ART Trading System

Exerpt from The ART of Trading by Bennett McDowell

Pyramid Trading Points

A trend usually doesn't last for 4 consecutive trading points (the triangles) in the same direction. Look for Reversal trades if that happens.

Art Price Bar Definition
1. Very Bullish - Closing Price on top of price bar
2. Quite Bullish - Closing Price on top half of price bar
3. Bullish - Closing Price on the exact middle of price bar, but above Opening Price

4. Very Bearish- Closing Price at the bottom of price bar
5. Quite Bearish- Closing Price at the bottom half of price bar
6. Bearish- Closing Price on the exact middle of price bar, but below Opening Price

7 Neutral - Open and Close on the exact middle of price bar

The more volume, the more significant is the price bar.

ART Reversal 1 Bar Signals
- A bullish price bar at the END of downtrend (Low lower than previous low).
- Trade entry - above the high of this bar
- Stop loss - at the low of this bar
- Higher probability
-> 1. Elongated price bar - at least one third longer than previous 5 bars
-> 2. Increasingly high volume - compared to previous 2 price bar.

ART Reversal 2 Bar Signals
- A bullish price bar with low above the low and high above the high of the previous bar.
- No volume requirement.
- Trade entry - above the high of 2nd bar
- Stop loss - at the low of 2nd bar

3 Methods of Trading ART Reversal Bar Signals

1.Trade as a possible beginning of new trend
- Keep stop in place until 1st correction
- Once trend resume and form a new high, move stop to the first pull back.
- Keep doing this until get stop out, or
- If you see a sharp increase, look for another reversal bad to get out.

2. Trade as a correction in the current trend.
- Exit at the next ART Reversal Bar.

Elliott Wave

1 . Tradable waves are impulsive waves 1,3,5 and corrective C wave.

2. Impulsive wave 3 is the steepest and most dramatic wave of all waves and occurs on the highest volume and highest Elliot Wave oscillator (or MACD) of all waves. Wave 3 is never the shortest wave.

3. Wave 1,3,5 are made up of five minor waves and most corrections are a-b-c corrections. Irregular corrective waves exist.

4. Wave 5 will usually exceed wave 3 on lower volume than wave 3 high.

5. Wave 5 can fail and just form a double top with wave 3 instead of going to higher levels.

6. Most traders get whipsawed and lose money in wave 4. Don't assume wave 4 is over until you can clearly see an a-b-c wave pattern with the correction ending 38 to 61.8% between wave 2 and wave 3. Wave B is usually 50% of wave A and should not exceed 75% of wave A. Wave C is 1/1.62/2,62 times of wave A.

7. If wave 2 is simple, then wave 4 will most likely be complex. Vice versa.

8. Corrective wave 2 stats: 12% retrace within 38% of wave 1, 73% retrace between 50-60% amd 15% retrace below 62%.

9. Impulsive wave 3 stats: 45% reaches 1.6 to 1.75 wave 1 , 30% reaches between 1.75 to 2.62 wave 1, 15% reaches 1 to 1.5 wave 1, 8% reaches greater than 2.62 wave 1.

10. Corrective wave 4 stats: 60% retrace 30% to 50% wave 3 , 15% retrace between 24% to 30% wave 3, 15% retrace 50% to 62% wave 3.

11. Impulsive wave 5 stats: Use Fibonacci calculation. Wave 5 usually ends between 1.0 and 1.62 the length of beginning of wave 1 to end of wave 3. Failed wave 5s do occurs.

12. If you enter a potential wave 5 trade at wave 4 Fibonacci retracement level (ie 38 or 50 %) , set your stop somewhere aorund 62 % retracement level because the normal max wave 4 retracement level is 61.8%.

13. Trade ONLY in the direction of waves 1,3,5 and C on the primary time frame you use for entry and exit.

14. To confirm or filter your trade, trade ONLY in the direction of waves 1,3,5 and C on the the higher time frame.

14. Wave count can change.

Market Tells

Exerpts from Advanced Swing Trading by John Crane

PEG-LEG

a. Market make a new 20 day low. This new low must be at least 3 days after the previous low.

b. It is best if the market close below prior low.

c. When this new high is made, place a buy stop just above the high of this new low day.

d. If filled, place a protective stop just below the low of this new low day.


GAP AND GO (Kicker Candle - Abrupt change of sentiment, usually by news)

a. On Day 1, the market need to trade lower than previous day's low and close lower than the opening price.

b. On Day 2, the market needs to open higher than the closing price of Day 1 (Gap open). In addition, the entire trading range of Day 2 should be above closing price of Day 1.

c. The closing price of Day 2 needs to be above the high of Day 1.

d. If this condition is met, place a buy stop above the high of Day 2.


GAP REVERSALS (Belt Hold Candle)

a. On Day 1, the market needs to make a new low that is below the low of the previous day.

b. On Day 2, the market needs to open lower than the previous day's low and close higher than its opening price.

c. The opening price of day 2 should be at or very close to the low of the day.

d. If the first 3 rules are met, place a buy stop above the high of day 1.


STRONG ADVANCE (occur near support and resistance)

a. In an uptrending market, Day 1 should close lower than opening price (against trend).

b. On Day 2, the market should close higher than opening price (same direction as trend).

c. On Day 3, the market should close lower than the opening price (against trend, similar to day 1.)

4. On Day 4, place a buy stop above the high of Day 3.


MAJOR REVERSAL

a. The market needs to make a new 10 day low.

b. As it heads into Reversal date, the market needs to close lower than the opening price for at least 3 days in a row. (3 black candles)

c. After the close of the third day or before the opening of the fourth day, enter a buy stop just above the daily high of Day 3. Leave it for 2 days.

d. If the market does not trigger the buy stop and the market closes lower than the opening price for Day 4, reenter the buy stop above the high of Day 4.

e. Repeat step d if needed.

f. If the buy stop is hit, place protective sell stops below contract lows.

Intraday Market Direction Indicators

Exerpt from Mastering the Trade by John Carter

TICK

- Any tick reading that is below +400 and above -400 is noise and should be ignored.
- If -800 tick (panic selling) is reached, sell long. If +800 tick is reached, cover short.
- If +1000 tick is reached (overbought), sell long. If -1000 tick is reached, cover short.

TIKI

- Net up tick on 30 Dow stocks instead of entire NYSE.
- Tiki are only the heads up, Ticks are the confirmation.
- If buy programs are driving the market to new highs, the occasional sell program is a buying opportunity. Vice versa.

TRIN and TRINQ (nasdaq)

-I don't care what the current reading is. I only care about the current reading in relation to where it has been.
- If the trin is trending higher and making higher highs on the day, I will ignore all long setups. Vice versa.
- If trin closes above 2.0, the market has an 80% chance of rallying the next day.
- If trin closes below 0.60, the market has an 80% chance of selling off the next day.

PUT/CALL RATIO

- If the combined equity/index PC ratio gets over 1.0 intraday, I will ignore all short setups.
- If the combined equity/index PC ratio gets over 0.6 intraday, I will ignore all long setups.
- If market is rallying/falling, I want to see PC rallying/falling to confirm the move.

SECTOR SORTER LIST

-Any move without the banks (BKX), brokers (XBD) and semiconductors (SOX) is suspect and most likely will not last.
- During these quiet periods in the market, the more sectors that go red, the greater the odds are that, when the market finally does break, it will be to the downside. Vice versa.

VOLUME

- If the first 6 bars on a five minute chart have most of the volume under X contract, expect a choppy, tight range session.
- If the first 6 bars on a five minute chart have most of the volume above X contract, expect a a more volatile session with better trend.
- X gotta find out for yourself.

Miscellaneous Trading Strategies (not specific)

Exerpts from Hot Trading Secrets by Christoph Amberger

1. Profit from Cyclicality

-Research on yearly price cycles in stocks

- January Effect -> small caps price up
- Holidays -> comsumer spending increase
- May and June -> Job Agencies
- Back to School Seasonal Profits -> school stocks
- Conference seasons -> Companies' price affected by conference news
- etc


2. Forward Earning Forecaster

Step 1. Get rid of huge companies -> over $2 billion market cap
Step 2. Get rid of fully valued stocks -> P/E
Step 3. Get rid of stocks that ain't growing fast enough -> grown earnings by 25% or more for at least 3 years


3. Insider Trading

- Look out for increase in volume with no news whatsoever.
- Look out for Block trades.
- Look out for new products, patents pending, special licensing agreements or FDA approvals, negotiation concerning major deals.


4. The Doji Master

Step 1. Put Call Ratio >4
Step 2. Check falling stock has Candle Bullish Reversal signal


5. IPO

Red Zone 1 (Launch date to +45 days)
- 10% of IPO share available to retail investors
- Strong Demand + Limited Volume -> increase price
- SEC permits release of mergers, acquistions -> increase price

Red Zone 2 (4 months after IPO)
- people anticipate share dump and sell-> decrease price
- 6 months after IPO, SEC permits insider to sell share (Lockup period ends) -> share dump -> decrease price

Red Zone 3 (18-24 months after IPO)
- Depends on earnings -> become value play


6. Tri-Directional Indicator

- Buy when 3 EMV (20, 35, 50 days) moving upwards, equidistant and parallel
- Sell half when EMVs start closing together
- Sell all when price drop through 20 and 35 EMV
- If stock hit by bad news and drop through all 3 EMV, wait for 3 days for a bounce and sell at 10.30 the morning of 3rd day.
- If no bounce, sell anyway.
- Look out for VIX spikes and plummets.


7. Money Flow Matrix

- OBV
- Advance-Decline line (A/D Line)
- Stochastics
- Momentum Indicator
- Money Flow
- Volume

- watch for divergence in Price and Stochastic and Momentum indicators

More Trading Strategies

Exerpts from Come Into My Trading Room by Dr Alexander Elder

The Impulse System

- Use 13-EMA and 12-26-9 NACD-Histogram, on both daily and weekly chart
- Buy -> All signals give BUY signal (rises)
- Sell -> All signals does NOT give BUY signal (rises)
- For momentum trading in uptrend market

IW's Trading System

1. STOCK SCREEN

Primary
a. Volume > 2000,000
b. Price < $6.00, preferably <$3.00 Secondary (still developing)
a. Fundamentals?

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2. DETERMINE MARKET NATURE
- Downtrend, Uptrend, or Trading Market

Downtrend
a. ADX > 30
b. Price below Fast Moving Average

Uptrend
a. ADX > 30
b. Price above Fast Moving Average

Trading Market
a. ADX cross Fast Moving Average often.
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3. DOWNTREND MARKET

3A. IW's FAST PROFIT GRAP - DAY TRADE SETUP

Primary Signal
a. Candle Bullish Reversal Signal on daily charts

Confirmation Signals
a. Daily Stochastic -> neutral or better
b. OBV -> neutral or better

On T-Day Signals
a. News -> neutral or better
b. Foreign Markets -> neutral or better
c. Own Market -> neutral or better

Precise BUY! Signal
- Intraday Stochastic -> oversold

Profit Taking SELL! Signal
- Intraday Stochastic -> overbought
- Earn $500

Stop Loss SELL! Signal
- Loss of $200

Risk-Reward Ratio
- 1:2

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3B. TONI TURNER's DOUBLE GOT 'EM - SWING TRADE SETUP

a. Stock experienced a downtrend on a daily chart.
b. Price rebound. Then, no less than 8 days later, price retests the low.
c. If the stock holds its low and reverse, we will buy when it trades a few cents above the high of retest day.
d. Once in, initial protective stop will be establish just under low price of entry day.
e. Initial profit target: prior high (resistance)

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3C. JOHN CARTER's Fake and Break - SWING TRADE SETUP

a. Look at stock making 52-weeks low
b. Look for 7-RSI bullish divergence
c. Look for decrease in volume
d. Long the stock after it close above 52 week low
e. Exit - Below Key Resistance OR once price go below the low of the Highest day

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4. TRADING MARKET

still figuring out - use more momentum indicators? Moving average envelope?

4A. TONI TURNER's STEALTHY SIDEWINDER - SWING TRADE SETUP

a. Stock trades in an uptrend and currently consolidates sideways in a wedge, horizontal flag or ascending triangle.
b. Price pattern trades just above the 20-day MA, and ideally, above the 50-dawy MA.
c. Stochastic and OBV agree.
d. Buy initial position when stock begins to rise out of consolidation on healthy volume. Or buy after the stock breaks through the upside horizontal resistance line, or both.
e. Place an initial stop under the edge of the wedge.
f. Set profit target the reflects initial risk reward at 1:3 or better.

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5. UPTREND MARKET

still figuring out - use more trend indicators?

5A. TONI TURNER's MOVING AVERAGE LEAPFROG - SWING TRADE SETUP

a. Stock experienced a uptrend on a daily chart.
b. After a move up, price pulls back in an orderly fashion, to its 20-day and 50-day moving averages.
c. Bonus: price culminates the day in a small range candle.
d. Check the stochastic for buy signal and OBV for positive action. (Stochastic in mid range and below. OBV at least neutral)
e. If tomorrow the stock opens in positive territory above its 20-day and 50-day moving averages, buy when it trades $0.05 to 0.10 over today's high.
f. Once in, the initial protective stop will be establish just under low prior of entry day.
g. Initial profit target: prior high
h. Risk reward ratio should be 1:3

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5B. DR ALEXANDER ELDER's IMPULSE SYSTEM - POSITION TRADE SETUP

a. Use 13-EMA and 12-26-9 MACD-Histogram, on both daily and weekly chart
b. Buy -> All signals give BUY signal (rises)
c. Sell -> All signals does NOT give BUY signal (rises)
d. Use trailing stoploss

- Note: Can improve sell signals

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More Trading Setups

Exerpts from Mastering the Trade by John Carter

1. Gap Setup

a. Gap must not be too big - most breakaway gap are big gap

b. Premarket volume is low

c. Risk reward ratio - 1:1

d. Target - Gap fill

iw's note: Don't seem to work in current market condition

2. Pivot Points

3. Scalper Buy and Sells

a. Can be use for Intraday or Daily Charts

b. After 3 consecutive higher close, go long.

c. Trade is valid until 3 consecutive lower close

d. For daily chart, stop at the low of first bar

d. For intraday trades, exit at 4:10pm

iw's note: Don't seem to work in current market condition on Daily Charts. More for Trending Market

4. Tick Fades

a. For stocks that mirror index the tick represent.

b. When tick read -1000, go long.

c. Risk reward ratio 1:1.

d. If target not reach within 35 min, sell.

e. Stop out twice in a row -> done with tick fades for the day.

f. If by 12:00 noon tick spent oer 85% below -1000, pass on all tick play.

g. If past 10.00 am and tick have been all negative, wait until the tick spend some time in negative territory.

5. 3:52 Play

a. 3:30 pm market start to sell

b. if at 3:52pm market stop falling and go side way, go long

c. sell at 4:13pm

6. Box Play

a. intraday trade

b. price hit high then hit low, then hit the same high and the same low again (forming a box)

c. once a box is formed, the next time the upperline is breached, go long, OR

d. the next time the lower line is breached, go short.

e. target is the width of the box, stop loss is the other line - risk reward is 1:1

7. Trend Reversal

a. Identify stock making 20-day lows in a Trending Market, mark this Low Bar.

b. Once the price go over the high of this Low Bar, enter market -long.

c. Initial stop is the low of the Low Bar. After 2 days, the target/stop will be the low of the previous 2 days.

8. Swing Plays

a. Daily Chart, place 8-EMA and 21-EMA

b. Once 8-EMA cross above 21-EMA, start sweeping for setup

c. Setup to look out for, a pull back to 8-EMA.

d. Initial Stop, 21-EMA or 4% of price, whichever greater (usually is 4%) - greater as in greater room to drop

e. Once target of 4% reach, shift stop to 21-EMA

f. Target is 8% of stock price.

g. Note: Probability of this setup succeed can be increase if 8-EMA is above 21-EMA on Weekly Chart too.

9. Fake and Break

a. Look at stock making 52-weeks low

b. Look for 7-RSI bullish divergence

c. Look for decrease in volume

d. Long the stock after it close above 52 week low

e. Exit - Below Key Resistance OR once price go below the low of the Highest day

More Trading Strategies

Exerpts from The Strategic Electronic Day Trader by Robert Deel

Optimum Maximum Numbers
- Optimum Number of Day Trades a Day -> 3 to 5
- Optimum Number of Swing Trades a Week -> 3 to 5
- CHOOSE THE BEST!

Step 1: Market Trend Quantifier
- Calculate score for the Trend of the Market

- Indicator Good Bad Neutral
- Trendlines +2, -2, 0
- Exponential Moving Average 20,50,150 +1, -1, 0
- Money Flow (14) +1, -1, 0
- RSI (14) +1, -1, 0
- TRIX (14) +1, -1, 0
- Support and resistence area +1, -1, 0
- Interest Rates +1, -1, 0

Step 2: Screen Stocks
1. stocks with 5% increase in price + 30% increase in volume
2. stocks broken above 12-day exponential moving average
3. stocks with buy signal from MACD
4. stocks close just below 20-day Moving Average (may rebound)

(for the above criterias, just one fulfill will do, not all)

Open chart for a quick look. Many times that is all you have to do to eliminate it.

Step 3: Reward-to-Risk Ratio
For stocks that left over, draw trendlines and support and resistance on one year daily price chart. Look for stocks with Reward-to-Risk Ratio of 2.5 or better. If lesser, eliminate the stock at once!

Step 4: Using the Trading Trend Quantifier
- Indicator Good Bad Neutral
- Moving Average 12,20,50 +1, -1, 0
- MACD +1, -1, 0
- RSI (14) +1, -1, 0
- Rate of Change +1, -1, 0
- Bollinger Bands +1, -1, 0
- Williams %R +1, -1, 0

Step 5: Trade!
- Choose the top 3 with the most score to trade the next day!


The Trading Basket
- Build a basket of 30 stocks, consisting of the top 3 stocks from 10 different sectors
- Make use of Sector Rotation

Time Cycle - Most Bullish and Bearish Time of the Year, Month, Week, Day
- Nov, Dec, Jan -> Bullish
- Sep, Oct, Feb, Jun -> Bearish

-First 3 day and last 4 days of month -> Bullish

- Mon, Wed, Fri -> Bullish

- 9.30 to 11.00 AM and 2.30 to 4.00 PM -> Bullish
- Last 45 min -> will either reverse or continue trading in the direction of the previous hours

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Noob's Guide to Getting Started

0. Warning
This is written by someone who has only just started to learn stock trading 1 month ago, has done less than 10 trades, and has ZERO track record (his current net earnings is just +$50 =( ). Reader's discretion is needed when reading, be it this or other entries.


1. Open a trading account
I using account from Phillips Securities -> Not bad. Cannot open account online, but finding a Phillips branch is simple enough. Account is free! Be sure to apply for CDF and ability to trade US stocks options at the same time.


2. Get the right tools
Chart Nexus - End-of-Day charting software for Singapore and US markets - Free!
Share Investor - Provides fundamental data on Singapore companies - Not Free.
CyberQuote - Provides stock alert services for Singapore Stocks - Not Free.

I only use the 1st and the 3rd one. Chart Nexus is not bad, providing 3 years data on Singapore and various other markets. It also provides technical analysis indicators.


3. Learn
I have summarised a lot of stock trading tips and technical analysis knowledgeI read from books and internet in my blog. Link to these entries can be found on the Sidebar. Of course it is better to read the books those information came from. The list of books can also be found on the Sidebar and mostly can be found in the National Library.


4. Before Trading Starts
a) Develop a Watchlist using Stock Screener - I did this using the 7 day trial Xpert Trader from Chart Nexus. Yahoo Finance also provide screener for US stocks, but I haven't tried that yet. If not, just find some stocks you are familiar with, or choose stocks in sectors that are good in the current economy.

b) Watch your Watchlist - analyse the stocks on your watchlist (using technical analysis etc) for potential stocks that will and have MOST chance of grow the most (for long positions). Normally I will decide what to buy the day before.

c) Watch the News - for potential upcoming news, eg. lowering of interest rates, earning reports etc. News affect the stocks price big time, before and after! One good source will be Phillip Securities Research - Morning Note (First part is news, last part is upcoming earning reports).

d) Get Some Trading Ideas - from some professional research, trader's blogs, forum, eg. what's the trend of the market the next day etc. Take note: these are just ideas. Do own research before acting on them.

e) Watch Markets that Open Prior to Your Market - US market opens 12 hours before Singapore market. Japan, Australian and New Zealand markets opens half to one hour before Singapore market. Look at them for clues to how your Market will open.


5. Action!
a) Always Monitor the Stock Index - See how the overall market is doing. Don't be like me, only until I sold my stocks and take losses of $500+ before I realise the Stock Index has fallen 150+ points. For SGX stocks, SGX Homepage is a good site (real time + need to refresh).

b) Always Monitor Other Countries Stock Indices Too - If Hong Kong and Japan markets are crashing, Singapore market won't rise. Stamp-chopped guarantee confirm. If Singapore market crash, your Singapore stock won't rise either. Stamp-chopped guarantee confirm.

c) Always Monitor News - News the a stimuli that will bring up or crash markets. One good source for news and market indices will be Bloomberg Homepage (around 15 mins delay + need to refresh). Yahoo Finance too.

d) Monitor Your Stock's Intraday Chart - I personally feel that Slow Stochasitics provides VERY GOOD intraday buy and sell signals, PROVIDED the market is stable, ie. no news and not crashing. Yahoo Finance provides delayed Intraday Chart for Singapore and US stocks.

e) Monitor Futures, Tick, Trin, Put/Call Ratio etc? - Currently I only glance at the Futures Index on Bloomberg Homepage once in a while. For Tick, Trin, Put/Call Ratio, I think they are only available for US stock market.


6. Things I Learnt from Experience
a) When stocks drop, they can drop damn real fast! Better sell when the stock is still going up. (Easier said than done)

b) It is hard to sell at pre-decided stop loss level... but you must do it! It always drop more after I sold the stocks.

c) It is a good idea to sell and take profit when Slow Stochastic shows overbought in Day Trades. (Still testing this theory)

d) What goes up, must come down. You can hope it will go up forever, but it will never happen, be it intraday, daily, weekly monthly or yearly basis.

e) During severe downtrend, daytrade... or dun trade at all to prevent loss. During short term uptrend within downtrend, swing trade to capture more profits. During uptrend, position trade?

f) Market tends to go up before announcement of expected good news and go down after the news announced, no matter the result. The keyword is 'expected', eg. bail out plans, interest rate cuts, elections.

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