called Terra :nco(nitaJ This ad'anced pro(ram optimiNes modelsG
conducts )ac/8testin(G and pro'ides tradin( si(nals with all appropriate statistics for tradesJ
Fi(ure BJ
is )ased on the &oon8$un lunar cycleG as applied to the Dow Hones :ndustrial A'era(e =DH:A>J
F:#C3, BJ
!unar cycle )uy8sell system applied to the DH:AJ :t has )een optimiNed so that certain si(nals in
stron( up8 or downtrendin( mar/ets ha'e )een filtered outJ The (reen areas at the )ottom
indicate profita)le periodsG and the red areas indicate losin( periodsJ Durin( the period from
FF+ to FF?G the eOuity cur'e =)lue line at )ottom> was flatG )ut it turned up a(ain in FF@J
FinallyG it may )e of interest to see what the pairin( of the &oon with &ercury mi(ht
produce in terms of cycle si(nalsJ &ercury primarily rules communicationG )ut also commerceJ
:t has a rotational cycle of a)out @@ days andG li/e the &oonG is a fast8mo'in( planetJ
Fi(ure BJ+
is )ased on a heliocentric modelG and the 1F8de(ree aspect )etween the &oon and
&ercury correlates well with the chan(es in trendJ
F:#C3, BJ+
The &oon and &ercury in increments of 1F8de(ree aspectsG that isG 1FG 5FG and +;F
de(rees on a heliocentric )asis =as seen from the $un>J This cycle does appear to coincide with
ma9or chan(es in trendJ The )ottom shows a %E- money8flow indicatorG which tends to pea/ or
)ottom at the same time as the C:TsJ
.-2 T- P:C* 2:DD:D# $T-C*$
:n'estors nowadays ha'e access to a lar(e num)er of software pro(rams and free online
ser'ices that allow them to select stoc/s )ased on a customiNed set of conditions and 'aria)lesJ
$ome ser'ices apply fundamental analysis to rate thousands of listed companiesG perhaps on a
1F8point scaleG usin( ad'anced mathematical systems to determine a stoc/"s e7pected ris/ and
returnG or to simply rate it a 0)uyG1 0holdG1 or 0sellJ1 -ther methods of e'aluatin( securities may
in'ol'e technical analysisG as descri)ed in Chapter ?G Applied $ystemsG and Chapter @G
Formulatin( Aour Tradin( PlanJ There are endless ways one can approach the processG )ut a
com)ination of )oth fundamental and technical analysis seems to )e the preferred method for
most in'estors and fund mana(ersJ #i'en the plethora of choicesG the o'erridin( Ouestion is
stillG how does one impro'e one"s chances of pic/in( the stoc/ with the )est potential to (o up
in 'alueU Dot e'eryone has the stoc/8pic/in( talent of Peter !ynch or 2arren BuffettG or access
to sophisticated Ouantitati'e stoc/8ratin( pro(ramsG so an ordinary in'estor or trader may often
)e at a disad'anta(eJ &oreo'erG stoc/ pic/in( has almost )ecome a lost art since the onset of
the financial crisisJ $entiment has alternated )etween euphoria and despairG and time8pro'en
methodolo(ies ha'e failed in the e7traordinarily 'olatile en'ironment since the financial
meltdown in FF@J
This section is not meant to )e a primer on how to select stoc/s or )uild portfolios usin(
con'entional 'alue8analysis methods li/e the top8down or )ottom8up approachesJ &any other
)oo/s are a'aila)le on those topicsJ The aim is to pro'ide some additional tools that may help
in the stoc/8selection process throu(h a com)ination of con'entional and more esoteric
approachesJ
Before startin(G it may )e of interest to /now how si7 different fundamental in'estment
strate(ies ha'e performed in Asia"s stoc/ mar/ets since the )e(innin( of 1BB?J 3esearch was
underta/en in Huly FFB )y strate(ists Daniel &cCormac/ and %i/in( *wo/ at &acOuarie Ban/
and re'iewed )y Tom .olland of the 5ootb cbloo Motoloq lost =0%aluations $ay BuyG But the
Fearful Dou)t Their %alidityG1 5cMl MooltotG Decem)er +G FF@>J
$ome widely used techniOues performed surprisin(ly poorlyJ Buyin( the shares of companies
with the stron(est )alance sheetsG for e7ampleG would ha'e produced lousy returnsJ
&acOuarie"s analysts ran/ed their uni'erse )y the Altman E scoreKa common measure of
financial healthKand found thatG o'er the past 1F yearsG the stron(est F percent of companies
si(nificantly underperformed the rest of the mar/etJ
Buyin( stoc/s with stron( earnin(s (rowth pro'ed similarly disappointin(J :n this caseG the
&acOuarie analysts ran/ed companies )y e7pected earnin(s (rowth and found that the first
OuintileKthe top F percentKperformed 9ust as poorly as the )ottom OuintileG with the second
Ouintile doin( almost as )adlyJ
&omentum in'estin( didn"t do well eitherJ Althou(h momentum in'estin( is a popular
strate(yG )uyin( stoc/s that ha'e performed well recently doesn"t wor/J &acOuarie ran/ed
eOuities )y their performance o'er the pre'ious three months and found that the first Ouintile
su)seOuently underperformed the mar/etJ The wea/est Ouintile deli'ered the )est returnsJ
:n factG )y far the )est strate(ies for )uyers of Asian stoc/s o'er the last 1 years ha'e )een
classic 'alue8dri'en techniOuesJ Buyin( stoc/s for their di'idend yield wor/s reasona)ly wellG
with the first Ouintile handsomely outperformin( when mar/ets are wea/J
$imply )uyin( the cheapest stoc/s in the mar/et deli'ers the )est returnsG howe'erJ
Accordin( to &acOuarieG the F percent of stoc/s with the lowest price to earnin(s ratios
outperformed the o'erall mar/et ;+ percent of the timeJ
:t has )een e'en )etterG howe'erG to in'est in the cheapest stoc/s ran/ed on a price to )oo/
'alue )asisJ :n this caseG )uyin( the first OuintileK<1G or the cheapest F percent of
stoc/sKhas )een what &acOuarie calls 0a massi'e and consistent outperformerG1 whate'er the
state of the wider mar/etJ :n 'iew of this informationG traders mi(ht do well to incorporate
price to )oo/ 'alue into their fundamental selection criteriaJ
The need to hone stoc/8pic/in( s/ills is o)'iously critical to the performance of any in'estor
or fund mana(erG and was )rou(ht home a(ain recently when a leadin( fund reported the
results of their tradin( for the past wee/ on -cto)er 1@G F1FJ The report mentioned that the
model portfolio returned 1J? percent while the underlyin( inde7 (ained ;J? percentJ -n
e7aminin( the fund"s portfolioG it turned out that althou(h many of the stoc/s had )een in the
ri(ht sectors and had appreciated nicelyG all the (ains were offset )y some underperformin(
stoc/s or 0la((ardsJ1 Csin( the stoc/8screenin( procedure descri)ed )elowG these 0la((ards1
mi(ht well ha'e )een e7cluded from the startG and the performance of the fund would ha'e
(reatly impro'edJ 2e shall ta/e a closer loo/ at two of them =161 2ant 2ant and @@ Dynasty
Fine 2ines> later in the chapterJ
$o how to (o a)out itU The first step is to esta)lish a data)ase of all those shares one has
interest in and load them in a chartin( software pro(ramG such as Trade$tation or &eta$toc/ or
any one of the many others that are a'aila)leJ
AahooX FinanceG #oo(le FinanceG and Ouite a few others pro'ide stoc/ prices and
fundamental data for freeJ -ne may also su)scri)e to a stoc/8screenin( ser'ice or use :nternet
sites such as AahooX Finance or lloooclol 1lmes =at
wwwJftJcom
>G where it is possi)le to compare the price performance with other stoc/s in the same
sectorJ At
wwwJftJcom
G one may run a stoc/ screen )ased on fa'orite parametersG includin( return on eOuityG PS,
ratiosG or preferred price ran(eG and it will screen all the stoc/s listed in ma9or mar/ets around
the worldJ :t is e'en possi)le to use a screener that com)ines )oth fundamental and technical
analysis such as the one pro'ided )y Financial %isualiNations =at
wwwJfin'iNJcom
>J :n addition to the financial ratios the screener identifies stoc/s )ased on technical patterns
or specific candlestic/ formationsJ
:t is assumed the reader has access to a chartin( pro(ram with a stoc/8screenin( functionJ
The e7ample shown in
Fi(ure BJ5
was done )y the ,7plorer screen function in &eta$toc/G )ut 3adar$creen in Trade$tation
can do the screens as wellJ
F:#C3, BJ5
$hows the result of the scan of 1GB1 stoc/s at the close of the .on( *on( $toc/ ,7chan(e on
Do'em)er 1;G F1FJ
The data)ase in
Fi(ure BJ5
comprises a)out 1G+FF of the most acti'ely traded stoc/s on the .on( *on( $toc/ ,7chan(eJ
3ou(hly spea/in(G a)out one8third of the stoc/s are mainland companies listed on our local
)ourseJ A scan of these shares therefore pro'ides an in'estor or trader with an opportunity to
select a stoc/ that is tied in with the dynamic economies of China andSor .on( *on(J
$creenin( the stoc/s is a fairly simple procedureG and we find the followin( three methods in
&eta$toc/"s ,7plorer function most useful: Price and %olume Brea/outG P and F Pattern $earchG
and !on(8Term BullishSBearishJ =&eta$toc/ is owned )y ,Ouis :nternational and some functions
are under the prefi7 ,OuisJ>
:n
Fi(ure BJ5
G &eta$toc/ ,7plorer8,Ouis: Price and %olume Brea/out displays securities where the price is
increased 6 percent and the 'olume is 6F percent a)o'e the 6F8day mo'in( a'era(eJ A total of
5 stoc/s meet these criteriaJ The purpose is to spot stoc/s that are )rea/in( out of a medium8
term tradin( ran(eG or down from itG and then do an astro8screen of those stoc/sG as e7plained
later onJ
:n order to spot stoc/s that )rea/ out of a ran(eG the P and F Pattern $earch in the ,7plorer
can )e useful as wellK0P and F1 meanin( Point and Fin(er chart analysisJ CsuallyG only a few
stoc/s show up in this scanG )ut when they doG it can )e an indication the stoc/ is mo'in( hi(her
or re'ersin(J Fi'e stoc/s were on the list on Do'em)er 1;: 6 .$BC .oldin(sG 1B $wire Pacific AG
@@ .an( $en( . $hare :nde7 ,TFG ++F ,sprit .oldin(sG and 6@B Ports Desi(nG and all had
)ro/en down technicallyJ The wea/ P and F charts indicated the o'erall mar/et mi(ht )e su)9ect
to more near8term sellin( pressureJ
$toc/ in'estors may also consider usin( ,Ouis: !on(8Term BullishG which identifies stoc/s o'er
their FF8day mo'in( a'era(eG and !on(8Term BearishG which identifies stoc/s )elow their FF8
day mo'in( a'era(eJ As mentioned in an earlier chapterG 5F wee/sG that isG FF tradin( daysG is
a widely followed mo'in( a'era(e indicatorG )ut here we are only concerned with the total
num)er of shares a)o'e and the total num)er )elow as a sort of sentiment indicatorJ As of
Do'em)er G F1FG the num)er a)o'eG or )ullishG was ?@FG while the num)er )elowG or
)earishG was 611J The ratio has shifted su)stantially since the onset of the recent correctionG
)ut the readin( may still )e considered )ullish and adds wei(ht to the 'iew that the decline is
correcti'e onlyG and the lar(er uptrend is still intactJ
:ncidentallyG when it comes to financial statisticsG Asia is still far )ehind the Cnited $tates and
,urope in terms of the hu(e ran(e of stoc/ mar/et statistics that is a'aila)le in those placesJ
-ne would e7pect a stoc/ e7chan(e to pro'ide relia)le statistics and historical data for
independent researchT howe'erG for some Asian )oursesG often the daily ad'ance decline
num)ers do not tally and therefore cannot ser'e as a relia)le (au(e of sentimentJ &oreo'erG
the respecti'e 'olume of ad'ancin( and declinin( stoc/sG %:W inde7G and daily data with no
openin( price can only )e o)tained throu(h data 'endorsJ
The ne7t step necessitates ha'in( access to an astrolo(ical software pro(ram such as A:3
&ar/et TraderG Timin( $olutionG or #alactic TraderJ These pro(rams offer multi8search functions
)ased on the 0first8trade1 date and scan the companies accordin( to certain astrolo(ical inputsJ
These inputs include pre'ailin( 0(ood1 planetary aspectsG such as ;F de(ree se7tilesG or 1F
de(ree trinesG and 0)ad1 aspects such as BF de(ree sOuares or 1@F de(ree oppositionsG and
sometimes F de(ree con9unctions as wellJ A num)er of simple models are pro'ided with Timin(
$olutionG so the user doesn"t need to ha'e e7tensi'e /nowled(e a)out astrolo(y and may 9ust
apply the (ood or )ad screens to stoc/sG similar to applyin( the lunar8phased indicatorJ The
result of e'en a simple (ood or )ad aspect scan can sometimes turn up 0nu((ets1 in that the
scan can alert in'estors to a share that has the potential to start rallyin( )efore it actually
)rea/s outJ
:t should )e noted that the 0first trade1 date charts used in multi8search are separate from a
company"s date of incorporation chartsJ :ncorporation charts are drawn up when a company
starts its )usinessG and may indicate somethin( a)out the on(oin( operations of the companyG
such as chan(es in mana(ementG product releasesG or other internal mattersJ First8trade chartsG
on the other handG are )ased on the date and time of the first trade on a stoc/ e7chan(eT that
isG when the company launches its initial pu)lic offerin( =:P->G and tradin( of its shares to the
pu)lic and institutions )e(insJ The first8trade chart is 'ery relia)leG as the time is normally
always the same as the openin( of tradin(J :t used to )e 1F aJmJ in .on( *on(G )ut on &arch ?G
F11G it chan(ed to B:+F aJmJ to )e in line with other e7chan(esJ The first8trade chart relates to
in'estor interest and concernsG and is the more important of the two chartsJ To find the dates
for a first trade data)ase is a time8consumin( 9o)G which may deter some in'estorsJ .opefullyG
the followin( discussion will con'ince some it is worth the effortJ
The first8trade data)ase we are (oin( to use for .on( *on( shares contains @6F stoc/sJ
CnfortunatelyG for a)out F or so leadin( sharesG includin( .$BC .oldin(sG there are no /nown
listin( datesG so those stoc/s could not )e utiliNedJ :t should also )e noted that the total
data)ase of 1G+FF stoc/s mentioned earlier was formed )y addin( 56F other acti'e stoc/s to
the @6F first8trade stoc/sJ
Fi(ure BJ6
shows the first scanJ
Fi(ure BJ;
shows the performance of the stoc/ that was rated at the top of the scanG and which
outperformed the .an( $en( :nde7 =
Fi(ure BJ?
>J
F:#C3, BJ6
The first scan shows how stoc/s rate in a simple (oodS)ad aspect pro(ram with the 1F hi(hest
ran/ed first as of Do'em)er +G F1FJ The top stoc/ in the screenG ?@ $hinhintG already
appeared on the Price and %olume Brea/out in early -cto)erG and a(ain in early Do'em)erJ
5ootce: $er(ey Tarasso' at
wwwJtimin(solutionJcom
J
F:#C3, BJ;
?@ $hinhint daily chart =middle panel> and wee/ly chart =upper panel> at the close on
Do'em)er +G F1FJ Considerin( that the .an( $en( :nde7 dropped from a hi(h of 6GFFF in
early Do'em)er to around +GFFF in the middle of the monthG the stoc/ has held up well and
appears to )e consolidatin( )efore (oin( hi(herJ
F:#C3, BJ?
Daily chart of .an( $en( :nde7 as of Decem)er 1G F1FJ
5ootce:
wwwJad'anced(etJcom
=Dote: ori(inal #,T pro(ram is now sold )y e$i(nal data ser'ice>J
The third hi(hest ran/ed stoc/ in the scanG @++ Alltronics .oldin(s !tdJG has )een mo'in( up
sharply since early -cto)erG and may also )e poised to resume its uptrendJ
:n
Fi(ure BJ@
G Alltronics appeared freOuently in the Price and %olume Brea/out scansG )ut only after it
started its sharp uptrendJ $ince $eptem)erG it showed up repeatedly in the 0(oodS)ad1 astro8
scansG and in'estors could therefore )e on alert that it mi(ht start rallyin( any timeJ
F:#C3, BJ@
Daily chart =lower panel> and wee/ly chart =upper panel> of @++ Alltronics .oldin(s !tdJ as of
Do'em)er +G F1FJ
.owe'erG the standout performer was a relati'ely o)scure company called Pac&-$
Technolo(ies .oldin(s !imitedJ -n -cto)er 1BG F1FG and in the days that followedG it showed
up at or near the top of four different astro8scansG one of which is shown in
Fi(ures BJB
and
BJ1F
J
F:#C3, BJB
0#oodS)ad1 astro8scan from -cto)er 1BG F1FJ
F:#C3, BJ1F
-n -cto)er BG F1FG Pac&-$ TechJ roc/eted to the upsideJ
Bein( a penny stoc/ with an erratic price historyG Pac&-$ mi(ht not )e a stoc/ for
e'ery)odyG )ut it illustrates how an astro8scan can play an important role in tradin(G with the
ca'eat that sometimes the stoc/s that are 0fla((ed1 out in the 0(oodS)ad1 scans do not ma/e a
mo'e for se'eral wee/sJ For e7ampleG num)er four on the list =
Fi(ure BJB
>G 1F Arnhold .oldin(s !tdJG only started to rally at the )e(innin( of Do'em)erG as shown in
Fi(ure BJ11
J
F:#C3, BJ11
2ee/ly chart =top> and daily chart =)ottom> of 1F Arnhold .oldin(s !tdJ from Do'em)er +G
F1FJ The ri))on )ar at the )ottom shows the new moon =D>G full moon =F>G and Ouarter moon
=<> phases =$ection 1KCsin( !unar Cycles in Tradin(>J Dote the Ouarter moon phase often
coincides with C:TsJ
:n other casesG the selected stoc/s remain sta(nantJ .owe'erG those that do mo'e often
outperform the mar/et )y a wide mar(inJ A case in point is ?@ $hinhintG shown in
Fi(ure BJ;
G which rose almost 1F percent on Do'em)er 5G the day after the screen dateJ
The followin( is an e7ample of a dou)le screenin( methodJ Based on the list of a Price and
%olume Brea/out scan in
Fi(ure BJ5
G the ne7t step is to ran/ these stoc/s with a (oodS)ad astro8scan as shown in
Fi(ure BJ1
J
F:#C3, BJ1
#oodS)ad screen of the list of 5 stoc/s in the Price and %olume Brea/out scan from
Fi(ure BJ5
J Four of the stoc/s did not ha'e first8trade date and four did not meet the scan criteriaG so the
list comprises 1; stoc/s onlyJ
&any of the stoc/s on the list )uc/ed the downtrend in the mar/et and continued to rally in
spite of the 1F percent decline in the .an( $en( :nde7 durin( Do'em)er F1FJ Daily charts of
three of the stoc/s are shown in
Fi(ure BJ1+
for illustrationJ
F:#C3, BJ1+
Daily charts of +B6 $ino Dra(on =top>G +1B China &etal =middle>G and 6B Bossini =)ottom> as
of Decem)er 5G F1FJ
The fi'e stoc/s at the )ottom of the astro8scan in
Fi(ure BJ1
did less well than the 1F top8ran/ed onesG indicatin( that the astro8scan pro'ed helpful in
selectin( the stoc/s with the )est potentialJ :t may of course )e ar(ued that 9ust )uyin( all the
stoc/s selected )y the technical )rea/out screen would also ha'e outperformed the mar/etJ
Perhaps soG )ut for in'estors who do not ha'e the means to di'ersify to such a wide e7tentG the
second screenin( )y astro8scan mi(ht )e an ideal solutionJ
This )rin(s us )ac/ to the portfolio with some underperformin( stoc/sG amon( which were
161 2ant 2ant and @@ Dynasty Fine 2inesJ :n
Fi(ure BJ15
G these stoc/s did in fact rally with the o'erall mar/et in the first half of -cto)erG and
appeared initially to )e well chosenJ
F:#C3, BJ15
Daily charts of 161 2ant 2ant =top> and @@ Dynasty Fine 2ines =)ottom>J
2hile the stoc/s ha'e reasona)ly (ood fundamentals and seemin(ly (ood prospects for
(rowthG they declined Ouite sharply in -cto)er and were sold in a re)alancin( of the portfolioJ
.ad the fund mana(er screened them )eforehand usin( 9ust the simple (oodS)ad criteriaG he
would ha'e seen the stoc/s ran/ed poorly in Au(ust and a(ain in $eptem)erG as shown in
Fi(ures BJ16
and
BJ1;
J
F:#C3, BJ16
Astro8scan of 161 2ant 2ant on Au(ust BG F1FJ
F:#C3, BJ1;
Astro8scan of 161 2ant 2ant on $eptem)er BG F1FJ
@@ Dynasty Fine 2ines also ran/ed low in se'eral scansG the latest )ein( at the end of
$eptem)er F1FG as shown in
Fi(ure BJ1?
J
F:#C3, BJ1?
Astro8scan of @@ Dynasty Fine 2ines on $eptem)er BG F1FJ
To sum upG there is little dou)t that the increasin(ly uncertain and 'olatile stoc/ mar/et
en'ironment calls for more unorthodo7 methods in tradin( and particularly in selectin( stoc/sJ
The Ouestion isG will in'estors )e prepared to try somethin( different and somewhat esotericU
.opefullyG this section has pro'ided an in8centi'eJ
C.--$:D# T., B,$T P,3:-D$ F-3 T3AD:D#
The fore(oin( has dealt with some important tools to )ecomin( a successful in'estor or traderJ
-ne aspect that is almost ne'er considered is how to choose the )est periods for tradin(J
Traders use their s/ills to analyNe the mar/etG determine the )est trade setupsG and determine
when to enter and e7it tradesG )ut few pay any attention to their own astrolo(ical cycleJ &ost
people (o throu(h personal cycles of profit and lossG and perhaps more so those who are
en(a(ed in tradin( or fund mana(ementJ $o why not sidestep some of the ris/y or ad'erse
periods and resume tradin( when there is a personal chan(e in trend and a hi(her pro)a)ility
of winnin(U
To )e(in withG what is meant )y the 0)est periods for tradin(1U They areG simply putG those
periods when a person mi(ht )enefit from fa'ora)le astro8harmonic aspects of his or her )irth
chart or natal chartJ :n the case of a companyG its natal chart is the date of incorporationJ
.owe'erG to compile a date of incorporation chart for a company is difficult )ecause it is hard
to o)tain the precise time of incorporation of most companiesJ ThusG for the purpose of this
sectionG natal charts of a company are )ased on the first8trade chartsG that isG the first day of
tradin( in the stoc/ of a company on an e7chan(eJ
Ad'erse periods are those when the aspects are stressful or inharmonious to one"s natal
chartJ For day traders and other professionals who trade freOuentlyG it may )e useful to /now
when the planetary influences are in their fa'or and when they are notJ *nowin( the influence
of the planets could also )e critical in situations where decisions ha'e to )e made a)out 'ery
lar(e in'estmentsG whether short8term or lon(8termJ :t is already common practice amon(
some traders to use pre'ailin( stoc/ mar/et cycles to pro9ect li/ely chan(e in trend datesG )ut
they mi(ht )enefit as well from incorporatin( astro8forecastin( techniOues in their analysis
wor/J
Fi(ure BJ1@
is an e7ample of a first8trade chart of 1F1F Pac&-$ Technolo(ies .oldin(s !tdJ The inner
wheel shows the horoscope of the natal chartG that isG the day of the first trade on Fe)ruary 1@G
1BB5J The outer wheel shows the aspects of the transitin( planets to the natal chart on -cto)er
BG F1F when the company"s shares shot up sharply as shown in
Fi(ure BJ1F
J
F:#C3, BJ1@
1F1F Pac&-$ Tech first8trade chart with transitin( planets on -cto)er 1BG F1FJ The natal
Part of Fortune =P-F> is au(mentedG )ein( on an(le and fa'ora)ly aspected )y natal HupiterJ The
chart shows how Hupiter and the &oon"s aspect to the P-F helped tri((er the hu(e mo'e in the
price of the stoc/J A more detailed e7planation of the importance of the Part of Fortune is
pro'ided later in the chapterJ
5ootce: $olarFire@G Astrola)e at
wwwJala)eJcom
J
Althou(hG in (eneralG the su)9ect of this chapter is financial astrolo(yG the emphasis in this
section is more on learnin( natal =personal> astrolo(yG so that a trader or in'estor may identify
those periods that are more fortuitous for him or her to tradeJ &any financial astrolo(ers will
trade )ased on the analysis of transits to a company"s first8trade chartG )ut e7perience indicates
that the focus should )e more on personally fa'ora)le periods rather than more (enerally
fa'ora)le periods for stoc/ chartsJ The reason is simply that if one has unfa'ora)le or hard
aspectsG such as BF de(ree sOuaresG to planets in the 0money housesG1 or to planets rulin( those
houses in one"s natal horoscopeG it may result in losses in tradin(J -ne may pic/ a stoc/ with
presuma)ly (ood potentialG )ut )ecause of the hard aspects to one"s personal horoscopeG one
may o'erloo/ somethin( important or circumstances may suddenly chan(e in unforeseen waysJ
Tradin( durin( unfa'ora)le transits should therefore )e a'oidedJ :t is hoped that the followin(
introductionG al)eit )riefG will ena)le traders to learn some )asic astrolo(ical techniOuesJ These
techniOues can help them analyNe their )irth charts so they can ta/e ad'anta(e of the fa'ora)le
periods and curtail tradin( durin( unfa'ora)le onesJ -nce the )asics of natal astrolo(y ha'e
)een masteredG many of the same principles can )e applied to analyNin( stoc/ chartsG althou(h
the terminolo(y and the rulership definitions differJ For easy referenceG definitions of )oth
personal and financial rulerships are included in Appendi7es 1 and +J
:t is of course possi)le that an in'estor or trader is not tradin( for himself )ut for an
or(aniNationG and where natal astrolo(y does not apply to the same e7tentJ :n such a caseG it
may )e useful to analyNe the first8trade chart on the )asis of the introduction to astrolo(y
pro'ided in the followin( para(raphsJ .owe'erG it is recommended that traders screen their
trades )y the stoc/8selection method in the pre'ious sectionG 0.ow to Pic/ 2innin( $toc/sJ1
Astrolo(y isG to Ouite a lar(e e7tentG a mathematical discipline )ased on astronomyJ Applied
properlyG it will ena)le traders to Ouite accurately forecast periods of increased mar/et 'olatility
and financial insta)ilityJ Financial astrolo(ers chart )oth intermediate and lon(8ran(e trendsG
reflectin( the mo'ement of the hea'enly )odies and their influence on people on ,arthJ $ome
may Ouestion how the planetsG )ein( so far awayG can e7ert any influence on life on ,arthG or
they may simply ha'e no interest in astrolo(yJ DonethelessG if they are willin( to study the
su)9ect a little moreG they may )e surprised at how often cosmic e'ents or specific positions
and aspects )etween the planets correlate with terrestrial e'entsJ
:t used to )e that traders cared more a)out whether a methodolo(y was accepta)le and
lo(ical than they did a)out the resultsJ .owe'erG that appears to )e chan(in(G 9ud(in( from the
(reat interest shown at recent seminars when spea/ers introduced more esoteric methods of
tradin( the mar/etsJ The ne7t (eneration of traders seems more willin( to try new approachesG
perhaps spurred in part )y the more ad'anced tradin( software pro(rams that are now
a'aila)leJ
!earnin( astrolo(yG howe'erG with all its stran(e sym)ols and terminolo(yG can still )e
intimidatin(J This section is an attempt to shorten the learnin( cur'eG so at least one aspect of
the craft can )e appliedJ :t willG of courseG still ta/e some effortG )ut users are almost certain to
(ain an ed(e on the mar/et and ultimately )e amply rewardedJ
:n factG a trader mi(ht not need to /now that much a)out astrolo(y to use some of these
methodsJ A:3 &ar/et Trader software has a module called &illennium $tar Tra7J Csin( this
pro(ramG a person may simply input his or her )irthplace and date and time of )irthG and the
pro(ram will calculate the li/ely future trend for certain areas of lifeG includin( financial areasJ :t
is also possi)le to produce a (eneral forecastG showin( periods that are li/ely to )e harmonious
and those that may )e stressful in histo(ram or line formatJ
.owe'erG to master the su)9ect for ma7imum )enefitG it is still necessary to learn the )asics
of natal and financial astrolo(yG and hopefully the followin( introduction will help traders (ain a
Ouic/ insi(ht into a su)9ect that mi(ht otherwise easily ta/e months of studyJ
Astrolo(y can )e )afflin( at firstG )ecause it in'ol'es a different /ind of lan(ua(e or wisdomJ
There are four parts to any )irth chart: planetsG si(nsG housesG and aspectsJ The astrolo(ical use
of planetsG the house systemG and the aspects has e'ol'ed since astrolo(y"s earliest recorded
)e(innin(s a)out 6GFFF years a(oJ Archaeolo(ists unco'ered e'idence that the $umeriansG as
early as BFF )JcJeJG )uilt temples in the form of Ni((uratsG or terraced pyramidsG to o)ser'e the
stars and planetsJ The Ba)ylonians de'eloped astrolo(y furtherG as e'idenced in their clay
ta)lets from around 6FF )JcJeJ The ta)lets contain lists of lunar and planetary o)ser'ations that
were usedG amon( othersG to predict whether the most common commoditiesG )arleyG datesG
and sesame would prosperJ The careful recordin( of prices indicates the Ba)ylonians were
chartin( the mar/ets and sou(ht to predict future prices much li/e modern8day technicians doJ
.owe'erG it was the #ree/s who made the )i((est contri)utionsG throu(h their refinement of
the house system and use of Ptolemaic aspects from Ptolemy"s )oo/ on astrolo(yG 1ettoblblosJ
To(etherG these de'elopments ena)led more accurate measurements and predictions to )e
madeJ
There are many constellations in the s/yG )ut )y traditionG 2estern astrolo(ers use the
tropical Nodiac of the si(nsJ &ost are familiar with this NodiacG which )e(ins each year at the
'ernal eOuino7G the first day of sprin( on a)out &arch 1G at F de(rees AriesJ A horoscopeG or
)irth chartG is a dia(ram of the precise positions of the planets in the s/y at the moment of
one"s )irthJ :t is di'ided into 1 eOual se(ments to reflect the 1 constellations of the NodiacJ
-ne of the 1 Nodiacal si(ns will )e on the cusp of each houseG that isG the point at which it
)e(insJ :n a horoscopeG the $un and planets are shown in the rele'ant Nodiacal si(ns and houses
for the date and time of )irthJ The house system can )e thou(ht of as 1 areas of influenceG and
its de'elopment has its ori(in in thousands of years of o)ser'ationJ -'er the millenniaG it was
found that certain areas of the constellation in the s/y corresponded to different areas of lifeJ
Fi(ure BJ1B
is an e7ample of a horoscope showin( the 1 houses with the Nodiacal si(ns in their
0natural1 orderT that isG Aries on the cusp of the first houseG Taurus on the second houseG and so
forthJ :n additionG there are four important points on an(les: the AscendantG &idhea'en =&C>G
the DescendantG and :mmun Coeli =:C>J The Ascendant is the si(n and de(ree of the Nodiac risin(
o'er the eastern horiNon at )irthG indicatin( the time one is )orn or when a company"s stoc/
started to tradeJ The Ascendant si(nifies a person"s or company"s appearance to the pu)licJ The
Ascendant or 0risin( si(n1 can only )e calculated with an e7act )irth timeJ
F:#C3, BJ1B
,7ample of a horoscope showin( the 1 houses with the Nodiacal si(ns in their natural orderJ
The &idhea'enG or &edium CoeliG is the cusp of the tenth house in the chartJ :t reflects the
location of the $un at midday of the time and place where one was )ornJ :t si(nifies careerG
statusG and pu)lic ima(eJ :t is the second most powerful point followin( the AscendantJ Because
it is on an an(le as one of the four cardinal pointsG any planet placed near it is e7tremely potentG
either fa'ora)ly or unfa'ora)lyG dependin( on the nature of the planet and the aspects it ma/es
in the chartJ
The DescendantG also referred to as the 0settin( si(nG1 represents our relationship to those
around us and those whom we attract into lifeJ :t may )e defined in short as 0relatin( to
othersJ1
The :mmun CoeliG or :CG on the cusp of the fourth houseG is most closely associated with
issues relatin( to homeG the pastG familyG and domestic concernsJ
There are many techniOues for ma/in( predictionsJ .owe'erG in this discussionG we shall only
)e usin( the transitin( planets and their position in the s/y at any (i'en moment relati'e to the
natal planetsJ The term 0transit1 refers to the position and motion of the planets in the s/y at
any (i'en timeJ
The planets and the respecti'e houses that they rule are most important in helpin( to
identify fa'ora)le tradin( periodsJ This information for )oth natal and financial astrolo(y is
listed in the ta)le that followsJ The interpretations for the traditional house system and aspects
are listed in Appendi7es 1 and J The common interpretations for the Nodiac si(ns are listed in
Appendi7 +J $ome readers mi(ht need them later on )ecause they constitute an important part
of astrolo(yJ
Althou(h the $un and the &oon are not planets as suchG they are (rouped to(ether with the
ei(ht other planets and the houses they ruleJ
Planet .ouse Eodiac $i(n
$un 6th house of children and minorsJ
$ports and recreationG romanceG ho))ies and (am)lin(G places of
entertainmentJ
Financial: $peculationSstoc/ mar/etsG stoc/)ro/ersG precious
metalsJ
!eo
&oon 5th house of family and propertyJ
3etailG health careG household productsG restaurantsJ
Financial: Trend8followin(G real estateG minin(J
Cancer
&ercur
y
Co8ruler of +rd and ;th housesJ
CommunicationG mediaG short8distance tra'elJ
Financial: Day8tradin(G stoc/sG a(entsG contractsG truc/in(G
telecommunicationsG transportationG footwearJ
#eminiS%ir(o
%enus Co8ruler of nd and ?th houseJ
ApparelG cosmeticsG fashionG recreationG retailersJ
Financial: BondsG in'estorsG financial securityJ
TaurusS!i)ra
&ars 1st house of personalityJ
AppearanceG self ima(eG sportsJ
Financial: .ot stoc/sG dealsG optionsG startupsG contrariansG steelG
defenseG industrial machineryG diamondsJ
Aries
Hupiter Bth house of hi(her educationG lon(8distance tra'el and
communicationJ
Forei(nersG forei(n affairsG pu)lishin(G the mediaJ
Financial: :n'estin( for (rowthG speculationG )an/ersG )ro/ersG le(al
matters and courtsJ
$a(ittarius
$aturn 1Fth house of career and professionG pu)lic wor/J
Financial: %alue in'estin(G shortin(G farmsG real estateG minesG
utilitiesG and capital (oodsJ
Capricorn
Cranus 11th house of pro9ectsG friendsG astrolo(yJ
Financial: :P-"sG e7ploration and disco'eriesG telecommunicationsG
aerospaceG computers and technolo(yJ
AOuarius
Deptun
e
1th house of institutionsG entertainmentG to)accoG alcoholic
)e'era(esG and mo'ie industryJ
Financial: $tory stoc/sG rumor playsG 'enture capitalG chemicalsG
Pisces
pharmaceuticalsG natural (asG oilJ
Pluto @th house of )irthG deathG se7ualityG inheritanceG partner"s
monetary concernsG in'estmentsJ
Financial: Bi( )usiness and moneyG mer(ers and acOuisitionsG
turnaround candidatesG insider tradin(G mineral resourcesG
)iotechnolo(yG insuranceG nuclear powerJ
$corpio
:t should )e noted that many industries share more than one planet andSor houseJ For
e7ampleG telecommunications is )est descri)ed as Cranus =telecommunication> plus &ercury
=communication>J
The astrolo(ical sym)ols for the planets and Nodiacal si(ns are shown in
Fi(ure BJF
G to(ether with astrolo(ical sym)ols for the main aspectsJ There are two harmonious aspects
and three inharmonious onesJ The harmonious are the ;F de(ree =se7tile> and the 1F de(ree
=trine> aspectsG the second of which is the stron(erJ 2hen the trine aspect is in effectG it often
facilitates a fa'ora)le outcomeJ The inharmonious aspects are the 56 de(ree =semi8sOuare>G the
ma9or BF de(ree =sOuare>G and the 'ery stron( 1@F de(ree =opposition> aspectsJ Planets are in
con9unction =F de(rees> when they occupy the same or almost the same de(reeJ The effect of
con9unction can )e fa'ora)le or unfa'ora)le dependin( upon the planets in'ol'edJ &ore
information a)out the aspects and their interpretation is included in Appendi7 J
F:#C3, BJF
Astrolo(ical sym)olsJ
The patterns chan(e endlessly throu(hout lifeJ The aspects formin( )etween the planets
allow us to /now in ad'ance when there will )e difficulties to o'ercome and when there is a
producti'e time to actJ
For e7ampleG stressful aspects of planets in transit to the planets rulin( the si(ns of the
0money1 housesG that isG the secondG fifthG ei(hthG and ele'enth housesG andSor planets
occupyin( those houses in one"s chart are nearly always a warnin( not to tradeG or to at least
reduce tradin(J Traders will find that the most profita)le times for tradin( are when the ri(ht
aspects ali(n fa'ora)ly with the position of their money planetsJ The aspects of transit planets
ha'e )een listed in
Ta)le BJ1
J
Ta)le BJ1
Fa'ora)le Aspects of Transit Planets
Chec/in
( -rder
Aspects of Transit Planets Comments
1 Transitin( %enus and Hupiter in se7tile or
trine aspects to either natal $unG HupiterG or
PlutoJ
,ither one of these aspects may )e
fa'ora)le and tradin( can )e more
a((ressi'eJ
Transitin( $un con9unct Ascendant or natal
Hupiter or PlutoJ
Can )e fa'ora)leG )ut mostly for
day tradin(J
+ &ars trine natal %enus or HupiterJ Fa'ora)le usually for day tradin(J
5 Transitin( CranusG DeptuneG or Pluto in
fa'ora)le aspects to natal %enus or HupiterJ
Fa'ora)le and may enhance tradin(
resultsJ
6 Transitin( Hupiter in con9unctionG se7tileG
sOuareG trineG Ouincun7G and opposition
aspect to Part of Fortune =P-F> can )e 'ery
fa'ora)leJ P-F will )e dealt with in more
detail at the end of this sectionJ
Fa'ora)leJ ,'en the sOuare and
opposition aspectsG which are
considered hard aspectsG may
tri((er )eneficial de'elopmentsJ
Fi(ure BJ1
is a nati'e"s hypothetical )irth chartG drawn up for the time and place he was )orn in ChinaJ
:n interpretin( the chartG note first that the $un and the &oon are con9unct in the si(n of
$corpio in the second house of moneyJ De7tG ta/e note of the Ascendant or risin( si(nG )ein(
the most important point in the chartJ :n this caseG it is in !i)raG and pro'ides clues as to the
personality of the nati'e and how he may appear or pro9ect himself outwardlyJ Proceed to the
&idhea'enG in CancerG and note the /ey characteristics of that si(nJ De7tG loo/ at planets or
points that are close to one of the four main or cardinal an(lesG as any an(ular position always
has (reater importanceJ :n the chart shownG the point called Part of Fortune =P-F>G to )e dealt
with in (reater detail laterG is almost e7actly con9unct the AscendantG reinforcin( the influence
of this fortuitous pointJ
F:#C3, BJ1
Datal chart of a trader who has made and lost se'eral fortunesJ
De7tG note the hea'y ,astern .emisphere emphasis in the chartT that isG nearly all the planets
are to the left side of the chartG denotin( a person who is more li/ely to e7ert control o'er his
lifeG or shape his own destinyJ Planets on the 2estern .emisphere side =ri(ht side> often
indicate a person who depends more on appro'al from others and who tends to (o with the
flowJ
There is a stellium =three or more planets con9unct> of planets in the second house of moneyG
underscorin( an emphasis on acOuirin( wealthJ
FinallyG pay close attention to the aspects )etween the 'arious planets in the chartJ Dote the
1F de(ree trine aspect )etween Hupiter in the tenth house of career to %enus in the second
house of moneyG which is 'ery fa'ora)le for acOuirin( wealthJ HupiterG howe'erG is also in
opposition to &arsG which in the author"s e7perience often si(nifies: can ma/e a fortuneG can
lose a fortuneX
There isG of courseG much more to delineatin( a chartJ $ome of the )oo/s listed in the
Bi)lio(raphy deal e7tensi'ely with the su)9ectG and may )e of further helpJ
-n Decem)er ?G F1FG the transitin( planets were in aspects with the planets in the chart
shown in
Fi(ure BJ1
J The trader"s natal chart is displayed in the inner wheelG and the transitin( planets are in the
outer wheelJ The eOual house system has )een used to di'ide the chart into 1 e'en housesJ
-ther popular systems include PlacidusG *ochG and TopocentricG to mention a fewG )ut to start
withG it is recommended that readers use the eOual house systemJ There areG in allG a)out 1F
different systemsG )ut the 0an(les1 of the natal chartG such as the Ascendant and &idhea'enG
are always the sameG re(ardless of which house system is )ein( usedJ
:n (eneralG the outer planetsG CranusG DeptuneG and PlutoG when in fa'ora)le aspect to %enus
andSor HupiterG can )rin( wealthJ Transitin( Cranus to Hupiter or %enus can lead to a suddenG
une7pected windfallJ The person charted in
Fi(ure BJ
may )e the recipient of some financial reward or may ad'ance in his career when )oth
transitin( Hupiter and CranusG in Pisces in the si7th houseG mo'e forward to ma/e a 1F de(ree
trine aspect to natal HupiterSCranus in the tenth house in the third wee/ of Hanuary F11J At
that timeG the aspect will )e e7actG and this can )e pro9ected )y any astro8pro(ram or loo/ed up
in an ephemerisG as e7plained further onJ The fa'ora)le aspects of transit planets are shown in
Ta)le BJ1
J .owe'erG the outer planets mo'e 'ery slowlyG and fa'ora)le or )eneficial aspects from
them will not happen oftenJ :t is therefore important to also follow the transits of two of the
faster mo'in( planetsG %enus and HupiterJ 2hen they are in harmonious aspects to natal $unG
HupiterG or PlutoG there is a hi(her pro)a)ility that tradin( acti'ities will )e profita)leJ
$ometimes transitin( $un con9unct our AscendantG or Pluto and transitin( &ars trine to natal
%enusG can ha'e the same effectJ :t mi(ht )e helpful to ma/e a chec/listG as shown in
Ta)le BJ1
J
F:#C3, BJ
Transits to natal planets on Decem)er ?G F1FJ
The planets" mo'ementsG as mentioned )eforeG can )e loo/ed up in an ephemerisG which is a
set of ta)les that list the 0ephemeral1 or chan(in( positions that each solar8system )ody will
occupy on each day of the yearJ The ephemeris contains a phenomena section that e7plains
how to read the different si(ns and (lyphsJ :n timeG many will find a manual ephemeris to )e an
indispensa)le tool for identifyin( in ad'ance potential fa'ora)le aspects to a certain chart
pointJ For )e(innersG howe'erG it may )e easier to 9ust use an astrolo(ical software pro(ram
that lists the transitin( planets automatically to a certain chart pointG and which pro'ides
interpretations of aspects )y clic/in( on the planets in'ol'edJ
!et"s proceed now to the last part of the )irth chartG the Part of FortuneJ
The Part of FortuneG or P-FG can )e traced to ancient timesJ But it was a te7t written )y Al8
BiruniG an Ara) astrolo(er that made the so8called Ara)ic parts more /nownJ Al8Biruni li'ed in
the late &iddle A(esG when the most interestin( research and uses of astrolo(y occurred in the
Ara)ic worldJ There are historically + different Ara)ic parts includin( parts of deathG illnessG
marria(eG 9ourneysG and so onJ They are points constructed on the mathematical calculations of
two or three componentsG such as planets or house cuspsJ
.owe'erG only the Part of FortuneG which can )e calculated on most computer pro(ramsG is
now in common useJ $ince P-F is )ased on the lon(itude de(rees of the $unG &oonG and
AscendantG three of the most important places in the horoscopeG it )ecomes as important as
they areG a fact that is sometimes o'erloo/edJ -nly the &idhea'en is as importantG )ut )ecause
the P-F is )ased on three components onlyG the &C is e7cluded from the calculationJ
The P-F sym)ol is the circle around a crossG shown in the pre'ious fi(uresG and is placed in
the natal chart accordin( to this formula:
Day )irths =aJmJ>: Fortune 4 Ascendant"s lon(itude de(ree position plus &oon position
minus the $un"s de(ree positionJ For ni(ht )irths =pJmJ>G the &oon and $un"s position are
re'ersedJ
P-F is interpreted as )ein( a primary indicator of prosperityG and its position in the natal
chart shows where and how a person may (ain honorsG ma/e moneyG or )e luc/y durin( his lifeJ
Transits to P-F )rin( opportunities for (ainG as the followin( e7amples will illustrateJ 2hen
transitin( Hupiter con9uncts P-F in the natal chartG it is often a time when a person may )enefit
materially or ad'ance in his or her careerJ The synodic cycle =one complete or)it relati'e to the
$un> for Hupiter is a)out 1 yearsG so it will not )e of much interest for those who trade
freOuentlyJ .owe'erG the other aspects mentioned in the chec/list in
Ta)le BJ1
ha'e )een found to tri((er fortunate e'ents as wellJ $oG in realityG there is a )eneficial
aspect )etween transitin( Hupiter and P-F a)out e'ery two yearsJ -f courseG not all may )e as
fortunate as when there is a con9unction )etween Hupiter and P-FG which is the stron(est
aspectG )ut traders may still find it worthwhile to ma/e a note in their calendar when any of
these e'ents occurJ
To wor/ out their own horoscopeG traders may want to use a freeware astro8pro(ramG or (o
to
wwwJastrodienstJcom
G which pro'ides a comprehensi'e chart ser'ice that includes a function to plot Ara)ic partsJ
2rite down the si(n and the de(ree position of the P-FG as well as the de(ree position of
transitin( HupiterG and use a software pro(ram or an ephemeris to determine when the aspects
culminate or )ecome e7actJ
:t is also possi)le to plot important astrolo(ical e'ents with Timin( $olutionJ For instanceG
aspects can )e plotted with Timin( $olution and e7ported to ,7celG or a special calendar formatG
and it is then easier to follow the periods when a (ood influence mi(ht manifestJ As users
pro(ressG they may wish to include other fa'ora)le aspectsG such as transitin( %enus and Hupiter
in se7tile or trine aspects to PlutoG or some of the other aspects mentioned in the chec/list in
Ta)le BJ1
J
:t should )e noted that when a transitin( planet approaches an aspect to a natal planetG it is
said to )e 0applyin(J1 Con'erselyG after it has reached con9unction and is mo'in( away it is said
to )e 0separatin(J1 The applyin( effect is usually stron(er than the separatin( oneG )ut in the
case of transitin( Hupiter to P-FG the effect is often the oppositeG so the )eneficial effects of
Hupiter"s contact may only manifest after the e7act con9unctionG not )eforeJ The or) =sphere of
influence of an aspect> should )e set fairly ti(ht at no more than de(reesJ
The nati'e in the chart in
Fi(ure BJ+
recei'ed lar(e orders for his )usiness when transitin( Hupiter was con9unct his natal P-F and
natal Hupiter on Do'em)er 1BG FF?G as is shown in
Fi(ure BJ5
J 2hen the natal P-F is con9unct natal HupiterG the chances of luc/y )rea/s are (reatly
enhanced to )e(in withJ
F:#C3, BJ+
Datal chart of a person en(a(ed in tradin(J
F:#C3, BJ5
Transitin( Hupiter con9unct with the natal Hupiter and natal P-F on Do'em)er 1BG FF?J
Fi(ure BJ5
has )een drawn up usin( the Placidus house systemG which causes the an(les to )ecome
somewhat s/ewed when the su)9ect is )orn at hi(her latitudesG )ut this house system reflects
the person more accuratelyJ Dote that the &oon and %enus are at the cusp of the second
house of moneyG denotin( a stron( focus on material possessionsJ Cranus is in the fifth house
of speculation opposed )y HupiterG which may at times manifest in o'erestimatin( oneself and
en(a(in( in ris/y 'enturesJ
The same natal chart is shown in
Fi(ure BJ6
with the transitin( planets in the outer wheel as of Decem)er ?G F1FJ
F:#C3, BJ6
Transitin( Hupiter and Cranus are mo'in( to e7act con9unction with natal %enus in the second
house of money around the person"s )irthday on Fe)ruary 1+G F11J Because the synodic cycle
of Cranus is a)out @5 yearsG it is a rare e'ent for transitin( Hupiter and Cranus to )oth con9unct
with natal %enus at the same timeJ :t is li/ely to result in a lar(e financial )oostJ
&A3*,T P3-H,CT:-D
Can we predict the mar/et usin( astrolo(ical methodsU Forecastin( the pro)a)ility of mar/et
direction has )een the primary (oal of e'ery trader since early timesJ 2hen will the mar/et
ma/e a pea/U -r when will it ma/e a trou(hU These are e'eryday Ouestions in the mind of
e'ery traderJ The a(e8old mar/et prediction method of usin( ad'anced mathematical
calculations and historical economic dataG sector dataG and price data has )een the cornerstone
of ma/in( mar/et forecastsJ And it is still the most accepta)le methodJ But the method wor/s
well only when the mar/et is not su)9ect to so much 'olatilityJ The world today is pla(ued with
uncertainties caused )y natural disastersG man8made disastersG military conflictsG political
unrestG and corporate fraud and scamsG occurrin( at une7pected freOuent inter'alsG seemin(ly
without endJ ThereforeG the old methods seem inadeOuate to ma/e a reasona)ly relia)le
prediction of mar/et mo'ements todayJ
The stoc/ mar/et is too sensiti'eG too erratic and chaotic for such )asic forecastsJ The chan(e
of 'alue of the shares is always related to future e7pectationsG not the supposed correct 'alue
at the moment of tradeJ :t is in these challen(in( circumstances that prediction usin( financial
astrolo(y adds its 'alue as a complement to the traditional method )y re'ealin( another
dimensionJ Forecasts made usin( the planetary mo'ements throu(h the Nodiac can increase the
odds in fa'or of the trader si(nificantlyJ 2hile some traders continue to use traditional
methods and scoff at financial astrolo(yG astro8harmonic analysis is ne'ertheless (ainin( more
widespread acceptanceJ $ince the turmoil in the mar/ets that )e(an in FF@G a (rowin( num)er
of tradersG includin( some at lar(e institutionsG ha'e adopted astrolo(ical analysis to )oost the
results of their tradin( decisionsJ They realiNe that com)inin( fundamental and technical
analyses with financial astrolo(y can impro'e the performance of their tradin(J The ad'anta(es
of /nowin( in ad'ance pro)a)le ma9or price re'ersals for a stoc/ throu(h astrolo(ical methods
are incalcula)leJ
&oreo'erG todayG usin( financial astrolo(y for readin( mar/ets has )ecome easier for usersJ
The phenomenal de'elopment of software applicationsG especially in the last decade or soG has
helped spur wider use )y tradersJ :t is now possi)le to underta/e comple7 analysis of economic
cycles and e7amine the e7tent to which planetary constellations correlate with mo'ements in
financial mar/etsG includin( the Fore7 and commodities mar/etsJ ,'en phenomena such as
sunspot acti'ityG tidal flowsG and other factors can )e studied to see if they correlate with
terrestrial e'entsJ $tillG of courseG the main purpose is to measure the relationship )etween
planetary mo'ements and the mar/ets and ma/e use of them in tradin(J
:n this re(ardG the e7panded capa)ility of computer pro(rams adds a new dimension to
technical analysisJ They offer a hy)rid of common technical analysis techniOues =chartin( tools
and indicators> and modern math methods =neural networ/s and applied statistics>G measurin(
astro8cycle correlations and pro'idin( the opportunity to model the mar/etJ A few e7amples of
these techniOues are shown in
Fi(ures BJ;
throu(h
BJ+5
J For the e7amples shownG the ad'anced 'ersion of Timin( $olution has )een usedJ
F:#C3, BJ;
Pro9ection chart from Decem)er +FG FFBG showin( the simple pro9ection line for the Dow for
the first Ouarter of F1FJ
F:#C3, BJ+5
Planet aspects as well as the in(resses of the $un =dar/ (reen>G &ercury =dar/ red>G %enus
=dar/ )lue> and &ars =cyan> into new Nodiacal si(nsG as applied to the .an( $en( :nde7J At the
end of HulyG three planets enter into new si(nsG which may correlate with a C:T in the .an( $en(
:nde7J
Fi(ure BJ;
shows a mar/et pro9ection as of Decem)er +FG FFBJ BrieflyG the composite module
calculates the pro9ection line )ased on how 'arious astro8cycles relate to the first8trade chart
and the historical data on a daily )asisJ :t includes optimiNin( the correlation )etween the
pro9ection line and the relati'e price oscillator =3P-> to ensure the closest possi)le matchJ 3P-
is similar to 3$:G )ut has )een de8trended in order to smoothen the price swin(s o'er a lon(er
periodJ The optimiNed composite result is loaded into the Deural Detwor/ moduleG which ta/es
all the criteria that were part of the setup and analyNes the historical price data a(ainG usin(
artificial intelli(ence and fuNNy lo(ic math to educate itselfJ The results are used to ma/e future
pro9ectionsJ
Fi(ure BJ?
shows a )ar chart of the ensuin( mar/et action for comparison with the pro9ectionJ :n this
chartG the mar/et made its low accordin( to the time and 'alue of the forecastG and a chan(e8
in8trend followedJ The mar/et forecast is not an e7ecution of trade entry or e7it si(nalsJ :t
merely pro9ects the direction in which the mar/et is li/ely to mo'e and where there are areas of
ris/ to tradersJ :t helps traders )etter plan their trade and money mana(ementJ The accuracy of
a hy)rid mar/et forecast willG to some e7tentG depend on the amount of historical data and
other information a'aila)leJ $ome traders find that the lar(er the data)aseG the )etter the
pro9ectionJ .owe'erG )ecause cycles chan(eG a four8year period seems to yield the most
consistent resultsJ :t should also )e noted that the scalin( of the pro9ection line is rarely 1FF
percent accurateG )ut can only ser'e as an indication of the li/ely future trend of the mar/etJ
Fi(ures BJ@
P
BJ++
show e7amples of pro9ection lines applied to a stoc/G #oldG and the $IP 6FFG respecti'elyG
compared with the su)seOuent mar/et actionJ
F:#C3, BJ?
Daily price chart of the DH:AJ The interim low was on Fe)ruary @G F1FG a few days )efore the
pro9ected low of Fe)ruary 1J The forecast correctly pro9ects a su)seOuent trend chan(e to the
upsideJ Csin( technical indicatorsG a trader would )e prepared to (o lon( as soon as the )uy
si(nal was tri((eredT for e7ampleG when the price crossed the (reen line =1@8D&A>J
F:#C3, BJ@
Pro9ection chart as of -cto)er +G F1FG for 66 !un( *ee .oldin(s !tdJ The su)seOuent actual
mar/et prices are shown in
Fi(ure BJB
J
F:#C3, BJB
Daily chart of 66 !un( *ee .oldin(s !tdJ The forecasted dou)le top did ta/e placeG )ut the
scalin( of the second pea/ in the red pro9ection line is mar(inally offJ
F:#C3, BJ+F
Pro9ection chart of #oldG showin( astro8cycles =)lue and (reen lines>J
F:#C3, BJ++
Daily price chart of the $IP 6FFJ
:n the final chartG
Fi(ure BJ+5
G the planetary aspect )ars are a(ain shown for the .an( $en( :nde7J :n additionG the chart
shows the in(ressG or entranceG of the $unG &ercuryG %enusG and &ars into a new Nodiacal si(nJ
2hen the $un left the si(n of #emini on Hune 1G F11G it then entered into Cancer at FF
de(reesG FF minutesJ As can )e seenG when the $un ma/es its in(ress into a new Nodiac si(nG it
often correlates with C:TsG althou(h occasionally it is one of the other planets that correlatesJ
3eaders who are interested in studyin( the su)9ect further may find more information at:
wwwJastroJcomSswissephSswephaeJhtm
J $croll down to the 0$un si(n in(resses1 section and select the year ran(e =
wwwJastroJcomSswissephSaeSisunFFFJpdf
>J :t lists the e7act dates and times for the in(resses that yearG calculated in #reenwich &ean
TimeJ
F:#C3, BJ+1
Daily price chart of #oldJ
F:#C3, BJ+
Pro9ection chart of the $IP 6FF made on Hune G F1FJ :ncludes #ann sOuares as well as
ellipse linesJ Dote the completion of a #ann sOuare coincides with the interim low in price on
Au(ust ?G F1FJ The red pro9ection line did also match the hi(h on Au(ust ;G )ut the pro9ected
low around the middle of $eptem)er was offJ
C-DC!C$:-D
The charts in this chapter ha'e shown the correlation )etween the planetary cycles and the
financial mar/etsJ De'erthelessG some may still as/G what is the underlyin( physical mechanism
)y which astrolo(y wor/sU :n other wordsG how does a celestial o)9ect from as far away as B
)illion miles e7ert influenceU
Australian astrolo(er Alice &cDermott su((ests thatG instead of loo/in( at it from the
perspecti'e of a tiny little life form on a smallish planet in a solar system on the ed(e of a
(ala7yG we should try to see the Ouestion from a solar system perspecti'eJ
The ,arth is a part of a solar systemJ From the ,arth"s point of 'iewG it is part of the structure
of this solar systemG 9ust as our (all )ladders are part of our o'erall physical structureJ 2hat we
see as 'ery lon( distancesG millions of milesG are actually Ouite small from a solar system
perspecti'eJ All the planets in this solar system are all part of the same life force and all
influence each otherJ
As we are all part of the ,arthG naturally we are all affected )y what (oes on in our own solar
systemG and )y the planets that are part of that structureJ
:n essenceG astrolo(y wor/s throu(h harmonic resonanceJ ,'erythin( resonates with
e'erythin( else and a 'ariety of indi'idual ener(ies =certain starsG planetsG peopleG animalsG
plantsG insectsG etcJ> can resonate alon( the same 'i)rational linesG there)y ha'in( a stron(
connectionJ
$oG as the cosmos mo'esG so does life on ,arthJ The tas/ faced )y astrolo(ers since early
times has )een to correlate the sym)olic lan(ua(e of astrolo(y with e'ents here on ,arthJ :t is a
dauntin( tas/J But anyone practicin( astrolo(y in earnest realiNes after a while that we humans
ha'e in fact )een (i'en the toolsG ancient tools that ha'e withstood the test of timeG to ad'ance
in our understandin( of the uni'erseJ For the financial astrolo(erG the 9o) has )een made easier
to some e7tent )y powerful software pro(ramsJ :t mi(ht )e imprudentG howe'erG to rely only
on a mechanical computeriNed system to try to decipher the influence the planets ha'e on
,arthJ 2ith e7perienceG one learns to use 'arious forecastin( techniOuesG which each in their
own way yield pieces of the puNNleG and ultimately to synthesiNe all the information to come to
a conclusion as to the li/ely direction of a stoc/ or of a mar/etJ
$ome say it is impossi)le to forecast the trend of any commodity or financial instrumentJ But
tests measurin( correlation of 'arious mar/et predictions with comple7 astro8cycle analysis are
steadily impro'in(J Astro8cycle analysis is e7pected to impro'e in the comin( yearsG (i'en the
acceleratin( pace of efficiency testin( and e'er more powerful )ac/8testin( pro(ramsJ
2ithout dou)tG as the competition intensifies in the comin( decadesG in'estors and traders
will see/ more tools to help them outperform the mar/etJ :t is not )eyond the realm of
possi)ility that financial stoc/ Ouote companiesG includin( leadin( ones li/e lloooclol 1lmesG
Bloom)er(G 3eutersG and othersG may one day pu)lish lunar cycles and other astrolo(ical cycles
for in'estors who wish to au(ment their tradin( strate(ies with the input of such dataJ
:t is often saidG 0the stars impelG they do not compelG1 meanin( that we ha'e free willJ :n the
same 'einG the fore(oin( is not meant to imply that our li'es are wholly (o'erned )y the
planetsJ The purpose is only to show thatG when used wiselyG astrolo(y can pro'ide 'alua)le
clues in tradin(J Com)ined with the technical analysis methods presented earlierG in'estors and
traders will ha'e at their disposal uneOualed tools to achie'e consistent profits in tradin(J
APP,DD:W 1
3ulin( Planets of the Datural .oroscope
The followin( is a list of the traditional astrolo(ical rulin( planets of the natural horoscopeG
which starts with Aries on the cusp of the first houseJ The characteristics of each house for )oth
personal =see *eywords> and financial astrolo(y are includedJ
1st .ouse: Aries and &arsJ Personnel of the corporationG includin( stoc/holdersG how the
stoc/holders see the companyG relationship to the pu)licG )usiness o)9ecti'esJ
keywotJs: Physical selfG personalityG moti'ationG well8)ein(
nd .ouse: Taurus and %enusJ !iOuid assetsG earnin(sJ
keywotJs: PossessionsG earnin( a)ilitiesG self8esteem
+rd .ouse: #emini and &ercuryJ 3elations with competitorsG transportation and
communicationsG some ad'ertisin(G financial and trade relations with ad9acent countriesJ
keywotJs: $i)lin(sG transportG en'ironmentG early education
5th .ouse: Cancer and the &oonJ 3eal estate in'estment and holdin(sG tan(i)le assets of the
corporationG direct competitionJ
keywotJs: .ome and familyG foundations of life
6th .ouse: !eo and the $unJ $peculationG income from capitalG the place of deposit of capital
such as safesG 'aultsG and )an/sJ
keywotJs: 3is/8ta/in(G creati'ityG funG romanceG children
;th .ouse: %ir(o and &ercuryJ 2or/ers or employeesG wor/ and eOuipmentG wor/ schedulesG
in'entoriesG corporation contacts with hotelsT a(riculture and a(ricultural productsJ
keywotJs: 3outine wor/G healthG diet
?th .ouse: !i)ra and %enusJ PartnershipsG relationships with other or(aniNationsG sales appeal:
tradin( 'olumeKhow much stoc/ is )ein( )ou(htG pu)lic accountin(G trade a(reementsG
mer(ersG lawsuits and le(al affairsG competitors and their acti'itiesJ
keywotJs: Primary relationshipsG partnerships
@th .ouse: $corpio and PlutoJ :n'estors" moneyG creditsG internationalS)usiness financeG losses
or (ains due to demise of corporationG financial responsi)ilitiesG pri'ate conferencesJ
keywotJs: Hoint resourcesG in'estmentsG inheritanceG se7G death
Bth .ouse: $a(ittarius and HupiterJ Completion of contractsG le(al affairsG auditsG acti'ities
a)roadG insuranceG shippin(G philosophy of companyG lon(8distance communicationsG pu)licity
and pu)lic relationsG officialsJ
keywotJs: .i(her educationG lon(8distance tra'elG philosophyG reli(ionG lawG ideals
1Fth .ouse: Capricorn and $aturnJ Pu)lic ima(e of companyG president or chairman of the
)oardG (eneral )usiness conditionsG relations with (o'ernment and associationsG administrati'e
departmentJ
keywotJs: 3eputationG careerG social responsi)ilitiesG am)itions
11th .ouse: AOuarius and CranusJ Corporate alliesG lon(8ran(e (oals of the or(aniNationG
completion of pro9ectsG the (ood8will and intan(i)le assetsT inde)tedness in )ondsG mort(a(esG
and so forthJ
keywotJs: #oalsG (roupsG friends
1th .ouse: Pisces and DeptuneJ 3esearch and de'elopmentG trade secrets and formulasG
limitations throu(h secret enemies that mi(ht in'ol'e inefficiencyG secret assistanceJ
keywotJs: $eclusionG institutionsG escapismG faith
APP,DD:W
,ffects of %arious Aspects
The effects of the 'arious aspects are as follows:
F de(rees =Con9unction>J &a9or aspectJ :n factG it is more a position rather than an aspectG )ut
for simplicity"s sa/eG it is classified as an aspectJ :t entails a close (atherin( of two or more
planetsG ideally with the same Nodiac de(reeJ Con9unction sym)oliNes the cooperation of the
planetsG which com)ine their potentials and reinforce each otherJ 2hether this has positi'e or
ne(ati'e results depends lar(ely on the nature of the rele'ant planetsJ
;F de(rees =$e7tile>J &a9or aspectJ The se7tile aspect in'ol'es two or more planets at an an(le
of ;F de(rees from one anotherJ :t denotes the a)ility to turn intellectual understandin( into
producti'ityG to de'elop one"s talentsG and to ma/e use of opportunities for (rowth and for the
fulfillment of one"s hopes and wishesJ $uch opportunities often arise under se7tile transitsJ
BF de(rees =$Ouare>J &a9or aspectJ An aspect )etween two or more planets positioned at an
an(le of BF de(rees is called a sOuareJ &odern astrolo(y re(ards the sOuare as an aspect of
constant inner tensionG ur(in( the indi'idual toward action in order to relie'e itJ $uccess is
freOuently delayed or thwartedG either )y circumstances or )y inconsistent )eha'iorG and often
demands (reat efforts o'er lon( periodsJ -n the positi'e sideG the sOuare offers numerous
opportunities for learnin( and personal de'elopmentG which are usually lac/in( in more
harmonious aspectsJ
1F de(rees =Trine>J &a9or aspectJ The trine is one of the classic Ptolemaic aspectsG consistin(
of two or more planets at an an(le of 1F de(rees from each otherJ The rele'ant planets are
said to cooperate in the most harmonious wayG which is why traditional astrolo(y calls it a
0)enefic1 aspectJ The trine can )estow fortunate circumstances on a personG and positi'e
results on the matter at handJ
1@F de(rees =-pposition>J &a9or aspectJ The opposition consists of two or more planets or
horoscope points separated )y an an(le of 1@F de(reesT that isG on opposite sides of the NodiacJ
As the name indicatesG the opposition is mostly an aspect of conflictJ
+F de(rees =$emi8se7tile>J &inor aspectJ The semi8se7tile is an aspect of +F de(reesT the
rele'ant points are one si(n apartJ The opinions differ as to its effectsG with some 'iewin( them
as )eneficial and pro'idin( (ood opportunitiesJ -thers call the semi8se7tile 0dissociate1 and
connect it with distur)in(G al)eit minorG incidentsJ
56 de(ree =$emi8sOuare>J &inor aspectJ The semi8sOuare is an aspect of 56 de(rees and may )e
compared to the effects of a sOuareG only wea/erJ :t tends to promote self8criticism and may
indicate an inner feelin( of irritation andSor friction de'elopin(J
16F de(rees =<uincun7 or :ncon9unct>J &inor aspectJ The main characteristics of this aspect are
ad9ustment and uncertaintyJ :t often manifests itself as a crisis in which se'eral ur(ent and
contradictin( demands are placed upon the indi'idualG who is forced to set priorities and
choose )etween desire and necessityJ 2hen approached positi'elyG this may lead to a
redefinition of the person"s (oals or to a reassessment and impro'ement of wor/in( methodsJ
APP,DD:W +
Characteristics of the Twel'e Eodiac $i(ns
The followin( is a list of the characteristics of the 1 Nodiac si(nsJ
Aries: defenseG machineryG steelG toolsG weaponsG non8precious metalsJ $tart8upsJ
keywotJs: pioneerin(G leadin(G new )e(innin(sG stron( willed
Taurus: )an/ accountsG tellersG and all thin(s to do with )an/sG sa'in(s and loansJ
Ban/in( and financialsJ BondsJ
keywotJs: ownershipG dependa)ilityG sensualityG see/s harmony
#emini: telecommunicationsG writin(G speechG lettersG mailG phone calls and phonesG
documentsG computersG carsG eOuipment and tra'elG truc/ersJ Tradin(J
keywotJs: mentalityG 'ersatilityG communicationG curiosityG dualism
Cancer: propertyG homeG home productsG home appliancesG home furnishin(sG restaurantsG
hotelsG nursesG sil'erJ 3eal estateJ
keywotJs: feelin(G sensiti'ityG nurturin(G Ouic/ to hurtG see/s security
!eo: in'estmentsG stoc/sG in'estment )an/sG people in char(eG (oldG )iotechnolo(yJ
!ar(e capsJ
keywotJs: willpowerG creati'ityG e7pressin( the heartG leader
%ir(o: health ser'ices and health care plus items related to theseG pro)lems with wor/ers or
personnelJ 3etailSdepartment storesG 'itaminsG foodJ Technical analysisJ
keywotJs: ser'iceG self8impro'ementG purityG perfectionG practicality
!i)ra: lawyersG lawsuitsG ne(otiationsG pu)lic relationsG partnershipsG cosmeticsG and 9ewelryJ
:n'estin(J
keywotJs: )alanceG harmonyG 9usticeG concern for othersG relationships
$corpio: pollution controlG insuranceG sal'a(e operationsG )ioterrorismG minin(G seismolo(yG
plum)in( suppliesG en'ironmental cleanupJ De)tJ .ostile ta/eo'ersJ $toc/)ro/ersJ &utual
fundsJ
keywotJs: desireG transformationG powerG intenseG pro)in(G passionate relationshipsG power
stru((les
$a(ittarius: pu)lishin(G teachin(G uni'ersitiesG colle(esG o'erseas tra'elG sports eOuipmentG
casinosJ :nternational affairsJ
keywotJs: need to understandG e7plorationG enthusiasmG searchin( for truth
Capricorn: real estateG (o'ernmentG people in authorityG )ossesG mana(ementJ
&e(a corporationJ Blue chipsJ $a'in(sJ
keywotJs: achie'ementG structureG or(aniNationG am)itiousG cold
AOuarius: computersG electrical eOuipmentG appliancesG radiosG T%G planesG or(aniNations and
clu)sG airlinesG aerospaceG hi(h technolo(yJ Contrarian in'estin(J
keywotJs: humanitarianG uniOueG re'olutionaryG idealisticG in'enti'e
Pisces: dru(sG medicationG hospitalsG institutionsG alcoholG oil and (asG shoesG plum)in(G waterG
photo(raphyG chemicalsG windmillsG paintG )ottled waterG nursesG ru))erG W8rayG poisonsG
(reetin( cardsJ $ocially responsi)le in'estin(J
keywotJs: compassionG uni'ersalityG inclusi'enessG dreamerG intuiti'e
APP,DD:W 5
Formulas in &eta$toc/ Format
`
&-&,DTC& T:&:D# -$C:!!AT-3A$ C$,D :D
F:#C3, J+
!en(th1:4:nput=aBase CnitaGG1FFG1>T
!en(th:4:nput=aFirst PeriodaGG1FFG1+>T
!en(th+:4:nput=a$econd PeriodaG1G1FFG@>T
!en(th5:4:nput=aThird PeriodaG1G1FFG@>T
Cycle:4:nput=aCycleaG1G1FFG1>T
plot:4:nput=a$elect PlotG 14-B !inesG 4Auto!ines +4Cycle EonesaG 1G+G+>T
n:4=3$:=!en(th1>8!!%=3$:=!en(th1>G!en(th>>T
/:4=..%==3$:=!en(th1>>G!en(th>8!!%=3$:=!en(th1>G!en(th>>T
/:4:f=/4FGFJFFFFF1G/>T
-sc:41FF`nS/T
-scA'(1:4=`&o'=-scG!en(th+G$>81FF>T
-scA'(:4&o'=-scA'(1G!en(th5G$>T
$tdP:41J`$tde'=osca'(G@B>T
$td&:4De(=1J`$tde'=osca'(G@B>>T
n:4=Fml=afrhlca>8!!%=Fml=afrhlca>GCycle>>T
/:4..%==Fml=afrhlca>>GCycle>8!!%=Fml=afrhlca>GCycle>T
/:4:f=/4FGFJFFFFF1G/>T
-scA'(1:4=`&o'==1FF`nS/>G!en(thG$>81FF>T
3wCp:4=56c$tde'=-scA'(1G>>T
3wDn:4De(=56c$tde'=osca'(1G>>T
Eone:4:f=osca'(1^FG3wCpG:f=osca'(1_4FG3wDnG3wCp>>T
:f=plot41G6FG:f=plot4G$tdPGEone>>T
:f=plot41GDe(=6F>G:f=plot4G$td&GEone>>T
-scA'(1T -scA'(T FT
\Frhlc: Function referred to in the formula &omentum Timin( -scillator]
frhlc:4===3$:=.:#.G1+>>c=3$:=!-2G1+>>c=`=3$:=C!-$,G1+>>>>S5>T
frhlcT
%-!C&, E-D, -$C:!!AT-3A$ 3,F,33,D T-
:D
F:#C3, J1F
ADD
F:#C3, 6J@
%E- was de'eloped )y 2alid *halil and Da'id $tec/lerJ The followin( %E- is modified for
mer(in( of plots of 'olume ratio compressed indicator and planetary aspects indicatorsJ
prd:4:nput=aPeriodaG1GFFG1+>T
a'(:4:nput=aA'era(eaGGFFG@>T
y:4:nput=a$elect Price 14&P=>G4Typical=>G+4CloseaG1G+G1>T
plot:4:nput=a$elect PlotG 14'NoG 4smaG +4AllaG1G+G+>T
y:4:f=y41G&P=>G:f=y4GTypical=>GC!-$,>>T
Chan(e:43-C=yG1G[>T
7:4:f=Chan(e^FG%-!C&,G8%-!C&,>T
'p:4&o'=7GprdG,>T
t':4:f=&o'=%-!C&,GprdG,>4FGFJFFFFF1G&o'=%GprdG,>>T
'No:4=1FFc=1FF`'pSt'>>ST
'No1:4&o'='NoGa'(G$>T
:f=plot41G'NoG'No1>T
:f=plot4G'No1G'No>T
?FT 6FT +FT
%-!C&, 3AT:-C-&P3,$$,D :DD:CAT-3A$
3,F,33,D T- :D
F:#C3, 6J+
Period1:4:nput=aPeriod1aG1G155G>T
Period:4:nput=aPeriodaG1G155G1F>T
7:4:nput=aCompressedaGFG1FFGFJ>T
%A'(1:4&o'=A)s=%-!C&,>GPeriod1G,>T
%A'(:4&o'=A)s=%-!C&,>GPeriodG$>T
N:4:f='a'(4FGFJFFF1G'a'(>T
%ol3atio:41FF`=%A'(1SN>T
%ol3atio`7T
&-%:D# A%,3A#, !:D, 2:T. CPP,3 ADD
!-2,3 &:33-3 !:D,$ A$ 3,F,33,D T- :D
F:#C3, ?J@
Period:4:nput=aPeriodaG1G6FFG@B>T
PCent1:4:nput=aCpper Pecenta(eaG1GFFG?>T
PCent:4:nput=a!ower Percenta(eaG1GFFG?>T
7:4:nput=a$elect PriceG 14mp=>G4typical=>G+4closeaG1G+G+>T
plot:4:nput=a$elect PlotG143&Ac&irrorG 4&irrorG+43&AaG1G+G1>T
7:4:f=741G&P=>G:f=74GTypical=>G C>>T
3&A:4&o'=7GPeriodG,>c!in3e($lope=7GPeriod>`=1>T
&irrorP:43&Ac=3&A`PCent1S1FF>T
&irrorD:43&A8=3&A`PCentS1FF>T
&irror:4:f=!-2^3&AG&irrorPG:f=.:#._3&AG&irrorDG3&A>>T
\Plot P&A on price chartG si(nals in own window]
:f=plot41G3&AG:f=plot4G&irrorG3&A>>T
:f=plot41G&irrorG:f=plot4+G3&AG&irror>>T
&:D8T,3& P,3:-D &-%:D# A%,3A#, !:D,$
A$ 3,F,33,D T- :D
F:#C3, J6
Fast:4:nput=aFast &AaG1G+FFGB>T
y:4:nput=a$elect Price 14&P=>G4Typical=>G+4CloseaG1G+G+>T
plot:4:nput=aPlot Y1ZDisparity YZTwo !ines Y+ZAllaG1G+G>T
y:4:f=y41G&P=>G:f=y4GTypical=>GC>>T
:nd1:4&o'=yGFastG$>c!in3e($lope=yGFast>`+T
:nd:4&o'=yGBG$>c!in3e($lope=yGB>T
iDiff:4=1J+@`=:nd18:nd>cFJ;1@`3ef=:nd18:ndG81>>ST
:nd+:4:f=Cross=:nd1G:nd>G=:nd1ciDiff>G:f=Cross=indGind1>G =:nd18iDiff>Gind1cidiff>>T
:f=plot41G:nd+G:f=plot4G:nd1G:nd+>>T
:f=plot4G:ndG:f=plot41G:nd+G:nd>>T
:f=plot4+G:nd1G:f=plot41G:nd+G:nd1>>T
`
For educational purposes only and not for the purposes of encoura(in( tradin(J
#lossary
A8B8C correction Alpha)etical la)elin( for a three8wa'e structure in a correction patternJ 2a'e
A is the first wa'e mo'in( a(ainst the pre'ailin( trend of the fi'e8wa'e structureJ 2a'e B is a
correcti'e wa'e to 2a'e AJ 2a'e C is the final wa'e to complete the three8wa'e structure
mo'ementJ :n a Ni(Na(G 2a'e C e7ceeds the e7treme of 2a'e AG )ut not in an irre(ular A8B8C
correctionJ
alternate count An alternate interpretation of wa'e counts that is eOually applica)le to a (i'en
mar/et situationJ
AlternationG 3ule of The alternation of patterns )etween 2a'e and 2a'e 5 in a fi'e8wa'e
structureJ :f 2a'e is a simple patternG then 2a'e 5 is e7pected to )e a comple7 patternJ :n a
comple7 correctionG if the precedin( correcti'e pattern is a flatG then the pattern followin( will
)e of another formationJ
confirmation 3efers to two different factors a(reein( with one anotherJ %olume is said to
confirm the price action if 'olume is risin( to(ether with the priceJ
continuation pattern 3efers (enerally to a correcti'e pattern such as a trian(leG wed(eG
pennantG or fla(J :ndicates a pause in the pre'ailin( trendJ
di'er(ence Di'er(ence occurs when the directional mo'ement of the price disa(rees with that
of the oscillatorJ Di'er(ence (enerally indicates trend re'ersalJ
di'idend yield Di'idend per share di'ided )y the current price per share e7pressed as a
percenta(eJ
dou)le topS)ottom 3efers to a price pattern in an uptrend showin( two conspicuous pea/sJ :n
a downtrendG the price pattern is a dou)le )ottomG showin( two distinct trou(hsJ Dou)le top is
(enerally caused )y flatsG dou)le )ottom )y failuresJ Also /nown as 0&1 and 021 patternsJ
,OualityG 3ule of 2hen one impulse wa'e is e7tended in a fi'e8wa'e structureG the remainin(
two wa'es tend to )e eOualJ
e7tended wa'e The lon(est wa'e in one of the three impulse wa'es of a fi'e8way structureJ
failure The ina)ility of price to reach a new hi(h in an uptrend or a new low in a downtrendJ A
fi'e8wa'e structure in which impulse 2a'e 6 fails to mo'e a)o'e the end of 2a'e +G or a
correction in which 2a'e C fails to mo'e )elow the end of 2a'e AJ
Fi)onacci ratios The ratio )etween any two successi'e num)ers in a Fi)onacci seOuenceJ After
the first four num)ers of the seOuenceG the ratio of any num)er to the ne7t hi(hest num)er is
appro7imately FJ;1@ =/nown as the 0#olden 3atio1>G and to the ne7t lower num)er
appro7imately 1J;1@J The important ratios are FJ+@G FJ;1@G and 1J;1@J
Fi)onacci seOuence The seOuence of num)ers =1G 1G G +G 6G @G 1+G 1G +5G 66G @BG155G ++G +??G
etcJ>G disco'ered )y !eonardo de PisaG where each successi'e num)er in the seOuence is the
sum of the pre'ious two num)ersJ
(ap 3efers to a tradin( day in which a daily ran(e is completely a)o'e or )elow the pre'ious
day"s ran(eG displayin( a (ap )etween today"s low and yesterday"s hi(h or today"s hi(h and
yesterday"s lowJ
head and shoulder A price pattern that ta/es its name from the fact that it loo/s li/e the head
and shoulders of a personG either upri(ht or in'ertedJ The pattern often indicates a comin(
mo'e away from the esta)lished tradin( ran(eJ
hy)rid oscillator An oscillator that is constructed )y mer(in( two /inds of components to
produce the resultJ
impulse wa'e 3efers to 2a'e 1G +G or 6 of a fi'e8wa'e structureT a wa'e that ta/es an e7istin(
trend further in the same directionJ
inside day A day in which the ran(e of price is within the ran(e of the pre'ious day"s price
ran(eJ :t is a si(n of consolidation while the mar/et waits for more si(nals for a directionJ :f it
occurs after a mar/et has had a )i( mo'eG it is a si(nal that momentum is wanin( for that mo'eJ
irre(ular flat A correcti'e A+8B+8C6 pattern in which 2a'e B terminates )eyond the start of
2a'e AJ
noise Price fluctuations that can confuse interpretation of the directional mo'ement of the
mar/etJ
non8trendin( Price mo'ements that lac/ any discerni)le mo'ements in either directionJ
outside day A day in which the pre'ious day"s price ran(e is within the ran(e of today"s price
ran(eJ This is often a si(nal that the mar/et is a)out to ma/e a mo'e in the direction of the
closeJ
o'er)ou(ht A mar/et is said to )e o'er)ou(ht when an oscillator reaches a)o'e the upper
limitJ
o'ersold A mar/et is said to )e o'ersold when an oscillator reaches )elow the lower limitJ
parameter A rule or condition that esta)lishes the format for a tradin( system or indicatorJ
PS, 3atio PriceSearnin(s ratio is a test of a stoc/"s ris/ and demandG and is reported as a
multiple calculated )y ha'in( the price per share di'ided )y earnin(s per shareJ
protecti'e stops A ris/ mana(ement techniOue in which the trade is liOuidated to stop further
lossJ
<ueuin( Theory of &o'in( A'era(e Crosso'ers A )ullish mar/et is initiated when price crosses
a)o'e its respecti'e a'era(es =eJ(JG 6F8dayG BF8dayG and FF8day mo'in( a'era(e lines> and the
mo'in( a'era(es also follow in a seOuential order with the shorter period mo'in( a'era(e
crossin( a)o'e the lon(er periodJ A )earish mar/et is initiated when price crosses )elow its
respecti'e a'era(es and the mo'in( a'era(es also follow in a seOuential order with the shorter
period mo'in( a'era(e crossin( )elow the lon(er periodJ :f price and its respecti'e mo'in(
a'era(es are not ali(ned in a seOuential orderG any short term rally or retracement will )e
short8li'edJ
ran(e The difference )etween the hi(h and low price durin( a (i'en periodJ
rectan(le A price pattern formed in a relati'ely narrow horiNontal price ran(eJ 3ectan(les are
usually comple7 corrections of dou)le flats or triple flatsJ
resistance 3efers to a price le'el at which prices stopped risin(J
retracement A price mo'ement in the opposite direction of the pre'ious trendJ
saucer A pattern depictin( a stoc/ whose price has reached )ottom and is mo'in( upJ $imilar
to a cup8and8handle formationG )ut the saucer )ase is shallower and rounder in shapeJ An
in'erse saucer shows a top in the stoc/"s price and si(nals a downturnJ
support 3efers to a price le'el at which prices stop declinin(J
tradin( ran(e 3efers to the difference )etween the hi(h and low prices traded durin( a period
of timeJ
trend 3efers to the directional mo'ement of pricesG as in an uptrend when prices are ma/in(
hi(her hi(hs and hi(her lowsG and as in a downtrend when prices are ma/in( lower hi(hs and
lower lowsJ
trend line A strai(ht line that connects a series of hi(hs or lows in a trendJ An uptrend line
represents support and a downtrend line represents resistanceJ .oriNontal trend lines (enerally
represent consolidationJ
trian(le 3efers to a continuation pattern or sideways price pattern in which prices fluctuate
within two con'er(in( trend linesJ There are contractin(G ascendin(G descendin(G and dia(onal
trian(lesJ :n an e7pandin( trian(leG the two trend lines will di'er(eJ
true ran(e The lar(est of the followin(: =1> Today"s hi(h minus today"s lowT => today"s hi(h
minus yesterday"s closeT or =+> today"s low minus yesterday"s closeJ
'olatility A measure of the de(ree of price chan(e from price in the pre'ious periodJ
wed(e A continuation price pattern that consists of two di'er(in( trend linesG )oth of which
slope a(ainst the pre'ailin( trendJ :n a )earish patternG )oth trend lines slope upwardJ :n a
)ullish patternG )oth trend lines slope downwardJ A wed(e is (enerally a dia(onal trian(leJ
whipsaws !osin( trades on )oth sides of a price swin(J
Ni(Na( A correction that is su)di'ided into an A68B+8C6 patternJ 2a'e B in a Ni(Na( is noticea)ly
lower than the start of 2a'e AJ
A$T3-!-#:CA! T,3&$
applyin( aspect This term refers to a planet that is mo'in( toward an e7act aspect with a
slower8mo'in( planetJ An applyin( aspect can also ta/e place as a planet applies toward a fi7ed
pointG such as the &idhea'en or AscendantJ
Ara)ic parts Ara)ic parts =or lots> are points that are arithmetical constructs of two or more
components such as planets or house cuspsJ They are used when a specific issue is )ein(
e7amined in a chartJ There are historically + different partsG )ut only the Part of Fortune is in
common use todayJ
ascendant The si(n of the Nodiac that is risin( in the east at the moment of )irthG and placed on
the cusp of the first houseJ Also referred to as the risin( si(n of a horoscopeJ -ne of the four
personal points in astrolo(yG alon( with the $unG &oonG and &idhea'enJ All are /ey indicators
of indi'idual e7pressionJ
aspect The relationship )etween two planetsG or the relationship )etween a planet and the
Ascendant or &idhea'enJ :t is the an(ular distance )etween these two pointsJ
)irth chart The )irth chart is also referred to as the horoscope or natal chartJ The )irth chart is
a circle di'ided into 1 partsG or housesG each of which descri)es a different area of life
e7perienceJ :n financial astrolo(yG they are referred to as first8trade chartsJ
con9unction Two or more planets are said to )e 0con9unct1 when they are in the same part of
the s/yJ Their ener(ies are com)inedJ
cusp The cusp of a si(n or house is the point at which it )e(insJ
cycle A cycle is the planetary mo'ement around the entire circle of si(nsJ Pluto is the slowest
mo'in( planetG and ta/es 5@ years to cycle the entire NodiacJ The $un"s cycle ta/es one yearJ
de(ree The horoscope has +;F de(rees and each si(n has +F de(reesJ De(rees are used to
measure e7act positions of planets and other astrolo(ical factorsJ
eclipse An eclipse occurs when one celestial )ody o)scures anotherT the term is (enerally used
to refer to the relationship )etween the $un and the &oonJ :n this )oo/G the $un and the &oon
are referred to as planetsG while in fact they are luminariesJ
ephemeris A )oo/ of ta)les showin( the e7act positions of the $unG &oonG and planets on a
daily )asisJ
financial astrolo(y Financial astrolo(y has )een around for centuriesJ DowadaysG it often refers
to the practice of predictin( cycles in the stoc/ mar/ets )y correlatin( them with planetary
cyclesG or )y castin( a first8trade horoscope for listed companies and financial mar/ets and
analyNin( them in terms of planetary influences to pro9ect future trendsJ
full moon The opposition )etween the $un and the &oonJ The time when the &oon is 1@F
de(rees from the $unJ
(eocentric The uni'erseG as seen from the ,arthJ Astrolo(ers are perfectly aware that the ,arth
or)its the $unJ .owe'erG a (eocentric =earth8centered> frame of reference often ma/es (ood
sense )ecause we humans li'e on the ,arthJ
hard aspect Planets that are BF de(rees apart are called sOuare aspectsJ Planets that are 1@F
de(rees apart are called opposition aspectsJ These aspects are considered difficult and create
tensionJ Planets in con9unction can )e considered either soft or hardG dependin( on the planets
in'ol'edJ
heliocentric The uni'erseG as seen from the $unJ :t is the true picture of the solar systemJ
horoscope Another term for )irth chartJ The word horoscope comes from a #ree/ word
meanin( 0map of the hourJ1 A horoscope is also called a natal chartG which references the
uniOue time and place of an e'entG inau(urationG first trade of a companyG or the )irth of a
personJ
house cusp The first de(ree of any house in a horoscope or )irth chartJ
in(ress :n astrolo(yG an in(ress is when any planet enters a new si(n and is FF de(reesG FF
minutes of that si(nJ
lunation A complete cycle )etween two new moonsT also /nown as a synodic monthJ !unations
may also refer to solar or lunar eclipsesJ
ma9or aspect The ma9or aspects in astrolo(y are con9unctionG se7tileG trineG sOuareG and
oppositionJ
midhea'en The si(n on the cusp of the tenth house of the horoscope is referred to as the
midhea'en or medium coeliJ :t is the point at which the $un is at midday at the time and place
the su)9ect of the horoscope is )ornJ :t is one of the four cardinal points in a horoscope and the
second most powerful followin( the ascendantJ
minor aspect $ome minor aspects in astrolo(y are the semi8sOuare =56 de(rees apart>G the
semi8se7tile =+F de(rees apart>G and the Ouincun7 =16F de(rees apart>J
new moon The con9unction of the $un and the &oonJ The time when the &oon is at the e7act
same de(ree as the $unJ
or) 3efers to the ran(e of de(rees within which an aspect is considered to )e operatin(J The
closer the two planets are in de(reeG or or)G the stron(er or more potent the aspect will )eJ The
farther the two planets are in de(reeG the wea/er the effect will )eJ
Part of Fortune An important Ara)ic part which )enefits the house in which it is located at
)irthJ
ruler Certain planets ha'e )een (i'en rulership o'er certain si(nsJ For further details please
refer to Appendi7es 1G G and +J
separatin( aspect A separatin( aspect refers to a planet that is mo'in( away from an e7act
aspect with a slower8mo'in( planet or a fi7ed point in a chartJ
soft aspect These aspects are comforta)le and harmoniousG )rin(in( ease and opportunityJ
$e7tiles and trines are considered to )e soft aspectsJ $ome con9unctions are considered soft
aspectsG dependin( on the planets in'ol'edJ
stellium &ultiple con9unction of three or more planets in the same si(n or houseJ A
con9unction descri)es the com)ined forces of the planets in'ol'edT thereforeG the stellium
indicates a massi'e concentration of ener(ies in the si(n and house in OuestionJ
synodic period The term refers to the len(th of time durin( which a )ody in the solar system
ma/es one complete or)it of the $un relati'e to the ,arthT that isG it returns to the same
elon(ationJ
transit Astrolo(ers use a wide 'ariety of timin( techniOues and a 0transit1 is the primary tool of
predicti'e astrolo(yJ Transits are the day8to8day mo'ements of the planets and the aspects
they form to one anotherJ They 'ary a (reat deal in their effect dependin( upon which planets
are in'ol'edJ
Bi)lio(raphy
$C##,$T,D 3,AD:D#
AppelG #eraldJ 1be Movloq Avetoqe coovetqeoce-ulvetqeoce MetboJJ #reat Dec/G DA:
$in(alertG 1B?BJ
,lderG Ale7anderJ 1toJloq fot o llvloq. lsycboloqy, 1toJloq 1octlcs, Mooey MoooqemeotJ Dew
Aor/: Hohn 2iley I $onsG 1BB+J
#artleyG .J &J ltoflts lo tbe 5tock MotketJ PomeroyG 2A: !am)ert8#annG 1B@1J
*halilG 2alidG and Da'id $tec/lerJ 0:n the %olume EoneJ1 1ecbolcol Aoolysls of 5tocks &
commoJltles =&ay F11>J
&a(eeG Hohn HJG and 3o)ert DJ ,dwardsJ 1ecbolcol Aoolysls of 5tock 1teoJsJ Dew Aor/: Dew Aor/
:nstitute of FinanceG 1B;;J
&urphyG Hohn HJ 1ecbolcol Aoolysls of tbe lototes MotketsJ ,n(lewood CliffsG DH: Prentice8.allG
1B@;J
PrechterG 3o)ert 3JG and Alfred Hohn FrostJ lllott wove ltloclple. key to 5tock Motket ltofltsJ
#aines'illeG #A: Dew Classics !i)raryG 1B?@J
Prin(G &artin HJ 1ecbolcol Aoolysls xploloeJJ +rd edJ Dew Aor/: &c#raw8.illG 1BB1J
3asch/eG !inda BradfordG and !aurence AJ ConnorsJ 5tteet 5motts, nlqb ltoboblllty 5bott 1etm
1toJloq 5ttoteqlesJ Hersey CityG DH: &J #ordon Pu)lishin( #roupG 1BB6J
$chwa(erG Hac/ DJ 1be New Motket wlzotJs. lotetvlews wltb 1op 1toJetsJ Colum)iaG &D:
&ar/etplace Boo/sG FF@J
2eeG Chow8.ouJ 5oo 2l Att of wot. Ao lllosttoteJ 1tooslotloo wltb Asloo letspectlves ooJ
loslqbtsJ Cpper $addle 3i'erG DH: PearsonSPrentice .allG FF+J
2ilderG HJ 2ellesG HrJ New coocepts lo 1ecbolcol 1toJloq 5ystemsJ #reens)oroG DC: Trend
3esearchG 1B?@J
A$T3-!-#:CA! B--*$
FarnellG *imG edJ AsttoloqyJ !ondon: Foundry Creati'e &edia CompanyG FFJ
&c,'ersG HoanG edJ lloooclol AsttoloqyJ 2ood)uryG &D: !lewellyn 2orldwideG !tdJG 1BB1J
&eridianG BillJ 8lll MetlJloos llooetoty 5tock 1toJloq-lllJ Dew Aor/: Cycles 3esearchG FFJ
Par/erG HuliaG and Dere/ Par/erJ lotkets AsttoloqyJ Dew Aor/: D* Pu)lishin(G 1BB1J
$tathisG #eor(ia AnnaJ 8osloess Asttoloqy 101. weovloq tbe web betweeo 8osloess ooJ MytbJ
Pleasant .illG CA: $tarcycles Pu)lishin(G FF1J
&ichelsenG Deil FJG and 3iOue Potten(erJ 1be Ametlcoo pbemetls fot tbe 21st ceototy.
2001-2050 ot NoooJ 3e'J edJ ,ppin(G D.: AC$ Pu)licationsG 1BB;J
C.A3T:D# $-FT2A3, P3-#3A&$
&eta$toc/G ,Ouis :nternationalG BF $outh 5FF 2estG $uite ;FG $alt !a/e CityG CT @51F1J
wwwJeOuisJcom
Trade$tationG -me(a 3esearchG BFF $unset Dri'eG &iami F! ++1?+J
wwwJtradestationJcom
$ee also
http:SSfc8cdJcomSome(aJhtm
A$T3-!-#A $-FT2A3, P3-#3A&$
$olarFire@G Astrola)e wwwJala)eJcom
Astrowin1+ wwwJastrowinJor(Sastro1+Jphp
F:DADC:A! A$T3-!-#A $-FT2A3,
P3-#3A&$
A:3 $oftwareKThe &ar/et TraderSTitanium wwwJalpheeJcomS
Timin($olutionKAd'ancedSTerra :nco(nito wwwJtimin(solutionJcomS
Fi)onacci TraderS#alactic Trader %ersJ 5 wwwJfi)onaccitraderJcom
Trade$tationKPro$uite FFFi Astro Add8on wwwJsoulytionJde
-T.,3 3,$-C3C,$
2e)sites
AstroDienst wwwJastroJcomS
Astrolo(y for #ann
Traders
wwwJastrolo(yfor(anntradersJcomJauSmainJhtml
Barton"s #lo)al &ar/et
Trends
wwwJasiachartJcomS
Timin( $olution wwwJtimin(solutionJnet
$ources for First8Trade
Charts
AahooX Finance http:SSfinanceJyahooJcomS
AahooX $toc/ $creener http:SSscreenJfinanceJyahooJcomSnewscreenerJhtml
&a(i Astrolo(y wwwJma(iastrolo(yJcomSinde7Jphp
DA$, First8Trade Dates wwwJnyseJcomSa)outSlistedSlistedJhtml
.on( *on( $toc/
,7chan(e
wwwJh/e7JcomJh/Sen(Sinde7Jhtm
&a(aNines
1toJets wotlJ wwwJtradersworldJcomS
Dewsletters
1be Mettlmoo Motket
Aoolyst
wwwJmmacyclesJcomS
A)out the Authors
3o)ert TJ .J !ee has o'er 6F years of e7perience in the financial industry and o'er +6 years of
e7perience in securities and in'estment )an/in(J :n 1B;FG he 9oined &alayan Ban/in( BerhadG
&alaysiaG and in 1B;5 he was transferred to its .on( *on( )ranch as a mem)er of the senior
mana(ementJ From 1B?? to 1B@?G he ser'ed as the senior mana(er of another international
)an/G now /nown as De'elopment Ban/ of $in(apore andG concurrentlyG as (eneral mana(er of
its two su)sidiariesG where he was responsi)le for all securities tradin( and in'estment
counselin(J .e then went into pri'ate practice where he pro'ides corporate finance and
portfolio ad'isory ser'icesJ Drawin( from his e7perience in securities tradin(G he pu)lished a
)oo/ on technical analysis in 1BB?G lowet 1ools fot 1toJetsJ For the past 16 yearsG he has
pri'ately tutored many of his associates and fellow techniciansG and he has )een sharin( his
'iews on tradin( psycholo(yG money mana(ementG and tradin( methodolo(y with his studentsJ
Drawin( on his insi(hts from years of securities tradin(G 3o)ert concludes that a trader shouldG
firstlyG maintain a healthy mind andG secondlyG that a tradin( method should )e pra(maticJ .e
emphasiNes that the most important thin( of all is to /now when to ta/e a )rea/ from tradin(J
CurrentlyG he is an :ndependent Don8,7ecuti'e Director of Tin(yi =Cayman :slands> .oldin(s
CorpJG a pu)licly listed company on the $toc/ ,7chan(e of .on( *on( !imitedJ .e is also a
$enior Business Consultant for .enny 2ee I CoJG certified pu)lic accountantsG .on( *on(G in
corporate (o'ernance and mer(ers and acOuisitionsJ .e is an associate of the Chartered
:nstitute of Ban/ersG !ondonG a mem)er of the .on( *on( :nstitute of Ban/ersG and a mem)er
of the .on( *on( $ecurities and :n'estment :nstituteJ
Peter AJ Tryde 9oined &errill !ynchG .on( *on(G in 1B@1G and has spent o'er F years in the
in'estment industry as a securities and futures senior dealin( directorJ .e has also wor/ed with
3o)ert TJ .J !ee in the research and de'elopment of technical analysisG portfolio mana(ementG
and pro9ect financin(J They co8authored wlooloq lo tbe MotketsG which descri)ed the
de'elopment of computer tradin( systemsG and which )ecame the precursor for lowet 1ools
fot 1toJetsJ :n recent yearsG Peter has )een en(a(ed in the raisin( of capital for 'arious 0(reen1
pro9ectsG as well as tradin( the mar/ets )ased on the ad'anced neural networ/ pro9ection
features of Timin( $olution software pro(ramsJ The interest in astrolo(y arose )ecause a senior
collea(ue used astrolo(ical forecasts in his tradin( )ac/ in the ninetiesG and since thenG Peter
has )een studyin( astro8harmonics with the main focus on how planetary cycles correlate with
trends in the financial and commodities mar/etsJ
:nde7
AB4CD patterns
A8B8C =three8wa'e structure>G in ,lliott 2a'e Theory
A8B8C correction
Accumulation and redistri)utionG in lunar cycles
Acti'e traders
A:3 &ar/et Trader
Al8Biruni
Alltronics .oldin(s !tdJ
AlternationG 3ule of
AppelG #erald
Applied systems
assumptions of methodolo(y
)uilt8in color trend indicator and
desi(nin( of system
supportin( mo'in( a'era(es
tradin( on daily si(nals
tradin( with :chimo/u techniOue
trend )asics and
Ara)ic parts
Arnhold .oldin(s !tdJ
Ascendant an(les
Aspects
effects of 'arious
identifyin( (ood and )ad in astrolo(ical software
Astro8cycle analysisJ 5ee Financial astrolo(y
Astrodienst
Astro8harmonicsJ 5ee Financial astrolo(y
Astrolo(ical software pro(rams
A'era(e Direction :nde7 =ADW>
A'era(e true ran(e
Bearish dia(onal patterns
Bearish di'er(ence patterns
Bearish en(ulfin( patterns
Bearish re'ersal patterns
Birth chartsJ 5ee Datal charts
BlauG 2illiam
Body of candle
Bollin(erG Hohn
8ollloqet oo 8ollloqet 8ooJs =Bollin(er>
Bo7 =rectan(le> patterns
Brea/away (aps
Built8in color =B:C> trend indicator
Bullish dia(onal patterns
Bullish di'er(ence patterns
Bullish en(ulfin( patterns
Bullish re'ersal patterns
Ca(inalpG #unduN
Candlestic/ patterns
in )uilt8in color trend indicator
price ran(e and
types of
ChandeG Tushar $J
Chan(e in trend =C:T> pointsG financial astrolo(y and
Chart chec/list
Chi/ou spanG in :chimo/u chartin( techniOue
Close
Common (aps
Comple7 correctionsG in ,lliott 2a'e correcti'e 68+86 patterns
Confirmation
Con9unctionG in financial astrolo(y
Continuation patterns
Correcti'e +8+86 patternsG in ,lliott 2a'e Theory
Correcti'e 68+86 patternsG in ,lliott 2a'e Theory
Correcti'e wa'esG in ,lliott 2a'e Theory
Crosso'er si(nalsG price momentum and
Cup8and8handle patterns
Cusp
Daily ran(e
Daily si(nalsG tradin( on
Dar/ cloud co'er pattern
Dead Cross
Descendant an(les
Dia(onal patterns
Discretionary tradin(
Di'er(ence patterns
Di'idend yield
Do9i
Dou)le topsSdou)le )ottoms =0&1 and 021 patterns>
Dou(lasG &ar/
Dra(onfly do9i
Dynasty Fine 2ines
,arnin(s per share =,P$>G fundamental analysis and
,clipseG in astrolo(y
,dwardsG 3o)ert DJ
,lderG DrJ Ale7ander
,lliottG 3alph DJ
,lliott 2a'e Theory
AB4CD patterns
application of
correcti'e +8+86 patterns
correcti'e 68+86 patterns
count identification difficulties
cycles and
emotions and
e7tended wa'es
Fi)onacci ratios and
Fi)onacci 3etracement and Pro9ection and
fi'e8wa'e structure
(uidelines for
purpose and aim of
rectan(le patterns in
3ule of Alternation
three8wa'e structure
'olume and
,motionsG effects on tradin(
,lliott 2a'e Theory and
,n(ulfin( patterns
,ntry pointsG determinin(
,phemeris
,OualityG 3ule of
,Ouili)rium None
,'enin( star pattern
,7ecution of trade chec/list
,7haustion (aps
,7it strate(ies:
determinin( of
tradin( ad'ice
,7tended ,lliott wa'es
Fi)onacci ratios
AB4CD patterns
,lliott 2a'e Theory and
Fi)onacci 3etracement and Pro9ection:
applied systems and
,lliott 2a'e Theory and
Financial astrolo(y
)asics of
chec/list for
choosin( )est tradin( periods
computer pro(rams com)ined with
cycles and
lunar )uy8sell strate(y
mar/et pro9ection with
other methods compared
pic/in( stoc/s usin(
$un8&oon aspects
Financial crisis of FF?PFF@
Financial statementsG timin( of and chan(in( financial position
lloooclol 1lmes
Financial %isualiNations
0First trade1 date charts
Fi'e8wa'e structureG in ,lliott 2a'e Theory
2a'e 1
2a'e
2a'e +
2a'e 5
2a'e 6
FlatsG in ,lliott 2a'e correcti'e +8+86 patterns
Frame of mindG of in'estor
Full moon
Fundamental analysis:
accessin( data for
)asics of
#alactic Trader
#annG 2J DJ
#aps
#artleyG .J &J
#artley Pattern =AB4CD pattern>
#eocentric planet position
#olden Cross
#olden 3atio
#oo(le Finance
#ra'estone do9i
#roup patterns
.ammer candlestic/ pattern
.an(man candlestic/ pattern
.arami patterns
.ard aspectG in astrolo(y
.armonic resonance
.armonious aspects
.ead and shoulders patterns
.eliocentric planet position
.idden )earish di'er(ence pattern
.idden )ullish di'er(ence pattern
.i(h
.ollandG Tom
.ollow candle
.onmaG &unehisa
.oroscopesG in financial astrolo(y
rulin( planets of
.ouse systemG financial astrolo(y and
.y)rid oscillator
:chimo/u chartin( techniOue
ll1A Iootool
:mmun Coeli =:C>
:mpulse wa'esG in ,lliott 2a'e Theory
:ncorporation date chartsG for financial astrolo(y
:ndicatorsJ 5ee *ey indicators
:nformationG importance to in'estors
:nharmonious aspects
:nside day
:ntrinsic 'alueJ 5ee Fundamental analysis
:rre(ular flatsG in ,lliott 2a'e correcti'e +8+86 patterns
Iopooese cooJlestlck cbottloq 1ecbolpoes =Dison>
Hupiter
*ey indicators
A'era(e Direction :nde7
momentum oscillator
mo'in( a'era(e con'er(enceSdi'er(ence
plannin( chart layout
protecti'e stops
<ueuin( Theory of &o'in( A'era(e Crosso'ers
suspended tradin( and
*halilG 2alid
*i9un8sen lineG in :chimo/u chartin( techniOue
*och system
*rollG $tanley
*wo/G %i/in(
!aurentG .enry
!inear patterns
!iOuidityG importance of stoc/"s
!on(8term mo'in( a'era(es
!on(8term patterns
!ow
!unar cyclesG financial astrolo(y and
!unations
&ACD .isto(ram
&acOuarie Ban/G financial astrolo(y and
&a(eeG Hohn
&a9or aspectG in astrolo(y
0&1 and 021 patterns
&ar/et price actionG technical analysis and
&ar/et pro9ectionG with financial astrolo(y
Mottlo ltloq oo Motket Momeotom =Prin(>
Mottlo ltloq oo ltlce lottetos =Prin(>
&cCormac/G Daniel
&cDermottG Alice
&edium Coeli =&idhea'en>
&ercuryG pairin( of &oon with
&errimanG 3aymond AJ
&eta$toc/
formulas
&idhea'en =&edium Coeli>
&id8term mo'in( a'era(es
&id8term period mo'in( a'era(e lines formula
&i/ulaG Patric/
&illennium $tar Tra7
&inor aspectG in astrolo(y
&omentum
Momeotom, ultectloo, ooJ ulvetqeoce =Blau>
&omentum indicator
includin( in financial astrolo(y
&omentum oscillator
plottin( of
time frame and
&oney8flow indicator
&oney mana(ement plannin(
&ornin( star pattern
&o'in( a'era(e con'er(enceSdi'er(ence =&ACD>
&o'in( a'era(e line formula
&o'in( a'era(esJ 5ee olso <ueuin( Theory of &o'in( A'era(e Crosso'ers
in )uilt8in color trend indicator
formula for
as la((in( indicators
sideways mar/ets and
&ulticollinearityG in three oscillators
Datal chartsG in financial astrolo(y
Deptune
New coocepts lo 1ecbolcol 1toJloq 5ystems =2ilder>
New Motket wlzotJs, 1be =$chwa(er>
Dew moon
New 1ecbolcol 1toJet, 1be =Chande and *roll>
DisonG $te'e
Dontrendin( mar/et
188+8586 =fi'e8wa'e structure>G in ,lliott 2a'e Theory
2a'e 1
2a'e
2a'e +
2a'e 5
2a'e 6
-pen
-r) =sphere of influence>
-scillatorsJ 5ee olso &omentum oscillator
(enerally
multicollinearity in
-utside day
-'eranalysisG a'oidin(
-'er)ou(htSo'ersold condition
,lliott 2a'e -scillator and
oscillators and
-'ertradin(G a'oidin( of
Pac&-$ Technolo(ies .oldin(s !imited
P and F =point and fin(er> chart analysis
Part of Fortune
Patterns
AB4CD patterns
candlestic/ patterns
dia(onal patterns
di'er(ence patterns
(aps
head and shoulders patterns
0&1 and 021 patterns
price ran(e and
rectan(le patterns
saucer patterns
short8 and lon(8term patterns
Penny stoc/s
PS, ratioG fundamental analysis and
lbl =#olden 3atio>
Piercin( line pattern
Placidus system
Planets:
planetary positions
rulin( planets of natural horoscope
Plannin( chart layout
Pluto
Position siNin(G determinin(
0Predicti'e Power of Price PatternsG The1 =Ca(inalp and !aurent>
Price actionG tradin( ad'ice
Price and mo'in( a'era(es
Price directional mo'ementG technical analysis and
Price momentum:
trend and
'olume and
Price ran(eG patterns and
Price re'ersalG 'olume and
Prin(G &artin
ltoflts lo tbe 5tock Motket =#artley>
Pro(rammed system tradin(J 5ee Applied systems
Protecti'e stops
Ptolemy
<ueuin( Theory of &o'in( A'era(e Crosso'ers
ei(ht principles of interpretin(
:chimo/u chartin( and
period (roups
readin( pro)a)le trends with
usin( to trade
3an(eG price direction and
close
hi(h
low
open
3asch/eG !inda
3ectan(le =)o7> patterns
3elati'e price oscillator =3P->G financial astrolo(y and
3etracementJ 5ee Fi)onacci 3etracement and Pro9ection
3eturn on eOuityG fundamental analysis and
3e'enueG fundamental analysis and
3e'ersals
new hi(h or low and
price momentum and
3is/ and reward:
definitions
mana(in( of
3oyal Ban/ of $cotland
3ule of Alternation
3ule of ,Ouality
3ule8)ased tradin( system
3unaway (aps
$aucer patterns
$chwa(erG Hac/
$eidlerG .arold
$en/ou spans A and BG in :chimo/u chartin( techniOue
$hadowsG of candlestic/s
0$heer !unacy $tarin( at the .ea'ens1 =3oyal Ban/ of $cotland>
$hinhint
$hort8term mo'in( a'era(es
$hort8term patterns
$ideways mar/ets
$olar cyclesG financial astrolo(y and
$tec/lerG Da'id
$tellium
$toc/G selectin( for tradin( plan
$toc/8screenin( ser'ices
5tteet 5motts =3asch/e>
$un Ei
$upply and demandJ 5ee olso Technical analysis
$uspended tradin(
$win( traders
$ynodic periodG in astrolo(y
$ystem tradin(
Technical analysis
)asic assumptions of
)asics of
o)9ect of
scorecard for
1ecbolcol Aoolysls of 5tocks & commoJltles ma(aNine
1ecbolcol Aoolysls of 5tock 1teoJs =,dwards and &a(ee>
Ten/an8sen lineG in :chimo/u chartin( techniOue
Terra :nco(nita =software>
1ettoblblos =Ptolemy>
Three )lac/ crows pattern
Three8wa'e structureG in ,lliott 2a'e Theory
Three white soldiers pattern
TillsonG Tim
Time frame:
momentum and
tradin( ad'ice
in tradin( plan
Timin( $olution software
Topocentric system
Trade$tation software
1toJloq fot o llvloq =,lder>
1toJloq lo tbe 2ooe =Dou(las>
Tradin( planG formulation of
additional chart chec/list
determinin( entry points
determinin( e7it strate(ies
determinin( time frame
e7ecution of trade chec/list
mana(in( ris/
selectin( stoc/s
summary list
'alue of
TransitG in astrolo(y
Trend indicator
Trend line
Trend8related dimensions
cautions
com)inin( of
patterns
price momentum
'olume
Trends:
)asics of
decipherin( with 'olume
ne'er8trade8a(ainst rule
price mo'ement n
tradin( ad'ice
Trian(lesG in ,lliott 2a'e correcti'e 68+86 patterns
True ran(e
ultlmote 8ook oo 5tock Motket 1lmloq, 1be =&erriman>
Cranus
%enus
%olatility
%olume
)asic plots
decipherin( trend with
:chimo/u chartin( and
as indicator of price mo'e 'alidity
money8flow indicator and
readin( of
%olume indicator:
applied systems and
formula for
tradin( ad'ice
%olume ratio compressed indicator formula
%olume None oscillator =%E->
2ant 2ant
2ee/ly chartsG supportin( mo'in( a'era(es and
2ee/ly momentum
2ee/ly ran(e
2hipsaws
2ilderG HJ 2ellesG HrJ
2olfeG Bill
2olfe wa'es
AahooX Finance
Ei(Na(sG in ,lliott 2a'e correcti'e 68+86 patterns
Eodiac si(ns:
characteristics of each
financial astrolo(y and