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Fellow RT'ers,
judging from Rick's last response, I can see that our current thread
is untenable for the forum.
I can only say that I HAVE read Rick's stuff, and MY OPINION
remains unchanged.
If Rick is happy with his system, and it works for him, that's
wonderful.
I won't bother to respond to Rick in kind at this point, because
while I really ENJOY exchanging verbal jabs, this simply isn't the
place for it. :)
People have to view the information available and make up their OWN
minds.....
Seems that we are diametrically opposed on this market topic, and I
guess we'll just have to agree to disagree.....
Rick did bring up a valid point about the TREX system in general:
OK, you have seen a cool chart with all those neat little turning
points, BUT, what does it mean, and how is it traded. WHY do I think
it's better than Gann stuff?
What evidence can I give you, what concrete examples can I show, and
how can I demonstrate trading style etc.?
First, we have to start with what my concept of a trading system is:
1. All rules of entry and exit must be simple, and CONCRETE.
That means no rationilisations like..."this is a high, except when
it's a low, on the fourth Monday in June"......etc.
Usually, in order for a system to be truly viable, there can only be
about 2 rules for the setup, and about 3 -5 rules for the placement of
the trade. Why? Because when you get more than that, things start
getting subjective. There are some traders that can trade this way,
but not many. More than this also allows the trader to develop a
dangerous pattern of excuses, with an explanation always available
for why the trade was a loser. So, I keep it simple, and when I win
I win, and when I lose...well that's the way it goes.
take a look at how many rules the systems of people like Linda
Raschke or Larry Connors have. Same thing.
Onward to TREX.
The concept of TREX is a tricky fish for someone like me, who prefers
to be extremely objective in their trading. Whenever you are dealing
with a market turning point, you are talking about markets when they
are often at their most volatile point. You can make good money, or
you can get creamed. I DO agree with Rick on one point: I want
to find the SAFEST way to trade these points, with the most potential
for profit.
THE TREX SETUP:
I use a proprietary formula to determine the building of the time and
price levels for a market. This formula consists of a "living" ratio.
I allow points in the market which have statistically shown me their
signifigance, to build the ratio for me.
Sound like Gann or Fib theory? It isn't, and here is why it isn't, and
why I feel this approach is better than Fib or Gann sequences:
Fibonacci and Gann:
Both these methodologies use a slightly different sequence of
"NON-LIVING" ratios. These ratios do not change with the underlying
market. The formula for their application is similar:
1. Find a signifigant hi to hi, lo to lo, hi to lo, lo to hi....etc
and apply the ratio to the distance between the points in order to
determine where the market will turn.
People also apply this ratio methodololgy to days as well.
OK, sounds good, but where does the methodology begin to erode?
Enter the dreaded SUBSET. Subsets are a multitude of extra turning
points derived from various derivitives of the main set. In my
opinion they are nothing more than rationalisations for the methodology
when it doesn't work (which is most of the time.)
I am stating this viewpoint based on YEARS of statistical studies I
have run on major Fib and Gann sequences, and their derivitives, both
on price and on time. Throughout the testing periods NO major Gann or
Fib set proved itself statistically signifigant enough to trade, and
NO subset proved itself statistically signifigant enough to trade.
In other words, you could never know with any real sense of confidence
WHICH set or subset was going to prove to be the right one.
Therefore: whether Fib or Gann truly calls market turning points is
irrelevant. A single trader, unless he has an HP3000 mini-computer to
do all of the calculations on Decade,Year,Month,Week,Day,minute and
tic, and can get a few of these points to line up, hasn't a prayer of
anything better than a random chance of picking the correct
turning point. Even with the computer your chances of picking a
SIGNIFIGANT trading reversal are about 1 in 25. Unless, of course
you pick so many points, that you can't miss. :)
This is my analysis and my viewpoint, but it wouldn't be fair unless
I quoted some exceptions, and explained why indeed they ARE exceptions.
Joe Duffy and W.D. Gann:
If my arguments and Premis are correct, how is it that W.D. Gann was
so successful at trading stocks, and Joe Duffy has been successful at
trading commodities using these ratio sequences.
It is my contention that these two traders happened to simply be
EXCEPTIONAL traders, with a natural gift for trading. The
methodologies they used were of no signifigance. Their analysis and
understanding of the markets they traded, their patience,
discipline and innate skills, are what made them successful.
These traders could have traded the numbers off of their laundry
lists, and been successful doing it.
The proof of my argument:
OK, we have mentioned W.D. Gann and Joe
Duffy. Name ONE other trader who has successsfully traded, real time
real money, using these methodologies. If you are out there, please
speak up, because I haven't found you yet. :) I am not talking about
one or two trades, I am talking long term profitable (5 years or more)
I am not talking hypothetical mumbo jumbo, SHOW ME THE MONEY. Unless
I am really missing the boat, and despite the fact that it is
tremendous fun, isn't that why we are trading?
I am not stating some sort of idiom here, I am simply telling people:
I have analysed these methods, and this is what I found. Because Of
what I found, I do not utilize them except in the context of how
other traders trade them.
THE TREX DIFFERENCE
Since, for my own trading I did not feel comfortable with what Fibonacci
and Gann theory had to offer, I started looking for another way to find
turning points that could PROVE to me that they gave me a signifigant
statistical edge. Hence the birth of TREX market levels.
Rick asked me to define what a "turning point" day is to me, and this
seems reasonable. So here is my idea of what a turning point day is:
TURNING POINT DAYS
A turning point day is a SIGNIFIGANT market reversal.
I usually define "signifigant" in cash terms of $500.00 or
more. I am willing to trade in the higher volatility environment
because I know the reward will be worth it.
My definition of a successful turning point is that it must come
extremely close to the TREX reversal point. If the market stalls
20 points from the TREX line, and then starts to move away, obviously
I am not going to sit there like a zombie. I am going to take the
trade, and place my protective stop below the TREX line.
A less aggressive trader might wait only for the price to hit or
trade through the TREX before initiating a trade on a reversal.
HOW THE TREX POINTS ARE ESTABLISHED:
ONCE a TREX setup has been established, a mathematical formula then
starts tracking the TREX level and the day. From that point on, each
day will produce a TREX level for the day. If you were to view this
on a chart it would look like a trendline.
A statistical time and price has now been established which will
enable a trader to judge if the market is high or low.
Some TREX lines might never be hit, but when they are hit, then
the time and price parameters for that day have been met, the
market has gone too far, and a reversal is likely.
Now the trader doesn't have to worry if the "reversal" he is
seeing is a high or a low.
So, the main difference between Rick's philosophy and mine is
that I don't really care WHAT day the reversal happens on.
I only want to know that at a certain date and time the market
WILL very probably reverse if TREX parameters are met.
IN COMPARISON:
A "Time Day" methodology will say :
"On Jan 25th the market will reverse"
Sup/Res at: XXX, XXX, XXX, XXX, XXX, XXX
TREX would say:
On January 25th, if the market hits ONE PRICE it will
reverse. You have a 75% chance of success. Your protective stop is
below the TREX level. Your maximum risk is the difference between
your purchase price and the TREX line. Your Maximum gain is $500
to infinity.
I like this better :)
WHERE TREX IS AT RIGHT NOW:
We have done the warm and fuzzy stuff, but now let's review the
current state of TREX.
Most of the testing has been done via brute force calculation,
because the TREX program for TradeStation is still being
written.
I will be happier when I can present statistical runs to prove
the system's veracity over time.
I can show many examples of charts with the TREX methodology
applied, but I prefer not to do that, because It doesn't
prove anything. I did show the turning points on the
British Pound because I thought people would find it
interesting. Also, when Rick laid claim to no other system
picking turning points better than time days, I posted the
TREX gif to show that YES there were methodologies that
could do much better (In my opinion of course.)
Eddie, was kind enough to give me a site on the RIT forum.
What I would like to do as soon as my RIT page is fully
functional, is start posting some of the TREX levels for
people to watch. That way we can see them in action.
Their success or failure will be an interesting test.
Walt Downs
CIS Trading
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