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Greetings,
Because of the amount of requests about the Cambridge Hook I have decided to
post to the list, rather than individually.
The CH is a very simple (remember, I am the King of the Simpleton Traders)
reversal
pattern that I use both to position and daytrade. It is a slight variation of
the standard
hook or key reversal pattern. What differentiates the CH from a standard hook
or key,
is that the RSI, open interest and volume must be at certain values when the
chart pattern occurs. ( I use the open interest/volume study while position
trading, but do
NOT use them while daytrading).
For a CH down, the following formula must prevail:
1.) In an uptrend, look for a contra-trend reversal
2.) The high must be higher than the previous days high
3.) The close must be lower than the previous days close
4.) The RSI must be overbought (70+ on my chart, I also like to see
divergence)
5.) Volume and Open Interest must be INCREASING
6.) RSI Divergence must exist
For a CH up, The following applies:
1.) In a downtrend, look for a contra-trend reversal.
2.) The low must be lower than the previous days low
3.) The close must be higher than the previous days close.
4.) The RSI must be oversold.
5.) Volume must be increasing and open interest DECLINING
6.) RSI Divergence must exist
The above is taken right out of the article written by Jim Kneafsey. He goes
on to
say that there are several advantages and limitations. Among the advantages
are
it can determine when a trend reversal is likely and stop management is rather
easy (place stop tick or 2 away from hi/low of CH). Limitations include it
does not catch every reversal.....and sometimes its plain WRONG.
If I might bore you with my own observations: Sometimes these reversal signals
work and sometimes they dont. I never take the first signal after a sharp
up/downmove.
You are just asking for trouble doing that. I also never will take a signal,
no matter how attractive, if the indicators and price made a higher/hi,
lower/low on the previous
move (those of you who know how I trade know what I'm hinting at).
For those of you who swing trade, adding the CH to your tool box and observing
when these signals form up should help become a tad more profitable.
Good trading,
Peter
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