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  • Parent Category: Articles

Defining The Short Term Trend

A great question came across my desk recently:

                                           "...as a swing trader (1 - 10 days) I'm looking to buy shares when the market is going up in
                                            short bursts and then reverse and go short during the down moves. I would be interested in
                                            how to determine when
to get in or out of the market..."

The Chartist ASX and US Power Setups® both contain a Discretionary Portfolio that does exactly that; specifically attempts to ride short term price movements both up and down. The key with the short term movements is to position oneself in the direction of the prevailing market trend, so if you're trading Australian stocks you may wish to align yourself with the trend of the All Ordinaries Index, or, if you're trading US stocks you should align yourself with the trend of the S&P 500. Don't get too caught up in the intricacies of which index to use, it's more important to align yourself quickly.

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Trade Management With An Index Filter

Last week we discussed the importance of aligning oneself with the short term trend when swing trading. This week we're going to look at how that same short term trend filter can improve trade management. Before we jump in it's imperative to mention the importance of exits and why they tend to be the determinant of profits, rather than the entries.

It's no secret that new and amateur traders strive for the perfect entry. There's a common fallacy that to be successful in trading we need to select the right stock, sector, market or the right trade. The focus is on being right. As such trade selection or stock selection becomes the goal, as opposed to making money.

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Trading With Divergence

The world of technical analysis is saturated with indicators, oscillators, lines and other weird and wonderful esoteric attempts at finding the Holy Grail. However there are really only three absolutes; price, volume and time. These items, coupled with patience and a level head for creating positive expectancy, enable us to be successful trading the market.

Divergence is a useful indicator, or method, to identify and trade trend reversal moves. Divergence occurs when price moves in one direction and the indicator starts moving in the opposite direction. There are three published versions of divergence known as Type-A, -B and –C. discussed by Dr Alexander Elder in his best seller, Trading for a Living. As the Type-A setup is the most powerful it's the only one that makes an appearance in our Playbook.

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A Powerful Entry Technique

I first started using this entry method back in the early 90's when I was testing the PPS Trading Strategy by Curtis Arnold. This entry is not part of that book, nor do I know its exact history. Testing the PPS patterns by hand for over 1800 hours showed me that this technique was a more definable way to enter the market and it offered a lower risk, higher reward proposition - if it was successful. However, it's not for everyone. It can, on occasion, be a frustrating technique and can lower the win rate. Many years after my initial research on PPS I noted Joe Ross was using a similar method, albeit in a different way, and as he'd named it already in his extensive body of work I also applied the same name.

The technique is known as the Traders Trick Entry (TTE).

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  • Parent Category: Articles

20/20 Hindsight Trading System

Over the last few months I have been mentoring a trader in India - lets call him MJ. He's inquisitive and doesn't mind being prompted to search for the answers himself rather than having them served up on a plate. An individual coming to the right conclusions themselves will always have the lessons cemented firmly in their minds. After a number of emails back and forth on how to find robust trading patterns, MJ dropped me an email with a pattern he'd found and ironically called 20/20.

Here's a chart of the equity growth:

2020 1

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