The conclusion is that you don't realize this is a weekly trend channel, which is why the lines occur where they do. The trendlines and resulting channel are drawn exactly as they should be. Which is the chief difficulty with your approach: it's all in hindsight. Show somebody how all this works out in advance, not by looking in the rearview mirror. Problem is, you can't. You can only boast about what was. Or might have been.
I use this equation to draw my line. It has a self correcting component that bends itself, as light does, when crossing close to a large mass of price activity. When close to a low mass of price activity it doesn't bend much. That's why the line's missing a few important points mentioned above. It's all very logical. where is the proper time (time measured by a clock moving along the same world line with the test particle), c is the speed of light, t is the time coordinate (measured by a stationary clock located infinitely far from the massive body), is the radial coordinate (measured as the circumference, divided by 2π, of a sphere centered around the massive body), θ is the colatitude (angle from North, in units of radians), φ is the longitude (also in radians), and is the Schwarzschild radius of the massive body, a scale factor which is related to its mass M by rs = 2GM/c2, where G is the gravitational constant.[1] Gringo
Thanks KP for your posting! I do know where the lines eminated from. Glad you brought it up. If you look at those lines, you'll note that they are also arbitrary. The upper line is drawn above a peak that occurred 9 months hence from the beginning for starters. Diagonal trend lines are certainly better than horizontal scribbles but the issue here is that the student is forecasting both directions. I believe he is suggesting that buying a straddle at the median line is the best option here.
Prudent use of most things would imply a greater chance of better outcome over that of a non-prudent use. Hence, prudent is alluding to probability, and a higher probability of one outcome over another, which in essence is an edge. Prudence, in other words is nothing more than identifying and using that edge. Gringo
Well technically, they aren't arbitrary if they are always drawn the same way. The same way being that you take two swing lows, connect them, and draw the upper parallel line across the highest point. If anything, its pretty remarkable that given how this channel was drawn so long ago, that price is still respecting it. I would actually also disagree that diagonal lines are better than horizontal ones. The horizontal lines represent actual values that everyone can see, that aren't just a line made up like a diagonal one. As you say, diagonal lines can be drawn very many different ways, so this makes it arbitrary. But if you ask someone to draw a horizontal line under the previous day low, there is only one way to do this. Likewise, a line draw across the previous day high can only be done one way. So if you have these lines on your chart from the previous day, and price approaches the previous day high or low, it will either go above it, or below it (worst of all is when it forms a range right at that level). But point being that everyone can see a horizontal line and everyone has to draw it the same, and if the line is a previous day high or low, you can bet that lots of traders are looking at it. Here is the thing that I think you have to agree with. You have a method that causes you to lose 20 or 30 points, and everyone calls you crazy. But when I see that your posted results show that you are up $75k for the year so far, then you must clearly know what you are doing. Your stop and target placements, even though they may be very large, are clearly well tested to be statistically profitable in the long run. Likewise, if a trader builds a system that takes advantage of horizontal and diagonal lines that is statistically positive in the long run, then fundamentally, this isn't that much different from what you are doing. I do like lots of things you write, like when you said that too much emphasis is placed on being right but not enough on keeping losses small, letting profits run, and not needing a high win percentage. http://www.elitetrader.com/et/index...w-a-straight-line.287955/page-67#post-4099117 But this can clearly be accomplished in many different ways, and since you're big on the math of all this, which is essential, if someone is to build a system that does have a statistical edge, what is wrong with it being different from yours if it still wins more than it losses in the end?
Here is a recent chart posting from one of the scribble method students. In this analysis , the student drills down from longer time frame charts in order to identify a range on a shorter term chart. Even though larger ranges are identified, he finally gets down to a trade-worthy range of six points from 3674 to 3680. However, by attempting to be so specific on such a short time frame, the scribbler ends up missing reversals both at 3687 and also at 3662. A simple Bollinger Band, RSI, MACD analysis would have had the trader reaping much more reward than would be gained using the scribble method. In addition, no stops are shown on the chart once again--the idea being that the system is going to deliver such a high win rate that initial stops and trailing stops are not necessary. Letting a winner run is also not shown or discussed. Letting winners run is part of a prudent capital/risk management model as is essential for successful trading. Again, when reviewing the scribble charts, it's very glaring that the main attempt is to be right 100% of the time.