Traders Toolbox: Moving Average Convergence / Divergence (MACD)
MarketClub is known for our “Trade Triangle” technology. However, if you have used other technical analysis indicators previously, you can use a combination of the studies and other techniques in conjunction with the “Trade Triangles” to further confirm trends.
Developed by Gerald Appel, this indicator consists of two lines: a solid line called the MACD line and a solid line called the signal line. The MACD line consists of two exponential moving averages, while the signal line is composed of the MACD line smoothed by another exponential moving average.
To complete the standard calculation of the two lines, you must:
- Calculate a 12-period exponential moving average of closing prices
- Calculate a 26-period exponential moving average of closing prices
- Plot the difference between the two calculations above as a solid line. This is your MACD line.
- Calculate a nine-period exponential moving average of the MACD line and plot these results as a dashed line. This is your signal line.
MarketClub will do the above calculations for you. The MACD line is represented by a red solid line and the Signal line is represented by a green solid line. The default values for this study are set to the suggest values listed above.
The most useful signals generated from this system occur when the solid red (MACD) line crosses below the green solid line (Signal) and a sell signal occurs when it crosses above the signal line.
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You can learn more about the MACD and Gerald Appel by visiting INO TV.
Traders Toolbox: Momentum
MarketClub is known for our “Trade Triangle” technology. However, if you have used other technical analysis indicators previously, you can use a combination of the studies and other techniques in conjunction with the “Trade Triangles” to further confirm trends.
Momentum measures the change in a commodity’s price with time. M = Pc-Pn where M = momentum, Pc = current period’s price and Pn = price n periods ago.
The length of time used for the prior period is a matter of personal preference and time horizon of the trader. A narrow window of less than five periods back would be short-term in nature while six to nine periods would be considered intermediate; 10 or more would be a longer time perspective.
The most common value is 10 periods prior. Momentum is positive if today’s price is higher than your past period’s price and negative if not.
Momentum indicators give their best trading signals when they diverge (go in the opposite direction from prices). There are two types of divergences – bullish and bearish.
Bullish divergence occurs as price falls to a new low while the oscillator refuses to set a new low. This often signals the end of a downtrend.
Conversely, a bearish divergence occurs when price reaches new highs and the indicator doesn’t confirm it by also reaching new highs.
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You can learn more about Momentum by visiting INO TV.
Traders Toolbox: Relative Strength Index (RSI)
MarketClub is known for our “Trade Triangle” technology. However, if you have used other technical analysis indicators previously, you can use a combination of the studies and other techniques in conjunction with the “Trade Triangles” to further confirm trends.
Developed by Welles Wilder, the Relative Strength Index (RSI) addresses the two major flaws of momentum – the need to have a constant band against which to compare price movement and the ability to smooth the ebb and flow of price movement.
Sharp up or down movement 10 days ago (in the case of a 10-day momentum line) can cause pronounced shifts in the momentum line even if the current prices are relatively stable, giving false signals. Also, different commodities may have different “overbought” and “oversold” levels. RSI corrects these concerns by smoothing the movement and by creating a constant range from 0 to 100.
The formula for calculating RSI is as follows: RSI= 100-[100/(1+RS)] where RS= average of the days closing higher during the interval divided by the average of the days closing lower during the interval.
The RSI indicator is plotted on a vertical scale of 0 to 100. The general rule of thumb is overbought levels are at 70% and oversold levels are at 30%. When the reading of the indicator surpasses 70, an overbought conditions exists. An oversold condition exists with readings below 30.
Similar to momentum, a trader should look for bullish and bearish divergences to occur when trading with RSI. A 14-day interval is commonly used, but personal fine-tuning and experimentation always is needed.
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You can learn more about the Relative Strength Index by visiting INO TV.
How to create an objective trading plan
Today I’d like everyone to welcome back Dr. Barry Burns. He was a guest blogger a few weeks back and the overwhelming response was “we want him back”! So you asked for him, I called in a personal favor, and here he is again to help teach us.
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Traders who use technical analysis rely on charts to help establish a probability scenario for entering a trade.
We generally look at 3 things:
Price patterns.
Volume patterns.
Indicator patterns.
There have been countless books written and courses sold on how to use these things to predict future market movement. Despite this, countless traders continue to fail in their attempts to become profitable.
Why?
After years of watching my father trade (he had 70 years of experience in the markets) and many years of my own experience, I’ve come to this conclusion:
None of it works!
That’s right. I haven’t found a single price pattern or indicator that could accurately predict the future of the market with enough probability to make any money.
So, is technical analysis an exercise in futility?
Although I haven’t found any one single thing to prove profitable, favorable probability scenarios can be found by combining several indicators. However this has to be done in the right way.
I identify what I call the “energies” of the market, and have selected certain indicators to measure those energies.
5 of the energies are:
Trend.
Momentum.
Cycles.
Fractals.
Blockages.
The key to success is to wait until all 5 of these energies align telling you the same thing (“go long” or “go short”) at the same time.
Indicators measure these energies. Again, I don’t have much confidence in any single indicator. After all, they only do what their name says: They “indicate;” they don’t “tell” you what the market will do next.
However, when all 5 indicators align, and they each measure a different energy, then this is a time when the probability is now on your side.
You can even use this to “score” a trade on a scale of 1-5 depending on how many “energies” (indicators) align in the same direction.
You may choose to be very conservative and only take trades that are very high probability – so you’ll wait until all 5 energies align. The downside of this is that it doesn’t occur very often and therefore you won’t be very active in your trading.
You may decide you need more trades to be psychologically satisfied and keep your interest and focus on the market. In this case you could take trades that rate a 4 (4 of 5 energies align in the same direction at the same time). You will get more trades, but your
win/loss ratio will be slightly lower.
You can choose your favorite indicators to measure these 5 indicators. Which ones you use isn’t the most critical factor … as long as you know how to use them properly.
Using this approach gives you a very measurable and objective way to make decisions and track your trades.
BIO:
Dr. Barry Burns is the owner of Top Dog Trading which teaches people how to avoid the long learning curve in day trading, swing trading and investing.
He started his study of the markets under the direction of his father, Patrick F. Burns, who became independently wealthy through trading and had over 70 years of trading experience before passing away in 2005.
He has been the featured speaker at DayTradersUSA, and developed a 5 Day Course for WorldWideTrders.
Dr. Burns has been a headlining guest speaker for the Market Analysts of Southern California, given seminars around the country at many Wealth Expos as well as many Traders Expos, been interviewed on the Robin Dayne “Elite Masters of Trading” Radio Show, and is the former moderator of the FuturesTalk chat room.
He has a doctorate in Hypnotherapy and is a certified NLP practitioner, and therefore able to help people with the psychology of trading.
“Saturday Seminars”- Trading the Short-Term Volatility Breakout without a Mechanical System
Mechanical systems do have merit, but after ten years of trading in the cash and energy markets Michael became convinced that a discretionary approach was more suited to his personality and gave him more consistent profits. In this seminar, Michael describes every aspect of the discretionary methodology he developed for profiting from a short-term volatility breakout in futures and equities markets.
Michael’s strategy employs numerous studies, but it assembles them in a logical and efficient manner that is easily grasped. Using his techniques, Michael analyzes twelve futures markets and ten equities in the two hours of this session. His methodology employs classic pattern recognition, average true range, swing, Fibonacci support and resistance, MACD, ADX/DMI, price/volume/open interest relationships, momentum, historic volatility, and the Commitment of Traders report.
Michael also discusses the full anatomy of a trade including entries, exits, setting stops, account leverage, and money management. He presents actual trades in detail so that you gain a complete understanding of his pragmatic, winning methodology. This session provides you with an enhanced understanding of the markets, thereby improving profitability regardless of experience level or trading style.
PDF Workbook
Before Michael Mazur began trading in the futures industry in 1994, he spent ten years as an international cargo trader in the energy market. He traded for Mobil Oil, Mitsubishi, Salomon, and Vitol SA, and he managed trading personnel and a trading portfolio that reached from the Arabian Gulf through India to the Pacific Rim. His group sales ranged from $500 million to $1 billion annually. Michael lives in Pacific Grove, California, where he operates M.J. Mazur, Inc., a registered commodity trading advisor. Michael manages futures accounts, publishes M Trade, a daily trading sheet, and provides consulting services to institutions and independent investors.
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Saturday Seminars are just a taste of the power of INO TV. The web’s only online video and audio library for trading education. So watch four videos in our free version of INO TV click here.
