Tuesday, March 8, 2016

Another Version of John Murphy's Ten Laws of Technical Trading

I have a chat with a Facebook friend and he/she is apparently using a somewhat similar version of John Murphy's Ten Laws of Technical Trading. He is not using a real account so I better not disclose his/her identity but he/she is giving tips for free.

Three Short Way to Analyze Charts:

1st Step: Monthly Chart
Analyze the Monthly chart and identify its trend direction; locate its significant support and resistance, chart patterns, Fibonacci ratios, etc.  Apply all technical analysis to read the trend. 

John Murphy's Ten Laws of Technical Trading

After reading Elliot wave, I am beginning to understand this "John Murphy's Ten Laws of Technical Trading". I have been reading on this website before but I have no clue what the heck they are saying. So basically, we have to understand the bigger picture first before going to the more detailed part. It is like studying the parts piece by piece so we have the better chance of predicting the waves.

Source: Stockcharts.Com - John Murphy's Ten Laws of Technical Trading

John Murphy's Ten Laws of Technical Trading
  1. Map the Trends
  2. Spot the Trend and Go With It
  3. Find the Low and High of It
  4. Know How Far to Backtrack
  5. Draw the Line
  6. Follow That Average
  7. Learn the Turns
  8. Know the Warning Signs
  9. Trend or Not a Trend?
  10. Know the Confirming Signs 

Sunday, March 6, 2016

Elliot Wave Theory

There are summarize notes regarding Elliot Waves. Sources are from these sites:

Basically, The Elliott Wave Principle is a form of technical analysis that traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves.

The Elliott Wave Principle posits that collective investor psychology, or crowd psychology, moves between optimism and pessimism in natural sequences. These mood swings create patterns evidenced in the price movements of markets at every degree of trend or time scale.

In Elliott's model, market prices alternate between an impulsive, or motive phase, and a corrective phase on all time scales of trend, as the illustration shows. Impulses are always subdivided into a set of 5 lower-degree waves, alternating again between motive and corrective character, so that waves 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivide into 3 smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and another impulse. In a bear market the dominant trend is downward, so the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it.

Five wave pattern (dominant trend)