dow waves 2

8/6/2019 DOW WAVES 2

1/5

Hi allIn answer to all the questions received (lotsa lurkers on our list eh?), I decided a combinedapproach was best. So I amalgamated the questions. Immediately below the formula, there isa list of them along with my replies, and some additional guffnwaffle.RegdsGerard

// DOW WAVES/* I thought wed best name this Indicator in respect to Mr Charles Dow,who first identified the three trends. Kind regds everyone and good trading.Gerard Carey - 8th March 2007*/

CA= (CCI(10)+CCI(12)+CCI(14)+CCI(16)+CCI(18))/5;CB= (CCI(25)+CCI(35)+CCI(45)+CCI(55)+CCI(65))/5;CC= CCI(6) ;CD= CCI(200);

Plot( CD,"DOW WAVES Long-Term",6,4) ;Plot( CB," Medium-term",4) ;

Plot( CB,"",4,2+4096) ;Plot( CA," Short-term",1,4 );Plot( CC," Advance Warning",7) ;

// Plot range linesPlot(0,"",4);Plot(100,"",39,4096); Plot(-100,"",39,4096);Plot(200,"",39,4096); Plot(-200,"",39,4096) ;

// Plot entry setup arrowsCondA= CB>0AND (CA


2/5

If you didnt have his data how could you proceed?Just found an index whose chart included the display of a long term uptrend, in which I couldsee each of the three trends. Thats what Dow did. Only I had more choice than he.

How did you ascertain the correct parameters for each trend?Thats the trick (and the longwinded) part. I got lucky.

To identify trend changes I had previously, like most folks, used trendlines. Trouble is, at theright hand edge of the chart we often have to adjust them up and down as the marketproceeds on it merry way. A lot of the time the rotten market just doesnt seem to care aboutour trendlines. Its only with HINDSIGHT that we can position them correctly.

Ah ha! But thats just what I HAD with the index I had selected.So, with hindsight, I drew a long-term tendline under the price line. It got touched, but notpenetrated by price, twice along the way. Sign of a good trendline right? Then I checked theADX of the index. Most of the time it was over 20/25. So Id happened to pick a good, strong,long-term trend.

Then, in AmiBroker, under the index chart with the LT trendline, I slapped a CCI on a chart

pane. I dialled the parameter up and down til I found a level where the CCI line got real closeto, but did not penetrate zero, at the same time as price touched but did not penetrate thetrendline on the chart above.

I looked along towards the end of the trend, where price broke below my LT trendlinesignalling the end of the LT uptrend.The CCI line crossed down thru zero at almost the very same time.I was on the right track.The parameter read 192. I rounded it up, for no good reason, to 200, with no significantchange. I tried it on a few other indexes.It looked pretty damn good to me.

I went thru the same proceedure with the medium and then the short-term trends.

Draw the trendlines (several of each within my LT trend), dial the parameter til it fits. Workedlike a charm. Parameters came out at 45ish for the medium-term and 15ish for the short-termtrend.

After weeks of messing around, fiddling, I went to that Woodies.com site where I knew thatCCI experts hang out, or had hung out.Most folks there seemed to agree CCI(14) is best for short-term index trading, proven thrutheir backtesting (altho they used all sorts of nuances and patterns as well).Sounded good to me. Confirmed my findings.I didnt see anyone using higher parameter levels in trading.

However, that plotted CCI(14) line seemed a mite sharpish so I smoothed it a little bycombining CCI values slightly above and below 14.Did the same with the 45 level as you can see in the formula.

And then I just observed and observed and observed, for months.Theres nothing like screen time to teach you to spot patterns, divergence, good entry/exitlevels. Screen time burns those things into your brain, so they jump out out you as a chartdevelops.


3/5

(And now a false question - Ill slip it in.)Enough already about how you figured it, and we know about finding the health of an index WHAT ABOUT TRADING? Can we use it? And you plotted another line, yellow, whats that?You blind or something? (Im allowed to be rude to myself)Look at the damn chart.

Buy In The Dips - Short-term trading - Around 2-12 days avg.When the MT trend is above zero (the higher the the better), and the ST trend dips belowzero then turns back up does that look a likely long entry setup?I put the green arrows on them for you.Vice versa for shorts when a MT downtrend is in place.Basic entry strategy is to place a conditional order to buy, if & when the marketstrengthens/falls by a predetermined amount the following day.

Figure your own exits. My initial stoploss, placed immediately on a fill, converts to abreakeven stoploss, then converts to trailing stoploss. Whatever, I like to be out if the STtrend sinks below the 100 level.Leave runners in place if the MT trend is still high.

NB. Get to LOVE those runners.

Anyway, as someone has said, What Genius! Buy low! Sell higher! .

Youll see on the chart I also added an advance warning indicator, thats the yellow CCI(6).Note how it sinks below 100 on good long trade setups. Sometimes turns back up before theblack ST trend - advance warning.When that yellow line drops below 100, and the black ST is below zero but yet not turnedback up, Ill often immediately place that conditional buy order.If that yellow line drops below 100, I may even place that orderif the black ST trend is stillabove zero but only if the MT trend is Strong, say above 50. There are two or threeinstances of this on the above chart, not arrowed of course because they dont meet the basicST entry criteria.

I forgot - One final question


4/5

Can I use this on individual stocks?Yes you can.An individual stocks market can also be viewed as an index of all its trades.Guys often say to me, This stock looks likely! Whaddayareckon?I slap the indicator on them for a quick health check.

The problem with using it for TRADING individual stocks is that they are (always?) morevolatile than their common index, which is what it was designed for. Those trends can jumpabout so erratically on stocks.

One approach may be to wind the ST parameter up to say 20, thereby signalling only thebetter entry setups. Maybe wind up the MT and LT parameters also - by a relative amountperhaps? Therebye wed have a new DOW WAVES formula just for individual stocks.

You could also perhaps keep the parameters as they are, but restrict your setups to thoseoccuring when the MT trend is over 50, or over 75, therein saying the MT trend has to be verystrong, not just positive, before you accept it as an entry setup.

Another recourse could be to gather a watchlist of stocks that trend smoothly, mayberegularly, methodically or boringly are better words. You know what I mean, stocks thataccept well the indicator signals.

You could use a combination of all these strategies.

Oh, and writing an Exploration for stocks that meet the parameters would be easy, and aneffective way of getting a list of prime candidates.

You may also have to adjust the insert levels for the arrows on the indicator.

One final bit of blather.Lots of the experts say we should have a setup to signal likely entry areas, and then a trigger

to force the entry. Cant remember the reasons why they say this.Whatever, Ive got a trigger that often gets me in a day earlier.Its the old advance/decline line. Not that in-built one in AB that wanders slowly about, but onebuilt with ABs cool AddToComposite Function.From the members of the index Im trading, I simply calculate the no of Advancing stocksminus the no of Declining stocks, nothing fancy. Im telling you this is often a leading indicatorof price action. It often rises on a red candle day. Boy is it volatile. Just what I want.

Lets say Ive got a PRE-long entry setup on the chart (red MT>0, and black ST


5/5

First the Relative Strength Index (RSI).Note I plot the 50 line. IMO its the momentum equilibrium level of the RSI equates to thezero line in the CCI.I also deleted those silly O/B O/S lines.Absolutely Guaranteedto make you miss good tradesin a strong trend, they are. Plot them here and Ill kick your backside from here til Christmas.

Second the Rate of Change (ROC)I havent plotted the LT trend, because I havent got around to sorting out its paramater, butyou get the idea, right?

Convinced yet? Probly should have showed you the Stochastic one also. Guess what Yes,it shows the same thing! Ive got fifty or so that say the same thing So Get Convinced!

Just one other thing and Ill shut up.That ADX, that we use for measuring trend strength. It signals strength when its rising, itsignals strength when its falling, supposedly around/above the 25 level, and it lags something

terrible.Youve also gotta check it along with the Directional Movement Index for it to make propersense.While without doubt its helpful, its all rather confusing.Consider replacing it with our red Dow Wave.It clearly shows whether the trend is up or down, it precisely measures trend strength, it suredoesnt lag, and, even better, its on the same pane!A better ADX, cool.

Regds everyone and good tradingGerard

dow waves 2

Documents