Original subtitles

Hello, everyone. Today is March 14th, and this is our session number two of

March special with Linda Rashke.

The name for this special, Her Trade, Her Story, I would like to urge

to go to her website and look up the Trading 13th book that just came

out. And Linda was so kind to send me a copy of the book. I'm very

grateful.

And I started reading it.

And it's really a story of Linda, you know, how she was, you know, going

a lot of the, even sometimes, you know, and in a lot of cases, you know,

struggles that she had to overcome. And some of the things are really personal.

So very interesting reading, and I'm continuing to read.

I want to remind you guys that all of our sessions are being recorded, and we

are storing the recordings and the slides that Linda gave us on our

So if you don't have the access to this information, please make sure to email

us at wycofassociates at gmail .com, and I'll gladly send you this access

information again.

But if you're listening to this recording, this means that you are able

it.

And also, thank you so much for sending your emails with the feedback that we're

getting about Linda's presentation, first presentation.

Thank you for such positive feedback. And with this, I'm just going to hand it

to Linda.

Hi, Linda. How are you doing today?

Can you hear me okay?

Yes.

And I can see your screen. You can see my screen. Okay.

Well, welcome, everybody, to the second session of our course that we're doing,

Wyckoff Analytics. Thank you for hosting this.

Today's session, we're going to start off briefly reviewing some of the main

concepts that we covered last week.

I know I covered quite a lot of things from a conceptual standpoint, and now

we're going to see how we can put some of these main concepts into a practical

standpoint, looking for specific trading strategies and things that you can use

at home.

So what we're going to do today is focus primarily on the daily charts and

stocks, because I understand that most of you do trade stocks,

and even though a lot of my modeling was done on the future side of the

business, you will see that true principles of price behavior work no

what the market or what the time frame.

Obviously, a principle like momentum or breakouts can work on any time frame,

any market. So let's just scroll through here, get past all this stuff.

The first thing that we talked about last week was my philosophy is that the

market moves in waves or swings.

And so this is different from thinking about more abstract things such as

Fibonacci numbers or Elliott Wave or things that are harder to quantify. I

the pure price wave as defined strictly by the swing highs and the swing lows.

So I'm very...

Old -fashioned, I guess, in that regards.

I love it because if you look at the work of many of our founders of

analysis, people like Dan or even Wyckoff and Charles Dow, they

drew swing charts specifically off the swing highs and swing lows and

used the structure of these patterns to determine if you're in an uptrend or a

downtrend or forming a consolidation for a breakout.

work or modeling has come off of looking at the structure that these waves

provide.

Now you'll notice that when we trade, we're not trying to trade on every wave

every swing. We're actually looking for the swings where we have the best risk

reward and ideally the best opportunity to capture a larger than normal move.

As well as the size of the move, it's also nice to capture moves that are of

longer duration. And with this, I call it persistency of trend.

One of the ways that we looked at modeling this last week was by how many

consecutive closes you have on one side of a short -term moving average.

Honestly, it doesn't matter if you use a four -period, a five -period, or a six

-period simple moving average.

I did all of my modeling using a five -period simple moving average.

But that's what's so nice about work that's considered to be durable and

is that it's not parameter dependent.

You should be able to take a concept and have it test out using multiple

parameters or readings for different variables.

So the other thing that we're going to look at is how momentum oscillators can

be useful tools to support the patterns in the waves.

And so when we look at some of the work today, We'll also look at trades that

may appear to be quite counter -trend in nature, but yet you really have the

momentum turning in your favor behind your back. And we'll look at how to set

the initial conditions as well as useful triggers for that. So I might differ a

little bit in a pure Wyckoff sense in that I do find spots where we can make

trades. in what appears to be counter to the prevailing trend.

And I'm sure that many of you are familiar with patterns such as wedges,

terminal wedges, or momentum divergences that can lead to swings in the opposite

direction, as long as you have supporting structure.

And that's what we're going to look at today.

I'll show you what the oscillator is that I use.

But I'm going to tell you that you can use any type of oscillator, and I'll

explain a little bit later my 310 oscillator that's on my charts, but

that you could equally use a stochastic. And with a trained eye, you'll also

find that you don't even need an oscillator at all.

The momentum oscillator's amplitude will tend to coincide with the length of the

swing and what your eyes see in the regular bar chart.

you would be able to plot the oscillator beneath it even if you didn't have one,

and I'll show you how that is done.

So just to quickly review, this is as if it were a swing chart based on the

swing highs and swing lows, and we know already that an uptrend is higher highs

and higher lows and vice versa.

And this ABC formation that we see here, where it either resolves to the upside

or it resolves to the downside in a trend reversal, is a sweet spot in the

as I call it. So even if you're a shorter -term trader and you keep an eye

for these ABC consolidations, they are one of the patterns with better risk

-reward, and we'll also see how that plays out on the daily and weekly

timeframe.

Just to review, this was a chart from last week's session, and it shows the

swings up in green and the swings down in red.

Again, it's an average true range function.

Somebody asked an excellent question last week, what is the look -back period

for the average true range?

And I use a 10 -bar look -back period.

to determine how many bars back is going to constitute that average true range.

And once again, you will see that it doesn't matter if you use 9 -bar look

period or 20 -bar look -back period.

It's a very robust type of parameter, and it might change the variations in

swings ever, ever so slightly, but it's not going to make a significant

difference to the overall structure.

And the reason I chose this chart here to show you again is because at the

bottom, you can see how we had that initial ABC up, that green -red

-green wave up in 2008, came back down, retested.

And then when we took out the high of that ABC, that was a major trend

And what I want you to notice here is the first swing up.

in that green was much greater than the previous upswing and greater than the

previous downswing.

That's the type of swing that we are looking to capture, ideally, is a swing

that is greater than the swing in the previous direction.

And then you can see that the swing after that was even greater, so that's

showing an increase in momentum, and you can see the peaks of the oscillator at

the bottom still making higher highs.

Now, even though we had a sharp reaction to the downside, you can see this chart

remains in an overall uptrend.

And just because we're in an uptrend does not mean that we neglect risk

management, because that would be a heck of a downdraft over 100 S &P points

when you're at the 880 level.

That would be a sharp downdraft to ride out. So just be mindful that...

Just because somebody says trade in the direction of the trend, there can't be

tons of volatility in the opposite direction as well.

Extended runs, that's what we looked at last week and a lot of the statistics

around them. And that's one of the things that we're going to see. How do

capture those today?

What are the patterns that tend to lead to these extended runs?

Again, multiple closes on one side of a short -term moving average.

And you will see that you will often have the higher time frame having a

formation that serves as the wind behind your back.

Now, I'll tell you an interesting story.

Many, many years ago when I had a little small chat room, we used to do modeling

projects, and it's very easy to sit there and reverse engineer the types of

conditions that precede these extended runs.

And I said to people online, I said, I'll tell you what, if you send me your

work, you give me an idea of what you see in terms of preceding these extended

runs.

I will give you a list of all the major patterns I have classified that tend to

lead to odds of an extended run. For example, if you had a weekly bull

flag and an ABC consolidation on the daily chart.

So we have a recognizable pattern on the weeklies and a recognizable pattern on

the dailies.

And here's an interesting story.

I only got results from about eight people.

Nobody bothered to do their own work, and nobody really wanted to see my work.

So that kind of tells you that this is an easy pot of gold for you to go after

because many people are quite lazy to do the work themselves.

And so what I'm saying is I'm going to show you things today, but if you really

want this to be of most value to yourself,

Don't take what I ever say for granted.

Do your own work.

Look for yourself.

Do some modeling yourself.

Keep a record or a notebook of the types of things that you see, and then

whatever information I give you today will be that much more powerful because

you will have made it your own. All right?

So we're going to spend a lot more time on charts today than we did in the last

session. And what I'll do is I'll stop at the end of the first series of

and then I'll take questions because I know that questions are going to come

But we're going to break this session into two parts.

The first part is going to be these daily, weekly conditions that precede

extended runs.

And then the second half.

of our session today is going to be on relative strength work and all the

strategies that I use for relative strength and tricks that you can use as

And you do know that that was an important part of Wyckoff's philosophy,

at the relative strength leaders and so forth.

Just to revisit this 310 oscillator.

It's the difference between a 3 and 10 period simple moving average, and I

always call that the fast line, and then the slow line is a 16 period moving

average of that.

You don't have to have this oscillator, although almost every charting pattern

program can create it. You can just as easily use a fast stochastic with a very

slow line, and in fact, that's what I used initially for many years.

So there's really not any right or wrong parameters.

Sometimes you can tweak these things and make something that's pleasing to your

eye. And I say that because oscillators are the worst indicator out there to try

to think that you can use them in a model.

They do not model out. They don't have any edge in terms of a quantifiable

because they're always just one bar or two bars too late to turn.

The second thing I want to mention to you is that nowadays the noise level in

the market is so high, it's really a challenge. It's a much greater challenge

than it was 30 years ago. On one hand, we have so many more tools available to

us, charting programs, broadband, a host of scanning tools.

But on the other hand, when I'm going through all my charts at night, I tell

you, so many of them look like totally bad hair days, just random spikes.

I can't believe how poorly behaved many of the markets are in terms of just

these high noise levels. So if you're trying to trade on a shorter time frame

a more aggressive time frame, particularly in stocks, because stocks

noisiest markets out there,

You need to always stay one time frame above the noise.

So if you're a day trader and you're looking at a five -minute chart and you

notice way too many wiggles and jiggles in that oscillator, it's probably too

noisy. The market's too noisy.

And I suggest that you jump out to a 15 -minute or a 30 -minute until you see

smoother swings and oscillators. And when we go through these charts in just

minute, you'll notice how more pleasing the weekly charts and oscillator are to

the eye because the higher time frame has less noise. If you ever get confused

about where you are in the overall market structure or swings, step back a

little bit and jump out to a weekly time frame, even a monthly time frame, and

sometimes the lens will become a lot clearer.

I'm just going to mention the kitschy little names that I've always given my

oscillator patterns.

It sort of has specific meaning to me.

Originally, I used to get charts from a service called Security Market Research.

This was back in 1981 and 82 because we didn't have computers.

And this was the oscillator that they used at the bottom of their charts.

And I could call up in the evening on the... and they would read off the

readings for the oscillator, and then I could update my charts by hand and then

update the oscillator. So it gave a very good feel to taking the day one bar at

a time and seeing how the momentum played out.

And these were actually the names of my patterns that I gave way back then. So

they weren't meant for any commercial purpose, but this first arrow on the

here, I always called that my first cross by, and it was simply when that

line on the 310 oscillator went from below zero to above zero, and that fast

line dipped back below zero. That first pullback was that first cross, and it's

analogous to a higher low in the charts.

So it has nothing to do with lines crossing. It was just my kitschy little

The second arrow, you see a classic wedge.

And any time that we do see a true wedge in a market, in a chart formation,

there will be converging trend lines on a momentum oscillator.

And that's because a true wedge also should display a loss of

volatility. So you can see the contraction in the range and the loss of

volatility in the swings.

And whenever we're looking at a chart formation where there's no oscillations,

you need to start to draw converging trend lines and start to look for a

breakout. So that second arrow is a simple wedge.

The third arrow, obviously, is a bidivergence. And I like to have

that look like a W or an M. And I love to see them when they're pushing through

those lower Keltner channels.

Those are the bands on my chart.

Keltner channels and a 20 -period exponential moving average.

And I keep them on every time frame. And it's sort of my crutch to highlighting

the channels in the action.

That next arrow you see is actually a first cross cell. It's the first lower

high.

On the chart formation, I know there's a little lower high earlier, but that was

sort of part of that whole first leg down.

Then we have a second lower high, and that's delineated by the oscillator

popping up above zero, and that slow line is still below zero.

There's nothing really notable after that until you hit that wicked V -spike

bottom down there.

We actually quantified this in our testing, although it's not going to show

on this one, but it was if you made the biggest bar of the last four days and

then you took out the high of that bar within the next two days, that

constituted a wide range reversal buy or a V bottom.

Here it didn't quite do it, but you can see the feeling is very much the same

there, and it might have done it in some individual stocks.

Regardless to say, the trap after a V bottom, which is a sharp price

if you think in terms of market profile or auction theory, they often

talk about...

price rejection on tests of highs and lows.

So that was a sharp price rejection spike at the bottom.

And one of the bigger traps after a price rejection spike is that you think

you see the first bull flag or bear flag.

And indeed, it does look like a bear flag might have started to form there

before, of course, we were off to the races to the upside.

So that's very often a little trap that happens after that V spike.

Now that next arrow, you see the little pennant that formed, and it was just a

basic pullback there on the oscillator.

Three pushes up, one, two, three, I've highlighted there.

It's not real rhythmic in terms of the oscillator, but you can see it in the

price action.

And the color rules on my bar chart.

When it turns white like that, that's a sign that the volatility is contracting,

even, of course, though, that the price is still rising.

It's just a little kitschy tool that I use to help me alert for divergences.

I never released it because it can also be a trap if there's a higher time frame

that has super strong momentum.

But suffice to say, we did have three pushes up, and then that last cycle low

that we just made.

which technically was the first cross by, even though it was really super late

in the game there. But that was just the oscillator pattern.

So that's sort of a summary of how I categorize the patterns.

And it's a lot of gray area there, you can see.

But at least it's my way of organizing data.

This is just a summary. You can go back and read this later. It's just

summarizing what I just said.

And then you can see trying to find two chart formations where the weeklies are

going to be in our favor. And these were the combinations of patterns that I

found that could precede these extended runs.

They could be wedges, pennants, divergences, ABC consolidations,

grail buys, which was my funny name for the pullback to the moving average after

a strong momentum push.

And then the other thing that we'll touch upon is equilibrium point, which

where the market has come into balance.

There will tend to be a very low ADX.

And I assume most of you are familiar with the concept of a sideways line.

That was put out there by Charles Dow.

And literally, you can take a ruler and draw a horizontal line through numerous

price bars on your chart. And voila, you have a sideways line.

You could call it also a point -and -figure clump or a basic chart

And at the point of these sideways lines, if there's an equilibrium level,

will see zero oscillations. There's no momentum to measure, and the market has

come into perfect balance.

And these often can be the start of significant trends on the daily chart,

we'll look at how those.

So we're always trying to find the spots where we can have that wind at our back

when the new swing turns up or down, or if you think about the tide going in or

the tide going out.

So it doesn't have so much to do with trading in the direction of the trend as

it does with trading in the direction where you can get a fresh turn of

in your favor.

Let me give you a classic example.

On the right, you can see a daily chart of Home Depot.

And, of course, the boxes on the bottom, I highlighted spots where we had these

extended runs.

And we'll look at those in more detail because that's where we have multiple

closes on one side of the five SMA. In other words, you could have a trade -on,

and it's not going to give you any grief.

You could just trail your stop every couple bars at a time and go out and

yourself a steak sandwich and have no sweat.

Okay, if only it were so easy like that.

But it's not many parts of the year. But these are the parts that we want to

capture. So if I look at that daily chart, chart only of Home Depot, it's a

mess. There's big bars up. There's gaps down.

It just looks like it doesn't look like a compelling chart formation in and of

itself. It's a very complex structure, and what it's doing is you can see how

the price has rotated numerous times around the central value of around 150

to 154.

And that's what really makes a powerful trend is when you've had a lot of

rotation around a central price like that, and then you get the movement out

that. So in this particular example, of course it makes perfect sense if we step

back and we look at that weekly chart.

The weekly showed this rising ADX. The ADX popped above 30, which is my

threshold that indicates an extremely strong trend.

And then we perfectly consolidated back to that moving average as well as a

little flush down there to set up that choice bear trap for you. And we haven't

truly broken out of that chart formation yet, but it's there. We're stalking it,

and we're watching it unfold and develop.

You can see we're going to look down at how that actually triggers.

Now, there's two trades on this daily chart that I want to point out.

The first trade was simply off that ABC down.

You can see I've drawn the zigzag, and it's that red, green, red down.

And that's in an overall uptrend, and that's what is the power buy.

Why do we call it that?

Because it flushed out all the longs. I'm sure many of you have been trading

you've had an ABC chart formation and you've put your stop just below that

previous swing low. It goes down. It stops you out. It trades a wee bit lower

before coming back up and adding insult to injury, leaving you in the dust.

So that's the concept behind that power buy or that ABC down.

It creates fresh new people to come back into the market.

And it might have even gotten a few shorts in as well.

So we're not trying to pick the point at which there's that ABC down.

We do have definitive chart formations that will give us a safe entry once

we have that initial structure.

So you can see we did have a very good extended run up off of that.

And then we came back down again, and now we have one, two lower highs on

that daily chart.

And this is what is so powerful about the structure. We have two lower highs.

have that ABC down.

So we are at that sweet spot that I talked about with those swings, where if

continued to break down and we then took out the low of that ABC, we could have

traded back down to 120.

The chart structure would have supported that if we had done that. But instead,

when we took out the high of that last swing high, it reversed the whole

trend or it got the whole trend back intact to the upside because it never

go into a downtrend on this daily chart.

It was always in an uptrend. It just did this little fake out here.

So let's go drill down and look at these triggers.

And there's two things I want to preface with this.

It doesn't mean that if you're a good trader and you feel the market stopped

going down, you can't get in early and put your stop below the chart formation,

okay? There's always styles to trading. So a conservative trader is going to

wait. for more confirmation, they might wait for that gap or that trigger or

that initial impulse that signals the change in the supply -demand imbalance.

There's nothing wrong with that. And in return, the tradeoff is that they're

entering at a slightly worse trade location.

An aggressive trader might go in and try to buy a little bit earlier and use a

tighter stop.

But in return, he might get stopped out a few more times because he didn't truly

have the confirmation.

So there's not a right or wrong.

It's just a matter of style.

If you are an aggressive trader, you wouldn't want to take profits on the gap

the range expansion bar. You would be looking to add.

So let's see how this played out.

This first box was the low of that ABC down.

And in this particular case, we didn't have a trigger such as a gap.

We didn't have a real range expansion bar. We didn't have new highs in the two

-period rate of change.

But you can see that the market did start taking out the upside of that four

-bar balance area.

And in fact, you can see the range expansion bar that came up off that

bar. There was an inside range bar, a doji bar, almost an NR7 bar.

And then on the right side of that box, we had that good trend day up. And that

was a good signal that that daily swing, that daily oscillator could pull back

up. And at that point, you could have put your stop below that low of that bar

of entry.

And you had a clean, it looks like at least 12 days up before.

the market came back into balance again. So you see at these swings, at the top

of that swing, how all of a sudden you had three bars price overlap again.

And the markets come into balance.

And it checks back down one more time.

Now the real thing that I want to show you today, the real secret to making

money, is spotting these two period rate of change. At least that's what I use.

And you might come up with your own tools.

I like to see that this two -period rate of change has made new 30 -bar highs on

the look -back.

And that, for me, is the confirmation that the momentum is now preceding the

price. So in this exceptionally choice example, we had two breakaway gaps,

we had increasing range in bar, and we had that increase in the two -period

of change that made new momentum highs.

Definitely a huge alert that something was happening, and that weekly chart

formation, that's the main thing that we were looking at here, that this was

triggering. And who could have seen that we would have gone from 150 to 200 at

the time?

That's the tricky thing about these situations.

And with hindsight, we can study the chart examples, but imagine yourself.

At the time that you are trading this, now let's say you've entered on that

breakout bar right where I have that red arrow.

And you're thinking, wow, this is a powerful move.

And then we rally up two more days.

We kind of dipped down into that bar, but it didn't stop us out if we had our

low at that bar, but we definitely gave back 50 % of our profits.

And then it goes back up again, and it sort of stalls out like an airplane

that's just stalling in the sky, and it dribbles down three or four more bars.

And at that point, you're like.

Oh, maybe it was a false breakout. Oh, maybe I should just take some profits

while I'm here.

And then lo and behold, it catches again.

And we get the most beautiful extended run up. And it launches us from 156

all the way up to 166. I could write a novel about this story.

And then it dribbles down and dribbles down again.

What you must do.

is use that lower time frame, in this case the daily charts, for your entry

your trade management. And once you are in a position, do not let that weekly

chart formation out of your sight because that's what you're trading.

trading that weekly chart, so don't get caught up in the wiggles and jiggles.

Obviously, you can see that this could be a longer -term position trade.

or even an investment -grade trade.

But it's always easy looking in hindsight, but unless you have a very

methodology that you have written out, you will find yourself getting a little

weak in the knees when it starts to have a reaction against you.

How many of you are familiar with investors?

Business Investors Daily, the methodology that was presented there, it

weekly routine for going through the charts and just very much like the

analogy, updating it in segments and stuff. You need to have a black and

ritual routine that's going to keep you managing your trades without getting too

concerned if it backs up just a little bit.

And that weekly oscillator is a good, useful thing to keep in mind.

Now, just because we've had this wonderful rally in this market off these

doesn't mean that at the same time we didn't get trades to the downside.

So it's not completely based on market direction.

If I see a momentum pattern on the dailies and the weeklies or chart

on the dailies and the weeklies, if you saw a dollar bill when you're walking

down the sidewalk, wouldn't you pick it up?

So in this particular case, this was U .S. Steel, one of the dog year stocks in

the year 2018.

And you can see we rallied right back to the moving average.

And on that weekly oscillator, it had made new momentum lows. We had pushed

outside the Keltner channel, and it was not the epitome of a V -spike bottom

with this huge drive to the upside. We did get an initial goosing off that

chart, and you can see the white bars at the bottom of the daily chart

signifying potential for a momentum divergence.

And we did have a little bit of a grinding run up from 20 to 23, even 24.

But then look what happened. We had three pushes up on that daily chart, and

that weekly oscillator was poised to turn down.

And that's what makes this so powerful, is if you think of that weekly fast

oscillator turning up or down in your favor.

Now I'll give you one more trick.

This is a good trick.

The slow line on that daily chart is very analogous to the fast line on

the weekly chart.

If I'm looking at a five -minute bar chart and I look at the slow line on my

oscillator, it's nearly identical to the fast line on a 15 -minute chart.

So in this particular case, I had three out of four lines with a positive slope

all in the same direction. I had the fast line on the daily chart, the slow

on the daily chart, and the fast line on this weekly chart.

all with a downslope to them, and that's what leads to these extended runs.

And you can see how quickly that broke to the downside.

Who cares what the news was, if it was a wall or China or whatever? My

experience is that news tends to resolve itself in the direction of the

technicals. So this was just a classic chart example in a market that had a

pretty strong bias and a lot of commentary about the breadth oscillators

and breadth measurements making new highs and many, many stocks making all

new highs, and yet here was one of the dogs.

Woof, woof. Now let's look at what that actually happened in detail here. Here

was the top of that daily swing.

And you can see multiple bars of price bar overlap and imbalance.

And unless I was actively trading this stock, it wouldn't capture my interest

all. I mean, if I was only trading this stock, I would probably be looking to

short it just because it had had a good run up and the daily oscillator was

overbought.

However, I do have a scan.

can scan through my database of stocks and pop up the ones that are making new

momentum lows on that two -period rate of change.

Or we're going to look at some other scans in the relative strength work

on in the second half of this session that would catch this type of movement

down off the opening price.

So we have the range expansion, the big bar, the new momentum lows. It's never

too late to hop on board once you see this type of indication and once you see

the structure of that weekly turning back down. So even if you shorted this

23 or bought some 20 puts or even a small put spread, which is a very

risk -free way of, relatively speaking, of putting on a position, You had a

very good swing down before we started to have some exhaustion gaps at the

bottom of it.

The best thing about classical technical analysis, these exhaustion gaps or

these breakaway gaps, is that it still holds true today.

Despite all the software and charting and algorithmic and electronic trading,

you still have all the classic tenets of technical analysis in front of our eye.

Now, let's mix it up a little bit. We can go from the dogs to the strongest

ones.

It's a good example of a rising wedge on the weekly charts. It was not a really

strong pattern on the oscillator, not a very compelling pattern at the time. But

on the weekly chart, we could draw converging trend lines.

typically what we see with a sign of a terminal type of wedge. These converging

trend lines and the narrowing of the ranges and the narrowing of the bars,

then if we go into those last four weekly bars at the top of that chart,

see on the daily chart we also had a wedge on that time frame as well with

converging trend lines.

Typically a wedge has five data points.

So that's one of the main ways it will tend to differ from a pure cell

divergence or a momentum divergence or a momentum by divergence. A wedge will

tend to have five data points.

I know it's not real clean here because the volatility is super contracted, but

you could draw it and get your five data points, particularly if you're not

wearing glasses. Then it helps add clarity to everything.

I always find that, you know, if you squint enough, the chart can look like

anything, right?

But at the top we had our loss of momentum, and you can see a little bit

divergence with that oscillator.

Now, what's powerful here isn't the chart.

information per se, but you can see how ripe this was for the weekly

fast line to turn back down and this daily fast line to turn back down.

And mind you, we're not trying to enter at the top per se, but look what

happened on the far left of this chart coming out of this balance area, these

five bars of price bar overlap.

A, we got our range expansion.

B, a little bit of a downside gap, even if it was an eeny -weeny one.

And C, the new 30 -bar low on that two -period rate of change.

So even if you entered one or two bars late, there was still plenty of juice on

that downside swing, and we did get eight closes on one side of the five

So maybe you're not capturing the first close.

on one side of that five SMA.

That's not the point.

The point is that these five SMA runs tend to give us spots where we can put a

stop and not experience any pain.

So even if you had entered on the third bar or the fourth bar, you got the wind

behind your back and you got a stop point where you really didn't have to

much heat there.

The second thing that I want to draw your attention to is that circle on the

bottom that I circled the new momentum highs on that two -period rate of change

down there.

So you see that? It's right smack in the middle of the chart.

But I put that there because it's so important to look at context.

You can't just simply do a scan every day and find new highs and lows on a

momentum reading.

A two -period rate of change. You'll see we can also use a short -term RSI, like

a three -period RSI.

So many little tricks you could use. You can even use a three -period rate of

change.

But in this case, we did have the new momentum highs. However, what does it

in our bar chart structure there?

We're in the middle of a noisy, choppy trading range.

We're not coming out of a little tight balance area.

We certainly did not have any weekly chart formations in our favor. You can

we just made new momentum lows on that weekly time frame there.

So there's nothing there in our favor to support that.

The other thing I want to point out to you is that once again, The sideways

line, remember I said equilibrium points are hard to see because there's usually

no momentum oscillator.

If I go back up to the weekly charts where I've got this circle drawn right

here, you see there's nothing compelling in an oscillator. In fact, it'll

usually give a false reading.

Unfortunately, I didn't put...

the ADX indicator on this particular chart, but that is the main clue that we

have that the market has wound down to an equilibrium point.

You have several clues.

You can start to either draw a rectangle.

Sometimes you can draw those converging trend lines.

We'll have a narrowing of the bars at the equilibrium point. In this

case, we had a perfect three -bar triangle.

and the ADX will be very low.

And once again, you can see that two -period rate of change made that new

momentum low, downside gap. We took out that previous swing low, and we had a

flush.

Lastly, do...

Trail stops, and don't assume that an extended run is necessarily going to

to 20 closes on one side of the 5SMA, even though it very well can.

Because sometimes we're in a good trade. Have you noticed our eyes get bigger

than our stomach, and it feels great, and we're wondering how come we didn't

that trade on even bigger?

Those are usually the parts that you want to be a little bit mindful.

about thinking what types of things could reverse it. And in this particular

case, we did not get the three -bar balance at the bottom of the swing.

Instead, we actually did that V -spike reversal pattern where we just about

out the high of that big range bar within the next two bars.

I know people that like to trail a stop that's the highest high of the last

three bars.

I like to trail a stop that's always the highest high of the last big impulse

bar.

So at the very least, you need to be mindful of how you're going to tighten

stop to lock in profits.

And you can even scale out partially along the way. There's no right or wrong

managing a trade as long as...

Number one, you don't let a small loss turn into a big loss.

And number two, keep in mind what you are playing for.

Keep in mind that you went to a lot of work to stock a pattern and a setup and

trigger. So don't get too anxious just after one or two bars.

Okay, a few more patterns because I want you to see.

All different sorts of combinations, but again, the main idea is the slope of

that slow and fast lines in our favor, indicating increase in momentum, and

those come out of very distinct chart formations.

Now, I put up this chart because, and by the way, you'll be able to find all

kinds of these things.

On the daily chart, it was another spot where we had an equilibrium level.

And again, shame on me. I should have plotted the ADX on this chart. I didn't.

But you can see a low ADX on this daily gold trust chart, GLD, which

is basically gold.

And at that point, at that little equilibrium point, there's nothing

going to catch our attention per se right where I've got those converging

lines.

The oscillator was poised to flip up, but we could have broken to the downside

too. So it wasn't a very powerful reading.

However, on the weekly chart, this is that anti -formation that I detailed out

for you early.

And that is earlier, and that is where it almost looks like a bull flag.

But it's not a true flag because you can only have a flag in a trend. A flag is

a continuation pattern.

So a flag occurs in an established uptrend. But here we have that

off that initial push off the lows.

And you can see that the slope of the weekly momentum is up.

That fast line comes down to kiss it.

And then it turns up and you've got the positive slope.

And that's positive feedback.

So that's the mode that we're looking for, that positive feedback mode. We've

got positive feedback on the weeklies and on the daily charts. Now, this first

push up on the daily chart, and mind you, this is not the most well -behaved

market in terms of, you know, the steadiness of the price movement, lots

of gaps and choppy little bars.

But look past that, and what I really want you to notice is, A, how once we

out of this on the weekly chart, we continued to make new momentum highs on

310 daily oscillator.

So powerful. There would have been no reason to get out of this trade until

started to see that lower high.

on that momentum oscillator on the daily charts. You really could have even just

trailed a stop just below that 20 period EMA if you had wanted.

You know, isn't hindsight great?

I have to honestly tell you, I have never traded perfectly like theory

I should.

So I can lecture to you and say, ah, this is how it's supposed to be done.

you know, in the heat of battle, we just have to do the best job that we can,

use our best judgment at the time, and strive just to perfect our rituals and

routines a little bit more.

But I would be deceiving you if I told you that I could play this perfectly the

way it should be played.

So just be mindful of that. Theory and real -life practice have a lot of

variance in them.

Now, the thing I really wanted to show you, you can see that circled spot there

at the bottom of the daily chart where we have those extended run.

And this is what it looks like right there. Let's blow this up so the price

action is right in our face.

Now, this particular market is something that would be more suitable for

position trading, you know, perhaps in your IRA or...

It's not a savvy, savvy trading vehicle. You might as well actually trade the

underlying gold future. But it does lend itself very well to position trades. A

lot of these ETFs do, especially these global indices.

And goodness knows there's enough of them nowadays.

So we didn't quite get the same feeling with the initial breakaway gap leading

to this extended run. However, this did pop up on my scan. at the time because

we do scan for these things and here you can see that two period rate of change

in the very beginning that breakout from the equilibrium level did make new 30

bar highs on that look back period it actually is a little bit higher than

previous high far to the left of the chart so at least when you're doing your

nightly homework and it doesn't take long to scan these things I keep maybe

350 stocks in my database, 300 products.

So I just like to deal with stuff that has liquidity.

And it doesn't take long to look at a little scan and maybe a handful of these

things will pop up. And it doesn't even mean that you have to trade it then, but

you can put it on your watch list and start to look for a gap or a choice

or perhaps just put a little bit on.

So many ways to skin a cat there. But that was the daily equilibrium point

and the weekly buy ante, getting poised to kick in our favor.

This was a great chart example. I love Intel because my younger brother, my

brother, has been working for Intel for 25 years.

I could kick myself because I meant to buy stock for his second kid when he was

born as a baby present, and I never did. And the price of the dang thing was

below $20 at the time.

And so every day I watch this market, and it just eats into me how I never

pulled the trigger on that trade.

But I'm always mindful of the chart formations on it. So this was a case

you did have, again, that rising wedge, if you want to call it that, on the

weekly charts, or even a hefty momentum divergence.

You know, there's an old saying in market lore, trees don't grow to the

And sometimes out of the greatest strength can come the biggest weakness,

sometimes out of the biggest weakness can come out of the biggest strength.

Here's also where we had on the daily charts, it wasn't a clean divergence.

It just was, again, a continuation of this wedgie, wedgie formation.

And the point of this exercise is not necessarily that you are going to enter

the high or even two bars from the high, but you want to be mindful of...

the weekly momentum turning down in your favor.

And this is what the top looked like in Intel at that point.

And you can see we did get our trigger with the new momentum lows on that two

-period rate of change.

I love this indicator.

It's not 100%, but darn does it serve as an initial trigger

at the tops and bottoms of swings.

So that's what we're really looking for is to identify that initial impulse that

comes from the top of the swing reversing direction or the bottom of the

reversing direction.

And this one was a little funny because we did have our initial range expansion,

but then we chopped around for a couple doji bars. I'm not sure what was

happening at the time there. Ah, the middle of summer. Well, of course, that

explains it.

You did still chop around a little bit before completely falling out of bed.

Now remember, what are we mindful of here?

This weekly pulling down and that slow line pulling down. Now here is

my rule of thumb for how long I want to look to stay in a trade

after an ideal divergence like this.

What I look to see is for this slow line here on this weekly chart to pull back

down to zero.

Make a note for yourself right now to study any time you have a hefty

momentum divergence like that, how many times, and it's not going to be 100 % of

the time, how many times do we tend to correct until that slow line?

Pulls back down to that zero line.

It's just a good benchmark. It's one of those indicators that we call a rule of

thumb. And you can take that for what it's worth. The rule of thumb guideline.

And then even though it was very choppy price action, you do see how we got our

sweet extended run to the bottom before then coming back and closing back above

that 5 SMA.

This was a wonderful, interesting example because this just happened two

three days ago. I thought as I was putting these slides together, lo and

let me come up with a current example so we can see how it plays out.

Now, keep in mind, we've just had some stupendous moves off the bottom, so it

was pretty slim pickings trying to find something to the long side that was a

breakout of a weekly and daily chart formation.

And we weren't quite there yet for the downside because of all the upside

momentum we had, but this was one particular case where that two -period

change registered on my radar scan.

And we'll see what that looks like in just a minute.

I guess you could call this a rounding bottom or sort of a quasi -drunken

inverted head and shoulders that really hadn't broken out yet. But the fact of

the matter is that you do have a sideways line here, a very long sideways

on the daily charts. So definitely the potential is there.

And we do have potential for this weekly oscillator to hook up.

So you can see the slow line has already hooked up.

The fast line on the daily chart has hooked up. So we do have potential for

wind behind our back.

And this was the day that gave that new momentum highs on that two -period rate

of change.

So we have the range expansion, the new momentum highs.

Let's see if this gets legs or not. It sort of consolidated sideways in a

general blick type of apathetic motion today. It didn't really give up much

ground. If anything, you could at the very least have a break -even stop at

point. But the potential's there.

And that's what it's like when we look for these things.

If you make 50 trades, 20 of them might be home runs.

You know, 15 of them might be just modest trades, and there's always going

a percentage that really don't get legs, don't work out hardly at all. So that's

the nature of the game.

It's a numbers game.

Lastly, this was one of the dogs on my relative strength list over the last

couple weeks.

So I thought, let me see what this looks like. And lo and behold, we had the

weekly cell divergence in the middle of last year, as well as that rising wedge.

And what made this so dramatic was that it closed on its high on that daily bar,

leading to the biggest bull trap ever. So anybody that had bought this in that

previous two weeks was quickly underwater on that very first bar down.

I want you guys to think in your trading and even in your investments.

Where do the opportunities come?

Or where do the trades come after you've trapped the most amount of people?

And Wyckoff was very keen on this with his springs and up thrusts, which are

just little bull traps and bear traps, if you will, the little false breakouts

from the ranges.

So it's always a...

Excellent, excellent trading concept. The other very cool thing about this

general concept of springs and upthrusts in the Wyckoff traditional sense of the

false breakouts is they are very difficult for the algorithmic strategic

things that run in the background out there to model.

Those types of strategies, they're really good at modeling breakout trades.

They're really good at modeling momentum type of work.

Very difficult for these algos to model these springs and up thrusts in the same

way that a human can process that.

So just keep that in mind. I always like to think, where do we have an edge

where perhaps an automated trading strategy does not?

And I'm sure it has been recreated because I can see volume coming in when

come back above a significant swing low or swing high.

But I just think that it's a pattern that we could exploit more.

So this is what it looked like at the top there. Not only did we gap down, but

we opened below the low of that big bar up. And this is a very specific

pattern that I like to call.

An ouch trade is where the market has had a low to high bar and it gaps below

that low or vice versa.

Very powerful trap that has incredibly high odds of follow through the next

Just promise me one day of follow through. That's all I want and I can

from there.

I just hate putting on a trade and then having it back and fill against me

during the day or even.

back up against that high the previous day. You know, just let me get in. Never

take any heat, okay? That's my, if I had a magic lamp, you know, and could get

three wishes, that would be one of them. Of course, I would also wish for

tomorrow's newspaper today so I could see where the closing prices were going

be.

So look at that two -period rate of change on that. Look at that. And the

And the range expansion down. We've got a trifecta going on. And I promise if

you study these things and you look for them, you too can be guaranteed at least

one trifecta every six months.

All right? So that's something to look forward to. And look at that gorgeous

extended run down there. You know, all you need is one of these a quarter.

You know, you don't have to. kill yourself day trading. Now, it might take

20 tries to get something that leads to this type of movement, and you're not

going to see them every day. You might have to wait a couple weeks of patient

monitoring, stocking, and so forth.

But I've already told you three cheat ways that you can...

for this.

A, you can scan with your RSI. We'll look at that a little bit later and the

-period rate of change.

B, you can see, you can easily have a filter that shows you the big gaps on

chart. And C, volatility breakouts or range expansion bars. You can set up

criteria to scan off these.

That FINDIZ.

F -I -N -V -I -Z is a free scanning tool on the Internet.

And it can't do everything here, but it can do a lot of things, you know,

especially in terms of monitoring for the big gaps pre -opening. So there are

free tools available to us. It's just a matter of when are you going to do your

homework, how are you going to fit this into your routine.

And we're not going to deal with all those nasty issues in this session.

address that in the third session.

Okay, just a few more examples, and then I want to move on to some real good

relative strength work. I hope you are all getting the ideas here.

You can see this choice, choice pennant on American Express.

And I love the way that this fast oscillator does what I call the double

So it's not a divergence.

It's just got that double bump in the bottom there.

And what we're looking for is, can we be positioned to have that fast line

on that weekly oscillator turn up in our favor?

Again, if you don't want to plot an oscillator at all on your chart, That's

problem. You simply are looking for the bars to start making higher highs

because usually price tends to move before the stochastic

turns, before a moving average oscillator turns. You will see that the

moves first and then the oscillator hooks up.

If you like looking at candlestick charts, you could simply wait for that

up candle and then put a buy stop above that. And if you're filled, the pretty

good odds that you've got that oscillator turning up.

So here on the weekly chart, what was so special about this particular example

was that you could not begin to see how far this

chart. ran to the upside. This is American Express.

I believe today it's trading around 112, something like that, and it did go much

higher.

So we can't see, as human beings, we're really limited.

When something starts making new highs or new lows as to where a target would

be, that's why a lot of people feel comfortable in trading ranges because

there's swing highs to test and swing lows to test.

It's a little bit more interesting when you get into this nebulous territory.

So in this particular case, let's look at the daily chart.

And we have that red, green, red rule.

And if I had these chart colors as being just orange and you squished that chart

up, you would see a very clear ABC type of consolidation.

Again, we're just noting the chart formation.

We want to be pulled into this market. And what's going to pull us in here?

Oh, look at that. We got new momentum highs on that two -period rate of

Oh, and we got.

A huge range expansion bar here.

Very nice. And it took out the high of these previous five bars. And instantly,

look at this extended run. We had, oh, my goodness, at least 24

bars on one side of that five -period simple moving average.

Now, let's back. Backtrack just a little bit here, okay?

This was a particularly choice, choice, trigger, and example.

But what about over here? We also had something right here, too. We had a huge

breakaway gap and a huge range expansion bar and the two -period rate of change.

Let's just go back and see how that played out, okay?

So that was right here.

We didn't necessarily have any complex.

Daily structure, we did have, you could say, that was an extended over by ABC

down.

And the weekly certainly had a pullback to that moving average. There was

nothing wrong with an entry at that time.

Nothing wrong at all.

It would have been a very logical place to think that this market could have

gotten legs and led to an extended run.

Very logical.

But if that were going to be the case, then we probably would not have closed

below that five -period SMA there.

And even if we did, you can see at the very least, if you had bought on the

close of that day or even the next day and pulled your stop up to break even,

say, for example, or even, here's another great trick, the 50 % point of

big bar, you didn't lose much money.

So that's what you need to go and study and also look at what is my worst case

scenario. What would it look like if I got stopped out of a trade, all right?

Because nothing works 100%. I'm showing you all these juicy choice examples, but

I would be doing you a huge disservice if I didn't also point out things that

didn't work out as well as we might have thought.

This one, of course, you can see no grief. I could have trailed that stop

beneath the lowest low of the last three or four bars. That's an excellent way

to trail a stop.

If I were doing that here, trailing a stop below the lowest low of the last

three or four bars, I definitely would have been out when the low of this bar

right over on the right side of that big bar up, that first red bar.

Okay, if I had pulled my stop up to the low of that first red bar down, and then

we went up two bars higher, okay, that's my worst case scenario.

So let's move on and find just a few more.

The first cross cell on the weekly chart, and it looks like a head and

pattern.

Imagine that. You can see on that weekly chart how the slow line.

pulled below that zero line, and then the oscillator rallied back up high.

Now here's a simple trick.

That slow line going back and forth above that zero line is about

90 % correlated with the price going above or below that 20

-period moving average.

See, there's so many ways to skin a cat. I bet you could draw the oscillator. If

I taught you what to look for in these charts without seeing the oscillator,

mere fact that off that weekly high we dropped back through that moving

the slow line went below zero, then we rallied back up.

If that was going to be a strong market, it should have instead formed a channel

and found support at that moving average because that's where it found support

before. And so markets have a tendency of fairly even amounts

of swings down when it's going to be a channeling market. And instead, this one

made it where the downswing was bigger than the previous upswing.

So we had our first cross -cell setup, which is merely that first lower high on

the weeklies.

Now, of course, you're not going to be watching this day by day. You can see

this took a month to unfold, probably two months to unfold.

However, when you're scrolling through your charts at night, it's very easy to

be mindful of the patterns where that weekly oscillator is just poised to flip

down or to flip up.

And in this particular case, on the right -hand side of the chart, you can

that we had the sort of three pushes up. It was a rising wedge on this UAL.

And not only that, it made a little bit of a bull trap, a false breakout. Do you

see that? We couldn't quite get up to the Kelton Channel there at the end of

February this year. It just poked its head above and made a little bit of a

trap. Now with all that known, you're probably not going to initiate a short

unless you're just trading three or four stocks and this is one of your horses

in your barn.

Okay, because it's really not worth bothering much at this point. There's no

volatility. It's kind of dead. It hasn't come into play yet.

But then if we go down and we can see in more detail here, the little trap that

laid at the top.

And then we had our range expansion bar. And we had our new 30 -day lows in that

two -period rate of change.

So what I'm teaching you here is a process.

It's a process that can be applied to any market. You could use this

same process to trade live cattle or corn or coffee or the bonds.

And pretty soon you'll have a stable of maybe 20 markets or 30 markets or a

whole database of 300 stocks that you can be watching for this same type of

principle. And once you get it, that we're always looking for the momentum to

reverse on that higher time frame, which is usually when you have some type of

chart formation turning in your favor.

You'll see that, indeed, it really has nothing to do with the trend. We've

caught some dang fine moves off the lows and some dang fine moves off the top,

but there was a concrete structure.

We had momentum poised to flip in our favor. We definitely were not picking

tops, and we definitely were not picking bottoms, but we were letting the market

tell us and trigger us in. See?

You know, if we could just eliminate all those mindless marginal trades along

the way and do nothing but wait for this pattern, you know, you could do quite

well. And here, just to show you totally the flip side of the coin, one of the

weakest, doggier stocks on the board, IBM.

When I was a trader on the floor of the Pacific Coast Stock Exchange, there was

another trader there. His name was Jeff Hain.

and I had met him on the Pacific Coast Stock Exchange.

He then moved to Chicago, and in Chicago on the options floor there, they have a

specialist system where somebody opens the markets in the options. This was

many, many years ago, so it doesn't really mean anything for nowadays.

But he was the specialist in the IBM option pit.

He was the head honcho of the market maker in that pit.

So pretty much since 1985,

I used to watch every tick, and I practically still do, in IBM.

And he was the godfather to my daughter, Erica, who's peppered throughout my

Trading Sardines book.

So therefore, I'm... It used to be a great bellwether, and I'll tell you

honestly, it is the worst bellwether now. It's like the anti -market half the

time. But this was a particularly compelling chart formation, this weekly

divergence on that flush that we had on the indices.

And we didn't see this pattern on the S &Ps per se, nor did we see it on many of

the major indices. However, you will find this weekly buy divergence pattern

numerous stocks.

So it really pays to scroll through and look at these things. This is about as

perfect as I like my divergences, 10 to 11 bars apart at the Keltner channels.

And you can see when that fast line is poised to turn up, it can pull the slow

line up with it. Now, this is very interesting because on the daily charts,

there were no compelling oscillator patterns.

We just had a simple, basic, clean, nasty bear trap there, a V -spike bottom

at that very low on the daily charts.

That would have only caught your attention if you were really focusing on

weekly divergence.

Because then the whole thing sort of died out. If I was looking for a pattern

after that, you can see on the daily chart, as it consolidated by going about

eight bars sideways there, eight or nine bars, that fast line on the daily

oscillator pulled down, and then it sprung back up in the direction of that

line.

Obviously, there was a big gap there.

Obviously there was news, okay? So that's just the way it happens, and I'm

suggesting that one would have been savvy enough to enter before then.

But what I am saying is let's look what actually happened then.

You did make the new momentum highs on the two -period rate of change, the

expansion, and the gap.

And we did continue on up from there. So you definitely could have had some

trade. I don't know if you got up to like 140 or I know

we were trading above 136. I think we poked our head up above 140.

So maybe enough for a little bit of a play in an options spread.

But I just wanted to point out primarily that choice weekly by divergence that

was at those lows and really choice pattern.

Lastly, sometimes we don't get great oscillator patterns.

It doesn't mean that it can't be on our radar. And in this particular case, I

wanted to point out this exceptional trade in Lilly.

Because talk about a bad hair chart, okay? This is like having a head of wet

hair and sticking your finger in an electric socket, you see? This is a

chart, no less.

And they tell me weekly charts are supposed to have the least amount of

All I see here is an absurdly low ADX for a prolonged period, and you formed

a three -year -long weekly sideways line.

Now, how many people do you think were even bothering to pay attention to this

stock? I mean, I certainly was not.

And you can see on the daily charts, nothing there was catching my attention.

Nothing should have. Nothing would have.

But here's the thing. We're in the business of looking for aberrations.

We're in the business of looking for new momentum highs or large gaps.

Arrange expansion bars. Why?

Because aberrations is where the power is.

Aberrations is where the opportunity is.

All right? Just remember that. These aberrations are filled with a wealth of

information. I'm sure there was wonderful, happy information about a

or earnings or who knows what. It doesn't even matter.

What does matter is some big boys had a huge amount of urgency in getting into

this stock here.

And this is what it looked like if we drill down close.

Breakaway gap, range expansion, new momentum highs on that two -period rate

change led to a luscious extended run on one side of that 5 SMA.

So we don't always have to have the big momentum pattern on the weekly charts.

We don't always have to have some choice little bidivergence on the daily

charts. But we do need to have in our belt that concept of that aberration,

breakaway gap, that momentum that's poised to turn in our favor. And indeed,

we go back and we look at this, you can see right here on the right side of the

chart, that we had that daily oscillator was poised and going up at

the time of the breakout. The fast and slow line had a positive slope. And on

the weekly side, we had a positive slope on the fast and the slow line. So this

is my expression of positive feedback. We had positive feedback from four

separate.

Floping lines.

Okay, granted, they're all based on price. I give you that, you know, but

the concept that makes it powerful. All right?

And then you even had the positive feedback with that two -period rate of

flipping up.

And I think I've got just one more.

Yep, I just got one more chart example, because trust me, I could go through

this stuff all night. It's fun, huh? It's fun seeing actual concrete charts.

mean, goodness knows, I could do this every night for hours.

It's really a great little game. It's like a little detective game.

So this was a nice example of, again, a prolonged weekly chart formation

with a bit of a bear trap there.

and a long weekly line. So the length of that weekly line was at

least 14 months, 15 months there.

Now, the reason I wanted to show this market here is because, again, you have

idea how far this stock can go to. It at least doubled right from this point

with no pain at all.

Now, for those of you that have studied traditional point and figure charting,

the width of the box can lead to the depth or the breakout to the top.

In fact, it was Ralph Acampora who had a great expression, the broader the base,

the higher into space, the broader the top, the bigger the drop.

And that was something that thinking of those measured moves, sideways lines, at

least can help you stretch your imagination just a little bit.

Again, nothing really compelling on the daily chart in terms of any choice chart

formation here, except what preceded this extended run.

The breakaway gap, the range expansion, the new reading on the two -period rate

of change.

I use a 30 -bar look back, but you might want to use a 20 -bar look back, 40

-bar. Remember what I said?

Take it and play with it. Do your own modeling. See what works for you.

It's just such a simple trick.

And granted, we had this initial breakout, and then we had to build and

for a couple bars there. It didn't exactly run and set the world on fire

very next three or four bars.

But you're trying to keep that weekly structure in mind. You're trying to keep

this whole weekly chart formation in mind. And you're trying to think about

right down here at the bottom, that weekly fast oscillator was just turning

Remember, if you don't have an oscillator, it's the same thing as

had candlesticks, I'm just getting two or three candlestick bars to the upside.

That's all it takes to turn it back up.

And then you can see we just ran and ran and ran.

Okay, let's get on to relative strength because it's another way of capturing

aberrations. We've looked at the aberrations that are signaled by big

range expansion bars, new momentum readings on short -term tools.

However, there's lots of ways that we can use relative strength in other areas

of work, both very short -term.

and very long -term. So I'm going to start off showing you just some short

tricks, and then we'll move out and look at some longer -term strategies.

First of all, relative strength works on stocks.

It works on the futures markets that I trade. I have a little window on my

station that ranks the top 30 futures markets that I watch off the opening

price. So, for example, this morning coming in, believe it or not, live hogs

were the relative strength leader to the upside. I guess that's a sorry

commentary on how the state of the day was. I actually, I rarely post to

Twitter, but I couldn't help myself from just posting that live hogs is where

the action was today in the market.

And I think wheat closed down the lowest.

Wheat and coffee didn't do too well.

At any rate, lots of ways to play this game. So when we're looking at relative

strength, several important considerations.

First of all, relative strength is very dependent on the initial price that

you're measuring it against.

Do you remember in our first session last week, we talked about the

of market openings, of session openings.

of the start of the new year, of the start of the month.

Where is the demand?

What stocks are in most demand the first three days of the month? Those tend to

have follow -through to the middle of the month.

Which stocks are in most demand off that initial opening? Those tend to have

follow -through during the morning session.

And same thing, what's outperforming the S &Ps or...

What I like to do is I like to measure the momentum off of a cycle low.

Now, when you're looking at look -back periods, you'll find that the further

look -back period, the less pertinent it's going to be for us as traders.

It might be great as an investment tool. For example, six -month relative

strength does tend to outperform

a four -week look -back period, believe it or not.

But as a trader, I'm not trying to be an investor here, and I'm just most

concerned for where the immediate things are that are in place. So we're going

to look at how we measure off of lows. And when you do cycle work, you'll find

that the cycle lows are five times more significant than the cycle highs.

Okay? Very, very important.

Cycle lows are...

Much better defined and much more recognizable for a number of reasons.

usually emotions are much higher and volatility is more extreme.

So relative strength work is very dependent on the look back period and

we're measuring against.

I just wanted to mention this FINDES tool because it's an excellent free tool

you can do for relative strength work. And it also shows movement pre -opening.

In case you don't have a trade station, you don't need a trade station.

And for the short -term trades, meaning if I'm going to make a day trade off a

stock, it really doesn't matter the market's direction.

I'm going to show you two different days.

First, I'm going to show you a previous day, and then I'll show you today.

And both days had an excellent trade on the long side and an excellent trade on

the down side.

So here's one that happened a number of days ago, actually not too long ago

because it was in March, but it was one of those rotation days.

And you can see that these were stocks that popped up on my screen as either

having a big gap opening pre -market or a

big, large five -minute bar off the opening price.

And then you can see that if you were just making a living as a day trader in

stocks, if you just picked one or two stocks that were the relative strength

leaders off the opening in like the first 15 minutes and vice versa the

and just waited for one or two little flags, I guarantee that with practice

could probably get a win rate, a win -loss ratio of 85%.

And I'm just talking scalping here.

It's something that you need to look at and study for yourself.

So this was on the same day, two examples to the upside and two examples

downside.

By being the highest percent up off the open or the highest percent down off the

open. And then this was today. I'm like, gosh darn it, let me find some examples

for today. And you've got to admit, today was one of the more mundane

days. I think the NYSE volume was like maybe the fourth lightest day of the

year, something like that.

But yet, look, we had this huge gap down in DG.

The first little reactions, you could find a little bear flag there, a

retracement to the five -minute E &A, and with a little bit of tape reading,

make a scalp to the downside. I imagine it probably trades weekly options on a

good portion of these stocks.

And then this EA had some good bonking down. I try to look for the trades that

are just in the morning trend, so I like to see them between the opening.

the NYSE opening, and then the next two hours.

I don't really care about the action that happens after Europe closes or the

morning trend comes to an end.

But still, you can see the exceptional little scalp to the long side on this

LRCX. And mind you, I'm talking about a stock that got gapped up pretty high,

and you'd think, like, oh, the move's already over. But you'll find it's

always one or two initial flags in that early trend. Same thing with the stock

above it.

Okay, so I just wanted to mention on this slide, use cycle lows. No example

needed. And we're going to look at that right now.

So this is a trick I've been using for many, many, many years.

And what you need to do is look at the relative strength and adjust it one

day at a time. So, for example, I'm going to use this cycle low in these S

I don't know how long this cycle low is going to last, but you can see it was

right translation, meaning that most of the move for this cycle occurred in an

uptrending market, and then we had the cycle low where we bonked down, actually

made the red bars down.

You could see the low in the oscillator.

I have a three -period RSI up there, which got very oversold, and that was a

well -defined cycle low.

So the very next day off of that cycle low, I'm just going to scan one bar

back and say, which stocks moved up by the best percent or the

best momentum the next day?

And then the day after that, two days, I'm going to say, which stocks moved

over the two days?

And so forth and so forth. So if we had a cycle low that was 10 days ago, and

I'm going to scan for the relative strength, I want to say, what stocks

best relative strength with a 10 -bar look back off of that cycle low? Because

those are the ones that have the greatest odds of continuation.

Now, ideally, you want to do this within a couple bars of the cycle low. But

this was one of the stocks that popped up on my scan.

Two days after that cycle low, MYGN, and I believe this was today's action,

because despite the sloppy market yesterday and the sloppy market today,

see that this thing definitely had some legs, and that was the power of that

initial relative strength off that cycle low.

The RSI at the bottom has nothing to do with...

with the fact that it made a low down there, but I just wanted to mention that

you also can rank stocks by a two -period RSI or a three -period RSI in

database.

And it's sort of another cheat way of ranking relative strength, even if you

haven't done it off of the swing low or you're not using two period rates of

change or percentage moves up. It's just another little cheat clean way of

monitoring where the real strength is. What gets the most overbought the

fastest?

And this, I wanted to show you the flip side of the coin. This was two days

after that extreme swing cycle low and Expedia Group,

of course, the three -period RSI is at the bottom as would be expected.

But look, it actually closed lower than that swing low.

Would you want to touch this stock to the long side?

Not with a 10 -foot pole.

If you were looking to initiate to the long side, you would avoid this type of

thing at all costs.

I know I'm stating the obvious, right?

Me, blonde, master of the obvious.

But let me tell you, for the first 10 years of my trading career, especially

when I was a market maker on the floor of the exchanges,

I did not get it about relative strength. I would be the one buying the

stock while the market was zooming to the upside, waiting for my $10 stock to

to $11. So this is something that I had to educate myself of and learn the hard

way, and it was not a novel, fresh, easy concept to me initially.

So I have to poke fun at myself.

because I know that those of you that have studied Wyckoff and more of the

upstairs environment, it makes such logical sense.

But we still need to put it within a structural framework.

Now let's also compare swing lows to swing lows. This is another wonderful,

wonderful tool.

You can see at this weekly swing low in the S &P, if I were to look in my

database,

At all the stocks that did not make a lower low on the weekly chart, they

catch my attention for some sort of watch list.

And look at this particular stock right here.

That swing low by the red arrow was...

actually where the red swing low was on the S &Ps.

So there must have been a darn fine reason as to why nobody was dumping this

stock when the rest of the market was falling out of bed.

And, in fact, there were probably very strong hands accumulating it here.

Now, of course, you couldn't see the move to come. You never can.

But the point is, Relative strength begets relative strength. It didn't even

pull back enough to trigger our red zone.

So just be super mindful of all the different time frames that you can

play this relative strength game on.

And then for fun, let's just look at the flip side of the coin.

Here was a stock, the CBOE, which actually made a lower swing low

and consecutive lower lows on that weekly chart. It wasn't just a flush.

It was a dog, a bowser. And then what kind of move did it have up off of

that low?

For the last two months, it's done nothing, minimal, minimal, just two or

points while these S &Ps have climbed like 450 handles.

All right, so did anybody out there see these exchange stocks today?

Did any of you see the CME and the CBOE and the NASDAQ?

The CME is making new lows on the year.

I wonder what that means.

I hope it doesn't mean that the market's pricing and the possibility of a

transaction tax.

No, no, no, no, no, no. I hope not. But anyway, it's trying to tell us

something, perhaps a die in the volatility, perhaps a dry up in the

approach summertime.

It could be telling us lots of things.

And I have to, again, my job is to also show you the flip side of the coin where

things don't work because we can't ever take anything for granted.

So this was yet one more stock, Pfizer, a nice drug stock, where that weekly

swing low still made a higher low. It wasn't deep enough to trigger our red

down by an average true range function. Both of these are weekly charts.

But again, what happened to the effort to the upside?

After the second bar, it hit a wall.

That was the high. And then it started making lower highs on the weekly chart

while the S &Ps were still making weekly highs. So even though we had our

initial condition, even though we had a really choice setup, it didn't get

legs. It didn't give us anything.

And that's the nature of the game. It's like, ah!

On to the next one.

On to the next one. That one didn't work out as we thought.

And so don't overstay your welcome. You know, be mindful of the fact that now

you're starting to make lower highs and lower lows on that weekly chart while

the market's still showing wonderful upside momentum.

Always monitor your positions one data point at a time. And if it's on a weekly

chart. That's fine. You're monitoring one weekly bar at a time.

But we don't project.

Like I said, we can't see how far something's going to go to the upside,

also can't see when it's going to fail to the upside.

And the biggest trap for a trader is to project what we want to see, to project

and think, oh, we can get all the way back up to 46 and maybe make new highs.

Because that sell -off really wasn't that deep.

And now we're projecting, and it's a real trap.

It's one of those cognitive bias traps that tends to be where our losses come

from. Not because we're not smart, not because we didn't do our homework, but

because we let our cognitive biases and our human processes interfere because we

did not have a protective routine and ritual to keep us from ourselves.

And trust me, I am speaking from experience, all right?

Okay.

Utility stocks, and going through all my charts, even though this stock made new

flush down on that weekly chart, it's enough to pull the big red bars down. Of

course, granted, it was still in a sort of an overall uptrend.

It was one of the first to make new highs.

above last year's highs.

So that's also a valid thing. And I did put up, for a little bit of variation, a

chart of the small caps, because people like to think of small caps as growth.

On one hand, the small caps had a stupendous rally, and they also were one

the first to take out that previous swing high where the Dow fell short, the

&Ps fell short.

at the same time that this small cap, the Russell Index, was making new highs.

Okay, so a little bit of a paradox here, but yet the utilities, which are sort

of like where you want to be if you're not expecting any growth, were

steamrolling ahead, and probably the strongest sector on the board, you know,

numerous of these all making new highs up until just the very last day or two.

They're kind of getting a little bit...

I want to see if they start getting tired up here. I certainly wouldn't want

short them. There's no chart formation for that. But it's just kind of

interesting how we had this stupendous rally off the bottom, but yet you've got

all these utilities making new highs. And is that a comment on the market's

attitude about the growth prospects for the future? I don't know.

And the other comment that I wanted to show you is just because I do rankings

scans or relative strength readings, I wanted to point out paradoxically that

this particular stock, CELG, was at the top of my rankings, very near the top,

in the top three, for those showing relative strength with the 10 -bar look

-back period. But is it meaningful?

No, not necessarily. It's only showing that because it had that extreme gap

and now it's moved up off that gap.

So don't take things literally. It must make common sense to you as well.

Okay? I get it. This is trading back into the gap. It's making back its

It is outperforming the S &Ps, but only because the look -back period that we're

judging from was so...

Tweaky there, okay?

And then this, you know, I was just looking for today. I'm like.

Yum, the steady creeper, you know. It was at the top of my RSI also list

So I had that yum and I had that CELG, but I would be far more interested in

monitoring this stock here because it's much better well -behaved, as we say,

not so gappy, although this stock is crazy noisy. You see how crazy noisy

things have gotten on the daily charts?

But I bet you if you drill down to the weeklies, it'll all make sense.

And then lastly, so I showed you one to the upside and one to the downside here.

This was the CME, and I'm watching this make new lows today thinking, okay, what

is Mr.

Market trying to tell us by this action here?

The CME making new lows on the year.

I wonder how far it is from next year's lows.

So that brings us back to the question, the old timeless question.

Is it a stock market or is it a market of stocks?

And I'll leave that for you to answer.

But either way, you can see there's multiple opportunity on both the long

and the short side.

You know the triggers thing to look for.

You know that the chart formations, the momentum turning up or down, the

breakouts that are triggered by gaps and range expansion bars and new momentum

readings, all lovely.

And we can put on 10 trades and maybe three of them end up being home runs.

Maybe none of them do.

But over time, your winners are going to far exceed your losers.

And hopefully you'll have more winners than losers.

It's all a big numbers game.

What's most important is that whatever game you choose to play, I want you to

start thinking about your process. I want you to start thinking about this in

anticipation of next week.

What game are you playing?

You can't trade everything.

You saw how many different models we looked at last week.

We've got futures. We've got intraday charts.

We've got stocks. We've got weekly charts.

You've got trades of duration that could just last two or three days, like our

lovely little pinball trade and our five SMA trade we reviewed last week. And

then you've got this wonderful chance to perhaps capture an extended run.

You can't do it all. At least you understand the concepts that work.

The concepts that are a driver behind where your edge is going to be.

All right. And with that, I know I've got some questions here that we can

answer.

The Keltner channels, what parameters do we use for these Keltner channels?

Everything is centered around a 20 -period exponential moving average.

It doesn't matter if it's a five -minute chart, a daily chart, or a weekly

chart.

And it's 2 .5 ATRs, average two ranges, that

the band is centered around.

Now here's the original concept behind the Keltner channels.

The Keltner channels were designed to contain, I don't know, it was like 78 %

the price bar action, something like that. So when we see pushes above that

Keltner channel, it can A, either signal new momentum or a climax,

either or. But it does signal a large standard deviation move either way.

So that's one thing that's important.

It also helps as a visual crutch for the eye if we are channeling, particularly

on hourly charts or five -minute charts.

It's a wonderful crutch.

I'd much rather have a Keltner channel, an average true range function, if you

will, than a standard deviation band.

For example, the commonly known Bollinger Bands. It doesn't make sense

that I can have a downtrending market while the upper band is rising.

I'd rather just plot a simple linear standard deviation function at the

of my chart. It's exactly the same information that a Bollinger Band is

you.

Now, there's a time and a place for Bollinger Bands. You know, they make a

visual tool for when you're consolidating and winding down to one of

equilibrium points. That's useful information.

Some people like to use them as a reversion to the mean guideline once

just made a large move. Lots of times there will be a bit of noise.

Here's another nice trick with these Keltner channels.

And it's something that's very useful on the intraday charts if you are in a

momentum market or a channeling market.

You can think about keeping a stop.

Let's say you're in an uptrending market. You can keep a stop that's

between the moving average and the lower channel.

Now, obviously, it probably wouldn't have worked so well on these daily and

weekly charts that you see in front of us.

But on the intraday charts in a trending market, it's a really nice tool and

it's a great place to put an initial stop.

So let's say you're buying a pullback to the moving average. You can put your

initial stop at the lower band. You know you're not risking more than 2 .5 ATRs.

And you can quickly pull your stop up to then between the two of them.

So I hope that that helps. Let's see here.

How many periods do I use for my ADX?

I use a standard default 14 period ADX.

So I hope that, I mean, I really try not to mess with my indicators too much. A

lot of times the default settings are just fine.

Is volume part of my analysis?

The main way that I use volume is I look at that NYSE.

In the first 30 minutes of the day.

And you could see today that the NYSE volume for the first 30 minutes was much

lower than it was for the previous eight days.

And the hourly reading was much lower. And the 120 -minute reading was much

lower. If you put it on your sharding software, it plots very simply as a

histogram. And you can just draw a line across it.

One second to glance out. And that, for me, sets the tone for the day.

It sets the tone if it's going to be a trend day or a consolidating range type

of day as we had today, a sloppy range day.

Now, of course, volume is important when you're looking at stocks and breakouts

and so forth. But here's the thing with volume.

It's extremely highly correlated.

to the range of the bar.

If I see a big range bar, it's 90 % positively correlated with an increase

volume.

So I've got that right there.

And then volume also can change whether it's on a seasonal basis, the day of the

week, if it's pre -holiday. There's lots of little other variables there. So

yes, volume is important.

But I only have time to look at so much, so I have to reduce down the things

that I'm going to look at. And so I tend not to look at volume during the

intraday type of time frames.

Let's see here. Any more questions?

Well, Linda, thank you so much, and I just want to tell… Wait, I do have one

two more questions that are sort of important, and that is setting the

stop. Yes. On that initial breakout that we were looking at way in the very

beginning there, okay, on those initial breakouts, when you have that new

momentum highs on a two -period rate of change that serves as such a nice

trigger, okay, we'll just… Go back to one of them right here. For example, on

the left side of the chart here, you want to be able to have a stop above the

high of that impulse bar, that range expansion bar, that gap.

Okay, that's where it's a good spot to have your initial stop.

I don't want to see something making new momentum, huge gap, and then come back

and do a wide range reversal on me. So it really shouldn't do that. In terms of

trailing a stop, a good safe way is to trail the stop above the high

of the highest three bars, or if you're rallying, above the low.

I mean, rather below the low of the lowest three bars.

Now, here's the ultimate answer to that question.

There is not a perfect way to trail a stop.

Trust me. I've tried. I've tried parabolics. I do like ATR functions for

trailing stops.

Nigel used to do all my modeling for me, and he said, you know, the best moves,

it doesn't matter what type of trailing stop you're going to use because you'll

never get stopped out on the very best moves.

If you are stopped out, you can always find a way to reenter. So there's not a

perfect way to trail a stop, but that's a good rule of thumb on daily stock

charts, keeping it just below the low of the last three bars or above.

So let me just see if there's any more that

are important here.

The inputs for the two -period rate of change. Yes, you can use.

either momentum or rate of change on most software packages.

And you just simply set the indicator to 2.

So we can have a 10 -period rate of change, 10 -period momentum.

They will look identical.

Or a 2 -period. Now, you might be commenting on this slow line.

that I have plotted on top of that two -period rate of change because it makes

kind of nice pattern recognition.

Sometimes if there's a really good positive slope to it, I look to buy the

pullbacks on that two -period rate of change.

All that is is the slow line on that daily 310 oscillator.

So it's another nice little trick. So on that example here, that was a chart of

Visa, and you can see.

The slow line, this gray line turning down as we caved into the downside

and all I did was plot that against the two -period rate of change. That's the

slow line. So it's got a nice positive feedback loop there.

Make sense?

And I will just say all of you have my e -mail address now,

lbrgroup at att .net.

Please feel free if questions come up as you're looking at the charts and you

need clarification on something.

You are more than welcome to email me. I answered quite a few questions last

week and I'm happy to do that.

And also of interest, if you go to my website, LindaRaschke .net, I do have

some articles that I wrote over the years on volatility breakout systems

also can serve as a trigger sometimes when you have these points.

Some of you that are more inclined to do systematic modeling might find those of

interest. So with that, let me just thank Roman. You guys have your homework

out for you this session.

A, you can go study these chart examples for yourself, but more importantly,

start thinking about your process.

How are you going to do your homework? What time of day are you going to do

homework? How are you going to write that down?

What games are you going to play?

I like to call them games because it puts it in a more abstract framework

like, how am I going to make money? Gosh darn it.

So if I say, okay, what game am I going to play? Then it's measured not by like

dollars the same way, you see?

So it's like, okay, if I play this game and I pull the handle 50 times, I'm

going to win a few percent of the time, right?

So think about that next week, and then I'll look forward to seeing you at the

same time next Thursday.

Thank you, Roman.

Linda, thank you so much. This was so insightful, so much information that you

gave us. Thank you so much for bringing up the charts of the stocks. Yes,

indeed, our community trades a lot in stocks, so it was great to see that.

And as you guys have seen, the concepts, the models, if they're the correct

models, they should be working majority of the time on different instruments

because the principles are going to be the same.

great nuggets that Linda have said about different time frames and the noise,

how you go to a different time frame, how you switch your position from one

frame to how you follow the trade on a longer time frame. I love this one,

Linda. News tend to resolve itself in the direction of the technical.

This is so true, and it goes into the Wyckoffian concept that

smart money, you know, the CO, the composite man money is going to either

accumulate, absorb the supply or distribute that supply much earlier as

price is going to react specific to the specific news.

So I love that.

I love this one too. Volume is highly correlated with the length of a spread.

So in reality, in some of the classes, Linda, you know, we...

We teach students to look at the price only and to define what kind of volume

characteristics that spread might potentially have and vice versa.

So give them the volume signature and then try to define the price structure

that volume signature. So I thought that comment was so interesting.

Well, we are looking forward to...

hear from you, Linda, next week, your thoughts on the process.

This is something that I'm working constantly with myself and, you know,

to perfect this. And it's always difficult, you know, how to keep

the specific routine that would be the most optimal for trading.

So that's going to be amazing.

And just want to, again, say that go to Linda's website.

And order the book and start reading that.

Linda, thank you so much, and we'll see you next week.

Thank you, Raman, and thank you all for attending.

Bye -bye.