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$TFER BarChart Trader's Cheat Sheet
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Daily Candlestick Chart for SGAS
[img]stockcharts.com/c-sc/sc?s=SGAS
What is Technical Analysis?
Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.
Detrended Price Oscillator: The Detrended Price Oscillator (DPO), as the name indicates, is a technical analysis tool designed to give information about the price of an asset without taking into account existing price trends. The logic behind this is that detrended prices can help traders to understand the buying and selling pressure in a market based on short-term fluctuations in the price of an asset, without taking into account larger upswings or downswings in price.
The Detrended Price Oscillator can be calculated by declaring a period of time that could be said to indicate a trend in price (for example, if prices steadily increase over a twenty-day period, then one could take "20" as the period of time that indicates a trend.) Divide this period by two and add one to arrive at a number n. Then take the moving average of an asset's price n days before the period in question, and subtract this from the asset's closing price for that period. The resulting number is the period's DPO. This calculation method ensures that although short-term price trends are included in a DPO chart, longer-term trends are excluded.
One of the fundamental assumptions of the DPO is that long-term price trends are composed of short-term price trends, and that only by looking at short-term trends can long-term trends be understood. By this rationale, particularly severe peaks and troughs in the DPO indicate probable reversals in the overall trend of the asset price, and traders should take appropriate positions to take advantage of these reversals in either direction.
Daily Candlestick Chart for APLN
[img]stockcharts.com/c-sc/sc?s=APLN
Industrial metals and bonds rise for different reasons. Metals move when the economy is growing and/or when inflationary pressures are building. Bonds decline under these circumstances and rise when the economy is weak and/or deflationary pressures are building. A ratio of the two can provide further insights into economic strength/weakness or inflation/deflation. The ratio of industrial metal prices to bond prices will rise when economic strength and inflation are prevalent. This ratio will decline when the economic weakness and deflation are dominant.
Daily Candlestick Chart for FHAI
[img]stockcharts.com/c-sc/sc?s=FHAI
How to Pick a Time Frame
The time frame used for forming a chart depends on the compression of the data: intraday, daily, weekly, monthly, quarterly or annual data. The less compressed the data is, the more detail is displayed.
Daily data is made up of intraday data that has been compressed to show each day as a single data point, or period. Weekly data is made up of daily data that has been compressed to show each week as a single data point. The difference in detail can be seen with the daily and weekly chart comparison above. 100 data points (or periods) on the daily chart is equal to the last 5 months of the weekly chart, which is shown by the data marked in the rectangle. The more the data is compressed, the longer the time frame possible for displaying the data. If the chart can display 100 data points, a weekly chart will hold 100 weeks (almost 2 years). A daily chart that displays 100 days would represent about 5 months. There are about 20 trading days in a month and about 252 trading days in a year. The choice of data compression and time frame depends on the data available and your trading or investing style.
Ascending Trend Channel: An ascending trend channel is a basic chart pattern used in technical analysis.
Ascending trend channels are a useful tool due to their ability to predict overall changes in trend. As long as prices remain within the ascending trend channel, the upward trend in price can be expected to continue. As soon as prices exceed either trendline forming the channel, however, a strong signal either to buy or to sell is generated. A break through the upper trendline generates a strong buy signal, while a break through the lower trendline generates a strong sell signal.
Conclusion
There is an old saying that the market abhors a vacuum and all gaps will be filled. While this may have some merit for common and exhaustion gaps, holding positions waiting for breakout or runaway gaps to be filled can be devastating to your portfolio. Likewise, waiting to get on-board a trend by waiting for prices to fill a gap can cause you to miss the big move. Gaps are a significant technical development in price action and chart analysis, and should not be ignored. Japanese candlestick analysis is filled with patterns that rely on gaps to fulfill their objectives.
Irrational Exuberance
In Irrational Exuberance, Robert Shiller argues that high stock market valuations in 2000 and 2005 were unjustified. The book starts with historic valuations based on PE ratios. Shiller shows that valuations in these two periods were well above those seen at prior peaks in 1901, 1929 and 1966. This book however, is not about valuation. Instead, the author identifies a series of factors that brought about these speculative excesses. The meat of the book lists 12 factors that facilitated big market moves from 1995 to 2000 and from 2002 to 2005. Shiller then goes on to explain the mechanisms that amplified these factors. The book also covers cultural and psychological influences that further contribute to irrational decision making when it comes to making investments. After explaining our attempts to rationalize this irrational behavior, Shiller then offers some solutions to prevent future speculative bubbles.
Taking its title from Alan Greenspan's famous description of the stock market in 1996, Irrational Exuberance was first published in 2000 and coincided with the Nasdaq peak that same year. Needless to say, the timing was most prophetic. The second edition was published in 2005 with the S
Daily Candlestick Chart for MOJO
[img]stockcharts.com/c-sc/sc?s=MOJO
Prices Movements are not Totally Random
Most technicians agree that prices trend. However, most technicians also acknowledge that there are periods when prices do not trend. If prices were always random, it would be extremely difficult to make money using technical analysis. In his book, Schwager on Futures: Technical Analysis, Jack Schwager states:
Knowing Who's Who
Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations.
Daily Candlestick Chart for CMRZF
[img]stockcharts.com/c-sc/sc?s=CMRZF
$PUNK BarChart Trader's Cheat Sheet
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Daily Candlestick Chart for SIMH
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Assist with Entry Point
Technical analysis can help with timing a proper entry point. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy. It is no secret that timing can play an important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance or buying near support levels can improve returns.
It is also important to know a stock's price history. If a stock you thought was great for the last 2 years has traded flat for those two years, it would appear that Wall Street has a different opinion. If a stock has already advanced significantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend reversal.
$GLHV BarChart Trader's Cheat Sheet
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Daily Candlestick Chart for TRLI
[img]stockcharts.com/c-sc/sc?s=TRLI
Bubbles
Robert Shiller identified several credible factors that influenced investment decisions during the bubble years. Many of these factors exist today and his analysis provides food for thought when considering behavioral finance. Not all factors or influences are listed in this article. Shiller offers more factors and detailed evidence in the book. After examining efficient markets, random walks, bubbles and investor attitudes, Shiller also offers several remedies to contain "speculative volatility in a free society".
Behavior finance can help us understand what is happening, but understanding may not help with making money in the stock market. While the first edition coincided with the stock market peak in 2000, the stock market rose another 30% after the second edition was published in February 2005. There is an argument to be made for historical valuations, but markets can remain irrational a lot longer than traders can remain solvent. In other words, one would have left a lot of money on the table by selling in early 2005 or one would have gone broke shorting stocks in early 2005. To his credit, Shiller does provide evidence of past mispricing in the stock market. It can and does happen.
Furthermore, who is to say how much a stock is actually worth? The value of any asset is only what someone is willing to pay for it. Valuations are set everyday as stocks change hands on Wall Street. Just as prices trend, valuations also trend from overvaluation to undervaluation. Sometimes these trends get extreme on both sides. Stocks were severely overvalued in early 2000 and severely undervalued in March 2009. It would appear that some sort of timing mechanism is needed to avoid the big declines and participate in the big advances. Hmm… sounds like technical analysis!
Daily Candlestick Chart for SANP
[img]stockcharts.com/c-sc/sc?s=SANP
Support and Resistance
Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. These terms are used interchangeably throughout this and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control.
Bank of Japan (BOJ) Monetary Policy Meeting and Announcement: Release schedule : No set time, usually between 2:00 and 4:00 (GMT); monthly, in the middle of the month
Source of report : Bank of Japan
Web Address : http://www.boj.or.jp/en/index.htm
Address of Release : http://www.boj.or.jp/en/theme/seisaku/kettei/index.htm
Schedule of Meetings : http://www.boj.or.jp/en/theme/seisaku/index.htm
Daily Candlestick Chart for VTSI
[img]stockcharts.com/c-sc/sc?s=VTSI
EquiVolume Chart Calculation
An EquiVolume box consists of three components: price high, price low and volume. The price high forms the upper boundary, the price low forms the lower boundary and volume dictates the width. EquiVolume boxes are black when the close is above the prior close and red when the close is below the prior close.
Volume is normalized to show width relative to the look-back period. For a four month daily chart, each day's volume would be divided by total volume for the look-back period (four months). As such, the width of each box represents the day's percentage of total volume for the look-back period. Big volume days take up more space on the X axis (date). Chart 2 shows normal high-low-close bars with volume for Kraft Foods (KFT). It is a pretty normal looking chart with a normal X axis. Chart 3 shows this same four month period using EquiVolume boxes. The wide boxes show relatively high volume days, while the thin boxes show relatively low volume days. Also notice that many wide boxes can expand the entire month on the X axis. January is much wider on the EquiVolume chart than with normal high-low-close bar chart.
$SMXMF BarChart Trader's Cheat Sheet
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Commodity Channel Index: The Commodity Channel Index is a tool developed by Donald Lambert to measure the point at which cyclical price reversals for a given asset can be expected. One of the fundamental assumptions behind the CCI is that price trends reverse at regular intervals within an asset, allowing investors to take the appropriate action when the CCI indicates that one of those cyclical reversals is imminent.
The CCI is calculated first by averaging the high, low and closing prices into a measure called the True Price, or TP. A 20-period moving average of the TP becomes the Simple Moving Average of the True Price, or SMATP. A standard deviation of the difference between SMATP and TP over twenty periods is also taken. The difference between TP and SMATP is then divided by the product of this standard deviation and a constant value of .015 to produce the CCI.
The constant value of .015 ensures that the majority of CCI values fall between 100 and -100. In the case that the absolute value of CCI exceeds 100, Lambert's theory indicates that the market is approaching one of its cyclical reversals, and that traders should take the appropriate action. The CCI also indicates overbought and oversold levels, which are any levels whose absolute value exceeds 100. If the CCI moves outside of the -100 to 100 range and then returns, either a buy or sell signal is generated, depending on whether the CCI was below -100 (oversold) or above 100 (overbought.)
$SELR BarChart Trader's Cheat Sheet
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Daily Candlestick Chart for MRDDF
[img]stockcharts.com/c-sc/sc?s=MRDDF
Inflationary Relationships
The intermarket relationships depend on the forces of inflation or deflation. In a "normal" inflationary environment, stocks and bonds are positively correlated. This means they both move in the same direction. The world was in an inflationary environment from the 1970's to the late 1990's. These are the key intermarket relationships in a inflationary environment:
A POSITIVE relationship between bonds and stocks
An INVERSE relationship between interest rates and stocks
Bonds usually change direction ahead of stocks
An INVERSE relationship between commodities and bonds
A POSITIVE relationship between commodities and interest rates
A POSITIVE relationship between stocks and commodities
Commodities usually change direction after stocks
An INVERSE relationship between the US Dollar and commodities
POSITIVE: When one goes up, the other goes up also. INVERSE: When one goes up, the other goes down. Interest rates move up when bonds move down
In an inflationary environment, stocks react positively to falling interest rates (rising bond prices). Low interest rates stimulate economic activity and boost corporate profits. As interest rates fall and the economy strengthens, demand for commodities increases and commodity prices rise. Keep in mind that an "inflationary environment" does not mean runaway inflation. It simply means that the inflationary forces are stronger than the deflationary forces.
Daily Candlestick Chart for GRMC
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$PFFBQ BarChart Trader's Cheat Sheet
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Daily Candlestick Chart for HUIY
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