Trading Tips

Volatility is every stock trader’s best friend. As long as stocks are moving in one direction or another — or both! — there is the potential to profit. It’s when stocks are standing still that traders get killed. There are ways to make money in sideways markets — such as writing options contracts — but the trick is knowing when a market is going to be volatile or not, and acting accordingly.

Well, what if I told you there was a statistically sound technical indicator for predicting volatility over the next 3-12 months?

Do I have your attention? If so, let me introduce the Average Breadth Index, which is the topic of this week’s TradingTips.com video newsletter.

In this episode, you’ll learn:

- What the Average Breadth Index (ABI) is, its history, and how it’s calculated (0:36)

- How to interpret ABI (1:13)

- Other indicators you can use with ABI (2:38)

The video also contains an example of a real stock chart with an ABI underlay so you can see how the indicator works in a real-life scenario.

ABI is a great measure of volatility precisely because it is unconcerned with whether stocks are going up or down — just whether or not they’re moving at all. This allows ABI to focus on what it does best — predicting future
volatility — and be used in conjunction with other technical indicators in order to determine whether or not you should be going long or short. Thankfully, TradingTips.com has covered almost every technical indicator known to man, so after viewing this episode, be sure to visit our site for a quick refresher course on other indicators that can be used to complement ABI.

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll be looking at an exotic new indicator that’s been all over the news the past few weeks. What is it? You’ll have to tune in to find out!

Episode 58 - Absolute Breadth Index: A Complementary Tool for Predicting Future Volatility

Moving Averages are useful for filtering out noise and visualizing a stock’s true trend. The 10-, 30-, 50-, and 200-day moving averages also tend to act like support and resistance, too, so it’s always smart to have at least one of them as an overlay on all of your charts.

But how about more than one of them?

When you use two or more moving averages, you have the opportunity to spot moving average crossovers, which is the subject of this week’s TradingTips.com video newsletter. Read on!

In this episode, you’ll learn:

- All about moving averages — a quick review for those who are rusty (0:41)

- How moving averages are calculated (1:21)

- The difference between Simple and Exponential moving averages (2:11)

- How moving average crossovers can signal buy and sell points on a stock chart (2:40)

The video also contains examples of real stock charts with moving average overlays, including a chart showing how using the 10-day and 30-moving averages could have pinpointed perfect buy and sell points.

Another thing that is great about moving average crossovers is that they can be used for short-term, long-term, or intermediate term trading — the longer the moving averages, the longer term the signal. In this way they can be customized to fit your trading style, no matter what it is: long-term, short-term, buy, or short-sell — it doesn’t matter, moving average crossovers can work for you.

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look at the Absolute Breadth Index — be sure to tune in!

Episode 57 - Moving Average Crossovers: A Customizable System for Determining Buy and Sell Points

There are a lot of technical indicators that say the same things, but in different ways. Why is it important to master them all? Because sometimes one indicator will contradict another, and your odds of trading success are greatly increased when you have several indicators all saying the same thing.

However, some indicators are intended to trump all others. One, you can tell by its name: The Ultimate Oscillator.

In this week’s TradingTips.com episode, ou’ll learn what makes the Ultimate Oscillator a unique and valuable statistic to have in your trading arsenal.

In this episode, you’ll learn:

- The history of the Ultimate Oscillator (0:41)

- How the Ultimate Oscillator is calculated (1:18)

- How to read the Ultimate Oscillator (2:41)

- How to interpret the Ultimate Oscillator (3:22)

The video also contains an in-depth example of a real stock chart with an Ultimate Oscillator underlay.

The Ultimate Oscillator is another technical indicator that was invented by Larry Williams. You might recognize the name from previous TradingTips.com episodes — he is the inventor of Williams %R and father of Hollywood actress Michelle Williams. As a teenager, Michelle won a real-money futures trading tournament, not for teens, but for adults, by using the indicators developed by her dad. Now that should get your attention!

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look at the power of Moving Average Crossovers. See you next week!

Episode 56 - The Ultimate Oscillator: A Tool for Determining Overbought and Oversold Conditions

Ever notice how most technical indicators and statistics were invented in the 60s, 70s, and 80s? I think it’s because traders who wanted an edge had to do the dirty work, crunching numbers and coming up with new models. Today, we can just go online and find everything we need to about a stock: it’s all right there for us.

I wouldn’t go back to the pre-Internet age for anything, and I’m sure you wouldn’t either, but with the ease of the ‘net, some traders have gotten lazy. Not only do they no longer have to do the hard work of calculating stats and hand-drawing out charts themselves, many of them are too lazy to even master all of the technical indicators that are out there and freely available!

This is a mistake — but it also presents an opportunity. Since the Internet has “lowered the bar,” we need to do less to get an edge these days. We no longer have to crunch numbers or even develop our own models: we just have to learn how to use the existing models, and we’ll already have an edge on the competition. If you’ve been watching TradingTips.com videos for a while, you’ve already mastered more indicators than most — but here’s another one to add to your repertoire: the TRIX indicator.

In this episode, you’ll learn:

- What TRIX is, where it comes from, and what its purpose is (0:38)

- The formula for calculating TRIX — you won’t need to do it by hand, but it pays to know and understand it! (1:17)

- How to use TRIX with both the zero line and an additional signal line (1:59)

- How you can add TRIX to your own charts (3:08)

The video also contains an in-depth example of a real stock chart with a TRIX underlay.

In conclusion, TRIX is a momentum indicator oscillator that’s “triple smoothed” to remove so-called market noise. It’s best to use it with an indicator line, which can help you establish buy and sell points. And with StockCharts.com, making your own charts with the TRIX indicator underlay is easy.

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look at The Ultimate Oscillator: yet another tool for determining if a stock is overbought or oversold. See you next week!

Episode 55 - T-R-I-X: A Momentum Indicator

There are no “get-rich-quick” schemes in stock trading, no matter what anyone tries to sell you. In order to make it, you have to do your research, learn, make mistakes, learn from those mistakes, and continually build on your knowledge.

Similarly, there’s no way to “learn it all” about stock trading in one day, one month, or even one year. What you need to do is keep on learning, constantly adding to your trading repertoire. Mastering technical analysis is a lot like putting together an intricate puzzle, and sometimes you need to know X before you can understand Y, Z before you can understand X, etc.

A good example is the StochRSI indicator, which combines Stochastics and RSI — two subjects we dealt with independently, in episodes 13 and 10, respectively. Putting those two powerful indicators together gives you something all the more powerful, and in this episode, StochRSI is explained.

In this episode, you’ll learn:

- About Stochastics and RSI on their own (brief review) (0:40)

- How StochRSI came into being — and why its origins are important (1:12)

- The problem with regular RSI and the big advantage of StochRSI (1:40)

- How to calculate StochRSI — you’ll never need to do it, but it is helpful to understand how it’s calculated (2:11)

The video also contains information on how to interpret StochRSI, examples of stock charts with StochRSI, how to use StochRSI on StockCharts.com, and more!

In conclusion, StochRSI may not be the easiest to calculate, but when you get to the root of it, it’s pretty easy to understand. Thanks to the Internet, you’ll never need to do the calculations yourself, so what’s to stop you from using StochRSI? Nothing but your lack of understanding — which can be remedied by watching this video.

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look at TRIX — and I’m not talking about the fruity kids’ breakfast cereal. In fact, this particular TRIX isn’t for kids: it is for traders who want to make big profits! Tune in next week.

Episode 54 - StochRSI Stochastics applied to Relative Strength Index values

“Shooting star.” This chart formation has a fancy name, but it’s not at all complex. In fact, it is a single-candlestick formation. Best of all, it is an incredibly reliable predictor of a bearish reversal.

Shooting stars are pretty easy to spot — if you know what you’re looking for. There are a bunch of criteria you have to check to make sure what LOOKS like a shooting star REALLY IS a shooting star. All of these signs are discussed in this week’s episode!

In this episode, you’ll learn:

- How to identify a shooting star (0:42)

- How “chartologists” interpret shooting stars (1:44)

- How to differentiate between a shooting star and the infamous “gravestone doji” (2:13)

- How to properly understand the context in which a shooting star takes place (2:14)

The video also includes several in-depth examples of shooting stars, gravestone dojis, and even a third single-candlestick formation: the dragonfly doji!

In conclusion, shooting stars, gravestone dojis, and dragonfly dojis are all closely related. In order to differentiate between and interpret them, you need to understand context. With the information included in this video, you’ll have no problem doing so!

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look at the StochRSI oscillator. It may sound a bit complicated, but it’s easy to learn and a great asset to have in your bag of tricks!

Episode 53 - Shooting Star: A Good Indicator of a Bearish Reversal in One Candlestick

This is the 52nd episode of TradingTips.com’s Trading Tip of the Week. Over the past year, we’ve looked at dozens of technical indicators, most of which are explicitly intended to be used in conjuction with one or more other technical indicators for increased reliability.

But when you start cross-referencing models, you almost always end up with contradictory conclusions at some point. This can lead to a case of ANALYSIS PARALYSIS — where you’re so busy analyzing a stock that you never pull the trigger on the trade and miss out on big profits. So what can you do?

Well, what if there were one super indicator that screened and rated stocks on both technical and fundamental bases? Could there really be JUST ONE tool you could use to filter out all of the other noise? Let’s take a look at the Rabbitt Q-Rank system in this week’s TradingTips.com episode.

In this episode, you’ll learn:

- All about Rabbitt Q-Rank: How it was devised, what it measures, and how the scores are broken down (0:43)

- What factors contribute to a Rabbitt Q-Rank’s “TSR” (Technical Sub-rank) (1:09)

- All about the “ESR” (Earnings Sub-rank) (2:26)

- Some ideas for how to use the Rabbitt Q-Rank (3:17)

The video also shows you where you can find Rabbitt Q-Rank data — for free!

In conclusion, the Rabbitt Q-Rank is a great way to quickly evaluate stocks on technical and fundamental bases — IF you understand the system and its limitations. After watching this episode, you will!

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look at Shooting Stars — and I’m not talking astrology… See you next week!

Episode 52 - An All-in-One System for Evaluating Stocks

Reading stock charts isn’t always as easy as A, B, C. In fact, a lot of times it’s more like trying to decode some ancient language in a foreign script. That’s because, as with many dead languages, CONTEXT is paramount — and that’s especially true when comparing hanging men and hammers.

Hanging men and hammers are both single-candlestick formations that have virtually identical characteristics. However, one is bullish and the other is bearish. What is the difference between the two? CONTEXT.

Even in the English language, there are times when a word might mean one thing in one context and another in another context. We’re so accustomed to these double (or triple or quadruple!) meanings of words, they’ve become second-nature to us — just as the contextual meanings of words, phrases, and characters of ancient languages were second nature to the people who used them. Well, after studying this episode of TradingTips.com, the contextual differences between hanging men and hammers will be second nature for you, too!

In this episode, you’ll learn:

- The basic characteristics of a hanging man formation (0:35)

- How to interpret hanging men and what factors increase your probability of successfully trading them (1:09)

- How a hammer is similar to a hanging man — and the one key difference! (1:26)

In conclusion, it’s important to remember that hanging men and hammers are not opposites — they are in fact very similar. Their only real difference has to do with the CONTEXT in which they occur… And in this case, CONTEXT is definitely everything!

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look the Rabbitt Q-Rank, an ingenious all-in-one stock evaluation system combining nine technical and fundamental models into one… See you next week!

Episode 51 - Hanging Men and Hammers

The recent stock-market crash caught most traders by surprise. True enough, many fundamental analysts and economists have long-been warning about the market being overdue for a correction, but none of them could say exactly when it was going to happen. Well, all of the eggheads were outsmarted by a simple technical indicator — the PPO, or Percentage Price Oscillator.

PPO is a lot like MACD. In fact, the Absolute Price Oscillator (APO) is essentially MACD on a slightly different scale. But PPO takes things to another level and has certain advantages over MACD. So with that in mind, is MACD obsolete? Maybe. MACD didn’t do a lot to predict the market’s recent crash, while PPO did.

But what exactly is PPO and how do you use it? Read on and watch the video to find out.

In this episode, you’ll learn:

- All about Price Oscillators and the difference between APO/MACD and PPO (0:44)

- How APO and PPO are calculated (1:44)

- The advantages of using PPO instead of APO or MACD (1:46)

- How to use and interpret a PPO histogram (2:27)

The video also looks at how PPO predicted the crash of early May 2010, and shows you how to use PPO with stockcharts.com.

In conclusion, the recent stock market crash should give PPO some extra credibility, as the indicator clearly predicted the crash. PPO is a lot like MACD, but has certain advantages discussed in this video. And on top of everything else, it’s easy to use — just follow the steps in this video.

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look Hanging Men and Hammers — two single-day candlestick formations that accurately predict reversals. See you then!

Episode 50 - This Technical Indicator Predicted the Recent Market Crash

People think candlesticks are simple, and they’re right. But just like a good card game, candlesticks take a minute to learn and a lifetime to master. It’s truly amazing how much information is contained in such a small package.

In this episode, we look at “engulfing lines,” which are yet another very strong candlestick indicator. But to understand engulfing lines, you really have to know your candlesticks. You have to be familiar with the proper candlestick terminology, such as “Real Body.” We covered this in previous TradingTips.com episodes, but if you need a refresher, don’t worry — it’s all in this episode, too.

Reading candlesticks is sometimes like deciphering the Da Vinci Code: There’s a lot more to it than just what initially meets the eye. This video will help you see through the noise and find engulfing lines that you can trade for big profits.

In this episode, you’ll learn:

- About the “Real Body” of a candlestick and how it relates to engulfing lines (0:40)

- The characteristics of a bullish engulfing line (2:00)

- The three “X-Factors” that lead to greater engulfing-line trading success (2:42)

- How to recognize bearish engulfing lines (3:08)

The video also uses simple line-art graphs to demonstrate bullish and bearish engulfing lines. With these examples, you’ll have no problem recognizing the “real thing” when you see it on a stock chart.

Engulfing Lines are very easy-to-spot and highly accurate short-term reversal patterns. You just have to know what to look for. With this video, you’ll have all the information you need to start trading engulfing lines and raking in big profits!

Happy Trading!

Manny Backus
CEO, Wealthpire Inc.

P.S. Next week we’ll look at PPO, the Percentage Price Oscillator, and why many technical analysts are using it instead of MACD these days. Until next week… Good trading!

Episode 49 - How to Recognize Bullish and Bearish Engulfing Lines