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Well, here we are again having the zigzag debate. I thought I would
share my thoughts--a bunch of them.
At least this time, the people who responded to the zigzag quesitons
were respectful. For that, I thank you. We were all new at this once
before we entered the pits of hell without mommy.
There's nothing worse than a self proclaimed "expert" who throws out
sarcastic comments every time someone does something with the zigzag
indicator, or something else that the "expert" can pounce on. Their
comments are intended to embarrass or ridicule; however, there's
usually a line attached about how "I'm just trying to help!" I feel
sorry for the crippled egos that need to do that stuff.
Here's my 2 cents on the zigzag. I use it sparingly in my trading.
The fact that it is a dynamic indicator, meaning the last leg is
subject to revision, does not mean that it doesn't work. The dynamic
nature of the zigzag depends on the percentage change in the swing
point that you require before the indication becomes valid. The lower
the percentage the less revision their is in the last leg. However,
the lower the percentage change you find acceptable means you're
going to get more whipsawing and false signals. The degree of
whipsawing depends on the volatility of the stock. If you applied the
zigzag to a junk bond mutual fund, it would work much better than if
you applied it to a Dow stock like Honeywell or SBC.
There is also an issue regarding the time frame. For example, when
trading on a five minute screen the zigzag settlement time based on
the percentage of the swing chosen might fall within acceptable
slippage limits to still make the trades profitable.
If you only trade the DIA for example, you could calculate the amount
of slippage created by the dynamic leg of the zigzag for each time
frame and swing percentage being used. The slippage would vary from
stock to stock and from time frame to time frame, and it would, of
course, vary between it's standard devs. I've used peak and trough
functions sparingly and successfully, and I've measured the time lag
and slippage on what I trading. It was fine.
Yes, I've read Spyros's articles and other people's commentary. I've
experimented with his validity code and found it to be useful in some
circumstances and not so useful in others. On short time frames, it
gets in the way more than it helps.
On an EOD basis, I don't use the zigzag in experts or for making
trading decisions because I'm looking at various stocks with
differing amounts of volatility. I can trust it on one stock, but not
on another. There are other indicators, that on an EOD basis, I feel
are better.
I also won't use it in explorations or in backtesting. I don't do
much backtesting because I've found it to be worthless for me with
the exception that it gives reasonable relative comparisons. They are
only relative comparisons because every system I've ever put together
requires judgement--mine. I've never found a backtesting program that
could hard code in my judgement. I have to personally test every
system I like to see if I can trade it--intellectually, emotionally
and profitably. If it fails any of those tests, who cares how pretty
the backtest results were. The absolute test of a system is my
ability to use it. I only care about the quality of my trading
decisions. I don't care how smart other people think I am, or how
close I can come to finding the "grail" or anything else. All I want
to do is make money, and I want to make it as simplistically as
possible. In my experience, when you take my brain out of the system,
you take money out of my wallet.
(Yeah, there are canned systems. FuturesTruth exists because of them.
But I've never found one I trusted as much as I trust me. That's one
of my flaws, I guess. If I'm going to sit in the cockpit but I can't
fly the plane, I'll just wait for a ride later.) Back to the zigzag.
In addition, the zigzag's dynamic nature means it's going to screw up
every backtest and every exploration. There are simple explorations
that will find every kind of stock situation known to man. I'm amazed
at how much crap I see in exploration programs--my opinion.
I don't do much exploring either. I guess I must not be a good
trader. I've gone months trading only one stock. What a screw up I
am. That's not the conventional search 6900 stocks every night method
I see on the metastock boards every day. Oh, well. I like to count my
money while some people are up late into the night trying to figure
out what stocks to trade--especially in a market like this!
I'm not an expert on the zigzag. I've never read an article written
by one or talked to an expert on the zigzag. I've met a few traders
who know a lot about it, and some who even use it for different
things, but I've never met anyone who's devoted enough of their life
to it to call themselves an expert. If they have devoted that much
time to it, then they're not trading. They're writing books and
giving seminars. If they're not trading, I'm not sure they're an
expert on how to use the zigzag to trade--and make money, which is
what this is suppose to be about.
A few people on these boards read an article or two and then proclaim
their superior knowledge. Right! Impress me some more.
That's my two cents.
By the way, does any one have the code for an exploration that finds
stocks that are going to go up tomorrow around 10:00, but I only want
stocks that are going to go up by 0.965345 percent and that I can
exit by 12:32. I have found the letter A to have bad karma so I want
to filter out all the stocks that start with an A or that sound like
they start with the letter A. I sure could use some help with that
code, or I'm going to stuck with my one stock AGAIN.
Oh, I don't want to forget my advice to the guy who asked the
original question. If it's making you money, run it until its legs
fall off. However, when the legs do come off, believe it. Denial is
so so expensive!
Jack
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