Most traders are aware of the tendency of
markets to experience a 3 - 4 bar rhythm of movement during a trend move. This
rhythm manifests itself as a temporary break in the persistence of the longer
term trend. For example, after putting in a low pivot the market moves up a
number of bars before correcting for one, two or three bars before continuing
the bullish trend. For the trader with a long position, we want to know when
this rhythm begins and if it will persist for several bars and when the dominate
trend will resume. We may wish to exit the long position, trade the correction
and re-enter long when the rhythm is over. Day traders may wish to be aware
of this rhythm and trade it intraday.It has long been my objective to
identify the conditions at the beginnings of these rhythms and at their end and
I believe I have done so.
The conditions have been coded as a show-me study
in TradeStation which I call R34.The characteristics of this signal are that if
on the bar after the signal, the market trades beyond the boundary of the
signal bar, there is a high probability that it will close beyond that boundary
in the next three days. Trades entered at the boundary have a high probability
of closing in a profitable condition.
To research the potential of this signal I have
investigated a number of equity applications on Daily charts. In my opinion the
most difficult market to trade is the S&P 500 future. I applied the signal
to the continuous S&P contract from 8/31/05 to 8/11/09. Entry was one point
above the signal bar high for long and in point below the signal bar low for
short. A profit was recorded if the market closed in a profitable condition
before exceeding the stop loss value. No effort was made to maximize profit or
minimize loss. The results were 105 profitable trades out of 143 trades for a
reliability factor of 73.4 %.
I also applied the signal to the QQQQ's from 8/8/07
to 7/8/09 with entry 4 tics above the high or below the low and recorded 53 of
64 trades profitable for a reliability factor of 82.8%.
The signal applied to Juniper Networks, JNPR, from
10/5/07 to 8/20/09 resulted in 59 profitable trades out of 76 for a reliability
factor of 77.63%.
Beginning in August, I applied the signal to the
NASDAQ 100 and DOW 30 each week and recorded the performance. The results are
below.
WEEK END
Profits Losses Total
Reliability
8/14
17
5
22 77.27%
8/21
46
5
51 90.19%
8/28
21
16
37 56.71%
9/4 66
14 80
82.5%
TOTALS
150
40 190
78.9%
You can see from this data why I am excited about
this discovery. I will be continuing to explore the application of this new
signal however I am not ready to release it to the public. If you would like to
be kept up to date on the development and use of this indicator, Please email me
privately at Jwhite431@xxxxxxxxxxx.
Regards,
Jim White
Pivot Research & Trading
Co.
PivotTrader.com