Traders' Library

Free Chapter from Michael Jardine's New Frontiers in Fibonacci Trading

This week's free chapter come from New Frontiers in Fibonacci Trading by Michael Jardine.  Check back next week for another free chapter!

 

 

CHAPTER 12: Shifted Moving Averages and Bollinger Bands

 

 

 The moving averages—which include both stochastics and the moving average convergence divergence indicator (MACD)—are lagging indicators and, as such, are open to whipsaws. Whipsaws occur when prices jump back and forth across the moving average, and trigger false trade entry signals before the moving average can catch up with the price action. However the moving average may also function as a leading indicator when used together with the Bollinger Band. Both are lagging indicators, but by combining them together, they become leading indicators.

 

  This application was introduced to me by Russell A. Lockhart, PhD., though I have adapted it to my own trading style. I would encourage you to do exactly the same—take a look, see how it works, and then adapt it for your own use.

 

  Bollinger Bands, developed by John Bollinger, are moving averages of the standard deviation of prices, over a given period of time. Standard deviation (SDV) is the square root of the variance, and variance is a measure of how spread out a distribution is. These calculations are performed for you in the majority of charting programs. The Bollinger Bands show you exactly what price level, based on prices up and down over a given time period, would be considered to be out of the ordinary if prices were to then reach or exceed that level.

The Jardine Range Indicator in a Brand New Book

The following article from Michael Jardine is a teaser summary of his brand new, upcoming book. I (his editor) haven't even seen the full manuscript yet so this is a true "sneak peek"!

***They teach Lesson #1 of writing as early as elementary school:  Tell them what you are going to say, then say it, then tell them what you said.  Many years and one MBA later, I learned that no matter how long the document, if you can’t distill the “tell them” part into a one or two pages  - the so-called “Executive Summary” – then anything else you write simply will not get read.  So here’s a quick synopsis of what my upcoming book, A Trade A Day (tentative title), is about.

Each day, the market starts fresh. 

Michael Jardine's Monitoring the Wave Count (from New Frontiers in Fibonacci Trading)

Good day everyone! Today's selection comes from Michael Jardine's best-selling book, New Frontiers in Fibonacci Trading: Charting Techniques, Strategies, and Simple Applications. There has been renewed interest in this book, and Michael is currently working on a follow-up book due out in first quarter 2010. Enjoy and please feel free to post comments.

Reprinted from Chapter 5: 9/11: Monitoring the Wave Count

The market is dynamic. If we liken it to a pond, the major events of each day are made up of several large stones thrown into that pond. They will send out waves, and some will create a large wake. The most significant points are found where those waves and wakes cross.

Trading Breadcrumbs with Hansel & Gretl

When Hansel and Gretl were led into the forest, they marked their route back with breadcrumbs. It was a good idea but had one flaw: the birds came along and ate them all up. Hansel and Gretl were lost in the forest and were lucky to end up at the Gingerbread house.

Have you ever felt that way when trading?

You can use breadcrumbs in the market to help show you where you’ve been.  This is important because it’s not just you who is looking back at the path. It’s the entire market, collectively.  Everyone, including “the big guys,” looks back to see what happened in the past.

Human Indicators (compared to Technical ones)

Believe it or not, there is no “they” who “manipulate” the market.  But that is what many people choose to believe, particularly when they have lost money in a trade.  It’s always “them.”  But that is a bit convenient, don’t you think? Almost as convenient as looking out the back window and seeing the patterns of the road behind? The truth is, there is no “they.”  It’s all “us.”  The market is made up nothing more than people like us. True, some of them have larger accounts than the average day trader, but still the ‘large accounts’ are swimming in the same ocean and are still trading ‘against’ each other just as much as they are ‘with’ each other.

The ABC’s of Trading, Part One: Technical Indicators

<<New Post by Michael Jardine>>

In the world of stock and commodities market analysis, technical indicators are like the Cowardly Lion’s courage, the Tin Woodman’s heart, or the Scarecrow’s brain: they just give you what you already have.  Indeed, before computers and real-time intra-day charts, Wall Street traders made their money by ‘reading’ the ticker tape.

Then came technical analysis: our need to take the randomness of the market, and describe it mathematically.  Some might call them the “Statistics of Folly” because all they really describe is what has already happened. That’s a bit like peering out the back window of your car as a kid and observing the patterns in the curves in the road – but would you really feel comfortable driving that way?  I don’t think so.