See the start of this text beneath the identity “Foreign Exchange Secret. Trend Reversal Classical Figures in Technical Analysis at Foreign Exchange Market (Half I). “
Beneath the trend reversal determines referred to as “diamond” is depicted.
E. Neiman states that the “diamond” determine is used simply as a signal of the “bull” trend reversal after receiving the affirmation on the extent of the “A”-line. Consequently, it’s a good place for the downwards-directed opening.
The interpretation of the inscriptions within the Chart given beneath:
The framed inscription: This chart has been already submitted earlier than – when an instance of the “head and shoulders” figures is examined. Nevertheless, in the midst of time, it comes upon that this determine is extra just like a “diamond”. One ought to Sell after the breaking by the 2nd line of Support.
There arises a collection of questions, addressed to Neiman, and never answered by this writer.
One ought to with consideration reread the inscription, given by Neiman on this Chart: “it’s an instance of the “head and shoulders” determine. Nevertheless, in the midst of time (?!) it comes upon (!!!) that this determine is extra related (?!) to a “diamond”. One ought to Sell after the breaking by the 2nd line of Support”.
In his Analysis, Neiman sticks to the analyst’s typical place. That’s, in accordance with such specialists, the public sale at Foreign Exchange is critical for detecting a determine of the reversal or trend continuation publish factum.
The trader’s wants are cardinally totally different – i.e., figures of the trend reversal/continuation are mandatory for detecting the purpose (determine) of the trend finish:
- The closing of bargains within the outdated trend;
- The opening of bargains within the new trend.
Elder’s place regarding the “diamond” determine of reversal principally differs. Elder describes this determine within the following approach. Beginning as an increasing (divergent) triangle, lastly, this determine takes the type of a symmetrical triangle. To acknowledge this determine, one has to be very concentrated. The “diamond” originates instantly from the Rorschach chart. Taking a look at this determine with consideration throughout a long time frame, one can discover the “diamond”. Nevertheless, its worth for a gambler is minimal. This writer was in search of “diamonds” himself however the majority of them had been “zirconium fakes”.
Additional in his “Trader’s small encyclopedia” Neiman has agreed with Elder. Neiman confirms that the signal is weak not just for the increasing triangle however even for the taper-type (converging) one – if the breaking happens in direction of the backward route (together with the outdated trend). The “diamond” determine building is predicated precisely on this very precept: a brand new trend begins creating within the route, reverse to the outdated one.
One can see the affirmation on the “A”-line-level and a further signal. There’s a weak place for opening upwards/downwards.
So, who is correct – Elder or Neiman?
What should a trader do when this determine seems in the course of the public sale? Alongside what trend should one work – together with the outdated or a brand new one?
In what level one can see
- The brand new trend affirmation.
- The brand new trend cancellation and a flat.
- The brand new trend cancellation and prolongation of the outdated one.
- Will the trader keep out of the market?
- Will the trader open a long/short place?
Each trader should discover clear solutions to those questions. That’s, one should come to know the particularities of the scenario. In any other case, a trader will inevitably depart Foreign Exchange for good, which occurs to 19 people of 20. Seemingly, Elder, Neiman and different classicists of the technical analysis do not grasp the essence of those issues.
An issue posed by Masterforex-V Trading Academy is to find out a transparent distinction between a “true (real) diamond” and a “zirconium pretend” – the latter notion implies the false determine of reversal. A. Elder has not dwelled on this distinction. What has to be added to the world-known normal chart of “Diamond” with a view to clearly see when Elder is correct and when Neiman’s method is appropriate.
Allow us to study the above-given chart that depicts Neiman’s method.
Briefly, to say, Neiman defines the signal as “weak” when it’s leaving the triangle. Based on this analyst, within the mannequin of “diamond,” the signal is “heavy”. What’s the distinction between the 2 instances? In truth, there exist no clear distinctions. Simply the actions will end in other ways, and the implications will grow to be obvious solely afterward. On the identical time, a trader must see such distinctions on the very starting of the motion.
Rounded fashions of the “prime” and “backside”
In “Technical Analysis of futures markets: idea and observe”, J. Murphy describes this determine as a “saucer”, “rounded prime/backside”, “bowl (cup)”. This pattern depicts a really sluggish, gradual change within the tendency beneath the situation of adjustments within the trade quantity, introduced within the decrease a part of the chart. Each within the instances of the patterns of “prime” and “backside”, the trade quantity diminishes in magnitude when the market performs a gradual transition. Additional, the trade quantity begins heightening as the brand new tendency is gaining in Strength (the corresponding graphs resemble a “saucer”).
There’s an instance of a “saucer” on the prime of the market. The tendency in direction of the heightening begins steadily to weaken (subside). The rise in costs is slowing down. Additional, there begins an easy motion in the direction of a brand new downtrend. The reader ought to discover that the trade quantity within the decrease a part of the chart types its personal “saucer”. Usually, this mannequin of the highest is named the “upturned (inverted) saucer”.
J. Murphy denies the existence of strict guidelines for detecting the “saucer” backside pattern. The reader should replicate on this assertion, which can allow understanding the determine essence, missed by J. Murphy.
Thus, what a trader should do when this determine emerges within the terminal graph?
The reader ought to attempt to perceive why Elder, Schwager et.al. do not relate this determine to figures of reversal. What is the cause?
V-type patterns or “spikes”
The native most within the “bull” trend (or the native minimal within the “bear” trend) is one other determine of reversal. After this determine comes into existence, a sudden steep reversal happens.
The trend reversal “spike”-type pattern in accordance with J. Murphy.
Right here Chart 5.9c from “Technical Analysis of futures markets: idea and observe” by J. Murphy is depicted. This chart represents an instance of V-type turns, bearing resemblance to spikes. This writer writes that abrupt V-type turns are inherent within the market of black oil. The absence of the transitional interval considerably hampers the trader’s work. One ought to take note of the variety of days, after which there happen the unconventional flip and insular (native) ones.
Chart 5.9a from the identical ebook presents an instance of a V-type pattern of the “prime” (or “spike”). As a rule, patterns of this type seem after a feverish “bull” trend – when the market “overstretches (overextends)” upwards. A radical flip (sudden change) within the tendency dynamics can happen on the key-turn day. In any other case, an insular flip can come into existence. The market reverses “on tiptoe”. The motion route undergoes U-turn.
In the identical ebook, Chart 5.9b serves for example of a V-type pattern of the “prime” (or “spike”) for the market “backside”. The downtrend instantly adjustments for the rising tendency. This occurs with none preventive signal or an interval of transition. It is likely one of the most complex (intricate) patterns for the detection and speculations on the Stock exchange. Most frequently the V-type flip is preceded by a rash growth of the market. Intermediate modifications are virtually absent within the tendency – alterations that come into existence are completely insignificant. As a rule, within the dynamics of such a tendency, a number of gaps (blanks) in costs are current. It appears to be like just like the scenario within the market will get out of hand (turns into uncontrollable). The market has exceeded all conceivable and unthinkable expectations. A skilled trader is aware that one have to be very cautious beneath such situations.
Drawbacks of standards of the “spike”-type trend reversal pattern, introduced by J. Murphy
Based on J. Murphy, it’s most troublesome to determine (acknowledge) the “spike”-type reversal determines throughout its formation. On the identical time, one can encounter it slightly incessantly (it’s fairly generally encountered).
Absolutely, each trader is day-dreaming concerning the victory on this maddening competitors. At a sure second in the midst of the tendency growth, even a skilled trader can sense that one thing goes flawed. In an approach, it’s analogous with “using on a tiger”. Nevertheless, to catch a tiger and sit down on his again is simply half the work. It will likely be far more troublesome to securely dismount from this harmful animal.
One ought to re-read Murphy’s description of this reversal determines as soon as once more. The objective is next.
1. To know that Murphy is totally incapable of understanding the essence of the given determine of reversal and regularities inherent in it.
2. To know why traders lose their sport.
That’s, a trader should see
- when this “slightly frequent” determine arises,
- at what level it might (and should) be detected,
- what instrument of the Analysis can immediate that the deal could also be held upwards/downwards virtually everywhere in the course,
- at what level the trend is over – in addition to many different features.
Nevertheless, Murphy simply recommends “to be very cautious” and “to sense the hazard in time”. What exact standards these are!
The “spike”-type pattern of the trend reversal in accordance with Schwager
Schwager goes to the opposite excessive. In “Technical Analysis. Full course”, he tries to look at the “spike” determine of the trend reversal purely from the perspective of arithmetic.
In his ebook, Schwager provides an instance of the upward-turned spikes (Chart 6.4; cocoa, March 1995). This writer submits the next explanations:
- Ht-1 denotes the utmost of the day prior to this;
- Ht+1 denotes the utmost of the following day;
- okay is a numerical coefficient (arbitrary or to be decided???) (e.g., okay=0.75);
- ADTR implies the typical day by day true vary over the last 10 days;
2Ht-Ct > 3(CI-LI)I;
CI is the value of closing at a given day; LI is the minimal at a given day;
Ht exceeds the very best most in N earlier days (N is a prescribed fixed (as an illustration, one can select N=50).
The first of the talked about situations ensures that the upward-turned “spike” exceeds the neighboring tops – at the very least by three-quarters of the typical true vary over the last 10 days (when okay=0.75). In accordance with the second situation, the closing of the day is situated within the decrease quarter of the day by day price vary (from the utmost to the minimal). The third situation stipulates that the utmost of a given day should exceed the very best most inside the final 50 days. This ensures that the rising motion in costs precedes the given day. Typically talking, the upper is the worth of N, the extra intensive it has to be the earlier progress.
This description of the “spike” demonstrates the opportunity of establishing a mathematically-precise graphical pattern. Different definitions are potential as effectively.
Drawbacks of Schwager’s trading system in detecting the “spike”-type trend reversal pattern
Issuing from Schwager’s description of the “spike”-type trend reversal pattern, a trader will slightly lose than acquire profit. To know the rationale, we are going to “translate” Schwager’s explanations into the language, extra eligible for traders.
1. A “spike” turns into fashioned beneath the situation of the earlier trend prolongation, accompanied by the breaking by the resistance (a neighborhood most in the course of the ascending motion) or Support (a neighborhood minimal in the course of the descending motion). Thus, it’s the trend of prolongation pattern. After this, the currency pair unexpectedly and steeply reverses.
Neither Murphy nor Schwager points out factors of reversal, which may grow to be a border between
- the recoil, after which happens the trend continuation;
- the trend reversal in direction of the backward route.
2. As an alternative of giving factors of reversal, Schwager tries to find out “the utmost inside the final 50 days (why precisely 50 however not 51 or 100?).
3. Are you able to think about the depth of a trend that’s moving in the identical route throughout 50 days, maximums being fashioned one after one other? Exactly on the 51st day, one should “catch” a peak and open a discount in opposition to the precise trend! And what if the trend will final out 12 months longer (and even a number of years extra) – see Chart that depicts USD/CAD motion, 2002-2006. Apart from, the closing of the day will be situated within the decrease quarter of the value day by day vary. In this case, it’s a frequent recoil, after which the trend will go on once more, and no reversal will occur.
In different phrases, one might attempt to discover a native most (minimal) on the 51st day and, ranging from it, to open a deal in opposition to a heavy have a tendency. The reader can simply guess what would be the outcomes of such experiments.
- Beneath one can see Chart w1 – USD/CAD, 2002-2006.
- In smaller-scale timeframes (H1-4), one can discover a large number of “spikes”. In a timeframe of a bigger scale (w1), such “spikes” do not change the “bear” trend of USD/CAD pair throughout 4 (!) years.
- It’s USD/CAD motion within the timeframe H1 from 23.08-12.09, 2006.
- Beneath USD/CAD motion within the timeframe (H4) is depicted.
Can the reader think about what number of traders lose their money on account of Schwager’s approach – those that anticipate the “spike” pattern (the trend reversal) to develop in a heavy trend on the 51st day?
Apropos, Schwager himself agrees with this estimation (attribute) of such “scientifically-mathematical” strategies. He writes that within the given examples at the very least one “day of reversal” is reported within the neighborhood to an actual most. Nevertheless, typically a number of higher reversals happen in the course of the ascending tendency (buoyancy) however solely false signals are generated. The day of the higher reversal within the neighborhood to the precise prime would not come into existence. One can state that within the days of the higher reversal 100 signals are generated per every 10 maximums. In different phrases, generally, days of reversal produce good signals. Nevertheless, extra typically such signals are false.
Beneath one can see Chart “Days of reversal: a signal that signifies the “coming of bears” – cotton; June 1994.
Right here R denotes the day of reversal
Spikes and days of reversal, plotted concurrently – espresso; September 1994
As a way to perceive the “spike”-type reversal pattern, one should come to know the particularities which have remained unclear to D. Schwager.
1. What’s the distinction between the “spike” of correction (the decrease one in Chart from Schwager’s ebook) and the “spike” of the trend true reversal?
2. What’s the mechanism for the conclusion of this reversal in small-scale timeframes?
3. When the reversal in small-scale timeframes
- is remodeled right into a reversal in timeframes of bigger scales;
- turns right into a correction, after which a brand new wave of the outdated trend arises.
Reversal patterns in accordance with Masterforex-V Trading System
1. At Foreign Exchange, all patterns of the trend reversal serve for the one objective – i.e., they have to point out when to shut a deal within the outdated trend and to open a deal in the other way.
2. Of their essence, all figures of the trend reversal are identical – classicists of the technical analysis didn’t take note of this reality.
3. Perusing charts of the recoil in books by Murphy, Schwager, Neiman and different classicists of Foreign Exchange, one can come to a miserable conclusion. That’s the analysts both do not perceive the essence of the tendency reversal or their charts are on objective plotted in such an approach that the reader can not get the core of the tendency (trend) reversal.
4. The reversal patterns will be conditionally divided into the next teams
- There are very intensive (heavy) signals – the figures “head and shoulders”, “spike”, “diamond”.
- Simply intensive signals – the “triple/double prime/backside”.
- The reversal determine options in frequent – it is the reversal interior nature.
- The distinction between reversal figures consists of the type of a reversal.
5. Every reversal begins in small-scale timeframes. Based on Masterforex-V Trading System, there exists a sure binary regularity, characterised by very clear standards. The motion in small-scale timeframes can flip right into a reversal in a timeframe of a bigger scale. In any other case, only a correction can occur, after which a brand new wave of the identical trend begins.
Masterforex-V Trading System would not suggest opening an actual account earlier than one can clearly perceive all these features.