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Before we share some practical tips on how to use the CIT Toolbox for trading, we'll discuss first how to subscribe to the indicators in the package.
After you click on the Subscribe button, please remember to send us your TradingView username (otherwise the indicators can't be enabled for your account).
After the payment is processed, go to Indicators, and check under "Invite-Only Scripts":
Click on the "Invite-Only Scripts" tab, and the CIT Indicators will show up.
For some of the indicators you may have to click on the style tab to make the shapes and plots visible:
Please note that it may take some time before we process your order.
Once we process your order, the indicators will be enabled and visible in your personal account.
How to Trade with the CIT Toolbox
The indicators in the CIT Toolbox have been chosen and designed to work seamlessly with each other with one goal in mind: to give users a clear and unambiguous technical analysis read to help them make quick and profitable trading decisions.
In the following paragraphs we’ll provide you with a few simple and easy steps for developing a sound trading methodology and for defining the trend, followed by some real trade examples. Remember what W.D. Gann once said: if you can’t determine what the trend is, you have no business trading. To use a non-trading analogy: If you were trying to get to an upper floor of a building, you wouldn’t blindly jump on any elevator without first checking its direction.
For brevity, we’ll apply the analysis to daily charts, but the same principles apply to lower and higher time frames as well.
The basic theory is laid out first, followed by a few practical examples (see Practical Application to Trading below).
Theoretical Background
It is a good practice, in general, to start with the bird’s eye view, and to get the bigger picture first.
The easiest way to do this is to pull up a monthly chart with the CIT Pivots indicator. It will tell you at a glance whether the symbol being analyzed is making higher tops and higher bottoms (uptrend) or lower tops and bottoms (downtrend), or whether it is trading somewhere in between the pivots (sideways). On the rare occasion when the current pivots are outside the previous pivots, then the deciding factor in determining the trend becomes the relationship between price and the 50% retracement of the current swing (see table 1 below).
There are eight possible outcomes, which can be summarized with a simple table as follows:
Table 1
A second option is to check the CIT SwingT indicator. In an uptrend, the length of upswings should be longer than the length of counter-trend swings.
After you determine the monthly trend and position of price with regard to the 50% retracement, you can switch to a weekly chart and repeat the same analysis.
It only takes a minute, but now you have a clear understanding of what the trend is in the higher time frames. What’s left is to re-apply the same reasoning to the daily chart. It helps if you have all three charts on your screen or if you keep track of your analysis in a simple worksheet.
In addition, knowing whether the trend is up, down, or sideways, will help you fine-tune your indicator settings. For example, in an established uptrend, it makes sense to use a higher StepDn input for Down CIT Angles, and a lower StepUp input for Up angles, or to completely ignore/disable the Down CIT Angles. The opposite will be true for an established downtrend, while in a sideways market it is best to keep the steps of both angles equal. Similarly, you may experiment with higher CIT inputs for the CIT Bars indicator when there’s an established trend in place, and with lower CIT inputs when the security lack direction.
Now that you know what the trend and the relationship of price with trend is, you can move on to the next step which is looking for CITs, price and time targets, and support resistance levels.
As a rule of thumb, you should be looking for buying pull-backs in an up-trend and selling rebounds in a down-trend. In the absence of a well-defined trend, be prepared to trade the swings both ways.
The appearance of a new CIT Angle is usually the first indication that a CIT is occurring and that it’s time to plan a new trade. Next, it is good practice to wait for confirmation from the CIT Signal Bar indicator. The appearance of a new pivot line, which could be a day late, will further reinforce the signal.
The next step is to determine price targets and stop/loss levels.
The first price target is the 50% retracement of the previous swing and then the old swing high. It should be mentioned here that as soon as these price levels are broken, they become support levels (in an uptrend) or resistance levels (in a downtrend).
Once the security starts making new highs or lows, there are several tools at your disposal for determining price targets, but here we’ll focus on the Square of 9. The CIT Sq9 tool lets you easily calculate and display price targets based on the Square of 9, a favorite Gann technique, which works really well with the above mentioned CIT Angles.
As for stop/loss levels use the CIT Pivots as a reference.
With regard to establishing time targets, the CIT Toolbox offers several original options.
The first one is the squaring of price and time (see Gold example below).
The second one is to determine when the current CIT Angle will meet a support/resistance/target line.
The third one is to keep an eye on the CIT SwingT indicator which will tell you, at a glance, what to expect in terms of average swing length and whether the current swing is exceeding the norm and by how much.
The forth option is to keep an eye on the CIT Bars indicator as a narrowing of the bars is an indication that the current trend is losing momentum, and usually precedes a change in trend.
For those who prefer an even simpler and more visual approach to technical analysis, we’ve color coded the CIT Bars indicator for easy interpretation. This indicator offers fewer nuances and only four possible outcomes (see Table 2), which can be summarized as follows:
Table 2
All indicators discussed above can easily be displayed on one chart without cluttering the screen and will keep you on the right side of the trade in any time frame and for any instrument.
And last but not least, when trading stocks and indices it is advisable to keep an eye on market breadth. You can do it here.
Now let’s discuss the practical details focusing on the three different instruments: SPX500, USDJPY and Gold.
Practical Application to Trading
SPX500
Chart 1
The screenshot above is of the daily SPX500 chart (Chart 1). For expediency, we’ll provide the monthly and weekly results.
The monthly trend is sideways since in August ’15 the SPX made a higher swing low followed by a lower swing high.
The weekly trend is flat as well since the index made a higher swing low the week of September 28th, but a lower swing high in November.
The daily trend is also sideways since the pivot lines are showing a higher swing low but a lower swing high.
From the point of view of somebody trading the daily chart, the implications are as follows: if you’re a trend trader, in the absence of an established trend in any time frame, now is not the time to initiate trend trading positions. If you’re a swing trader, then trade the swings until a clear new trend is established or the old trend resumes.
If the decision was to trade the swings, you would have seen that the CIT Angles issued a buy signal on Dec 21st, which was confirmed simultaneously by a green CIT Signal indicator (not shown) and the appearance of a higher CIT Pivot line. A third confirmation of an upswing came the next day when price broke above the CIT Bars. Currently price has advanced 50+ points, and is still in a strong position, above the 50% Pivot retracement level and above the 1 x 1 angle. The prudent thing, nevertheless, is to adjust the stop/loss price closer to the 50% retracement level. As the trend progresses, users have the ability to adjust the retracement level by changing the default input from 50 (50% retracement) to a higher reading in order to tighten their stops.
The next resistance level is the December 17th high, which also coincides with a 90 degree up move on the Square of 9 from the December 14th low. If the current trend remains intact, that level should be reached by the end of 2015. The CIT SwingT indicator is below the average for the SPX500 and nowhere near being overbought, but this is something that should be expected in a non-trending market. The analysis and conclusions, by the way, are similar for the hourly charts as well. You can use the lower time frames for timing entries and exits.
It should be mentioned that here’s where a little knowledge about seasonal trends can come in real handy. Week 51 (current week) is historically one of the strongest of the year, while week 52 is notably weaker (see Table 3):
(Table 3, courtesy of OT Seasonal)
And while seasonal trends are not set in stone, they can sure help in planning your trades and managing your expectations.
To see how the analysis turned out, scroll to the bottom of the page.
USDJPY
Next we’ll discuss the USDJPY pair
The monthly trend is sideways as the USD has made a lower high and a higher low, and price is below the 50% monthly swing retracement level.
The weekly trend is also flat with a higher low and a lower high in place, and price below the 50% retracement.
The daily trend is down (Chart 2), since the USD made a higher high on December 18th, but currently is in the process of making a lower low and price is below the 50% retracement.
Chart 2
The CIT Signal indicator issued a sell signal on December 18th, which was confirmed the next day by the SwingT indicator and the CIT Angle indicator.
The first lower price target is 119.92, which is the 50% retracement of the Aug 8th low and the Nov 18th high. The second target is 118, which is 90 degrees down from the Dec 18th high.
From a SwingT point of view, the current swing has time to run before it exceeds the average swing length, which leaves it plenty of time to reach at least the first target. At the current rate of decline this should happen during the last week of 2015.
In our Oct 10th note on TradingView we observed that the USDJPY pair has a history of prolonged consolidations following sharp up-moves. We believe that currently the USDJPY pair is in such a period of consolidation which could last through the first half of 2016. From that perspective, it may be prudent to tighten your stop/loss level and use a 25% or 38% retracement of the current swing as an exit.
To see how the analysis turned out, scroll to the bottom of the page.
GOLD
To conclude this exercise, let’s take a look at GOLD.
The monthly trend for gold is down, as the series of lower highs and lower lows is running uninterrupted since 2012.
The weekly trend is also down, but the daily trend is flat (Chart 3). The positive daily signs are that Gold has made a higher low and a higher high in the second half of December, and price is trending above the 50% retracement of the latest upswing and above the 1 x 1 up angle. The negative is that the recent pivot high is below the December 4th pivot.
Chart 3
From a CIT Angle point of view, Gold presents an interesting case study. The last up CIT Angle was fired on Dec 18th and remains in effect since the down angle, which was triggered on the 22nd never penetrated the up angle. Currently price and time are perfectly squared and balanced.
There are several price resistance levels above the Dec 24th close, which coincide with the last three higher CIT Pivots and the September '15 low.. They also match with 90 degree up moves from the December lows. Time-wise, although the latest swings have been of very short duration due to the range-bound price action, the duration of down swings still exceeds that of up swings.
In summary, the weight of the evidence from the higher time frames suggests that despite some recent positive price action, it is way too early to assume that Gold has turned the corner and that a new bull trend is emerging. If Gold can clear 1116, which is 180 degrees up from the Dec 3rd low, and coincides with the 50% retracement of the October-December down swing, then the bullish case may get some traction. In the meantime, we maintain a 960 price target for Gold. We would also recommend keeping tighter stop/loss levels for long trades.
Update (Jan 4th, 2016):
1/ The SP500 reached its upside target on 12.29.15 and again on 12.30.15
2/ The USDJPY broke below the first downside target on January 4th and is on its way to test the bottom of the consolidation zone.
3/ Gold reached a swing high on Dec 28th but retreated immediately and closed below the Dec 24th low.
Trade Signals
To make things even easier, we are offering several trading strategies and signals based on our proprietary indicators.
CIT Pivot Lines with long/short signals:
In the screenshot below, the green/red dots identify periods of strong upside or downside momentum, while the green and red background color signals identify periods of momentum exhaustion:
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