Our forecast service is moving ahead nicely, and many of you have been using it long enough to have begun to realize its benefits. Using these forecasts and a few simple rules, we have found we can explain around 90% of what happens in any given trading day. Inversions of the forecast do occur, and this can make things tricky at times. No trading tools are perfect, and there are always those confusing times when it is best to just step aside. Conversely, there are times when the forecasts practically trade themselves. Here is one of those days:
We generally like to wait an hour or so to see how things are going before making any trading decisions. On this day, there was nothing much to do until around 11:00 when we came to the first turning point in our forecast. This is the time to look do some pattern matching and analysis of confirming indicators. If you look at the chart above, you will notice that we have a bullish momentum divergence signal combined with an Exhaustion Bar signal. This setup is good enough to take on its own, but the fact that it happened at a forecasted turning point makes it that much more powerful.
The next important point happened around 12:30, at the second forecasted turn. By this time it was quite obvious that we were following the inverted forecast, so it was time to hunt for a decline. You can see that we had the exact same setup, only in reverse: bearish momentum divergence and an exhaustion sell signal. The momentum divergence completed 2 bars after the high, so any shorts would have been in the money almost immediately at this point.
The same setup occurred shortly after the third major turning point, and gave us bullish divergence and an exhaustion buy. It was getting late to jump in, but aggressive traders could have done it. The rest of us would have been advised to collect our profits and quit for the day.
Hopefully, this shows the power of using a number of uncorrelated indicators together. We could have also used MA_Trendlines (gray lines on chart) as our entry triggers, which is a good idea when trading with cycles. Market orders are nice when they work, but its better not to have those losses when they don't. There was really nothing fancy to do on this day, and anyone with these tools and tutorial #1 could have replicated this. Its all just a matter of patience and timing.
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