Daily Trading Edge: Your Questions Answered!

Each week Daily Trading Edge will have two special editions, one where we'll tackle questions from our readers and another that is a educational/instructional article. I enjoy tackling Q&A in the live environment but I've always felt that if one person raised their hand with a question, there are probably a bunch of other people who have the same question. So let's get started with some questions that I have received from the February webinar series we have been doing. Everyone can benefit. Keep those questions coming! You never know I may answer here at the blog!

Send your questions to 18@ibfx.com

No problem, the sessions have been recorded and you will be able to watch the replays in the near future right here at the IBFX.com site. As for the moving averages that make up my Wave. They are the

1. 34 period exponential moving average on the high
2. 34 period exponential moving average on the close
3. 34 period exponential moving average on the low

These can be plotted easily on the IBFX4 platform by going to Insert - Indicators - Trend - Moving Average. Just be sure to make the "MA method" to Exponential. Also, I like to color each EMA (exponential moving average) with it's own color. You'll notice that on my charts I plot the Wave with Green, Red, and Blue which I while I will something call my chart "GRaB" charts. The high is colored green, the close is blue, and the low is red.

I do use other Fibonacci-based moving averages which I call my "Lazy Days Lines" named after my favorite restaurant in Islamorada. I've traded from the balcony of that restaurant, overlooking the Atlantic Ocean many, many times. These lazy days lines are used for support and resistance. In a future article I will be sure to outline how I set up and use these important lines.

Hi Raghee-

Thanks for the webinar earlier. I got a lot out of it.

I was hoping you could point me in the right direction to learn more about the different Market Cycles. Specifically, you had discussed how some patterns and indicators work well in one cycle and not others...

I've also got a question about one thing you said. It was pretty quick, so i may not have got it right. It was something like:

'In a Distributive phase, when price is nearing a horizontal line of support or resistance, you can fade that.'

T. J.

Thanks for your kinds words! You know that I am a huge fan of Dow Theory especially the market trends aspect of Charles Dow's writings. Market cycles are the single most important aspect of my trading because it dictates my entry strategy and indicators. Ofcourse my Wave indicator, clock angles, and market lookback are the key to proper cycle identification. Just to summarize:

Triangles, rectangles, double/triple tops, double/triple bottoms, and pennants are congestion/consolidation patterns. They should ideally be set up in a sideways market.

Wedges and channels are trending patterns ideally set up in an uptrend or downtrend.

Head and shoulders as well as flag patterns are exceptions as they can be traded in trending and non-trending market cycles.

As to sideways patterns with a horizontal level (e.g. rectangles, ascending or descending triangles), yes, in a distribution market where the volatility is higher as compared to the quiet nature of accumulation, the horizontal levels can be faded, but remember this is an aggressive set up relying on exhaustion at the ceiling or floor of the pattern.

Thanks for the webinar. Just enough information, not too much at once. I thought it was great. I do have 2 questions.

 

1. Why use the three lines on the Wave - Do they tell you something in how they move in relation to one another?

Thanks again so much!

B.M.

Thanks, we have covered a lot of ground in a short time and it's been my goal to open the discussion of all these tools and hopefully giving you the "knowledge to seek out more knowledge". As for why I use all three -- the high, the close, and the low -- when setting up the 34 period exponential moving averages for my Wave study, it's rally a matter of "wiggle" and "footprint". First, I seldom see markets turn on a dime unless it's up against a key psychological level like a "00" or "50" pip price level. Even then there could be wiggle five pips higher and lower than the level. The width of the Wave gives me that wiggle to see where the psychology of the market could stall and/or shift. The idea of "footprint" is also a matter of that wiggle and also a matter of seeing the area of support or resistance clearly on the chart. Having all three lines offers a better area to study, rather than just a single line. And frankly, I've seen sometime price stop at one of the levels - high, low , or close - and having all three simply gives me to those three levels to watch rather than expecting a single setting to always be the one price will respect. In many ways, I feel it's the best way to see this is to plot the Wave on your charts and watch it. You'll see how helpful it is very quickly!

Dear Raghee,

I hope you doing great. I have few questions after the seminar today please, here are my questions:-

Could you please give me the [Fibonacci] percentage level that is using by you? The default value is not same as yours. After 100% I can see your fibs level 127 like that.

Thats all my questions, and thank you

Y.

Sure, and I am doing great, hope you are as well. The Fibonacci levels that I use are made up of both retracement levels:

23.6, 38.2, 50.0, 61.8, 78.6, 88.6

...as well as extension levels:

127.2, 161.8, 188.6, 216.8

Extensions are simply those levels above and beyond a full or 100% retracement of the last, major move.