This section contains charts for your practice in finding AC buys and sells. Each chart is followed by answer pages that show all the AC signals. Try your hand at demonstrating your understanding of the AC signals by marking the ones you see on the practice page and then checking the answer pages. Figure 6-23 is for your practice in locating all the AC buy and sell signals.
We continue to strongly suggest that you do not proceed further with these signals until you really understand and can readily locate all the AC buy and sell signals without hesitation. After you have finished practicing on Figurs 6-23, go to other charts and practice locating AC buy and sell signals on them. Only after you have accomplished and practiced the suggestions above should you move on to Chapter Seven, "Trading in the Zones.n
As shown in Figure 6—24, there are nine AC signals in Figure 6-23:
1. This is an AC sell. The signal was created on the third down bar after an up peak. The signal is hit on the following bar.
2. This is an AC sell. The signal was created on the second down bar after an up peak. The signal was never hit because the AC turned up on the next day, which canceled the sell signal. You cannot have a sell signal with a current green bar on the AO histogram.
3. This is an AC buy. The signal was actually created two days before the bar marked. We continued to move the buy stop down until the buy stop was hit, because the AC continued up. This is a good example of a blue light special.
4. This is an AC sell. The signal was created on the third down bar after an up peak. The signal is hit on the following bar.
5 This is an AC buy. The signal was created on the third up bar after the down peak. The signal is hit on the following day.
6. This is an AC sell. This signal was created on the third down bar after the up peak. The signal was canceled on the following day because the AC turned up.
7. This is an AC buy. The signal was created on the second up bar after the down peak. This signal was canceled on the following day because the AC turned down.
8. This is an AC sell. This signal was created on the third down bar after the up peak. The signal was hit on the following day.
9. This is an AC buy. The signal was created on the third up bar after the down peak. The signal is hit on the following day.
Figure 6-25 is another practice chart for finding AC buy and sell signals. At this point, we are not taking into account the Alligator. Our purpose here is to be able to locate all the AC signals quickly and easily. Check your answers against Figure 6-26. Figure 6-27 is a chart of Sears stock. See if you can find the valid buy and/or sell signals, taking into account the Alligator and the position of the AC histogram. The answers to the practice chart (Figure 6- 27) are listed below. How many of the signals indicated in Figure 6-28 did you find? The Sears chart takes into account everything you have learned about using the Alligator and the first breakout fractal. In the first box on the left is an AC buy signal (two higher highs on the histogram after a base) that was triggered on the next price bar. The second box from the left is an AC sell signal (a high in the histogram followed by three lower bars; it required three because the second one was still above the zero line). It also was triggered on the very next price bar. The third box from the left is an AC buy signal that only required a low followed by two higher highs because the second higher high was above the zero line.
The box on the far right was created by a histogram low followed by two higher highs. Like the previous signal, it only needed two higher highs because the second one was above the zero line. However, notice that the signal was not triggered by the next price bar. The next price bar (the one that is inside the box) had a lower high, and the AC histogram continued up on the following bar. This created a blue light special; the market was allowing traders to buy the stock at a lower price than the signal. These are often the best trade locations. It is very important to note here that all AC signals were not triggered. Remember that our first signal taken outside the Alligator's mouth is always a fractal. After that first fractal is triggered, we tak_e any and all signals in that direction. It i~ also important to note that if an AC signal is created and the AC histogram changes direction before the price bar is triggered, that nullifies the signal and we do not take it. Another quick check is: you cannot have an AC buy signal when the AC histogram bar is red, and you cannot have an AC sell signal when the AC
histogram bar is green. The AC signal is our most sensitive indicator because it changes before the momentum, and the momentum changes before the price.