Market Detective

Innovative Technical Analysis Software for Traders

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The signature feature of this charting software is the Market Detective Indicator – a unique, and amazingly accurate market timing indicator that assigns an explicit trading signal to each price bar on a candlestick chart.
Market Detective Technical Analysis Chart of SPY

Please note that the Market Detective Indicator will often be referred to with the abbreviation MDI throughout this website, and the Market Detective program will often be referred to as MD.

Welcome stock and futures market traders to a website that introduces an innovative, compelling, and amazingly accurate technical analysis study, based on Japanese Candlestick theory, that dramatically quantifies the trading significance of every candlestick on a chart. If you are a long term trader who believes that buying and holding stocks for months or years in today’s volatile market environment is the only correct strategy, this unconventional and revolutionary candlestick study just may alter this complacent and perilous mindset. You will begin to realize that, contrary to popular belief, short term end-of-day trading is really the best way to preserve your capital, and steadily grow your equity in a volatile market climate. If, on the other hand, you are already a short term trader that looks for daily or weekly market swings, you will be amazed at the accuracy of the mechanical signals this charting software generates. You will learn how to use an original and unique new technical analysis method that was invented specifically for short term trading of volatile stocks and futures markets, and that will allow you to make weekly profits without using all the sophisticated fundamental and technical analysis that you’ve been conditioned to use. Yes, all those lagging indicators and oscillators like Moving Averages, RSI, Stochastics, and so on have their usefulness, and are present and accounted for in the Market Detective program. Fundamental analysis of the state of the economy, real earnings, and industry strength is also useful knowledge. Yet when compared to the Market Detective indicator, they do not signal the need for immediate action in the way that the MD Indicator does. Most of the standard graphical studies still require you to interpret the unobvious. When exactly can you count on RSI or Stochastics to give you a best buy or sell signal? How about Moving Averages? All of these studies can be programmed to give you scores of contradictory buy and sell signals just by modifying the periods on which they are based. The opposite is true with the MD study. Each candlestick or bar represents an unmodifiable period of one bar, and is clearly identified with a graphical character that provides an obvious, explicit, and unequivocal trading signal. Since market timing is everything in short term trading, then the visually informative MD signals will generate much more profit, and preserve your capital more efficiently than any standard study you can name. I truly believe that my Market Detective indicator is the ultimate short term trading weapon.

Why I created the Market Detective market timing indicator:
The inspiration to create an explicit indicator study like Market Detective resulted from my appreciation of the enhanced graphical information already provided by Japanese Candlesticks, coupled with my personal knowledge of human nature and psychology. As most traders are aware, Candlestick charting is a 400 year old graphical method of trading commodities invented in Japan that involves recognizing patterns that signal trend reversals or continuations. Candlestick patterns have been given names like Doji, Hammer, Hanging Man, Dark Cloud Cover, Marubozu, Harami, etc. Once memorized and understood, these patterns definitely enhance a trader's ability to anticipate a future short term price action. However, I discovered that even the extra clarity of these candlestick patterns did not alter my somewhat indecisive behavior as a trader. I still felt conflicted and hesitant about exiting a currently held position (especially if I just got married to it), or entering into a new one. To help overcome this state of indecision, I decided to invent that better mouse trap that would literally compel me to take action immediately. This quest for a compelling indicator, as opposed to one that invited further interpretation and deliberation, was ultimately based on the common understanding that we humans are driven to immediate action only by what we clearly see with our eyes. Consider the negligible psychological effect of hearing on the radio that an unimaginable human tragedy like the tsunami of 2004 has just occurred, versus the emotional impact of actually seeing it played out on your TV screen. Only when we actually see the human suffering on television do we feel that we need to do something, and so we send money, food, and medical supplies. Let's face it, we are visually motivated creatures that respond instantly to clear and dramatic visual stimuli. We react hardly at all to the unseen world of abstract thoughts. This behavioral fact of life applies equally well in the case of my clearly marked Market Detective Indicator signals. Since creating this indicator, I have found that its explicit signals have compelled me to take immediate action many times more often than ever before. This has grown my capital much more efficiently than ever before, while protecting it against the inevitable draw downs. In striking contrast, my prior long term hold and pray strategy, much more often than not, allowed the paper profits that I acquired over months or years to be reabsorbed by the spring from whence they came.

To further promote the meaningfulness of the MDI's compelling visual graphics, consider this. A prosecutor wants and needs compelling evidence before he will even attempt to formally charge an alleged perpetrator. Without it, he realizes he won’t have a convincing case, and will be wasting his time and your tax dollars by prosecuting. Clearly, this same behavioral effect of action versus inaction occurs in trading the stock market with charting software. All those lagging indicator curves, oscillators, and resistance and support lines, while visual, produce somewhat ambiguous and abstract market timing signals, and therefore do not offer the compelling evidence needed to prosecute a decisive trading action. They don't deliver a sense of urgency to do something, i.e., they just don't offer a compelling argument to make that immediate trading decision. I wanted unambiguous mechanical prompts to pull the trigger on trades - trades that I was confident would, over multiple transactions, outperform the emotionally weighted mental decisions I would make. So, using a candlestick chart as the graphical basis for my study, I decided that if I assigned a buy, sell, or hold recommendation in the form of an identifying character to each successive candlestick based on its price relationship to the prior candlesticks, this would add the visual clarity I was looking for. This character would then present a clear, unambiguous visual signal to a trader to either hold the current position on the following day or trade it. A red ‘R’ or 'r' at the top of the current day’s bar would indicate a reversal day after a Long trend, and that exiting the Long position and even shorting this equity was in order on the following morning’s open, or for advanced users, late that same reversal day. A red ‘S’ or 's' at the top of the current day’s bar would indicate a day to stay Short. A green ‘R’ or 'r' at the bottom of the current day’s bar would indicate that it was a reversal day after a Short trend, and that exiting the Short position or buying this equity was in order on the following morning’s open, or late on that same reversal day. A green ‘L’ or 'l' at the bottom of the current day’s bar would indicate a day to stay Long. Note also that there is a short horizontal line drawn between the prior bar and the reversal bar. This line defines the specific reversal point, which is one tick above the prior bar's high price or one tick below the prior bar's low price. It represents the market timing signal for exiting the current position late on the reversal day (within one half hour of the close), or early the next day. A green horizontal line defines the reversal price from a short to a long position, while a red horizontal line defines the reversal price from a long to a short position.

The best way to time a trade with the Market Detective Indicator:
Since the vast majority of us trade with online brokerage firms, we have access to their real time, online quote streamer and chart programs. You should refer to these real time, online programs within one hour or less of the market close, and in concert with the use of the Build Intraday Bar (BIB) feature of Market Detective. If BIB produces an R signal near the close of trading, and you are waiting to enter into a long or short position on such an R signal, then entering just before the close is a good strategy. Without the real time online help, however, you can only enter early the next day, after you do today's End of Day MDI analysis, but by then the price might be more expensive. If you are already holding a long or short position when you get an R signal, try to exit just before the close using the same intraday technique, or otherwise, early the next day. If this is a whipsaw event, because you just entered a new position on an R signal the day before, exit and take the small loss, as this one deliberate and difficult-to-perform act will preserve your capital and keep you in the game forever.

Summary Comments:
Keep in mind that the Market Detective Indicator works best with volatile stocks that swing in significant percentage increments both up and down. Some stocks do stay in a long up trend or long down trend and should not necessarily be traded equally in both directions. The MDI enhanced charts, when viewed over a several month period, will reveal what long term trend the stock is in, and therefore what side to favor and play with the short term MDI signals. If your selected stock swings widely in both directions, then depending on your temperament after exiting a position, either stay out or aggressively trade into the reverse position. Trading into both long and short positions whenever their respective reversal signals occur increases your trading risks, creates more daily stress and nervous anticipation, but can also maximize your profits. You are the best judge of what you can handle there. However, if, like most traders, you have a strong bias to the long side, simply exit your current long position on a reversal signal, and wait on the sidelines for the next reversal signal to go long. This same rule applies to any bias toward the short side. Simply cover your short, and wait on the sidelines to go short on the next reversal signal. However, keep in mind that about 10% of the time after getting a reversal signal, you’ll get an opposite reversal signal on the very next bar. With internet brokerage commissions so thankfully low, you should take this whipsaw loss, which is typically very small, in order to catch the subsequent and larger profitable move. This taking of small losses defines the very meaning of the term - preservation of capital.

Since designing this technical analysis study that I named the Market Detective Indicator in the summer of 2003, I have scrutinized scores of charts of volatile stocks and found that the vast majority would have produced significant weekly profits if the literal 'SRL' signals were obediently traded. I was excited and amazed by how much the consecutive ‘S’ and consecutive ‘L’ letters outnumbered the consecutive ‘R’ letters. I was also surprised how this market timing indicator made human interpretation of the conventionally named candlestick patterns, such as Dojis, Hammers, etc., somewhat irrelevant. The Market Detective indicator had already integrated, and correctly interpreted their significance in one automatic scan. Is there profit potential here? Well, if seeing is believing, how can there not be? I personally feel that the 'SRL' signals are like forensic evidence to a market detective in much the same way that microscopic fibers are forensic evidence to a homicide detective... Read my Trading Philosophy page for more useful comments, then download the Demo program, chart the historical data files provided, or any from your own portfolio, invoke my Market Detective study, and do the math. Once familiar with the workings of the MDI, I recommend that you also read about My Best Methodology, which I developed in the Spring of 2005 to allow the effective trading of stock options at a greatly reduced commissions cost exposure for a greatly enhanced profit potential.

Note: The explicit characters are always expressed in lower case ‘s’, ‘r’, ‘l’ when the candlestick spacing is small due to the population of candles on the chart. The upper case characters ‘S’, ‘R’, ‘L’ are used when the spacing widens to produce fewer candlesticks per chart. This is done just for graphical clarity.

Market Detective Technical Analysis Chart of GOOG compressed bars