A buy Fractal was generated at $45.58 (Green box). Afterwards..... There was sideways action for two hours and then the price surged upwards, beyond the wedge. Currently, all three top indicators are strong. This morning I was more bearish than bullish. I was waiting for a sell Fractal as confirmation. Look at the one red bar at 9 AM (CHOP ZONE below chart). This was a failed bearish move. A sell Fractal was not generated. These three down Fractals prior to the buy Fractal were not valid. The price action that generated each down red arrow was above the alligator's teeth and/ or inside the jaws. Thus, they were NOT VALID. As for now, the first upside test is likely to be $46.53. I believe this upside move is a range bound trade. Why? I do not see CHOP (below the chart) under the shaded area. This suggests short covering rather than a large upside move. I have to await a sell Fractal to build my case for a resumption of the down move. I plan to issue an update at that time. Good luck to you. Don.
Comments
goodguy
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Bruno I think oil will break up. Your work is impressive. Anyway you can simply it? Have a great rest of the week.
649bruno
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Part 1. Thank you very much for your question. I wish I could make it simple, but I follow a set of rules that make me money and usually keep me out of trouble.
I will attempt to explain what I do and how I do it. Here are my RULES OF ENGAGEMENT:
I became a better trader once I had a mindset change. One of the largest drawbacks for people wishing to learn to trade is they get sold on a method that is reliant on the computer for its indicators. Markets are fractal in nature and fractals do not lend themselves to being measured with linear technical indicators. Yes - I use indicators to confirm or deny the fractals. The beauty of fractal design is that each new iteration, or pattern, is slightly different than the previous pattern.
While the human eye is very good at recognizing a slight pattern shift, a computer is not. The computer calculates exactness, and trading is far from exact. In a fractal world, each new pattern is a slight variation of the previous pattern -- think of the branches of a tree, or the waves hitting the beach - where after even just a handful of samples that difference will have increased enough to have thrown off the computer. Another advantage of fractal patterns is they are easy enough to see over different time periods, which makes them easy to collate and record, i.e.: they lend themselves well to bench-marking.
649bruno
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Part 2. So, the most important factor I use is the fractal. I start with the daily chart as a base screen. If I see a possible opportunity, then I have to (and this is extremely important) observe the CHOP indicator to see if it is in the shaded area or below the shaded area. If CHOP is back and forth inside that shaded area, I have a range bound stock (or commodity). I search for trending stocks. If they are range bound, I move on and look for something else. Only 15 to 30 percent of the time does the stock trend. Range bound stocks are very hard to make money. As an example, last weekend I looked at over 200 stock charts. Only 5% were trending. That means 95% of the charts would be range bound and my indicators and pine scripts would be whip-sawed. There is another aspect of using fractals and CHOP. The markets are constantly in rotation. Lots of trading but very little movement in the S&P 500. Why? Most stocks are range bound. The pros rotate into and out of these instruments and we, the retail trader, are usually at a loss or have “dead money” in a sideways action.
649bruno
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Part 3. So, if I see a buy fractal, and CHOP suggests the stock is trending, I look to see if the alligator is opening or closing. Then and only then do I use the indicators. The three I have on top are Awesome Oscillator (lower), 5/34 MACD (middle), RSI/ Stochastic (top). RSI by itself would also work. The trend-line I use is 233 units. This is a Fibonacci number. Because momentum changes direction before price, the AO is like reading tomorrow's Wall Street Journal today.
649bruno
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Part 4. Now, the Ichimoku Cloud. There are rules, and these rules have to compliment CHOP. 1. The prices cannot be in the cloud for extended periods of time (it is too easy to zig zag). 2. Thus, the prices cannot be ranging (defined as candles moving around the black cloud baseline without breaking to new highs or lows for 25 candles). 3. Establish the trend direction of the cloud. 4. Establish your entry point. 5. Determine your stop loss. 6. Are there any likely news events pending? 7. Only trade in the direction of the cloud. 8. Use the cloud to determine support and resistance. 9. Just as other indicators, when the red conversion line crosses the black baseline, these are buys or sells (AO would be confirming). 10. During a trend, the conversion and baselines act as support and resistance. 11. Only trade in the direction of the conversion and baselines. 12. Violation of the conversion line or baseline can be used as exits. 13. During ranges, and when the CHOP is in the shaded area, the cloud loses its effectiveness. 14. When price violates the baseline (down), this is a warning signal of a trend shift. 15. Do not stay long if prices break below the cloud.
649bruno
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Part 5. The most important thing I have learned is the fractal. It is pure emotion of those buying and selling. I do not allow myself any pre-conceived notion of direction. Remember these five words – they will make you a much better trader. “Move when the market moves”.
My trading approach involves five different perspectives: 1. Momentum. 2. Change in the speed of current momentum. 3. Appearance of an initiating fractal. 4. Zonal influences. 5. Balance Line differentials.
Part 6. Trend. You must have trend. I have used indicators since 1983. They would work sometimes and then not work sometimes. 20 years ago I found that fractals and CHOP were my main indicators for trend. The alligator became my compass (direction), and AO for energy, RSI and MACD for momentum. Fractals tell me emotions of the trade. Fractals are non-linear. I follow them. I "move when the market moves". If I used just indicators, and only 5% of stocks are in strong trends, I used to scratch my head a wonder why the indicators didn't work. Today, if CHOP isn't below the shaded area, I would be caught in zig-zag "noise". Most stocks are NOT trending. Stocks inside the shaded area will most likely waste your time and waste your money. But if you do your homework you will find the strong winners. Personally, I would rather do the research and select high probability stocks that TREND.
649bruno
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Part 7, MACD. In the case of the MACD indicator, the most widely used entry or exit signal is when one MACD line crosses over the other (slow/ fast). Since these two lines are simply two moving averages, by their very nature the crossover will not occur until the move itself is under way. And, since that crossover can be an entry or exit signal, this will get you into (or out of) the trade after the initial move has begun. Some traders prefer this method of entry (or exit) as it offers more confirmation that the move is more likely to continue in that direction. For more aggressive traders who are not interested in the additional confirmation and are simply looking for an early entry or exit, you may prefer a less widely used entry signal based on the histogram bars within the MACD option. I use these but do not show them because of the limited space on the chart. I also use the AO (phase energy red or green) bars because they usually lead the MACD, as does RSI/ Stochastic. Another technique for MACD: if the price violates the Ichimoku cloud red conversion line or baseline, it is most likely the MACD will follow with its own cross-over.
649bruno
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Part 8. The Stochastic RSI indicator (Stoch RSI) is essentially an indicator of an indicator. It is used in technical analysis to provide a stochastic calculation to the RSI indicator. This means that it is a measure of RSI relative to its RSI's own high/low range over a user defined period of time. The Stochastic RSI is an oscillator that calculates a value between 0 and 1 which is then plotted as a line. This indicator is primarily used for identifying overbought and oversold conditions. Overbought and Oversold conditions are traditionally different than the RSI. While RSI overbought and oversold conditions are traditionally set at 70 for overbought and 30 for oversold, Stoch RSI are typically .80 and .20 respectively. When using the Stoch RSI, overbought and oversold work best when trading along with the underlying trend. Personally, I consider a buy as a cross-over upwards near .20, and a sell a cross-over downwards near .80. Use CHOP with these cross-overs. For example, a sell cross-over at .80 combined with CHOP sinking below the shaded area indicates a very strong sell. I hope these eight tips help you to be a successful trader. Don.
goodguy
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Thank you so much for taking the time. I have my work cut out for me.