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YMZ1, (3, -1) formula, 2, 3, 4, 7, and 8 November 2011


YMZ1, (3, -1) formula, Stretch calculation, 2, 3, 4, 7, and 8 Nov 2011

8 November: Basis trading YMZ1 (December $5 Dow futures) from unchanged and applying the (3, -1) formula, ... the A session retraced lower from the 7 November high, 12023, by the 74 points, i.e., the 8 November 1.618% of the Stretch calculation, 12023 - 74 = 11949. 11940 was the 8 November low (ten ticks = $50 risk). That retraceal to 11940 was the (-1) of (3, -1). From that low, 11940 + 74 + 74 + 74 = 12162. 8 November high was 12144, missing the upside projected price target by eighteen points ($90). This nearly achieved the (3) of the (3, -1) formula. HOWEVER, trading YMZ1 from unchanged (usally trading from unchanged) and applying the (3, -1) formula, less the 8 November Stretch calculation (46), i.e., 12007 - 46 = 11961, (11940 = low, risking $110), satisfied the (-1) of (3, -1), wherein the faded trade strategy achieved the (3) of the (3, -1) formula. The (3) of (3, -1) price projection printed as follows: 11961 + 46 + 46 + 46 = 12099 = 138 points ($690 per contract risking $110). Therein is the (3, -1) price projection formula.

7 November: Basis YMZ1 (December $5 Dow futures) and the (3, -1) formula ... trading from unchanged, faded the 1.618% of the Stretch, 11941 + 67 = 12008, projecting that as the (-1) of the (3, -1) formula, which was followed by the (3) of (3, -1), i.e., 12008 - 67 -67 - 67 = 11807. 11786 = low. (Yeah that's a run-on sentence, but "what do you want for nuthin? A rubber bisquit?") The projected price to fade was ten points (risking $55) below the high. And the projected low was 21 (risking $105) above the actual print low, 11786.

4 November: YMZ1 short strategy price projection basis the (3, -1) formula: Trading from unchanged, 11976, ... 11976 + the Stretch calcuation = 11976 + 40 = 12015 (4 Nov high = 12008, seven points below the projected short, i.e., 12015). Because of the Italy and Greek crisis, started the (3) of (3, -1) triple Stretch calculation lower at unchanged, i.e., measured the (3) of (3, -1) decline from unchanged (11976), 11976 - 40 -40 -40 = 11856. There it is, the (3, -1) formula price action projection achieved, again. (See: Trading Strategies and Set Ups for the previous posts projecting price action reversals that were achieved using the (3, -1) formula).

3 November: Basis intra-day trading YMZ1 (December e-mini $5 Dow futures) was characterized as a uni-directional trading day, i.e., +210 points from the low to the close.

2 November: Basis Intra-day trading YMZ1 (December e-mini $5 Dow futures) from unchanged and targeting price rotation projections that apply 1.618% of the Stretch calculation to the (3, -1) formula (1.618% of the Stretch was applied because the Stretch was only 29 points:
11682 - 46 = 11636 (11617 = low as of 11:44PDT), i.e., (-1) of (3,-1).
11636 + 46 + 46 + 46 = 11774 [11636 + 46 + 46 + 46 + 46 = 11820 ... 11818 = high as of 11:44PDT], i.e., (3) of (3, -1).
Hunter, sometimes you're fading the strech or 1.618% of the stretch and I believe even larger factors of the stretch. What filter do you apply to determine the actual level you are fading?

This should be quite backtestable (is that even a word?)what historical results does the setup indicate?

TIA Mike
Thanks Big Mike,
I've been intra-day trading for more than a few years, and have learned that the equity indicies tend to find a rhythm that lasts for a brief time, until the next rhythm develops. (Example: Several weeks ago you could sell when Europe opened and buy back when Europe closed, and make money trading this strategy. So depending on the market characteristic, like Monday this week, I was fading the opening spike (gap up with fast price action moving higher) at the 1.618% of the Stretch. If the early A session is slow, I tend to be patient. Understanding the temperment of that market ['season' or weeks, month(s)] provides an indication whether the 1.618% should be chosen or not. First look at the daily chart and identify how far (if) prices will retrace across the previous day's price range. It almost always does. I haven't tested whether the 0.618% or the 1.618% of the Stretch fade is a more prudent, i.e, better reward : risk ratio strategy. Tests? Math? That's an even longer word. Sorry, I'm not much help there. Watch the 4.25% of the Stretch ratio. I'll reply here later with today's 4.25% price action. Well maybe I can do it here quickly before I go. First drop, -322 pts = (-4.25% and -2.618%) = 315. You look for a bounce somewhere below 4.25% because that is how past capitulation (I shouldn't use that word, yet) price action has started. Then the first bounce was, in the past 2.618% of the Stretch. Today, it was 129 pts (9 November 2.618% = 120). After that 129 bounce, YMZ1 prices fell 247 points (-195 = 4.25% Stretch and -52, i.e,..... -4.25% of the Stretch and - the Stretch (plus 6, i.e., 52 points is six points greater than today's Stretch, 46). I need to leave. Chat with you later.