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| The Learning Centre - Book Reviews https://www.stevehopwoodforex.com/phpBB3/viewtopic.php?t=5281 |
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| Author: | RisklessPips [ Wed Oct 25, 2017 10:12 am ] |
| Post subject: | The Learning Centre - Book Reviews |
Disclaimer - I have no commercial, monetary or any other interest, other than information, in anything I review. All views, opinions and comments belong entirely and exclusively to the reviewer. The Market Wizards Conversations With America's Top Traders © 1989 by Jack D. Schwager published Harper Collins. Note : This book consists of several interviews conducted by the author and top traders. I have decided to review each interview in turn because each has a different context and personality. Gary Bielfeldt This trader struck me as being the “luckiest” of the traders so far reviewed in this book. I do not say this with pejorative intent, merely as an observation that his start and continuation as a professional and ultimately successful trader rested on trades that could have ruined his account just as easily as they made his fortune. Having started out in the mid 1960’s with a small (even then) $1,000 USD stake, he built this up over a few years to $10,000 USD. Wanting to become a full time professional trader, he realised he needed a larger capital base. This is Schwagers take on what happened next. “….he bought twenty soybean contracts, an extremely high leverage position given his $10,000 account size. A mere 10-cent price decline would have completely wiped out his account, while a considerably smaller decline would have been sufficient to generate a forced-liquidation margin call. Initially, prices did move lower, and Bielfeldt came perilously close to that damaging margin call. But he held on, and prices eventually reversed to the upside. By the time he liquidated the position, he had more than doubled his equity on that single trade. That trade launched Bielfeldt toward his much sought after goal of becoming a full-time trader.” By the early 1980’s Bielfeldt had turned his attention to T-Bonds on account of the greater size of trade he could transact in that market as compared to his first love of Soya Beans. Once again in T-Bonds he took a bullish position and went long “just at the right time.” Schwager says, “His shift to T-bonds coincided with an evolving major bottom in that market. He became very bullish and built up a huge long T-bond position at the right time. When the T-bond market exploded during the mid-1984 to early 1986 period, Bielfeldt was perfectly positioned to garner huge profits…. This long T-bond position was Bielfeldt's best trade ever and catapulted him into a new echelon.” On a personal level Bielfeldt comes across as a modest man who cares deeply for things other than trading. He is concerned about the welfare of his community and takes an interest in local developments even refusing to move away to conduct his large trading operations “closer to the action” in places like Chicago. Bielfeldt is, by nature, a fundamentals trader with strong leanings to confluence with technical analysis. Given the difficulties, which he readily acknowledges for fundamental analysis, he says he is a trend follower when it comes to technical analysis. What is your opinion of trend-following systems? “The best thing anyone can do when starting out is to learn how a trend system works. Trading a trend system for a while will teach a new trader the principle of letting profits run and cutting losses short. If you can just learn discipline by using a trend-following system, even temporarily, it will increase your odds of being successful as a trader.” Reviewer – This is a shared view with many of the other top traders reviewed thus far. Thinking point - Perhaps there is something in this trend following business ? When asked about his view on the most important aspect of trading, here is what he says. What are the elements of good trading? “The most important thing is to have a method for staying with your winners and getting rid of your losers.” Reviewer – This is an oft repeated mantra in all of trading and with respect to Forex. It is not difficult to understand but it is often difficult to achieve in practice. Asked about the traits of a successful trader, Bielfeldt names five. These are : 1) Discipline 2) Patience 3) Courage (Reviewer – The courage to be wrong and still go back into the market) 4) Willingness to lose 5) Strong desire to win Those elements seem fairly straightforward, except for the willingness to lose. Can you expound on that? “You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can't let a losing trade get to you emotionally.” Reviewer – Emphasis mine. There is that emotional thing again ! Getting emotionally involved with individual trades and positions is highlighted by yet another top trader as an indicator of imminent failure as a trader. Gary Bielfeldt did not jazz me ! His personality and mine seem at odds and I felt that difference in his Q&A style during this interview. Charles A library mainstay ? 1 / 5 Stars Easy to read ? 4 / 5 Stars Any practical applications ? 3 / 5 Stars Overall personal recommendation 2 / 5 Stars |
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| Author: | RisklessPips [ Thu Nov 02, 2017 11:41 am ] |
| Post subject: | The Learning Centre - Book Reviews |
Disclaimer - I have no commercial, monetary or any other interest, other than information, in anything I review. All views, opinions and comments belong entirely and exclusively to the reviewer. Understanding Classic Chart Patterns © 2009 Recognia Inc. http://www.recognia.com. This short e-book is a particular favourite of mine that I go back to especially when I start overthinking and complicating the art of reading price action. Technical analysis and chart patterns have long been held to be a means to profitable trading if the trader can correctly identify and act appropriately based on the chart patterns. Reading prices action on charts is a field of activity all traders of whatever experience need to engage in from time to time in order to hone and sharpen their ability to identify trades with higher probability of being profitable. It is said that profitable traders spend most of their time waiting for the correct trade and only a relatively small amount of time actually engaging in trades. The concept of patience and reviewing many different setups before deciding on any particualr one for a trade is well documented and worth considering. Why do price patterns matter ? Trading, like life itself, is a series of repeating patterns and routines. That is how human beings are wired to do the same things over and over with slight nuances and differences. Reading and effectively interpreting patterns in whatever field of activity lends great advantage to the actor. For example : 1) A person schooled in body language can read another like a book by watching for patterns of body behaviour. 2) Understanding the patterns (stages) of development is of great help to a second time parent. 3) City planners trying to manage traffic congestion issues need to be aware of patterns of motorist behaviour and activity You get the idea. Trading is no different. Prices are an effect of buyer and seller interaction in the market. The behaviour between sellers and buyers has patterns that can be read and understood. At the most basic, these patterns work because human behaviour tends to inertia and repetition. A trader needs to understand 3 things 1) Price draws repeating patterns on charts all the time. 2) An understanding of the root cause of the pattern is not necessary (although it helps to do so.) 3) Trader application of a repeating pattern of behaviour when a particular chart pattern is observed will result in the same outcome much, not all, of the time. This e-book details several important chart patterns that if correctly identified and applied determine trend reversal and continuation outcomes. Head & Shoulders Top Reliability – High Occurrence – Low Type – Reversal Pattern from an up to a down trend Aesthetics – Good shoulder symmetry, acute tops, slightly sloping or horizontal neckline. Confirmation – Close below the neckline Volume – Decreases from the left shoulder through the head and lowest at the right shoulder. Increases after the neckline breakout. Trade entry 1 – On close below the neckline Trade entry 2 – On a retest of the neckline after a previous close below the neckline. Profit target – Subtract the pips from the top of the head to the neckline from the price at the neckline. Head & Shoulders Bottom Reliability – High Occurrence – Low Type – Reversal Pattern from a down to an uptrend Aesthetics – Good shoulder symmetry, acute bottoms, slightly sloping or horizontal neckline. Confirmation – Close above the neckline Volume – Decreases from the left shoulder through the head and lowest at the right shoulder. Increases after the neckline breakout. Trade entry 1 – On close above the neckline Trade entry 2 – On a retest of the neckline after a previous close above the neckline. Profit target – Add the pips from the bottom of the head to the neckline to the price at the neckline. Triangles These can be: 1) Symmetrical 2) Ascending 3) Descending Reviewer - Triangles can be both reversal or continuation patterns and it is therefore best to trade them only after decisive breakout. Triangle patterns work because underlying them is a squeezing of seller and buyer activity as they jostle for position in the market. Increasing uncertainty makes participant behaviour short term and constrained. At the point of breakout a definitive move by one side or other is made. All the pent up pressure in the market is released in a violent burst either continuing the trend or reversing the direction. Reliability – High with low failure rates after correct identification of breakout. Occurrence – Medium Type – Mostly continuation patterns but sometimes signal reversals. The breakout is the determinant of the type. Aesthetics – Converging lines with 2 or more touch points on the lines. Confirmation – Close outside on of the converging lines no more than 2/3 or ¾ of the distance from the base of the triangle to the apex. Volume – Decreases from the base towards the apex and increases exponentially after the breakout. Trade entry 1 – On close outside one of the converging lines Trade entry 2 – On a retest of the converging line Profit target – For an uptrend continuation (or a downtrend reversal), add the pips of the baseline to the price at the apex. Profit target – For an downtrend continuation (or an uptrend reversal), subtract the pips of the baseline from the price at the apex. The e-book ends with a few other common patterns including double tops and bottoms with good advice on identifying and trading them. Reviewer – Price Action is a necessary and difficult art to master. Learning to look for and correctly interpret price patterns, leading to the same action from the trader each time one is discovered will go a long way to making profitable trades easier. A library mainstay ? 5 / 5 Stars Easy to read ? 5 / 5 Stars Any practical applications ? 5 / 5 Stars Overall personal recommendation 5 / 5 Stars |
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| Author: | RisklessPips [ Sun Nov 05, 2017 2:12 pm ] |
| Post subject: | The Learning Centre - Book Reviews |
Disclaimer - I have no commercial, monetary or any other interest, other than information, in anything I review. All views, opinions and comments belong entirely and exclusively to the reviewer. The Market Wizards Conversations With America's Top Traders © 1989 by Jack D. Schwager published Harper Collins. Note : This book consists of several interviews conducted by the author and top traders. I have decided to review each interview in turn because each has a different context and personality. Ed Seykota Seykota is a computer system trader’s dream. Since creating the first commercial computer based system for trading client money in Futures in the 1970’s he has created a performance and track record few others can match. Seykota comes across as highly intelligent, amusing and with a manner of getting to a particular point without being too obvious. His intelligence is clearly illustrated by the computer systems he has designed and built over the years, but he is also acutely aware of human nature and the role of psychology in trading. Reviewer – I found this dichotomy where on the one hand he relates to machine code and computer trading systems and on the other where he understands the human drivers of markets to be a fascinating study. His ability in the latter area undoubtedly helps him create better systems. Starting his career as an analyst (in the egg and broiler markets), Seykota resigned from his first job because he could not get computer time and went to work for another outfit where access to the accounting computer allowed him weekend access to write and test trading systems. His first systems were based on the theories of another historically important trader Richard Donchian who was a big proponent of trend following methods. Reviewer - In a refrain most traders who have ever used trading robots will sympathise with, he left the firm when management would not stop second guessing the system and micro managing the trading to the detriment of the outcomes. Instead of being profitable the system ended up losing money. When asked What is the performance track record? (of the system he created and improved after leaving the firm), he says: “I do not publicize my track record other than my "model account," which is an actual customer account that started with $5,000 in 1972 and has made over $15 million. Theoretically, the total return would have been many multiples larger had there been no withdrawals.” Seykota has this to say about his inspirations for creating this first system. What source did you learn from before designing your first system? “I was inspired and influenced by the book Reminiscences of a Stock Operator and also by Richard Donchian's five- and twenty-day moving average crossover system and his weekly rule system. I consider Donchian to be one of the guiding lights of technical trading.” Reviewer – Seykota has a pithy observation about his personal interaction with the system(s) he developed. This resonates with me because I have concluded my attempts at creating systems is often compromised (sometimes helped) by my personal interaction with the systems. This is what he says. Were you incompatible with your original system? “My original system was very simple with hard-and-fast rules that didn't allow for any deviations. I found it difficult to stay with the system while disregarding my own feelings. I kept jumping on and off—often at just the wrong time. I thought I knew better than the system. At the time, I didn't really trust that trend-following systems would work. There is plenty of literature "proving" they don't. Also, it seemed a waste of my intellect and MIT education to just sit there and not try to figure out the markets. Eventually, as I became more confident of trading with the trend, and more able to ignore the news, I became more comfortable with the approach. Also, as I continued to incorporate more "expert trader rules," my system became more compatible with my trading style. When asked why his brand of trend following seems to be so much better than other trend following methods, Seykota has a candid observation which pertains in part to his psychology and in part to instinct gained over many years experience. There are many trend-following systems with money management rules; why have you done so much better? “I seem to have a gift. I think it is related to my overall philosophy, which has a lot to do with loving the markets and maintaining an optimistic attitude. Also, as I keep trading and learning, my system (that is the mechanical computer version of what I do) keeps evolving. I would add that I consider myself and how I do things as a kind of system which, by definition, I always follow. Sometimes I trade entirely off the mechanical part, sometimes I override the signals based on strong feelings, and sometimes I just quit altogether. The immediate trading result of this jumping around is probably break-even to somewhat negative. However, if I didn't allow myself the freedom to discharge my creative side, it might build up to some kind of blowout. Striking a workable ecology seems to promote trading longevity, which is one key to success.” Reviewer – One might argue this response does not reveal much of practical use to a systems reliant trader because Seykota retains a discretionary element that cannot be replicated by others. But therein is his genius and where we can all develop a personal edge. Develop your own style and marry it with a robust computer suystem then trade it to profit. Unlike previous traders reviewed, Seykota is dismissive of fundamentals based trading. What are your thoughts about using fundamental analysis as an input in trading? “Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them "funny-mentals." However, if you catch on early, before others believe, then you might have valuable "surprise-a-mentals." Reviewer – Can yo see the pointed observations hidden in the humour ? Seykota reveals his three most important rules when following his trend based methodology. “I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.” Reviewer – Emphasis mine. In common with other top traders, Seykota underpins the need to stay emotionally detached from your trades. What was your most dramatic or emotional trading experience? “Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions. In another seemingly superficial response, but one with great advice, when asked about great trading elements, he says. What are the elements of good trading? “The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance. “ He follows this up with: Do you decide where you are getting out before you get in on a trade? “I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. Sometimes, I take profits when a market gets wild. This usually doesn't get me out any better than waiting for my stops to close in, but it does cut down on the volatility of the portfolio, which helps calm my nerves. Losing a position is aggravating, whereas losing your nerve is devastating.” Reviewer – These two responses bear strong resemblance to advice we have encountered before about the importance of risk management. Ignore this aspect of trading at your peril. Moving on to his learning style, Schwager asks : Are you a self-taught trader, or did another trader teach you worthwhile lessons? “I am a self-taught trader who is continually studying both myself and other traders.” Reviewer – Emphasis mine - This reply is music to my ears. In another humorous response perhaps loaded with more than a little wisdom he is asked what his advice is to an average (novice) trader. He replies, “he should find a superior trader to do his trading for him, and then go find something he really loves to do.” Seykota like most of the other top traders does not follow the advice of others. Do you use the opinions of other traders in making trading decisions, or do you operate completely solo? “I usually ignore advice from other traders, especially the ones who believe they are on to a "sure thing."” In response as to how a losing trader can get better, Seykota has some disturbing views. What can a losing trader do to transform himself into a winning trader? “A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That' s the kind of thing winning traders do.” Reviewer – Is this true ? Do losers lose because that is what they want deep down ? This is a very entertaining interview with a very astute trader who observes human nature, psychology as intently as he does his resultant computer systems. Charles A library mainstay ? 4 / 5 Stars Easy to read ? 4 / 5 Stars Any practical applications ? 4 / 5 Stars Overall personal recommendation 4 / 5 Stars |
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| Author: | RisklessPips [ Tue Nov 07, 2017 6:58 pm ] |
| Post subject: | The Learning Centre - Book Reviews |
Disclaimer - I have no commercial, monetary or any other interest, other than information, in anything I review. All views, opinions and comments belong entirely and exclusively to the reviewer. Getting Started In Chart Patterns – By Thomas N. Bulkowski © 2006 by Thomas N. Bulkowski. Published by John Wiley & Sons, Inc., Hoboken, New Jersey.. Bulkowski begins by telling us Chart patterns are the footprints of smart money. What he means will become clearer as we review this book which is a less technical tome than his pièce de résistance - Encyclopedia of Chart Patterns This work is the result of analysing nearly 40,000 chart patterns. Reviewer - Put it this way. If it takes about 10 minutes to review a chart on average, then this number of charts took over 9 months, of exclusive work, to analyse and document. Much of this work was conducted on price charts for stocks. This does not invalidate the results or conclusions for a Forex audience because the same buyer and seller activity that gives rise to chart patterns in the stock markets exists in the Forex markets. However, it is prudent to note the environments from which the results are deduced and the one to which you intend to apply those results. Regardless of market, any serious Price Action trader needs to know and understand Thomas N. Bulkowski’s work. Despite his highly commendable efforts at making a highly technical study approachable and easy to read, this material requires patient reading and thought to fully understand what he is showing. In this particular case, I not only want to review the book but also showcase his research in an easy to understand manner. That means I will not only be giving my thoughts on what he writes (where I can add value), but I will also paraphrase his material to enhance my own personal understanding of it and to make it more accessible to my readers. In order to achieve the above I will therefore review his work a chapter at a time in order to allow my readers time to reflect on each topic before moving on to the next. Chapter One – The Smart Money’s Footprints. This is a brief opening in which Bulkowski introduces his alter ego Jake Murphy to help explain some of the trading situations that arise as a result of reading and misreading price action on charts. In this chapter, Bulkowski tells Jake the smart money knows everything there is to know about the underlying assets, prices and activity of the buyers and sellers. He then tells us Smart money also has one weakness. It cannot hide its tracks. It creates footprints which we interpret as the patterns on charts. Reviewer – By understanding patterns laid down by the market you can start to figure out what will happen next because patterns by definition repeat. Chapter Two – Trading Psychology. Bulkowski asks his alter ego Jake a simple two part question. Suppose you had the choice of selecting Door Number One, which contains $500, or Door Number Two that holds either $1,000 or nothing. Which door do you choose? Next, consider another two doors. Selecting Door One means you will owe $500, and selecting Door Two means you will owe either $1,000 or nothing. Which door do you choose? Reviewer - There are no right or wrong answers, but which you decide on says much about your psychology with respect to important aspects of trading such as greed, hope, fear and so on. These psychology elements eventually determine your level of success as a trader. Here is a list (with reviewer commentary) that Bulkowski tells us is important to develop for long term success as a trader. Match your expectations to reality. Here he is saying don’t expect too much too soon. Be realistic. Be patient. Select good tools, a winning system. Take the time to develop a system that works for you, given your personal situation. Your personal situation includes your psychology and temperament, your lifestyle, your financial goals and needs, your outlook on life, your access to resources and so on. Follow the system. Having created your personal system, follow it. Do research; learn from mistakes. Keep records of your trading activity and learn from what goes right as well as what goes wrong. Every event has a lesson. Learn it. Focus on the positive. Concentrate on what you want and block out that which limits your ability to achieve it. Ignore profits. All too often traders will worry more about their positions when they are in profit than when they are in loss. Protecting small profits becomes the focus of energy and effort. This is exactly the opposite of what they should be doing which is concentrating on reducing their loss making positions and letting the profits roll. Focus on price behavior. Observe and learn price action. This will develop confidence in a trader when searching for opportunities to trade. Trade to make money. Don’t get locked into a comfort zone where it is easier to spend time tweaking your system than trading it. Jump in the water’s fine. Obey the signals. Obey your trading signals and don’t let bad habits form. If a signal develops as per your system trade it. Be consistent. Ignore rumors and chat. Chat rooms are deadly for traders who cannot make up their own minds about what action to take in the markets. Understand price action and avoid rumour, tips and signals from others. Set price targets and stop losses. Do not trade without having determined before entry your profit and loss objectives. Decide what’s more important, being right or making money? Look at the question he asks Jake at the beginning of this chapter again. Which is more important ? Cutting your losses is better than trying to prove the market is wrong and you were right all along. Avoid emotional trading. Don’t trade when you’re emotionally stressed (too excited or too upset). Next Chapter - The Truth about Trendlines |
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| Author: | RisklessPips [ Fri Nov 10, 2017 7:11 am ] |
| Post subject: | The Learning Centre - Book Reviews |
Disclaimer - I have no commercial, monetary or any other interest, other than information, in anything I review. All views, opinions and comments belong entirely and exclusively to the reviewer. Getting Started In Chart Patterns – By Thomas N. Bulkowski © 2006 by Thomas N. Bulkowski. Published by John Wiley & Sons, Inc., Hoboken, New Jersey.. Chapter Three – The Truth about Trend lines. Bulkowski makes a great observation at the start of this chapter. Trading …. is a lot like fishing—patiently waiting for a chart pattern to appear and excitement when the chase begins. If you’re lucky, the sweetness of success will overcome the bitter taste of failure. You will have both, but trend lines can help. Reviewer – I have come to understand much more clearly that patience is not the ability to withhold from trading for an hour or two. Patience – the ability to wait for the right opportunity – can extend to days and sometimes weeks. Think about this the next time you are itching to “put a trade on” simply because you haven’t had any market action for a while ! Trend line Types Trend lines can be one of three types and indicate buying or selling opportunities when price crosses them. 1) Internal - Internal trend lines frequently cut through prices. 2) External – These are straight lines drawn so that the line rests on the peaks or grips the bottom of valleys. 3) Curved [/i] Reviewer – There are chartists who argue that Internal trendinesses reflect the action of the masses in the market whilst the external are reflective of the behaviour of fewer traders at the margins of price volatility. There is no right or wrong way with these lines – chose the type that suits the PA situation and your style. Trend line Spacing and Touches Bulkowski states larger price moves occurred after a breakout from a trendline with widely spaced touches. He then adds the more times price touches a trendline, the more significant becomes a breakout from the trendline. Trend line Length Bulkowski notes Trend lines are like diving boards: You get a better bounce from a longer diving board than a shorter one. Trend line Angles Another important consideration is the angle that the trendline makes with the horizontal. The steeper the trendline, the worse the performance He advices us to look for trendline angles between 30 and 45 degrees to the horizontal as optimal for best performance on breakout. Reviewer - The advice is clear. Look for breakouts from a long(er) trend lines where there are several widely spaced touches. occurring in less steep angles to the horizontal This advice is optimal and does not mean one cannot trade trendline breakouts that do no meet this criteria. However, if you are trying to increase the probability of your wins then having criteria that limits trade entry selection is critical. This advice falls into that selection limiting toolbox. Trend line and Breakout Volume Bulkowski makes the following observations : 1) Expect a larger price decline after a breakout from an up sloping trendline if volume is trending up. 2) Expect a larger price decline after a breakout from a down sloping trendline if volume is trending down. Reviewer – The research on which this material is based was conducted in the stock markets where volumes are much less and “easier” to move than in Forex. Does this particular observation hold in Forex ? An area of possible study. Measure Rule For Trend lines Having drawn the trendline and observed an “optimal” breakout the natural question is “how far will this breakout move ?” Bulkowski offers us a rule of thumb which he calls the Measure Ruleto guide out decision making. In the chart below 1)Trend line A B represents an uptrend. 2) CD is the longest vertical distance between a price peak and the trendline. This serves as the template for the expected move on a breakout. 3) E represents the breakout point 4) EF is the same length as CD and is the expected move downwards after breakout. Reviewer – Bulkowski tells us this measure rule works over 60% of the time for up sloping trend lines and 80% of the time for down sloping trend lines. If within an accurate ballpark these figures are pretty good odds in my book ! Practice drawing trendlines on your charts - these will become even more important as we look at the next chapter. Next Chapter - Support and Resistance The Most Important Chart Patterns |
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| Author: | RisklessPips [ Tue Nov 14, 2017 3:18 pm ] |
| Post subject: | The Learning Centre - Book Reviews |
Disclaimer - I have no commercial, monetary or any other interest, other than information, in anything I review. All views, opinions and comments belong entirely and exclusively to the reviewer. Getting Started In Chart Patterns – By Thomas N. Bulkowski © 2006 by Thomas N. Bulkowski. Published by John Wiley & Sons, Inc., Hoboken, New Jersey.. Chapter Four – Support and Resistance The Most Important Chart Patterns. What Is Support and Resistance? SAR zones are locations where price stalls. It’s supply and demand in action. Reviewer – Simple huh ? Not so fast. The trick is to predict where SAR will occur. – Emphasis mine. That is the question the rest of this chapter tries to answer. Chart Pattern SAR The chart below shows a few chart patterns and trendlines forming SAR’s. Price stall points both up and down. Bulkowski introduces and discusses Fibonacci Retracements as a means of determining how far prices will move once they hit a SAR. Reviewer – This section of the chapter was a little “dry” for my taste as I have an innate skepticism for Fibonacci as a method for calculating retracements. My personal cynicism should of course not prevent you from reading more about this method of determining retracements from SAR’s Peaks and Valleys If you look at most any chart, you will see that price stops or pauses at prior peaks and valleys. Bulkowski says in his study prices stopped at a hilltop or valley SAR after a breakout from a chart pattern. He says he observed prices stopping at these SAR’s between 20% and 27% of the time after a chart pattern breakout depending on whether the breakout is upwards or downwards. Reviewer – These figures are more important for what they do not tell us than what they do. On average prices will pass through a peak or valley SAR more often than it will hold when they breakout from a previous chart pattern !! When calculating your probabilities you need to be aware of the peak / valley SAR’s near your chart pattern breakout points. However, prices move past those prices more often than they get stalled. Horizontal Consolidation Regions Horizontal consolidation regions (HCRs) are knots of price congestion. HCRs appear as prices with flat tops, flat bottoms, or both. Round Number SAR Bulkowski tells us By round number I mean numbers such as 10, 20, and 30, but I also include the fives: 15, 25, and 35. Prices often stall there. Reviewer – Round number SAR zones surprised me for reliability. Bulkowski says - A study I conducted revealed that 22% of the chart patterns with upward breakouts stopped within 50 cents of a round number, and a massive 42% stopped within a buck of a round number. Downward breakouts were similar with 20% stopping within 50 cents and 40% stopping within a buck of the round number. When I say stopping, I mean price reversed direction by moving at least 20% in the new direction. Using SAR to Trade Bulkowski introduces the concept of partial rises and partial declines as predictors of price movement when they approach SAR’s. Definition of Partial Rise Partial rise after price touches a lower trendline, it rises but doesn’t touch (or come that close to) the upper trendline before forming a distinct peak and usually staging an immediate downward breakout. The partial rise must begin before the breakout and form near the end of a valid chart pattern (in other words, after the minimum number of trendline touches, usually two, and any other criteria needed to establish a valid pattern). A partial rise accurately predicts an immediate downward breakout 74% (bull market) to 79% (bear market) of the time. Reviewer – Bulkowski is suggesting b]high predictive reliability for partial rises and declines.[/b] – Test it out Summary Look for price to stall 1) If a chart pattern appears in the price path. 2) If a Fibonacci retracement occurs. 3) At old peaks and valleys. SAR zones appear between 19% and 27% of the time at an old peak or valley. 4) At horizontal consolidation regions. Look for flat tops, flat bottoms, or where a block of prices share the same value. 5) At round numbers like 10, 15, and 20. Prices stop within 50 cents of a round number 20% of the time and within a buck of a round number 40% of the time. 6) Along trendlines. Price follows trends, so expect it to bounce off a trendline when it touches a long one. Next Chapter - Special Situations |
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