/\ / \

However, because we are not dealing with an exact science, sometimes you have to realize that a swing will look like this:

/\

/ \/\/\/\ / \

In that event, you measure from the first low to the highest high, and then to the lowest low of the sideways movement in order to calculate the projection. If its not possible to get a swing with both legs within the trading range, pass up the trade on the basis of the envelope.

Q. You said that congestion could always be expected at Fibonacci retracement levels, but never really explained it when you told us about Fibonacci.

A. Congestion can always be anticipated to occur at a .382, .50, and .618 retracement of the latest swing. Observe market swings for awhile, on one minute charts to weekly and monthly charts, and you wil! see the following types of congestions at those levels:

/ \/\/\ / .382 retracement

/ \

/ \/\/\ / .50 retracement

/\ / \ / \ / \/\/\

/ .618 retracement

Which way the market will go after such a retracement is not known. Will it break out from a .382 and go down to a .50 or .618? Or will it break out to a Fibonacci projection even higher than the recent high? No one knows for sure. However, in the manual where I show how to trade from a ledge, you can see how I take advantage of this situation.

Trading By The Boole - Part VI

Q. How exactly do you define a 1,2,3 low or a 1,11,Ml high?

A. A 1,2,3 low is any low that is the result of a 3 leg swing, where the second leg of the swing fails to come as equal to or lower than the low of the first (eg (#1 point):

2 /\ / \/ \/ 3 1

It is at or before the break-out of the number two point that I want to enter the trade.

A 1,11,111 high Is the opposite. It is a three legged swing where the number III leg fails to equal or exceed the most recent high {#1 point):

/\ III \ /\ \/ II

The number two point does not have to be a "significant" high or low, any high or low will do even if Its in the middle of a trending market.

Q. Sometimes I get confused about how one point can be both a #2 point and a number I point?

A. Here is how it works and, as you can see, it gives both a buy and sell opportunity. It is this formation that is the dilemma of the Fibonacci purist:

/\ III (potential if it turns down tomorrow) / \ / / \/ \/ 3

I II

In this situation you would buy the break-out of the #2 point, but you also have the capability of selling the break-out of the #11 point should the market turn and go down. This formation presents a dilemma to the Fibonacci purist because he doesnt know if the number II point is a retracement of the swing from 1 to 2 teg, or if the potential III point is a retracement of the 2 to 3 teg.

Q. Instead of using an offset moving average, couldnt I accomplish the same thing by using a longer term non-offset moving average?

Trading By Tlie Booi< - Part VI

A. No. Its not the sanne thing. The minute you lengthen a non-offset moving average sufficiently to approximate an offset moving average, you will have smoothed the fluctuations (visible in the offset moving average) to the point that they will disappear. Notice that I said "approximate," At best there will be an approximation. Usually it will cause the moving average to lose all meaning for the time frame you are trading in.

Q. How can anything be so simple as the Ross Hook and actually work?

A. The Charts Ive shown ought to be sufficient to answer that question. I once took an entire year and did nothing but trade the Ross Hook. Every time a hook formed I placed an order in the market in the direction of the hook, I made a bundle that year until it got boring. I had one of the highest winning percentages of my trading career. All you have to do is to find a market that is trending and ride the trend via the breakouts of the hook. In Part IV, I show how to identify an established trend. Its really easy to do when you know what to look for.

Q. How can I stay with the trend longer than trading it the way you do? It seems as if you are in and out an awful lot.

A. Its true that Im in and out a lot. There are a couple of reasons for that. One is my experience as a day trader. I day traded the markets for some time before my illness. That experience gave me a hair trigger approach to trading.

Another reason is comfort level, tf you noticed, when I traded the Bonds, I grabbed quick 10 point profits. My comfort level will not allow me to stay in the Bonds for much more than that. So I do the closest thing to scalping the Bonds that Im able to do. I trade Coffee and Ledges the same way.

I fully believe that if I can get one-half of a market move, Ive done well. Most of the time that is what I get.

If you want to stay with the trend longer, heres what you can do:

Use a 7 bar offset by 5 moving average, or even a 25 bar offset by 5 moving average to "contain" the trend. Stay with the trade until there is penetration of the moving average. As the angle of the trade steepens, switch from a 25 bar offset 5 to a 7 bar offset 5, or from a 7 bar offset 5 to a 3 bar offset 3.

Curve fit a moving average to the angle of the trend and stay with it until there is penetration. This is regularly done by mutual fund and stock traders. They hang in there until there is penetration of a 200 day moving average.

Use the charts for the next magnitude of time. If you are trading daily charts, then make your projections from the weekly charts. Draw a trend line on the weekly chart and stay with the trade until there is penetration, or use a moving average on the weekly chart, or even curve fit a moving average to the weekly chart.

Another reason that Im in and out a lot is my philosophy of trading a $5,000 account. I trade each contract as though I had $5,000 behind it. When you trade a small account, you cannot afford a large amount of risk. Most of my readers, in fact most traders, trade accounts that are around $10,000. That means they cannot afford to trade long-term.