Technical Indicators are used to either smoothen out price action and give a different perspective of price or for entry signals themselves. The Technical Indicator also quantifies the price/volume which then makes it possible to automate trading based on these fixed rules.

Technical Indicators, as the name applies, only looks at technicals. It does not factor in Fundamentals such as earnings or revenue. Chart Technicians believe that everything is already priced into the charts. Technical Indicators sort of predict where price might be based on historical price action however short they period may be.

Technical indicators are often used for very short term or short term trading because for the longer term investor they provide very little or no value. The exception to that though is if the long term investor wants to use a technical indicator to pick their entry/exit.

Technical Indicators are always lagging as they look at past price and use that data for the calculation of the indicator though indicators are all lagging they are actually divided up in 3 categories where one of them is called leading indicators. The other two are lagging indicators and confirming indicators.

In our next lesson we will look at the 3 different categories; Lagging, Leading and Confirming Technical Indicators

which we know Hedge funds and Institutions look at. We still have significant
resistance in the form of 2011 highs and the SP-500 has been chopping around a
little bit last days while Nasdaq has been stronger and made new short term
highs. This was not a surprise as we mentioned in the previous update that
Nasdaq was relatively stronger (Relative Strength) than SP-500. So hopefully you have been trading
the Nasdaq (at least if you were buying) instead of SP-500 as this would
have meant bigger gains percentage wise.

Silver continues to climb as suggested in the last update but there is overhead
resistance indicated by the 150 moving average and a downward trend from the
big bull flag price is in. Last resistance which actually coincided with the
downward trendline is a switchback trendline so what was support might be
resistance.

When trading the 60 min chart of silver remember to keep an eye on the
resistance levels on the daily chart. Be careful entering a long position on
the 60 min chart if the price is close to resistance on the daily and keep an
eye on the 50 moving average on the hourly chart.

Good luck trading!

Dow Jones is almost at 2011 high meaning Dow Jones is currently stronger than SP-500. Nasdaq has put in a decent rally in the last 2-3 weeks which has resulted in Relative Strength improving against SP-500. This suggests that the smart money is gaining confidence in growth stocks and the market is improving but we are still not seeing the same bullish market we called in summer 2010. Keep an eye on target and stops. Do not give too much profit back in case the market sells off but if you have to trade then the short term trend is up and that should not be ignored.

Gold (GLD) still looks good. The sell off never broke the uptrend and price has come back to test what was resistance is now support. Price needs to close above 50 MA and down sloping trend line. If this happens then the trend can resume and perhaps put in another nice leg up.

Silver (SLV) has bounced at support after several tests. The price first broke down the sloping trend line and then today Friday broke the 50 MA that has acted as resistance twice. Silver might set up a nice move in the coming months.

Video Transcript:
Hello fellow traders, Philip Thygesen from Stock-Market-Strategy. In this video I will show you what I did yesterday regarding the solar stocks. This is for you more active traders. I trade every time frame there is out there. I am waiting for the market to hand me something. Sometimes it hands me a trade on the 5 mins, sometimes on the 15, some times on the hourly, daily or weekly. Of course when I am trading the weekly I don’t expect a trade every day. No, it hands me something once in a while I can trade. But what I do is that I wait for the market to give me something. I am waiting for the market to reward me for my patience. And yesterday was clearly one of those days where I was rewarded for my patience.

It was on the 5 min. So therefore this video is for you more active traders out there. I have had solar stocks in my watch list because I have been looking to short a potential rally in them. They have been dropping a lot. But I was waiting for a rally so I could see if I could go short on that rally. And then a potential test of that potential low where that rally occurred from. But because they were in my watch list I saw something yesterday. I saw that they were up early on in the morning while the market was just chopping around. That made me look at them.

Another reason I also looked them I saw multiple solar stocks up. Not just one stock that could be because of news, CFO change, CEO change, earnings, anything like that, no, it was across the board. When the solar stocks all climb together it means there is something going on. It is not just a random move for example. No, there is something behind this move. What it is I don’t know and I really don’t care when I trade a 5 mins. All I want to know about it is that they all do it together. And when they all do it together it increases the odds that it will continue to do it intraday.

So I then go and look at these stocks. First Canadian Solar. What I then do is my analysis. Then I go and do my phase analysis. I see we break out of this phase 1. Then I see we got a continuation pattern here. That gives me that higher low than this. So this is a confirmed uptrend. A confirmed phase 2. And when this pattern here gives the trader the target. I was not in this time because I only saw it yesterday when we rallied up here. But when we get our target fulfilled had we traded this it means the trend is intact. Then what I look for is entry intraday yesterday when I have done my analysis.

But I don’t just enter this trade because it is in an uptrend or I want to trade. No there was something going on in these stocks. That is what gives you that extra edge, the higher odds setup. There was something going because all the solar stocks were climbing. That is your extra edge. Don’t just trade for the sake of trading. Wait for the market to hand you something. A present. You are rewarded for your patience. That is what I got yesterday, a reward. But what I did was I saw, you know, that move up here, when the market was chopping around. Because the stocks are moving so powerfully up and then market is not, it give us that thrust in relative strength we see down here. Then what I then look for is a small consolidation that happened yesterday.

Because the consolidation is so small I am not waiting for a close outside this trendline. Because it is so small anyway. What I will do is I will trade and I did when it takes out the high of this consolidation. That attracts the momentum buyers when it makes new intraday high. And the same time people going short here are caught on the wrong side and have to cover. So I am using that to enter. But the reason why I make money is not just because I enter a continuation pattern. No I have done my analysis first. All the solar stocks were climbing. They were even climbing very nicely when the market was just chopping around. Meaning that this is not taking the market into consideration this time. No it wants to climb, the solar stocks wants to climb regardless of the market. That’s strength and that’s momentum. So that is what I traded yesterday.

Let me just show you another stock FSLR. It goes the same here. You got your phase 1 break out. And then you got your continuation pattern. In this case it is an Ascending Triangle. And it breaks out of that. Next day is when I see it here. And then I get my small consolidation here and then a thrust up and I book my profit. Because it is a 5 min chart I am not holding overnight. Not necessarily saying it won’t climb the day after but for me when it is a 5 min chart the stop is tight and it does not take that much overnight price action to stop me out. So I am not going short. I am not saying it is not going to go up. But it is wise for me to book my profit because I am trading on a lower time frame.

The same goes on here that we got this thrust up in relative strength because price is climbing very nice while the market was chopping around. Here is another stock. The same, it breaks out of a phase 1 and climbs. We see that thrust up in relative strength as well.

So let me just recap this. This video is for more active traders but what I did yesterday was that I was like any other day waiting for the market to hand me some sort of an opportunity. I don’t necessarily need to put on a trade every day. I don’t want to force myself to trade every day and then lose money. And then when I have a profitable trade, my old loss kills a lot of my profit for that trade. No I wait for the market to hand me something. I noticed it because all the solar stocks were up while the market just chopping around. That is relative strength and it tells me something is going on in these stocks.

Something important enough that the trend might continue intraday and then I can make money on that continuation of the trend when I see a little bit of consolidation. So that’s how I traded the solar stocks yesterday. That’s how I saw them. That’s how I analyzed them. And traded them. This ends today’s video. I hope you have enjoyed it. Good luck.

The market is unchanged yet we are profitable but not as much as in 2010 but good enough considering the volatility. Anything else other than a loss is fine with us. We know you cannot expect to make money all the time and even traders that are break-even in 2011 should be satisfied. That beats a lot of fund managers, especially those who have lost around 50%. It is important to have the right expectations in trading.

We like to wait for the market to make up it’s mind so we can trade with the market instead of trying to predict the market. Prediction is not something you can build a trading career on. You need to be consistent and by waiting for evidence you can increase the odds of success.

The SP-500 is still in a consolidation pattern and has not yet broken out or broken down failing to give us the evidence we are waiting for. Right now the SP-500 is in a big triangle contained by 2 trend lines. Long term members know that patience pays off especially looking at current losses for those who did not have the patience to wait for evidence.

The increased volatility in the market meant for many trades that their stop-losses were hit and they were forced to exit with a loss only to see price bounce shortly after. There is no reason to have a killer year and then give it back the year after. Accept that you cannot trade all the time and position yourself in strong stocks in strong sectors at the right times. This is the recipe for long term trading success.

Use the quiet times to further educate yourself. In this ever changing market is it important to keep learning and adapting. Check out our Stock Market Education Section!

Stock Market Video Update

The resistance zone was made up of the 150 MA and neckline of the Head & Shoulder pattern. SP-500 has been trading in a relative tight range in the resistance zone but with big intraday moves.

We are currently seeing increased volatility which makes us Sit On Hands-a term we use a lot! We do not feel that this increased volatility is good for our risk/reward so we are waiting for the market to make up it’s mind. There is no reason to risk all the profit made after calling the bear trap low beginning of October as we are not trading junkies – we are professional traders! We are also not trading for fun but for the profit and consistent profit at that!

Until the market gives us more evidence of which way it will go we will stay in cash when it comes to the daily charts. We are currently trading intraday moves as the risk/reward is better. We are able to achieve our targets between the news alert coming from Europe. Lately the news can move the market 3-4 % in a matter of hours making the swings on the daily charts too much for our liking. We do not see any reason to hold big positions during all this debt talk about Italy and Greece.

Increased Volatility Education Video

SP-500 is nearing resistance so we recommend keeping a close eye on your stocks and on the SP-500. No one can predict whether we are going to go through the resistance or reverse and continue the downtrend.

We have pointed out the resistance zone and why there is resistance around that price level.

We also quickly look at HANS, a stock we featured in last update. It has rallied strongly and is now at prior high. Keep an eye on the resistance. HANS could break the prior high then the stock can easily continue the rally in the same strong manner we have seen last week.

This Weeks Educational Market Update Video

Many traders including hedge funds mangers have thrown in the towel and many predict that the market will head lower over time. We are not saying it won’t but we trade patterns that repeat themselves over time and not trading predictions.

By looking at the weekly chart of SP-500 you can see a pattern that is very similar to the beginning of 2008. Based on this historical pattern we would not be surprised to see a rally/bounce from these oversold levels. We are also experiencing a potential bear trap in SP-500 when the price action on Tuesday took out the low of August only to rally intraday and close at the high of day. We even saw some follow through yesterday so far proving the bear trap valid.

The bounce can either be used to sell out of stocks or even enter new trades trying to make a little profit on this potential rally. This is not a recommendation for either but if you decide to go long remember to use stops. Also if you do want to enter some new trades we suggest looking at stocks where the charts are not damaged with the recent selloff and where the stock is still in a strong uptrend.

Current Stock Market Conditions

Volume is 200% up on the average volume and there is no doubt that investors and traders have experienced some painful days. This also goes for Stock-Market-Strategy as well but we are not worried or emotional and there are several reasons for this.

But first and foremost we cannot allow ourselves to be emotional in these market conditions. The question you have to ask yourself is: when does being emotional help you in business and investing? When putting your hard earned money to work in the market you have to accept what the outcome might be even before it happens. Only invest or trade what you can afford to lose.

Of course when it comes to investing the risk is what your stop is and not what you invest in Dollar terms. Yes, a company can go bankrupt but the charts will normally give warning signs well ahead and thereby you will be out well in advance. The bottom line is whether you are profitable or not, you have to control your emotions.

In normal market selloffs we look to enter strong stocks in strong sectors as we believe we see value and low risk entries. In this current market we did the same and despite the big selloff our stocks are holding up fairly well. Now, due to the size of this selloff, we will keep a close eye on the market and the stocks when we bounce. We will measure the strength to determine whether this will be a bounce in a bear market or a rally in a bull market.

As our stocks are relatively strong, this means that even if the market only manages to bounce a little bit, our stocks will more often than not give a small profit or at least break even. This is more than all the top hedge funds can say as they are caught with big positions they cannot unwind as fast as the smaller investors!

When looking at the bigger picture we are still massively outperforming the market because our strong stocks have been outperforming for a longer period of time and not only during this selloff. We recommend to all members, free or paid, to look at bigger picture.

So let us look at the market since 2009 where we entered a new bull market. There has been plenty of profit opportunities in this 2 year bull market so this recent selloff will only be a small blow to your account. (see chart below)

Click to view

This is of course only if you have used smart money management and not reinvested all your money including profit. If you keep adding the profit to your investment you will take a bigger hit in dollar terms when market does turn over. For new investors who have not made a big pile of money prior to this selloff do not worry. There will always be opportunities to make money. Patience is important. Do not rush into anything. Do your due diligence!

By looking at this chart you can see that despite the reason selloff that almost brought SPY/SP-500 down to summer 2010 low our well known stocks such as AAPL and SLW is still well above their summer 2010 low. By choosing strong stocks in strong sectors you will be more immune for the selloffs like the one we are experiencing now. It also helps on the emotions that you can see that you are still doing well in the bull market that we started buying in 2009.

So first reason we are not emotional is because despite the recent selloff we are still sitting on profit in this bull market.

Another reason that we are not emotional is that all our indicators and market analysis did not really give sell signal prior to the selloff. Of course now the indicators and analysis is showing warning signs. This lack of warning before the selloff indicates that we should but not necessarily get a rally or bounce big enough to get out with small profit or break even on the last trades we did. This is not to say that our older trades are still way in the profit.

Bottom line: Stay professional and not emotional and follow your game plan. This has proven to be a winning strategy for us especially during 2008 bear market.

We are bullish just like in mid 2010 during last consolidation and we believe this is the time to enter or add on pull backs in strong stocks. The Market is chopping around giving the trader and investor plenty of opportunities so position yourself for a pending move in the SP-500. But remember, nothing is certain as the market can drop from here if we see further problems with Greece or Italy.

What a experienced trader or investor would do is to enter on pullbacks as this is increasing your risk/reward ratio. Traders and investors are not always right. No one is. It is about making more money on your winners than your losers and by buying after a selloff you are minimizing your risk and maximizing your reward.

During this consolidation we have built a position in some strong stocks that are performing relative well versus the market. These stocks are slightly up but it could be the other way as well. We could have a little open loss on these stocks without worrying as no one can hit the exact low. Besides that we do not look at profit/loss during consolidation as this is more or less random noise. What is important is to be ready when/if the market breaks into new highs.

Just before the market entered the consolidation, many traders and investors were overly bullish. All those people are now underwater and have been for a long time. When they sell out and we have shaken the rest of the week longs the market can resume the uptrend (again nothing is certain and this is not to be taken as a buy recommendation)

SP is consolidating between major support at 1250-1260 and major resistance 1355-1370. Major support is where we last saw buyers stepping in to buy the pull back. Major resistance is where we last saw sellers coming in and stopping the rally. There is minor support at the 150 MA that coincided with the 20 and 50 MA. Ideally the place you should have entered some stocks was when market was at major support. Right now we are close to major resistance. Adding here is giving you a bad risk-reward ratio. We are not predicting if we are breaking out now or we need to test the major support one more time as we can’t predict the future no more than you can!

Here are some stocks that have consolidated but all are in an intact uptrend. SLW is in the same pattern as SP-500. HFC has already broken out and thereby already showing relative strength. Last is TSO that consolidated in a flag and broke out subsequent finding support at 150 MA.

Chart Analysis