The Value of Indicators and How to Trade With Them

December 5, 2015

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MarketWebs Value Areas – Why?

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- What is a stock worth?Regardless of fundamental evaluations…Regardless of personal beliefs in the future of a company…Regardless of what others say…A stock is only worth what the market deems it to be worth. We of course hope to buy low and sell high, riding the wave of the market deeming higher value in the stock in time (or the opposite should we be short).

But the intraday fluctuations of price give us a very important hint about the market:When there is an abundance of dealers in a market all acting independently of one another, price begins to disconnect from value (as they compete with each other for your business) allowing the possibility to buy low and sell high even when the market’s general value of the stock has not changed.

What this means is that Price – so seemingly crucial to us traders – is no more than an advertisement and is not necessarily connected to the value (or “worth”) of a stock. This concept is crucial to traders, it is what allows for the opportunity to buy below value and sell above value, if we know the value!

Yet Price tends to be the one ubiquitous input for every indicator/study/line-analysis that exists in the market today…. While Value is the most obscure… why is this?

Value Area – The Concept

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POINT OF CONTROL$100 – Everyone on all time frames is very content at this price to buy/sell

VALUE AREA HIGH$105 – Sellers are happy to sell, but buyers are starting to taper off,sellers may have to reduce their prices from here

$110 – Sellers are eager to sell, but buyers aren’t around, if they want to sell at all they have to reduce their ask

VALUE AREA LOW$95 – Buyers are happy to buy, but sellers are starting to taper off, buyers may have to pay up from here

$90 -- Buyers are eager to buy, but sellers aren’t around,if they want to buy at all they have to increase their offer

MarketWebs Value Areas – Why?

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- Say you want to sell your car:You go online to Kelly Blue Book type in the kind of car your selling, make/model/year and it tells you:$20,000 for low miles perfect condition$15,000 for average miles and average condition$10,000 for high miles and poor condition

So you say great, I know my car isn’t bad and the miles aren’t terrible, so I’ll offer it for $20k and be willing to accept anything down to $15k.

- Now what if that car is a VW Diesel and the news has just recently come out? You want to sell because you’re worried about the outcome of this news. Now what prices are you looking for?Maybe you offer it at $20k but there are no takers, everyone knows the news.Maybe you offer it at $15k but there are no takers, even in better than average condition, the news overshadowsMaybe you offer it at $10k and hope… and perhaps there will be buyers there, but what is plainly clear is the market is no longer where it was. The “value” of the car, as determined by the market, has changed.

- So what is the new value? The market has yet to decide that. You’ll likely find a buyer at $2k who is willing to buy your car for parts – worried that parts wont be available for their diesel in the future. But if everyone is trying to sell their car, there’s not even the “parts buyer” in the market.

MarketWebs Value Areas – Why?

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- There are two fundamental types of technical analysis: Empirical and TheoreticalIt is worth noting that ALL technical analysis – ie: anything that is based from a stock chart – is backward looking. It uses historical data (price movement, volume, etc.) to provide information that may or may not be helpful in the future. Fundamental traders attack this very point – history must have no basis on the future – yet they have to admit that even they look at historical fundamentals, compare them to the present, and project the future.

- Empirical indicators:Most typically these are your momentum indicators. Those that attempt to track current trends up or down based on movement in the price/volume of a stock. These indicators in general do not provide any forward projections of specific price levels (ie: resistance/support)Examples: MACD, Moving Averages, RSI, Money Flow, Ichimoku Cloud, Bollinger Bands, Keltner Channels

- Theoretical indicators:Typically these are focused on support/resistance prices where theoretically the market is likely to turn around. Chart drawings fall into this category.Examples: Trendlines, Fibonacci Levels, Pivot Points, Cycle Brackets, Pitch Forks, Head and Shoulders, Diamonds, etc.

MarketWebs Value Areas – Why?

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- Of course there are times that traders will make the attempt to take an Empirical Indicator and use it as a Theoretical Indicator. This is most effective when that trader is not alone in their methodology.

Example: Using moving averages as a support level. A stock comes down to it’s 200dma and bounces. The bounce occurs because much of the market is looking at the 200dma as a support level regardless of its actual meaning in relation to the value of a stock.

Example: Using an oversold RSI as a buy level.A stock moves to the upside because its RSI is too low. Given the equation of the RSI, a stock can consolidate for weeks at a specific price level and the RSI will no longer show oversold, however if the stock bounces it is because everyone believes it should bounce. No relation to value.

- Because these are psychological moves based solely on price with no connection to value, they tend to be short-lived, but often long enough for short-term trading.

MarketWebs Value Areas – Why?

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- Taking all the aforementioned into account, there’s room in realm of technical analysis for something new for each category.

- Theoretical Indicator -- MarketWebs Value AreasThe value areas project price levels and areas that are derived from the market’s determination of the value of a stock – something lacking in all others indicators. This allows the trader to know when they may buy below value, sell above value, or buy at the lowest possible point and prices where the stock is likely to stop rising.

- Empirical Indicator – MarketWebs AlphaTrackerMost of the empirical indicators I have discussed so far have a certain amount of lag built in, the stock needs time to move according to the equation to trigger a “trend”. AlphaTracker instead is a zero-lag empirical indicator showing exactly when buyers have stepped in (ie: they like the current price) and when sellers step in.

- In effect I describe the combination as the following:The Value Areas provide reasoned information about what price-action “should” do at certain levels (ex: sellers should step in at X price, buyers at Y), AlphaTracker shows what “actually does” happen in real-time (ex: buyers did NOT come in at Y price, it’s not time to buy yet the market value has shifted and its trying to discover a new value).

MarketWebs Value Areas – Why?

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- Case study: CMG Friday 12/4

AlphaTracker picked up large sale on the close of Thursday

Sellers at VAH

Buyers below VAL

Nothing but selling by nominal trades

Price Discovery shifting value lower

Thursday’s seller still short

Why this? Sellers have exhausted themselves, other indicators may cause retail trendfollowing, but its not an actual bullish case!

Price Discovery shifting value lower

Short time-framer covering short for scratch/loss

MarketWebs Value Areas – Why?

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- So what should a trader use?

Regardless of what technical analysis you use – if you’re a trader that uses any at all – you should keep these two categories (theoretical and empirical) in mind and use one at least one indicator from each category.

As most well-known and platform-included indicators have their pro’s and con’s, it is worth understanding the equations behind the indicators (and if not the equations, at least what input they’re looking at) and trying to combine multiple indicators that each look at different pieces of data.

- When indicators that follow different data are in agreement, those are signals for trading. While it is very important to get used to a single indicator, there is no single silver bullet, it is worth learning a few and using them in conjunction.

- I personally use the Value Areas and AlphaTracker in all of my trading as they provide for me the best aspects of both types of indicators as well as providing strong improvements over the freely available types.

MarketWebs Value Areas – Inside Value Setups

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Value Area High (VAH)

Value Area LOW (VAL)

Point of Control (POC)

Doesn’t touch VAL in regular trading, this is info to carry forward

Starting the globexand regular trading inside of value

/ES – Aug 14th 2015, pre-market globex & regular trading

MarketWebs Value Areas – Breaking Value Setups

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Value Area High (VAH)

Value Area LOW (VAL)Point of Control (POC)

/ES – Aug 19th 2015, pre-market globex & regular trading

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Automatically drawn value areas from the previous time frames.: $299 Value• Yearly, Monthly, Weekly, and Daily Value Areas

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Following the Money

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• The different components of AlphaTracker

• The Upper Study – The Defensive LinesWhen big money takes an action that absorbs a significant amount of volume on the other side of the market, a defensive line is drawn on the chart, this price level becomes a significant support/resistance for price.

Mild Buyer Defensive Lines

Strongest (for 5 days) Buyer Defensive Line

Mild Seller Defensive Line

Strongest (for 5 days) Seller Defensive Line

Following the Money

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• The different components of AlphaTracker

• The Lower Study – The Big Money Actions & Cumulation for the DayWhen big money takes an action that is out of the norm for volume, it will show up as a bullish or bearish bar depending on buying or selling. The cumulative positioning of each participant from close to close will also be tracked

Big Money Strong Buying

Big Money cumulatively long for the day

Big Money Strong Selling Big Money Mild Selling

Big Money Mild Buying

Big Money cumulatively short for the day

Blue horizontal line shows Big Money cumulative position todayYellow horizontal line shows All Money (Nominal Money) cumulative position todayRed horizontal line shows Small Money cumulative position today

Following the Money

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• The different components of AlphaTracker

• The Lower Study – Swing Mode Swing mode tracks the cumulative positions of all participants for the past 20 day period.

Big Money All Money Small MoneyRelative Price Plot

Current positioning (+ for long – for short) UOA to be looking for / avoid

Big Money Reduced their longs on Friday

Big Money started buying with little price movement

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The AlphaTracker Indicators for ToS:**Limited Availability Offer – only 35 spots available!**

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Not a subscription!

One time purchase, you’ll receive all updates for free!

No refunds, once you buy it you own it for life!

AlphaTracker Lower: $799 Value• Track the actions of Big Money / All Money / Small Money• Day Trading / Swing Trading & Suggestions about UOA

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