So what is "Airelon's Challenge Chronicles"? You can find a description by clicking here.
I have a few tools, which, believe it or not, I have yet to reveal. Even after nearly four years of blogging.
Some of these tools I've hinted at, and a few folks have come to know about them. One of them I developed from two or three other tools. I call it an "S Swing" Point. Since there are a handful of folks that are aware of this tool, I figure it would only be fair to freely disseminate the specifics of this tool in today's blog entry ...
(Reprinted from my own "Airelon's Market Tactics of November 16, 2009")
As I have related many times, Larry Williams was the market educator who sort of “set my head on straight”. I always appreciated the fact that Larry always suggested we, his students, develop the ability to create our own technical tools. One way to do this? Is to take the bits and pieces of other technical tools and combine them with other ideas and theories.
I wish to now discuss what is probably one of my favorite tools. I call it a “S Swing Point”. I use it primarily as an entrance timing tool, or trigger, since I am a swing point, or “pivot” trader. So when I put into use, a “S Swing Point”, I'm using it as a pivot entrance. I wanted to talk about it's construction early on in the history of this newsletter, for my new subscribers.
Let's begin by talking theory. No, I'm not going to delve into mathematics too heavily. But let's just rationally and logically discuss what many of us are already aware of when it comes to trading, and market theory. We know that there are two aspects to a market, that all intelligent traders are concerned with. One is price. What price level can I obtain a particular security or derivative? From this, we have the basic concepts of support and resistance. The other aspect is that of time. What time will it be opportune to step in and buy a particular security and derivative?
There have been arguments for decades, as to which aspect of trading is more important. Time. Or Price? Back and forth. I personally am skewed towards the aspect of time.
But there are are many such arguments in this industry. Technical analysis versus fundamental analysis. Investing versus trading. I am the type of person who always looks for a “win win” scenario. As I explained last week with the “three sisters”, I am a trader. I'm also an investor. In other words, I don't trade exclusively. Nor do I invest exclusively. I see “trading versus investing” arguments as pointless. Why not do both, and recognize the strengths and weaknesses of each. The same is true with technical and fundamental analysis. I trade technically, and fundamentally. I look for “win win” scenarios.
So let's apply that to the argument of time versus price. What if we could develop a tool that looks for an area of price and time? This should in fact be the goal of every trader and investor.
One tool of Larry's that I've always enjoyed, is his 1.28 rule, which concerns itself with time. Let's talk about the 1.28 rule a bit, as it is the basis for my “S Swing Point”. At the same time, I hope to demonstrate this concept in action. That is, how to develop your own tools from the parts of other tools.
We all notice that the market swings between highs and lows. Pretty basic. The highest highs, and lowest lows of these market swings become known as “swing points” or “pivot points”. Myself, since I'm an old-school guy, I prefer the term “swing points”. At times, the market swings behave orderly. Let's take a look at December Corn [this is from 2009] for example on the Daily Chart as it appeared on Wednesday night …
Notice that the swing points come at seemingly equidistant points in time. Of course notice too, in price that at times, the market will hover near a support or resistance level, and hold. But support and resistance lines are never exact. It will pop a little bit below a support level, fool a bunch of traders with what is commonly referred to as a “squeeze” and then head higher. Neither do the swing points arrive in equidistant moments in time. The cycles are off, by just a small amount. The 1.28 rule attempts to quantify the “off” aspect of the timing of the
swing points.
Take for example the two low swing points on November the 2nd, and November the 6th on the following daily chart. Between these swing point lows, is a swing point high. Regardless, to find the next high using the 1.28 rule, take the number of days between the swing point lows, and multiply that number by 1.28. Thus, 4 * 1.28 = 5.12. You then count 5.12 days forward, from the swing point high on November the 4th.
And as we see this week [remembering this is a reprint from 2009], we got a reversal at the 1.28 rule that was most definitely 'tradeable'. In fact, if you note my Tweets last week [2009], as well as my free “Week in Review” podcast [2009], you'll note that this is a market that I just “creamed” (Sorry, couldn't resist).
But the 1.28 rule has it's drawbacks. It's not exact as it works best at causing you to look at a particular time period, but says nothing about price. And let's face it … even when considering the time aspect, the market simply cannot function off a basis of pure 1.28 swing points. Random news events arise, and the market enters periods of extreme volatility in which swing points, or pivot points are 'thrown to the wind' as it were.
I therefore decided to start reinforcing this concept of “time and price” with another tool I developed when one day, I was sort of fooling around with Fibonnaci Fans with one of my brokers platforms, from the swing points I was using for 1.28 construction. I began to notice that at certain times the 50% line of the Fibonnaci Fan that bisects the forward swing points would intersect with the 1.28 reversal day.
Simply bisect points b and c by 50%. These 50% bisections will point to a price level. And if you notice, this bisection will often point to a price level that is right past the support or resistance level.
This is why I tell people, that support and resistance are not an exact lines of price, simply because XYZ is at $10.00. This is why I refer to them 'zones' of support and resistance. If XYZ is at $10.00, it doesn't mean that the resistance is $10.00, and $10.01, that XYZ's resistance has been violated. In fact, over the years I noted thousands of examples that this bisection tool points to true areas of resistance or support. But the bisection tool is not to be used alone. Again, only when used in conjunction with the 1.28 rule.
I usually begin to use this tool after I have examined other filters. As I mentioned last week to better increase my edge I use as filters ...
* * *
Note: The above statements should not be construed as an investment or trading recommendation. Airelon's Investing and Trading Journal is a blog that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change.. Any trades or investments that I discuss within this blog are simply my own thoughts regarding my own investing and trading outlook. Remember that entering any market is an individual decision. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this blog; as larger accounts may require a different strategy as the ones presented here. This blog simply contains my trading and investing thoughts for the next week. I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. I personally only enter any market after watching and reading the tape and I trade using money management principles. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 14 years of experience in trading and investing in these markets. Airelon's Challenge Chronicles are demo accounts,with all of the inherent problems therein, which are used within this blog in an attempt to track the results of my own thought processes., and is run as a model. Traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this blog are believed to be public domain. Any charts that are displayed using the ThinkorSwim platform, and other pictures were obtained through Wikipedia's public domain policy. As a reminder, any trades discussed for "Airelon's Challenge Chronicles" would only be 'day trades' according to the parameters discussed for Airelon's Challenge Chronicles, at this stage of the game in order to escape the risk of over-leveraged gap opens in the commodity futures markets. As a 'trading sister' would have grown to the $30,000 level, I would have graduated the account into 'swing trading'. In addition, it is understood that readers have read my YouTube methodology series. It is also understood that the writer of this blog has repeatedly warned against the dangers of shadowing any other traders thoughts. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.
I have a few tools, which, believe it or not, I have yet to reveal. Even after nearly four years of blogging.
Some of these tools I've hinted at, and a few folks have come to know about them. One of them I developed from two or three other tools. I call it an "S Swing" Point. Since there are a handful of folks that are aware of this tool, I figure it would only be fair to freely disseminate the specifics of this tool in today's blog entry ...
(Reprinted from my own "Airelon's Market Tactics of November 16, 2009")
“The S Swing Point”
“The future is something which everyone reaches at the rate of sixty minutes an hour, whatever he does, whoever he is” - C. S. Lewis
“The future is something which everyone reaches at the rate of sixty minutes an hour, whatever he does, whoever he is” - C. S. Lewis
As I have related many times, Larry Williams was the market educator who sort of “set my head on straight”. I always appreciated the fact that Larry always suggested we, his students, develop the ability to create our own technical tools. One way to do this? Is to take the bits and pieces of other technical tools and combine them with other ideas and theories.
I wish to now discuss what is probably one of my favorite tools. I call it a “S Swing Point”. I use it primarily as an entrance timing tool, or trigger, since I am a swing point, or “pivot” trader. So when I put into use, a “S Swing Point”, I'm using it as a pivot entrance. I wanted to talk about it's construction early on in the history of this newsletter, for my new subscribers.
Let's begin by talking theory. No, I'm not going to delve into mathematics too heavily. But let's just rationally and logically discuss what many of us are already aware of when it comes to trading, and market theory. We know that there are two aspects to a market, that all intelligent traders are concerned with. One is price. What price level can I obtain a particular security or derivative? From this, we have the basic concepts of support and resistance. The other aspect is that of time. What time will it be opportune to step in and buy a particular security and derivative?
There have been arguments for decades, as to which aspect of trading is more important. Time. Or Price? Back and forth. I personally am skewed towards the aspect of time.
But there are are many such arguments in this industry. Technical analysis versus fundamental analysis. Investing versus trading. I am the type of person who always looks for a “win win” scenario. As I explained last week with the “three sisters”, I am a trader. I'm also an investor. In other words, I don't trade exclusively. Nor do I invest exclusively. I see “trading versus investing” arguments as pointless. Why not do both, and recognize the strengths and weaknesses of each. The same is true with technical and fundamental analysis. I trade technically, and fundamentally. I look for “win win” scenarios.
So let's apply that to the argument of time versus price. What if we could develop a tool that looks for an area of price and time? This should in fact be the goal of every trader and investor.
One tool of Larry's that I've always enjoyed, is his 1.28 rule, which concerns itself with time. Let's talk about the 1.28 rule a bit, as it is the basis for my “S Swing Point”. At the same time, I hope to demonstrate this concept in action. That is, how to develop your own tools from the parts of other tools.
We all notice that the market swings between highs and lows. Pretty basic. The highest highs, and lowest lows of these market swings become known as “swing points” or “pivot points”. Myself, since I'm an old-school guy, I prefer the term “swing points”. At times, the market swings behave orderly. Let's take a look at December Corn [this is from 2009] for example on the Daily Chart as it appeared on Wednesday night …
Notice that the swing points come at seemingly equidistant points in time. Of course notice too, in price that at times, the market will hover near a support or resistance level, and hold. But support and resistance lines are never exact. It will pop a little bit below a support level, fool a bunch of traders with what is commonly referred to as a “squeeze” and then head higher. Neither do the swing points arrive in equidistant moments in time. The cycles are off, by just a small amount. The 1.28 rule attempts to quantify the “off” aspect of the timing of the
swing points.
Take for example the two low swing points on November the 2nd, and November the 6th on the following daily chart. Between these swing point lows, is a swing point high. Regardless, to find the next high using the 1.28 rule, take the number of days between the swing point lows, and multiply that number by 1.28. Thus, 4 * 1.28 = 5.12. You then count 5.12 days forward, from the swing point high on November the 4th.
And as we see this week [remembering this is a reprint from 2009], we got a reversal at the 1.28 rule that was most definitely 'tradeable'. In fact, if you note my Tweets last week [2009], as well as my free “Week in Review” podcast [2009], you'll note that this is a market that I just “creamed” (Sorry, couldn't resist).
But the 1.28 rule has it's drawbacks. It's not exact as it works best at causing you to look at a particular time period, but says nothing about price. And let's face it … even when considering the time aspect, the market simply cannot function off a basis of pure 1.28 swing points. Random news events arise, and the market enters periods of extreme volatility in which swing points, or pivot points are 'thrown to the wind' as it were.
I therefore decided to start reinforcing this concept of “time and price” with another tool I developed when one day, I was sort of fooling around with Fibonnaci Fans with one of my brokers platforms, from the swing points I was using for 1.28 construction. I began to notice that at certain times the 50% line of the Fibonnaci Fan that bisects the forward swing points would intersect with the 1.28 reversal day.
Simply bisect points b and c by 50%. These 50% bisections will point to a price level. And if you notice, this bisection will often point to a price level that is right past the support or resistance level.
This is why I tell people, that support and resistance are not an exact lines of price, simply because XYZ is at $10.00. This is why I refer to them 'zones' of support and resistance. If XYZ is at $10.00, it doesn't mean that the resistance is $10.00, and $10.01, that XYZ's resistance has been violated. In fact, over the years I noted thousands of examples that this bisection tool points to true areas of resistance or support. But the bisection tool is not to be used alone. Again, only when used in conjunction with the 1.28 rule.
I usually begin to use this tool after I have examined other filters. As I mentioned last week to better increase my edge I use as filters ...
- Seasonality: Seasonal tendencies occur in the market, and I study both the strength, and dependability of annual, seasonal moves.
- Larger Trend and Market Cycles
- Commitment of Traders Report
* * *
Note: The above statements should not be construed as an investment or trading recommendation. Airelon's Investing and Trading Journal is a blog that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change.. Any trades or investments that I discuss within this blog are simply my own thoughts regarding my own investing and trading outlook. Remember that entering any market is an individual decision. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this blog; as larger accounts may require a different strategy as the ones presented here. This blog simply contains my trading and investing thoughts for the next week. I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. I personally only enter any market after watching and reading the tape and I trade using money management principles. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 14 years of experience in trading and investing in these markets. Airelon's Challenge Chronicles are demo accounts,with all of the inherent problems therein, which are used within this blog in an attempt to track the results of my own thought processes., and is run as a model. Traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this blog are believed to be public domain. Any charts that are displayed using the ThinkorSwim platform, and other pictures were obtained through Wikipedia's public domain policy. As a reminder, any trades discussed for "Airelon's Challenge Chronicles" would only be 'day trades' according to the parameters discussed for Airelon's Challenge Chronicles, at this stage of the game in order to escape the risk of over-leveraged gap opens in the commodity futures markets. As a 'trading sister' would have grown to the $30,000 level, I would have graduated the account into 'swing trading'. In addition, it is understood that readers have read my YouTube methodology series. It is also understood that the writer of this blog has repeatedly warned against the dangers of shadowing any other traders thoughts. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.
8 comments:
Oh wow, nice ones. :)
-- Chas
sorta uncommon for you dan to share technical thoughts on charts but this is one of the best text blogs u've given us yet
leest i think so
Hi Dan,
So I've been looking at your entry/exit criteria. Seems what you're looking for to enter is a period of congestion, and then a break out of that congestion with a good tape. Do you care what the t&s is like when it's in the congestion zone, or is it more about what is happening when as it breaks out of the congestion? Seems to me it would be more important to watch t&s as price breaks out.
I also notice you're very aggressive on exits, taking that $50 or so and getting out as soon as you start to see t&s show some strength against your position or the b/a spread widen out.
I've been watching t&s for a while, and trying to tie that to what's happening on the chart but am having a tough time making any sense of it. If you don't mind, could you be more specific about when exactly you took a trade or passed on a trade? For example, last Tue you had a losing trade in /DX. If you posted when you took the trade and briefly why you took the actions you did, then I could go back and replay the data from that time period and try to see what you were seeing. Even if you pass on the trade, a few sentences saying you were looking to possibly enter xyz on a break above/below xyz level but didn't like the tape would be great. Since it's a pain to record the trades, this could be a good way to help us get the hang of your thought process and for me to hopefully start making some sense of t&s.
Even if you don't get this stuff up on the blog until the next day, that's still great. Like I said I can just go back and replay that time period. This is the next best thing to being able to look over your shoulder as things play out.
PS - Do you mainly look for the swing points on daily timeframes? Or will you do it on intraday 10-minute charts as well?
Thanks!
ok, this is embarrassing... I see you put time stamps on the /DX posts from Tuesday. Don't know how I missed those first time around.
Dave,
Not really sure why you'd be a bit embarrassed mate ... your questions seemed genuine; and the twitter feed is a bit separated from all of this; so I understand it may have taken a bit of time to find it.
I've always been a little jumpy on my exits. Always have been, and I think to some extent ... I always will be. Can't recall sitting here, but I think I may have talked about that a bit in my methodology series.
Basically ... what I'm looking for? Are those explosive moves like what happened in Cocoa. That's what I'm on the lookout for.
As far as the tape, and your questions? I would have to say: Yes.
:)
I look at the tape during both periods. If I'm watching it during congestion? I try to develop a 'feel' for the market, and how the tussle itself is evolving over the course of 30 minutes, perhaps 40, perhaps longer. At the breakout? I'm watching to see ... well ... sort of how the losing crowd 'reacts', time & sales, etc. It's akin to listening to the crowd, and getting a feel for the 'floor' as it were.
As far as time frames? Yes ... I love looking at the daily for the 'pivot', but I also enjoy the one hour chart for that as well. The 10 minute is strictly entrance / exit.
Hope this helps,
Regards,
Dan
Thanks Dan, appreciate this.
You're more than welcome Jim ...
Dan
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