esignalLearning
 |  Contact Us   

SALES DEPARTMENT
1.866.367.9296

Sales Outside the U.S.:
see below


FREE NEWSLETTERS
Trading Educator's Corner

Fari Hamzei Fari Hamzei*
Founder, HamzeiAnalytics.com

Focus: Stocks and equity / index options and index futures

* Not employed by or affiliated with Interactive Data


Volatility Expansion: How to Day Trade It Using eSignal and Hamzei Analytics

For the purposes of this article, I assume that you are familiar with Hamzei Analytics’ Central Intelligence (CI) and Directional Volatility (DV) indicators -- both are available on the eSignal platform.

In case you are not familiar with them, here are the URLs to the how-to articles for the Hamzei Analytics CI and DV indicators:

CI Indicator
DV Indicator

In the DV indicator article linked to above, you'll see I talk about using the DV indicator to identify a high probability Big Range* day for a tradable asset in the very near term. What the DV indicator doesn’t tell us is which way we should trade it (long or short). That's where the CI indicator comes in.

Screen 1From the CI indicator article also linked to above, you'll recall that CI is a zero-lag momentum and trend combo indicator. When you combine the DV and CI indicators in one chart, and add some common-sense money management principles, you have a recipe for high probability winning trades. Remember: There is no Holy Grail. What you are looking for is the opportunity to improve your odds against the uninformed herd.

I will now revisit the three examples I pointed out in the DV indicator article. They were based on SPDRs (SPY) price action in 2004. This methodology is valid for other liquid (and popular) tracking stocks, such as QQQQ, as well as S&P 500 and NASDAQ 100 Stock Index Futures (ES or NQ). It also works very nicely for hi-beta momentum stocks such as GOOG, AAPL, BRCM or MRVL.

Screen 2On May 24, 2004, notice that the DV indicator warned us of an impending Big Range day coming up. Observe what the CI indicator was up to immediately preceding May 24: While the price was making a higher low, the CI indicator, on the other hand, was pointing to a bullish trade. On May 25, SPY put in an outside bar reversal and the price flew up from there for 10 days!

Now, let’s look at the next trade on September 1: This trade is a no-brainer. Because the DV indicator has sunk to the bottom, we know that volatility is ready to explode. The beauty here is that the CI indicator has been shooting up on a steady slope since early August. (As we say at Hamzei Analytics, its CI Diff is positive.) Go LONG the next day, and you will be rewarded handsomely. OK, this was easy!

Screen 3Here is another example: All through late December, the DV indicator is falling. The CI indicator has been whipsawing. So, we know a Big Range day is coming. Starting on December 29, the DV indicator’s fall accelerates while the CI indicator begins a modest retreat. (In our parlance, the CI Diff is negative here.) On January 3 and 4, 2005, we have two Big Range days, not just one. This was a very clean short and was detected nicely.

Please notice that not all setups are this clean, and you may not get a lot of heads-up time. Although this method is ideal for day trading, and, in most cases, one may see a follow-through, we do not recommend that you use this methodology for long-term plays.

The combination of the Directional Volatility (DV) and Central Intelligence (CI) indicators can pinpoint the timing and the direction of the big trade. Keep in mind: Good stop management is always a very prudent practice and can protect your risk capital (and your emotions) in these treacherous markets.

*A Big Range (High minus Low) day is defined as a day when the market opened at or near the low [or high] of the day and closed on the opposite end at or near the high [or low] of that day.

Fari's Educator Credentials
Fari Hamzei is frequently quoted by CNBC and RealMoney.com and is often featured on Top Advisors Corner of DecisionPoint.com, as well as EliteTrader.com and Traders-Talk.com. He often contributes to the forums on eSignalCentral.com. Fari has spoken at the CBOE, ISE, Canadian Society of Technical Analysts (www.CSTA.org), CashFlowHeaven.com, InsideOptions.com and Minyanville.com financial conferences. He is also the Group Leader of the Los Angeles eSignal User Group (www.ActiveTraders.org). Fari is currently (as of February 2006) ranked FIFTH, for the last twelve months, as tracked by Timer Digest, the sponsor of the "Market Timer of the Year" competition.

Fari Hamzei's Writings
Fari has written several articles that have been published in Technical Analysis of Stocks and Commodities magazine and on the eSignal.com website, as well as eSignal’s subscriber newsletter, the Exchange. His book, Master Traders: Strategies for Superior Returns from Today’s Top Traders was published by John Wiley & Sons in October 2006.

Contact Information**
Info1@HamzeiAnalytics.com

Learn more about Fari's Hamzei Analytics, available as an add-on to eSignal.

www.hamzeianalytics.net/



** Interactive Data is not responsible for any interaction between the user and the entity identified above.
FREE Learning Updates from eSignal Learning!

 

 

Your educational guide with tips and strategies

 

Join us on Facebook and Twitter

 

Mentoring Attendee Reviews
"I appreciate the support you provided during my 3 months of mentoring. I am confident that I will achieve my goals with people like you around."
- M.K. Sareen