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Saturday, October 22, 2011

Adam Hewison: How To Avoid Slice-O-Matic Markets

One of the biggest challenges many traders face is avoiding “Slice-O-Matic” markets. What is a “Slice-O-Matic” market? Well, it’s a market that lacks any real direction. We can call these markets “Slice-O-Matic” markets as they cut trader’s equity into ever smaller pieces. For the past seven days, the S&P 500 has not closed in any one direction from more than one day. This is the choppy scenario that many traders would like to avoid.

So how is that done?

One of the simplest ways that I know is to use our Trade Triangle technology. The major Trade Triangle to watch trading stocks is the monthly Trade Triangle, as this determines the trend. We use the weekly Trade Triangles for timing purposes. Let me give you an example, if the last monthly Trade Triangle is green, this indicates the major trend is up for that stock.

You would then use the initial monthly Trade Triangle as an entry point and the weekly red Trade Triangle as an exit point. You would only reenter a long position if and when a green weekly Trade Triangle reappeared, providing the monthly green Triangle is still in place. You would again use the next weekly red Trade Triangle as an exit point.

The reverse is true if a red monthly Trade Triangle shows that the trend is down. You would then use the weekly green Trade Triangles for covering short positions and the weekly red Trade Triangles for reentering short positions.

When you have two opposing Trade Triangles, like the red monthly Triangle and green weekly Triangle in the S&P 500, it indicates that you should be on the sidelines and in cash. You would be amazed at just how well this simple formula works in the stock market.

So there you have it, a simple, easy way to protect your equity and avoid "Slice-O-Matic" markets.

Let's check the trend analysis for the S&P 500 INDEX

The market action in the S&P 500 index continues to be very choppy and we expect that to continue in the near term. The long term monthly Trade Triangle is negative on this market and yesterday’s action did not alter that. With a Chart Analysis Score of + 70, we are stuck in a trading range waiting for some news to shake us out of the doldrums. Intermediate traders should be on the sidelines waiting for a new Trade Triangle signal. Long term traders should either be in cash or continue to hold short positions in this index.

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70

Just click here to see my weekend update video on the 6 major markets we track every day.

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