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51

Trading By Ttie Boot< - Part IV CHAPTER 2

A Refinement

To this point, Ive shown the basic concept. Now I will show a refinement that results in additional trading opportunities. This refinement requires repeated study in order to fully grasp what Im doing.

The refinement is not necessary to the basic method. It not only increases the number of times i win, but also the number of times I lose. However, it increases the dollars won more than it increases the dollars tost. To win with this refinement, t have to be quictc. Many times the trade is good only for a day or two.

Here are the rules for the refinement:

If the weekly segment is pointing up, and the daity oscillator has exited overbought territory and still pointing down, or is flat, i start placing day orders to buy just above the previous days high. I simultaneously place a protective sell stop 1 tick below yesterdays tow. In this case I have not waited for a full correction of the daily oscillator all the way down to oversold. Prices may not have fully corrected.

If the weekly segment turns up while the daity oscillator is in oversold territory and is pointing up, or is coming out of the oversold area, I place a buy stop order just above the previous days high. I simultaneously place a protective sell stop 1 tick below yesterdays low. 1 have not waited for the daily oscillator to correct to oversold and then come back out. Prices may not have fully corrected.

If the weekly segment turns up white the daity oscillator is in oversold territory and still pointing down, or is flat, I start placing day orders to buy just above the previous days high. I simultaneously place a protective sell stop 1 tick below yesterdays low. Again, I have not waited for a full correction of the daily oscillator to oversold and then back out of oversold. Prices may not have fully corrected.

If the weekly segment is pointing up, and the daity oscillator has previously entered and then exited the oversold area, but is stilt short of being in the overbought area, 1 place a buy stop order just above the previous days high. I simultaneously place a protective sett stop 1 tick below yesterdays tow. This may take place without a prior correction of prices other than that they have moved sideways.

The totality of these four refinements is that I wili start placing orders to buy a breakout of todays high as long as, or as soon as, the weekly oscillator is pointing up, even though prices have not fully corrected yet as seen on the chart, or as shown by the daily oscillator.

Trading By The Boole - Part IV Of course, I do just the opposite for shorting the market.

With the plain vanilla version of this method, when I want to go long, 1 wait for a full correction of the oscillator into oversold and then back out again before entering buy orders. As the daily oscillator approaches oversold, that is my signal to get ready to buy. With the refinement, I start trying to buy a breakout of the high as soon as the daily oscillator has corrected from overbought.

With the plain vanilla version of this method, when 1 want to go short, I wait for a full correction of the oscillator into overbought and then back out again before entering sell orders. As the daily oscillator approaches overbought, that is my signal to get ready to seil. With the refinement, I start trying to sell a breakout of the low as soon as the daily oscillator has corrected from oversold.

There is no absolute rule as to when everything seems right to do this, or as to just where the daily oscillator might be when I start entering the orders. I start placing orders as soon as I feel that the market will start correcting, and that it is safe for my account. Part of my decision will be according to how long the major trend has been going, how steep has been its ascent or descent, whether or not the dally oscillator is in overbought or oversold, and how long it has been there.

The refinement is as much a judgment call as you care to make it. The main thing is that you are trying to trade in the direction of the major trend. You can build your own set of rules around it based upon your own comfort level and experience.

The refinement will yield a great many more trades. Without the refinement many good moves will be missed.

Some have asked, "Will I ever see a weekly oscillator pointing up at the same time the daily oscillator has corrected and has also turned up?" The answer is yes, but it may happen only a few times in a year for any market - maybe not at all for some. However, when it does happen. It means that the trend is relatively longer term for that particular market and the vast majority of your trades wili be successful. If that Is your comfort level, then I suggest you trade it that way.

4430 4322

1.215 41B7

4 0

3832

Figure 5 Ive shown approximately the entire year of Gold prices. Heres how the oscillator segment looked at the week endings:

1230 0109 0123 0220 0306 0313 0326 0410 0424 0508 0515 0522 0612 0710 0918 1002 1023

0106 / 0120 -0217 \ 0303 -0310 / 0323 -0407 \ 0421 -0505 \ 0512 -0519 \ 0609 -0707 / 0915 \ 0929 / 1020 -1201 /

The status of the weekly oscillator, up /, down \, or fiat -, is shown as of the week ending e.g., 0106. Sometime during the range of dates shown, the weekly oscillator turned to that position.

UsuaNy a largejTiagnltyde d move, agap, or four successive "higher or loweTdFiiycroses, with at least one of the days beirig a larger than normal move, will cause the weekly oscillator to change direction. Sharp turns in the market will also cause the weekly oscillator to change its direction.

From here on 1 will state what the weekly oscillator segment looked like on the day the trade was entered or exited as is appropriate,

From 1230-0106, the weekly oscillator is up. No trades are considered. I have no other trades on because I dont like to trade during the last two weeks of December or the first week in January. Very often I dont trade at all in December unless I already have a trade working. The markets are just too thin to suit me.

The weekly oscillator is flat from 0109 to 0126. At that time I get a signal from the weekly oscillator to go short, but the daily oscillator is already oversold, 1 do not enter any trade, but Im alert to the fact that the daily oscillator is oversold.

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