The Lawrence Chan Blog

Cannot do heavy computation when I am not at my desktop.

Did some clean up work for the site and organized 2 ongoing series so that they now have their own landing pages.

One is the Trading With Tick Index series.

The other is the Market Breadth Primer series.

Should make it much easier to look for the articles now.

Enjoy!

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An interesting usage of advance / decline issues is to identify the market extremes. Here is one setup that has emerged as one of the best short term bottom picking signals since year 2000.

Following chart marks the points where the signal occurred.

The most powerful thing with this setup is that if the market is going higher, it happens the very next trading day.

The Setup

1. Advance Issues / (Advance Issues + Decline Issues) <= 0.25 two days in a row

2. Open greater than close on the signal day

It is simple and it works.

Variations

You can lower the threshold form 0.25 to 0.24, 0.23 or even lower to reduce the total number of signals but it is not necessarily a good idea as the best reversals do not correlate well with more extreme selling. They correlate more with the context on how the market sold off into these extremes.

The price filter can be removed and it will still work, just that the reversal would have happened on the signal day and leaving not much room to go higher for the next trading day. As a longer term signal, the price filter can be removed with your own rules to improve the entry.

Notes

For daytraders, it may not be as useful as the statistical biases you get from Market Breadth Primer: Advance / Decline Issues since this setup only occur a few times a year. But it is a very strong setup that daytraders should be aware of. Turning into roadkills by the raging bulls who step into the market to pick bottom, or a floodgate of shorts covering their positions, is not funny.

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For premium members, a new reporting service is added to S&P500 Signals page.

Under premium models, a new section called daytrading biases will list all the relevant articles matching the closing conditions of the US stock markets. This new reporting ability should make it easier for premium members preparing for the next trading day.

Once this new feature is fully ready, I will have it added to the Forex Signals page as well.

Think of this new service as an intelligent trading assistant who will carry out the research work for you.

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This is an interesting TedTalk that gathered quite a number of comments from the viewers. It is about the excuses people made to avoid following their passions.

It is a funny talk. Mr. Smith delivered a great talk and it is very much to the point.

To follow your passion – you may not even know what your passion is. And when you do, you may not have the courage to pursuit your dreams. And most important of all, you may fail and it is something you have to learn to accept and move on.

To my younger readers – you may not know for sure trading is where your passion is. You may have chosen the wrong instrument to start with. Until you experiment enough you may never know. Most of us may not have what it takes to be great traders. But there is always room for decent traders to make a living. If trading is something you truly love to do, you can make it work too.

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Daily chart on crude.

I marked the first quarter STOPD Levels.

If there is a 3rd push back up, it will be back up to 107-107.5 where the 1st quarter low is.

It is not a long term bullish play.

Instead, this 3rd push up is a short term counter-trend swing play.

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