Friday, October 21, 2011

Buy RUSS - $45.38

It appears to me that the daily cycle for the US Dollar has bottomed today on Day 26. I could be wrong, of course, but this late in a cycle that typically lasts 20 - 24 days I am guessing that if I am a little off it is likely to be by not too much.

With that thought I decided to test drive some Direxion Russia Bear 3X (RUSS) with a purchase at $45.38.

This 15 minute chart shows a True Strength Index (TSI) indicator break with BUY signal.

Above the TSI indicator is a custom indicator I concocted some time ago and have been experimenting with more recently. It simply indicators when certain technical conditions are active, such as a positive close for that bar, or when a reading of an indicator, such as the TSI, but also the Demand Index and the VolumeFlowIndicator, reaches a desired measurement. When all conditions, or those that I arbitrarily deem most important are then satisfied, the entire column is then highlighted, thereby drawing visual attention to a potentially significant buying opportunity.

Obviously, when none of the indicators are flashing a favorable condition price is usually in a sharp decline (SELL signal). In any event I plan to craft another of these concoctions that specifically attempts to identify sell signals, as opposed to buy signals.

My TSI Trading record has been updated.

Monday, October 10, 2011

Sometimes the Good Guys Really Do Win!

This is my trading record of the past 5 or 6 days since I began trading the E-mini S&P 500 Futures Contract (ES). There was no school today so I have enjoyed trading at a more leisurely pace.

Honestly, I doubt I will have a week like this past week any time soon, so I figured I better post this so I can look back and say to myself, "remember that week in October, 2011"?

And yes, I had one losing trade. That looks like last Thursday at 1:30 pm when my next class showed up at the conclusion of my lunch break. It's all about priorities and not always about winning - so I hit the button and logged out.

Anyway, I simply use the TSI (7,4) on a 1 minute chart. Nothing else. I hope my good fortune is an encouragement to you.

Sunday, October 9, 2011

True Strength Index (TSI) Time Frame Study

This post will examine how the True Strength Index (TSI) indicator works in various time frames. I will use the Standard & Poors 500 (SP-500) and my preferred TSI setting of (7,4) as my constants and show current charts of the 1 minute, 5 minute, 60 minute, 4 hour, daily and weekly time frames.

The buy and sell signals identified on each chart include the trend line break, negative/positive divergence, ZERO crossover and nose bleed techniques. The support/resistance and moving average crossover techniques are not used (but can be explored here).

In case you are wondering how the various time frames change the interpretation or effectiveness of the TSI indicator, I'll cut to the chase - they don't. And my preferred TSI magnification of (7,4) works the same as the TSI (13,7) or TSI (25,13) settings, just faster!

Click on any chart to ENLARGE

Let's begin with this 1 minute chart of the Standard & Poors 500 (SP-500). As you look carefully at each chart in this study you will see the same techniques executed over and over again. What I would like to bring to your attention are the exceptional times when one, in real-time trading, may have second thoughts about what to do.

The time period from 3:15 p - 3:30 p was one of those times where an understanding of what was going on would have come in handy. The TSI reached a reading in excess of +0.75 (Nose Bleed) and one may have reasonably chosen to go short. However, price then continued to rise. 10 minutes later a negative divergence sell signal appeared and price dutifully began to ease. But then price continued even higher.

At this point a trader could panic and sell the short position at a loss - OUCH! But a little patience would have been better. A second negative divergence was in place just after 3:30 p. This would have encouraged me to hold on. Then a couple minutes later a trend line break SELL signal occurred. At that point I may have been sweating a bit but all the evidence was in my favor and I would hopefully have held on.

Then the TSI fell right through ZERO as price began to collapse. Finally. This kind of stuff happens sometimes and if you know the rules and trust them, things usually work out OK.

So let's have a look at the 5 minute chart now. Here again, most of the TSI trend line break signals worked out great. But there were a couple of patience testing scenarios, as well. These two areas are identified with a hot pink rectangle uniting price above and the TSI below.

As in the 1 minute chart, the trend line break signal was followed by price not moving in the anticipated direction. This was followed by a divergence signal confirming the trend line break signal and ultimately a second trend line break signal. Both trades were impressively profitable but one had to, again, have confidence and patience to win the prize.

I am sure you are wondering why the trend line break signal sometimes 'fails' - leaving one to suffer panic and potentially sell at a loss. The answer, usually, is that the trend line break occurs when the TSI reading is far away from the ZERO crossover. Subsequent divergences then occur as the indicator works its way closer to ZERO. These divergences tell me that I am in the trade correctly but patience is required.

Here is the 60 minute chart. This is a really easy chart to understand - very easy to trade successfully. You will appreciate this when we get to the daily chart, trust me.

The Nose Bleed signal, btw, occurs when the TSI reaches something around +0.75 or -0.75. I don't think of this signal as some absolute number though. Rather, I like to look back as far as possible on any particular time frame and see what the extreme readings have been in the past. Sometimes they are 0.85, sometimes they are 0.68 - I think it just depends on the relatively recent volatility of that particular time frame.

Well, on to the 4 hour chart. I happen to really like the 4 hour chart, and have found it invaluable in looking at the movement of gold's price.

Anyway, this chart, like the 1 hour, is very clear and has been very easy to trade. I really do not see any sucker setups on this chart to bring to your attention.

Now this daily chart is ...... something of a nightmare. Which is not to say that daily charts are a nightmare using the TSI. It is to say that the SP-500 daily chart for the past couple of months has been a nightmare.

And this is the point at which I will confess this study retaught me something. And that is that sometimes it is much better to trade off a particular time frame than another.

The SP-500 is the same ticker symbol throughout this study, but the ease of trading it on the 4 hour versus the daily chart is remarkable. And I am sure there are times it is just exactly the other way around. The point is to get in tune with a time frame that is making good sense and stick with it.

Finally, the weekly chart. I look at the weekly chart to help me get a feel for the power of a longer trend. Something I am keenly aware of is the proximity of the TSI to the ZERO crossover. That is because the further the TSI is from ZERO the more time will likely be required for price to change direction.

I also know that when the TSI is rising above ZERO, price is always rising. Opposite when the TSI is falling below ZERO.  So, a falling weekly TSI below ZERO suggests a sustained bearish environment.

Our current TSI reading shows that the positive divergence that began the week was bullishly resolved by the end of the week.

And this is the take away I hope you get from reading this article: the TSI does a wonderful job of telling a trader when things are out of balance and thereby indicates which way price will need to move to resolve the imbalance. Sometimes the change in price direction is nearly instaneous. Sometimes, it requires a little patience. But if you understand what the TSI is saying and have confidence in its accuracy, you should be able to do very very well.


Friday, October 7, 2011

True Strength Index (TSI) indicator and E-mini S&P 500 Futures (ES)

A couple of days ago I dabbled with the E-mini S&P 500 futures (ES) during my lunch hour at work and was fortunate to make $700+ in about an hour using my understanding of the True Strength Index (TSI) indicator. Yesterday produced a net (after commissions) gain of $410. Today my net gain was $568. A little of today's earnings was earned before I had to get ready for work in the early pre-market, and the majority was earned during my lunch hour today.

Click on the chart to ENLARGE

This is a chart I prepared to document my trading today. I tend to keep my eye on the 5 minute and 15 minute time frames so I can get a feel for the bigger picture, but all my trading decisions ultimately come down to what I see on the 1 minute chart and the TSI set at (7,4).

I have an understanding of what the TSI indicator is saying in the context of any time frame and have tried to share  my understanding with interested readers in detailed posts for the past 17 months. Additionally, I have created a couple of pages of specific information on how to use the TSI indicator - Overview and 6 Buy/Sell Techniques. These pages of information offer most of my best findings from 5 years of literally day and night research on the True Strength Index (TSI) indicator.

Of the four trades today, the first two were BUY signals generated from a positive divergence. 

As I am watching the one minute chart in real time I note the previous low of price and the TSI reading that corresponded with that low. I begin to get prepared to BUY when I see that price is going to make a new low but the TSI indicator is not going to also make a new low. 

I know this sounds silly, but I imagine the traders pushing the price lower not realizing they are walking into a trap in which I will likely win. These traders think they are accomplishing something really significant by pushing the price to a new low. When in reality I know they are pushing price to a new low with less momentum and that they are likely to have their heads handed to them.

My third trade was just the opposite of a positive divergence. It was based on a negative divergence.

A negative divergence occurs when price continues to make higher highs while the corresponding TSI readings make lower highs. In effect, price is rising on continually less and less momentum. Momentum to push the price higher is fading, as indicated by the TSI making lower and lower highs.

With just a minute or two left to spare before price again began to rise, I covered (bought back) the 2 contracts I had sold on this negative divergence setup.

With futures one can bet that price will rise by BUYING futures contracts and hope to sell these contracts later at a higher price. OR, one can SELL futures contracts on the notion that one will be able to buy them back at a lower price sometime in the near future.

The latter tact is what I was doing with this third trade - the negative divergence setup.

The fourth and final trade of the day was a bit of a nail biter for me. For one thing, I sold two contracts prematurely as the huge up candle that I sold into led to me believe that price would soon fall. I was wrong. For 7-8 minutes price went against me as it went higher and higher. 

Finally, the culmination of a nose-bleed (sky high) TSI reading followed by a huge spike in price that yielded a negative divergence SELL signal told me to hang in there for the imminent fall in price.

Price then cratered (as expected) and just before price resumed a new upleg I covered my short position and took my money off the table.

My students were on time today (1:30 cst) and the door flung open just as I concluded this fourth trade.

Now if you are wondering why I write all these details, I will now tell you.

I believe that the True Strength Index indicator works - at least most of the time. And I believe that if my readers wanted to take the time to learn how the TSI works it would help them a great deal.

The purpose of my website is to help other people. I sincerely hope this post and the hundreds of posts that preceded this one are helpful to you.


Wednesday, October 5, 2011

The $709 Lunch - S&P 500 Futures

I did not have any time this morning before work to do more than just take a peak at a few charts and hit the road running. But lunch time was better so I decided to sleuth around for something to trade while I ate my lunch.

Click on the chart to ENLARGE

With less than an hour of free time to work with I decided to take a good hard look at some futures contracts and ended up on the E-mini S&P 500 (ES).

After a short while what appeared to be a promising negative divergence showed up on the 1 minute chart. So I made a trade to short (sell) the S&P at $1132 with 2 contracts at 12:57pm. 13 minutes later I covered (bought back) the 2 contracts at $1130 after a trend line break finally materialized.

As I still had more free time I decided to keep watching the ES and see if something else may provide another quick trade. Sure enough, within 15 minutes another negative divergence appeared so I sold 2 contracts again - this time at $1133.25.

I had a trend line drawn on price and this time the negative divergence occurred closer to the price trend line and closer to the TSI ZERO crossover. Within 2-3 minutes price tested then dropped right through the trend lines just as I had anticipated.

My students started piling into my classroom just a couple minutes later than usual and as a trend line break of the TSI appeared to be in place I covered at $1128 and called it a day.

I wish it was always so easy. Don't you?

Monday, October 3, 2011

BUY/SELL DUST $38.13/$39.13 - US Dollar and Stock Market

In this morning's pre-market I did not see much hope for the positive divergence trades I posted over the weekend, but it appeared to me the Direxion Gold Miner Bear 2X ETF (DUST) was about to change direction from down to up, so I bought shares at $38.13. At my lunch break it seemed that DUST was acting iffy and as I knew I would not be able to watch it for the rest of the day, I sold at $39.13 for a modest 2.6% gain.

Sure enough, within 45 minutes DUST was back down to $38.24 and my profit would have evaporated had I decided to hold that long. Over the next three hours DUST climbed steadily to reach $40.75 before settling down to close this day at $40.52.

Today the U.S. Dollar Index did what I said in my weekend post it had to do - it had to rally sharply higher to keep it's prospects alive within a wedge formed by the True Strength Index (TSI) indicator on it's daily chart. If the U.S. Dollar Index now breaks up through that wedge I can guarantee you all kinds of (bearish) hell is going to break out in the stock market. My hunch is that is exactly what is going to happen.

This is a daily chart of the E-Mini S+P 500 Index Futures (ES) snapped just after today's session on the NYSE concluded. Unlike the U.S. Dollar Index that is awaiting a trend line break of the TSI indicator, the S+P 500 price movement today has already yielded a trend line break signal - SELL.

My TSI Trading record has been updated.

Saturday, October 1, 2011

SP-500, U.S. Dollar Index and 14 Trade Ideas for Monday

This post will offer charts and considerations regarding the technical condition of the SP-500 and U.S. Dollar Index with respect to the True Strength Index (TSI) momentum indicator and then offer 14 charts of potentially profitable trade ideas for Monday October 3.

The SP-500 has been in an 8 week sideways consolidation roughly bound by 1220 above and 1120 below. This daily chart of the SP-500 features a few of the TSI BUY and SELL signals of the past 8 months and brings us up to date with the current situation.

The SP-500 has been on a trend line break sell signal for the past 7-8 trading sessions and bearishly reading below ZERO. The current setup is virtually identical to the one that existed in late July as the SP-500 began a swift 250 drop.

I should clarify that the current setup is virtually identical as in late July, but not exactly identical. That is because the current setup is actually even more bearish as the TSI indicator is well under ZERO. A single day or two of sharp declines will push the indicator through the trend line I have drawn with a question mark just below. That would unquestionably result in a severe decline.

The next chart offers a look at the daily chart of the US Dollar Index (DXYO). The dollar has gotten itself into a precarious technical situation with respect to the TSI indicator. As the TSI is above ZERO, it will continue to rise if and only if price continues to rise.

Should price hold sideways the indicator will begin to fall. And the TSI will fall even faster if price also falls. A couple days of that would trigger a trend line break SELL signal as we notice the indicator reading is just above the trend line at this point.

However, the TSI has formed a narrowing wedge and should the dollar move sharply higher, and real soon, the TSI would bust right up through the overhead trend line and render a powerful BUY signal. Should this second possible scenario play out I have no doubt the SP-500 is toast - burned toast, big-time.

OK - now on to the 14 trade ideas for Monday.

I recently decided to revert back to my short term TSI trading tricks and practices that have served me well in the past. The theme for Monday's trade seems to be the positive divergence.

The positive divergence setup occurs when price attempts to retest a previous low while the TSI momentum indicator suggests the retest will not immediately succeed because the momentum is not as strongly negative as measured during the initial low.

Does this technical trade work all the time, generating a profitable long trade? No. Does any technical trade work all the time? Nope, at least not that I know of.

So it really is more of an 'odds are in your favor' short term setup. At least that is the way I look at it. And as long as it works 70-80% of the time, and I think it does, then it is a profitable technique to use.

What I keenly study is the degree to which it appears traders concluded the day far too excessively bearish. I know that another day will come and new traders will not judge the situation so harshly - at least for a short while. That is where I attempt to make my money.

I will list the 14 stock charts in alphabetical order. Each chart features a daily chart on the left and a 4 hour chart on the right. Each chart has the current positive divergence identified with blue lines and a hot pink colored rectangle. Additionally, if there were previous examples of positive divergences on the chart - on either the daily or 4 hour side of the chart - they are identified with a gold/orange colored line. And I think this will give you the idea that these TSI positive divergence setups usually work.

1. ARREF - Amerigo Resources

2. AZC - Augusta Resources Corp

3. DYY - DB Commodity Double Long ETN

 4. GASL - Direxion Natural Gas Bull 2X

5. GMO - General Molly

6. GRZ - Gold Reserve

7. MATL - Direxion Basic Materials Bull 3X

8. PAL - North American Palladium

9. RUSL - Direxion Russia Bull 3X

10. SCCO - Southern Copper Corp

11. SMNPF - Scorpio Mining Corp

12. SWC - Stillwater Mining Corp

13. TCK - Teck Resources Limited

14. YINN - Direxion China Bull 3X

That's it. If you made it this far, pat yourself on the back!

At this moment, my favorites are GMO, PAL, RUSL and SWC.


Well, because PAL is about to provide a trend line break BUY signal
and GMO, RUSL and SWC already have made the trend line break BUY signal.

Have a great week!