Line Studies - Elliott Wave Theory

Elliott Wave Theory

The Elliot Wave Theory represents a development of the well-known Dow theory. It applies to any freely traded assets, liabilities, or goods (shares, obligations, oil, gold, etc.). The Wave Theory was proposed by accountant and business expert Ralph Nelson Elliott in his study titled "The Wave Principle" published in 1938.

After he had retired and a serious illness had been discovered in his organism, Elliott started to observe stock markets and their charts in the hope of understanding the market behavior. After he had performed a large work, he concluded that the market, being a product of predominant psychology of the masses, followed some laws.

The Elliott Wave Theory is based on a certain cyclic laws in human behavior psychology. According to Elliott, the market price behavior can be clearly estimated and shown in the chart as waves (wave is here an explicit price move). The Elliott Wave Theory says that the market can be in two large phases: Bull Market and Bear Market.

Fig 1

Elliott proposes, as well, that all price moves on the market are divided into:

1. five waves in the direction of the main trend (waves 1 to 5 in Fig 1);
2. three corrective waves (waves A, B, C in Fig 1).

The waves are divided into:

1. impulses that create a directed trend (bull or bear) and cause the market to move very actively (waves 1, 3, 5, А, С in Fig 1);
2. corrections (rollbacks) that are characterized by moving against the trend (waves 2, 4, В in Fig 1).

Fig 2

In his Wave Theory, Eliott was based on the waves subdivision principle. This means that every wave is a part of a longer wave and is subdivided into shorter waves itself (Fig. 2). Every wave is subdivided into 3 or 5 waves. This subdivision depends on the direction of the longer wave.

The main principle in the Elliott's theory is that every impulse wave consists of five shorter waves and every corrective wave (against the trend) is composed of three waves, which can be well seen in Fig. 2. For example, Wave 1 in Fig. 2 is composed of 5 shorter waves since it is an impulse wave that creates the trend.

The longest cycle, according to Elliott, is called Grand Supercycle that is compose of 8 Supercycle waves. The latter ones are each composed of 8 Cycles, etc. For example, Fig. 2 shows 3 basic cycles. It can easily be seen that impulse waves and the subsequent corrective waves are proportional. The stronger impulse is, the stronger correction is, and vice versa.


The Elliott Wave Theory is criticized for there is not always a clear definition of when a wave starts or ends. Corrections are especially difficult in this regard.


Elliott Wave Theory and Fibonacci Numbers

Fibonacci Numbers provide the mathematical foundation for the Elliott Wave Theory. Fibonacci numbers play an important role in the construction of the complete market cycle described with the Elliott's waves. Each of the cycles Elliott defined are comprised of a total wave count that falls within the Fibonacci number sequence.

Under closer examination of Fig. 2, one can notice that the complete market cycle is composed of two large waves, eight middle waves, and 34 small waves. Similarly, at a bull market, we can see that a bull Grand Supercycle is composed of one large wave, five middle waves, and 21 small waves. If we continue this subdivision, we will be able to observe the consequent 89 even smaller waves, etc.

Respectively, a bear Grand Supercycle is composed of one large wave, three middle waves, and 13 small waves. At the next sublevel, there are 55 very small waves, etc.

This principle is normally used in the Elliott Wave Theory as follows: movement in a certain direction should continue until it reaches some point in concordance with the summational Fibonacci number sequence.For example, if the time, during which the trend does not change, exceeds 3 days, this direction should not reverse until the 5th day begins. Similarly, the trend should continue up to 8 days if it has not changed the direction within 5 days. 9-day trend should not be completed until the 13th day begins, etc. This basic pattern of how the trend movements can be calculated equally applies for both hourly, daily, weekly, or monthly data. However, this is just an "ideal model", and nobody can expect that prices' behavior will be so definite and predictable. Elliott noted that deviations could happen both in time and in amplitude and individual waves would hardly develop exactly in these regular forms.

Trade - Market Myths

Indicators and market techniques

I now want to talk about illusion, because illusion is what most trading is based on. This in itself is not the problem, the problem is that many traders give the illusion meaning, when often it is meaningless. The illusion may take the form of Elliott Waves, Gann analysis, RSI divergence, MACD signals, Stochastics, or whatever. The truth is that none of these mean anything. This is not to say that the signals are false, but they will only be correct on a statistical basis, i.e. they have no meaning. They are only as useful as long as the market concurs by its action, once it stops doing so they are worse than useless. In fact to an extent most of these techniques are merely used as an entry mechanism. Entry is the easy part, it doesn’t really matter how you enter, it is how you exit that counts. Many traders get hooked on the illusion and lose out because they cannot see that it has become meaningless. The trick is to see the entry mechanism for what it is, just a convenient illusion to get you into the market. Successful traders stay with the trade only so long as it fits their criterion, once that stops they are out. That is the key – entry islargely irrelevant, its only relevance is to give you a trigger for getting in, plus a stop point. Understand that and you are on your way.

To put this another way, traders are obsessed by entry criterion, but most techniques you care to mention are merely entry systems, nothing else, it is when we think of it as something else that problems occur. Elliott and Gann are the worst because they pretend to be something they are not right from the start. The truth is that if you trade with the trend it doesn’t really matter where you enter, and if you trade against the trend the same is true. With one form of entry you will win eight times out of ten, with the other you will lose. Can you guess which is which? Actually eight times out of ten is a bit high, but then if you get the trend right maybe not – often though, the perceived trend is not the same as the trend.

News

News in itself has little meaning also. This story illustrates the point.

There was a poor farmer whose only asset was a fine stallion. One day it ran off. “How awful” cried his neighbours, “what will you do?” The farmer indicated that it was not wonderful but he would see what came next. Next day the stallion returned with two wild mares he had captivated with his obvious charms. “My God how wonderful” said the neighbours. “Maybe” said the farmer. Thenext day the farmer’s son, who did all the work, broke a leg taming the two mares. “How awful” said the neighbours, “will you survive?” “Maybe” said the farmer. Next day the army arrived to enrol young men for the war. “What luck” said the neighbours, “now your son won’t be killed on the front line.”

The motto of this story is that news is completely irrelevant, it is what follows that is important, and that we can’t know. The relevance to trading is that the content is of little import, what matters is how the market perceives the news item and secondly how it reacts to it. So if the market perception is “good” but we see selling, then that gives us a message.

News also creates risk, so you should avoid trading just prior to news items. Low risk positions are available once the news is out of the way.

Zero sum? Don’t you believe it!

People say that futures and options trading is a zero sum game. Don’t you believe it. It is only zero sum if you can enter and exit for free. You cannot, every time you trade you pay commissions and these make this a big negative sum game. I am ignoring the bid/offer spread which adds an additional cost we must bear unless we always use limit orders, and they have their own problems. This is one of the main reasons why the percentage of losers is so high. All traders are fighting over a negative pot!

Some traders think that all they need is a system and it will be all right. There is some truth in this as I have explained in this book. However the system has to suit them and very few systems, probably none, are “easy.” They all require work and many traders do not really want work. That is one reason why the drop out rate is so high.

Trading Pyramid - System Parameters

In the market there are two types of risk. There is the risk of losing money and there is the risk of losing a lot of money. As there are no free lunches you can expect the trading vehicles(options and futures) which we are discussing to offer a balance against these two types or risk and this is what we find. To using those vehicles, there are something you must know before you do anyting.

1. You need to define your objectives.
2. Therefrom you get your trending signal.
3. You must then decide on your Money Management system – this is critical.
4. The Money Management system tells you how much you can risk on each trade and from this you can decide on your stop policy and position size.
5. You must then decide on your entry strategy.
6. The next step is how to move your stop as the trade progresses.
7. Finally you will want an exit strategy, although this may simply be to wait for the stop to be hit.

There are of course two sides to trading. The first is the theory, and this is where the simple rules come in. The second is the practice and this is where the human brain (including all emotional and instinctive input) comes in. The formula is simple:

Simple Trading Rules + Human Brain = Chaos and Confusion

Anyone who has ever traded knows the truth of this formula.

So here come the simple rules. If your trading approach lets profits run and cuts losses short and if it achieves a 50 per cent hit rate then overall you will win. This is clearly so. For each profit there will be a loss, but as profits are allowed to run they will average a larger sum than the losses, which are always kept small.

The purpose of analysis (technical or fundamental) is not to analyze markets, it is to build your system/trading approach. This is not to denigrate Technical Analysis because building your system is an essential step to success. The reason I know that you need a system is because of that formula I just mentioned before. A system does produce simple trading rules. Anything else is going to be more complicated. I might summarize this as:

If Simple Trading Rules + Human Brain = Chaos and Confusion Then Complex Trading Rules + Human Brain = ?

Line Study Practice - SSEC 29/04

The index has broken up through an important level of the bottom pattern that has formed on the weekly chart. The signals are still bullish after the sustained downturn since Q4 07. The MACD is currently sending a strong signal for a continued longer term uptrend. A similar thing is happening on other markets around the world so we need to watch these bullish signals closely. But at the moment they are still pointing to the upside on the weekly chart. There are good volumes behind the latest upturn as you can see.

Line Study Practice - GOOGLE

Can you see the GOOGLE bullish signals?

Line Studies - Andrews’ Pitchfork

Andrews’ Pitchfork is an instrument consisting of three parallel Trend Lines. This instrument was developed by Dr. Alan Andrews. Interpretation of Andrews’ Pitchfork is based on standard rules of interpretation of support and resistance lines.

The first trend line starts in a selected extreme left point (it is an important peak or trough) and is drawn exactly between two extreme right points. This line is the "handle" of pitchfork. Then, the second and the third trend line issuing from two above-mentioned extreme right points (important peak and trough) is drawn parallel to the first one. These lines are "tines" of the pitchfork.

Line Studies - Standard Deviation Channel

Standard Deviation Channel is built on base of Linear Regression Trend representing a ussual trendline built between two points on the price chart using the method of least squares. As a result, this line proves to be the exact median line of the changing price. It can be considered as an equilibrium price line, and any deflection up or down indicates the superactivity of buyers or sellers respectively.

Standard Deviation Channel consists of two parallel lines, equidistant up and down from the Linear Regression Trend. The distance between frame of the channel and regression line equals to the value of standard close price deviation from the regression line. All price changes take place within Standard Deviation Channel, where the lower frame works as support line, and the upper one does as resistance line. Prices usually exceed the channel frames for a short time. If they keep outside of the channel frames for a longer time than usually, it forecasts the possibility of trend turn.

Line Studies - Linear Regression Channel

Linear Regression Channel is built on base of Linear Regression Trend representing a ussual trendline drawn between two points on a price chart using the method of least squares. As a result, this line proves to be the exact median line of the changing price. It can be considered as an equilibrium price line, and any deflection up or down indicates the superactivity of buyers or sellers respectively.

Linear Regression Channel consists of two parallel lines, equidistant up and down from the line of linear regression trend. The distance between frame of the channel and regression line equals to the value of maximum close price deviation from the regression line. All price changes take place within Regression Channel, where the lower frame works as support line, and the upper one does as resistance line. Prices usually exceed the channel frames for a short time. If they keep outside of the channel frames for a longer time than usually, it forecasts the possibility of trend turn.

Line Studies - Equidistant Channel

Equidistant Channel represents two parallel trend lines connecting extreme maximum and minimum close prices. Market price jumps, draws peaks and troughs forming the channel in the trend direction. Early identification of the channel can give a valuable information including that about changes in the trend direction what allows to estimate possible profits and losses. It is necessary to give the direction of the channel and its width to build the instrument.

Line Study Practice - SSEC 22/04

The Gann Fun shows a signal that the market is going down. The prices fall below 1x1 line, it means the trend descending.


The same signal is also given by Fibonacci Fun. The prices is fall below level of 38.2. This is a berish signal.



Let's see more complicated charts. Some good technical signals this week. A dip back in line with the signal given by the MACD which crossed to the downside as we thought it would. The Kairi line has crossed below the zero line and that is a bearish signal. The Parabolic-SAR is still bullish but that is likely turn soon. As I said earlier in the week the technical signs are changing from bullish to indicate more caution near term. Wall Street is having much less influence on sentiment and the short term correlation with the U.S. market has come down sharply as you can see from the lower chart.

Testing Manager - ask for testability features

If you are the person who will lead the testing effort for a product, you are probably the first tester involved in the project. The sooner you request testability features, the more likely ot is that the programmers and project managers will agree to budget and schedule for them. If they aren't budgeted and scheduled into the project plan, you probably won't get them.

In general, it's up to you to educate the project team about your team's needs and about the types of information and support that will make your team more efficient and more effective.

Testing Manager - There are always late changes

Many traditional project management approaches are designed to limit and control change, but others embrace it. All project management approaches must nonethelessdeal with change.

Imagine building a new chair to replace one that wore out. It is clear what is needed, who needs it, what they'll do with it, and what kinds of stresses they'll put on it. You can find people who have made chairs very similar to the one you're about to make.

Software isn't like that. In most software projects, no one has created exactly this product before, and even if others have, the people on this project haven't. Additionally, the people who will use this software haven't use it before. Even though they might have a good idea of what they want, they don't know to specify requirements because: 

• They don't know all of their requirements.
  
• Their requirements will change as they try early versions of the software or competitors' products. They will discover new ways to use the software and imagine other uses they wish they could make, but can't(yet).
  
• Different stakeholders have different needs, which are often in conflit. No one document can articulate all of the conflicting and potentially conflicting requirements and balance them.

Moreover, as components and tools are built and skills are learned, the expected costs to provide a given benefit will change, making it more or less easy to satisfy someone who wants that benefit.

Testing Manager - Don't try to create a control culture

Testers often receive, and give, detailed advice about how projects should be managed. I think that much of that is naive. The worst and most dogmatic of it comes from testers and consultants whose product development experience is limited to testing(or otherwise measuring or evaluating) the work of others.

Testers often see projects at their worst. Testers face the consequences of poor and incomplete decisions and half-done tasks, without noticing the planning and work that allowed the product to get as good as it is. What appear to be poor and incomplete decisions are often thoughtful business decisions with which you disagree. It is easy to believe that you know better and would do it better.

Some processes make it easier or harder for testers. However, a competent test group can provide solid service to a wide range of project managers, who work under very different project management styles, including the inconvenient ones and the ones that make the testing part of the project less efficient.

Some processes seem dstined to produce bad products. This is serious problem; someone should manage this. Unfortunately the worst group to manage this is the testing group. Testing group don't have the resources, the experience, or the political power to fix the broader development processes or to manage the fixed processes.

I am not saying that you(the human being who is doing testing today) should learn your place and stay it. Far from that, I encourage you to expend your role and influence in the company. If you want to and have the competence to manage the project manager, do so. But do that job from an appropriate role - as the project manager's manager. It's not the role of the test manager.

Trading Pyramid - The Three Simple Rules

Secret 1: Cut your losses
The first function that the new trader must accomplish is to learn the business (instruct the core). Whilst doing so the key is to minimize your tuition fees, so cut those losses, because they are your tuition fees. The money spent on software, newsletters, books, seminars etc. is often trivial in comparison. As we learn the business we find that we tend to churn away without getting very far. We learn to cut losses, but find that we make plenty of good trades but not only are we cutting losses, we are also cutting our profits. No surprise there. The ego, desperate for anything positive, takes any profit it sees. But this is also no good because if you are going tomake money you have got to take those big profits. To do so you need:

Secret 2: Run your profits
OK, now you are starting to make progress. You should be making consistent profits on a one contract basis. But you have not cracked it yet. When you make it, now you can start to implement the final secret:

Secret 3: Trade selectivity
You have got to learn how to pick only the best opportunities. This takes time. You have got to find the right trading approach for yourself. You have got to narrow your focus on the market. There is far too much information out there to absorb. So decide on your methodology, concentrate on what you need, and become an expert in its application. When you do this you will know which are the best opportunities and which are not. At the same time you will need to develop the mental discipline and patience to wait forjust those opportunities.
Actually I will give you an added bonus:

Secret 4: Trade with the trend
That way you will have many more winners.

Using stops
Having got to that point novice traders are forced to use market stops because they rarely have the skill to use one of the many alternatives. But immediately trading becomes more complex, because you keep on getting stopped out! Unfortunately that is just one of the things traders have to get used to. Particularly so when the market triggers your stop and then goes off in the direction you intended. That will happen a lot as well!
Now to the practical problems of using stops. These come in a whole range of shapes and forms. Let’s start with the most simple human urge, as expressed in everyday life. When we see something we want, we grab it; when we see something we dislike, we often drive it from our minds – let’s forget about it, it will probably go away. In the real world this may not hurt too much, but in the markets, losses that are treated this way tend to get bigger. It is a basic human urge to ignore bad things, thus we are pre-programed not to take losses, but we are also pre-programedto take profits as soon as we see them. Think about your life so far and the way you live it. How easy do you think it would be to change some of your basic behavioral characteristics? Pretty tough? Well that is what you have to do to follow the first two simple rules.

Losses
Then there is the dear old ego. Guess what? Most of us do not like being wrong. Most of us associate losing money with being wrong. Guess what? We would rather avoid taking a loss, which will then probably get worse, than admit we might be wrong. Some traders talk about how much a novice trader is prepared to pay before admitting he is wrong. What is your price, $1000, $2000, $5000, or are you in the $100 000 category along with some others I know? Before starting to trade make sure you are happy being wrong a lot of the time – it might save you a fortune.
Most traders learn their lessons the hard way and learning to cut losses is usually the hardest of all because it is the most painful. Most traders admit to that one trade that went horribly wrong, and I suspect those that don’t admit it also experienced it. They just prefer to hide it away, maybe even from themselves. Far better to be open, especially with yourself.

Running profits
The second problem is the one mentioned above about wanting to grab nice things when we see them, when we want them. We have done that all our lives, now we have to change the habits of a lifetime. It is not easy, although some methodologies overcome these difficulties.
Another factor is relaxation. Humility and relaxation are as important in trading as are Money Management, Risk Control and the rest. If you are not relaxed then you will always be tempted to take action, taking action is the enemy of running profits.

Trading selectively
The third simple rule “Trade Selectivity” is simpler in concept but is the culmination of all the work you do as a trader. You are only going to become good at this once you have served your apprenticeship and become an expert.

Trading with the trend
Nor do I intend to say too much about trading with the trend. Indeed this is something of a truism. Trends tend to continue, that is what they do. Thus if you trade with it you are going to have much better odds in your favor. Of course there are different trends within every timescale. So first you must decide on your timescale. Then you must devise methods of entering trades. These must be low risk. Once positioned youshould stay with it until that trend changes, again according to your timescale. It’s really very simple, it’s just doing it that causes problems!

It is important to be aware of the practical and psychological problemsin following these rules, and to learn to overcome them.

Google?

Line Studies - Gann Grid

,Gann Grid represents trends built at the angle of 45 degrees (Gann Lines). According to Gann’s concepts, a line having a slope of forty-five degrees represents a long-term trendline (ascending or descending). While prices are above the ascending line, the market holds bull direction. If prices hold below descending line, the market is characterized as a bear one. Intersection of the a Gann Line usually signals of breaking the basic trend. When prices go down to this line during an ascending trend, time and price become fully balanced. The further intersection of Gann Lines is an evidence of breaking of this balance and possible change of the trend.

Line Studies - Gann Fun

Lines of Gann Fan are built at different angles from an important base or peak at the price chart. The trend line of 1х1 was considered by Gann the most important. If the price curve is located above this line, it is the indication of the bull market, if it is below this line it is that of the bear market. Gann thought that the ray of 1x1 is a powerful support line when the trend is ascending, and he considered the breaking this line as an important turn signal. Gann emphasized the following nine basic angles, the angle of 1x1 being the most important of all:

• 1х8 — 82.5 degree


• 1х4 — 75 degree


• 1х3 — 71.25 degree


• 1х2 — 63.75 degree


• 1х1 — 45 degree


• 2х1 — 26.25 degree


• 3х1 — 18.75 degree


• 4х1 — 15 degree


• 8х1 — 7.5 degree

The considered ratios of price and time increments to have corresponding angles of slope in degrees, X and Y axes must have the same scales. It means that a unit interval on X axis (i.e., hour, day, week, month) must correspond with the unit interval on Y axis. The simplest method of chart calibration consists in checking the angle of slope of the ray of 1х1: it must make 45 degrees.

Gann noted that each of the above-listed rays can serve as support or resistance depending on the price trend direction. For example, ray of 1x1 is usually the most important support line when the trend is ascending. If prices fall below 1х1 line, it means the trend turns. According to Gann, prices should then sink down to the next trend line (in this case, it is the ray of 2х1). In other words, if one of rays is broken, the price consolidation should be expected to occur near the next ray.

Line Studies - Gann Line

Gann Line represents a line drawn at the angle of 45 degrees. This line is also called "one to one" (1x1) what means one change of the price within one unit of time.

According to Gann’s concept, the line having the slope of forty-five degrees represents a long-term trendline (ascending or descending). While prices are above the ascending line, the market holds bull directions. If prices hold below the descending line, the market is characterized as a bear one. Intersection of Gann Line usually signals of the basic trend break. When prices go down to this line during an ascending trend, time and price become fully balanced. The further intersection of Gann Line is the evidence of breaking of this balance and possible changing the trend.

Trading Pyramid - Risk Control

The traders who win are those who minimize risk. Those who do not minimize risk inevitably pay the price and get wiped out.

It is for this reason that you often see strong moves after a news item is out of the way, often a news item suggesting a strong move in the opposite direction. The big traders, who got that way by minimizing risk in the first place, wait until the risk is at its lowest, when the news is out of the way.

Risk Control includes the following:

1. Not trading in too big a size, thus reducing the risk of a wipe out. Actually you should eliminate the risk of a wipe out.
2. Not holding overnight unless you have a profit buffer in place. However this does not apply to particular methodologies seeking to take advantage of certain factors which may apply to holding overnight.
3. Not holding over the weekend, subject to the same caveats as “2”above.
4. Taking appropriate action prior to major new items. This means not normally opening positions, maybe reducing position size if already positioned – although it does depend on your trading objectives.

But in markets there are two types of risk and we need to look at both. First there is the risk of loss inherent in the market itself. Second there is the risk of loss inherent in the vehicle we are trading. Simply put, the risk of making a losing trade when buying an option is far higher than when writing an option. But you can lose a lot more writing options, than you can buying them. This neatly demonstrates the two types of risk and, as traders, we need to understand how this works.

The market mechanism drives price from one extreme to the other. Once an extreme is reached price can only go one way.

Good news and bad news represent risk, but the market can provide excellent indications that an extreme may have been seen.

Trading Pyramid - Money Management

It is easy to demonstrate that Money Management (MM) is far more important than analysis. A total lack of MM would mean risking everything on any onetrade. You might have the best analysis system in the world and get 99 straight trades right but that 100th trade would wipe you out. On the other hand you might have the worst analysis system in the world. If so a proper MM system will quickly reveal this fact which at the same time minimizing the risk to your capital. So if you get 10 straight trades wrong you still only lose 10 per cent of your capital! It is therefore immediately clear which is the more important. MM is what makes the analysis/system work not the other way around.

The conclusion from this is that it is not entry which is that important – it is exit. This is clearly so, because exit determines your overall risk, your overall profit and your overall control. Now this is quite a controversial statement. If entry is not so important why do all traders spend so much time on it. The answer is because they are misguided. Clearly entry is also important, but not as important as the other factors in trading, in particular MM and Risk Control (RC). To put this in a nutshell: your entry cannot wipe you out – but the way you exit can. Your entry does not make you a profit – the way you exit can.

Money Management - It is my view that any one trade should not incur risk of more than 2 per cent.

Good Money Management is the key to success. Without it even the best trading system would wipe you out.

A good MM approach means adopting a low risk approach to each trade. If you don’t do that it is a racing certainty that you will be wipedout.

Starting with a new system you must use just one contract until your results, i.e. profits, prove that it works for real.

Early and careful monitoring of a new position can minimize risk even more, but don’t be suckered out prematurely.

Trading Pyramid - Discipline

Discipline is necessary because without it you will not be able to followyour methodology, or to control your emotions and instincts.

Developing discipline is a process rather like exercising muscles, but ishelped by developing an approach that suits us.

Random reinforcement is the way in which the market often rewards“bad” behavior and punishes “good behavior”. Rats go mad whentreated like this.

Inter-reactions between discipline and other levels of the Pyramid showthe importance of developing all levels of the Pyramid in line with ourpersonalities.

Trading Pyramid - Commitment

To many traders the market is a generator of random sequences. In many cases it will drive you round the bend. Commitment is a very necessary quality if you are going to be a winner.

The nature of the market
Whether the market is such a generator depends on your perception of the market. For example if you choose to trade the market on the basis of a precise algorithm, i.e. a precise formula such as used by stochastics, moving averages, etc., then you are dependent on exactly what the market throws at you. In this sense it is such a generator. If, however, you choose to look at something which has “meaning” then the market will not be solely such a generator. However, most of the chart patterns, etc. that are used are fairly meaningless. This is illustrated by two facts:

1. For something to have meaning it has to be right more than half the time. Strictly, the variance from the 50/50 criterion has to have statistical relevance.
2. Very often, no sooner do we see a “pattern” than it aborts. It was never really there in the first place. It just so happens that the market, in its function as a generator of random sequences, is going to throw out all types of “pattern” but that does not mean that they have anymeaning.

Markets move from extreme to extreme across all time frames. This is the only absolute truth we have about markets.

Markets are a manifestation of human psychology. They are driven by fear and greed. Peaks are driven by greed, troughs by fear. This is obvious in the very long-term extremes. Fear is often illustrated, literally, with blood in the street. Greed is so endemic nobody recognizes it for what it is. But stand aside and it becomes obvious. Not so obvious in the shorter term moves, but still there. At the extremes the key point is that price is stretched unrealistically. Why is this? Because traders and/or investors are paying too much, selling too cheaply, because it is an emotional decision. To win you must put yourself outside that emotion.

Different ways of looking at market action all serve to highlight someinformation; whilst minimizing or eliminating other elements.

Market Profile and Minus Development are ways of looking at the marketwhich have some meaning and may, therefore, prove more usefulthan other techniques.

If it is not obvious whysomething should work, itprobably doesn’t!

The market is designed to generate trade and maximize it. This is afundamental fact it is always well to remember.

Financial Background - MiFID

The Markets in Financial Instruments Directive (MiFID) is a key component of the European Commission’s Financial Services Action Plan, which was launched in May 1999. It replaces and expands the 1993 Investment Services Directive (ISD), by introducing competition among different order-execution systems (regulated markets, Multilateral Trading Facilities (MTFs) and systematic internalisation) and setting out the legal framework to their operations.

While introducing a more open framework, the Directive seeks to improve investor protection, ensure efficient and transparent markets and enhance the means available to the competent authorities for supervising the activities of the different types of intermediaries.

The directive applies to all investment firms in the EU and impacts to a large extent all types of assets and especially shares admitted to trading on a regulated market in the EU.Its stated objectives include:

• Delivering harmonisation across European jurisdictions,
• Offering investors a high level of protection,
• Ensuring a high quality of execution,
• Providing a coherent and risk-sensitive framework for regulating order execution,
• Enhancing transparency on liquidity.

PERLS - Principal Exchange Rate- Linked Securities

A variation on a dual currency bond which pays both coupon and principal in the base currency, but the variable principal payment is set according to a redemption formula which links it to movements in currency exchange rates between the issue date and maturity. PERLS' principal payments increase as the foreign currency appreciates relative to the base currency and decrease as the foreign currency declines. Reverse Principal Exchange Rate-Linked Securities' (Reverse PERLS') principal payments increase as the base currency appreciates relative to the foreign currency and decrease as the base currency depreciates.

Trading Pyramid - YOU

We lie loudest when we lie to ourselves. - By Eric Hoffer

There are many fundamental misconceptions about markets and trading. I have a natural talent for analysis. I wish I had more of a natural talent for trading, but I do not.

Essentials

1. You may think that the market exists somewhere out there. Wrong. How you think of the market is unique and exists only in your head. To win you have to ensure that your version of the market is “useful” and then make use of it.
2. You may think you see your version of the market clearly. Wrong. What you see is shrouded within an emotional whirlwind. The whirlwind may get a lot faster when you have a trading position in place.
3. You may think that trading is an easy function involving buying low and selling high. Wrong. In fact trading is not difficult, although nor is it easy, but the emotional problems we bring with us to the market mean that few win.

The key trading "secrets" are well known - experience

In the trading environment there is no “absolute” truth.

Don’t be led by advertising copy, decide what you need and then goand get it.

There are seven simple rules to success

1. Always limit your losses.
2. Try to ensure that your average gain is at least 2.5 times your average loss.
3. Endeavour to find an approach which gives you an edge.
4. Make sure you are comfortable with your trading approach. This involves self discovery, something many shy away from. But peal away the outer layers and what is inside is often very fine indeed. The outward layers can be a bit yukky.
5. Learn to let profits run.Learn to trade selectively.
6. Learn to control your own self sabotage.

Trade Stages - The Trade Path

STARTS OFF “greed orientated.”

Loses because:
1 Market problems

• Not a zero sum game, a “very negative” sum game
• Market psychology – doing the wrong thing at the wrong time
• The majority is always wrong
• Market exists on chaos and confusion

2 Own problems

• Overtrading
• No knowledgec No discipline
• No protection against market psychology
• Random action through uncertainty, broker’s advice for example
• Market views.

RESULT: the “greed orientated” trader gets a good kicking and becomes “fear orientated.”

Loses because:
1 Market problems as above
2 Scared money never wins
3 Own problems

• Still overtrading – derivatives
• Fear brings on what it fears
• Tries to cut losses too tight creating more losses
• Still no real understanding of what it takes.

RESULT: Traders who persevere “travel through the tunnel” and becomes “risk orientated.”

This is when they start to make money because they:
1 Develop a methodology which give them an edge
2 Use an effective Money Management system
3 Develop the discipline to follow their methodology
4 Erase “harmful” personality traits

Trade Stages - Risk Orientation

To become risk orientated we must make progress on all fronts. Knowing ourselves, changing as need be, understanding the trading process better, adjusting our trading methodology to suit ourselves, learning to relax when trading; these are a few of the necessary requirements. Most people should immediately at least halve their trading size and that can bring immediate relief/relaxation.

Risk orientation gets its name because you need to understand risk in order to win. Trading is a risk business, when you become risk orientated your orientation is right for the market.The key trading secret at this point is letting profits run. It is at this point that you may start to make consistent profits in the market. Before you reach that stage you should never trade more than the minimum size, i.e. one contract. Why pay more in tuition fees than you need?

Once risk orientated you may learn the final trading secret, trade selectivity. Once you have that down pat it can all become less exciting. I make money consistently but I still find myself occasionally taking too many trades. To master trade selectivity you have to become an expert in your chosen approach. The key aspect of your approach is that you filter out a vast amount of market information and just focus on those factors which you need to know. It is a lot easier becoming expert in a narrowfield than a wide one. The various sources of market information are so vast that it is not possible to take it all in. Let alone become an expert in it. You must decide what information you want, design your approach and then use it. Become an expert and you will find that you become intuitive, that is when you can select only the best trading positions, the low risk ones. Then it will all go the right way.

Trade Stages - Fear Orientation

When the trader has realized that trading is not easy and that a lot of hard work is required, they possibly move to fear orientation stage. Fear orientation is inevitable given the nature of the beast, i.e. the human being. The market is not terrifying, or bad, or difficult. It just is what it is, and it gets on with its own business. It is how we perceive the market and how we act that causes theproblems. We must realize that we are responsible for our results, nobody else, least of all the market itself. It is only when we accept responsibility that we can start to win. If our losses are someone else’s fault then we are in effect saying that we have no control. If we have no control how can we win?

This stage can last a long time as we work out our various problems. Fear is not helpful in the markets because scared money never wins. We cut losers too quickly and we take profits too quickly. Our trading is characterized by nervous, over quick, action.

Trade Stages - Greed Orientated

This stage is characterized by ignorance and the thought that the markets will provide “easy money.” The actual emotion driving the new trader may not be greed, indeed it is often something else. A successful businessman or professional may be seeking a new challenge. Similar individuals may just be a little bored with their lifestyle and want something to spice it up. Others may be compulsive gamblers. One of the first problems facing a new trader is the very motivation to trade. Most people do most things emotionally. The decision as to which car to buy, which holiday to go on, etc. is usually based on emotional criteria. Just think why you own the car you do, why you married (or did not) the person you did (or did not). It is no surprise we come to the market and continue to make emotional decisions. But these will not work in the market because the market is an emotional animal itself and when the emotion is screaming sell, the successful trader is more likely to be buying. If we think about traders who are in the market to relieve boredom it becomes clear that the strongest impulse to trade will come when theyare most bored. There is no reason why this emotional point should correspond with a good time to trade the markets. Other traders suffer from self-esteem problems, indeed I think we all do from time to time. If so, an argument with another person can again set the trader up for taking a position, to counterbalance the low self-esteem.

All these problems have to be dealt with before a trader can find success and, in my opinion, the only way in which the trader can “see” himself(or herself) is by using a fairly mechanical “system” so that he(or she) knows what should be doing. In this way the trader can begin to see when his(or her) actions do not correspond to the system and start to question why this should be. It is through this process that we can begin to understand ourselves. I believe that this is a key requirement for trading success.

Because of these and other problems, as outlined above, novice traders lose a sufficient amount of cash to cause pain, many (most?) lose all their cash. The key point is that they become fearful as a result. At the same time they begin to realize the first secret of trading: cut your losses. It is this concept which marks the move to fear orientation. Indeed cutting losses can be seen as a reaction to fear.

Trade - The Trading Pyramid

When we enter the trading arena we enter an environment unlike anywhereelse.

The rules we live by in every day life do not work in the market environment.

We need to construct a separate trading “personality” to succeed in the markets. This personality must learn much greater control over the emotions.

The Trading Pyramid provides the necessary framework for this personality. Each of us will seek a different trading personality, making the most of our strengths and minimizing our weaknesses.

The Trading Pyramid has the following levels:

• YOU
• Commitment
• Discipline
• Money management
• Risk control
• The three simple rules(cut your losses;run your profits; trade selectivity)
• System parameters
• Your system/methodology
• Operation
• Profits/losses

The structure is organic and each level interrelates with each other level.

Trade what you see, not what you think.

Technique Background - Fibonacci search technique

Background
The Fibonacci search technique is a method of searching a sorted array using a divide and conquer algorithm that narrows down possible locations with the aid of Fibonacci numbers. Compared to binary search, Fibonacci search has the property of examining locations whose addresses have lower dispersion. Therefore, when the elements being searched have non-uniform access memory storage (i.e., the time needed to access a storage location varies depending on the location previously accessed), the Fibonacci search has an advantage over binary search in slightly reducing the average time needed to access a storage location. The typical example of non-uniform access storage is that of a magnetic tape, where the time to access a particular element is proportional to its distance from the element currently under the tape's head. Note, however, that large arrays not fitting in cache or even in RAM can also be considered as non-uniform access examples. Fibonacci search has a complexity of O(log(x)).

Algorithm
Let k be defined as an element in F, the array of Fibonacci numbers. n = Fm is the array size. If the array size is not a Fibonacci number, let Fm be the smallest number in F that is greater than n.
The array of Fibonacci numbers is defined where Fk+2 = Fk+1 + Fk, when k ≥ 0, F1 = 1, and F0 = 0.
To test whether an item is in the list of ordered numbers, follow these steps:

1. Set k = m.
2. If k = 0, stop. There is no match; the item is not in the array.
3. Compare the item against element in Fk-1.
4. If the item matches, stop.
5. If the item is less than entry Fk-1, discard the elements from positions Fk-1 + 1 to n. Set k = k - 1 and return to step 2.
6. If the item is greater than entry Fk-1, discard the elements from positions 1 to Fk-1. Renumber the remaining elements from 1 to Fk-2, set k = k - 2, and return to step 2.

Line Studies - Fibonacci Channel

Fibonacci Channels are built using several parallel trend lines. To build this instrument, the channel having the width taken as a unit width is used. Then, parallel lines are drawn at the values equal to the Fibonacci Numbers, beginning with 0.618-fold size of the channel, then 1.000-fold, 1.618-fold, 2.618-fold, 4.236-fold, etc. As soon as the fifth wave finishes, correction in the direction opposite to the trend can be expected.

It is necessary to remember for a correct Fibonacci Channel building: base line limits the upper part of the channel when trend is ascending, and the lower part of it when trend is descending.

Line Studies - Fibonacci Expansion

Fibonacci Expansion is largely similar to Fibonacci Retracement and intended for determining of the end of the third wave. Unlike Fibonacci Retracement, this instrument is built not on the only one trend line, but on two waves.

First, the line of the first wave is drawn, its height will be considered as a unit interval later on. The end of the second wave serves as a reference point for building an invisible vertical line. The corresponding lines are drawn from the reference point on the interval equal to 61.8, 100%, and 161.8 per cent of the unit interval. The third wave is considered to finish near these levels.

Line Studies - Fibonacci Time Zones

Fibonacci Time Zones is a sequence of vertical lines having Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. Significant price changes are considered to be expected near these lines.

To build this instrument, it is necessary to specify two points to determine the length of a unit interval. All other lines are built on base of this unit interval according to Fibonacci Numbers.

Line Studies - Fibonacci Retracement

Fibonacci Retracement are built as follows: first, a trend line is built between two extreme points, for example, from the trough to the opposing peak. Then, nine horizontal lines intersecting the trend line at Fibonacci levels of 0.0, 23.6, 38.2, 50, 61.8, 100, 161.8, 261.8, and 423.6 per cent are drawn. After a significant rise or decline, prices often return to their previous levels correcting an essential part (and sometimes completely) of their initial movement. Prices often face support/resistance at the level of Fibonacci Retracements or near them in the course of such a reciprocal movement.

【转】 Today's Sun/Oracle AnnouncementSender

Subject: Today's Sun/Oracle AnnouncementSender: "Jonathan I. Schwartz" Date:2009/04/20 19:35

*Today's Sun/Oracle Announcement*
This is one of the toughest emails I've ever had to write.

It's also one of the most hopeful about Sun's future in the industry.

For 27 years, Sun has stood for courage, innovation, a willingness to blaze trails, to envision and engineer the future. No matter our ups and downs, we've remained committed to those ideals, and to the RD that's allowed us to differentiate. We've committed to decade long pursuits, from the evolution of one of the world's most powerful datacenter operating systems, to one of the world's most advanced multi-core microelectronics. We've never walked away from the wholesale reinvention of business models, the redefinition of technology boundaries or the pursuit of new routes to market.

Because of the unparalleled talent at Sun, we've also fueled entire industries with our people and technologies, and fostered extraordinary companies and market successes. Our products and services have driven the discovery of new drugs, transformed social media, and created a better understanding of the world and marketplace around us. All, while we've undergone a near constant transformation in the face of a rapidly changing marketplace and global economy. We've never walked away from a challenge - or an opportunity.

So today we take another step forward in our journey, but along a different path - by announcing that this weekend, our board of directors and I approved the acquisition of Sun Microsystems by the Oracle Corporation for $9.50/share in cash. All members of the board present at the meeting to review the transaction voted for it with enthusiasm, and the transaction stands to utterly transform the marketplace - bringing together two companies with a long history of working together to create a newly unified vision of the future.

Oracle's interest in Sun is very clear - they aspire to help customers simplify the development, deployment and operation of high value business systems, from applications all the way to datacenters. By acquiring Sun, Oracle will be well positioned to help customers solve the most complex technology problems related to running a business.

To me, this proposed acquisition totally redefines the industry, resetting the competitive landscape by creating a company with great reach, expertise and innovation. A combined Oracle/Sun will be capable of cultivating one of the world's most vibrant and far reaching developer communities, accelerating the convergence of storage, networking and computing, and delivering one of the world's most powerful and complete portfolios of business and technical software.

I do not consider the announcement to be the end of the road, not by any stretch of the imagination. I believe this is the first step down a different path, one that takes us and our innovations to an even broader market, one that ensures the ubiquitous role we play in the world around s. The deal was announced today, and, after regulatory review and shareholder approval, will take some months to close - until that close occurs, however, we are a separate company, operating independently. No matter how long it takes, the world changed starting today.

But it's important to note it's not the acquisition that's changing the world - it's the people that fuel both companies. Having spent a considerable amount of time talking to Oracle, let me assure you they are single minded in their focus on the one asset that doesn't appear in ur financial statements: our people. That's their highest priority - creating an inviting and compelling environment in which our brightest minds can continue to invent and deliver the future.
Thank you for everything you've done over the years, and for everything you will do in the future to carry the business forward. I'm incredibly proud of this company and what we've accomplished together.

Details will be forthcoming as we work together on the integration planning process.

*Additional Information and Where to Find It*
Sun plans to file with the Securities and Exchange Commission (the "SEC") and mail to its stockholders a proxy statement in connection with the proposed merger with Soda Acquisition Corporation, pursuant to which un would be acquired by Oracle Corporation (the "Merger"). The proxy statement will contain important information about the proposed Merger and related matters. INVESTORS AND STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT CAREFULLY WHEN IT BECOMES AVAILABLE. Investors and stockholders will be able to obtain free copies of the proxy statement nd other documents filed with the SEC by Sun through the web site maintained by the SEC at http://www.sec.gov. In addition, investors and stockholders will be able to obtain free copies of the roxy statement from Sun by contacting Investor Relations by telephone at (800) 801-7869 (within the U.S.) or (408) 404-8427 (outside the U.S.), or by mail at Sun Microsystems, Inc., Investor Relations, Mail Stop UMPK14-336, 4150 Network Circle, Santa Clara, California 95054, USA.

Sun and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Sun in connection with the proposed Merger. Information regarding the interests of these directors and executive officers in the transaction escribed herein will be included in the proxy statement described above. Additional information regarding these directors and executive officers is also included in Sun's proxy statement for its 2008 Annual Meeting of Stockholders, which was filed with the SEC on September 24, 2008. This document is available free of charge at the SEC's web site at http://www.sec.gov, and from Sun by contacting Investor Relations by telephone at (800) 801-7869 (within the U.S.) or (408) 404-8427 (outside the U.S.), or by mail at Sun Microsystems, Inc., Mail Stop UMPK14-336, 4150 Network Circle, Santa Clara, California 95054, USA, or by going to Sun's Investor Relations page on its corporate web site at http://www.sun.com.

*Note on Forward-Looking Statements*
This communication contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to, tatements regarding the expected benefits and closing of the proposed Merger. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements, including, but not imited to, the ability of the parties to consummate the proposed Merger, satisfaction of closing conditions precedent to the consummation of the proposed Merger, the ability of Oracle Corporation to successfully integrate Sun's operations and employees, the ability to realize anticipated synergies and cost savings of the proposed Merger, and such other risks as identified in Sun's Annual Report on Form 10-K for the fiscal year ended June 30, 2008, and Sun's most recent Quarterly Reports on Form 10-Q, each as filed with the SEC, which contain and dentify important factors that could cause the actual results to differ materially from those contained in the forward-looking statements. Sun assumes no obligation to update any forward-looking statement contained in this communication.

Line Studies - Fibonacci Fun

Fibonacci Fan as a line instrument is built as follows: a trend line — for example from a trough to the opposing peak is drawn between two extreme points. Then, an "invisible" vertical line is automatically drawn through the second extreme point. After that, three trend lines intersecting this invisible vertical line at Fibonacci levels of 38.2, 50, and 61.8 percent are drawn from the first extreme point.

These lines are considered to represent support and resistance levels. For getting a more precise forecast, it is recommended to use other Fibonacci instruments along with the Fan.

Line Studies - Fibonacci Arcs

Fibonacci Arcs are built as follows: first, the trend line is drawn between two extreme points, for example, from the trough to the opposing peak. Then three arcs are built having their centers in the second extreme point and intersecting the trend line at Fibonacci levels of 38.2, 50, and 61.8 per cent.

Fibonacci arcs are considered to be potential support and resistance levels. Fibonacci Arcs and Fibonacci Fans are usually plotted together on the chart, and support and resistance levels are determined by the points of intersection of these lines.

It should be noted that the points of intersection of Arcs and the price curve can change depending on the chart scale since an arc is a part of a circumference, and its form is always the same.

Testing Manager - Create a service culture

Project teams develop software in order to provide benefits to customers. The customers might be in-house or external, paying or nonpaying. The customers might be the same people as the developers.

Testers provide services to the overall project. A typical service is finding and reporting bugs. Other services depend on your group's mission.

One of the fundamental issues running through the testing literature and the testing subculture is whether your role is primarily service or control:

• A service provider controls the quailty and relevance of the services he provides to the larger effort to develop the end result. We provide excellent services to people who need them.
• A service provider does not control the quality of the end product, does not control the processes used by other service providers (programmers, writers, marketers), and does not approve or deny approval of the release provides services to the project manager.

Testing Manager - you manage the subproject that provides testing service, not the development project

The testing effort is a sub-project of the overall project. You apply resources and deliver services. You have a lot of control over how the testing project is run, and you should choose your style as carefully as you might wish the project manager had chosen his.

Somtimes project managers make mistakes, and sometimes they can benefit from your advice. By all means, offer it. Speak your mind. But the final decision on how to run the project is the project manager's. If he doesn't take your advice, so be it.

I don't want to write much in this post about the human issues involved in managing people under stress. For now, we'll note that when project managers and executives make bad decisions, they sometimes subject testers to verbal abuse, demands for excessive overtime, and demands to compromise their integrity. This is not within the project manager's reasonable scope of authority. As a test manager, an important part of your job is to protect your staff from abuse.

Speed the development process instead of trying to save a few dollars on testing

Test automation efforts aimed at reducing testing costs rarely get attention and cooperation they need ensure success.

If you want support, focus your efforts on reducing the risk of development failure.
Test cases are powerful to the extent that they help you and your team gain useful by information about the system being tested. Automated testing adds power by helping you gather and disseminate information quickly, to give programmers fast feedback. The most successful companies automate testing to enhance their development flexibility. Some of the goals of their efforts are to:

• Quickly detect destabilizing changes in new builds.
• Expose regression bugs as quickly as possible.
• Report problems quickly, bucause this makes fixing easier.

Quick fixes keep code stable. Keeping code stable saves time(multiple people don't waste time on the same bug) and facilitates refactoring and other efforts to improve code structure and straighten out spaghetti code. If the code base is largely stable, and a strong suite of automated tests is in place, the programmers can attempt bigger changes at lower risk. The project team can also adjust the product's scope and release dates on short notice to respond to market opportunities.

Here are two examples of techniques for supporting the pace of development.

• Automated smoke tests. The phrase "smoke test" comes from hardware testing. You plug in a new board and turn on the power. If you see smoke coming from the board, turn off the power. You don't have to do any more testing. Smoke tests broadly cover product features in a limited time - typically over lunch or overnight. If key features don't work or if key bugs haven't yet been fixed, your team won't waste further time installing or testing the build. Getting it fixed becomes the programmers' top priority.
• Automated unit tests. These tests also streamline a development process, prevent backtracking, and maintain development momentum. These are larger sets of tests that focus on testing the low-level functions and classes of your product.

The greatest value of automated smoke and unit tests is that they can be run at any time and by any one. Run them automatically as part of the build process. Their availability helps individual programmers create minibuilds that incorporate just one or a few of their changes. If one of those builds is broken, the programmer knows what to investigate. If the minibuilds are OK, the broader build that comes to you, which collects everyone's changes, is more likely to work. This is an invaluable benefit that your project manager is sure to appreicate.

These kinds of automated tests take time, effort, skill, and money to create. The unit tests will probably be created by the programmers, although you might encourage and speed that effort by writing the code with them as half of a programming pair. With these kinds of benefits, you'll have a far easier time securing the copperation you'll need than if you were to simply focus on saving manual testing time.

Trendlines

Trendlines are widely used in technical analysis. But it should be noted that there is not consensus of opinions about methods of their building and interpreting. So nobody is surprised at the fact that different analysts using identical data of the same time period draw absolutely different trendlines.
A trendline is a straight line that connects two important minimum or maximum points in the chart. Any amount of secondary and small trends can be found within the main trend. their lengths can vary within a rather wide range. It should be noted that a trendline should not intersect other prices between these two points. A trendline represents a resistance or support pass-through where price changes within the range of the pass-through.
Prices can break through ascending and descending trendlines, as well as support and resistance levels, when the investors' expectations change.

The trendlines can be categorized as follows:

• Downtrend is characterized through sequential decreasing of maximum prices. It can also be considered as descending resistance level: Bears set the pace as they push prices down.
  


• Uptrend is characterized through sequential increasing of minimum prices. It can also be considered as ascending support level: Bulls set the pace as they push prices up.
  


• Sideways Trend - price does not practically move at all.

Trendlines can be categorized by their importance using the five indications below:

• time scale: the larger is the time scale, the more important is the trendline. The trendline in the weekly chart shows a more important trend than that in the daily chart, and the latter show a more important trend than the trendline in the 1-hour chart;
• length: the longer is the trendline, the more reliable it is. The short trendline displays the behavior of masses within a short time interval, and a longer trendline displays their behavior within a longer period of time;
• how many times prices touch the trendline: the more is the count of touches, the more reliable is the trendline. A preliminary trendline is drawn through only two points, sp the third point makes it more reliable and four or five points show that the group prevailing in the market at this moment has a significant potential;
• slope angle: the angle between the trendline and the horizontal line reflects the intensity of emotions among the prevailing market crowd. An abrupt trendline means that the prevailing crowd is dynamic, and a relatively flat trendline means that the prevailing crowd is rather inert. A flat trend usually develops longer;
• volume of transactions: it reflects how serious the players are, as well as the count of participants interested in retaining the existing trend. The increased Volume usually serves as confimation of the preceding trend.

To draw a trendline, it is enough to have two points it to be drawn through, and one more point "to confirm" the trend. The trendline exists until it is broken through due to a price flick up or down. The "dog-legs" in trendlines are relatively rare. If there is no consolidation, the longer it does not happen, the sharper is the subsequent turn.

Support and Resistance

Support and Resistance
Think of prices for financial instruments as a result of a head-to-head battle between a bull (the buyer) and a bear (the seller). Bulls push prices higher, and bears lower them. The direction prices actually move shows who wins the battle.

Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower.
Resistance, on the other hand, is the point at which sellers (bears) take control of prices and prevent them from rising higher. The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of their expectations.
Support levels indicate the price where the most of investors believe that prices will move higher. Resistance levels indicate the price at which the most of investors feel prices will move lower.
But investor expectations change with the time, and they often do so abruptly. The development of support and resistance levels is probably the most noticeable and reoccurring event on price charts. The breaking through support/resistance levels can be triggered by fundamental changes that are above or below investor's expectations (e.g., changes in earnings, management, competition, etc.) or by self-fulfilling prophecy (investors buy as they see prices rise). The cause is not so significant as the effect: new expectations lead to new price levels. There are support/resistance levels, which are more emotional.

Supply and demand
There is nothing mysterious about support and resistance: it is classic supply and demand. Remembering ’Econ 101’ class, supply/demand lines show what the supply and demand will be at a given price.
The supply line shows the quantity (i.e., the number of shares) that sellers are willing to supply at a given price. When prices increase, the quantity of sellers also increases as more investors are willing to sell at these higher prices. The demand line shows the number of shares that buyers are willing to buy at a given price. When prices increase, the quantity of buyers decreases as fewer investors are willing to buy at higher prices.
At any given price, a supply/demand chart shows how many buyers and sellers there are. In a free market, these lines are continually changing. Investor's expectations change, and so do the prices buyers and sellers feel are acceptable. A breakout above a resistance level is evidence of an upward shift in the demand line as more buyers become willing to buy at higher prices. Similarly, the failure of a support level shows that the supply line has shifted downward.
The foundation of most technical analysis tools is rooted in the concept of supply and demand. Charts of prices for financial instruments give us a superb view of these forces in action.

Traders’ remorse
After a support/resistance level has been broken through, it is common for traders to ask temselves about to what extent new prices represent the facts. For example, after a breakout above a resistance level, buyers and sellers may both question the validity of the new price and may decide to sell. This creates a phenomenon that is referred to as "traders’ remorse": prices return to a support/resistance level following a price breakout.
The price action following this remorseful period is crucial. One of two things can happen: either the consensus of expectations will be that the new price is not warranted, in which case prices will move back to their previous level; or investors will accept the new price, in which case prices will continue to move in the direction of the breaking through.
In case number one, following traders’ remorse, the consensus of expectations is that a new higher price is not warranted, a classic "bull trap" (or false breakout) is created. For example, the prices broke through a certain resistance level (luring in a herd of bulls who expected prices to move higher), and then prices dropped back to below the resistance level leaving the bulls holding overpriced stock. Similar sentiment creates a bear trap. Prices drop below a support level long enough to get the bears to sell (or sell short) and then bounce back above the support level leaving the bears out of the market.
The other thing that can happen following traders’ remorse is that investors expectations may change causing the new price to be accepted. In this case, prices will continue to move in the direction of the penetration.
A good way to quantify expectations following a breakout is with the volume associated with the price breakout. If prices break through the support/resistance level with a large increase in volume and the traders’ remorse period is on relatively low volume, it implies that the new expectations will rule (a minority of investors are remorseful). Conversely, if the breakout is on moderate volume and the "remorseful" period is on increased volume, it implies that very few investor expectations have changed and a return to the original expectations (i.e., original prices) is warranted.

Resistance becomes support
When a resistance level is successfully broken through, that level becomes a support level. Similarly, when a support level is successfully broken through, that level becomes a resistance level.
The reason for it is that a new "generation" of bulls appears, who refused to buy when prices were low. Now they are anxious to buy at any time the prices return to the previous level. Similarly, when prices drop below a support level, that level often becomes a resistance level that prices have a difficult time breaking through. When prices approach the previous support level, investors seek to limit their losses by selling.

【转】我如何摧毁了华尔街

陌生人称我为魔鬼，朋友们称我为促进师。我不是一个平凡的人，每当想起过去的经历，我就很内疚。我曾经想忘掉它，但时隔多年，它就像退潮时的沉船一样，不可避免地又出现在我面前。
那天我坐在家附近一家咖啡馆里，与一名陌生人谈起我过去做的事。谈话结束时，他说：原来你就是那个魔鬼！
促成资产证券化普及的软件正是出自我的设计。有很多人说，将各种不同形式的住房抵押贷款转变为统一形式的有价证券是造成华尔街危机的主要原因。在我看来，我逃不掉地负有责任，但并不是全部责任。
1983年，第一笔抵押贷款在波士顿公司和所罗门兄弟公司诞生。随着计算机的广泛应用，抵押贷款迅速流行开来。但在2001年之后，自满的银行变得贪婪、无情、愚蠢，所以灾难才会降临。

编写抵押贷款证券化程序
1985年10月5日，我开始了华尔街生涯。最初的时候妻子生病，我不得不到Emory大学录入数据，希望她罕见的肾病能尽快痊愈。在这之前，我曾在离卡纳维拉尔角100英里的海岸捕虾，一周200美元，而在阿拉巴马州挖沟渠的船员当中，我是唯一一个白人。
与这些相比，华尔街就像是乡村俱乐部。第一天来所罗门兄弟公司上班时，我独自在大楼的窗户旁徘徊，迟迟不肯离开。当穿着华丽的高层早已到办公室工作的时候，我默默盯着港口，看着那里来来往往的货轮，心想：这里的风水一定很好。
我的第一个任务是编写机器对机器中断处理程序，这在任何市场上都不值一提，所以我在秘书面前都要低着头。但我不介意，对我来说，这已经是一份高薪工作，何况我还认识了一位忠实的朋友。经理Leszek Gesiak是一位来自荷兰的移民，我们无所不谈，经常一起到中餐厅去品尝美味。
坐在我旁边的是一群忙碌的家伙，我很奇怪他们一直在不知疲倦地做些什么。Gesiak说他们在建立住房抵押贷款有价证券。你把一些鸡肉放进容器里，结果取出来一块味道鲜美的牛排它们就在做这些。
一年后，我与雷曼兄弟商讨业务上的合作，顺便拜访下Gesiak。餐桌上，我们举杯对饮，Gesiak醉醺醺地对我说：波兰的伏特加真是难得。他给了我一本快速指南：《未来现金流量的现值》我就是凭着这本书终于在雷曼立足。
在雷曼，我开始了长达13年的简化住房抵押贷款证券化的工作。1988年正是美国面临储蓄和贷款危机的时候，贷款人疯狂借款，一旦破产，政府就不得不充当临时代理人。抵押贷款证券化正是解决这种现象的最好办法。我的任务就是设计出一款软件，突破资产证券化的技术限制。借助这一小魔法，银行就能把数以千计不同种类的抵押贷款打包，进而转化为统一标准的债券，便于发行交易。
当我像牛一样努力工作时，债券市场在1983年达到60亿美元，1988年已经增至940亿美元。因为这份工作，我得到5万美元的奖金，这是我最高工资时的一半。此后，我可以做着简单的工作，可以在格林威治村租更好的房子，可以在爵士俱乐部中大肆狂欢。可是我一直都不明白，为什么我做着这么简单的工作，却能拿到比兄弟姐妹们薪水总和都要高的工资？

交易商变成软件的俘虏
债券市场变得越来越复杂，而我的工作却变得越来越简单。实际上，复杂的程序并不适合债券交易。我和同事一起发明了支持抵押贷款债券的新语言，雷曼兄弟采用后决定寻找新的突破口，以便让债券交易更灵活、更迅速。
当完成这个项目时，我提起勇气跟老板提出要求：能不能把我也安排在交易部门工作？因为我也想赚更多的钱。
迈克尔，你能利用那些比你还沉默的人吗？这可是交易的精髓所在。是的，我向他保证我能做到，但最终老板还是拒绝了我的请求。心灰意冷，我带着10万元奖金离开雷曼，转而投奔债券保险业务的No.1基德尔。
此后，我和另外一名同事一起更新了支持住房抵押贷款证券化的软件。以前要几天才能完成的事，现在几分钟就能搞定了。
最初，软件只是为了简化用户交易的复杂性。随着时间的推移，用户逐渐适应软件，并再也脱离不开。由于软件和程序承担了更多思考的功能，用户们把全部信任都放在程序上，而不再仔细思考。
那年，我得到12万5千美元奖金，并在格拉姆西公园买了一套公寓，在看芭蕾舞表演时，我坐在第一排，但我还是骑自行车上班。财力雄厚的投资者多以百万计，我不是穷人，但也不是富豪。我能自己独立生活。如果我的程序继续发挥作用的话，我想我将是债券交易中必不可少的一颗螺丝钉。
其实，我一直不明白男人的房间为什么经常会发出臭味，也不明白男人们的自尊和贪婪到底能达到什么程度。一天下午3点钟，我到厕所小便，意想不到地发现了一个天大的秘密。
债券交易商们正在厕所里进行比赛。从早上8点开始，他们从未离开交易柜台，在那里吃，在那里喝，在那里小憩。到下午3点的时候，他们一起到厕所小便。解开裤子后，他们打赌看谁能尿得最远，看谁能尿中预先设定的目标，赌金是100美元。随着小便水压的慢慢变小，三名男子蹒跚而行，最后裤子掉在脚踝上，拖着地板前行，但他们丝毫不理会，仍拼命让自己的小便水压能再高些，以便最终击中目标。
对成年男子来说，这就是他们处理手中200万美金的方式：将自己价值无数的债券扔至一旁，只相信软件显示的投资收益率，而不去自己思考，并将时间花在这种无聊的事情上。

整个华尔街都在买我的软件
在之后的日子里，经济开始改善，于是美联储开始加息。此时，基德尔遇到了麻烦。据一份内部报告透露，基德尔在管理上有严重不足。如果我没有记错的话，一项合同中规定，某位高层管理人员每周只来上一天班，却拿着7位数的工资。后来，基德尔被臭名昭著的约瑟夫杰特所累，涉嫌编造十亿美元欺诈交易的杰特最后拖垮了整个公司。基德尔垮塌后，很多核心业务出售给其他公司。令我惊讶的是，出售的业务中竟然有我编制的软件。
转眼间，我来到华尔街已有10年。在10年中，我无非每天盯着屏幕，为争夺奖金而费尽心思。于是我想到了改变，我想要不一样的生活。
下定决心后，我骑着那辆破烂的自行车来到波士顿，找到那家买走我软件的公司。我大胆地跟他们说：不要给我一分钱，我会将所有与债券相关的软件集合起来，并在次贷市场上使用。如果最终赚钱的话，你们得给我一半的分红。
他们给我提供了一份5年的合同。连律师都没有咨询，我马上和他们签了合同。也正是这份合同，让我最终在华尔街辉煌一时。
我在公寓里忙了6个月，把所有软件综合在一起。一年之内，已经有4个投资银行来购买我的程序。到1997年底，前来购买程序的公司已经达到15个；1998年底，数字变成了25个??如果一家公司想在抵押贷款业务方面有所发展，就似乎必须得借助我的软件。整个华尔街都在变成我的客户。
那些风尘仆仆前来购买软件的客户，无不要求将他们的债务情况变为优，而他们中绝大多数都是债务情况极端复杂的公司。不得不承认，我得答应他们我能做到这点，因为只有这样才能让客户不断前来买我的软件。
2001年，我的合同到期，公司并没有和我续约，而是放我走。过去5年中，我为他们创造了太多财富，他们已经有了足够的积累，也就不那么需要我了。
我也不强求。我已经很满足了：写了一个不算复杂的软件，就能让我在45岁退休，这甚至让我有些沉醉。
这之后几个月，世贸中心被袭，所有人都将目光集中在恐怖袭击上。美国经济被严重削弱，政府奋力修补，无数的抵押贷款就此产生，华尔街的暴饮暴食将美国经济逼至绝境。到2003年，美国每年已经有1万亿美元的抵押贷款。

激流勇退改养牡蛎
从华尔街出来，我来到在北岛的避暑公寓，偶然发现那里有5英亩的水田，于是我申请了养殖牡蛎的许可证，决定以养牡蛎为生。慢慢地，我甚至忘记了一周中某天是星期几，只记得关注潮汐和月相。
与此同时，货币供应量、利率和政府债务一直在持续增长。随着不良抵押贷款以及债券结构复杂性的加剧，抵押贷款市场面临越来越严峻的形势。最重要的是，华尔街依然迷信呆板和有欺骗倾向的软件，将一切事情都交给软件处理。同时，冒牌货风靡一时。据说在一份文件中随便丢下几个希腊字母，并写上一些数据，在后面写上XX博士，你就能变成结构优化的专家，成为抵押贷款程序的设计者。
我曾经经受不住诱惑想要复出，面对金钱，没有人能做到不动心，钱就在那里，等着你去拿，这简直难以抗拒。
但谢天谢地，我的复出计划最终泡汤。某种意义上，这是好事，我更愿意接受这样的结局，做一个安静的养殖者。对着镜子，我仔细端详自己，思索自己的工作：每天都要在水田下拉动400磅重的牡蛎笼子，但我看上去很健康，比穿着3000美元一件的弗塞奇西装写软件舒服多了。
抵押贷款债券在不久后开始崩溃。尽管我没有预料到这一点，但听到这个消息时，我一点也不惊讶。
上个月，我的邻居一位退休的教师说愿意帮我把牡蛎运到城里去。他已经失去了一半的储蓄，退休金也被削减30%。至于为什么会有这样的结局，说来话长，但总归是与我设计的抵押贷款债券化软件有些关联。我不得不为现在大规模的崩溃和金融风暴承担一定的责任，我必须道歉，并在某种程度上自我反省。
当周围的人称我为魔鬼时，我总是很伤心。我的软件是微妙的，有着错综复杂的逻辑。但是，生活在这个世界上的人必须要有自己的想法，只是相信软件和程序的力量，而不去思考和分析，结局可想而知。
有一天，Gesiak给我带来他珍藏多年的伏特加美酒，并开玩笑说要交换我的牡蛎。不经意中，Gesiak陷入沉思，他淡淡地说：美国政府将来会使货币变得毫无价值。是啊，在当下，我们还能拥有什么资产能像伏特加一样有价值呢？