Been busy trading so please forgive the delay.
Look at following chart. Look only at the b lack ADX line. Ignore DMI lines. This works best with weekly charts and the COT report. But you should get the jist.
You need-
ADX 7 bar
Slow Stoc 14,3
Preferably weekly charts
COT report
Futures market to trade. No Cot for stocks even though this example is from a stock.
This is the Pinch/paunch crudely explained. There are many subtleties.
ADX measures trend strength. Strength perhaps wrong word. Integrity is better word.
ADX <20, no integrity, no real trend
ADX >40 strong trend
ADX > 60 rare and near end of strong moves. Exhaustive.
Stoch is simple momentum gauge + relative OB/OS levels.
When stoc <25 (OS) at the same time ADX>40 and especially when >60, that is probably some sort of a low. It does not mean buy right then. You need to think a little. Dont try and catch a falling knife.
Look at the first X on the chart. ADX is driving towards 60 and at the same time Stoc is very oversold. You see I drew two lines. One following ADX up and one following ADX down. Think of alligator opening his mouth to eat a Florida tourist with a big gut.
This is Paunch.
This trend more likely than not cant sustain itself. No sellers left. When stoc pops back above 25, (or whatever entry you use) probably going to get a good pop up.
Pinch is sort of highlighted by 2nd X. It is not a true pinch but close enough. Best pinch occur when stoc > 75 and ADX <20.
The lines are "pinching" together as you can see. What really is happening is there is buying but ADX tells you via its continuing negative slope that there is no integrity to the "rally". Probably some shorts taking profits off the table.
As soon as stoc rolls back over, what happens? ADX starts gaining in value letting you know this is a real selling move. Until when? About when it hits 40 (a strong down trend) with OS stoc.
This is a variation on the paunch. 2 vertical lines
This is a fun little technique. Remember it does not call every swing, nor does it foretell the magnitude of the move. It kinda works on for stocks, but real power moves are hourly or greater. Daily, weekly etc are best. These are not scalp trades.
Combined with weekly futures and COT report used in conjunction with extremes in commercials/public buying and selling and its one of the best set ups Ive come across. One warning these are long swing trades. Multi-day if not week(s).
The shorter your time frame the less reliable it is. And simply the aligning of all these ingredients is not the buy/sell switch. Do your own DD.
I will try and post some charts with COT if I can get my scanner to read them. They are faded due to age.
Quote from aca123:
Aok where can i find some more info on pinch/paunch technique?
tia
