Channels

Is this one suitable?

 

Darvas spoke in terms of the "box diagonal".

In the mid fifties, technical trading was, roughly speaking, totally unknown.

Today you see in ET, the "unbelievable strain" still persisting. In the 50's the financial world was totally staid and C+ history majors ran the world. This Ivy League slant was pervasive. Everyone took Art History and paisely meant only one size of paise.

For a person to step out of bounds and make a chart was "unheard of". today in ET I am "unbelievable " even though the reader has a PC and he could monitor and analyze quite easily.

A box depicted the staid R and S orientation of values. Only the horizontal limits could be pictured. There was no Y = Mx + b in Art or American History. Scientists and engineers used mechanical pencils and slide rules and verniers on calipers.

So Darvas explained trading as a box and he traded long across the box diagonally. I pencilled charts on brownlines printed on a blueprint machine from a vellum Blueprint master. I used a B size drawing layout space that could be put through a machine using precut blueprint paper of B size.

I drew channels as "things" from three points found in geometry. We invented the technical aspects as we traded.

As FF says he thinks this or that was just invented two years ago.

I try to allow people to acquire skills and knowledge.

Charts are just pictures. Markets are represented by mathematical conditions, situations and circumstances. these three words capture a place doing "business".

A place doing business is a system. The basis is collective decision making.

Today, monitoring and analysis yields 20% a year for big money thinking. Friday was 200 % in 90 minutes.

FF asked me to post the information for trading. So did river.

I posted the information on the system of operation of markets.

The ARC asked Darvas to tell his story of 18 months where he made 2,000,000 dollars net.

He said he traded the long diagonal of a box. Picture a person who read what he wrote. Say this person has todays beliefs.

What Darvas said, in today's terms is: I trade from support to Resistance over time, unsing increasing volume to know that I am moving from Support to Resistance. I find stocks that are in a dull state and which are well run companies. When I see volume breakout od the dull slump, I buy in the lower left corner of the box. Later when volume peaks, I see I am at the upper left corner of the box.

darvas went further and described the trip across the box in terms of volume and price. He kept the stock only if the story he knew was flowing along as his predetermined order of events. If not he dumped it.

Late in the book Darvas described losing his touch for a week or so. so reasoned with himself to find out what was different and then he went immediately back to his old ways and restated making money again.

Today, we draw in the long diagonal of the box and forget the box. The channel is the long diagonal.

A channel has three price moves contained by four turns.

The right side of a channel is the RTL of the trend the channel "boxes in".

Darvas had a box. Darvas had a story of the traverse of the box from lower left to upper right.

today the PC allows charts to be drawn the PC shows the "box" and you see the box as the perimeter of the chart. You hold the "buy" from lower left to upper right. You watch volume as part of the story.

If misbehavior occurs, then you put your money elsewhere.

For me as an engineer in the 50's, trading was based on science and making money was so easy. darvas shook the world because he was exposed to the world and he was exposed to the financial industry. The FI could not do what Darvas was doing. Darvas found out to NOT listen to the FI and to have FI only send him data and follow his directions.

Channels always work. The story inside the box has four possible endings.

FF asked for the look up tables for doing the channel story. So he has them. He has a log as well. He has the MADA routine. He can follow the logging and the annotating. for stocks he has the PVT one pager. For commodities he has the SCT. TN uses libraries of criteria, functions, filters, rules and templates. those are there in broad daylight for the beginning of MADA (M and A). Seven look up tables have the remaining stuff for making the holds and reversals of trading. Reversals are done using c turns from the Modrian table.

Nothing has changed from the 50's to the Present.

Compounding the first 18 bars of last Friday made 1 dollar become 3 dollars in 90 minutes.

The thing called "The Pattern" is the trading cycle. A cycle has two channels. The first 18 bars of Friday was a cycle. This is 10 years of the FI's 20% (not compounded) a year.

The market composes a story as the day unfolds. To read the story, you need a language built from an alphabet and words and sentences.

On Friday the market said go short at price A on bar 1.

then it spoke bar after bar and you could write down the sentences on each row of a log.

At sentence 7, you reversed because the market said "REVERSE, NOW".

You wrote down the sentences for bars 8 through 18 and the market said "reverse now" at price A.

Everyone knows there was no settlement at bar 7; settlement comes after close of RTH. But the buying power was there to make as much money short as was offered long.

 

Any chart is suitable.

as a person fills in the log, he has a sentence for each row.

the EE that occurs first on the chart is on the volume bar just below pt1 but one bar to the left. Look it up on the PPband table and see a PP3, you didn;t label it for some reason.

P1 is on the bar directly under Pt1 of the channel.

Bar 11 counting from Pt1 closes inside the channel. good for that bar. finally two bars later you have a VE.

The top of the bar is the NEW pt3. Old pt 3 is now the NEW pt1.

The LTL begins on bar 13 counting from the original pt1. It is labelled new pt 2?.

another VE occurs so your repeat this porcess.

sure enough you have a BO of the RTL after the FTT.

So you learned that a VE has a close in a certain place to count as a VE. Congrats.

Do Not continue the orignal RTL. It is dead. The third RTL is what is broken out of.

 

Interesting. If I only look at channels and FTTs, so no EE's, PP's, etc. meaning I only put price into channels/containers, then the top of bar 13 would become my Pt1 and the bottom Pt2, etc. The reason would be that I would try to follow/encapsulate price as close as possible so that I can also catch the next FTT as soon as possible. This way the next FTT is also more obvious/visible in the tight channels/containers. If you understand what I mean.

If you would still use gaussians for volume then at the end of the day it looks like you have a nice B2B.

 

for the short term, the trader uses a constant volatility. the VE on an LTL shows the shift in volatility (increasing). Increasing volatility makes for more money velocity.

Nailing the change of sentiment is done with FTT's or any other signal.

In this thread, so far, there are three: Darvas using R, the FTT of patterns and the leading indicator of the indepenednt variable. All of these are a step up from using the BO of the RTL, a lagging indicator signal.

Your last paragraph introduces the "carryover" of the EOD into the opening. As seen on Friday this lead to a doubling of capital in just the first seven bars of the open.

 

Here is the graphic of what I was talking about...

I think in the "Rubber" thread you told me how to draw the lines when a VE occurs. I will try to find it and compare what you said then with what you say now.

When I remember old charts then people still continued to extend the previous RTL and LTL into the future when a VE occurred because then those old lines would become lines of a higher fractal.

For example: they had a tape/faster fractal. At VE they continue to follow price with tapes/ff's and the previous RTL is extended and they become channel lines/slow fractal, which contain all the additional tape/ff's segments which occurred after the VE. "Somebody" should have told them what we know now.

 

Jack, I’m hoping you can help clear my confusion as described below.

You have used the term “constant volatility” several times in this thread. You have defined the operating “container” (let’s call it a channel in this post) for the short term as a period of constant volatility. Additionally, in this thread you defined market volatility as the vertical distance between Pt. 2 and the channel’s RTL.

When the market volatility changes, using these definitions, then the operating channel changes. If there is no sentiment change, then only the slope of the channel changes; we either accelerate the RTL (increasing slope) or fan the RTL (decreasing slope).

I think of “market volatility” as synonymous with what we used to call “market PACE”. As PACE increases, we often have to accelerate the channel’s RTL. Is this correct that market volatility and market pace are synonymous?

Here is my confusion about your definition of market volatility as the vertical distance between Pt. 2 and the channel’s RTL. When we accelerate the RTL (make it steeper), the distance between Pt.2 and the RTL typically decreases (when compared to the original channel), thus by your definition, market volatility decreases. This doesn’t make sense to me. Is the relationship an inverse one? Is it the case that we just cannot compare the market volatility of the two channels (the original and the accelerated one) this way? I’m confused.

-river

 

I reserve volatility as a price measure.

I also build a channel from its faster fractal ingredients.

Both VE's and fanning occur. They do change the market's volatility from that point onward.

Since I actually do what I said, the VE bar has two purposes. As a consequence, Iagree that the volatility has to be redetemined in the new channel. This is the safe and certain way to deal with the situation.

For fanning on an internal please also make the new volatility determination.

As we consider the advances of trading is terms of knowledge, skills and experience there are several forks in the road.

TA branches in many directions. From my experience with a lot of people who started trading and became successful, the meachnaical means seem to be better suited to people than the statisitical means.

Studying trends is extremely fruitful. A persom must, however, do monitoring and analysis and not do trendfollowing.

The sheer beauty of the channel is that it may be built and used in only one way (geometrically). A parallelogram is used to compose a channel and the set of channels grows from the fastest fractal to the slowest fractal. A trendline establishes the beginning of a channel. Point 1 establishes the beginning of the trendline.

The container is built BEFORE the trend ends. This enables the least skilled person to do well right from the beginning of trading. He uses an established tool to signal an end of a trend.

To begin to use information to construct signals for trading, all systems have to begin with the least information to "grow" the system used.

It is good to learn from others to shorten the period needed to become competent. The mentor provides drills to the learner. The learner uses drills to build his mind.

Experience leads to knowledge and skills.

For an ignorant person learning to trade, it is best to just use a simple system at first. What is most important is knowing when a trend ends. A well built channel affords a "region" where measurements can be done. A failure of a trend is what ends the trend.

As hindsight always shows, trend overlap and the beginning and ending of the trend overlap are helpful signals. A beginning trader can make money by just using this amount and kind of information.

What is required is that a person know where point 1 is.

the person must choose the space he wishes to observe. This rectangle will have sufficient "bars" in it to be able to generate "signals".

Being able to see the shape of the end of a trend and shape of the end of the overlap of two adjacent trends is all that is required.

The beginner just trades with the market sentiment. The slope of the channel shows the sentiment of the market.

To make money, the beginner holds a position from the beginning of the channel to the end of the channel. Missing the end is not too serious. The BO of the RTL comes up soon enough and the beginner reverses at that point.

A crucial consideration is where one reads about beginners not succeeding in using channels. These people often refer to markets as having chop. They simply did not create their channels from smallest to largest. To observe a beginner making this mistake look at the FF channel invention he most recently posted. Also read the thread about drawing lines. Often point 1 is not used to draw the signal line.

I have traded for 56 years. On every turn I see in the market I draw an rtl if possible AND, if NOT, I DO DRAW A BOOKMARK (a horizontal line (the position where sentiment swings from one to the other) at the point 1 of the turn.

 

I think of “market volatility” as synonymous with what we used to call “market PACE”. As PACE increases, we often have to accelerate the channel’s RTL. Is this correct that market volatility and market pace are synonymous?

Here is my confusion about your definition of market volatility as the vertical distance between Pt. 2 and the channel’s RTL. When we accelerate the RTL (make it steeper), the distance between Pt.2 and the RTL typically decreases (when compared to the original channel), thus by your definition, market volatility decreases. This doesn’t make sense to me. Is the relationship an inverse one? Is it the case that we just cannot compare the market volatility of the two channels (the original and the accelerated one) this way? I’m confused.


Pace was a volume measure.

Volatility and pace are in direct correspondence for two different variables.

The change of volatility consideration boils down to the "other" end of the VE bar. Thank you for making my comment more explicit. I am so used to using volume to trade price that I sometimes do not go through all the steps involved to relate the independent variable to the dependent variable.

Dependent variable only traders have a much lower performance level of money making. One of the most prevalent characteristics is their turning to "doing Averages" to replace direct and inverse relationships of market variables.

 

Your reply resolves my confusion.

Over the years I’ve archived scores of your posts. Initially, the purpose was to print and mark-up your posts in an effort to understand, more recently, it has been to preserve posts most helpful to a “learning trader” as I gather documents and posts to enable me to pass forward the critical price/volume concepts you (and Spydertrader) have generously and repeatedly shared.

I’m planning on proving correct, in the not too distant future, your assertion that fifth graders can learn that price moving towards the LTL is how profits are made and that fifth graders can do all the work necessary to learn PVT. (Is it a fair test of your assertion if the fifth grader is a Montessori student?)

Anyway, what I wanted to convey here was that your collection of posts in this thread made it in to the “helping the learning trader” folder and that I appreciate all you have shared with us over the years. Thank you.

-river

EDIT: I see you answered my PACE question while I was replying. I had erroneously thought PACE was a price measure so thank you for clarifying that as well.