|
Trader's Tip
3 simple steps equalize the trading field for all traders.
- Ryan Jones |
|
Quotes & Charts
Quote Search:
Market Specific Links:
Indices/Minis
Grains
Currencies/Forex
Financials
Food/Fiber/Softs
Metals
Energy
Meats
|
Special Message from Our Author
Today's Featured Article
Market research has always been my passion. 20 years ago, I remember receiving the weekly paper charts from CTS and just staring at them for hours at a time looking for patterns and trading ideas. Soon after came software programs that allowed you to program in trading ideas. Once programmed in, a back test was generated and a performance report provided. This sure beat the daylights out of going through the paper charts by hand. When the computer came, the software quickly followed and a new era in trading began.
The New Era
Now, more than 20 years later, the jump from paper charts to a computer has been repeated. The jump from paper charts to a computer was about two things...time and ability. It took time to go through and back test trading ideas by hand. It was impossible to back test complicated trading ideas by hand. The computer gave traders the ability to back test trading ideas that were otherwise impossible to back test.
The new era is about the same two things...time and ability. The new era is about to be introduced through a new software program called
Quantum Charts, which gives you unprecedented power to uncover, create and analyze trading systems without any user programming required.
The ramifications of Quantum Charts are staggering. For most traders, the lack of programming skills greatly limited the ability to uncover, create or back test trading systems. For those who have extensive programming skills, it takes significant time to program the trading ideas. Now, with Quantum Charts, traders who have ZERO programming skills can quickly uncover, create and analyze trading systems in mere minutes. Those who have extensive programming skills can uncover, create and back test trading systems in a fraction of the time it would take them to program those same systems from scratch, especially if there is any complexity to the system.
How does this work? It took a lot of planning and a tremendous programming effort on our part to create a software tool that has this kind of power without any user programming required. In short, Quantum Charts uses a patent pending drag and drop technology to visually create highly complex trading systems.
If ever the trading field has been equalized for all traders, it is now through Quantum Charts.
Quantum Charts is a few months away from being available to the general trading public, but below are a couple of illustrations of how easy it is to uncover, create and analyze a few simple trading systems. We will get more complex in future articles.
1. You start with a chart. For this illustration, I'll use a daily chart of Ebay. Click on any bar on the chart and instantly Quantum Charts will analyze the conditions that exist at the time of that bar and provide you a list of true conditions. We'll stick with price action conditions for this illustration.
Below I clicked on a bar in the chart. Quantum Charts instantly provided me with a list of true conditions that existed at that bar. I purposefully chose (visually chose) a bar with a range that was greater than the previous bar, otherwise known as an "outside bar". The bar chosen turns blue, as shown below.
 If you cannot view screenshot 1, go here.
|
|
2. Choose the conditions you wish to analyze. For the purposes of this illustration, I chose the two conditions that make this bar an outside range bar. The high is greater than the previous high and the low is less than the previous low. Quantum Charts then instantly colors all bars where these two conditions were true.
 If you cannot view screenshot 2, go here.
As you can see, every bar that turned blue has a higher high and lower low than the previous bar.
3. The next step is to simply click on "Analyze".
 If you cannot view screenshot 3,
go here.
Quantum Charts takes a totally different approach to analyzing scenarios than all other system development programs on the market today. Instead of requiring that every single idea be wrapped around by an entry and exit signal, Quantum Charts analyzes market movement
before an entry or exit signal is required. In other words, when there was an outside range bar, what did market action do after these occurrences for each bar after? Bar 1 represents market movement 1 bar after an outside range bar. Bar 2 represents market movement 2 bars after an outside range bar.
As you can see, there were 234 outside bars, 119 occurrences were followed with a higher close 1 bar immediately after the outside bar. 110 occurrences were followed with a lower close 1 bar immediately after the outside bar.
There are several other great market movement stats provided as well. Due to limited space, I cannot go over these stats or their usefulness in this article, but there will be many help videos and articles in the future to go over these and other features.
By analyzing every single bar after each occurrence, you can quickly get a feel for whether an opportunity exists and if so, whether it is a short-term, intermediate-term or long-term opportunity. This is far more efficient than putting an entry and exit signal around the opportunity trying to guess when you should enter and how long you should stay in.
In addition to the above stats, Quantum Charts also provides you the degree of market movement in either direction (go here to see an example).
These stats help you figure out where (if any) profit targets might want to be placed and where stops should be considered. Clearly placing a stop at 0.25% away from the close of the occurrence bar (outside range bar), would be hit most of the time whether you bought or sold (78% of the time if you bought at the close of the occurrence bar, 85% of the time if you sold at the close of the occurrence bar).
These stats may seem to be a little more complicated to figure out, but they really are quite intuitive once you have seen 10 or 15 sets of them (which can be done in 30 minutes of using Quantum Charts).
The purpose of these market movement stats is to quickly determine whether there might be a trading opportunity available, and if so, long or short and how long that opportunity might last. All of these things can be discerned in seconds from these stats.
Clearly, an outside range bar in and of itself offers no opportunity in this market. The next step is to simply begin looking at different aspects of the outside range bar.
The market movement stats below represent an outside range bar with a higher close. This was done by simply going back to the condition list provided for the original bar chosen and clicking on the condition "close is greater than previous close". Instantaneously Quantum Charts updates the colored bars showing only outside range bars with a higher close and provides a new set of market movement stats.
This step took the better half of 1.5 seconds to accomplish.
 If you cannot view screenshot 4,
go here.These stats really didn't reveal an opportunity so I clicked on another outside bar that had a down close and clicked on the three conditions to make an outside range bar with a down close. This process took the better half of 8.7 seconds.
 If you cannot view screenshot 5,
go here.
|
|
The point of this illustration is that I can go through an endless number of variations with this particular one-bar setup. I can look at any relationship with previous bars; or I can add a trend filter to look for short-term buys during an uptrend or sells during a downtrend.
However, before bringing this article to an end, I wanted to illustrate uncovering a potentially profitable strategy using a longer-term trend as the base starting point (as opposed to looking at a single bar as the base starting point).
Below I clicked on a bar where the shorter term moving averages were each below the longer-term moving averages. I have an 8, 32 and 128 bar simple moving average applied to the chart. Two of the conditions that came up from the selected bar was:
8 bar ma was below the 32 bar ma
32 bar ma was below the 128 bar ma
 If you cannot view screenshot 6, go here.
As you can see, when each shorter term moving average was below the longer-term bar, the bars turned blue. The process from here is to simply look for a bar or group of bars that may stand out within the section of bars that are colored. What I was looking for was a bar that represented higher prices within the downtrend.
 If you cannot view screenshot 7, go here.
I clicked on that bar and the condition list appeared. Scrolling down this list, the two moving average conditions that I had clicked originally were also listed (because I clicked on a colored bar within that group).
From here, I simply choose a condition that represents higher prices, along with the two moving average conditions. I chose the condition:
"Close is greater than previous high for 2 consecutive bars"
I also clicked on the two moving average conditions again and immediately all of the bars that met all 3 conditions were instantly colored and a set of market movement stats provided.
 If you cannot view screenshot 8,
go here.
On the screen, there was only 1 other bar that met all 3 conditions chosen. Go here to view the stats.
There were only 53 occurrences where all 3 conditions were true. However, there was definitely a potential trading opportunity to the downside within the first 3 bars of these conditions being met. By the 3rd close following the occurrence bar, 61% of the time the market was below the close of the occurrence bar.
By the 2nd bar after the occurrence bar, the market had moved at least 1.00% lower 73% of the time compared to only 1.00% higher 55% of the time.
As you can quickly see, if someone were to choose to sell the market based on these conditions, the opportunity has not lasted for more than 3-bars on average. By the time you get to the 4th bar after the occurrence and beyond, things equalize and in some categories, slightly reverse.
Changing the Price Action Condition
In the stats below, I kept the moving average conditions chosen above and changed the price action condition to one that had price moving down in the same direction as the moving averages. The short-term statistics from this scenario did not show any consistent bias in market direction one-way or the other. However, after about 20 bars, there was a definite bias, as shown by the statistics.
As you can see, by bar 22, the market was below the occurrence bar close 71% of the time. The market was also down by 1.50% below the occurrence bar close 68% of the time compared to being higher than the occurrence bar close by that same amount only 29% of the time.
It took me all of 7-minutes to find this potential trading opportunity. From these stats, I will look for an entry point later than the conditions I chose so that the time required to hold on to the trade might be shortened considerably, which will also decrease my market exposure.
A New Era in Trading Has Begun.
Quantum Charts has not been released to the general trading public yet, but if you would like to sign up for an early copy, go to the following link: www.QuantumCharts.com
|
|
About the Author
| Ryan Jones
is considered one of the trading industries "most complete traders". Starting his trading career at the early age of 16, he had traded nearly every major market and strategy by the age of 21. At the age of 26, Ryan signed a book deal with John Wiley making him one of the youngest authors ever in the field of futures trading. His book, The Trading Game, Playing by the Numbers to Make Millions is still considered to be the authority on the subject of trading and money management by many leading traders. Ryan's advanced experience and knowledge across many trading fields such as Technical Analysis, Option Trading, Money Management and the S&P have lead to several
trading feats, including turning a $15,000 account into over $107,000 in less than 90-days short-term trading the S&P (real money). |
|
Special Message from Our Author
|
