Advanced Charting Techniques for High Probability Trading: The Most Accurate And Predictive Charting Method Ever Created

CHAPTER 7

Lower Chart Indicators L1 through L4

Moving average (MA) indicators are lagging indicators. They are lagging because the data are based on past history over a set number of periods or days. Regardless of this, MA settings are very important in terms of validating the V. The position of the MAs determines 90 percent of what we do when trading covered calls and LEAPS following the Compound Stock Earnings (CSE) methodology.

As we discussed earlier, M1 (white) is the lead dog. When M1 (white) is dramatically up or down, a strong cycle is occurring in either direction, and therefore we can trade positions fairly easily by applying our CSE management rules. However, we know that M1 (white) will change direction as the stock cycles up and down. Therefore, M1 (white) will regularly turn flat or horizontal. When M1 (white) begins to roll over from its upward or downward position to a flat or horizontal position, the highs and lows are averaging out. Other technical indicators must be applied to interpret the probabilities of the next cycle direction.

Look at the chart of CCL in late January shown in Figure 7.1. Note that M1 (white) has flattened out and gone horizontal. When this happens, we need to use our other lower chart indicators to interpret the probabilities of the next price direction. Note all of the arrows indicating a flat to slightly up or down M1. A slightly up or slightly down M1 is basically the same as a true flat or horizontal M1.

FIGURE 7.1 Chart of CCL—M1 ...