Tag: trading | Cozy Dragon Trading Club

Pitchforking as a trading system – The basics

Andrew Pitchforks are not just a ‘channel’ type, they are a very accurate trading and market anticipation technique with no equivalent. I will focus today on the basic usage, laying out a basic pitchfork on a chart, getting a buy or short signal, getting confirmation, placing stops and estimating some target areas. Big agenda, isn’t it?

Let’s start immediately. Open a chart and select the last 4 peaks and troughs that must alternate. If you are not sure, you can use fractals or oscillators that go above and below zero, even average. Your eyes are also a good indicator :-))) Don’t worry about having the ‘right’ pivot points, each set of pivot have a story to say and Dr Andrew never put rules to select these points. We will see in other posts how to validate a pitchfork, that is more advanced discussion.

As a beginner pitchfork trader, make sure you the 4 pivots you selected form a wedge, like this:

Note the numbering. Last pivot is always called for 4.

Now we can draw our first pitchfork by selecting pivots 1, 2 and 3:

Pitchfork is made median line, 2 median lines high (MLH) parallel to median lines. Line 1-3 is called Hagopian line. Note that both median and Hagopian line are slopping down.

Buy Signal. The basic buy signal is when prices (a full candle) exit the pitchfork. Easy!

Confirmation After exiting the pitchfork, prices usually retest the MLH, which can also be a good entry point.

More secured entry An other possible entry is after breaking the Hagopian line. Note that it can be retested as well before price actually start going up.

Stop Loss – Assume pivot 4 as a good level for stop loss for now

Target Price Case 1. When price don’t reach the median line like in our case, it is expected that prices will go back to pivot 3 level with 80% confidence, and possibly much higher.

Target Prices Case 2. We draw parallel lines to median line. Like this:

Then we draw a new pitchfork by selecting pivots 2, 3 and 4.

That is the trick now! Assuming both pitchfork are valid (more in future post), the intersections of MLH, medians and warning lines are potential target prices, defined with also a timing!!! You can say price should reach this price by this time wiht pretty good accuracy.

Let’s look into the future:

As you can see, price went up though it did not reach pivot level (80% probability only!). I went beyond the median anyway. Because pivot 4 was not a the median (remember the hybrid pitchfork?), intersections are not accurate here.

That is the basic story. Hope you noted the assumptions. We have to study what to do when pivots do not form a wedge, how to validate a pitchfork, etc, etc…

In the meantime, please trade safely.

How long does it take an average bloke to power on a light bulb?

You might think this post is about joking, maybe not so, but I will attempt to make you smile. We are living in a world that has gone insane because not only people are not thinking any more, but they also let others think on their behalf. As I have been advocating many times on this blog, thinking by yourself will let you see the light! Let’s go through many examples of current lunacy.

Let’s start with mainstream economists. They are usually the laughing stock of deep thinkers. Now they are telling us that debt, whatever the size, does not matter any more because the cost is so low that the interests needed to be paid back are smaller than 20 years ago. Yeah right! But are we not supposed to pay back the capital at some point? And what if interest rate go back up? (because they will!)
Ecologists are a cute little specie without brain and absolutely zero scientific or human psychology knowledge. They keep repeating what a group of idiots called Intergovernmental Panel on Climate Change (IPCC ) under United Nations Organization are saying. Those guys have established a correlation between CO2 level and Climate warming. It does not take long to look at raw data and see that this correlation does exist, but only from time to time! Data from last 20 years (average temperature has not gone up) is therefore ignored. Instead they claim that a 2°C increase by 2100 will be a total disaster for the planet (most of us will not be there to verify that claim anyway) and it legitimizes the attempt from Bill Gates to cool the climate by throwing chalk in the atmosphere, thereby …. choking (pun intended) in the process any existing life in that area. Totally insane. Why 2°C? Why not 1.5°C? or 3°C? Are oceans really going to immerse vast land areas (Archimedes would laugh at this idea!)? Relying on wind on solar energy only, will people accept to have electricity only during windy or sunny weather?
Green growth is also a chimera. Electric cars don’t do more than fuel powered cars, so when you switch to ‘green’, you create jobs for electrical car manufacturers but delete many more with traditional care makers. Negative impact again!
The pandemic and vaccine strategies clearly show how quickly our politician have reached burn out status due to smaller than average number of neurons in their brains! Imagine a vaccine based some technology born in the 1960’s but never approved for commercial usage, being suddenly approved for huge clinical trial…. It should make you wonder and investigate. The mRNA can modify your DNA. You are not eating transgenic wheat, right? And you want your genes to be modified without the knowledge of the impacts in 2 or 5 years? You are NOT a conspiracy theorist when asking questions, whatever they say!!

If you don’t know how to ask questions, go back to history and read old wisdom books. The old Chinese book ‘Tao Te Ching’ will definitely ignite brain power, then continue… there are thousands of books to read. You will also find that strong limbs, biceps, triceps, … muscles are best tools when coping with stress wherever it comes from, some Daoyin (Chinese) movements will help you think more clearly too! You may also humbly read again previous blog posts such as this one about challenging assumptions…

How long will it take you to switch on the light bulb? That is the question!

You may end up with different conclusions, those are mine:

Dismantle those idiotic and useless organizations such as IPCC mentioned above, but also IMF, WHO, WEF, EU, … because they are led by insane people.
Dismantle Facebook and alike which make you waste your time without being paid back, and prevent you from thinking by yourself!
Spread sound culture, always get back to basis when needed. Have a good relationship with money
Prevent finance from playing with money or our savings. French Bank Societe Generale currently wants to issue a product made of a bond and an option, all secured by Tezos blockchain. When it all fails, they will blame crypto technology!!
<add your conclusions in the comments!>

Let’s finish this post by a look at Bitcoin chart. Yes Bitcoin is possibly a kind of Ponzi scheme where new entrants are paying for those who want to get out. But, by blaming Bitcoin and other crypto currencies, the crypto haters make buying opportunities for open minded traders who are trading, not investing in the long term (HODL). For as long as crypto’s are allowed, then there is profit to be made!

My red objective was reached (64891 vs 64808 calculated!) even before reaching the reaction line. Hidden Divergence with MACD, moving average still pointing north, and more than average volume points to a recovery in coming days but we have to be careful. Closure under 52k and I am out for the short term. On the longer term, I am out under 46k.

That’s it. Until next time, use your brains to trade safely!

Tezos – new departure to the moon?

I possibly mentioned Tezos earlier. Maybe I had not drawn the action and reaction lines. As can be seen from graph below, the trend is still up, Tezos has been taking some leisure time around the reaction line and seems to be going up again. You can draw triangles if you wish, but note there is no special scientific theory backing up such figures!

On the downtrend from 5$ to 3$, of course volume was big, it has decreased a lot but stays at high level. This is why we want to stay with the major trend which is up! Divergence between MACD and its histogram also points to same conclusion. The next reaction line is quite far away, objective could be reached by end of March if we are lucky and market is strong enough!

How do I play it?

I already have a position that I bought at 2$ (green arrow) and I halved it at 5$ (objective was 4.57$). New objective is 6.23$, 40% on top of current price with a stop at 3.70$. So I am buying half a position to restore one full line, half a line invested for as long as long term trend is up, the over half is trading to increase profits. The stop applies only to half my position.

That’s it. This is no recommendation of course. Until next time, trade safely.

Moderna – could the vaccine make your money?

Whether you are anti-VAX or not does not matter, money does not smell! Let’s look quickly at Moderna chart.

My system rings the bell, saying there might be an opportunity today. The 9-day average is point up, as well as the 48 which is still bullish. Only the blue 18-day is still showing negative slope.

The objective (drunkard theory) is 200$ and as can be seen from reaction line, there is zero resistance in the near future. Nothing seems to prevent reaching the objective. Stop of course at 126$

But wait? MRNA is down 7% today… it it? That’s good because distance to stop was big at close yesterday, meaning your position should be small, whereas today we can have either a bigger line or stay with small line but with a better risk/reward ratio!

This is no advice of course. This is how trading goes, we take the bet, and if we are stopped out, then it’s life, we cut the line and forget about MRNA.

That’s it. Until next time, trade safely!

Static versus dynamic, investing versus trading

In many of previous posts, I highlighted the necessity of asymmetric trading ie. a reward/ risk ratio that is as big as possible. Even in today’s very complicated markets, with millions of news per minutes, the random static trading model that I have shared is working beautifully. It is is static because it only based on an ‘observation’ period. The dynamic counterpart is about analyzing how a stock or index behave over an observation period with respect to a specific moving average, here we enter the realm of Laplacian distributions, too complicated to explain on a blog but the news is that I am progressing on my eBook writing and I plan to release it by end of the year! It will be extremely expensive but definitely worth it! Will prevent you being on the wrong side of markets!

Asymmetric investment is a totally different job. You don’t rely only on mathematics to make your decisions. You need to have a vision, anticipate what may happen, … Very few services are capable to do it! And you can see it through the performance of investments funds, most of them never beat index performance. Investing on index fund (what I call static) for next five ten years is probably the worst idea you may have these days. Economic crisis has barely started, though you already know for sure some good businesses that are now worth zero because they can not open to customers. So what should you do for long term? I can not help you too much here except recommend NoHypeInvest (click on picture!). I get no commission!

They share a lot of advice for free and if your portfolio is big enough, it is worth subscribing to their premium service. It is not for tender at heart, they are looking for 3 digits gains over a few years, even if they are true only 25% of the time. As explained earlier, this means you can have a long series of loosing trades, don’t blame them, you are warned! They are however capable to explain the key elements sustaining their reasoning.

Speaking of of vision, take a look at Chris’s forecasts for the coming years. Don’t say he is conspiracy theorist, and look at all laws being voted in your country and you will see he is right… unless we, folks, do something!

OK, man, but what are we doing? It is the same subject I called for you to think multiple times on this blog. Open your brains and don’t take every bit of news for granted. When you have a Facebook account, FB knows everything about you, even things you don’t know yet. Same for Google. They have started to decide what you can say, what you can not say, …. and they sell the data you have given for free for huge profits. So it is time to either leave or scramble their data and make it worthless: change you GPS positioning, address, name, encrypt data, … In Google database, I am weed and alcohol addict, looking at pink elephants in Sahara desert right now, which of courses gets me some hilarious advertisement!

Those looking for alternatives software or websites can look here for instance

That’s it. Until next time, trade safely!

[Beginner series] Trading with a pitchfork – Part 1

We begin a series of posts dedicated to newbies in trading. I wrote a few times, there would be no such posts, but of course I will take radically different approaches from other web sites. Again, I only target methods of trading that makes sense for those with small portfolio, so there is no need to spend too much time on candlestick theory other than a few key information.

Trading with a pitchfork sounds weird, but it is one of easiest and most reliable and profitable method… providing you know what you are doing. The second part of the sentence is exactly what is missed on some popular sites! Pitchfork trading is usually compared to channel trading, which it can be, but that is very poor usage of this wonderful tool!

Before we introduce the tool, you need to first major in peak and troughs analysis. Don’t go away just yet, it is pretty straightforward with a little practice. Peaks are … peaks and troughs are … just troughs! The major ones are usually easy to identify!

Let’s start immediately with an exercise. Can you point peaks and troughs on this Netflix chart?

Maybe you ended up with this, peaks with green ‘P’s and troughs with yellow ‘T’s

If you did not end up with same collection of peaks and troughs, that is fine. We are working with random system, you are allowed some deviations!

There is one important rule is that peaks and troughs must alternate: P – T – P – T – ….

Is there any way to automate the discovery of peaks and troughs? Answer is yes, and there exists more than one. But in order to respect previous rule, you will sooner or later meet some ghosts!

One way to to identify a trough (same for peak) is by using a two steps approach, first one can be automated easily, second one is more complex!

First step is to identify short term ‘swing’ points (SP), generic term for peak or trough. A swing point for a trough is simply a day where the low of the day is surrounded by two higher lows on each side. Example:

A medium term trough swing point is surrounded by one higher low short term swing point on each side:

Easy, isn’t it?

The medium term swing points will be the first ones of interest when playing with pitchforks.

Before I let you think on your own, remember the rule above, swing points must alternate tops and bottoms. But sometime, you will be missing a medium term swing point with the proposed method, so you know there is a ghost swing point!

Next time, we will look at how to anchor pitchforks to swing points

That’s it for this post! Comments are welcome!

Relative Strength Index: weaknesses exposed

Today we will take a quick look at most popular, most used indicator, but I have never understood why traders give it such value! Let me give you some tips to make it interesting. We are going to use Facebook for our study!

On the graph, you can see RSI indicator at the bottom, just below our customized MACD. It looks very noisy especially with default parameter 14, but since it is an oscillator (as opposed to trend indicator that MACD is), you may spot better synchronization with market tops and bottoms. If you can’t see, move your seat away from your screen, a bit more, even more… can see now? Good… The blue lines indicate the overbought and oversold levels, which, as you can see, are not reached very often!

So what’s wrong? The problem lies in RSI formula:

RSI = U / (U + D) where U is average of up moves in last n days, and D average of down moves over same period.

As I have previously demonstrated, market is a random and existence of trends is the proof of its randomness. So where is the link between this formula and random nature of market? The calculation could give similar results whether all the up days are consecutive or not, so with totally different market configurations. So, yes, it may work if you are very short term trader (a few days at most) and work out the divergences, market tops and bottoms, and decide what to do about it.

Could we modify it for more interesting usage? Of course! We can even use it for trend trading. Just replace delta between today’s and yesterday’s close by the delta measurement on your favorite moving average!

Now look at this new indicator. Buy signal is generated when improved RSI (iRSI) crosses above 50. You will notice it goes straight to 100 and stays then there until exit time. Easy, isn’t it?

As usual, use a stop to secure your gains. You may also define overbought and oversold areas at +30 and +70 if you want to stay with the trend as long as possible. False signal do exist of course, and there are 2 on the graph; the moving averages tell you not to go!

That’s it. Until next time, trade safely!

Secret new indicator makes trading easier!

When it comes to teasing potential subscribers for a newsletter, whether free or not, authors always mention a secret new indicator which detects the 10-baggers, stocks that can multiply by 10 in next few months. How disappointing when you find out it is about crossing the 1-year high! Such indicator indeed just does not exist, because stocks prices are moving because people are buying aggressively and not the opposite. We can predict with some accuracy where market has chance to make tops and bottoms in the near future based on volatility but exponential growth predictions can not be relied upon! Be cautious!

Brought to you by Cozy Dragon Trading Research Labs is a single new indicator that provides a sense of direction and timing never seen so far. It does not have any name so let’s call it Secret Indicator (SI). Let’s take a look at it!

Overlaid on price is our random walk path and just below the SI. If you are looking from the buy arrows, SI goes up keeps going up until the very day of trend reversal. Zero crossings of SI or its histogram can be used to trigger the buy action. There are a few finer rules to make the analysis fully reliable.

Please compare with RSI or STC indicators just below, causing many buy and sells orders because of whipsaws….

We can not disclose the formula behind this indicator. But we will use it in background for our market analysis!

That’s it for this back-from-vacations message. Until next time, trade safely.

Gone fishing…. The boring market report August 5th 2020

I have plenty of subjects to discuss in September and later. I want to spend three weeks far from Internet, the worldly (bad) news, … I will monitor my open positions, but not much more. I will not validate the hundreds of comments that I have undoubtedly when I come back!

S&P has gone through the last reaction lines quite harmlessly. Next one is not drawn yet but is much further away. This rally can continue for a while, unless something wrong happens! Your stop should be around 3100.

As written some time ago, you ought to have gold. Dollars and euros are printed faster than trucks can transport them where needed, so their value to the good old Gold is going down, so Gold goes up. Turbo has even been clenched for the pleasure of traders and investors alike.

If there is something that has been very pleasant these last days, it is the post-halving Bitcoin rally that has started. At last! Many other cryptos either anticipated (Etherum) or are following (Litecoin, Ripple). My portfolio shows massive gains in just a few days, and it is very likely that the rally will extend for a long time.. for the same reason as Gold!

You need to monitor the progress of virus and countermeasure applied in each country to anticipate a possible slowdown on stock market. Gold and cryptos may or may not correlate with stock market like during containment. Each needs specific attention.

That’s it. Until September, trade safely. Stay away from virus and wear a mask if needed: it is only a matter of probability, you are decreasing the chances to get sick. So be bullish on masks and bearish on the virus!

TTYL

Have you been fooled by the bell curve?

I know you like some food for the mind for the week-end, this post is sure to make you think even it is simple mathematics! Of course, it will be fun to read too!

I have talked previously about how not use the Bollinger bands and I am going to kick even more on this concept.

As soon as you start talking about standard deviation (or sigma), you are assuming a bell curve, that is 62% of measurements (price) should be within one standard deviation of the average price. Let’s check that immediately, let’s display a Bollinger band with 1 sigma on Apple graph:

Now look in each blue blox. There is almost ZERO price inside the band! The guy who sold the Gaussian curve to finance was the best salesman EVER!

Though attributed to Gauss, the bell curve was created by Abraham de Moivre in 18th century and then promoted furiously by an Adolphe Quételet in 19th century. Johann Carl Friedrich Gauss, one of best ever mathematician, published a book about normal distribution for astronomical data, and since then, we are talking the Gaussian or bell-shaped curve.

Gauss never studied the stock market random data! And standard deviation is only a ‘trick’ to locate 62% of the data around the average.

As shown on Apple graph, stock data is not consistent with normal distribution. Now what? When you have spotted a problem in trading, you got an edge!

You may remember from your years in high school the basic average deviation, sometimes called mean absolute deviation (MAD). In other words, it is the raw deviation measurement. Quoting Wikipedia:

MAD has been proposed to be used in place of standard deviation since it corresponds better to real life.^[3] Because the MAD is a simpler measure of variability than the standard deviation, it can be useful in school teaching.^[4][5]

School teaching? Hmmm… Most important part is first sentence: it corresponds better to real life! More on the difference between MAD and Gaussian distribution by fabulous Nassim Taleb here.

Stock price is not an industrial process measurement, it reflects the opinion of all people about the studied stock. If you are a car manufacturer and making 4.50m long cars, your production should make cars, say between 4.49 and 4.52, because otherwise the doors will not close properly is car is 4.78m long and you will need re-manufacturing with all associated costs! That is not the case for stock price, you are allowed to be excessively bullish or bearish!

Let’s give this theory a try. I am removing the Bollinger bands and adding a simple moving average, 34-days for the example, but you may change it.

Steven Nison, in his book introduced the Disparity indicator, created by Japanese traders, which is defined by:

Disparity = close – average over n days of close

It is very close to what we are looking for! We only need to add an average to get the Moving Averaged Disparity (MAD also just to add confusion!)

The blue line is disparity and the MAD line is shown green when pointing up, red when pointing down.

As you can see, trading is almost straightforward. Buy when prices are over the 34-day average and disparity crosses over MAD (or when price cross over average and disparity is above MAD). Then get out when prices drop below average! Easy, isn’t it? You also get some nice divergence at the top, disparity has crossed below MAD end of January, far before the correction started!

From this introduction, there are plenty of ways you can improve this very basic but nonetheless very efficient indicator!

Here is a non commented graph of Nasdaq for you to play with:

That’s it! Until next time, trade safely!