Is anyone using Edwards and Magee's trendlines in action rules?

Discussion in 'Technical Analysis' started by humble1, Jul 12, 2006.

  1. Guys,
    There is no way you can be profitable if your entries are based on weekly charts. ( unless you are a Morgan Stanley ). You also have to consider the age of the information you are using. Lot of changes in the price behaviour in the past 5 years. IMO ,this is no way to draw trendlines . If you are attempting to trade real money with this, forget it . You should learn something more recent.
    Good luck,
    #31     Jul 14, 2006
  2. agpilot


    humble1: One of the best detailed method explaining how to draw trendlines, and use them, was in chapter seven of the book "Trader Vic, methods of a Wall Street Master." About $20 paperback.. agpilot
    #32     Jul 14, 2006
  3. humble1


    Luck has nothing to do with it.
    #33     Jul 14, 2006
  4. humble1


    I have read all the books I care to. Why don't you post a chart on your thread that shows how Trader Vic does it. Thanks.
    #34     Jul 14, 2006
  5. humble1


    I can see this community is not going to allow a thread like this without messing it up with intrusive off topic posts so I will end it here. I want to thank the one trader who did post a legit response. The rest of you need to learn to read so you can stay on topic.
    #35     Jul 14, 2006
  6. Agree 100% , but if you are using what you have posted to trade real money, you will need it. If you do it as a research you will learn , sooner or later, that parallel channels do not work better then coin toss . I am just trying to save you some time.
    Good luck,
    #36     Jul 15, 2006
  7. humble1


    Prove the above.

    Show me your credentials while you are at it. Prove that you have some sort of competency and reliability since you have established yourself as an authority. There are plenty of hacks and amatuers around , so prove you are not one of them. Thanks.
    #37     Jul 15, 2006
  8. I suggest that you will be waiting a while for Walther to "prove" anything.

    I do not use Edwards & Magee, but instead use Linear Regression to create trend channels on several time frames. I notice that this gives me a similar result to the weekly charts that you have posted here and on smaller time frames it gives me an idea of where the turning points are. I think that is what you might like to know about. I have posted a few charts elsewhere if you are interested. I don't want to take you off your track if you are not.

    Good luck

    #38     Jul 15, 2006
  9. humble, this may or may not be of any help or interest.

    You probably know that E&M is based on Schabacker's work (Edwards was Schabacker's brother-in-law and continued his work after Schabacker's death). Schabacker's work also includes a number of elements that originated with Wyckoff, particularly with regard to "trendlines", "supply lines", and "demand lines". But regardless of who did what when, the point of all this is to alert the trader to important changes in trend, much less outright reversal. Thus excessive pickiness defeats the purpose of drawing these lines in the first place.

    Both Wyckoff and Schabacker noted that a trendline that is too steep cannot be sustained. Thus it may be the beginning of a primary or major trend, but one has to let all that play out in order to see what happens (there are such things as climax tops, V reversals, and 100% retracements). In this case, the first "trendline" is one of those unsustainable trends. When the first rush of buying wears off, price then settles into the "real" trend, which creates the conditions for your channel.

    The first pullback after the line is broken is to 34. Price bounces back to nearly 38, then back to 34, then back to 38, so you have a "consolidative" channel. Price then drops below 34, which might indicate a reversal, but it instead rallies back above 34 almost immediately, confirming the significance of 34.

    Then you get a new high at 41, which gives you your top line. The following reaction, which takes price back to around 34.5, gives you your bottom line, which is coincidentally parallel to the top line.

    Momentum slows and price takes considerably longer to make the next high, but it turns at the channel line or supply line and makes a return trip to the bottom line or demand line.

    Now as far as trading all of this is concerned, you first must read the chart from left to right, not right to left. Note that the highest volume on the way down from the test in June '04 takes place in July, and as price continues to fall, volume subsides. As price approaches support at 34, follow the bar with a buystop. If volume stays low and price reverses at or about 34, you're in the trade, long. If further selling kicks in and price doesn't rebound, you either are not stopped in at all or you're out with a minor loss.

    As for the next reversal, note the increased volume as price pushes higher, then the subsidence when price tops out. You can't know, of course, if that's all there is, so you place your sell stop below the bars. Volume drops even further, then shoots up as price drops.

    Next op comes when price approaches support at 34 again, and the same tactic is used. Note the volume decline in April '05 as price approaches 34. Follow the bars with a buystop, and when volume increases in May, you're back in on the long side.

    There's more here, of course (the gray, dashed lines represent Sperandeo's approach), but, to cut to the chase, I would not yet go long here since the demand line -- or channel bottom -- has been broken and volume is so high. Support may be found here, but stronger support can be found at 34. At best I'd use a follow stop rather than jump right in (there's always the possibility that price might rally quickly back above the channel line, but then there's always the possibility that it won't). But if price gets all the way back to 34, that's a significant change in the momentum of the major trend, and if price doesn't reverse into a literal downtrend, it could go sideways for quite a while.

    Incidentally, playing the volume during the last high is a little tricky, but may be off topic.
    #39     Jul 15, 2006
  10. When I was working ( while ago )at brokerage in Miami, there were people very closely involved with developing what is now top Trading Software.
    They were testing new ideas daily and since then I have an access to best back testing available anywhere. I have also developed best forecasting methods for indexes.Look at my posts in GOOG today thread.
    So when I tell you that something will not work you have two choices, ignore me or lose money trying to trade it. That simple. Do not try to be right, try to make good money. This is the best advice you will ever get.
    Good luck ,
    #40     Jul 16, 2006