It is a bit unusual to have a post when we don’t have a trade to look at, but there was something I wanted to show you.
I thought you might find it interesting – it could happen!
Let’s take a look at the chart for UUP, which is the ETF for the Dollar Index rising. The Dollar Index is the U.S. Dollar vs. a basket of global currencies. They are in a cage fight. When the index is rising, it means that the U.S. Dollar is gaining strength against the Global Basket. When the index is declining, it means the opposite.
As I have mentioned a number of times, here in the World of Trades, we don’t give a toss for rationale. Let that be the purview of the traders that live in the trading world.
We act on what we see only. In the case of this exercise which is a continuation of the one started in my book. We are up 42% so far this year with just 5 instruments and a very simple trading method.
All the trades have been recorded. Since the end of April, when the book was published, the trades have appeared as they occur.
Go here to buy a copy of the book and video package.
To the chart, Robin…
We had a position in the inverse of UUP (UDN). I failed to notice a divergence that would have gotten us out with a slightly bigger profit than we did.
Not only did I fail to notice the divergence which the ROC as a leading indicator will show us from time to time – in this case that there was a risk the price was about to fall, I also missed the divergence on the inverse.
If you look at the chart above, you will note a vertical black line that runs through the low price candle and then up through the ROC in the upper pane.
You will be excited to see that while the price formed a new low, the ROC did not. Divergence. The ROC as a leading indicator was warning us that the price was about to rise.
This is handy to get out of a short position, if we had one, or prepare us to buy.
I put a trend line on the price and when it was CLOSED above, we could have gone long. Our protective stop would have been placed just under the horizontal line which I have deemed a support level.
For our trading exercise we shall stay faithful to the rules of engagement we laid out and not be distracted by the siren call of a crafty ROC.
(Though we will use the divergence/trend line combo to get us out of trades – provided I see it, that is).
Part of my video package details trading with the ROC. How to use the divergence and the indicator as a trigger. As well as using it to calculate price targets. This trading method has an over 75% success rate. It is being patient that is the tough part.
At least you have something to watch for in your charts, up and down. (Scroll down to look at the divergence at the high I missed).
Any questions, drop me a line: firstname.lastname@example.org
P.S. Saw an amusing line on FB: “Wear your mask, it is not like they are asking you to wear a Toronto Maple Leaf jersey”.
U.K. types, substitute “Manchester United shirt”.