Teaching You to Trade Stocks 92: The Monitor for Hub Oscillation

2007/12/27 20:31:33

During market analysis sessions these past few days, some detailed issues regarding hub oscillation were mentioned, so let me interject here and discuss the relevant content.

Hub oscillation must ultimately end with a third-type buy or sell point at some level. But the question is: how can we provide useful advance warnings? In other words, how do we monitor whether the oscillation is gradually strengthening or gradually weakening? This is a question with practical operational value. And along the way, we can give an approximate range for grasping each oscillation's highs and lows.

Once a hub is established, the midpoint of the hub's range is called the oscillation central axis Z. The midpoint of each sub-level oscillation range is denoted sequentially as Zn. Of course, the most standard state is when Zn coincides exactly with Z, but that's a very special case.

Obviously, if Zn is above Z, it proves the oscillation is biased strong; conversely, biased weak. The hub's oscillation range is [A, B], so A, Z, and B — these three horizontal lines are equally spaced. Connecting the fluctuations of Zn into a curve constructs a technical indicator for monitoring hub oscillation.

Of course, wherever there are fluctuations, one can use methods similar to hubs and trend types to analyze them. However, the number of Zn values won't be overly large — it won't exceed 9 data points. If it exceeds that, the sub-level must be upgraded, so such analysis has limited significance.

Generally speaking, this indicator serves as a monitor. Here, there exists an inevitable relationship: ultimately, Zn must exceed either A or B. Why? If it didn't, a third-type buy or sell point would never appear, which is obviously impossible.

However, it must be noted that conversely, Zn exceeding A or B doesn't necessarily mean a third-type buy or sell point must occur. That is, this kind of exceedance can happen multiple times, and only the last time constitutes a third-type buy or sell point. But in practice, the vast majority of cases aren't this complicated — generally once there's such an exceedance, it's a significant warning that the oscillation is facing a trend change.

Generally speaking, if such an exceedance doesn't constitute a third-type buy or sell point, it will generally constitute an expansion of the hub oscillation level. This isn't 100% absolute, but the probability is extremely high.

With this knowledge, for the viability of participating in hub oscillation, we have an approximate scope. For buying, if a Zn is below Z or even below A, the risk of entry is very high — meaning if your hands and feet aren't quick enough, you might get trapped in the trading corridor and be unable to smoothly complete the oscillation operation.

At the same time, for those situations where Zn rises slowly but lacks the momentum to break through B, beware of the sudden trend-change risk lurking within. Generally, such movements will form what are called ascending wedge patterns — bullish traps. This situation, reversed, equally produces descending wedge bearish traps, and the principle is the same.

Additionally, the sub-level types within hub oscillation are actually very important. If it's a trend-type movement and Zn shows corresponding coordination, then you must watch for a trend change, especially those where the last sub-level hub is outside the main hub. Once the next sub-level movement completes within that sub-level hub range, the oscillation will produce a trend change.

Combined with the timing provided by Bollinger Bands, this gives an extremely high degree of foresight in grasping oscillation trend changes.

Except in special cases, Zn changes are relatively smooth, so one can roughly estimate the range of the next one. This way, given the current oscillation's lows or highs, one can roughly calculate the next oscillation's highs and lows. These are elementary school math problems, so I won't elaborate.