Traders should always try and use the same time frames on their
charts everyday to avoid confusing. Pick out four time frames that you
are comfortable looking at and stick to them every day for your
analysis. When you observe charts over time, you begin to get very
familiar about trading. You should on the same time periods each day.
This will give you a better feel for the indicator divergence at these
chart points. Price trends in one direction or the other until it
meets with excess supply or demand counter to the current trend. The
price starts to slow down and sometimes traders cannot see it with the
naked eye. This is where using a technical indicator like the CCI.
These indicators are designed to see the price slowing down at these
turning points and when used correctly, can lead to some trade setups.
The chart below is an example of a buy set up,There are many
different momentum indicators available on your trading platforms. You
can try and use the Commodity Channel Index (CCI) You can see how
price came down to point B. As price was approaching this level, the
CCI was trading under -100 (oversold condition). Price soon rallied
off this point B and found some overhead supply causing price to come
back and test the previous low at B. At this point, you should start
to notice something different in the way price is coming back to test
this previous low; we are losing momentum on the re-test. By looking
at the CCI indicator as price comes down to test the B lows, we notice
that the indicator is actually higher than it was at point A. Also,
the CCI is, again, in the oversold area. The indicator is telling you
that the sellers are not as aggressive on this re-test as they were
when point B was put in on the price chart. A loss of momentum to the
downside at a support level is very good information to help give you
an edge in trading.
These indicators at anticipated turning points (support and
resistance) from your larger time frame charts, or be using them in
the context of the trend. You must use
Uptrend = only take buy signals from oversold region
Downtrend = only take sell signals from overbought region
If you try using every divergence or buy/sell signal without applying
the above rules, I can guarantee you will just lose money trading with
them.
There are two types of divergences you will hear traders referring
to:
Positive Divergence = Buy Setups
Negative Divergence = Sell Setups
The opposite is true for times of Fed tightening. You will see
the short-term treasury prices drop faster than the long. As a longer
term swing trader, we want to determine if the rallies or drops in the
equity prices are being driven by the free market or by government
intervention. Rallies caused by government intervention in equity
markets are usually not long lasting and should be traded with caution
unless the institutions and individuals start to buy into them as
well.
So watch the bond market for clues as to how the equity
market should proceed. Having this knowledge can help you increase
your chances of spotting the Fed action and identifying potential
dangers in trading. Until next time, trade safe and trade well. You
should stay aware of different news that effects the markets.Traders
need to stay focused on the moment by noticing where your attention is
at any particular time. If you do this consistently, you will become
more and more self aware. You are then in a position to be more
deliberate about where you put your attention and for what purpose.
Over time, you will be better able to proceed in your trades fully by
design rather than by default. |
