Trading Lessons from MoneyShow.com

Sector Analysis July 2008

7/17/2008

With the current carnage in many sectors of the stock market, I thought it would be a good time to examine the ten major sectors to find any sectors that might be trying to gain leadership. Even though the evidence suggests we are in a bear market, when it is over, the sectors that improve as the market is declining often become the new leaders once the bear market is over.

Bear Market Rallies � Part Two

7/3/2008

In Part One, I reviewed some of the past bear market rallies and concluded with the analysis of the Dow Industrials as of early June 2008. The goal of this series is to reinforce some of the common characteristics of bear market rallies in the hope that the reader will be less likely to be fooled by them in the future. In Part Two, I would like to share additional examples of bear markets in major averages and look at how some individual stocks behave during bear market rallies.

Bear Market Rallies - Part One

6/19/2008

There has been much debate amongst investors and analysts as to whether the rally from the March 17th 2008 lows was the start of a new market uptrend or just a bear market rally. Having experienced, and been fooled by, a number of bear market rallies, I thought analyzing some of the common characteristics might be helpful.

Trading Basics � Bollinger Bands and Bandwidth

6/5/2008

Several articles ago, we discussed the STARC bands, developed by Manning Stoller, and in this article, I would like to introduce another banding technique, made popular by John Bollinger, called Bollinger Bands. Though they have some similarities with the STARC bands, there are also some significant differences.

Trading Basics � MACD Part 2 � The MACD-Momentum (MACD-Mo)

5/22/2008

In the last article, I gave an introduction to my modifications of the MACD, a convergence/divergence indicator originally developed by Gerald Appel. The examples last time demonstrated the basic interpretation of the MACD-His, and also illustrated that the MACD-His can be a very useful indicator, especially when two different time frames are used in conjunction. The slope of the MACD-His was also discussed, as sharp rallies or declines can reflect a change in buying and selling pressure. The weekly signals from the MACD-His do occasionally lag, and for that reason I developed the MACD-Momentum or MACD-Mo. It can be more sensitive to changes in the MACD-His and will often cross the zero line one to three weeks before the MACD-His.

Trading Basics � MACD (Convergence/Divergence) � Part 1

5/8/2008

No discussion of momentum-based indicators would be complete without a discussion of the MACD or Convergence/Divergence, developed in the late 1970s by Gerald Appel. Speaking at my first technical analysis seminar in 1983, I discussed my early research and modifications of the MACD. It was not widely used at that time, and I demonstrated how it could be used not only on the stock market (the original intention) but also applied to commodities, mutual funds, and individual stocks. Over 20 years later it is now probably one of the most widely used indicators and is the default indicator on many free sites.

Trading Basics � The Herrick Payoff Index, Part Two

4/24/2008

In Part One, I discussed the basics of the Herrick Payoff Index, or HPI, providing examples that looked at both the weekly and daily data. Though I always recommend looking at two different time frames, it is particularly important with the HPI as the swings in the open interest (a key component of the HPI) can give you some misleading signals, especially with the daily HPI. In this article, I would like to take you through some further examples that will illustrate the nuances of the HPI, including some examples when the weekly and daily analysis were in sync and others when they were not.

Trading Techniques � The Herrick Payoff Index

4/10/2008

In an earlier article, I discussed how the action of the open interest should be watched carefully by futures traders. Open interest is the number of contracts or options existing at the end of a trading session. You should note that every contract has a buyer and a seller who together make up one contract. The open interest should be monitored along with the price and volume action to determine whether an up or downtrend is strong or weak.

Chart Analysis � Continuation Patterns Part 2

3/27/2008

In the previous article, we introduced continuation patterns featuring examples from markets that were in an uptrend. An emphasis was placed on how correctly identifying these patterns can provide excellent risk/reward opportunities for both the trader and investor. Continuation patterns fall into two major categories, triangles and rectangles, and all have in common two characteristics: a line that indicates resistance and another that defines support. After a very sharp rally or decline, if the continuation pattern does not retrace much of the previous move, then it can be expected that the next move (in the direction of the major trend) will be dramatic. This is because the shallow nature of the correction indicates that very few are willing to sell (or buy, in the case of a decline).

Chart Analysis � Continuation Patterns Part 1

3/13/2008

In this series of articles, we will look at the various types of continuation patterns. It is probably easiest to think of these formations, or patterns, as interruptions or pauses in either an up or downtrend. Of course, the first step is to identify a change in trend, and if it is a major trend change, you could expect to see a series of continuation patterns that form over months, if not years. While many look for the major bottom or top before they initiate a trade or investment, I have found that often times the best trading opportunities, in terms of both risk and reward, are found by identifying continuation patterns. Many of these formations are in the shape of triangles, while others have a rectangular shape.