A Discounted View

Candlestick charts can offer a unique perspective for charting market direction and sentiment. Developed in Japan, these charts represent price action with a figure that looks like a candle. That is, the price depiction has a body and one or two wicks. The body of a candle can either be open or closed representing either a higher or lower close for the specified time period, respectively. Open candles are represented with a light color and closed candles are displayed with a darker color. The extremes of the body represent the open and the close which can sometimes coincide with the high or low for the time period being analyzed. In such a case, there would be no wick, or straight line extension, from the candlestick. Otherwise, the wicks represent the high or low for the specified time period. Candlestick charting offers an easy way to quickly assess the market trend . Thomas Bulkowski identified one particular pattern  that can be used to identify a possible end of a trend a...

Since Crude Oil began its long-term decline in the early Fall of 2014, the commodity has yet to find meaningful support and forge a sustained reversal. However, the most recent lows in January and February 2016 appear to have formed a double bottom. This pattern can be constructive for future price action . In Technical Analysis a double bottom is a price pattern that forms after a sustained downtrend makes a low, reverses higher, then retraces back to around the previous low, and finally proceeds to move higher again. The breakout from a double bottom is confirmed when the price moves off the second low to a point that is higher than the reversal peak from the first low. Sometimes the double bottom may be symmetrical and other times there can be some asymmetry between reversals. Currently, Crude Oil is exhibiting asymmetry in its double bottom. Thomas Bulkowski coined the different price bases “Adam” and “Eve” depending on the shape of the move. “Adam” reversals are typically...

In The New Trading for a Living , Dr. Alexander Elder suggests two methods for controlling risk. Previously I wrote about how the 2% Rule  will mitigate risk when building a position. Elder’s other risk guideline, the 6% Rule, can be used to minimize risk at the portfolio level. Just as the 2% Rule puts solid risk management in place at the position level, the 6% Rule provides a useful risk constraint for the entire portfolio. Specifically, the 6% Rule restricts traders from allowing total outstanding risk of all positions to exceed 6% of the portfolio value as of prior month-end. The 6% Rule protects your account from incurring a series of small losses that amount to one large, meaningful loss. For example, a 1% loss may seem innocuous however once a series of five or more of these accumulate in your account in one month the losses will begin to be felt both financially and psychologically. To an extent, the 6% Rule works against human nature. That is, as traders begin to...

Executing sound risk management principles in your trading is essential to having any chance of investment survival. If one position is sized too large and generates an enormous loss, this can be catastrophic to your account as well as your psychology as a trader. Fortunately, there are methods you can learn that will protect your account. In The New Trading for a Living , Dr. Alexander Elder proposes a method for controlling risk at the position level which he calls the 2% Rule. This guideline states that the total risk in any position cannot exceed 2% of the current month-end account value. For example, if you have $100,000 in your account at the end of the previous month, the 2% Rule limits your maximum risk on any trade to $2,000. That is, risk is defined as the dollar value of the difference between your purchase price and stop loss and cannot exceed 2% of the account value under this rule. Be sure to not confuse 2% with the total position size. While 2% may seem sm...