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Ztrader – Swing Filter , M and W pattern 港股博弈

Let’s look at # 3899. It was peaked on early July and suffered from a major correction. Fundamental of the company seems not much changed but the correction was deep.

From the CMF (Chaikin Money Flow) indicator, obvious money flowing out from mid-July to end Aug. Painted in red color.

Now put in a Swing filter, which set to 10%, the peaks and bottoms can be seen on the red doted lines:

There are ways of trading pure relying on the swing filter. To ride on the uptrend from May to July, one can enter the bets by catching the low swing line, until the trend was broken in mid July (no more higher highs)

Or, to make it more sophisticated, here Merrill’s M and W pattern http://www.bollingeronbollingerbands.com/patterns/ , provide more hints on the swing lines by marking it with M and Ws.

While it is complicated to look up the meaning of these M and W code, it can be further translated to symbols:

The green triangle indicates a bullish swing, the red inverted triangles indicate a bearish swing. And the July 12 double arc, indicates a head and shoulder pattern, which is usually bearish.

The swing points can be used together with other trading techniques, for example, adding a RSI divergence indicator:

On June 28, the new peak has a RSI value lowered than that on June 18, which is graphically shown as a dark red dot line. It is a bearish divergence. Not a very strong selling signal but worth to monitor.

Combining the divergence, M and W pattern with a head and shoulder, and CMF go negative, one may be able to identify an escape opportunity early enough.

In fact the Swing filter shall be very useful to combine with other indicators to form a trading system.