A classical, technical approach
We employ a discretionary technical methodology in the tradition of pioneers such as Richard Schabacker, Robert Edwards & John Magee, Richard Wyckoff and others, to help us identify, measure and interpret price trends and other important changes in the history of transaction-related data sets. Inferences are developed from the data through the application of first principles -- i.e., first technical principles.
Some of the analytical techniques and tools we utilize in this process include:
Trend analysis – Used to objectively categorize, rank and assess the quality and direction of price trends. Tools employed include simple trendlines, linear regression, moving averages and Wilder Directional Movement Index studies.
Pattern analysis – Geometric price formations in the tradition of Richard Schabacker and Edwards & Magee, used to identify areas of accumulation and distribution. Patterns form the basis for trend reversals and continuations, and their corresponding price targets. We use a semi-mechanical screening process incorporating vertical bar, point and figure and line charts to help identify patterns.
Momentum – A leading indicator of price changes, particularly at turning points. Momentum is measured using simple rates of change and proprietary oscillator studies.
Phi ratio & fibonacci series – An adjunct to trend and pattern analysis, used to help identify and anticipate areas of potential order concentration, and to project price targets.
Volatility – Used in selecting appropriate trading strategies and risk levels, and for forming judgments about future volatility. Tools employed include proprietary range comparisons, Wilder Directional Movement Index studies, implied and historical volatility.
Internals – Volume, open interest and trader position/composition statistics used to evaluate underlying market strength and weakness, and to gauge the degree of exposure among market participants.
Seasonal analysis – Specific periods during the year which exhibit a clear seasonal tendency or pattern, used to develop directional bias and trading strategy.
Structural analysis – Basic three and five-part wave structures, used to identify repeatable patterns of cyclic price behavior that occur independent of seasonal cycles.
Spreads & relatives – Analysis of intermonth and intermarket relationships, used as an additional measure of trend strength or weakness and for identifying shifts in market leadership. Also used for creating specific convergence/divergence trading opportunities.
Proprietary methods aka 'chart tricks' – The phrase 'chart tricks' refers to a set of proprietary analytical techniques and trading strategies developed by the publisher, designed to capture large price changes over short time periods. The phrase 'chart tricks' is also an acknowledgment of the dual nature of charts: Charts both reveal as well as contribute to active deception in the markets. The 'trick' is knowing the difference!