Pattern Forecaster Plus
end-of-day analysis software will help
you find opportunities in the markets
- every day or week. I teach my clients
to focus on the longer-term charts first
(to identify the overall market trend)
then refocus this information onto the
Daily charts (to find the proper opportunities).
purpose of any traders it so identify
potential trading opportunities and to
identify the BEST POSSIBLE trading strategy
to execute a trade. My revised Training
Section will assist you in finding the
appropriate trading strategies. My PFP
applications will assist you in finding
the trading opportunities
trader approaches trading differently.
Some like to hold trades for weeks (attempting
to ride out profits), others list to hold
trades for shorter time-frames (attempting
to scalp smaller profits). These examples
will show you how the PFP
application can assist each trader.
basis of the Pattern Forecaster Plus application
is the interactive analysis models - for
candlesticks and other
pattern libraries. These pattern libraries
provide users with a clear understanding
of any potential market move. From there,
the user simply needs to select an appropriate
strategy. let's look at some examples...
- Electronic Arts - both the
Daily and Weekly charts.
suggest to all my clients to "View
the Weekly Chart First" - to get
a feel for the overall market trend. Then,
go back to the Daily chart to identify
trading opportunities. Here on the weekly
chart (on 10/29/04) a "Thrusting
Pattern" was formed (which confirmed
the following week). This confirmed pattern
had a HIGH (spanning all three bars) near
$49 and a LOW (spanning all three bars)
near $43.50. Looking back on the weekly
chart - we can see recent HIGHS near $55.
So, why would we trade a symbol with a
potential $5.50 risk and only a $6+ target??
It's simple - we are looking at this as
an opportunity for $6+ profit and have
to attempt to contain our risk.
at the pattern that generated our BUY
signal (the thrusting pattern), we can
see EXPANSION in the confirmation bar.
Given the size of the expansion bar (confirmation
bar), I would expect two things to happen..
a. a potential pullback
(maybe 50% or so of the pattern size),
b. a continued rally above the
pattern highs (near $49).
leads us to "Strategy". If the
pullback happens, then I'm going to try
to BUY near $46.25 (or a little higher).
This will reduce my risk by about 50%
and increase my target by about 50%. I
would place a GTC BUY order for nn shares
@ $46.25 (or a little higher). Once/if
this order gets filled, then I would place
my GTC Stop order @ the suggested stop
price (near $43.50 or less) and wait to
see what happens. In this case, this order
type would have been filled (looking at
the daily charts action).
50% range of the triggering pattern is
a good rule to work from, but I find I
often ADJUST the 50% value to my needs
for the pattern/trade. My PFP
applications will teach you to see
things in the chart that you might not
be seeing now. As a rule of thumb, if
you can "time" your entry trade
and decrease your risk - great, but don't
be greedy. Pick a level you think the
stock can reach and then maybe adjust
it a bit.
that my strategy included a "B option"?
What if my "pullback trade"
never got filled? Then I would be looking
to buy above $49 (probably near $49.25~49.45).
If this trade was the one that got filled
(and not the pullback trade), then I would
adjust my stop level to help contain my
risk. Let's say I got filled at $49.50
and the PFP program
suggested a stop below $43.50 - well,
I might not be able to live with that
RISK. So, I would adjust my stop to a
level I can deal with.
this trade, I'm looking for about $6 profit
- so, ideally, I want to have my RISK
at a ratio of 1:3 to my target. Thus,
my stop should be near $2 - but I might
adjust this level too. I might add/subtract
from this risk level to adapt to market
conditions. In this case, because of market
volatility, I would probably increase
it by 0.15~0.30 - making it about $2.25.
either case, both of these trades WOULD/COULD
have been triggered by price action. You
can see you I'm adapting my "stategy"
to provide me with the BEST SOLUTION for
my trade. When to move a stop and what
to do when your profit target is reached
- these are answered in the TRAINING SECTION.
I'll give you a hint though...
way I approach a trade is "think
everything out so you know what to expect".
Doing this means you'll never take a trade
not knowing what to expect. When you trade
like this, you know the trade will either
move up to your target or not, so you
don't need to be overly protective of
your stops. Let the trade "play out"
- give it a chance to prove you right.
the trade reaches your profit target,
the best thing to do it liquidate 50~70%
of your trade and lock in a stop to insure
profits for the rest of your trade. The
other important thing is, if the weekly
chart still looks good (which in this
case it does) - let the rest of the trade
continue. You can even re-deploy the strategy
to "add shares".
result - trading 1000 shares, our risk
was contained to a maximum of $2.75 and
our target was $6+ minumum/ and $9+ maximum.
I think you can figure out the rest of
- Amazon.com - both the Daily
and Weekly charts.
the example of when a Weekly chart does
NOT show you good trends. This Weekly
chart of Amazon does not show any real
trend - unless you count a recent downtrend.
It also shows us this symbol moves very
rapidly - look at the volatility on the
chart. When I see this, I know I have
to be more cautious of my trades and attempt
to "scalp" profits from this
chart. I can't really trade and "ride"
the trend for many weeks.
other thing I notice on the Weekly chart
are "channels". Look at the
highs and lows of the most recent trends
and you'll see a nice channel (moving
lower). You'll also see a "middle
level" (of the channel) that will
act as support/resistance. These channels
provide "guidance" as to potential
reversal areas that we should see as opportunities.
on to the trading strategy side of things.
Whenever we see a chart that is "choppy"
and is not showing strong trend capabilities,
the best thing to do is average the last
5~7 trading days range. In this case,
it will be anywhere from $1.75+~4.50+
(depending on the area of the chart we
focus on). So, for this example, let's
just use the MIDPOINT of these two numbers
- $3.12. Now, once we have the "average
daily range", we use this value (or
multiples of it) for our targets.
example, in MAY 2004, there is a very
large white candle that generated a buy
signal (near the middle of the weekly
chart). Because this weekly candle was
I would not expect the next few to be
as large as this candle - thus, if I acted
on this buy signal, I might only try for
a target of $2.50~$3.00 (about 1 * the
average range). Also, given this type
of chart action, I would also sell 100%
of my shares at the target (considering
it a great trade) and wait for the next
opportunity. I would place my stop $1.00~1.50
from my entry price (trying to keep a
3:1 risk/reward ratio - but not quite).
example is the sell signal just after
the MAY 2004 buy signal. This signal forms
near our upper channel after a DOJI
formation. The size of this candle
is still considered LARGE, but because
this sell signal formed after bouncing
off the upper resistance channel - I might
look for a larger target and let a little
"ride" after the target is hit.
For example, I would consider the lower
channel level (below $39) and my expected
entry price (near $48) and adjust my target
to 2~2.5 times the average price range.
Thus, my target would be about $6~7+ below
my entry price.
this case, I would look for the selloff
to take out the LOW of the previous BUY
signal (as a potential target) - near
$41. At a bare minimum, I would expect
it to attempt to breach the midpoint of
the previous buy signal (near $45). We
should have entered just above $48 and
the PFP program
would have suggested a stop above $54.75.
Now, that type of RISK I can't live with.
So, I would have adjusted my stop to a
level near $52 (close to the "body"
of the DOJI near the top). This is a simple
attempt to adjust my strategy (and ratio)
to something I can handle. The body of
DOJI candles is often support/resistance
and I use these all the time.
you are trading these volatile stocks,
your stops typically tend to be a little
WIDER than when you trade a stock that
TRENDS. The idea here is to give yourself
the best opportunity for SUCCESS and not
use a stop that is too tight. If I want
my trade to have a chance, I have to give
it room to trade - also notice how this
changes our risk/reward ratio (near 2:1).
in this case, AMZN sold off hard (to near
the lower channel level - near $34) before
stalling. This move took only 4 weeks.
Our target was hit - thus our stop got
moved to "breakeven+" and we
should have been covering the rest of
our trade at/near the lower channel. Then
here we are at the lower channel WAITING
for the next opportunity - right? We only
have to wait a few weeks before the next
opportunity creates itself. Of course,
it is a buy signal, but let's think about
this... Which way is the "trend channel"
moving - DOWN - right? So, this BUY SIGNAL
is a counter trend trade. Do we want to
use a larger target or smaller target?
Right - we want a smaller target because
we can't see a potential for getting back
up to the upper level right away. We want
to SCALP $2~4 back our of this trade with
a fairly tight stop.
a look at the DAILY chart, you'll see
how knowledge of the current weekly trend
(bullish) could have played out really
well for shorter term players. The Daily
chart showed a very clear uptrend recently
with a nice potential for profit. The
Daily chart give similar opportunity for
profits, but remember the "law of
averages". That is why I like the
- Yahoo.com - both the Daily
and Weekly charts.
a nice trend on the weekly chart - this
is what I look for. I think most of you
(by now) can see the potential within
this chart and the profits we could have
made in this uptrend. But now, let's concentrate
on what to do when we are WRONG. Yeah
- what if we are wrong??
PFP program is not perfect. The accuracy
ratio averages about 60%+. So there will
be times when it is wrong and we have
to learn to adapt our strategy to protect
against unwanted losses... There is a
funny term... "unwanted losses".
Nobody WANTS losses - the term should
be "unnecessary losses".
if we "completely plan" our
trade, then there are only "planned
loss amounts" and "planned targets".
So, if we decide when we initiate the
trade we can handle the loss amount, there
should be no problems if the loss happens.
other side of this equation is "what
if you enter a trade and within a day
or two, something changed your mind (news,
legal action, whatever). If this is the
case, then you have to make a decision
and attempt to cut your losses. This can
be done my simply issuing a MARKET order
to get out of your trade, or you can issue
a LIMIT order to try to exit at a specific
price, or you can simply tighten your
stop to reduce the risk in the trade.
way, losses happen while trading. Successful
traders try to contain the losses by selecting
only the best opportunities and using
"Money Management" to insure
risk is minimized. One common practice
is to move your stop to "breakeven+"
after a certain point/percentage move.
One thing to remember is to leave enough
room with your stop to allow the trade
to mature (continue).
I'm trying to teach you is to "completely
plan your trade". Know what to expect
before you enter your trade. Know where
your targets and stops are. Investigate
"better strategies" that can
increase your risk/reward ratio. Then,
if you decide to make the trade, everything
is planned and even if it goes wrong,
you have established the conditions for
looking at the YHOO chart, I can see 2~3
trades (in the congestion) that probably
would have resulted in minor losses or
minor profits. Remember, you are following
the Weekly chart for triggers, then tracking
the Daily chart to follow the market action.
If the Daily chart appears to be WEAK
or the new Weekly candle does not confirm
your trading action, then it might be
smart to adjust your stop to a new level
that helps to reduce your risk. Ideally,
after a buy signal, we want to see WHITE
candles and after a SELL signal we want
to see BLACK candles. Sometimes the market
congests after a new signal though and
we need to allow our trade to mature.
So, if you adjust your stop, plan it out..
assume our initial stop was $2.50 and
our target was $6, but we see weakness
in the market and want to adjust our stop...
I don't suggest moving it to less than
$1 right away. Try reducing it by 30~50%
first - allow the trade room to continue.
A reduction of 40% will create a risk/reward
ratio of 4:1 - this is very acceptable.
let's move on to the next page of these
examples - My