Winning in Todays Hottest Marketplace_6

A Trader’s Toolbox 149 FIGURE 12.9 Return Setup—Matrix and Swing Source: TradeviewForex www.tradeviewforex.com and www.metaquotes.net The Nofri Congestion Phase Method This simple but useful idea was presented by Eugene Nofri in Success in Commodities (Success Publishing, 1975). It is out of print but sometimes available on www.eBay.com or www.abebooks.com. Nofri was a floor trader in the corn market, but like most technical trading ideas this one is applicable to FOREX. There are 32 total formations, but the simplest one is to watch for two trading units when price goes up or down followed by two trading units when prices go down or up but remain inside the range formed by the first two units. The prediction is that the fifth price unit will be in the direction of the first two units (see Figure 12.10). This can be used as an entry signal or as a short-term trading method. Pugh Swing Chart Formations This is a simple but effective charting method. The formations were identified by Burton Pugh, a famous grain trader of the 1930s and 1940s. There are only four basic chart formations: Bull, Bear, Inside, and Outside. Highs and lows are always referenced to the previous data unit. (See Figure 12.11.) The four types 150 FIGURE 12.10 FIGURE 12.11 THE TOOLS OF THE TRADE Basic Nofri Formation Pugh Chart Formations A Trader’s Toolbox 151 cover every possible price action over a set time frame. Combinations of Pugh formations create not only all the classical chart patterns but interesting and unique ones as well. A Pugh formation is always in reference to the preceding formation’s high and low. A. Bull Formation Higher high and higher low from preceding formation B. Bear Formation Lower low and lower high from preceding formation C. Outside Formation Higher high and lower low from preceding formation D. Inside Formation Lower high and higher low from preceding formation Trends tend to be series of Bull Formations (uptrend) and Bear Formations (downtrend). Consolidations tend to be combinations of Inside and Outside formations. The famous Head and Shoulders Top and Bottom is actually two sequen-tial Bull (or Bear) Formations followed by a Bear (or Bull) Formation. In fact all conventional bar chart formations shown in Chapter 11, “Technical Analysis,” can be reduced to a Pugh series. I keep a running notation of Pugh formations and look for patterns in the series. You may use 1, 2, 3, 4 for the four formations. I use “1” for a Bull, “0” for a Bear, “11” for an Outside, and “00” for an Inside. A vertical line “|” is used to separate them. You might also use brackets “[ ].” A notation might look like this: 1|10|10|00|11|1|01|10 Use “bathtub analysis” described in Chapter 18, “Improving Your Trading Skills,” to study charts using Pugh formations and series—and to find new ones, as well. A Moving Average and Oscillator Battery A battery is a combination of indicators. When the indicators in a battery are combined to generate buy and sell trade signals via a set of rules, it is referred to as an expert advisor. A battery or an expert advisor could be used as a primary trading method or as a check on the primary method. All trading platforms 152 THE TOOLS OF THE TRADE offer moving averages and oscillators. See Chapter 11, “Technical Analysis,” for details on moving averages and oscillators. A moving average typically works when a market is trending in one direc-tion or another. An oscillator is most effective when a market is moving sideways. Look for points where: · A market is above the moving average line but the oscillator is falling sharply or below the zero line. This can indicate that a market is still in an uptrend but in a buying range because it has lost some downward velocity, at least temporarily. · A market is below the moving average line but the oscillator is rising sharply or above the zero line. This may indicate that a market is still in a downtrend but in a selling range because it has lost some of the down-ward velocity, at least temporarily. (See Figure 12.12.) TIP: Remember, trends and trading ranges are relative to the price scale you are using. A trend on an hourly chart is probably made up of a number of five-minute mini-trends and trading areas. Use scales for your moving averages FIGURE 12.12 A Simple Indicator Battery Source: TradeviewForex, www.tradeviewforex.com A Trader’s Toolbox 153 and oscillators in harmony with the scale of the price chart you are watching. Do not use a 10-day moving average on a 10-minute chart; you will see essen-tially nothing but a straight line. The smaller the parameters you pick the more signals you will generate. The trade-off is this: You will get in earlier on good trades but you will also get in on more bad ones. More sophisticated tools attempt to filter out at least some of the bad trades with additional indicators or trading rules. It is possible to computerize and automate an indicator battery with a set of rules determining when they generate a buy or sell signal. Most of the plat-forms mentioned in Chapter 14, “Retail FX Platforms,” have this capability. Such programs are called Expert Advisors or EAs. Contrary Opinion At the old Peavey commodity office, around 1975, I befriended a trader who successfully traded using nothing but a Moving Average-Oscillator tool in con-junction with contrary opinion. Contrary opinion states that if a large majority of traders thinks a market will rise, it will fall. If a large majority thinks it will fall, it will rise. The reasoning is that if everyone thinks a market will go up, they have already bought, and there is no more buying power to maintain the trend. R. Earl Hadady wrote a book on contrary opinion. Again, it was for the futures markets, but it would be a good read for any FOREX trader. Take a look at Contrary Opinion (Hadady Publications, 1983). Contrary opinion theory, while well developed and quantified in futures, is less so in FOREX. Jay Meisler’s www.global-view.com does a weekly trader poll. Archer’s www.goodmanworks.com will soon offer a FOREX contrary opinion tool. More on this subject in the section “Going Against the Crowd” in Chapter 18, “Improving Your Trading Skills.” Trolling the major FOREX forums once a week will give you a good idea of trader sentiment on the major currency pairs. Volume and Open Interest These are two exceptionally useful technical analysis tools. Although available to the futures trader, they are not currently available to the FOREX trader. Without a central clearinghouse it is impossible to collect this information directly although it may be calculated indirectly by reverse-engineering from other data and statistics. ... - tailieumienphi.vn