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.THE "FIB SQUAT":This Directional Indicator is similar to Stretch in that you need strong Fibonacci support ata point where something else occurs.In this case, the something else is a Squat.Sowhat's a Squat? As developed by friend and colleague, Bill Williams3, the Squat is afunction of the range of a given price bar and the volume, or TIC volume, that occurswhile that range is being created.The basic idea is that high volume and little price3Bill Williams, Profitunity Trading Group, 2300 Pilgrim Estates Dr., Texas City, TX 77590 106 DiNapoli Levelsmovement indicate substantial support or resistance.Some of you old timers willremember the term "churning." That was a phenomenon in the stock market whichoccurred when you'd get tons of volume (60,000 to 80,000 shares in a day) and little pricemovement.The idea behind my approach to this indicator is to first look for likelyFibonacci support and resistance, and then see if a Squat manifests when that point isreached.If so, the Squat confirms the Fib support or resistance, and it's okay to actwithout a trend in your favor to support the trade.This indicator, like Stretch, is a morerisky (lower probability of winning) trade than the other Directional Indicators I'veoutlined.It's good for the hyper types or over-traders among you, since you can use it allthe way down to a five minute chart.Both Stretch and the Fib Squat yield a reasonableprobability of a successful outcome.For additional safety, the Fib Squat is most useful in a context, within a context.Let'ssay, for example, that you have a strong weekly trend in place and you are experiencing apullback via a Stochastic sell on the weekly.The MACD is holding nicely.With severaldaily Fibnode locations to choose from to go long, it is helpful to see a Squat manifest atone of them, before jumping in.SQUAT - greater (TIC) volume and a smaller MFI than the previous bar has.MFI = rb/vwhere:rb is range of the bar in tics or pointsv is TIC volumeSquats look like high volume, low range bars, and are fairly easy to see withoutconcocting elaborate formulas.See Chart 6-27. Chapter 6 Directional Indicators, 9 Power Patterns 107CHART 6-27 108 DiNapoli LevelsBelow, Chart 6-28 is an equity on Fib support (not shown) experiencing high volume aswell as a narrow range daily bar.The subsequent move up culminates at an almost exactFibonacci Logical Profit Objective.After you complete CHAPTERS 8 & 9, come back andcheck for an OP move up.Incidentally, this up move turned out to be a very significantrally high.CHART 6-28FILTERING THE "FIB SQUAT":I have found that the level of "squatiness" is important as a filter to the Squat.If youchoose to filter the Squat, part of the above formula would change accordingly: Squatequals 30% greater (TIC) volume and a smaller MFI than the previous bar.Larry Ehrhart,developer' of WINdoTRADEr"!4, has done some valuable research in this area.Thebottom line is that I like to see a significantly increased level of volume, say 30% or more,before I call a Squat significant.In addition, you may more easily see a Squat manifest ina four or six minute chart, rather than a five or 30 minute chart.As with the RRT, a TimeFrame outside of the ones we normally consider is not only acceptable but desirable if itcan help you identify the existence of the indicator.4Larry Ehrhart, 3700 North Lake Shore Drive, Suite 7-09.Chicago, EL 60613, (312) 871-4687,(312)789-7434 Fax Chapter 6 Directional Indicators.9 Power Patterns 109You can anticipate a Squat if you have all the volume of the previous bar, a very tightrange, and if only 1/2 or 1/3 of the Time Frame you are observing has elapsed.It's apretty sure bet you'll get your necessary volume reading by the close, just make sure therange has not expanded unacceptably.Another way to "play" the Squat, is to wait for a Confirmed Squat to occur in the vicinityof a major Fibnode, then enter on the first shallow Fibonacci retracement you get.Yourstop goes at or just under the bottom (top) of the Squat bar.A similar technique isdescribed as Minesweeper A in the section on Fib tactics, CHAPTER 13.FREQUENTLY ASKED QUESTIONS:Can I anticipate Directional signals?You can anticipate any signal I give you in this book, but Directional signals can be amongthe most dangerous to anticipate.Anticipating classic pattern Failures and RailroadTracks can be suicidal.Why do Directional signals take precedence over Trend signals?By their nature, they are more powerful.A majority of your examples are for long plays.Are these signals as effective on theshort side?Yes, perhaps more effective since the public or less experienced traders have a propensityto favor longs.When they are wrong they are more easily panicked.Don't you ever feel for the player on the other side of the trade?It's your choice.Be the minnow or the shark.Minnows will be eaten and smart sharksget out of the vicinity when the big whites are circling.In summary, I would encourage you to reflect upon what you see occurring in the market.Test the validity of reoccurring patterns and Failures of widely followed signals.Soon youwill develop some Directional signals of your own.The difficult part is waiting for themto manifest. CHAPTEROVERBOUGHT & OVERSOLDOSCILLATORSWHAT WORKS, WHAT DOESN'T, AND WHYGENERAL DISCUSSION:Overbought (OB) and Oversold (OS) are among the least understood market conditionsthat traders grapple with.Most lose money attempting to utilize what they know aboutthe subject.This is not surprising, because we're getting into the use of coincident andLeading Indicators and very few traders are properly prepared for the challenge theseconcepts present.Because of the level of misunderstanding, instead of narrowly definingwhat I use and how I use it, my approach will be to discuss the broad topic of Oscillatorsin general: what works, what doesn't, and why.Typical thinking about Oscillators can be summed up by the following comment."Oscillators work in a consolidating market, but once a Trend starts, they don't work atall." While this thinking may be typical, it severely limits and distorts a wealth ofimportant trading strategies.The idea behind the statement goes something like this.Youcan sell Overbought and buy Oversold, as long as the market is consolidating and.youwould expect to make money.This "sound good, feel good" strategy implies that you canidentify when a market is consolidating with enough certainty to place orders.Doesanyone want to try the ADX Average Directional Movement Index1 as a means of makingthis judgment? While this approach may be acceptable for some of you, it's not for me.I1J.Welles Wilder Jr., New Concepts in Technical Trading Systems (Trend Research, 1978), hereaftercited parenthetically in the text as Wilder, New Concepts. 112 DiNapoli LeveIshaven't found it to be sufficiently accurate in this context, particularly for intraday charts [ Pobierz całość w formacie PDF ]
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.THE "FIB SQUAT":This Directional Indicator is similar to Stretch in that you need strong Fibonacci support ata point where something else occurs.In this case, the something else is a Squat.Sowhat's a Squat? As developed by friend and colleague, Bill Williams3, the Squat is afunction of the range of a given price bar and the volume, or TIC volume, that occurswhile that range is being created.The basic idea is that high volume and little price3Bill Williams, Profitunity Trading Group, 2300 Pilgrim Estates Dr., Texas City, TX 77590 106 DiNapoli Levelsmovement indicate substantial support or resistance.Some of you old timers willremember the term "churning." That was a phenomenon in the stock market whichoccurred when you'd get tons of volume (60,000 to 80,000 shares in a day) and little pricemovement.The idea behind my approach to this indicator is to first look for likelyFibonacci support and resistance, and then see if a Squat manifests when that point isreached.If so, the Squat confirms the Fib support or resistance, and it's okay to actwithout a trend in your favor to support the trade.This indicator, like Stretch, is a morerisky (lower probability of winning) trade than the other Directional Indicators I'veoutlined.It's good for the hyper types or over-traders among you, since you can use it allthe way down to a five minute chart.Both Stretch and the Fib Squat yield a reasonableprobability of a successful outcome.For additional safety, the Fib Squat is most useful in a context, within a context.Let'ssay, for example, that you have a strong weekly trend in place and you are experiencing apullback via a Stochastic sell on the weekly.The MACD is holding nicely.With severaldaily Fibnode locations to choose from to go long, it is helpful to see a Squat manifest atone of them, before jumping in.SQUAT - greater (TIC) volume and a smaller MFI than the previous bar has.MFI = rb/vwhere:rb is range of the bar in tics or pointsv is TIC volumeSquats look like high volume, low range bars, and are fairly easy to see withoutconcocting elaborate formulas.See Chart 6-27. Chapter 6 Directional Indicators, 9 Power Patterns 107CHART 6-27 108 DiNapoli LevelsBelow, Chart 6-28 is an equity on Fib support (not shown) experiencing high volume aswell as a narrow range daily bar.The subsequent move up culminates at an almost exactFibonacci Logical Profit Objective.After you complete CHAPTERS 8 & 9, come back andcheck for an OP move up.Incidentally, this up move turned out to be a very significantrally high.CHART 6-28FILTERING THE "FIB SQUAT":I have found that the level of "squatiness" is important as a filter to the Squat.If youchoose to filter the Squat, part of the above formula would change accordingly: Squatequals 30% greater (TIC) volume and a smaller MFI than the previous bar.Larry Ehrhart,developer' of WINdoTRADEr"!4, has done some valuable research in this area.Thebottom line is that I like to see a significantly increased level of volume, say 30% or more,before I call a Squat significant.In addition, you may more easily see a Squat manifest ina four or six minute chart, rather than a five or 30 minute chart.As with the RRT, a TimeFrame outside of the ones we normally consider is not only acceptable but desirable if itcan help you identify the existence of the indicator.4Larry Ehrhart, 3700 North Lake Shore Drive, Suite 7-09.Chicago, EL 60613, (312) 871-4687,(312)789-7434 Fax Chapter 6 Directional Indicators.9 Power Patterns 109You can anticipate a Squat if you have all the volume of the previous bar, a very tightrange, and if only 1/2 or 1/3 of the Time Frame you are observing has elapsed.It's apretty sure bet you'll get your necessary volume reading by the close, just make sure therange has not expanded unacceptably.Another way to "play" the Squat, is to wait for a Confirmed Squat to occur in the vicinityof a major Fibnode, then enter on the first shallow Fibonacci retracement you get.Yourstop goes at or just under the bottom (top) of the Squat bar.A similar technique isdescribed as Minesweeper A in the section on Fib tactics, CHAPTER 13.FREQUENTLY ASKED QUESTIONS:Can I anticipate Directional signals?You can anticipate any signal I give you in this book, but Directional signals can be amongthe most dangerous to anticipate.Anticipating classic pattern Failures and RailroadTracks can be suicidal.Why do Directional signals take precedence over Trend signals?By their nature, they are more powerful.A majority of your examples are for long plays.Are these signals as effective on theshort side?Yes, perhaps more effective since the public or less experienced traders have a propensityto favor longs.When they are wrong they are more easily panicked.Don't you ever feel for the player on the other side of the trade?It's your choice.Be the minnow or the shark.Minnows will be eaten and smart sharksget out of the vicinity when the big whites are circling.In summary, I would encourage you to reflect upon what you see occurring in the market.Test the validity of reoccurring patterns and Failures of widely followed signals.Soon youwill develop some Directional signals of your own.The difficult part is waiting for themto manifest. CHAPTEROVERBOUGHT & OVERSOLDOSCILLATORSWHAT WORKS, WHAT DOESN'T, AND WHYGENERAL DISCUSSION:Overbought (OB) and Oversold (OS) are among the least understood market conditionsthat traders grapple with.Most lose money attempting to utilize what they know aboutthe subject.This is not surprising, because we're getting into the use of coincident andLeading Indicators and very few traders are properly prepared for the challenge theseconcepts present.Because of the level of misunderstanding, instead of narrowly definingwhat I use and how I use it, my approach will be to discuss the broad topic of Oscillatorsin general: what works, what doesn't, and why.Typical thinking about Oscillators can be summed up by the following comment."Oscillators work in a consolidating market, but once a Trend starts, they don't work atall." While this thinking may be typical, it severely limits and distorts a wealth ofimportant trading strategies.The idea behind the statement goes something like this.Youcan sell Overbought and buy Oversold, as long as the market is consolidating and.youwould expect to make money.This "sound good, feel good" strategy implies that you canidentify when a market is consolidating with enough certainty to place orders.Doesanyone want to try the ADX Average Directional Movement Index1 as a means of makingthis judgment? While this approach may be acceptable for some of you, it's not for me.I1J.Welles Wilder Jr., New Concepts in Technical Trading Systems (Trend Research, 1978), hereaftercited parenthetically in the text as Wilder, New Concepts. 112 DiNapoli LeveIshaven't found it to be sufficiently accurate in this context, particularly for intraday charts [ Pobierz całość w formacie PDF ]