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  1. I read somewhere on this site that technical analysis doesn't work for day traders. It sounds like most traders are having a hard time discerning what's important and what's fruitless with regards to intraday signals. I am starting this thread to cut through the clutter and tell you how the markets can be traded in ANY time frame. In this lesson I will explain the two most elementary technical signals on the chart: price rejection and price acceptance. I'll bet that most traders have a hard time determining the general intraday trend and I believe this is due to your dependence on ultra short term charts, such as 1,2,3 or 5 minute charts. Moving out to 15 minute and 30 minute charts one can see things that are basically invisible on 1-5 minute charts. What I like to see on a 15 or 30 minute chart is a hammer or doji candlestick following a consolidation or range breakout. What is the psychology behind the hammer? Price moved from the breakout zone to some new level. Then price then retraced towards the consolidation zone and was rejected (hammered) back into the direction of the new trend. The breakout of that hammer bar IS THE ABSOLUTE SAFEST BET YOU CAN MAKE!!! Why? Because if the market just got hammered away from a price level, what do you think the odds are that price will immediately return to that level? Not very good odds at all. The doji is similar in nature because it still shows price rejection on a lesser scale, but also vividly displays the mini-consolidation which leads to a continuation move. And both breakouts CLEARLY DISPLAY WHERE TO PLACE YOUR PROTECTIVE STOP, at the other end of the hammer or doji bar following the breakout of that bar! Since the number one rule of trading is to always know your risk BEFORE you enter a trade, this is the best indicator in trading. (It doesn't hurt to have MACD confirming your trade direction, but it is not imperative). Just use the 20 period moving average as your trend filter and NEVER trade against the trend on the 15 minute chart. Price acceptance is when the market moves to a price level that previously turned the market around but this time doesn't, thus indicating that the market may still go further in its present direction. This is most useful when the market is searching for support or resistance after a prolonged move and you are trying to decide whether to exit or add to your position. I'll leave trade management for another discussion. Hope this helps! Luv, Phantom
  2. How much of the volume comes from trades done based on technical analysis? I would assume it is really hard to get any data on this, but I would be happy to hear about any studies or even educated guesses. I am mostly interested in the stock market, but also glad to hear about forex or commodities if this information is available there. One reason why I am asking is that I started to wonder why most technical trading books, blogs, etc. describe the market as something only affected by information becoming available to people and psychological factors, resulting in patterns or signals that can be detected by indicators. Rarely do I hear people talking about patterns resulting from people doing technical trading, or trading systems based on assumptions of which other trading systems people are using. For example if enough people are trading according to some indicator, it would be possible to develop a system exploiting this. Why is this not so common? Is it because technical trading is so rare that it has no impact on the stock price, or is it because so many different systems are used that it averages out or becomes random noise, or is there some other reason? I appreciate all help. Especially any volume breakdown information.
  3. We have been holding Guggenheim Solar ETF ($TAN) as an intermediate-term swing trade since July 2, when we bought in anticipation of another breakout to new highs. This momentum trade has been working out well so far, as this ETF swing trade is presently showing an unrealized share price gain of 13.8% (based on our July 2 entry price of $24.20). Over the past four days, $TAN has been consolidating a tight, sideways range near its all-time high. This is healthy price action and has led to the formation of a “bull flag” type pattern on its daily chart. This is shown on the chart of $TAN below: Because of the bullish pattern that has formed, odds now favor another breakout to new highs for $TAN in the coming days. Since we presently have only 50% of our maximum share size in this trade, we will be adding an additional 25% exposure if the ETF rallies above the July 19 high. Additionally, traders who missed our original entry point for any reason may now also consider establishing a new position in $TAN, based on our same entry and stop price criteria. However, in this case, no more than 25% to 50% of maximum position size would be recommended because the average entry price on this trade would be more than 13% above our original July 2 entry price. Another ETF we are already holding is Market Vectors Semiconductor ETF ($SMH), which we bought one week ago when it broke out above resistance of its prior highs. Since then, the ETF has pulled back and is trading slightly below our entry price, but the current retracement from the highs now provides a low-risk buy entry point for traders who missed our initial entry point. The pullback is also an ideal level to add additional shares for traders who are looking to increase their position size: Notice that $SMH gapped down last Friday (July 19), but found support at its 50-day moving average, which neatly coincided with the intraday low of the session. Furthermore, the ETF formed a bullish “hammer” candlestick after bouncing off key support of its 50-day MA. Because of the hammer candlestick that coincided with a pullback to the 50-day MA, the actual entry point to establish a new position in $SMH (or to add to existing shares) is just above the July 19 high of $38.58. A protective stop could be placed just below major support of the June 24 swing low of $36.08. Alternatively, momentum traders with a shorter-term trading timeframe could place a tight stop just below the July 19 low, which would put $SMH back below its 50-day MA if the stop is triggered. We are already at 75% maximum position size with $SMH, so we are NOT looking to add additional shares at this time. Nevertheless, we wanted to give you a heads-up to this low-risk buying opportunity in case you missed our original entry or are too light in share size.
  4. Stock breakouts are about more than simply buying stocks that are trading at new highs. In order for a breakout to be valid and without a high risk of failure, a stock must first possess a valid base of consolidation on its chart pattern. In this educational article, we clearly show you how to spot two “basing” chart patterns that precede the best breakouts: Deep Correction (Cup and Handle) and Shallow Correction (Flat Base). We suggest studying these chart patterns closely, as it will enable you to develop your eye and eventually read stock charts like a pro. Deep Correction – “Cup And Handle” Type Pattern Following are the technical characteristics of a deep correction, along with an actual visual example. *The pattern must form within an existing uptrend, and stock must be at least 30-40% off the lows. This rule is very important. Do not go looking for cup and handle patterns with stocks trading at or near 52-week lows! The best cup and handle patterns form near 52-week highs. Stocks that are breaking out to new all time highs are ideal because they lack overhead resistance. *The 50-day moving average should be above the 200-day moving average, and the 200-day moving average should have already been trending higher for at least a few months. The base typically forms on a pullback of 20-35% off the highs, and is at least seven weeks in length. *As the base rounds out and the price returns back above the 50-day moving average and holds, be on the lookout for the “handle” to form. The handle usually forms 5-10% below the highs of the left side of the pattern. *The handle itself should drift lower, and is typically 5-10% or so in width. Handles that retrace more than 15% are too volatile and prone to failure. *Handles should be at least 5 days in length and not form below the 50-day moving average. Putting it all together, this chart of LinkedIn ($LNKD) shows a valid cup and handle type pattern, based on the technical criteria above: On the chart above, notice the 200-day moving average (orange line) is in a clear uptrend. The 50-day moving average (teal line) is above the 200-day moving average, and the 20-day exponential moving average has crossed above the 50-day moving average. When the 20-day exponential moving average is above the 50-day moving average, and the price action is above both averages, it is the ideal time for a handle to form. The key to the handle is that price action should drift lower to shake out the “weak hands.” The buy point for this type of swing trade setup is a breakout above the high of the handle. However, over the years, we have learned to establish partial position size at or near the lows of a handle, and add to the position on the breakout above the high of the handle. This enables us to lower our average cost and provides a better reward to risk ratio. Shallow Correction – Flat Base A shallow correction is also known as a flat base, and the pattern should possess the following characteristics: *As with the cup and handle type pattern, a flat base must form within an existing uptrend. Typically, it will form after a breakout from a deeper correction (like a cup and handle base). *The best way to identify a flat base is by using the weekly chart timeframe. The majority of the base should form above the rising 10-week moving average (or 50-day moving average on daily chart). *The 10-week moving average should be trading well above the 40-week moving average *A flat base should be at least 5 weeks in length. *Flat bases usually correct no more than 15% off the highs The following chart of Pharmacyclics ($PCYC) illustrates what a flat base should look like: Although the weekly chart above is a great example of a flat base, the pullback was just a bit over 15% at 17%. A flat base should form around 10-15% off the highs, but 16-18% is okay, especially if the stock is volatile. If the pattern is 25% wide, it is probably not a flat base. Please just use common sense with these rules. Also on the chart of $PCYC, notice the entire base finds support at the rising 10-week moving average, which is a very bullish sign. Further, the 10-week moving average is well above the 40-week moving average, and both indicators are in a clear uptrend. The buy point of a flat base is on a breakout above the highs of the pattern. As with cup and handle patterns, we usually try to establish partial size before the breakout if possible. Keep It Tight! When finding bullish stocks patterns, it is crucial to look for a tightening of the price action on the right hand side of the base. The left hand side is the initial drop off the highs, where the price action cracks and becomes wide and loose. For the first few weeks, the price action is volatile and there can be quite a bit of selling. But after a few weeks of bottoming action, the stock begins to settle down and push higher. When the majority of price action is above the 50-day moving average, and the 20-day exponential moving average is above the 50-day moving average, this is when the stock should begin to tighten up. The following daily chart of Tesaro ($TSRO) clearly shows a tightening of the right hand side of the basing pattern: On the chart above, the initial decline off the highs (around $20) produced volatile price action for several weeks. However, notice the price action never really broke below the 50-day moving average for more than a few days. In early January 2013, the price action tightened up. By later in the same month, an extremely tight range develops above the 20-day exponential moving average. This is a classic snapshot of tightening price action, which is something we always look for. The rules above may be rather precise, but the details are worth studying and memorizing because they have been developed through years and years of experience. Since the most profitable stock picks in our swing trading newsletter nearly always possess the above qualities, the proverbial proof is in the pudding.
  5. It implies that the market trend is unlike to be bullish or bearish in the near future.
  6. The symmetrical triangle can lead to a bullish or bearish breakout. The direction of breakout is not fixed, therefore traders have to wait for the break to occur before they can follow the price action in the direction of the break ,as the price action moves towards the point of convergence of the two trend lines that form the symmetrical triangle, the asset will break out of any one side of the triangle according to the prevailing market sentiment.
  7. The linear price scale uses bars that are evenly distributed and does not consider the size of the price movement relative to the price level but rather on the price movement alone.
  8. Developed by the Japanese in the 19th century, the Kagu chart is used to generate trade entry signals based on the thickness or thinness of the vertical lines. Thick lines represent a break of price above previous highs, showing increased demand. Thin lines represent a break of price below previous lows, showing increased supply.
  9. It is used to show dramatic shifts. It is important to study the asset to know what caused the shift, and to determine if this is a transient move or if there is a more fundamental cause that could make the move more sustained. A trend line that connects the area of price movement resembles a hockey stick, with the shaft formed by the period of flat performance (horizontal price movement) and the blade of the hockey stick formed by the diagonal price movement.
  10. In uptrending markets, most of our swing trade setups are stocks and ETFs (with relative strength) that are breaking out above bases of consolidation. We also buy pullbacks of uptrending equities when they retrace to near-term support levels. However, another bullish chart formation many technical traders profit from is the “cup and handle” pattern. In this article, we use current annotated charts of United States Natural Gas Fund ($UNG), a commodity ETF that roughly tracks the price of spot natural gas futures, to show you how to trade the cup and handle chart pattern. Let’s begin by looking at the weekly chart timeframe of $UNG below: Notice that the left side of the pattern begins in November 2012, after a 60% rally off the lows. This is positive because proper cup and handle patterns should not form at or near 52-week lows; rather, there should already be an uptrend in place for at least several months in order for a correct cup and handle to develop. The selloff in December 2012, as well as the bottoming action in January and February of this year, combine to form the left side and bottom of the “cup.” The right side of the cup was formed when $UNG broke out above major resistance of its 200-day moving average and rallied to the $22 area. Zooming in to the shorter-term daily chart interval, note the “handle” portion of the pattern that is currently developing: The handle typically requires at least a few weeks to properly develop (sometimes more). While forming, price action will typically slope lower. In the case of $UNG, even an “undercut” of the March 25 low and 20-day exponential moving average would be acceptable. However, the price needs to hold above the $20 level during any pullback. Otherwise, a breakdown below that important support level could signal the pattern needs a few more months to work itself out. If buying $UNG, it is important for traders to be aware of possible contango issues that could result in an underperformance of the ETF, relative to the actual spot natural gas futures contracts. Nevertheless, contango is typically not a big deal if exclusively swing trading the momentum of $UNG over shorter-term holding periods (less than about 4 weeks). Conversely, the negative effects of contango become much more apparent over long-term “buy and hold” investing timeframes. For our rule-based ETF and stock swing trading system, the technical chart pattern of $UNG is not yet actionable. Still, the annotated charts above clearly explain the specific technical criteria we seek when trading the “cup and handle” chart pattern. As always, we will promptly alert newsletter subscribers with our preset entry, stop, and target prices for this swing trade setup when/if it provides us with an ideal, low-risk buy entry point in the coming days.
  11. One ETF we have been watching closely for potential swing trade entry in recent weeks is PowerShares QQQ Trust ($QQQ), a popular ETF proxy for the tech-heavy Nasdaq 100 Index. Specifically, we have been monitoring a bearish head and shoulders chart pattern that has been developing on the weekly chart interval of $QQQ. If this bearish chart pattern starts following through to the downside, it may create a low-risk entry point for short selling $QQQ (or buying a short ETF such as $PSQ or $QID). In this article, we walk you through the details of this technical trade setup for $QQQ, and present you with the most ideal scenario for actionable trade entry. For starters, check out the annotated weekly chart pattern of $QQQ below: When determining the validity of a head and shoulders pattern, there are a few factors we look for to determine whether or not this bearish pattern is likely to follow through to the downside. One of the biggest technical considerations is the trend of the volume that accompanied the price. The best head and shoulders patterns will be marked by higher volume on the left shoulder and lighter volume on the right shoulder. Such a pattern indicates decreasing buying interest as the pattern progresses. As you can see by the 10-week moving average of volume (the pink line on the volume bars above), volume has indeed been declining during the formation of the right shoulder. Another element we look for is whether the neckline is perfectly horizontal, ascending, or descending. The neckline on the $QQQ chart above is ascending, which means a “higher low” was formed. This ascending neckline slightly decreases the odds of the head and shoulders following through by breaking below the neckline. Nevertheless, between the two technical elements of the volume trend and angle of the neckline, volume is considered a more significant factor in determining whether or not the price is likely to move lower after the right shoulder has formed. Since it’s always best to assess a potential swing trade setup on multiple chart time frames, let’s zoom into the rather interesting, shorter-term daily chart interval of $QQQ: Just as the “line in the sand” for price support of $SPY is last week’s low, the same is true of $QQQ, but even more so. Notice how support of last week’s low in $QQQ neatly converges with both the 50-day moving average (teal line) AND the intermediate-term uptrend line from the November 2012 low (red line). The more technical indicators that converge in one area to form price support, the more substantial and pivotal that support level becomes. As such, be sure to monitor the $67.60 area very closely in the coming days, as a convincing breakdown below that level could be the impetus that sends $QQQ on its way down to testing the neckline of its head and shoulders pattern. Despite the convincing head and shoulders pattern of $QQQ, it is important to keep the following two things in mind: First, due in no small part to recent weakness in heavily-weighted Apple Computer ($AAPL), the Nasdaq has been a laggard throughout the multi-month rally in the broad market. Rather, the blue chip Dow Jones Industrial Average has been leading, and that index still remains very near its multi-year highs. In a fractured market with significant divergence between the major indices, clear follow-through in either direction usually does not come easily. The second (and more important) point is that the head and shoulders pattern, like all technical chart patterns, obviously does NOT work 100% of the time. In fact, far from it. This means that blindly selling short $QQQ (or buying an inversely correlated “short ETF”) at the current price level of $QQQ is risky and not advisable. Instead of entering this swing trade setup based purely on anticipation of the pattern working, our technical trading system mandates that we first wait for price confirmation that indicates momentum has shifted back in favor of the bears. At a minimum, we would NOT enter a short position unless/until $QQQ breaks down below last week’s low, which we now know is a key level of price support. Jumping the gun by trying to get an “early” entry point is never advisable in swing trading. As always, we will give regular subscribers of our ETF and stock technical trading newsletter a heads-up in advance if/when $QQQ gets added to our “official” watchlist for short/inverse ETF swing trade entry.
  12. I want to share some candlestick patterns for some new traders who want to learn candlestick charting and i try to make it short and simple so that everyone understand and learn that. Unfortunately i could not attach pictures of formations with the text but they are attached with this post so check out there. Abandoned Baby: A rare Reversal Pattern characterized by a gap followed by a Doji, Which is then followed by another gap in the opposite direction. The Shadows on the Doji must completely gap below or above the shadows of the first and third day. Dark Cloud Cover: A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day. Doji: Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary, and the resulting candlestick looks like, either a cross, inverted cross, or plus sign. Doji Convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. Downside Tasuki Gap: A continuation pattern with a long, black body followed by another black body that has gapped below the first one. The third day is white and opens within the body of second day, then closes in the gap between the first two days, but does not close the gap. Dragonfly Doji: A Doji where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points. Engulfing Pattern: A reversal Pattern that can be bearish or bullish, depending upon whether it appears at the end of an uptrend (bearish engulfing Pattern) or a downtrend (Bullish engulfing Pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body. Evening Doji Star: A three day Bearish reversal pattern similar to the Evening star. The uptrend continues with a large white body. the next day opens higher, trades in a small range, then closes at its open (DOJI). The next day Closes below the midpoint of the first day. Evening Star: A bearish continuation pattern that continues an uptrend with a long white body day followed by a gaped up small body day , then a down close with the close below the midpoint of the first day. Falling Three Methods: A bearish continuation pattern. A long black body is followed by three small body days, each fully contained within the range of the high and low of he first day. the fifth day closes at a new low. Gravestone Doji: A doji line that develops when the Doji is at, or very near, the low of the day. Hammer: Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with along stick. if this candlestick forms during an advance, then it is called a hanging man. Hanging Man: Hanging Man candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. if this candlestick forms during a dicline,then it called a Hammer. Harami: A two day pattern that has a small body day completly contained within the range of previous body, and is the opposite color. Harami Cross: A two day pattern similar to the harami. the difference is that the last day is doji. Inverted hammer: A oneday bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted Lollipop. Long Day: A long day represents a large price move from open to close, where the length of the candle body is long. Long-Legged Doji: This candlestick has long upper and lower shadows with the Doji in the middle of the day;s trading range, clearly reflecting the indecision of traders. Long Shadows: Candlesticks with along upper shadow and a short lower shadow indicate the buyers dominated during the first part of the session bidding prices higher. conversely, candlesticks with long lower shadows and short upper shadows indicate the sellers dominated during the first part of the session. Marubozo: A candlestick with no shadow extending from the body at either the open, the close or at both. The name means close-croppes or close-cut in Japenese, though other interpretations refer to it as Bald or Shaven Head. Morning Doji Star: A three day bullish reversal pattern that is very similar to the morning star. the first day is in a downtrend with a long black body. The next day opens lower with a Doji that has a small trading range. the last day closes above the midpoint of the first day. Morning Star: A three day bullish reversal Pattern consisting of three candlesticks a long bodied black candle extending the current downtrend, a short middle candle that gapped down on the open, and a long-bodied white candle that gapped up on the open and closed above the midpoint of the body of the first day. Piercing Line: A bullish two day reversal pattern. The first day , in a downtrend, is a long black day. the next day opens at a new low, then closes above the midpoint of the body of the first day. Rising Three Methods: A bullish continuation pattern in which a long white body is followed by three small body days, each fully contained within the range of the high and low of the first day. the fifth day closes at a new high. Shooting Star: A single day pattern that can appear in an uptrend. It opens higher, trades much higher, then closes near its open. it looks just like the Inverted Hammer except that it is bearish. Short Day: A short day represents a small price move from open to close, where the length of the candle body is short. Spinning Top: Candlestick Lines that have small bodies with upper and lower shadows that exceed the length of the body. spinning tops signal indecision. Stars: A candlestick that gaps away from the previous candlestick is said to be in star position. depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action. Stick Sandwich: A bullish reversal pattern with two black bodies surrounding a white body. The Closing Prices of the two black bodies must be equal. A support prices is apparent and the opportunity for prices to reverse is quite good. Three Black Crows: A bearish reversal pattern consisting of three Consecutive long black bodies where each day closes at or near its low and opens within the body of the previous day. Three White Soldiers: A bullish reversal pattern consisting of three consecutive long white bodies. Each Should open within the previous body and the close should be near the high of the day. Upside Gap Two Crows: A three day bearish pattern that only happens in an uptrend. the first day is a long White body followed by a gapped open with the small black body remaining gapped above the first day. the third day is also a black day whose body is larger then the second day and engulfs it. The close of the last day is still above the first long white day.
  13. A Broadening Formation is seen when market activity is seeing relatively high levels of volatility. Sometimes called a “megaphone pattern” because of the broadening shape of the pattern, traders view this formation as an asset that lacks clear trend direction or a clearly defined trading range. In many cases, traders view these formations as a sign that trades should not be initiated until market volatility starts to calm.
  14. Bar charts allow traders to see some parts of price behavior while isolating others. This enables technical analysis to take a more objective view of price activity and to not be distracted by external “noise.” Bar charts are often used by Elliott Wave traders rather than candlesticks because they feel it allows them to watch movements in the larger trend activity with more clarity.
  15. Your major focus in trading should the softer side of trading, the business and psychological side of it; the harder side which relates more to the technical side is a secondary thought, however in this article I am combining the two because one of my favourite patterns is an ideal pattern for the impatient trader who does not like to hold on to trades for too long. Impatience is not a good trait to have in the markets when trading or investing. It breeds laziness when it comes to research, planning and analysis, it causes some to exit trades too early, and it causes other’s to constantly monitor their positions. To add to this, trades that linger on can incur costs such as time premium erosion for options traders, and interest costs for CFD traders or stock traders using margin, to name a couple. Weaknesses are a part of human nature; your job is to ‘manage’ them, not to try and eliminate them or even turn them into strengths. We were brought up to take our weaknesses and try and turn them into strengths which I believe is the wrong approach. Build on your strengths and manage your weaknesses is the best motto I ever heard. Some traders who don’t like to be in trades for too long will use an exit strategy that will force them out of the trade if the particular stock or market consolidates and moves sideways for a few days, which is a good strategy. Let’s look at an entry technique which is the trading pattern for the impatient trader. This pattern signals a turning of the market. It does not necessarily signal a top or bottom, it will sometimes just signal a correction, either way; it tells you that a swift and sharp move the other way is imminent, and usually enough to give a good reward to risk. The emphasis here is ‘swift and sharp’, because this is what the impatient trader is looking for. The pattern unfolds in 5 waves with the highs and lows of the waves overlapping each other to the point where the 5th wave ends in a spike. Here is a diagram showing what to expect at the end of a run up, and the end of a run down. This is what you need to see and how to trade it: 1. You join the highs of wave 1 and 3 together, and the lows of wave 2 and 4 together if in an up market, and these lines need to converge [or lows of waves 1 and 3, and highs of waves 2 and 4 if in a down market]. 2. You want the high of wave 5 to break the upper line and spike [low of wave 5 to break lower line and spike]. 3. The break of the lower line is your entry [the break of upper line is your entry]. 4. Your stop goes on the other side of the 5th wave. 5. You want your exit or your first profit target to be within the range between the low of wave 1 and wave 2. 6. You shouldn’t take the trade if this range does not offer you at least a reward to risk ratio of 1:1, however this is obviously a personal choice This is an example that occurred on the SP500 index in July 2008 on a 30 minute chart. Elliott Wave users will be familiar with this pattern, known as an ending, leading and 5th wave diagonal; others may know it as three drives pattern, and others may just say it’s a wedge pattern. The point I wanted to make in this article, so as to benefit you is that when these patterns occur they produce swift and sharp moves and this is an obvious benefit to those who don’t like spending too much time in the markets, whether it’s due to being impatient or because of trading instruments that are time sensitive. Dean Whittingham
  16. I'm new to trading and I'm studying indicators and chart patterns. I've heard that some indicators work best when price patterns are ranging and other indicators work best when price patterns are trending. However, I can't remember where I read that. Does anyone know which indicators to use in a ranging market and which indicators to use in a trending market?
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