back start next


[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [ 13 ] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52]


13

,/ ,«,,;;„„ ,0"S";01" C="<™ ™ 1 !&££ 1££3!!£ 113

...... , Sell ( ...... 16

........ ... - . I u..i-, : ..

Sell

......Bell- * -.»-*..*• . .......

Sen* ,,,¹1

S !: - -8 Sell.....,

in it/- -

i*.......................t

1 won * I HID uuu

1:

112.000 110 00t •108.00C 106.00( 104.O0C -102 -100.001 -98.000

Figure 6.8 Although the dual oscillator routine significantly reduces the number of trades and increases the accuracy ofthetrades taken in the direction of the major trend, the annoyiag proclivity of takiag trades against the trend persists when oscillators are used as the only trade-generation strategy.

Chart created with TradeStation® 20001 by Omega Research, Inc.

As you will notice, even though we have incorporated two diverse indicator settings into our system, the system still persistently attempts to initiate short positions in a strongly rallying market. For easy comparison to the single stochastic response, the chart used previously for this purpose is duplicated as Figure 6.9.

Comparing the two charts it becomes evident that even though we are still generating unprofitable settings in a trending market we have been successful in decreasing the number of total signals generated. More importantly, the addition of the second indicator setting did not eliminate the excellent buy signal given at the conclusion of the 1:00 p.m. correction. This buy is the type of trade we are trying to capture with our final system. Any additional parameter additions along the way that would eliminate this signal could be counterproductive to the total effort. In this case we have eliminated several entries, thereby decreasing the number of factors that must be considered when actually trading our developing strategy. Our dual settings as applied here have done so without affecting signal placement accuracy.

.............................. Sen - * ..,!"" t

........•;: -1,-12 ......- . .............) .I"

.............. ........-7-0910 Sell-Sell ! «

...Sell , .» ......... ...............* jM................... .........

......................t seit......--

........2 seiiSf. , "> wi-"1" . Tf"*

.....;....-i-sen » .......; l- -------;

: Sell t i;.,!-*1".............................................. ...........

(*., *™* Classic Stochastic Signals ~J Uptrending Day .....;......................

116000 114.000 112.000 -110.000 1CS000 106.000 -104.000 -102.000 -100.000 -08.000

ilocfc3S,ic-SI0W(Hi0ll.L.OW.CIOse.14.20.80) 88.3, 73.53 8 ]0 0.

-90.00 BO.OO -30-00

p- -:--:-f*&J \J

1 1 q-M q-T2 W " l0:32 t1T)7 :32 "12:02 12.32 l:02 1:32- -i3L-

Figure 6.9 The chartshowingtrade generation from a single parameter oscillator strategy is reprinted for comparison.

Chart created with TradeStation® 2000i by Omega Research, Inc.

Figure 6.10 shows our same dual stochastic system applied to our familiar chart used to illustrate a mild downtrend.

The dual setting approach in this instance has provided some improvement in trading this chart with a stochastic approach. Note that even though we are still consistently generating trades against the dominant trend, many of the initial long positions could have been exited with a modest profit to show for our efforts. This is due to the stochastic combinations relatively early recognition of the exhaustion phase of the sharp drops that make up the first third of the chart. In several cases the system is able to get in the market ahead of the corrective rallies that follow these sudden declines. Although this technique may have been profitable for those willing to enter multiple times for small profits, it is still a dangerous approach as we are trading against the major trend of the day. Note the accuracy of this method in trading with the trend as it isolates the nearly perfect entry point for the major decline that comprises the final half of the chart. We will use this chart again later to explain the use of support and resistance as an entry tool and to demonstrate the use of the Directional Day Filter as an aid in trading in the direction of the dominant trend.



MULTIPLE INDICATOR SENSITIVITY SETTINGS

:MVTL43T2min 10/06/2000 C=98.825 20.000 -1680* 0=116.750 H-119.750 L=111.563 V=l 865100 RealTvmePivoldO 2)

fi,.,lo!ilatif»ni fh.Ht (CMVFI C»i

e!v V , rlll ..........1-,, , ........

7 TV" ,........

............. . t.... .........I......... ........ euy» : * 1

............:- 4 !......... ................:............:................... ...........

(as1D(70.l) 61.60 30.00 70.00 Fast D 7 Bar(90.0) 63.17 10.00 90.00

-1D5.00C -104 -103 -102.000 -101.000 -100 -99.000 98.000 •97.000

90.00

Figure 6.10 although a number of the longtradesentered againstthetrend could have been exited for a small profit, the oscillator system once again shows its usefulness by identifyiag the exhausted correction and allowing entry in the direction of the major trend. chart created with TradeStation® 20001 by omega research,inc.

[1 TiadeStalion Chart - fTWO i2 Technologies Inc LAST J min

ITWO LAST-1 min 10/27/2000 C=167.250 -6.750 -3.88« 0=170.563; H=173.125 L=166.625 V=2692100

"" -12 - - Sell. Ben Sell

H- Sell [.............: sell.....• Self-4-:..........• .........: --------1 j.....••................................:........ .....j......

.......... ..Ju........j...........I............jew......;..........\....... :

-171.000 189 000 -167.000 165.000 1 63.000 -161.000 -159.COO

PctR Fast(50.95,1) 45.45 5.00 95.00 "~ 1 !--*~-1-!-1---:-

-90.00 -80.00

30.00

PctRFast(75.80.1) 45.45:20.00 80.00 ~

90.00 60.00 30.00

w V

9:21 9:46 10:11 10:36 11:01 1126 11-51

12:16 12:41 4:06 1:31 4:68 2:21 2:48

Figure 6.11 csi„g a 50-bar Percent R for the fast settiag and a 75-bar

Percent R for the fast average resulted in the signals shown here.thetwo plots of the oscillator are printed separately to illustrate their interactions.

CHAPTER REVIEW

The same tendencies are also the case for RSI and Percent R. Figure 6.11 shows dual settings of 50 and 75 used with Percent R on our sideways example day.

CHAPTER REVIEW

1. Faster settings of oscillator indicators generate .a greater number of signals, many of which are issued prior to major market turns.

2. Slower settings, while perhaps more accurate, tend to be a bit later than desired.

3. Dual settings of most oscillators, while improving the timing of trade entries, still persist in selling into rallies and buying into downtrends.



MARKET-DEFINED SUPPORT AND RESISTANCE CATEGORIES

While there are several-specific support and resistance chart formations, in this chapter we will specifically discuss Category 1, 2, and 3 support and resistance as they relate to the placement of both entry and exit stops.

IMPORTANCE

Although we will deal with the use of support and resistance points in much greater detail later in this book, lets take a quick look at why it is important to understand this basic concept of chart pattern analysis. Briefly, these points are vitally important to our calculation and placement of buy and sell stops. Later we will detail the specific types of orders that we will use to both enter and exit the markets. For now, understand that the support and resistance points discussed here are used to generate exact entry and exit prices. Also, in selected instances, these points will be used to place trailing stops for exiting our trades.

The market itself creates support and resistance points by its own action. Therefore, when these points are violated, the market itself is



[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [ 13 ] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52]