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Saturday, March 27, 2010

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DG

View from the March 2009 low and a close-up from the February low.

http://img138.imageshack.us/g/spydaily2.png/

DG

Duplicate post from a thread below to make sure my friends in the "sockpuppet chorus" don't miss it. Enjoy.

By the way, CARL FUTIA is the ONLY blogger that I know of out of the one's that Yelnick has mentioned above that actually TRADES for a living, and posts his E-Mini trades on the S&P real-time on his blog.

Incidentally, in some reading I was doing today, I ended up on Carl's blog and checked out his long term track record, going back to when he started posting his trades real-time, which was October 2007. Since then, he's made 527 points, according to his own records here:

http://carlfutia.blogspot.com/2009/03/blog-trading-record.html

Now, first of all, total points is an OK metric, but not perfect, but since Carl does a standard two-contract trade size, it's fine. Over that time, Carl's made 527 ES points. Great. By the way, that includes his performance during the rally from the March 2009 lows, which has, according to some posters here, been the greatest trading performance in the history of mankind or something.

Well, lo and behold, over the same time period Neely's Weekly trades, which are the ones I have been saying are the ones to follow, have made 850 ES points!

Carl's "high-water mark" ES points-wise, was 534, in January 2010. Neely's was 1039 in March 2009.

It's hilarious. You guys praise Carl like he's the Second Coming and rip on Neely like he's a monkey throwing darts at a board, yet, over the long-term Neely's doing about 60% better than Carl, with a high-water mark twice as good as Carl's!!!

Man, I just wish I'd taken 5 minutes to check out Carl's long-term track record before this so I could point this out earlier.

BTW, this is in no way meant as a put-down of Carl. He has his method, he's very net positive over the long-term and he has traded the past year better than Neely.

It's meant as a put-down of the "sockpuppet chorus" that comes here on a daily basis ripping on Neely for not getting the last year right and basically ignoring what I've said all along, which is that one year's returns do not tell the whole story.

As the saying goes, "You can't make this stuff up".

Hilarious.

Wags

DG,

First off, the quote that you highlighted at the beginning of your post is my quote, which was in regards to Yelnick highlighting the market analysis by Carl Futia, Daneric, the STU and EWP this past Thursday.

No where in Yelnick's article of Thursday, March 25th is there any mention of Glenn Neely . . . so I find it rather strange that you feel such a strong desire to bring Neely into the conversation, especially since he does not trade for a living like Carl Futia does.

In any event, what is really hilarious is your continued obsession with Glenn Neely...and the fact that you continue to drag his name into EVERY SINGLE conversation/post on Yelnick's blog. In fact, your obsession with Neely is so "over-the-top" that one really has to question your mental state.

In fact, leave it to your "obsession" to conveniently pick and choose which of Neely's performance results to use ( weekly vs daily ) as opposed to Futia who is trading on a daily basis.

It might help your credibility on this blog to compare "apples" with "apples", but leave it to you to be so blinded by your obsession with Glenn that you are unable to even notice your error.

By the way, is Glenn Neely a family member or relative of yours?

Your constant "obsession" with him on Yelnick's blog is downright strange.

DG

especially since he does not trade for a living like Carl Futia does.

And you know this how? I think I know a bit more about Neely than you do and from what information I have, he does trade for a living. It is possible for a person to both trade for a living and publish a trading service you know. As a matter of fact, if Carl really wants to "trade for a living" and make more money doing so, over the long run he'd probably be better following Neely's trades than making his own. At least, that's what the data say and, since data is the way rational human beings make decisions, the most rational decision is for Carl to do exactly that.

In fact, leave it to your "obsession" to conveniently pick and choose which of Neely's performance results to use ( weekly vs daily ) as opposed to Futia who is trading on a daily basis.

Dude, unless you have some kind of need to trade daily, which is more accurately described as an "addiction", who cares if Futia is making intraday trades and Neely isn't? As I have said many times, there are no prizes for "most active trader" and I'd rather make 1 300-point trade than 5 50-point trades or 299 1-point trades.

The bottom line is the bottom line. Would you rather have made 850 ES points over the last three years or would you rather have made 530? It's a simple f-ing question. Spin it any way you like to justify saying you'd rather have made 530 points trading Carl's way than 850 points trading Neely's way, but I doubt that any 3rd-party observer would agree with you on that. Hmm, let's see, do I want ~$25K in trading profits over the last 3 years or do I want ~$40K (assuming a 2-contract trade each time)? Well, if I trade Carl's way, I get to trade every day, but if I trade Neely's way, I make more money. Which one should I choose? Duh, the more money way. No one in their right mind would choose otherwise.

No where in Yelnick's article of Thursday, March 25th is there any mention of Glenn Neely

Dude, again, that was just a convenient post to mention these facts on. Had I chosen to go back in the archives, I could have found the half a billion posts in which you or one of the other half-dozen usernames you use was ripping on Neely and saying that Carl was the man. Again, I just happened to find myself on Carl's blog today and noticed this stuff for the first time and didn't see any reason to wait for the next post in which Neely was mentioned, and you inevitably commented on how Carl has traded the past year better than anyone.

Allow me to get your response started:

twelve paragraph diatribe
obsession
trade for a living
E-wave blogger
70% rally from the March lows
Cumulative A/D line
etc.

DG

Hmm, let's see, do I want ~$25K in trading profits over the last 3 years or do I want ~$40K (assuming a 2-contract trade each time)?

Whoops, math mistake. With two contracts, it would be ~$50 and ~$80.

mark

I was looking into subscribing to Neowave (Neely)about 8 months back, but decided not to when I looked over their results data which was a little better than throwing a dart on a chart. I did appreciate their honesty however.

Greg

Mark, I wish I had made the same decision with you.

Troy

Yes! Me, too! I felt bad because they were honest but if their track record improves I'll take a second look.

DG

When you subscribe has definite implications for your returns. I think that's a given with anything, though.

How many buy and hold investors are millionaires today simply because they got into the workforce in the early 1980's and started saving in their 401K plans immediately versus people who have zero capital appreciation in their 401K because they got in in 2000?

I was looking into subscribing to Neowave (Neely)about 8 months back, but decided not to when I looked over their results data which was a little better than throwing a dart on a chart. I did appreciate their honesty however.

As Yelnick often says, some of the best traders at hedge funds have about a 55% win rate on their trades. Neely's Weekly trades have a 58% win rate. Obviously, when your win rate "edge" is that small, you need to keep your losers smaller than your winners to really make progress growing your account and Neely's winner to loser size ratio is 1.5 to 1. The line between "random" and "great trader" is quite thin, statistically-speaking.

The past 12 months have been very bad for Neely, no question about it. Even though he has said that he has many subscribers who have been with him for a very long time, I'm sure he has lost a lot of subscribers who came on board when the market was taking in Fall 2008. There were definitely things he could have done differently without breaking any of his NeoWave rules and he let a bearish bias lead him to do otherwise. It's not that he's a perma-bear but he did get sucked in to a mindset that said the next reversal was right around the corner and that playing for that reversal was a better strategy than going long on dips.

In retrospect, he should have just taken the past year off. If he had done so, he'd be 100% better than Carl Futia over the past 3 years instead of just 60% better.


yelnick

DG, both Neely (Jun) and Prechter (Aug, then Nov, then Jan) tried to call the top. Yet if they sat back an thought about their core theories, they would have realized that the bounce off a sharp drop like we had will return at least 50% of not 62%. I don't think a top should have been called before 50%. I pegged Dow10500 as a likely retrace back in Jan even before the wave structure emerged of the bounce.

I think wave theory needs to be updated, and here are the two prime areas:
- a zigzag channels like an impulse. why not design a system to play it? Why run away because it is a "correction"? Regardless of a debate over whether we were precisely in this sort of zigzag or not, or a Neely triangle leg, when the market runs up a channel, play it until it breaks.
- picking the top seems riskier than waiting for the break that confirms the change of trend. why not be more focused on breaks, both false breaks and real ones? This is why Carl Futia has caught my eye - he is using boxes to peg trend breaks, an alternative to channels or Gann Fans

Canadian Money

About Carl...

His post of Monday, March 30, 2009 titled
A short introduction to the history of human stupidity

It seems to argue 'that one cannot time the market and therefore one should always bet on the market going up'. Not sure how this view relates to what he is doing daily.

rc

Interesting article by Mauldin: http://www.safehaven.com/article-16238.htm

I've also read this elsewhere and believe it provides a true and fascinating perspective. Paraphrasing from my readings, imagine a sand pile being built-up. Looking down from above, color the stable areas green, and the unstable ones, red. As the pile grows, red dots appear, then lengthening, broadening, and interconnecting fingers of red instability. When a grain falls on a green area, nothing occurs; on a red dot, a small change; on an extensive red area, an avalanche.

A key point: stability leads to instability. As a sand pile grows without major disruptions, it becomes increasingly susceptible to an avalanche as the areas of red instability also grow.

So... here we are, in a relentless rally with hardly any meaningful setbacks. Day after day the market goes up. Any dip is quickly bought. The sandpile has been growing now for over 12 months. It's very stability has made an avalanche increasingly likely to occur with the next grain of sand.

What are the interconnected red instabilities in the market? What and when might be the grain of sand that sets them off?

DG

I don't think a top should have been called before 50%. I pegged Dow10500 as a likely retrace back in Jan even before the wave structure emerged of the bounce.

And kudos to you for doing so. You may recall that Neely originally had the decline to the March low as part of an all-encompassing structure which began at the November 2008 low. With that in mind for his starting point, looking at even a 50% retrace would have seemed to optimistic. In NeoWave, the minimum retrace to be a wave of the same Degree is 30%, and with the pattern seemingly so weak, that was as good a place as any to start thinking about a reversal back to the downside.

a zigzag channels like an impulse. why not design a system to play it? Why run away because it is a "correction"? Regardless of a debate over whether we were precisely in this sort of zigzag or not, or a Neely triangle leg, when the market runs up a channel, play it until it breaks.

Well, the channel did break in June/July of 2009 and that was Neely's failed "the top" call, so channel considerations probably played a part. We got back in the channel, but the trend was so weak that it broke again in November and then again in January. At those points when you fall out of the channel and go short and it fails and we get back in the channel, should your next move be to go long or to go short on the assumption that the move back into the channel is a false move? To me, that seems like a judgment call and people can differ on how to play that scenario. Sometimes you will be right to go long and sometimes you will be right to wait for your next short trade to trigger, even if that means shorting while still in the channel.

picking the top seems riskier than waiting for the break that confirms the change of trend. why not be more focused on breaks, both false breaks and real ones?

But this is essentially what Neely does, with varying levels of success on the different timeframes. Neely doesn't try to pick the top tick or bottom tick, he waits for the "largest and fastest" reversal on the timeframe in question. Sometimes all three timeframes line up together. The problem is that during these extremely difficult to decipher wave patterns the "largest and fastest" decline doesn't necessarily indicate a reversal, it's simply another Corrective wave structure within the larger wave structure moving with the current trend. This issue is especially difficult to handle when the patterns in play are the 7 and 9 legged patterns in NeoWave. I'm not going to debate the merits of Neely's use of these patterns now, but that Daily chart from the March 2009 lows uses them. The declines during those patterns get everyone all riled up to short and then reverse back up and since there are no hard and fast limits on how large each successive declining pattern can be, each one can be a new "largest and fastest" decline, triggering a short.

As I've said, it took me a couple months to work out a way around this issue and to figure out how to identify times when it would be an issue. I'm comfortable with the end results.

vipul garg

"He shows this chart, which is from Prechter's Elliott Wave Principle (10th Ed., 2005), p 39. It shows an expanding ED ending a pattern, and (note to Vipul) shows the swings of the expanding ED largers than the prior wave 4 of higher degree. "

Yelnick,

the issue here is that the reference provided here is all wrong.the title says a possible ending diagonal but with so many degree problems it cannot be .
i dont have any issues with an extended 5th wave ending diagonal /terminal but certainly with the way it is shown in the chart or was labelled.
prechter has made great contribution to EW but he has not got a lot of things right if i may say so here.
one messes with degree and one is going to get the wave count wrong, that is my submission.

yelnick

DG, it is in the breaks and playing them that the future of wave theory lies. I learned a lot from Neely and then Zoran on playing breaks, but the method is incomplete. I wonder if proper mastery of breaks is all that is needed, not the wave structures themselves.

yelnick

rc, you are spot on. we have not done anything since 2008 to try to manage the potential sandpile of risk that is building again

DG

Yelnick,

Can you give a concrete example of what you mean by "breaks"? Also, what sort of win-rate would you expect if one could master playing the "breaks"? 100%? 75%? Would there never be a "false positive" in your eyes? Because, to me, it's the problem of "false positive" trade signals that's the issue and the cause of losing trades, once you've got a solid set of trade entry rules. I don't see how you get rid of that, though, using only price and time and I have yet to see anything indicating that there is an indicator which will get rid of the problem either.

We know from Neely's many statements of his method that his method of playing "breaks" is to wait for the "largest and fastest" move counter to the prevailing trend. If the market has been in a 100 point uptrend and the largest correction within that uptrend was 25 points, Neely waits for a 26 point correction and goes short then with a stop at the top. To me, that's what "playing a break" is.

But, as I said, it's entire possible that the 26 point correction, although it's now the "largest and fastest" (let's assume it took less time than the 25 point correction), still isn't a complete reversal of the trend and that the top you though was "the top" will get surpassed. That 26 point correction is a "break", but it's a "false positive". However, and here's why you simply have to go short on that 26th point, it could also be a real "break" and entering at that moment will give you the largest possible profit on that trade. There is no way to know, in advance, what that 26th point means. It could be the bottom tick of a 26 point correction or it could simply be the point that opens the floodgates to a 100 point correction.

You can't know in advance.

Wave Rust

DG,
The speed of a counter trend move explains much of why Neely and others have called several tops in recent months.

To me, that speed is a technical indicator that often offers a good reversal signal when it peters out quickly, and then sends the price back into trend, in this case, an uptrend.

It seems to me that speed alone is such a very weak lynchpin to rely on. then revise labels, call a top ,,, then have the move reverse on the call. But what is worse, imho, is to stubbornly wait to reverse the call for days or weeks or months and way too many points against that stubbornly held position.

I think your false positives and correct positives won't be 'solved' by a time measurement. vipul may be onto something with his suggestion of degrees not being recognized and labelled properly.

I often think the original EWP book was more of an opus of AJ Frost than Prechter, who was really only learning it by high speed emersion. :) Neely obsessed about finding a pony in the pile doodoo. Bulkowski took EW as he saw it, a more macro view that was much easier to quantify and measure.

If EW is fundamentally a way to 'measure' human behavior' in the markets, then EW has to change a lot to keep up with the critical changes in societies and economies. The most critical ones are proliferation, speed of delivery and abundance of information (both direct and indirect market-related info), millions of traders trading at the speed of light from all 4 corners of the earth, nearly 24/7/365 global trading, decimalization of the US markets, parabolic growth of traded vehicles, big money trading quant-designed 'blackboxes',,, and many more.

I don't see the accepted "herd mentality" but different herds. FX herds, debt herds etc. Although these 'existed' before, the inter-relationship of various markets has been visible for about 30 years.

The above factors have added a dynamic that is untouched by EW of any style.

If that dynamic (there may be a better word) is true and measurable, then someone will find it. The speed at which humans can think is the same speed at which they change their minds, emotions and then their behavior, and as such, change their position in a market.

Stating all that, I still see the macro similarity of the 2003-2004 and the current lift off of the March 2009 lows ,,, it's just bigger, longer and, ultimately could prove to be much more powerful in years to come (after a correction, beginning later this year).

I could have just written, 'I think time of a correction is a sucky way to figure a top is in.' but I didnt ,,, I said it the long way. ;] I don't use time of anything when a market, say the SPX, is overlapping and chopping its way higher ,,, like 2003 & 2005-6, most recently.

wave rust

yelnick

wave, let me echo some of your thoughts. one of the biggest changes in markets since the '80s has been the incorporation of commodities/options thinking and behavior into the big houses, starting (and maybe ending) with Goldman Sachs. The commodities side of elliott wave sees different patterns, partly driven by expiration of contracts, but also by different trading behavior. A first step is to bring those patterns and heir frequency of appearance over into equities.

DG

I think your false positives and correct positives won't be 'solved' by a time measurement. vipul may be onto something with his suggestion of degrees not being recognized and labelled properly.

I assume in my response that vipul is correct about degrees. In my example above (the 26 point correction vs. the 25 point), that 26 point correction would either be:

The first 26 points of a correction of the same degree as the original 100 point uptrend where the maximum decline was the 25 point correction

A new "larger and faster" correction within the same uptrend

If it's the first one, you were right to short, although there is still no guarantee that the correction will grow from 26 points to, e.g. 75 points. It could max out at 26 points and turn right back around. That has been, unfortunately, an all-too-frequent occurrence with Neely's trades over the past year and it does suck. On the other hand, it could be that you've nailed the reversal and the correction retraces the entire 100 points and more, which means now you've got a 75 point-plus winning short trade.

If it's the second one, well, now you have to wait for a 27 point correction to go short again or you could go long, using a variety of different techniques for market entry and stop placement. As I have said before, I have no qualms about holding a long and a short position at the same time when my rules say that's the play. The explanation for why that's the case is fairly long, but it has to do with using the internal logic of market price behavior vs. wave structure as your method of entering trades and setting stops.

My point about the "false positives" is that there is no way to know, in advance, whether that 26 point correction is the first or the second. Also, if it's the second and the market goes up for a while and then has a 27 point correction, you STILL won't know if that 27 point correction is the first or the second.

That's what Neely means when he says that in certain environments wave theory, while it can provide discipline to your entries and exits, still gives you very little in the way of forecasting certainty.

Wavist

Just this once Socky's right in there being no sense in comparing Neely's weekly returns with Futia's intraday record, especially when Neely himself issues hourly and daily signal too. Why trade more frequently when it invariably leads to fewer points gained? Because account balances aren't grown by winning points but by making profits. Shorter timescale trades are characterised by progressively smaller stops, enabling larger stakes to be placed without increasing risk. On trading breaks I really don't see how drawing a box gives any more information than waiting for price to break the Raff Channel or how the termination of the former trend that they signify can be relied upon in isolation to identify the direction or extent of the subsequent trend. They are more useful as a guide for exiting an existing trade than determining a new one.

DG

Wavist,

Carl specifically takes the same size bets on his trades and that's how he generates his annual return numbers. Plus, I didn't see any stop information, so while I agree in theory that he could use smaller stops and bigger bets, that doesn't seem to be the case or that can't be confirmed. One could also take the flip side of that argument and say that since the Weekly stops are further away, the likelihood of their being hit is lower and that could justify larger bets. Overall, though, I agree that "points gained" is far from the best metric to analyze a trading method. I would also say that both Carl and Neely could make some alterations to their position-sizing methodologies because neither appears to be using position-sizing optimization strategies.

Yes, one could then say how does Carl stack up to Neely's Hourly and Daily trades and he does have a better 3-year record there, although even on the Daily Neely's high-water mark was higher than Carl's.

So, on a same-size per trade basis, I still don't see how Carl's the better long-term trader.

And, since I've been banging the drum saying that Neely's Weekly trades are the ones to trade for at least a couple months now, I don't feel the need to drag in his Hourly and Daily recommendations to the comparison.

The bottom line is that if you were trading two ES contracts per trade for the past three years, whether that meant you made 500 trades or 50 trades, you'd have more money today having followed Neely's Weekly recommendations.

Wave Rust

Yelnick,
I didn't mention it, but the FX market and its 400:1 leverage availability is potentially huge when you consider the relationships to movemnets in equities ,,, such as recent euro to dollar denominated stocks and indices. Then when they disengage, like the recent usd rally with indices rallying,

I view that not as some temporary condition but more as a likely persistent change of conditions, outside of the US and its currency (see my "how to get rich" whimsy post, back in Dec. I think).

btw, fwiw, I think EUR/USD is within days of a bottom. or confirming a bottom ,, like Wed. That would probably get US indices to SPX 1250 right away, or by Memorial day (disagree with 'sell in May' this year, even though May might begin that way.

Another emerging factor, as you have posted about is governments, of all sorts, have become traders and hedgers too. Governments have big money, even if they aren't great traders. Their surrogates can be Goldman-esque (right, Greece?) in their influence on others' behavior, by virtue of just the volume they can produce in a market, and their staying power to get what they want.

I observe that when trendiness leaves a market, either too many are in it , or not enough traders are in it. So, when cross pairs reach that stage, it will be time to find the less crowded but active market. In 2007-2009, everybody was playing FX (there's always a bull market in FX LOL) and short stocks. FX got wacky, stocks bottomed but most regular traders wouldn't touch stocks even with somebody else's 10-foot pole. 500 S&P points later, people are "re-discovering" their old love affair with stocks. Especially those turn-of-the-century dip buyers.

My favorite big effing deal change is the ability to be short and leveraged in just about any market with out direct risk of a margin call ,, or more importantly, not having your house at risk when you put on a trade and, then go to lunch. Leveraged ETF's and huge leverage in FX are the Keno game for sucking in the retail public. Those binary games and HY bonds get alot of attention too.

When you think teenagers can trade 3X ETF's from their iphone while taking an online college course ,,, all the while chatting with twitter followers ,,, I've got to wonder whether Dodd's 'stalking horse' financial reform bill isn't so far behind the times, that the horse left the barn so long ago that Dodd is wearing that horse as a set of matching wing tips and leather belt.

People's behavior patterns are still much the same but how they act on that and execute that behavior has definitely changed and continues to change. Finding that changing behavior in a market becomes more of a creative act than a quantitative measurement.

To me, it means that there are many many more deer in the road who aren't ready or prepared to react to being caught in the headlights. And caught they will be, and soon too.

What a wacky game we play eh? :))

wave rust

Wave Rust

DG,
"As I have said before, I have no qualms about holding a long and a short position at the same time when my rules say that's the play."

I am frequently long from lower and short from higher, especially in a 4th or in a D to E consolidation. That isn't a confusion trade combo but is according to what I expect for spikes in D and a dribble off weakness of an E. The 4th brings alot of quick singles as most are sideways moves.

In these persistent up moves, 4th's are hard to find and don't last very long. Most so far have been intraday and some have spanned 2 trading days, except in last October. June looks like the next really good one.

wave rust

chartrambler

Don Vodopich's trading for profit book talks about expanding diagonal tops and shows examples .He was an EW man (I am not)

Knows His Stuff

To place the name Neely in with Kenny's is, IMO, an insult to Kenny. He does not run a propaganda machine and leave out his major guffaws, of which I have seen none as he has not issued press releases, but rather suggests when he himself is taking a position. Neely stated he bet his career on 666 not being the low 9 months ago. His analysis in chapter three with his "new discoveries" has been shredded apart as per time relationship, and his "expanding triangle with contracting lines" is now comical. A few good calls? Yes...ones a student could have made with a only a brief reading and understanding of EWT. His double, or perhaps triple, EMERGENCY ALERTS to hunkers down as society was about to break down did not help his subscribers, of which I was one. It made them look to go short continually. He should be reading Daneric's blog and Kenny's blog to see that the quality of work being done far exceeds what he is charging top dollar for. His day, if it ever was her, has past.

DG

To place the name Neely in with Kenny's is, IMO, an insult to Kenny.

Hopefully, your opinion on other matters is not as wrong.

Going into a more detailed deconstruction of your "argument" would be a waste of time.

zendo

Knows His Stuff.... you forget to mention Neely's other call last year (June or July) that the market was another top and it will fall hard from there. Of course it doesn't. Like any guru who has his shining moment once and than they fall like a shooting stars.

DG

Like any guru who has his shining moment once and than they fall like a shooting stars

Man, you guys are a bunch of poets today.

Me, I like data better than poetry, at least when it comes to trading.

zendo

DG by any chance do you feel having this guru teacher moment given you always seems lecturing people here when people criticizing Neely? Who cares if you are into data or not anyways.

DG

DG by any chance do you feel having this guru teacher moment given you always seems lecturing people here when people criticizing Neely? Who cares if you are into data or not anyways.

Is that a serious question? I would say "Duh". Of course, it's pretty obvious that I would say something in response to some BS criticism.

As for who cares if I am into data, anyone who trades should care about data. What do you think market price movements are? They're data. Your question is like asking a farmer if he cares about the weather.

Wavist

I would also say that both Carl and Neely could make some alterations to their position-sizing methodologies because neither appears to be using position-sizing optimization strategies.

In relation to Neely do you mean that he should be risking a greater percentage on the trades that you have identified as having a higher probability of success (A Waves, contrarian, Weekly)? How would you change his rules on risk management?

zendo

Neely announced again he has no idea where the market is going yesterday due to the chaotic situation in the market... (its like someone in the weather forecast suddenly said he is talking gibberish as all these complex weather chart pattern and methods are just data fitting backward looking bullshit, all just happened in his mind, now the reality shifted and the method no longer works, he blames the weather is no longer readable or predictable), thats really interesting consider he said the market is unpredictable, how can he know when is predictable and unpredictable given he has a charted to tell everyone which period is predictable and not, only after the facts?

So DG with your immense understanding and intellectual advancement, all knowing guru superb data absorption and all into yourself and very into yourself that everyone should worship you and MEW, please maybe you can shed some light and enlighten to farmer dumb jack like me about your all powerful predictable religion MEW and exactly what will happen in the future in order for me to survive this weather of change in the market?

I am not worthy, btw since i am a farmer, why do I care that you know the market and data? Are you all by yourself at home and need someone to piss on? Please keep the piss and its worth more as fertilizer to me....


DG

zendo,

I assume you're referencing Neely's interview posted today. I find some of it too exculpatory, but Neely is obviously right in many ways and the market does shift in its level of "trendiness", which I use as a synonym for "predictability". Where Neely has failed his subscribers is in trying to anticipate a reversal without consideration of instead trading in the direction the market is going. I also think he has given up on finding specific techniques to trade these less-predictable markets, which I think is premature. I think he thought Neely River would be the right answer, but that has turned out to be untrue, in my opinion.

I did some statistical analysis of waves and found some ways in which it is possible to identify shifts in the level of predictability. It is not an exact science, but it is objective and uses standard statistical techniques. At the very least, within a couple of weeks, I can see a shift from predictability to less-predictability in the statistics. I did not think of this solution until more recently, in the future I anticipate that this will allow me to prepare for periods of lower predictability and shift my trading strategy accordingly.

I also developed a trading technique based on NeoWave for periods of lower predictability as well and have found that it works quite nicely. I posted exact details on how to enter, move stops and exit trades in a way which utilizes NeoWave logic but is also sensitive to the fact of decreased predictability during certain market environments. I laid out the exact rules in early January and anyone trading the SPY exactly as instructed would be up 7.2% since then, with 1% at-risk on each trade, while the SPY is up ~3% in that same time period. I'm not sure what more I can tell you other than I'm making money. When wave-(B) finally does come to an end, chances are quite high, according to the historical statistics I have, that wave-(C) will be much more predictable and that Neely's methods will once again begin to work as well as they have during other periods of higher predictability.

What you and others who are complainers rather than problem-solvers don't seem to ever take into consideration is that these problems aren't insurmountable, but they do require that you put some thought into how they might be solved. Unless you're going to do that, I don't see how you will advance as a trader.

The choice is yours. You can sit online and post sarcastic messages expressing your anger with NeoWave or you can do what I did, which is figure out how to plug the gaps in NeoWave in a logical and methodical fashion. Or, you can simply move on to utilize either another trading service or develop a trading method of your own. The options out there are virtually unlimited. If you're so unhappy with NeoWave, just move on.

DG

In relation to Neely do you mean that he should be risking a greater percentage on the trades that you have identified as having a higher probability of success (A Waves, contrarian, Weekly)? How would you change his rules on risk management?

Yes, I would like to see Neely at least slightly modify his position-sizing algorithm to take advantage of concepts like "expectancy" and "Kelly value" and "risk of ruin". I am pretty sure that the reason he doesn't is because it's much easier to simply say "risk 1%" than it is to explain why risking 10% is actually the optimal amount for a given trade. Also, those concepts are most applicable when someone is implementing a strategy over hundreds of trades and there's no guarantee that someone is going to remain a subscriber that long. Neely's only recommended 67 Weekly trades in 4 years, for example. Plus, there is probably a very good legal reason to avoid having subscribers risk too much on a single trade on your say-so, which is that Neely obviously doesn't want to get sued if he says to risk a bunch and it goes south. I don't blame him there.

One other thing I'd change is his method of setting stops, at least during the periods of "unpredictability". He relies on structure for stops, i.e. whatever the recent top was will be the stop for any short trade which gets triggered. However, since the market is, as we agree upon, "unpredictable", the hypothesis that any given structural "line in the sand" will hold is low-probability to begin with. I think it's much sounder logic to rely on behavioral constraints which an inherently non-trending market should observe. This enables initial stop-setting beyond (sometimes far beyond) any "top" (or, if and when a market environment with similar behavioral dynamics emerges in a bear market context, "bottom"). Stop movement then progresses as additional information is revealed, i.e. once more NeoWave bars get plotted. During periods of "predictability", I would basically just say to follow Neely's stops.

Essentially, there are two trading strategies I employ. One is basically simply to follow Neely, IF the market is in a "predictable" phase. The other is to utilize my own techniques, IF the market is in an "unpredictable" phase, which, despite the possibility that it had shifted into a "predictable" phase with the January/February decline, it remains in. Handling the transition between the two is not an exact science but I have also developed a technique that alerts me to when the market's behavior is shifting. In fact, watching this indicator was one of the things that had me very cautious about the bearish case in mid-February. I posted all of the details on my blog in mid-January, when I had finally completed my analysis of the Neely data from August 2006 to the present.

Wavist

Good thinking with regards to expectancy, varying position sizes makes more sense and would also help quantify his confidence in a given wave count. And I suspect that very few of his subscribers adhere to his 1% rule such as it is. Including the chap he trumpeted as having made a fortune off one of his forecasts a while back. Increasing stop sizes like that would reduce being closed by the false breakouts characteristic of topping markets, although judging where to put them could be tricky at times. I wasn't under the impression that you thought an awful lot of indicators?

DG

Increasing stop sizes like that would reduce being closed by the false breakouts characteristic of topping markets, although judging where to put them could be tricky at times.

Figuring out the logic behind stop placement and movement was a key element of the new trading strategy I developed. I was able to turn it into an algorithmic process.

I wasn't under the impression that you thought an awful lot of indicators?

I don't in general. This one was based on an idea I found in a paper by the guy who runs Vertical Solutions, who had imported an idea from manufacturing quality control into his trading in a way that gave him insight into when his trading methods were breaking down due to shifts in market behavior. It provides a nice objective set of statistics to determine if the market is behaving differently from its behavior during whatever time period you choose. It's one-dimensional, but that one dimension is pretty important.

Wavist

Sweet

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