(Click on image to enlarge it)
(This is Part 6 of a series. Go back to Part 5.)
The important point to gather from our STX discussion so far is that when the BTX achieves very high scores, the correct action to take is to dial down to lower time frames to see how well the STX is adapting to capture the open equity at that time frame.
If the stop on the first lower time frame still seems too “loose”, or if the BTX on that time frame is also grossly over-extended, the analysis should be ratcheted down to yet another lower time frame to find a well fitting STX where most of the achieved profits can be banked immediately upon the STX violation. As we continue this discussion to lower time frames, additional ideas pertaining to proper STX analysis will be presented.
Returning back to the BTX analysis: As we theorized might happen, the BTX turned down, registering its first lower value in a year on the monthly bar ending 6/30/06. Also, the +TX made its simultaneous pivot high (pt. H’), confirming the importance of the BTX turn. As we said earlier, the rollover of BTX from high scores after a prolonged advance is often the first warning of a pause or reversal.
The additional clues expected from the TX lines are for them to cross over their respective SD center moving averages. The arrows on the TX lines in late 2006 after pt. H’ illustrate this process. First the subordinate TX line (in this case the red line) crosses from below to above its center moving average (CMA), and then the dominant TX line (the green line) crosses from above to below its CMA.
These three events: BTX rolling over to produce its first lower value after a protracted advance, along with both the +TX and –TX lines crossing their CMA’s provide enough evidence to almost insure that a significant top or bottom (a top in this case) has been put in place. We would expect that the market would either pause or reverse at this time frame, so we should turn to lower time frames to confirm our suspicions. In fact, even the initial rollover of BTX from a score in the 80s should be reason enough to look to lower time frames for confirmation of a top.
Note that since the peak BTX at pt. H, it has steadily declined to the trend threshold level of 35 and to its lower SD line, even while prices have traced out a significant bottom in early 2007 followed by a fairly dramatic rally into May 2007. The decline in 2006, as well as the advance in early 2007 were both tradable events at lower time frames. However, the information being supplied by the declining BTX here at the monthly time frame was telling us not to expect the kind of wild price action that had been experienced in 2005 and early 2006.
Remember that this analysis has been on a very high time frame - the monthly chart. As we drill down to lower time frames we’ll see that the Ocean Plus information coming from them is even more timely and relevant. Note that we have conducted this entire monthly analysis using only the Ocean Plus tools, without the benefit of any of the other advanced Ocean tools in the Ocean Standard package. Of course, it would be unwise to fail to utilize all of the tools in your trading arsenal, but this example illustrates the simplicity and power of how the Ocean Plus tools can be applied to your analysis.
I believe that by limiting the analysis to only the three Ocean Plus indicators you can really begin to see the strength and versatility of the new Ocean Plus software. Our next step is to ratchet down to a 2-week chart and discuss the analysis from that time frame perspective. At that time frame, we’ll re-introduce some of the traditional Ocean Standard tools to showcase how they can all be used synergistically with Ocean Plus to better understand the behavior of price action.
(This is the end of Part 6. Go to Part 7.)
|
