The Finance Book Club

Part 5 - Applying your edges
Interestingly, the TOC says there should be an introduction here (like in the other parts) but there isn’t. I wonder if DT even bothered having this proofread?
Chapter 12 - The market in perspective

1. TA sucks
2. Close stops suck
3. FA is trading news
4. Forex brokers propagate these schemes to get traders to trade more
5. More trading is more profits for them
6. BUT DT is not saying he doesn’t use TA or FA but just that he uses it in the ‘proper context’. Are we going to get some of that context soon...

A birdseye view
DT is back in storytelling mode telling us about some soccer team or something…

1. You need to have the right perspective
2. Just guessing - long term?

The G-Force of the FX Market

1. Currencies revert
2. Stocks go up or go down to zero
3. The tendency to mean reversion DT calls the g-force
4. DT bases his trading on ‘sound statistical principles’ but doesn’t bother telling us what those are

The Median Grid

1. The market moves up, down or sideways
2. After a strong move usually a retracement or a sideways move
3. Hard to spot the transitions - it takes weeks to say with certainty
4. The terms overshoot and pull back are in reference to the median price range
5. Works best if the market is in a sustained sideways move
6. The median grid is a ‘context creator’
7. You have to view the market in terms of price ranges
8. A range is a bit of price movement that is mostly random
9. In trading rules of thumb work but precision does not
10. The ranging area is the median grid

An actual trading chart appears!
EURUSD H4 Jan. - Jun. 2009

1. DT highlights an area in yellow that he wants you to ignore
2. The red oval is a Fed announcement. The big candle move happened in ‘10 minutes’.
3. Prior to this price was in a range mostly staying below 1.3000 with the majority between 1.25-1.30 - this yellow block was a ‘median grid’
4. The ‘big event’ causes a transition to a new range
5. Here I find DT gets maddeningly vague again.
6. We have to be ‘forward-looking’ to establish a median grid.
7. But the way it’s established after the ‘big event consists of waffling - here I’ll just transcribe it in full.

“It doesn't make sense to work with a grid that doesn't contain current prices and doesn't leave room for continuation of the immediate trend. The immediate Fed spike was from 1.3100 to 1.3350. One must assume that if prices get with any sort of momentum back to 1.3350 it can just as easily fall to 1.3100 because there obviously were no volume there. This morning there was a fake attempt to new highs but that is now beaten back somewhat as I write, euro at 1.3670 is about the level where the quick move originated. It will be way too early to assume this is a top of this move just because there is a pause, but I would suggest that if we end today like below 1.3600 we might get away with a grid 1.31 - 1.38. Otherwise we will have to look at 1.3300 - 1.4000. Because my advice is to rather stay on the sidelines to see how this unfolds for another day or two this decision can also wait a bit.”

Then DT pats himself on the back for having one of those predictions come true.
Do you understand how to draw the median grid yet? Neither do I.

On May 19th (point 3 on the chart) he tells his subscribers
“We are back to upper levels of the current grid without a visit to the lower levels and this on the back of improving sentiment and a view that the worse of the economic downturn in terms of GDP is behind us. (And still all the credit crunch risks are exactly the same.) There just seems to be loads of money ready to bet on better times, not wanting to miss the boat. I am pretty sure there are much more where this comes from thus while there may be set backs, you can bet your bottom dollar dip-buying may be the order the day across all markets. For the euro this is good because the euro is the anti-dollar and the dollar will have only some temporary strength on a serious spell of US based investment flows on the recovery theme and probably the Fed will lead the interest rate hike charge initially - that would also be USD positive. But those aren't things that will happen soon. The bias is undeniably bullish at this stage. If we can settle in a range where the risks referred to above by UBS will limit risk taking while euro is high and the levels where dips will be bought and euro is low then we will have it made for now.”

Which sounds a lot like the waffling weaselly namby pamby stuff all tips newsletters offer. Yes he did announce he was bullish and yes price went up. But this shows me nothing.

His following posting talks about the difficulty of finding resistance levels because of this big move, a lot of ‘I think’ and ‘I thought’, and how the narrowing range ‘may’ be at some level, but he doesn’t know how ‘real’ that is in terms of current positioning. He never commits to a certainty (wisely) but what value is all this verbiage? About as much as I’m finding in the book I reckon.

“Here is a rule of thumb I use when considering a grid adjustment. Often price finds resistance about ½ a grid outside the existing grid. Therefore in a trending scenario your typical adjustment would be a quick ½ a grid (300 pips) with a bias to adjust another half (300 pips) (assuming approximate grid size based on volatility and current ranges is 600 pips).”

I have had similar thoughts with US equities - that they advance about 50% above their last high before retracing, and this is of course, the most popular Fib level. I won’t bother testing it because I already know how often this is going to work out - about ⅔ of the time. It’s the times when it doesn’t work out that will get you though.

DT goes on to say the grid should be adjusted up to about 1.45. However he still hasn’t told us what use the grid is to us? What do we do when price leaves or is rejected at the grid top or bottom? What function does it serve?

Setting up a Median Grid

1. DT says there’s no place for rigid thinking in this strategy - which I’m guessing is a warning that everything here is going to be vague AF.
2. The market is ‘quicksilver’ impossible to pin down and categorize
3. The grid is not a predictive tool or a TA study, but still, ‘very important’
4. Start by zooming out to a multi-year view, and then zoom closer to the last year/half-year and finally the last few months

DT shows us four charts

2006-2009
Dominated by an uptrend of 2 years+, ranging for 5 months, and then a ‘spectacular’ drop returning nearly all the gains, a vicious one month up, and then two months down spike to the lows at 1.25. Then a ‘strong’ uptrend from 1.25 to nearly 1.45, exiting the range at 1.5050


One year view
The big drop took 3 months
Remained at lows for 1.5 months
A ‘spectactular spike up (so basically he’s just going to describe four charts - I should delete all this. BAH)





Well there’s the four charts. Maybe it will be helpful when we look at DT’s criteria for an effective grid size.

1. Consider % changes in currency values, adjust with volatility
2. Leave room for error; no hard and fast rules (he warns against rigid thinking but I wonder if this qualifies as thinking at all)
3. Nominal number of pips will vary but DT pulls the number 500-600 pips for EU out of thin air
4. For EU or AU (currencies with 1:1 relation) a 100 pip change is 1%
5. For 1:1 ranges of about 400 pips ‘work well’ (to do whaaaaaaaaaaat??)
6. With GBPUSD at 1.6-1.8 you need 400x 1.6 or 1.8 so 700-800 pips
7. EURUSD at higher prices will need more pips ,etc.
8. Identify relevant support and resistance
9. If the fundamental trend is a certain direction, say UP, then allow for ‘continuous breakouts’ in that direction
   1. Have a grid adjustment bias to accommodate this - ask if it breaks and makes a new level, where will the first stop be?
   2. You won’t go too far wrong expanding the upside median grid extreme in increments of ½ the current median grid size

10. But also - if there is a counter fundamental trend move (intermediate drivers dominate, while longer term holds true) as a rally fizzles you need to allow for a lower extreme grid adjustment. Basically do whatever.
    1. There are no hard and fast rules so do whatever
    2. It is in your hands if you want to try to exploit this expected down shift. Don’t come crying to me, sucker!

Honestly I don’t know if I can continue. Was it all a bunch of BS the whole time?

DT talks a lot more as you probably guessed but it’s just ...nothing.

1. When the countertrend reverses, expect choppiness, and ‘adhere to strictly median trading principles’ (never mentioned! Did he mention the median trading principles??)
2. Your approach differs at the high or low end of the grid…
3. The median grid is a very personal tool (so you know, we can’t complain when it doesn’t work because it’s personal to you, sappo)

Mercifully the chapter eventually ends.

I had to decide if I was going to keep going with this book or move on with my life, but having gotten this far (trapped, really) I will fall victim to the sunk cost fallacy and finish the game, doc. But, with a little less detail as now I know how DT can ramble. I apologize for my crudeness and crassness going forward as I am peeved.

Chapter 13 - the 4x1 strategy - piling up the (bullshit) I mean, edges.

1. “Think big, trade small”
2. Randomness makes a mockery of repetitive patterns (as this book mocks its readers)
3. Care not for entries but once in, focus on making a profit
4. DT goes on a typical rant about ‘think small, trade big’ systems, the opposite of his!
5. There isn’t much difference between currencies so just pick one (true)
6. The sell-sider tries to offer you an overwhelming choice (true)
7. Diversification is usually applied incorrectly in systems that use it because they don’t really truly understand correlation
8. Keep it simple (this advice should have been taken when writing this behemoth)
9. Trade just one lot to avoid overleveraging
10. An entry is not a trade. A trade can consist of multiple entries.
11. Multiple entries are vital (I agree)
12. Scale down if the market moves against you
13. Have a long term directional bias
14. Take 1% profit targets

Chapter 14 - the Median trading methodology

1. Instead of seeing the market in terms of timing and timeframes like 15 minute charts and 1 hour charts and 1 day charts you should think about the market in terms of pricing and price frames (price ranges).

This is a good example of something that sounds tantalizing. Almost a breakthrough, but DT never quite gets around to explaining it so that it's understandable.

1. Make larger volume entries near the extremes of the grid
2. Price levels are the triggers
3. Buy at the bottom of the grid and sell at the top
4. The bulk of price movement happens in a minimum of time - you can’t know when price will surge
5. Multiple entries allows cost averaging

Chapter 15 - 4x1 trading as risk management

1. Trade to live another day
2. Be a risk manager
3. Pro traders working for a desk can afford to blow accounts, but you can’t
4. Don’t use stop losses, instead take opposing positions
5. DT’s method for hedging is so vague and byzantine that I can’t hope to summarize it
6. He first describes the ‘losers’ solution calling it ‘patch and solution’
   1. Identify a signal and then calculate the 2% risk point and put a SL there
   2. Don’t adjust SL
   3. Use a trailing stop or manually move to breakeven (zero profit) ASAP
   4. The problem is the ‘laissez-faire’ approach to position sizing
   5. And the stop placement in the ‘randomness vortex’

7. But then he starts waxing philosophical and talking about the simultaneous grasp and hold of a state of motion (trend) and a state of rest (the median grid). There is no sequence, no numbers, no structure. It’s a fairy tale for idiots.
8. Somehow patching together a series of median grids gives you a solution like a ‘fairway on the golf course’
9. He tells a story of being on the wrong side of a trade and spends a page trying to explain his thought process but even after rereading it several times I can’t say it’s anything more than flying by the seat of his pants.

This idea is interesting. I would have preferred a chapter just about uncertainty zones. It reminds me of my notions of 'stationarity' but that in itself is fraught with peril as the variance/volatility of any move can be wildly outside expectations.

1. What I think I understand is that holding on to losing trades is a bad idea because by shedding them you can get in early on a trend at ‘bargain basement levels’.
2. If the trend reverses then you can simply re-establish your former trades having lost only a few pips in the process
3. But where do you draw the line in the sand? Is it the extreme of the median grid?? Unclear.
4. Scale out of positions one at a time, never wholesale while taking a view on future price direction and closing all your trades at once out of ‘discontent’. (good advice)
5. When prices are in the uncertainty zone it’s worth staying hedged, I think?

Relational Analysis in Risk Management

1. Relational analysis is about making sense of price-price, price-time, and price-event relationships, which are always changing
2. If you can relate these things perfectly and do trades optimally based on that analysis you “have solved the problem of trading.” (OMG)
3. Unlikely to happen says DT, but you get better at it with time

Let me just try to describe what he considers to be relational analysis and his mental game at this point. It would be easier just to paste the whole page so you can get a sense of the insanity but that would be cheating.

1. Still working from the chart above
2. Just before USDJPY fell below 89 for the first time in six weeks
3. Long term view was that the JPY was ‘hopelessly overpriced’ due to the fraught nature of the JPN economy
4. Bad debt position, its yielding to China as top Asian economy, status of YEN vs YUAN might change before USD loses its reserve currency status
5. Strong correlation of risk on / risk off as a global sentiment expressed in equity market up and down moves (wow, both simultaneously, huh?)
6. Every time US stock markets went down the risk came off and the JPY strengthened
7. This dance was due to the deep imprints on trader’s psyches during the credit crunch and the disorderly unwinding of the carry trade of ‘06/’07
8. DT picks up on a slight breaking down of the correlation in the week or so leading up to this point
9. This is related to rumours that the Fed will begin to act on stimulus and interest rates
10. That would be the trigger to cause the dumping of yen acquired during risk off
11. BUT since that was conclusively postponed to beyond Q1 2010
12. And because the USD is under more structural pressure to be weakened
13. And because there is a decoupling between emerging markets and the US
14. AND because the EZ area seems to be in better recovery shape
15. DT begins to think that in the short term the JPY may strengthen despite risk-on
16. So he starts to ‘adjust his positioning’ from four long UJ trades to only one long UJ position preparing for a potential short term move based on this relational analysis

It seems there is a fine line between relational analysis and how a conspiracy theorist sees the world. Everything is interconnected but in a specific sequence that is pure imagination and paranoia. I will bet you a Tim Horton’s coffee that DT is a conspiracy theorist when he is not making random trading calls in his BS newsletter.

“If you consider the above carefully I hope you will realize that I can teach you a lot about currency trading and the 4x1 strategy and risk management and how to take losses and how to take profits in a book like Bird Watching in Lion Country – retail Forex Trading Explained, but I cannot effectively teach you how to do real-time analysis based on Relation-analysis.” Yes, DT I believe you are right on both counts. I learned to stay away from mentalists like you, and to ignore what they say.

Diversification as a risk management tool

1. Multiple entries
2. Price levels - 40-100 pips
3. Cost averaging - avoid short term timing risk (this is not a bad notion at all)

This reminds me a bit of Parisboy’s octets, but his idea is far more elegant.
“The bottom two quadrants will be your prime buying areas (Q1 and Q2 with several “BUY LEVEL” tags). You will also trade up and away from the median in Q3, just above the median, (See BUY LEVEL tags) but by now you should know enough to show caution in Q4 (the top quadrant) (In the example no BUY LEVEL tags, but SELL for PROFIT and SELL LEVEL tags.)”

Profit taking
Use a double tap - let one trade run while the other cashes in


Do you get this? I read the book and I still don’t get this.

Managing Losing Positions
Vast options
Don’t fret about ‘out of the money’ positions that could become profitable

Drawdown
“When you use multiple small entries and cost averaging to enter trades the concept of drawdown changes. You are not focused so much on the end result after you have booked trades (closed them for a loss or a profit). Instead you are focused on the net value of your account, i.e. all booked trades plus the net value of all open positions”
In typical DT fashion this gets overwhelmingly ambiguous fast.
His first example examines 13 trades taken in an imaginary scenario. 13. If you can’t simplify your thinking, how can you be a good trader?

Managing DD

1. a given
2. Identify an ‘aggregate level’ of dd per trade
3. This triggers your dd management steps
4. Focused on reducing speed of dd
5. In other words close some losing trades; though it might hurt DT to say anything so plainly
6. This frees up room to re-enter at better levels and recover the dd
7. With this style of trading, most of the time you have dd, and because you take many small quick profits
8. Hedging allows for profits and limits dd speed
9. Prepare for ‘low scenarios’ and ‘worse case scenarios’
10. Mentally accept a percentage of dd but then put dd management steps in place
11. Tools
    1. Size of entries
    2. Number of simul entries
    3. Pip value per entry
    4. Aggregate pip value
    5. A decision about closing positions or hedging positions

12. Golden rule
    1. Scale in
    2. Scale out
    3. Never rely on one big trade or one important price

13. Stop losses
    1. Students of DT’s have trouble with the notion of abandoning SLs.
    2. It seems cavalier but it’s not
    3. But DT is not passing comment on SLs except if they are ‘too close’ then they won’t work.
    4. “On my managed accounts my ratio of profitable entries is 85% and better.” (statements like this beg for some prooooof)
    5. DT admits he takes bigger losses than profits
    6. Now he feels he has to tell a big story and ask questions like ‘what is a profit’. We know what a profit is, mate!

Relational Analysis - Combining your Edges
Just when you thought we were bloody done with this cockamamie notion.

1. Relational analysis is the skill of listening to what the markets are telling you, and making money from what you hear.
2. Listen to the voices inside your head. They are saying run. Run far far way.
3. Price-Event-Time again
4. So many pages, so little to hang on to
   

Not to worry, this diagram will clear everything up.

Market dynamics
I am not even kidding, DT starts talking about exegesis - the critical evaluation of texts. In a godforsaken trading book. What a nutter.

1. DT then compares trading to chess, which is a very apt metaphor.
2. Get enough sleep
3. Don’t watch price
4. Don’t listen to too many opinions (I sometimes wonder if reading too many trading books is a bad idea, but I think I’ve inoculated myself against a lot of junk)
5. Traders have a routine (yes, and…??? nothing)
6. A polaroid metaphor

DT’s daily routine

1. From his days as a bond trader
2. Calls his mentor
3. Go through news highlights
4. Go through important prices of local and global markets
5. Consider known events like economic releases
6. Market closing price levels
7. TA reduced to ‘prices are a little high or a little low or a little slow’
8. Take a view on whether the market is flat, bullish or bearish
9. Now he goes through this process by watching business tv (CNBC)
10. “What was the price dynamic the last few hours” really? After all the talk about not caring about intraday moves?
11. Get a feel for how the markets are digesting the previous day’s action
12. See how Asia’s responding to LON/NY
13. Focuses only on an ‘analysis framework’ dominated by us dollar through a EURUSD lens so everything falls into place quickly
14. Consider which trades are close to TP or prices that are close to triggering entry levels
15. Business tv lets DT know what’s on city traders' radar
16. Look at:
    1. US stocks, DOW at NY close
    2. Economic releases forthcoming
    3. Major currency price levels and previous daily range, current level vs previous close
    4. Gold price and range like the major currencies
    5. Oil price and significant oil related themes
    6. Outstanding economic data events, headlines, central banker speeches, etc
    7. Risk on/off theme
    8. US stock futures
    9. News has a rhythm, practice listening to the rhythm
    10. Now DT goes on a time-traveling acid trip of some kind

“interest rate differentials and their expectations
central bank policy adaptations
macro investment themes
special financial market conditions
bond / treasury market investments
gold, oil and other commodity market investments”

1.Take note of all fundamentals
2. Figure out the effect of fundamentals on short term trading
3. Never ever make a total boo-boo on the fundamentals. You’ll end up dead.
How is this helpful? 'Don't make mistakes.' Ok??

News is like a daily soap opera
Blah blah blah blah
CPI, IP, job creation, it’s like Kerouac on econ 101.
“The crux of analysing economic data is to work out to what degree the market is focusing on it.” Ya think?
More relational analysis, his PET topic.
A case study
More examples of his precious daily briefings.
I used to sign up for Barbara Rockefeller’s daily briefings. They were equally useless but at least she was scathingly funny about Trump.

Ok, time to wrap it up

Epilogue
is about Surowiecki’s Wisdom of Crowds, a good book.

1. Individuals overestimate their ability to make wise trading decisions or ‘beat the market’. They also make unwise choices about trading materials (Clemmo Conjecture) and courses. '
2. The logical conclusion by DT is that just as individuals aren’t very good at guessing the weight of a heifer but a group is, the thing to do is to join DT’s trading room. I guess he skipped the chapter in Suriowiecki's book about 'groupthink' which is what trading rooms directly contribute to. He does mention the importance of conflicting opinions in these groups but my experience is that most of the conversation in a trading room is dominated by a charismatic cult leader. In fact most human discourse is like this, and therefore, of little value, though so satisfying to some social part of our makeup.

Review
I should probably count to ten and wait a day before posting this review but ….
Ok I took my advice and waited to write this review. I will say I’ve been too harsh on Du Toit as he does present a refreshingly different way of looking at trading, especially forex trading.

I also think he is often correct, and I really think he might have a good grasp on a number of ineffable truths about trading, again, especially in forex. I think his system might even work. For him.

However the sheer will and effort needed to find the small bits of wisdom in this poorly written and massive book is almost overwhelming, and when you do finally get there, you realize you still don’t quite have enough to hold onto. Which is fairly frustrating. For some reason, it’s even more frustrating than getting to the end of Aronson’s book and finding out that he has nothing to show for his effort. Because, at least Aronson’s book was a real book. It had chapters with topics, and each chapter was a different topic. And it moved from a logical beginning to a logical but disappointing end. And it was valuable.

This book?
You can basically summarize what’s valuable in this book in 3 points.

 

1. Don’t use high leverage.
2. Analyze in real-time (but what does this really mean we never fully learn) with ‘relational analysis’ (no specific method is actually drawn up despite volumes of verbiage about it) and without technical analysis (confusingly he hides his opposition to TA until he’s warmed up a bit).
3. Trade one security at one low volume in one direction on one high time frame with a 1% TP; hedge instead of using stops.

My original angry review is in the notes which you can get here.
Next: Technical Analysis by Connie Brown

yes, sorry for the delay in the reply.

btw I just love the idea of waiting to buy at a better price... for the simple reason that if I'm right I make more money & avoid the frustration... if I'm wrong, I lose nothing.

of course those fund managers want u to invest asap.

Technical Analysis for the Trading Professional by Constance Brown
Strategies and Techniques for Today’s Turbulent Global Financial Markets
This will be the fifth or sixth book on TA that I’m summarizing for this thread. I don’t mind too much at this stage as there’s still a chance that someone might have a fresh take on things and take us definitively beyond simple conjecture with a basis in evidence.

However I doubt it. For one thing, the real brainiac statisticians who have the skills and knowledge to accurately measure the success or failure of TA methods (people like Aronson, Taleb) almost always find there is little of value in TA. They might be able to find patterns, but those patterns generally aren’t tradeable. This is close to being settled science.


Still, books about TA continue to be written and studied because, as Dirk Du Toit writes in BWILC, the whole business of trading has practically been reduced to TA by the sell-side industry who are basically grooming traders to lose their money. One of the few things I liked about BWILC was how accurately he savaged the ‘marketing wizards’.

However, in the near future I think I’m going to stop considering TA books, and move on to things that are more interesting to me personally, and probably more useful. I may make exceptions if someone really loves something, like MashFX’s recommendation of one of Alexander Elder’s books. Elder has a reputation, whether deserved or not I don’t know, and there’s no doubt that MashFX can trade, but whether that’s luck, or innate skill or knowledge gained from TA, we’ll likely never know for sure until he starts his own thread.

It is one of the perplexing ironies of trading that someone with a bad idea can still be a winner, with good money management and discipline, while someone with perfect technique and theory (whatever that might be) could still be unlucky and lose, at least in the short term. Of course then it’s somewhat academic what ‘bad idea’ means, since the only thing that matters is profit. Since TA is likely ‘not even wrong’ and it’s possible to be a success despite using it, it’s likely impossible to prove it doesn’t work. In the end it may just be an aesthetic choice, like religion or political affiliation. Wouldn’t that frost a lot of fannies, especially mine own.

You will also have to forgive me, but I may be ‘tainted’ in the sense that if a book cannot prove somewhat scientifically that something has predictive power I’m unlikely to give it too much credibility and may not give it a fair trial. It’s too late for me, TA lovers! I beg your patience and I will try to be patient in turn.

Foreword
(by George C. Lane - another Technical analyst unknown to me though he may have invented ‘the’ or ‘a’ stochastic indicator?)

1. ‘Connie’ Brown - CB from now on.
2. 9 years as a research analyst and fund trader
3. Publishes a daily bulletin on the Dow, S&P and bonds
4. The book promises 15 major breakthroughs in technical analysis!
5. 7 never before seen!
6. This book already has too many exclamation marks for my liking!
7. CB introduces the concept that oscillators do not necessarily fluctuate between 0-100 and not all signals fall between OB/OS
   1. She suggests the use of an upper and lower bound (resistance band) to help identify signals that may be missed otherwise
   2. She suggests this band may move up and down within the range and that it may expand and contract!
   3. She suggests better parameters
   4. She discusses the use of MAs over oscillators
   5. Third-gen indicators applying oscillators to oscillator
   6. Filtering indicators with variants

   
   
   
   

8. She introduces the composite index to accompany RSI
9. She encourages us to avoid defaults for Stochastics
10. She remedies this deficit by introducing procedures for determining and inputting proper data to construct responsive, customized indicators
11. She makes a ‘passionate case’ for keeping an open mind (as all charlatans must!)
12. Cycles
    1. Introduces the concept of ‘growth and decay’ which leads to asymmetrical cycles
    2. Applies a weighted factor to them vs. Fibonacci cycles

    
    
    
    

13. EWT
    1. Her starting point in the industry
    2. Some people are ‘wave-deaf’ just as some people are tone-deaf (I might be both!)
    3. They cannot perceive the beauty of EWT! (omg)
    4. It is necessary to understand the structure but maintain a sense of proportionality
    5. Teaches the 3 simple rules that form the basis for EWT
    6. Explains flats and zigzags
    7. Analyzes a number of real-time charts ‘to the T’, while integrating oscillators, Fibonacci ratios, and Gann
    8. Stochastics can prove EWT and clarify an indistinct wave count

    
    
    
    

14. Discusses Fibonacci methodology in depth
    1. Markets may gap past a price objective so the trader has to remove the differential of the gap in order to properly calculate the correct price objective retracement
    2. Discusses multiple Fibonacci swing objectives with projections plotted from numerous pivot levels - which are useful for plotting S&R

    
    
    
    

15. Trendlines
    1. Do not need to be established from absolute highs and lows
    2. Discusses intersection of trendlines as a timing tool
    3. The intersection of trendlines from divergent highs on an oscillator with a long-term trendline - “the results are astounding” (how? How is the efficacy of any of these magic tricks evaluated?)

    
    
    
    

16. Gann
    1. His work has been obscured by the veil of occultism
    2. She returns his use of the astronomical clock, the third oldest calculator known to mankind, from the occult to the realm of science and simple mathematics! (should be fun)
    3. She concludes Fibonacci and Gann took two routes to arrive at the same place (except Fibonacci wasn’t a trader. He has been involuntarily dragged into this cabalist debacle.)

    
    
    
    

Buckle up for some controversy!!

That's exactly what I thought when I read the article. Was it written by a fund manager?

Part 1 - Dispelling some Common Beliefs
Chapter 1 - Oscillators do not travel between 0 -100

1. A method you favour should be able to handle market changes
2. CB outlines a case for the reason that it seems technical indicators are no longer working
   1. not because the markets have changed but because there is a mass of non-professional traders with the technical tools that were previously only available to pros
   2. This new group should not be avoided but can be ‘used to the pro’s advantage’

3. However because of ‘alpha’ the default values that ship with these tools are no longer any good
   1. The need for TA grew with global volume of fundamental factors

4. Outdated
   1. The idea that there are two types of tools - one for trending markets, like moving averages, and one for ranging markets like oscillators, MACD, RSI and stochastics

5. Oscillators don’t travel from 0-100

The yen in a bear trend standard default period of 14 with a daily bar chart


The yen in a bull trend

1. The RSI range is different in the two charts
2. In the first one it’s 20-65, and in the second one it’s 40-85. These ranges also apply to other oscillators.
3. CB argues that the RSI range is different for bull and bear trends, and that a reading that falls from 80 to 75 would be a buy signal, not sell, because the market ‘could’ target an additional move equal to the rally that preceded the pullback which allowed the indicator to decline.
4. Therefore oscillators can be trend indicators.

It seems to me we’d really need to know when to second-guess the reading of the oscillator though.

1.3 weekly Dow Jones
The corrections during ‘96 and ‘97 pushed the RSI down to the lower support zone for a bull market in the 40-50 zone, and signals that the market will rally to new highs, finding resistance around 75.


Hang Seng Daily and Monthly

1. The daily range rules warn that the downtrend is incomplete as of June 3 1998 (when the chart was captured for the book)
2. RSI Fails to exceed 55-65 resistance level indicating a topping formation in a bear market.
3. However the monthly picture is brighter, falling only to the 40-50 support zone.
4. CB reaches the conclusion that the bottom is not in on the daily picture but that bottom could form a ‘key bottom’ in the monthly view, after a third test.

1. When a market’s trend is about to reverse, so will the oscillator ranges.
2. The first indication of a reversal from a bear trend will be after a failure at the upper boundary of 55-65, and as the market declines the RSI rests in a support zone at 40-50.
3. The bottom is not currently in on the Hang Seng as when a bottom is forming the RSI will not break (much below) 40.
4. But it could break below 39 or 38 so ‘use some common sense’.

My common sense is telling me how do we know when something is finished moving and will move back up out of one support zone or another? The RSI has to move through 40 on its way to 30, so isn’t it always possible/probable that we’d jump the gun and assume the bear trend was done without some rule about how long the indicator has to remain at a certain level or how far it has to move up to consider the downtrend complete? This is a similar critique to the one I made about Miner’s ‘overlaps’ in a wave. Without saying how far something should or shouldn’t overlap we can never be sure if it’s significant or not. CB is almost being quantitative when she bounds the RSI zones, but it’s not enough. I don’t think we can use this to say if an oscillator can be a trend indicator.

1. Use the market’s past history to define the range that will be tested in a transition
2. “Should the market produce an RSI oscillator decline that successfully holds the 40 to 50 support zone a second time, it should be interpreted as a clear warning to a sleeping bear–biased trader that conditions are changing.” (how do we define a ‘successful hold’ of a zone?)
3. The next example looks at Deutschmarks so clearly this part of the book wasn’t published in 2012. I must have an updated version.

CB creates a 10 point anatomy of a price reversal using this chart

1. RSI retreats at the upper resistance zone for a trending bear market
2. Support found at the 40 level, which warns that a new high may be attempted; CB says this is a double bottom (on the price chart). “At this point we would not know that a trend reversal was developing unless the support zone at point 2 was broken.”
3. A new high forms and there is bearish divergence. The ‘more experienced’ technical trader will put greater weight on the rejection at the 60-65 level which denotes a bear market. The oscillator declines to 40, tests that level thrice and breaks it and declines to 30, which is normal support for a bear market.
4. The oscillator is trapped between 30-40. CB says the dollar attempts a rebound but I don’t see it. The RSI’s inability to break above the lower boundary is ‘extremely bearish’
5. The dollar rebounds. CB claims the reversal level at the peak of point 5 is a 0.618 Fibonacci retracement (of the zone itself, not the move from 3-4) which is a clear bear signal. CB also talks about M patterns but since we haven't been introduced to those yet, I’m going to ignore them.
6. Not notable except it’s an extreme low below the bear market support zone. The RSI tries to hold support at 40 between point 6 and 7.
7. An oscillator high under the resistance zone for a bear market.
8. At the support zone for a bull market. Second time the osc has tried to build support at this level
9. RSI breaks above the bear market resistance line.
10. The bull trend is confirmed after the RSI bounces off the bull market lower boundary.

CB goes on to show some more Fibonacci levels within the RSI indicator itself but it isn’t clear to me what we should expect from these and it seems hard for me to believe we can measure so much in such a small space. I assume she will come back to this later anyway.

This 10-point journey of RSI reading was a compelling story. Let me see if I can tell one of my own.

My new fighting technique is unstoppable! Also there is a new book poll to fill out!

A Tale of RSIncongruity by Clemmo17

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I’ll begin my tale at the very start of 2017. I’ll use data that is available before that date, to the left of that line. I’m not going to hide the chart going forward in the future, but no peeking! That would be future leakage.
We can see there has been a local peak and the RSI is at 85 which seems to match up with the RSI peaks of the recent past. I’ll let that be my upper bull boundary. Note that I’m using an ordinary MT4 RSI set to 14 periods.

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In addition I’m using a fixed minimum and maximum of 0 and 100 the way that CB assumes most are using it, I think. Of course, if I didn’t have a fixed set of values would that make my oscillator automatically suitable as a trend detector? For now let’s just do it the way CB does in the book.

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Lows in a bear trend seem to be setting up around 22 so let’s let that be the bearish lower bound.

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Getting the mean value of bullish retraces in a bear trend is trickier, but I can spear a few of them at 58 so I’ll make that my bearish upper bound.

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Far trickier to get my bearish retracements in a bull trend value but look at how nicely this line fits the troughs throughout the bull rise of 2013-2015. So my last level, the bullish lower boundary is set at 39.

I have now done as CB suggested and set my levels using past history. Are they so different from what she was using? I think no. So now let’s see how they do going forward.

The RSIdes of March continued...


The RSI declines towards my bullish lower bound and tests it once, twice and rises! It is holding at this level. This is surely a bullish sign as it was back in Sept. 2016. The downward reaction must be at an end. So I go massively long, trusting entirely in my indicator, good technical trader that I am.


But now what am I to make of this? The RSI has struck the bearish upper bound and glanced off. I better close my long before it becomes a loss. I gather now that since price has failed to reach the upper bull bound that we are in a bear trend and this is a good short signal so go short.


Hey, it works! But what should I do now? Price failed to hit the lower bear boundary so I guess we’re in a bull trend again? Close my short? No one goes broke banking a profit, right?
And go long because failing to reach the bear low is a bullish sign?


I feel bad for a while as price makes a new low but the RSI never hits the bear low boundary so I decide to let my loss run and it works again! Oh man, I love trading the RSI! It is a gold mine! Now do I hold this winning trade? The RSI is bending dangerously down. But I need to wait for the RSI to hit the upper extreme first right? Let my profits run!


Aw crap! Price ended up continuing down, so it ended up bouncing off no boundary on the RSI. This is probably a fibonacci ratio/level of some kind that I should know about! I better finish the book and buy some more TA books. Is this now bouncing off the lower boundary of the bull trend zone? So I should hold my trade and stay long? Except not reaching the top bull band zone is quite a bearish sign! Oh man oh man. What to do??
Well, let’s assume that this is a 50% retracement of the RSI move we just saw. The RSI trend is up overall. I’m staying long!

A tale of RSIcide continued

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Oh no, the RSI has now completely exited the bull zone, so that’s surely a sign to exit my long (darn should have taken profits) and go short. The 39 level is not being ‘held’!

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Yet no sooner do I say that and the RSI bounces off the bull lower bound and now what?
Is this a ranging period? Should I just hold and stay short? Well, the RSI failed to reach the bottom boundary so that’s a bullish sign. Best exit my short and go long. I guess? I dunno. As long as I stay with the trend these losses will be just the cost of doing business.

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Things are looking good, just need to hit the bull upper...Damn! We are in a range. Ok, well I’m not getting fooled again. The RSI is bouncing off the bull lower bound and so we’ll just ride this out. Stay long, pony boy!

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Aha, see! I told you it was going to go long again. The RSI never lies! We were in a range, and although I’m getting murdered by mounting swap fees from holding this trade it will all work out as I’ve nearly broken even on the trade and when it hits the bull max level I’ll exit for enough to cover everything.

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Oh wow, I better go find and reread that section on trading psychology because my determination is starting to waver! You need balls of steel to trade Forex, man! Balls of Steel! Where are your balls, man? WHERE. ARE. YOUR. BALLLLLS?!!

Oh man oh man oh man. Why did I ever sign up for this stupid account? No one trades forex anymore, man, there’s no volatility! Todd told me Forex is dead and he was right! Everyone is trading crypto. Crypto is where it’s at. Why did I not just trade Chibi-InuCoin, man?! Why???? Oh my wife better not find out about this.

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How many flipping days has RSI told me that things are stabilizing, and bouncing off the lower boundary should be the end of this pain! F--- this shit!! I'm out! At least I can still afford a two-four while I binge watch TV and flip through Tinder.

and a little while later...

No f#@$%@ way.

Of course this is only one story and there are many ways to tell it. My critics will no doubt tell me that not only am I bad at writing stories; I'm bad at reading the RSI. I deny nothing. I’m not making fun of anyone; I used to trade this way. It leads to lunacy and broken dreams, my friends.

Chapter 2 - Dominant Trading Cycles are Not Time Symmetrical
Do you have your healing crystals and incense ready, because it is time to talk about the mystical nature of cycles!!

1. The first edition of this book dealt with fixed-period cycles
2. I dismiss them now but I used to be a big cycle devotee until I noticed that the cycle defenders always had a different reason for explaining why their forecasts never worked. They were so confident in their mathematical expertise that they couldn’t ever admit they were wrong. It’s a classic failing of the intelligent. They are sometimes easier to fool because they have so much confidence in their intellect and it is harder to get them to change their minds. These are not good trader traits.
3. I was also lucky to bump into ParisBoy on FF as he was dismissive of almost all the voodoo of the Hurst cycles group, and in fact I’d guess he uses less than 10% of what is taught in ‘The Profit Magic of Stock Transaction Timing’ these days. The moral is - find good mentors, even if you never talk to them, even if they’re ‘just’ books not people, get the best ones.
4. CB says some methods of cycle analysis are best suited for strategy, while others are good for signals
5. Analysts and traders have ‘very different needs’ (really?)
6. “a cycle is a rhythmic fluctuation that repeats over time with reasonable regularity” fixed periods are not part of this definition
7. CB starts with Samuel Benner’s discovery of a nine year cycle in pig-iron prices
8. “Fixed period cycles fail to adjust to natural rhythms of expansion and contraction characteristics within markets.”
9. The larger the time span the harder it is to see this ‘expansion/contraction’
   1. A 400 year chart of Gold appears to show a fixed period cycle
   2. A quarterly chart however has timing that is ‘off’

   
   

The ‘old’ way.
This anticipated a trough in 2006 with a peak around 2002.


Looks like it was precisely the opposite, or as precisely as a boundedly random process can be. The eight year cycle between troughs can almost be detected however.

1. ‘Fibonacci cycle projections will not provide us with the definitive answer when we ask, “What is the most important cycle within the market I trade now?’
2. When CB asks why the Fibonacci sequence will have a bearing on our profitability she answers by saying Da Vinci wrote about them, and they are an aspect of the pyramids at Giza. This is not an answer at all, it’s a deflection.
3. The numbers are found in ‘anything’ that has a growth/decay cycle. It is a law of nature CB says.
4. CB shows us another Nikkei chart with weekly fixed period cycles interspersed with vertical broken lines showing Fibonacci time cycles. She correctly points out that the magnitude or strength of a move at a cycle time is the ‘heart of the issue’ for a trader. I don’t know what we are supposed to make of this chart though.

1. The confluence of Fibonacci time projections produces weaker results than Fibonacci retracements, says CB, if that’s even possible.
2. If we don’t get the cycle low that the chart shows us, what is the solution? Simply add another arbitrary cycle. Here the 44 period cycle is added to capture the cycle low that was missed.

The ensuing chart adds a 56 period cycle and it looks even worse.


This complicated chart shows an effort to anchor the Fibonacci series extending forward from the anchoring points used at the cluster of lows. This seems to help, says CB, but later she admits some points are still late, and this is all improved if we start a new trend only after a first retracement, as the new trend ends at price swing extremes but doesn't necessarily immediately begin a new trend. Also the next major cycle shown in this chart was not a major bottom. That’s because cycles can also mark where acceleration begins, not just the lows. There were two kinds of cycles - symmetrical and Fibonacci rhythms within the Nikkei.

You know what this is? Alchemy. Epicycles. It’s horrible science. Each time something doesn't work something new is added. Nothing is ever subtracted, only added - an example of additive bias. Whether intentional or not the effect is to delude, with the façade of scientific inquiry designed to mislead. Terrible.

CB goes on to talk about the work of Benner, Dewey and Gann, omitting Hurst, interestingly. Curiously, they were all American. The only one approaching scientific rigour was Dewey.
CB describes a Dewey cycle projection that would put the real estate cycle low in 2011 despite the crash of 2008. The book was written in 2011 and CB says the bottom isn’t yet in. Well, I can tell you from 2021 that the bottom was 2008.

She gives several more historical examples, but it’s all hogwash. I have a dozen ways to discredit it, but it’s really very simple. Take the cycles tool and try to fit it to any chart. You will see no periodic cycle lasts for long. The markets are fixed cycle erasing machines. The concept of decay and growth sounds interesting, but when will CB get back to it?

1. Benner introduces the idea of a 54 year cycle (note it contains three 18-year cycles)
2. CB asks “Is having our current history recorded entirely by electronic means really the smartest thing for us to do?” Likely not.
3. Knowing where we are in the much larger cycle is more valuable than trying to find a single short term entry (you see the attempt to kick the can down the road -using ‘higher time frame cycles’ to essentially defer being wrong)
4. CB has a ‘trader school’ in NC.
   1. The most important thing she teaches is to ‘not run away from the unknown’ (or the false, or the scammy)

   
   

5. CB detours to make interesting examinations of loss of confidence in currency, the benefits of manufacturing for getting one out of a depression, and the fact that no matter what your industry in a global marketplace you are a currency trader whether you want to be or not. What does it all have to do with using cycles to make forecasts? You may well ask.
6. Gann made a curious forecast about WW2, apparently before the US was involved. He correctly anticipated that Hitler’s fatal error was engaging with Russia. He also suggested the war will be lost because Great Britain and the USA control the seas. The war was fought for no nobler purpose than to control world commerce.
7. CB restates the value of fixed period cycles in the longer term. Just as Du Toit finds the greatest value in higher time frames. I submit though I am damned how I will prove it, that this is simply waiting longer to find out you’re wrong. Ideally, by the time you’re dead and have profited from all potential book sales and trading school courses.
8. “But if 2008 to 2012 were foretold to be rough years and we are still living through them now, can Gann analysis warn us when the next bear market will unravel global markets again? Yes. The same cycle and confluence of supporting cycles point to 2019 to 2021.” Score one for CB and Gann?
9. “To begin with, one must accept from Gann’s cycle warning of 2008 to 2012 that this bear market is not over.” Or maybe not. Unless you count 2015?? I don’t.
10. CB warns the reader to focus on astronomy not astrology I should probably keep track of how many times I roll my eyes reading a book and stop on the third strike.

Chapter 3 - Choosing and Adjusting Period Setup for Oscillators

1. Quote vendors use the same default periods for their studies (indicators on software platforms all have the same settings)
2. Markets have different personalities, so you need different technical tools
3. In ‘flash crash’ environments CB doesn’t use oscillators that track 0-100
4. A ‘simple’ detrended oscillator from two simple moving averages will ‘keep the trade on and take it off with the best timing’
5. Two minute charts are used in emergency situations like waterfall declines
6. Tick data will distort your EWT; so use point and figure charts instead
7. Use 100 by 3 and 50 by 3 for S&P500. Why? Because that’s the format favored by pit traders - old habits still have an influence

R = retail traders
P = pro traders

The chart features a stochastic that is ‘deliberately set up incorrectly’
The chart shows pro traders using retail volume to set themselves up better
The retail dummies (stochastics default club) enter on cue as the indi crosses up over 20 and will sell as the indi crosses below the 80.
Sometimes stochastics will give the novice trading group 3 signals in a row and divergence or a W bottom like what is seen at R2. When this happens ‘they’ come out in larger numbers and produce a 3 wave corrective move.
This could almost be tested. Is it worth trading shortly after the default stochastic signals? I flatter myself that this is the kind of simple pattern I would have noticed back when I messed around with such things, but who knows? It’s easy to miss things (especially when they don’t exist).

1. Stochastics is a two-line oscillator that uses %D as the primary and %K in a shorter interval to offer a leading indicator to %D
2. Use cycles to find the best period for %D. Align to the most closely fitting recent lows, and let the older lows go out of sync
3. Identify the cycle length and use ½ that length as the period
4. Pro chart packages have an optimization feature to help you find the best period (not MT4, I assume) CB uses the example of Omega TradeStation
5. George Lane stochastics inventor advised only to use it with the trend; buy or sell when permission is obtained from divergence analysis
6. “The best way to handle volatile markets is to use two windows with the data displayed in a ratio of 4:1. For example, a 240-minute chart next to a 60-minute chart will help you filter noise from your indicators and improve the timing.” Why?
7. CB chooses this awkward time to admit she doesn’t use stochastics as she prefers RSI’s ranges and the composite index. So...I’m going to move on then?
8. CB proudly talks about modifying settings to fit data on the left side of the chart as though it will help on the right side (it won’t)
9. She suggests using an 88 minute bar chart with S&P500 instead of H1 and defends it with the following chart but it sure just looks like a bunch of spaghetti to me.

What am I supposed to notice at point X and Y? The bounce off the line? Whereas the H1 chart allows one line to move above the other? This is happenstance.

1. MACD is a smoothed indicator and smoothed indicators have ‘severe lag’ so you need to plot two indicators or better still, four for use in bull and bear markets (always adding, always more complex - beware beware)
2. Again, CB doesn’t use MACD as she prefers her composite index.

What is the point of talking about a method you don’t use? To pad out a book of course.

Chapter 4 - Dominant trend lines are not always from extreme price highs or lows

1. We have pre-existing mental patterns that constrain our learning new things
2. To demonstrate this CB uses the classic puzzle of nine dots that have to be connected with four straight lines without raising your pen/pencil. If you've never attempted this old chestnut, you haven’t lived!
3. She then has us attempt to repeat the same trick with 9 points on a chart for apparently no reason at all!
4. She tries to find meaning in small spikes proceeding after a swing high or low
5. “ Always extend trend lines as the point where trend lines bisect may mark the timing of a market turn.” They may and they may not, usually not.

The idea is that if you find the bisection point from two trendlines and their angles, you can draw a line that will anticipate an eventual trend continuation - not only the amplitude but the timing.
But this is absurd as there is no restriction on how these trendlines are drawn or what angle is used to emerge from the bisection point. So we can make any line join from a preceding bisection to a new price in the future, nearly without exceptions.

1. trend lines should start from the price extreme that is behind the key reversal or spike rather than from the actual price low or high. It doesn’t matter. Who cares. Price doesn’t care about your magic lines no matter how skillfully drawn. CB continually shows her desperation to seem clever and to invent new voodoo nonsense.
2. “A trend line must be tested by the market a third time in order to use an intersection point as a warning that a market turn may develop.” Three shall be the number of thy counting and the number of thy counting shall be three!
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Which trendline is CB talking about? The first trendline that defined the prior trend or the new trendline defining the current trend? Either way, a trendline isn’t really a trend if it doesn’t have at least a few bits of price history hanging down the other way to define a potential turning point. So 3 tests is a safe bet.

However even here CB’s rigour is suspect.
“Trend lines 1 and 2 have both been tested three times so the crossover at point a was a valid alarm to watch for a possible trend change.” Has trendline 2 been tested thrice? I only see one actual point of contact before ‘a’. So if price doesn’t have to actually touch or cross a line what counts as a ‘test’? Bogus!
“The intersection of two trend lines is a wake-up call that we need to examine our other indicators very closely.” So the rest of the time we can just blithely ignore what they’re saying? These are just words to fill up blank space.

“If you pick up only a single notion from this book, let it be the following: When an oscillator advances or declines disproportionately to the markets’ movement, you are on the wrong side of the market if you are positioned with the oscillator.”

This bold statement is made about point 'e' on this chart. We can see that the composite jumped upward from point e while price behaved anaemically just before a big drop. This would likely show up as divergence.

The thing is the statement is fairly meaningless since if the oscillator isn’t correctly anticipating future price movement any positioning based on it will necessarily be random - either false or lucky, but never actually foretelling anything. All we have to do is look at the myriad times the index line dropped precipitously and nothing bearish happened in the days preceding point ‘e’.

I can even see a few bullish spikes where price did not do much of anything or even slumped. Should I highlight them all? OK, fine.


Just about every large bearish composite drop is misleading, and a few bullish ones as well. But the segment at point ‘e’ is what we should be focused on?? It looks positively clairvoyant compared to the pink sections I’ve highlighted. This is selective bias taken to a high art. Are you ready to dismiss CB as a willing mountebank of the sell-side seers?

NO?? Well, just a few more chapters then.

Chapter 5 -signals From Moving Averages Are Frequently Absent In Real-time Charts
Yes, because they are not signals at all.
CB muses on the nature of indicators and tells us some of them have ‘characters’ that we need to get to know. You may have thought you missed a signal when in fact there was no signal to evaluate at the time of the live decision but it appears to be one after some time has passed.

There is also a psychological change that occurs as we scroll through history and the scaling of the graph changes.

Traders must know if their indicators rescale or ‘operate within fixed boundaries’. Do the indicators shift positions over time (recalculate or ‘repaint’)

CB takes screenshots before a trade is entered (good practice)

She then shows a series of pictures that show that we can get a different picture and completely different forecast from a moving average by altering its settings.

Distortion can be exaggerated by resizing a window.

Ok, I’m convinced. Moving averages are not good signalling indicators. Moving on.

Part 2 - Calculating Market Price Objectives
Chapter 6 - Adjusting Traditional Fibo Projections for Higher Probability Targets
CB considers herself a Fibo expert and after 10 years she is some kind of Fibo yoda.

Her first step in analyzing any market is to consider the Fibonacci price grid that identifies support and resistance.

When indicators conflict it’s a ‘technical signal’ advising us to stay out of the market or trade smaller.

The usual view of Fibo analysis is too simplistic for the ‘reality of the markets’.

Fibo retracements need not always be calculated from extreme highs and lows. This is because the ‘internals’ of a trend begin to ‘proportionally expand or contract within the move’.

We can ‘precisely’ measure how much price is expanding or contracting by ‘using’ the largest bars in the move. Every market has ‘milestones’ in the internals of a swing which define the ‘mathematical grid’ of the market. You have to buy CB’s other book ‘Fibonacci analysis’ to really get this.

The most common mistake is to stop looking at the internal details within a ‘data swing’ as they contain the most valuable details.

CB compares two charts where the Fibonacci retracement is calculated in the usual way using extremes, and then this new way where “change is made to use the strong start of the rally after the key reversal in the secondary pullback.” No attempt is made to define those terms. For CB to name something is to know something. As soon as some technical-sounding jargon can be applied to a situation, it becomes ‘knowledge’.

The minor difference in drawing the retracement allows the second chart trader to resume with the trend, where the first trader using regular fib retraces would have missed the trade. Have a look. The difference is positively Brooksian (minor).


If you want back in to that trend just hop back in homie.


“The fact the market uses the lower Fibonacci ratios from this resistance method is a way to confirm the accuracy of your selection to start the range. The price high in 2011 was used again after the failure to make a new calculation. The 2011 high to the low of the range used to identify that high risk top, was again subdivided into the ratios of 0.382, 0.50, and 0.618. Notice how the market uses these levels as resistance in the down trend back towards the lows.”
I don’t see price reacting to the magic lines at all. I see it moving everywhere as it always does. If price had trended straight down a new technical reason would be invented to explain it after the fact.
Time to move on.

Chapter 7 - Price Projections by Reverse-engineering indicators
CB warns us that this is an ‘analytic method’ not a trading tool. The difference is philosophical, surely?

When a Fibonacci and Gann Wheel confluence zone identify the same targets it's like a ‘great wall of china’ is found at this level.

CB uses Excel to ‘reverse-engineer’ the indicators. She outlines a procedure to import data files for any vendor that uses ASCII or CSI/Metastock data formats. The procedure uses floppy disk drives. Got one of those? They were rad.

I’m not even trying to follow along but it seems to me CB isn’t giving the reader enough information about the formulas to be able to generate the price targets she’s seeing. This book has frustrated multiple generations of traders, I’m sure.

Anyway, that’s as far as I go with this fool’s errand. It was a mistake to go this far, and I’m sorry to have wasted your time. If you found this book useful, feel free to let us know how exactly. If you are a Connie Brown fan, I am sorry to have failed you.

Review:
I’m convinced this book, and almost everything in it is a deliberate deception. It's simply too complicated to be of practical use to anyone, and there's never just one clear way to analyze/trade - it's layers upon layers, offering unlimited wiggle room for when things don't work out as you expected.

I am sure Constance Brown does not eat her own dog food. If she does trade at all it’s with very small risk as she cannot predict a thing with her convoluted fabrications. Nor can anyone else. Whenever an indicator or method doesn’t work there’s at least half a dozen more to give us an opposing view.

Don’t worry about her though -she’s doing fine from selling products.

Next: The Art of Currency Trading by Brent Donnelly. Will it reverse the trend of disappointments? I doubt it can be worse than this.