Attached is version 2 of my reversal test code. This doesn't replace good trading practices, but is just another tool to help the trader. The reversals are indicated in the lower chart with buy/sell bubbles with the closing prices of the reversal bars. The histogram shows the bullish (above) and bearish (below) volumes based on the bullishness or bearishness of the price bars. TOS does not provide split buy/sell data for charts. Since these are long trade signals, they work best on uptrends. Also this is a test code subject to refinement. I'm using my choice of price bar colors in both the upper and lower charts.
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The following user says Thank You to StockJock for this post:
It's not likely that a new release will come at any time soon, but I'm always interested in hearing from other traders about what works and what doesn't. I'm using it on 2-minute charts and it works pretty well. I also watch it on 15-minute charts. swimtrader recommends trying it on 4-hour charts.
Here's an example of a pattern that I've observed recently on the 6e 2-minute chart. This pattern doesn't always play out in exactly the same way but it does tend to play out in a fairly consistent manner. What interests me here is the way that the VPA study works alongside the H&S pattern.
The left shoulder comes at 5:30 AM (all times are PT) and is accompanied by a Magenta Triangle 2-period UpThrust and an Orange Square pseudoUpThrust. At 6:48 the third of three Yellow Circle Stopping Volume symbols accompany the Head. Notice that the first Yellow Circle at 6:40 which occurs with a Red DownArrow Confirmed UpThrust and White Square Gravestone Doji is negated in the next bar by a Green Square Failed UpThrust Confirmation. Not only that, that same bar is also a Yellow Circle Stopping Volume. These facts point to the importance of watching the bar(s) immediately following a symbol of any kind. In this case, the actual peak came 4 bars after the first Yellow Circle symbol. It does seem that these three Yellow Circles in such close proximity to each other indicated that a high was imminent. Candlestick analysts would see a series of long upper wicks here as an indication that a high and a reversal were approaching.
The right shoulder came at 7:08 and was accompanied by a Red Square UpThrust. Price had hit a high at the left shoulder at 5:30 and a higher high at the Head at 6:48, but could not re-attain the high of the Head 20 minutes later. Price then retraced over the next 50 minutes. I have observed this kind of Head and Shoulders fairly often with the 6e in the morning. The right shoulder is often accompanied by a warning symbol of some kind such as a Yellow Triangle Weakness symbol or a Red Square as in the attached chart. Sometimes, however, there's no symbol at all.
Another interesting point came at the bottom of the 50-minute downtrend at 7:58. A Green Circle Stopping Volume was followed in the next bar by a Green Circle Effort-to-Rise, together creating a fairly strong indication that a bottom had been reached. I frequently have observed situations in which several green symbols in close proximity to each other have indicated the end of a downtrend and an imminent reversal to the upside.
Here's another Head and Shoulders pattern, this one more subtle than in the previous post. On the 2-minute chart on the right you can see the left shoulder at 7:00 AM (all times PT) marked by a Red DownArrow UpThrust with a peak at 1.4027. The Head is at 7:30 at a peak of 1.4030 and is surrounded by a Yellow Triangle Weakness warning and an Orange Square pseudoUpThrust. The right shoulder is at 8:06 and is marked by a Magenta Triangle three-period UpThrust at 1.4028. Very slight difference in price between the Head and the two Shoulders, but enough of a difference to make a difference. I call this one a Shrugging Shoulders pattern.
Last edited by snowcloud; November 3rd, 2010 at 12:05 PM.
swimtrader had suggested trying the VPA study on 4-hour charts. Here's a good example of two successful tests, both of which resulted in monstrous runs. Yesterday I had also noticed similar White Square Test for Supply followed by two sequential Cyan Triangle Successful Test for Supply symbols in a row on the 6e 2-minute chart. I'll definitely be watching for more of these in the future.
I use two Sine wave cycle studies:
- The first study is for the standard 25 cycle, I color it dark-red for resistance and dark-green for support.
- The second study is for 10 cycle, I color it red for resistance and green for support.
Why two studies? The 10 cycle study usually captures reversals that are missed by the 25 cycle study, and the other way around.
On top of that I am using the traditional technical analysis lines and relative strength. It starts to work quite well.