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Also in this issue: ■ Developing A Trading Plan


■ The Detrending Price Oscillator ■ A Long-Haul Method
■ Interview With Dan Zanger ■ Inflation-Adjusted Returns
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CONTENTS BONUS ISSUE 2014, Volume 32 Number 4

8 Developing Your READERS’ CHOICE AWARDS


Own Trading Plan 26 2014 Readers’ Choice Awards
by Solomon Chuama Stocks & Commodities presents
Here’s an example of how you can the 2014 Readers’ Choice Awards,
execute your own trading system with products and services that our
based on current market analysis. subscribers are using and find use-
ful, in more than 20 categories.
FEATURE ARTICLE
12 The Detrend Reveals INTERVIEW
The True Trend 36 Seeing The Patterns
by Martha Stokes With Dan Zanger
We would all like to trade bottom-
by Matt Blackman
ing and topping markets. Here’s
Dan Zanger of Chartpattern.com
one way to do it.
is a swing trader and technical
analyst focused on stocks — and
19 A Trading Method TCA a force in stock trading. He has
For The Long Haul spent 20 years studying every type
by Donald W. Pendergast Jr. of chart formation imaginable and
You can apply this model to any finding what works.
time frame on any equity. The best
part is that it’s so simple, anyone 42 Trading Using Planetary
can implement it.
Movements
by Khit Wong
22 Inflation-Adjusted Is it possible to achieve market
Market Returns timing via planetary movements?
by Ron McEwan Our first inclination would be that
Does inflation explain why it wouldn’t be possible, but let’s
markets are higher in dollar value give it the benefit of the doubt.
and why they seem to be worth Here’s an easy financial astrol-
less in purchasing value? Here’s a ogy tool you can use to judge for
detailed look. yourself.

25 Listening To The Market DEPARTMENTS


by Danish Kapur
Are there ways that investors can
6 Opening Position
listen to what the market may be 35 †Traders’ Glossary
trying to tell us? 45 Classified Advertising
45 Traders’ Resource
46 Advertisers’ Index
46 Editorial Resource Index

These articles – and articles like them –


TCA
can be found online at www.traders.com

Copyright © 2014 Technical Analysis, Inc. All rights reserved. Information in this publication must not be stored or reproduced in any form without written permission from the publisher. Technical Analysis
of Stocks & Commodities™ (ISSN 0738-3355) is published monthly with a Bonus Issue in March for $89.99 per year by Technical Analysis, Inc., 4757 California Ave. S.W., Seattle, WA 98116-4499. Periodicals
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4 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


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Bonus Issue
March 2014
2006 • Volume
• Volume 24,32, Number
Number 3 4
O
Opening POSITION
PENING Position

The Traders’
The Traders’ Magazine
MagazineTMTM

W
EDITORIAL
EDITORIAL
editor@traders.com
editor@traders.com

O
Editor in Chief Jack K. Hutson
Editor
EditorinJayanthi
Chief Jack K. Hutson
Gopalakrishnan
Editor Jayanthi Gopalakrishnan nce again we got a reminder of just
hoever said thethe markets don’t throw
Managing Editor Elizabeth M.S. Flynn
Production
ProductionManager
Manager Karen
KarenE.E.Wasserman
Wasserman how sensitive financial markets
Art
Art Director
Director Christine
ChristineMorrison
Morrison us unexpected surprises? After
are. We saw a major selloff in the Japanese all, isn’t that
Graphic
GraphicDesigner
Designer Wayne
SharonShaw
Yamanaka what makes the markets what
markets, which — as expected — triggered they are? Yeta
when things are going smoothly, many seem
Editorial
Staff Intern
Writer Emilie
Dennis Rommel
D. Peterson
Technical Writer
Webmaster Han J.David
Kim Penn
domino effect on markets throughout the
Staff Writers Dennis D. Peterson, Bruce Faber
Contributing Editors John Ehlers,
to forgetAdd
world. that disappointing
reality and instead dwellnumbers
earnings in hope.
Webmaster
Anthony Han J.Ph.D.
W. Warren, Kim That
from US corporations and you have culprits
feeling of hope is one of the a situa-
ContributingWriters
Contributing
Anthony
EditorsDon
W. Warren,
John Ehlers,
Bright, KevinBulkowski,
Thomas Lund,
that
tionmakes
that justusgot blind
worse.to what really
So what goes off
started on inas
Martin Pring, Barbara Ph.D.
Star, Markos Katsanos
Contributing Writers Don Bright, Thomas Bulkowski, the financial markets. If only
a strong year ended up correcting, and rather we could take
arapidly.
magic pill that admit
wouldthat make that feeling of
Martin Pring, Adrienne Toghraie
OFFICE OF THE Publisher
I must although correc-
Publisher Jack K. Hutson
hope disappear! But that wouldn’t be realistic,
tions are healthy for any market, when you have a 2% drop, it gets you thinking.
wouldPriorit?to the Federal Reserve’s FOMC meeting, I usually take a look at the yield
OFFICE OF THE PUBLISHER
Industrial Engineer Jason K. Hutson
Publisher Jack K. Hutson
Project Engineer Sean M. Moore
Credit Manager Linda Eades Gardner
Controller Mary K. Hutson
curve.
In lateAtJanuary
present,2014, the market
it’s looking a littleshowed
flat, and offgiven
its power.
that theAnybody
generalwho is in the
consensus
Industrial Engineer Jason K. Hutson
Project Engineer Sean M. Moore
business
is that the Fed is going to tighten at their January 31st meeting, I am concernedif
of mentoring or educating traders was showered with emails asking
Accounting Advertising Sales
Assistants Jane Leonard this
that was the start
the yield curve ofmaythe long-awaited
be heading in correction.
the directionBut let’s be
of being realisticAnd
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T
here’s a saying that
if you fail to plan,
then you have already
planned to fail. What, then, is
a trading plan? A trading plan
is an embodiment of your trad-
ing goals, risk management
rules, and your trading system.
Sadly, 90% of new traders don’t
survive the markets because of
haphazard trading. A trading
plan is a well-thought-out ap-
proach to executing a trading
system of your own based on
the market analysis in order to
limit trading mistakes or losses.
Trading plans differ from one
trader to another because of dif-
ferent styles of trading. But it’s
not enough to develop a trading
plan; you also have to be able
to stick to it.
In this article, I will provide
examples of my goals and of
my trading system, on which a
trading plan can be based. The
goals I set for myself are the
motivating factor in my trad-
ing. Besides goal-setting, you
must have some interest in the
business you run. Here were my
goals when I started trading:
1. To be a successful trader. If
90% of new traders hardly
survive the market, then I
choose to be in the 10% of
successful traders. How do
I go about it? During any
trading session in which the
market is not favorable, I JOAN CHIVERTON
agree to let go a maximum
loss of 10% of my trading
capital. That means if I am
Winning The Battle trading on five positions,

Developing Your Own


each position should carry
a maximum loss of 2%,
thereby giving up an aggre-

Trading Plan
gate loss of 10%. Second, I
abstain from trading if the
market is not discernible.

2. To make $3,000 monthly.


Here’s an example of how you can execute your own I set a target profit of $150
trading system based on current market analysis. per day or $750 per week
on my five positions. My
by Solomon Chuama
monthly target is $3,000.
8 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
TRADING PLAN

3. To be a full-time trader. To be a full-time trader, I have to


trade morning and evening sessions. As I stated earlier, Trading Business Plan For The First Year
I made it a goal to achieve a target profit of $3,000 per Revenues $ Expenses $
month. Every six months, I evaluate my overall trading My initial assets: Laptop 800
by preparing accounting statements to know if I have Savings 5000
broken even. An example of my business plan can be seen
in sidebar “Trading Business Plan For The First Year.” Internet connection 200
You can see the formats of my profit & loss statements Forex books 250
and balance sheet in sidebar “Profit & Loss Statements
Telephone expenses 150
And Balance Sheets.” I analyze them every six months
to ascertain my initial net income after considering every Stationery 200
other expense. I prepare my balance sheet statement so I Copier/ printer 500
know my assets and liabilities. If my evaluation showed Generator fuel 50
a favorable report, I will set a new target for myself. If it
didn’t, I will continue with my previous target. This was Electricity bill 50
a method I used to encourage and motivate myself. You Balance carried down 2800
can do something similar.
Total 5000 Total 5000
4. To develop a trading system. Another important compo-
nent of my trading plan is a trading system. The trading
system should include: Profit and Loss Statement for the period ended December 31
Sales (profit for the period July–December 2011) ------------ XXX
n Time frame
Less Cost of Sales (Purchases) ------------------------------------- XX
n Indicators that show the _______
conditions of the market Gross Profit---------------------------------------------------------- XXX
n Definition of risk Less Operating Expenses:
n Definition of entry rules Internet Connectivity XX
n Definition of exit rules. Generator Fuel XX
Stationery XX
I’ll go over each of these and then provide an illustration My wage XX
with a chart. Electricity Bill XX
Bank charges XX
Time frame: The selection of time frame varies from one trader Subtotal ------------------------------------------------------- XX
to the next because of different styles of trading and individual _______
personality. Before you choose a time frame to trade, you have Net Profit XXX
to try different ones and settle on the one that is most suitable
for you. If you want to be an intraday trader, you may want to
consider the following time frames: one-minute, three-minute,
Balance Sheet Statement as of December 31
five-minute, 10-minute, 15-minute, 30-minute, and 60-minute
to find the one you are comfortable with. Fixed assets:
Office equipment------------------------------------------- XXX
Application of indicators: I typically use two indicators in
my trading system: Current assets:
Bank------------------------------------------------------------ XXX
n Moving averages Cash------------------------------------------------------------ XXX
n Stochastic oscillator
_______
I apply exponential moving average (EMA) crossovers to show Total XXX
me the recent price swing. I use a shorter EMA to catch early
trends to enable me to make profits. It is also best to know Financed by
what the market speculators are currently doing and compare Capital------------------------------------------------------------------ XXX
that to what they did the previous week. Add net profit--------------------------------------------------------- XX
The stochastic oscillator is an indicator that signals a pos- _______
sible reversal. We want to know where the previous trend is
ending and where the price is likely to change direction. The Total ---------------------------------------- XXX
stochastic oscillator assists me in identifying trends that are
ending. The main function of the stochastic oscillator is to
Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 9
TRADING PLAN

Metaquotes
Figure 1: trading system in action. Combining exponential moving average crossovers with the stochastic oscillator is a simple trading system any trader can
begin trading with.

measure overbought and oversold conditions of the market. It


is scaled from zero to 100. I place a buy order when the market
A trader without a trading plan is a is oversold, or where the stochastic dotted line is below 30;
similarly, I place a sell order when the market is overbought,
gambler, whereas a trader with a or where the stochastic line is above 70.
plan is a disciplined, coordinated, After the application of indicators to my trading system, I
and results-oriented trader. define my money management rules, which will define my
risk.

Definition of my risk: As a trader, this is how I go about


setting up money management rules. First, I allow 2% of my
capital for each position. I would like to trade five positions
during any trading session; thus, I would be risking only
10% of my capital. Second, I input a stop-loss of 100 pips
for each position. Third, I do not set any profit target; rather,
I adopt an exit rule.

Definition of entry rules: I look at the chart and at the in-


dicators before making my entries. I abstain from trading if
the market trend is not discernible. I rely more on my EMA,
because it gives me good signals.
I will buy if:
n The five-period EMA crosses over the 12-period EMA
line and this is confirmed by the stochastic lines, which
are already in the oversold condition.

I will sell if:


n The five-period EMA crosses under the 12-period
EMA line and the stochastic lines are in the overbought
“Would you like your dividend in nickels, or bitcoin?” condition.

10 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


Definition of exit rules: I use these methods to exit my trader. A trading plan is a guide, a personalized plan for your
trades: trading goals, risk tolerance, and individual lifestyle. When
n Trailing stop: Trailing stops are used to lock in profits strictly followed, it prevents the development of adverse
as the market moves in my favor. I can place my trail- psychological factors in trading, and it reduces a fair amount
ing stop at X amount if the price moves by X amount of bad trades and stress.
in my favor. Sometimes this stop takes me out of my
trade. Solomon Chuama has been working in the financial industry
for 14 years. He is a trading seminar organizer and instructor
n Stop-loss: For each lot, I place a stop-loss of 100 pips. who passes onto students his forex trading knowledge and pas-
I do not set profit targets for my trades. sion. Starting as a novice, he came across established trading
facts that brought about the changes he needed to turn him
n Voluntary closure of trade: I close my trades when I am
into a successful trading professional.
through with my trading or when it has satisfactorily
met my target profit or loss.
Further reading
Chuama, Solomon [2012]. “Decimal Places In Forex,” Tech-
In Figure 1 you see an example of my trading system. I
nical Analysis of Stocks & Commodities, Volume 30:
entered a short position on July 5, 2012 after the moving
November.
average crossover signaled a downtrend. I closed the position
[2013]. “Triple Approach To Forex Markets,” Tech-
on July 12, 2012 after I got an exit signal from the stochastic
nical Analysis of Stocks & Commodities, Volume 31:
oscillator, which, at that time, had moved into the oversold
Bonus Issue.
region. I gained close to 300 pips from that trade.
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THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS SHOWN IN AN ACTUAL PER-
FORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OR
OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO
SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR
LOSSES SIMILAR TO THESE BEING SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE OF FUTURE
PERFORMANCE OR SUCCESS. TECHNICAL ANALYSIS OF STOCKS & COMMODITIES LOGO AND AWARD ARE TRADEMARKS OF TECHNICAL ANALYSIS, INC.

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 11


12 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
CYCLES

Is A Turn Approaching?

The Detrend Reveals


The True Trend
We would all like to trade bottoming and topping
Peak
markets. Here’s one way to do it.

In our modern, automated marketplace,


trends can obscure a topping or bottom-
ing formation. Sophisticated new professional side
orders have changed how stocks and indexes form
tops and bottoms. Many once-common topping and
bottoming formations rarely occur in the automated
marketplace. Trough
Trough
Technical traders need to use alternative analysis
tools to properly identify these new patterns. The
Figure 1: timeline of a cycle. Cycle theory always uses the “trough to trough”
detrending price oscillator makes it easy and reliable measure to calculate the timeline of a cycle.
to analyze a cycle of a stock or index to anticipate
sudden price action.
A popular detrending formula is:
The detrend indicator n
Although the detrending indicator used is called a
detrending price oscillator, this discussion goes be-
Σ
j=i
Close j

yond the normal use of an oscillator and enters the Moving average =
n
realm of cycle theory.
First, a note here: Cycle theory always uses the or:
“trough to trough” measure to calculate the timeline Detrending price oscillator (DPO) =
of a cycle. Peak to peak is never used. This approach Close – Moving average [(n / 2) + 1] days ago
provides a more accurate determination of the length
of the cycle. Thus, a four- or six-year cycle is trough The purpose of using a detrending indicator is to re-
to trough with one peak between the two troughs move the uptrend or downtrend to reveal the underly-
(Figure 1). ing cycle within those trends. Cycles expose patterns
Peaks are not used, as they tend to have more vari- in price that are not as easily seen in trends.
ants than troughs. Cycle periods are averages, which The new automated orders used by the institutions
DAVID GOLDING

are not precise. A four-year cycle will not always be have significantly altered tops and bottoms. The
exactly four years. head & shoulders top, as an example, rarely forms
nowadays. However, the detrending indicator identi-
fies the extreme deviation even without the typical
by Martha Stokes price pattern.
Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 13
TC2000
Figure 2: weekly chart of the dow jones industrial average. Here you see the detrending indicator with an eight-period setting. What it does extremely well is identify topping
and bottoming conditions before the top or bottom commences. The detrending indicator forms lower cyclical highs with failed peaks and lower troughs just before a top commences.

Here’s some terminology


Extreme peak: An unusually long upward cycle pattern that is The goal of a detrending indicator is to
beyond the normal range of the cycle. The extreme peak
tends to shorten the cycle timeline.
remove the uptrend or downtrend so that
Extreme trough: An unusually deep downward cycle pattern
a cyclical pattern is exposed.
beyond the normal range of prior cycle peaks. The extreme
trough tends to shorten the cycle timeline. lower troughs just before a top commences.
Extended peak: An upward cycle pattern that extends far beyond In the DJIA, the detrending indicator forms an extreme trough
the normal range of the cycle. The extended peak lengthens prior to the final low of 2008, allowing traders to prepare for the
the cycle timeline. end of the downtrend. A failed peak develops, which indicates
a weakness in the 2009 weekly cycle. Then the detrending in-
Extended trough: A downward cycle pattern that extends far
dicator signals the absolute low has been reached in 2009 as a
beyond the normal range of prior cycle troughs. The extended
higher trough forms. As the higher trough of 2009 moves into
trough lengthens the cycle timeline.
a peak mode, the troughs become shallower, which indicates an
Reverberating cycles: Cycles that have experienced an extreme uptrend with momentum is underway. The cycle reverberates
or extended pattern on the peak and trough tend to reverberate after the extreme trough with no true peak or trough from July
afterward. This means that neither a peak nor trough forms. 2009 to April 2010.
Instead, the cycle becomes narrow in scope and choppy. The DJIA moves up to a high value in 2010 but a lower
Failed peaks: A peak that fails to rise to the prior normal-range detrending cycle peak gives an early warning that a correction
level of the cycle. is beginning. The W bottom trough is a strong signal the lows
have been reached for the 2010 correction. The high of the
Failed trough: A trough that fails to move down to the prior, DJIA in 2011 once again shows cycle peaks that are lower and
normal-range level of the cycle. shallower with lower troughs. This cycle is also shortened and
compressed, a signal that a more significant correction is about
Finding the peaks and troughs to occur. The last trough of 2011 has higher lows preceding the
The chart of the Dow Jones Industrial Average move up in late 2011.
(DJIA) in Figure 2 shows how the detrending The detrending cycle analysis exposes cyclical patterns
indicator can be used to expose the cycles within that often diverge from the price action far ahead of the trend
this index. What it does extremely well is identify shifts. This can be an invaluable tool for traders trading stocks
topping and bottoming conditions before the top or options.
or bottom commences. The detrending indicator Figure 3 of the NASDAQ Composite Index also shows failed
forms lower cyclical highs with failed peaks and peaks preceding downturns and corrections. A topping pattern is
14 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
FIGURE 3: WEEKLY CHART OF THE NASDAQ COMPOSITE. Here you see the detrending indicator with an eight-period setting. Notice the failed peaks preceding downturns and
corrections.

evident by the failed peaks and the lower troughs. The extreme has a higher trough cycle pattern indicating the conclusion
trough on the detrending cycle in 2008 precedes the final low of the downtrend. A reverberating cycle occurs in this index
of 2009. The lowest low of the bear market for the NASDAQ also, similar to the DJIA between June 2009 and March 2010.

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Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 15


FIGURE 4: CHANGING DYNAMICS OF A CYCLE. On this chart of Apple, Inc. you can see how extreme patterns reverberate and eventually return the cycle.

A weaker peak occurs in June 2010 and a trough in September of Apple Inc. (AAPL) in Figure 4, you see how a cycle can
2012, followed by a peak in December. Then the cycle reverber- change dynamics and how extreme patterns reverberate and
ates again, losing all peak and trough patterns until late 2011. can eventually return the cycle.
During reverberation periods, the cycle lost its timeline. In 2008 after an extended peak pattern, AAPL formed an
extreme trough, followed by an extreme peak, which is typical
They exist in equities when an extreme trough forms. The extreme peak was followed
The detrending indicator works well on stocks, providing by another extreme trough. In 2009, the cycle has a reverbera-
valuable information in shorter time frames. On the chart tion. Reverberations simply mean the cycle has been disrupted.

FIGURE 5: MCDONALD’S CYCLES. The cycles were not disrupted even though it developed a few extended peaks and troughs. The trough to trough of the cycle shortened considerably
during the extreme peaks and troughs.

16 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


FIGURE 6: DAILY CHART OF WALT DISNEY COMPANY WITH A FIVE-PERIOD SETTING. Here you see a consistent daily cyclical pattern with an extended trough in August 2011.

Extreme peaks and troughs reverberate similarly to the after- setting. DIS has a consistent daily cyclical pattern with an ex-
effects of an earthquake. Reverberating cycles do not form tended trough in August 2011; then the cycle quickly returns
defined peaks or troughs. Whenever a reverberation occurs, it to its normal pattern. The deepest trough precedes the final low
indicates a disrupted cycle. in October, where the trough is shallow.
Then in 2010, the cycle resumes but
with more sharply defined peaks and
troughs than before, with steeper peaks
and shallower troughs.
A trader needs to watch these sharper
cycles to see if lower peaks and lower Come visit one of the most popular trading
troughs form. If that occurs, then the stock
will shift to a topping formation. chat rooms for Breakout Trading.
McDonald’s Corp. (MCD) had a dif-
ferent reaction to the 2008 stock market
collapse (Figure 5). MCD cycles were
not disrupted even though a few extended Breakout Trading Bull Flags
peaks and troughs developed. What did
happen is the trough to trough of the cycle
shortened considerably during the ex-
treme peaks and troughs. Now it is starting Momentum Stocks Pivot Points
to lengthen that trough-to-trough cycle.
However, it is still a shorter time frame
than pre-2008. This analysis can help a
trader during volatile market conditions. Swing Trading Key Reversals
It allows traders to anticipate the shorter
cycle trough to trough and allow for the
steeper peaks and shallower troughs.
The detrending indicator for analysis Home of Dan Zanger, world record holder for
of stock or index cycles is best used on parlaying $10,775 into $18 million in 18 months!
a longer-term scale. Meanwhile, daily
charts can reveal patterns to assist in Home of T
he anger eporT Z r .
identifying the lows of bottoms and the
highs of tops.
Figure 6 shows Walt Disney Company
(DIS) on a daily chart with a five-period
Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 17
FIGURE 7: DAILY CHART OF GENERAL ELECTRIC WITH A FIVE-PERIOD DETRENDING INDICATOR. The detrending indicator has an extended trough prior to the bottom low in
October. The cycle reverberates in November and then resumes a trough-to-peak cycle.

In the chart of General Electric (GE) in Figure 7, the detrending indicator has
an extended trough prior to the bottom low in October. The cycle reverberates in
November and then resumes a trough-to-peak cycle. Detrending indicators detrend
a trending stock or index, so they work best in moderately trending and velocity
market conditions.

Cycles, exposed
The detrending indicator works for uptrends and downtrends, but it is not as useful
in sideways market conditions. The detrending indicator exposes the cycle within a
trend. Cycle patterns can be studied to find extreme peaks, extreme troughs, extended
peaks or troughs, reverberations in cycles, and other deviations of normal cycle pat-
®

terns. The detrending indicator shows when a cycle has shifted its timeline, whether
it is shorter or longer, and any deviations that move in opposition to price.
Deviations in a cyclical pattern, especially extreme or truncated troughs or peaks,
are an early warning to traders.
As with all sophisticated indicators, the detrending oscillator requires skill and
NeuroShell Trader practice to interpret properly. To use this indicator correctly, traders should study charts
of stocks and indexes before attempting to employ it in their trading analysis.
Intelligent Power
Martha Stokes, CMT, is a lecturer and author of cycle evolution theory. She is a
technical analyst for TechiTrader stock market trading courses, workshops, and
virtual classes. In addition, she writes several educational newsletters for active
traders. To learn more, visit technitrader.com or www.marthastokes.com.

Further reading
Stokes, Martha [2013]. “Balancing Your Indicators,” Technical Analysis of Stocks
& Commodities, Volume 31: Bonus Issue.
[2012]. “Riding The Velocity Express,” Technical Analysis of Stocks &
Commodities, Volume 30: May.
Winner 12 years in a row! [2010]. “Volume: The Forgotten Oscillator,” Technical Analysis of Stocks
& Commodities, Volume 28: July.
www.NeuroShell.com ‡TC2000 (Worden Brothers)
‡See Editorial Resource Index
301.662.7950
18 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
A Trading Method For The Long Haul
You can apply this model to any time frame on any equity. 3. You only take long positions in stocks that have recently

COLLAGE: NIKKI MORR


The best part is that it’s so simple, anyone can implement it. beat their quarterly earnings estimates and/or have a
steady trend of earnings growth and positive earnings
surprises.
by Donald W. Pendergast Jr.

S
Yes, it’s a dirt-simple model, and you don’t need to know a
ometimes even a picture-perfect trade setup fails to thing about algorithmic trading, neural networks, or high-level
deliver profits and may even result in a loss. But when mathematics to implement such a strategy — one that can also
you see a convergence of daily chart price dynamics be used on 60-minute, daily, or weekly charts, depending on
like the one I’ll demonstrate here, the case for a long trade how frequently you want to trade. Here are the basic tools
becomes fairly compelling. In Figure 1, you get a closer look you’ll need in order to scan for potential trade candidates:
at an interesting and attractive long swing entry setup in UGI 1. A scanning/screening feature such as TradeStation’s
Corp. (UGI). RadarScreen.
If you are a new or struggling trader and still need help in
sorting out your ideal trading strategy, consider whether this 2. A list of liquid, large- and mid-cap stocks (or even
kind of trading model makes sense to you: small-caps, if you love volatility) with an average
50-day trading volume of one million shares. The
1. You only take long positions when the dominant S&P 500/400 component stocks are perfect for such
long-term trend is up — as defined by a 200-period a strategy.
exponential moving average (EMA).
3. Access to a fundamental screening service such as
2. You take long positions only when they have completed Investor’s Business Daily’s screen center, Zacks.com,
a proportional pullback/correction against the dominant MidnightTrader.com, or a similar service that can easily
long-term trend. help you filter the earnings winners from the losers.

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 19


TRADING SYSTEMS

UGI: UGI Corp., daily 9/9/13

40.50 looks like a strong


resistance level
UGI appears to be at or near a
multicycle low as it continues to find
Red line = 6-day EMA support near its 200-day EMA. The ??
stock had a fantastic Q2 earnings
release on July 30, 2013 but had
virtually no follow-through — and
then sold off hard.

200-day EMA 2-day RSI is deeply oversold; a break


above 38.45 could be the spark that ignites
a bullish reversal.

RSI (2)
RSI

TradeStation
Average true range

2013 20 28 Jun 10 17 24 Jul 8 15 22 29 Aug 5 12 19 26 Sep 16

Figure 1: UGI Corp. (UGI). UGI shares may be setting up for a bullish reversal; a break back above 38.42 may be the catalyst to bring buyers back into this stock.

4. You need some time each evening to do a bit of scan- Most days, you’ll get a handful of high-quality stocks that
ning/screening, earnings research, and the like, plus pass all of these screens, so you’ll need to do some additional
some time each morning to enter/exit or adjust your screening:
trading positions.
1. Choose those stocks with the highest four-week
Using a program such as TradeStation, you’ll want to be look- comparative relative strength vs. the .SPX
ing for stocks with these characteristics: 2. Choose from industry groups that are also far out-
n A two-period RSI reading below 5.00 (Figure 2) performing the .SPX
n Trading above its 200-period EMA 3. Diversify across sectors and/or industry groups to
avoid over-concentration of risk.
n An average daily volume of one million shares
or greater You also need to consider just how many stocks you want
n It must have beaten its most recent quarterly earn- to hold in your portfolio at any given time; in the January
ings estimates and ideally have a strong history of 2011 issue of Stocks & Commodities, my article “Making
positive earnings surprises over the past eight to A Good System Great” shared my research on how adjusting
10 quarters the total number of stocks in a portfolio — and how rapidly
new positions could be added — made a huge difference in
n The stock’s beta should also be greater than 1.00
the profitability of a basic, long-only trading system based on
(meaning that it is more volatile than the S&P 500
pullbacks. Extensive testing revealed that a four- to six-stock
index [.SPX]). TradeStation RadarScreen

Figure 2: RSI SCREEN. UGI’s two-day RSI reading is at a minuscule 2.03, nearly as low as it can possibly go.

20 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


portfolio in which the addition of new positions was limited
to a maximum of two per day produced the best combination The moving average filter
of net profits, with modest drawdowns, and a smooth equity will help limit the amount of
curve.
portfolio positions in times
Entry trigger of extreme bear markets.
So far, you’ve been given all of the essen-
tials needed to build a successful, long-only
trading system, but you still need to know gains over an extended time period. Monitor your results in
what the actual entry trigger is. The answer a trading simulator, and only begin trading it after you have
is simple: You wait for the two-period RSI to 100% confidence in this method.
dip below 5.00 and then patiently wait for a bullish reversal
bar that will break the previous string of lower highs. That’s Donald W. Pendergast Jr. has written more than 1,200 articles
it, assuming all of the other technical and fundamental fac- for Traders.com Advantage at www.traders.com since October
tors are in place. 2008 and is currently available for financial markets consulting
In the case of the UGI example, that means looking for and research assignments. He may be reached at puertoricool@
the stock to turn higher, taking out 38.42 once again. Once yahoo.com.
filled on the trade, place your initial stop beneath the most
recent swing low (near 38.00) and then trail everything with Further reading
a three-bar trailing stop of the daily lows (or hourly lows if Pendergast Jr., Donald W. [2013]. “Swing Trading With Three
using a 60-minute chart, and so on) until the stock gets back Indicators,” Technical Analysis of Stocks & Commodi-
above its six-period EMA. Then hold the position until you ties, Volume 31: December.
get a close back below the six-period EMA; at that point, you [2011]. “Making A Good System Great,” Technical
would go back into cash. Analysis of Stocks & Commodities, Volume 29: Janu-
This method is difficult (if not impossible) to accurately ary.
backtest unless you can also include all of the earnings in- [2014]. “TGT: Nearing Swing Price Target?” Traders.
formation within the backtest programming, but from visual com Advantage, January 31, http://technical.traders.com/
analysis, it appears to have immensely favorable potential tradersonline/display.asp?art=7817.
over the long haul, especially for disciplined traders who keep • www.midnighttrader.com/
their maximum portfolio risk (that is, portfolio heat) at 4–5%. • Investor’s Business Daily’s screen center, http://research.investors.
The moving average filter will also help limit the amount of com/screen-center
• Zacks.com
portfolio positions in times of extreme bear markets, which
‡TradeStation
is yet another big plus for risk-averse traders.
Take plenty of time and tweak this basic trading framework ‡See Editorial Resource Index
until you can personally witness its potential for producing

Your online resource


For Technical analYsis

Join us on Facebook at www.facebook.com/STOCKSandCOMMODITIES


Follow us on Twitter @STOCKSandCOMM

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 21


QUANTITATIVE ANALYSIS

Spread It Thin, Please!

Inflation-Adjusted
Market Returns
Does inflation explain why markets are higher in dollar
value and why they seem to be worth less in purchasing
value? Here’s a detailed look.

S
by Ron McEwan

ay it’s circa mid-September 2012 — the markets are at-


tempting to reach all-time highs again (for the third time
since 2000). Also reaching new highs is the price of gas, food,
and many everyday living necessities. With the indexes reaching
these levels, why does it seem like purchasing value is going
down? The talking heads on the business news attribute this to
inflation. Does this explain why markets are higher in dollar value
and why they seem to be worth less in purchasing value?
Figure 1: example of spreadsheet. By plotting the original price
Making the adjustments series and adjusting it for inflation, you get a different perspective when you
look at price charts.
To answer this question I looked at the markets with an infla-
tion adjustment. It’s not that difficult; all you have to do is
enter monthly price data for the index or security of choice. In Price Index—All Urban Consumers (CPI-U). The CPI data
my example, I used the S&P 500 index data series going back is available from the US Bureau of Labor Statistics.
as far as 1871. You will also need the data for the Consumer The spreadsheet in Figure 1 consists of six columns. The

Figure 2: monthly closing price for THE S&p 500. Here you see the S&P 500 vs. inflation-adjusted prices going as far back as 1871.

22 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


FIGURE 3: THE 1929 MARKET CRASH. Here you see that inflation kept up with market performance.

first column is the date field. The second is the monthly clos- monthly closing prices to the data series that was adjusted
ing price for the security series being adjusted for inflation, for inflation over the same time period.
which in this case is the S&P 500 index. The next column is
the monthly CPI figure. In the fourth column, the return for Is there a spread?
the month-to-month CPI is calculated as: The chart in Figure 2 examines the
monthly closing price for the S&P 500
(This month’s CPI minus last month’s CPI) divided by
index going back to 1871. The chart in
[(This month’s CPI plus last month’s CPI) divided by 2]
Figure 3 covers the period of the 1929
The equivalent formula in the Excel spreadsheet would be: market crash. It appears that inflation
kept up with market performance when
=((C3-C2)/((C3+C2)/2))
the markets went up and down.
The cumulative rate of inflation is calculated in the next column
by entering “1” in cell E3, and in cell E4, the formula:
E3*(1+D4)
StockS & commoditieS Online Store
Copy this formula down to the end of your data series. The
Store.Traders.com
next step, in column F, is to multiply the monthly close (col- • PDF versions of past articles
umn B) by the cumulative rate of inflation (column E). Again, • Convenient credit-card transaction
copy this down to the end of the data series. Your workbook • File available for download as soon as transaction approved
should look similar to what you see in Figure 1. • Prices start as low as $2.95
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adjustment), you can compare the original price series for • Easy to start or renew your subscription

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With the indexes reaching these SuBSCRiBE REnEw Hot DEAlS


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Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 23


QUANTITATIVE ANALYSIS

FIGURE 4: THE SPREAD. On this chart of the S&P 500 index and its inflation-adjusted price, you will notice that as the markets are moving higher, inflation appears to be
eroding the value of the move.
In the chart in Figure 4 you can see more closely that while
the markets are attempting to regain their previous highs,
inflation appears to be eroding the value of this move.
Noisy indicators The current spread between real market prices and infla-
delay your analysis tion-adjusted prices should be viewed as ominous. How this
discrepancy eventually resolves itself may not be welcome to
long-term investors. How much did prices really move since
September 2012? This is something you should be aware of.

Ron McEwan is an independent trader and market technician.


He may be reached at rmac@juno.com.
Jurik algorithms
deliver low lag, Further reading
low noise analysis McEwan, Ron [2013]. “Lunar Cycles And Stock Market
Volatility,” Technical Analysis of Stocks & Commodities,
Volume 31, Bonus Issue.
________ [2012]. “Mining For Gold,” Technical Analysis of
Tools for: TradeStation, AmiBroker, Investor/RT, MultiCharts, NeuroShell Trader,
eSignal, NeoTicker, Tradecision, TradingSolutions, MATLAB, Ninja Trader,
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24 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


REAL WORLD

Hello, Can You Hear Me?

Listening To
The Market
Are there ways that investors can listen to what the market
may be trying to tell us?

Danish Kapur

M ake no mistake about it: When the market is about to


change course, it is not going to call you and tell you
of its plans. However, there are ways that investors can
listen to what the market may be trying to tell us.
What are the signs? Are there any obvious clues that we
should pay attention to that are signaling a change in the
markets? Maybe you’ve encountered some of these situations When people who follow the time-tested strategy of diver-

COLLAGE: NIKKI MORR


before: Analysts start talking about how a particular company sification are looked upon as losers, when those who decide
will do 30 or 40 years from now. People start assuming that to invest more in safe, low-yielding asset classes are laughed
a particular company will grow larger than all other compa- at, it’s time to be careful. It is then that we should start fo-
nies in its sector combined. Investors start fantasizing that cusing on the shorter time frame rather than the decade-long
an unprofitable company with outrageously high valuations time frame.
will soon be generating huge profits. Everyone starts thinking Earnings and valuations have always mattered and will
that the conventional wisdom and methods of evaluation no always continue to matter. There will never be a new economy
longer work. People start borrowing money at an astonish- where the rules of game will be different than they were yes-
ingly high rate to invest in incredibly overvalued stocks. But terday. The same valuation methods that existed centuries ago
here is where you should stop and listen; when these types of are as valid today as they were then.
scenarios start occurring, it’s a good indication that the market Even the same old market hysterias tend to resurface from
is saying something. Those who continue to ignore its message time to time. Those who pay attention to such emotions
will most likely soon pay a heavy price. playing out in the markets and who can put their own sense
Such scenarios are not new. They occur every so often, but of greed aside will be around to take advantage of the next
the outcome is almost always the same. market movement. Those who can’t will be taken out, and the
It’s well known that most people lose money in the markets. unsympathetic market will never miss them.
When investors forget that what goes up also can go down,
not only are they taken by surprise, but very often, they don’t Caution: turn ahead
get a chance to react. Thinking that things can turn around drastically at the single
turn of wheel is really just sowing the seeds of disaster. As
Expect the unexpected we all know, the wheel usually stops at the wrong place at
The financial markets aren’t the way they are because they are the wrong time.
easy to predict; on the contrary, the markets are the way they Patience is a virtue that you must put above all else before
are because they aren’t easy to predict. They are constantly you embark on any type of market analysis. Only patient
full of surprises. investors will be rewarded by the market.
When markets start looking easy to predict, or when mar-
ket participants get used to expecting a particular amount of Danish Kapur is a trader, author, and commentator. He may
return no matter what, that’s the point at which the markets be reached at www.danishkapur.com.
start to surprise us.
Further reading
Kapur, Danish [2013]. “The Secret To Success? Small Losses,”
Technical Analysis of Stocks & Commodities, Volume
The markets are the way they are 31: April.
because they aren’t easy to predict. _____ [2011]. “When Not To Trade,” Technical Analysis of
They are constantly full of surprises. Stocks & Commodities, Volume 29: December.

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 25


2014 Readers’ Choice Awards
Readers’ Choice Index
Real-time/delayed data 26

We
End-of-day data 27
are pleased to present purpose. Just because a service or product Stock brokerages 27
the Technical Analysis of is not listed does not necessarily mean Futures brokerages 28
Stocks & Commodities that the product does not have features
magazine 2014 Readers’ Choice Awards germane to the category. In addition, Forex brokerages 28
(RCA). Each year, we put before our readers some categories are divided by cost so Institutional trading platforms 28
a ballot of products and services related to that the comparisons can be made on a Professional trading platforms 29
technical analysis and trading. The follow- more level playing field. Online analytical platforms 29
ing pages present the products and services The winners in the Readers’ Choice
you and your peers chose this year as your Awards are almost always the dominant Standalone analytical software, $1,000+ 30
favorites. players in their niche, and rightfully so. Standalone analytical software, $500–$1,000 30
The Readers’ Choice Awards begins each You may have special needs for your Standalone analytical software, $500 and less 30
year with a list of products gathered by the trading, however, so you should keep in Software plug-ins 31
editors of Stocks & Commodities, with mind those products that are not the big
space for write-in votes (given that our list names in the category of your interest A.I. software (expert, neural) 31
doesn’t claim to be complete). Then, to find before you make your final decision. Portfolio management software 32
out what our readers find to be the most use- The RCA is designed to be an aid for Option analysis software 32
ful for their trading, we ask them to choose you when you are deciding on which of Futures trading systems 32
their favorite products or the ones they find the numerous products and services cur-
Options trading systems 33
most useful from various categories by going rently available to use for your trading and
to our website, Traders.com, and filling out investing. With that in mind, we think Stock trading systems 33
the survey there. After that, we compile the you’ll find the Readers’ Choice a terrific Trading centers / schools / training 33
results, just in time for the Bonus Issue you guide to products and services that you’ll Technical analysis websites 34
hold in your hands. be interested in.
Favorite S&C article 34
Products are categorized by their primary

category award product company website

Winner TradeStation TradeStation www.TradeStation.com


Real-Time / Delayed
Data (Continuous Feed)
First Runner-Up TC2000.com Platinum Worden Brothers, Inc. www.worden.com

eSignal, an Interactive
Finalist eSignal www.esignal.com
Data company
This category included data Bloomberg Professional
services that provide a con- Semi-Finalist Bloomberg www.bloomberg.com
tinuous stream of information,
Service
whether the transmission is
instantaneous or delayed for Semi-Finalist MetaStock XENITH MetaStock www.metastock.com
15 to 30 minutes.

Semi-Finalist Reuters Data MetaStock www.metastock.com

Honorable Mention DTN.IQ DTN www.dtniq.com

Honorable Mention CQG Integrated Client CQG, Inc. www.cqg.com

26 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


2014 Readers’ Choice Awards

category award product company website

Genesis Financial
Honorable Mention Genesis Financial Data www.GenesisFT.com
Technologies

Winner TC2000 Gold Worden Brothers, Inc. www.worden.com


End-of-Day Data
(Download On Demand)
First Runner-Up Yahoo! Finance Yahoo! Finance finance.yahoo.com
®

Finalist Reuters DataLink MetaStock www.metastock.com


In this category, we included
data services for which the eSignal, an Interactive
Finalist eSignal www.esignal.com
user initiates the download of Data company
data to the user’s computer,
even if the data is 15–30 min-
utes old.
Semi-Finalist DTN.IQ DTN www.dtniq.com

Honorable Mention Morningstar Daily Data Morningstar www.morningstar.com

Honorable Mention EODData EODData www.eoddata.com

Genesis Financial
Honorable Mention Genesis Financial Data www.GenesisFT.com
Technologies

Honorable Mention Premium Data Norgate Investor Services www.premiumdata.net

OmniData Real Time


Honorable Mention Nirvana Systems, Inc. omnitrader.com
and End-of-Day Data

Commodity Systems, Inc.


Honorable Mention Unfair Advantage (UA) www.csidata.com
(CSI)

Winner Interactive Brokers Interactive Brokers www.interactivebrokers.com


Stock Brokerages
thinkorswim
First Runner-Up thinkorswim www.thinkorswim.com
by TD Ameritrade

First Runner-Up TradeStation TradeStation www.TradeStation.com


Some stock brokerages have
been around since the turn
of the last century and have First Runner-Up TD Ameritrade TD Ameritrade, Inc. www.tdameritrade.com
names entrenched in Wall
Street; others are products
Finalist Fidelity Brokerage Fidelity Investments www.fidelity.com
of the modern era or even
of various mergers that have
taken place over the years. Semi-Finalist Charles Schwab Charles Schwab & Co., Inc. www.schwab.com
This category includes both
full-service and discount stock
brokerages. Honorable Mention E*Trade E*TRADE Group, Inc. www.etrade.com

Scottrade Financial
Honorable Mention Scottrade www.scottrade.com
Services, Inc.

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 27


2014 Readers’ Choice Awards

category award product company website

Honorable Mention optionsXpress optionsXpress www.optionsxpress.com

Winner Interactive Brokers Interactive Brokers www.interactivebrokers.com


Futures Brokerages
First Runner-Up TradeStation TradeStation www.TradeStation.com

Finalist TD Ameritrade TD Ameritrade, Inc. www.tdameritrade.com


The choice of futures broker
can sometimes make the dif- Semi-Finalist optionsXpress optionsXpress, Inc. www.optionsxpress.com
ference between a good and
bad fill. Here are some of the
Honorable Mention AMP Global Clearing AMP Global Clearing, LLC www.ampclearing.com
futures brokerages you told us
you are using and like.
Honorable Mention Mirus Futures Mirus Futures www.mirusfutures.com

Honorable Mention RJO Futures RJO Futures www.rjofutures.com

Winner Interactive Brokers Interactive Brokers www.interactivebrokers.com


FOREX Brokerages
First Runner-Up TradeStation TradeStation www.TradeStation.com

Finalist FXCM Forex Capital Markets, LLC www.fxcm.com


When selecting a forex broker-
age, it is important to know Semi-Finalist TD Ameritrade TD Ameritrade, Inc. www.tdameritrade.com
what their spreads are, the
research tools they offer, the
Honorable Mention E*Trade E*TRADE Group, Inc. www.etrade.com
types of accounts available,
leverage options, and that
they are backed by a reliable Honorable Mention OANDA OANDA Corp www.oanda.com
institution.

Honorable Mention Alpari Alpari US www.alpari-us.com

Honorable Mention FOREX.com FOREX.com www.FOREX.com

Winner TradeStation TradeStation www.TradeStation.com


Institutional
Platforms
First Runner-Up NinjaTrader NinjaTrader, LLC www.ninjatrader.com

First Runner-Up Interactive Brokers Interactive Brokers www.interactivebrokers.com

Institutional money managers


First Runner-Up MetaStock Professional MetaStock www.metastock.com
require the best that current
technology has to offer. The
trading platform offers real- Bloomberg Professional
time access to domestic and
Finalist Bloomberg www.bloomberg.com
Service

28 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


2014 Readers’ Choice Awards

category award product company website


foreign markets, multiple news
sources, and fundamental eSignal, an Interactive
Finalist eSignal www.esignal.com
data resources. Sophisticated Data company
analytics are often available
for more esoteric instru- Trading Technologies
ments. Semi-Finalist X_TRADER tradingtechnologies.com
International, Inc.

Semi-Finalist DTN ProphetX DTN www.dtniq.com

Honorable Mention FastTrack Track Data Corporation www.trackdata.com

Winner TradeStation TradeStation www.TradeStation.com


Professional
Platforms
thinkorswim
First Runner-Up thinkorswim www.thinkorswim.com
by TD Ameritrade

Finalist NinjaTrader NinjaTrader, LLC www.ninjatrader.com


Not as all-encompassing as
the institutional platform but
Finalist Interactive Brokers Interactive Brokers www.interactivebrokers.com
still top level for the profes-
sional trader, the professional
platform may include many of Semi-Finalist AmiBroker Standard AmiBroker.com www.amibroker.com
the same features: hardware,
software for charting and
analysis, and real-time data. Semi-Finalist MetaStock XENITH MetaStock www.metastock.com
News access and options
analysis are often available. eSignal, an Interactive
Honorable Mention eSignal www.esignal.com
Data company

MetaQuotes Software
Honorable Mention MetaTrader www.metaquotes.net
Corp.

Honorable Mention CQG Integrated Client CQG, Inc. www.cqg.com

Winner thinkorswim thinkorswim www.thinkorswim.com


Online Analytical
Platforms
First Runner-Up TradeStation TradeStation www.TradeStation.com

Finalist StockCharts.com StockCharts.com, Inc. www.stockcharts.com

Semi-Finalist FreeStockCharts.com Worden Brothers, Inc. www.worden.com


This category includes prod-
ucts that retrieve and present Semi-Finalist NinjaTrader NinjaTrader, LLC www.ninjatrader.com
data from remote servers (as
well as the Internet) and offer
many of the analytical tools Semi-Finalist AmiBroker Standard AmiBroker.com www.amibroker.com
found in standalone software.
Data is supplied as part of the
Honorable Mention Interactive Brokers Interactive Brokers www.interactivebrokers.com
service.

eSignal, an Interactive
Honorable Mention eSignal.com www.esignal.com
Data company

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 29


2014 Readers’ Choice Awards

category award product company website

Standalone Winner MetaStock Professional MetaStock www.metastock.com


Analytical Software,
$1000 and more First Runner-Up NinjaTrader NinjaTrader, LLC www.ninjatrader.com

eSignal, Advanced GET eSignal, an Interactive


Finalist www.esignal.com
Edition Data company
These packages provide the
tools for charting markets
and indicators, performing
NeuroShell Trader
Finalist Ward Systems Group, Inc. www.neuroshell.com
technical and sometimes Professional
fundamental analysis, and
some include advanced sys- Semi-Finalist MultiCharts MultiCharts, LLC www.multicharts.com
tem development capabilities.
Some packages may focus on
a particular area of technical Honorable Mention AbleTrend AbleSys Corporation www.ablesys.com
analysis, such as cycles.
Fibonacci Trader 4 Fibonacci Trader
Honorable Mention www.fibonaccitrader.com
Real Time Corporation

Genesis Financial
Honorable Mention TradeNavigator Platinum www.GenesisFT.com
Technologies

Standalone Winner MetaStock MetaStock www.metastock.com


Analytical Software,
$500–$1000 First Runner-Up NinjaTrader NinjaTrader, LLC www.ninjatrader.com

Finalist VectorVest 7 EOD VectorVest, Inc. www.vectorvest.com


These products will provide
charting and technical analy- Finalist MultiCharts MultiCharts, LLC www.multicharts.com
sis. Some will include system
development, ready-to-go
Finalist OmniTrader Nirvana Systems, Inc. omnitrader.com
trading systems, or may focus
on a particular style of techni-
cal analysis. Semi-Finalist Wealth-Lab Wealth-Lab www.wealth-lab.com

Genesis Financial
Honorable Mention TradeNavigator Gold www.GenesisFT.com
Technologies

Honorable Mention AIQ TradingExpert Pro AIQ Systems www.aiqsystems.com

Standalone Winner TC2000 Worden Brothers, Inc. www.worden.com


Analytical Software,
$500 and less First Runner-Up NinjaTrader NinjaTrader, LLC www.ninjatrader.com
®

Finalist AmiBroker Standard AmiBroker.com www.amibroker.com


Here, technically based soft-
ware may be part of a data eSignal, an Interactive
subscription service, aimed at Semi-Finalist eSignal www.esignal.com
Data company

30 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


2014 Readers’ Choice Awards

category award product company website


the introductory level partici-
pant, or offer a special product Honorable Mention MultiCharts MultiCharts, LLC www.multicharts.com
at a good price. Some of these
products have a rich feature
set that diehard technical
Honorable Mention OmniTrader Nirvana Systems, Inc. omnitrader.com
analysts can utilize.

Winner VectorVest ProTrader 7 VectorVest, Inc. www.vectorvest.com


Software Plug-Ins
First Runner-Up Jurik Research Software Jurik Research Software www.jurikres.com

Dr. Elder Trading Room


Finalist MetaStock www.metastock.com
for MetaStock
If you need a specific function
that your technical analysis John Murphy’s Chart
software doesn’t already in- Finalist MetaStock www.metastock.com
Pattern Recognition
clude, a third-party software
developer may fit the bill with
Bollinger Band Toolkit
a software plug-in. Listed here Semi-Finalist MetaStock www.metastock.com
is just a sampling of third-party for MetaStock
software that complements
some of the major technical Bollinger Band System
Semi-Finalist MetaStock www.metastock.com
analysis packages. for MetaStock

MESA for NeuroShell


Honorable Mention MESA Software www.mesasoftware.com
Trader

Honorable Mention MESA for TradeStation MESA Software www.mesasoftware.com

Nison’s Candlesticks
Honorable Mention MetaStock www.metastock.com
Unleashed for MetaStock

Price Headley’s Big


Honorable Mention MetaStock www.metastock.com
Trends Toolkit 2.0

VectorVest Options
Honorable Mention VectorVest, Inc. www.vectorvest.com
Analyzer

Rahul Mohindar’s Auto-


Honorable Mention MetaStock www.metastock.com
mated Trend Modules

Honorable Mention ASCTrend Indicator AbleSys Corporation www.ablesys.com

Artificial Intelligence NeuroShell Trader Ward Systems Group,


Winner www.neuroshell.com
Software Professional Inc.
(Expert, Neural)
First Runner-Up OmniTrader Nirvana Systems, Inc. omnitrader.com
NeuroShell Trader
®

®
Trading Software for Stocks, VantagePoint Intermar-
Commodities, Futures and Forex! Finalist Market Technologies, LLC www.tradertech.com
ket Analysis Software

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 31


2014 Readers’ Choice Awards

category award product company website


Artificial intelligence is a sys-
tematic approach to trading. Finalist AIQ TradingExpert Pro AIQ Systems www.aiqsystems.com
An expert system is generally
designed by the vendor and
provides the trader with sig-
Semi-Finalist NeuralWorks Predict NeuralWare www.neuralware.com
nals. A neural network trains
itself on the data and creates TradingSolutions End
its own rules. These packages Semi-Finalist NeuroDimension, Inc. www.tradingsolutions.com
of Day
are best suited for traders with
an analytical bent.
Honorable Mention Gene Hunter Ward Systems Group, Inc. www.neuroshell.com

Wolters Kluwer
Winner GainsKeeper.com www.gainskeeper.com
Portfolio Financial Services
Management
First Runner-Up TradeLog TradeLog Software www.tradelogsoftware.com

Finalist Market System Analyzer Adaptrade Software www.Adaptrade.com

Portfolio management soft- Semi-Finalist The Trader’s Assistant TradersCoach.com www.TradersCoach.com


ware is available that auto-
mates the analysis of returns, Honorable Mention Fund Manager Beiley Software www.beiley.com/fundman
cash flow, tax impacts, and
profit & loss.

thinkorswim
Options Analysis Winner thinkorswim www.thinkorswim.com
by TD Ameritrade
Software
First Runner-Up OptionStation TradeStation www.TradeStation.com

First Runner-Up Interactive Brokers Interactive Brokers www.interactivebrokers.com

OptionVue Systems
To handle a different set of Finalist OptionVue 7 www.optionvue.com
analytics than trading equities International Inc.
and futures, software pack-
ages have been developed Semi-Finalist Optionetics Platinum OPTIONETICS, Inc. www.optionetics.com
to handle the area of option
analysis. Many packages offer
both analytics as well as an Honorable Mention OptionScope MetaStock www.metastock.com
education in option trading.

Winner TradeStation TradeStation www.TradeStation.com


Futures Trading
Systems
eSignal, Advanced GET eSignal, an Interactive
First Runner-Up www.esignal.com
Edition Data company

Finalist OmniTrader Nirvana Systems, Inc. omnitrader.com


Software in this category is
aimed at providing you with Semi-Finalist AbleTrend AbleSys Corporation www.ablesys.com
a more systematic approach
to the futures markets. Some
packages are a trading system, VantagePoint Intermar-
Semi-Finalist Market Technologies, LLC www.tradertech.com
while others include analytical ket Analysis Software

32 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


2014 Readers’ Choice Awards

category award product company website


capabilities. To implement
the trading rules, it should Semi-Finalist MTPredictor MTPredictor Ltd. www.mtpredictor.com
be a technique that you are
comfortable with.
Honorable Mention R-MESA MESA Software www.mesasoftware.com

Blue Wave Trading Preci- Blue Wave Trading Re-


Honorable Mention www.bluewavetrading.com
sion Indicators / System search and Development

thinkorswim
Options Trading Winner thinkorswim www.thinkorswim.com
by TD Ameritrade
Systems
First Runner-Up TradeStation TradeStation www.TradeStation.com

eSignal, Advanced GET eSignal, an Interactive


Finalist www.esignal.com
Edition Data company
While many traders may track
the underlying security to Semi-Finalist OPTIONETICS OPTIONETICS, Inc. www.optionetics.com
generate signals for the op-
tions, there are packages that Honorable Mention AbleTrend AbleSys Corporation www.ablesys.com
generate signals based on the
options activity itself.
Stock Trading Systems

Winner TradeStation TradeStation www.TradeStation.com


Stock Trading
Systems
eSignal, Advanced GET eSignal, an Interactive
First Runner-Up www.esignal.com
Edition Data company

Finalist OmniTrader Nirvana Systems, Inc. omnitrader.com


A disciplined technical ap-
proach is also applicable to Semi-Finalist AbleTrend AbleSys Corporation www.ablesys.com
your stock portfolio. Make
sure the package employs a
method that you are comfort- Greg Morris’ Indicators
Honorable Mention Wall Street Software www.wallstreetsoftware.com
able with. In addition, check the & Trading Systems
data format requirements to
ensure that your own database Chaikin Stock Research,
is compatible or determine if Honorable Mention Chaikin Power Tools www.chaikinpowertools.com
you will need to switch data LLC
vendors.

Winner FREE Worden Training Worden Brothers, Inc. www.worden.com


Trading Centers,
Schools, Training
First Runner-Up TradeStation Training TradeStation www.TradeStation.com

Finalist TopDogTrading.com Top Dog Trading www.topdogtrading.com


When you’re just starting out in
trading or taking your trading
to the next level, some profes-
Semi-Finalist TradingAcademy.com Online Trading Academy www.tradingacademy.com
sional training helps, whether
it’s the support provided by a eSignal, an Interactive
daytrading center, courses, Semi-Finalist eSignal Learning www.esignal.com
Data company
or tutoring.

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 33


2014 Readers’ Choice Awards

category award product company website

Chicago Board
Honorable Mention CBOE Education Center www.cboe.com
Options Exchange

Winner stockcharts.com StockCharts.com, Inc. www.stockcharts.com


Technical Analysis
Websites
First Runner-Up FINVIZ.com FINVIZ.com FINVIZ.com

Finalist Traders.com Technical Analysis, Inc. www.Traders.com


Some websites provide a
wealth of technical informa- Finalist Yahoo! Finance Yahoo! Finance finance.yahoo.com
tion, indicators, charts, senti-
ment, and opinion. Of those
Finalist freestockcharts.com Worden Brothers, Inc. www.worden.com
with a technical focus, our
readers pick their favorites.
Investors Business Daily
Finalist Investors.com Investors.com
(IBD)

Semi-Finalist Barchart.com Barchart Barchart.com

Honorable Mention elliottwave.com Elliott Wave International www.elliottwave.com

Honorable Mention TC2000.com Worden Brothers, Inc. www.worden.com

thinkorswim
Honorable Mention thinkorswim.com www.thinkorswim.com
by TD Ameritrade

Honorable Mention Bigcharts.com MarketWatch, Inc. cbs.marketwatch.com

Honorable Mention Top Dog Trading TopDogTrading.com www.topdogtrading.com

Honorable Mention Master The Gap MasterTheGap.com MasterTheGap.com

CATEGORY AWARD article title author issue

Winner Swing Trading With Three Indicators Donald Pendergast December 2013
Favorite S&C Article
from 2013
Indicator Rules For Swing Trading
First Runner-Up Sylvain Vervoort May 2013
Strategies, Part 1

First Runner-Up The DMI Stochastic Barbara Star, PhD January 2013

Finalist The 1-2-3 Wave Count Sylvain Vervoort June 2013

Finalist NinjaTrader product review S&C staff May 2013

Finalist Oscillators, Smoothed Sylvain Vervoort September 2013

34 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


2014 Readers’ Choice Awards

CATEGORY AWARD article title author issue


We asked readers to vote for
their favorite Stocks & Com- Semi-Finalist Explore Your Options Price Headley/Tom Gentile Various
modities article from the past
year. Find them all at our web- Understanding The Yield Curve,
site at www.Traders.com!
Honorable Mention Giorgos E. Siligardos November 2013
Part 1

Honorable Mention ‘Trendy’ Chart Patterns Thomas Bulkowski May 2013

Honorable Mention Traders’ Tips Various Various

Honorable Mention Finding Low-Risk Entry Points Danish Kapur January 2013

Subscribers can revisit past articles online in the archives at our website, www.traders.com. If you are not a subscriber, you can
purchase individual articles from the Stocks & Commodities online store at http://store.traders.com.

SUBSCRIPTION GIVEAWAY RECIPIENTS


Congratulations to the following 10 subscribers of Tech-
nical Analysis of Stocks & Commodities magazine who
voted in this year’s Readers’ Choice Awards poll and won
our drawing for a complimentary subscription. Thanks to
everyone who took the time to vote!

1. Jim Ward 6. Philipp Bliedung


2. Cleave Malcolm 7. Tom Bates
3. Robert Ranney 8. Gary Long
4. Steven Palmer 9. Valere Von Bredow
5. Barbara Reinhart 10. Roger Bernard

Accumulation — An addition to a trader’s original market position. statistical data as related to time.
The first of three distinct phases in a major trend in which investors Directional Movement Index (DMI) — Developed by J. Welles Wilder,
are buying. DMI measures market trend.
Adverse Excursion — The loss attributable to price movement against Discretionary Trader — A trading style that uses personal judgment to
the position in any one trade. evaluate an indicator’s signals.
Astrophysical Cycle — Any earthly cycle, such as a market cycle, Drawdown — The reduction in account equity as a result of a trade or
that has been scientifically related to the physics of the planetary series of trades.
system. Exchange-Traded Funds (ETFs) — Collections of stocks that are bought
Beta (Coefficient) — A measure of the market/nondiversifiable risk and sold as a package on an exchange.
associated with any given security in the market. A ratio of an Exponential Moving Average — A variation of the moving average,
individual stock’s historical returns to the historical returns of the EMA places more weight on the most recent closing price. The
the stock market. If a stock increased in value by 12% while the formula for calculating EMA is: EMA = (Today’s closing price *
market increased by 10%, the stock's beta would be 1.2. k) + (Yesterday’s moving average * (1-k)), where k = 2/(n+1); n =
Breakout — The point when the market price moves out of the trend no. of periods.
channel. Frequency — The number of complete cycles observed per time period
Channel — In charting, a price channel contains prices throughout (i.e., cycles per year).
a trend. There are three basic ways to draw channels: parallel, Oscillator — Technical indicator used to identify overbought and oversold
rounded, and channels that connect lows (bear trend) or highs price regions. An indicator that detrends data, such as price.
(bull trend). Relative Strength — A comparison of the price performance of a stock
Correction — Any price reaction within the market leading to an to a market index such as the Standard & Poor's 500 stock index.
adjustment by as much as one-third to two-thirds of the previous Stochastic Oscillator — An overbought/oversold indicator that compares
gain. today’s price to a preset window of high and low prices. This data
Cycle — A variation where a point of observation returns to its is then transformed into a range between zero and 100 and then
origin. smoothed.
Detrend — To remove the general drift, tendency, or bent of a set of

Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 35


INTERVIEW

On Trading, Markets, And Doing What Works

Seeing The Patterns


With Dan Zanger
Dan Zanger of Chartpattern.com is a swing trader and technical analyst fo-
cused on stocks — and a force in stock trading. He is the world record holder,
independently audited, for the largest percent change in a personal portfolio
for a 12-month period (and unofficially for an 18-month period). His one-year
record between 1998 and 2000 during the tech bubble was a gain of 29,233%.
All in all, over time, he was able to turn $11,000 into more than $40 million.
How does he achieve these types of returns? He has spent 20 years study-
ing every type of chart pattern formation imaginable and finding what works.
His thrice-weekly newsletter regularly highlights some of these patterns in his
stock analyses.
Stocks & Commodities contributor Matt Blackman first interviewed Dan
Zanger for this magazine in our August 2003 issue. Catching up with him once
more, he spoke with Zanger via telephone on January 12, 2014 to find out how
he has fared in the markets in the decade since.

It’s hard to believe it has been more It’s basically impossible for most
than 10 years since our last Stocks individual traders to trade the news, Chart patterns and volume
& Commodities interview. Do you which for the most part is old informa-
still mainly use chart patterns and tion by the time it’s published. How
are the best tools available
volume to trade? do you know if, say, it’s too late to to the retail and independent
A lot has changed since that interview buy, or the move is part of some sort professional trader.
10 years ago, but I still use the same of a pump and dump operation? You
techniques — chart patterns, price, and look at the charts.
volume — to trade, which continue to be trendlines because they have become
very effective. For momentum and swing What other indicators or factors help more popular. For example, bounces off
trades, those techniques are the lifeblood you determine when to trade? Do you the shorter-term 10- and 21-day moving
in this type of trading environment, espe- use cycles, oscillators, trendlines, sup- averages (MAs) can be powerful. Longer-
cially for the active Jesse Livermore–type port/resistance, and so on? term MAs like the 100- or 150-day also
trader. For the longer-term investor or I do like one custom oscillator in par- work quite well. The 200-day MA hasn’t
mutual fund, it’s completely different. ticular that uses market breadth advance- been as effective as it used to be, as more
But for those who don’t have the where- decline data to give me a heads-up on traders use the 150-day one.
withal to hire a huge staff, count how trend strength and potential reversals. There are all kinds of cycles; Octo-
many trucks are leaving the factory, and Daily bars are important, and the length ber to March, the summer cycle, the
pore over sales reports and hundreds of of the run is important. Is the stock com- August to September time frame. There
pages of financial records, there really is ing out of a short-term correction? Has are monthly cycles during which 401k
no other way. The average Joe just can’t it been running for a few weeks or a few money is invested on the first of the
hope to do what institutions do. Chart months? Is it becoming exhausted? Has month. But there are so many cycles that
patterns and volume are the best tools the market been moving up for two to by the time you combine them all with
available to the retail and independent four weeks on falling volume, which is moving averages and other indicators, it
professional trader. a warning sign? can get pretty confusing. Just decipher-
Institutions build the price patterns Support and resistance are important, ing all that information is a massive job.
with their buying habits and I just wait as are snapbacks. Moving average lines I don’t find cycles to be as effective as
to trade them based on some catalyst. have more precedent these days than they were eight to 10 years ago.
36 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
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INTERVIEW

The Fed is basically re-inflating assets.


To get the economy going, it is nearly
impossible to get money into the hands
of the people again when so many jobs
have gone overseas and wages are stag-
nant. The only thing the Fed can do is
to re-inflate assets to get people feeling
confident again. But that only impacts
the people with assets, which is mostly
the wealthy. And with Janet Yellen taking
over the reins at the Fed, I don’t expect
much to change.

In the last decade we’ve had two big


bull rallies in 2003 and 2009 as well as
another brutal bear market from 2007
into 2009. What would you say are the
biggest changes in how you trade now
CHARTPATTERN.COM

versus back in 2003?


Oil and commodities were hot back
then. They’re not now. There were a
couple of big movers back then like
Figure 1: MONSTER GAPS IN LINKEDIN (LNKD). Here you see two monster gaps in LNKD that occurred in 2013. Google (GOOG), Baidu (BIDU), Sina
(SINA), and some of the other Internet
What about the four-year Presidential now is what the Fed is doing. It has been stocks as well as fertilizer stocks. They
cycle? How useful has it been for you? stepping on the fiscal gas pedal since were making huge moves in which I made
At times it has been powerful, but I 2008 and the market has become more a quite a lot of money then. GOOG was
think what’s become more important focused on the Fed than anything else. so undervalued after its IPO and it was
such a monster winner for me. It was
easy money.
But since 2009, the biggest movers
have basically been Priceline (PCLN)
and Apple (AAPL). Apple was the
biggest mover. The move since 2009
has been more of a constant melting up
than the powerful surges that we saw in
2004–06. That has made it more difficult
to trade since I concentrate on volume
and big, sharp, upside moves. There have
certainly been fewer of them.
Also, there has been more worri-
some news — bombings, riots, Greece,
Europe, and more scare tactics. Yes, it
has been a more difficult market. That
doesn’t mean I haven’t made hefty sums
of cash, because I have, but this period
has been more defined.
One of the biggest changes in the mar-
ket since 2003 was the massive upside
gaps on positive earnings in many of the
market leaders like LinkedIn (LNKD)
and Netflix (NFLX). It’s harder to be
involved in a big winning stock because
the gaps can be much more violent, much
more so than during the 2003–07 rally.
Figure 2: quite the winner. Apple (AAPL) surges, then tops out around $700 in September 2012. This has made it nearly impossible to
38 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
take a position with any volume or size.
LNKD was $112 one day and $145 the
next, which was a gap up of nearly 40%
on earnings (Figure 1). Even PCLN was
gapping up $40 on earnings.
Back in 2004–06, you might have a
$10–12 gap but you could still step in.
Things are different now, and I think the
market is much more tuned into earnings,
which have consistently powered these
gaps. Stocks can also gap down $40–50
like GOOG did when they released
earnings early [in October 2012]. The
ballgame has definitely changed since
2008. When there are big upside moves,
you can’t get in because the majority of
the move is already over.

Do you still use options to get into


stocks when you are looking to take
larger positions?
I started using options with GOOG in
2004–05. At times, in some of the high-
dollar stocks, buying options can be very
worthwhile, but you have got to be in at
the right time and be quick to get out.
The trade will just eat you alive if you Markets were still plunging into have been some of your biggest winners
get it wrong. Options are only for very 2009 but the leaders like Baidu, Apple, since the 2009 bull market began?
seasoned traders who really know what and Priceline were starting to turn up. Yes, Google was a huge winner for
they are doing. I didn’t use them before Priceline was a thinly traded, volatile me in 2004–05. In the 2009 rally, it was
2004 and by then, I’d been trading for stock but it was bucking the downtrend. Apple, Apple, and Apple. It had two big
more than 20 years. I think it was already up about 20% by runs: January to April and then August
the time the market bottomed. I was to September 2012 (Figure 2). I also had
What type of options do you like? highlighting these high-beta stocks that some Priceline.
I like deep in-the-money calls with were very sensitive to the market and
strike prices that are $50, $60, or $80 that had started to move up as the market What caused you to sell Apple in Sep-
below the stock price. was plunging in my ChartPattern.com tember 2012?
newsletter at the time. Apple exhibited a It couldn’t hold $700 then it broke
What alerted you that the market was nice bottom with evidence of capitulation down, which was a classic sell sign.
topping in 2007, and what steps did you and a solid base in 2008. When a stock breaks a century mark,
take then to reduce your exposure? But it was still a scary time. Stocks it’s a warning. Apple also broke its 10-
You had the huge US real estate bubble were still very jittery and it was hard to day and 21-day MAs, which is another
that was popping. Bear Stearns was col- hold positions. Moves weren’t prolonged warning sign. When that happens, it’s
lapsing and went out of business. Energy and there were a number of fast pull- time to check out.
prices were soaring beyond belief. There backs. There was still a lot of negative
were food shortages and riots over food news about bankruptcies, Greece, and the What are some of the other key factors
prices happening around the globe. In market was still gyrating. It was more you look for in a stock before buying
stocks, I saw a lot of big rounded tops, of an investor’s market for those who it?
head & shoulders tops, and interest rates were prepared to hold their positions I like to see how frisky a stock is. I
were starting to move. I even sold my for a while. I wasn’t ready to step in like to see stocks that are jumping and
yacht in November 2007, which turned heavily, but I was starting to nibble at a that have some volume. Stocks that
out to be perfect timing in retrospect. few stocks and watch the bases build. move freely and easily like jack rabbits
are what I look for.
What gave you the heads-up that stocks Back in 2004–05 you had some big win-
were beginning to bottom in 2008–09, ners, including Google, which was your You mentioned some of the impacts of
which caused you to turn bullish? biggest single stock winner ever. What the Fed’s quantitative easing and easy-
Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 39
a double whammy. Easy-money policies 100 years ago. In the 1920s they’d get
combined with good earnings were the together over martinis and agree to drop
key reasons for this. People just kept stocks on a specific day. Nowadays, they
buying the dips. run the dogs as a signal that the market
is getting ready to break — they run a
When markets aren’t in strong rally piece-of-crap stock up $20. When I start
mode, what do you do with your cash? seeing that, it’s a signal that the market
In your newsletters a while ago, you is about to drop.
mentioned you had been holding some
dividend stocks and REITs. What other signs do you look for to
I don’t have REITs anymore. As soon as tell you that the market is approach-
bonds started cracking and rates started to ing a top?
climb, I got out of my REITs. I was seeing Near the end of any big rally, we see
saucer-like tops, so I exited. Now, when increasing signs of froth. In the last stage,
markets get soft, I simply go to cash. stocks tend to go parabolic. Stocks will
money policies. How have they changed break above their longer-term rising
the markets and how you trade them? In your newsletters, you have discussed trend channels, especially on above-
Central banks dropped rates so low what to do when the “dogs get wings.” average volume. That volume shows that
around the globe that there was no other Could you explain what you mean by retail buyers are entering en masse, and
place to go. And low interest rates put a that? popular stocks — even the “dogs” —
floor under stocks. Central banks were When you see $2 stocks with no head straight up. This usually signals the
mandating inflation in assets. There’s no earnings that no one has heard of and beginning of the end of the rally. That’s
real money to be made in bonds while the which have been flatlining for years when some of the biggest gains occur,
government pays 1.5% or so on 10-year suddenly go to $14, and $4 stocks go to but it is also the exhaustion phase. The
Treasuries. Dividend stocks are paying $24 in a couple of days, it’s a huge red problem is, when the market breaks, it
2–4%. flag that the market is getting ready to does so with a vengeance. So although
As soon as earnings came out on a break. Bigger players can’t make phone this final phase can be very rewarding
stock, buying it was a no-brainer. It was calls and collude like they used to 90 or with some of the biggest gains, it’s a
very risky time to be trading.
We saw the biotechs run hard in the lat-
ter part of 2013 and into 2014, which was
eerily similar to 1999 when the biotechs
absolutely exploded in October 1999.
DNA sequencing stocks really took off
at that time, but that was the precursor
to the end of the bubble. Tech, especially
Internet stocks, ran hard for about four
months, pushing the Nasdaq up to a
peak of 5132 in March 2000. In the final
parabolic phase, stocks can peak quickly
or they can take three to four months,
but you know once a stock or index goes
parabolic, the time of reckoning is close
at hand. Big rallies never end well.

What are your favorite reversal stock


patterns?
Some of my favorites are the frozen
rope pattern and tight rising channel that
signal a top in the market (Figure 3).
Another is the naked bar, which can oc-
cur at both tops and bottoms. The double
bottom, inverted head & shoulders, flat
channel bottom, and cup & handle or
FIGURE 3: THE FROZEN ROPE. Here you see a chart showing Dan Zanger’s bearish frozen rope chart pattern rounded bottom are important patterns to
and the breakdown. indicate when a market has bottomed.
40 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
What advice do you have for someone I work hard at my trading and
who is getting serious about trading
want a platform that works as
today who is either younger or nearing
retirement and wants to manage their
hard as I do. That’s why
own portfolio?
First, they need to get a good chart-
I chose NinjaTrader.
ing program, learn how to read charts, It not only lets me execute like
and get a couple of computer monitors. a pro - their Ecosystem,
They also need to read essential books support and training have
like How To Make Money In Stocks by me thinking like a pro too.
William O’Neil. Next, it’s important to
get some serious training, like joining our
trading chat room to learn what it’s like
to trade in real time with other traders.
But as with any profession, it will take
a few years and plenty of discipline to
get the feel for how trading works. It’s
like getting a university degree. I may not be a pro,
but I trade like one.
It’s also important to not believe in the
companies you invest in. Don’t believe
in the market. Trades should never be
based on beliefs or feelings but on solid
technical and fundamental facts. Don’t Professional traders move through the
play with all your cash, don’t use margin,
and don’t use options. markets with confidence and precision.
What does retirement look like for Dan NinjaTrader’s extensive video library, partner
Zanger? Ecosystem and live training webinars provide
[Laughs] I don’t have an exit strategy.
Exit and do what? I love what I do. you with the foundation to become a more
It’s been great speaking with you again, confident trader. Our award winning software
Dan. Thanks for your time. lets you execute trades with professional
Thank you!
precision, and the best part is that getting
Further reading started with NinjaTrader is FREE.
Blackman, Matt [2003]. “Chart Patterns,
Trading, And Dan Zanger,” interview,
Technical Analysis of Stocks &
Commodities, Volume 21: August.
So what are you waiting for?
Livermore, Jesse [1991]. How To Trade
In Stocks, Traders Press: Greenville,
Start trading like a pro today!
SC. Originally published in 1940.
O’Neil, William J. [2009]. How To Make
ninjatrader.com/TASC
Money In Stocks, 4th ed., McGraw-
Hill (first published in 1988).
‡ChartPattern.com
kwikpop.com mtpredictor.com ampclearing.com

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Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 41


A Different Perspective

Trading Using Planetary Movements


Is it possible to achieve market timing via planetary timing tool, but only if you know how to use it properly. In
BARRY BRUNER

movement? Our first inclination would be that it wouldn’t this article, I would like to share one of the easiest financial
be possible, but let’s give it the benefit of the doubt. Here’s astrology tools that any trader can try to implement for the sake
an easy financial astrology tool you can use to judge for of seeing whether there is any correlation between astrology
yourself. and the financial markets.

by Khit Wong Ingress, egress, or regress?


Since there are a lot of vocabularies in the field of financial

F
inancial astrology, or market timing by planetary astrology like retrograde, declination, and conjunction, which
movements, is a topic that gives traders complex and are terms most market participants have never heard of, I will
mixed feelings. On one hand, it is viewed as a difficult keep it simple and only show the examples that have to do
topic to comprehend and perceived as something that with ingress.
has nothing to do with what goes on in the markets. On the When we think of the term ingress, we naturally think of it
other hand, it is worshipped by some traders as an accurate as meaning a place to enter. In the field of planetary science,
42 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities
TRADING TECHNIQUES

it refers to when a planet starts


moving into a new regime. In
contemporary astrology studies,
the heaven is divided into 12
equal regions, which are the 12
signs of the zodiac — something
we are all familiar with. Each
zodiak sign takes 1/12 of the
heaven in equal space. While
the planets keep circling in the
sky, each time a planet steps
into a new zodiac region, it is
called an ingress.
Your personal horoscope
actually originates from where
the sun was located (that is, in Uranus ingress Aries
which zodiac sign) when you 2010-05-28
were born. While your personal-

Netdania.com
ity is greatly shaped according
to this zodiac sign, so is your
life, according to some cultures’ Figure 1: dow jones industrial average. The Uranus ingress date of May 28, 2010 served as a base for the market
beliefs (less so in others). But to advance over time.
the zodiac signs go beyond
influencing our personal lives.
Studies have shown that stocks
and forex pairs also have a subtle
interaction with these zodiac
signs. I know what you’re think-
ing — it’s hard to believe, but
stick with me.

When does the


ingress happen?
Before getting to the examples,
you need to have an astrology
ephemeris so you can locate
when the ingress times are. An
ephemeris is an astrological
calendar that describes where
the planets are at any given
Uranus ingress Pisces
time. Fortunately, it is widely
available on the Internet. An 2003-03-11
Internet search on the term “to-
day’s aspect” will turn up several
websites with this information. Figure 2: a bull market base. The Uranus ingress of Pisces on March 11, 2003 served as a base for the bull market
With an online ephemeris,
in 2003–07.

you can start to look up the


ingress dates. For example, May 28, 2010 is the date for the Uranus. Uranus ingressed Pisces on March 11, 2003. Now
Uranus ingress of Aries. Now, if you look at the chart of the let’s look to see what the DJIA did at that time (Figure 2). We
Dow Jones Industrial Average (DJIA) in Figure 1 and check can see that this ingress of Pisces served as a base for the bull
its movement on that day, you’ll notice that the Uranus ingress market of 2003–07, and it worked nicely with the 2008–09
served as a base for the market to advance as time went by. financial crisis. It also mysteriously served as another support
That’s quite a coincidence! at the same price level.
And it’s not just a one-time incident, which means it’s pos- I know most of you reading this will think yes, it is interest-
sible there is a correlation between the markets and planetary ing, but I am not going to wait seven years to place one trade.
movements. Let’s trace back to an earlier ingress date of But in fact, the same theory applies to other faster-moving
Bonus Issue 2014 • Technical Analysis of Stocks & Commodities • 43
TRADING TECHNIQUES

planets like Mercury.


Let’s look at another example.
On the chart of the EURUSD
in Figure 3 you see that where
Mercury ingresses Gemini
serves as an obvious bottom in
the euro in May 2013.
For intraday trading, I prefer
Mercury ingress Gemini to use moon ingresses to trade
2013-05-15 with a tight stop-loss of around
25 pips on volatile markets such
as the yen, euro, and British
pound markets. I have traded
using this strategy for about six
months now and have found it
to work well.
From the chart in Figure 4,
you can see that the market
usually stays near the ingress
point and moves don’t exceed
FIGURE 3: A BOTTOM IN THE EURO. The Mercury ingress of Gemini on May 15, 2013 served as an obvious bottom in the more than 25 pips. It tends to
euro in May 2013. act as a support or resistance
level, but when these levels are
further tested and secured, you are likely to see a significant
movement, which gives you the opportunity to reap profits
with little drawdown.
Studies have shown that stocks and While you may view with skepticism the idea of achieving
forex pairs also have a subtle inter- perfect market timing via planetary movements, I encourage
everyone to try what I’ve described on a chart and see if it
action with these zodiac signs. reveals any interesting movements in the markets. You may
be surprised with what you find. And on that note, I would
like to end with my favorite quote:

There is no chance in nature,


because mathematical principles
of the highest order are at the
foundation of all things. Faraday
Moon ingress Capricorn said, ‘There is nothing in the Uni-
2013-05-26 verse but mathematical points of
force.’—W.D. Gann

Khit Wong has been trading


the financial markets for more
than 10 years. He has had an
interest in studying the relation-
ship between astrology and the
markets for more than seven
years and uses methods to apply
this relationship to his trading.
He may be reached via http://
trineaspect.com.

‡Netdania.com

FIGURE 4: INGRESS POINT AS SUPPORT & RESISTANCE. Notice how the euro stayed close to the ingress level. But once
it exceeded more than 25 pips below the ingress, there was a significant drop.

44 • Bonus Issue 2014 • Technical Analysis of Stocks & Commodities


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