How to Use the OBV Momentum Indicator 05-05-2010
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Babe Ruth hit 714 home runs without steroids or modern training methods. NASA put men on the moon in 1969, when computers were the size of auditoriums. And heck, we still don’t really know how the Egyptians built the pyramids.
The point of all this is that sometimes “old fashioned” ways of doing things are best. Warren Buffett built his investment empire that way, and Jesse Livermore — perhaps the greatest stock trader of all time — never used any calculation that couldn’t be done by hand.
So with all this in mind, this week’s episode is about On-Balance Volume, or OBV, which is a simple but effective momentum indicator that helps predict future price movements. It was invented in 1963 — six years before the moon landing — and yet scores of successful traders still swear by it. Watch this video to find out why.
In this episode, you’ll learn:
- The “big idea” behind OBV — this is crucial! (1:03)
- How OBV is calculated (1:22)
- What critics cite as the limitations of OBV (2:28)
- How to add OBV to your custom stock charts (3:25)
We also take an in-depth look at a real stock chart with an OBV overlay so you can see how it relates to and predicts price movements.
OBV may be simple, but that doesn’t mean it doesn’t work. One problem with modern traders is that they over-analyze things and rely too heavily on super-complex computer models. Why not go with what’s proven? And that’s OBV.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week we’ll look at Engulfing Lines. These are bullish and bearish reversal patterns on candlestick charts that are easy to spot — if you know how to look!
Use the Exhaustion Bar to Predict Trend Reversals 04-28-2010
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Have you ever spotted a hot stock in a bullish trend and jumped in after a big breakout only to see the stock immediately reverse to the downside and lose you some serious money?
If not, maybe you’ve been lucky, because this has happened to the best of us. But what if I told you there was a way to help stop this from happening? And what if it was so simple, it only required being able to analyze a single candlestick on a chart?
What I’m talking about are exhaustion bars. Exhaustion bars are one-bar, ultra-short term reversal signals, and being able to identify them can save you a lot of money and frustration. Best of all, they’re easy to spot once you know the rules.
In this episode, you’ll learn:
- What an exhaustion bar is, what it predicts, and how it develops (1:12)
- The key features of a bullish exhaustion bar (1:39)
- How volume can help indicate a bearish exhaustion bar (2:25)
The video also features easy-to-read line-art examples of bullish and bearish exhaustion bars, with in-depth explanations to help you get the most out of the video.
There are two important credos that every trade should live by: (1) Never go against the trend, and (2) Never say “never.” Exhaustion bars are cases in which you want to break credo #1 because a reversal is imminent, and statistically speaking, it would be safer to hold off on buying — or even to go short.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week we’ll look at On Balance Volume (OBV), another great momentum indicator to add to your arsenal of technical tools.
Episode 47 - Use the Exhaustion Bar to Predict Trend Reversals
Know the Difference Between Trending and Trading 04-21-2010
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A couple of weeks ago we looked at the Force Index, which helped you determine the strength of a stock’s current trend. But what if you’re unable to determine if a stock is TRENDING at all? Then Force Index is of no use to you.
This is where ADX — Average Directional Index — comes in. It was invented by J. Welles Wilder, one of the most famous technicians in stock market history, in 1978. The purpose of ADX is to determine if a stock is indeed TRENDING, or if it is instead “trading.”
What’s the difference between trending and trading? Watch the video now, or read on.
In this episode, you’ll learn:
- The distinction between trending and trading (0:40)
- How ADX is calculated (1:46)
- How to read a stock’s Average Directional Index (2:51)
- How you can add an ADX underlay to your custom stock charts, free of charge (3:47)
The video also features an example of an actual stock chart with an ADX underlay so you can see the real thing in practice.
ADX does not measure or CARE if a stock is trending bullishly or bearishly — only if it is indeed TRENDING or instead, TRADING. The reason this is important is because many other technical indicators only work if a stock is actually trending, and a few others tend to work best in sideways markets. Thus, ADX is an invaluable technical tool.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to identify and trade Exhaustion Bars, which are one-day candlestick reversal patterns. See you next week!
Episode 46 - Know the Difference Between Trending and Trading
How to Use the Force Index 04-07-2010
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It’s pretty easy to tell which direction a stock is trending at any given time. In fact, if this were the only key to making money in the stock market, anybody could do it.
The problem is, you don’t necessarily know if the stock’s CURRENT trend is going to continue, or if it might reverse at any moment. What you need is a special power — “the force” — to tell you how strong a trend is. Well, that’s exactly what the Force Index does.
Force Index is a momentum indicator that takes volume into account. It was developed by Alexander Elder, author of the classic books Trading for Living and Come into my Trading Room. This technical tool is highly accurate and can be used at no expense to you — if you know how to use it, that is.
In this episode, you’ll learn:
- Exactly what Force Index is and how it’s calculated (0:36)
- How to interpret the Force Index (1:19)
- How to use volume in conjunction with Force Index to spot potential reversals (2:01)
- How to use Force Index — for FREE (2:58)
The video also features an in-depth example of an actual stock chart with a Force Index underlay. This way you can see how to read and interpret the Force Index in real life.
Force Index can also be used to do what’s called a “long exit” strategy — where you chip away at your position over time, taking profits. This strategy, as well as others, is explained in the video.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to use the Average Directional Index (ADX). Don’t know what that is? Well stick around for next week!
Island Bottoms and Tops - Short Term Reversal Patterns 03-31-2010
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Type “Island bottom” into your favorite search engine, and chances are you’ll get something other than the chart pattern that’s the subject of this episode. Island bottoms — along with island tops — are rare… But when you are able to spot them, they have an amazing level of accuracy.
In a recent study, the island bottom was found to have a success rate of 85%, versus a failure rate of 13%. For island tops, the success rate was 77% versus a failure rate of 10%.
Intrigued? Well, keep reading and watch the video for more info.
In this episode, you’ll learn:
- What constitutes an island bottom (1:15)
- What constitutes an island top (2:25)
- The statistical success rates of island bottoms and tops — along with the size of the average profit made trading them (3:06)
We also outline what island bottoms and tops look like using simple line-art graphics, and explore the “narrative” of both chart patterns so that they’re easy to understand.
By mastering the island bottom and top chart-pattern formations, life really can be a beach. Although the patterns are rare, they’re easy to spot when the do occur, and they typically produce big gains for savvy traders.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to become one with the Force… The Force Index, that is!
Episode 44 - Island Bottoms and Tops - Short Term Reversal Patterns
Triple Bottom - A Bullish Reversal Pattern 03-17-2010
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Some chart-pattern formations are easy to mistake for one another, and this can often produce disastrous consequences. For example, a triple top could be mistaken for a double top, leading you to get in at the wrong time. Even worse, you could think a stock is in a double- or triple-top formation when it’s actually in a triple BOTTOM — and this could cause you to lose a lot of money.
A triple bottom is a bullish reversal pattern with three roughly equal lows. But in addition to the three bottoms, which form a sort of support line; a triple bottom will also have a RESISTANCE line established by the high points of the pattern. This can lead traders to easily mistake a triple bottom for a triple top — and vice versa.
How can you be sure to tell the difference? Watch this video!
In this episode, you’ll learn:
- The basic criteria of a triple bottom and how they differ from a triple top’s criteria (0:37)
- The more advanced criteria that make for better, more accurately profitable triple bottoms, and how to trade them (1:46)
- The importance of setting an appropriate price target (3:22)
We also take an in-depth look at a real-life example of a triple bottom and ask you to identify where the appropriate points are located on the chart. Then the points are illustrated for clarity, and finally, we show you what the stock did after coming out of the triple bottom formation.
The triple bottom seems easy enough when looking at it in an academic setting. But the reality of it is that triple bottoms are hard to spot, and difficult to differentiate from triple tops, double bottoms, and double tops. You need to know what you’re looking for, and this video will teach you.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to trade another “bottom” chart formation — the exotic-sounding Island Bottom. See you next week!
Episode 43 - Triple Bottom - A Bullish Reversal Pattern
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The Chaikin Money Flow indicator 03-10-2010
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In Episode 37, we looked at the concept of Accumulation/Distribution. Now that you’ve had time to digest those lessons, we’re ready to take things to the next level with Chaikin Money Flow (CMF).
What is Chaikin Money Flow? It’s a statistic invented by the legendary Mark Chaikin. The formula takes the cumulative total of x days worth of Accumulation/Distribution line values, and divides THAT sum by the sum of x days worth of volume numbers. This gives a moving average of volume-adjusted Accumulation/Distribution values, which provides more accuracy than just a single day’s line value by itself.
But how do you use CMF? And where can you find the data? Those questions, and more, are answered in this episode.
In this episode, you’ll learn:
- All about Accumulation/Distribution — again — in this concise but informative review (0:32)
- Exactly how CMF is calculated and what a particular result, positive or negative, means (1:29)
- Three sure-fire signs of accumulation in a stocks — which can be applied in reverse for signs of distribution (1:59)
- How and where to find customizable CMF underlays to use on your charts (2:52)
We also take an in-depth look at a real stock chart with a CMF underlay, and show you exactly how you can apply CMF studies to your own charts, with sample screen shots.
CMF is a non-trend following volume indicator. It measures buying or selling pressure. In order to increase CMF’s predictive power, it must be used in conjunction with other technical indicators. Which ones? Watch this episode to find out!
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to trade the Triple Bottom chart formation, a long-term bullish reversal pattern. See you next week!
The Triple Top: A Bearish Reversal Pattern 03-03-2010
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As a student of technical analysis, you know that no chart pattern is foolproof. Even if you identify the formation and execute the trade 100% according to the rules, studies show that proper technical analysis is right about 55-60% of the time — and that’s fine! You don’t need to be right every time; you just need to be right a little more often than you’re wrong to make money.
But what if you’re wrong about the chart pattern to begin with? What if you think it’s one formation, when it’s actually another? This will reduce your odds of being right, pushing them to a coin flip or, in some cases, to less than 50-50.
The Triple Top is one pattern that can really throw a monkey wrench into the plans of all but the most careful technical analysts. If you’re not careful, you can mistake several other formations — a double top, a double bottom, or a triple bottom — for a triple top. This video will show you how to avoid this mistake.
In this episode, you’ll learn:
- What a triple top is and what it means (0:37)
- How volume relates to the triple top (1:23)
- How to trade a triple top (2:16)
This video also takes an in-depth look at a real-life triple top — and I didn’t cherry-pick the “most perfect” example, either. Instead, we look at a triple top that is most like one you’re likely to find “in the wild” — it isn’t 100% perfect, but it fits the criteria and behaves like it’s supposed to.
Triple Top is a bearish reversal pattern consisting of three roughly equal highs and a support line that is ultimately pierced to the downside. It is very easy to mistake a triple top for another formation: Most notably a double top or a triple bottom. How do you tell for sure if a formation is in fact a triple top? The answer can be found in this episode.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to use the Chalkin Money Flow technical statistic, a great and non-proprietary measure of Accumulation/Distribution.
Episode 41 - The Triple Top: A Bearish Reversal Pattern
Download the slides for “The Triple Top: A Bearish Reversal Pattern”
The ZigZag Overlay: A Neat Tool for Filtering Market Noise 02-17-2010
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“Market noise” refers to price and volume fluctuations that are NOT reflective of true market sentiment. These fluctuations temporarily disrupt a chart pattern and can confuse even the most savvy traders.
But what if you had a secret tool that would screen out “market noise” and let you differentiate between “noise” and TRUE market sentiment? What if you had a filter?
Believe it or not, such a tool does exist: It’s called the ZigZag overlay, and in this video, you’ll learn how to use it like a pro.
In this episode, you’ll learn:
- A thorough definition of “market noise” and what typically causes it (0:32)
- How the ZigZag overlay works, and how you can customize it to make real trends more easily visible (0:59)
- Three additional and advanced uses of the ZigZag overlay (1:49)
- Some of the drawbacks to using the ZigZag overlay (1:25)
This video also looks at two examples of a stock chart with ZigZag overlays set at different customizable settings, and then shows you exactly how to get ZigZag overlays on your own stock charts — for free! — online.
The ZigZag overlay is a powerful and underutilized tool that allows you to filter market noise, spot real trends, and — in conjunction with advanced tools like Elliot Waves and Fibonacci values — make some powerful predictions. If you’ve never heard of the ZigZag before, you’re not alone — watch this video and learn all you need to know. And even if you HAVE heard of the ZigZag overlay before, chances are you’ll learn something new.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. LastHourTrading.com just opened its doors to the public! Only 250 spots available.
Rounded Tops and Bottoms: How to Recognize and Profit from these Reversal Signals 02-10-2010
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Some patterns are mirror images of others: The double top, for example, is just like the double bottom — only in reverse. A double top is bearish, while a double bottom is bullish. But if you understand how double tops work, all you have to do is apply the same principles — in reverse — to double bottoms.
The same can be said of rounded tops and rounded bottoms — the subject of this TradingTips.com episode. Here, you’ll learn the basics of two chart patterns in one lesson: master the rounded top, and you’ll have the rounded bottom down pat. It’s easy!
In this episode, you’ll learn:
- How to spot a rounded top (0:27)
- What a rounded top predicts — and what it does NOT (0:50)
- How to know when to place your trade using the stock’s moving average (1:08)
- How to take trading volume in consideration when trading a rounded top (1:25)
Then, at the 1:37 mark, the video switches to rounded bottoms and shows you how to apply the same lessons you’ve already learned, in reverse.
Rounded tops and bottoms can be very useful in placing winning trades, and once you understand one, you’ll understand the other. But there’s more to it than just being able to recognize the chart patterns — you have to know how to trade them using volume and moving averages, too. That’s all covered in this TradingTips.com video.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to filter out “market noise” using the ZigZag overlay. It’s an easy-to-use tool that most traders don’t know about, and you can use this to your advantage!
