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First of all, I would like to thank Chuck441 for steering me to this method. I forget the stock right now but it was a video presentation about the use of so-called Pincher charts for predicting a share price rise.

I believe this is a technique used by day traders. I do a google search of the term and only found about 10 or so references so it is not a widely used technique and it is not very well explained.

The technique uses 3 indicators I will use snippets from the excellent StockCharts.com, chart school pages

1. Relative Strength Index (RSI)

2. Percentage Price Oscillator (PPO)

3. Wilder's DMI (ADX)

I looked at these indicators individually but as a single indicator I could not find much correlation between indicator values and buy/sell signals.

I don't think that indicators mean much individually. However in combination it may be another story.

Here is a sharpchart set up to evaluate a Pincher

V - SharpCharts from StockCharts.com

You can see the "pincher" forming in the bottom 2 indicator charts.

Where is the important point?

In order for a "pincher" to be valid...

The RSI must be less than 30%

and

The PPO must be -10 or less

and

The ADX must be greater than 40

This does not happen very often as it turns out if you are looking at stocks in the long term....daytrading may be a different story.

As you can see in my above example using VISA, the pincher is forming but does not meet the criteria yet....so the conclusion is that the bottom for this stock is still in the future.

To test this concept I went back to another time of stock collapse...THE COLLAPSE OF THE DOT.COM Bubble

It seems to work!!! Here are 2 examples from that era...one is CISCO (Hi-tech) and the other is General Motors (Manufacturing) look at these charts that I have reproduced.

Cisco



GM



These are just 2 of many charts that I am looking at. There seem to be few false positives. Some seem to be short lived as can be seen in the Cisco example but there were gains of about 70+% before they fell and eventually on the third instance we hit the mother lode.

In all cases I looked at so far it seems to predict the bottom within about 15% which is not bad.

I think this concept has merit. By looking at similar historical data as to what we are going through today, we may be able to fine tune it a bit.

Any comments are welcome.

I scan for stocks using the "pincher" method from time to time. Basically you have the concept down and its something I use to give me a "early warning" for possible bottoms or new uptrends.

If you use stockcharts.com scan engine then try this:

[type = stock] and [country = us] and [daily sma(20,daily volume) > 200,000] and [PPO Line(12,26,9) < -10.0] and [ADX Line(14) > 30.0] and [Close < 10.0] and [RSI(6) > 30.0] and [RSI(2) > 40.0] and [Volume > 200,000] and [RSI(2) > RSI(5)] and [RSI(14) > 28.0] and [CMF(20) > -0.3]

Its not the "pincher" scan 100% but its pretty close.

SA

Naamplao Thanks for sharing the charts. I have had GM on watch for a while now. I believe the chart that you were refering to may have been on XSNX by claytrader.

I am not so sure about GM right now...the chart I used here is 4-5 years old and I use it to show that "pinchers" seem to work...actually I find that they work almost every time which is rare in TA of a chart.

They seem to be relatively rare and happen mostly when a stock has had a violent down turn (day trading excepted perhaps). Looking at most stocks I deal with I see pinchers forming in almost all....but not completed so there are hard times ahead...but at least one can now have a means to locate a turnaround....it may not be the final bottom as shown in the chart for Cisco in the dot.com bubble burst but you would have turned nice coin if you followed it...sold and rebought at the next occurance.

Yes it was the XSNX chart by Claytrader that put me onto this...thanks again for the direction to it. I believe the site was for day traders...not for long term people like myself...but that is ok...the principles hold Long term as well

the pincher chart for this stock is here

XSNX - SharpCharts from StockCharts.com

One thing I notice is that this stock has just entered this zone .... the RSI is barely 30%, the PPO is just below -10 and the ADX is just above 40

This means to me that the stock is ripe for the turn around....but is it the bottom?

Here is an example of what I mean...this is a steel stock that I own Gerdau Ameristeel Corp (GNA.TO)

http://stockcharts.com/h-sc/ui?s=GNA...d=p39421750417

Note here that the stock price has been in "pincher territory" since the beginning of October. But the stock has fallen like a stone lately and the pincher is getting more and more defined. So catching it early does not find the bottom. I think the ADX and PPO must reverse directions first before it becomes bullish.

I am going to watch these and look for the turnaround for the PPO and ADX while still staying with an RSI less than 30...then I think it will be real.

Anyway it gives me something interesting to check out now. I like this combination of indicators a lot.

I realize the charts were outdated but the examples were great.

IMO charts do not matter at this time. If you buy or sell you are betting on what the government does next and how global markets respond. Take your money to the casino or dog races and make a solid investment.

Thats some funny stuff there woofer, But i must admit that the bail out reaction certainly didn't help us the past several days.

Thanks for the guide! Seems very interesting and your historical evidence does back it up. Some questions:

1) How would you apply this for say longer term trading like between 2-12 months?

2) Would the reverse criteria predict a pincher in the opposite direction?

Actually I have to back off my initial excitement of discovering this tool. I don't think pinchers necessarily finds a bottom. However they indicate the approach of a bottom as this chart of GM shows

GM - SharpCharts from StockCharts.com

There is only one pincher in this chart and that is in mid-July. There was a nice bounce of 50+% and for 2 months afterward it seemed that a decline of over a year had stopped....but it has since fallen again. Showing me that normal charting practises apply after a pincher rise turns back.

If you look at the CISCO chart in my original post here again, you will see a series of pinchers getting lower and slightly lower until the bottom is actually found and it rises for real.

I think Pinchers are good for a 20+% jump in price, they hint that a bottom is near...but beyond that I don't know anything that predicts a long term bull run.


I never thought of that...good question...what parameters would we use? The same ones but a mirror image???

Well a RSI of >70 seems obvious....looking at the chart for GM again it seems that the ADX is also > 40 in these instances too...interesting. The PPO seems to be above +5 at these times

We are not talking about small falls here.....rather large ones.

RSI > 70
PPO > 5
ADX > 40

RNNM - SharpCharts from StockCharts.com

Look at this example for Ron Motors RNNM. The stock ramped up quickly on May 30...the RSI, PPO and ADX rise as well...When the price fell the RSI dropped but the ADX and PPO kept rising...the price rebounded on June 2... RSI rose again to over 70% and PPO/ADX continued to rise...price fell again and so did the RSI but the ADX/PPO continued to stay high.....then on June 9 all three indicators started to fall along with the share price and the price fell hard losing 50% of its value.

Hhhhhmmmmmmmmmmm....could you be onto something??? or is this a fluke.

It will take more study....Interesting.

You are not half as obnoxious as your name implies Come over to my Back Bacon and a 2-4 Lounge and grab a beer and conversation sometime

Very good questions.

__________________
I am not a stockbroker. I retired four years ago and learned charting. The opinions expressed in my posts are my own. Do your own DD and accept or reject my comments as you please.

Thanks for the examples and that PM on AAPL seemed like a better example than RNNM.

As for adding something else to your pincher critera. I found that the Williams %R seems to be a really good indicator for when the RSI will go >70 or <30. This way one should be able to have more time to analyze the stock.

Haha and my name, I used to be a very obnoxious kid back many many years ago and I just stuck with it. And I'll def. stop by your Back Bacon sometime!