Third Party

Spotlight

Trading Gets in the Swing of Things --
“The Triades”, a New Add-On Study Available on eSignal

by Chris Lalouelle, Managing Director of CHL Distribution

Technical analysis of market movements traditionally experiences a rise in popularity during bear market conditions when traders are eager to spot the points where the market changes direction, amid rapidly fluctuating prices. For years, sidelined in favor of trendier strategies, swing trading -- one of the oldest and simplest methods of predicting future movements, based on past trends -- is experiencing a revival. And, now, it has the technology to back it up.

The underlying theory of swing trading is rooted in the most fundamental characteristic of the market: Its eternal tendency to oscillate. This simple strategy has been employed variously since the 19th century, and Japanese traders were even aware of it back in the 17th century.

All swing traders employ common elements in their strategy, notably pivot points, which are the average of different market movements, such as the highs or lows of the former day, allowing them to spot future market highs and lows. However, in this respect, all measures have, thus far, been subjective. Why use the average of the past two days, as opposed to the past three or four?

One recently developed strategy claims to have disposed of the need for this random choice. Felipe Tudela, an independent mathematician who holds trading seminars sponsored by the French Society of Technical Analysis (AFATE), has taken three basic elements from this old technique: pivots (extreme points of a market’s fluctuation, either up or down), swings (price fluctuations) and the three-bar chart, which has been developed into “triades”, which may include inner bars within the three main bars.

eSignal Add-On Study “The Triades”

Tudela’s algorithm based on this market structure has been developed into “The Triades”, an EFS formula available on eSignal since November 1, 2007 (www.esignal.com/partners/studies/default.asp).

The EFS formula can pinpoint where a market reversal is, generating buying and selling signals and objectively measuring the natural movement of the market in percentage points. A professional trader would be happy with this basic model, which allows him / her to tabulate the whole history of the market, scanning all fluctuations to determine which probability of success a trader has to reach a target price and, therefore, know where to exit the market.

“This allows me to trade every fluctuation of the market in a very natural way,” explains Tudela.

For example, on the Dow Jones Industrial ($INDU), on a daily basis and over the past 50 bullish fluctuations, 70 percent of these fluctuations have reached at least +1.68 percent. So, as soon as a buying signal is generated, an alert will be sent, and the model will give the target price. A trader can expect a probability of success equal to 70 percent.

The Triades can be applied to any financial product (futures, Forex, interest tates, commodities, equities and so on) and can be calculated on any time frame (from 1-minute to monthly intervals). The indicator is thus suited to all trading styles, from day trader to long-term technical analyst.

Overview of the Chart

Back Testing

We set up an intraday real simulation on Forex with two European major banks since the end of September and will maintain it for months to come.

Trading Conditions

1. Time frames: 60-, 120-, 200-, 240-minute intervals and daily alerts
2. Financial product: Forex (EUR, USD, CHF, CAD, NOK, JPY, GBP)
3. Example alert format: EUR / USD,60 / SHORT 14749 / STOP 14784 / TARGET 14697

Trading Methodology

We cross The Triades with the Bollinger Bands. We do not trade every signal, but only those with blue pivot points outside the Bollinger Bands and providing that the Bands slope is flat when the buying and selling signal appear.

Results

Applying this methodology, we have, so far, approximately 70 percent winning positions with a return of approximately +4.5 percent per month.

Chris Lalouelle, Managing Director of CHL Distribution
www.chl-distribution.com
CHL Distribution, an eSignal partner

All these alerts are available as web links from within the eSignal application for eSignal users who subscribe to the add-on. The same methodology is undertaken for equity indices, Fixed Income and commodities.