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Carl,
The pattern was analyzed using a price level and a trailing stop.
Most trade exits were within 1 day. The analysis is meant to show
possibilities of market gain. Note that the money the pattern
gained exceeded the 150.00 or so level you could normally expect
just from fishing with the stop settings in TS. The gains are
enough to show a high probability of exiting a trade with a profit.
The pattern was designed to show a variant of a mathematical and
symbolically matched logic, and to prove the concept of "trend".
Here's the article in .txt format.
>
> Hello Walt,
>
> I'll have to move your .doc file to another machine,as word 95 cannot
> read it-however,notepad Does open up your '4' Performance Summaries'
> for various systems you present.
>
> All of these appear to be a very high percentage of winners,However,in
> most All cases,the average 'number of bars in Winning Trades' is "1",or
> in many cases it is "0",please explain.
>
> Thanks,
> Carl
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Hyper-Modern Speculation and a Trend Model
When thinking about a trading scheme, it is important to consider the
ideology that creates it. In the case of trading instruments, this ideology
always takes the form of a logic. According to the function of the human
mind, this logic will be a combination of mathematics and symbolism. It
is at this very point of conception that the efficiency of the logic is
often compromised. Either the logic is almost wholely mathematical and
lacking a sufficient symbolic base, or the logic is almost wholely symbolic
and lacking proper mathematical foundation. The hyper-modern approach to
trading, in its simplest form, seeks to rectify imbalances between the
mathematics and symbolism of a logic so that the two are equaly balanced
and do not compromise one and other. Often, the approach utilizes
combinations of known market theory in order to assimilate and use basic
concepts from a wide array of methodologies, thus discerning basic
operating truths of the logics used. It is the hope of the author that
use of this approach will yield logics that are superior in function.
Construction of a Hyper-Modern Pattern and the
Testing of a Market Logic
One of the most basic of market logics is the concept of "trend"; the
idea that the market follows various general principles in moving higher
or lower. The question before us is does this logic truly exist or does
it lack sufficient mathematical or symbolic function?
First, we must define the logic of trend in its simplest form: An upward
trend is defined simply as a series of progressively higher swing-lows. A
downward trend is defined simply as a series of progressively lower
swing-highs. So, a swing-low followed by a higher swing low is the simplest
available logic defining an upward trend, and a swing-high followed by a
lower swing-high is the simplest available logic defining a downward trend.
In order to test the strength of this logic of trend, we now look for the
simplest possible weakness in the structure. In the case of an upward trend,
this weakness can be defined as a swing low that is lower than the
preceding swing-low. After this swing-low has been established, hyper-modern
theory stipulates the addition of a further symbolism; the addition of a
"key-reversal" to the downside. For downside trends, the logic would be
inverted and we would be looking for a swing-high that is higher than the
previous swing-high followed by a key-reversal to the upside.The question
is now: Will the logic of trend be strong enough to overcome the implied
mathematics and symbolism of the defined weakness. This can be categorized
as the "test" of the trend state. Logically, if no pattern of strength can
be found for the logic of trend when faced with an initial weakness, then
the logic of trend does not exist. On the other hand, if the key-reversals
are violated and there is enough truth in the logic to provide trading
opportunities, then the logic and concept of trend exists in the market.
The trading results featured in FIGURES 1-4 suggest that there is ample
trading opportunity after the key-reversals have been violated, and suggest
that this hyper-modern pattern that balances mathematics and symbolism is
one to keep an eye out for. FIGURES 5-6 show chart examples of the pattern.
Based on the results of the logical tests we can now state that the concept
of the trend is a valid logic. We can also state that patterns that
adequately balance mathematics and symbolism may provide stronger trading
results than patterns that do not.
Ratios of Math to Symbolism
If you were to analyze the pattern given above, you would find that it has
four mathematical components and two symbolic components. Mathematically,
we state that, in the case of an upward trend, one swing-low shall be
greater than the preceding swing-low, and the most current swing-low
shall be less than the second most curent swing-low. For the accompanying
key-reversal, we state that the high must be higher than the previous
day's high and the close must be less than the previous day's close.
For the symbolic meaning of the pattern, we make the statements that the
lower swing-low is a sign of "weakness in the trend". We further state
that the mathemetical functions of high and close form what is commonly
known as a key-reversal, and often represents a " short to mid-term
reversal in trend". Together, these two logics form a 4:2 ratio. So we
find that the symbolism of the pattern is at a 50% ratio to the mathematical
logic of the pattern. I have found that this ratio is acceptable in
designing mathematical/symbolic patterns. Another good ratio is a straight
1:1 format, where every mathematical statement also has a symbolic statement.
It is also possible for the logic of the pattern to function if the entire
pattern is either 100% mathematical or 100% symbolic, although I think you
will find that it is a rare pattern that displays only one logic.
Author:
Walt Downs is President of WDMC, a firm dedicated to market analytics.
He can be reached at walt@xxxxxxxxxx
References:
Downs, Walter T. [1999] Trading for Tigers, WDMC publishing.
Downs, Walter T. [2002] Hyper-Modern Speculation in Stocks, Futures
and Options, WDMC publishing.
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