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These numbers had to be slightly modified in order to comply with
Copyrite laws. The modification made little change in performance
when properly applied. The source for the exact numbers is The Trader
Handbook, if you are so inclined to search its current availability
and cost. No promise of performance is made or implied.While decent,
I was never able to duplicate the 67% consistency in the manual which
was based upon a small sample.Likewise the calculations are similar
to those used by many for Pivot points and the like.
First calculate Resistance :
Level 5 = Previous day high divided by previous day low multiplied by
previous day settletment.R5
Level 4 = [Previous day high divided by previous day low] plus 1 and
that quantity divided by 2 and then multiplied by previous day
settlement. R4
Level 3 = Same as Level 4 except plus 3 and divide by 4. R3
Level 2 = Same as Level 4 except plus 5 and divide by 6. R2
Level 1 = Same as Level 4 except plus 10 and divide by 11. R1
Corresponding Support Calculations:
Level 5 = R5 - previous day settlement= X5 then Previous day
settlement - X5. S5
Level 4 = R4 - previous day settlement= X4 then Previous day
settlement - X4. S4
Level 3 = R3 - previous day settlement= X3 then Previous day
settlement - X3. S3
Level 2 = R2 - previous day settlement= X2 then Previous day
settlement - X2. S2
Level 1 = R1 - previous day settlement= X1 then Previous day
settlement -X1. S1
Key Points also modified for legality and via my observations.
A. One will make a decision to day trade any future contract purely
on how its volatility was the day before.While this is simply the
difference between the high and low, there are volatility point
values that are given in the manual that I can not legally give here.
Needless to say you each can select high volatility days intuitively
in observing various heavily traded indices and bonds.
B. One usually uses Level 3 and 4 to trade. The other Levels can come
into play and experience will guide you.
C. The market must open between Level 3 R and S. One sells at Level 3
R and sets stop at level 4. One buys at Level 3 S and sets stop at
Level 4 S.
D. There are many times when you can hit both sides of the trade.
E. If the market opens outside the range and then returns to it,
there is disgression whether you take the trade. I generally would
not since the Rule has been violated . Others think differently.
F. I generally use the number 10 as a break out signal. That is if
the market opens 10 points above Resistance 4 it is a buy signal or
if 10 points below Support 4 it is a sell signal.If you observe it,
you may choose what you thinks works.
For complete understanding, one should purchase the manual...but this
outline is a good idea on how they work and if you are even
interested.It took too much of my time to do this and various
programs I had attempted to have built were never pure to the rules
and calculations.
John
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