Discounting Sentiment Chart Patterns Triangle Breakouts Playing With Numbers Exploiting Guts, Risk, and Decay Interview

THE TRADERS MAGAZINE SINCE 1982
www.traders.com APRIL 2017
Discounting
Sentiment
In the euro 8
Chart Patterns
What gives you the edge? 12
Triangle Breakouts
Spot buying pressure
as it builds 17
Playing With
Numbers
Three strategies compared 18
EXploiting Guts,
Risk, And Decay
A high-risk play 26
INTERVIEW
J ustin Bennett,
independent forex trader 32
APRIL 2017
Daily technical commentary
by expert analysts to help you
make smarter investment decisions
From daily blogs to live webinars, StockCharts.com hosts free
current market analysis and educational commentary from some
of the industrys most distinguished technical analysts.
Free daily blogs featuring over a

dozen renowned technical commentators
John Murphy Martin Pring StockCharts.com hosts free daily blog content from over a
dozen professional technical analysts, including prominent
names such as John Murphy, Martin Pring and Arthur Hill.
Thousands of online investors trust StockCharts.com
to provide the unbiased expert analysis and enriching
Arthur Hill Tom Bowley educational commentary they need to cut through the
noise and make smarter investment decisions.
Live, interactive webinars hosted

Greg Schnell Chip Anderson by seasoned market technicians
Our free daily webinars are hosted by some of the financial
industrys most distinguished chartists. Join these technical
titans LIVE as they put their years of experience on display
and share invaluable insights into the tools and strategies
Carl Swenlin Erin Heim they use in their own trading. Tune in to any of our seven
different webinar shows for free, airing six days a week,
Monday through Saturday, and learn from the best to
boost your technical skills and financial prowess.
Gatis Roze Julius de Kempenaer
and more!
StockCharts.com
2015 StockCharts.com,Inc. All Rights Reserved. Information provided by StockCharts.com is not investment advice. You are responsible for your own investment decisions.
ALWAYS BE
DATA DRIVEN
Fidelity Active Trader Pro
helps traders:
KNOW WHEN TO GET IN

with pattern and event recognition
CVL INDIVIDUAL (X12345678)
CVLCVL
1 Year Support/Resistance (100 Day) Trade Alert CARSON GENETICS
Today
Today 3 MO
3 MO 6 MO
6 MO 1 Year
1 Year 2 Year
2 Year SaveExport
B 17.45
Save Export
x 515 fully integrated into the interactive charts*.
Draw Indicators
Draw Indicators Events
Events Compare
18.79
Compare Technical
Technical
S
18.65
Analysis Settings
Analysis Settings 17.45 A 17.45 x 1,971
Zoom:
Zoom:
-0.03 (-0.17%) V 45.819.056
KNOW WHEN TO GET OUT

03/21/2015 3:44:06 PM O 236.02 H 236.20 L227.50 C 229.45
03/21/2015 3:44:06 PM O 236.02 H 236.20 L227.50 C 229.45
18.29
OPEN POSITION
T TS 260.00
with tools that let you set conditional

260.00
Value S $8,725 500 SHRS
17.79 250.00
250.00
orders based on prot and loss scenarios.

Cost $8,735 $17.47 240.00
17.45 240.00
17.29 Margin Req. $2,616 30.00% 229.45
CVL
229.45
CVL
Todays G/L -$10 -0.12% 220.00
S 16.85 220.00
16.80 Total G/L
CLOSING EQUITY ORDERS
-$10 0.12% 210.00
210.00
200.00
EASILY PLACE TRADES & ALERTS
16.30
CARSON GENETICS
Est. Gain (Limit) $690 7.90%
200.00
190.00
190.00
directly from charts.
TB CARSON GENETICS Est. Loss (Stop) -$260 -2.98% 180.00
TB 15.80
180.00
170.00
CLOSED POSITION 170.00
160.00
$
160.00
15.80 YTD G/L $2,735 3.60% 150.00
150.00
140.00
140.00
Volume 6,228,654 14.80
Volume 6,228,654
14.30
Positions News Research Options
OPEN AN ACCOUNT GET 500 FREE TRADES

Visit Fidelity.com/AlwaysBe, or call 800.Fidelity
Where smarter investors will always be.
STOCKS | BONDS | MUTUAL FUNDS | ETFS | OPTIONS
Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). Trades are limited to online domestic equities and options and must be used within two years.
Options trades are limited to 20 contracts per trade. Offer valid for new and existing Fidelity customers opening or adding net new assets to an eligible Fidelity IRA or brokerage account.
Accounts receiving $100,000 or more will receive 500 free trades. Account balance of $100,000 must be maintained for at least nine months; otherwise, normal commission schedule rates may be
retroactively applied to any free trade executions. See Fidelity.com/ATP500free for further details. Fidelity reserves the right to modify these terms and conditions or terminate this offer at any time.
Other terms and conditions, or eligibility criteria may apply.
*Active Trader Pro PlatformsSM is available to customers trading 36 times or more in a rolling 12-month period.
Screens are for illustrative purposes only.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. 2016 FMR LLC. All rights reserved. 736003.4.3
CONTENTS April 2017, Volume 35 Number 5
FEATURE ARTICLE
manner when in a strong trend,
8 Discounting Sentiment and brings opportunities when it 40 Game Theory
In The Euro undergoes short-term corrections. by John Devcic
by Philipe Saroyan Heres a trading method that When you think of trading, the
Excess returns from trading senti- allows you to recognize those farthest thing from your mind is
ment are only seen in the short run corrections. to compare it to playing a game.
or are they? Heres a look at But studies of game theory may
a sentiment trading tactic using a 25 Futures For You help us know how to approach
contrarian, indirect sentiment indi- the markets.
cator applied to the euro ETF that by Carley Garner
shows how over the long term, Heres how the futures market
you can use a sentiment trading really works. 43 Q&A
strategy. by Rob Friesen
26 Exploiting Guts, Risk, This professional trader answers
12 The Edge In Chart Patterns, And Decay a few of your questions.
Part 1 by Karl Montevirgen
by Giorgos E. Siligardos, PhD Risk is a necessary part of the AT THE CLOSE
When you see a chart pattern trading game. Heres one strategy 60 Building Self-Confidence
forming, most likely, others will that could work for you if you
have the experience, the capital, by Stella Osoba, CMT
see it too. What gives you an edge There are certain traits a trader
when you trade a chart pattern? and the willingness to take on
higher risk. needs to succeed, and self-confi-
This two-part article will help dence is one of them. But how do
answer that question. you develop it so that it benefits
28 Recognizing Price Action your trading skills? Lets find out.
17 Ascending Triangle by Matt Blackman
Breakouts Heres a look at the anatomy of
one traders winning trade.
by Ken Calhoun DEPARTMENTS
This month in our Trading On 6 Opening Position
Momentum column, this profes- INTERVIEW
sional trader introduces you to the 32 Justin Bennetts 7 Letters To S&C
ascending triangle pattern that you Trading Path 46 Books For Traders
can use to help spot buying pres- 47 Trade News & Products
sure as it builds. by Jayanthi Gopalakrishnan
Justin Bennett made his very first 48 Traders Tips
trade at the age of 14 and quickly 57 Advertisers Index
18 Playing With Numbers found out the challenges that the 57 Editorial Resource Index
by Domenico DErrico trading world can pose. But those
Which strategy will give you a challenges only encouraged him 58 Futures Liquidity
better return on account? Here we to keep learning and trading. We 59 Classified Advertising
compare the performance of three spoke with Bennett on February 59 Traders Resource
strategies to see which comes out 14, 2017 to find out more about
ahead. what kept him going in his trading
career in spite of running into
roadblocks.
22 Taming The New Zealand
Dollar
by Azeez Mustapha 38 Explore Your Options
The New Zealand dollar (NZD) by Tom Gentile
often moves in a predictable Got a question about options? n Cover: Jose Cruz
n Cover concept: Christine Morrison
Copyright 2017 Technical Analysis, Inc. All rights reserved. Information in this publication must not be stored or reproduced in any form without written permission from the publisher. Technical Analysis
of Stocks & Commodities (ISSN 0738-3355) is published monthly with a Bonus Issue in March for $89.99 per year by Technical Analysis, Inc., 4757 California Ave. S.W., Seattle, WA 98116-4499. Periodicals
postage paid at Seattle, WA and at additional mailing offices. Postmaster: Send address changes to Technical Analysis of Stocks & Commodities 4757 California Ave. S.W., Seattle, WA 98116-4499 U.S.A.
Printed in the U.S.A.
4 April 2017 Technical Analysis of Stocks & Commodities

Interactive Brokers
Rated Low Cost
by Barrons
15 years in a row *
How much is your broker charging you?
Interactive Schwab Fidelity TD Ameritrade E*TRADE Scottrade Vanguard

Brokers
Equity
Trades $2.261 $6.95 $7.95 $9.99 $9.99 $7.00 $7-$20
depends on the
number of trades
Options4
Base no base cost $6.65 $7.95 $9.99 $9.99 $7.00 $7.00
+
Per contract $0.70 2
$0.70 $0.75 $0.75 $0.75 $0.70 $1.00
exchange & exchange &

Futures regulatory fees regulatory fees
Trades4 $1.743 N/A N/A plus plus N/A N/A
Per contract $2.25 $2.99
Competitor firm information is for standard online trades pricing obtained from their respective websites as of 2/3/17.
Competitor pricing and offers subject to change without notice.
If you think our commissions are low,

take a look at our margin rates.
ibkr.com/iwantmore Interactive Brokers
Member - NYSE, FINRA, SIPC, NFA Supporting documentation for any claims and statistical information will be provided upon request. *Low
Cost Rated by Barrons 15 Years Straight - Low cost broker 2002 through 2016 according to Barrons online broker review. For more information
see, ibkr.com/info - Barrons is a registered trademark of Dow Jones & Co. Inc. [1] Average commission per stock trade - $2.26 for 2,200 shares.
[2] Average commission per option trade - $5.95 for 8.4 contracts. Subject to $1.00 minimum per order. [3] Average commission per futures trade
- $6.09 for 3.5 contracts. Under some commission plans, overnight carrying fees may apply. [4] Options and futures are risky and are not suitable
for all investors. Please review Characteristics and Risks of Standardized Options and the CFTC Future Trading Risk Disclosure at ibkr.com before
trading these respective products.
04-IB17-1063
April 2017 Volume 35, Number 5
Opening Position
The Traders MagazineTM
T
EDITORIAL
editor@traders.com
Editor in Chief Jack K. Hutson

Editor Jayanthi Gopalakrishnan
he US economy has been fueled by
Production Manager Karen E. Wasserman easy money that has led to a long ex-
Art Director Christine Morrison pansion, which was even more pumped after
Graphic Designer Wayne Shaw the US elections in November 2016. A lot
Webmaster Han J. Kim of this has to do with a business-friendly
Contributing Editors John Ehlers,
Anthony W. Warren, Ph.D.
administration and the anticipation of a fa-
Contributing Writers Thomas Bulkowski, Martin Pring,
vorable tax plan. But how much longer can
Barbara Star, Markos Katsanos this expansion continue? The reality is that
markets are cyclical in nature and at some
OFFICE OF THE Publisher point, the markets will mean-revert. They
Publisher Jack K. Hutson always do, and the further away the markets
Industrial Engineer Jason K. Hutson
Project Engineer Sean M. Moore are from the mean, the larger the impact. Unfortunately, that could end up being
Controller Mary K. Hutson painful for the average household, not just in the US, but globally. Remember
what happened during the housing crisis in 20072008.
Advertising Sales
4757 California Ave. S.W.
This is not a time to get too caught up in the euphoria that is surrounding the
Seattle, WA 98116-4499
206 938-0570 Fax 206 938-1307
markets. Theres too much optimism and its become extremely speculative.
advert@traders.com Instead, think of approaching the markets each day with an unbiased look. After
National Sales Manager Edward W. Schramm all, youre responsible for your own actions. You cant blame someone else or the
market. You could but what good will it do? If there was one thing I would say to
ESchramm@traders.com
Circulation
traders, itd be proceed with caution. You dont want to miss out on anything but
Subscription & Order Service 1 800 832-4642 at the same time it pays to be observant. Take a step back and look at the entire
picture. Start with the global economy, narrow down to individual economies,
1 206 938-0570 Fax 1 206 938-1307
circ@traders.com
Subscription Manager Sean M. Moore look at the currency markets, the bond markets, the commodities, and equities.
Then look at your indicators, whether that be macroeconomic data, or general
Website market indicators such as volatility and market breadth, or something else, and
http://www.traders.com
Staff members may be emailed through the Internet then narrow your focus to individual trades. Get into the habit of looking at various
using first initial plus last name plus @traders.com timeframes. Get a feel for the market and think about what will start indicating
when the markets will run out of steam. Is it a slowing down of momentum, an
Authorization to photocopy items for internal or personal increase in volatility, more lows than highs, or something else?
use, or the internal or personal use of specific clients, is grant-
ed by Technical Analysis, Inc. for users registered with the
Be
Copyright Clearance Center (CCC) Transactional Reporting
Service, provided that the base fee of $1.00 per copy, plus
50 per page is paid directly to CCC, 222 Rosewood Drive,
Danvers, MA 01923. Online: http://www.copyright.com. For
those organiz ations that have been granted a photocopy
license by CCC, a separate system of payment has been
aware and know what the markets are doing instead of focusing on
arranged. The fee code for users of the Transactional what you are trading. Its easy to get sucked into the desire to chase
Reporting Service is: 0738-3355/2017 $1.00 + 0.50.
Subscriptions: USA: one year (13 issues) $89.99; something that everyone is talking about. Nobody knows when the markets will
Magazines shipped outside the US require additional mean-revert. Its a matter of how well you understand the markets and how well
postage as follows: Canada, US$15 per year; Europe,
US$25.50 per year; all other countries US$39 per year. you manage your risks. So when I say to proceed with caution, make sure that
Single copies of most past issues from the current year are
available prepaid at $8 per copy. Prior years are available
every trade you put on has in place a strategy that will protect it from losses. Dont
in book format (without ads) or digitally from www.traders. just jump into a trade based on a hunch. Do your homework and trade smart.
com. USA funds only. Washington state residents add
sales tax for their locale. VISA, MasterCard, AmEx, and
Discover accepted.Subscription orders: 1 800 832-4642
or 1 206 938-0570.
Technical Analysis of Stocks & Commodities,
The Traders Magazine, is prepared from information
Miami Downtown Richard Cavalleri/Shutterstock
believed to be reliable but not guaranteed by us without
Jayanthi Gopalakrishnan,
further verification, and does not purport to be complete.
Opinions expressed are subject to revision without noti-
fication. We are not offering to buy or sell securities or
commodities discussed. Technical Analysis Inc., one or
Editor
more of its officers, and authors may have a position in
the securities discussed herein.
The names of products and services presented in this
magazine are used only in an editorial fashion, and to the
benefit of the trademark owner, with no intention of infring-
ing on trademark rights.

2017 WINNER
AI TRADING SOFTWARE
The editors of S&C invite readers to submit their opinions and information on subjects
relating to technical analysis and this magazine. This column is our means of communi- Winner
cation with our readers. Is there something you would like to know more (or less) about?
Tell us about it. Without a source of new ideas and subjects coming from our readers, this 15 years
magazine would not exist. in a row!
Email your correspondence to Editor@Traders.com or address your correspondence
to: Editor, Stocks & Commodities, 4757 California Ave. SW, Seattle, WA 98116-4499. All
letters become the property of Technical Analysis, Inc. Letter-writers must include their full
name and address for verification. Letters may be edited for length or clarity. The opinions Build powerful
expressed in this column do not necessarily represent those of the magazine.Editor trading systems in
MINUTES
EXPONENTIAL STANDARD Volume-Weighted Moving without coding
DEVIATION BANDS Average Breakouts
Editor, Editor,
I enjoyed the article in I have a question about
the February 2017 is- the article by Ken Cal-
sue by Vitali Apirine, houn on volume break-
Exponential Standard outs in the February
Deviation Bands, and 2017 issue of Technical
am sorry to be the Analysis of S tocks
bearer of sad tidings but he has reinvented & Commodities, Volume-Weighted
the wheel. Exponential Bollinger Bands, Moving Average Breakouts. www.NeuroShell.com
as we call this work, are more than 20 My question is, can you tell me in 301.662.7950
years old and are included in our Bol- what charting platforms the indicator
linger Band Tool Kits for TradeStation, discussed in the article, the VWMA
NinjaTrader and other platforms. We (volume-weighted moving average), is most importantly, a great teaching les-
have done similar work with various available, or do you have a script to use son in itself. For an independent trader
other weighted average methods, always in the thinkorswim platform? Thank you like me, it was like looking at an open
using the weighted average as the middle and best regards. roadmap that one has to follow in order
Bollinger Band and in the calculation of Torsten to become a successful trader. Thank
standard deviation used to set the width you for publishing this interview.
of the bands. If you use thinkorswim, you can add your Claudio Demb
We agree with Apirine about the utility own custom indicator using thinkscript.
of the approach he discusses and other Here is a formula in thinkscript you EXCEL SPREADSHEET
alternative Bollinger Band formulations could use to plot the volume-weighted Editor,
and strongly encourage traders to explore moving average: Thank you for all of
the pros and cons of the various trend Vitali Apirines in-
and volatility calculations that can be input Length = 12; formative and educa-
used for Bollinger Bands. plot fastAvg = sum(volume * close, Length) tional contributions to
We made Bollinger Bands open / sum(volume, Length); Technical Analysis of
source from the beginning precisely to Stocks & Commodi-
encourage research. Over the years we Hope this helps.Editor ties magazine.
have had many inquiries about alterna- After reading his November 2015 ar-
tive calculation methods and various INTERVIEW WITH ED DOBSON ticle on the average percentage true range
derivatives such as Bollinger Envelopes. Editor, (Average Percentage True Range), Ive
We have always tried to answer these in Reading your interview been able to better think about possible
a timely manner and stand by to answer with Ed Dobson in the stocks for positions based on an apples
any questions researchers may have. February 2017 issue of to apples comparison now.
If anyone has questions about Bollinger Technical Analysis of In the February 2017 issue, I really
Bands and the related tools, techniques, Stocks & Commodi- enjoyed his Exponential Standard De-
and indicators, please feel free to drop us a ties (Ed Dobson On viation Bands article. I can see how it
line at BBands@BollingerBands.com. Transitioning To Independent Trader) will greatly help my trading.
Good trading. was like reading a golden book. It was
John Bollinger very well written, clear, enjoyable, and Continued on page 45
April 2017 Technical Analysis of Stocks & Commodities 7

TRADING FOREX
Think Tactically
Discounting Sentiment
In The Euro
Excess returns from trading sentiment are only seen In Figure 1 you see a graph from the last 10 years
in the short run or are they? Heres a look at a plotting daily returns of the euro ETF (FXE) versus
sentiment trading tactic using a contrarian, indirect its closed-end-fund discount, which is my sentiment
sentiment indicator applied to the euro ETF that proxy. Notice a slightly negative linear relationship.
shows how over the long term, you can use a senti- The regression results (see Figure 2) show a convinc-
ment trading strategy. ingly negative slope for this linear relationship at the
95% confidence level.
S
entiment can have an impact on the markets, This negative linear relationship falls in line with my
directly and indirectly. This is the reason previous research, which says markets will discount
why sentiment indicators are differentiated the sentiment factor in the long run.
between two categories, direct and indirect. Following this logic, I was able to fairly easily
In this article, I will look at the closed-end-fund dis- backtest the daily mid-price and closed-end-fund dis-
count indicator, which is an indirect sentiment indica- count (CEFD) with a few data points. By discounting
tor similar to the traditional put-call ratio and other sentiment in this way, you would simply buy the euro
modified put-call ratios such as the options sentiment ETF when the previous days mid-price (average of
indicator (OSI), which I described in an article in this open and close) was trading at a discount to the net
magazine in the November 2016 issue. asset value; and sell the ETF when it was trading at
Contrarian vs. coinciding Daily Returns vs. CEFD for Euro ETF
There is a major difference between my approach
in this article versus the approach discussed in my
November 2016 article. The benchmark indicator in
0.010
this article, the closed-end-fund discount, serves as

a contrarian indicator, whereas the OSI trading in-
0.005
dicator is a coinciding indicator. With that said, this

CEFD (t-1)
approach can be seen as more of a trading tactic to

0.000
your overall sentiment trading strategy, unless you

are a contrarian.
-0.005
In academia and in practice, its generally under-

stood that investors have a greater expectation for
-0.010
investment returns by discounting such factors as

the price-earnings ratio, price-book ratio, and, in
-0.015
R Core Team
this case, a sentiment factor. I will calculate a daily -0.02 -0.01 0.00 0.01 0.02
closed-end-fund discount (CEFD) to serve as a proxy

JOSE CRUZ
FIGURE 1: DAILY RETURNS. Here you see a scatter plot of daily returns and previous
for sentiment. days closed-end-fund-discount.
by Philipe Saroyan
Regression Results
SUMMARY OUTPUT
Regression statistics Traders and
Multiple R
R-squared
0.036
0.001
investors should
Adjusted R-squared 0.001 discount sentiment
Std. error 0.003 when it is at its
Observations 2518
peak, especially
ANOVA when it is noisy.
df SS MS F Significance F
Regression 1.000 0.000 0.000 3.180 0.075
Residual 2516.000 0.016 0.000
Total 2517.000 0.016
( )
Lower Upper Lower Upper
Coefficients Std. error T-stat P-value
95% 95% 95% 95% Midpoint price t1
Intercept 0.000 0.000 1.430 0.153 0.000 0.000 0.000 0.000 CEFD(%) = LN
NAVt1
Daily returns -0.023 0.013 -1.783 0.075 -0.049 0.002 -0.049 0.002
FIGURE 2: REGRESSION RESULTS. Theres a negative slope for this linear relationship at the 95% con-
fidence level.
The CEFD indicator gives clear buy
or sell signals each day to discount the
a premium. In this way, the strategy is contrarian, and falls in prevailing sentiment when the ETF is trading at a premium,
line with the tenets of prevailing research, supporting positive and to buy when it is trading at a discount. Figure 3 shows the
long-term results. backtested results from the last 10 years when trading this
strategy on the euro ETF.
Calculating the indicator
To calculate the indicator, first youll need the previous days Prices predict sentiment
mid-price, which is simply the average of the open and close The reason I use daily returns to predict sentiment is that pre-
prices. Then you would need the previous days net asset value vailing research does not substantiate sentiment being able to
(NAV), which is calculated and published by the ETF company predict prices when testing for these two variables. Although
each day. Both data points are fairly easy to compile. Finally, stock returns and sentiment have a covariant relationship, es-
you would take the natural log of the two to compute a daily pecially in the case of consumer sentiment, the research only
CEFD percentage, as in this equation: shows evidence of prices being able to predict sentiment and
not the other way around. Results suggest that
there is a feedback loop from the stock market
Discounting Sentiment to general confidence/sentiment levels but that
50% relationship doesnt necessarily go in reverse.
Increased sentiment levels dont necessarily af-
fect price levels.
40% Based on this logic, I can stay sound in my
sentiment trading strategy over the long term by
30% initiating this tactic of discounting sentiment.
The backtest results show the strategy boasts an
impressive hit rate of 52.17%. Although it is pos-
20%
sible to easily transpose the y-variablethe daily
CEFD(%)making it the predictor variable, it
10% would be invalid based on this premise.
To follow sentiment or not

The strategic trader should be aware that ever-
0%
increasing prices should not make sentiment

2007-03-13
2007-07-20
2007-11-27
2008-04-08
2008-08-14
2008-12-22
2009-05-04
2009-09-10
2010-01-20
2010-05-28
2010-10-06
2011-02-14
2011-06-23
2011-10-31
2012-03-12
2012-07-09
2012-11-28
2013-04-10
2013-08-16
2013-12-24
2014-05-06
2014-09-12
2015-01-22
2015-06-02
2015-10-08
2016-02-18
2016-06-27
2016-11-02
-10% investors more bullish. This merely suggests

a crowding-in effect will eventually be dis-
With CEFD indicator Daily ETF return
counted.
FIGURE 3: DISCOUNTING SENTIMENT. Here, the euro ETF (FXE) is shown with and without
the sentiment indicator. Continued on page 20
WITH ALL OF THIS,
CAN YOU AFFORD
TO TRADE ANYWHERE ELSE?
Trading anywhere else would be settling.
Get up to $600 when you open and fund an account,
now at our new, lower price of $6.95 for online equity trades.
See the difference at tdameritrade.com/trader
Futures and forex trading is speculative and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading
futures products. Futures and forex accounts are not protected by the Securities Investor Protection Corporation (SIPC). Futures and futures options,
and forex trading services provided by TD Ameritrade Futures & Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify.
TD Ameritrade and Investools, Inc. are separate but afliated companies and are not responsible for one anothers services and policies. Investools
does not provide nancial advice and is not in the business of transacting trades. Investools provides fee-based advanced education services.
The social data discovery, ltering and analysis are provided by SwanPowers, LLCs LikeFolio. SwanPowers and TD Ameritrade are separate and
unafliated rms.
FRED is a registered trademark of the Federal Reserve Bank of St. Louis. The Economic Data tab uses the FRED API but is not endorsed or certied
by the Federal Reserve Bank of St. Louis. FRED API and data Federal Reserve Bank of St. Louis. 2016. All rights reserved. By using the FRED data,
you are agreeing to be bound by the FRED API Terms of Use, available at research.stlouisfed.org/fred_terms.html.
The #1 trading app accolade applies to thinkorswim Mobile, also known as TD Ameritrade Mobile Trader. App Store is a service mark of Apple, Inc.
Market volatility, volume and system availability may delay account access and trade executions. See tdameritrade.com/600offer for offer details,
restrictions/conditions and information on account fees/expenses. This is not an offer or solicitation in any jurisdiction where we are not authorized to
do business. TD Ameritrade, Inc., member FINRA/SIPC. 2017 TD Ameritrade.
Know What You Should Expect
The Edge In Chart Patterns

Part 1
When you see a chart pattern forming, most likely, others yourself if trading this pattern produced an edge historically,
will see it too. What gives you an edge when you trade a what the arithmetic value of this edge is, what overall edge
chart pattern? This two-part article will help answer that could you infer from the patterns historical performance, and
question. what the difference is between the theoretical edge and the
real edge you get when you trade the pattern in real time. This
It
by Giorgos E. Siligardos, PhD two-part article will help you answer these questions.
is true that most technical methods involving chart First, the basics
HAND/COINS: DENPHUMI/DICE: COPRID/CUP: DENZ/
patterns are based on simple observation and are not When do you call a game of luck fair? The short answer
rigidly tested from a statistical point of view. What is when all the opponents have an average expected gain of
SHUTTERSTOCK/COLLAGE: JOAN BARRETT
you read on the Internet, in books, or in magazines zero for each play. When the average expected gain from each
about chart patterns mostly discuss observations by play is not zero for one of the players, you can consider that
the authors who notice something they believe to he has an edge (positive or negative) over the other players.
be valuable and share it with the public. Tom Bulkowski (a To put it simply, what you expect from a game is that on the
Contributing Writer to this magazine) is one of the few authors one hand, it is not fair and on the other hand, you are allowed
who provides success/failure statistics for chart patterns. to play it from the side of the positive edge.
Before putting money in any pattern, you should first ask For simple games of luck where the probabilities of outcomes
CHART PATTERNS
Noisy indicators
delay your analysis
are known, it is easy to calculate whether a player has an edge
and the exact value of the edge. For example, in double-zero
roulette it can be calculated that a player has a negative edge
of -5.26% (and of course the casino has a positive edge of
5.26%). This means that on average, for every $x bet at the
roulette wheel, the casino expects to get 5.26% of that $x as
pure profit. Jurik algorithms
I will present two examples without using rigid mathemati- deliver low lag,
cal formulation to help the uninitiated grasp the main idea, low noise analysis
which I will later expand to the chart patterns case.
Example 1: The coin game

Tools for: TradeStation, AmiBroker, Investor/RT, MultiCharts, NeuroShell Trader, eSignal,
NeoTicker, Tradecision, TradingSolutions, MATLAB, Ninja Trader, Sierra Charts,
You are offered a game where a coin is flipped and you place Genesis TradeNavigator, Market Delta, Extreme charts, DLLs for custom software
notional bets before the flip. A notional bet (NB) is the base
upon which the profit or loss will be calculated. If the coin
Jurik Tools on live charts, on the web !
lands tails then you lose 1.2 times the NB (or $1.2 for an NB tinyurl.com/jurik-online
of $1) and if it lands heads then you get 2.3 times the NB (or
$2.3 for an NB of $1). Assume further that the coin has a 50%
probability of landing heads (and of course a 50% probability
Jurik Research
of landing tails). This means the coin itself is fair as it doesnt
show any preference for heads or tails.
But is this coin-flipping gambling game fair for you? If you 2010 -- 2011 -- 2012 -- 2013
always bet $1 then after every two flips you expect to get on Add-In software
average one heads and one tails. From the tails you will lose
$1.2 and from the heads you will gain $2.5. So after two flips jurikres.com 800-810-3646 719-686-0074
and a sum of $2 NBs, you will end up having a net profit of
$0.30. This means that the game is not fair since, on average,
for every two flips you expect to get $0.30 as profit. Now, if Monte Carlo simulation of the game assuming constant NBs
you divide the profit $0.30 by the sum of NBs of $2 you get to calculate the total net profit and then divide it by the sum
0.15 or 15%. This 15% is the edge this games offers you as a of NBs to arrive at the edge of the game. In the case of chart
player. From a practical standpoint, when your notional bet patterns, there are many historical cases of patterns that can
is $x in each flip, then you expect to get on average 15% of x be used to estimate its historical edge and derive estimations
(or $0.15x) as profit from each flip. about its overall edge.
Example 2: The dice game The case of chart patterns

In this game, you place your NB and throw a dice. If the dice To calculate the edge of a pattern you must keep in mind the
shows a 1 or 2 then you lose money equal to the NB. But if it following:
produces 3 or higher you get 55% of the NB. Does this game
offer you an edge? Assume you always place an NB of $1. Steer away from a vague definition of the pattern. With
Then, on average, after six throws of the dice you expect all a vague definition, you run the risk of making vague
different faces of the dice to come up and you will have lost
a total of $2 ($1 for each of the outcomes 1 and 2) but you
will also have gained a total of $2.20 ($0.55 for each of the
outcomes 3, 4, 5, 6). So, on average, for every six throws you The results of this system suggest
would have placed a total of $6 as NBs ($1 NB for each bet) that for every $1 you bet in the
and have an overall net profit of $0.20 ($2.20 - $2.00). This bullish implications of the cup
means that again this game is not fair, and it offers you an
edge. To calculate the edge you divide the net profit of $0.20
pattern, you would receive on
by the sum of NBs of $6, which produces approximately average $0.16 back as profit. Only
0.0333 or 3.33%. 39% of the trades were profitable
In the examples I discussed, you knew the exact probabilities meaning that losses were plenty
of outcomes for the coin and the dice (the probability of getting
2 for a dice throw was 1/6) and also knew the payoff for each
but small and winnings were less
outcome. In such cases the calculation of the edge is simple. but big enough.
For cases where there is neither knowledge of the probabili-
ties of outcomes nor the payoff for NBs you must perform a
conclusions about the pattern. Patterns that can be
algorithmically defined by a computer are the best way
to go since they give an objective method to quickly
collect several cases for your research.
You must have a definite price threshold level that

will signal when the pattern has failed to do what it
Cup after a Cup after an Cup after a
was supposed to do. An example would be a stop-
downtrend uptrend sideways market loss level. This is important for determining the loss
when the pattern fails. (For a head & shoulders top,
Figure 1: textbook examples of cups or rounding bottoms. Here
you see diagrams of cups after a downtrend, after an uptrend, and after a sideways for example, the passing of price above the level of the
market. head is traditionally considered the end of the bearish
implications of the pattern). Considering how technical
analysis views chart patterns, and to avoid favoring
Big Lots Inc (Daily) specific manifestations of one pattern over others, the
stop should take into account the dimensions of the
pattern to facilitate general conclusions and provide a
uniform way to judge it.
You must have a rigid definition of what the pattern

is supposed to produce (the hit of a target price, for
30 bars
example). If you believe a pattern is expected to pro-
duce a price move but it has no specific price target,
95 bars
then you must specifically declare what this move is
Apr May Jun Jul Aug Sep Oct Nov 2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov
about and how it is defined. This will ensure a clear
method to calculate profit consistently. As an example,
Figure 2: Cups in big lots inc. (BIG). The algorithm identified two cups in the an easy way to define directional moves is through the
daily chart of Big Lots for the year 2009.
magnitude of retracements. Any retracement larger than
a specific threshold automatically signifies the end of
the directional move.
Number of Cups Identified
250
This basically puts the pattern in the context of a trad-
ing system and is how you should view the pattern if you
200
Number of Cups
191 191
186 184
173 176 177 170 173
want to calculate whether it provides an edge for you in

150 153 150 153
150 134
122 124 120
your trading. You assume entering the market when spe-

114 118 114 115
103 106 108
100 93
cific conditions are met, and assume exiting the market

81
65
53 54
when, again, specific conditions are met. You also know

50 28
36 39 37
0 beforehand the money you are about to lose when the

1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Year
pattern fails.
Once you have defined the entry price, stop-loss level,
Figure 3: duration of cups identified per year. Here you see how many and how the profit from trading the pattern is calculated,
cups were identified each year from 19822014.
you can backtest as many historical manifestations of the
pattern as possible. Let P be the profit (either positive or
negative) from a pattern defined as:
% Frequencies of Durations of Cups
P = (Exit price - Entry price) for long trades on patterns
50% 46%
45%
40% that are considered bullish
% Frequency
Mean duration: 52 bars

P = (Entry price - Exit price) for short trades on pat-
35%
30%
Median duration: 32 bars
terns that are considered bearish.

25%
Min. duration: 20 bars
20%
Max. duration: 1162 bars
17%
15%
Let S be the distance of the stop-loss level from the entry
10%
10% 7% 8%
5%
5%
price:
2% 2% 2% 1% 1%
0%
2030 3140 4150 5160 6170 7180 8190 91100 101110 111120 121130
Duration
S = | Entry price - Stop-loss level |
Figure 4: %frequencY distribution chart of cups per duration.
Almost half (46%) of the cups identified lasted from 20 to 30 daily bars.
(where | | stands for the absolute value).
The fraction:
Cumulative % Frequency of Durations
P
PF = 100%
S
is then exactly the profit (in dollar terms) for the pattern if 80%
you were to trade it by using notional bets of $1 for each
Cumulative % Frequency
80% of all cups
trade. This offers the same normalization as the constant $1 60%
identified were less
notional bet in the examples of the coin and dice I presented than 3 months long
earlier in the article. 40% (75 trading days)
Note that if the stop-loss is hit and you exit the trade at Mean duration: 52 bars
exactly the stop level, then PF will always be greater or equal 20% Median duration: 32 bars
to -1. However, when your exit based on the stop-loss value
is not predetermined (for example, taking into account gaps 0%
past the stop to simulate real-world conditions, or you require
5
0
5
0
5
0
10 5
10 0
65
20
0
5
0
5
0
5
0
5
0
20
75
68
73
79
84
90
95
1
13
18
24
29
35
40
46
51
57
62
11
the closing price to penetrate the stop for the pattern failure Duration (Bars)
to be considered valid) then the S and the PFs can be lower Figure 5: cumulative %frequencY distribution chart of cups per
than -1. Note also that the PF practically plays the role of a duration. 80% of all cups identified lasted less than 75 daily bars.
profit factor (hence the name PF) because if your notional
bet is $A when the stop-loss is hit, then the profit will be PF
times that $A.
H
The simple arithmetic average (mean) of the PFs over all Entry price
historical patterns provides the implied historical edge for the 200
pattern based on the backtest.
-21%
The edge of a cup pattern -30% Initial stop
This is an example I presented at the Inter- 158
national Federation of Technical Analysis
(IFTA) conference in 2014 in the context of 140
a broader theme to point out the merits of
L
algorithmic identification of chart patterns.
You can tweak the ideas in this example to
match your preference for the patterns you want to examine.
The pattern I dealt with was the cup, which is a rounding base Figure 6: setting the initial stop-loss. The initial stop-loss starts at
a value defined by 0.7 times the percentage height of the cup. If the percentage
or rounding bottom that shows up after a downtrend (Figure 1). height is 30% then the initial value for the stop is set at 0.7 times 30% (or 21%)
The cup is generally believed to have bullish implications for below the entry price. Once set, the initial stop-loss then becomes a trailing stop
price movement. Although the behavior of volume during the as price advances.
cup is considered important and variations of the cup (like the
cup with handle pattern) are also popular, for simplicity, I
chose to eliminate volume and variation issues from the study Here is how I identified the stop-loss for the cup. Let H be
and concentrate on the implications of the price formation. the high of the identification bar (the high of the bar when
In my IFTA presentation I used a slight modification of the the cup was identified) and L the lowest low during the cup.
identification algorithm for cups that I had initially described The percentage height from H to L is therefore:
in my February 2006 article for this magazine, Identifying
The Cup (see further reading at end). (H - L)
100%.
I used daily charts of S&P 500 stocks from 1982 to 2014 H
and captured a total of 3,991 distinct cups of various dura-
tions (distinct means there was no time overlap of more The stop-loss value is then set by taking 0.7 times that
than 70% between any two cups in the same chart). Figure percentage height below the entry price. So, for example (see
2 shows examples of cups identified by the algorithm in the Figure 6), if H is 200 and L is 140, the percentage height
daily chart of Big Lots Inc. from H to L is 30%. Taking 0.7 times 30% gives you 21%.
In Figure 3 you see the number of cups identified per year The stop-loss level therefore is 21% below the entry price of
and in Figure 4 you see the %frequency of cups per dura- 200, or 158.
tion, respectively. The minimum duration was 20 bars and Since the cup pattern is generally believed to produce upward
the maximum was 1,162 bars. The median duration was 32 price moves and there is no standard price target associated
bars and 80% of all cups identified lasted no more than 75 with it, I assumed a buy-only trading system that goes long
bars (see Figure 5). at the high of the identification bar with the initial stop-loss
tribution of PFs is not extremely different from the normal
Frequency Duration of PF for Cups
1200 distribution, a statistical test called a students t-test (practi-
1000
cally the same as the statistical z-test for large samples) can be
applied to derive what is called a confidence range for the
800
mean PF (that is, a confident range for the edge of all cups).
Frequency
600 For example, assuming that the 3,991 historical cups used
400
in this study is a nonbiased sample of the population of all
cups (since the time period from 1982 to 2014 is long enough
200
and covers many market conditions), the t-test showed that
0 a confident range for the overall edge of the cup pattern is
from 9.1% to 24% with 99% confidence. In other words, the
4)
.5)
5)
re
.5)
1)
.5)
2)
.5)
3)
.5)
(-3 3)
(-2 )
(-2 2)
(-1 )
(-1 1)
(-0 )
0)
(-5 5)
(-4 5)
(-4 4)
(-3 )
3.5
2.5
1.5
0.5
Mo
-
-
-
-
4.
,2
.5,
,3
.5,
,4
.5,
.5,
,0
.5,
,1
.5,
.5,
.5,
.5,
.5,
.5,
,-
,-
,-
,-
,-
(4
(4
(0
(0
(1
(1
(2
(2
(3
(3
(-5
Figure 7: Frequency distribution chart of the pfs of the cups from historical PFs calculated suggest that there is a 99% confidence
19822014. The distribution of PFs for the cups is somehow positively skewed. It that the true edge of the cup as a bullish pattern is between
has a mean value of 0.166 which means the historical edge of the cups when used 9.1% and 24%.
as bullish formations (at least as seen from the eyes of the trading system used in
Moving on
the study) is 16.6%. Bars that correspond to negative or zero PFs are colored red
whereas bars that correspond to positive PFs are colored blue.
These findings are impressive and encouraging, but dont rush
to celebrate yet, as there are many issues that still need to be
being trailed. The trade is exited only when the trailing stop considered to get the whole picture, especially from a practical
is hit. Note that the trailing stop is naturally related to the standpoint. I will tackle these issues in part 2. Stay tuned.
percentage height of the cup to assume a uniform way of
judging the cups. Giorgos Siligardos holds a PhD in mathematics and a Market
Why did I use the 0.7 value as a factor for the initial stop Maker certificate from the Athens Exchange. He is a finan-
and not 0.5 or 0.8 or 1? Theres no mandatory reason. This is cial software developer, a frequent contributor to Technical
just an example. Since the initial stop-loss becomes a trail- Analysis of Stocks & Commodities magazine, and for many
ing stop, using different values for the factor will examine years a scientific contributor in the Department of Finance
the bullish implications of the pattern from different points and Insurance at the Technological Institute of Crete. His
of view. More precisely, the value of the factor defines the academic website is http://www.tem.uoc.gr/~siligard and he
retracements you allow the bullish move to produce. For ex- may be reached at siligard@tem.uoc.gr.
ample, by setting it to 0.2 you will examine if the cups produce
immediate and strong trends (small retracements in relation Further reading
to the percentage height of the cups). The 0.7 value seemed Bulkowski, Thomas N. [2005]. Encyclo-
okay for providing a general idea, since it allowed room for pedia Of Chart Patterns, 2d ed., John
retracements without being too pliable. Nobody is stopping Wiley & Sons.
you from examining various factor values to see which of Kuhn, Gregory [1995]. The Cup-With-
them produce important and nice results. To determine profit/ Handle Pattern, Technical Analysis
loss, I took into account gaps that formed past the trailing of Stocks & Commodities, Volume
stop. I also placed a requirement that the trailing stop had to 13: March.
go through the closing price to signal exits. The exit value I Murphy, John J. [1986]. Technical Analysis
used was the low of the exit bar (to account for slippage) so Of The Futures Markets, New York
the PFs could take values lower than -1. Institute of Finance.
The distribution chart for the PFs for all the cups is shown ONeil, William [1999]. 24 Essential
in Figure 7. The mean value is 0.166 or 16.6% and this is Lessons For Investment Success,
therefore the historical edge of the cup pattern for the period McGraw-Hill.
19822014. Mind you, this is from the point of view of the [2002]. How To Make Money In
system used to estimate its bullish implications. Stocks, 3d ed, McGraw-Hill.
The results are interesting in that they suggest that for Siligardos, Giorgos [2006]. Identifying
every $1 you would bet in the bullish implications of the cup The Cup (With Or Without The Han-
pattern, you would receive on average $0.16 back as profit. dle), Technical Analysis of Stocks &
What is also interesting is that only 39% of the trades with this Commodities, Volume 24: February.
system were profitable. This means that the losses were plenty [2011]. Identifying Cup Formations
but small, and the winnings were less than the losses but big Early, Technical Analysis of Stocks &
enough, as can be seen in Figure 7. This was to be expected, Commodities, Volume 29: April.
since applying an initial stop-loss prevented huge losses from See Traders Glossary for definition
occurring while the trailing stop let the profits run.
If the number of historical PFs is quite large and the dis-
TRADING ON MOMENTUM
Ascending Triangle Breakouts

This month in our Trading On Momentum column, this profes- Step-by-step action plan
sional trader introduces you to the ascending triangle pattern Heres how you can start using this strategy with your swing
that you can use to help spot buying pressure as it builds. trades:
by Ken Calhoun Step 1: Look for a 15-day 15-minute candlestick chart in
F
which price is in an uptrend, as seen in Figure 1, Shopify,
inding potential breakouts before they happen is a Inc. (SHOP) from January 3, 2017 to January 5, 2017.
helpful visual scanning skill to develop. You can use
ascending triangles to help you identify these new Step 2: An ascending triangle occurs from January 59, 2017
trading opportunities, because they reveal increasing in this chart. You may enter your trade once price action has
buying pressure just in time to help you enter your position. broken out above the upper resistance line.
You will see how to trade this useful bullish breakout trading
pattern in this months column. Step 3: To potentially avoid false breakouts, waiting until
$0.50 above resistance before entering (in this case that is
Swing Trading Ascending Triangles $47.50/share + 0.50 = $48 entry) as seen on January 10.
An ascending triangle is formed when there is a horizontal
resistance level of three days or longer forming the top of a Step 4: Place an initial and trailing stop value of $2.00 per
consolidation pattern, accompanied by an uptrending, lower share to manage the trade.
trading line. You can think of this as a visual battle between
buyers and sellers, with buyers slowly winning during a Insights: Why this technique works
multiday timeframe. The uptrending lower line indicates that The ascending triangle is a useful bullish entry pattern because
buyers are gradually winning. it visually shows the forces of demand overpowering supply,
Once you see price action break out above the upper re- which leads to an increase in price. It is important for you
sistance line, it indicates a long trade entry. It is important to carefully observe what price does as soon as it breaks out
to note that you should also wait until price moves at least to new highs.
$0.50 above resistance (or you see a large green candle form Much like you would anticipate a handle at the right side of
at the upper right area of the ascending triangle) to help avoid a bullish cup pattern breakout, you can also anticipate occa-
false breakouts. sional false breakout choppy price action following ascending
triangle patterns. Thats why
I have found it useful to wait
until price has moved up at
least $0.50 above resistance,
preferably with additional
bullish confirmations like a
tall green candle and high
volume, prior to entering
the trade.
Trade manage-
ment tips
You can visually see the
forces of buyers and sell-
ers at work with the help
of the ascending triangles.
Managing your trade entries
is often simply a matter of
buying strength and using
careful risk management in
context of strong chart en-
esignal
Figure 1: Ascending Triangle (SHOP). You enter a swing trade $0.50 above the upper resistance line after an ascending
triangle breakout entry signal. Continued on page 31
Its Crunch Time!
Playing With Numbers

Which strategy will give you a better return on account? First, measure it
Here we compare the performance of three strategies to see What does beat the market mean? Does it mean making
which comes out ahead. greater profits or maintaining lower risk? Most trading plat-
forms provide return on account (ROA) figures for the user,
Is
by Domenico DErrico which is a useful performance indicator. ROA is the ratio
between the strategy net profit and the strategy maximum
it possible to beat the market by applying drawdown. This indicator gives a snapshot of the risk/reward
some type of trading rules to equities? Or profile of the strategy. For example, an ROA of 1 means the
is it better to use a simple buy & hold ap- profit of the strategy equals the riskthe higher the reading,
proach? Is there a way to test and compare the better the model.
CHESSBOARD: VIVIO/SHUTTERSTOCK
some simple trading logic against buy & For the purpose of this article, I will assume that a trading
hold? In this article Ill try to answer these strategy beats the market if its ROA is higher than the buy
questions and propose some ideas on how & hold ROA.
to analyze markets using a numerical-
based approach. Are you ready to crunch Buy & hold SPY ETF
some numbers? Say you invested $100,000 in SPY at the beginning of 2000.
MONEY MANAGEMENT Buy & Hold SPY
200000
180000
Net profit = $53,357 (53%)
In Figure 1 you see how the equity curve 160000
moves through the years. At the end of 2016 140000

Starting capital = $100,000
the initial $100,000 increased to $153,000, 120000
giving you a total profit of $53,000 (53%). 100000
But in 2008 the equity line dropped to
$48,000 for a maximum drawdown of 80000
Max drawdown = -$62,028 (-62%)
$62,000 (62%). The buy & hold ROA is 60000
0.86 (53% divided by 62%). 40000
Long-term investors need to analyze
20000
the risk/reward ratio for any instrument
they are willing to buy and hold before 0
investing. A helpful exercise is to imag- 2000 2001 2003 2005 2007 2009 2011 2013 2015
ine that the $100,000 starting capital is Equity
your own money. Pay careful attention
to market bottoms and tops. What if at Figure 1: buy & hold equity curve. Here you see how a buy & hold strategy performed on the SPY
from 20002016. At the end of 2016 the initial $100,000 increased to $153,000, giving you a total profit of
the end of 2002 you had only $60,000 in $53,000 (53%). But in 2008 the equity line dropped to $48,000 for a maximum drawdown of $62,000 (62%).
your account and in 2007 it was $100,000? The buy & hold ROA is 0.86 (53% divided by 62%).
What if in February 2008 your account
value dropped to $48,000? What would
you think in such situations? What would
SPY ETF: Strategies Comparison
people around you say? Would you care
about what they say? 200,000
This exercise may raise some ques-
180,000
tions in your mind about your investment
temperament, your tolerance for risk, your 160,000
willingness to accept your losses, and
140,000
your willingness to go against the crowd.
Believe me, this exercise is better than any 120,000
backtesting and can be helpful in making 100,000
you a more objective, opportunity-minded
investor. 80,000
60,000
There are other ways
40,000
Im now going to analyze three other ap- 2000 2001 2003 2005 2007 2009 2011 2013 2015
proaches to trade the SPY:
Buy & Hold Random Trend-Follower Red Candle
1. Random trading (random buy, sell Buy & Hold Random Trend-Follower Red Candle
after 12 weeks)
Net profit $53,357 53% $73,518 74% $49,527 50% $102,644 103%
2. Trend-follower: Buy when a trend Max drawdown -$62,028 -62% -$59,891 -60% -$35,514 -36% -$52,982 -53%
is supposed to start and sell after ROA 0.86 1.23 1.39 1.94
12 weeks No. of trades 1 64 54 64
3. Red candle: Buy a weekly red No commission/slippage/dividend

bar (a close below the open), sell Figure 2: backtest results. Random ROA 1.23 is higher than buy & hold ROA at 0.86. Trend-follower
after 12 weeks. ROA at 1.39 is better than buy & hold ROA. The red candles logic, with an ROA 1.94, is the best of the four.
Why is there a need for random

trading strategies? A random strategy
is an important benchmark to compare
the results of other strategies with. But
if a strategys ROA is similar to that
of a random strategy, why spend time
tradestation
on it? Wouldnt it be easier to just flip

a coin?
In Figure 2 are the backtest results to FIGURE 3: EASYLANGuaGE CODE. Here is some EasyLanguage code that can be used for testing the logic
compare the four trading approaches. of different systems.

you buy and hold the S&P 500, it means your money may go
up and down for years.
A trading strategy beats the If you wish to use the buy & hold approach, passive ETFs
may not be the best choice. On the other hand, if you are an
market if its ROA is higher than active trader, you may realize that SPY may not seem suitable
the buy & hold ROA. And looking for a trend approach as wellthe SPY tends to mean-revert
at the results, beating the market too often and this is the reason a simple buy red candle and
seems to not be a difficult task. wait 12 weeks strategy works better.
Most trading platforms offer backtesting tools so it is pos-
sible to approach trading from a numerical base. If you are
interested in crunching your own numbers, take a look at
Random ROA 1.23 is higher than buy & hold ROA at 0.86. the lines of EasyLanguage code shown in Figure 3 that I used
How can this be explained? Buying randomly and selling to test several different sets of logic.
after 12 weeks reduces the risk of having an open position
during sharp down movements. In addition, exiting after 12 Which one reigns above all?
weeks acts as a take profit and you may eventually randomly Youve seen how four strategies compare relative to each
reenter at a lower price. other. Different markets may be suitable for different trading
Trend-follower ROA at 1.39 is better than buy & hold approaches so its a good idea to analyze instruments with
ROA. This result is very close to the random ROA, which different volatility using different logic.
makes you think the trend-follower approach on SPY gives
poor results. Domenico DErrico has a statistics background, is an app
The logic of the red candle approach, with an ROA 1.94, developer, and works as an advisor for asset managers and
is the best of the four. Breakout traders know very well that professional traders from different countries. He may be
their techniques work mainly on volatile markets. reached via his website Trading-Algo.com.
Is it possible? Further reading

Looking at the buy & hold results on SPY, DErrico, Domenico [2016]. Pair Trading With A Twist,
it seems that beating the market would not Technical Analysis of Stocks & Commodities, Volume
be a difficult taska 62% drawdown and a 34: December.
0.86 ROA is not an ambitious target. Even
flipping a coin could bring better results. If
saroyaN/discouNtiNg seNtiMeNt iN the euro Of Information Around Earnings Releases, SSRN Elec-
Continued from page 10 tronic Journal.
R Core Team [2016]. R: A language and environment for sta-
tistical computing, R Foundation for Statistical Computing,
Philipe Saroyan is a nancial writer with current works in Vienna, Austria, https://www.R-project.org/.
specialized research, digital content, and web development. Saroyan, Philipe [2016]. A Sentiment Indicator For Trading
He can be reached at philipe@liaisons.press. The Euro, Technical Analysis of StockS & commoditieS,
Volume 34: November.
Further reading R Core Team
Allis, P., and J. McCallig [2007]. Do Stock Market Returns See Editorial Resource Index
Affect Consumer Sentiment? An Irish Study, Irish Ac- See Traders Glossary
counting Review, Vol. 14, No. 1, retrieved from ProQuest
Databases.
Coleman, M. [2013]. Essays In Investor Sentiment (a dis-
sertation).
Cohen-Charash, Y., et al. [2013]. Mood And The Market: Can
Press Reports Of Investors Mood Predict Stock Prices?
PLoS One, http://journals.plos.org.
Liew, J., S. Guo, and T. Zhang [2014]. Tweet Sentiments And
Crowd-Sourced Earnings Estimates As Valuable Sources

Dedicated support from Scottrade with
platforms by Interactive Brokers
ScottradePRO is a powerful web, desktop and mobile trading platform.

You get competitive pricing with features and tools designed for the
advanced trader, complete with complex option capabilities.
$0.50 PER OPTION CONTRACT ($5 MINIMUM) | $0.005 PER EQUITY SHARE ($5 MINIMUM)
Our Active Trader Group is the trader support that sets us apart. Members
from our ATG are traders themselves. Theyre experts on ScottradePRO and
its capabilities, and theyre dedicated to helping you every step of the way.
scottradePRO.com // 800.619.7283
Scottrade, Inc. Member FINRA / SIPC (Scottrade) is the introducing broker on your account with Interactive Brokers LLC (IB). IB and Scottrade
are separate and unaffiliated companies.
Options involve risk and are not suitable for all investors. Detailed information on the risks associated with options can be found by
downloading the Characteristics and Risks of Standardized Options and Supplements (PDF) from The Options Clearing Corporation at
http://www.optionsclearing.com/about/publications/character-risks.jsp, ordering it by phone at 1-888-OPTIONS or requesting a copy
by visiting www.optionseducation.org.
In this article I will describe a trading
method designed to make quick profits
following the release of some funda-
mental figures that affect the NZD.
Its an interesting
currency
NZD is an interesting currency, mainly
because it moves in a fairly predictable
way. Figure 1 shows the NZDUSD
moving in a downward trend in the
months of May, June, and July 2015.
When the NZD is weak, you may see it
losing stamina versus other pairs. And
when NZD is strong, it may rally versus
other pairs. This behavior of the NZD
makes it attractive to traders who are
aware of its speculative advantage.
When the NZD reaches an equi-
librium phase, you are likely to see
GBPNZD, EURNZD, NZDJPY,
NZDUSD, AUDNZD, NZDCHF, and
NZDCAD in a trendless phase, similar
to what happened from May 1620,
2016 (Figure 2). Keep in mind that
this strategy only considers NZD pairs
or crosses. Traders can appreciate the
predictability of an NZD pair when it
trends strongly and when it stays in an
equilibrium zone.
Profit from it
The intention of the trading strategy
described in this article is to act when
there are strong movements in the NZD
as a result of strong fundamental news.
The actions will be taken according
to the rules, since in most cases, you
would gain some pips. This is expected
Kiwi Cooling Or Heating? based on past trades.
Taming The New

It is only natural to want to trade
based on strong reactions to the release
of bullish or bearish news. Conversely,
Zealand Dollar
when the reaction to a news item is
weak or nonexistent, traders will often
NZ BILLS: JAMIE FARRANT/LION: CHRISTOS GEORGHIOU/SHUT-
not want to take any actions. But if

you follow your trading rules, youll
have a more balanced approach to the
The New Zealand dollar (NZD) often moves in a predictable manner when in a markets.
TERSTOCK/COLLAGE CHRISTINE MORRISON
strong trend, and it brings opportunities when it undergoes short-term corrections.

Heres a trading method that allows you to recognize those corrections. Taming the NZD
If
The idea behind the strategy is rational:
by Azeez Mustapha When there is a strong trend movement
after the release of fundamental data
you know the market youre trading, youre likely to find great trading op- that affects the NZD, the price could
portunities at some point. The New Zealand dollar (NZD) is no exception. continue in the direction the data
FOREX
www.metaquotes.net
FIGURE 1: The NZDUSD in a Predictable Downtrend. During May, June, and July 2015, the NZDUSD pair traded downward. This helps us to appreciate the
predictability of an NZD pair when it trends strongly and when it stays in an equilibrium zone.
pushes it and could reverse later. If price continues moving in Strategy snapshot
the expected direction after the news release and then reverses, Strategy name: NZD Tamer
there is likely to be a pause in movement (mean reversion) Strategy type: Short-term
before the next phase in price movement. It is this next phase Markets: Good for forex, better for binary options
that you want to benefit from. Suitability: Good for part-time traders
Crowds tend to overreact to news. Whether that news is bull- Time horizon: 30-minute charts
ish or bearish is not an issue. What is important is that traders Trading periods: News releases with expected high impact
want to take some gains after the reversals that occur when the Instruments: NZD pairs/crosses
effect of the news has eased. You can think of the overreactions Setup: Enter an NZD pair 10 minutes after news is
by the crowds as possible trading opportunities. released. Look to go short when the pair/cross rallies,
When frightened bears push price downward, we want following the news. Reverse the logic when the currency
to buy in the short term. When overjoyous bulls push price pair/cross declines after the news release.
upward, you want to sell in the short term. Maximum positions: Only two trades per news release
FIGURE 2: Some NZD Pairs in Equilibrium Phase. When the NZD reaches an equilibrium phase, most NZD pairs or crosses (GBPNZD, EURNZD, NZDJPY,
NZDUSD, AUDNZD, NZDCHF, and NZDCAD) end up moving sideways, become choppy, and start consolidating. This happened from May 1620, 2016. You see four
examples in this chart.

www.forexfactory.com
FIGURE 3: Fundamentals that Affect the NZD: Annual Budget Release. On May 26, 2016, the Annual Budget of New Zealand was released around 3:00
am GMT. Here you see the figure for Private Capital Expenditure Q/Q, which was available at 2:30 am. This number affects movements in the Australian dollar.
Duration: Each trade should be closed within 30 minutes is released, there may not be much movement.
to 1 hour You want to stay in a trade for as long as you can make
Risk per trade: 1% profits from it. You shouldnt hold on to the position longer
Stop level: 100 pips than is recommended.
Take profit: None Here are a couple of examples. On May 26, 2016, the Annual
Filter: No trades placed if news release has little or no Budget of New Zealand was released around 3:00 am GMT
impact on the market (black oval shape in Figure 3). In Figure 3, you also see that
Hit rate: 75% on average, over the time. the figure for Private Capital Expenditure Q/Q, which affects
the AUD, was made available at 2:30 am GMT.
A game of patience In each of the markets on the chart in Figure 4, the red
Youre not going to get news releases that vertical line shows where a trade was entered based on a
impact the NZD often, which means you signal candle, which is the candle that gives you a buy or sell
need to exercise some patience when trading signal. The candle that followed the signal reveals what hap-
this strategy. Sometimes you may expect a
news release to have an impact, but when it Continued on page 45
FIGURE 4: Short-term Trades on AUDNZD and NZDUSD. In each of the markets, the red vertical line shows where a trade was entered based on a signal candle
(the candle that indicates whether to buy or sell). The candle that followed the signal shows what happens to the position.

FUTURES FOR YOU
INSIDE THE FUTURES WORLD
Want to find out how the futures markets really work? Carley Garner is the se-
nior strategist for DeCarley Trading, a division of Zaner, where she also works
as a commodity broker. She has written multiple books on futures and options
trading, the latest is titled Higher Probability Commodity Trading. Garner also
authors widely distributed e-newsletters; for your free subscription visit www.
DeCarleyTrading.com. To submit a question, email her at info@carleygarner-
trading.com or via www.DeCarleyTrading.com. Selected questions will appear
Carley Garner
in a future issue of S&C.
STOCKS VS. COMMODITIES of accessible leverage in the commodity deposit trading a single crude oil futures
Is commodity trading riskier than stock markets. In reality, it is the traders failure contract has essentially eliminated all of
trading? to properly manage risk and the over-use the leverage and substantially shifted the
Despite common assumptions, the of leverage that creates the perception of probability of profitable trading. Thus,
answer to that question is no. If strictly commodity markets being riskier than it isnt the commodity market that is
speaking about speculation in prices, stocks. To illustrate, a trader could buy riskier than the stock market. It is the
as opposed to long-term buy & hold or sell a WTI crude oil futures contract manner in which participants approach
investing strategies, the commodity on the Chicago Mercantile Exchanges the commodity market that creates the
markets are not any riskier than the NYMEX division for as little as $3,500 perceived increase in risk. Unfortunately,
stock market. in a margin account. With that $3,500 a most traders treat the futures market the
It is true that most commodity market trader is making or losing money based same way they treat a Las Vegas buffet:
speculators lose money, but I would ven- on 1,000 barrels of oil with a market They indulge in the present tense without
ture to say that aggressive stock specula- value of roughly $50,000 (depending consideration of future consequences.
tion yields the same frustratingly dismal
results. So why is there such a dark cloud Commodity prices cannot go to zero
hanging over the futures and options It isnt the commodity It is possible for stock prices to go to
markets? Its because of the nature of zero. Even magnificent companies with
the futures exchanges and because the market that is riskier seemingly indestructible business plans
commodity industry allows specula- than the stock market. can cease to exist as economies and
tors to conveniently trade substantially It is the manner in consumers change. Do you remember
beyond their means with surprisingly which participants Blockbuster Video, Staples, or MCI
low barriers to entry. In short, traders Worldcom? These were all considered to
themselves and their behavior are what approach the be blue chip stocks and, in their heyday,
make the commodity markets appear to commodity market that it was difficult to imagine the landscape
be riskier than the stock market. Lets creates the perceived without them. Yet, weve all moved on
look at a few comparative points to il- increase in risk. and anybody holding those companies
lustrate this idea. stocks to the end would have been pain-
fully disappointed. While it is true that
Free leverage in commodities commodities can get much cheaper than
The allure of futures and options trad- on the price of oil). At $1,000 in profit most would deem reasonable, weve yet
ing is easy access to leverage. Unlike or loss per $1.00 change in the price of to see a commodity go to zero.
stock traders who must first qualify for crude oil, it is easy to see how a trader
a leveraged account, which generally could lose most, or all, of his money in Around-the-clock market access
requires a substantial deposit in the six the blink of an eye. Trading with a mere Stock traders might not always acknowl-
figures, all futures traders are granted 7% of the contract value as collateral is edge that asset prices are moving around
leverage regardless of account size. Fur- an accident waiting to happen. the clock but they are, regardless of which
ther, unlike stock traders who must pay Although the exchange makes it easy hours the New York Stock Exchange is
interest to their brokers for borrowing for traders of all size and experience lev- open for business. It is nave to assume
shares for leveraged trading, commod- els to utilize such leverage, it is ultimately that your portfolio is sleeping while you
ity traders enjoy leverage without any the traders choice. Traders can reduce le- are; investors around the world are bid-
cost burden. verage and increase their odds of success ding and offering on assets in various
Unfortunately, human nature lures by simply increasing their account size.
most traders into abusing the advantage For instance, a trader with $50,000 on Continued on page 39
ingly embedded within the very fabric
of enterprise, most people do their best
to mitigate it.
Speculation, on the other hand, takes
on a different perspective toward risk.
Risk is not something to be avoided. It
is a condition to be directly engaged and
managed; a material to be shaped. It
represents the flip side of opportunity.
For the speculative trader, risk itself
becomes the enterprise, with profit be-
ing the object.
The question facing every trader, then,
concerns how much he or she is willing
to risk and what amount of profit might
be worth a certain degree of negative
outcome. Some strategies seek limited
and immediate profits (in the form of
credits) in exchange for unlimited
risk and the potential for deep losses.
As unsavory as this may seem, such
strategies, when handled carefully and
appropriately, can be an effective com-
ponent in a traders arsenal. One such
strategythe short gutsexemplifies
such an approach.
Making sense of
short guts
Short guts is a rarely used option credit
spread that is something of a variant
to the short strangle. Instead of selling
(short) one out-of-the-money (OTM)
call and one OTM put, which creates a
short strangle, you would sell one in-the-
money (ITM) call and ITM put. From
the start, this places you in a position
from which both legs can be exercised
by the buyer should you fail to close
Aim Higher both positions before expiration.
Exploiting Guts,
Now, why would a trader risk writ-
ing options that are relatively deep
ITM? To capture a higher premium.
Risk, And Decay

The aim of this spread is to receive net
credit by selling a call and put at a high
premium price, allowing time decay to
erode the premiums, and then buying
Risk is a necessary part of the trading game. Heres one strategy that could work back both contracts prior to expiration
for you if you have the experience, the capital, and the willingness to take on at a significantly lower price. ITM
higher risk. premiums are typically higher than at-
the-money (ATM) or OTM premiums
W
MAZE: NAEBLYS/SHUTTERSTOCK
by Karl Montevirgen (particularly if the underlying stock

has experienced high volatility). As
e all understand the basic notion that enterprise contains varying degrees of complicated as it may seem, this spread
risk. Every undertaking, from a simple business project to the founding of follows the basic principle of buying low
a startup company, carries with it a probability of failure. As risk is seem- and selling high.
optionS
Why many will not trade Profit Short Guts

short guts or loss
Aside from its unlimited risk profile (which
is not uncommon in the wider field of option
spread strategies), the counterintuitive nature $200
Stock price
of short guts and its grossly uneven risk/ at expiration
reward ratio makes it highly unpalatable for $0
most traders. This strategy also has a high margin requirement, 50 55 60 65 70
preventing most traders from implementing it.
But for those professionals or expert traders who have the
capital resources and time to manage riskier trade opportu-
nities, short guts is a marginal strategy that might be worth
considering.
FIGURE 1: PAYOFF OF A SHORT GUTS TRADE. Here you see the breakeven
Implementing a short guts trade points, max profit, and unlimited losses that could result in a short guts trade.
What makes short guts a difficult spread to trade is not its
structure but rather the prep work (which Ill discuss later on call might be priced at $7 while the put premium might
in the article) and trade management that it requires. decrease to $3. Closing each leg would also cost $1,000,
To put on a short guts trade, there are just two simple leaving you with a $200 gross profit.
steps: Lets suppose that XYZ traded downward to $57 by
expiration. The call premium would be at $2 while the
1. Sell an ITM callat a strike lower than the current put premium would cost $8. Closing each position would
underlying price still result in a $200 gross profit.
2. Sell an ITM putat a strike higher than the current
underlying price. Breakeven levels
Breakeven up: Higher strike + net credit - difference in
By selling an ITM call and put, you receive maximum credit, strikes ($65 + $12) - $10 = $67
marking the highest profit potential for that trade. Ideally, time Breakeven down: Lower strike - net credit + difference
decay will rapidly erode the premiums. Before both contracts in strikes ($55 - $12) + $10 = $53
expire, close each leg by buying back the contracts.
Identifying a short guts trade
Profit objective The prep work for such a delicate trade involves a number
Short guts is a delta-neutral income strategy. Ideally, you want of discriminating factors. Here are the basic conditions to
to see the price of the underlying stock stay very close to the look out for:
strike price around which you have structured your spread.
Your goal is to take advantage of rapid premium decay so A highly volatile stock whose volatility is starting to
that you can receive maximum credit before buying back rapidly wane
each leg prior to expiration. Remember that your maximum A range-bound stock with clear areas of support &
profit is limited to the net credit received when you wrote resistance, and with no scheduled news or earnings
each position. releases
Adequate liquidity (with an average daily volume of
Example: 500,000 or more) in the underlying stock despite its
Stock XYZ is trading at $60. You sell an ITM call with a $55 volatility decrease
strike price for a net credit of $6 and an ITM put with a $65
strike for a credit of $6 (see Figure 1). Continued on page 62
Net credit: Call premium + put premium sold = $12 or

total of $1,200 (before commissions and fees).
Maximum profit: Net credit ($12) - difference in strikes Your goal is to take advantage
($10) = $2 or gross profit of $200.
of rapid premium decay so that
If XYZ stock remains at $60 by expiration, the calls you can receive maximum credit
and puts might have a value of around $5 each (a total before buying back each leg prior
liability of $1,000) upon which you close out each leg to expiration.
for a gross profit of $200.
If XYZ trades to $62 by expiration, the premium of your
Its All About Chart Patterns
Recognizing Price Action

Heres a look at the anatomy of one traders winning trade. with Zanger, but over the years he has remained true to his
trading style. He continues to seek out those stocks with the
by Matt Blackman best potential to explode higher when markets are in the
I
right mood, ever on the hunt for the telltale signs that the big
n the first of two interviews I conducted with stock move is afoot. This was never more evident than in his calls
trader Dan Zanger for this magazine in 2003, I asked on Acacia Communications (ACIA) in 2016. So what was it
him what indicators he used to amass $18 million about Acacia that attracted his attention?
trading stocks in less than two years. His answer was
surprisingly simple. I use absolutely no indicators Anatomy of a winner
whatsoever. I simply rely on chart patterns, price, In 2016, while there were a few stocks that made big moves,
and volume. Who has the time to look at so many the ACIA initial public offering (IPO) particularly intrigued
indicators when you scroll through 400 stocks a night? Zanger. Had I gone on vacation in May prior to the IPO, I
But the obvious question is, if its so simple, why dont more would have never picked it up for $32, he explains.
people do it this way? Clearly, theres more to Zangers success. So what was it that caused him to start advising his subscrib-
ZSOLTUVEGESa/SHUTTERSTOCK
To use a baseball analogy, while hitting the ball hard and in ers to watch it in mid-May? As far as IPOs were concerned,
the right direction may seem simple enough, it certainly isnt 2015 had been a dud, with no high-profile deals hitting the
easy. But unlike raw physical prowess, trading technique can market, due in large part to the strength of the venture capital
be taught to anyone dedicated enough to learn the ropes. market. With lots of private money available, companies had
Much has changed in the markets since that first interview little reason to go public. As a result, 2016 was the slowest
Real World
www.chartpattern.com
FIGURE 1: ITS A BUY. Following a successful IPO launch for Acacia Communica- Figure 2: AFTER A RISE. By June 1, ACIA closed near $40. Zangers comment
tions (ACIA) on May 13, the May 23rd Zanger Report gave Dan Zangers technical at that point notes the stock could be stalling after a gain, but traders who bought
buy area (TBA) of $32. around $32 were already well in the green.
start for IPOs since 2008. mean the up move may have stalled and it would be a good
Prior to the ACIA launch, there had been almost no IPOs. It idea to reduce position size.
was no surprise that the ACIA IPO was cheap. It was only the By August 1, ACIA was trading above $62. Then on Au-
second tech IPO of the year and most investors avoided it alto- gust 11, earnings exceeded expectations, causing the stock
gether. He had a point. The only other technology IPO in 2016 price to jump $28 in one day and volume spiked up. You can
had been Secure Works, a Dell spinoff that was priced below its see this on the chart in Figure 3 (from Zangers August 14th
target but then dropped immediately after it hit the market. newsletter). Following its monster move, ACIA paused for a
But Zanger was confident that ACIA was different. Two days day before continuing to march higher.
after it hit the market on Friday, May 13, 2016, the Zanger The pullback that Zanger and his subscribers had been
Report newsletter included a chart showing the first days waiting for finally started to unfold on August 22. But in the
action. Initially priced at $23, ACIA opened the day at $29 subsequent rally, the stock never hit Zangers next TBA of
and had traded as high as $31.94 before closing at $30.95. A $129. After peaking at $128.73 on September 7, it rolled over
total of 4.2 million shares traded hands. and began its long slide lower.
His chart included the comment, A move above $32 would Zanger issued the following proviso to his readers in the Sun-
be a good speculative TBA (technical buy area) for this IPO. day, August 21st newsletter (see Figure 4): Thursdays spike
(A TBA is when price is above a bullish chart pattern or re- to $124.90 was a good reason to reduce into strength.
sistance area where breakouts can occur.) And on Monday,
May 15, Zanger discussed the stock in greater detail with the
members of his live chatroom.
Little more than a week later on May 23, ACIA hit Zangers
TBA as it moved above $32 on good volume with 1.2 mil- Recognizing the chart patterns,
lion shares trading hands. The stock closed the day at $32.70 volume profiles, and momentum
(Figure 1). action that make them standouts
Lets look at how it moved are just the tip of the Zanger
On June 1, ACIA closed just below $40 after hitting an intraday method iceberg.
high of $43.10 per share (Figure 2). After an $11 gain from the
TBA, the stock reversed down on heavy volume. This could
Figure 3: POST-EARNINGS. On August 11, earnings exceeded expectations in Figure 4: A PAUSE IN THE ACTION. The next good setup approaches as ACIA
ACIA, causing the stock to rocket. This chart from Zangers August 14th newsletter takes a break from its rally.
shows the move.
Finding stocks in the winners circle

ACIA was a stock that had a number of factors Zanger looks
for in a market-leading stock. First, it was experiencing
exceptional growth. It also had phenonomenal earnings and
market-leading products. And it was in the communications
space, a strong industry.
And once the stock hit the market after it went public, it
exhibited a number of the compelling bullish chart patterns
that Zanger looks for (such as bull flags and bull pennants; cup
& handles; and head & shoulders), supported by large volume
spikes during the big moves. Until it didnt. His October 3,
2016 comment to subscribers included the pronouncement
avoiding for now. (Figure 5).
Trading what works

While markets have changed, how to find the next market
leaders has not. But recognizing the chart patterns, volume
profiles, and momentum action that make them standouts are
just the tip of the Zanger method iceberg.
Trading technique can be

Figure 5: END OF THE RUN? This chart from Zangers newsletter shows that
taught to anyone dedicated
the rally appears to be coming to an end, with Zanger warning his subscribers on enough to learn the ropes.
October 3, avoiding for now.

What isnt readily visible in media
soundbites is that it took Zanger years
to develop his technique to search and
find stocks like ACIA that have the
key components, both technically and
fundametally, to make them explosive
stockmarket outperformers.
But his is no get-rich-quick scheme.
Once you have found potential winners,
you need to have developed the patience
to wait for the move; the laser-like focus
to recognize that the move has begun; the
timing to know when to strike; and the
emotional control to manage the trade.
And finally, you need to have nurtured
the well-honed discipline not only to wait
for the move to unfold, but also to know
when to take profits. The only question
that remains for would-be successful
momentum traders is, do they have what
it takes to meet the challenge?
Matt Blackman, is a technical trader,

author, reviewer, keynote speaker and
regular contributor to a number of trad-
ing publications and investment/trading
websites in North America and Europe. He also writes client modities, Volume 21: August.
newsletters and assists clients in building their professional [2014]. Seeing The Patterns With Dan Zanger, in-
profiles through various financial and mainstream media terview, Technical Analysis of Stocks & Commodities,
outlets as well as client resource management. He earned the Volume 32: Bonus Issue.
Chartered Market Technician (CMT) designation from the Bulkowski, Thomas N. [2005]. Encyclopedia Of Chart Pat-
Market Technicians Association (MTA). Follow Blackman terns, 2d. ed., Wiley Trading.
on Twitter @RatioTrade or email him at indextradermb@ Zanger, Dan, and Matt Blackman [2010]. Is Trading That
gmail.com. Simple? Technical Analysis of Stocks & Commodities,
Volume 28: August.
Further reading ChartPattern.com
Blackman, Matt [2003]. Chart Patterns, Trading, And Dan
Zanger, interview, Technical Analysis of Stocks & Com-
CALHOUN / ASCENDING TRIANGLE BREAKOUTS

Continued from page 17 The ascending triangle visually
shows the forces of demand
tries. Remember, the reason for your entry is because buyers overpowering supply, which leads to
are winning control of price action once it breaks above new
highs. If price drops $2.00 or more beneath your initial entry,
an increase in price.
then it is smart to take a small stop, since the reason for your
initial entry is no longer valid. If price continues to move up, you will find that ascending triangles can help you spot strong
it is often helpful to add shares to a winning position to scale breakout trading opportunities as they occur.
in every two points or so, with a two point trailing stop.
As with all of our professional swing and intraday charts, Ken Calhoun is a producer of trading courses, live trading
it is best to use this strategy with stocks and ETFs priced in room and video-based training systems for active traders.
the $20-$70/share range, because these charts tend to have He is a UCLA alumnus and is the founder of TradeMastery.
stronger, more sustainable breakout trends than cheap, choppy com, an educational resource site for active traders.
stocks priced under $10/share. As with other bullish patterns
such as cups, gap continuations, and 45-degree angle uptrends,
INTERVIEW
From Pennies to Currencies
Justin Bennetts Trading Path

Justin Bennett made his very first trade at the age of 14 and quickly found
out the challenges that the trading world can pose. But those challenges only
encouraged him to keep learning and trading. Driven by the passion of the
markets, he started trading equities and then moved on to trading the currency
markets. His persistence paid off. Along the way, he found a method that works
for him and brings him consistent profits. At his blog, DailyPriceAction.com,
he offers courses on trading and shares his thoughts.
Stocks & Commodities Editor Jayanthi Gopalakrishnan spoke with Justin
Bennett on February 14, 2017 to find out more about what kept him going in
his trading career in spite of running into roadblocks.
Justin, tell us a little bit cies because I liked the idea that you
about yourself. From your can go long and short. You dont have
blog I understand that you to worry about borrowing, so that was
started learning about the nice. And I also liked the fact that it
financial markets from a was 24/7, so I could trade around the
very young age. How did clock as well. Ive been running my
that come about? website now for about three years.
I guess technically I started trading
I always tell people that the
when I was about 14 or so. I dont honestly You started young and realized that only thing that separates
know where the interest in stocks came penny stocks dont work out so well someone who succeeds in
from. One thing thats interesting is that but yet you still wanted to continue this business and someone
I remember my dad used to subscribe learning. You realized that proper
to this magazine, Technical Analysis of risk management was important.
who doesnt is persistence.
Stocks & Commodities. So, clearly you What changes did you make after That is really the only thing.
guys have been around for a long time trading in penny stocks?
because as soon as I saw the magazine Yeah, with the penny stocks, obvi-
cover, it brought back some childhood ously I had no idea what I was doing. and over-the-counter markets. And then
memories. I remember my dad having My mom was against the idea of my from there, my trading just developed and
stacks of S&C magazine issues in his trading penny stocks but my parents evolved. The passion grew and over the
reading corner. So maybe thats where I have always been the type who would next few years I continued to study and
picked up my interest. I dont remember let me fail instead of telling me not to do invest. There would be something that
my dad doing a lot of trading but he al- something. They would go along with it worked here and there, but overall, my
ways had an interest in the markets. and let me fail because they felt that was success was limited. Between 2002 and
Going back to when I started, when I the way to learn lessons in life. What I 2007 is when I was trading or investing
was 14, I worked some odd jobs around came to realize is that first of all, when in stocks. And then in 2007 I transitioned
the neighborhood and I would give my it comes to penny stocks, as we know, to trading forex full time.
mom money to invest in various penny there are a lot of scams out there and
stocks that I found. Of course, nothing second, theyre just too volatile. When I I thought that was quite interesting
worked out. We all know too well about was older, maybe around 18 or 19 years when I read at your blog that you started
how 99% or so of the penny stocks work old, I started to work on my craft a little using chart patterns. You used to use
out. But thats where my interest in stocks more in that I would do more research indicators but then they didnt work out
began and when I was 18, I started dab- on stocks. so well and you switched to basing your
bling in the stock market. It was around I started trading more of the blue-chip trading on chart patterns. Can you tell
2007 when I started trading currencies. I stocks as opposed to penny stocks, so I us about that transition?
made the switch from stocks to curren- was getting away from the pink sheets I think it had more to do with exhaus-
Chart
Scan
Learn
Award-Winning Charting Professional Commentary
Trusted by thousands of online analysts, From daily blogs to weekly webinar shows,
StockCharts.com makes it easy to create StockCharts.com hosts free current market
high-quality technical charts with just a analysis and educational commentary from
few clicks. No software to install, just an some of the industrys leading technical
internet connection and the browser of your analysts. Learn from the best to boost your
choice. Watch your charts automatically technical skills and financial prowess.
update in real-time and access them
on-the-go from any web-enabled device.
Customizable Scanning
Pring Murphy Hill
Fully customized to your technical
parameters, our world-class scan engine
allows you to instantly find the stocks that
meet your specific criteria. Plus, our technical
alerts notify you of key moves to help you
Elder Bowley Schnell
stay ahead of the curve.
and more!
Proud to be voted
Follow Us
Best Technical Analysis Website
14 Years in a row!
Start Your FREE 10-Day Trial Today
2015 StockCharts.com,Inc. All Rights Reserved.

Information provided by StockCharts.com is not investment advice. You are responsible for your own investment decisions.
Yes, exactly. I came to realize is persistence. I mean, that is the only
You have to have the the importance of price action thing. But in order to do that, you have
passionnot the passion trading and thats all I discuss to have the passion. And its not a pas-
on my blog. sion for making money, its a passion for
for making money, but a the game. Its a passion for trading. You
passion for the game. You When you look at patterns such have to get excited about it. When you
have to have the passion as head & shoulders, ascending look at the markets and you dont get
for trading. and descending channels, or the excited from watching the markets and
pin bar (see sidebar, Whats A seeing how they react to news, then your
Pin Bar?), youre just focusing chances of succeeding are slim to none
on price action. What charts did because youve got to have that passion
tion! I tried out as many indicators as I you perform this type of analysis on? for the game. That passion is the only
could and came to the realization that I only started this when I was trading thing thats going to get you through the
its difficult to have them work the way forex. Prior to that I was using anything tough times. A passion for the money
you want them to work. I dont mean to I could get my hands on. I also tried isnt going do it.
say they dont work or that a combina- fundamental analysis. I was determined
tion of them doesnt work well. As Jack to make this work but everything I tried Thats a different outlook than most
Schwagertrader and author of the wasnt working. Thats why I went for people have. You teach people how to
Market Wizards seriessaid, there are something quite drastic, and that was to trade forex. Do you find therere a lot
a million ways to make money in the remove everything from the charts. of people who come in with the drive
market but theyre not easy to find. So to make money or do they really want
everyone has got to find what works for What I find interesting about your to learn?
them and what fits their personality. For trading journey is your perseverance. Oh yes, its quite pervasive. I would
me, I had this realization, after two to For you it was the determination to find say that 80% to 90% of the people who
three years of trying just about every consistency through a technique that come to me, whether its somebody who
possible indicator combination, when I works for you. What kept you going? wants to join my community or an email
finally removed all the indicators from I always tell people that the only thing that I receive, do so based on the desire
my chart. I signed onto my trading plat- that separates someone who succeeds in to make money. Everyone wants to know
form one day and cleared off my chart this business and someone who doesnt how they can make more money. They
of all the indicators. And thats when I
had this aha moment. I was looking
at a naked chart and could see all these Whats A Pin Bar?
levels on the chart because without The pin bar, a candlestick pattern well known to forex traders, was originally
all the indicators I could now see the given the name Pinocchio bar by technician Martin Pring. Yes, it has a long
candlestick bars. nose, or long wick, so the open and close are at either the top or bottom of the
candles range. The nose or wick has to be at least two-thirds of the range of the
You couldnt do that before? entire bar, and a longer nose means the signal is more powerful. In some ways,
What I had on my charts were maybe its identical to whats known as a hammer, or the bearish version of it, which
three or four indicators displayed in is a shooting star. And theres a reason why Pring called it a Pinocchio bar. It
subcharts below the price chart. That deceives you into believing that price is breaking out and moving in a specific
made the chart so small and narrow that I direction. Alas, thats not what it might end up doing. So when you see a pin bar
couldnt clearly see what was happening forming, chances are price will reverse.
with the price action. When I removed
those indicators, I was looking at a chart Bullish Pin Bar Bearish Pin Bar
that was twice as big and I could see
some critical levels in the price action.
Bearish pin bar
It was interesting in that they just started
popping out for me. And thats when I Bearish candle Bullish candle
said, Oh my gosh, there it is. What have
I been doing all this time? So I think
that when you get back to basics, you
see the market for what it is. Bullish pin bar
Bullish candle Bearish candle
Thats interesting. Was it this discovery

that led you to calling your blog Daily
Price Action?
want to know how to make $2,000 a
month through trading. Or they have
some figure in their head of what they
need to achieve in order to quit their job.
Thats what everybody wants to do.
I tell everyone the same thing and that
is, Just stop focusing on the money. Dont
try to make $2,000 a month. Dont try to
make $100 today. Focus on the process.
Perfect the process and the money will
follow. Thats really what its all about
and by process, I mean everything
using price action, identifying trends, Newly Redesigned Software for
risk management, the mental game
all of it. Thats the entire process. And Futures, Forex & Stock Traders
if you focus on those things and you
do it every single day, then the money
will eventually follow. It could take a
year, it could take eight years. You just
dont know but thats what you should
Over 500 User Driven
be focused on.
Enhancements Including:
When you say risk management, do
you have a specific strategy you apply Fully multi-threaded core for greater performance
to all your trades or does it vary? Modern user interface with simplified navigation
I would say it varies, depending on Major charting enhancements
the setup. But one thing that I do a little
differently is I dont apply the fixed- Up to 10X speed improvement in backtesting
percentage rule. You always hear that you Add custom columns & indicators to SuperDOM
should risk two percent or one percent of Historical bid/ask data
your account. And I do that, in a sense,
but I have what I call a hybrid approach Expanded C# development support
where Im more interested in the amount
of money thats being risked. So Ill take
a percentage of the account but it has
more to do with how much money I can
risk to the point where Im not going to NinjaTrader 8 is always FREE to use for advanced
be emotionally compromised. The loss
of money is what causes the emotional
charting, strategy backtesting and trade simulation.
response, not the loss of a percentage.
The percentage really doesnt have
any meaning until you apply a dollar or the 15-minute chart, moving from site is true. Its quality over quantity.
amount to it. that to trading the daily chart takes a
huge weight off your back. You trade Since you trade forex, how much
And how do you overcome the mental at a much slower pace, which helps to attention do you pay to the news?
game besides using the hybrid approach reduce the stress levels. Thats
of risk management you just talked because youre not constantly
about? watching the market all day Theres a misconception
That risk management approach is waiting for something to hap-
one way I overcome the mental game. pen and then trading 5, 10, or
that the more you trade,
The other way is that I trade the higher 15 times a day. the more you make. I
timeframes, which I think has a lot to Instead, you might trade five believe the opposite is
do with the managing of emotions. In or 10 times a month. Everybody true. Its quality over
talking to traders and having been in has this misconception that the
that position myself, I have found that more you trade, the more you
quantity.
if youre trading the five-minute chart make. And I believe the oppo-
announcements. In the forex of your account balance.
market, therere tons of different So new traders need to learn that less
I consider myself a 100% ways that a news event, whether is more. They need to realize they dont
technical trader. I never its scheduled or unscheduled or need to take 50 trades a month to make
base a trading decision a natural disaster, you name it, a lot of money.
on the outcome of a news could affect currencies. I think The second misconception would be
the main difference is that with thinking that the markets can only go up
event. trading forex its more the com- and down, which means youve got a 50%
bination of it being a 24-hour chance of making money on every trade.
market and having a plethora They go in thinking that it may not be
I consider myself a 100% technical of different things that could affect the easy but it cant be that difficult, either.
trader. I never base a trading decision currency that youre trading. I think people underestimate just how
on the outcome of a news event. With difficult it can be, especially the mental
the news, all Im focused on is when Are the currencies much more volatile game. Its not about looking at a chart
the news is coming out and what impact or less volatile than equities? and thinking you just have to buy down
that could have on my position. I dont I would say theyre more volatile, not here and sell up there.
base trades on anything fundamental, in terms of percentage, of course. But
per se. Im more concerned about how I think the leverage in forex makes it I think you nailed it. And then do they
the market reacts to the news. Weve all a more volatile and dangerous market realize when they start trading with
seen it happena number is released and to trade. The forex market is called the real money that its a whole different
everybody thinks its positive, yet the Wild West for a reason. Its not nearly as game?
market doesnt seem to think the same regulated and the leverage that you can I would think so, especially when the
way. Then everybodys left scratching have in forex, even here in the US, is 50 market starts to mess with you. The men-
their head. Thats why I focus on the to 1, and that is much greater than the tal side of it is severely underestimated,
markets reaction. leverage you have with equities. I think, by most people who come into
the markets.
And you just look at charts. When you In terms of your students and your
look for patterns on your charts, do you work with new traders, what do you Do you think the rise of social media
look at multiple timeframes or do you see as some of the most common has got something to do with people
just look at the daily charts? misconceptions that people have before wanting to trade more often versus the
I trade the daily chart and four-hour they start trading? quality of their trades?
timeframe. Sometimes I do take trades One of the biggest misconceptions or Perhaps, but in the forex markets its
on the one-hour chart. But I would say mistakes that new traders make is they difficult to say because for the last few
90% of what I do is on the four-hour overtrade. Say theyre looking at the years, the forex markets have contracted
chart and the daily chart. daily charts. Instead of taking five or in terms of retail traders. But yes, so-
10 trades a month, they end up taking cial media may be impacting equity
It seems that forex traders like that 10 or more trades a week. I try to get traders.
four-hour chart, for some reason. their head around the concept that less
Why is that? is more and also get their head around Thanks for speaking with us, Justin.
Yeah, the four-hour chart is popular. the concept thatand I always emphasize
Its a good timeframe to use when trading thisall you really need is one or two Further reading
around the clock and globally. Its a good good trades a month. One or two good Pring, Martin [2004]. Pring On Price
representation of various geographic trades a month could make a lot of money Patterns: The Definitive Guide To
sessionsUS, London, and Asia. in this business, especially if you get Price Pattern Analysis And Intrepre-
good with pyramiding into a position. tation, McGraw-Hill.
Earlier you mentioned you like trading Theres no reason you cant be making DailyPriceAction.com blog
forex because you didnt have to 5%, 10%, or 15% on a single trade. And
borrow to trade and that it is a 24-hour all the while, youre risking 1% to 2%
market. What do you find to be the big
difference between trading equities
versus forex?
Good question. I would say the biggest
difference is that youre talking about
a global scale versus something that is
company-centric. In equities, most of
the movement comes from company
Take Control of Your Trading with the
Professional Traders Starter Kit
Sto
tors
only
5
cks
$
y Market Research
ed Trading Indica
Trad
Wor
Article Code
& Commodities mag

al Edition
Digi
ers.comAdvantage
kingMoney.com
tal Archive
Digit
S&C
z
Dail
m i
per month! *
i
Opt
azine
The Foremost Collection For Traders 4. Traders.com Advantage, premium website content delivering
This massive collection packages the best tools for trading and real-world technical analysis to you! Youll get five years of
investing in any market! charts, indicators, and how-to advice for specific markets,
1. Technical Analysis of Stocks & Commodities, the Traders currencies, stocks, and commodities; near-term opportunities;
Magazine. The premier magazine for technical analysis. price movement; new techniques. Posted in real-time with an
Youll get five years 65 issues including our annual archive of thousands of articles.
Bonus Issues with our Readers Choice Awards. 5. Working Money, the Investors Magazine online. Youll get five
2. S&C Digital Edition. Recent complete issues available in their years of market observations; explanations of charts, markets,
entirety as PDFs for you to either download or read directly and market sectors; money management; and interviews with
in your browser. No more waiting for the mail to deliver your money people that will help you trade and invest wisely.
magazine! You will still receive the printed magazine unless 6. Article Code. Download or copy & paste code presented in
you opt for a digital-only subscription. past issues of Stocks & Commodities no need to type it
3. Complete Digital Archive. The complete archives as PDFs out manually.
more than 17,000 pages from Technical Analysis of 7 . Optimized Trading. The optimized indicator values can be
Stocks & Commodities from 1982 through the present. used as starting points when trying to decide what values to
The articles can be read in your browser or download to input into your charting software. Search for a certain symbol
your computer (or any device with Internet or company or build your own portfolio.
access and the ability to read a PDF)!
ALSO RECEIVE A FREE BOOK

WITH YOUR PTSK ORDER!
Charting The Stock Market: The Wyckoff
Method, edited by Jack K. Hutson, is yours
free with your order for the Professional
Traders Starter Kit. www.Traders.com

Shipping and handling charges apply for foreign
*Based on the 5-year subscription rate of $299.99. Shipping extra for foreign addresses.
orders.
Email: Circ@Traders.com Phone: 206-938-0570 facebook.com/STOCKSandCOMMODITIES @STOCKSandCOMM
Explore Your Options
Got a question about options? Tom Gentile started his trading career on the floor
of the American Stock Exchange in 1994. He has appeared on many financial
TV and radio shows, as well as hosting a weekly talk show himself, and has co-
authored many books on the markets. He can be found at www.tomgentile.com.
To submit a question for Tom Gentile, post it to our website at http://Message-
Boards.Traders.com. Answers will be posted there, and selected questions will
appear in a future issue of S&C.
Tom Gentile
Risk Reversals and Robbing Peter strategy could to be to buy put options suggest. Say the price of a single share
to Pay Paul commensurate to the number of shares of PCLN is $1,646. To take ownership
I often use options to speculate or to you own. of 100 shares would cost you $164,600.
generate income. I anticipate future I like that I can own a call option Compare that to owning a call option.
price movements and in what timeframe vs. paying for the stock outright. Take One contract controls 100 shares of
they will make those price moves. Then, The Priceline Group, Inc. (PCLN), stock. A call option with an expiration
instead of purchasing or selling short of March 17, 2017 at a strike price (the
the stock, I take a position in either a price at which you agree to have some-
call or put option based on my sense The sale of the put one be able to call the stock away from
of price direction for that underlying spread can reduce the you) of $1,645 is priced at $53.60.
security. cost of just doing a One contract is 100 shares, so 100
credit spread and it can times $53.60 would cost $5,360. Thats
Minimizing risk significantly lower than the cost of own-
Options were originally brought about sometimes set you up ing the stock, but it still carries a lot of
to be a way to hedge your risk. Options with an initial credit risk nonetheless. How can you utilize
can be used like a car or home insur- or infusion of a small options where you can pay for the other
ance policy. You can use options to amount of cash in your without having unlimited risk?
protect against a downturn in a stock
youve owned for a while that has run account. Robbing Peter to Pay Paul
up significantly enough for you. Risk reversals are the ability to buy a
Holding onto the stock for more for example. Say you want to own 100 call and simultaneously sell a put that
upside seems appealing, but you dont shares of PCLN, because you believe pays for the call. The problem here is
necessarily want to give up too much the price of the stock will continue to that when it comes to risk, this is no
of those gains, if hardly any at all. One climb higher like the chart seems to different than buying the stock. There
www.tomsoptiontools.com
FIGURE 1: ROBBING PETER TO PAY PAUL. The put spread pays for the call spread. This is executed by simultaneously opening up/purchasing a call spread at
a cost of -$187 and opening a sale of a put spread for $193. The result of the sale of one spread vs. the cost of the other results in a credit to your account.

Explore Your Options
is a better way to create a risk reversal
using offsetting spreads. You buy a call
spread and offset the risk/cost by selling
a put spread. The sale of the put spread
can reduce the cost of just doing a credit
spread and it can sometimes set you up
with an initial credit or infusion of a
small amount of cash. I like to call this
strategy robbing Peter to pay Paul.
As an example, I am going to utilize
options on the VanEck Vectors Oil
Services ETF (OIH). This ETF tracks
the price and yield performance of the
MVIS US Listed Oil Services 25 Index
(MVOIHTR). Basically, it tracks stocks
in the oil services sector/industry. Say FIGURE 2: RISK GRAPH FOR THE STRATEGY. There is an area where theres no loss or risk at expiration. A
OIH is trading at $33. I will use options big move in the underlying can bring significant profits.
with an expiration date of July 21. A July
21, 2017 $30 call option contract will is have the put spread (robbing Peter) risk or hedges an already hedged posi-
cost you $440 (premium of $4.40 times pay for the call spread (paying Paul). tion. As you can see in the risk graph in
the 100 that one contract controls). This is executed by simultaneously Figure 2, it is similar to a call spread,
A bull call (debit) spread would cost opening up/purchasing a call spread at a with the exception of the middle. This
you $187 per contract. If you own 100 cost of -$187 and opening a sale of a put is what makes this strategy different
shares of OIH, it would cost or have spread for $193. The result of the sale it hugs an area of no loss and risk at
you risking $3,300 (100 shares at $33 = of one spread vs. the cost of the other expiration. Basically, you are looking
$3,300). The call option reduces risk to results in a credit to your account (held for a big move in the underlying. In
$440 and the bull call spread has your in the account until either the spread(s) this example, you are looking to profit
risk reduced to $187. are closed or till expiration) of $6 per over $34.
The option scenario for the rob contract ($193 -$187 = $6).
Peter to pay Paul strategy is shown This strategy may not always be set
in Figure 1. up to start as a credit to the account,
What I am trying to accomplish here but often, it even further reduces your
FUTURES FOR YOU

gaRneR a distinct advantage over commodity similar option market access, but it gener-
Continued from page 25 tradersincome. The cash ow provided ally requires a rather large account to do
by dividends gives traders a downside so whereas futures traders can implement
countries that will impact the open of cushion against stock declines. Of such a strategy with a small account (a
trade on the US stock market. course, commodity traders do not enjoy few thousand dollars).
Futures traders, on the other hand, are this luxury.
well aware of changes in market value Stocks vs. commodities
throughout a 23-hour trading session Easy option market access The commodity markets get a bad rap for
because they can clearly see their ac- The good news for commodity traders is being risky but the truth is they arent
count value uctuate at nearly all times that despite the lack of dividends, they any riskier than stocks. The elevated risk
of the day. Although the overnight risks will have easy and cheap access to the in commodity trading comes from the
to stock traders arent always visible in commodity option market. This allows way traders approach speculation rather
the same way that it is by futures traders, traders to sell calls against long futures than from the market itself. The reality
it is still a real risk. positions or sell puts against short futures is, commodity markets can be as risky
positions. In either scenario, it provides or as conservative as the trader chooses
No dividends for commodity traders the ability for commodity traders to cre- for them to be.
Stock speculators holding positions long ate income while they wait for their trade
enough to qualify for dividends have to pay off. Stock traders are afforded
Call Bluff
Game Theory
When you think of trading, the farthest thing from your mind is Forms & equilibrium
to compare it to playing a game. But studies have shown that Game theory attempts to spotlight equilibria in the games it
the behavior of players in a game is not unlike the behavior studies. Equilibria is a fancy word for sets of strategies where
of participants in the most complex game setting of allthe players will not change their behavior. The most famous of
markets. We can take a cue from these studies. the equilibrium concepts was developed by John Nash and
called Nash equilibrium. Nash equilibrium is a simple yet
by John Devcic powerful idea. It states that no player in a game will have any
T
reason to change his current strategy unless the other player
here are two main branches of game theory has changed his strategy. I want to point out that this state-
cooperative and noncooperative. Noncooperative ment assumes that all of the players are aware of each others
game theory deals largely with how individuals strategies. Knowing your opponents strategy will help when
interact with one another while trying to achieve you formulate your own strategy.
their own goals. In this article I will focus on non- The concept of forms plays heavily in the understanding of
cooperative games. Game theory has been successfully used game theory. Forms are a way of describing a game. There
in biology, engineering, political science, and economics. are two major forms. One is normal form and the other is
Though many principles of game theory have been around extensive form.
a long time, the true start to the study of games was begun The normal form way of describing a game includes all
by John von Neumann and Oskar Morgenstern in their book conceivable strategies and their payoff to the player. Mean-
GAME THEORY WORDCLOUD: ibreakstock/SHUTTERSTOCK
Theory Of Games And Economic Behavior that was published while, extensive form represents the game in a different way.
in 1944. An extensive form will look at a game as a tree. Along the
Initially, game theory was set up to study zero-sum games. way, there are points called nodes. You begin at an initial
Studying zero-sum games allows game theorists to understand node and the game will flow along the tree determined by the
a players behavior during a game, since players success or player. Every time the player reaches a point where a deci-
failure depends on how one player reacts to the others strate- sion has to be made its called a decision node. Each decision
gies and choices. Here, Ill go over the major concepts of game node belongs to a player. Each node presents the player with
theory and then explain how some of these concepts can be possible choices to make, and each move that player makes
used by traders and investors. is called an edge that will lead to another node. The game
TRADING PSYCHOLOGY
will continue until that player reaches a terminal node. The

terminal node is obviously the end of the game. The market can be said to be a
Types of games noncooperative, continuous, and
Game theorists study games and how players behave during a simultaneous zero-sum game
game. There are many types of games they study. I will detail played with perfect information.
a few of the most important types.
Zero-sum games and non-zero-sum games. I mentioned zero-

sum games earlier. A zero-sum game is one where there is a
clear winner. The winners payoff comes via a direct loss by the move of the players. Continuous games, however, can go
the loser or losers. An example of a zero-sum game is poker. on forever, theoretically speaking. Players participating in a
The losers at the table will have lost their chips to the winner. continuous game can choose their strategy from a continuous
As you can see, its a simple concept. strategy set. Continuous games have no set number of players,
There has been a running debate about whether or not the moves, outcomes, or solutions.
market can be considered a zero-sum game. Lets take a look
at a situation that may clear up this debate. Take the collapse of Types of information
Enron as a perfect example of a zero-sum game. While Enrons I want to briefly talk about information when it comes to
stock was plummeting, there were short sellers who rode the game theory. There are two typesperfect information and
stock all the way down. Those were the winners. On the other imperfect information.
hand, you had investors and other traders not only holding but Perfect information is when everything that can be known
also buying the stock as it continued to go down. is known by all of the players in the game. An example of
The transfer of profits was obvious. The harsh reality is this is chess. The move made by one player is all that matters.
that the market through its very nature is a zero-sum game. The information is perfect because it is seen by the players
The wealth shifts from one investor to another. The winners and anyone watching.
in a poker or chess game are far easier to identify than the Imperfect information is the exact opposite of perfect in-
winners in the market. While their identities are hard to formation. The information is not known by all of the players
come by, it still remains that the market is a zero-sum game. right away. Decisions become more difficult to make with
Obviously, a non-zero-sum game is the opposite of a zero- imperfect information.
sum game. Most of the games studied by game theorists are
non-zero-sum games. Types of analysis
Games in which all the players can lose or gain in tandem is There are two types of analysis in game theory. First is de-
an example of non-zero-sum games. But you can easily turn a scriptive analysis, which is the belief that a persons behaviors
non-zero-sum game into a zero-sum game by adding another can be predicted when that person is placed in a situation that
player, one who acts as a false player of sorts. This new player is like the game being studied. The other form of analysis is
is only there to lose and his loss will equal the net win for the prescriptive analysis. Some scholars believe that game theory
winning player. Other non-zero-sum gains are games in which is not a tool to make predictions but instead can be used as
the total gains and losses by the players can turn out to be a suggestion for how people ought to behave in certain situ-
either more or less than what those players began with. ations.
Simultaneous and sequential games. Sequential games are Putting it all together
turn-based games. One player will make a move only after The concepts explained in this article can be used by investors
another has made his move. The player who made the second to make them better players, so to speak. The market can be
move is responding to the first players move. There is a time said to be a noncooperative, continuous, and simultaneous
advantage, which ends up giving the second player an edge zero-sum game played with perfect information. Knowing
over the player who made the first move. this, what is the best way to go about investing? Here are a
Simultaneous games are those where all of the players few steps that are based on the concepts of game theory.
move at the same time. There are no moves based on another First you want to identify the game you are playing. When it
players move. Time advantage does not exist. A strategy is comes to investing, you have many choices to make and each
developed and used by each player based on what he believes of those choices or investment styles have strategies. You may
to be the best strategy instead of one that reacts to moves or choose to be a daytrader, or maybe you are trying to generate
strategies made by other players. income, or perhaps you are a value investor. Regardless of
what type of investor you are, you have different strategies
Continuous games. Most games studied by game theorists you could apply. While these types of trading styles are only
are those with a set number of moves that can be made. The a couple of examples, the concept is clear. A daytrader will
number of moves that can be made will vary depending on not go about investing the same way as a long-term investor.
Choose the strategy that is right for you and that will help
you meet your goal. One should not assume all
Second, you want to look at and attempt to identify the
other players in the game. This can often prove difficult when
investors in the market are
it comes to investing. But you can make certain assumptions rational and make well-executed
of the other players. There will of course be large investment decisions based on their
banks, brokerage firms, daytraders, and other individual inves- strategy.
tors, some wealthy and others not so wealthy. When looking at
the other players, its a good idea to try and get a sense of their
strategy and then take on the market. The best way to combat
the unknown players and their motivation is to formulate a may not have happened or will not ever happen, it does not
strategy that best suits your investment goals. have to be so. You can easily set up a strategy based on the
Third, is not to assume that all the participants in the market one metric that is seen by all investors and traders: price. The
are in it to win. You may be there to make a fortune but some price reflects what can be known about a security by all the
traders are gambling and can be erratic. While on the surface players in the game at any one time. This matches the defini-
this seems illogical, you should not assume all investors in the tion of perfect information nicely. If you base your strategy
market are rational and make well-executed decisions based on what the price is and what your reaction to a price change
on their strategy. Their strategy and reason for investing are is, you will become a more analytical investor.
not the same as yours so thats something to keep in mind
when formulating your strategy. While I will not get into the Analyze that
psychology of why certain investors do what they do, all you The study of how players will behave in a game is an interest-
need to know is that not all investors are trying to win. ing and valuable piece of information. While game theory is
complex and has been simplified for the benefit of this article,
Lean toward analytical the theories presented by game theorists can be helpful to
The more complex a game is, the more difficult traders of any experience level. Looking at the market as
it can be to analyze. There arent any games a game is not in any way cheapening it. When we hear the
more complex than the market. If youre an word game, our initial instinct may be to think of something
analytical player, youre not going to be overrun simple that isnt going to occupy much of our time. But game
with emotion that could cloud your judgment, which is why theorists have shown that any game, complex or simple, can
I encourage everyone to try to be as analytical as they can give us valuable information about how to play it and how to
be. Only then will you not allow simple whims to help you formulate a successful strategy to win the game.
make your trading decisions. And this applies to long- and
short-term traders or investors. John Devcic is a market historian and freelance writer. He
The first step in becoming an analytical investor is to create may be reached at drmorgus@gmail.com.
a strategy. Game theory has an interesting definition for the
word strategy. A strategy is a complete description of how Further reading
you will behave under every possible circumstance. Following Neumann, John von, and Oskar Morgenstern [2007]. Theory
that definition, your strategy needs to plan for any scenario Of Games And Economic Behavior, Princeton University
you can think of and also your response to them. While it may Press.
sound difficult to set up a strategy based upon scenarios that
Sneak preview...
Moving Average Stochastic Alter Ego of Swing Trading The Edge In Chart Patterns (Part 2)
by Vitali Apirine by Martha Stokes by Giorgos Siligardos
Two can be better than one. Heres With so much coverage of blue chip The first part of this article series showed how
a trading system that uses two in- companies from popular media channels, you can define the edge of a chart pattern
dicators based on momentum. The tweets, or social chat rooms, traders often through a trading system. The second part
system helps identify divergences overlook small-cap stocks, which provide will elaborate on three practical issues of the
and trends. wider spreads and more liquidity. Find out subject. Coming soon!
how to capitalize on them.

Q&A
SINCE YOU ASKED

Confused about some aspect of trading? Professional trader Rob Friesen, president
& COO of Bright Trading (www.stocktrading.com), an equity trading corporation,
answers a few of your questions. To submit a question or suggest a topic, email him
at robfriesen@brighttrading.net, or post your question to our website at http://
Message-Boards.Traders.com. Answers will be posted there, and selected questions
will appear in a future issue of S&C.
Rob Friesen
A Losing Trader Finds His Way As I have had a trading account on the I decided that for my account size,
leaner side, I have had fewer chances to personality, lack of experience,
Oliver is so intent on following a blowing be wrong, similar to being the short stack and poor track record that trading
autumn leaf that he doesnt even notice in a poker game. I learned I had to be intraday hedged portfolio style or
that hes lost his way. All alone at the edge selective as well as reduce as much risk pair combos would be best.
of the woods, he starts to cry. He cries as possible with each successive trade. I decided to allow myself time to
and criesbut he is still lost. And so he This wont be a solution for everyone do the slow grind and build my
rubs his nose and tries to think nor is it a recommendation, but it is account rather than shoot from the
Oliver Finds His Way by Phyllis Root how I systematically reduced risks to hip, cowboy style.
each trade and to my overall trading
This is a childrens book and within account: Bet size. This was a tough area to get
its pages, it describes a pattern I often my head around as it seemed I had to
observe with traders. I decided to eliminate overnight risk trade larger per idea in order to make any
Being focused is usually a good thing, altogether by trading intraday only. money. It took a lot of clubs to the head
but it isnt always. Oliver, the little brown Note, this was not a permanent de- by the losses to get my attention.
bear in the story, was intent, but that led cision, but an until further notice, I wanted to remain in this career and
him to a place he regretted. Traders can based on progress step. succeed by being consistently profitable.
intently work at the widgets, strategies, I decided to add additional research I would accept nothing less, so had to
or research all they want and still get to filter out story stocks (those with put rules in place and be disciplined
lost in the woods. I have seen emotional recent news or with ongoing stories about those rules.
responses where there should be ratio- about which I may not be able to stay To keep things simple, I chose a struc-
nal thought and reactionary outcomes tured approach that I can use every day
rather than reflective thinking. Even in for every trade:
this age of automation and computer- Small accounts require
assisted trading, the mental game still tight management, I identify the stocks I want to trade
needs to be won. controlled bet ratios, and I ATR balance them against
Owen (name changed so he doesnt each other.
get thronged with fan mail) is a trader
respect to account I then adjust the size to accomplish
who has had a few challenges, the largest and edge position $35,000 average-per-pair trade.
being that he hasnt turned a profitable sizing, and some form These can be:
month in two years, until recently. What of stop-losses. {{ Long stock vs. short stock (a
changed? Here is Owens story in his specific reason for long, specific
own words: reason for short)
up with the changing dynamics). {{ Long ETF vs. short ETF
Trading with low capital has its unique I decided to eliminate stocks that I {{ Long stock vs. short ETF
set of challenges and requires a different identified as having specific risks.
mindset than when flush with funds. I decided to trade hedged where As I rolled this out, I chose to further
I learned from some educational webi- possible and where necessary (this reduce the risk by only using ETFs such
nars that I needed to reduce my risk. This means finding a long or short stock as sector ETFs and pair them against a
is an area of the business that I hadnt that will protect me against market stock associated with that ETF, until
fully understood. Lowering your vari- moves). further notice.
ance will increase your returns over the I decided to use ETFs for the I have learned that by reducing my bet
long sample was drilled into me until I short side of a pair trade where size per idea and utilizing a consistent
began to implement the change. possible. methodology for sizing each bet, I have
Q&A
reduced my risk of ruin. I dont come with playing it tight, that slow grind, with Thank you to Owen for sharing his
from the trading industry, nor do I have a the ratio of transaction costs to gross story. We can see that like Oliver, he
quantitative background, and neither do profit being a bit higher for the short has thought about how to find his way
I run things by formulas. All of this has term. I needed to have the expectation out of the woodsor how do I do this
been a stretch for me to understand and that the economies of scale will kick business better.
to put into place, but I see it more clearly in once I survive the learning curve, To verify Owens integrity and see
now, and by doing it, I have proven to stabilize, and then slowly increase the how he is actually doing in his trading,
myself its validity. amount of strategies and quantity of I audited the last 33 trades that Owen
Here are a couple more guiding prin- trades. Even though trading is a liquid made:
ciples I use: business with great potential, I had to
Trades: 33
I see the results. Keeping up a trad- Winners: 30
ing diary and an accounting sheet Its about low variance Losers: 3
gives me more and more confidence. and average return on Win/loss %: 90.91%
This provides me with a granular way Max loss ROC: -0.39%
to see what is going on and be able to
capital. Max gain ROC: +0.73%
tweak things. Avg capital
Adding to the methodology, I used allow it to grow more in-line with how a per pair trade: $34,990.47
a return on capital percentage (ROC) traditional business would develop. Avg ROC: 0.17%
to calculate my profit targets and stop- I have been taught that I need a posi- Avg pair PL: $55.72
losses. This keeps stop-loss uniform tive expectation for every trade and to Total closed P/L: $1,838.75
among all my trades and keeps my risk respect each trade as if it were the only
per trade in check. trade I would get that day, and I had a From my perch, I can confirm a real
In the past, I took profits on many small family that depended on the outcome. turn has taken place in Owens trading
trades, then would size up and have a I cannot be complacent and take a shot career. I see the solid gains in his ac-
few large losses, wiping out my profits. or a gamble to see what happens. There count, witnessing the consistency. Its
I didnt understand that I could go broke is a big difference between a trade done not about the win-loss ratio, although
taking small profits over and over again for information and one done out of that is impressive right now. Its about
if I didnt have rules to govern the other boredom, desperation, or greed. When that low variance and average return on
areas of my trading business. I have done the latter, it has usually capital. I like to see numbers of 0.1% or
ended in large losses relative to my above, accounting for all the wins and
No home run attempts. With my account size. all the losses.
smaller account size, there was the temp- My advice to others: Dont despise From here, Owen should be able to
tation to attempt home run trades. The the small money. If you can identify scale up his business. He will have to
problem was that when they wouldnt with where I came from, small accounts track each strategy besides his sector
work, I was caught with a large losing require tight management, controlled pairs in this same fashion (its best not
trade. I believe the reason I have chased bet ratios, respect to position sizing for to lump it all together, but do separate
after home run trades is confirmation the account size and edge, and some recordkeeping on each strategy).
bias. I saw all the ducks lined up and it form of stop-losses. Any profits over
just appeared like I couldnt go wrong, your cost basis will grow your account
that I was guaranteed to win. All in ... so dont short-change yourself, ending
Im going to be rich, I said! your career early, but rather, trade with
Since then I have learned to be okay discipline.Owen B.
Your Online Resource

For Technical Analysis
Join us on Facebook at www.facebook.com/STOCKSandCOMMODITIES Follow us on Twitter @STOCKSandCOMM

MUSTAPHA / Taming The New Zealand Dollar
Continued from page 24 The New Zealand dollar is an
interesting currency, mainly
pens to the position. There was lack of momentum on most of
because it moves in a fairly
the currency markets when the news was released, and thus predictable way. This behavior
NZ pairs/crosses did not move significantly. Yet they moved makes it an attractive currency
vividly enough to justify taking temporary positions. AUD- for traders who are aware of its
NZD moved downward and after 10 minutes, I opened a long
position. The next candle that formed was bullish, bringing
speculative advantage.
in more than 30 pips in the process. A similar scenario took
place on the NZDUSD. I opened a long trade because the
news had a bullish effect on the NZD and I was able to gain
from the bullish candle that appeared later. and you may just be able to better find those opportunities
that come your way.
Take advantage of reversals
This strategy demonstrates that if you feel Azeez Mustapha is an analyst at Instaforex Companies Group
you missed out on a strong move after a and a blogger at Advfn.com and www.ituglobalforex.blogspot.
fundamental number was released, theres com. He is a trading signals provider at some websites. He can
no need to mope. There are times when, after be reached at azeez.mustapha@analytics.instaforex.com.
the release of fundamental data, short-term
reversals provide trading opportunities. As a trader, your MetaQuotes
goal is to profit from the behavior of NZD, and this currency See Traders Glossary for definition
See Editorial Resource Index
could continue going in the direction the news pushes it, fol-
low with a correction, or reverse temporarily after the effect
of high-impact news has eased. Watch it and get to know it
leTTerS am looking forward to more articles in I was wondering if the author could
Continued from page 7 the future. provide his Excel spreadsheet used in
ViNceNt YAcAViNo the article? Thanks.
Being a self-employed trader who only moHAmed
trades my own account, I am interested Readers will find this spreadsheet
in exploring his ideas from this article at http://technical.traders.com/sub/ Author Koos van der Merwe replies:
to see how they would have benefited codes/2017/042017Apirine.asp at our I have emailed you a copy of my Excel
my trades last year and going forward. website, Traders.com, in our Article spreadsheet file.
I mostly use Excel for calculations and Code section from the home menu. Editors note: Readers will find this
so was very interested to see the sidebar Editor spreadsheet at http://technical.traders.
on page 10 of the February 2017 issue com/sub/codes/2017/042017Merwe.
that showed an Excel spreadsheet to help SToCK FUNdAMeNTAlS worKSHeeT asp at our website, Traders.com, in our
calculate the figures. Editor, Article Code section from the home
As Im not a programmer and unfortu- I read Koos van der Merwes article Ana- menu. The spreadsheet contains fields
nately only know the basics for creating lyzing A Stock With Fundamentals in for information the user can fill in to help
formulas in Excel, I was hoping to get a your online publication Working Money analyze an equity using fundamentals.
copy of this Excel spreadsheet. at http://premium.working-money.com/
Thank you again for the articles. I wm/display.asp?art=825.
The following selection of book descriptions represents a gained through previous study. This guide complements
sampling of recent book releases in the investing field. Books Wileys CFA Study Guides, sold separately, but it could be
described here may be from some of the major book publish- used with any review course. Sample topics of the readings
ers as well as some independent book publishers. These
include ethical and professional standards, quantitative
are not critical reviews or editorial evaluations, but rather a
brief look at the book marketplace to help keep readers up
methods, microeconomics and macroeconomics, monetary
to date on new or recent book offerings. and fiscal policy, international trade, financial reporting
and analysis, corporate finance, portfolio management,
and investment types.
A Complete Guide To The Futures www.wiley.com
Market: Technical Analysis, Trading
Systems, Fundamental Analysis, The 10-Minute Millionaire: The One Secret
Options, Spreads, And Trading Prin- Anyone Can Use To Turn $2,500 Into $1
ciples, second edition (720 pages, Million Or More (256 pages, $29.95
$125 softcover, $81.99 ebook, hardcover, $14.99 ebook, February
January 2017, ISBN 978-1-118- 2017, ISBN 978-1-118-85670-3) by
85375-7) by Jack D. Schwager D.R. Barton Jr., published by Wiley.
with Mark Etzkorn, published by This book seeks to provide actionable
Wiley. Originally published in 1984 steps toward shoring up retirement
as one of the definitive works in the funds for the future. The book covers a
field, this guide has been updated for the first time in 32 range of instruments from fixed income
years. The revised and updated second edition provides and equities to private equity and covered calls in order
a foundation in futures market basics, details analysis to use as many opportunities as possible and to combine
and forecasting techniques, explores advanced trading income and capital appreciation methods. With traditional
concepts, and illustrates the practical application of these income investments like CDs, money market funds, and
ideas with hundreds of market examples. The book covers investment-grade bonds generating historically low returns
technical analysis, trading systems, and fundamental analy- below the rate of inflation, some investors need to build a
sis. It details different trading and analytical approaches, portfolio of income-producing investments that will grow
including chart analysis, technical indicators and trading over time, and this books seeks to demonstrate where and
systems, regression analysis, and fundamental market how to invest for cash flow. With catchy chapter titles, the
models. It seeks to separate misleading market myths book covers tenets of wealth creation, systematic trading,
from reality, and delves into the nuances of the futures investing biases (loss aversion, streak bias), finding extreme
market. It gives step-by-step instruction for developing and stocks and fast movers, volatility, and loss protection.
testing original trading ideas and systems. It illustrates a www.wiley.com
wide range of option strategies and explains the trading
implications of each. In all, the book is a hefty guidebook Reminiscences Of A Stock Operator
of practical trading information and market insights from a (408 pages, February 2017, ISBN
recognized trading authority. 9780857195944, 9780857190567)
www.wiley.com by Edwin Lefvre, published by
Harriman-House. This is a reissue of
Wiley 11th-Hour Guide For 2017 Level I a well-known classic of the financial
CFA Exam (480 pages, $95, Febru- world from Harriman Definitive Edi-
ary 2017, ISBN 978-1-119-33113-1) tions. Originally published in 1923,
published by Wiley. This review journalist Lefvre bases his novel on
guide for taking Level I of the CFA the life of legendary stock market speculator Jesse Liver-
exam compacts the 60 readings more, who has inspired generations of investors and traders.
tested on the 2017 CFA exam into The author, Lefvre, pursued a career as a journalist at 19,
one portable volume. Organized then went on to become a stockbroker and an independent
in order from readings 1 to 60, the investor as well as a novelist and writer of short stories.
guide seeks to boil down the most In 1909 Lefvre became the Panamanian ambassador to
important concepts to the crucial principles, formulas, and Spain and Italy. Other financial fiction by him includes Wall
rules. It tries to ensure candidates are familiar with the most Street Stories (1901), Sampson Rock Of Wall Street (1907)
important testable information. The 11th Hour Review Guide and the nonfiction Making Of A Stockbroker (1925). His most
is designed to be a tool to reach for in the last few weeks famous book is Reminiscences, which first appeared as a
leading up to the exam, condensing each reading down to series of articles in The Saturday Evening Post.
two to five pages. It tries to help reinforce the candidates www.harriman-house.com
existing knowledge and preparation that would have been
STOCK ADVISORY APP
VectorVest has released a redesigned
VectorVest Stock Advisory App for
iPhones and iPads, providing stock
analysis and market guidance. The re-
design focuses on ease of use instead of
just more data. Expanded free features
include streaming intraday data, seven
stock analyses per week, a user watchlist,
enhanced stock graphs, and a market
overview.
A Trending WatchLists feature of inter- and trading. FinTech Exchange 2017 will full historical data. Many of these are
est to stock pickers includes the biggest feature presentations and roundtables customizable by timeframe and display
price gainers among stocks and ETFs, from over 20 innovative firms during aggregation, for example, yearly, quar-
and biggest volume movers. A Market an all-day event. Presentation topics terly or five-year trend data.
Direction Signal offers intraday insight to will include machine learning, exchange Separately, thinkorswims paper-
help users determine if its a good time to technology, data analytics and visualiza- Money function has been upgraded
buy stocks. Market analysis and guidance tion, tick data management, big data and based on client feedback to give the
are offered via a daily video. Enhanced artificial intelligence, cloud security, user an even more realistic experience.
graphs include candlestick pricing and market data, and trading software. Expiring securities such as options,
VectorVests proprietary momentum in- While many fintech events focus futures, and futures options now end
dicator, Relative Timing. The VectorVest largely on consumer-facing applications automatically in these demo accounts
Buy-Sell-Hold feature provides ratings and services, the BarChart FinTech event to better simulate a real-time trading
on over 19,000 stocks. is geared toward the financial markets experience.
An initial two-week open house free and trading, which has special appeal to www.amtd.com, www.thinkorswim.com
trial includes unlimited stock analyses, institutional and professional investors.
10 premium watchlists ranked by propri- FinTech Exchange 2017 will include 10 MTA ANNUAL symposium on
etary indicators, market guidance, and a lightning rounds sponsored by CBOE. technical analysis
daily market video. FinTech Exchange features firms rep- The Market Technicians Association
Flexible subscription options include resenting software, market data, APIs, (MTA) will hold its 44th annual sympo-
a $9.99/month Essentials plan and a exchange technology, mobile, infrastruc- sium in New York on April 67, 2017.
$19.99/month Premium plan. VectorVest ture, and emerging financial ideas and Presenters will discuss how technical
platform subscribers can access the apps technologies like cloud computing, binary analysis is incorporated into market
full capabilities free of charge. options, bitcoin, and blockchain. The analysis, portfolio management, and
event focuses less on seminars and panels trading processes. The 2017 conference
and more on on-stage presentations. will explore the discipline of technical
www.fintechchicago.com analysis across asset classes to examine
the theory, methods, data, and techniques
Fundamental Data Research and from several vantage points, providing
Screening IN THINKORSWIM insights integral to active investment
TD Ameritrade now offers new features management. Attendees will have the
in its thinkorswim trading platform to chance to learn and expand their profes-
facilitate fundamental data search and sional network. The fee is $1,199 through
screening. The new capabilities enable March 31, 2017.
thinkorswim users to search and sort
fundamental data on the entire universe
of equity symbols from their watchlists,
and choose to collaborate and share their
www.vectorvest.com/StockAdvisory
screeners with other users.
All of the fundamental data available
FinTech Exchange Conference in thinkorswims stocks fundamentals tab
Barchart, a provider of market data have migrated into all of the watchlists.
and financial technology, will host the The watchlist interface now has more
FinTech Exchange 2017 on April 27 in than 40 additional new data points, www.MTA.org
Chicago, its third annual event focusing including growth rates, valuations, and
on technology within financial markets profitability metrics, all backed with
For this months Traders Tips, the focus
is Ken Calhouns article from the February
2017 issue, Volume-Weighted Moving
Average Breakouts. Here, we present the
April 2017 Traders Tips code with possi-
ble implementations in various software.
The code for the following Traders Tips
selections is posted here:
Traders.com HomeS&C Magazine
Traders Tips
The Traders Tips section is provided to help readers im-
plement a selected technique from an article in this issue
or another recent issue. The entries here are contributed
by software developers or programmers for software that
is capable of customization.
Figure 1: TRADESTATION. Here, the volume-weighted moving average indicator

and strategy are applied to a 15-minute chart of Toll Brothers.
F TRADESTATION: APRIL 2017 TRADERS TIPS CODE Strategy: _Volume-Weighted Moving Average
In Volume-Weighted Moving Average Breakouts, which // Volume Weighted Moving Average
appeared in the February 2017 issue of Technical Analysis of // TASC APR 2017
Stocks & Commodities, author Ken Calhoun describes using // Author: Ken Calhoun
a modified moving average calculation that combines price inputs:
and volume information. The author states that by including Price( Close ),
volume, this technique can help avoid false breakouts. MALength( 70 ),
Here, we are providing the TradeStation EasyLanguage VWMALength( 50 ),
StopDollarsPerShare( 2 ),
code for the volume-weighted moving average indicator. TrailEnableProftPosition( 200 ),
The indicator includes an additional simple moving average TrailAmountPerShare( 2 ) ;
(SMA), making it useful for scanning for crossovers using
the TradeStation Scanner. We have also provided a compan- variables:
MAValue( 0 ),
ion strategy as well as a function to allow you to easily use VWMAValue( 0 ) ;
the volume-weighted moving average calculation in your
own code. VWMAValue = _MovingAvgVolumeWeighted( Price,
VWMALength ) ;
Indicator: Volume-Weighted Moving Average MAValue = Average( Price, MALength ) ;
// Volume Weighted Moving Average
// TASC APR 2017 if VWMAValue crosses over MAValue then
// Author: Ken Calhoun Buy next bar at Market
else if VWMAValue crosses under MAValue then
inputs: Sell next bar at Market ;
Price( Close ),
MALength( 70 ), SetStopShare ;
VWMALength( 50 ) ; SetStopLoss( StopDollarsPerShare ) ;

variables: if MaxPositionProfit >=
MAValue( 0 ), TrailEnableProftPosition then
VWMAValue( 0 ) ; SetDollarTrailing( TrailAmountPerShare ) ;
VWMAValue = _MovingAvgVolumeWeighted( Function: _MovingAvgVolumeWeighted

Price, VWMALength ) ; // Vol Weighted Mov Avg Function
MAValue = Average( Price, MALength ) ; // TASC APR 2017
// Author: Ken Calhoun
Plot1( VWMAValue, "VWMA" ) ;
Plot2( MAValue, "MA" ) ; inputs:
Price( NumericSeries ),
if VWMAValue crosses over MAValue then Length( NumericSimple ) ;
Alert( "VWMA cross above MA" ) ;
variables:

VSum( 0 ), ruary 2017 S&C article Volume-Weighted Moving Average
PVSum( 0 ), Breakouts can be easily applied in TC2000 version 17 using
AnyVol( 0 ) ; the new EasyScan columns and enhanced custom formula

if BarType >= 2 and BarType < 5 then
language.
AnyVol = Volume We used the new EasyScan features of version 17 to scan
else for stocks where the 50-bar VWMA has crossed up through
AnyVol = Ticks ; the 70-bar simple moving average within the last five bars on
VSum = Summation( AnyVol, Length ) ;
a 15-minute chart.
PVSum = Summation( Price * AnyVol, The chart in Figure 2 shows the VWMA crossover oc-
Length ) ; curred within the last five bars (circled in red).
If you would like a copy of this layout already set up with
if VSum <> 0 then
_MovingAvgVolumeWeighted =
the scan and plots in place, just send an email to support@
PVSum / VSum ; tc2000.com and well be happy to send it to you.
Patrick Argo
Worden Brothers, Inc.
To download this EasyLanguage code for the indica-
www.TC2000.com
tor and function, please visit our TradeStation and Easy-
Language support forum. The code for this article can be
found here at https://community.tradestation.com/Discus-
sions/Topic.aspx?Topic_ID=147651. The ELD filename is
TASC_APR2017.ELD. F METASTOCK: APRIL 2017 TRADERS TIPS CODE
For more information about EasyLanguage in general, Ken Calhouns article in the February 2017 issue of Techni-
please see http://www.tradestation.com/EL-FAQ. cal Analysis of Stocks & Commodities, Volume-Weighted
A sample chart is shown in Figure 1. Moving Average Breakouts, presented a trading system
This article is for informational purposes. No type of trading based on the volume-weighted moving average. The Meta
or investment recommendation, advice, or strategy is being made, Stock formulas for the buy and sell signals for this system
given, or in any manner provided by TradeStation Securities or are shown here.
its affiliates.
Doug McCrary
TradeStation Securities, Inc. Buy Signal:
www.TradeStation.com entry:= Cross( Mov(C, 50, VOL), Mov(C, 70, S) );
entry OR ( Mov(C, 50, VOL) > Mov(C, 70, S) AND
H > Ref(HighestSince(1, entry, H),-1))
Sell Signal:
F TC2000 Version 17: APRIL 2017 TRADERS TIPS CODE Cross( Mov(C, 70, S), Mov(C, 50, VOL) )
The VWMA strategy described by Ken Calhoun in his Feb- William Golson
MetaStock Technical Support
www.metastock.com
F eSIGNAL: APRIL 2017 TRADERS TIPS CODE

For this months Traders Tip, were providing the study
VWMA.efs based on the formula described in Ken Calhouns
article in the February 2017 issue, Volume-Weighted Moving
Average Breakouts.
In the article, the author presents a strategy of trading
based on the crossover of a 70-period and 50-period volume-
weighted moving average on a 15-day 15-minute chart.
The study contains formula parameters that may be con-
figured through the edit chart window (right-click on the
chart and select edit chart). A sample chart is shown in
Figure 2: TC2000. This sample chart of KKR shows a 15-minute timeframe. We Figure 3.
scanned 1,000 high-cap stocks to find where the crossover occurred within the last
To discuss this study or download a complete copy of the
five bars. You can shorten or lengthen the within last x bars setting to suit your
needs. formula code, please visit the EFS Library Discussion Board

off of averages, but he also lays out a trading strategy using
his ideas.
We took this strategy and recreated it using our proprie-
tary scripting language, thinkscript. We have made the load-
ing process extremely easy; simply click on the link http://
tos.mx/ef1Xvj, then choose to view thinkScript strategy.
In the image in Figure 4, you can see the VWMABreak-
outs strategy added to a 10-day, 15-minute chart of FAS.
Based on the article, when the VWMA 50-period line (the
blue line) crosses above the 50-period moving average (the
pink line), it is considered a buy signal.
This single strategy in thinkorswim contains the rules for
entering the trade as well as exiting. More detail about the
volume-weighted moving average breakout strategy can be
FIGURE 3: eSIGNAL. Here is an example of the VWMA study plotted on a 15-min-
found in the February 2017 issue of Technical Analysis of
ute chart of FAS. Stocks & Commodities.
thinkorswim
A division of TD Ameritrade, Inc.
forum under the forums link from the support menu at www. www.thinkorswim.com
esignal.com or visit our EFS KnowledgeBase at http://www.
esignal.com/support/kb/efs/. The eSignal formula script
(EFS) is also available for copying & pasting from the
Stocks & Commodities website at Traders.com.
Eric Lippert F WEALTH-LAB: APRIL 2017 TRADERS TIPS CODE
eSignal, an Interactive Data company The volume-weighted moving average (VWMA), which
800 779-6555, www.eSignal.com was discussed by Ken Calhoun in his February 2017 article
in S&C, Volume-Weighted Moving Average Breakouts,
offers an additional dimension to chart analysis by using
volume in addition to price. Typically, the VWMA is used
in conjunction with a simple moving average (SMA) of the
same or different period.
Among the many cases where including the VWMA
F THINKORSWIM: APRIL 2017 TRADERS TIPS CODE
could be useful are:
In the article Volume-Weighted Moving Average Breakouts
in the February 2017 issue of Technical Analysis of Stocks
to help avoid false breakouts when there is no volume
& Commodities, author Ken Calhoun provides a concise,
support
useful addition to the usual collection of moving average
confirmation of trend direction
studies. Not only does he add value to the concept of trading
indication of a weakening trend when it moves below
the SMA
a profit-taking or exit signal when the distance be-
tween the VWMA and the SMA tightens
and more.
Figure 4: THINKORSWIM. Here, the VWMABreakouts strategy is added to a 10-

day, 15-minute chart of FAS. When the 50-period VWMA (blue line) crosses above Figure 5: WEALTH-LAB. This sample chart implementing the strategy highlights
the 50-period moving average (pink line), it is considered a buy signal. a successful trade in FAS.

Another example of where including the VWMA could be
useful is the swing-trading setup that Calhoun outlines in his
article, where the VWMA crossing above the SMA may signal
a potential bullish trend change, and the opposite crossunder
is used to close the position. We are providing some Wealth-
Script code for this strategy. A sample chart implementing the
strategy is shown in Figure 5.
In Wealth-Lab, you will find the VWMA indicator un-
der the TASC Magazine Indicators group after you update
the Wealth-Lab TASCIndicators library to v2017.03 or later.
You can plot it on a chart or use it as an entry or exit condi-
tion in a rule-based strategy without having to program any
code yourself.
Wealth-Lab 6 strategy code (C#):

Figure 6: NEUROSHELL TRADER. This NeuroShell Trader chart displays the
using System; volume-weighted moving average breakout system for FAS.
using System.Collections.Generic;
using System.Text;
using System.Drawing; Eugene, Wealth-Lab team
using WealthLab;
MS123, LLC
using WealthLab.Indicators;
using TASCIndicators;
www.wealth-lab.com
namespace WealthLab.Strategies
{
public class MyStrategy : WealthScript F NEUROSHELL TRADER: APRIL 2017
{ TRADERS TIPS CODE
private StrategyParameter paramPeriodVWMA;
private StrategyParameter paramPeriodSMA;
A volume-weighted moving average breakout
public MyStrategy() trading system such as the one described by Ken Calhoun in
{ his February 2017 article in S&C, Volume-Weighted Moving
paramPeriodVWMA = CreateParameter("VWMA Average Breakouts, can be easily implemented in NeuroShell
Period",50,2,300,1);
paramPeriodSMA = CreateParameter("SMA Pe-
Trader. Simply select new trading strategy from the insert
riod",70,2,300,1); menu and enter the following in the appropriate locations of
} the trading strategy wizard:

protected override void Execute() BUY LONG CONDITIONS: [All of which must be true]
{
var sma = SMA.Series(Close,paramPeriodSMA. CrossAbove(VolWgtAvg(Close,Volume,50),Avg(Close,70))
ValueInt);
var vwma = VWMA.Series(Bars,paramPeriodVWMA. SELL LONG CONDITIONS: [All of which must be true]
ValueInt);
for(int bar = GetTradingLoopStartBar(1); bar < Bars. CrossBelow(VolWgtAvg(Close,Volume,50),Avg(Close,70))
Count; bar++)
{
if (IsLastPositionActive)
If you have NeuroShell Trader Professional, you can also
{ choose whether the parameters should be optimized. After
if( CrossUnder(bar,vwma,sma)) backtesting the trading strategy, use the detailed analysis
SellAtMarket(bar+1, LastPosition); button to view the backtest and trade-by-trade statistics for
}
else
the strategy.
{ Users of NeuroShell Trader can go to the Stocks & Com-
if( CrossOver(bar,vwma,sma)) modities section of the NeuroShell Trader free technical
BuyAtMarket(bar+1); support website to download a copy of this or any previous
}
}
Traders Tips.
A sample chart is shown in Figure 6.
PlotSeries(PricePane,vwma,Color.Red,LineStyle.
Solid,1); Marge Sherald, Ward Systems Group, Inc.
PlotSeries(PricePane,sma,Color.Blue,LineStyle. 301 662-7950, sales@wardsystems.com
Solid,1); www.neuroshell.com
}
}
}

www.TradersEdgeSystems.com/traderstips.htm
Please note that I tested the authors system using the NASDAQ
100 list of stocks on daily bars rather than intraday bars from
12/31/2008 thru 2/10/2017. Figure 7 shows the resulting equity
curve trading the authors system with the cross-down exit.
Figure 8 shows the ASA report for this test. The annualized
return showed about a 17% return with a maximum drawdown
of 19%.
!Volume-Weighted Moving Average Breakouts
!Author: Ken Calhoun, TASC Apr 2017
!Coded by: Richard Denning 2/11/17
!www.TradersEdgeSystems.com
!INPUTS:
smaLen is 70.
vwmaLen is 50.
Figure 7: AIQ. Here are sample test results from the AIQ Portfolio Manager taking SMA is simpleavg([close],smaLen).
three signals per day and 10 concurrent positions maximum run on NASDAQ 100 VWMA is sum([close]*[volume],vwmaLen)/
stocks (daily bar data) over the period 12/31/08 to 2/10/07. sum([volume],vwmaLen).
HasData if hasdatafor(max(smaLen,vwmaLen)+10)>max(smaLe
n,vwmaLen).
Buy if SMA < VWMA and valrule(SMA > VWMA,1) and HasData.
Sell if SMA > VWMA.
rsVWMA is VWMA / valresult(VWMA,vwmaLen)-1.

rsSMA is SMA / valresult(SMA,smaLen)-1.
Again, the code and EDS file can be downloaded from

www.TradersEdgeSystems.com/traderstips.htm.
Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems
F TRADERSSTUDIO: APRIL 2017 TRADERS

TIPS CODE
The TradersStudio code based on Ken Calhouns February
2017 article, Volume-Weighted Moving Average Breakouts,
can be found at:
www.TradersEdgeSystems.com/traderstips.htm
I tested the authors system using the NASDAQ 100 list

of stocks on daily bars rather than intraday bars from year
Figure 8: AIQ. This shows the ASA report for the system, which shows the test 2000 through 2014. Figure 9 shows the equity curve trading
metrics and settings. the authors system with the cross-down exit.
The following code files are provided in the download:
Function: VWMAA function that returns the value

F AIQ: APRIL 2017 TRADERS TIPS CODE of the volume-weighted moving average (VWMA)
The AIQ code based on Ken Calhouns article in System: VWMA_SMA_XOCode for the authors
the February 2017 issue of Technical Analysis of system of going long when the VWMA crosses up over
Stocks & Commodities, Volume-Weighted Moving Aver- the simple moving average.
age Breakouts, can be found at:
Figure 9 shows the equity curve trading 200 shares of each of

Figure 9: TRADERSSTUDIO. Here is the equity curve trading 200 shares of each Figure 10: NINJATRADER. Here, the VMABreakout is displayed on the FAS
of the NASDAQ 100 list of stocks from February 2000 through July 2014. 15-minute chart in NinjaTrader 8.
the NASDAQ 100 list of stocks from February 2000 through NinjaTrader 8: www.ninjatrader.com/SC/February2017SCNT8.zip
July 2014. The system does relatively well during bull market NinjaTrader 7: www.ninjatrader.com/SC/February2017SCNT7.zip
periods but suffers during bear periods. Adding some simple
trend-following market timing to the system would probably Once the file is downloaded, you can import the strategy
significantly reduce the drawdown during bear periods. I did in NinjaTader 8 from within the control center by selecting
not provide code to add the market timing. Tools Import NinjaScript Add-On and then selecting
The code is shown here: the downloaded file for NinjaTrader 8. To import in Ninja-
Trader 7, from within the control center window, select the
'Volume-Weighted Moving Average Breakouts menu File Utilities Import NinjaScript and select the
'Author: Ken Calhoun, TASC Apr 2017 downloaded file.
'Coded by: Richard Denning 2/11/17
'www.TradersEdgeSystems.com
You can review the strategys source code in NinjaTrader
8 by selecting the menu New NinjaScript Editor Strate-
function VWMA(vwmaLen) gies from within the control center window and selecting the
VWMA = summation(C*V,vwmaLen) / summation(V,vwmaLen) VWMABreakout file. You can review the strategys source
End Function code in NinjaTrader 7 by selecting the menu Tools Edit
'---------------------------------------------------
Sub VWMA_SMA_XO(vwmaLen,smaLen)
NinjaScript Strategy from within the control center win-
Dim myVWMA As BarArray dow and selecting the VWMABreakout file.
Dim mySMA As BarArray NinjaScript uses compiled DLLs that run native, not in-
myVWMA = VWMA(vwmaLen) terpreted, which provides you with the highest performance
mySMA = Average(C,smaLen) possible.
If mySMA < myVWMA And mySMA[1] > myVWMA[1] Then
A sample chart implementing the strategy is shown in
Buy("LE",1,0,Market,Day) Figure 10.
End If Raymond Deux & Jim Dooms
If mySMA > myVWMA Then ExitLong("LX","",1,0,Market,Day) NinjaTrader, LLC
End Sub www.ninjatrader.com
'-----------------------------------------------------
Richard Denning
info@TradersEdgeSystems.com F UPDATA: APRIL 2017 TRADERS TIPS CODE
for TradersStudio Our Traders Tip for this month is based on the
article by Ken Calhoun in the February 2017 issue of S&C,
Volume-Weighted Moving Average Breakouts.
In the article, the author proposes a volume-weighted aver-
age method of signaling when breakout patterns might have
F NINJATRADER: APRIL 2017 TRADERS TIPS CODE greater persistence. This system enters a net long position
The VWMABreakout strategy, as discussed in the Febru- when the short-term average crosses the long-term average
ary 2017 S&C article Volume-Weighted Moving Average upwards, and enters a net short when the short-term average
Breakouts by Ken Calhoun, is available for download at the crosses the long-term average downwards.
following links for NinjaTrader 8 and NinjaTrader 7: The Updata code for this article is in the Updata library

FIGURE 11: UPDATA. Here, the 50/70-period VWMA cross system is applied to Figure 12: AMIBROKER. This 15-minute chart of FAS shows crossover signals
the 3x leveraged ETF FAS. based on the 50-bar VWMA and 70 MA, replicating the chart from Calhouns Febru-
ary 2017 article.
and may be downloaded by clicking the custom menu and

indicator library. Those who cannot access the library due
to a firewall may paste the code shown here into the Updata
custom editor and save it. F AMIBROKER: APRIL 2016 TRADERS TIPS CODE
In Volume-Weighted Moving Average Breakouts in the
February 2017 issue of Technical Analysis of Stocks & Com-
VolumeWeightedMACross modities, author Ken Calhoun shows a simple swing trading
PARAMETERPeriod1#PERIOD=50
strategy based on crossovers between the volume-weighted
PARAMETERPeriod2#PERIOD2=70
NAMEVWMA moving average and a simple moving average.
DISPLAYSTYLE2LINES A ready-to-use formula that implements a chart with the
INDICATORTYPETOOL moving averages is given here. A sample chart is shown in
COLOURRGB(200,0,0) Figure 12.
COLOUR2RGB(0,0,200)
@VP1=0
@VP2=0
vrange = Param("VWMA range", 50, 1, 200 );
FOR#CURDATE=#PERIOD+#PERIOD2TO#LASTDATE mrange = Param("MA range", 70, 1, 200 );
VOLUMEWEIGHTEDAVERAGES
@VP1=SGNL(CLOSE*VOL,#PERIOD,M)/ vsum = Sum( Volume, vrange );
SGNL(VOL,#PERIOD,M) vpsum = Sum( Close * Volume, vrange );
@VP2=SGNL(CLOSE*VOL,#PERIOD2,M)/
SGNL(VOL,#PERIOD2,M) vwma = vpsum / vsum;
ENTRYEXITRULES
IFHASX(@VP1,@VP2,DOWN) Plot( C, Date() + " Close", colorDefault, styleCandle );
SELLCLOSE
SHORTCLOSE
ELSEIFHASX(@VP1,@VP2,UP)
Plot( vwma, "VWMA" + vrange, colorRed );
COVERCLOSE Plot( MA( C, mrange ), "MA" + mrange, colorBlue );
BUYCLOSE
ENDIF Tomasz Janeczko, AmiBroker.com
@PLOT=@VP1 www.amibroker.com
@PLOT2=@VP2
NEXT
F MICROSOFT EXCEL: APRIL 2017 TRADERS TIPS CODE

Figure 11 shows the 50/70-period VWMA cross system ap- The approach discussed by Ken Calhoun in his article in
plied to the 3x leveraged ETF FAS. the February 2017 issue, Volume-Weighted Moving Aver-
Updata support team age Breakouts, is designed around 15-minute interval bars
support@updata.co.uk with some reference to end-of-day levels as part of an exit
www.updata.co.uk strategy.

FIGURE 13: EXCEL. Using VWMA(2) and MA(3) we find the up-cross on 11/7/2016 and the down-cross on 11/16/2016, corresponding to Ken
Calhouns article in the February 2017 S&C.
As there is not currently a free data source for historical times daily, indicator crossovers to be profitable, especially
intraday bars, we must upscale to end-of-day bars. if you consider the impact of commissions and slippage on
There are 26 15-minute intervals in the standard US trad- such a frequency of trades.
ing day of 9:30 am to 4:00 pm. Using the 50-bar and 70-bar Primary entry and exits for this system are determined by
specifications for the averages, we can derive three bits of the up-cross and down-cross of the moving averages. Fig-
useful information: ures 13 and 14 summarize the results of that bare logic using
2 and 3 as the settings for the moving averages.
a. 50 15-minute periods translates to (50/26 ) 1.923 Checkboxes in system logic controls to the right of the
trading days. Round up to two days. chart allow the user to activate the two stop-out ways of exit-
b. 70 periods translates to (70/26 ) 2.692. Round up to ing a trade and the ability to reenter on an upside breakout
three days. within a continuing trend.
c. 50 vs. 70 suggests a scaling factor of 1.4 when Try them out. With moving average settings of 2 and 3,
estimating a starting value of MA for any selected the chart only gets more cluttered and appears to be a bit
period of VWMA. No lockstep here. You are free to less profitable.
mix and match to see what works best. User controls allow for setting your choice of VWMA
and MA periods as well as adjusting the trailing stop dollar
Lets take a look at the daily version of the FAS ETF used amount and the stop-out settings based on aggregate support
in Calhouns article. days.
Our calculated upscale from 15-minute bars to days seems With the 70 and 50 settings as shown in Figure 15, the
to hold for this short uptrend. To see how it fares over a lon- moving averages almost kiss but do not cross at the 11/7/2016
ger timeframe, lets pull back a little and see what 200 days beginning of the short, sharp uptrend we have been watch-
at these settings looks like. ing. Instead, we see that our most recent upcross takes place
In Figure 14 things are a little messy with too many, some- on 9/8/2016, and we are still in the trade as of 2/10/2017. The
FIGURE 14: EXCEL, ANOTHER VIEW. A wider view shows that settings of 2 and 3 make for lots of whipsaws.

FIGURE 15: EXCEL, MA SETTINGS. Here, the moving average settings are less frenetic.
FIGURE 16: EXCEL, SELL STOP HIT. The trailing stop values (blue horizontal bars) intercept the price on 9/15/2016. A trailing stop sell occurs
on the next bar.
FIGURE 17: EXCEL, TRAILING HIGH. Pink bars represent trailing highs and only appear with the reentry selection while the VWMA is above the
SMA. Reentry after a trailing or aggregate support stop-out requires a break above the previous (trailing) high to confirm a continuing uptrend.
Using it here offers a slight improvement in profits over using a trailing stop alone.
number of simulated trades and our overall profitability are Right-click on the Excel file link, then
both down at these settings. Select save as or save target as to place a copy of
There are a lot of what ifs that can be explored within the spreadsheet file on your hard drive.
this model. Enjoy! Ron McAllister
The spreadsheet file for this Traders Tip can be down- Excel and VBA programmer
rpmac_xltt@sprynet.com
loaded from www.traders.com in the Traders Tips area. To
successfully download it, follow these steps:

Free Information From Advertisers
Advertiser Page Advertiser Page How to reach us
Brokerages Software For questions, address changes, or
Fidelity 03 NinjaTrader 35 ordering information for Technical
Fidelity.com/AlwaysBe NinjaTrader.com Analysis of Stocks & Commodities
magazine and its online publications:
Interactive Brokers 05 VectorVest 31, 64
ibkr.com/iwantmore www.vectorvest.com/SCRT30 Toll-free 800 832-4642
NinjaTrader 35 Ward Systems 07 (800-Technical) or:
NinjaTrader.com www.NeuroShell.com 206 938-0570.
Scottrade 21
Websites
Email us at:
scottradePRO.com
StockCharts.com 02, 33
circ@traders.com.
TDAmeritrade 11 StockCharts.com Or write to us at:
TDAmeritrade.com/trader
Stocks & Commodities 37, 63 4757 California Ave. SW,
Publications Store.Traders.com, Traders.com Seattle, WA 98116-4499.
Stocks & Commodities 37, 63 Do your magazines arrive tattered
Store.Traders.com, Traders.com and torn? Polybagging of magazines
(domestic delivery) is available for
Software
$6/year.
Jurik Research 13
Single back issues from the current
jurikres.com, tinyurl.com/jurik-online
year (subject to availability) are $8
prepaid. Subscribers have access to
Editorial Resource Index
our digital archive of all past articles.
thinkorswim . . . . . . . . . . . . . . . . 07 Neuroshell Trader (Ward Systems Group) . . 51 Individual articles can be purchased
Microsoft Excel . . . . . . . . . . . . . . 07 AIQ . . . . . . . . . . . . . . . . . . . . . 52 from the Online Store at our website,
R Core Team (www.R-project.org) . . . . . . 09 TradersStudio . . . . . . . . . . . . . . . 52 Traders.com.
eSignal (Interactive Data) . . . . . . . . . . . 17 NinjaTrader . . . . . . . . . . . . . . . . . 53
Editorial feedback
TradeStation . . . . . . . . . . . . . . . . 19 Updata . . . . . . . . . . . . . . . . . . . 53
We always want to know more about
www.metaquotes.net . . . . . . . . . . . 23 AmiBroker . . . . . . . . . . . . . . . . . 54
the needs of our readers: What kinds of
www.forexfactory.com . . . . . . . . . . 24
articles would you like to see more of?
ChartPattern.com . . . . . . . . . . . . . 29
What do you find useful? Address your
DailyPriceAction.com . . . . . . . . . . . 32
written questions and comments to edi-
TomsOptionTools.com . . . . . . . . . . 38
tor@traders.com or to: Editor, Stocks
TC2000 (Worden Brothers, Inc.) . . . . . . . . 49
& Commodities, 4757 California Ave
MetaStock . . . . . . . . . . . . . . . . . 49
SW, Seattle, WA 98116-4499. Sorry, we
WealthLab . . . . . . . . . . . . . . . . . 50
cannot perform research on individual
financial questions not related to this
For more information about our advertisers, go to Traders.com/reader where magazine and we cannot respond to
you will find the alphabetized list of this months advertisers. For reference, the all mail. Letters or emails containing
list is also printed above along with the corresponding page number for each ad. questions or information that other
Just follow the simple directions below and the advertisers will get your requests readers may enjoy or that relate to our
the same day! articles or technical analysis topics
may be published in our Letters to
Step 1: Go to Traders.com/reader and S&C column.
scroll through the list of our current months
advertisers. Join us on Facebook
at www.facebook.com/
Click the box for each advertiser youd like
STOCKSandCOMMODITIES
to hear from. At the bottom of the list, click
Continue when finished.
Follow us on Twitter
Step 2: Fill out your contact information @STOCKSandCOMM
and click Send Request. Your request will
then be sent to the advertisers you selected. To receive information on the products and services listed in the Editorial
and Advertisers Indexes, go to: Traders.com/reader/. These indexes are
And thats it! published solely as a convenience. While every effort is made to maintain
accuracy, last-minute changes may result in omissions or errors.

FUTURES LIQUIDITY
T
rading liquidity is often over- very high volumes. The greatest number three-year period. Thus, all numbers in
looked as a key technical of dots indicates the greatest activity; this column have an equal dollar value.
measurement in the analysis futures with one or no dots show little Columns indicating percent margin
and selection of commodity activity and are therefore less desirable and effective percent margin provide
futures. The following explains how to for speculators. a helpful comparison for traders who
read the futures liquidity chart pub- Courtesy of CBOT wish to place their margin money ef-
lished by Technical Analysis of Stocks ficiently. The effective percent margin
& Commodities every month. is determined by dividing the margin
value ($) by the three-year price range of
Commodity futures contract dollar value, and then multiply-
The futures liquidity chart shown being by one hundred.
low is intended to rank publicly traded
futures contracts in order of liquidity. Stocks
Relative contract liquidity is indicated Trading liquidity has a significant ef-
by the number of dots on the right-hand fect on the change in price of a secu-
side of the chart. rity. Theoretically, trading activity can
This liquidity ranking is produced by serve as a proxy for trading liquidity
multiplying contract point value times All futures listed are weighted equally and equals the total volume for a given
the maximum conceivable price motion under contracts to trade for equal dol- period expressed as a percentage of the
(based on the past three years historical lar profit. This is done by multiplying total number of shares outstanding. This
data) times the contracts open interest contract value times the maximum pos- value can be thought of as the turnover
times a factor (usually 1 to 4) for low or sible change in price observed in the last rate of a firms shares outstanding.
Trading Liquidity: Futures

Commodity Futures Exchange % Margin Effective Contracts to Relative Contract Liquidity
% Margin Trade for Equal
Dollar Profit
S&P 500 E-Mini (Mar '17) GBLX 4.4 18.7 2 >>
10-Year T-Note (Mar '17) CBOT 1.3 17 7 >
Crude Oil WTI (Apr '17) NYMEX 6 5.9 1 >
Russell 2000 Mini (Mar '17) ICEUS 4.6 13.9 1
5-Year T-Note (Mar '17) CBOT 0.8 19.4 14
Euro FX (Mar '17) CME 2.8 8.6 2
T-Bond (Mar '17) CBOT 2.9 17 3
Ultra T-Bond (Mar '17) CBOT 3.8 18.9 2
Nasdaq 100 E-Mini (Mar '17) GBLX 4.1 11.3 2
Soybeans (May '17) CBOT 5.1 10.5 3
2-Year T-Note (Mar '17) CBOT 0.3 17 19
British Pound (Mar '17) CME 5.1 13.4 2
Gold (Apr '17) COMEX 5.3 34.1 3
Natural Gas (Apr '17) NYMEX 9.5 11.9 3
ULSD NY Harbor (Apr '17) NYMEX 6 6.7 1
Gasoline RBOB (Apr '17) NYMEX 6.3 7.8 1
Eurodollar (Jun '17) CME 0.1 13 25
Corn (May '17) CBOT 5.2 14 9
Dow Indu 30 E-Mini (Mar '17) CBOTM 4.1 15.5 2
Japanese Yen (Mar '17) CME 4.5 31 4
Sugar #11 (May '17) ICEUS 8 15.6 6
S&P Midcap E-Mini (Mar '17) GBLX 4.2 13.9 1
Soybean Meal (May '17) CBOT 5.8 11.7 4
Wheat (May '17) CBOT 4.8 7.9 5
Australian Dollar (Mar '17) CME 2.9 12.6 4
Canadian Dollar (Mar '17) CME 2.5 10.7 4
High Grade Copper (May '17) COMEX 3.7 12.5 3
Live Cattle (Apr '17) CME 4.3 8.9 3
30-Day Fed Funds (Apr '17) CBOT 0.1 10.4 25
Coffee (May '17) ICEUS 6.4 13 2
Lean Hogs (Apr '17) CME 4.9 5 3 CBOT Chicago Board of Trade, Division of CME
Mexican Peso (Mar '17) CME 7.7 13.8 5 CFE CBOE Futures Exchange
Cocoa (May '17) ICEUS 9.1 12.7 5 CME Chicago Mercantile Exchange
Hard Red Wheat (May '17) KCBT 4.2 5.2 3
COMEX Commodity Exchange, Inc. CME Group
Silver (Mar '17) COMEX 7.1 29.1 3
GBLX Chicago Mercantile Exchange - Globex
Soybean Oil (May '17) CBOT 4 11.2 10
ICE-EU Intercontinental Exchange-Futures - Europe
U.S. Dollar Index (Mar '17) ICEUS 2 8.9 3
Cotton #2 (May '17) ICEUS 5.2 18.1 6 ICE-US Intercontinental Exchange-Futures - US
Platinum (Apr '17) NYMEX 5.2 10.4 3 KCBT Kansas City Board of Trade
Swiss Franc (Mar '17) CME 3.2 13.4 2 MGEX Minneapolis Grain Exchange
Brazilian Real (Mar '17) CME 8.4 20.9 5 NYMEX New York Mercantile Exchange
Crude Oil Brent (F) (Apr '17) NYMEX 5.9 5.5 1
Feeder Cattle (Mar '17) CME 5.9 6.2 1
New Zealand Dollar (Mar '17) CME 3.6 16.1 4
S&P GSCI (Mar '17) CME 7.7 11.5 1 1704
Trading Liquidity: Futures is a reference chart for speculators. It compares markets Relative Contract Liquidity places commodities in descending order according to
according to their per-contract potential for profit and how easily contracts can be bought how easily all of their contracts can be traded. Commodities at the top of the list are easi-
or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only est to buy and sell; commodities at the bottom of the list are the most difficult. Relative
when compared to others in the same column. Contract Liquidity is the number of contracts to trade times total open interest times a
The number in the Contracts to Trade for Equal Dollar Profit column shows how volume factor, which is the greater of:
many contracts of one commodity must be traded to obtain the same potential return In volume
as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price 1 or exp 2
In 5000
Excursion).

Advisory Services BROKERAGES SOFTWARE
Beat The Market! GlobalFutures.com JBL Risk Manager

Sector Rotation and Market Timing.
Buy stocks with high relative strength Check us out! LIMIT LOSSES PROTECT PROFITS CONTROL
RISK MANAGE YOUR TRADES WITH PRECISION
Free weekly newsletter!

MONITOR PERFORMANCE AND MORE ...
Download FREE Trial
Wallstreetwindow.com educational
www.jblriskmanager.com
Yes, You Can Cash In On Chaos! Certified

Chaos Traders Courses teach you how. TRADING SYSTEMS
Learn to earn at http://moneytide.com?r=s
WANTED!
EMini MoonTide Hotline up 180 months in a row Struggling traders for a simple, highly
http://daytradingforecasts.com?r=s profitable strategy on SPY. Free e-book
Kick Ass SPY Options with Trader Hugh. TREND FOLLOWING
Daytradespy.com Massive Returns All Markets
Free Video/Newsletter
SOFTWARE trendfollowing.com/tasac
Trade Bonds
with the Bond Traders Resource Build and test
Self-Adaptive
Free ForecastFree Newsletter
systems without Trading Strategies
www.FixedIncomeSpecialties.com coding!
Proprietary Research
www.NeuroShell.com
www.OxfordSTRAT.com/sc
To Advertise
contact: Ed Schramm
ESchramm@traders.com (206) 938 0570
TRADERS'
TOP 10 VIEWED FOREX BROKERAGES RESOURCE
Foreign exchange A forex brokerages ability to provide LINKS

traders have more market statistics, hedging activity re- Company
choices than ever in ports, and other such information may
1. Interactive Brokers
their ongoing search be critical to your trading and investing
for speed, pricing ef- decisions. 2. TradeStation
ficiency, and good ac- For more complete information,
counting when it comes see the Traders Resource area at our 3. Forex Capital Markets LLC (FXCM)
to forex brokerages. First, you must website, Traders.com. 4. Global Futures Exchange & Trading Company, Inc.
find a forex brokerage that handles
your particular currency cross or Traders Resource 5. Striker Securities
pair. You should also look at margin at Traders.com
requirements/leverage, and whether the Traders Resource is available at our 6. Attain Capital Management
broker offers a mini account. With a website where youll not only find the 7. INTL FCStone Inc.
little research, you will be able to find brokerages listing, but also numerous
a forex brokerage targeted on your other categories, such as data ser- 8. Open E Cry, LLC
interest. vices, seminars, hardware, software, 9. ALTAVEST Worldwide Trading, Inc.
Your first question might be, How and trading systems. Just click on the
fast can I execute an order? Test out a Traders Resource link. Then follow 10. Compass Financial Futures and Forex
demo account offered by the brokerage. the Brokerages category link, or use
This gives you the opportunity to see the search feature to find products or These are the 10 forex broker listings clicked on most often in the listing at
if the prices on the screen are actually services with specific attributes in this the Traders Resource website. Each company is listed in order of clicks
honored and the speed at which your or other categories.

received. This is not an editorial rating or ranking. For more information on
specific products and services, try checking store.Traders.com for archived
order gets executed. S&C product reviews.
The information in Traders Resource is the most accurate at the time of posting and is subject to change. Because the vendors posting to Traders Resource are responsible for their own listing, Technical Analysis, Inc. declines any and all liability
for any representations made by the businesses and individuals listed. Nor can Technical Analysis, Inc. endorse any business or individual listed on Traders Resource. Technical Analysis, Inc. makes no warranties, express or implied, as to the
accuracy and reliability of claims herein. You agree to release Technical Analysis, Inc., together with its respective employees, agents, officers, directors and shareholders, from any and all liability and obligations whatsoever in connection with or
arising from your use of Traders Resource. If at any time you are not happy with the information posted to Traders Resource or object to any material within Traders Resource, your sole remedy is to cease using it. This list is updated frequently.
If you are aware of a business that should be listed, please email us at Editor@Traders.com.

knowledge and self-trust that
you possess enough aptitude
to make decisions and the
steeliness of character to follow
through on your conclusions,
ignoring doubt and negative
self-talk. Not many people
are able to do this. There is
a plethora of information out
there such as 24-hour financial
news channels, newsletters, chat
rooms, gurus courses, analysts
opinions, seminars, tutorials,
trading books, and on it goes.
Then there is the pervading
aura surrounding Wall Street
that you have to be very smart
to trade. This is reinforced
by the notion that as a small
trader you are competing with
the big institutions, which are
composed of extremely smart
people who know orders of
magnitude more than you. It
is therefore not surprising that
for many people who aspire to
trade successfully, acquiring
self-confidence is a challenge. It
is tempting for the small trader
to look to others for guidance
or confirmation. But analyst
and historical figure Richard
D. Wyckoff pointed to the
Free The Mind
Building
folly in this. He said that many
people who come to trading
fail because they think they
Self-Confidence
are studying the market but
all they are doing is studying
what someone has said about
the market not what the
market has said about itself.
There are certain traits a trader needs to succeed, and self-confidence is one of them. But Acquiring the confidence to
how do you develop it so that it benefits your trading skills? Lets find out. block out the noise and listen
only to the market is the mark
In
by Stella Osoba, CMT of the self-confident trader.
a previous article, I discussed the mastery of patience as an essential skill for Once traders learn to trust
the successful trader to cultivate. This article focuses on another essential skill: themselves, they can then free
self-confidence. What is it, what isnt it, and how do you go about becoming a their mind to focus on market
self-confident trader? opportunities that present
themselves instead of being
SERGEY NIVENS/SHUTTERSTOCK
What is self-confidence? wrapped up in a tight ball of

To put it simply, self-confidence is trust in ones self, ones abilities, and ones own fear, frustration and doubt.
judgment. In trading, more than in almost any other endeavor in life, it is neces- John F. Carter, Mastering
sary to align your perceptions with reality and then to rely on your interpretation The Trade
of what you are seeing to make decisions. This requires self-confidencethe
at the close
What it is not
Self-confidence must not be confused with self-esteem. The
former is an offshoot of the latter. While self-confidence comes Acquiring self-confidence as a
from a trust in your ability to perform a particular task or trader is a learnable skill.
reach a certain goal, self-esteem is an underlying confidence
in your own self-worth. Without self-esteem, there can be no
self-confidence. Sometimes, we will run into people who appear
to be extremely self-confident, but they may actually have low Managing your self-talk
self-esteem or what the psychotherapist Nathaniel Branden Have you ever decided to put on a trade and
called pseudo self-esteem, which he defined as a pretense then hesitated because a little voice somewhere
at self-confidence or self-respect which they do not actually in the back of your mind says something like,
feel. This is because at our deepest level of consciousness, Its probably going to go up/down the moment
there is a need for the mind to have learned to trust itself. I put it on. Maybe I should get more information
Sometimes, this need is not met, as when, for instance, (that is, see what others are saying about the
children are given messages that are designed to discount stock) ? If the self-talk is convincing enough, you might
their need for self-actualization. The messages they learn decide to pass on the trade. Now what just happened? You had
tell them to discount who they really are because they are not a strategy, you analyzed the market. You reached a decision
enough, and to be sufficient, they should look to something and then your lack of self-confidence took over.
outside of themselves. So they go through life looking for the Self-talk is our inner dialogue, and negative self-talk is a
thing that will make them feel sufficient, whether it is status, reflection of our lack of self-esteem. Branden said that:
money, position, possessions, or the like. They may attain
what they seek, but it is never enough. And in the process, Self-esteem reflects our deepest vision of our competence and
they undermine further their self-esteem. our self-worth[it] is the disposition to experience oneself as
Because the mind is not rational, people often compound being competent to cope with the basic challenges of life and
matters by hiding from themselves their need for self-accep- of being worthy of happiness. It is confidence in the efficacy of
tance. The absence of self-esteem means the absence of true our mind, in our ability to think. By extension, it is confidence
self-confidence. While in most aspects of life it is possible to in our ability to learn, make appropriate choices and decisions,
successfully navigate your way through without self-esteem, and respond effectively to change. It is also the experience that
when it comes to trading, the market will often act as a mirror success, achievement, fulfillmenthappinessare right and
to expose your deepest insecurities. This is a major reason natural for us. The survival value of such confidence is obvious;
why so many people who come to trading fail. To trade suc- so is the danger when it is missing.
cessfully, you must first get right with yourself.
If negative self-talk is devastating, positive self-talk is more
Without self-confidence, you will live in constant fear of mak- than the sum of its opposite. It can liberate us to move toward
ing a wrong decision, and sooner or later the fear will paralyze goals as yet unseen. It can urge us to light fires that illuminate
your ability to think and make decisions. the road to success. It can unlock doors to barriers that had
Victor Sperandeo, once seemed impassable. And more than that, it compounds;
Trader Vic: Methods Of A Wall Street Master the more you use it, the more positive you feel about yourself,
the more you are able to stick to your goals, and therefore
Building self-confidence the more likely you are to achieve success. So if you know
To build the self-confidence you need to trade successfully, on an intellectual level that the benefits of positive self-talk
you have to learn to do two things well: Manage your self- are so obviously positive, why is it so hard to apply in real
talk, and trust yourself. Mark Douglas, author of Trading In life? Because habits, especially bad habits, are hard to break.
The Zone, puts it this way: Negative self-talk is a habit and breaking a habit takes time,
persistence, and effort.
Confidence and fear are contradictory states of mind that both
stem from our beliefs and attitudes. To be confident, function- Trust yourself
ing in an environment where you can easily lose more than you Trusting yourself is about more than reciting affirmations and
intend to risk requires absolute trust in yourself. However, you thinking fleeting positive thoughts. It one of the psyches most
wont be able to achieve that trust until you have trained your urgent needs, but it is something that is often neglected in
mind to override your natural inclination to think in ways that the superficial demands of our modern society. In the words
are counterproductive to being a consistently successful trader. of Branden:
Learning how to analyze the markets behavior is simply not
the appropriate training. The root of our need for self-esteem is the need for a conscious-
Mark Douglas, Trading In The Zone ness to learn to trust itself. And the root of the need to learn
such trust is the fact that consciousness is volitional: we have the
choice to think or not to think. We control the switch that turns Further reading
consciousness brighter or dimmer. We are not rationalthat is, Branden, Nathaniel, www.nathanielbranden.com
reality-focusedautomatically. This means that whether we Carter, John F. [2012]. Mastering The Trade: Proven Tech-
learn to operate our mind in such a way as to make ourselves niques For Profiting From Intraday And Swing Trading
appropriate to life is ultimately a function of our choices. Do Setups, 2d ed., McGraw-Hill.
we strive for consciousness or for its opposite? For rationality Douglas, Mark [2001]. Trading In The Zone: Master The
or its opposite? For coherence and clarity or their opposite? For Market With Confidence, Discipline And A Winning At-
truth or its opposite? titude, Prentice-Hall.
Gopalakrishnan, Jayanthi [2003]. Victor Sperandeo, in-
Final words terview, Technical Analysis of Stocks & Commodities,
Acquiring self-confidence as a trader is a learnable skill. Volume 21: July.
Strategy, technique, and picking the right security to trade Hartle, Thom [1997]. Mark Douglas And The Disciplined
are all important, but none are more important than being Trader, interview, Technical Analysis of Stocks & Com-
right with yourself. As you progress on this most lucrative modities, Volume 15: January.
of journeys, the bonus will be if in the process, you are able Osoba, Stella [2016]. Cultivating Patience, Technical Analy-
to examine the unexamined core of who you are and do the sis of Stocks & Commodities, Volume 34: October.
work of aligning your reality with your perceptions. In see- Sperandeo, Victor [1993]. Trader Vic: Methods Of A Wall
ing the truth of who you are as a whole person, and in that Street Master, John Wiley & Sons.
truth, knowing that you are good enough as you are, you can
then begin to build trading knowledge on layers of strength,
not weakness.
Stella Osoba is a freelance writer and trader. She has earned

the Charted Market Technician designation and has writ-
ten for several financial websites and publications. She is
a frequent contributor to Technical Analysis of Stocks &
Commodities magazine and Traders.com Advantage online
publication. She may be reached via email at stellaosoba@
gmail.com.
MONTEVIRGEN / EXPLOITING GUTS, RISK, as unpredictable as the market dynamics he or she will face
AND DECAY while trading it.
Continued from page 27 But for those who have the experience, resources, and inclina-
tion to venture unlimited risk for a small profit, then short guts
may be the Faustian bargain you have been looking for.
Option contracts with a high level of open interest (be-
tween a minimum of 100 to 500) Karl Montevirgen is a content designer/strategist at Halifax
Contract expiration for both legs should be one month America LLC, a stocks/option, futures, and forex brokerage
or less to take advantage of decay in Sherman Oaks, CA. In addition to creating and designing
Exposure to the spread should be one month or less, as content, he has extensive knowledge of and experience with
you would close the positions prior to expiration. commodity futures and foreign exchange. He can be contacted
through the Halifax America website at www.halifaxamerica.
is it Worth the risk? com or by email at kmontevirgen@halifaxamerica.com.
It depends. Although every one of us
understands risk on an intuitive level, further reading
the concept of risk is far more complex Montevirgen, Karl [2017]. Use Seasonality To Optimize
and individualized than any term can Algorithmic Strategies, Technical Analysis of StockS
express. Trading short guts isnt for & commoditieS, Volume 35: January.
most traders. Not only must a trader
deal with the inherent risks of the See Traders Glossary for definition
spread, but the trader him/herself will
often introduce degrees of risk that are
subscribe or renew today!
A subscription to Technical Analysis of Stocks & Commodities magazine gets you so much more than just a
magazine! Every subscriber gets full access to the magazine in digital format. No waiting for the mail to be deliv-
ered just log on to Traders.com on any internet-capable device to read any issue or article weve ever published,
either in you browser, or downloaded to your device as a PDF for reading anytime, anywhere.
Digital Edition Working Money

The complete magazine as a PDF you can download The information and insight you need to invest
or read in your browser. smartly and successfully.
Digital Archives Traders.com Advantage

Thats 35 years worth of content over 17,000 Ideas, insights, evaluations, tips and techniques that
pages of searchable articles! can help you trade smarter.
Plus much more!
1 year 2 years 3 years 5 years

$
8999 $
14999 $
19999 $
29999
Visit www.Traders.com to find out more!
Email: Circ@Traders.com Phone: 206-938-0570 facebook.com/STOCKSandCOMMODITIES @STOCKSandCOMM
VectorVest RealTime
Everything you need to make faster, smarter, better trades!
Clear direction. Unbiased guidance. Precise answers.
It is the only service that provides:

Real-time quotes, ranking and analysis
on more than 7,600+ Stocks, ETFs,
Industry Groups, Business Sectors and
Market Indices.
Real-time buy and sell ratings
Streaming market timing signals
Pre-set technical searches
Automated real-time trade alerts for

maximum trading performance
Its so good, you have to see it to believe it.

Try VectorVest RealTime risk-free for 30 days!
You will receive world-class support and guidance:

Live, interactive webcasts every week to
help you master VectorVest
BONUS
Expert phone support from our Live Online
knowledgeable representatives
Trading Room
PLUS, FREE 30-day membership to our
daily live trading groupThe Jockey Club
The Jockey Club
Get started today for only $9.95

Call 1-888-658-7638 or
Visit: www.vectorvest.com/SCRT30

Discounting Sentiment Chart Patterns Triangle Breakouts Playing With Numbers Exploiting Guts, Risk, and Decay Interview

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Discounting Sentiment Chart Patterns Triangle Breakouts Playing With Numbers Exploiting Guts, Risk, and Decay Interview

Uploaded by

Copyright:

Available Formats

THE TRADERS MAGAZINE SINCE 1982

www.traders.com APRIL 2017

Free daily blogs featuring over a

Live, interactive webinars hosted

Gatis Roze Julius de Kempenaer

KNOW WHEN TO GET IN

KNOW WHEN TO GET OUT

with tools that let you set conditional

orders based on prot and loss scenarios.

OPEN AN ACCOUNT GET 500 FREE TRADES

Where smarter investors will always be.

STOCKS | BONDS | MUTUAL FUNDS | ETFS | OPTIONS

4 April 2017 Technical Analysis of Stocks & Commodities

How much is your broker charging you?

Interactive Schwab Fidelity TD Ameritrade E*TRADE Scottrade Vanguard

exchange & exchange &

If you think our commissions are low,

Editor in Chief Jack K. Hutson

believed to be reliable but not guaranteed by us without

6 April 2017 Technical Analysis of Stocks & Commodities

April 2017 Technical Analysis of Stocks & Commodities 7

this article, the closed-end-fund discount, serves as

dicator is a coinciding indicator. With that said, this

approach can be seen as more of a trading tactic to

your overall sentiment trading strategy, unless you

In academia and in practice, its generally under-

investment returns by discounting such factors as

closed-end-fund discount (CEFD) to serve as a proxy

To follow sentiment or not

increasing prices should not make sentiment

-10% investors more bullish. This merely suggests

See the difference at tdameritrade.com/trader

The Edge In Chart Patterns

Example 1: The coin game

Example 2: The dice game The case of chart patterns

You must have a definite price threshold level that

You must have a rigid definition of what the pattern

want to calculate whether it provides an edge for you in

your trading. You assume entering the market when spe-

cific conditions are met, and assume exiting the market

when, again, specific conditions are met. You also know

0 beforehand the money you are about to lose when the

Mean duration: 52 bars

terns that are considered bearish.

Ascending Triangle Breakouts

by Ken Calhoun Step 1: Look for a 15-day 15-minute candlestick chart in

Playing With Numbers

moves through the years. At the end of 2016 140000

3. Red candle: Buy a weekly red No commission/slippage/dividend

Why is there a need for random

on it? Wouldnt it be easier to just flip

April 2017 Technical Analysis of Stocks & Commodities 19

Is it possible? Further reading

20 April 2017 Technical Analysis of Stocks & Commodities

ScottradePRO is a powerful web, desktop and mobile trading platform.

Taming The New

not want to take any actions. But if

strong trend, and it brings opportunities when it undergoes short-term corrections.

April 2017 Technical Analysis of Stocks & Commodities 23

24 April 2017 Technical Analysis of Stocks & Commodities

Risk, And Decay

by Karl Montevirgen (particularly if the underlying stock

Why many will not trade Profit Short Guts

Digital Edition Working Money

Digital Archives Traders.com Advantage