Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved
Below is a diagram showing the candlestick type that will move the total shadow moving average lower. In this diagram the Top Shadow and Bottom Shadow are very small and the Body is large. This candlestick shows intraday price action where the market had a strong move in one direction. The candlestick body may be an up move or a down move. In either case the market opened and then the price moved in one direction through the day and then closed. This shows the market was very confident in the direction of the market. When a group of these candlesticks occur the MarketWarrior indicator “MA Total Shadow” will move to low levels.
candlestick diagram 3
The chart below is the same daily chart for Check Point Software Technology symbol CHKP that was seen previously. On this chart I have identified the low areas in the “MA Total Shadow” indicator and the corresponding price action. When the candlesticks are showing confident moves with a large body the total shadow average will move down and it often forms a low level trough at the half way point through a price swing. On the chart below “1″ identifies where the total shadow average made a trough in the middle of an up swing. The “2″ identifies where the total shadow average made a trough in the middle of an down swing. Finally “3″ identifies where the total shadow average made a trough in the middle of an up swing. This shows that a study of market volatility can help identify when a price swing is not yet complete and the price move will continue.
Total Shadow Example 4
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved
Lets take a moment and think about why tops in the MarketWarrior indicator “MA Total Shadow” correlate with a change in trend. Below are two diagrams of a candlestick bar. The first diagram shows a candlestick with a large Top Shadow, large Bottom Shadow and a small Body. This candlestick shows intraday action that is volatile and very indecisive. On this bar the market does not have a strong opinion if the trend is up or down. If there are a group of candlesticks like this in a row the moving average of the total shadow will move higher. These types of large shadow candlesticks that indicate the market is not sure if the trend is up or down often occur near a change in trend. This makes the indicator “MA Total Shadow” move up to a top around market turning points.
Candlestick diagram 2
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved
Below is a chart for the Dow Jones Industrial Average using the symbol ^DJI. This chart will be used for another example showing how to use the MarketWarrior indicator “MA Total Shadow”. Notice this is a weekly chart and not a daily chart. Market analysis using the MA Total Shadow indicator works the same on a daily and weekly chart. On this chart I have circled two tops in the indicator. I have then drawn an arrow from each circle to the corresponding market change in trend. Top number “1″ in the MA Total Shadow corresponds with a bottom in the Dow Jones Industrial Average. Top number “2″ in the MA Total Shadow corresponds with a top in the Dow Jones Industrial Average. This again shows that by studying a market’s volatility cycles, you can find good signals that a change in trend is occurring
Dow Jones Total Shadow
