Harold,
I wrote to Andy Bushak in refrence to a chart he posted on the "market outlook"
on Trading techniques web page questioning the false bar and what
it ment.. This was a while ago but I think it helps.. Here is what he e-mailed
to me.. The << words>> are me and the other is Andy's reply:
This is the chart Andy posted with False Bar discussion and
my resulting e-mail question about false bar..
tradingtech.com
(here is my e-mail to Andy)
Andy
<<In your market outlook "(June Japanese Yen - Daily) 4/01 @ 4:55pm" You discuss the "False bar" stochastic.. I understand this is a "proprietary indicator" to advanced get and you don't reveal how it is generated but I am confused by it. >>
Hi Ross,
Yes the false bar is proprietary. We do reveal, though, that it tracks
some internal cycles.
<<On this chart you suggest EW 4 is in place because the false bar is
"not" present... >>
I simply say that if there is no False Bar reading the Stochastic
crossover signal is more reliable. This was said on the 3/13/97
Outlook. In other words, the market is overbought and there are no
identifiable cycles still at work in that direction (in this case, up).
This means if it is overbought and there is a crossover signal, the
market is most likely to relieve the overbought pressures by selling
off..
<<But EW 3 had the bar and doesn't that suggest that EW3 is not finished?>>
It simply means the market is oversold but be warned that there are
still existing cycles that are in force and may still drag the market
lower, even in an oversold condition. It doesn't mean that the market
will not relieve its oversold condition by correcting up, but it
provides a warning. In this case the warning came early and if you
notice, the stochastic remained in an oversold condition through most of
the wave 3.
<<Sorry, but I'm confused about the bar.. Is it more useful on particular wave
counts i.e.. EW5 and EW4?? Also, if the bar stops and the crossover occurs shortly after does this discount the bar altogether??>>
It's not that difficult. The base stochastic tracks a market's
overbought and oversold situation. When there is a crossover, it is
time to relieve that condition. A False Bar present doesn't mean that
the market will not relieve those pressures, but when it is not there
the crossover signal is more reliable. To be specific, you are more
likely not to have taken any crossover signals in the wave 3 when the
Bar was present, but you would have taken the signal in the wave 4 when
it was not there.
Notice that there was a substantial countertrend move in the Yen, when
we were stopped out on the 4/1/97 update. That move came from an
oversold condition with no False Bar. The Directional Pivot was a guide
on how far the countertrend move would go, and a guide to if the trend
would resume. The False Bar stochastic can be used as a complimentary
indicator if it makes sense to you. If not, do not use it. Meanwhile,
stops still have to be respected.
**** end
Hope this helps,
Ross |
