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Hi Bill,
(Quoting your mail out of order:)
> The other channel tools seemed lacking as well in predictive ability.
Allow me to say first of all that I don't regard channels as "predictive" tools
per se. I use them in two ways:
1. In trending markets I look for violations of the channel borders,
2. In trading markets the range inside the channel can be traded.
The difficulty here, of course being to decide between the two. Everyone has to
find & use the indicator he/she likes best, i.e ADXR, Absolute CMO etc. I myself
use a combination of R-Squared & Linear Regression Slope, and modify that by the
Standard Deviation - really a slight development & modification of the excellent
Metastock "Expert Advisor | Statistical Analysis" (somebody should really take
the trouble and re-write it using variables as it's nearly incomprehensible in
its present form).
Being more of a 'week trader' than a day trader I mostly use method 1. - with a
twist: I always try to trade *false signals*, another idea I got from Jack
Schwager's Technical Analysis. If anyone is interested we could start a thread
about it.
> ... tried just creating parallel trend lines and narrowing them.
> I wasn't happy with that either.
What I really do using the Pitchfork is just that, so maybe you could be a
little more precise as to just why you're unhappy using them.
> Do you use the Pitchforks exclusively now for
> your channel analysis. For some reason I never tried it. I didn't even
> know it had to do with channels.
Yes I do, and of course you're right: The Pitchfork per se has nothing to do
with Linear Regression Analysis. It's just another tool for drawing trend lines
-
in whichever way you like. Personally I just found it a convenient way of
drawing channels; using parallel lines may be what others prefer. For clarity's
sake I'll outline the steps I take in constructing a Channel:
1. Identify significant swing points, and draw a linear regression line between
them.
2. Draw a Pitchfork in such a fashion that the middle line is parallel to or
covering the regression line.
3. Grab the middle line in order to move the Fork as a whole up & down until the
tines a equidistant from the peaks & troughs that together define the channel.
4. Grab a tine, and move it up or down until you're pleased with the width of
the channel.
I hope I expressed this clearly enough, if not I'll try to clarify and/or attach
a chart to my next mail. However, if you just start out with a regression line
and build the Pitchfork using that as a basis, a bit of fiddling around with the
Fork will pretty soon show what I mean - I hope.
Kind regards & happy trading,
Jan Willem Roberts
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