December 2000

The Gann Square tool in Ensign Windows is very flexible and can be used to show trends, timing, and price levels.  Gann Squares indicate possible time and price movements from important highs and lows.  A start and end point are necessary to draw Gann Squares on a chart.  Since the Gann Squares indicate possible values for future bars, it is often useful to the slide the chart bars to the left so there is blank space to the right of the chart bars.  To draw a Gann Square on a chart move the cursor on the chart to the starting point.  The starting point is generally an important High or Low on the chart.  Then drag the mouse to the right until a desired ending point is reached.  The start and end points will be the corners of the square.  The end point is often to the right of the chart bars.  Let's begin by looking at the tool's parameter form.

Price:  A Gann Square can draw horizontal lines at the price levels shown in the Horizontal check list.  These price levels are similar to those that could be constructed using the Fibonacci Price Levels draw tool.  Tip:  Watch for trends to change directions at the Gann Square price levels.

Time:  A Gann Square can draw vertical lines at the intervals shown in the Vertical check list.  These vertical lines are similar to those that could be constructed using the Cycles draw tool.  Tip:  Watch for trends to change at the Gann Square time intervals.   A Gann Square with both horizontal price levels and vertical time intervals is shown below.

In our example, the 1/8th, 1/4th, 3/8th, and Midpoint parameter boxes were checked for both the Horizontal levels and the Vertical intervals.   Thus, our square is divided both horizontally and vertically into eighths.  The 3/8th and 5/8th lines are colored red.

Another variation for the Gann Square is to check the Fan Lines parameter which is shown checked in the parameter form example.  When the Fan Lines box is checked, the tool changes from drawing horizontal and vertical lines to drawing Gann fans from the four corners as shown below.

The fan lines are drawn from the corners to the same eighth points on the square's perimeter used by the horizontal and vertical lines in the previous example.  The Horizontal check list will select the points used by the two fans whose vertex is on the left side of the square.  The Vertical check list will select the points used by the two fans whose vertex is on the right side of the square.  A common configuration for these fan lines would be to keep the two fans on the left side, but eliminate the two fans on the right side by unchecking all parameter boxes in the Vertical list except the Perimeter box.

Trading tips for predicting the timing of a turn from the intersection of primary Gann angles were given in the July issue of the Trading Tips newsletter.  Gann fan lines also provide price support and resistance, of which many are easy to spot in the example chart .

One of the most critical aspects of successful trading is not what the direction is or why it's happening.  It is the mostly overlooked when.  The when can often be forecasted just like phases of the moon or the tides or waves or rhythms of any kind.  Using one very simple tool, time cycles, and some common sense, you can win consistently.  Without that tool it's a crap shoot.  For that reason and dozens of others, and I've tried them all... I repeat, Ensign rocks!

In reference to the what, why, and when, and the importance of each, please don't misunderstand me about down playing the what and why.  There are so many commonly known and used sources of what (see oscillators and advanced indicator studies, volume etc.)  As for why... that's as easy as keeping a couple of televisions running while you trade, ie: CNBC, Fox News, etc.  They will keep you apprised of fundamentals (government reports, election antics... argg, dominating large caps, etc.)

As to where to find more printed information on time cycles, there isn't much out there that I've found.  Do you suppose it's something the big guys don't want you to know?  Anyways, I have found bits and pieces in these sources:

-Futures Magazine
-Bridge Trader Newspaper
-DayTraders Bulletin: Tips, Tricks & Techniques for Day Traders (http://www.daytradersbulletin.com/) awesome stuff.

Try this: Open the March e-mini Nasdaq contract 1-minute chart (eSignal users: NQ H1).  It's all you'll need for this example.  Now try this... place your pencil cursor exactly on the 8:02 a.m. EST top on Dec 12th, holding the left mouse button down... drag the pencil to the right and when you're on top of the 8:25 a.m. EST bottom release the mouse button.  If you screwed it up just hit delete and do it again.  Now look where the repeating cycles land:  8:47, 9:08, 9:29 etc.  Do you see how they have approximately identified those small bottoms?  Now for the big news.  Now look after the bell, where this pre-opening bell homework really counts. IT PRECISELY IDENTIFIED THE 9:50 AM BOTTOM... AND AGAIN, THE SMALL TOP AT 10:11 AM... AND AGAIN THE TOP AT AROUND 10:33!!!!!  Now combine that with On Balance Volume, MACD and Stochastics, etc.  See illustration below.

Every day I check the pre-bell market first, then extend them forward after the bell.  Then I lay down a permanent 22 minute cycle from 9:30 am (the bell) onward. After the bell I start tracking reversals as I trade and make subtle modifications.

Understand 2 things:
1. Cycles don't have to reverse the trend every time, they can be skipped sometimes just causing a little hiccup and sometimes nothing visible at all and two or three can be skipped only to be resumed down the road (pre-bell cycles in particular).
2. You will notice that many times the market will trade with a lot of volatility right on the cycle turning point... streaking up (or down) to form a peak (or trough), only to reverse quickly forming a sharp spike.  This ends up being the top (or bottom)... these are my favorites, what a rush!  On the other hand... a cycle can be a catalyst... acting to push or accelerate the current trend appreciably in the same direction.

Now remember, cycles don't tell you the what or the why, you have plenty of other tools for that.  It only says "LOOK BUCKO, SOMETHING IS PROBABLY GOING TO HAPPEN HERE>>>."  That's what it's good for and as far as I know that's all that it does, but it's enough.  Give yourself a few weeks using cycles before you start relying on them heavily.

One neat thing about using time cycles is that it gets you thinking about the past and the future in a different way.  It got me graphically tracking the small and large reversals every day early on, when they happened, how many points the move was and so forth.  And it's amazing how trading days repeat themselves again and again in the same and subsequent weeks. Case in point:  Take a look at the morning lows (reversals) on Dec. 7th (9:46 am), 8th (9:49 am) and then again yesterday the 11th (9:40 am) and then again finally today Dec. 12th (9:50 am)... pretty cool eh?

If you haven't guessed by now, I'm geared toward index futures specifically the e-mini Nasdaq contract, and yes, you should be trading March (H) right now... unless you enjoy being crushed, and eaten for lunch.  I like the NQ H1 because it's really fast and enormously profitable when trading between 9:00 - 11:30 am (the only time I trade).

But you must (unless you are very well healed) use very tight stops... sometimes placing your protective stop even before your market entry limit order.  1 or 2 winners and I'm out for the day... no hanging around all day in a sideways market... but that's me.

Here are some of my personal observations (for NQ), I'll kick my own butt later for making them known:

- Cycles are all about trial and error... always.
- Cycles, like Stochastics or anything else are only guidelines.
- 22-minute cycles from the opening bell forward... every day.  Be conscious of the 11-minute cycle as a rule.
- Some times cycles run top-top, top-bottom, bottom-bottom... just try different combos.
- For the Nasdaq, use the contract 1-minute chart, not the index.
- Look at the long-term and short term (last hour) before the bell, then watch the 1st reversal after the bell, 2nd, 3rd.
- Every day is different, but usually once cycles are set up they are reliable.  Don't trade on days that they don't.
- Usually as of 11:30 a.m. EST, your current cycles will usually go into the toilet, look for a new set starting around 1 p.m. EST  (This is true of most of the studies, because of low volume generally).
- Go to http://www.cme.com/ and download MarketSound, use it in conjunction with your cycles, it's killer.
- Get ready to kick yourself at the end of the day as you look back on the day-- for not trusting the cycles you had set up earlier.  It pays to be patient... the market will still be there tomorrow, even if you're not, get my meaning?
- Get ready to be floored at what you see, on a daily basis, but remember, cycles are guidelines like anything else,
- DO NOT BET THE FARM ON CYCLES UNTIL YOU ARE PRACTICED.
- DO NOT IGNORE YOUR OTHER INDICATORS BECAUSE YOU FOUND CYCLES.  Compelling as they are, Cycles are is just one more tool.
- Watch how cycles coincide with trend lines, speed lines, support & resistance levels, open/high/low and lock-limit-down levels, and a host of other studies.  Combined together, they tell a story (as my brother puts it).

Good Trading

After reading your January article on forward-shifted moving averages, I tried to see if single moving averages could effectively be used to stop losses.  The advantage to a forward-shifted moving average, averaged over a small number of bars and used directly as a stop-loss indicator, is that it clings close to your bar plot, yet it moves up and down with the bars, helping to prevent you from getting kicked out unnecessarily.

This is one possibility I have been toying with: Gann makes a point that plotting the close doesn't do you much good because it is the high or low that gets you stopped out.  Therefore, as a stop-loss or entry method, use high and low n-bar moving averages shifted forward m bars.  n can be 1 and it works pretty well.  I find n=3 and m=3 to be good numbers for the S&P e-mini chart with 5-minute bars, during up or down moves.  Ensign software makes charting easy.  You color the moving average of highs shifted forward green.  You color the moving average of lows shifted forward red.

Now, for employing these averages as stops, use candlesticks with the simple trend indicator so they will be colored red and green.  When a green hollow candle passes or is cut by the green moving average line go long. Don't if the candle is green filled or if just the wick of the candle is touching the green line.  When a red filled candle passes or is cut by the red moving average line go short.  Don't if the candle is hollow red or if just the wick of the candle is touching the red line.  Do nothing if a red candle crosses the green line or a green candle crosses the red line.

This system works fine for trends but whipsaws you out of your money during horizontal moves.  Nevertheless, this system can at least help you see when you are in a horizontal move.  An up or down trend is characterized by the space between the red and green lines being largely empty.  A horizontal move is usually characterized by the space between the red and green lines having bars.  Or the space above the green line and below the red line can also have bars, particularly when the chart has narrow bar ranges and multiple gaps due to low volume.

One of the nice things about this method is that the two averages can be plotted with Ensign Windows without any special ESPL program.  You use simple moving averages.  You set your first average to use a High data point, and make the color of the first moving average green.  Make the parameter for the 2nd line a 1 so the second line for this object is not plotted.

Then you add a second moving average object, setting it to use the Low data point.  Set the first moving average color red and the 2nd line parameter a 1.  This gives you a green moving average of highs and a red moving average of lows, both shifted forward the amount you choose.

If down moves for your market are characterized by a high degree of oscillation and up moves are typically smoother, you can set the parameters for the green and red lines differently. You can accommodate the differences in the way the chart moves up and down so you don't get thrown out of a move prematurely.  Another refinement would be to use offsets to shift the green moving average line up and the red line down, but I haven't found any need for this yet.

Hope this is helpful to someone.

Ira Tunik writes:  "I have been involved in the markets since 1958.  An investor until 1970 when I became a broker for Dean Witter.  When the Pacific Options Exchange opened I bought a seat and started trading my own account.  I retired in 1985.  Trading is one of the worlds great narcotics.  It is very addictive.  After leaving the floor I started trading my own account as an upstairs trader.  I developed a system for trading stocks, indexes and futures and traded successfully until the mid 1990s when I had triple by-pass surgery.

Since then my trading has been restricted for health reasons, but I was coaxed into teaching.  I have been teaching people to trade for the past few years.  I have used Ensign since 1989 and found it then, as now, one of the best programs on the market.  I don’t use ESPL, or the majority of the tools available, as my trading style is KISS.  The main thing that I like about Ensign is the ability to overlay the indicators over price and the multiple windows.  Many of the tools in Ensign Windows are very helpful in teaching and I believe that my students have benefited from Ensign also, as many have started using the program."

James B. Peeke CLU/CFP writes:  "I started trading commodities with Tag group software out of New Orleans in the early 1980s.  I specialize in trading the S&P 500 stock index future contract.  Ensign Software has been very helpful in organizing my trading ideas.  I find the point and click features of the software useful.  I have a number of trading ideas based upon where I think the stock market is going.  Most of my trading ideas are intra-day.

I send out e-mail daily with an intra-day trading suggestion.  I am an Introducing Broker with Alaron Trading Corporation.  I am a Non Managing CTA.  I work out of my home.  I have watched markets since the early 1974 period when the Reserve Fund (the original money fund) and 44 Wall Street Mutual Fund created a market timing switch sequence.

I find Ensign Windows enables an investor to explore an unlimited number of possibilities in terms of trading ideas.  An investor can create as complex or simple a trading sequence as desired.  You can decide to play checkers or chess. :)

My experience has been that when I back test an idea, then apply it to trading, something changes, and the idea fails to work.  I have gone around and around trying to figure out what causes the shift.  I have come up with the idea that price discounts news, and then on the release of news, significant highs and lows occur.  The biggest moves come when news is misinterpreted, or catches the market by surprise.  Not necessarily an original idea. :)

The idea of squaring price and time might mean something different to the next guy, but I have found the tools which count the bars to the right of significant price & momentum highs and lows; and the tools which measure fib ratios allow me to measure price movement from both Momentum study extremes and price extremes.  When I find the fib ratios, and a loss of momentum, then I look for a change in direction, or the acceleration of the trend after a retracement.

I watch the news at 7:30 and 9:00 Central Time for the bond and @ES1H response to significant governmental news releases.  Frequently price adjusts radically to that information.

Howard, I appreciate your efforts to meet the software needs of traders with a wide range of interests.  It allows a beginner to expand their interests as needed.  It is sort of a cross pollination idea for your software users.

Thanks again for your thoughtful design of this great software.

P.S.  Because you are so well connected, I thought you might get the following message to Santa.  Come to think of it, these rules could also apply to a trader! :)

THE RULES OF FLYING

1. Every takeoff is optional. Every landing is mandatory.
2. If you push the stick forward, the houses get bigger.  If you pull the stick back, they get smaller.  That is, unless you keep pulling the stick all the way back, then they get bigger again.
3. Flying isn't dangerous.  Crashing is what's dangerous.
4. It's always better to be down here wishing you were up there than up there wishing you were down here.
5. The ONLY time you have too much fuel is when you're on fire.
6. The propeller is just a big fan in front of the plane used to keep the pilot cool.  When it stops, you can actually watch the pilot start sweating.
7. When in doubt, hold on to your altitude.  No one has ever collided with the sky.
8. A 'good' landing is one from which you can walk away.  A 'great' landing is one after which they can use the plane again.
9. Learn from the mistakes of others.  You won't live long enough to make all of them yourself.
10. You know you've landed with the wheels up if it takes full power to taxi to the ramp.
11. The probability of survival is inversely proportional to the angle of arrival.  Large angle of arrival, small probability of survival and vice versa.
12. In the ongoing battle between objects made of aluminum going hundreds of miles per hour and the ground going zero miles per hour, the ground has yet to lose.
13. Good judgment comes from experience.  Unfortunately, the experience usually comes from bad judgment.
14. It's always a good idea to keep the pointy end going forward as much as possible.
15. Remember, gravity is not just a good idea.  It's the law. And it's not subject to appeal.
16. Keep looking around.  There's always something you've missed.
17. The three most useless things to a pilot are the altitude above you, runway behind you, and a tenth of a second ago.
18. Helicopters can't fly; they're just so ugly the earth repels them.
19. Never let an aircraft take you somewhere your brain didn't get to five minutes earlier.
20. Stay out of clouds.  The silver lining everyone keeps talking about might be another airplane going in the opposite direction.  Reliable sources also report that mountains have been known to hide out in clouds.
21. Always try to keep the number of landings you make equal to the number of take offs you've made.
22. There are three simple rules for making a smooth landing. Unfortunately no one knows what they are.
23. You start with a bag full of luck and an empty bag of experience.  The trick is to fill the bag of experience before you empty the bag of luck.
24. If all you can see out of the window is ground that's going round and round and all you can hear is commotion coming from the passenger compartment, things are not at all as they should be
AND FINALLY,
25. When in doubt, take AMTRAK.  They may crash more, but they don't have to fall before they do!"

David Jameson writes:  "I am known on-line as Magnatizer.  Reason being I have a homebrewed TA method I named Magnets.  My website has more information in that regard: http://www.geocities.com/magnatizer/.  My current focus for trading vehicle is the index tracking shares and options based on them.  I track many indexes and a few stocks on my site on a daily basis.  I like to combine my magnets with fib based chart patterns and a few indicators.  Ensign's Fibonacci tools are the easiest I have used.  I love a good deal and Ensign meets that requirement ten fold!  Happy Holidays, Magnatizer"

Frank O'Farrell writes:  " Hi Everyone, I have been listening to MarketSound as an aid to my e-mini trading for the past two months on a free trial basis while they were testing it, and I find it is something I feel I cannot do without.  Mr. Brown at MarketSound told me that after this test the service would be available from January 1st. 2001 for  a fee of about $15 per Month and that I could get it through eSignal or Ensign Software.  I already use Ensign Software with eSignal and I strongly endorse this live voice service.  With a simple intercom system around my house I know what the market is doing all the time, and I am not trapped in front of a monitor all day until I reach my objective in a trade.  It frees me up to do research or chores while keeping bang up to the second on the market.  You can e-mail Mr. Brown at rbrown@marketsound.com  Futures day traders will find it invaluable and very reasonably priced, including me.  P.S. I am not affiliated with MarketSound in any way, I just want to have an easier and fairly stress free trading career."