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Wednesday, May 10, 2017

Market Update 5/10/2017 - Advanced Trading Techniques

The trend is your friend 

"The trend is your friend", is a term the bulls like to use to help keep them on the right side of the trade, and technically speaking, you can't confirm a reversal until the trend you've been watching actually break, and this speaks for bull markets, as well as bear markets. 

When I think "trend", I think channel trading, because if you can't draw a proper channel, you have no idea where the trend began, or where it ends. Certain trends (especially wave A and wave 1 impulse waves) can trade into a contracting triangle, but long term trends usually continue in an identifiable parallel channel. An extreme selloff in bear market can over-shoot to the downside, before eventually climbing back above the bottom trend-line, in what traders refer to as a shakeout, just as we often see false breakouts overshoot the top of a channel, only to see the price action fall back into a bearish channel, in what is commonly referred to as a "head fake". 

 Wave 5 doesn't always reach the top of the channel, in fact it seldom does, so in the case of the long term channel we're watching on Tech, and on the NASDAQ, that points to the end of wave 3 (in a completed channel), not 5. This goes back to the question, that I was asked in my latest interview with Dale Pinkart, as to why I believe this is the end of wave 3, and not wave 5.    

Channel trading, and Elliott Wave Theory, go hand in hand, and you can find plenty if information on the internet, but searching "channeling elliott wave theory". Some of the best traders use channels exclusively, so you may also want to search, "Channel Trading". 

The 60 min $JNUG chart - offers us a couple good examples of short term trends, seen in the chart below. The first shows a trend reversal, out of a bearish triangle (channel), and the second shows a continuing trend, in a parallel channel. As of this morning, we can't confirm a reversal, and that a good reason to stay away from this leveraged fund, as long as the down-trend continues.   

When it comes to drawing accurate trend line, that's where things can get a little tricky. 2 technicians my draw the trend in 2 separate ways, according to their own personal bias. If you're downright bullish and hoping for a breakout, you may drawing the channel in a way that confirms your outlook, and If you're bearish you may draw the channel differently. Proving all analysis, can be skewed by our personal bias. 

Yesterday it looked like the (5 min) $GDX (miners) might be ready to rally into a bullish wave C, and this morning we see $NUGT up over 3%, yet it's too soon to call a trend reversal. I'd take profits at the open, and wait to confirm it using a 60 min chart. 

Another thing to make note of is the 2 parallel lines (in purple) on NUGT. Any way you slice it the trend remains down, and technicians tend to be early. Don't play with fire.

The tend on the $SPX remains up, but only on the 1 min chart, so we'll be watching that closely at the open. Follow me on twitter @3Xtraders 

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