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Technical indicators don't "predict". They are derivatives of price and/or volume, all of which accurately describe only what has already happened. But --always that distasteful qualifier-- because prices are merely chaotic, not random, trends do emerge in every time frame and do persist long enough to be tradable.

How long a trend will persist is anyone's guess. Therefore, what matters --as Raschke argues-- is identifying turning points (to know when to put on or take off a position). Everyone will have their favorite methods of identifying turning points, but here's the set-up I'm currently exploring. http://schrts.co/zDYnJzuB

Other oscillators could be swapped in for StochRSI. Other momentum indicators could be swapped on for PMO, and any of their look-backs could be changed. (But their signals won't change materially, as can be discovered when tested across a basket of tradables.) The price format could be changed as well. "It just doesn't matter," as someone once told Bolinger when he was started out. "Pick something, anything, and learn its best uses and limitations."

Now comes a practical application. Swine flu has been in the news, and I watched an ag video arguing that pig deaths will impact beef prices by this spring. COW is the ETF for livestock. Buying a long-dated call might be a good trade. But what's a chart say about the near-term timeliness of putting on a position? http://schrts.co/XPRUACSv

I'd be late to the trade, right? So 'pass' for now. How about a long or short on fertilizer? Way too late again. http://schrts.co/hsKwqUhc How about silver? It's a real mess right how for a directional bet, but a bracketing, non-directional trade might be done. http://schrts.co/czqfBcda

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STANDARD CAVEATS: Any tools, methods, or securities mentioned were for illustrative purposes only and not meant as investing/trading advice.
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Since this is a discussion for beginners, let me throw a couple comments out (with a base of ignorance). I totally agree about IPI and SLV. But SLV looks interesting for, as you say, a non-directional play with a vertical or an iron condor.

I might disagree with COW. It is making some higher highs and higher lows, 3/8 ema cross on 10/28 so there is a mild directional uptrend. So a vertical such as a Bull Put Credit spread might work. Not a big money play, but a base hit (and yes, I may have totally mislabeled the spread!). I wonder about a Butterfly or a broken-wing butterfly with an upward tendency. Now all I have to do is figure out what the strikes might be.........

Oh, as far as the swine flu goes, it's effects would be likely months down the road. I'm learning to appreciate a couple days to a couple weeks plays only in options.

LakeD
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Lake,

I agree on the attractiveness of shorter-term trades. My options instructors advised always buying enough time for the trade to work and suggested 30-40 days, which would also somewhat mitigate time decay. However, my technical tools aren't setup to make those kinds of long-term predictions.

Explanation: Although Japanese candlesticks have all but replaced Western-style OHLC bars, the two formats aren't interchangeable. As developed Munehisa Homma (in the mid 1800's?) for trading rice futures, they were meant to be used only and solely for EOM pricing and for understanding the dynamics of buyers and sellers in time frames of under 10 days. Thus, this distinction must be made. 'Candlesticks' is a charting format. 'Candle Pattern Analysis' (CPA) is a trading discipline that most in the West don't understand or know how to use effectively. Steve Nissan --credited with introducing candlesticks to the West-- is a crap trader. Greg Morris, OTOH, is worth reading and learning from.

Morris paired with programmer, Norm North, and explored the effectiveness of combining CPA with western-style technical indicators, which coincides with my interests as well. Norm marketed several versions of his program, and his son tried to carry on after his death. But both have disappeared so completely that even a Google search turns up nothing on them, which is a real shame. The latter versions of the program are robust and far easier to use than the usual suspects --MetaStock, etc.-- to find trading candidates.

Yeah, COW would be "news trade", and not my thing, and I'm glad I escaped my cotton trade without a haircut.

Arindam
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