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points of clarification--
the original book was not intended to provide a set of "turn-key"
systems per se. rather it was an attempt to present original indicators
which had some predictive value to an audience of sophisticated and
creative traders and researchers who in turn would enhance these
techniques or incorporate some of the ideas into their own trading
regimen. suffice it to say, despite the attempts to prevent them there
were some inconsistencies between text and charts but, other than being
a distraction, they were not suficiently material to detroy the contnet
or subject matter.
the second book required much more time and work--by a factor of 10 at
least. its goal was to clarify the first book and then to introduce a
much larger set of indicator ideas.(there are 3 levels of anlaysis: 1)
chart interpretation which is subject to whim and guesswork; 2)indicator
analysis which provides the structure and framework; and 3) system
construction which takes the indicators and systematizes them.)i elected
to operate on level 2 just for the reasons described in paragraph 1
above.
in the inflationary environment of the 70's all trend folllwing
approaches proved successful.the most conventional were moving averages,
trendline breakouts, 40 day high/lows, etc. i had devloped an interest
in price range activity and breakout price levels. whence came
rebo--range expansion break out. its development was simple in
retrospect. markets would consolidate for short periods of time and then
a burst of price movement would occur. in order to make the process more
mechanical than mere inspection, i calculated the daily range and
multiplied it by a factor and then added/subtracted from the preceding
day's close. unfortnately, price gaps, both up and down, would occur and
as result the calculated entry price levels would be exceeded on the
opening. consequently, i elected to use the opening price as my
reference level. at the time i developed this approach, most other
analysts were still researching and applying the conventional
approaches. this gave me a distinct advantage. larry williams was also
working with me on similar methods.this was during the 1970's and before
the release of such techniques to the public. subsequently, the
technique became more popular and i dare say that almost all cta's use
variations of this approach today.
td rebo was never intended to be a system. it was a template and a
series of ideas from which other creators could improve and develop
their own breakout techniques. the concept is critical--the opening
price, the previous x number of trading days' ranges, the qualifiers;
such as a condition precedent (down close/up close, range 1 ago less
than all ranges 2-5 ago, etc). i would have given anything 30 years ago
for someone to tell me that the market is in a trading range 76-82% of
the time and the other 18-24% of the time it trends either up or down
and the price activity prior to a trend is usually characteized by a
tight trading congestion area. also that markets tend to trend up about
2-2/12 times longer than down because buying is a cumulative margin
driven process whereas selling is a "one decision" "I don't like it" to
sell.
in any case td rebo was a new concept when i developed it 20 years ago
and in the book it was intended to be an open ended discussion, despite
the fact that various ratios(.382 and .618 and .236, etc were discussed)
and price relationships were described as well. i never said or implied
that my specific relationships were the ideal and that is why i
encouraged the reader to experiment and with your computer technology
and background Dan this process should be a snap for you.
i hope this explanation clears up any confusion regarding writer intent.
best regards,
tom demark
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