Trade Secrets: Powerful Strategies for Volatile Markets
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This is the tighter and more secure exit strategy. We exit the market right after the trigger line breaks the MACD in the opposite direction.
This is a riskier exit strategy because if there is a significant change in trend, we are in our position until the zero line of the TRIX is broken. Since the TRIX is a lagging indicator, it might take a while for that to happen. At the end of the day, your trading style will determine which option best meets your requirements. Now look at this example, where I show the two cases:. This is the minute chart of eBay.
The first green circle shows our first long signal, which comes from the MACD. The second green circle highlights when the TRIX breaks zero and we enter a long position. The two red circles show the contrary signals from each indicator. Note in the first case, the moving average convergence divergence gives us the option for an early exit, while in the second case, the TRIX keeps us in our position. Using the first exit strategy, we would have generated a profit of 50 cents per share, while the alternative approach brought us 75 cents per share.
This strategy requires the assistance of the well-known Awesome Oscillator AO. For those unfamiliar with the awesome oscillator , is obviously an oscillator, but it's an oscillator without boundaries. It's simply the difference of a 5-period simple moving average and a period simple moving average. To learn more about the awesome oscillator, please visit this article. We will both enter and exit the market only when we receive a signal from the MACD, confirmed by a signal from the AO. The challenging part of this strategy is that often we will receive only one signal for entry or exit, but not a confirming signal.
Have a look at the example below:. This is the minute chart of Boeing. The two green circles give us the signals we need to open a long position. After going long, the awesome oscillator suddenly gives us a contrary signal. Yet, the moving average convergence divergence does not produce a bearish crossover, so we stay in our long position. The first red circle highlights when the MACD has a bearish signal.
The second red circle highlights the bearish signal generated by the AO and we close our long position. Yet, we hold the long position since the AO is pretty strong. I often get this question as it relates to day trading.
The simple answer is yes, the MACD can be used to day trade any security. The MACD is based on whatever time frame you are trading.
Stochastic Oscillator - Trading Indicator
Therefore, it's effectiveness or lack thereof is has nothing to do with intraday trading versus daily charts. The one thing you should be concerned about is the level of volatility a stock or futures contract exhibits. The greater the volatility, the less likely the MACD or any other indicator for that matter will accurately forecast price movement. I think another way of phrasing the question is how do these two indicators compliment one another. A simple strategy is to wait for the security to test the period moving average and then wait for a cross of the trigger line above the MACD.
This simple strategy will allow you to buy into the pullbacks of a security that has strong upward momentum. Most books I could find on Amazon were self-published. Whatever time frame you use, you will want to take it up 3 levels to zoom out far enough to see the larger trends. For example, if you are using a 5-minute chart, you will want to jump up to the minute view.
Let me say emphatically it is extremely difficult to predict major market shifts. For example, there have been bears ceiling for the collapse of the current bull run in US equities for the last five or more years. The E-mini had a nice W bottom formation in Notice how the MACD refused to go lower, while the price was retesting extreme levels. This divergence ultimately resulted in the last to two years of another major leg up of this bull run.
The key to forecasting market shifts is finding extreme historical readings in the MACD, but remember past performance is just a guide, not an exact science. For more information on calling major market bottoms with the MACD, check out this article published by the Department of Mathematics from Korea University . Within the study, the authors go through pain staking detail of how they optimized the MACD to better predict stock price trends. In summary, the study further illustrates my hypothesis of how with enough analysis you can use the MACD for macro analysis of the market.
Want to practice the information from this article? Best Moving Average for Day Trading. Start Trial Log In. Interested in Trading Risk-Free? Table of Contents. Trigger Line. Once the focus is shifted from time-centric trading to finding high-probability trades in the market, achieving profitability is just a matter of allowing opportunity to present itself. I was luckier than I knew. I had decided to focus on the New York Stock Exchange.
The firm this person represented was the only one transacting business in the stock, and it was very likely that the same person was on the other side of the trade every time I bought or sold a share.
The notion of a human on the other side of every trade spelled opportunity to me. In order to succeed as a trader, I knew that I had to be on the same side of the trade as the insiders. It was their game. They had been playing it successfully for hundreds of years, and no matter what the bandits of the SOES Small Order Execution System and their brethren had to say, it was unlikely that the retail trader was ever going to beat the house in the long run. I essentially needed to predict which bets the house was willing to take and then take the same bet with my own money.
That just seemed easier on the NYSE. The theory proved correct: it was relatively easy to profit as the market soared higher. The impact of volatility on the lighter NYSE volume was also more predictable and could be discerned through chart and tape-reading techniques.
These techniques provided predictive reliability rather than the hindsight of oscillators commonly employed on fast-moving NASDAQ stocks. I had found a venue. Meanwhile many of my counterparts in the markets folded up the tent and moved on to something else. I had learned to rely on price and volume data alone to predict future price and volume moves. This style, unfashionable at the time, led directly to my ability to prosper as a trader for 13 years. I think that the behaviour of stocks on the Big Board is still a bit easier to anticipate.
At the NYSE, much of the small. This action might not be possible to undo.
TRADING COURSE Sample
Are you sure you want to continue? Upload Sign In Join. Home Books Money Management. Save For Later. Create a List. Summary A cornerstone strategy for success in the markets Trade Secrets is a uniquely in-depth and advanced trading guide, teaching a complete and winning trading method from start to finish. Read on the Scribd mobile app Download the free Scribd mobile app to read anytime, anywhere. To Julie and Connor for making every day perfect.
The key matter that any trader needs to weigh is commodity volatility, as major factors can twist the price of oil in a very short space of time.
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An example of how this can occur was widely reported back in What this should tell any trader is that commodity volatility is something that he or she will have to navigate, as price swings are notoriously common. Something else that any active oil trader must factor into the equation is the correlation between both gold and oil, along with oil and the US dollar. In the case of oil and gold, the relationship between the sharpest rises and falls in oil prices are usually accompanied by large changes in the price of gold. History also dictates that the fall in the price of crude oil can coincide with the strength of the dollar.
Both of these factors present something to bear in mind. What any investor should take away from the above is that WTI and Brent are the most traded oil formats in the world and that prices are determined largely by a varying degree of supply and demand factors. The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice.
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