Author: Linda Raschke
Linda discusses five choice trading patterns she uses. Based on a logical set of market principles, these five patterns work equally well in equity and commodity markets. Understanding these enduring market setups provides you with a solid foundation for trading technically. They simplify analysis for the beginner and give the aggressive trader added confidence. Linda has used these patterns as the core of her intermediate-term analysis but they work well on any timeframe.
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Linda Raschke, Harry Devert and Dan Chesler.
“But I can quantify chart points,” she notes. “I can quantify and test something like, ‘If the market made new momentum lows and there’s a reaction up by half an ATR (average true range), what are the odds the market will trade below that low?’ I can determine there’s, say, a 68-percent probability of that happening.” AT: Do you use any kind of market or stock selection process along with patterns or strategies?
LBR: Yes. One way to find good potential long-side stock candidates, for example, is to identify the up-trending stocks with the best relative strength at the beginning of a quarter. A better word to describe it might be the stocks that are “best bid,” or “most well-bid.” I look at the number of days stocks trade from low to high and how steady their bids are for the two-week period. In other words, I want to see only shallow retracements. So it’s not necessarily the stocks that are up the
“If you’re trading a very short time frame – scalping – you need really good execution skills and a good platform. Trade like a specialist – buy the bid, sell on the offer and take small gains.” 68
www.activetradermag.com • February 2004 • ACTIVE TRADER
“Momentum is less reliable at volatility extremes, high or low.”
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