Our tools have been doing very well lately in the bond market, and we thought that it would be a good idea to show some of the recent trades that have been signaled using a combination of the Cycle Forecaster, Exhaustion Bars, and MA_Momentum. Below is a 10 minute chart of most of this last week:
The cyan line is our Cycle Forecaster, and is meant to enable traders to anticipate future turning points. Although it is not an exact forecast, it is quite accurate and can give advance warning of impending moves. We like to combine it with other tools to fine tune our entries. It is always a good idea to back up one technique with another, uncorrelated one.
One excellent confirming tool is our Exhaustion Bars (ExBars), as shown by the red and blue dots. The most common question that prospective customers ask us is whether the ExBars signals appear on charts as they do in real time trading. The answer is yes. All of the dots are in the same position that they would have been if this chart was updating in real time.
The third timing tool that works hand in hand with Exhaustion Bars and the Cycle Forecaster is our zero lag momentum curve. Although there are different ways to use this tool, one of the best is to watch for divergence signals. We have illustrated such areas with white trendlines on the chart. For example, if MA_Momentum makes a high and then a lower high when price makes a high and a higher second high, a divergence sell signal is generated. There are four of them that occurred last week on this time frame, all sell signals.
The best trading situations occur when a number of the indicators all signal the same thing at the same time. These are the high probability trades that we like to look for. There are two such areas on the chart when all of the indicators came together at the same time to produce obvious signals. These two areas are marked with an "A" and a "B".
At "A", we have a situation where the Cycle Forecaster turned down sharply, an ExBar sell occurred, and MA_Momentum formed a bearish divergence signal. This is a clear indication to look for a short position at the open of the 19th. Our automatic trendline indicator (yellow lines) were broken on the first bar of that day, and a nice trade resulted. Note how the blue ExBar later on told us the perfect time to exit.
At "B", later on during the 19th, we had an identical situation: a drop in the Cycle Forecaster, an ExBar sell, and a bearish divergence signal. Notice that the signal also occurred around the same time as the previous one. This trade was even better, and a blue ExBar also told us the best time to exit.
There were other good setups for more aggressive traders, but these two were the most promising and the easiest to anticipate. Personally, we only take the "no-brainer" trades. When in doubt, stay out and save your money and energy. Nevertheless, a lot of money could have been made just with the ExBars alone, so there are plenty of opportunities for those who aren't so patient. More next week.
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