Jack Hershey – MACD and Stochastics helpers for 123 and FTT's

The statement bellow is one of the keys in identifying FTTs.

Indicators (MACD, STO) are part of the sweeps, together with all the other elements, on the coarse and medium levels.

Before the FTT, there's a predominant market sentiment, and your sweeps show a picture. After the FTT the sentiment changed, and you expect to see another picture. If the expected picture doesn't appear (the dominos don't fall in the expected sequence), you misidentified the FTT.

In the attached quote Jack describes part of this picture at medium and fine levels.

 

Callmate is suggesting that it is a good idea to use the available information provided by the STOCH's and MACD to make trading flow smoothing for doing the SCT trading.

I've attached a trading log that I find very helpful to keep in touch with the markets as the day goes by.

At this point, several journals have been run and now two are operating for specific purposes: this one and "iterative refinement".

I use about four sheets of the log and I feel it is possible to fill in the log before open in a general way. I feel that a day is divided into parts and that the four pages do rough out those four major parts.

I have always simply used one template for all my trading. It deals with the P, V relationship and is transferrable to any market on anyfractal. For me few changes in markets have occurred over the last 50 years.

Here we focus on the STOCHS and the MACD.

Beautifully, the iterative refinement thread will focus on the special tasks of the fineness required to integrate all thinking and the task one faces to use the template on other markets cusch as currency, FOREX, and options trading.

Since this is my first post, I am taking the trouble to add some context. In that vein, I have made some comments elsewhere on 2008 and what is in the cards. As you can see these comments are coming to pass. I feel it is necessary to have a global context for trading and I feel it is important to do a preflight check before each days begins. Use a calendar to compliment this. You need to have the facts as seen by authorities. (This has nothing to do with talking heads and only to do with the facts being reported out)

The template of trading, as I see it, requires a neutral bias. The symmetry of trading (its fundamental heuristic) is also counterintuitive. Because of these things, it is important to personally understand what you, as an individual, bring to the table.

2008 is unfolding well after the template and market approaches have been introduced, formalized, studied and, most important, been worked upon by those doing a process and constructively reinforcing others. Passing it forward is where the best and deepest work is done. Here in the two current journals a lot of that is going to be happening.

Historically, I have been one of the most fortunate persons alive. With a buddy, in 1957, we started to do the P, V relation with respect to markets and followed a critical thinking process to do two independant processes: follow the markets technically and, second, to make money by taking money out of the markets effectively, efficiently and optimally.

At this point, I have reviewed everything as concisely as possible.
It is the largest single undertaking of my life in terms of length, continuity and comprehensive results.

Logging and it's adjuncts of annotation, trading, and debriefing leading to a 3 ring compilation of about 2 1/2 inches a month. I use versos for debriefing. Mentally I have arrived at an "automatic, unconscious trading process" and in narrative terms, where I to surface thoughts, they would require that I speak at about four times the human capability. we all think faster than we can speak and it is true the unconscious portion of thinking greatly exceeds the conscious portion. All the integrated feeling deal with compfort, support and confidence. were I to have tinges of anxiety, fear or anger, I would make a notation and determine how I was, at that time, stepping out of my MADA mode. This is my principal underperformance alarm signal and it is indicative of slipping into the CW mentality.

I will go through the STOCH and MACD sequences from the logging point of view. I expect that anyone who wishes can post scans of parts of logs so that others can see the sequences unfolding and how they integrate with the 2007 SCT journal.

All the posts put up so far are very helpful and do serve to put us in the ball park.

Even if you are from Lake Wobegon and are above average, there is, as has been stated a 1,000 times, no way to get this stuff or understand its performance capabilities without doing the work. There is no such thing as skipping steps. Work comes down to one basic process: doing drills. In the past, months have been spent focussing on one drill to be able to do it under a variety of conditions.

 

On the log there are two sets of STOCH's and MACD's.

columns C through I for YM annotations (loggings) have three STOCH-MACD columns. So do the ES columns K through P.

The 5,2,3, STOCH is the F. And the slow (S) is the standard STOCH. The MACD is modified from the original design 13, 26, 9 to be 5, 13, 6.

Both YM and ES comprise the M of MADA.

Historically, when indicators came into being, I started to use them. When the PC was invented, trading changed. Originators of indicators were inventors who were achieving advances in trading by building tools.

I feel that these tools support trading. there are two aspects which must be considered when using any trading tools.

1. how the tool is set up (defaults). and

2. how to design and use signals from the tool.

I use indicators as leading indicators of price and volume with the understanding that Volume leads Price.

As said before, I monitor the market as one activity and I make money as another activity. Thus I set defaults and design and use signals for each of these purposes.

It is worth noting that the original designs of indicators are no longer capable of providing signals for monitoring or trading. Moore's Law is the reason. When you read any information that uses technical stuff, you must take into account Moore's Law. Basic technological changes can cause effects in information. If you read Braithwaite, you see that he deals with measures of breadth and consequently magnitude of content. Moore's Law informs you that it takes less and less time to deliver the blobs of information as technology advances.

Here is a simple STOCHASTIC example. I want to know how to make money on stocks. One nice thing that came into being quite a while back was "Tomorrow's Newspaper Today". This was a name given to emails sent out in waves before the internet made information blobs possible with great breadth. Coincidentally, two sets of recipients came up with the same name.

A stochastic is able to provide Tomorrow's Newspaper Today, technically speaking. I use Achelis's book as a reference for keeping notes and modifying equations and the like. I also use Connors-Hayward for volatility stuff. Books can be filled with notes and you can tape in additional pages as well.

The Close in the formula is what is available and I decided to make the formula tell me something.

I knew that to make money, I had to have great timing. My timing test, when computers started to be used, was told to me. That is, my big broker called me and said I was in trouble. The standard used nationally for best timing was in play for my accounts my broker told me. (The SEC was calling).

I was trading patterns and the patterns were in cycles of price activity.

As we all know there is the MODE of the market and largely the MODE is Continue where we hold and make money continually.

A major logging activity is looking at the price come to the R or S and what follows after that. These times, from the hitting R or S and until the next price move is made, is a time to have a well designed STOCHASTIC WORKING FOR YOU. We see it is in a non dominate traverse, the only place where pennant patterns ever occur.

By soaking this up as a consequence of logging all of these considerations and monitoring observations, we get to see how to design a STOCH to give us a hand.

If we do , then we can use it anywhere this pattern occurs.

By observing the numerator of the STOCH, I saw the clue I needed to make use of the indicator. The mid point of the indicator was where I could take note. This is where the close and the other value is half of what it could be. I definitely lucked out because of the nature of the other value.

The STOCH only uses shadow values with which to compare to the close. What as shadow value is is a value that persists and casts its importance forward for a period of time.

Lowest Low

Highest High.

I know this is painful to even read. It is there to read to get you on a page. The same page as the inventor and the same page as I was on to change two things about the STOCHASTIC that are in my power to do by critical thinking.

All traders have choices. You all have to choose to work and you all have to choose to think. That is what I am getting paid for: TO GET YOU TO BEGIN TO CHOOSE AND TO BEGIN TO THINK.

We have an equation that is inside a function. It does not have the run of the mill factors. It has well designed factors that can be made to work for us.

This is not wikipedia. This is the real McCoy of thinking of how to use tools to make money.

Try to digest the idea that I have a function that is available that compares the CLOSE to a shadow value. We all know how the STOCH has these extremes where the needle is pinned so to speak. That is the 20 and 80 thingy.

But we want "Ttommorrow's Newspaper Today" for NOW.

We shorten the function as seen with the 5, the 2 and the 3. This means we can "see" patterns and especially pennamts on non dominants. and we can "see" Hitches, stalls, and dips on dominants. Doms and non doms refer to traverses INSIDE of channels. We see that we can bear down here and deal with level 1 stuff.

SO, IF THE FAST LINE OF THE FAST STOCH IS CROSSING 50%, WE SEE THAT THE ACTION IN THE SHADOW HAS A TENDANCY TO BE GOING SOMEWHERE ON LOWER VOLUME.

This is an indicator of short duration that has a hair trigger (50%) on the tendancy and we watch it on the YM as a leading indicator of ES.

There is a lot more in the picture as well. That is the fast STOCH picture. To see it best fool around with walues near the ones chosen so you can see, better, their effect on the math.

So the work is: buy books, wite in them, put up the Fast STOCH (5, 2, 3). take snap shots of the indicator working. Paste them in your debriefing. Learn to make standard notes in your log. (that is the shorthand you ue always means the same thing.

The fast stochastic going through the 50 % define Sentiment change. therefore, go to all other corroborative sentiment indications and determine that they are "talking" to you the same way.

Now understand this. It has only taken four years to get to a place where decent conversations can be had on ET. What others are doing here is contributiong a heck of a lot to make this possible. I will get in some quality time on here that will last over a month. Sentiment and MODE go together like peas in a pod.

MODE gives you continue and change. Sentiment gives you the initation of market direction through the fast STOCH. the initiation of a period of sentiment occurs within the gate of the MODE change condition.

Because the market exhibits an over all characteristic of MIGRATION rather than jumping all over the place, you are "working" in a process to gain experience that critically fills your minds with finite monitoring sets of information. These finite sets each have but one analytical answer. There are many fewer analytical answers than there are sets of monitoring data. Thus the work is a finite job with a finite number of possible observations setwise.

deja vu is where we all are headed. I am telling you that at some point, you will feel you are dozing off and you still know EXACTLY what is going on. This is where you begin to understand "sports memory". Steenbarger and Kiev have never seen it happen; if they had they would have adapted their training for trading to that paradigm. You are going to get there.

I left out some details in this post. Acquire them. Settle down and get the 40 pages I left out straight. You do this by bearing down on the opportunity. Discover it. Photograph it over and over. Write the captions until they are automatic and say the same thing. Put the photos in photo trains (I used these as poluttion spectrums long ago and discovered they take laps in nature). You must learn the trains of indicators and then you can "anticipate" the signals of sentiment change. The SEC does not investigate unbelievable and astonishing intraday traders. But you will see how your equity curve (plot on semi log paper only or you will run off the graph to frequently). Doubling your preformance can be done about 8 times.

Page 271 is where the equation is located.

 

Here is an equities application of the STOCH (5, 2, 3).

The example I have used in the past is NTRI in 2006.

Anyone who gets interested in trading, can go through the process of reasoning through the value trading will have in his life and that of his family. Concluding that trading will always provide the major cash flow stream becomes almost self evident.

Here is a look at what it can be like for a person who decides to ramp up relatively quickly by working at a job and doing market work for a while each evening. Another parallel example is found by reading spder's narrative of his "march" in to the world of expert trading.

By using a universe and sublists, a person rapidly comes to have a multi capital stream set of trades running in parallel.

at some point the trader realizes that compressing the hold period of stocks can be enhanced. To go from 40 cycles a year to 60 then 80 only requires that the hold period be shortened by a day. Then overlapping may be considered so the exit in the am is followed by an entry in the pm that same day.

40X 6 days to 50 X 5 days to 60 X 4 days to 80 X 3 days.

Lets look at overlapping 3 day holds. The last day is day three and the exit is in the am. By buying into a stock in the pm, you begin day one. So two turns only take 5 days over all. 50 X 5 days represents 100 turns a year. 7 to 8 turns represent a doubling of capital when 10% a turn is made on average.

STOCH (5, 2, 3) is one of the things that makes doing the over lapping days possible. What is desired is an afternoon entry which is prior to a breakout the next day.

One of the niceties of this approach is that it includes gap trading. The gap occurs in the am after the buy in the pm the prior day. See the NTRI trades the pm before the gaps. Here the hold was three days and 30% on average ws realized each of the four trades. This is 12 days of the year for one of the streams. compounding 30% four times is about 289% gain over those 12 days.

Use the Lists of stocks from the universe that are coming into DU and are at DU. Go to a 30 min or 15 minute chart fractal for doing the analysis around 3 pm in the afternoon or at least after the mutual funds after lunch settlement time.

With the 5, 2, 3 you are looking at the sentiment begin to change in the pm under low volume conditions. Here you see the consecutive bar closings high in the shadow of the duration of the STOCH. You are regarding the people "in the know" at work. Of all the stocks in your extremely selective universe and further filtered list of potential buys, you get to see the "sentiment" changing from a rest postition to a long sentiment. By having capital free from the am exit from another stock, you get to put capital to use when on a fairly fast postion trading fractal (30 or 15 min) relative to EOD where you keep eod lists and "unusual vol" for ranking purposes. See ""putting the pieces together" for illustrations of "unusual volume" at work.

NTRI illustrates how a pm buy using STOCH (5, 2, 3) nets you a 10% opening gap. You can also see how volume correlates to the intiation of buy long sentiment of the fast STOCH.

By doing a small amount of routine work, it is possible to build trading knowledge and capital in order to be able to spend your time and efforts with any degree of flexibility you desire for the rest of your life.

It is important for anyone to take an occasional lap on past learning. i would especially like those who have learned this stuff a while back to take another learning lap and concurrently help others out.

TIA.

I leave tuesday am for the Antarctic so I will be posting a few other key posts on MACD and the slow STOCH to provide a good portion of work that can be done for the rest of JAN.

Attached is a sheet that shows the "unusual volume" (A name that originated on Qcharts).

 

I stared at your settings for months trying to figure out why you chose the values you did for Fast Stoch. and Macd.

I realized one day that the zero line represented B2B and R2R's in the traverses of channels.
The zero line is where volume would be low before the increasing volume would come in and a new traverse would take place.
Am I correct that this is what is taking place , and did you design that purposely or did this happen by accident ?
Both cnms2 and I have posted charts on this in the past regarding your settings, and the ability to see where the zero line confirms the change in traverses and channels.
Also to note that when the Macd moving averages are below the 50 line , there is a dominant channel down, at the same time looking at the histogram you can see the b2b and r2r of the traverses within the down channel play out around the zeo line. Then when the macd moving averages cross above zero line , a dominant up channel will be in play ,and again the histogram will show the b2b and r2r traverses of the trend.
Are these observations correct ?

This is what I see when I look at the settings you have designed.
It is very clear on the Fast Stochastics also, as far as the zero line and the ability to see the change in traverses.

 

Here is a chart of Friday ES with the MACD settings Jack designed and how I see it applied to channels. This is related to my last post. I wanted to attach a chart to show the relation.

 

Here is a chart I posted a while back. so some have seen this already.
This is the ES from sometime in November. It was just thrown together to show this relation of volume to the MACD histogram.
I had noticed that the b2b and r2r's were able to be seen on the histogram.

This is due to the values that were chosen by Jack.

I understand the histogram represents what is taking place on the moving averages on macd, so it is possible to see the traverses within the histogram or by watching the moving average cross.

I am just trying to recognize the relation from the settings used on MACD, to the action of price and volume.
There was a reason these settings were chosen and that is what I have been trying to see.

 

Thanks so much for putting up the MACD information.

In a short while I will go through the MACD thoroughly but first I want to slip in the slow STOCH for continuity's sake.

So far we have added the fast STOCH fast line as a signal of the beginning of a new sentiment when it crosses the 50% line. This is the point where the fast line is in the center of the "shadow" and moving to one side or another.

The shadow originates up to 5 bars back and it's extent is determined by the most extreme upper (high) and lower (Low) value in the string of five bars.

For the slow STOCH I determined to not let bridging take place on a fractal. This says that for the defaults and signals to be workable, they must be workable on all fractals. The issue centered largely on how the indicator "rides" the price cyclic activity on each fractal. This is kind of like making the defualts and signals work "universally" in the market because a person can use them no matter what fractal he chooses to trade upon.

While times have changed from the time of the invention of the indicators, there is a coherence of how the parts all continue to interrelate. I feel this is a consequence of the steadiness of human nature. Markets are huge and therefore there is a sluggishness inherent in the markets and no surprises are really possible.

I do envision markets as having values like values in a pile of grains of sand. Just as with significant figures, averaging and statistical significance, it takes just some many grains of sand relative to the pile to be able to see change in the pile. I think of taking two looks at the pile; before and after a change in the number of grains has occurred.

I set the duration of the slow STOCH and the MACD to not bridge the Price /Volume cycle of the fractal. The 13 worked for the standard STOCH and I felt the MACD was bridging at the design default of 26. By using 13 in both, I feel that there is a correlation that is possible between the two.

When I read papers or expositions on approaches or reaserch , I determine if the contributor has included bridging and accomodating early signals (anticipation), corrolation of multiple indicators and signals and the final requirement that the approach work consistantly on all possible fractals for making money. If the concern is a "set up" only, that is fine. There are about 80 I track.

The slow STOCH and MACD are different in many ways mathematically. The scale of the STOCH is a fixed scale that does not change as volatility changes. MACD is designed to be responsive to volatility by how its scaling works. The slow STOCH does transmit good information on the signal to noise ratio so it is more closely related to the PACE of the markets.

As an example of the practicality of the scaling approaches possible, consider the Conners-Hayward volatility compression. Originally it was set up as is the slow STOCH scale. This inherently gave it a l"ong bias" and made its utility quite low since it was "non directional" in effect. I had to convert it to have the scaling of the MACD to make it directional sensitive (As it is read). We will add the C-H to part of the log later on.

Because the markets migrate instead of jumping around from operating point to operating point, it is possible to take advantage of just how the markets migrate. The slow STOCH and MACD contribute greatly to this by their sequences. I introduced the various conditions of fast STOCH as photos and the possible arrangement of the photos in a train. The same is done for slow STOCH and the MACD. Take all these photos and lay them out in trains. To save paper you can do a "long train" and a "short train" and place them on opposite sides of the paper and connect as a Moebis strip. This will give you the concept of continuity of markets. It also points out where one train ends the toehr train begins.

The log is arranged to take four sheets a day to complete. There is easily one row per five minute bar. As you fill in the three indicators (listing the photo caption in very short hand), you see that the slow STOCH and MACD operate in parallel going down the page and the fast STOCH is just pumping out the sentiment repeatedly, except for the moment when the 50% is crossed occassionaly.

I mentioned that you can fill out the four sheets ahead of time by roughing in the column T, labelled Analysis. Every few rows you put in a line in this order: 1, 2, 3, 4 (VE), 5, FTT (1), BO, 2. etc.

Between odds to evens you have hitches stalls, and dips, and between evens to odds you have patterns of pennants.

You add in the details of all of these things in the 13 left most columns noting all the while that there is a sequential offset between YM 7 columns and the 6 ES columns.

The SCT PUNCHLINE:

The sequences flowing in 13 columns of monitoring always allow you to fill in the rows ahead of time.

Sequences are part of how the market operates. By having a brief set of columns (13) monitored and annotated, you get to be able to fill in ONE analysis column quite accurately. The MODE is filled in in almost every row with a C for continue. Occasionally where there is a CHANGE, you find it is at the time the analysis entries cited above are used. They occur when you DO NOT PUT A "C' IN THE MODE COLUMN.

So you now have photos and photo trains for 13 columns. with respect to long and short, you can make the photo trains into Moebis strips.

Monitoring is a case of keeping 13 Moebis strips rotating and seeing that they always sequence together in the same ways. You are allowed to look ahead and see the next picture on ech of the 13 strips. This is called "anticipation".

We use a term for anything that is anticipated and does not occur. WWT. To bat in SCT you need to know WWT. You can only know WWT if you know the 13 column sequences. We log to learn the sequences work since we can make up the sequences during non trading hours.

There are many people who are too smart to do any of these things. It is one thing to do this preparation. You only do this preparation once in your life. Just once is all that is needed to see the photos and to see the trains they form.

Here is where most people are after doing three years of equities and one year of commodities. most people cannot fill in the log everybar by zipping across the thirteen columns an jotting in a criptic something than means something in each box (cell).

Many people can and do fill in the MODE and just keep the NODE in mind and look for CHANGE places. When one is showing up, then they search their minds to see what to do to achieve something or other.

What if a person did do the work of logging (all the chart annotating is going on ,we know that)? This is what lays the groundwork for debriefing. In turn, debriefing is what terminates errors and mistakes and E and O. My E and O insurance cost a pretty penny when I was doing high tap items. So did my malpractise insurance (and it kept rising at an unbelievable pace). Debriefing is paying insurance premiums. The time SPENT eliminates future shortcomings.

Prepare>>>>log>>>>debrief>>>>improve.

In the next posts I will explain how slow STOCH works, How MACD works and how to log signals from everything.

My purpose is to make you effective, efficient and optimal as traders.

As a consequence, I will pull old charts occasionally and debrief the charts using the log as the basis of preventing the difficulty in the future.

I shall answer Q's; they are extremely important.

The log is where the rubber meets the road. You can use any logging you wish; this log is a log that was built through a refinement process over several months. The goal was to take everything out of the market that the market offered. The log makes trading a slow motion MADA.

 

This is a chart of the ES daily I posted, and CNMS2 was helpful in annotating and pointing out the 50% stochastic line, and how it showed the B2B and R2R's on the traverses.

This again is the design of the values used on the stochastic 5-2-3 setup.