Questions and Answers

Paul Hankin asked if I could give qualitative examples of Ebb. I replied that the answer depended entirely on your trading plan. About 20 of you emailed me and asked if I could give examples from my own trading plan. I’m not sure how that will help.

Here’s one type.

One of my general trading principles is that momentum usually proceeds a change of direction. To identify a lack of momentum, I draw Linear Regression Bands in a particular manner. The chart below shows an example.

The Linear Regression Bands are used in conjunction with zones. In the chart above, the zone was the Primary Sell Zone.

You will note that the new high in the zone had less momentum than the first high: the first high attained zone between the red and black lines, whereas the new high only got to the middle line.

Now, momentum proceeds price on my stats around 72% of the time.

To increase the frequency of the momentum indicator,  I use an indicator called Accustrength (only for FX). This indicator uses a unique algorithm to calculate currency relative strengths and is accurate in identifying overbought and oversold conditions.

I have found that when a trading pair reaches both overbought and oversold conditions at around the same time, an extreme may be marked without a decrease in momentum. Accustrength together with the Linear Regression Bands identify a high about 82.6% of the time. That leaves 18.4% on the table.

When I am Ebb, that 18.5% comes into play.  I’ll miss a trade because an extreme is marked neither by Accustrength or the Linear Regression Bands.

That’s one qualitative ebb indicator.

Another, is when luck deserts the trader.

The chart below shows the sell signal in the USDCAD on Friday, January 24. Usually, for other pairs, I shall look to enter on a retracement of the large bar. However, in this case, the USDCAD tends not to retrace around 62% of the time. (See rectangle).

On Monday morning, I was faced with a choice of whether to sell in the Asian time zone or to wait for a 50% retracement. If I sold in the Asian time zone, I would need to take a loss if wrong; on the other hand, I would be sure to catch the move. I did a decision tree analysis which favoured immediate entry.

Well, if I were in Flow, I would not have seen a retracement. In fact, in this case, we have seen (so far) a 50% retracement of the IPM.

By the way, If you are trading the USDCAD, there are three points to remember:

• The FED rate decision due out on Wednesday, January 30, 2 PM (EST).
• US Non-farm payrolls due out on Friday, February 1, 8:30 AM (EST)
• The Canadian GDP due out on Friday, February 1, 8:30 AM (EST).

I hope these examples will help you with your quest for qualitative indicators of Ebb. Do share your experiences – we’ll all benefit!

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