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Technical Analysis - Market Indicators Answers

1) How can you tell if the market is in the hands of the floor traders?

If there are no large orders coming into the floor from the outside as in "commercials," then the floor traders will run the stops, both sides, up and down. It produces a very noisy market.

You can tell this is the case (market in the hands of the floor traders) when the market becomes very noisy with large slippage, even though price doesn't move in any one direction, i.e. as in a trend. This type of price action combined with a very narrow-range of the TICK indicates very little commercial participation. Also the premium is usually very chaotic under these circumstances.

These conditions often occur in small consolidation zones and at the center of triangles. It is impossible for someone off the floor to make money under these circumstances.

2) Explain the triangle you talk about.

Taken in part from Trading for a Living by Alexander Elder:

  • A triangle is defined by two converging lines. The upper line connects two or more peaks, and the lower line connects two or more bottoms.

  • A triangle whose lower boundary is rising is called an ascending triangle. It tells you to expect an upside breakout.

  • A descending triangle has a declining upper boundary. It shows that prices are more likely to break down.

  • A symmetrical triangle shows that the forces of the bulls and bears is evenly matched and the trend is likely to continue.

For a visual view and further explanation, check this diagram.

3) Is noisy the same as choppy markets?

A choppy market is where the market makes small cycles of three to five or even sometimes shorter periods; sometimes they can be as long as 10-minute cycles.

Noisy is where price will spike in one direction, move up, spike in another direction, move sideways, random, almost chaotic price action.

It depends also on the time frame you are looking at. What looks like noise on a 60-minute chart, can be a trend on the 1- or 3-minute chart.

4) You mention "commercial activity." How can I use software and a data provider to confirm commerical activity at home.

Commercial activity is reflected in price action which is usually choppy and noisy, without direction. The TICKS are usually very range-bound and don't move much beyond plus or minus 300 points such as the morning of October 27, 1999.

These periods can be defined by the increased volume and the ensuing strong move. When you notice a choppy or noisy market, look to volume and the TICK for clues as to commercial participation. Also, if the premium is roaming freely and then spiking, first one way and then another, it is apparent that there is little commercial activity.

Trading is part science and part art; whether there is much commercial activity becomes more apparent by looking and watching the market and the aforementioned indicators.

5) I am having difficulty with stop placement. Are any of your subscribers attempting to trade the small e-mini S&P (Spoos) with your signals? If so, how are they adjusting the stop signals for the smaller contract?

The E-mini tends to have slightly wider swings than the large contract and consequently slightly larger stops should be used. We recommend 30 to 50 basis points more for E-mini stops then we indicate on our Entry Signals. Place your stop the appropriate distance from your fill rather than mechanically using our values.

Making money with the E-mini can be tough due to the relatively high overhead of the contract.

Here are more specific details on trading the E-mini contract with the Bulletin Signals.

6) Could you define or describe to me the term "Doji" that I've seen in the S&P Corner section of your site?

A doji is when the open and the close are the same. Check out our quick and dirty Candlestick Review pages with basic descriptions of the most popular candlestick patterns. If you scroll down the page a bit, there is a alphabetical listing so you can go straight to Doji.

Also check out Market Turning Points - Price Action which talks about a the Doji pattern.

7) I understand that the average balances that are displayed on your charts are 20 period exponential. At the beginning of a trading day what are the first 20 periods comprised of, prior day periods or overnight periods?

The first 20-periods would be based on the prior trading day (not the night session). The night session is used for possible price continuation, but the data itself is never co-mingled with the day session's data.

8) What do you think the market is going to do when the price is at the top of a triangle or vise versa?

When the market starts to consolidate and form a triangle, the extreme boundaries of the triangle often reverse quickly with noisy price action at the center (apex) of the triangle. Often a consolidation zone can be identified in this manner.

The breakout of a triangle, or any consolidation for that matter, is difficult to predict; though, if there is strong support or resistance above or below the triangle, price usually honors the support or resistance level.

When price breaks out of a triangle, price should move away from the center or apex on increasing volume. If this does not occur, a reversal is very likely.

The classical approach suggests reversing direction when price moves back through the apex. That is, if price broke out of the triangle to make higher prices, but on lower volume, and then reversed, and moved back to the center line of the triangle, then one would go short.

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