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Today's showcase page has been written by a guest author, Mark Tinghino. Mark has come up with a nice turning point forecaster, and has agreed to write this article for the Wave59 users that have been following his work. For more information about him, check out the 3rd party add-in page.
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History and Background
I am a futures professional that has been trading for over twenty years. I am principal of Moonbeam Trading, a Commodity Trading Advisor (CTA), as well as a Senior Account Executive at Peregrine Financial Group in Chicago. Like Market Profile and Liquidity Databank from the CBOT (based on the work of Peter Steidlmayer), the indicator I have devised is not in itself a trading system. Rather, it is a tool aimed at making better trading decisions based upon it. I started out trading with the standard array of technical analysis tools that many traders, perhaps yourself included, have used. It was not difficult to make some excellent and profitable trades in the summer of 1983 on the humble Oats contract, as that particular timeframe brought increased volatility to the grain markets, the drought being no small factor.
I then looked at various trading systems to see if I could find one to suit my needs, but ultimately I came up short. I actually had some profitable trades with some of them, but they were not enough to end up with any net profit after commissions. So, I set out to discover something on my own that just might work as a tool. I knew of the Elliot wave theory, based on the work of the earlier Kondratieff. I knew it had to do with counting a series of movements on a trend that could each be broken down into an up and down cycle in the case of a bull market and a down and an up cycle in the case of a bear market. I started playing around with my own timing theories and managed to stumble upon some intervals that matched up with several years of price data on bar charts of many different futures markets.
It was a very exciting discovery, but the question was how
to profit from it. It could tell me when a short term trend was due to reverse,
but gave no indication as to how far the opposite move would be. Clearly, it
was going to need some other tricks of the trade to make it a viable approach.
Since it does not have 100% accuracy, there needs to be a way to filter out
some of the noise. Rather then enter the trade in the opening range, which would
cause me to be stopped out with a loss, I decided it is better to wait and see
if the market actually confirms the forecast in some fashion prior to getting
into a position. The trade off is that it will not be as profitable for the
situations where the market does move in the forecasted direction right from
the opening range, but I believe it is worth the sacrifice of some profit to
manage overall downside risk.
Tee Shot Indicator from Moonbeam Trading
The Tee Shot Indicator is a 3rd Party tool for Wave59 for
identifying potential reversals in the short term direction of the market. It
does not attempt to follow the established long term trend, rather it takes
a contrarian approach based on the premise that any market direction cannot
be sustained forever. The potential bars for a reversal are marked with vertical
dotted green lines. If there is not clear direction, then there is no buy or
sell signal. The signals are marked with red arrows for sell indications and
blue arrows for buy indications.
The above chart is for the 2004 September contract on the
S&P 500 futures. The sell signal at C was an easy trade to execute, since
the market declined from the opening and the move lasted for a few trading sessions.
The sell signal at A is a little more problematic, since the market had a close
only slightly lower than the opening, and the big downward move did not start
until the next day. To make an effective trade, other factors would need to
be considered, such as failure of existing support levels. At B you can see
three reversal sessions in a row, but the first one was a session where the
price declined from the opening. That meant a day to stand aside, since it is
more prudent to wait to see if there is any movement established in the anticipated
direction before entering a trade, rather than simply buying at the opening
range. On the second day (large blue arrow), there was some price support established
as the market closed above the low for the day. The third session (small blue
arrow) yielded a doji candle, which is a reversal signal, and the market then
rallied off the low of the following day for several sessions. Although the
overall forecast was correct, it was a relatively difficult trade to make without
placing a wide stop and being patient while the market consolidated for a few
days before continuing the rally.
Here’s the indicator on September 2004 Crude Oil:
A setup for S&P 500 September 2004 Emini contract (July 20, 2004)
The market was down for a few days in a row, so a buy signal
came up on this date. The market was not very strong in the very minor rally
from the opening range, so it was a matter of waiting for some other indicators
to gives us an entry point. At points A and B there were blue nines on the 9-5
count indicator in tandem with crossovers on the lomb periodogram. Either place
would be good entry points and at the same time give a good reversal point where
a close stop could be safely employed. As far as taking profits for the day
(unless you fell bullish enough to hold it into the next trading session), the
red dot on the exhaustion bar indicator just before the close (D) or the closing
range would be logical choices, although there was also a sell signal at C –
a golden five on the 9-5 count in tandem with a red dot on the exhaustion bars
indicator.
Federal Reserve Chairman Alan Greenspan spoke to Congress
about the economic outlook at 1:30 PM CDT, and the market responded with a surge
in volatility: A significant pullback and a subsequent rally and breakout with
a steep trendline up.
As with any indicator in your set of trading tools, it would behoove you not to use the Tee Shot Indicator for entry and exit points without confirmation from a few other indicators available. Stops to protect against loss are always advisable, since no indicator or combination of indicators is going to be 100% accurate. There is no holy grail in trading, and risk is always a significant factor at all times.
Here’s a closer look at the same chart:
Taking a trade at the low of the session might have seemed more of a risky proposition, especially if the blue nine count and the Lomb Periodogram buy indication did not hold up. So, if you were looking for further confirmation to take a long position, the failure of the resistance level established early in the session and its becoming a new level of support might have given you confidence in the next blue nine count to come up. The price breaking through the action zones in red and magenta on the upside might have given you confidence that the move to the upside had more life in it still, especially when it found support on the red line. If you felt confident in those indicators, you might have been bold enough to wait until the close or even hold overnight. If you did not take the earlier buy indicators, the blue dot on the exhaustion bars in tandem with a buy signal on the Lomb Periodogram after it broke back through the magenta action zone may have given you enough courage to finally enter the trade for a decent swing in the last hour and fifteen minutes of trading.
The Tee Shot Indicator is named because of its ability to
give you a direction, just as a solid and well executed shot from the tee on
the golf course can put you on the fairway instead of in the deep rough or in
a hazard.
Although the Tee Shot Indicator has tracked well over several
years of market data, past performance is not a guarantee of future results.
There is always risk of loss in futures trading. It behooves one to use stops
to keep losses from getting out of control.
For information on subscribing to the Tee Shot Indicator visit Moonbeam Trading.