I have been very busy recently working on MarketWarrior 5.0 and on the Mikula Forecasting Service so my last post here was on July 10, 2012. I thought it would be a good idea to pick up in the same place I left off. This will be a follow-up post to the July 10, 2012 blog. You can read that July 10, 2012 blog by clicking here. In that post I showed the MarketWarrior planetary index that I had worked out for the 60 minute S&P500 eMini contract, symbol ES.
The MarketWarrior planetary index that I use in this market is the AT_Fractal Siderograph. The name Siderograph was created by Donald Bradley to describe the planetary index that he created for the Dow Jones Industrial Average. I use the names AT_Siderograph and AT_Fractal Siderograph because the default settings for these indicators are the settings developed by Donald Bradley back in 1948. The word fractal in the name AT_Fractal Siderograph is a reference to the fractal math that emerged out of the chaos mathematics craze after the publication of James Gleick’s book Chaos: Making a New Science. This book was published in 1987 but I did not read it until 1990. I did extensive research into the applications of nonlinear mathematics for economic forecasting. The vast majority of the nonlinear mathematics produces poor forecasting results. One of the few nonlinear formulas that produced good forecasting results was a fractal function. I incorporated this into the planetary index and named it the AT_Fractal Siderograph.
The AT_Fractal Siderograph that I pictured in the previous blog on July 10, 2012, is the exact same AT_Fractal Siderograph that I am showing below. The two pictures below show the 60 minute chart for the S&P500 eMini. The top picture covers Aug 9 to Aug 27, 2012. The second picture shows Aug 21 to Sep 5, 2012. The red and blue line is the AT_Fractal Siderograph. I am not exactly sure when I worked out the AT_Fractal Siderograph settings that I use in the S&P500 eMini but I believe this indicator has not changed for at least two years.
In the top picture, you can see the AT_Fractal Siderograph forecasts the general curve of the market very well but does not do a good job picking exact tops and bottoms.
The second picture below shows the same results. The general curve of the market is forecast very well but the exact bar of tops and bottoms is not forecast well at all.
I will revisit this indicator at the end of September and see if the forecasts for the general curve of the S&P500 eMini continue to be this accurate. If you want a forecast for the general curve of the 60 minute S&P500 eMini, this indicator is one of the best. Furthermore, because it is a planetary index and does not rely on the price, it can be calculated far into the future.
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.
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.
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.
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.
One of my oldest aspect techniques that I wrote about as far back as 1994 is simply that some planet aspects have a higher than normal chance to line up with a market Change In Trend (CIT). The two charts below show the 5 minute Forex symbol ^EURUSD. In this market, on this time frame, the aspects between the moon and Jupiter have a history of lining up with a CIT more than other aspects. On the first chart below, there is one aspect involving the moon and Jupiter and it was close to a top CIT.
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The next chart is another 5 minute chart for the Forex symbol ^EURUSD. On this chart there is another aspect involving the moon and Jupiter. This aspect again lined up with a top CIT.
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Remember when using the aspect indicator in MarketWarrior, you need to change the time zone offset. The current time zone offset for the Forex market is the New York time zone where the Forex trading is carried out in the USA. This time zone offset is currently 4 hours.
When trading intraday most traders will look at more than one time frame. In this example I will show a setup that uses a 60 minute chart and a 5 minute chart. Both of the charts below show the currency futures contract Euro FX symbol (E6). The first chart is the 60 minute chart. On this chart I have added the MarketWarrior indicator Smoothed Stochastic. On this chart there was a bearish divergence between the price and the Smoothed Stochastic at points A and B. This bearish divergence indicates the market should fall after point B. This is a 60 minute chart so the down swing we expect after point B should last for several hours. Next we will look at the 5 minute chart.
60 Min Chart
Below is the 5 minute chart for Euro FX (E6). The letter B on this chart marks the same price point as the letter B on the previous 60 minute chart. After point B on the 60 minute chart, we expect the market to fall, so we would look at the 5 minute chart and look for opportunities to sell short. On this chart I have added the MarketWarrior Detrend Price Oscillator and the Smoothed Stochastic. Because we know the larger 60 minute trend is turning down, we can use these two indicators to help find opportunities to sell short on the 5 minute chart. On the chart below, the points C1, C2 and C3 mark where the Detrend Price Oscillator barely moved above zero at small market tops, and/or the Smoothed Stochastic is above the over bought top boundary. These represent selling opportunities because we know the larger trend is down.
Here is a situation in the metals markets that I see often enough to notice. The situation occurs when the same setup gives a buy signal in both the gold and silver at the same time. The two charts below shows the 5 minute mini gold (YG) and the 5 minute mini silver (YI). The charts cover the same time period on May 28, 2010. The MarketWarrior indicators applied to these two charts are the same. They are the Keltner Bands, Detrend Price Oscillator and the Smoothed Stochastic.
Notice on both charts that the price and the Detrend Price Oscillator formed a bullish divergence between points A and B. This bullish divergence occurred on both the gold chart and silver chart between 9:00 AM and 10:30 AM. Also notice the Smoothed Stochastic was below the lower oversold boundary on both charts at point B. After this setup occurred in both the gold and silver markets, both of these markets traded higher in the following two hours.
Here is the third and final discussion of finding buying opportunities on the 1 minute chart. This discussion again uses the method seen in the previous two posts which applied the MarketWarrior indicators Smoothed Stochastic and Regression Line. The red line is the Regression Line and the blue line in the sub chart is the Smoothed Stochastic. The one minute chart moves very quickly and requires a method that is fairly reliable. The charts below show the 1 minute chart for April 28, 2010 for Yahoo, symbol YHOO.
I will describe the setup. We are looking at points A and B seen below. There are two things which indicate a buy signal. At point A you can see the price was below the red Regression Line and the blue Smoothed Stochastic was very low – almost at zero. We want to see the Smoothed Stochastic below 1.0. These two characteristic occurred at both points A and B and they signaled a buy opportunity.
1 Minute Yahoo
On the chart below, point C shows the only other buy signal for April 28, 2010. At point C the price was well below the red Regression Line and the blue Smoothed Stochastic was below 1.0. This provided a good buying opportunity on the 1 minute Yahoo chart.
The three charts below show 1 minute charts for Microsoft, symbol MSFT. I am going to discuss finding buying points on the one minute chart using the MarketWarrior indicators Smoothed Stochastic and Regression Line. This Smoothed Stochastic is the momentum indicator which I personally use the most. It has proved very useful in both choppy and trending markets.
To find a buying opportunity, we are looking for a setup that involves two items. First, the price should be below the Regression Line and the farther below the Regression Line the better. Second, we want to see the Smoothed Stochastic below 1.0. This setup identifies a good time to buy the 1 minute chart for a short-term trade.
On the chart below, situations A, B and D show where this buy setup occurred. At each of these points the Smoothed Stochastic was very low below 1.0, the price was below the Regression Line. These three points located a good place to buy for a short-term upswing. This chart also includes point C. At point C no signal is given because the price is on the Regression Line. This is important because it is very easy to focus just on the Smoothed Stochastic.
1 Minute MSFT
Points E and F are new on the chart below, while C and D are the same as on the previous chart. Point E provided a very good short-term buy opportunity. At Point F the buy signal came a few bars before the swing bottom.
More 1 Minute MSFT
The final chart below shows point G. This point also occurred a few minutes before a swing bottom just as point F had done.