As chartists, you should be able to know what you are looking for, so that you can tell what you are looking at, when you are not looking at what your looking for.
Wrap your head around that first sentence, and you should be very interested in what this example of the CDNX represents. It is the perfect storm, using a selection of indicators
"The 7 tools of the Trade" (compliments to Investopedia). After looking at this CDNX example, and comparing a stock you may be charting, you should be able to make some kind of comparison that will express your own interpretation.
I have taken the liberty of adding a couple of indicators to put the 7 tools of the trade on steroids.
This presentation below is a complete chart study broken into four (4) group study sections.... (Clips)
______________________________________________________________
The first clip of three indicators is a group study of the RSI 14, which of the three, RSI 14 is the only indicator of the 7 basic tools in this particular clip. You can see that when looking at the RSI 14 default, the average has run a series of tops (It is also a signal of a rising trend) while maintaining a plot above the 50 center line, the last top was a heavy top signal.
An average plotting above the 50 line is bullish.
RSI 14 is best used to interpret when the plot moves above 70 (over bought)or below 30 (over sold). Anything in between is pretty hard to make any kind of trade assumption (Except noting the above observation). Remember though, before you can make any assumptions at all, you must first have determined the trend (trend is up decidedly in this case).
Now this is where the upper StochRSI 14 comes in (An indicator of RSI 14) and the steady plotting RSI 14 above 50 (In this case the RSI 14... 50 line becomes our support for oversold indications). The StochRSI is
our short term dip picker with a focus on dip picking or buying the dips on a rising trend. The (indicator of the RSI 14)
StochRSI 14 is over .8 and can be read as over bought presently. So if this was a stock we were trading, being in the over bought state as per the StochRSI 14 area (.8), entering now would be very risky. You should have entered on the last over sold StochRSI 14 bounce.
Now for the last indicator of the (below) Clip RSI 14 Study, we look at the (different setting)
StochRSI 140 (notice the setting is 140). After years of study, this particular setting of the StochRSI (140) for me has become an indicator of strength that measures the depth and breadth of the current
UP trend, and when this indicator presents itself in this manner, you are looking at one very strong short to medium up trend. This is your dip picker for the big picture long holds.
Looks a little weak here and this could turn bad... being that the average has moved below the .8 line. Hard to gauge, with the relative high pricing on this bullish run we should sprinkle this development with some caution. Had this dip been much earlier in the run, if the fundamentals were good, we could see it as a dip more than a trend break.
In this clip There is no 7 Tools of the trade illustrated, but you should be memorizing the look of the indicators shown, starting with the lower bollinger touches, the position of the price in the pinches, the bounces off the 20 day averages, 20 day above the 50 day average, and finally, the ringed candles (discussed in previous posts)along the lower bollinger as the shortest term buy signal if everything else is in place.
Notice in this case the last lower bollinger touch was to the right and lower than the lower bollinger band, (this is a bearish signal setting for lower bollinger runs in a high percentage of cases), which usually leads to a lower bollinger skid, also there was no ringed candle present, which makes for a pretty bearish signal here, that did develop into a lower bollinger skid. We have had a bounce since, but the bollinger has narrowed, and an upper bollinger touch may prove to be a right shoulder on a head and shoulders top. Now is the time to be cautious, and be prepared for The go away in May mantra to take hold in the near future. As it is only the end of February, we have two months of traditional market timing left, however the strong move into the January effect may cause a variable in the expected time frame making it shorter.
The previous post is be a good description of the mechanics of a pullback... dip picking a pullback on a strong issue will provide some top notch profit.
The next study contains 4 of the 7 Basic tools...
First let's memorize the look of the MACD 12,26,9... the fact that is plotting above the trigger line is what makes it bullish. The buy signal was the crossover of the trigger line by the averages. This trigger line buy signal is the true area where you should have reacted for a long position. After that, the average crossovers should receive less consideration, but average crossovers could be dip short term picking signals for over sold while above the trigger line. In this case the averages have dropped below the trigger line. The trigger line acts as an area of support or resistance which in this instance,
was support, but now is resistance... I would say we have room to move further to the upside, but any indications of failure should be regarded as a potential reversal... We do have all of March and some of April to work with.
Lets look at the ON Balance and Accumulation/Distribution.
You're going to have to trust me on this observation , however if you back test it, you will see the validity. Still there is a contradiction and I will demonstrate it shortly in another post.
On Balance (one of the 7 tools of the Trade) is a measure of volume and a rising OB is measuring
rising buying volume, and precedes a bullish move.
A falling OB is not declining volume
No No No... OB is measuring
rising SELLING volume and precedes a bearish move.
A ranging OB or Acc/Dis is suggesting a support or resistance level.
Accum/Dis (one of the 7 tools of the Trade) is more of the same, but it measures a larger period and is commonly used to suggest institutional buying or selling.
Simply put.... if the
On Balance Vol and Accum/Dis... with, or without the smoothing 20 day average, don't look like the those in the example, you have some kind of variation of a weak or busting out trend. I shall demonstrate an example in another post... shortly.
Once you understand what OB and AC/D are telling you... you will use them all the time... I do.
The Stochastic 14 (one of the 7 tools of the Trade) is an oscillator and does not in itself indicate trend, but rather indicates over sold and over bought within the established trend, which if you know the trend it is operating within, will be enable you to buy the bottoms in an uptrend, or sell (short the tops) in a down trend.
One should note the position of the Stochastic 14 within the whole structure of the complete chart study is above the Aroon indicator so that the oversold stochastic position readings coincide with the oversold position readings of the Aroon, making for a nice visual splash easy to catch.
In this cut, the Aroon (one of the 7 tools of the Trade)is demonstrating a strong uptrend with dips showing under the 70 line and over the 30 line by the green and brown aroon respectively. Look at the pattern and see how dips are presented. I am impressed by the final crossover though, and consider this to be a foreshadow of a head and shoulder pattern which will likely show up after the OB and Acc/Dis turn.
The ADX line is showing weakness, and a consolidation with the DIR + just above the Dir - ... they appear to be squished... the ADX line should swing up to confirm the price move and without the strength, it suggests the potential head and shoulder.
Okay.... so now this is what a good chart looks like with a potential top looming...
Take all the clips and put them together as a study in your own stock charts account and chart some stocks that you're in terested in, and see how they compare.
GLTA Lostoutwest
Kenuck SmallCap TraderNational PostGrandich StockCharts Public Chart ListCBCnewsPlease read our
Complete DisclosureIf you see the hand... click on screen shots to enlarge them.
