Price Oscillators Enhanced for the Modern Market

How to Create and Use Center Line Price Oscillators

Most traders are very familiar with the standard Price Oscillators which have a high and low range. These Price Oscillators are common and found in nearly every charting program. There are Stochastic, Williams R, Wilder’s Relative Strength Index and many more oscillators created specifically for determining “Overbought” or “Oversold” conditions.

Stochastic however was written in the 1950’s which was an entirely different market than we have today. Nowadays Technical Traders find that Stochastic tends to give a false negative or a false positive signal, just as the stock is beginning a Momentum or Velocity run up with exponential point gain potential. This often frustrates traders who are still using only the older theory of Overbought/Oversold Trend Conditions.

Today with High Frequency Trading Firms HFTs trading stocks in massive order flow on the millisecond scale, Price often appears “Overbought” with the standard Price Oscillators when it is just starting a big run. Often times Overbought Patterns shift to the “Floating Oscillation” Pattern which is a failed signal, due to extreme momentum energy that was not present in the trading environment when these indicators were written.

Using Price Oscillators Enhanced for the Modern Market is a method that TechniTrader teaches exclusively. TechniTrader shows how to create a CENTER LINE Oscillator very similar to Volume Center Line Oscillators. Using Volume and Price Oscillators together can be a huge benefit in entering stocks earlier out of Bottoms and Tops, which are often flat or basing these days rather than Triple Bottoms or other older style Bottoming or Topping  patterns you may have been taught.


Adding a relational center line that trends with the Price Oscillator can reveal patterns in advance of sudden big moves. See the chart example below.

pattern revealed in a trending center line - technitrader

Wilder’s RSI with its one line for oscillation is the most adaptable and easiest patterns to learn, when incorporating this kind of Center Line Oscillation into your indicator tool set. It was written in the 1970’s and is unique for a Price Oscillator. Instead of just calculating Overbought/ Oversold, its formula analyzes current price action to prior price action similar to what many Volume Oscillators track. This helps reveal Dark Pool activity which tends to precede the sudden runs and gaps caused by HFTs. This makes it an invaluable indicator to use for Short Term Trading.

The Floating Center Line has a softer Oscillation, which provides pivotal signals in the Price Patterns. This Hybrid Indicator can be applied to many other Price and Volume based Indicators as well. This Price Oscillator Enhanced for the Modern Market provides a more three dimensional and Relational Analysis™ that is needed for the more complex Market Structure of today.

Oscillators can be far more valuable and useful when adaptations and adjustments are made to the older indicators. This gives the Technical Trader more indicator signals, more analysis scope, and further breadth of understanding of Price action. The more a Technical Trader UNDERSTANDS price behavior, the better trading decisions they can make.

Using both Center Line Price Oscillators and Volume Oscillators, enhances and improves the overall indicator analysis for all Trading Styles. Each Trading Style will require modifications to the settings and periods for each Indicator.

The RSI/RSI Indicator is part of the TechniTrader Indicator Tool Set provided to Students with instructions on how to use it with all the Variables, Combination Indicators, Indicator Settings, and Periods. It is one of the most versatile of all the price indicators, and is a Price Oscillator Enhanced for the Modern Market.

Not yet TechniTrader Students can use this theory to design their own Indicators. The ideal Oscillators have one Oscillation Line rather than two.

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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a MetaStock chart, courtesy of Innovative Market Analysis, LLC dba MetaStock


Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

This weekly stock discussion is sponsored by TechniTrader.com a MetaStock® Partner

©2016 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved. 
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.


Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only. 

Risk Analysis versus Gain Profit Potential

What is Missing in Your Risk Analysis?

The least used and most often improperly used analysis by Technical and Retail Traders is Risk Analysis. All too often, Traders are choosing high risk stock picks without realizing it. This analysis is NOT using percentages, but rather using the technical patterns within the chart in order to do the following:

1 Find the lowest Risk trade from a group of potential stock picks.

2 Determine the Risk versus the Gain Profit Potential BEFORE placing an order.

3 Determining the correct Stop Loss placement to avoid setting the Stop at a whipsaw point, or not using a Stop at all due to not knowing how to use and set them correctly.

4 Selecting the strongest picks based on Risk Analysis, which reveals weaknesses in stock picks that do not show up in Candlestick Patterns or MACD patterns.

5 Choosing stocks with Risk that you can tolerate. Too many times traders get greedy, and choose picks that have higher Risk than they are ready to accept.

First of all, Stop Losses should NEVER be calculated using Percentages. This is an ancient, out of date method that is the main reason why so many Retail Traders believe that Stop Losses do not work. They are accidentally and unintentionally setting Stops based on a Percentage that puts them right in the middle of a profit taking area where High Frequency Trading HFT will trigger, OR where Dark Pool bargain hunting Time Weighted Average Price TWAP orders are sitting and waiting for price to drop into that range.

Trading the automated markets along with Market Participant Groups that use Time Weighted Average Price TWAP orders, Volume Weighted Average Price VWAP orders, and High Frequency Trading HFT predatory millisecond orders requires using MODERN analysis and tools. It is hard to abandon techniques learned on the internet that appear everywhere but in order to be successful, Traders need to change how they approach trading.

When choosing a stock to trade among a group of stock picks, consider the Risk of the trade based on technical Support levels appropriate for your Trading Style. Trading Styles include Intraday Swing, Swing/Momentum Trading, Position Trading, and several others.

Strategies are selected AFTER a Trading Style has been chosen. Certain Trading Styles require specific technical patterns, candlesticks, and Support levels for optimal trading success. Buying long versus Selling Short also changes Support and Resistance levels for each Trading Style.

As an example for Risk Analysis see stock chart below, which has an Engulfing Black candlestick Sell Short signal. 

chart example showing risk analysis - technitrader

As a Sell Short pick consideration, the chart shows that the Resistance is above price as indicated by the red line. This is where the Stop Loss must be set rather than a Percentage. A tight Percentage puts the Stop Loss in the middle of the Resistance which will create a whipsaw, and a larger percentage such as 8 or 10% puts the Stop Loss far too wide adding Risk to the trade.

The next area of calculation must be the Support, which is where the stock is likely to bounce up as indicated by the green line. This is the highs of November, and may not hold over time but is the first level of Support for this stock if it sells down further. Support therefore is based not on a Percentage but the technical levels where bounces occur from Buy to Cover professionals closing their position, OR from “Buy on the Dip” Small Lot Investors rushing to buy into what they believe is a bargain.

Summary

By calculating the difference between the Resistance and the Entry Price, the Risk of the trade is determined. By calculating the Support level where the stock is mostly likely to pause or bounce, the run Gain Profit Potential is determined. The final step is dividing the points at Risk by the points Gain Potential. Risk to Profit should be 3/1 or higher. 

Most of the time Retail Traders are trading stocks with higher points at Risk than there are potential points to Gain. Taking the time to calculate Risk using Risk Analysis will significantly improve your profitability by eliminating high risk and low profit trades.

Go to the TechniTrader.com
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Followers may request a specific blog article topic by emailing info@technitrader.com

Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a MetaStock chart, courtesy of Innovative Market Analysis, LLC dba MetaStock


Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

This weekly stock discussion is sponsored by TechniTrader.com a MetaStock® Partner

©2016 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved. 
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only. 

Why Big Blue Chip Stocks are Sideways

Trading Range Market Conditions

Trading Range Market Conditions are rather rare. They do not occur on the long term trend often. This is the most challenging market condition for Technical and Retail Traders. It is a challenge because it seems as if the market is chaotic, volatile, or random in nature.

Often times traders do not recognize Trading Range Market Conditions, because they either do not know about this condition or they do not use charts that show what is really happening.

The chart example below is a Weekly Chart view, and clearly shows the Range Bound pattern.

chart example of a range bound pattern - technitrader

The chart example has nearly consistent highs as if there is a Technical Resistance above price, and inconsistent lows. Many traders are assuming this is a Bear Market, but it is not.

Trading Range Market Conditions occur for several reasons. This one in particular has specific reasons WHY the big blue chip stocks are stuck in sideways patterns.

Here are the reasons why big blue chip stocks are sideways:

1.      The price of stocks over the prior 4 years was artificially inflated, as many big blue chip companies decided to do massive buyback stock purchases. This removed a huge amount of liquidity of the company stock. Since stock prices are based upon supply and demand as much as fundamentals, the draw down of liquidity forced prices upward, as the corporations intended. However, buybacks are a temporary event and do not last. As the buybacks ended, stocks began to show signs of weakness in the chart patterns as far back as the middle of 2014.

2.      Fundamentals and Financials which had a huge growth out of the 2009 economic contraction, started to slow down in 2014 at the commencement of the Trading Range. Dark Pools who control vast quantities of stocks, started Quiet Rotation to lower their held shares of stock in companies poised for a business contraction. This fueled many Topping Formations late in the year 2014 and early 2015.

This Trading Range Market Condition was predicated, on obvious and easily seen patterns in the charts. By understanding what was going on with stocks beyond just a mere MACD Crossover or an Engulfing White Candle, Technical Traders who were able to analyze the conditions were prepared for this Trading Range.

Summary

What happens next? Trading Range Market Conditions rarely last a long time. Range bound action is usually, but not always a continuation pattern. To determine whether this is a continuation or reversal, it is necessary to study a longer term time frame, thereby eliminating the “white noise” present in Daily or even Weekly View charts.

Next week this discussion lesson will analyze the longer term chart, to see whether this Trading Range is a continuation pattern or a reversal pattern.

                                                          Go to the TechniTrader.com
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Followers may request a specific article topic for this blog by emailing: info@technitrader.com 

Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a MetaStock chart, courtesy of Innovative Market Analysis, LLC dba MetaStock


Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

This weekly stock discussion is sponsored by TechniTrader.com a MetaStock® Partner

©2016 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved. 
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.