Trade number 2 occurs when prices close
below the HiLo Activator. The confirmation had
already occurred one daily bar before when the
ECO histogram moved below the zero line.
Notice the Flip, which is the circled dot, and
indicates that the Signal line has moved out of
the ECO histogram block, this occurred on the
second bar after the peak bar, which is a Pivot
High, for the previous uptrend. One cannot ask
for more of an early indication than that.
Trade 3, which was suspect from the start
because even though the ECO did confirm the
buy signal by crossing above the zero line, it only
stayed above the zero line for one bar. But,
according to our rules, the fact the histogram
went below the zero line is not a signal for action.
And sure enough, the market did ultimately edge
higher and the ECO histogram moved back above
the zero line. The advance was short lived
however, as the market faltered and dropped
back below the HiLo Activator. Notice again,
that a flip occurred on the very high bar
Trade 4 was forewarned by the Flip we just
discussed, and was confirmed by the ECO
histogram on the same bar as the entry signal
from the HiLo Activator.
Trade 5 is interesting from a number of
aspects. First of all, the low near $80.00 is a
second test of major support established back in August, so you should especially be on your
toes at this point in time. And what happend? A
Flip occurred on the very low bar! Next, the
ECO histogram crossed over the zero line two
bars ahead of the signal from the HiLo Activator.
This is the kind of setup you would like to see
when a market is testing major support.
Trade 6 was short lived, only four days and
the second loss in this series, as we always say
there is no holy grail, nothing is 100%.
Our final trade, number 7 which is still open as
of this writing, had a simultaneous Flip, crossover
of the ECO histogram and buy signal from the HiLo
Activator.
Clearly, this approach has some real benefits for
traders looking for a technique to trade trends on the
daily bars that can last up to a month. And, with a little
money management technique we can improve upon the
performance. We’ll review these trades as an example of
steps to take for your own work. Now, I have to stress
that the sample size of this series of trades is too small to
consider trading, as you need at least 30 observations,
but will work as an example of the kind of research we
do and you should too.
Recall from Fibonacci Trader Journals #8
and #9 we introduced the concept of Maximum Favorable Excursion (MFE) and Maximum
Adverse Excursion (MAE). To review, the MFE
is the peak open profit each individual trade
experiences between entry and exit. The MAE
is the worst open loss for each trade between
entry and exit. There are a number of valuable
uses for this information. For example, you might
be considering a trading system that had a nice return
on a closed profit basis, and perhaps the worst closed
loss seemed acceptable to you. However, if you
analyses the MAEs of the individual trades you might
conclude that the method is not suitable for you because
of the amount of heat you would constantly feel.
Go to Beginning >>> The ECO Histogram
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