2 Period Rate of Change (2ROC)

The 2-period ROC pattern align well with Taylor�s �in one day�, �out the next�
technique.
The 2-period ROC indicates whether the odds favor being a buyer or a seller for the
day. Then use Taylor�s �rules� to trade as if it is a �buy day� or a �sell short�
day. Hold the trade overnight and exit according to his guidelines.
Exit: at or around the previous day�s high when long. In trending or volatile
markets, you can usually exit on a deeper penetration of this high. If the market
opens down, exit on the first reaction.

The 2-period rate of change is calculated by subtracting today�s close from the
close 2 days ago. The 2ROC is most corrlated with 120 min chart.

If the ROC has just flipped up, (the slope has changed from negative to positive),
put a B in front of it on your chart. If it has been headed up for more than one
day put parentheses around it �(B)�. This indicates a possible short-term reversal,
or shorting opportunity.
If the ROC has just flipped down put an S in front of it on your chart. If it has
been down for more than on day put a parentheses around it "(S)". This indicates a
possible short term reversal or buying opportunity
(S) = Anticipate Taylor Buy Day
B = Sell Day, but can still trade from the long side
(B) = Anticipate Taylor Sell Short Day
S = Another chance to short in a downtrend.
Use these signals in deciding how you want to approach a particular day. Then study
the last five days on daily
bar chart to guard against stepping in front of an impending breakout.

The 2-Period ROC has a tendency to give false readings after a narrow range or
inside day. It can go one more day before signal kicks in - so can delay effect by
1 day. Doesnt work well when you have extreme volitality and when you have low,
narrow range, volitality.

If new momentum high on 2ROC Taylor play is short above previous day high. If there
was momentum the day before, might not be good to hold short overnight. If the 2ROC
makes new momentum high on daily chart, the upswing will not have a bigger
correction down until market forms 120 min sell divergence.

Has SHORT term forecasting capabilities ONLY. Not like 310 Osc or one of longer
duration.

If 2ROC makes new highs but price doesnt then the risk is that you have short
covering (if to upside) or fund liquidation flush (if to downside) and would put
less weight on the 2ROC reading in this instance. Silver does this more often than
most markets.

Strong readings in 2ROC are early momentum warning signal. This is where price is
trending and 2ROC is making new lows or new highs. Look for new highs or lows in
price. Then wait for retracement in trend, even a brief dip below 5SMA.

How to approach on Sell Short Day:

Start by looking at previous days high first and foremost. Then the opening price.
You will either get a nice test of previous high early morning. You are looking for
that test to exhaust itself. If it goes too high or opens high then you are going
to be playing a scalping only game - covering as it comes back below the previous
days high as you will still be trend up on the intraday charts. If you have a lower
high on 60 min or 120 min that is a great trade location.
If there is no volume in that first 30 mins then probably going to have a testing
day - test up, fail - test down, fail. Low volume = FORGET ABOUT FLAGS. Can look at
small time frame divergences for fading. Breakout of first hour range should lead
to trade back up into the range.

If heavy volume may get little flag to enter on or can do breakout of the first 30
min bar (called initial balance). If opening 30 min bar has really good volume and
opens at one end and closes at the other then pretty good odds you will carry
enough past that to get something out of the market.

General Rules
Breakout mode, NR7, 3-Bar Triangle all take precedence over 2ROC. It doesnt matter
if the ROC is down 2 days market can still come out low/downside .

If 2ROC has been down for 2 days but has made new momentum lows then like osc lows
we will follow the time frames down and instead look for where a Grail sale might
form. If all timeframes are trending then don�t look to make counter trend trades
on the 2ROC

If market has made 2 days H to L and the 2ROC has a buy divergence on it then
consider scalping to the long side on a move down next day.

When you break from a bit of a trading area SKIP THE FIRST BUY DAY. Let it run for
5 days before looking for a buy. This rule seems to be more pertinent to markets
like crude, cotton, beans. If all timeframes are trending then don�t look to make
counter trend trades on the 2ROC.

The 2ROC has a tendancy to give false readings after a narrow range or inside day.
If you have NR4 or NR7 or Triangle break out then it does not matterer if 2ROC is
down 2 days it can still come out the lower side.

If 2ROC makes new momentum highs look for trades in that direction after correction
(1 to 2 sessions)

Trading Range:
In a trading range, you can still trade reversion to the mean. When the Slow line
is HIGH and 2ROC is LOW, look for a reaction back up.

Example: You have sharp snap back rally off the prior low. The 2ROC is high and the
Slow line is still low. This indicates upside is limited and preapre for a SALE.

------------
Taylor:
When the market is having a fresh breakout from a level skip the first buy day (or
sell short day) and let the market run an extra cycle. Maybe wait 4-5 days before
looking for a buy day after a downside breakout.
There tends to be a main trend for the day either low to high or high to low.
Our objective is to trade in that direction.

This is more important when
scalping opportunity.
If you know in advance that
near its lower end of range
would carry a winning trade
the volatility contracts because there is less intraday
it will open near the upper end of its range and close
it should be possible to make one good trade. Then you
overnight and go for follow through.

The market follows ditinct laws of alternation. Not just trading from low to high
and then a few days later from high to low but also in the way it trades in the
first hour and the way it closes. It is rare to have more than two strong last
hours in a row.
-------------

Best Sell Short Day Pattern:

2ROC reliable when there are clear swings in the market and it has NOT been in an
extended consolidation.
Look for a short sale after an extended rise in the EMA20 and price is just rolling
over SOT. Could be first short sale after price breaks through EMA and EMA is just
turning down.

On the ideal Short Sell Day, the high is made first and the market closes weaker.
Obviously this is more likely if the market has traded from low to high for
previous 1-2 days. First we wait to see the buyers buy their positions and use up
the buying power then see if their are short sellers in the market the following
day taking profits.

The 2ROC setup that leads to better shorting opportunities is

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