A Systematic Approach
to Technical Analysis - Part II

Watch for obvious characteristics such as:

MACD - rising or falling? Are there positive or negative divergences with price? Are there trendline breaks or a zero line crossing?

Volume - rising or falling? High volume indicates support for the current movement, low volume indicates a lack of market participation

ADX - rising indicates probable trend (above 30), falling indicates likely end of trend, consolidation or reversal.

+ or - DI - indicates probable price direction. If +DI is above -DI, expect the move to be up. If the -DI is above the +DI, expect the move to be down.

Use a notation system on your Daily Market Characteristics Chart such as arrows to indicate up, down, sideways, or lines to indicate direction.

As the day progresses, add trend lines where appropriate.

Consider what you see prior to moving your paper or your chart to the next price bar. Do you see anything that would lead you to conclude price direction or momentum? If so, make a note (use stars, different colored inks, etc.) then continue to the next price bars.

Make a point to mentally note which indicators are in what positions just prior to our indicating a trade signal. Over time you will begin to notice patterns and you should indicate on your Intraday Tracking Chart when you believe a move seems likely. Do this prior to viewing the next price bars.

Develop a routine. Make a habit of doing your nightly review at approximately the same time each evening. This routine will assist you in developing a habitual practice of research and analysis such as what we perform every evening to prepare for the next trading session.

You will be developing the ability to spot these characteristics at a glance. With serious practice and dedicated effort to this type of chart analysis, you will be able to spot trade set-ups. You will also gain a greater confidence after seeing the same price action produce similar results time after time.

Reviewing our market commentary, or using your own notes, will allow you to develop a keen understanding of the various indicator's interactions with price and volume. As you become more experienced, or if you are already an experienced trader, you will notice the much more subtle distinctions such as time of day, whether reports are due or have just been delivered, etc.

Expect to spend from one to six months studying in this manner and you will improve your understanding and overall perspectie of the markets that few traders possess until they have years of practice trading the markets.

We welcome your questions. Send questions anytime and we will respond individually. Often asked questions will be posted in our Q & A section.