9. Trading Models and Tests

The trading indicators and methods described in Chapters 7 and 8, “Directional Movement Index (DMI) and the ADX” and “Cycles and the Forward Line,” respectively, are now combined into trading models. I prefer to use my own interpretation of a chart with all the indicators displayed but to learn the nuances in the beginning, the best method for the student is to use a checklist of what indicators to look for. Deciding on action should be based on the configuration of the indicators, specifically the direction of the trend and the more subtle indications of timing entries and exits.

I follow about 20 stocks closely. I selected them for their volatility and liquidity. Liquidity is usually measured by dollar trading volume ...

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