TRADING CHARTS_ONLY

[TREND1]

Summary of Art Hill's book
Define the Trend and Trade the Trend.
Got it for $9.95 at Stock Charts Store.
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Summary of System
1 Find the Primary Trend. I prefer to use the weekly daily channel.
2 Trade only in the direction of the Primary Trend.
3 Trade only the end of Secondary Trend when you see a confirmation of it's end, such as a break out.

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page 1 To identify trades that make financial sense, traders need to answer the following questions.
1 What is the direction of the bigger trend ?
2 When is a good time to buy or sell within this trend ?
3 What do smaller counter trend movements look like ?
4 How do I know when a counter trend move is ending ?
5 Where do I set my profit target and stop-loss ?
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page 2 TA uses price and indicators to identify trends and forecast price movements in a tradable security.
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page 4 Indicators, by definition ,are derived from price, which means the price data has been processed with a formula.
A moving average is a lagging indicator.
A momentum oscillators like MACD, RSI, STO, etc are leading indicators.
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page 8 While one or two indicators can enhance analysis, three or more will often distort the true picture.
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page 10
1 Define the bigger trend.
2 Identify the smaller counter trend.
3.Estimate length of these counter trend moves.
4 Spot price action that signals the end of the counter trend.
5 Set Profit and stop loss levels to assess trade potential

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Art Hill's book only mentions a few indicators like MACD and ROC. No mention of RSI
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Art Hill only uses price action in this book
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page 11 Bullish and bearish continuation patterns signal a temporary stop or slow down with in the on going trend.
These patterns provide chartists with an opportunity to buy a stock with less risk and more reward.
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page 12 A position should not be taken until a confirmation is seen. Example: A break out.
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page 14 This may sound obvious, but chartist should not try to guess the top in an up trend nor a bottom in a down trend.
In other words , chartists should not second guess the market because these trends are there for a reason.
This reason may not be immediately clear, but it will likely manifest itself in the future.
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page 31 How do you know when the trend has actually reversed ?
The first sign of weakness occurs when prices fail to exceed their prior peaks.
Despite reduced buying pressure, a down trend does not officially start until selling pressure increases
enough to push prices below the prior trough.
A lower peak and a lower trough signal that selling pressure has triumphed and a down trend has started.
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page 25 Defining trend direction is the first step to seeing what is actually there.

Get the trend correct and your changes of success increase.

Get the trend wrong and your chances of success decrease.

As the dominant force, the trend is expected to continue until proven otherwise with a price reversal.

In other words, forecast is for higher prices when the trend is up.

While the trend will reverse one day, reversals are more the exception and continuations are more the norm.

A trend in motion stays in motion.

Trades have a much better chance of making money by betting on trend continuations instead of trend reversals.

This is the essence of trend following.

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page 29 Though certainly not perfect, peak and trough analysis is often superior to moving average analysis for trend
identification.
My comment: And confirmation of other methods.
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page 35 BULLISH REVERSAL PATTERNS
1 inverse H&S
2 Double bottoms
3 Rectangle bottoms
4 Symmetrical triangles
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page 37 There are 3 clear processes to a reversal:
1 Prices were trending down and selling pressure dominates.
2 Prices moved sideways. Except when using channels.
3 Prices break resistance as buying pressure over powers selling pressure.
NOTE: The pattern is not confirmed until the break out.
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page 45 Rectangles
Must have a least 2 peaks and 2 troughs.
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page 51 Calculating the Reward-to-Risk Ratio
The reward-to-risk is based on price target and stop loss.
It is important to note that price targets are "soft" estimates.
Prices will reach and exceed some price targets, but they will also fall short on occasion.
Once the price target is set, the chart will change as new price bars are added.
Chartists must continually reassess the price chart, price target, and stop loss.
Adjustments will be required to cut losses, maximize profits and prevent profits from slipping.
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page 52 One of many examples of how targets and stop losses are used to calculated Reward-to-Risk ratio
is show on chart below.
PLD_D

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page 59 Taking advantage of throwbacks
Classical TA teaches the broken resistance turns into support.

page 61 Throwbacks often happen after break outs.
Giving traders a second chance to buy because broken resistance turns into support.
page 59 Taking Advantage of Throwbacks see example below
XOM_D

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page 64 Validating Patterns with GAPS
A price gap should be considered in the context of the bigger picture.
Below is an example.
ACN_D

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Chapter 6 Bullish Continuation Patterns
page 106 A decline back to the prior low would indicate that another pattern is taking shape.
page 107 A 50% retrace of a prior advance is a healthy.
Two steps up and one step back is healthy.
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Chapter 7 Bearish Continuation Patterns
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Chapter 8 Esimating Reversal Zones
page 159
Estimating Reversal Zones
(1) Dow Theory asserts that secondary moves retrace 33% to 66%
(2) Chartist can use Fib Retracement of 38.2% to 61.8%
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page 162 In an imperfect world, it does not make sense to use one retracement to anticipate the end of a secondary price movement.
Instead chartists can define a reversal zone.
A move into this zone increases the chances that the secondary move is nearing an end.
The natural starting point for the zone is 50 percent because it is between the two Fibonacci numbers 38 and 61% and the two Dow Theory numbers 33 and 66 %.
In fact 50 percent represents the sweet spot because it is the ideal retracement for a trend, taking two steps forward and one step back wards.
These Zones are not fail proof. They mainly alert the chartists to pay closer attention to price action.
Once the trade begins with a break out , and the trend is still in place.
A new high can be expected.
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Page 171 A trader who does not use stops will eventually take the mother of all losses.
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*****CURRENT SYSTEM:
1 Define the PRIMARY trend with weekly, daily and 60 minute channels. GREEN
2 Identify the SECONDARY counter trend with channel and/or trend line. RED
3.Estimate reversal area of counter moves using fib 38 to 62 %
4 Wait for break out of SECONDAY trend.
5 Determine entry based on GAP OPEN and/or break of trend line.
6 Estimate if there is going a PULLBACK.
7 Place STOP LOSS at recent low.
8 Calculate target and if RRR > 2.
9 EXIT trade at 2 red candles or other indicators.
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*****Buying opening GAP RULES
(1) Only buy opening gaps in the direction of PRI trend
and only if there is break of SEC TREND.
(2) If opening gap has no break of SEC TREND, expect PULLBACK.

NOTE: Limited back testing.
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RRR1 = FIB 50%
RRR2 = FIB 33%
RRR3 = FIB 25%