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Trading By Tlie Boole - Part III
There are others that trade successfully using cycles, but I suspect that they might trade even more successfully v\/ithout them.
I never know quite what to do when the cycle low is early or late....or is it the market that is early or late?
If its the market that is early or late, then what good is the use of cycles?
If its the cycle thats early or late, then how reliable are cycles anyhow? If I were to use cycles I would use them only as a secondary filter to my primary entry techniques as Ive mentioned concerning 1-2-3 and Ross hook formations.
I must have been a real loony when I started my work on lunar cycles. 1 tried very hard in this area. I was so sure I really had something this time. I spent over two years, working myself into a frenzy with lunar cycles. They appeared overwhelmingly better than regular cycles. In some instances, the correlations proved to be 99% accurate within 3 days, 95% accurate within 2 days, and 92% accurate within 1 day of the lunar dates.
I tried full moons, and new moons, I tried dates when the moon ran high and date when the moon ran low. I tried the moon at its ascending node and at its descending node, and at apogee and perigee, and even when it was at the equator.
! then combined the aspects of the moon with Fibonacci ratios, and with oscillators.
However, as I write this there has appeared a new kind of chump in the markets. These are the folks that use the Delta theory of the markets. What a picnic the professional traders will have picking their pockets. All I have to do is know when they expect the markets to turn. If enough of them expect it to happen it will start to happen. I intend to be there to help them turn the market.
I rank seasonal trading right along with fundamental trading. It takes a lot of research and compilation. Also it is not the most reliable as far as timing is concerned. Seasons just refuse to come on time. There is no doubt that there are seasonal tendencies in futures. But these tendencies change periodically and 1 dont care to lose a few thousand dollars while I find out that this has happened. If you use seasonals, then subscribe to a service that can keep track of them for you. Watch out for droughts, greenhouse effects, and El Ninos. They can really mess up seasonal trading.
However I strongly feel that as a secondary filter to my primary entry techniques, seasonals may have value. They can be an excellent way to trade spreads. There are some very high percentage seasonal spreads that can be consistently traded with success. This is because certain people expect certain things to happen seasonally. I am able to take advantage of their expectations.
Trading By The Book - Part lit CHAPTER 4 Oscillators
t suppose that everyone these days has to have an oscillator. They are really in vogue. I have used a couple - one for the weekly charts and one for the daily charts. They are easy to use, but overall 1 do my trading without them, i present them in this book for my readers to use - especially those who simply will not or cannot learn to read a chart.
Before I actually show examples of the weekly oscillator, 1 want to point out the problems with using oscillators. It is best to take all things in balance. Oscillators are far from perfect. In and of themselves they do not constitute workable trading systems or methods.
Throughout the various sections of the Manual, I have tried to show the importance of paying attention to detail. Whiie oscillators have a detail of their own to pay attention to, they tend to obscure what is going on in the price action by smoothing the very detail that makes price charts meaningful. This may not be good. The clues available on a graphic representation of prices may be better than the clues available via an oscillator.
One exception to the detail shown by prices would, of course, be divergence, which is not readily seen on a price chart and is more easily seen on the oscillator. Another exception is that of momentum, sentiment, or, as I like to think of it, bullish or bearish pressure.
An oscillator is artificial. It is a figment of the imagination. It does not depict what is really going on with prices. The amount of detail it wiil show is entirely dependent upon the selection of an arbitrary number of days, usually based upon a real or imagined cycle. Since cycles are unreliable, the number of days used in the oscillator reflect the same unreliability. Smoothing further reduces the detail that an oscillator will show.
There is no perfect number of days or weeks upon which to base all oscilfators, or even one oscillator in all markets.
Oscillators result in trying to tell the market what it has to do instead of accepting the reality of what the market is actually doing. With that in mind, it is good to realize that an oscillator has value only to the extent that it can show what is really happening in the market.
One thing that may possibly be more easily seen on an oscillator is overbought/oversold. However, i find that / and \/\ tell me about the same thing and are just as easily seen, once one knows what to look for. I do look for ob/os on my daily chart oscillator.
But just because an oscillator shows ob/os doesnt mean that it is really so. i woutd not trade based upon that factor alone.
Oscillators are atrocious in sideways markets, giving too many false signals that an seemingly not filterable by any other method.
The ability to predict which price might cause the oscillator to become ob/os is useful. However, it is often no more difficult to predict that if tomorrows high is in an uptrend, and is tower than todays high, then I may be looking at an overbought condition. And if tomorrows low is higher than todays low in a downtrend, t may be looking at an oversold condition.
In fact, looking at the high and low may be a lot more accurate indication of ob/os than an oscillator that looks at the close or open.
t have found the oscillator described below to be somewhat useful in trading the markets. It is used on the weekly chart. I wilt explain my daily oscillator in the next part of the manual, where I show how one might trade using the two oscillators - the weekly and the daily, together.
What is the weekly chart oscillator? What does it tell me? How can I use it?
The oscillator represents a plot of the difference between two simple moving averages. I use a 10 bar moving average and a 20 bar moving average, t then subtract the 20 bar moving average from the 10 bar moving average and smooth that difference by a factor of 10. The result is then plotted as numbers above and below a zero line.
Following is an example of what 1 mean:
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