Support and Resistance

Here is a great article on Support and Resistance. It's by Sam Seiden of Online Trading Academy. I receive emails from them periodically.

You read about this concept all over the web, and in books, but I have never seen it explained like this before. He explains WHY it works, and more importantly, what to look for. Time does play a role, the amount of time price spends at a price level while bulls and bears kick each other in the balls and struggle for control. This article has not only helped me understand where the low risk entries are located, but also where to place stops more effectively. If I looked to place an intraday stop, sometimes I looked at support and thought it would be at cluster lows. That was probably not the best place to put the stop. As explained in the article, look for areas where price spent the least amount of time. This is where the buyers/sellers stepped in big time to snatch up any offerings, and with one side dried up, prices moves fast. Read this article several times and understand the concept. Memorize it so you don't have to think about it. Thinking, not reacting, can get you into trouble.

Support and Resistance, a Deeper Understanding

Often, I talk about supply (resistance) and demand (support) in articles. I use simple examples and pictures to help explain how markets work and prices move. Today, let's take our level of understanding to a deeper level by actually simplifying the picture of quality support and resistance, the way we do in the classroom during the Professional Trader Part 1 and 2 courses . I was recently reviewing the pages in the stock class, and came across a page that showed what I considered something very close to the perfect picture of support (demand) and resistance (supply). The message that page conveyed to me was something I want to share with you here in hopes of improving your level of knowledge and understanding.

Price and Time: Price spends the least amount of time at price levels where supply and demand are out of balance. Price spends the most amount of time at price levels where supply and demand are NOT that out of balance.

In other words, price levels on a chart where price spends the LEAST amount of time are where the most quality trading opportunities are found. What this picture looks like on a chart is a pivot high and a pivot low, NOT a cluster of trading activity. Let's have a look...

Notice the turning points on this stock chart. If you focus on the pivot high point in the upper left portion of the chart, that provides for solid resistance when price returns to it on the 29th. That is a quality supply level. Notice the demand (support) level on the bottom of the chart, the pivot low on the 29th. Price shoots up from that level because supply and demand are so out of balance. Price spends so little time there because demand greatly exceeds supply. When price revisits that area two days later, that is the time to buy as price is revisiting a quality demand level. Next, notice the circled cluster of trading from the 28th. Price declines from that area and when it returns to that level, it moves right through it like a hot knife through butter. This is because supply and demand are not that out of balance, the cluster of trading tells us so. The fact that price spent more time in that base than it did at those pivot high and low points tells us that the great supply and demand imbalance is at the pivots, not the cluster of trading. While I may show these clusters in letters, they are for understanding. For application of support and resistance, pivot highs and lows are where the greatest imbalances are found.

Let's go over the turning points in this forex chart. Notice pivot high area "A". We call that a "pivot high" because price could only stay there for a few minutes. Why? Because supply (resistance) was so much greater than demand at that level. "B" was the first time price revisited "A" which was the low risk/high reward time to sell short. Area "C" on the chart is a pivot low. "C" happens because of a major supply and demand imbalance. There are so many more buyers than sellers that price can only stay there for a few minutes, creating the pivot low. The first time price revisited that level was the time to buy "D" as the risk was low and the reward was high. Next, notice "E", the cluster of trading that is followed by a decline in price. When price comes back to that level for the first time at "F", it goes right through it without turning lower. This is because of the time issue. Price spent more time at "E" than it did at "A" which is why "A" is a higher probability shorting opportunity (turning point) than "E". The same issue is true at "G". The cluster of trading provided no support when price revisited that level at "H". Again, time is the key issue here which is why the pivot highs and lows are the low risk/high reward support and resistance levels, not the clusters of candles.

NASDAQ Scan

Given that the market is at a long downtrend resistance level today, I thought it would be appropriate to post a scan of stock that are in trends. The scan clearly shows the up and the down trending stocks. The scan attempts to filter only those stocks that are experiencing a pull back.

What does the scan look for?

It uses linear regression, force index, and a few other goodies. The close must be greater than 5 and less than 100 (no reason only that I don't want pennies). The volume (20 period MA) must be greater than 250K. Once this scan is run, I look at the charts to select the potential candidates. Typically I like to buy on momentum, using buy stops (for longs).

Performance: To see how this scan performs, I ran it on past data. The FIRST scan shown was run for April 24, 2008. I selected this date as it was in the middle of an uptrend in the Q's (QQQQ).

The SECOND scan shown is run on today's data.

All the symbols are not shown. If you like the scan and want to see more of them let me know and I'll post excel sheets so you can see all the symbols. If I get no responses, I'll probably won't it anymore.

April 24, 2008

May 14, 2008

Some great tools for trading... education

In this post I'll give you some tools you can use to obtain videos, blogs, websites, books to help yourself. Make sure you follow the law and don't' abuse any copyrights. Your on your own, know what your doing and be responsible.

Videos
Have you ever watched a video online and wanted to save it to your hard drive? Most online videos these days are streaming, and they don't save to your "temp" directory like they did only a few years ago. Back then you could go to your temp directory and copy the file and re-play it. So what do we do now? There are two options, you can play the video and use a screen capture program similar to the ones these guys use on there blogs to make there videos at Alphatrends, Trade-Guild. The problem with this is you have to have the video player open and you can't do anything else while recording. Also, if there is a hang-up or delay in the stream, you going to record it. The better way is to use a streaming video capture program that captures the digital stream, behind the scene and while you work on something else.

I tried quite a few video download tools to find most didn't work well. The best one I have found is the cheapest, "FREE". It's called ORBIT and you can get your own copy right here. You can even schedule downloads and control bandwidth. So while you at work, where the bandwidth is HUGE, you limit the speed your downloading at so you don't raise any IT heads.

I have download videos from FXCM, Alphatrends, Optimize101 and 201 for Amibroker, MACDots system, all kinds of videos. I load them into my MIO UPS and watch them in the car on the way home from work. Well, I don't actually watch them, I listen to them. I also download mp3's from TrederInterviews and listen to them on the way to work/home.

Here is a portion of my library right now - click to enlarge. If you want some of these, I was thinking up opening up my FTP site. Depends on how many people ask for them.



Blogs and Websites
Have you found a website or blog that you want to spend time reading but can't find the time? Do you want to archive your blog? Do you want to save a copy of someone else's blog to your hard drive for reference? Do you want to save a website to your hard drive so you can read it while sitting an an aircraft? Here is the tool for you... your going to have to read the help a little to get the right results, it will only take 15 minutes or so.

HTTrack


Books
So you want to read some books. First off, don't go and buy them. Search Google for them. There and many PDF books out there, all you have to do is find them. Check these out, this is just part of what I have found. Once I find the book, I print it double sided, with 2 pages per side of paper. Instant book.



Go to Google and use advanced search.
Here is a sample page, make sure you use filetype to return only PDF's


Hope these tools help you. Let me know!

Taking a break, making the plan

I have been taking a break, since work is keeping me busy. I am shifting, or rather opening up to other markets now. I have written a trading plan that includes the pairs I will ONLY trade in Forex. There are three pairs, non correlated and all USD's. I am also opening up to the TSX, trading the ETF's and highly liquid stocks. Prior to using IB, I was with E-Trade, this was a few years ago. I found that the profits I made were all eaten with commissions, that to much, that money could have been in my pocket. Since switching I was intoxicated with the though of auto trading and switched to Forex. Well, here is my long term goal:



Trade the TSX with daily charts and intraday triggers, set up on TWS. At the same time, trade Forex intra day in small lots. As the same time, work on the automated trading system that will trade on a 1 hour time frame, from Monday to Friday, from 11pm to 8am EST.



Does anyone think I should share and post my trading plan?

Divergence and the Tick

Divergence:
Here is a tick chart of GBP.USD. I have inserted a line at the highs and lows. I continue to struggle with interpreting divergence. This chart looks like is is in consolidation, so a breakout set up is probably best, but I'd like some comments on where you readers see a divergence set-up. What is used for the MACD, the MACD itself or the histogram? I have seen both used. This chart shows two opposite divergences for MACD and the histogram, at line B and D. Perhaps the double top makes it null and void. Can anyone help on interpreting this chart?

Tick: I have read that back testing should be done with tick data, since it removes the time element. I am beginning to read more about using tick charts, after looking at them for a few days I like what I see. Price action matters more than time data. Comments?

EURUSD

The green line is where I have set my buy order, at the bottom of the consolidation, with a tight stop shown as the dotted grey line. Target set for 200 pips. If it triggers and goes higher, my plan is to monitor it each night looking for signs of weakness. My trading plan has always been that once I am in, the first objective is to move the stop to break even when I see a higher high form on a reasonable time frame, most likely 4H in this case. The target is set only to get hit on a large spike, from an event such as news. When the momentum slows I will place the target closer to catch all I can while the stop will also move tighter. I look for momentum to slow from the STOCH, prices coming off the top of the bands, or volatility increases, making lower lows. I use the volatility to have the target hit. If the climb is steady, I like that and I stay in. The trick is to catch the steady climbers.



Note that none of these post are recommendations. I am entering these trades in the blog to capture this moment. I'll come back to each post and do an "UPDATE" as the trade close and add my thoughts. I want to track my progress for these daily time frame "swing" trades, or hopefully "trend" trades.

UPDATE:
The Good: Position size set, Stop placed, Target placed, trade planned before placing trade.
The Bad: Took a loss, a small loss.
The Ugly: Totally forgot about the first friday of the month. The US released the non payroll farm report. I was reading about trading the news just days before this trade and noted that I have to commit this news release date to memory. I think it will stick in memory now!

Correlation and Sentiment

This post includes some useful information I found at Mataf.net. An interesting feature they have is called the sentiment calculator that allows the user to determine sentiment of the various pairs by looking at different time frames of charts and selecting up, down, or sideways trend. Once you pick all the choices it tells you what you entered. An easy way to determine the trend yourself without any bias.

The chart is the last one in the post. This correlation table supposedly update with time as it is a link, not an image.

USDJPY Trade

Pulled the trigger on a short of USDJPY.

The stop is on the chart, above the recent high, shown as a grey dotted line. I'll trail this one, current target set at 90 just so I have a target.

UPDATE:

The Good: Position size set, stops set up with order, trade planned before placed. The trade went the right direction to start with

The Bad:Took a loss. Stop set up to far away, didn't wait for the right time to enter. With the entry, the stop stop could have been tighter.

The Ugly: I think this quick move was from the US non farm payroll report. I was reading about trading the news days before this trade and I should have known better. If the trade went my way though, I would have been claiming victory right?

Watching the Daily Charts

Aside from my quest to have a system work while I sleep, work, play, etc. I want to put my technical skills to work for some trading off the daily time frame. Back when I first started downloading Forex data and looking at the charts, and researching what exactly a "pip" was, I was mostly day trading and swing trading stocks. I learned this all myself, with a few courses, offered free to try to get you to sign up with the brokerage firm. I have no problem with high pressure sales tactics, they don't other me and I can exit the establishment without feeling like I hurt anyone's feelings. It's business, and in business, people either get screwed or they do the screwing. I prefer neither so I go for the free pizza and learning session, notepad in hand. Back to the subject.... I first downloaded Forex data so I could develop a system, and I didn't like all the gaps in the stocks. Since then, I have found that stocks, sectors, Forex, bonds, all have their own behaviours and different tools work for each. I have also found the daily time frame to have much less noise and are far less "jerky" than the hourly charts.

This post will list my thoughts on four pairs, and where I interpret the charts to be headed. Some I will actually put real money into.

The dots and circles on the chart or just to provide me with some basic buy/sell areas. They have to be used with the trend.

USDCHF

Downtrend, recently broke 1.00, and bounced back to 1.00. I'm looking for
consolidation around this level before it drops hard. I'm not playing this
looking for the drop, the chart doesn't tell me it's going to drop. The 1.00
level is importnat because it's "round" and "par". This time it cracked it.
(Look at USDCAD when it cracked par 9/20/2007). I'm watching it to come back to
1.02 to test the high, watching the STOCH, and watching my 5EMA trigger when the
time comes. One potential outcome is for the STOCK to drop below 20 and sit
there as the pair heads south, if this happens I'll be looking at riding that
sled to the bottom of the hill.

USDJPY

A short is setting up. It broke 100, a nice round number and 100 has became
resistance. This level has been support since 1999 and now that it has been
penetrated, it is resistance. I'll be shorting this soon, looking to catch
100.40 so I can set a tight stop. If I miss the move, there will be others and I
will learn from it.

GBPUSD

Looks like its going into consolidation for a while on weekly, making Lower Low
and Lower High (see chart). I'll be looking to short at 2.0021 to 2.0026. On the
daily, it looks like it could make its way up to the higher high. Stoch is on
the way down, a good signal might be to wait until Stoch gets to 20 then short
for the start of the downtrend using a tight stop. The yellow line is
resistance. The hollow red circle is a sell signal, if I was watching this I
would have shorted at the low the day before the hollow circle appeared.

EURUSD

Weekly - no signal - good counter trend short, I don't play that game though.
Daily - huge uptrend continues, wait for pull back, wait until Stoch gets to
below 50 then buy on strength on the break of a daily high, also watch the 5EMA
system for triggers.

Forex Video

Here are a couple of videos that I find useful.

1. MACD Video
2. Where to get Forex Information

MACD = A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

Here is an educational video done by Brian Shannon at AlphaTrends.net He explains the MACD and how to use it. Good review if you don't have things memorized. The MACD is one of the ost verstaile indicators.

PFX Global has a good video that describes where you can get Forex related information. It sure is easier to watch a video than weed through all the information on the Internet and figure it out yourself. If your not going to take a course or have a mentor, this is a good place to start.

Trendline Trading

I have updated my code to include a trailing stop. When I see a possible set up, I can now set the "Study" in Amibroker to send two complete orders to IB. The first has a defined target and stop, better known as a bracket order. The second submits a buy at the same price with only a trailing stop. This will get me a quick profit and also let an order run with the price. Here is the window I use (Param window) to set it up.

I'm considering sending the order once I set up the lines, that way it's sitting on the IB system. Currently the order is triggered with the real time data on my screen, then sent to IB. There are advantages to both, not sure what the better way to do this is. I'm getting the hang of trend lines, and trading 15 minute bars with tight stops just doesn't work. Using the hourly with small position sizes and wider stops is the way to go, compared to what I have been doing. What have I been doing? Using a 10 pip target and stop. I'm figuring out the best method to obtain a positive result using STOCH and a 5 EMA of the highs, and a 5 EMA of the lows. The success rate is pretty good with the 15 minute chart. I have also added some code as a count down bar timer, this is good to have when scalping for 10 pips. Here is what my screen looks like even trying to keep the clutter down. Below I'll explain the screen shot.

The colored bars are a system in itself, I don't use the signals for automation, I use it for "watching the screen trading"
I set up the "Study" lines, green for buy, red for short, as solid lines. When the order is triggered the profit and stop lines turn grey, this tells me the lines are not active and locked out. I can also go to the menu and press "Lock-Out" so a trade will not be triggered for buy or short. I can also select "scale-out" to use the trailing stop feature. With more options comes more clutter. The plan is to figure out what suits me best, suits my style best and remove everything else.

Right now I'm scalping some evening (EST) USD.JPY and setting up night time trades for EUR.USD. So far it's break even with real money. This blog is one way to record how I'm doing instead of keeping a log. Perhaps my next posts will describe some trades, both good and bad, so I can track what my thoughts were and what worked. Haven't decided on that yet.

A Trading System

Much has been written on trading systems. I have tried many and found that the advice given by most honest traders is fitting, that is, the system has to fit well with the person. One such system is shown in the screen shot below. I was reading the latest post by Rich over at Forex Project and the comment section began a long topic of systems discussion. It was a discussion about trading systems and one trader offered up his charts. The discussion is very interesting, and should be read. I noticed that the chart looked familiar to one I use. All I really had to do was change the period variable. Read it here - Want To Buy a Forex Trading System?

I don't use this systems now, I stick to S/R and a 5 period EMA on the 1H or 4H charts. The top chart is mine, the lower chart is from the post at Forex Project.

This particular chart is from comment No. 16.



Tipster Code Above


System posted and discussed at Forex Project.

Breakouts

What is better, indicators or trend lines, what has better results for an auto trading system? I have tried, as many others have, to use indicators to buy and sell Forex. It works about half the time. Why not just use a random number generator to trade then? What about breakouts?

Look at a 5 or 15 minute chart, how far is 10 pips in relation to the average bar length. How hard can it be to make 10 pips? It's harder than it looks. My next system involves breakouts and trend line trading. Here's the idea;

I set the chart up with 1 to 4 lines, when the line is crossed it trades, setting stops and targets, and gets locked out until I reset it. I can use horizontal or sloped lines to do this in Amibroker (AB). The code I have done so far works OK. I'm amazed how how simple the code was to do this. The "system code" is very small compared to the auto trading interface code need to talk from Amibroker to TWS via the IBcontroller. I'm waiting for the bugs to show themselves. I was surprised when I was testing this, I would trigger it to test signals and next thing I know I'm hitting the profit target of 10 pips.

I can't find many others that have coded this or auto trade this way, I searched with Google and found very little. The AB Knowledge Base doesn't have much either. If you trade Forex this way I'd like to chat via email, drop me a line. Email link is at the top of this page.

Profit Target and the Spread

Some online forex brokers now offer 3 to 5 pip spreads in the liquid currencies such as EUR/USD and USD/JPY. These are very competitive prices which a few years ago were unthinkable. As recently as the mid 1990's brokers were quoting 10 pip spreads in the major currencies plus a commission! Thankfully due to the internet, the current boom in Forex trading and the competition between Forex brokers, those days are well and truly over.The excellent value available from trading on tight spreads works very much to the traders advantage. However, some recomend that you avoid overtrading and entering trades for just a 5-10 pip profit or loss. Even trading this way on 3 pip spreads can adversely affect your profitability.

Below are examples of both a winning trade and losing trade when trading for a 10 pip profit or loss:

Winning Trade:
Buy EUR/USD at 1.2020 (price = 17/20)Sell EUR/USD at 1.2030 (price = 30/33)
Market moves 13 pips before taking profit

Losing Trade:
Buy EUR/USD at 1.2020 (price = 17/20)Sell EUR/USD at 1.2010 (price = 10/13)
Market moves 7 pips before taking loss

The above example highlights that the risk/reward of trading for a 10 pip profit or loss is poor. For the same 10 pips P&L, the market must move 13 pips for your winning position, but only 7 pips for your losing position. As a general rule of thumb, Take-Profit or Stop-Loss levels are recommeded by some as at least 10 times the spread you have traded on. This strategy will (should) help avoid overtrading and improve risk/reward. This is being considered in my current system where I aim to take a profit at 10 pips.

Automatic Order Transmission

When the charting software has a signal to buy, it transmits it to the broker software client running on the same computer, your laptop. That software in turn sends the order to the broker office computer for execution. Here the things I have found to be important, to safeguard against things like loss of data connection, or power failure, or anything that could go wrong.

The order is transmitted with a buy order, limit order, and stop order. The buy order has a "Good Until Time" attached to it. I'm going for 10 pips of profit, so once the order is sent, the PC can crash all it wants. I have this portion working.

The next issue is loss of data feed. When the data starts up again, a buy order could be sent, but it might not be current, that’s a problem, and I haven't solved it yet. I haven't actually tried yet.

Right now I'm using 6 pairs to work out the bugs, and while I'm doing this, I'm tracking all the trades in excel and summarizing the trades and pips per pair, and the number of minutes I'm in trades. Once I get enough data I'm going to look at the daily charts and see what the correlation is between good performers and bad performers. I'll look deeper into trading times as well. The plan so far is to trade 2 pairs on the 15 minute time frame. I will try the 1 hour to see results I get too. The comparison of 15 minute time frame to 1 hour can probably be done by back testing. My issue here is most data is dirty, such as FINAM. I see lots of spikes in the data. I may try EODDATA and see what I get.

The nice thing is that this is being testing during the night and day while I'm at work, then I fix the bugs in the evening.

For anyone that is entering orders manually, there is a simple script you could use with Amibroker to initiate your order all at once will little risk of error. It's fast and accurate. I use it to send bracket orders while I’m at work.

"The Squeeze" - Part 2

Here is the code for "The Squeeze" for Amibroker.
I don't think system by itself works very well. It needs some work, possibly using it in conjunction with MACD would work, but I haven't done any work on it at this stage. Feel free to play with it, if you come up with some ideas please share.

Nickel and Dime "Mother Market" to DEATH

The last two weeks have been rather enlightening for me... so far. Here's what developed that "turned on" the light in my head. I just hope the light is what I think it is. I was reading the book about Larry Livermore called "Reminiscences of a Stock Operator" that I downloaded from ForexProject in PDF. The book is outdated in terms of the trading laws and some other things but as far as trader psychology and approach I think there is value in reading this book. I have read comments from readers that suggest Livermore never tells how he made all his cash in trading, I disagree. He didn't give a step by step account but I picked up some pointers. One such pointer was that he was always talking about having a "bigger line to swing". That means the more capitol one has, the more you can put on any one trade and thus make more profit in terms of dollars. He made millions and lost millions, and did it all over again. Then I recalled looking at a spreadsheet I downloaded somewhere that showed how fast your dollars grow when compounding. So I returned to the spreadsheet and had a look. I didn't do what I need it to do so I made my own. Here are my assumptions;
make at least 10 pips per day

trade 5 days a week, one or two pairs

start with $2000 (one lot, 100,000, at 50:1)

Maximum size of 5 lots - assuming I get there!
Here is the spreadsheet that shows what you can do if you make 10 pips a day, if it has errors, I would love for you to point them out. As you can see, it would take 6 months to get to $50,000.
Then I thought "my account is another person or entity, just like a corporation", I don't need this money to pay bills, I have a day job for that. What if I could automate this and make this "entity" wake up at 3am and trade until 11am (the best time to trade Forex). This "entity" would only have to capture 10 pips a day to make this work. Is that achievable in an automated program? The short answer is "yes it is". So assuming the above is correct and without any glaring errors in calculation, I am now testing my system and checking the trades daily. I have found some problems but I'm getting close. I have completed only 2 days of testing and the first showed 24 pips, the seconds showed 8 pips. I'm not concentrating on the signals so much as the order transmission. I don't think it is very difficult to capture 10 pips a day, but to do it constantly may take some work. If that target can be achieved, then the power of time will make the coin grow. To capture 10 pips, I plan to trade the system only between 3am and 11am EST, and trade only one pair, probably EURUSD, but that remains to be decided. 10 pips do not seem like a mountain, that’s why I call this post "nickel and dime". For the testing of the order system, I'm using 6 pairs to work out the bugs. Comments on this are more than welcome, as are any suggestions.

What's next?

A couple of things to blog about tonight;

• New indicators


• Trading system update

I used to use a "squeeze" indicator when I traded stocks, it was mainly focused on day trades and worked well on the US markets but not too well on the Canadian markets due only to the number of high volume stocks on the TSE (lower than those on the NASDAQ). The pattern day trader rule in the US was an issues. It worked even worse for FOREX. I recently came across a system that uses the squeeze, MACD and bollinger breaksouts. I'm looking into combining the indicators for a system that will trade short term moves in FOREX. Take a look at the videos at this site. While I'm doing that, I'm letting my current system run on the IB paper account to work out any bugs. That brings us to the second item I want to talk about tonight.


I have been slowly working on my new automated trading system and have some success. Back testing has produced results that are too good to be true. I've check the trade logs and they look right, so things are promising. Let me give you a quick brief of a post I hope to make shortly, if things work out. I ran across an excel spreadsheet that allows you to quickly calculate the periods needed to make a million based on the percent gain per period (I used a daily period). This got me thinking about more of a long term approach to profits, with short term gains, as in baby steps. So all I want to say right now is that I have a plan and I'll outline it shortly. Stay tuned.

The Squeeze

I have an indicator for Amibroker that is very similar to the TTM Squeeze over at tradethemarkets.com. You can go there and view the video for instructions on how to use it. I find it somewhat useful, but look at the chart below, it doesn't look like a long term indy. I think this would be OK to capture 20 pips or so, not sure as I haven't studied it enough. If any readers have used this please comment on your strategy.

I was also reading some posts over at forexproject.com on this.

GBPJPY

Head and Shoulders - This looks like an easy kill, but it is rarely that easy. Be careful out there. Will the gap be filled? My data is empty for a few days around new years, it's not a gap.

Dec 29 Trends

The latest "Trend Scan". I have only included pairs that have shown up on the daily time frame scan for trending up or down. Perhaps I will make a call for the record to see how I do, based on the home grown indy I have developed.... stay tuned for the next post.

Price Patterns

Here's a simple video on price patterns. It's about the most straight forward one I have seen. It's from a great web site called "Profiting with Forex"

Part 1

Part 2

Part 3

The TREND Scan

A while back I posted this Post. Now I want to know how exactly to interpret what the table was telling me. So I ran the scan for a few months back to see the story the table was telling, and then looked at what happened on the charts. Then I searched for and read the Livermore trading rules. I'm going to take a stab at this with the little research I've done (no back testing etc., just looking through charts to figure out how to use the table).

Here is the scan I ran today on the FOREX market.




Here is what I would do (simulated trading exercise) -

Short all the rows with 3 RED cells except for GBPNZD and GBPCHF. I don't really like the looks of GBPAUD but it looks like it will go red based on the H&S pattern it has completed today, so I would probably short that as well. The prices I would use to short would be based on interday charts but for this exercise, lets say its half way between open and close of the day before. Trailing stops would be the high of the day before.

Long all the rows with 2 GREEN cells. Buy price would be halfway between the open and close of the previous day (or no entry). Trailing stops would be the low of the day before.

I'll record these and see what happens. I wonder what the holiday season trading will be like, if the price levels will be impacted. I figure the volatility will be low.

More info on the screen rules.
The screen is based on the Livermore rules; below is an except from a web site on this trader.

All successful stock and commodity traders have rules for buying and selling. Many traders today still use the trading rules Jesse Livermore first devised almost a century ago.
Jesse Livermore constructed his rules over several years while he learned by trial and error what worked on the markets. He was guided by one of his favorite principles:
"There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."

Trading Rules

• Buy rising stocks and sell falling stocks.
• Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it's rising you should be long, if it's falling you should be short.
• Co-ordinate your trading activity with pivot points.
• Only enter a trade after the action of the market confirms your opinion and then enter promptly.
• Continue with trades that show you a profit, end trades that show a loss.
• End trades when it is clear that the trend you are profiting from is over.
• In any sector, trade the leading stock - the one showing the strongest trend.
• Never average losses by, for example, buying more of a stock that has fallen.
• Never meet a margin call - get out of the trade.
• Go long when stocks reach a new high. Sell short when they reach a new low.

Other Useful Trading Guidance

• Don't become an involuntary investor by holding onto stocks whose price has fallen.
• A stock is never too high to buy and never too low to short.
• Markets are never wrong - opinions often are.
• The highest profits are made in trades that show a profit right from the start.
• No trading rules will deliver a profit 100 percent of the time.

Note: The AFL code for this was taken from the Amibroker website, posted by some guy.

The Holiday Season

Merry Christmas.

Have a great time celebrating this holiday season,

and if you don't celebrate during this time of year,

have a great time not celebrating.

All the best to you and your family

Time - When are the markets open?

Here is a handy picture of the globe. Make it your desktop picture!

How to get FOREX quotes from MSN into Amibroker via Amiquote

Amiquote is equipped with an automated download of FOREX from FORAM but only has the majors. I''m interested in USDCAD so this isn't the best solution for me. Yahoo seems to offer only current day. So I tried MSN. I used MSN to download EOD FOREX data and noticed that the USDCAD pair was inverted, as was the CADUSD pair. So I went the next step and obtained a list of currency pairs. I'll list the pairs and then some instructions on how to configure Amibroker/Amiquote to auto download. Some pairs included here are useless, so you might want to trim your database once you've completed this. Then I configured the Amiquote translation table to relate the proper data to the symbols the way it should look. Here are the instructions on how to do this.

Here are the pairs, import this list into Amibroker. Import using "Import Wizard" select the file and set the window up like this screen shot.

Now you have a populated database in Amibroker, but it's empty. Next, click "Tools" "Auto Update", Amiquote opens. Select MSN as the datasource. In AMiquote Select "Tools" Symbol Translation", select "MSN Historical" and copy the following list to the clipboard and paste into the translation table in Amiquote as shown below. Hit OK and select the dates you want to import, then start the download. If you go to far back it will only give you monthly data, so do a long term and then a short term download. You can even try to get data for something like 2005 to 2006 and see if it give you finer resolution.

Copy this list into Amiquote translation table for MSN

AUDCAD,/CADAUD
AUDCHF,/CHFAUD
AUDEUR,/EURAUD
AUDGBP,/GBPAUD
AUDHKD,/HKDAUD
AUDJPY,/JPYAUD
AUDNZD,/NZDAUD
AUDSGD,/SGDAUD
AUDUSD,/USDAUD
CADAUD,/AUDCAD
CADCHF,/CHFCAD
CADEUR,/EURCAD
CADGBP,/GBPCAD
CADHKD,/HKDCAD
CADJPY,/JPYCAD
CADNZD,/NZDCAD
CADSGD,/SGDCAD
CADUSD,/USDCAD
CHFAUD,/AUDCHF
CHFCAD,/CADCHF
CHFEUR,/EURCHF
CHFGBP,/GBPCHF
CHFHKD,/HKDCHF
CHFJPY,/JPYCHF
CHFNZD,/NZDCHF
CHFSGD,/SGDCHF
CHFUSD,/USDCHF
EURAUD,/AUDEUR
EURCAD,/CADEUR
EURCHF,/CHFEUR
EURGBP,/GBPEUR
EURHKD,/HKDEUR
EURJPY,/JPYEUR
EURNZD,/NZDEUR
EURSGD,/SGDEUR
EURUSD,/USDEUR
GBPAUD,/AUDGBP
GBPCAD,/CADGBP
GBPCHF,/CHFGBP
GBPEUR,/EURGBP
GBPHKD,/HKDGBP
GBPJPY,/JPYGBP
GBPNZD,/NZDGBP
GBPSGD,/SGDGBP
GBPUSD,/USDGBP
HKDAUD,/AUDHKD
HKDCAD,/CADHKD
HKDCHF,/CHFHKD
HKDEUR,/EURHKD
HKDGBP,/GBPHKD
HKDJPY,/JPYHKD
HKDNZD,/NZDHKD
HKDSGD,/SGDHKD
HKDUSD,/USDHKD
JPYAUD,/AUDJPY
JPYCAD,/CADJPY
JPYCHF,/CHFJPY
JPYEUR,/EURJPY
JPYGBP,/GBPJPY
JPYHKD,/HKDJPY
JPYNZD,/NZDJPY
JPYSGD,/SGDJPY
JPYUSD,/USDJPY
NZDAUD,/AUDNZD
NZDCAD,/CADNZD
NZDCHF,/CHFNZD
NZDEUR,/EURNZD
NZDGBP,/GBPNZD
NZDHKD,/HKDNZD
NZDJPY,/JPYNZD
NZDSGD,/SGDNZD
NZDUSD,/USDNZD
SGDAUD,/AUDSGD
SGDCAD,/CADSGD
SGDCHF,/CHFSGD
SGDEUR,/EURSGD
SGDGBP,/GBPSGD
SGDHKD,/HKDSGD
SGDJPY,/JPYSGD
SGDNZD,/NZDSGD
SGDUSD,/USDSGD
USDATS,/ATSUSD
USDAUD,/AUDUSD
USDBEF,/BEFUSD
USDBRL,/BRLUSD
USDCAD,/CADUSD
USDCHF,/CHFUSD
USDCNY,/CNYUSD
USDDKK,/DKKUSD
USDESP,/ESPUSD
USDEUR,/EURUSD
USDFIM,/FIMUSD
USDGBP,/GBPUSD
USDHKD,/HKDUSD
USDIDR,/IDRUSD
USDINR,/INRUSD
USDITL,/ITLUSD
USDJPY,/JPYUSD
USDKRW,/KRWUSD
USDMXN,/MXNUSD
USDMYR,/MYRUSD
USDNLG,/NLGUSD
USDNOK,/NOKUSD
USDNZD,/NZDUSD
USDPHP,/PHPUSD
USDPTE,/PTEUSD
USDRUB,/RUBUSD
USDSEK,/SEKUSD
USDSGD,/SGDUSD
USDTHB,/THBUSD
USDTWD,/TWDUSD
USDZAR,/ZARUSD

Let me know if the data looks right to you, or if I'm doing this backwards. If you want the database, it is a 4 meg zip file, send me an email.

Update

Check the Never Ending Post for an update.

FOREX Trend Scan

Here is the Trend Scan for some EOD data for a few FOREX pairs. I currently do not have an easy source to download EOD FOREX data so this is a little painful to have more than the symbols listed.

Daily

Weekly

Notice anything? EURGBP is in an uptrend on all time frames.

Scans by the dozen

Here are some scans of the recent market activity, US only, I don't have enough time to do Canadian tonight.

Trending Scan

The first is a trending scan. The trend is your friend. If your into buy and hold, this is for you. These are leaders. Someone said to me once "follow the leader", I replied "sure thing, as long as they're going in the direction I want to go!" This applies to stock too. Here's a pic of the scan, click to get it from google thing-a-ma-jig.


Here is the "All-in-one-scan" that I posted when this blog first started.

Here it is.

The Never Ending Post; a FOREX Scrapbook

This post will go on forever. I'm going to keep updating it with tidbits of info I find on the net about FOREX or technical analysis of FOREX. I like to keep notes in point form, and if I need more, there's always Google. To read this really fast, read the red text until something catches your eye.

Best time to trade (Eastern Standard Time)
Only trade when there is a market open somewhere, or risk getting reamed by a dealer (of course this only applies to day traders and scalps)

• New York open 7:00 AM to 4:00 PM
• Japanese/Australian open 7:00 PM to 3:00 AM
• London open 3:00 AM to 11:00 AM

Often, the best times to trade is at the beginning 3-5 hours of the above mentioned opening times, because the major currency pairs tend to move the most in a particular direction.

The best time to trade is from 3 AM to 11 AM EST. The New York and London trading sessions overlap between 7 and 11 am EST. The volatility is much higher and trading opportunities are much more frequent with bigger moves, especially in these four hours.
The currency pair that moves the most during these hours are the USD/CHF, then the GBP/USD, then the EUR/USD, then the USD/JPY. This is when you can make 30-100 pips trading in just a few minutes or hours.

Notes from a "TraderInterview"

• trade from 7am to 12 noon EST
• use trendiness, pivot points from previous day
• GBP - more range than EUR
• JPY - all over the place
• CHF - great trend and conservative
• stops at 15 to 30 pips
• 5 min. chart - reversal shows up here first
• 15 min - pattern direction
• 60 min - main trend direction
• 5min and 15min match direction pull the trigger

Notes from a "TraderInterview"

• FOREX is indicator driven
• Linear regression channel (LRC) - use on any time frame from daily to 4 hour
• LRC shows trend
• when price goes below LRC it usually snaps back quick
• weekly or monthly charts used to detect trend reversal
• 10am EST is a common time for a reversal for most currencies
• another reversal that is common is 11:30 am EST
• reversal will seek its first support level

Highest High & Lowest Low

Here is an interesting chart of USDCAD that automatically plots the highest high and lowest low for a pre-defined period. I like the chart automation but I don't really like the pre-defined period. I would like to have a period that adjust automatically but I'm not sure what I want to use for the basis of the adjustment. I was think about using volatility like ATR or perhaps SAR to determine the look back period. The formula uses the moving average cross of the highest high and lowest low, that's why some lines are longer than others.




If you look closely and examine the chart, you can't really find a consistent pattern of support break through. I'm looking at the break through of support or resistance, specifically looking for a close above or below, and watching what happens to price.

The chart below has my special DOTS on it. This is a weekly chart. I'd say it still has some upward movement to work off. This week it briefly broke through the 1.00 level. About a month ago it hit 0.9054, what a profit that could have been eh? The weekly doesn't show any sign of this upswing weakening but the daily chart shows it's running out of gas. I'm going to wait for the downswing then jump on board.

A short using $2000 with 50:1 leverage at 1.0000 and covering at 0.9054 gives you some serious cash, not that this is possible but part of the move could be caught. The cash grab is about $10,000 for that move. It's nice to know the possibility. Remember, with this also goes that you could lose the $2000 just as fast. Practice risk management.

A quick FOREX trade

Today I looked risk in the eyes and shorted the USDCAD pair. The chart was screaming pull back. I used my developed signals to tell me when to pull the trigger, and actually ended up pulling the trigger twice, the first time taking a small loss.

The Word stated in a recent post "the Canadian dollar is in a power full bull trend". It is. However, looking at the chart, it seemed too powerful, it hit a low last month of 90 cents, great for Canucks living near the border, a quick 1 hour drive and save 20% on a new car, what a deal!! Maybe a car is not the best example because it sports miles and gallons, the old fashioned system based on arms and legs and feet, we use metric up here, based on water (I think?). I still get confused. Oh, back to trading.....

I was reading tradewhileworking blog earlier today and decided that it was time to find a little time to take on a trade, since I've not been able to trade for the past month or so. Great inspiration at his blog, how he manages to trade in a management role. I chuckle when I read about the issues he faces while trying to trade at work, it's familiar.

In the end I came out a couple of hundred bucks on top, but more importantly, played and learned with live dollars. At $2.50 a trade, I can afford to be wrong. I picked the right place for the stop, it got hit. Once USDCAD stopped climbing again, more signals showed up, on three different time frames, and I jumped in, setting the stop and the target in a bracket order. Then I shut down and drove home. Ate dinner, played with the kids, put them to bed, and turned on the 'puter. All right! Kicked 'risk' square in the balls. Moved the stop twice in and hour and it got hit.

The last few problems of my auto trading system are being worked out. I am inspired by reading about others that have their server located at the brokers, and they sit at home and check their account. Brilliant. If they can do it, so can I. The best part is, 'puters don't have emotions, that's why I'm so interested in a system. Low commissions too, the time is right. This is a revolution. If your a programmer, what are you waiting for?

The fallacy of Canadian gold stocks

A few weeks ago, I was asked to post something about the Canadian dollar. The only thing I had to say about that currency was that it is in a powerful bull trend. Given that we may be at a critical point in the Canadian market, I wanted to "clone" the latest analysis I did on my own blog believing that this might be of interest to the readers of the TSX Trends blog followers. I would like to thank Brian for the invitation to post here from time to time.

Most people will believe that investing in Canadian Gold stocks is the way to participate in the rise of Gold. This is a myth. It is not true all the time. For this to be true, gold needs to rise, of course, and the economics need to be conductive to growth. Furthermore, value (the price of a stock) is created only is profit margins are stable or increasing when a commodity increases in price. When the price of the commodity or the price of profitability falls, the price of the stock will follow. I suspect that the costs to produce gold are rising faster than the price of gold thus creating pressures on margins.

Another falsehood that I have read on the Internet in the past month or so is some people finding precious metals somewhat “overbought” on a technical basis and thus recommending shorting Canadian gold stocks. That may be the right course of action but fundamentals are the right reason to short Canadian gold stocks not the price of Gold.

Agnico Eagle is currently trading at a double bottom support around $50.00. After reaching a high of $55.00, it has been building a triangle where the short term downtrend line has been resistance. The triangle was broken down and we have the potential for a sell signal which would also break the next short term uptrend line.

Please “Click” on the image for a larger view

This set-up looks like the TSX composite index set-up of a few days ago. A break below the low of $47.00 would confirm an intermediary downtrend with 2 lower highs ($55 and $54) and 2 lower lows ($47 and $46).

The conflict between the fundamentals of a firm and the price of the commodity it sells is illustrated in the following chart which relates the price of the stock to the price of gold.

Please “Click” on the image for a larger view

It is quite clear to me that fundamentals have taken over recently as investors are no longer willing to pay premium prices if they believe the economy is going into a recession.

This phenomenon is not unique to Agnico Eagle. Here is the picture for other Canadian gold stocks:

Please “Click” on the image for a larger view

For those who prefer to invest in a diversified portfolio of Canadian gold stocks, the Barclay’s Gold iShares provided the following tracking error to Gold!

Please “Click” on the image for a larger view

If you are using Horizon’s Gold Bull and Bear funds as a tool to participate solely in the rise and fall of the price of Gold, you will be sorry. This is tracking the performance of Gold stocks, not gold. You need to be aware of the fundamentals of the industry as well in order to make the correct bet.

Please “Click” on the image for a larger view

And the correct bet may soon be available to you in a not too distant future. Wait for a breakout at $14.25.

Please “Click” on the image for a larger view

There are two links on the right side of the page which will send you to Danny Merkel and Merv Burak’s web sites. They do a great job of following precious metals although Merv has another site where he posts his gold thoughts. I highly recommend these sites for a more thorough analysis of that sector.

In Conclusion:

Canadian Gold stocks have been leading the pack in the recent market uptrend. Even though the market appears to be topping into a new downswing, gold stocks have been resilient as their relative performance is still positive. That may be starting to change.

The Word

therealword@gmail.com

The Q's

Here is my current system applied to the QQQQ. I have turned off all of the other lines, dots and stuff that clutter the chart and just left on the training stops that show when a buy and sell occured. I didn't participate in any of these trades. I find the system to work better on high volume issues such as the Q's and FOREX. I don't use volume in the system, but I do look at it when considering an order.

Amibroker Code - Zero Lag

I'm working on a bit of code that will plot a small line at recent high and lows in an attempt to highlight the "highest highs" and "lowest lows". I find that my eye doesn't catch that too quick, and that I have to stare at a chart for a while to determine what the trend is. I also know why I haven't learned to pick it up as quick as others, I don't "practice" enough. This is the main reason I'm trying to build a system, so I don't have to watch for trades all day long.... I can't anyways, I have a day job.

Here is some code I use called the "Zero Lag". I discovered this at amibrokerfan.com and modified it a bit. Enjoy.

When I post the code directly to the blog, the HTML screws up some of the text. Rather than figure out what the HTML switch is to post just text, I have posted the code to google docs.

Zero Lag Code

The World keeps me away

Over the past few years I have travelled to remote places within Canada and some foreign countries, a mixture of exotic and warm, rich and populated, and to various third world nations. The last place I happened to be was Panama.

Quick summary of the "look and feel" of Panama City: Poor nation trying to develop, US money is pouring in, the rich areas have a high Jewish population, perhaps baby boomers are looking to retire, I hear the weather is a allot like Miami the whole year around. It was too humid for me.

A few months ago I watched a documentary on the Panama canal. It was very interesting, and there is much more to the story than just a canal. Being from Ontario, Canada, locks don't thrill me much, we have tons of them. While in Panama I did go see the canal, but more to see the size of the ships and the little tugs on rails along the side of the canal that pull the boats along, making sure they don't hit the side. The boats actually use their own engines, and are captained by a guy that works for the canal.

There have been allot of new condos and office towers built over the past 5 years. There are even more under construction right now. "The Donald", Trump that is, is putting up a sixty something tower. Here a a few shots of Panama.

Why am am telling the Internet about this trip? Because I haven't had allot of time to work on my system or study FOREX in any great detail. I actually forgot why I did some of the stuff in the code. Travelling takes it toll. This is all I have to offer, and I thought it was interesting.

Caution taken while Auto Trading

One of the first things that I considered while formulating the basis for my automatic trading platform was risk. How would I place an order and not have to worry about my Internet connection or computer causing problems. I figured that I would let TWS do the risk management.

Using bracket order, I can send my orders to TWS and then on to IB's system. While my "system" is running here at home, the bracket order is continuously updated to move the stops and profit target. I don't really like trailing stops, so I don''t use them... for now. The worse that can happen under this scenario is that I get taken out of a trade. The second worst is that my profit target gets hit while price is moving up and the target has not been adjusted upwards.

I haven't been able to go a full day yet without some sort of bug or problem with the code, so I think this approach has paid off. It's only a paper trading account for now, but one day, I hope to have the auto trading working allot better.

Please participate n my poll on the left side of the blog page.

The System, and auto trading

I have my system pretty much tuned for end of day and 1 hour FOREX (foreign exchange) charts. Why Forex? It's none stop data almost all week long, with no gaps (hardly). I started out using FOREX data just for testing, but lately I have traded it with success, although small success. I haven't gone full bore yet.

I have also been writing code for auto trading Forex through Interactive Brokers TWS platform, using Amibroker. I currently have a P3 laptop set up doing just that all day long. Windows Debug is also running, logging everything that happens. IB offers a 'paper' trading account, I'm using it for testing.

Technical analysis is an important part of my trading plan. To ensure I honour my stops, I figured that a auto trading platform would work well. It would not only get me in at the right time (defined here as buying based on signals and not emotions), it would also get me out on a stop that is pre-defined, without my second guessing. Since Forex is very liquid, placing stops on IB's TWS does not concern me. The stops aren't place at the typical levels either.

One of the things I had to do when setting up the auto trading interface was to draw out a block diagram, a decision tree. I go long and short (no up tick rule either). I discovered that there are many different things to watch out for while planning this out. Something as simple as exiting a position when I get a reverse signal, what to do?

I'm not ready to go live with the auto trading interface yet, but I have gone live with the system on a end of day time frame. In the coming weeks, I'll be posting screen shots of the system, as seen in previous posts, but tweaked with some new things on the screen.

To help me develop the system and auto trading platform I have been using Yahoo groups and Herman;s website, Amibroker.org/userkb, a great resource.

I'm interested to know how many readers have ever tried Forex and what their experience with it was?

The Word has departed

Pierre "The Word" has moved.

As you have noticed, I haven't been posting all that much lately. I haven't even been reading the other blogs that I frequent. Just got married, not to mention a bunch of other things that seem to consume me for a while.

I want to thank Pierre for the effort he put into this blog, especially since I just had it up and running for a few weeks, he helped me get it rolling. It served as a good stepping stone for him to start his own operation. The more Canadian content out there in hyperspace, the better for us small people working the markets north of the border.

Pierre's blog is called "Canadian Point and Figure".

I encourage everyone to read it, he has been around the markets for a long long time, and offers great insight.

I have a question for Pierre, and a request. Perhaps he can celebrate the recent Lonnie action by posting a daily point and figure chart of the USDCAD and give us some comments.

The delicate matter of the loonie

It's official. I never thought I'd live to see it. The last time it happend was when I was a kid and Pierre was the Prime Minister. The dollar was at par with the USD today just after 2pm.

Last night I noticed the USD weakening against the loonie, while I was starring at the chart trying to make my trading system make sense . And again tonight, the loonie is kickin' ass. As I write this, I am short the USDCAD. It's sitting at 0.9996 right now. I figure, once the slide momentun starts, look out below baby.

My system is working well with Forex. I find that charts easier on the eyes than stocks. I am really toying with the idea of doing most of my trading in Forex, and just dabbling in the stock market. The participation in Forex is unbelievably huge, it's $2.50 a trade, no daytrading rules either, and 50:1 leverage.

A chart of the USDCAD. The yellow line at the bottom is PAR. As usual, the fourth good bounce off the support line broke. Now the PAR line should haold as short term resistance. We shall see what the big boys do with this in the AM, look at this mornings slide on the left side of the chart. I'm using risk management (stops) to try to follow it down to the mid 90's. Time will tell.