The picture shown is NVDA. We have incorporated one or more indicators from each category. The red solid line is a 50 simple moving average, the white lines are a 20 range price channel, the indicator with vertical lines that looks sort of like a cloud is called the Ichimoku Cloud, and the three indicators at the bottom from top down are volume, MACD, and Stochastics.
If we were looking for a pullback trend continuation setup, we’d want to see a combination of things confirming a high probability edge.
These indicators will all be discussed in detail in indicators 202, but for now, we are simply trying to show a finished product. We will go back and dissect each part over future posts.
From our trend indicators, we’d want to see an uptrend. This happens by price still being above the 50sma, the MACD still above zero, and price still above the cloud. All options are checked yes.
From our momentum indicators, we see the stochastics has reached oversold by getting below 20. When looking for pullbacks, stochastics needs to get as close to oversold in an uptrend as possible. Check & Check.
From our Volume Indicators, we see price spiked near the end of the run-up roughly 2-3 weeks before giving our pullback entry.
On the pullback however, there was no volume strength. A low volume pullback is an excellent sign that when price starts to turn, the trend will continue. If the volume was strong on the pullback it could be a sign that traders are getting out. Since the volume was weak however, the odds were high that there was simply no one left to buy in the short term, not that traders were exiting existing positions.
From our volatility indicators, we can see price got below it’s 20 day range. A stop below this low by a % of the 20 day range could be an excellent risk reward setup.
If the trend is to continue, a new 20 day low could become an excellent false breakdown point. Traders that only used volatility here may be tempted to fight the overall uptrend.
Traders that used multiple categories however were able to see the stronger uptrend and use this short term new 20 day low as a reason to place a high probability buy setup.
And there you have it. Four categories, four different approaches. When you put them all together, they can create something powerful.
This is what a trading indicator or indicators should do. When you dump so many on the chart you can’t read the chart, it’s time to change. When you trade just the right amount for just the right reasons, you can build a consistent and powerful edge.
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