 The Stock-Compass.com Trading System
In order of importance, the market indicators we use:
We look for a majority of these factors to be in effect because it's rare for all 6 items to be in agreement. Price / volume analysis is most important. Price / Volume analysis If we're interested in going long we must have seen recent signs of strength or signs of weakness if we're interested in going short. On the chart below are three professional accumulation days in the weeks leading up to the end of November. A down day on November 26th had extremely little volume. Following the drop from mid October and the three professional accumulation days, this low volume day strongly suggested a lack of selling interest. One entry technique is to go long when (in the next few days) price moves above the high of this low-volume down bar. Trend channel position Most of the time prices tend to be confined to parallel lines know as trend channels. It's much more profitable to trade with the trend rather than against it. Opportune entry points for bullish trades are within the bottom quarter of the channel; good short trade entry points can be found in the top quarter. On the chart below, coffee had been in a bullish trend since July 2007.
Commitment of Traders Report Every week the government produces the Commitment of Traders report. This reveals the total long and short positions for the commercials (insiders), and the big traders for most traded U.S. futures. The positions of the small traders are what's left over after subtracting the commercial positions and the big-trader positions. The commercials are the insiders that actually use the commodity. The commercials for coffee, for example, would be the coffee growers and the coffee roasters and distributors. We create an index out of this data. When one of the three groups (i.e., commercials, big traders and small traders) is at 100% it means that they are more long than they have been in the last three years; 0% means that they're most short than they've been in the last three years. The commercials are usually right in their trading decisions: they tend to sell at market highs and buy at market lows. The traders – both big and small – usually buy at market highs and sell at market lows.
In the COT chart above notice how correct the commercials were to sell in February and late March. But this COT report did not provide support for going long in November (i.e., the commercials were shorting).
|
