Thomas Wood | MicroQuant Divergence Trading Trading Cycle ... · Trading Cycle Candles . Risk Disclaimer Trading or investing carries a high level of risk, and is not suitable for

Divergence Trading

Workshop

Day One

presented by

Thomas Wood | MicroQuantSM

Trading Cycle Candles

Risk Disclaimer

Trading or investing carries a high level of risk, and is not suitable for all persons. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. This content is subject to change at any time without notice, and is provided for the sole purpose of education and assistance in making independent investment decisions. ValueCharts.com has taken reasonable measures to ensure the accuracy of the information contained herein; however, ValueCharts.com does not guarantee its accuracy and is not liable for any loss or damage which may result directly or indirectly from such content or from an inability to access such information or any delay in or failure of the transmission or the receipt of any instruction or notification in connection therewith. Any past performance results are shown for illustration and example only, are hypothetical and as such have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 (Hypothetical Disclaimer)

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How to Read the MQ CycleFinder

Indicator

How to Read the MQ CycleFinder

• The MQ CycleFinder indicator is designed to show two different “speeds” of cycle.

• The indicator line itself is showing the overall market cycle, if the line is above zero it is a bullish cycle, if the indicator line is below zero it is a bearish cycle.

• The histograms are showing the short-term cycle, or strength of cycle. Green histograms show bullish cycles and red histograms show weakening or bearish cycles.

ES 5 Min Market Cycles

AAPL Daily Cycles

Questions on Reading the MQ

CycleFinder?

Intro to Candlestick Patterns

Intro to Candlesticks

Difference Between Candlestick and OHLC Chart


• There are several candlestick patterns that I really like to use for reversals and continuations.

• Whenever I am trading a candlestick pattern, I always want it to be within the context of another setup.

• Candlesticks, just like any other pattern, can normally be improved by adding an additional “filter”


• There are also several “rules of thumb” that we follow when trading candlestick patterns.

• Any bearish pattern should be located at the top of an up move and ideally have a close lower than the open.

• Any bullish pattern should be located at the bottom of a down move and ideally will have a close higher than the open.

• We never trade a candlestick pattern until the bar finishes forming!


Doji Pattern – Neutral


Hanging Man – Bearish


Shooting Star – Bearish


Gravestone Doji Pattern – Bearish


Hammer – Bullish


Inverted Hammer – Bullish


Dragonfly Doji Pattern – Bullish


Bearish Engulfing – Bearish


Bullish Engulfing – Bullish

Questions About Candlestick Patterns?

Using MQ CycleFinder to Confirm

Candlestick Pattern

Using the MQ CycleFinder to Confirm Candlesticks

• As I mentioned earlier, we can improve the success of candlestick patterns by adding filters.

• One filter that works extremely well is using the MQ CycleFinder indicator to determine the short-term cycle strength on the candlestick pattern itself.

• So if we have a bullish candlestick pattern, we want to have a green histogram on the CycleFinder.

• If we have a bearish candlestick, we want a red histogram on the CycleFinder.

Candlesticks + MQ CycleFinder
















Questions about Using the MQ

CycleFinder to Confirm Candlestick

Reversals?

Common Breakout Patterns

Common Breakout Patterns

• Another way of combining market cycles with price action is by using breakout patterns.

• Breakout patterns can be used for both continuation and reversals and can be very useful in determining future price moves.

• My favorite breakout patterns are Head and Shoulders, Inverted Head and Shoulders, M and W patterns.

Common Breakout Patterns – Head and Shoulders

• The Head and Shoulders patterns are great for finding market tops and bottoms.

• You can trade them on any timeframe, just adjust the timeframe you are analyzing to fit the length of time you want to be in the trade.

• You enter a head and shoulders pattern on the break of the neckline.

• Once the neckline has been broken, the market should never return back above or below the top or bottom of the right shoulder (depending on normal or inverted H&S)


• When we are using the MQ Cycle Finder to help increase the probability of success with H&S patterns, we want to have our cycle matching the direction of the neckline break.

Head and Shoulders Reversals

• You can enter on the break of a trendline drawn connecting the lows of each shoulder. You can enter on the break of the lowest shoulder. Or you can enter on the break of the higher shoulder

Inverted Head and Shoulders Reversals



• W and M pattern reversals are another great setup for finding market reversals.

• You enter the W and M pattern on the break of the middle of the pattern.

• It is better if you get a slightly higher low on the second half of the W or a slightly lower high on the second half of an M.

• This is one more step in the right direction for changing the trend once the pattern triggers.

W Pattern Reversal


M Pattern Reversal


Questions about Common Breakout

Patterns?

Trading Zero Touch with MQ Cycle

Finder

Trading the Zero Touch

• One of the best setups using the MQ Cycle Finder indicator is what we call a “Zero Touch”

• A Zero Touch occurs when the cycle indicator line heads back toward the zero line, then accelerates away from it without changing to the opposite cycle.

• This will often times look very similar to a bull or bear flag setup.



• When you get a Zero Touch setup combined with another filter, like a breakout pattern, this adds additional credibility to the breakout.

• Zero Touch setups can also be used to enter into a trending market. Watch for the retracement and then once indicator line starts moving higher, you jump back into the trade.


Questions about Trading the Zero

Touch?

When to Exit Positions


• When putting together your trading plan and deciding on your exit logic for trading, there are several different options that utilize the MQ CycleFinder indicator.

• First we can stay in the trade as long as the major cycle stays in our direction.

• Second we can trail stops as soon as the cycle starts to lose strength (histogram changes color)

• Third, we can use a multiple of risk as our target (normally how I trade)



Questions about When to Exit

Positions?

Breakout and Cycle Change QUIZ

What Breakout Pattern is This?




Is this a Good Hammer Pattern?

Is this a Good Hammer Pattern?

Is this a Good Shooting Star?

Is this a Good Shooting Star?



Thomas Wood | MicroQuant Divergence Trading Trading Cycle ... · Trading Cycle Candles . Risk Disclaimer Trading or investing carries a high level of risk, and is not suitable for

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