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Stock Market Volume Analysis is Unreliable: Here’s Why

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Stock Market Volume Analysis Doesn't Work
Here's Why Stock Market Volume Analysis Doesn't Work

Today’s article (and video) demonstrates why stock market volume analysis doesn’t work as well as most people think it does. Yes, this is another one of my controversial lessons (like last week’s on trend lines).

Most people are taught that price action and volume are the 2 most reliable things you can use in trading.

Sorry – you’ve been deceived! Stock market volume analysis isn’t as reliable as you’ve been taught to believe and in this video I’ll share with you EXACTLY why.

Enjoy the video and please leave your comments below (even if they’re negative!).

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.

VIDEO TEXT:

Hey welcome to this video on trading price action patterns.

Welcome to this tutorial on Stock Market Trading Volume Analysis and Dark Pools.

This is Doctor Barry Burns with Top Dog Trading, and you know I’ve had a lot of people who recently have asked me why I don’t talk more about volume when analyzing stock market charts. And so I am going to share that with you today. I do use volume in my analysis but perhaps not as much as other people. And I’m going to give you the exact reason why, right now.

I’ve had people email me saying, “The only leading indicator is volume.” They say volume’s a leading indicator. Okay, that sentence is completely wrong. Everything about that sentence is wrong.

Number 1, volume is not an indicator. Volume is just what it is. It’s like price. Price isn’t an indicator. It’s not a mathematical calculation of anything. It’s not derivative of data, and neither is volume.

WHAT IS STOCK MARKET VOLUME ANALYSIS?

Volume is just what it is. The number of shares in the stock market or lots, or contracts, or forex, or futures that are traded. So it’s not an indicator it is actual fact. So it’s not a derivative of anything. It’s not a calculation. So first of all calling volume an indicator is wrong.

Number 2, it is not leading. It is actually often lagging. So let’s take a couple of looks at that. And I’ll explain to you why it’s lagging. Especially today.

In my trading, I’m buying cycle lows and shorting cycle highs in certain situation. You have to look at the whole landscape of the chart. So for example, you know if I wanted to buy a cycle low here, I would you know buy literally right there. Right at that bar.

Now where does our volume increase come? Our Volume increase comes here. Way up there. So if you were buying this and you’re waiting for a surge of volume, which happens here, you won’t be getting in until here. And how far does the market go. Well it goes there and then it comes down and it breaks this low right here. That means this is not a good time. It’s not optimal time to get into the market.

IS VOLUME A LEADING INDICATOR?

If you wait for the volume to increase, you are actually getting in late. It is not a leading indicator, it’s not a leading indication. It’s not a leading anything. It’s often late to the party. So I’m getting in before the big volume comes in. the big volume is great but see you would really have to suffer through this move against your position, against these lows, psychologically that can be very challenging to deal with.

Now look over here. We have another obvious surge of volume right here with this bar. And what is that? Well the market’s actually coming down. That occurs on this red bar. So we’ve got this level of volume in here. It finally breaks out above that. But it breaks down, or it breaks out on a red bar, while the market’s coming down. And so that would almost make one think well maybe some big short selling is coming in. No, that’s not at all what happened. In fact it didn’t move down much beyond that at all.

And then the next obvious big surge in volume comes in on this bar. Again late to the party. Not early at the cycle low. Not even at the break out. And so it occurs in about the middle of the move. Hardly a leading indication. And so that’s the second thing wrong with that statement is it is not leading at all.

HOW CAN VOLUME BE USED EFFECTIVELY IN TRADING?

Right moving to another section here. Here’s one way that I will use volume. And that is not for the beginning of move, you would think that the market would start out with a big surge of volume to get momentum behind the move. And I’ve shown you that that’s not quite the case, usually occurs about in the middle or even a little bit later in an impulse move.

Now here is one place where it does provide quite a bit of accuracy and many situations. And that’s actually the end of a move. So we get this exhaustion pattern. The market comes down and this impulse move down ends on exhaustion.

At this place we get a big move up, so some people might say, oh look see it started a new move. Not really. Because often with these exhaustion patterns like this with big volume, they don’t always go back up, sometimes they’ll just consolidate for a while. I’ve studied many of these charts over and over and over.

Here’s another example. There’s a big surge of volume, and where does the market go? Really doesn’t go anywhere. It just kind of goes sideways from there. And so again here is another surge of volume. Where it comes in. comes in in the middle of the impulse move. Not at the low, and not at the high. It comes in in the middle. To me, that’s late to the party.

EXHAUSTION PATTERNS ARE OFTEN IDENTIFIED BY VOLUME

Here’s an illustration of what I was talking about before, for exhaustion patterns when doing stock market volume analysis. Here’s an exhaustion pattern, market gap down. We get a nice sound exhaustion pattern candle stick, big volume coming in. now again some people would say, oh that could be a beginning of a new up move. And I said, no it can just go sideways, here it does.

It goes sideways for a while and this is a daily chart, so 1, 2, 3, 4 5, 6, 7, 8, 9, 10, 11, 12, almost about 2 weeks actually. Little more than 2 weeks actually, because these are trading days. So just consolidates for over 2 weeks, and then it goes down a little bit more.

Just because you get in exhaustion pattern type volume, that’s not in and of itself a good reason to take a reversal trade, or in this case to buy. So let’s finish up talking about why this is happening. Why this is true, why it’s so counterintuitive. And why it’s against traditional teaching.

The reason is actually very simple. Volume as a leading indicator just isn’t even accurate. It doesn’t work. It’s not reliable. And the reason is, hold on to your hats.

The primary reason, the big picture is that the big institutions, the big players, pension plans, everybody’s trading this huge money. They don’t want to be trapped. And they know that if they come in with huge orders, everybody in the world looks down there and they can see that volume histogram and they are going to use that. They say, “Oh the big boys are coming in.” They don’t want you to know when they are coming in. so they do a couple of things.

One thing they do is they come in through various means. In other words, they are not going to just buy, in this case Disney, they are going to come in through various markets, through various exchanges, through different financial instruments. The other thing, and they might do it overtime with accumulation.

THE WORLD OF “DARK POOLS”

The other thing though that a lot of people are not of aware is dark pools. What are dark pools? Dark pools are non-exchange trading in the markets. So it’s basically institutional investors who want to buy or sell huge, maybe a million shares of a stock. They don’t want you to see that. So they actually will go to a dark pool. Which is basically private exchanges or forums, for trading stocks.

It’s not a public stock exchange. So the volume, that they are trading, they are trading it but it won’t show up down here on your volume histogram. And by the way they are a big deal. This is not something that’s just occurring on a small scale.

In fact I did a little research on this, and Investopedia said that in 2014, Non-exchange trading in the US accounted for about 40% of all US stock trades. 40%. So how can you rely on volume when 40% of the volume, and that by the way, 40% is not the little guy. That 40% are the big institutions. The pros, the whales, the smart money. The smart money is not showing up here my friends. And that’s why volume is very deceiving, not only it isn’t reliable, looking stock market volume analysis can actually be very deceiving.

 

 

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Also I am giving away one of my favorite trend trading strategies that work today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

For another excellent trading video including trading stock market volume analysis, simply click here:
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Trend Lines on the Forex and Stock Markets Don’t Work

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Stock Market Volume Analysis Doesn't Work
Here's Why Stock Market Volume Analysis Doesn't Work

Today’s article (and video) demonstrates why tend lines on the Forex and stock markets don’t work. Even though they’re one of the most coveted classic technical analysis techniques, they’re based on a false assumption. Therefore they’re essentially useless in trading!

Believe me, I know this is a HIGHLY controversial statement.

In fact when I posted this tutorial on YouTube it got the most negative reviews and “thumbs down” of any video I’ve ever posted on YouTube (over 100 at this time).

That alone is an indication that I’m right on the money! Most people lose money, so when a lot of people disagree with you, you’re probably onto something good!

Enjoy the video and please leave your comments below (even if they’re negative!).

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.


VIDEO TEXT:

Welcome to this video on Trading Price Action Patterns for Forex Markets, Stock Markets, E-minis, this applies to anything you can chart.

One of the basic techniques of technical analysis that goes way back to the days of yore are trend lines on the Forex and stock markets. So let’s take a look trend lines.

I never use trend lines. I do not like them. And I know that’d be controversial since they are really a standard in technical analysis. But I find no use for them whatsoever and I’ll show you what I use instead.

Trend lines we would draw from a high to a high for example. And then we’d say okay, that is the trend and we wouldn’t want that trend line to be broken. But guess what, oh there it is, it’s broken. And you’ll see this quite often on charts where people draw trend lines.

HERE’S PROOF THAT TREND LINES ON THE FOREX AND STOCK MARKETS DON’T WORK

Then they draw another one because oh this high put in higher high. So now they’ll draw another one from there. But guess what, oops that one gets broken. But the market still goes down. Doesn’t it? So therefore they draw yet another one and they’ll draw it from there to there. And you’ll often see these kind of fan patterns drawn.

What use is that because you’re starting out at this lower one. And then it’s broken. And the reason that these don’t work, reason that they are really meaningless and completely useless, in my never be humble opinion, is because they are linear.

WHY TREND LINES DON’T WORK

And the markets are not linear. Markets are a bit messy. The Forex and stock markets are not that neat and tidy. Think about it. You’ve got people from all over, not just that country but all over the world, millions and millions of people, and not only people, but computers and algos, programs and high frequency traders. There are long term investors, short term traders, you got people trading options on this stuff.

It’s a big huge massive operation that’s international. Therefore how can you expect everybody to be on the same page, enough to make a chart pattern linear. No. It’s going to have some noisiness to it, some messiness to it, some randomness to it. You cannot expect it to be that perfect that you can use linear examples for trends.

What I do again is just do a different technique that is also very common in technical analysis, and that’s a moving average. I am going to leave these 3 on here, and let’s just apply a moving average. So we go up here, and well let’s just do it this way, its a little faster. So we go up here and one of the moving averages that I like to use is the Exponential Moving Average. And I use a 15 period.

YOU HAVE CHOICES ON WHAT TO USE INSTEAD OF TREND LINES

There’s different periods that you can use. And I’m not saying there is any perfect one, there isn’t. Lot of people will use something like a 20 period, and that’s okay too. But just through experience I have found that I like to use the 15 EMA. Works very very well.

So now if we look at the same example, where we do the trend line from here to here, then from here, then from here. Well what if we just put the 15 EMA on here, 15 Exponential Moving Average. It actually touches all these points. So this stays below it. That stays below it. That high stays below it. All 3 highs stay below it and notice it’s not linear, it wriggles. It wriggles. That’s because the market wriggles.

In other words using a moving average instead of a straight line. You’ll see that moving average, kind of wriggling and having a little bit of a flexibility to it. And that’s because of the market movement before that. That it creates that into the future.

LET’S DEAL WITH THE REALITY OF THE FOREX AND STOCK MARKETS

And so therefore it is really creating a pattern that is more realistic. In fact it’s not only just realistic, it’s actually based on actual price action from the past. And so therefore it continues to create price action. That’s more realistic into the future based on actual price action, actual price movement. And so therefore what does it do, well it actually shows that yes, as long as we stay below that 15 EMA, we are golden. We are still in that directional move, in this case down. And once we get above it, that’s done. That’s done. Then we can look for another direction or in this case it just goes sideways for a while.

Okay, let’s bring in example of the Forex market now. We’ll bring out a ray here. And if we were to draw from this high to that high, okay that’s not too bad but then we didn’t quite catch it so then you’d draw from here to here. And then, oh that one goes little high and maybe from here to here. Again you know, you just start getting messy lines. So it’s just again is not really to me the optimal way to do it. That’s simply because again market stop moving in a linear fashion.

HERE’S WHY MARKETS ARE MESSY

In fact what’s even more interesting beyond that is that markets, we are not seeing all the data. That you know that. So in forex, I think you probably know that. Spot forex at least. Because it doesn’t go through a centralized exchange. So there is that issue.

With stocks though a lot of people go, ‘Oh it all goes through a central exchange.’ Not really. There is a lot of variance there. Yeah I could go into whole thing about dark pools. That, in that dark pools are really important to understand because a lot of the big orders go through dark pools. That’s pretty much why they exist. So that the big institutions can place their orders there and their volume not be tracked by people like you and me. So that also creates some of the unpredictability of the market which is pretty much the purpose of them.

COMPARE FOR YOURSELF

So anyway put my 15 EMA on here now, the black line as you can see. Now I’ve got my trend lines on there, you’ll see that the 15 EMA and as long as price stays below it. We don’t have to sit there and redraw lines. Instead of very very linear fashion. We’re giving it room to be messy. Giving it some room to fluctuate, which is what the market does. And therefore because that’s a reality of price movement.

It’s important for us to have a tool accommodates that reality. So if you use straight line, such as trend lines, so-called trend lines. then you’re actually dealing with the misconception and you are putting your mind in an unrealistic expectation. And that alone can mess you up psychologically when you’re trading. So that’s a reason to not to use them right there.

 

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.

Leave a comment below telling me what other information you’d like about Andrews Pitchfork Trading that you’d like me to teach in the future.

Also I am giving away one of my favorite trend trading strategies that work today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

For another excellent trading video including trading price action patterns for the stock market and Forex Market, simply click here:
http://www.topdogtrading.com/stock-market-trading-strategies/

Go here to Subscribe to my YouTube Channel for notifications when my newest free videos are released:
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Trading Price Action Patterns for the Stock Market and Forex Market

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Price Action Trading Patterns
Price Action Trading Patterns

Today’s video covers Trading Price Action Patterns for the Stock Market and Forex Market that are rarely taught.

There are many indicators to choose from and some can be very helpful. But even if you have indicators you love, be careful that you don’t become over reliant on them.

Price is still king and every trader should understand how to trade price action patterns in whatever market they’re trading, whether it be the stock market, Forex market or futures.

Enjoy the video and please leave your comments below.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.


VIDEO TEXT:

Hey welcome to this video on trading price action patterns. This is going to cover price action patterns for the stock market, forex price action and E-minis. Actually this will apply to pretty much any market that you can plot on a chart.

I’m going to use a tool that’s in Ninja Trader. You don’t need this tool to do it. It’s called the ruler. What we are going to do is go from a high to a low. And we’re going to measure 2 things:

THE FIRST THING TO LOOK AT REGARDING PRICE ACTION

Number 1, how many bars is that impulse move down? By the way, one way to do this is if you get 2 equal lows here, you always go to the second one. The last one in the impulse move down. That’s the rule. Okay, so this goes down 16 bars. Now you can just sit there and count them if you want to. But it’s kind of nice way of this tool that counts them for us.

So 16 bars down that means that the markets spent 16 bars. This happens to be a 3 minute chart. So 3 times 16 ended up spending that amount of time going down.

Then we can go from that low to this high and we can see that it spent 8 bars going up. In other words, half this much time going up as it went down. So that’s our first clue. How much time is the market spending going one direction as opposed to the other and that is one clue of the dominant energy. That’s what this is really about. Measuring the dominant energy of the market.

As you can see before this, the market had been going up. Right? So we have higher highs here, higher highs here. Therefore our first clue that this thing might be turning around is that we still need a higher low, but we spent more time coming down, than we did going back up. Time and price are the 2 factors that we’re looking for, the confluence of time and price as W.D. Gann says.

THE SECOND THING TO LOOK AT REGARDING PRICE ACTION

Alright, so then the next factor is price. As we go from here to here, alright, that looks kind of switched up there. But basically the market came somewhere between 38 and 50, we’ll call it 50, about half of the way back up. But it didn’t make it more than half of the way back up to the beginning of the move.

And so therefore confluence of time and price has spent more time going down then it spent time going up, and it covered more price going down, price range than it did going back up.

So those 2 things indicate that okay the dominant energy has shifted now. And now the dominant energy is to the short side. And sure enough. Bam! The market really takes off. Crunches down. Alright. So let’s take a look at another example.

TRADING PRICE ACTION PATTERNS RARELY TAUGHT: RIGHT AND LEFT TRANSLATION

Oh, By the way one last thing on this, this is called a cycle analysis. This is called right translation. If you haven’t heard the word right translation. That means we can do this another way too. We can graph it with a little rectangle here. Ah, there to there.

What right translation means is if you were to draw a line. Well what the heck. Let’s do it. Horizontal or vertical line here.

LEFT TRANSLATION PRICE PATTERN

Alright so let’s look at an example of left translation. So if you go from this high to that, or from this low to that high, to this low. By the way, may bring up my crosshairs over here. Remember we always go to the last low. So if you’ll notice might not have been obvious that the low of this bar is the same as the low of these 2 bars. Bring my crosshairs across so you can see, so therefore we use this bar as our low.

Let’s do a little ruler here and same here by the way. We go to the last low, equal lows. There to there, alright we have. Bring our label down here. So 6 bars going up. Now obviously it spends less price coming down. Comes down, not as far as it went up. But where, how many bars does it take to do that. How much time, it takes 10.

So it went up on 6 bars, and it spends 10 bars, again these are 3 minute bars. That’d be the difference of 18 team bars going up, and 3 bars coming down. With 30 minutes.

The point with that is the underlying market participants. How encouraged are they that this is really a bullish market. If the sentiment is very very bullish than they’re going to want to get on board this. But if they’re waiting a long time to get on board, that means there is uncertainty. And if there is uncertainty, there’s probably going to be fewer people jumping on board, so it does make a higher high, but that’s the end. That’s the end.

RISK/REWARD RATIO IN TRADING PRICE ACTION PATTERNS

That’s not a very big reward if you are going to take that trade. We don’t want that. We want a nice reward to risk ratio. Want to make lot more money than we’re risking. And you are not going to get that on a trade like this.

This is an example of left translation, by the way. So if we go back to our rectangle, and we draw it from here to here. Again just a different way of showing the exact same thing by the way. And where is the middle here, I could count them out, it would be 8 bars. 1, 2, 3, 4, 5, 6, 7, 8 okay. So it’s that far. Now we’re being exact.

You could see that the high comes into the left of middle. Between that low and that low. And that’s your cycle. Cycles are measured from low to low. And then your high comes to the left of it. And these were just 2 different ways of measuring the same thing. So and then you can see when it goes down.

Well then you can really just eyeball it, we don’t have to really do these numbers here. But boom, spends more time going down, less time coming up. Right, more time coming down. Less time coming up. More time going down. And sometimes it’s about the same. As long it’s not too much more, we’re ok.

Trading price action patterns like this can make a big difference in your trading results. when done correctly.

This is the kind of pattern that we really like, right here. Where the market, as we talked about before, the retrace in price, how far is it going to retrace in price. It’s also important. So we fit in, makes an impulse move down, and makes a very shallow retrace that’s generally good. I mean there’s not a lot of buyers coming in if we are short. So little profit taken will be ok, a few retail buyers coming in. that’s okay. But we don’t want professional money going along. Yeah going along here if we are short.

And that will be indicated by how much time and how much price it’s covered on the retrace. So the best scenario is to get something like this. Where you’ve got a nice impulse move down and then look, there’s really no retrace. The market just goes sideways. So yeah there’s probably a little bit of profit taking there, but there’s no major buying at all. That means that the bearish energy is still very dominant in this market. And if you’re short that’s exactly what you want to see.

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.

Leave a comment below telling me what other information you’d like about Andrews Pitchfork Trading that you’d like me to teach in the future.

Also I am giving away one of my favorite Trading Price Action Patterns that work today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

For another excellent trading video including Trading Price Action Patterns, simply click here:
http://www.topdogtrading.com/stock-market-trading-strategies/

Go here to Subscribe to my YouTube Channel for notifications when my newest free videos are released:
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Andrews Pitchfork Trading to Make Money in the Stock Market

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Andrews Pitchfork Trading
Andrews Pitchfork Trading

Today’s video is part 1 of “Andrews Pitchfork Trading: A Great Tool to Make Money in the Stock Market.” Technical analysis is the art and science of reading the charts of stocks rather than looking at a company’s “fundamentals” (earnings, sales, price/earnings ratios, etc.).

If you’re not comfortable only trading a stock based on it’s technical analysis, you can combine technical analysis with fundamental analysis as many traders do.

This first, in a 2-part series, will focus on a technical analysis tool that fits into the category of “market geometry:” Andrews Pitchfork Trading. See Part 2 further below in this same blog post. 

Enjoy the video and please leave your comments below.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.

VIDEO TEXT:

Welcome to this video on Stock Market Trading Tips regarding Andrews Pitchfork Trading. I’m Doctor Barry Burns with Top Dog Trading.

This is part 1 and you can watch any of these in any order. We’re going to show you how to do this with Andrews Pitchforks. So let’s take a look at what that is. It’s a geometry pattern that we use. Go up here, click on Andrews Pitchfork. Obviously your software maybe a little different. This is Ninja Trader.

THE BASICS OF ANDREWS PITCHFORK TRADING

Andrews Pitchfork is a 3 point drawing tool. We go 1, 2 and 3. Now the point of this is we are going from a high, significant high to a lower low and then to the next high.

We’re looking to draw this in the energy of a new trend. A new move. Now it’s going to show us the relative strength of the price action as it continues in that trend. If you can use your imagination a little bit, you can see this is called the handle here. And that’s the handle of the fork. Just think of it is the fork. And the fork is angling down. And then from here you have the sides going out like that and that and then the tines, they are called tines, the fork are going this way.

The primary times we’re looking at are, first of all the middle one is most significant. I got that in black. I’ve got these drawn in different colors. The middle one is black, and then the outer two from that are in a darker blue. As you can see a little thicker.

Ultimately what we would like to see is the market to stay within the boundaries of this line or tine if you will. And this one here. Because what that’s showing is that the market is maintaining the same relative strength as this initial impulse move from there to there and then down again.

WHAT IT’S ALL ABOUT

Remember Andrews Pitchfork Trading is all about the energy of the market. How is this energy continuing? So again our initial 3 point were those 3. That sets up a particular type of energy for the market to go down. And we want it to stay below this line and basically above this line.

Because if it goes below this line, that means the market is probably having a exhaustion pattern.So we get a wave 1 here, stays within that area. Wave 2, stays below that tine. Great. Wave 3 comes right down to the bottom one.

Wave 4 actually comes in here, now here we start to show a little bit of weakness. See that. It comes back up and we are still okay, because it doesn’t go above this one, doesn’t get above that one. This is your final hurrah. Up here is showing a little bit of weakness. And then when it come down, it gets back to the little one, but look it does not come down to that one. So this is the key that we’re watching.

5 wave pattern is what is normal. We are looking for a trend to have 5 waves. And they don’t always have 5 waves. Sometimes they got only 3, other times it will go 7, or 9, or 11. So what we’re doing is we are counting our waves. Let’s say if it will go average of 5 or if it will be an exception to the rule.

PRACTICAL TRADING TIPS

Now we do that by simply looking at the relative strength of the market, relative to the initial impulse move. Here we are good, here oops we broke out above that line, so that’s our first little signal, that oh there is weakness, the strength of this trend is starting to get weaker. Does it get back to this line? Nope, it only goes to that one.

When we’re putting in a wave 5 there, then probably we are going to just go ahead and get out. I would. That’s what I would do when using this Andrews Pitchfork Trading technique. Because right at wave 5, which is average, as far as the length of the trend goes, 5 waves. And it’s getting weaker. It didn’t get down to this line down here, it only got to the middle one. And then it comes back out.

Now if you want to be a little more free flowing with your money management, and you think oh can go further, it can go further down, just gets weaker, doesn’t mean it won’t go down any further. You might want to place your step outside of this line. And definitely outside of that line for sure.

But look how much money you are giving back when you do that. So you’re giving back a lot of potential profits here. You know about $10 in this particular case. And once it breaks out of that, well then we are done. Then this initial energy down has completely changed.

HOW TO START OVER AFTER THE TRADE ENDS

What are we going to do then? Then we’re going to do the exact opposite of what we did before. We are going to take this pitchfork off and we’ll put a new pitchfork up.

Oops got the wrong button there, so we are going to go now, measure it up from there to there and to there. It now measures the movement up.

Look at that, it didn’t go very far, did it? It knows how the market did respond to those zones if you will. And it kind of goes little, climbs up this one but it’s already on the outside, kind of breaks to the outside of it immediately meaning that do not expect a big move to the upside right here. At least not on the same energy. And it just goes outside the zone right away and starts outside the time.

So once that happens, then what I would do is see how the energy just goes sideways then. This was not a strong, this is a strong move. Up here, 1, 2, 3. But that same type of energy doesn’t continue up.

ADVANCED APPLICATION

You can actually, if you want to get real creative with it, get a little more advanced for you. You can actually then go to like that, low over there and say okay, well this is the energy that it established, and it did. And now here is our 3 primary tines. And it goes up, it stays in there for a wave 3 and then it fails. Comes all the way down and it’s outside.

What happens when it goes outside? Totally chaos. So does not continue in that same direction. Okay so that’s the idea.

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Andrews Pitchfork Trading to Make Money in the Stock Market, Part 2

This second, in a 2-part series, will focus on a technical analysis tool that fits into the category of “market geometry:” Andrews Pitchfork Trading.

Enjoy the video and please leave your comments below.

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VIDEO TEXT:

Welcome to part 2 of this series on how to make money with stocks.

In the last video I showed you how to use Andrew’s Pitchfork and we got a lot of good emails from that. So I decided to do it again and take it a little more advanced today. So lets jump right into it.

Today I’m going to be using an Intraday chart. This is actually a 3 minute chart of Apple. The last video I showed you it on daily chart. And we just go up here to the Andrew’s Pitchfork. As I want to show you a couple of different things. Little more advanced than the last time.

So first of all, we can span from one day to the next. That’s the first thing I want to share with you. so here is one day, then here is the next. This, on the left of this vertical line is I August 15th, and then to the right of the vertical line is August 16th. But, yeah so you can do this across from one day to the next.

TRADING ANDREWS PITCHFORK WORKS ON MULTIPLE TIME FRAMES

So we’ve got our low, and then our higher high and a higher low. That’s the first place we use to draw our lines. And then we have our 3 tines. Here is the handle, and there is our main tine. And then our 2 tines on the opposite side of that.

Now remember as long as it stays within these tines, we are considering that it is going to be in a relatively strong position from this initial impulse move relative to that. Once it breaks outside of this area here, it goes down here then that’s where we want to be out. Specially here that would be our ultimate stop if we wanted to try to hang in there for riding through some noise.

Alright you can say it did pretty well. Right now if you got out here, you did pretty good. In fact the 50 MA trend’s over, that’s what that line is. There, and we actually get a short trade there. but here is what’s different to what I talked about in part 1.

WHAT’S DIFFERENT IN PART 2 OF THIS ARTICLE

In part 1 we are looking for an uptrend, and I talked about using this for staying in long trends and getting out of short trends. So basically we’re using the Andrew’s Pitchfork, and when to get out when it breaks out of the trend to the bottom side. However look what we have here, here is the upper tine, and that’s an uptrend, and it goes way above the upper tine. So here is a new rule for you. This is an exhaustion move.

When it gets outside of this, in a bullish territory where you would expect it to stay within these tines. And instead of just using it as a stock going against the trend, what if it goes dramatically in the direction of the trend. Well I would get out there. why? Because that’s an exhaustion move. It’s way beyond the normal energy of the market.

THE DEVIL’S IN THE DETAILS

We could have stayed there longer and we get out over here but the problem is, look here we get out of this at this price, here we get out at that price. Now these are optimal prices. Obviously. But you get your 5 wave move which is an average trend 3 and 5. And we just get out there.

We may do that because based on the geometry of the pitchfork, we have an exhaustion move there, so this price is normally going to be much better than if I wait for the trailing stop using the Andrew’s Pitchfork. Now let’s take this same chaty and look at it in the opposite direction going down.

AND NOW FOR THE ADVANCED STUFF

Here’s a couple more advanced tips here. I give a lot of basic stuff in these videos but once a while I like to do something little more advanced for the advanced traders of Andrews Pitchfork Trading as well.

Our normal wave drawing in Andrew’s pitchfork of course would be from a high that stands out to the low, to the next low or high. If we do that off of here, remember this is where, I showed you we would optimally get out at a wave 5 after that explosive move to the upside and the exhaustion move of the Andrews pitchfork.

But here’s the problem, if you do it on an exhaustion move in the opposite direction, the Andrew’s pitchfork isn’t going to work very well. And there’is a very logical reason for that. It’s simply that this is not a normal sine wave type of pattern.

It’s an exhaustion pattern. It’s an extreme pattern so if you draw it from there to there to there, you are not measuring the normal type of energy in the market. In other words, the normal cycles of the market. It’s off of an extreme move. So that’s one exception where we don’t want to do that. Therefore we want to go ahead and measure it of off a more normal cycle pattern, a more symmetrical pattern that is typical for the markets.

THE LINE IN THE SAND BETWEEN BULL MARKET AND BEAR MARKETS

In this situation the main thing here is that this is a 50 period SMA. 50 period Simple moving average. That’s what I use for my line in the stand in the sand between the bull and bear market. This is really the significant point here. You’ll also notice that one doesn’t have a number or letter because it’s not really a, it is a cycle, even though it is not a cycle high or a cycle low. And it’s definitely not a wave high or low.

We’re going to use these points. You can use this point as well. Actually that might be the better one. They are equal, no actually this one’s a little lower. So lets use that one. Okay we come up here, go to our Andrew’s Pitchfork. Bang, bata boom, and get our high there.

You’ll notice we got the same type of action, price action relative to the initial strength set up by these first 3 points. That we did going up, in other words what I mean by that is we are going down and rather than having to worry about getting stopped out over here, we get in exhaustion move or a very strong dramatic move to the downside that breaks through all of the tines in the direction of the trade.

REPEAT, I SAY REPEAT.

Again we say, oh okay, so we are not going to wait to get out over here. We are going to go ahead and count our 5 wave pattern, and then just get out. Because that’s a very very strong move, stronger than normal. Now this one actually did the next day go dramatically down. But you know hindsight’s 20/20. And notice what it did. It came all the way back. It’s just amazing how well this works. The geometry of this.

WHEN WILL IT ALL END?

So it comes back, where does it finds resistance? Right here. Where does it find support? Right there. where does it find resistance? well all along this tine. So really worked well. Now we get another exhaustion move. Another very dramatic move down. And again that’s an unusual pattern.

You will see things like this happen. And the common mental response is to say ‘OH Dang! I got out here at the high probability exit but I should have stayed in because I could have made more money.’

Right obviously that’s more money than that. And you will regret it and then you will try to reverse engineer it and say how could I have known that this would go down. Now notice the danger. The danger is if you stayed in this, you are having to stay in for a long retrace above this high, above this high. Right?

And you potentially would have given away all this profit. And we just got in here. So it’s, you’ve almost given away all your profit. So you cant do that for me risk management or money management point of view. Trade after trade over a large sample of data. This is your high probability entry point.

PLAY THE ODDS

You’ll always find a reason that you can that you could have caught one particular trade. but that has nothing to do with what most trades will do. In other words we have to trade the rule, not the exception. We have to find whats high probability, not what happens this time or that time, or any other single instance in the market’s movement. Huge problem that lot of traders run into.

You’re never going to get the perfect exit every single time. So don’t even try. Impossible. No one has ever done it, nobody will do it, you are not going to be the first.

So a couple of great lessons there. one on market geometry with Andrew’s Pitchfork Trading, people wanted some more extra stuff on that. So there you go, little more advanced stuff, some extra things on getting out before the trailing stop. That actually gets you out bigger profits. And then also a great psychological tip of the day.

 

 

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