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Hi Onno
I finally received the book that you suggested (I like it) , and have been
thinking about volatility breakouts and short-term patterns.
Mr. Downs' article in the October issue of TASC about "Shark - 32" is a very
interesting article and has lots of points we can talk about, expecially
volatility. The term "Shark - 32" like other picturesque terms such as
"Lizards", "Boomers", etc. doesn't tell us very much about the set-up
pattern.
Other writers have referred to it as a "double Inside Day or Bar" ("2xID").
The generic term tells me more about the pattern. Other "2xID's" do not use
the symmetry concept but cover the patterns where 2 Inside Days follow an
Outside Day (OD). Often one ID will occupy 50% to 75% of the OD and the
other ID will overlap areas of the OD not covered by the first ID. The
"Shark - 32" is a specialized pattern in that it is an ID of an ID.
Larry Williams, in "Definitive Guide to Futures Trading", covers many
different combinations of triple bar ID patterns (pages 232+) in detail.
The "Shark - 32" article covers the "hindsight" aspect of the pattern. It
does not cover the "foresight" aspect. This is what we are faced with every
day. The pattern is numbered Bar 2, Bar1 and Bar 0. But typically we are
sitting at Bar 3, the day prior to the pattern developing. What good does a
"hindsight" approach do us on Bar 3. On Day 3 we need a "foresight"
approach.
If a "2xID" is usually 2 ID's following an OD or Wide Range (WR) day then
every time we see an OD or WR day we should be allert to the possibility of
successive ID's. Therefore analysing set-up bars for likely follow-up
patterns is the more common reality than scanning portfolios for "hindsight"
patterns.
The analysis in the article provides an excellent template for the analysis
of set-up patterns. This research will certainly certainly give us lots to
talk about, because I see the "Shark -32" (2xID) pattern as a coil pattern
resulting in a volatility breakout. Not only that, but it has the extra
"excitement" of sudden reversals back across the range and breakouts.
Mr. Downs' article, the TS code and Metastock code describe the "Shark - 32"
indicator as being coloured dots or bars. Linda Bradford Raschke's chart at
www.mrci.com/lbr/spstory/chart05.htm shows a binary to highlight set-up
patterns at the bottom of the chart plus arrows. I prefer a binary overlaid
on the chart without scale in grey.
Let me know how you're doing with the volatility patterns and whether you've
got a copy of the magazine yet.
Best wishes
Walter
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