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YMH2, (3, -1) formula, 1.618% Stretch profit, 23 January 2012


Hi,
‎23 January 2012 (16:17PDT) The March $5 Dow futures (YMH2) A session long, 12628, was measured as the fade, i.e., (-1) of the (3, -1) formula, from unchanged less the Stretch. 12654 - 33 = 12621. 12619 was the A session low. Risk: $15 if you took a profit anywhere except eighteen minutes during the 23 January trading day. Fading at unchanged less the Stretch calculation (12654 - 33 = 12621) produced a maximum risk of 11 points ($55) per contract.

(-1) of (3, -1): Unchanged - Stretch = 12654 - 33 = 12621, the fade.
(3) of (3, -1) : 12619 + 33 + 33 + 33 = 12718 represents the (3) of (3, -1), but the price measuring objective was nine points above the daily high, 12709.

NOTE: There is symmetry in the universe. If you faded any price move that was 1.618% of the Stretch away from unchanged you would have risked three ticks (unchanged +1.618% Stretch = 12707...high = 12709) above unchanged, and missed fading unchanged less 1.618% Stretch by ten ticks. So the strategy to fade, with an eleven point tolerance, any move that was 1.618% of the Stretch away from unchanged created the oppportunity to capture 96 points fading the high and 41 points from the 12611 low into the close. Bottom line, couldn't lose if you faded any price move that was eleven points less than 1.618% of the Stretch away from unchanged.
fyi: Stretch x 1.618% = 33 x 1.618% = 53. 53 points x $5 = $265 which is 53% basis intra-day margin at $500.
23 January 2012:
Unchanged + 1.618% Stretch = 12654 + 53 = 12707 (12709 = high). That's 53 points.
Fade 12707 - 1.618% = 12707 - 53 = 12654 (12654 = unchanged) That's 106 points.
Unchanged - 1.618% = 12654 - 53 = 12601. Would you risk $55 to make $255? Probably, so let's include that fade, even though the low was 12611. So that's 106 points + 53 points = 159 points.
And fading that low by 1.618% of the Stretch calculation, ... 12611 + 53 = 12664, which is well within that low to closing rally high at 12675. Adding that last 53 points to the other 159 points adds up to 212 points. I just thought it was fun pointing out the symmetry of fading above or below the previous settlement by any move that was measured as 1.618% of the Stretch. 1.618% of the Stretch, 12707, was two ticks below the high, 12709. And 1.618% of the Stretch below unchanged was ten ticks below the low, 12611. Close enough for lawn darts, BB guns and cluster bombs.