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Hi Anton, Don,
> Attached is a better "as example" giving screenshot of the misleading and
> most offensive Raff floating trend channels.
>
> As you can well see these channels will cost a fortune when
> taken seriuosly.
>
> They ARE RECALCULATED EACH and EVERY DAY and as such are HYPER
> ACTIVE and dynamical and are basicaly moving averaged double
For quite some time now I've been using regression 'analysis' (RA) to great advantage, i.e.
making money for me. I think we should take a step back from the whats & hows, and have a
look a the basics. Allow me tell you how I evolved the use of RA. I started out using the
Raff Regression Channels as found in MS. As you **can only draw these by hand** - which is
why they're call "line studies" in MS, btw, a visual chart-analysis is the only option,
which in turn means that no mechanical trading system using them is possible in MS. This
however doesn't bother me overmuch insofas as I am a 'concentrator' (on only a couple of
issues) instead of a 'scanner' (trying to pick my trading positions from a mountain of
candidates). Besides, I **like** pouring over a chart and trying to divine what it's telling
me.
The most difficult part of this kind of RA is of course
A. deciding when to start a new short term channel (STC), and
B. deciding on the start- and end-points for the regression-line.
I bought Gil Raff's book, and he isn't all too clear on these issues himself. It's more of
an art and nearly none of a science, really. I can only advise too learn by using it on old
data in historical charts, then step forward and see if you were right. In the course of
time one develops a feeling for it. Lastly it's helpful to draw a zig-zag which is often
shows up major (and minor) turning points; I also look at the Kagi-Representation regularly,
and I often switch between dayly & weekly representations . All three methods help to
separate the chaff from the corn, i.e. noise from real moves.
What started bothering me about Raff Channels is that they're often much too wide to be of
use. Take for instance the giant downward spike of October last year that plays havoc with
nearly every indicator - Raff Channels as well. So I switched to the Standard Error Channel,
the width of which you can vary by using different standard deviations. I thereby 'pinched'
the channels enough to ignore meaningless - at least in *my* eyes - spikes. In doing this
channels become of course more susceptible to false signals. However, as this procedere is
sanctified by the Highest Authority - 'His Holiness' Jack Schwager who calls them "Internal
Trendlines" - I don't worry overmuch ;-)
The next issue worrying me was that when using Std.Error Channels as well as Raff's
Regression Channels there is an unspoken assumption that deviation from the regression line
is alway as big to the upside as it is to the downside. Now, just look at any chart and
you'll quickly see that this is patently false. So I started experimenting with parallel
lines with different distances from the regression line, and that was and is the perfect
solution for me - a truly revolutionary concept... Until I discovered that my Great
Invention had been stolen by Mr. Andrews long before I thought of it; with truly devilish
cunning - not for nothing did he call it the ***Pitchfork***.
Pun & Fun aside, I did go the way from Raff's Regression Channels via Standard Error
Channels to Andrews' Pitchfork and it does work for me. Anton Maas mentions that using the
Close for the regression line may not be the right choice. Maybe one could experiment with
Regression Lines of the Highs and the Lows; I did a quick experiment with them but I
couldn't get any meaningful results, so for the time being I guess I'll stick with the
Pitchfork as is. Finally, please don't think that I'm among those 'one dimensional men' who
place their whole wellbeing (or financial ruin, more likely) on just one indicator or way of
looking at a chart.
Your comments & critique would be heartily welcome. Happy Trading,
Jan Willem Roberts
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