Market Trends and Common Filters

One of the trading pearls of wisdom is to always trade "with the wind at your back."

The reasoning here is that the trend, or the overall direction of price for a pre-determined time-frame, is most likely to persist in that direction for a greater period of time than price movement in the opposing direction, and therefore placing trades in the same direction of the trend puts the odds of winning on your side.

Of course there are other things to consider. For example, there is the TIMING of entering the trade in the direction of the trend. You could know the overall trend to be bullish and enter a trade LONG (buying), but if you do so right when a correction is beginning (when prices move counter-trend temporarily), you could turn out a loser if you are unable to withstand the losses that will accrue during that correction. So clearly knowing and trading in the direction of the trend is just part of the equation.

Another thing to consider is the method of determining the trend. You can use moving averages or some other oscillating indicator, or you can use trendlines and note the angle of ascent or descent of the market swings, or some other method. You also have to determine the time-frame for the trends you wish to base your trades on.

For instance, if you are a day trader you certainly do not want to determine the trend based on a YEARLY time-frame chart alone. The reason for this is that the YEARLY chart is far removed in the scope of TIME from the INTRADAY (based on minutes, hours or fractions thereof) time-frame. A more realistic time-frame for determining trend for day-traders would be to use a DAILY time-frame chart. If you happen to trade based on the DAILY chart and hold your trades overnight for one or more days, you would likely want to determine your overall trend using the WEEKLY time-frame chart. The rule of thumb is to use the next higher time-frame for trend determination from the time-frame you actually use for trade decisions.

In this article I'm going to approach the subject by using the WEEKLY time-frame chart to determine overall trend as if trading from the DAILY time-frame (holding my position for one or more days, also known as a 'short-term' or 'position' trader).

The weekly chart that I've decided to use for the examples in this article is the CRUDE OIL weekly chart from around January 2015 to the present (July 2016). No trades will be discussed as the focus is on approaches to deciding on overall price trend for the purpose of trading with the trend at the lower DAILY time frame. You can use the same method for any time-frame you desire, however.

The very basic method is to note the most recent market swing, whether it be a swing top or bottom. If a top, consider the trend bearish. If a bottom, consider the trend bullish. For the very short-term trades this can often have you trading in the best direction. All trades assume you have a good timing method, such as using the FDate method or combination of indicators you are comfortable with. A swing bottom is simply a price bar with a LOW that is 'equal or lower' than the previous bar's low and that the high of the bar has already been exceeded by price (by the subsequent bar or bars). A swing top would be a price bar with a HIGH that is 'equal or higher' than the previous bar's high and a following bar has moved below its low. The occurrence of a subsequent higher-high (in the case of a swing bottom) or lower-low (in the case of a swing top) is called 'confirming' the swing (top or bottom).

To improve on the basic method, you could apply what are called 'filters'. A filter is simply one or more chart indicators, such as moving averages, stochastic, MACD or other alone or in various combinations that you use to help you decide on trend direction.

One filter I have found useful is using the histogram of a MACD indicator set to the standard (12, 26, 9) setting. The histogram reflects the orientation of the oscillator and signal lines. If the oscillator line is above the signal line, the histogram will form above the zero level and is considered bullish. If the oscillator line is below the signal line, the histogram forms below the zero level and is considered bearish.

The thing about the bullish or bearish indication just mentioned is that there are times when the oscillator/signal line orientation is bullish but the market is trending bearish for weeks on end. The reverse is true for the bearish indication where prices could trend bullish for weeks. Thus alone this may not be a suitable filter and could use some adjustment. One such adjustment is to note the histogram range from zero.

For example, if each bullish (above zero) histogram bar is taller than the last, consider the trend bullish. But as soon as a shorter histogram bar forms, consider staying out of the market (neutral). For bearish trend determination, as long as each histogram bar below zero is taller than the last the trend is considered bearish. Once a shorter histogram bar forms, go neutral.

For good stretches you may find this approach works well. However, it too has flaws and used alone could poise a problem. For example, a taller bullish histogram formed for the February 20, 2015 week which would have suggested a bullish trend has started. And the prior 3 weeks was indeed bullish. Unfortunately the bearish wave was just starting and exactly from this week! Had you followed this method alone without the help of another filter you would have been pointed in the wrong direction until week ending March 13, 2015.

What you could do is add another qualifier filter. An example could be using the %R (14 period) along with the MACD histogram.

Using the %R, you could ignore the bullish MACD histogram bars anytime the %R has turned down, or the bearish MACD histogram bars when the %R has turned up. The MACD histogram would dictate trend direction and the %R would dictate when the histogram is to be ignored.

Another useful filter and one of my personal favorites is to apply the 8-bar exponential moving average right on the chart. I would use this along with the MACD histogram, but only use the histogram to indicate whether above zero (bullish) or below zero (bearish) with no consideration of one histogram bar being taller or shorter than the last. If the histogram bars are above zero (on my chart they are colored green) and the last weekly price bar has closed ABOVE the 8-bar exponential MA, I consider trading in the bullish direction. If the histogram bars are below zero (on my chart they are red) and the last weekly price bar has closed BELOW the 8-bar exponential MA, I consider trading in the bearish direction. Anything else and it is considered neutral.

Starting with week March 20, 2015 the histogram is bullish but the close is below the 8-bar MA. So the trend is neutral. Week ending April 10, 2015 closed above the 8-bar MA and the histogram was bullish, therefore signaling taking bullish trades. The market did not close below the 8-MA until week July 3, 2015 and this also turned out to be the last week where the histogram was bullish. It turned bearish the following week, and now the trend is considered bearish by histogram and 8-bar MA. This lasted until week September 11, 2015 although price still closed below the 8-MA but the histogram went bullish (above zero).

Above I have given you some ideas that you can employ for trend determination. There are many other ways and I encourage you to backtest them. The point is to determine the trend by examining the time-frame just above the one you trade from and discipline yourself to only trade in that direction for higher probability trading. Use filters to help you avoid trading in a direction based on a false trend signal. Do not expect any method to be perfect. You are going to get some false signals from time to time. If you have a good timing method to go along with your trend determination method you may still avoid bad trades due to a temporary false trend signal.

Always know the trend. You will be better off with the 'wind at your back'!

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How to Trade the Market During the Summer When You Don't Trust the Price Action

There are few times during the year when trading is more frustrating than the summertime. The price action tends to be clipped and erratic and I generally lose any confidence that a move will follow through in a normal fashion. In short, traders tend to lose confidence in what are normally "automatic" setups because the market has trouble maintaining a consistent order flow in any direction. This loss of confidence in the market can make e-mini scalping a tenuous and exasperating time to trade.

To trade the summertime takes a change in your approach to trading; you need to become more selective in your trade choices and make a conscious attempt at scaling back the risk factor in each of your trades. In my experience, the market tends to slowly drift either long or short and then may spike one way or the other and then resume the slow drift. These are hardly optimal conditions for an e-mini scalper to trade, but with some forethought, you can make the best of the situation and post decent gains. Of course, my expectations for trading gains are lowered because of the adverse price action, but every now and then a highly profitable day can be had. In short, I tend to lose confidence that the market will show any follow-through on trades that can often be counted on to run in one direction.

Here are some of the techniques I employ while trading during the summer doldrums:

· Scale back your earning expectations so you aren't tempted to take lower probability trades which stand a higher chance of failure because of the erratic price action that often is part of summer trading. More to the point, I haven't hit many home runs during the summer months, but collecting a number of singles can be an effective trading technique.

· Scale back the number of contracts in your trading. This will help should you encounter some unexpected erratic price movement. Conservation of your trading capital should be more of a concern than high earnings.

· It is very difficult to find a trade that will run during the summer months, so you may want to take profits earlier than you might normally take. When you find yourself in profit be careful to manage the trade carefully and don't let the price backtrack and erase the profit.

· As I said earlier in this article, the price action tends to slow in velocity and the market tends to slowly drift higher or lower. Don't get caught in a drifting market on the wrong side of the trade. Exit a trade that slowly but surely moves against you to conserve capital. These slow drifts can last for quite some time and gradually take you right into your stop loss. Even the simplest trade can take 3 or 4 times longer to complete because of low volume. (If it is a low volume day)

I can't say that summer trading is a load of fun, but with some changes in your trading methodology and scaled back earnings expectations it can still be a moderately profitable time to trade.

The retail world is full of new "magic" programs that promise untold fortunes

with little or no effort. They generally don't work, which is an understatement.

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Online Trading Tips to Give You a Head Start

Options trading have begun attracting investors from across the globe. People see it as one of the most profitable ventures because of its faster generation of gains. Both beginners as well as experts feel the same level of adrenaline flow through their veins every time they gain. But is it possible for everyone, every time? Nah! Only a lot of research, practice and expert online trading tips can make your dreams come true.

Investing in the stock market may seem very attractive and it is under certain laws, however one needs to be alert always. Do not hurry. As they say, haste is waste, so does it apply while investing in the stock market. Without proper guidance and tips, you might end up in heavy losses. And you don't want that, do you?

There are many vendors who will provide online trading tips at low prices, but they promise riches to you till the time they get some bucks from you. Once they have your money, they are least bothered on how and how much you trade. They begin ignoring your calls asking for suggestions.

A good and genuine online trading tips provider will be concerned about you and your investment. They will predict the trends, analyze the market data and provide adequate trading tips including intraday trading. After being sure of the company, you may avail their services. Always collect trading tips from reliable and tested sources to be away from failures and get the desired results.

If you are a beginner, you first need to get in-depth knowledge about the past with regards to the market trends. Not only the past, but the present also. Go through the business section of newspapers, financial coverage TV channels, relevant periodicals and friends you can rely on. But take the decision yourself. Design a plan and strategy on how much you will invest and on what. You may invest in the share market, commodities or foreign exchange, that's your call. But ensure that the sector you invest in is the one with a good history.

Opt for trading online instead of the conventional ways. Online trading brings in real time results and reports. It is also much more convenient to use and saves a lot of time and efforts. You just need to have a computer and internet. You may also practice online on some free platforms offered by many companies these days. Practice will make you confident and motivated. You may trade in the practice mode using virtual cash provided by the company.

Do not invest a huge amount in the beginning. If you lose, you will lose the entire amount. Instead invest a minimum amount which would not hurt your pocket in case you lose. However, with expert online trading tips, losing would be a far away thing. There are many people who have benefited by the tips provided by genuine expert companies. But be sure to research on the company before you avail their services. Be sure to check their past performance, customer reviews and testimonials. Only on being sure about the company should you proceed with them.

Check out what options they have to offer in terms of trading including intraday trading tips. Also check out other options like payment modes, kinds of support - telephone, SMS, chat, email. See what kind of technology they use. Is it advanced and updated or old and automated? They service you avail should be customized according to your needs and capital. Check the accuracy rate of the company. A good company should be able to provide at least ninety percent accuracy in terms of the trading tips.

Once you are clear with all the pros and cons, proceed further. Remember, in the beginning you may suffer minimal losses but that should not deter you from being diverted away from your plan. Any good technique takes a little time to fetch positive results. With the guidance of expert online trading tips, your risks of losses become low and the strategy you apply proves your correct decisiveness.

Believe it or not, once you get the hang of the trade after initial hurdles, you will be a hundred percent sure of your win each and every time.

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