Friday, April 27, 2007

Return To 4

One of my tools is the Return to 4 (RT4) method which I use in gap-up situations to inform a day trade.

It looks like this -

Even though I call it the Return to 4 the price could actually drop through to the 8 or to the 21 - the method remains the same. In order to know that you have the real thing you must see the rebound candle and buy off the top of that. In the chart above and below that is the third candle in.

Frequently, as seen here, the RT4 is associated with a pivot level, in this instance it was resistance 1. After crossing back through R1 it rebound from the EMA 8 and passed through it again going up. This trip took it all the way to R4 before it started getting choppy.

As a little added value - note that a BOB formed just below R4 and it took off again for another great day trade opportunity.

This method works from minutes to months although you might not get a gap-up on the monthly charts. Instead what you will see is a long candle and then several short ones as the stock pulls back to the EMA 4, then it will rebound and away it goes.

Here you can see one forming between April and August of '06 - about the time that all of the bobbleheads on bubblevision were calling for a market collapse what was really happening was a RT4. Isn't it amazing?


Anonymous said...

Bongiorno, Marlyn.

The BOB also is a RT8 and the confirmation bar is a "Bull bar" (bar open=bar low and bar open=bar close(1)) as described by Dr. Brett Steenbarger. In this instance, the Bull bar took out the previous two candles and closed > both. With respect to BOBS, I've been noticing that they seem to produce a better follow-thru when the volume of the confirmation bar is > than the second bar. The volume pattern resembles an upward-sloping staircase. The fourth candle closing > its open seems to help as well. Have you tested the efficacy of the BOB when the confirmation candle closes > the second candle? Just curious. There are so many nuances to trading. Like other setups, their success/failure hinges on where they appear, i.e. Pivot points, Fib. levels, etc..

I hope you enjoyed your round of golf minus a head cold. How's that flatstick work'in?


Marlyn Trades said...

Bull bar is interesting - it is almost like my "tweezer bottom" but uses close to open instead.

27 putts yesterday over 18 - about normal.

Marlyn Trades said...

By the way Philip "bull bar" is also known in the Japanese literature as "belt hold". Someday I shall test it I promise.

Anonymous said...

As always, thank you for being open-minded and for your gracious generosity. I truly enjoy reading your blog and I appreciate the education you provide.

Twenty-seven putts? Somebody's got a short game!

Have an enjoyable weekend.