Chapter 8
Speculating Strategies That Use Advanced Technical Analysis
In This Chapter
Understanding one market’s effects on other markets
Using moving averages, oscillators, and trend lines to understand your market
Aligning technical indicators to make a trade
Inexperienced investors tend to ignore the value of a good understanding of technical analysis. That ignorance, on the part of those who ignore charting, is, of course, bliss for traders like you (and me), because it gives you an advantage, albeit a small one, in light of the fact that the big guys with the big money are all chartists, and most of them are excellent at the craft. Bob Woodward, in his book about Alan Greenspan, aptly entitled Maestro (Simon & Schuster), describes how the former chairman of the Federal Reserve had one of the best technical charting data arrays in the world and was an avid watcher of the financial markets, using charts during his time at the Federal Reserve.
The truth is that any good speculator with an ounce of honesty will tell you that they rely as much on their charts as they do on information gathered by other means. The true money-making trader uses both fundamental and technical analyses. To be sure, analyzing the futures markets is both an art and a science and just a little bit of cooking, like when you add that extra salt and pepper to a pot of chili.
The bottom line is that your trading will be enhanced when you apply what you know about the economy and the markets to your charts. And in this chapter, I put together several topics from the fundamental and technical worlds to help you do just that.
Using Indicators to Make Good Trading Decisions
Indicators are instruments that help you confirm what you see when you look at a chart. They are an intrinsic part of trading if you use technical analysis. Graphs produced by the indicators are displayed along with the prices of the underlying asset on the same chart. The indicators are derived from formulas whose components include the prices of the underlying asset.
The more common indicators are known as moving averages, oscillators, channels (of which there are several kinds), and trend lines. These indicators are part of most price charts in the futures markets (see Figure 8-1).
Making good use of moving averages
A moving average is a series of points that enable you to determine which way a major trend is moving within a market and whether your trade is with or against the trend (see Chapter 7). Long-term charts use days and weeks for moving averages. Short-term, intraday (within the same trading day) charts use minutes to create moving averages. Generally speaking, moving averages are useful tools because
Markets trade higher when prices are consistently above the moving average.
When markets cross over a moving average in one direction or the other (above or below), you need to be mindful of a potential change or shift in the existing trend.
The longer the moving average, the more important the trend and trend reversals become. For example, when the dollar crosses above its 200-day moving average, the chance that the trend has changed from a falling market to one that’s about to rise is greater than when it crosses a 50-day moving average.
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Comparing multiple moving averages of varying lengths (20, 50, 100 and 200 days) with the daily price for an instrument enables traders to find important breakout and crossover points that they use to formulate their trading plans. Figure 8-1 compares these key data from June 2004 to June 2005 with that of the euro currency. Note how in October 2004 the value of the euro rallied above its 20- and 50-day moving averages and how the 20-day moving average of the euro moved above its 50-day moving average, creating a bullish crossover. A bullish crossover is an episode in which a shorter-length moving average crosses above a longer-term moving average, which usually is good confirmation of a rising trend and a signal to buy the underlying asset. A bearish crossover is the opposite, when a shorter-length moving average falls below a longer-term moving average. It usually confirms a falling trend. Figure 8--1 highlights a bearish crossover.
A good trading technique is to buy a small stake in a market when a bullish crossover occurs. That’s what you see labeled as “buy point 1” in Figure 8-1. You can see that the euro moved sideways for a bit longer and then broke out; that’s “buy point 2” in Figure 8-1.
The buy signal held true, and the euro’s rally stayed alive until the bearish crossover occurred and the euro fell below both its 20-day and 50-day moving averages in January 2005.
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Figure 8-1: Two buying points — Buy point 1, when you can establish your position, and Buy point 2, when you can add to your position. |
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Figure 8-1 is important because the chart points to a significant amount of information about the value of the euro, including the following:
Downtrends: When the euro traded below its 20-, 50-, and 200-day moving averages, it progressed through short-, intermediate-, and long-term downtrends.
A negative crossover: When both the 20- and 50-day moving averages crossed below the 200-day moving average, the resulting negative crossover confirmed a long-term downtrend.
A positive crossover: When the 20-day moving average crossed above the 50-day moving average, the resulting positive crossover confirmed an uptrend.
A sustained uptrend: The rally in the euro that followed the positive crossover points to a sustained uptrend.
Understanding and using oscillators
Oscillators are mathematical equations that are graphed onto price charts so you can more easily decide whether the price action is a correction in an ongoing trend or a change in the overall trend. Oscillators usually are graphed above or below the price charts.
Traders commonly use several oscillators. In this section, I show you two of them, the MACD and stochastic oscillators, in detail. Discovering the basics of these two oscillators will enable you to easily understand the rest of them, because they all share the same characteristics.
Biting into a Big Mac without special sauce: MACD
The Moving Average Convergence Divergence (MACD) is the result of a formula that’s based on three moving averages derived from the price of the underlying asset. When applied to the asset prices, the MACD formula smoothes out fluctuations of that asset. For example, in Figure 8-1, the MACD is smoothing out three moving averages based on the price of the euro. The software provided by your charting service will help you to display MACD oscillators based either on your own trading criteria or the software’s default criteria.
The MACD data shown in Figure 8-1 are displayed as a histogram. A MACD oscillator that’s moving up usually is considered a bullish development, confirming that an uptrend has been well established when it actually crosses above the zero line.
On the left side of the MACD oscillator chart, note how the line under the MACD slopes higher, while the line under the price of the euro on the index chart above it is flat. The sloping MACD means the oscillator established a higher low, even though the price remained flat, which is called positive divergence. Although prices did not rise, the positive divergence points to selling momentum that is less than it was during the previous low on the MACD oscillator, and that’s a signal that prices may be getting ready to rise. In Figure 8-1, the MACD oscillator was right.
In November, however, a turnaround occurred as the MACD histogram rolled over. The price of the euro continued to rise, but the MACD provided a nonconfirmation signal, meaning that its overall direction was now lower. Note how the line above prices is on the rise from late November through early January, but the second peak on the MACD is lower than the first. This divergence is a sign that buyers are getting tired and that prices may be getting ready to fall. And again, Figure 8-1 shows that the MACD was right.
Taking stock with stochastics
Stochastic oscillators indicate classic overbought and oversold situations in the markets. An overbought market occurs when prices have been in a rising trend for a long time and buyers are starting to get tired. An oversold market is just the opposite; sellers are getting tired as prices are trending down. Whenever either of these situations occurs, as a trader, you need to know whether your position is in danger of getting caught in a trend change.
Markets can remain in overbought or oversold conditions for short or long periods of time before the trend changes. A four-month rally in the euro during the fall of 2004 was overbought for a long time based on stochastic oscillator analysis. So if you had sold based on this indicator alone, you would’ve missed out on making a lot of money. In fact, looking at Figure 8-1, you can see that the stochastic indicator showed that the market was overbought when the breakout occurred at buy point 2. Without the crossover and MACD indicators for backup, you would’ve sold way too early.
Thus, like any indicator, stochastics need to be used in combination with other indicators. Figure 8-1 shows how you can combine MACD, stochastics, and moving-average crossovers to execute your trading plan most efficiently.
I use stochastic indicators as an early warning system. When stochastics signal overbought or oversold markets, I take it to mean that I should start paying close attention to my other indicators, such as MACD and moving averages.
Note in Figure 8-1 that before the rally, the second low on the stochastic indicator was higher than the first, just like the pair of lows on the MACD, thus providing confirmation of the MACD data by the stochastics, which also ultimately turned out to be correct.
The trend became clear in January when the stochastic oscillator indicated that the market was oversold. The second low was lower than the first, correctly indicating a negative situation in which the euro fell to a lower low soon after the lower low was reached on the stochastic oscillator.
By using moving averages and two simple oscillators, you could’ve easily traded those profitable moves in the euro on the long and the short sides.
Getting relative (Not Jiggy) with RSI
The RSI (Relative Strength Indicator) was developed by Welles Wilder and was introduced in 1978. I once got a letter from Wilder about an indicator that I developed in my early days in the business. I still have the letter and look at it once in a while. It was a nice thing for a well-known person in the business to do for someone who was just getting started. But more than stroke my ego, the letter got me interested in RSI.
RSI is a very useful tool, by itself or in combination with other oscillators. RSI uses a mathematical formula to measure price momentum and calculate the relative strength of current prices compared to previous prices. Like stochastic indicators, RSI’s strength is that it’s good at telling when the market is overbought or oversold (see the preceding section).
Seeing how trading bands stretch
As your use of technical analysis grows more sophisticated, you’ll want to know the potential price limits of certain trades. This information helps you ponder when to enter and exit trades and when markets may stall and reverse trend. A good tool for those purposes is a trading band.
Trading bands also are known as trading envelopes, because they surround prices, thus providing visual cues about where price support and resistance levels are at any given time. I like to think of trading bands as variable channels. Chapter 7 shows you trading channels that are defined by trend lines that you draw. Trading bands are similar to trend channels in that they provide you a visual framework of a trading range. The only difference is that trading bands are more dynamic, because they change with every tick in the price of the underlying asset.
Don’t get confused here. Trading bands are, in fact, trading channels that change with every tick. In other words, trend channels, which are drawn by hand or with software, are straight lines, pointed either up or down, connecting the high and low points of the top or the bottom of the price range. When you look at trading channels, you’re getting a visual representation of the trading range.
Trading bands go farther by giving you both the parameters of the trading range along with clues as to where the trading range may be heading in the future.
Introducing Bollinger bands
The most commonly used trading bands are Bollinger bands, which were introduced and made famous by John Bollinger, a pioneering technical analyst and television commentator. Bollinger bands essentially mark flexible trading channels that fluctuate by two standard deviations above and below a moving average. The bands are helpful in defining trading ranges and telling you when a change in the trend is coming. Bollinger introduced the bands with the 20-day moving average, but you can set them up for use with any moving average, and they’ll work the same way.
In terms of the market, a standard deviation is a statistical expression of the potential variability of prices, or the potential trading range. The two-standard deviation method is a default used by most software programs because it catches most intermediate term trends. That means when you punch up Bollinger bands on your trading software, you’ll see bands defining the trading range that are two standard deviations above and two standard deviations below the market price.
As you progress and become more experienced, you may want to use smaller or larger standard deviations. If you want more frequent signals, you shorten or use less standard deviation. For longer-term trading, you use larger or more standard deviation.
Don’t get too hung up in the statistical language. The important concept to remember is that the market tends to follow some semblance of order, nonlinear order, which is predictably unpredictable.
The Bollinger bands are good at displaying the order for you. And here’s how. Figure 8-2 shows you how to apply Bollinger bands to a trading situation that involves the price of the euro during the same period of time highlighted in Figure 8-1.
When using Bollinger bands to analyze the markets, you need to
Watch the general direction of the bands. If the bands are rising, then the market is in an uptrend. If they’re falling, the market is in a downtrend.
Watch
the width between the upper and lower bands. Shrinking Bollinger bands — where the distance between the upper and lower bands is narrowing — signal a decrease in volatility and indicate that a big move is on the way. I like to call this a squeeze. Arrows in Figure 8-2 point to a nice squeeze in the bands that preceded a false breakout and a clear downturn, or breakdown. Here’s another good squeeze: Notice how the bands tightened around prices before the euro broke out and headed higher. Decreasing price volatility is usually a prelude to a big move. Widening bands usually are a signal that the trend has changed and that the general tendency of prices is likely to continue in the direction of the new trend.
Futures traders work in a time frame of a gnat, and a breakdown can be two hours of falling prices if you’re using charts featuring five-minute bars (see Chapter 7 for more about charting).
The direction of a move signaled by a squeeze of the Bollinger Bands is not always certain, though, so you need to wait until the market moves, and catch the move as early as possible.
Bollinger bands also are excellent for staying with the trend. Watch for prices to be
Walking the bands. Markets that move along either of the (upper or lower) bands for an extended time are interpreted as a signal that the current trend is going to continue for some time. The bracket from September to November shows a nice example of how the euro walked the band for a good while during its late 2004 rally.
I realize that reference to “some time” can be frustrating and may be confusing to readers who require certainty in their trading and more precise time frames. But when you’re trading, all you can do is understand the possibilities and monitor your trades accordingly until the market tells you that the trend has changed. That’s one of the reasons that you should never rely on a single indicator without using others as backups. In Figure 8-2, the “some time” turned out to be three months. By monitoring your trade closely, you could’ve followed this market movement for the entire period.
Breaking outside the bands. When a market’s price breaks outside the bands around a moving average, it usually means you can expect reversal in the market — a trip to the opposite band. Breakouts don’t always indicate a shift in the market, but if the market goes outside the bands enough times, the price eventually makes a trip in the opposite direction.
When the market touches either of the bands, it’s only a matter of time before it eventually touches the other band; however, the specific amount of time it takes for this kind of reversal to occur is not as predictable.
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Figure 8-2: The Euro Currency And Bollinger Bands. |
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The block arrow in February in Figure 8-2 points to a great example of how the lower band can serve as a launching pad for a bounce back up to the upper band. The euro not only touched the band, but spent several days just outside of it.
Trading with Bollinger bands
Bollinger bands can be used alone, but they work much better when used in combination with oscillators and other moving averages. As with any indicator, Bollinger bands are not perfect. Sometimes, the price of the underlying asset rises above the upper band, and you think that a trip to the lower band is possible, thus prompting you to sell. Sometimes, you’ll be right. At other times, however, prices fall back inside the band, stay there a couple of days, and rally right back up, continuing to walk along the upper band. That’s when other indicators, such as MACD and stochastic oscillators and moving-average crossovers, come in handy as checks and balances.
You can visualize a good example of Bollinger bands being used in conjunction with other indicators by viewing Figures 8-1 and 8-2 together. The squeezing Bollinger bands in Figure 8-2 occurred at the same time that the MACD oscillator failed to confirm the higher high in the euro currency. The combination of the two — the bands signaling that a big move was in the offing and the negative divergence in the MACD — was confirmed when the euro began a downtrend.
When looking to go long (see Chapters 7 and 20), you can set your buy points just above the lower Bollinger band so that you catch the bounce when prices bounce back into the band, and a new uptrend starts.
When looking to go short, you’re selling high; thus you put your sell-short entry point — as soon as it clear that the market is breaking, and it comes back inside the upper band. In this case, you’re looking for prices to break and to profit from the break, which is why you’re selling short.
When taking profits, you can use the moving average to set your sell points to take profits based, of course, on where other indicators show the market is headed when market prices reach those points.
When adding to your position (buying), you can use the moving average to establish new buy points to bolster your position. When prices fall back to the moving average and hold, you can add to positions there.
When the market breaks outside the upper band, on the way up, you can sell your position there if you’re long. See the “Take profits” sign in Figure 8-2. As the market moves back into the band, you can then change your tactics to short selling.
When the market drops below the lower band, you can take profits on short positions and go long at the lower band.
Trading with trend lines
Trend lines are much like Bollinger bands but without so much flexibility. Trend lines directly reflect the overall trend of the market, but they’re static because you draw them on your charts with the drawing tool in your software package. This tool is best used for spotting a key change in the overall direction of the underlying market.
Trend lines are just lines on charts, such as the ones shown in Figure 8-3 (numbered 1 through 4). The correct way to draw a trend line is to connect at least two points in the price chart without crossing through any other price areas. If you can draw the trend through more than two points, it can become more accurate; however, trend lines are another tool that needs to be used with other indicators.
You can use trend lines for both short- and long-term trading, and in both cases they tell you the same thing, the overall trend of the market. The important trend-line concept to remember is that rising prices remain in a rising trend as long as they’re above the trend line. Likewise, falling prices remain in a downtrend as long as they’re below the falling trend line. Breaks above or below the trend lines signal that the trend has changed. Correctly drawn trend lines (see preceding paragraph) help you stay on the right side of the market as follows:
In uptrends, trend lines connect the lowest low to the next low that precedes a new high without passing through any other points. Two uptrend lines, number 2 and number 3, are shown in Figure 8-3, a long-term chart covering five years of trading in the U.S. Dollar Index. The price break above trend line 1 shows you when to buy right after a downtrend line is broken. Trend line 3 shows you how to add to your position as the price holds above the trend line.
In downtrends, trend lines connect the highest high to the next high that precedes a new low without passing through any other points. Two downtrend lines in Figure 8-3 include an intermediate-term trend line, on the far left that lasts for months, (trend line 1), and a long-term trend line, trend line 4 (far right) that lasts for years. Trend line 1 shows you how to remain in a short position as long as the price remains below the falling trend. Trend line 4 shows you that you need to be buying the dollar when the price of the dollar breaks above the multiyear trend. Needless to say, as long as prices stayed below trend line 4, the primary trading direction was to be short the dollar.
Short-term trend-line trading
When trading futures, at times you can easily get caught up in the jargon. Short-term trading should never be confused with short selling. Short selling means you’re betting that prices will fall. Short-term trading means you’re not interested in holding a position for longer than a few hours or days at most.
To trade the long side (or buy by using trend lines), you can
Buy a portion of your position when a downtrend that you’ve been following, or shorting, is broken (see Figure 8-3).
Draw your trend line as the market is developing an uptrend and then buy when the market touches the uptrending line for the third time without breaking below it.
Supplement trend lines with oscillators and moving averages to make sure that the odds of a winning trade are increased. You should never rely on only one indicator to make your trades.
Long-term trend-line trading
Say you’ve been short selling a downtrend in the value of the U.S. dollar for several weeks, but you’re not sure how much longer the position will do well. Aside from using moving averages, Bollinger bands, and a few oscillators, a good trend line can be the best indicator for the job. Figure 8-3, a five-year chart of the value of the U.S. dollar, provides a great example of how drawing trend lines on long-term charts can help you spot a meaningful change in a long-term trend.
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Figure 8-3: Using trend lines to stay on the right side of the market. |
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Lining Up the Dots: Trading with the Technicals
Technical analysis is like solving puzzles — kind of like connecting the dots. You start with a price chart, and you start adding lines, bands, oscillators, and indicators.
As you go along, things can grow cluttered, and you can lose your way. The good thing is that trading software has “Clear” buttons, which means you can wipe out all the lines and squiggles on your charts and start over anytime things get out of control. Save your work first, though, in case you need to refer back to it.
In the next section, I deal with chart clutter by focusing on staying with the trend.
Identifying trends
Trading is not only about swimming with the tide; it’s also about knowing when the tide is going to turn against you. Good traders figure out which way the trend is moving before they risk their money. It really is as simple as that. However, you also need to remember that several time frames are involved in price activity, and that knowing which ways the short-, intermediate-, and long-term trends are headed in your markets is equally important.
Finding the trends is easy; you simply look at price charts for multiple time frames every day. Daily, weekly, and monthly charts, spanning months, weeks, and even years, are the best way to go. Checking them all before you look at your intraday price charts will enable you to be on the right side of the market for the time frame in which you plan your trades.
If, for example, you’re day trading in wheat, you at least want to know where the market has been during the last few weeks or months, because intraday prices of wheat are likely to be guided by that overall trend.
You can also use long-term price charts as the basis for spotting key long-term support and resistance points and for identifying those same points on your shorter-term charts.
Thereafter, you can use the trend lines in conjunction with moving averages and oscillators to help identify the dominant trend before you trade.
Getting to know setups
As a trader, you’re a hunter, and good hunters appreciate high levels of activity and the quiet periods in between. Remember, only three things can happen in a market. Prices can rise, fall, or move sideways for an extended period of time.
As a trader/hunter, your job is to look through all your charts for setups, or chart formations that signal when a change is about to occur in the market you’re studying and want to trade in. As you look for trading opportunities, watch for the following:
Constricting Bollinger bands, which point to the potential for a big move getting closer
Sideways price movements following advances and declines, which indicate volatility is easing as traders try to decide what to do next
Breakouts that occur when prices break above or cross over key support or resistance levels, trend lines, oscillators, moving averages, or other market indicators
After you find them, setups call for careful observation in which you apply the principles of the indicators explained earlier in this chapter.
Buying the breakout
Breakouts are exciting. Prices suddenly burst out of a basing pattern. Volume can swell, and suddenly your trading screens are flashing my favorite trading color, green, as buyers come into the market.
A breakout is a signal for you to go to work. Because it can come at virtually any time, you need to be prepared to react.
Figure 8-1 (earlier in this chapter) shows you a classic example of a nice setup, a breakout, and the right outcome. The euro formed a 41/2-month base and then delivered a nice breakout in mid-October, after testing resistance levels in July, August, and twice in September. Important features to notice about this classic basing pattern are that the euro found support twice during the basing period, and its value did not retreat to the bottom of the trading range after September.
These two factors together indicated that buyers slowly were starting to take the upper hand. In addition, higher lows indicated by the MACD oscillator and positive basing action (see Chapter 7) predicted the breakout.
The ideal entry point for buying the breakout (labeled in the figure) is after the price clears all the previous resistance and begins moving higher — in a hurry.
Swinging for dollars
Swing trading enables you to take advantage of markets that are stuck in trading ranges, whether they are moving sideways, rising, or falling within trading channels. The euro in Figure 8-1 was in a narrow trading range before it broke out in October, and offered opportunities for short-term swing trading before its breakout.
To be able to make profitable trades in markets that are within trading ranges, swing traders rely on trend lines, Fibonacci levels, and moving averages to identify the levels of support and resistance that they use to establish price points at which they buy, sell, and sell short their investments. When prices reach support and resistance levels, swing traders take action, in general buying on weakness at the bottom of the trading range and selling on weakness at the top of the trading range. In other words, swing traders set targets for their trades and anticipate trend changes when the market reaches those targets based on their analysis of their respective markets.
Selling and shorting the breakout in a downtrend
Regardless of whether you’re a momentum trader buying on breakouts or a swing trader setting up and knocking down targets, changing trends are the trader’s bread and butter. And one of the hardest things for a trader to do is get up the guts to sell an instrument short. Fortunately, the complexities of the market, the popular psychology that shorting is immoral, and the high risk of losing large sums of money serve as three major deterrents against the practice.
And yet, if you keep close tabs on trend lines, oscillators, and moving averages to spot changes in a market’s price trends, and watch Bollinger bands and Fibonacci retracement levels to predict when important shifts in the markets are likely, you can manage your risk and make some money selling short. You also need to use protective stops, just in case you’re wrong.
Selling short is a different animal. It’s essentially the practice of turning the world upside down and making money from someone else’s miscues, whether political, corporate, or otherwise.
The two basic strategies for short selling are swing trading (see the preceding section) and selling into the breakdown of prices.
When you’re selling into the breakdown, you have to wait for bad things to happen. A good rule of thumb is to consider that a market is worthy of short-selling consideration when it has been going up for an extended period of time. It can be weeks, months, or years.
When selling short, or shorting, you can do the following:
Anticipate the breakdown by looking at the Bollinger bands and
• Watching for the bands to constrict and the market to stop walk-ing the band. If trend lines are broken toward the downside, you can short an instrument. Be sure to place a stop just above the trend line.
• Watching for the market action near the moving average inside the bands, which can signal support.
Monitor your short sales positions carefully at all times but especially in markets that respond to news and at times of high political tension. Bonds and currencies are especially susceptible to news and political tensions.
Give your short sales positions room to move. Setting your exit stops too tightly can get you whipsawed. Different markets have different inherent ranges. Before you sell an instrument short, you need to become aware of its normal price movements and adjust your position accordingly.
Setting your entry and exit points
Where you set entry and exit points — whether mentally or automatically on your trading platform — can make a big difference in your trading performance. Although no hard-and-fast rules determine where to set these points, some fairly reliable guidelines are available. Here’s a quick lineup:
Tailoring the strategy to the market: Get to know how fast your market moves and how volatile trading can be before you ever start trading. It’s a good idea to do this through paper trading, a way to practice trading without assuming the financial risk. Most online futures brokers will have practice trading available on their Web sites. Use this technique to become familiar with each market you trade.
Knowing your risk tolerance: If you know wheat moves too fast for your liking, try the U.S. Dollar Index, which moves more slowly.
Giving a fast-moving market more room to maneuver than a slower one: As a general rule, you need to give fast-moving markets a bit more room to maneuver. (
Note:
This bears repeating.) I usually give myself a few ticks above or below the support or resistance area that I’m using as my line in the sand so I avoid getting whipsawed.
Setting sell stops: Where you set your sell stops depends not only on your experience, but also on the market’s volatility and your risk tolerance.
Using trailing stops: You can reset these manually; use prices or percentages as a guide. Again, much depends on the inherent volatility and general tendencies of each individual market, which is why you need to exercise care and be aware of how all contracts that you trade fluctuate before committing any money to a trade.
Hurrying gets you nowhere: Never be in a hurry when trading. Some traders like to give markets an extra day before selling or buying. For example, if you spot a trend change on the S&P 500 futures chart on Tuesday, you may want to wait until Wednesday before you make your decision.
Using technical analysis to establish market entry and exit points: Fibonacci levels, moving averages, trend lines, and support and resistance points provide you with plenty of references for where to place entry and exit points. The figures in this chapter offer a good foundation for beginning strategies.
Expanding your strategies: As you gain more trading experience, you can find out more about the Fibonacci theory, Eliott waves, and Gann strategies by reading more about them and other approaches to trading. Technical Analysis For Dummies offers a fairly detailed introduction to those topics.