CHARTING
The Reversal Date Indicator
Predict, Identify, and Trade Future Market Swings
by John Crane
The key to swing trading is in the timing of your entry and exit.
But how do you identify them? The answer may be in front of you.
In an age where faster computers and advanced
software are providing access to more information at lightning speed, traders
are busy creating new technical tools and testing ideas. Technology has
produced many changes in today's market world, resulting in an explosion
in the number of new traders who are seeking the ultimate short-term trading
strategy. Daytrading and swing trading have become buzzwords for a new
generation of traders who flock to online trading and embrace every new
software program that promises trading success. The marketplace is full
of sophisticated trading systems, but has any of this advanced technology
made people more successful?
In the late 1990s many new traders jumped online, bought software programs,
and started to trade their way to riches. It was a great time to enter
the market, but all too often these new traders confused a bull market
with trading savvy. As soon as the market topped, so did their trading
accounts, because they lacked an important ingredient for success: a working
understanding of market behavior.
Trading technically
More than 20 years ago, I attended my first seminar on technical analysis.
I walked away with extensive knowledge about one magic indicator: the trendline.
That was all I needed, or so I thought. But like other new traders, I quickly
realized I needed more. This led to an extensive study of chart patterns,
cycles, and technical indicators. I kept studying, adding more and more
clutter to my trading toolbox. Soon, my computer screen was muddled with
charts and technical indicators.
How I longed for the earlier days when things were so much simpler.
Back then, I would sit back and dream about the type of chart I'd like
to see. It would have fewer technical indicators. It would highlight the
future turning points and provide the price levels where the market reversal
would occur. I would be able to pull up any chart and see both the time
and the price where the market would most likely turn, long before it happened.
Then a line would appear to identify the price level where time and price
would likely converge. The chart itself would predict and identify future
market swings based on market behavior.
But that was all a dream - or was it?
FIGURE 1: PREDICTING FUTURE SWING POINTS. By constructing action/reaction
lines and by reverse counting price bars, it is possible to predict where
the next high and low of the swing will take place.
...Continued in the February issue of Technical Analysis of STOCKS
& COMMODITIES
Excerpted from an article originally published in the February 2004
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2004, Technical Analysis, Inc.
Return to February 2004 Contents
