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Jim Greening wrote:
> All,
> Before I discuss trend lines and channels as I promised, I want
> to say a few words about the type of charts. Most people use H,L,C
> bar charts for their charting. I don't, I use CandleVolume charts. I
> always thought that having an arbitrary time period such as a day for
> the x axis of a price time chart didn't make a lot of sense. When
> Arm's wrote his EquiVolume book back in the 60s he made his x axis a
> function of volume per unit time. This made a lot of intuitive sense
> to me. The more volume in a given trading period, the wider the bar.
> I've been using volume based charts every since then. When MetaStock
> started using CandleVolume charts I switched to them. In CandleVolume
> charts, the width of the candle is a function of volume, just like
> Arm's equiVolume charts. I thought the additional information on the
> candlestick should be valuable, although I'll be the first to admit
> that I have never gotten any consistent results based on only
> CandleStick patterns. I keep using CandleVolume charts because I like
> the way they look and maybe, just maybe, I'll run across that magic
> pattern some day <G>.
> The reason I go into this, is that if you are using trend lines
> or channels for signals, you will get different signals and different
> results with H,L,C bar charts and CandleVolume charts. I'm very
> comfortable using CandleVolume charts and happen to think that they
> give better results than H,L,C bar charts. Having said that, I also
> have to say that I have absolutely no proof of that. I've never done
> a systematic study and haven't seen any done by others. But I feel
> they are better and it's important to go with what you believe <G>.
> For constructing trend lines I prefer Trader Vic's methodology.
> For a Trader Vic up trend line, start with the lowest low in the
> timeframe being considered. Draw a line to a low before the highest
> high in the time frame and extend the line to the right. It's
> important that you pick the right low to draw the line to. It must be
> before the highest high in the timeframe and it must be the one low
> that will allow you to draw a line that doesn't intersect any data
> before the highest high. A down trend line is just the mirror image.
> You start with the highest high in the timeframe being considered.
> Draw a line to another high before the lowest low such that the line
> does not pass through any data and extend the line to the right. To
> construct the trend channel, draw a parallel line on the other side of
> the data that only touches the data at the extreme point. That is it
> doesn't intersect any other data points. This is easy with MetaStock.
> You can hold the CTRL key down, then hold the left mouse key down once
> you are on the original line and drag a parallel line to where ever
> you want it.
> I use these Trader Vic type channels for my long (years) and
> intermediate term (few months to over a year) channels. I use the
> channels to get my buy signals and set my stops. If they are wide
> enough, I may even use them for setting my targets, but that will be
> the subject of a later post. Right now I want to just concentrate on
> how I construct my trend channels. There is a problem with using
> Trader Vic type channels for Short term (days to few months) channels.
> That problem is that you will tend to get too many false breakout
> signals for a data set that hasn't gone through one or two significant
> corrections. To try to overcome this problem for short term channels,
> I use the Standard Deviation channels built into MS6.5. The problem
> with this type of channel is to know where to start and end your
> channel. I did not want this to be arbritary, so after some
> experimenting, I decided on the following. For up trend channels, I
> start my channel immediately to the left of the lowest low in the
> timeframe being considered just like Trader Vic. Then I end my
> channel immediately to the right of the highest high in the time frame
> being considered. Initially, I set the deviation at 2 and extend the
> channel to the right. Anytime a new high is hit, I'll drag the right
> end of the channel just to the right of that new high. As soon as I
> get a decent reaction in the stock data, I'll check to see if I should
> change the deviation. I'll use 1, 1.3, 1.5, 1.8, or 2 for the
> deviation, using the lowest number that will bound all the data
> between the end points without intersecting any. After a few months
> with at least two good reactions, I switch to Trader Vic type trend
> lines.
> That's it. That's the way I construct my trend channels so there
> isn't any arbitrary settings. Any questions or suggestions?
>
> JimG
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