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As a contribution to the "different timeframes" posts. This is from Chuck Le
Beau's website.
Ed Kiers
----- Original Message -----
From: "The System Traders Club " <traderclub@xxxxxxxxxxxxxx>
To: <traderclub@xxxxxxxxxxxxxx>
Sent: Friday, April 06, 2001 7:35 AM
Subject: Bulletin 44 Switch Time Frames For Better Exits
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The Traderclub Forum: Traders Club Bulletins: Bulletin 44
Switch Time Frames For Better Exits
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By webmaster (Admin) on Thursday, April 5, 2001 - 10:35 pm:
Bulletin #44
Switch Time Frames For Better Exits
By Chuck LeBeau
I just returned from a weeklong Trader's Camp hosted by Dr.
Alexander Elder in a beautiful island nation in the South
Pacific called Vanuatu. When I studied geography in school
many years ago, Vanuatu was known as the New Hebrides
islands. Vanuatu is located about 1,000 miles west of Fiji.
If you have read Elder's excellent book, Trading For A
Living, you will recall that Dr. Elder is an advocate of
using multiple time frames for trading both stocks and
futures. For example, he suggests looking at the weekly
chart to make sure that the weekly trend is firmly up before
trading the long side of a market based on the daily chart
patterns. This approach makes good sense and I highly
recommend his book and his strategy.
While listening to Dr. Elder explain his multiple time frame
strategy for entries, my thoughts wandered to the
application of his ideas to my favorite subject - exits.
One of my goals in trading is to find exit strategies that
do a good job of protecting open profits. One method of
accomplishing this goal is to simply move the daily stops
closer once a specific profit objective has been reached.
However, it might also make sense to simply switch to a
chart with a shorter time frame once we have reached a
reasonable profit objective.
Here is an example of how such a strategy might work. Let's
say that we have been trading XYZ stock on an intermediate
term basis using daily charts. The trade is working out
very well and we now have six ATRs of open profit. (See
previous Bulletins for an explanation of how to use Average
True Range to set profit targets). Up to this point we have
been using our well-known Chandelier trailing stop placed at
3 ATRs below the high point of the trade.
However, now that we have reached our primary profit
objective we want to tighten up our stop to protect more of
our profits. We could reduce our Chandelier stop from 3 ATRs
to 2 ATRs and continue using the daily bars or we could
switch our chart to one hour bars and continue to trail the
Chandelier exit at 3 ATRs based on the intraday one-hour
bars. The basic idea is to switch to a chart with a shorter
time frame once we have reached our profit objective. This
procedure should allow us to let our profits continue to run
but we would be protecting our open profits with much closer
stops by using the chart with a much shorter time frame.
Combining our exit strategy with Dr. Elder's entry strategy
would provide the following sequence: for entries we first
examine the weekly chart and then use the daily chart to
trigger the trade. Once we are ready to exit our trade we
examine the daily chart and then trigger our exit using the
hourly chart.
Of course this strategy would require some extra work as
well as the use of intraday data. The alternative would be
to simply reduce the number of ATRs used to hang the
Chandelier exit on the daily chart. Either way we do it,
the logic is to move our stops closer once we have achieved
a worthwhile trading profit.
* * * * * * *
Notes On Bear Markets
One of the best ways to gauge a bear market is to observe
the reaction to good and bad news. In a bear market the
averages go down even when the news is good. (For example,
look what happened the last time the Fed cut interest
rates.) We will know that the bear market is finally over
when we observe the market reacting favorably to good news.
In the meantime, we can take some consolation in the fact
that at the present rate of decline we will soon be at zero.
At least at that level we should be able to safely resume
trading stocks from the long side.
* * * * * * *
April Systems Sale - Any Six Trading Systems for $1,000
(Save $500)
Order your systems before April 15th to take advantage of
this special offer. The usual price of our trading systems
is $250 each so now is the time to save money if you were
planning on buying systems from us. All systems operate
using end of day data and all rules and code are fully
disclosed. Many members have purchased systems just to see
the logic and to get ideas they might use in developing
their own systems. For example, the Phoenix Bond system
contains sound logic that should work very well for picking
bottoms in stocks. Now there is an idea whose time has
come!
* * * * * * *
Last Reminder - April Workshop in Los Angeles on April 14th
and 15th Go to the Home page of our web site at
www.traderclub.com or phone Chuck LeBeau at (310) 265-9776
for more information or reservations. (I lost some of my
e-mail messages while traveling so please phone me to
confirm your attendance if you plan on attending.)
We will also be doing a Workshop with Dr. Elder in New York
in May. You can get more information on his web site at
http://www.elder.com
* * * * * * *
Good luck and good trading. Lets hope this dreary bear
market ends soon.
Don't forget to check the interesting discussions on our
Forum at http://www.traderclub.com/discus/board.html
Our Forum pages on the web site contain very active and
interesting discussions about trading. New messages are
posted every day. Our Forum is rapidly becoming one of the
most active trading discussions on the web. You are invited
to participate.
If you need more information send email to:
chuck@xxxxxxxxxxxxxx
Chuck Le Beau's System Traders Club
http://www.traderclub.com
ph 310-265-9776
fax 310-265-9556
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