Forex & Stock Trading Library

Larry Pesavento, a trading veteran of over 40 years, and Leslie Jouflas explain the AB=CD pattern and how we can use it

History of the AB=CD Pattern

In 1935 a book was published for sale to investors at an incredible price of $1500. That book was Profits in the Stock Market by H.M. Gartley. On page 249 Gartley describes a chart pattern, “Practical Use of Trend Lines”, which we now call the AB=CD Pattern.

Gartley’s description of the AB=CD pattern illustrated how the market would rally in an uptrend and then retrace. It would then rally to another uptrend then make another retracement forming an upsloping parallel channel. It was from this description that the AB=CD pattern achieved its nickname as the “Lightning Bolt”.

Gartley spent several pages referring to these trend lines and parallel lines as excellent signals when used in conjunction with other working tools. He also applied these lines to price ratios.He used mainly ratios of one third and half retracements.

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Swing trading is profitable only when there are oscillations and good volatility. However, this volatility is quite cyclical in nature; the market experiences a constant ebb and flow of range contraction /range expansion. Toby Crabel elaborates on this principle in his book, Day Trading with Short-Term Price Patterns and Opening Range Breakout. He states that after the market has had a period of rest or range contraction, a trend day will often follow.

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Discovered while day trading in 1989 by Nick Stott, a successful bond trader in the financial markets, the SureFireThing ‘Camarilla’ equation uses a truism of nature to define market action – namely that most time series have a tendency to revert to the mean. In other words, when markets have a wide spread between the high and low the day before, they tend to reverse and retreat back towards the previous day’s close. The SureFireThing Camarilla Equation uses some complicated mathematics to pluck 8 levels out of thin air, using nothing more than yesterday’s open, high, low and close. These levels are, frankly, astounding in their accuracy as regards day trading, even to seasoned traders, who know all about support and resistance, pivot points and so on. SureFireThing.com supply their online SFT Camarilla Equation calculator for day trading at probably the lowest cost available anywhere. There are a number of other commercial sites purporting to supply a ‘Camarilla’ equation, but we cannot vouch for any of them, as none would give us a free trial! There are also various free websites offering ‘Camarilla’ Equation calculations, usually based on fairly standard pivot points and so on. None of these produces the same results as the SureFireThing version, and trading with them must therefore be regarded as ‘pot luck’.
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If you have subscribed to the NEoWave Trading service for a long-time, you’ve noticed my trading style has transformed the last 2 years. For the first 20 years of my career, all NEoWave (and old WaveWatch) services focused on “predicting” markets using wave theory. Because of the detail I attempted to achieve with my forecasts, the process might consume as much as 12 hours of my then 15-20 hour work day. If structure was clear, the second step of the process involved designing a trading strategy that took into account all possible preferred and alternate scenarios. If a position was warranted and activated, the third step involved managing that trade using stop-loss orders and profit objectives based on my presumptions of wave structure and the outlook which it implied. While on rare occasions that approach worked spectacularly well (such as the 2000 – 20002 period in the S&P), it left much to be desired at least 50% of the time.

After pursuing the universally accepted 3-step process (Forecasting, Entering, Managing) for nearly 20 years, 7 years ago I began to question its validity. Why? Even though my forecasting abilities over the prior 20 years had improved several orders of magnitude, improvements in my trading were only incremental. That perplexed me for two decades and was extremely frustrating. How could my forecasting improve so much and my trading so little…what was I missing?

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Trend lines are universally used by almost all traders. They are a common place for all traders to begin their technical analysis. The problem is that a trader becomes too subjective in their trend line drawing. Many traders will draw on separate occasions two totally different trend lines based on the identical information, depending on his inclination each time, thus consistency and uniformity are totally lacking. Not all trend lines are correct, in the end only one is. Throughout exhaustive research, I have arrived at an effective method to select the points essential to the proper construction of a trend line. Once learned and applied, trend line analysis is no longer subjective, it becomes completely mechanical. Trend line breakouts are precisely defined and price projections can easily be calculated.

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• Murrey Math is a trading system for all equities. This includes stocks, bonds, futures (index, commodities, and currencies), and options. The main assumption in Murrey Math is that all markets behave in the same manner (i.e. All markets are traded by a mob and hence have similar characteristics.). The Murrey Math trading system is primarily based upon the observations made by W.D. Gann in the first half of the 20′th century. While Gann was purported to be a brilliant trader in any market his techniques have been regarded as complex and difficult to implement. The great contribution of Murrey Math (T. H. Murrey) was the creation of a system of geometry that can be used to describe market price movements in time. This geometry facilitates the use of Gann’s trading techniques. Read the rest of this entry »

What Is Woodies CCI?

“Woodie” is a day trader of 25+ years experience, and is well known among traders of index futures such as the EMini S&P 500 and the EMini Nasdaq 100. His system is based on a number of patterns made by the Commodity Channel Index (CCI) indicator. It’s a little different to most indicator-based systems, and traders tend to either swear by it or swear at it, but there is no doubt that its creator trades very successfully with it day in day out.

The CCI itself is a momentum indicator. Such indicators all work in the same basic fashion – they plot the difference between a “fast” measure of price and a “slow” measure. The MACD for example, measures the difference between a fast and slow moving average. In the case of the CCI, the “fast” measure is the price itself, and the “slow” measure is a moving average. Thus when we look at the CCI, what we are actually seeing is measurement of the deviation of price from its moving average, normalised to fit on a scale of roughly -250 to +250.
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The trading rules by Aleksandr Yermachenko (aka ataman).

Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.

Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.

Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.

Short rallies not sell-offs. When markets drop, shorts finally turn a profit and get ready to cover.

Don’t buy up into a major moving average or sell down into one. See #3.

Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.

Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.

Trends test the point of least support/resistance. Enter here even if it hurts.

Trade with the TICK not against it. Don’t be a hero. Go with the money flow.

If you have to look, it isn’t there. Forget your college degree, trust the money flow.

Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.

The trend is your friend in the last hour. As volume cranks up at 3:00PM don’t expect anyone to change the channel.

Avoid buying at the open except when the Market falls before the open. They see YOU coming sucker.

1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.

Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers come to the rescue above it.

Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.

Big volumes kill moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.

Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.

Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight.

Beat the crowd in and out the door. You have to take their money before they take yours, period.

Introduction

First of all I want to thank everybody on FF for working with me, sharing thoughts and helping me with improving the system.

The major flaw in v2.0 was the whipsaw effect, this is common with al moving averages systems. I’ve tried several things to prevent this, (using rsi, macd’s and so on….) but you always have the problem that most indicators are always to late in choppy markets.

I was able to solve a bit of the problem and this is the main change of the system. The idea after it, stays the same. Using short term trend indicators and comparing them with (long) term trend indicators to predict what the future trend will be.

I must say, that this system will still generate false signals. But a heck of a lot less than v1.0

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This Expert Advisor (EA) is an automatic trading system developed for Metatrader platform and it’s derived from SuperNova trading system introduded by Cryten in ForexFactory in late Aug 2007.

Indicators requested for SuperNova EA v1.4
In order to be able to use all features available with SuperNova EA , please be sure to have installed ALL following indicators in the C:\…\Metatrader\Experts\Indicators folder:

• QQEA.mq4
• DMI.mq4
• MomentumVT.mq4
• Damiani_volatmeter v3.2.ex4
• Juice v1.2 alert.mq4
• Laguerre.mq4
• T3.mq4
• Heiken Ashi.mq4
• Parabolic SAR Color – Alert.mq4
• QQE Alert v3.ex4

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