Monthly Archives: September 2011

Sep 30 2011

Using the Square of Nine with The Dow Jones Average

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

This post uses the MarketWarrior software to discuss the Square of Nine and the Dow Jones Industrial Average (DJIA). In Chapter 3 of my book, The Definitive Guide to Forecasting Using W.D.Gann’s Square of Nine, I discuss one of the most common used Square of Nine methods. This method uses a starting price and then measures the distance around the Square of Nine. The expectation is that starting from a high or low price, future Change in Trend (CIT) will fall on major angle relationships such as one complete trip around the Square on Nine. The current DJIA chart provides us with a good example of this Square of Nine method.

On the chart below, I have added the Square of Nine Chapter 3 method to a daily chart of the DJIA. I have selected the recent top of 12928.5 from May 2, 2011 to be the starting point for the Square of Nine calculation. I have set the indicator to draw the price lines that represent one complete 360 degree trip around the Square of Nine. Each line on the chart below represents one full rotation on the square of nine. The bottom line at the price 10343.7 is -6 full rotations around the Square of Nine. The bottom on the DJIA occurred just above this line on Oct 4, 2011.

This shows the Square of Nine did a good job in defining the high to low price contraction in the DJIA between May 2 and Oct 4. 2011. Relationships, such as the one here in this example, can be found in almost every market on a regular basis.

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Sep 29 2011

How to use an Indicator’s ‘Forecast Method’ Settings

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

Almost every indicator in Forecasting Made Easy (FME) has a set of controls for the ‘Forecasting Method’. These settings control how the indicator will forecast into the future. The setting ‘Forecast Method’ has a set of round radio buttons that list the available forecasting methods. The selected forecasting method in the picture below is Mirror Cycle.

There is also a starting date and time because the forecasting method does not have to start from the last bar. The forecasting method can be set to start from any bar on the chart by moving the starting point with the mouse or the keyboard or using the date time setting below.

The setting ‘Use Forecast Starting Point Marker’ will determine if the round dot marking the starting point will be used. On the picture below, the large purple dot identified by the letter A is the Forecast Start Marker.

The setting ‘Lock Forecast To Last Bar’ will always adjust the starting point for the forecast so it is always the last bar.

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The picture below shows how the forecasting tools built into each indicator can be used. This chart is a 720 minute chart for Titanium Metals (TIE). 720 minute basically creates two bars per day. I often use the 720 minute chart instead of the daily chart. On this chart I have applied a simple moving average in the main chart area. To select the starting point for the forecast, I started at the last bar and moved the forecast starting point back one bar at a time until the cycle aligned with several market turns. The market turns use to align the forecast starting point are labeled 1, 2, 3 on the chart below. The letter C marks an arrow that starts from the forecast starting point and moves to the end of the chart. This arrow identifies the area to the right of the forecast starting point and this area represents where the moving average is actually a cycle forecast.

In the sub-chart I have added the indicator Detrend Price. I have started the forecast for the Detrend Price at the same place as the forecast for the moving average. Everything to the right of the Forecast Start Market is a Mirror Forecast of the Detrend Price.

The forecast cycles on this stock, TIE,show that the next market swing should be up.

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Sep 28 2011

How to use Inter-Forex Analysis and Divergence

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

Here is an example of using inter-forex analysis and simple divergence. In this tutorial I am going to be using two of the most popular forex symbols, the Euro / US Dollar symbol EURUSD and the British Pound / US Dollar symbol GBPUSD.  The picture below shows a 5 minute chart with these two forex symbols. The EURUSD and GBPUSD usually move in sync with each other. There are times when one of these markets will make higher highs and the other will make lower highs. This creates a divergence in these two markets. This type of higher-high and lower-high divergence indicates the market cycles are out of sync and a Change In Trend (CIT) may be forming.

On the picture below, I have drawn a line between two tops on the EURUSD which are labeled A1 and A2. The second top is a lower top.  I have also drawn a line between the corresponding two tops in the GBPUSD. These tops are labeled B1 and B2 and the second  is a higher top. Here we have a diverging set of tops. This means the market cycles are moving out of sync and a CIT is forming.  After this divergence both of these markets fell down to a bottom at point C.  This type of inter-forex divergence usually provides at least one good trading opportunity per day on the 5 minute chart.

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Sep 27 2011

How to use Inter-Forex Analysis and Momentum

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

In this tutorial I am going to discuss a technique for finding breakouts in the intraday forex markets. This tutorial will use a 5 minute chart and will look at inter-forex analysis using three forex symbols. The picture below shows three different forex currency pairs. They are the Euro / US Dollar, symbol EURUSD, and the British Pound / US Dollar, symbol GBPUSD, and finally the US Dollar / Japanese Yen, symbol USDJPY.

The two forex symbols EURUSD and GBPUSD usually move in sync with each other. The symbol USDJPY does not move in sync with the other two; it has its own movements.

In the sub-chart I have added the Smoothed Stochastic indicator and set it to draw for all three symbols. In some situations the momentum indicators for all three symbols will move down below the oversold boundary. When this occurs it is an indication that the cycles are at an inflection point and will soon make a breakout. In the picture, I have circled a situation in which all three Smoothed Stochastic moved below the oversold boundary. I have also drawn an arrow between this circle and the price. This arrow is labeled A. After this event when all the momentum indicators were very low, the EURUSD and GBPUSD had a breakout upward. The USDJPY then had a breakout downward. As you can see this method does not guarantee which direction the market will breakout. It only indicates that the market cycles are getting ready to breakout either up or down.

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Sep 26 2011

Inter-Market Analysis of Silver, JPMorgan and the forex Euro/USDollar

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

Recently there was large decline in the silver market. In this posting I am going to discuss silver in relation to two other markets. The first picture below shows a daily chart for silver, symbol SIZ1, and the daily chart for JP Morgan Chase, symbol JPM. The silver market and JPM seem to be related because financial analysis claim that JPM has large short positions in silver and has guaranteed any short position loss with their stock. This would seem to indicate that JPM needs the price of silver to be as low as possible when the silver options expire and if possible at or below the JPM stock price.

The list below shows the next three expiration dates for silver options. The October option expires tomorrow September 27, 2011. This means that around this date, September 27, JPM would want the silver price to be as low as possible. In the first picture below, you can see that at point A the silver price moved above the JPM stock price and then declined below it. The silver price moved above the JPM stock price again at point B and held above the JPM price for about 6 weeks. Then today the price of silver fell back to the price of JPM just one day before the October silver option contract expires.

This information can help us make a profitable trade as we approach the next option expiration dates. As we approach the November option contract expiration date of October 26, 2011 and the December option contract expiration date of November 22, 2011, we would expect a decline in silver prices if the silver price is above the JPM stock price. If the silver price is already below the JPM stock price at that time there may not be much of a decline.

==================================
Option        Expiration Date
Contract
Month

October       27 September 2011
November    26 October 2011
December   22 November 2011
==================================

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The next chart below is a weekly chart where I have added the price of the Forex currency pair Euro / US Dollar, symbol EURUSD. The Euro / US Dollar has a high correlation to the silver price. Normally, as this currency pair goes up, silver goes up and as it goes down, silver goes down. When the EURUSD was at 1.49 recently, the price of silver reached 49 dollars per ounce. The EURUSD then fell to 1.34 and the last time EURUSD traded at 1.34 silver was approximately at 30 dollars per ounce and now silver has again fallen to around 30 dollar per ounce. Some currency analysis have recently predicted that the EURUSD is going to return to parity meaning 1 Euro = 1 US Dollar. If the EURUSD continues to fall over the next few months we can extrapolate where the price of silver should be if the EURUSD return to parity. I have listed these EURUSD / Silver price relationships below. Remember these are only very general approximations.

EURUSD=1.49  |  Silver=49.00
EURUSD=1.34  |  Silver=30.00
EURUSD=1.30  |  Silver=24.00
EURUSD=1.25  |  Silver=18.00
EURUSD=1.20  |  Silver=12.00

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Sep 23 2011

How To Use Multi-Time Frame Regression Line and Momentum

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

Two of my favorite indicators are the Regression Line and the Slow Stochastic momentum indicator. The picture below shows a 5 minute chart for the forex currency pair  Euro / U.S. Dollar  EURUSD. The blue line in the main chart area is a 60 minute Regression Line. In the sub-chart, the red line is the 5 minute Slow Stochastic. In this sub-chart, the green line is the 60 minute Slow Stochastic. When I use a 5 minute chart, I like to see the chart forming tops or bottoms on support and resistance price levels from a higher time frame. In this case at point A, the 5 minute bar chart formed a bottom on the 60 minute Regression Line. At this same time both the 5 minute momentum and the 60 minute momentum were below the lower oversold boundary. This is telling us that the higher 60 minute time frame is forming a bottom and we are watching this bottom form on the 5 minute chart. This gives us a very strong indication that the next up swing will last for a good period of time on this 5 minute chart.

Notice the price bars again touched the 60 minute Regression line. Now the 60 minute momentum indicator is well above the oversold boundary. Using this method we would not consider point B a good buy signal because the momentum indicator was not in the correct position.

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Sep 20 2011

How To Use Multi-Time Frame Bollinger Bands

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

In this tutorial I will discuss using two different time frames of Bollinger bands. The picture below shows a 5 minute candlestick chart for the mini gold contract (YG). In this picture the red dashed line is a Bollinger Bands calculated on the 5 minute bars. The other lines on the chat, colored orange and purple are Bollinger bands calculated on the 60 minute time frame. The 5 minute Bollinger Band is set to 3 standard deviations. The 60 minute Bollinger Bands are set at 1, 2, 3 and 4 standard deviations. The chart is a 5 minute candlestick chart with a 5 minute and 60 minute Bollinger Bands. When I use two different time frames of Bollinger Bands, I am looking for the market to make a top against one of the 60 minute Bollinger Bands and against the 5 minute Bollinger Band at the same time. I look for the opposite when looking for a swing bottom.

On the picture at point A, the candlestick bar moved up to both the 5 minute and 60 minute Bollinger band. Then the market immediately turned and formed a top. Next at point B, the market moved down and touched the 5 minute and 60 minute Bollinger band.  At point B the market then turned up and made a bottom. I have found that it is very common to see market turning points when the price bars touch the Bollinger Bands from two different time frames.

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Sep 17 2011

How To Use Multi-Time Frame Momentum

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

In this tutorial I will show how I use two time frames of momentum. The picture below shows a 5 minute chart for mini-gold futures. This is the contract YGZ1. In the sub-chart I have added the Smoothed Stochastic indicator. The green line in the sub-chart is the 5 minute Smoothed Stochastic. The magenta line in the sub-chart is the 60 minute  Smoothed Stochastic.  When I watch two momentum time frames, I watch for both momentum lines to be below the lower oversold boundary. On the chart below at point A, the 60 minute momentum is below the oversold boundary and the 5 minute momentum is also below the oversold boundary. When this happened at point A, the market made a reversal and started up.

After the market turned up, when both momentum time frames were below the oversold boundary, you would look for an opportunity to buy long the next upswing.

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Sep 16 2011

Using Multi-Time Frame Indicators With the S&P500 E-mini

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

Here are two indicators that I like to use together. They are the Bollinger Plus indicator and the Smoothed Stochastic indicator. The chart below was made with Forecasting Made Easy (FME) which calculates multi-time frame indicators. This picture shows a 5 minute candlestick chart for the S&P500 E-mini contract ESZ1. The Bollinger Plus indicator has been set to draw multiple Bollinger Bands based on the 60 minute chart. This means the lines on the candlestick chart are 60 minute Bollinger Bands on the 5 minute candlestick chart.

In the subchart I have added the Smoothed Stochastic indicator. This indicator is set to draw both the 5 minute Smoothed Stochastic and the 60 minute Smoothed Stochastic. So we are looking at two time frames of momentum. The green line in the subchart is the 5 minute Smoothed Stochastic. The magenta line in the subchart is the 60 minute Smoothed Stochastic. When using two momentum time frames I watch for both the long-term momentum and short-term momentum to be below the lower over sold boundary.

In the chart below, we see that the 5 minute candlesticks made a bottom on one of the 60 minute Bollinger Bands and at the same time both the long-term momentum and short-term momentum were below the over sold boundary. This is an excellent setup for buying a bottom. It was only a few bars after the bottom that the market started moving up and the short-term momentum moved above the lower over sold boundary. In this situation you would enter a long trade as the market moved up from this bottom.

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Sep 14 2011

How To Forecast Using The Mirror Bars Indicator

Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

The Mirror Bars indicator in FME allows you to select a starting point and then project the previous bars history into the future. Most beginners find selecting the starting point to be the most difficult part of using this indicator.

Recently I did some overnight trading in the gold market so I applied the Mirror Bars indicator and moved the starting point backwards from the most recent bar, looking for the Mirror Bars to line up with the Market turns. When selecting a starting point, I am looking for the first few turns in the mirror cycle to line up with the market turns. This provides me with an indication the Mirror Cycle is in step with the future market cycles. You will not always find an easy Mirror Cycle alignment. If there is no obvious alignment, do not force one when there is none.  The picture below shows the Mirror Bars setup that I used to trade the gold market overnight.  The Change in Trend (CIT) at points A, B, C and D are the alignment swings I used to align the Mirror Bars. I used this mirror bars forecast to trade the market based on the expectation there would be turning points at E, F, G, H, I, J and K.

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The picture below shows what happened next. The market made the expected swing tops and bottoms at E, F, G, H, I, and J.  Around point K, the main trading session for the COMEX opened and the mirror bars forecast cycle then broke down. It is common for intraday gold market cycles to change when the main COMEX session starts and the high volume of trading for the day starts. Once a mirror bars forecast breaks down, it is done. You should stop using it to trade at that point. There will be another opportunity to reset the indicator to make a new forecast at some point in the future.

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