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miércoles, 17 de diciembre de 2014

The Clear Method

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The Clear method is a trading strategy taken from the magazine Stocks & Commodities of October 2010 and the author is Ron Black. This methodology serves to graphically indicate the short-term movements or swings.

This method identifies the direction of the market movement and the exact moment in which the direction changes.

No calculations are required as with other methods and it has no lags which are typical in other trading systems.

Can be used to trade with stocks, commodities and indices on any timescale (timeframe).

The Clear method does no use the opening price and the closing price as other strategies, but the daily range as a measure of uncertainty. It considers that prices are distributed in a bar and they are different if two bars do not overlap, ie there is a gap between them; here comes the term Clear.

Movement of the price bar

The following figure shows the method in action, swings up (upward movement) and down swings (downward movements) and spaces that define the change of direction.

Prices can only do 3 things:
  1. Move in the direction of oscillation.
  2. Staying with little or no movement.
  3. Move in reverse with respect to the oscillation.

When prices do not move in the direction of the trend, this is known as "market noise".

The purple and blue zigzag lines are drawn to determine when and where occurs the Clear. These lines are plotted as dinamic resistance and support.

In a bearish movement the lower highs (LH) are linked. If the next bar maximum is higher than the maximum of the previous bar, a horizontal line is drawn. If the next bar opens and closes above this dynamic resistance, there was a Clear and the market changed its direction.

In a bullish movement the highest lows (HL) are linked. If the next bar minimum is lower than the minimum of the previous bar, a horizontal line is drawn. If the next bar opens and closes below this dynamic support, there was a Clear and the market changed its direction.

The chart above shows 4 opportunities in which a Clear appears.

The graph below illustrates the concept of noise when the price bars (purple) cross the dinamic resistance or support.  Also in an uptrend form higher lows and in a downtrend lower highs.

The following is a price shart of a stock index with dynamic resistances and supports drawn manually. Blue and red arrows show the trend changes.

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