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All the text books say you shouldn't pick tops and bottoms and that it is too risky. Well bugger that! I trade options. If you can pick turns and tops and bottoms you get five to one or more return. If you use lagging indicators you get maybe two to one on the same move if you are lucky. This works and I have the contract notes to prove it. It is very selective and has a good win loss ratio on the right stocks.  Because of the way it is set up, most false signals get into the money initially allowing a breakeven stop. Alternatively a more conservative entry may be made at the more conventional first higher low entry with more confidence following a bottom signal. In addition to speculative trading, this system can be  used to improve timing in writing covered calls to generate premium income.

anztops.jpg
ANZ Bank 2002 2002

There are two parts to this system. The Green and red zones occur when the short, medium and long cycles are in synchronization at a potential top or bottom. This is the clever bit.

 

When the stock is in the red ribbon it is in the sell zone. BUT we only enter short when the signal line on the indicator in the top window reverses outside the top envelope wall.

 

When the stock is in the green ribbon it is in the buy zone. BUT we only enter long when the signal line on the indicator in the top window reverses outside the bottom envelope wall.

 

Please note there is no cheating here these are the genuine signals. Some trading systems generate signals after the fact or erase false signals. I freely confess I am not bright enough to have worked out how to do that yet.

anztopscloseup2.jpg

CLOSE UP OF ANZ ABOVE
 
Signal 1....We are in the sell zone and the top indicator has reversed outside the upper wall....valid signal
 
Signal 2.... We are in a buy zone but the top indicator is mid range so no go
 
Signal 3....We get a sharp reversal and we are in the zone...valid signal. A more conservative trader would have been able to enter on the more conventional higher low 6 bars later
 
Signal 4....In the sell zone but no reversal outside the envelope wall so no signal even though it was a good trade
 
Signal 5....Reversal and zone...valid signal
 
 
This system works really well on stocks like ANZ which exhibit cyclical behaviour and make good zig zags. I have chosen this example to illustrate the system working well. Like any system there are false signals and certain stocks which it will not suit 

Click the link below to see the analyzer output from this stuff

Click to see sample analyzer output

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