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immediately, coming within $1 per share of the filter line. Three more such entries follow, as marked on the chart.
As we have repeatedly observed, the filter line often serves as significant resistance, especially one such as this where the market has dropped quickly and decisively below the filter line. Note that the market makes fully five attempts to break through this line before actually doing so, even then to be turned lower to finish near the low of the day.
Each of these attempts provides, as discussed before, appropriate points at which profits should be considered. In each case, a gray ellipse above marks an appropriate point for taking profit for each of our four trades.
Our signals from dual Percent R again are useful in Figure 11.15 as an adequate indicator that there will soon appear confirmatory signals from either dual stochastic or dual RSI. Both have been shown to be a bit more accurate in the actual timing of both buying and selling signals.
Figure 11.16 applies the dual RSI to our JDSU chart.
"\" lrjrlelitrttion Chuil (.IDbU) JDS Uniphase Lnipoirtlirjn LASf-T
DSULAST-1 min 10(10/2000 4S.50C! * 70.56% 0=6*250 H=66.26C :L=63 063 V=35G2800 Oir Day Filter£5,B0) «32.375
UMb "Il.UI 4:2B llfal 12:1b 12:41 1:UU 1.5b JU\ lib
Figure 11.15 Dual Percent R consistently places buy orders prior to other oscillators, giving the trader ample notice of possible confirmatory signals come.
Chart created with TradeStation® 2000i by Omega Research, Inc.
TcnitaStdlifirt Chilli - (JD5U) .JDS Uniphase Coipmation LAST 1
JD6UUST-1mln 10 0 000 = 0.563 «15-500 « . 0=64.250 B=66.250 :L-63.003 V=3502800 DlrDayFllter(5,60) 92.375
Figure 11.16 Once again, fewer, amd possibly more accurate, confirmatory signals from dual RSI appear here.
Chart created with TradeStation® 2000iby Omega Research, Inc.
Of considerable interest here is the signal given by the usually quieter dual RSI indicator as the market makes its initial plunge below the filter line. Again, the indicator lives up to its accuracy rating shown on previous charts. The addition of the use of market-defined support and resistance would prove to be an additional filtering tool helpful in the accurate placement of high-probability trades.
Figure 11.17 is another chart using JDSU as the basis for the comparison of signals generated by our filter in combination with the oscillator indicators.
Our Directional Day Filter is predicting a sideways to mostly lower day here. Although the activity above and below the bar is only slightly in favor of the down side, the balance is shifted in favor of the bears as the close of the 60-minute bar is nearly on the intraday low and significantly below the filter line. The sideways portion of the prediction is validated to some degree by the market spending some time in a sideways mode before falling another $1 per share and then rallying into the close.
Again our alternate strategy that trades the breakout of the early range as defined by the 60-minute portion of the filter
Figure 11.17 Dual stochastic again identifies exhausted correctioas in a downtrending market.
proves its worth, especially on breakouts that occur early in the trading day.
The dual stochastic signals appearing on the chart are once again fairly accurate in their respective sell signals. Of interest on this chart is the apparent strength of the intraday low that was established on the initial hard drop by the market to the $91.75 area. Repeated attempts of the market to break through this support level are turned back by the aggressive buying uncovered at * that level. Fortunately, our dual stochastic indicator is able to position us properly to take advantage of these repeated dives by the market, and, eventually, to be in the right trade when the support finally caves in under all the selling pressure.
Again the dual Percent R formation gives us early warning of upcoming signals from other oscillators, as one can see in Figure 11.18.
There will be traders who will prefer to use the dual Percent R indicator as a stand-alone tool due to its ability to select a greater number of trades and its tendency to be a bit earlier than the other oscillators used for this purpose. However, there is an inherent
Figure 11.18 Early warning of impending sellsignalsis given by dual Percent R.
Chart created with TradeStation® 2000i by Omega Research, Inc.
danger in this strategy: The early entry can occasionally get the trader into a position too early and immediately into a losing position. As I have mentioned several times, the use of the support and resistance formations that are detailed in the following chapter is helpful in keeping traders out of these bad positions. I have included the chart in Figure 11.19 as an example of how these levels can be used as an important filter. More detail follows in the next chapter.
The short horizontal lines in Figure 11.19 mark the positions of Category 3 support levels that are used as an alternative method for trade entry. In this case, sell stops are placed slightly under the support areas as they develop, but only after a sell window is opened by an oscillator, in this case Percent R. When the market trades down through the sell stop our short position is automatically established.
The advantage of this strategy is that you usually enter a position only if the new trend in the market is actually moving in your desired direction. Accuracy of this method is therefore higher than simply entering when the oscillator gives the sell signal. The disadvantage is that you frequently enter at a lower price, therefore
Figure 11.19 The addition of Category 3 support levels willassistin proper placement ofsellsignals.
Chart created with TradeStation® 2000iby0mega Research, Inc.
reducing the profit potential for the trade. As with most trading strategies, this becomes a trade-off between accuracy and maximum trade profit. Again, this is a determination and decision that must be made by the individual trader as a function of his or her own trading style and risk-carrying ability.
Figure 11.20 shows only one signal from RSI for this sequence, but at the best point of the day.
TRADING THE SIDEWAYS DAY
Often one of the greatest challenges for the short-term trader is dealing with the trendless, sideways days that develop on a regular basis. I have heard it frequently expressed that markets trend roughly 25 to 30 percent of the time and remain in the sideways mode the rest of the time. Therefore, a strategy able to offer some degree of success on such days can indeed be a valuable asset to the active intraday trader.
Mlinfi a-SR a-ii q-.ifi WW m- li-r n-ifi ins Vti S>k o-->i
figure 11.20 Although dual RSI sees fit in this iastance to open only a feingle sell window, its placement properly positioas the trader to take advantage of the last down leg of the day.
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