TRADING CONDITIONS

The market is now done with the first wave down. The first wave marks the beginning of the trend, it is the scout. The real forces come in the second wave, but only if the trend is confirmed. We will be there to capture the second wave. More on waves and how to trade them below.

We took profits from the first wave, which was nice and full of momentum. This is a very encouraging sign for us, since it is a sure sign that the market is coming back. Basically, this summer was horrible as far as momentum, it just didn't have any. This new trend that we are riding right now shows great promise of momentum coming back to the market.

Assume we are just coming out of a down trend and are forming a bottom.

First wave - Buyers come in and start buying into the stock. These are usually the forerunners, the pioneers, the short term traders. These traders are also bound to take quick profits, since they are also risk takers, people who buy bounces. The short sellers, those that have been holding through the down trend, will start covering at this point. The stock is going up based on the short term buyers and the short sellers covering. This is not the basis for a huge up trend and the stock pulls back quickly.

Second wave - By now, short term buyers are out and the short sellers are done covering their position. The stock has finished the down trend and has made an attempt at the up trend. The only traders that are going in right now are the longer term buyers. Since we have only buyers and no sellers, the second wave has excellent momentum and carries much further than the first wave.

Third wave - Usually the result of the longer term buyers trying to extract more profit from the trend. This wave is starting to be met with some sellers as some traders are taking some profits. As long as the stock is in an up trend, the only people who are selling are profit takers. This type of selling does not cause a change of trend, since they are not new sellers, just buyers exiting a bit. The third wave also has great momentum and travels well.

No new trades for tomorrow.

MARKET "EXCITOMETER"

Use this new "Excitometer" to determine your trading aggressiveness. The higher up the number, the more excited we are about trading the market here.