Momentu1

Momentum, Reversals, and Bar Patterns
October 15, 2009 · By Brad · Filed Under Guest Bloggers
Last week AJ Brown from TradingTrainer.com gave us a great article to ‘chew on’ covering OTM
near-term vertical debit spreads. The response was pretty good, but I think we’ll get him an even
greater number of comments with this article on momentum, reversals, and bar patterns. Please
enjoy the article and if you haven’t done so yet, I recommend you check out AJ’s training videos as
you’ll learn a TON!
==================================================================
Every day’s bar tells us something about what to expect the next trading day. In other words, today’s
bar affects tomorrow’s bar. So how do we know what that effect will be?
Not every bar will give you clear insight into where the market is headed. But there are certain bar
patterns that are more informative than others. Allow me to share a few of these bar patterns with
you.
You can often determine if the next trading day is going to be an up day or a down day by looking for
a “key reversal up” or a “key reversal down.”
A key reversal up is when today’s low is lower than yesterday’s low, but the close is higher than
yesterday’s close. When this happens, the next trading day will usually be an up day. Here’s a chart
showing a key reversal up :
A key reversal down is when today’s high is higher than yesterday’s high, but the close is lower than
yesterday’s close. When this happens, the next trading day will usually be a down day. Here’s a
chart showing a key reversal down:
During a key reversal up, the bears try their best to push the price down. But then the bulls come
back strong and drive the price higher than the previous day’s close. This indicates the price will go
even higher on the next trading day.
During a key reversal down, the bulls try their best to push the price up. But then the bears come
back strong, taking back all the the price gains and then some. This indicates the price will be
headed lower on the next trading day.
Two more bar patterns that can be used to determine where the price of a stock is headed are a doji
with an intraday low and a doji with an intraday high (a “doji” is a one-day bar with virtually the same
open and closing price).
A doji with an intraday high is sometimes referred to as “Lincoln’s Hat.” Here is a chart of a Lincoln’s
Hat bar pattern:
As you can see here, the price opened and closed at almost the same exact spot. But the price ran
up quite a bit before running out of steam. The pattern looks like Lincoln’s famous top hat.
When you see a pattern like this, you can be reasonably sure the price will go lower on the next
trading day. And, of course, if you see a cross pattern (an upside-down Lincoln’s Hat), then the price
will probably go higher the next trading day.
In every case I’ve shared here, the momentum from one day spills over to the next.
One last note: When there is very little trading volume, then these patterns are not quite as reliable.
But the more volume there is, the more reliable these bar patterns become.
Things You Need to Know to be a Successful Trader
October 14, 2009 · By Brad · Filed Under Guest Bloggers
Today I’ve asked an old friend of Adam and mine, Jim Robinson who writes a fantastic Commodity
Newsletter, to give us his breakdown of what it takes to be a successful trader. Please take time to
enjoy the article, visit Jim’s Commodity Newsletter, and please comment on what YOU think we
need to know to be a successful trader.
==================================================================
I want to thank Brad and Adam for giving me this chance to be on the MarketClub Trader’s Blog.
I am INO.com’s #1 fan, so this is truly an honor and again thanks !
I’m just basically going to write down some things I feel you need to know to become a successful
trader.
========================
THINGS YOU NEED TO KNOW
THINGS YOU NEED TO KNOW

#1 - You have to have a exact trading plan.
#2 - You have to believe in your trading plan.
#3 - When you start trading your plan, you have to follow it - exactly.
#4 - If you don’t have a plan and follow it, you will not be successful trading.
========================
#1 - THE TRADING PLAN
If I had to make a guess I would say most trader’s probably trade their entire career without a trading
plan.
Does that sound hard to believe?
Well if you don’t mind, let’s take a little test here .
Write down your trading plan.
A) How to enter a trade.
B) Where does the stop go.
C) Where do you take profits.
And to me each of the above needs to be clear cut, no questions asked.
In other words anyone who followed your plan, would know exactly where to enter, where to get out,
and where to take profits, at all times.
If your plan reads, I trade double bottoms, triangles, bull flags, or I use Stochastics, Moving
Averages, etc. etc, I’m sorry but to me that isn’t a plan, that is a hodge podge of chart patterns and
technical indicators.
So let me give you an example of what I consider a trading plan, and this is just an example and is
not an actual trading plan.
EXAMPLE PLAN - BUY
#1 - If the market trades above the 10 day high go long.
#2 - The stop if wrong is the most recent 10 day low.
#3 - If the trade moves your way, use the low of the last 10 days to take profits.
A sell example would be just the opposite.
=============================
Anybody that decided to follow the example plan above would know exactly what they were going to
do before they even entered the trade, and they would know exactly what to do while in the trade.
============================
#2 - BELIEVE IN YOUR PLAN
This is where paper trading and testing, will come in.
If you see the plan works before you start to trade it, you will be able to stick to the rules.
If you don’t have an exact plan, you will never be able to follow it, quite simply because you really
have nothing to follow.
============================
#3 - FOLLOW THE RULES
This is where the going get tough, because most trader’s can’t follow a plan.
And quit simply that is why most traders lose.
If you have a trading plan you believe in through, paper trading and testing, you will be able to follow
the rules, because you will know overall you are going to come out ahead.
===========================
#4 - YOU CAN DO IT !
If you develop a clear cut trading plan that works, and have the will power to follow it, you will be a
successful trader.
Really the big secrets to a successful system are
#1 - Trade with the trend
#2 - Cut your losses short
#3 - Let your profits run.
Not much of a secret, right, everybody knows that.
Here’s where I believe most fail even though we all know to trade with the trend, cut losses short,
and let profits run.
Trading with the trend, cutting losses short, and letting profits run, can mean almost anything to
anybody and that brings us right back to what we are talking about - we have to have a plan.
#1 - We have to know how to define the trend.
#2 - We have to have a specific rule for cutting losses.
#3 - We have to have a specific rule for taking profits.
Well I could go on and on from here, but I am also one of those people who believes in keeping it
simple, so I think this is plenty for one lesson.
So please before you ever trade have an exact plan, and then when you start to trade - follow it.
You can do it !

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Momentum, Reversals, and Bar Patterns

October 15, 2009 · By Brad · Filed Under Guest Bloggers

THINGS YOU NEED TO KNOW

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