- Slides: 28
MAgic. Trx Math plus Markets equals Magic
Preface/Intro This method can be summed up in: • Buy Low, Sell High. • The trend is your friend until the end. • You can’t go broke taking profits. We have all heard these sayings. The method of trading described herein is an effort to put mathematical and procedural logic to these nuggets of wisdom. The understanding and use of this method and the belief in it and why it works should hopefully help mitigate the trader’s natural tendencies to: enter a position in the direction of the trend late in the trend, hold stop losses too close, remain in a losing position too long or exit winning positions too soon.
Moving Averages Most market indicators are some form of moving average or some combination of moving averages. For the most part, these MAs are static and are thus oblivious to current market conditions and are essentially arbitrary in what time periods are used in them. Why a 10 period moving average? Why 8 day and 20 day time periods in a stochastic study? Because it worked in the past? Because that was the default in my technical analysis software? I’m looking for something that has more logic, is more comprehensive and has more consistent results. Something that offers entry points as well as targets and stop loss levels.
Highs/Lows of Significance • Here we are going to look at daily bar charts that have at least a 4 average bar range price swing between a low and a high (or high and a low). This can act as our opportunity filter. • The initial extreme (that is, the high or low in question that starts the setup swing) should have no extreme more extreme before it for at least half the number of periods before it than are after it to the other end (extreme) of the setup swing. Again, let’s just adopt this as our opportunity filter. • At the moment, let’s just say that these parameters offer enough setup energy to allow the entry point to be sufficiently worthwhile.
Special MAs Here is what I would offer in the form of 3 different specific and clearly defined moving averages that would be consistent in their usage across traders, markets, timeframes and across time. A common language of sorts. As with Esperanto, perhaps Hope is what it offers. And not everyone need use it for it to provide Hope to those who do. Some similarity to Elliot Waves, Fibonacci, De. Mark, Market Profile? Perhaps. I will leave that to your judgment but I suspect what I offer here is sufficiently unique and useful enough to be more than of just passing interest. I hope. I would not want to try to reinvent the wheel only to realize or be told that the wheel I offer herein is square and does not roll…but I’ll risk that possibility.
SLMA Defined Swing Length or “Leg Length”, SLMA – From a significant high (or low) to the subsequent lowest low, use a moving average of median prices of period length of the bars in the period in question. So if the number of bars from a significant high to the subsequent significant low is 8 and remains that number, that is there is no change in the significant low (no lower lows going forward), the period length of the MA shall be 8 and stay at 8.
CLMA Defined Cycle Length, CLMA – This moving average grows in period length from the significant high or low in question one period for every period in time that passes. If we are 10 bars into a cycle from a significant low, the CLMA basis that significant high or low is the number of periods from that high or low to the current bar in this case and at this time, 10. This increments by one each additional time period.
CMA Defined Containment or “Tight”, CMA – The containment MA is the MA drawn that is not violated by price over a given market period. Or an MA drawn where the price bars never more than violate the MA with median price of a bar. What is important here is consistency in use and the ratio of the number or price periods contained to the number of periods in the CMA.
SLMA In Action • First we will watch for convergence of price with SLMA • On price breaking through the SLMA, we will watch for convergence with the CLMA as the initial target • It is said that Cycle Balance is then achieved when CLMA converges with price
CLMA In Action • We will watch for convergence of price with CLMA. As mentioned this is Cycle Balance and is really the point at which the trend will be said to continue or reverse or at least fail to continue and price to enter a sideways range in the time frame in question. • On price breaking through the CLMA, we will watch for an initial target of SLMA convergence mirror. • The subsequent target would be the next larger timeframe’s CLMA.
CMA In Action • First we will watch for a ratio of 2: 1 or greater of price bars contained to period length of the CMA in question • On price breaking through this CMA, we will watch for CMA mirror as the initial target • If a ratio of greater than 3: 1 is achieved, this would be an opportunity to take a position counter to the move without any additional confirmation using a suggested trading vehicle or vehicle combination
SLMA Example Gold takes out the SLMA at 1760 and crashes.
CMA • Trend Collapse (break of CMA) – counter trend trade in a condition where market overbought or oversold per containment ratio – 2: 1 or more wait for break, 3: 1 or more venture in against trend.
Stops/Trailing Stops Consider using a trailing stop that uses a parabolic shape – a stop that gets closer and closer to price as price nears a given target • Consider using looser and looser initial trailing stops for halves or thirds of position or uneven %s of position, e. g. , 50% then 35% then 15%
Market Truth • Markets tend to be contractile in their behavior; a wave that follows tends to be contained within the one that precedes it • This is especially true if the prior wave was “large” in historical perspective • Lesson: Expect a contractile wave and thus initial target within prior wave; Prepare for an expansionary target, that is, riding the current leg to a trend continuation except if CMA indicates overbought or oversold.
Projections Using MAgic. Trx • Let’s take a look at S&P, Crude Oil and Gold
My Hopes from this Presentation • • • Valuable Feedback Vigorous Debate Offer of something even better Suggestions for improvement Real-time real world use feedback (on demo accounts/paper trading of course) • Similar techniques that are out there to compare/contrast with MAgic. Trx
Implied Psychology • Each of these special MAs implies something about the market participants
Battle of the Wave • Nearly all times we can find a battle of the Short term and long term wave
MAgic. Trx • Thank you very much for coming, listening and in advance for your feedback • Howard J. Herman