APP PRT Trading as Indicated -...

Trading as Indicated

Neither Better Trades or any of its personnel are r egistered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to tra de the strategies or securities. Keep in mind that we are not providing you with rec ommendations or personalized advice about your trading activities. The informat ion we are providing is not tailored to any particular individual. Any mention of a partic ular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading inv olves a risk of loss, and this will always be the situation, regardless of whether we a re discussing strategies that are intended to limit risk.

Also Better Trades’ personnel are not subject to tr ading restrictions. I and others at Better Trades could have a position in a security o r initiate a position in a security at any time.

Indicators covered:

Volume

Stochastics

Moving Averages

MACD (Moving Average Convergence Divergence)

Bollinger Bands

ADX and DMI

Williams Percent R

VIX

Volume

Average Daily Trade Volume - A stock’s average daily trade volume is the very first thing to consider. If the stock does not trade at least 300,000 shares a day, don’t buy the stock. Rarely should you buy options on any stock that does not trade at least 1 million shares a day.

Each volume bar coincides with the candlestick straight above it.

Red bars indicate a lower close than the previous trading day.

Green bars represent a higher close than the previous trading day.

I am using a 22 day simple moving average representing an average of 22 trading days in a month.

Volume: should validate the price move

Increasing Volume indicates the trend may stay in place.

Decreasing Volume indicates there may be a reversal of the trend.

Price Volume

Bullish

Bearish

Bearish

Bullish

Volume

Volume may spike with a breakout which would validate that breakout, breaking out of a consolidation or other type of pattern. As well, breaking out above a resistance or breaking down below a support.

See chart below….

Volume

Many times when a stock breaks out of a pattern (especially with validation from a spike in volume) they start to trend. Once a trend is in place, individual volume bars become less important.

Stochastics Oscillator

Developed by George C. Lane

Stochastic Oscillator is a momentum indicator that shows the location of the current close relative to the high/low range over a set number of periods. Closing levels that are consistently near the top of the range indicate accumulation (buying pressure) and those near the bottom of the range indicate distribution (selling pressure).


Stochastics oscillate within its 100% range. Readings below 20 are considered oversold and readings above 80 are considered overbought. However, Lane did not believe that a reading above 80 was necessarily bearish or a reading below 20 bullish. A security may continue to rise after the Stochastic Oscillator has reached 80 and continue to fall after the Stochastic Oscillator has reached 20. Lane believed that some of the best signals occurred when the oscillator moved from overbought territory back below 80 and from oversold territory back above 20.


• Used for stocks that are channeling sideways.

• Dotted lines at 20% and 80%.

• Above 80% is overbought, Below 20% is oversold.

• Crossing the 20% and 80% lines may give buy and sell signals.


SETTINGS:Faster Standard Lane

StochK 13,5 14,7 8,3StochD 7 9 3


Buy and sell signals are given when %K crosses above or below %D (sometimes called the trigger line). However, crossover signals are quite frequent and can result in a lot of whipsaws.

One of the most reliable signals is to wait for a divergence to develop from overbought or oversold levels. Once the oscillator reaches overbought levels, wait for a divergence to develop and then a cross below 80. This usually requires a double dip below 80 and the second dip results in the sell signal. For a buy signal, wait for a divergence to develop after the indicator moves below 20. This will usually require a trader to disregard the first break above 20. After the positive divergence forms, the second break above 20 confirms the divergence and a buy signal is given.

Moving Averages

Moving averages are one of the most popular and easy-to-use tools available to the technical analyst. By using an average of prices, moving averages smooth a data series and give the potential to spot trends. This can be especially helpful in volatile markets.

A moving average represents the average closing price for whatever period of time is selected.

Moving Averages

Simple Moving Averages (SMA)

A simple moving average is formed by finding the average price of a security over a set number of periods. Most often, the closing price is used to compute the moving average. For example: a 10-day moving average would be calculated by adding the closing prices for the last 10 days and dividing the total by 10.

Moving averages are lagging indicators and will always be behind the price.

Moving Averages

Exponential Moving Average (EMA)

Exponential moving averages reduce the lag by applying more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the length of the moving average. The method for calculating the exponential moving average is fairly complicated. The important thing to remember is that the exponential moving average puts more weight on recent prices. As such, it will react quicker to recent price changes than a simple moving average. Basically, the EMA gives a faster read.

Moving Averages

Simple vs. Exponential

From afar, it would appear that the difference between an exponential moving average and a simple moving average is minimal. As an example, if you use only 10 trading days, the difference is minimal, but a difference nonetheless. The exponential moving average is consistently closer to the actual price. On average, the EMA is 3/8 of a point closer to the actual price than the SMA.

Moving Averages

When a short-term moving average crosses a longer term moving average, it indicates a trend in that direction. It is also important to note when a stock moves through the longer term averages.

A stock may use the moving average as a support or resistance line.

Moving Averages

Trade the direction of the stock as it bounces off of a moving average.

Moving averages can be used in groups of two or three or more.

Ex: 10, 18, 4010, 20, 508, 21, 34 (Fibonacci numbers)

100, 200 (SMAs) (Long term)

MAs below 50 for trending stocks are EMAs and above 50 are SMAs.

Moving Averages

The 50 moving average can be used as either a SMA or EMA.

Professional traders may use the 50 and 200 MAs as significant points.

I have two templates using these two long term MAs. One using the 50 SMA and the other using the EMA.Some stocks may abide by one over the other.

Moving Averages

100 and 200 SMAs:

• If the 100 (shorter term) crosses up through the 200 (longer term) it is called the Golden Cross.

• If the 100 crosses down through the 200 it’s called the Death Cross.

MACDThe Combination Oscillator

Developed by Gerald Appel, Moving Average Convergence Divergence (MACD) is one of the most basic and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the faster moving average from the slower moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD is a centered oscillator and the guidelines for using centered oscillators apply.

MACD FORMULA

The most popular formula for the "standard" MACD is the difference between a security's 26-day and 12-day exponential moving averages. Appel and others have since tinkered with these original settings to come up with a MACD that is better suited for faster or slower securities. Using shorter moving averages will produce a quicker, more responsive indicator, while using longer moving averages will produce a slower indicator, less prone to whipsaws. This class will use the traditional 12/26 MACD.

MACD FORMULA

Of the two moving averages that make up MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-day EMA of MACD is plotted alongside to act as a trigger line. A bullish crossover occurs when MACD moves above its 9-day EMA and a bearish crossover occurs when MACD moves below its 9-day EMA.

Setting (standard): MACD 12/26 Trigger line 9 EMAFaster setting: MACD 8/18 Trigger line 6 EMA

MACD HISTOGRAM

• The red bars is the Histogram. The Histogram represents the difference between MACD and its 9-day EMA.

• The Histogram is positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA.

• The Histogram may give early signals of a pending MACD crossover.

MACDWhat does MACD do?

MACD measures the difference between two moving averages. A positive MACD indicates that the 12-day EMA is trading above the 26-day EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-day EMA. If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates that the rate-of-change of the faster moving average is higher than the rate-of-change for the slower moving average. Positive momentum is increasing and this would be considered bullish. If MACD is negative and declining further, then the negative gap between the faster moving average and the slower moving average is expanding. Downward momentum is accelerating and this would be considered bearish.

MACDMACD centerline crossovers occur when the faster moving

average crosses the slower moving average.

MACD

MACD Bullish Signals

MACD generates bullish signals from three main sources:

• Positive divergence

• Bullish moving average crossover

• Bullish centerline crossover

MACD

MACD Positive Divergence

A positive divergence occurs when MACD begins to advance and the security is still in a downtrend and makes a lower reaction low. MACD can either form as a series of higher lows or a second low that is higher than the previous low. Positive divergences are probably the least common of the three signals, but are usually the most reliable and lead to the biggest moves.

MACD Positive Divergence

Bullish Moving Average Crossover

Bullish Centerline Crossover

MACD

A bullish centerline crossover occurs when MACD moves above the zero line and into positive territory. This is a clear indication that momentum has changed from negative to positive, or from bearish to bullish.

After a positive divergence and bullish moving average crossover, the centerline crossover can act as a confirmation signal. Of the three signals, moving average crossovers are probably the second most common signals.

Using a Combination of Signals

MACD line crossing trigger line at the center line at same time two Moving Averages cross. Strong bullish sig nal.

MACD line crossing trigger line at center line at t he same time three Moving Averages cross. Very strong bullish signal.

MACD

MACD Bearish Signals

MACD generates bearish signals from three main sources:

• Negative divergence

• Bearish moving average crossover

• Bearish centerline crossover

MACD

MACD Negative Divergence

A negative divergence forms when the security advances or moves sideways and MACD declines. The negative divergence in MACD can take the form of either a lower high or a straight decline. Negative divergences are probably the least common of the three signals, but are usually the most reliable and can warn of an impending peak.

MACD Negative Divergence

Bearish Moving Average Crossover

Bearish Centerline Crossover

MACD

As with bullish MACD signals, bearish signals can be combined to create more robust signals. In most cases, stocks fall faster than they rise.

Using momentum indicators like MACD, technical analysis can sometimes provide clues to impending weakness. While it may be impossible to predict the length and duration of the decline, being able to spot weakness can enable traders to take a more defensive position.

Using a combination of signals

MACD line crossing trigger line at center line at t he same time three Moving Averages cross. Very strong bearish signal.

MACD Benefits

One of the primary benefits of MACD is that it incorporates aspects of both momentum and trend in one indicator. As a trend-following indicator, it will not be wrong for very long. The use of moving averages ensures that the indicator will eventually follow the movements of the underlying security. By using exponential moving averages, as opposed to simple moving averages, some of the lag has been taken out.

MACD Benefits

As a momentum indicator, MACD has the ability to foreshadow moves in the underlying security. MACD divergences can be key factors in predicting a trend change. A negative divergence signals that bullish momentum is waning and there could be a potential change in trend from bullish to bearish. This can serve as an alert for traders to take some profits in long positions, or for aggressive traders to consider initiating a short position.

MACD Drawbacks

One of the beneficial aspects of MACD may also be a drawback. Moving averages, be they simple, exponential or weighted, are lagging indicators. Even though MACD represents the difference between two moving averages, there can still be some lag in the indicator itself. This is more likely to be the case with weekly charts than daily charts. One solution to this problem is the use of the MACD-Histogram. The Histogram can give early signals of pending MACD crossovers as previously discussed.

Bollinger BandsBollinger Bands developed by John Bollinger. Bollinger Bands are an indicator that allows users to compare volatility and relative price levels over a period time. The indicator consists of three bands designed to encompass the majority of a security's price action.

1.) A simple moving average in the middle

2.) An upper band (SMA plus 2 standard deviations)

3.) A lower band (SMA minus 2 standard deviations)

Bollinger Band Settings

Common: 20 period average for bands2 standard deviations20 SMA

18 period average for bands1.8 standard deviations18 SMA

Faster: 15 period average for bands1.5 standard deviations15 SMA

Bollinger Bands

Bollinger bands squeeze together showing pressure building on the stock. As the pressure releases, watch for the stock to follow the upper band (bullish) or the lower band (bearish). If the stock leaves the band it indicates a reversal. The stock will often move across and follow the opposite band for a period of time

Above the 20 SMA is considered bullish territory where the 20 SMA acts as a support. Below the 20 SMA is considered bearish territory where the 20 SMA acts as a resistance.

Notice the stock leaving the bottom band (red arrow ); this is a Bollinger Band Bottom. MACD confirms with a positive diverge nce.

Examine

Examine

Flattening of upper band

ADXAverage Directional Index was developed by Welles Wilder, and is used to measure the strengthand integrity of a trending market. This is a momentum indicator that may be used in conjunctionwith many other indicators.

DMIDMI (Plus and Minus)Directional Movement Index , developed by Welles Wilder, is used as a trending indicator to identify whether a security is “trending.”

Example: Using the ADX and DMI lines together on the same pane.

ADX measures strength of the trend

DMI + measures bullish strengthDMI - measures bearish strength

An ADX reading of greater than 30 indicates a very strong trend in place and perhaps a continuation of that trend.

A slope down in the ADX indicates the trend is weakening.Use 12 bars for ADX setting

• Use 28 bars for DMI settings

Rising ADX indicates increasing trend (bullish or bearish). Trade in direction of DMI lines.

See chart below

Strongest trend when ADX crosses above both DMI lin es and 30 line.

Market conditions are flat when ADX is below both D MI lines. The longer it remains there the stronger the next move may be. A rally of 4 points

indicates a possible new trend…check DMI lines.

You don’t have to wait for ADX to point up to consi der entering a position. Check DMI lines and confirm with other in dicators.

Williams AccumDist

Williams Accumulation/DistributionThis was developed by Larry Williams, to identify whether buyers or sellers control the market. Accumulation is used as a term to describe a market controlled by buyers, and Distribution is a term used to describe a market controlled by sellers. Distribution is when the price makes new highs but the A/D is failing to make new highs. Accumulation is when the prices make new lows but the A/D has failed to make new lows.

Percent R

This momentum indicator was developed by Larry Williams and is commonly used to find overbought/oversold conditions in a market. Overbought conditions will normally read in a range of 80 to100 percent. Oversold conditions will normally read in a range from 0 to 20 percent.

Williams Percent R

Williams AccumDist and Percent are individual indicators that can be combined on the same pane.

Though with Percent R, when combined with Williams AccumDist, the range of 80 – 100 is used to represent overbought conditions and the 0 – 20 range is used to represent oversold conditions, there is another way Larry Williams uses these percentages.

Rather than a horizontal line at 80 and 20 he may use these lines at 95 and 5. This makes the overbought range from 95 – 100 and the oversold range from 0 – 5.

See charts below.

Williams %R

Williams %R

Start off a Daily chart using F6 as your time setting. Then hit the ‘W’ key to view a Weekly chart and then lastly hit the ‘M’ key to view a Monthly chart.

You would like to see the Williams Accumulation line cross over and hook the Percent R line above the 95% and drag it down below the 95%. You want this hook and crossover to occur on the Daily, Weekly and Monthly charts all at the same time.

If the hook and crossovers on all time frames does occur at the same time there is a strong signal of a change in trend.

How to add Wms/%R to charts

These instructions are for Extreme Charts. If you u se a different charting service, contact your customer service department for directions.

How to add Wms /%R to charts


After following steps 1 – 6, follow same steps to add Percent R except for step 4. Rather than selecting ‘Add Indicator to New Pane’, select instead ‘Add Indicator to Selected Pane’.

Now you need to add two horizontal lines.1.) Hit ‘E’ key2.) Click ‘Add’3.) Click on ‘Add Horizontal Line to selected Pane’Do this twice to add two horizontal lines.


Now add values.

Hit ‘E’ key and find the pane with Williams AccumDist. Then highlight Percent R and to the right make sure it has 14 bars listed. If not, change it.

See chart below.


On the previous chart you’ll notice there should be two Horizontal Line settings under Percent R. Highlight each of them individually and set one for 95 and the other for 5.

See next two charts below.

Williams %R

Williams %R

You would like to see the Williams Accumulation line cross over and hook the Percent R line below the 5% and drag it up above the 5%. You want this hook and crossover to occur on the Daily, Weekly and Monthly charts all at the same time.

If the hook and crossovers on all time frames does occur at the same time there may be a strong signal of a change in trend.

VIXThis Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction, the VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

The Volatility Index (VIX) now is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500 Index (SPX) option bid/ask quotes. VIX uses near-term and next-term out-of-the money SPX options with at least 8 days left to expiration, and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.

VIXThe VIX measures the future volatility of the market. The VIX measures fear and has an inverse relationship to the markets. It is a contrarian indicator.

high VIX, high fear, precede market rally extreme highs in VIX means the markets have been bearish and may be ready for a rally

low VIX, low fear, precede market sell offextreme lows in VIX means the markets have been bullish and may be ready for a selloff and go bearish

The VIX calls better market bottoms than tops due to fear.

VIX

The VIX does not tell you when to get into or out of a trade. Rather, it prepares you for an upcoming change in direction.

Look for extreme levels. These levels change. When the market bottoms, that doesn’t mean an immediate change in direction, it can take a little while.

Look to the past (maybe about 1 year back) for a big enough view to determine the extreme lows and highs. This will give you a comparison to assess present time lows and highs.

When you see an extreme low or high VIX reading then start looking at price patterns on the SPX for a more timely assessment.

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Neither Better Trades or any of its personnel are r egistered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to tra de the strategies or securities. Keep in mind that we are not providing you with rec ommendations or personalized advice about your trading activities. The informat ion we are providing is not tailored to any particular individual. Any mention of a partic ular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading inv olves a risk of loss, and this will always be the situation, regardless of whether we a re discussing strategies that are intended to limit risk.

Also Better Trades’ personnel are not subject to tr ading restrictions. I and others at Better Trades could have a position in a security o r initiate a position in a security at any time.

APP PRT Trading as Indicated -...

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