August 18, 2008, 6:40 pm -- TUES MORNING TECHNICAL REPORT
Weekend Update
Technical Report
by: Jim Ellis, TimeFrameInvestor.com
The charts I use (TFI Charts) present the charts in a slightly different manner than people are
accustomed to seeing. These charts are a result of years of study, research, experimentation
and development. To help new readers, and also as a review for those that have been reading
these reports for a while, in this Technical Report I wanted to take some time and explain the TFI
Charts in more detail.
Let us begin with a comparison of the "standard" chart to one that shows the same
period with the TFI Indicators.
| Traditional Chart |
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| On the "Traditional Chart" a red
candle just means that the price closed below the open, and a green candle means the price
closed above the open. There is no other significance to the colors. The blue
line is a 20 day moving average. In early April the price touched that moving average
and then started a new move up. |
| TFI Chart with the TFI Indicators |
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| On the chart with the TFI Indicators we
have a lot more information. There are more "warnings" that we had before
the price started to move up, and many warnings as the price is in the 180-187.50 area that
this upward move is likely to end. As we examine the different components that make up
the TimeFrameInvestor Indicators we will see how much more information is presented on this
chart, and also how to use this along with other time frames to get a clearer picture of
what to expect. |
When I refer to the color of a candle, I am speaking about the color of the "body".
The charting "tool" only creates a solid body, and when the TFI color scheme is applied,
the entire body is colored based on the result of the strength or weakness. To determine if
the candle closed above the open, the outside of the body will have a green border. If the
price closed below the open, the outside border will be red.
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When a candle is "green" it is showing that
there is buying pressure "under the hood" and that there is a strong potential for
the price to move higher. I also refer to a green candle as "strength". |
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These are "blue" candles, the first with the
green border where the price closed above the open, and the second with the red border where
the price closed below the open.
A "blue" candle is showing some buying pressure, but there is not a lot of
strength associated with it, so it only represents a "weak" upward potential. |
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The "yellow" candles also have the same
borders. The "yellow" candle shows some selling pressure, but the selling
pressure is not over powering, so there is a "weak" downward potential. |
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The "red" candles also have the same borders.
The "red" candle shows that there is significant selling pressure, and there is a
strong potential for the price to move lower. I also refer to this as
"weakness" in the price. |
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Between the price and volume is a "bar" that I
refer to as the "trend". There are 3 colors used in it. Green to
represent strength/uptrend, black for neutral, and red for weakness/downtrend.
The charting tool puts a border around the green and red trend marks. This border is
meaningless and should be ignored. |
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The up and down arrows do not represent a
"buy" or "sell" signal. What they show is that the
"internals" are changing to present either a strong potential for an upward or
downward move to develop. |
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The dashed line that runs thru the chart is the
"oscillator". By itself it does not generate a "buy" or
"sell" signal. This is a "momentum" type indicator, it shows the
momentum of the price, and when it crosses thru the price it is showing that the price is
falling behind the momentum that generated the move.
The oscillator can even be used to help in timing issues to show if a move is immanent or if
a few candles are likely to appear before a move will develop. |
There is a lot of information that is shown with the TimeFrameInvestor indicators.
Buying/Selling pressure, trend, momentum, internals, along with indications for momentum and
overbought/oversold conditions.
There are many ways to trade, and many time frames that can be used. Ranging
from a very short term directional "day trade" to a long term "non directional"
option trade. It is when we let the indicators "paint a picture" or "tell a
story", and we look at the relationship of multiple time frames that we can put the odds in our
favor. Instead of taking a "scatter gun" approach where we shoot at anything that
moves, we can instead sit back and find the opportunities that present the best potential to make
each shot count.
TFI Indicator Basics
There are the various parts of the TFI Indicators, the color of the candle, the color of the
trend, the oscillator, the arrows, and the overbought/oversold dots and diamonds.
None of these indicators are meant to be used as a "stand alone" indicator to generate
a signal. For a low risk signal you need to see multiple indicators "come together",
AND it is best to have multiple time frames showing the same type of basis.
We need to examine each one individually and then we can bring start to bring them together.
First we will look at is the colors of the candles and how the colors change as the price goes thru
the different up and down cycles.
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On the left side of the chart, notice how the candles
change from red to the first green one. The second green candle shows the price
opening and closing just above the close of the first green candle. This is a
"confirmation" in the color as it is showing that the strength is starting to move
the price higher. From this "base" an upward move develops, and continues
until we start to see some yellow candles. |
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In this example, we can see how the candles
"lost" their strength as they turned from green to yellow, and then even though
the price set a new high, the candle was only blue. This was followed by 2 yellow
candles and then a strong decline in the price with the red candles. |
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The 3rd example shows how the candles were blue, dropped
to a new low, but only on a yellow candle. From this low the candles turned back to
blue, and this gave way to green as the upward move developed. |
These examples illustrate how the green and red candles develop and show the potential for a move
in the price. The yellow and blue candles are lacking in strength or weakness, and quite often
will show when a move is coming to an end.
On these two charts we can see how the candles changed colors as the up and down moves developed.
We can also see occasions where the candles started to change color, but then resumed the move.
This is why the color of the candle is just one part of the overall system and not a stand alone
indicator.
The candles are not the only indicator that shows strength or weakness. We also have the
"trend" bar that is shown below the price. For this next chart I set the chart to
hide the colors of the candles just to show how the trend can show strength when it is green, and
weakness when it turns red.
It is when we have the candles and the trend both showing strength or weakness that we begin to
see better prospects for the price to move in a particular direction.
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The arrows represent the POTENTIAL for a new move to
develop. Many times they will appear as the price is changing from one direction to
another as shown on this chart.
However, there are times when the price will not live up to that potential. This is
why the arrows are used in conjunction with the other TFI Indicators. |
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The next item we want to examine is the Oscillator.
Once again I have "hidden" the candle colors just to show how the price reacts
when the Oscillator crosses up or down thru it.
The Oscillator is best used as a "warning" indicator. When the Oscillator
crosses through the price it is a warning that the current directional move could come to an
end very soon.
|
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There are some occasions where a strong move will
develop and the price will "chase" after the oscillator. This is why the
oscillator is not a stand alone signal, but instead a "warning". |
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The dots represent overbought & oversold conditions,
with the diamonds showing that those conditions have reached extreme level.
Many times these conditions will appear at the end of a move and are a
"warning" that a change is coming in the near future. However, there are
times when the price will continue with the move and remain overbought or oversold, so like
the oscillator this is a "warning" type of indicator.
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From years of study, research and experimentation I found that there is not any one indicator
that can be used as a system by itself. This is why I developed these indicators, to boil
technical analysis down to as few indicators as possible.
These indicators show when there is strength or weakness in the price, and also whether there is
strength or weakness in the trend. This helps us to determine if there is accumulation or
distribution taking place, and when a directional move is developing or is underway.
I developed the arrows to highlight key points when there is a potential for a new move to
develop. To help get ready for that move if the other indicators begin to align in that
direction.
The oscillator and the overbought/oversold indicators help to give us warnings when a move is
becoming over extended. This gives us clues and warnings that the prospects are increasing for
the move to end, and possibly for a reversal to develop.
There are times when a move is coming to an end that we can use that information to sell option
premium. There are other times when a move is just starting to develop that we can enter a
directional trade, whether it is an intraday day trade, or a multi-day swing trade.
The lessons learned from one chart can be applied to all of the other time frames, which is why
we start with one time frame as the basis for a position and use other time frames to show when the
potential is more favorable and when it isn't.
Jim. www.TimeFrameInvestor.com
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