Post 16 EWU Observations from a New Student

Hi Jody,

I had such a busy day today that I could not make time for trading. I realize that trading requires absolute focus and I just had too many things needing my attention to trade. Life is good but life is busy!

I did get a lot of things done today which should clear the way to focus on the markets for two hours of trading in the morning.

I had a very successful trading week last week when all was said and done. I have separated out 1/6 of my trading capital to be used for trading, at present. So, 5/6 of my capital is dormant until I feel that I am ready to handle more risk.

I took four real money trades, two winners and two losers and netted 5% on my subset of trading capital. I’m not quite ready to step up my risk as I’m still making some obvious blunders. The errors are small things, but I want to feel more confident before I risk more money. I consider 5% on my risk capital in one week to be absolutely what I have always dreamed of! Imagine, if I could make even 2% a week, consistently!

In the meantime, I have been taking on a fairly sophisticated study of the BO-3 with some surprising results. I decided to catalog as many BO-3 trades as I can. So, I picked a calendar date and an instrument and a time frame and I ran replay mode and I have logged 60 BO-3 trades, so far. I have taken a screen shot of each one and put the entry, stop, exit, dates and times into a spreadsheet. Plus I’ve done some preliminary analysis with respect to the higher time frames and Semaphores as they relate to these BO-3 events.

I define BO-3 territory as Wave above the Tunnel then price closing back into the Wave until Wave crosses the Tunnel on the other side. So, between those two points of demarcation, I consider myself to be in BO-3 territory. I require price to trade back to the Wave after Wave crosses the Tunnel so that I don’t confuse the BO-3 with the BO-1. Since I trade 3xETFs, everything I do is “long”. I never go short. If the trend becomes down on an ETF, I simply switch to the alternate ETF of the Bull/Bear pair.

For my study, within BO-3 territory, I go about logging every BO-3, in time order. This takes time; but, what a way to learn to spot the setup!!! It is almost like I see the BO-3 on an intuitive level once I get into a groove. The rules are absolutely a part of me. I no longer fumble to tell if this is a BO-3. Instead,the setup is simply obvious. That feels good.

My setup and trigger rules for this study are extremely simple. I don’t take any factors into account except price, Wave and Filter for the setup. So, I don’t care about Tunnel or divergence. I want to catalog every BO-3. Then, I go back, after the fact, and tag each cataloged BO-3 entry in terms of larger time frame and divergence and the like. So, I am logging BO-3s that are clearly counter-trend and would probably never be actually traded. But I want to know what the behavior is across all parts of the market cycle.

My data set is still quite small and not at all diverse enough to begin to draw supportable conclusions. The preliminary data is intriguing because it contradicts what I would have expected to see. So, either there is an error in my data collection, an error in my analysis or a discovery waiting to be made. It is by far most likely that the first two are true! We’ll see.

But the data definitely has my attention, it so counter-intuitive that it is a bit hard to get my head around the results. So, now I need to catalog at least 50 BO-3s on a different instrument and a different time frame to see if I see the same kind of results.

As an aside, I have a B.S. in statistics, so I understand the concepts of degrees of freedom and how to collect data to facilitate drawing meaningful conclusions.

Even if my theory falls apart, all is not lost. Every BO-3 I analyze in real time or in history reconfirms the rules and makes me more confident in trading them with money. It is funny because it is so “me” to become the specialist on one small area of knowledge. I know the other 5 setups are out there but I want to know everything I possibly can about the BO-3. Not that I want to get lost in paralysis of analysis. But, I want to be the guy you talk to when you want to really understand the BO-3. That could take me several years. I truly want to master the BO-3 in the truest sense of mastery.

Meanwhile, I hope to have a week even half as good as last week!


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