In this showcase, we'll take a look at something a little different than usual, and discuss how Wave59 can be combined with other forms of analysis such as advisory services. There are many advisory services out there, and many of the traders I talk to during the day are subscribers to either a chat room where analysis is posted by the moderator, or a full blown advisory service where exact trades are delivered via the internet.
One way to use these kinds of advisory services is to treat them as just another indicator. So you wouldn't just jump in on the recommendations given, but would use your timing tools to filter or confirm the signals. For example, if your service flashes a sell alert, you'd only take that signal provided the technical picture at the time was in agreement. If your advisory service issues a sell, but Wave59 is setting up a strong buy, then you just stand aside. By forcing both Wave59 and the advisory service to agree with each other, you can often filter out false signals on both sides, and cherry-pick the best trades of the day.
Let's take a look at a recent chart:
This chart contains three important indicators. First, you'll notice a lot of red and blue trendlines. These trendlines are from an automatic trendline script, which will show up for Wave59 users in the next build. They are different from standard trendlines because they are offset by 3 bars to the right. I prefer to use these delayed trendlines as they give the market more room to move, and result in fewer false breaks.
The second indicator applied to the chart are the Exhaustion Bars. These show up as red and blue dots, and should be very familiar to past readers of these articles. A red dot is a sell indication, and a blue dot is a buy indication.
Lastly, there are some pink arrows. These pink arrows are turning point alerts, posted in real time by an advisory service. Since I'm writing this article, I used Trader59 (www.trader59.com), an advisory service that I'm involved with.
Now, what we'll do is consider our advisory service as the primary signal generator, and our other tools as confirming indicators. Our confirmation signals are very easy. What we need is an Exhaustion Bar and then a trendline break. If we don't have both, then there's no signal.
So let's take a look at arrow A. This was the first signal for the day generated by the Trader59 service. It was a projected low, and came in slightly after our blue Exhaustion Bar dot. Price then rallied and broke the down-sloping blue trendline, signaling a bona-fide buy signal at this level. Stops were below the low of the pivot, and we almost got stopped out on the second half of the double bottom. But after that, the coast was pretty clear, and price started making higher highs, and lower lows, signaling that the trend had definitely changed to up.
Note that Trader59 signals are generated on a 4 minute chart, so they are on a longer term time frame than our technical tools, which is important when using very sensitive confirming tools like we are doing. If you take a look at how our technical tools did in the morning, you'll see a lot of false buy signals where we had a blue dot and trendline breaks to the upside. That's OK. This is meant as a confirmation system for a whole other realm of analysis, so it is just there to get you in and out in context of the signals from the advisory service.
Having said that, there were no sell signals until we reached point B, when we had one right on top of a Trader59 Change In Trend (CIT) signal. That means it's time to go short, with a stop above the high at B.
Price dropped nicely, then came back up to point 1 on the chart, stopping the trade out. After running past the high at B by a point, we then had another Exhaustion Bar signal plus trendline break. The CIT signal had originally been issued with a cancellation price of 21.25 and the high here was 21.50. However, this was only for one bar, and price was unable to close above this key level. We can take this as an indication that the CIT is still valid, and our technical short could have been taken here, with a stop one tick above the high.
Price dropped, then moved sideways into point 2. This was another sell signal, which provided an opportunity for another short. The CIT signal was clearly valid at this point with the direction of the trend downward, so everything is in line.
Now we move down to point 3. Here we have a technical buy signal with our blue Exhaustion dot plus trendline break. There is no signal here from the advisory service, so the only thing to do is exit shorts, or at least move the stops to lock in some profit. Remember, the technical tools can get you in and get you out, but they can't initiate a new trade on their own.
Arrows C and D were identical, and both were confirmed by our tools. These would have been sell signals. No exit was issued, but the market moved far enough away from these points that our stops would have at least been at break even.
Arrow E was an unconfirmed sell signal, as no Exhaustion bar or trendline was present at that high. This was a nice drop, but didn't last very long. Price then rallied into point F, where we had another advisory signal, but by the time we had our trendline break it was too late in the day to do much about it. Additionally, our risk from the break to the last high was too large to make this trade worth taking.
I've specifically chosen a dull example day with small range to write this article. These are the days that usually cause trouble for advisory services trying to jump in on trending moves. Depending on whether or not you took the reentry signals at points 1 and 2, and doubled down on arrow D, there were between 3 and 6 trades today, with only one being a loser. That's not too shabby, and shows how managing advisory signals using our technical methods can be profitable. Of course, you'll do much better with a good advisory service than with a bad one, but in either case you'll have the tools to manage your entries and exits with confidence.
Happy trading, and stay tuned!
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