The Market Timers |
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Occasional Musings from a Stock Market Timer
Human Psychology Moves the
Markets
Price Floors and Ceilings Play
a Big Role
Markets Trend and Do Not Walk
Randomly
These Mathematical Tools Help
Spot Turning Points
The Golden Number
Pattern Recognition
and Timing Signals for Stock, Futures, and FOREX Markets Superior Charting Software for the Serious Trader
Simple Longer Term Approach for
the Average Investor
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Technical IndicatorsMarket timing also uses a number of technical indicators to assist with market timing and risk management. These indicators are mathematical calculations using price data. Some are moving averages of price while others are oscillating indicators derived from moving averages and compared to recent high low extremes. Moving Averages help highlight trend direction. Their drawback is that they are a lagging indicator. A 20 day moving average uses the last 20 days to calculate the average price. A change in price direction could take a few days before it alters the direction of the moving average. The Index Surfer follows a number of MA's with the 9 and 18 day averages being the most important. Moving averages can provide their own form of support. As prices rise the moving average rises with it but lies below the actual price. Small fluctuations in price may bring price down towards the MA but it will often bounce of the MA line as it continues its march upwards. When price breaks below the MA it can often signal the end of a trend even thought it could take a few days before the MA's follow the new price direction. Moving Average Convergance Divergance otherwise known as MACD (pronounced mack-dee) is a complex calculation of the difference between moving averages. The calculation creates two lines that oscillate up and down with a zero line in the middle. One line moves a little faster than the other which causes them to cross over when they change direction. These crossovers provide potential buy and sell signals. Another function of the MACD is the zero line. Breaks and bounces at this line can be significant events as well. Due to its relationship to moving averages the MACD is a lagging indicator and its signals often come late. Slow Stochastics are another oscillator with a fast line and slow line like the MACD. It oscillates between 0 and 100. When this indicator is down at a low value between 0 and 20 it signals that a market bottom may be coming soon. Likewise when the indicator is in its high range between 80 and 100 it may be signaling a top is coming. Like MACD the line cross over when they change direction. It is often a leading indicator giving signals before price action changes direction, but is often too sensitive to be relied upon on its own. Relative Strength Index (RSI) is a popular momentum indicator. It compares the recent gains to the recent losses over a number of time periods to create a value that oscillates between 0 and 100. When this indicator is at values greater than 70 or less than 30 it can be signaling an overbought or oversold market that may be about to change direction. When this indicator diverges from the direction of the market it may be signaling that a change in trend is coming. How this indicator reacts at the centerline can also be significant. It can often bounce off the centerline as the market changes direction or a cross through the centerline can signal the start of a dramatic move in prices. ------------------------------------------------------------------------------------ Below is a six month chart of the S&P 500 index showing all the indicators at play. Notice how the slow stochastics cross over at each of the minor waves and the MACD tends to follow the larger waves. Bounces and crosses of the zero line of the RSI signal many significant events on the price chart. Also notice how the market tends to move very sharply as it crosses through the moving averages (yellow, blue, and red lines on top price chart).
We use a combination of all these techniques to generate buy and sell signals. Any one of these techniques cannot be relied upon solely as too many false signals will be generated. It requires specific combinations of these techniques to generate reliable signals that have a high probability of being profitable. When these indicators are showing the possibility for a reverse in trend combined with how price is responding to observed support and resistance levels and/or a break of a trend line then you have a highly reliable signal. Remember to apply risk management to all trades because even the best signals are sometimes wrong.
The purest, most accurate trading signals
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TheMarketTimers.com provides introductory information to
the techniques used for stock market timing. Trading stocks,
currencies, or any security
involves risk. The stock market timing techniques shown on this site can
help control the risks involved in trading. Though these stock market
timing and charting techniques are very helpful for some traders, they
require experience and knowledge of market behavior that comes with
practice. It is advised that traders use
risk management and set loss limits on every trade.
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