Improving Chart Analysis

[lesm]

Hi Magodran,

Interestingly I flicked though Penfold’s book on the SPI this weekend, but only in a very cursory fashion. It was interesting to see his T/A experience using Elliott Wave, then the move to multiple higher lows/lower highs – almost paralleling some of McLaren’s work. I must get around to reading the other parts of the book more deeply though (I gather you think it is worthwhile?).

I found elements of Penfold's book useful, it also helped some other thoughts I was having fall into place or clarify them.

You can usually find something useful in a range of books, sometimes I am just looking for an alternative view or approach or a clue to help resolve or refocus an issue.

Good to see that you are still posting the chart and following up on it.

Will give Daffy some reading when he gets back, must be busy this weekend, as he has been very quiet.

Cheers,
Les.

 

[Magdoran]

Hello Les,


Applause. An excellent post. I found myself nodding in agreement as I read it.

Hi Magdoran,

Some interesting points in your post.

The first thing I thought of, after reading the above, was with regard to a number of aspects of eastern philosophy as they relate to psychology.

One that readily comes to mind is 'to see things as they really are'. Another, which I will paraphrase is learning to step back from our emotions and focus on what we are doing and doing it well rather than on thinking about whether we may win or lose. Uncontrolled emotions cloud our thinking.

Western philosophy, beliefs and approaches to living whether everyday, sport or business really don't prepare people well for dealing in the market, as not all people are adept at stepping back from their emotions and remaining objective. A lot of people don't cope well with losing, but is something that they need to learn to deal with in the market.

Most successful traders have lost money in the markets, some more than once, but they have learnt from their mistakes and have gone on to be the success that they are. In real terms, how many traders are born and how many have learnt their craft?

The market is a mindless, emotionless and conscienceless beast that gives no regard as to how we may or may not feel. We need to be mindful of these characteristics and prepare ourselves to participate in this unfeeling environment. For a whole range of participants this will require a level of behavior modification. To cope or survive we need to learn the necessary survival skills and think about an approach that enables us to achieve this. We need to refocus the mind to consider performing the act of trading, without worrying about whether we will win or lose, but to do the best we can or to do the right thing, based on the information or knowledge we have. There is a need to bring our fears under control, otherwise we create our own errors or make our own mistakes, as the emotions are in control. Too much subjectiveness is detrimental to developing a consistent trading approach.

Fully agree with you. Well said. I do think that there is a lot of wisdom in the eastern philosophy which is very useful for trading.

Imposing a view on the market. The market really doesn't really care what view we impose on it, it's an abstraction created by humans. As participants we hold one of many views and unless we can control the market, which we can't, it's an exercise in futility. We may hold a view, as yet unproven, but only time will tell if we have the right view, at any given point in time. It is how we determine a view as to the potential direction of the market or the stocks that make up the various universes, realising that we may not always be right, that makes the difference. Including the further realisation that we are one of many participants and that there is an opposing view to whichever view we have.

I believe Ducati actually said “the market is a peanut” meaning it is really stupid - Hahahaha. I agree with you here, spot on.

Colouring the charts. We need to learn to see charts as they really are, no more no less. This takes practice and experience to develop an objective and unemotional interpretation of charts. This needs to become part of the subconscious, as more often than not the more people study a chart the more likely they are to see what they want to see. Yes, further study may reveal nuances or intricacies in the chart, but the basis for looking at the chart in the first place needs to have some foundation. If you have the capability, try doing and auto-display of the ASX 100 on a five (5) second display and only select the charts that are of interest to you for a more in-depth analysis. Of course there may be some that don't select that may do well, but who has time to examine and analyse each individual chart representing all the stocks on the ASX, or anything from the ASX 500 down to the ASX 50.

Agree. Indeed, aligning the subconscious so as not to impose a view is a challenge, and one I struggle with daily. I think that it is a positive step however just to recognise this dimension exits. To truly understand and master this approach is a major undertaking, but I would argue a necessary one.

Bullish vs bearish. The predominant trait of most people is bullish, as it is easier for people to understand making a profit from rising prices. Some of the trading clichés, such as buy low sell high contribute to this. Clichés may sound good, but without understanding what they mean or how to apply them counts for nothing. It is a foreign concept for most people to be comfortable with making money from losing money. For those people, it is a skill or approach that they will need to learn. They also need to learn that simply converting a number of trading systems from trading the long side to trading the short side will not always work.

Interestingly, my chart bias is bearish, which actually helps to see counter trends in bull markets, but means missing some strong bull moves sometimes when I’m not compensating. It also helps in playing the short side of the market, a very important side to neglect!

Knowing what to look for. In all probability is a learned skill and requires practice. Trend following is the easiest, but to trade in all sorts of market conditions people need to learn an effective approach to trading in different styles of markets or using different styles/approaches in a single set of market conditions, if they wish to fully exploit the market. In any given market only a particular percentage of stocks are trending. To simplify this the remainder of stocks will be ranging or in some form of consolidation pattern or moving sideways. To exploit opportunities requires the ability to use different trading styles in any given market, as well as knowing what to look for and how to apply it. It also about understanding the strengths and weaknesses of different approaches. For example, a number of trend following systems will start to fail and/or experience high drawdowns, as market volatility increases.

I think this comes with experience. Sometimes the market is a brutal teacher. The more stupidity in managing a position, often (but not always) the tougher the punishment. Agree, trend following looks easy (certainly in a raging bull or bear market), but recognising consolidations is certainly a useful element in the mix. When using time based derivatives, time becomes a significant element too.

Prediction. Probability gives us an approach to dealing with uncertainty, but no guarantees, otherwise we might as well just use darts to select stocks. The quality and reliability of application has a dependency on the user of the method and how much work they are prepared to do to prove/disprove and refine their methods. Of course there will be an element of quesstimation, but whoever said trading was an exact science. There is a need to learn multiple skills, as well as to manage our own psyches, as well as to understand market behavior and how to apply those skills.

I think this boils down to the individuals capacity to imagine the future, and do so with a degree of inspiration (although mechanical traders, and some fundamental players may want to modify this statement). It is about looking at potential future events, and being able to effectively assess probabilities enough to consistently deliver a positive expectancy. This is actually more complex than it sounds since it is multidimensional, and I would argue that the majority of the commentators on this site fall into a couple of major paradigms, and miss a whole raft of issues (too many to cover here, and something I’m still in the process of grasping).

Your concept of “Quesstimation” sits well with my view of trading, I see it as primarily an art and not a science, even though there are considerable dimensions of mathematical theories involved.



Thanks again Les for your perspicacious perspectives!


Regards,


Magdoran

 

[Magdoran]

Hi Magodran,



I found elements of Penfold's book useful, it also helped some other thoughts I was having fall into place or clarify them.

You can usually find something useful in a range of books, sometimes I am just looking for an alternative view or approach or a clue to help resolve or refocus an issue.

Good to see that you are still posting the chart and following up on it.

Will give Daffy some reading when he gets back, must be busy this weekend, as he has been very quiet.

Cheers,
Les.

Thanks Les,


I know what you mean, I’m constantly on the prowl for new ideas… I liked the way Penfold opened in the text. He was quite candid about viewing his comments as opinion, and to be suspicious of all ideas ventured in the financial fraternity. I like that.

Re posting the ongoing Oil charts, I sometimes wonder if this is such a good idea. I have no way of knowing if anyone thinks this is of interest.

I’ve been working on this stuff for so long now that it’s easy to lose perspective since it’s second nature to me, and sometimes consider that it must come over as jargon and gobbledegook. I’d hate to be boring the pants off everyone with it.

Of course it’s fun with Wayne, wavepicker, RichKid, ducati, swingstar, daffy (tech/a), barney, kennas, professor Frink, snake, coyote, michaelD, duckman#72, to name a few as travelling companions (yourself included of course Les). At least everyone here has had a great sense of humour, and that makes it all worthwhile, doesn’t it?


Regards,


Magdoran

 

[It's Snake Pliskin]

Magdoran and Les where did you guys get "Phantom of the Pits"?

 

[lesm]

Magdoran and Les where did you guys get "Phantom of the Pits"?

Snake,

I have included a link to the softcopy below:

http://www.trading-naked.com/library/Phantom_of_the _Pits.pdf

Cheers.

 

[Duckman#72]

I’ve been working on this stuff for so long now that it’s easy to lose perspective since it’s second nature to me, and sometimes consider that it must come over as jargon and gobbledegook. I’d hate to be boring the pants off everyone with it.

Ah Magdoran......"since it's second nature"........that's just where I want to be!!!

As for "boring the pants off everyone"......rest assured I love this thread, your shared knowledge and your fencing with Tech.

Duckman

 

[lesm]

Ah Magdoran......"since it's second nature"........that's just where I want to be!!!

As for "boring the pants off everyone"......rest assured I love this thread, your shared knowledge and your fencing with Tech.

Duckman

Magodoran,

There has been well over 5,000 views of this thread, so it is certainly getting some attention, even if there have not been a lot of comments.

The good thing is the thread has not been hijacked, as some others have, and let's hope it stays that way.

A few questions from some of the readers could help to target or highlight particular aspects, if they stay on topic, and we can expand on some areas as required.

Cheers,
Les.

 

[It's Snake Pliskin]

Snake,

I have included a link to the softcopy below:

http://www.trading-naked.com/library/Phantom_of_the _Pits.pdf

Cheers.

Thanks Les.

 

[wayneL]

Love it Wayne!

I actually think you look the most handsome in the 3rd photo.

Your last fancy dress party no?


Magdoran

Thats just me before a shower LOL

However, this could have been me with my oil position; had I not learned long ago to be a professional coward

 

[Magdoran]

Ok, at the expense of being accused of hindsight trading, I had intended to put this comment out yesterday, but ran out of time to do so – very exciting period in the markets – hence very busy…

The purpose of these comments is to illustrate a style, not to be a hero. The only place I want to be a hero in is in my bank account, hence trading takes priority over posts.

So, my TARDIS got stuck yesterday… Anyway, it was time to go short at the close in crude oil yesterday, so you can just assume a short entry as of today if you prefer as a worst case scenario, or accept that the trade was on then, up to you. The idea here is to get into the “swing of things”.

Let me outline what I saw:

The false break on the 28th September was validated by the bearish bar on the 2nd of October, invalidating the potential bullish attempt on the 29th September.

This left us with a 4 day bullish counter trend against the bear drive in the daily chart – very bearish probabilities. Have a look at the high of the 29th September and notice how little the attempt made an impact into the bearish drive.

On the attached chart I’ve set some price targets. There are too many price ranges to go into them all, and none really stand out to me currently, but here are the ones that seem more relevant. Sorry, can’t really give a good projection on this currently: If crude capitulates we may see $45.36 or if less aggressive, $50.08 around 30th October. $47.84 is a very important price point and may present strong resistance, and $55.50 is also an important price level.

I’ll post a new comment up when my EOD futures data comes in. As you can see, my orientation is very bearish now, but there is a danger for short positions that a marginal low will come in, and the trend may reverse suddenly. The main drive down in my view was a less risky trade. There is a lot more risk in my view trading this part of the leg.


Regards


Magdoran

 

[tech/a]

Excellent Moggie

 

[Magdoran]

The 3rd October bar could be exhaustive and see one or two range trading days. If the 4th opens up at or above the opening on the 3rd, this would not look good for shorts, especially if it closed up – the further up the worse it would look for bears.

If entering short after last nights price action, I suspect that an entry in a day or two is realistic, expecting an inside day around the middle of last nights bar. There may also be a counter trend at some point for 2-4 trading days – watch for a similar pattern to the last false break.

I suspect we now have our direction for the 30th October target which is bearish.

We’re getting a slight “zig zag” pattern here (kind of a creeping congestion down) hence we may see a strong break away to terminate the bear drive in a spike/capitulation move down. It could also signal some support coming in. That could mean a fast almost vertical drop to wash out the sellers. This is in effect a panic move down. If we get a higher low though, this would suggest a bullish attempt, and put the short at risk.

It is possible the previous cycle has ended, so I have added an alternative cycle which may now become dominant. Price action at these time points will give some clues as to whether this is the case.

As for the Elliott labelling, this still could be the wave 3, hence some caution here, hence the exit half (preferably just above) the one quarter extension.

The price action on Monday 2nd October was an entry signal since it confirmed the false break on the 28th September, a confirmed lower high. This was the signal we were looking for to go short. If the time cycle holds, there is a good probability of a sustained bearish drive in a “blow off” / capitulation move down into the 30th October target. Price action will give clues if this is a correct interpretation of what I’m seeing in the charts.


Regards,


Magdoran

 

[Magdoran]

Ah Magdoran......"since it's second nature"........that's just where I want to be!!!

As for "boring the pants off everyone"......rest assured I love this thread, your shared knowledge and your fencing with Tech.

Duckman

Hey Duckman#72,


Great to hear from you. So you like the jousting do you? Daffy and I put on a good show, don’t we? Hahahaha.

Wayne just cracks me up sometimes. Up pops an email, and I click onto the site, and kill myself laughing with his latest antics. I laughed so hard one day reading his naughtiness that I actually spilt my cup of tea all over the place. My wife must think I’m mad!

Hope the running commentary is food for thought (I’m glad someone is reading it – still think it must be hard to understand at times…).


Warm Regards


Magdoran

 

[barney]

Hi guys, Two reasons for this post; Firstly to see if I can get the chart on the screen, and secondly it is a good example of a downward breakout (short term ) (thats how I would describe it anyway) , and a good opportunity to get feedback from the experienced members on the forum on the opinions of a "novice" in "training"

What I see/know about the stock, and why I would/will be "watching" it over the next few days/ weeks;

1) Just had a downgrade of resource at current mining op. (1 third)New mine has been commissioned to produce starting this month I believe. Fundamentals of the Co. basically unchanged apart from that.

2)Large SP drop on big volume (initial spike has eased, volume decreasing slightly, and the spread of the SP has lessened) ........... Indicates to me further drop is likely, but looks to be slowing.

3) Old support area of around $1.35 will now become the point of resistance against the Sp rebounding, but imo this will be a "weak" POR due to the small amount of time/ volume the SP traded in this area. 2nd and third POR's also very weak, which indicates to me, that if/when the SP does reverse, it should have little trouble rebounding strongly.

I would be looking to "possibly" trade this stock in the future if I get confirmation of a positive reversal after the current downtrend has proven to be over. Imo this will most likely happen because the size of the downtrend seems to be an "over reaction" to the news recieved.

Gold prices, (according to those that know more than myself) are tipped to be
a good "long term" investment, so, if this Co. has a resource upgrade (which the management indicates is likely in the future), I could imagine the SP returning to much higher prices.

Of course, if the SP does not reverse. or simply "stagnates" at its new lower level, then no trade would be considered.

Hope the charts "post up" ............... Any opinions and constructive comments/criticisms appreciated ............... Thanks, Barney

( PS The second POR was off the left of screen at about $1.45 ; also short time span.)

 

[It's Snake Pliskin]

Hi guys, Two reasons for this post; Firstly to see if I can get the chart on the screen, and secondly it is a good example of a downward breakout (short term ) (thats how I would describe it anyway) , and a good opportunity to get feedback from the experienced members on the forum on the opinions of a "novice" in "training"

What I see/know about the stock, and why I would/will be "watching" it over the next few days/ weeks;

1) Just had a downgrade of resource at current mining op. (1 third)New mine has been commissioned to produce starting this month I believe. Fundamentals of the Co. basically unchanged apart from that.

2)Large SP drop on big volume (initial spike has eased, volume decreasing slightly, and the spread of the SP has lessened) ........... Indicates to me further drop is likely, but looks to be slowing.

3) Old support area of around $1.35 will now become the point of resistance against the Sp rebounding, but imo this will be a "weak" POR due to the small amount of time/ volume the SP traded in this area. 2nd and third POR's also very weak, which indicates to me, that if/when the SP does reverse, it should have little trouble rebounding strongly.

I would be looking to "possibly" trade this stock in the future if I get confirmation of a positive reversal after the current downtrend has proven to be over. Imo this will most likely happen because the size of the downtrend seems to be an "over reaction" to the news recieved.

Gold prices, (according to those that know more than myself) are tipped to be
a good "long term" investment, so, if this Co. has a resource upgrade (which the management indicates is likely in the future), I could imagine the SP returning to much higher prices.

Of course, if the SP does not reverse. or simply "stagnates" at its new lower level, then no trade would be considered.

Hope the charts "post up" ............... Any opinions and constructive comments/criticisms appreciated ............... Thanks, Barney

( PS The second POR was off the left of screen at about $1.45 ; also short time span.)

Good Morning Barney.

Too much analysis in the charts! Line chart?

Distribution - there is plenty of supply there.

 

[barney]

Good Morning Barney.

Too much analysis in the charts! Line chart?

Distribution - there is plenty of supply there.

Hi Snake, Youre up late (or early) as well..... I havn't been to bed yet ............ Could you elaborate for me on your comments ............ ie Are you saying I'm reading to much into the chart? .............. I assume the Distribution indicates plenty of scope for more "downturn" ......... thats what I was thinking ......... Really what I was trying to get at was this stock would warrant being on a watchlist over the next period of time .... the high volume steep price drop could either indicate a possible downside breakout, or, if it did recover on good news, it could bounce back strongly considering the lack of upward resistance points ........ so not looking to trade it atm, just worth keeping an eye on Cheers Barney.

 

[MichaelD]

Barney,

My about BDG.

Why would you be considering BUYING a stock that is going DOWN?

Profitable traders:
Stock price going down = SELL
Stock price going up = BUY

Unprofitable masses:
Stock price going down = BARGAIN


I tend to agree with Snake in that there is a bit too much analysis on your chart. My analysis of BDG follows;

1. Price going down.
2. Breakdown 9-10 with volume spike
3. Materials sector is weak

This signals a short sell on 10-10.

Disclaimer: I hold a paper short in BDG as above (I'm currently paper trading my shorting system until I can prove that it has a positive expectancy).


The FAR more important questions for you to answer are;
1. Can I apply a positive expectancy system to this observed pattern?
2. Can I handle the fact that there is approximately a 50 - 60% chance that I will NOT profit from this trade?
3. Can I handle the fact that in fact the vast majority of my analysis can be shown to be no better than a coin toss?

The entry is merely the starting point, the least important part of your trade.

 

[Magdoran]

Hi guys, Two reasons for this post; Firstly to see if I can get the chart on the screen, and secondly it is a good example of a downward breakout (short term ) (thats how I would describe it anyway) , and a good opportunity to get feedback from the experienced members on the forum on the opinions of a "novice" in "training"

What I see/know about the stock, and why I would/will be "watching" it over the next few days/ weeks;

1) Just had a downgrade of resource at current mining op. (1 third)New mine has been commissioned to produce starting this month I believe. Fundamentals of the Co. basically unchanged apart from that.

2)Large SP drop on big volume (initial spike has eased, volume decreasing slightly, and the spread of the SP has lessened) ........... Indicates to me further drop is likely, but looks to be slowing.

3) Old support area of around $1.35 will now become the point of resistance against the Sp rebounding, but imo this will be a "weak" POR due to the small amount of time/ volume the SP traded in this area. 2nd and third POR's also very weak, which indicates to me, that if/when the SP does reverse, it should have little trouble rebounding strongly.

I would be looking to "possibly" trade this stock in the future if I get confirmation of a positive reversal after the current downtrend has proven to be over. Imo this will most likely happen because the size of the downtrend seems to be an "over reaction" to the news recieved.

Gold prices, (according to those that know more than myself) are tipped to be
a good "long term" investment, so, if this Co. has a resource upgrade (which the management indicates is likely in the future), I could imagine the SP returning to much higher prices.

Of course, if the SP does not reverse. or simply "stagnates" at its new lower level, then no trade would be considered.

Hope the charts "post up" ............... Any opinions and constructive comments/criticisms appreciated ............... Thanks, Barney

( PS The second POR was off the left of screen at about $1.45 ; also short time span.)

Hi barney,


You late night bandit you!

Looking at your chart gives me a headache. It looks like spaghetti. How you can see anything beats me. Agree with Snake and Michael here, there’s way too much going on.

Remember what I said about gizmo’s obscuring the chart? Well this one is so busy with lines everywhere even I had to struggle to mentally filter them out when I was looking at your chart. I can’t help but feel it has to be even more distracting for you since you’re new to this.

Ok, in my view, most people don’t know how to use moving averages effectively at the best of times (of course there are some people on this forum who do). They are a lagging indicator, and in many cases in my view tell you what is happening well after the event has happened, and what the chart was telling you was a probability if you cared to look at it and not the indicator at the time.

In strongly trending markets, this is not so much of a problem, the main trend is easy to see, and if you take longer term trades, you can do quite nicely without much angst, even using moving averages.

In consolidating and creeping markets this all changes, and moving average/oscillator based traders who don’t understand how to use these indicators get whipsawed in and out of trades – the death of 1000 cuts.

Moving averages used the wavepicker uses them in my view is an effective use – he displaces them and ties them into cycle analysis (very important in resource stocks).


Distribution:
Ok, the concept about distribution is that the smart money is exiting in an orderly fashion, and don’t want to upset the price too much as they exit taking profits or reducing exposure, or transferring capital to a different prospect, prior to a sell off of the underlying.

Snake is talking about pattern analysis, and he’s seeing a pattern that he’s interpreting as distribution – the smart money selling off in an orderly fashion before a sell off. When you get a consolidation pattern this often precedes a decline, often a fast and sharp one, hence if this is your view, these present great shorting opportunities.

Broad Market Influences:
Now, there is some danger in looking at the materials index at the moment in isolation. Resources are driven by commodities. If you’re going to trade resource stocks, you have to be aware of the markets that affect them. So, you need to be aware of which metal futures or oil, or gold, are relevant. Then you need to be aware of currency movements.

I remember a trading colleague and I went long LHG a few years ago purely from a bullish gold chart, only to see LHG move down. We couldn’t figure this out at first, but then I realised I hadn’t done my due diligence, and forgot to include currency movements. The US dollar was falling faster than gold was going up, so in net terms, the value to LHG was going DOWN, not up! Just think about these kinds of things when you’re doing your analysis.

If you look at JBM recently, why do you think this has been so bullish? Look at the nickel futures and compare it with other metals (particularly copper). Nickel has been very bullish of late, and the USD has been strengthening. What do you think this might do to the market perception? Of course you could just trade the JBM chart, but watching the relevant commodities and currencies may give you an early warning of opportunities and threats.

I think it is great what you are doing by the way. Saying what you see, then thinking about other perspectives. A great way to learn. But be patient, and filter the many views, and take what you can see. It takes time to learn how to read charts believe me. You never really stop learning.


Regards


Magdoran

P.S. How’s the guitar!

 

[barney]

Barney,

My about BDG.

Why would you be considering BUYING a stock that is going DOWN?

Profitable traders:
Stock price going down = SELL
Stock price going up = BUY

Unprofitable masses:
Stock price going down = BARGAIN


I tend to agree with Snake in that there is a bit too much analysis on your chart. My analysis of BDG follows;

1. Price going down.
2. Breakdown 9-10 with volume spike
3. Materials sector is weak

This signals a short sell on 10-10.

Disclaimer: I hold a paper short in BDG as above (I'm currently paper trading my shorting system until I can prove that it has a positive expectancy).


The FAR more important questions for you to answer are;
1. Can I apply a positive expectancy system to this observed pattern?
2. Can I handle the fact that there is approximately a 50 - 60% chance that I will NOT profit from this trade?
3. Can I handle the fact that in fact the vast majority of my analysis can be shown to be no better than a coin toss?

The entry is merely the starting point, the least important part of your trade.

Thankyou Michael, Your comments always are respected, Can I stress here guys, that I am NOT looking to buy this stock at present unless there is/was a positive reversal, otherwise I agree that it looks better "short" ...... What actually got me interested in the stock was I initially saw it as a "short sell", but then asked myself, is the short sell position a "safe bet" due to the exteme spike ....(from what I've seen of many stocks that spike down like this, seem to "die out" quickly and often reverse strongly) Its kind of the Renee Rivkin theory of get them while they are down, but only on positive sentiment!! .........

If the stock was to reverse in a week/month/6 months, is it fair to say that a) Due to the fact that the SP is currently at a very low point in its recent history, and b) The potential upward resistance to me seems very minimal (if the stock does rebound) , that the stock "bares attention" ....Thats all I'm really getting at ............ I put the chart in simply to visualise the spike down, and to try and give an example of my reasoning behind the "weak" upward resistance in case of an upturn .......

Thankyou for any further comments, Barney. (Still learning......)

 

[barney]

Hi barney,


You late night bandit you!

Looking at your chart gives me a headache. It looks like spaghetti. How you can see anything beats me. Agree with Snake and Michael here, there’s way too much going on.

Remember what I said about gizmo’s obscuring the chart? Well this one is so busy with lines everywhere even I had to struggle to mentally filter them out when I was looking at your chart. I can’t help but feel it has to be even more distracting for you since you’re new to this.

Ok, in my view, most people don’t know how to use moving averages effectively at the best of times (of course there are some people on this forum who do). They are a lagging indicator, and in many cases in my view tell you what is happening well after the event has happened, and what the chart was telling you was a probability if you cared to look at it and not the indicator at the time.

In strongly trending markets, this is not so much of a problem, the main trend is easy to see, and if you take longer term trades, you can do quite nicely without much angst, even using moving averages.

In consolidating and creeping markets this all changes, and moving average/oscillator based traders who don’t understand how to use these indicators get whipsawed in and out of trades – the death of 1000 cuts.

Moving averages used the wavepicker uses them in my view is an effective use – he displaces them and ties them into cycle analysis (very important in resource stocks).


Distribution:
Ok, the concept about distribution is that the smart money is exiting in an orderly fashion, and don’t want to upset the price too much as they exit taking profits or reducing exposure, or transferring capital to a different prospect, prior to a sell off of the underlying.

Snake is talking about pattern analysis, and he’s seeing a pattern that he’s interpreting as distribution – the smart money selling off in an orderly fashion before a sell off. When you get a consolidation pattern this often precedes a decline, often a fast and sharp one, hence if this is your view, these present great shorting opportunities.

Broad Market Influences:
Now, there is some danger in looking at the materials index at the moment in isolation. Resources are driven by commodities. If you’re going to trade resource stocks, you have to be aware of the markets that affect them. So, you need to be aware of which metal futures or oil, or gold, are relevant. Then you need to be aware of currency movements.

I remember a trading colleague and I went long LHG a few years ago purely from a bullish gold chart, only to see LHG move down. We couldn’t figure this out at first, but then I realised I hadn’t done my due diligence, and forgot to include currency movements. The US dollar was falling faster than gold was going up, so in net terms, the value to LHG was going DOWN, not up! Just think about these kinds of things when you’re doing your analysis.

If you look at JBM recently, why do you think this has been so bullish? Look at the nickel futures and compare it with other metals (particularly copper). Nickel has been very bullish of late, and the USD has been strengthening. What do you think this might do to the market perception? Of course you could just trade the JBM chart, but watching the relevant commodities and currencies may give you an early warning of opportunities and threats.

I think it is great what you are doing by the way. Saying what you see, then thinking about other perspectives. A great way to learn. But be patient, and filter the many views, and take what you can see. It takes time to learn how to read charts believe me. You never really stop learning.


Regards


Magdoran

P.S. How’s the guitar!

Hi Mag, Ditto to my appreciation of your comments, always enlightening ........... I haven't had time to digest it yet ..............Unfortunately have to do a real job as well atm (thats what happens when you lose a lot of money

Anyway, I'll take all on board and reply later today with any questions etc Thanks.

PS The chart is not nearly so messy looking before it was compressed ....... Imagine how it looked to me at 4 o clock this morning

PPS The old Les Paul is fine, but we havn't been working a lot lately .... actually good to have some weekends at home for a change ........... getting too old for it I think ................... The current "day job" keeps me ticking over ................. Anyway thanks again , Barney.

PPPS Re my chart looking like spaghetti (lol) ....Do you not like spaghetti? ......It tastes good on toast!!