HOW TO TRADE USE PIVOT POINTS

 i am going to show you the way to trade Nifty future using Pivot points. We will calculate Pivot points on daily basis using daily charts and then use those Pivot levels on 15 minute charts — our main charts — where we will look for entries, stops and exits. We will use 15 minute time frame because it allows catching the best entry and exit opportunities. With hourly charts, for example, when the signal is there it is quite often already too late to react / enter.

We know we have to calculate Pivot points every single day, so that each morning we start with new fresh daily Pivot points, calculated from last trading day's High, Low and Close. Let's look at today's Nifty future 15 minutes chart to see how Pivot points were found. As you can see we use only 5 major Pivot point levels: R2, R1, PP, S1 and S2.

After Pivots are in place traders should start taking notes. First, they should note where the market has opened today in relation to the Pivot Point (PP): above the Pivot Point or below it. The answer to this question provides the first clue about traders' biases for the day, e.g. if the market has opened above Pivot Point, traders will be bias towards taking long positions, on the contrary, opening below the Pivot Point would suggests shorting for the day.

Then traders should look at how far the price opened from the Pivot (PP), and make extra notes when it opened below S1 or above R1 level which is considered to be a quite distant open.

With some small distance away from the Pivot Point it is considered to be a good morning for trading. It is very much suggested to wait for a pull back towards the Pivot line before taking a position. 15 minute charts in this case help to catch the right moment for entry.

With the second — distant opening (below S1 or above R1) — we have very high expectations that the price will try to correct such "distant irregularity" and thus instead of progressing further away from Pivot Point it will try to move back towards the Pivot — the gold-middle point of the day. As a result, we will typically see a ranging market which does not produce much of the trading opportunities. The expectations are that the price will revolve around Pivot Point for the rest of the day — nothing to do for us, we should stay out. (Some of the writings are excerpts from Pivot Points Strategy by Jeff Boyd Authors & Publishers Inc.)


Why do pivot points work? The whole Pivot point trading technique is based on two main market concepts: existence of support and resistance. These two tendencies form the core of the market moves and therefore receive full attention from the vast majority of professional traders who trade on behalf of all kinds of large, medium, small financial institutions, funds as well as for themselves.

Because Pivot points are easy to calculate, millions of automated trading systems in the world automatically execute buy / sell orders analyzing the market moves in relation to the Pivot points. Also, there are very little variations that can take place when calculating Pivot points (those are only timing factors, but even then pivot points can quite often suggest the same data).

These precision in targets and mutual "agreement" among traders on certain key levels for the day cause the market to really shift, turn and move as huge percentage of traders pull in the same direction using basic Pivot points trading rules.

With EMAs crossing, for example, every trader can set different indicators and thus timing and reaction will not be so well coordinated. Also take Fibonacci, where for each time frame traders pull their own Fibonacci levels, same for trend lines — there are as many opinions out there as traders trading Nifty future. But when it comes to Pivot points, no matter what chart you use your Pivots will be the same = levels of support and resistance, where everyone hits the same button at the same time. Pivot points outperform other trading techniques and indicators also because they are predictive as opposed to lagging.

Because so many traders worldwide use Pivot points for trading, all major indices and stocks react at these levels in a quite predictable manner, respecting support and resistance levels and creating a lot of trading opportunities. (Courtesy - Jeff Boyd for a part of this writings)

Now lets see, was there any trading opportunity today using Pivot points in Nifty future. Nifty future opened above the pivot level of 4641. So, the bias for the day was positive and one could only buy near pivot point if the pivot point is respected in the 15 minutes chart (see my earlier post) for a target of R1 (4701), or one can buy for a target of R2 (4741) if R1 is penetrated and sustained. Nothing of them happened, and so it was a no trade day for Pivot Point traders and my god, you are saved from being whipsawed in comparison to other trade methods as Nifty future moved the whole day in narrow ranges.


We already now know what are PivotPoints. We already know the basics of how to trade them. Now of utmost importance to know, daily pivot point values tend to be touched or traded through roughly 75% of the time. In other words, seven out of every ten sessions for any liquid market will see the daily pivot point come into play at some point during live trading.

Isn’t that amazing! To know that a certain spot on most any chart will be touched more often than not can be a powerful tool. Unfortunately, unless one knows what to do with that information it is worthless at best or harmful at worst. Believe me, more traders LOSE money with this knowledge than actually makemoney. Some of the worst trading sessions touch their pivot points several times (sideways choppy session) while some of the best trading sessions miss touching the daily pivot at all (gap & go trend sessions).

In general, a market trading above its pivot point value is acting bullish while a market trading below its pivot point is bearish. That's the most general rule for using these price measures, and it holds true most of the times. Fact is, the same trend filter applies to all charts and trading timeframes: intraday charts or even daily and weekly charts.

Pivot point values are not exclusive to day trading at all. We can use them in swing trades and even position trades for long-term stockholds in DP accounts. Depending on our time horizon of trading chart, the applicable pivot value works there too.

Using daily charts for swing trades in any liquid market would mean we want to keep track of the weekly and the monthly pivot points. That much is easy: once a week we calculate the previous week's price values for a weekly pivot point. The beginning of each month we calculate previous month's price action for monthly pivot points. Simple as that!

General Market Advice:

1. Never chase a stock.

2. Buy when markets are in the grip of panic.
3. Only buy fundamentally strong stocks, which are undervalued.
4. Buy stocks grown in top line and bottom line over the past years.
5. Invest in companies with proven management.
6. Avoid loss-making companies.
7. PE Ratio and Growth in earnings per share are the key.
8. Look for the dividend paying record.
9. Invest in stocks for sure returns.
10. Stocks have been the high yielding asset class over the past.
11. Stocks are an asset class.
12. The basic property of any asset class is to grow.
13. Buy when everyone is selling and sell when everyone buys.
14. Invest a fixed amount each month.

What you should do in a stock Markert

1. Get rid of the junk Stocks
Any shares you bought but no longer want to keep? If they are showing a profit, you could consider selling them. Even if they are not going to give you a substantial profit, it is time to dump them and utilise the money elsewhere if you no longer believe in them.
Similarly with a dud fund; sell the units and deploy the money in a more fruitful investment.
2. Diversify Your Porfolio
Don't just buy stocks in one sector. Make sure you are invested in stocks of various sectors.
Also, when you look at your total equity investments, don't just look at stocks. Look at equity funds as well.
To balance your equity investments, put a portion of your investments in fixed income instruments like the Public Provident Fund, post office deposits, bonds and National Savings Certificates.
If you have none of these or very little investment in these, consider a balanced fund or a debt fund.
3. Believe in your investment
Don't invest in shares based on a tip, no matter who gives it to you.
Tread cautiously. Invest in stocks you truly believe in. Look at the fundamentals. Analyse the company and ask yourself if you want to be part of it.
Are you happy with the way a particular fund manager manages his fund and the objective of the fund? If yes, consider investing in it.
4. Stick to your strategy
If you decided you only want 60% of all your investments in equity, don't over-exceed that limit because the stock market has been delivering great returns.
Stick to your allocation.

What you Must not do in a Stock Market

1. Don't panic

The market is volatile. Accept that. It will keep fluctuating. Don't panic.

If the prices of your shares have plummeted, there is no reason to want to get rid of them in a hurry. Stay invested if nothing fundamental about your company has changed.

Ditto with your mutual fund. Does the Net Asset Value deep dipping and then rising slightly? Hold on. Don't sell unnecessarily.

2. Don't make huge investments

When the market dips, go ahead and buy some stocks. But don't invest huge amounts. Pick up the shares in stages.

Keep some money aside and zero in on a few companies you believe in.

When the market dips --buy them. When the market dips again, , you can pick up some more. Keep buying the shares periodically.

Everyone knows that they should buy when the market has reached its lowest and sell the shares when the market peaks. But the fact remains, no one can time the market.

It is impossible for an individual to state when the share price has reached rock bottom. Instead, buy shares over a period of time; this way, you will average your costs.

Pick a few stocks and invest in them gradually.

Ditto with a mutual fund. Invest small amounts gradually via a Systematic Investment Plan.
Here, you invest a fixed amount every month into your fund and you get units allocated to you.

3. Don't chase performance

A stock does not become a good buy simply because its price has been rising phenomenally. Once investors start selling, the price will drop drastically.

Ditto with a mutual fund. Every fund will show a great return in the current bull run. That does not make it a good fund. Track the performance of the fund over a bull and bear market; only then make your choice.

4. Don't ignore expenses

When you buy and sell shares, you will have to pay a brokerage fee and a Securities Transaction Tax. This could nip into your profits specially if you are selling for small gains (where the price of stock has risen by a few rupees).

With mutual funds, if you have already paid an entry load, then you most probably won't have to pay an exit load. Entry loads and exit loads are fees levied on the Net Asset Value (price of a unit of a fund). Entry load is levied when you buy units and an exit load when you sell them.
If you sell your shares of equity funds within a year of buying, you end up paying a short-term capital gains tax of 10% on your profit. If you sell after a year, you pay no tax (long-term capital gains tax is nil).

OPENING RANGE BREAKOUT TRADING METHOD

****OPENING RANGE BREAKOUT********
--Do not trade for first 15 minutes i.e. upto 10.10 AM.
--first 15 minutes of trade is known as OPENING RANGE. (O.R.)
--Write down High and Low of Opening Range.
--now whenever trades above high or below low of Opening Range then it is known as OPENING RANGE BREAKOUT. (O.R.B.)
--If O.R.B. is up then stoploss will be low of ORB for intraday.
--same way, If ORB is down then stoploss will be high of ORB for intraday.
***********HOW TO TRADE FOR POSITIONAL CALLS USING O.R.B.*******
--------When call is 'HOLD LONG'

•Do not trade for first 15 minutes.
•now if OR breaks up then hold your longs keeping low of OR as stoploss for trading upto 3.00 PM.
•after 3.00 PM if trading level is above our closing stoploss level then carry forward the long for next day.
•If during inraday, low of OR is broken down and you have closed the long for intraday, then re-examine the level after 3.00PM. If trading above our closing stoploss level then re-enter long to carry forward for next day and if trading below our closing stoploss level, then do nothing.
--------When call is 'HOLD SHORT'
--If OR breaks up then close your short. Re-examine at 3.00PM. If still trading below our closing stoploss level then re-enter short and carry forward it for next day. and if trading above our closing stoploss then do nothing.
--If OR breaks the OR down then hold the short for intraday keeping high of OR as stoploss.after 3.00PM decide as per closing stoploss level.
----------When call is 'INITIATE LONG'
--If OR breaks up then initiate long.
--If OR breaks down then avoid the call.but re-examine after 3pm,if trading in green then initiate long and carry forward the long for next day.
---------When call is 'INITIATE SHORT'
--If OR breaks up then avoid the call.
--If OR breaks down then initiate short.but re-examine after 3pm,if trading in red then initiate short and carry forward the short for next day.
************CONCLUSION*****
--Do not trade upto 10.10 AM.
--From 10.10 AM to 3.00 PM trade with three levels(OR high, OR low, Closing stoploss) and one strategy (Long or Short).
--after 3.00 PM trade with one level(Closing stoploss) and one strategy( Long or Short).

--in short be alert when you are long and stock is trading red or be alert when you are short and stock is trading in green

NIFTY TRADE IDEA

There is one simple remedy for this: Sell only when Nifty trades below 5 day or 3 day averages/ emas(Depends on your risk appetite) and preferably after a negative divergence is spotted & reverses.

In my tech Table, you will find the "high ema" of week, Day & Hour. When we reach "OverBought" area(Identify with stochastics above 90 & reversing or macd in +ve area at high level & turning down), Nifty initially closes below the hour high ema and that is a starting place for aggressive sell. A point to remember here is, not to short when just out of a good consolidation range but allow it to run out of steam..Elliott wave labelling(Simply a marking post or mapping strategy) helps here of more upsides, etc.

This will minimise your errors. It happens when we try to preempt the market, expecting a top. If you can study Elliott wave analysis you can sell quite close to the top but it is a challenging study. Similarly, TA study offers some target level calculations based on certain price patterns.

Most importantly understand the time cycle you are bearish on...If you are bearish in intra day, don't carry the shorts home. Besides, if you expect the hourly sell to manifest in lower prices, don't wait longer than few hours. If it does not fall in fewer hours, the supposed bearishness would be weak and should be abandoned.

"Always want to short the market"...it is not peculiar to you. It is universal. Experts have been shorting the market and citing bad economy..We are traders and should always follow prices..More shorters in the market, the "shorts" alone will keep the market from falling and you don't need a booming economy..

Short:
1. when a channel is broken.
2. When macd turns down and nifty closes below short term avg
3. when a 5 wave move or an "abc"(1,2,3) wave is completed upwards in a falling market.
4. When OI)Open Interest) is rising and prices are falling or OI is falling and prices too.
5. Short..Short when after a negative divergence, prices are at a target or reversing..
6. Short in a "ORB"(Opening range break out(in the 1st 15-20 minutes), the prices break the lower range.

Shorters are the most successful traders but you need to fine tune that art. Your instinct to short seem to be natural gift. Develop it.

NIFTY TRADING PLAN -2

Earlier also I have told in my trading career I have come across, many charting softwares and sites, costly or non-costly. But I again repeat even a novice can successfully trade Nifty future using only free Yahoo Chart. For that purpose I have attached an auto refreshing Nifty chart from Yahoo Finance in this blog at Live Niftysection. An auto buy sell decision is attached with the Nifty chart in the blog.

In my last post on Nifty Yahoo Chart I discussed on EMA crossover technology. This time I will discuss Stochastic-RSI Technology.

Let me tell you how have I made 66 points in Nifty trading today using the Nifty Yahoo Chart? Rules are again simple: simply follow the auto signals. Buy Nifty when stochastics crosses blue line over red and confirm that a full white candle is formed above the 21 EMA, the red line. Short Nifty when stochastics crosses red line over blue and confirm that a full blue candle is formed below the 21 EMA, the red line. Exit criteria RSI reaching overbought or oversold zone. Also, sometimes the auto signals will tell not to short at all, or sometimes it will tell not to buy at all. My today's trades are represented graphically. Your comments are welcome in this matter to take this discussion to a further height.

NIFTY TRADING PLAN

In my trading career I have come across, many charting softwares and sites, costly or non-costly. The list is becoming endless with the advancement of technology:Metastock, Amibroker, TradeStation, Advanced Get, FCharts, ICharts, JCharts, BazaarTrend. But may be we traders are ignoring a hidden free gem like the Yahoo Finance Charts. Thanks to Yahoo, we Indians get absolutely live charts for our indexes from Yahoo charts absolutely FREE. I have attached an auto-updating real time Nifty chart from Yahoo Finance @ Live Nifty section of this blog athttp://niftytradingchart.blogspot.com/.

I repeat even a novice can successfully trade Nifty future using thischart. But how? Rules are again simple:

Buy Nifty when 3 mins EMA goes above 13 mins EMA and 13 mins EMA is also above 34 mins EMA. Comfirm the RSI and Stochasticsboth in uptrend and has not reached the overbought zone of 80. Exit Nifty longs when RSI and Stochastics both starts coming down from the overbought zone.

Sell Nifty when 3 mins EMA goes below 13 mins EMA and 13 mins EMA is also below 34 mins EMA. Comfirm the RSI and Stochastics both in downtrend and has not reached the oversold zone of 20. Exit Nifty shorts when RSI and Stochastics both starts moving up from the oversold zone.

Now lets see how I have made 45 points in Nifty yesterday (i.e. 8th May 2009), just by trading the FREE Yahoo charts. I know a picture worth a thousand words, so I attached a picture of yesterday's trades. Your comments are welcome to extend this discussion to a further height. Cheers!!

How To Trade Nifty Like Pros Using Yahoo Charts?

How to fix specific SL and targets while trading with free Yahoo Chart?
Please see my last Monday's post on How Have I Made 40+ Points In Trading Nifty Future Intraday Today. After the post I have received many readers requests to illustrate the stop loss and targets. So this post is on how to calculate the targets and stop loss levels while trading Nifty using the freeNifty Trading System in this blog. The same is applicable for the free Bank Nifty Tradig System.


We all know the entry and exit rules. Sometimes we see that even the entry rules are met the trade is not performing. The reason may be we are buying just below an important resistance or we are shorting just above to an important support levels. We all now know that pivot points indicates excellent support and resistance levels for intraday trades. So can we combine pivot levels with yahoo chart? The answer is yes.
So changed rule, if we get a buy signal in yahoo chart, we look for the nearest pivot level and buy just above the level. We can keep SL 5 points below the last swing low and we can target the next pivot level upside. While shorting with yahoo chart, we look for the nearest pivot level and short just below the level. We can keep SL 5 points above the last swing high and we can target the next pivot level downside. It is tough for novice traders to combine the pivot levels in trading, but with continuous practice you can actually make this for of trading very easy for you. I have shown today's possible trades with the help of a diagram.

OPEN INTEREST

Everyone out of, yesterday’s hangover????. Okie.. so today I thought, let me put something on Open Interest(OI).I have many a friends who were interested in this(including me ..of course!!!).since I myself am, pretty ignorant about the topic, so decided to seek help from two of my close friends and fellow traders. The credit goes to them for making this post possible. They are Mayuresh(a musik junkie, watches more of rock vids than charts!!!) and Jimmie(OI geek.. swears by it, and the man who got me interested in OI).I have posted a chart on OI by Jimmie…you see when most of us were still tryin2figure out, to be a bull or a bear(2 b or not 2 b!!!) this guy had already taken his stand, based on OI figures. Before I begin, I’d like to tell them “Thank You Guys”. Here it goes….Beware… it might get a bit boring…but then such is the life dearies!!!

What Is Open Interest?

Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day.

It can also be defined as the total number of futures contracts or option contracts that have not yet been exercised (squared off), expired, or fulfilled by delivery.

Open Interest applies primarily to the futures market. Open Interest, or the total number of open contracts on a security, is often used to confirm trends and trend reversals for futures and options contracts.

Open Interest measures the flow of money into the futures market. For each seller of a futures contract there must be a buyer of that contract. Thus a seller and a buyer combine to create only one contract.

Therefore, to determine the total Open Interest for any given market we need only to know the totals from one side or the other, buyers or sellers, not the sum of both.

The Open Interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number.

How To Calculate Open Interest?

Each trade completed on the exchange has an impact upon the level of Open Interest for that day.

For example, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract.

If both traders are closing an existing or old position ( one old buyer and one old seller) Open Interest will decline by one contract.

The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the Open Interest will not change.

Benefits Of Monitoring Open Interest!!!

By monitoring the changes in the Open Interest figures at the end of each trading day, some conclusions about the day’s activity can be drawn.

Increasing Open Interest means that new money is flowing into the marketplace. The result will be that the present trend (up, down or sideways) will continue.

Declining Open Interest means that the market is liquidating and implies that the prevailing price trend is coming to an end. Here having some knowledge of Open Interest can prove useful towards the end of major market moves.

A leveling off of Open Interest following a sustained price advance, is often an early warning of the end to an up trending or bull market.

Open Interest - A Confirming Indicator???

An increase in Open Interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in Open Interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while Open Interest remains flat or declining may indicate a possible trend reversal.

The relationship between the prevailing price trend and Open Interest can be summarized by the following table.

Price	Open Interest	Interpretation
Rising	Rising	Market is Strong
Rising	Falling	Market is Weakening
Falling	Rising	Market is Weak
Falling	Falling	Market is Strengthening

How To Use Puts & Calls As Supports And Resistance???

Taking current level of index, just select the 4 calls and 4 puts from that price & current level put & call. In a way the current spot price acts as pivot. Important thing to keep in mind is select Puts & Calls in multiples of 100s and not in 50s.

For eg. : Suppose nifty spot price is at 4890

Then,

Calls: 4900, 5000,5100,5200,5300

Puts: 4800, 4700,4600,4500,4400

shall be selected.

Now just watch the Open Interest in all these options. In ascending order for calls & descending order for puts. Highest Open Interest in any call shows strong resistance and highest Open Interest in put gives idea about support. Suppose market goes beyond those call or put levels then that resistance converts in support and visa versa.

Put Call Ratio: The put call ratio tells us where market is likely to be active.. Put Call Ratio of 1 suggests neutral, below 1 is bearish, 0.8 is oversold while above 1 is bullish and above 1.25 it is getting overbought.

PCR shall always be good or above 1.25 for shorting.

Rest in terms of Open Interest of options it is same like futures. Similarly you can use Open Interest of futures in conjunction with Puts & Calls. Open Interest is higher in Puts, than Calls, and Open Interest is also increasing in futures, this indicates that market is getting ready for a fall. At that time PCR is definitely higher that 1.25.

RSI

This week end I had time for some leisurely and informative reading. Yesterday I had posted some stuff on MACD, today I am posting some thing on RSI. I found this a little fascinating, will see how it fares though when looking for trade set ups. Devised by Welles Wilder in 1977, the Relative Strength Index (RSI) is one of the best known technical indicators. The RSI is a momentum oscillator measuring the rate of price change. The RSI can help a trader identify when price is overextended in one direction or another; these levels are generally accepted as overbought or oversold. I myself have been using it for OB and OS levels and looking for price patterns in RSI, which I find give you a sort of a forewarning. Another good way is to look for Divergences (Regular & Hidden) in RSI. However, the RSI is much more than a simple overbought/oversold indicator. It can be used to anticipate trend change and identify high profit, low risk trade opportunities. Andrew Cardwell, president of Cardwell Financial Group Inc. has taught his RSI course to many individual traders across America and Europe. Following are the concepts he uses while using RSI in trading.

TREND ANALYSIS WITH MOVING AVERAGES

1. Close Price
2. RSI Value
3. Simple (S), Weighted (W), Exponential (E)
4. Suggested Values for Moving Averages to be applied to both the Price and the RSI:
1. Standard (Intermediate-Long Term) 9 & 45 (S/W/E)
2. Short Term 4/20 (S/E)
3. Short Term Overbought/Oversold SMA 3 (RSI 3)
5. Guide Lines for Moving Average Interpretation
1. RSI Positive (+)/ Close Positive (+)= Trend is Up
2. RSI Negative (-)/ Close Positive (+)=Trend is Sideways /UP
3. RSI Positive (+) / Close Negative (-)=Trend is Sideways/ Down
4. RSI Negative (-) / Close Negative (-)=Trend is Down

*Here RSI Positive and Close Positive mean that both the RSI and Price are trading above their respective moving averages and vice versa in case of negative close.

BASIC TREND ANALYSIS GUIDELINES USING RSI

Uptrends	Downtrends
1. 80 – 40 RSI Range	1. 60 – 20 RSI Range
2. Bearish Divergence	2. Bullish Divergence
3. Positive Reversals	3. Negative Reversals
4. Spike Bottoms (RSI & Price)	4. Spike Tops (RSI & Price)
5. Moving Averages Positive (Close, S9 > W45	5. Moving Averages Negative (Close, S9 <>
6. Moving Averages Positive (RSI, S9 > W45	6. Moving Averages Negative (RSI S9 <>
7. Intermediate Moving Averages Positive: EMA45 (RSI) > 50 Level Close > EMA45 (Close)	7. Intermediate Moving Averages Negative: EMA45 (RSI) > 50 Level Close > EMA45 (Close)

I hope the above piece is useful to readers, I just share what I feel can be of some interest to people the way it has been to me. Some basic reading about RSI can be done here.

MACD

The Moving Average Convergence-Divergence (MACD) is a timing model, which was invented during the late 1970s by Gerald Appel, has become one of the most popular of technical tools, used by short- and longer-term investors in the stock, bond, and other investment markets. It is a featured indicator on virtually every computer-based technical trading program and trading platform. MACD is an indicator for all seasons. Many of us use MACD for simple crossovers or looking for Divergences but there are certain very significant supplementary additions to the basic rules relating to MACD buy/sell signals which Gerald Appel describes in his book Technical Analysis: Power Tools For Active Investors. These are as following:

• Buy signals are much more reliable when the MACD has crossed from above to below 0 at some time since the most recent sell signal. The MACD does not have to be below 0 at the time of the buy signal, but it should have been below 0 at some time since the start of the recent decline.

• Sell signals are more reliable when the MACD has crossed from below to above 0 at some time since the most recent buy signal. The MACD does not have to be above 0 at the time of the sell signal, but it should have been above 0 at some time since the start of the most recent advance.

• During very strong market periods, usually during the early and best stages of bull markets, the MACD will retreat during market reactions to a level just above 0. In this case, you can shade the previous rules a bit as you might if the MACD tops out just below 0 during a bear market or severe intermediate decline. Most often, however, the 0 crossing condition should be respected.

A very important rule, if there are no divergences – means that MACD lines and Price lines are moving in conjunction and trends of the markets are favorable with Price rising above its MA you can ignore the first sell signal generated by the MACD. YOU SHOULD HOWEVER TAKE THE SECOND SELL SIGNAL!!!

The above rules help you in setting procedures by which you can buy weakness and sell strength rather than buying and selling every change in minor trend and this also reduces the frequency of trading.

In addition to above Gerald Appel also advocates the following:

• You should maintain at least two MACD combinations: a faster one for buying and a slower one for selling.

• When market trends are very positive, buy very fast and sell very slow. You can employ the 6–19 combination for buying, or you can employ the somewhat more reliable 12–26 combination. The 19- to 39-day combination is used for selling.

• When market trends are neutral to somewhat positive, buy fast and sell slow. Use the 12–26 combination for buying. Use the 19–39 combination for selling.

• When market trends are clearly negative, buy fast and sell fast. You can use the 12–26 MACD combination for both buying and selling, in which case you will sometimes be selling before the slower-moving 19- to 39-day MACD has crossed from below to above 0. However, unless a stop-out takes place, the 12–26 MACD lines should generally rise above 0 as a precondition for a sell.

Hope this little write up is useful to friends who like me are avid users of MACD in their technical analysis. Some basic information on MACD can be found here.