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Wednesday, October 18, 2017

How to Use Volume to Improve Your Trading

Most small investors I interact with are either looking for a multibagger stock that will generate quick profits, or trying to find that elusive technical indicator that can predict price movements with greater accuracy than anything known or available in the stock market.

A few experienced and knowledgeable analysts have even devised their own proprietary technical indicators, which enable them to charge higher fees from their clients.

At the end of the day, it is not the sophistication of your trading strategies or your incredible ability to take risks that will turn the tables in your favour. 

It is how well you have selected the companies you wish to trade in, and whether you can identify and capitalise on important turning points on a price chart.

One of the simplest and easiest to understand indicators that can be of immense help is the volume of trading in a stock or index. Yet, so many analysts who opine on price charts have very little understanding of how volume (or the lack of it) affects price movements.

In a recent article in investopedia.com, Cory Mitchell explains how understanding and analysing trading volumes can improve your trading. Read the article here.

(Wishing blog visitors, regular readers and newsletter subscribers a very happy and safe Diwali and a prosperous New Year.)

Tuesday, October 17, 2017

WTI and Brent Crude Oil charts: bulls are wresting control

WTI Crude Oil chart


The following comments were made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Some more correction or consolidation is likely. Expect the zone between 48 & 49 to provide support...Bulls are likely to use any further dip to buy."

On Fri. Oct 6, oil's price dropped below its 50 day EMA to touch an intra-day low of 49.10 - testing support from the zone between 48 & 49. As expected, bulls used the dip to buy.

Oil's price bounced up above its 20 day EMA and the 'support/resistance' level of 50.50, but stopped short of its Sep 28 top of 52.86.

All three EMAs are rising, and oil's price is trading above them in a bull market. Daily technical indicators are in bullish zones, and showing upward momentum.

A likely move above 52.86 will restore the bullish pattern of 'higher tops, higher bottoms' from the Jun '17 low of 42. Oil's price may test its Apr '17 top of 54.

On longer term weekly chart (not shown), oil's price closed above its 20 week and 50 week EMAs but well below its falling 200 week EMA in a long-term bear market. Weekly MACD and RSI are in bullish zones. Slow stochastic has slipped down from its overbought zone.

Brent Crude Oil chart



The following comment appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "Any further dip will provide an opportunity to buy."

Oil's price dropped below the 'support/resistance' level of 56 and its 20 day EMA to touch an intra-day low of 55.06 on Mon. Oct 9. Bulls used the dip to buy. Oil's price touched an intra-day high of 58.48 on Mon. Oct 16 before closing just below 58.

All three EMAs are rising, and oil's price is trading above them in a bull market. Daily technical indicators are in bullish zones, and showing upward momentum.

A likely move above 59 will restore the bullish pattern of 'higher tops, higher bottoms' from the Jun '17 low of 44. 

Oil's price may face resistance from a long-term unfilled weekly downward 'gap' between 60 & 61 (formed back in Jun '15).

On longer term weekly chart (not shown), oil's price closed above its rising 20 week and 50 week EMAs but below its sliding 200 week EMA in a long-term bear market. Weekly MACD and RSI are in bullish zones, and showing upward momentum. Slow stochastic is inside its overbought zone.

Monday, October 16, 2017

S&P 500 and FTSE 100 charts (Oct 13 '17): bulls charging ahead

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 continued to defy gravity as it rose to touch a new high of 2558 on Fri. Oct 13 before eking out a 4 point gain on a weekly closing basis.

The previous 7 days' trading appears to have formed a small bearish 'rising wedge' pattern. Volumes were strongest on Thu., which was a down day. Smart money may be moving out.

All three daily technical indicators are inside their overbought zones, and showing negative divergences by failing to touch new highs with the index. While an index can remain overbought for long periods, a correction or consolidation may be around the corner.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in their overbought zones, but not showing any downward momentum. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 pulled back to the (purple) down trend line on Mon. Oct 9 before bouncing up to touch a high of 7565 on Thu. Oct 12.

However, the index is struggling to move above its previous (Aug 8) top of 7552 in a convincing manner - leaving the door open for another pullback towards the down trend line, or, a bit of sideways consolidation.

The index is trading above its three rising EMAs in a bull market. Daily technical indicators are looking overbought, and not showing much upward momentum.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly MACD and RSI are looking bullish. Slow stochastic is inside its overbought zone, and can trigger a correction.