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Nison MarketScan FAQs This Is Where You'll Find The Answers You Need!
Q: What patterns does Nison MarketScan scan for?
A: Steve Nison carefully handpicked the 18 most significant candlestick patterns for use in the MarketScan stock screens. Steve then ranked each of the nine bullish and nine bearish patterns by their relative significance. The most significant patterns score the most points in the 'Pattern Score' column of the reports and commentary. Of the bullish patterns, Rising Windows scores highest at 100 points; Southern Doji scores the lowest at 20 points.
Q: What other conditions do you consider?
A: Each pattern must be accompanied by sound western technical conditions. These include trend, support/resistance, confirming technical indicator levels, and a strong Reward/Risk ratio. 'East meets West' is more than just a slogan with MarketScan. It lies at the very heart of the analytics.
Q: How do you measure trend prior to a pattern?
A: The trend preceding a candlestick pattern is very important. Eight of the nine patterns forecast reversals of trend. For the eight reversal patterns, MarketScan looks for signs that the prevailing short-term trend is weakening. For the Rising and Falling Window pattern MarketScan looks for signs that the prevailing trend is strong and showing signs of continuing.
In addition to measuring the degree to which a stock’s price is moving up or down, MarketScan also considers the amount of volatility in these upward and downward moves. Upward price movement with high volatility is generally a weaker and less sustainable trend than one with low volatility (all else being equal). The same is true of downtrends. All of this is taken into consideration with each signal.
Q: Does Nison MarketScan use confirming indicators?
A: Yes. Using exhaustive yet prudent system testing techniques, four diverse technical indicators are used to confirm buy and short signals. These include, Ultimate Oscillator (a Velocity class indicator), dual moving averages (a Verticality class indicator), Trading Bands (a Volatility class indicator), and Ease of Movement (a Volume class indicator).
Q: Explain why so many indicators are used in the 4-V Score?
A: Diversity is the ‘spice of life’ and the lifeblood of a robust trading system. There are dozens and dozens of technical indicators—most endowed with important sounding names. But in reality, very few are truly unique at their mathematical core. The fact is most indicators are designed to measure one of four technical phenomena: velocity (aka Momentum), verticality (aka trend), volatility, and volume. Collectively, these are called the 4V categories. By carefully choosing an indicator from each of these four broad categories for a trading system, diversity and robustness are greatly increased.
Q: Why is the Reward/Risk calculation important?
A: Steve Nison always advises his clients to strongly consider reward to risk before committing to a position. MarketScan requires that the potential gain (as measured to the most recent resistance high for longs) be at least 2 times greater than the distance to the potential loss (as measured to the initial stop loss point). This simple, yet highly effective, money management principle supports the maxim 'Let your profits run and cut losses quickly'.
Q: How is Support and Resistance determined?
A: For support, MarketScan analyzes the three most recent troughs in price. The closer (in price) that these troughs are to each other, then the stronger score the support is assigned. Troughs are defined as pivot lows (i.e., a low surrounded by two higher lows). A Peak is defined as a pivot high (i.e., a high surrounded by two lower highs).
Q: Explain how the Composite Score relates to the other scores?
A: Yes. This is called the Composite Score (or C-Score). The C-Score blends the other 5 scores into one composite score. It also ranges between 0 and 100. The candlestick pattern in combination with the confirming movement of the C Score ultimately provides MarketScan’s buy and short signals.
Q: Why do you specify stop/limit orders for your trades?
A: As mentioned, Reward to Risk consideration is very important. You do not want to give up too much of your reward potential due to sloppy trade execution. A very effective, yet underutilized way to ensure proper execution, is by using Stop-Limit orders. A Stop-Limit order defines the upper and lower boundaries for the price you are willing to accept. If you pay too much, you give up too much reward potential; too little and you take on too much risk by either chasing a loser or potentially getting stopped out too quickly. Prudent use of Stop-limit orders helps you avoid sloppy execution.
Q: How does Nison MarketScan exit a (simulated) trade?
A: When in an open trade, you must check (and adjust if required) the trailing Stop level each day. You can check the trailing Stop for a stock by logging on to MarketScan and checking your TradeTrack list. Trades that you wish to follow should be added to your TradeTrack list. An trailing Stop trails the price lows by a dynamically adjusted percentage. Two factors determine trailing stop placement: 1) Directional volatility. For example, the more volatility attributed to upward price moves, the tighter sell stops become. Likewise for downward price moves and buy stops. 2) The more indications of ‘stalling’ by a prevalence of long upper shadows, the tighter sell stops become. Likewise for long lower shadows and buy stops.
Q: Can I have trades auto-executed with my broker?
A: No. Before the market opens (either the evening or early morning before the bell), you’ll need to place your Stop-Limit entry order with your broker. After you have confirmed that the Stop-Limit order has executed, you then need to place your trailing Stop order. This trailing Stop order needs to be checked daily on the NMS site, and updated with your broker if it has changed.
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