OmniTrader Tips
Your looking for trade candidates. You've collected your data and run your To Do List. You take a look at your Focus List and there it is - a brand new "buy" signal! Great, now you just enter a market order, right? Wrong! OmniTrader has presented you with a trade candidate. But before entering a trade, we need to confirm the signal. Today's lesson is part one of a two part series on confirmation techniques using OmniTrader.
Ed Downs has written a book called The 7 Chart Patterns That Consistently Make Money. This book outlines the most consistently successful chart patterns. Hopefully you have ordered this book. If not, I would highly recommend that you order a copy now. It is inexpensive and we will refund the price to you within 30 days of purchase if you do not find it useful.
The chart patterns that I will discuss in this lesson are all covered in the 7 Charts book. While OmniTrader is a good prospecting tool, visual chart confirmation is essential to finding a winning trade.
The 7 Charts book lists the following chart patterns as reliable confirmation techniques: Consolidations, Support and Resistance Levels, Trendline Breaks and Reversals, Saucer Formations, Volume Climaxes and Trends and Gaps. These are all proven patterns that time and again show a consistent ability to predict the direction of a security. Let's divide these into more useful categories.
Regardless of what you are trading, there are only two types of trades: Reversals and Continuations. The following table shows the type of trade and which chart patterns can be used to confirm that trade:
| Reversal Trade | Continuation Trade |
| Support and Resistance Levels | Consolidations |
| Trendline Breaks | Trendline Reversals |
| Exhaustion and Breakaway Gaps | Breakaway and Measured Gaps |
| Saucer Patterns (at bottom of pattern) | Saucer Patterns (at resistance level of pattern) |
| Volume Climaxes | Volume Trends |
Let's look at an example:
CTXS shows a double bottom, trendline break, breakaway gap and volume climax.
The chart for Citrix shows four of the five patterns that are good reversal indications. The more patterns that confirm a move, the better. When we look for good trade opportunities, we want to find charts with the least technical risk.
The definitions of the patterns and the market mentality that creates these patterns are explained well in the 7 Charts book. There are obviously more patterns that help discern direction (i.e. cup and handle patterns, support and resistance patterns, candle patterns, etc.) that you can learn as well. However, remember that some patterns are more significant than others, and the 7 Charts book outlines the most significant patterns.
Another tool you can use to visually confirm a trade is the indicators in OmniTrader. There are many users that will plot a favorite indicator with every chart and once they receive a signal from OT, they will look at the indicator for confirmation. The example below shows a MAC-D system plotted that confirms a good trade signal from the Default Profile. It crossed the trigger line (dotted line) and the 0 line in time to realize a nice gain.
MAC-D confirms a good buy signal from OmniTrader
Given an OmniTrader signal, look for the chart patterns we have mentioned as well as your favorite indicator to help confirm a good trade candidate.
I hope that this lesson on visual confirmation has been helpful. Next week we will continue our discussion on confirmation by looking at some of the automated tools you can use in OmniTrader.
Best of luck with your trades this week.
Jeff Drake
Director of Education
Nirvana Systems
jdrake@nirvsys.com