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Thursday, February 27, 2003

why the gap...

The entry before this was from November! Why the gap?

Late July we started a remodel of the basement. Actually, completion of prior work that had not been finished. Everything came together just before Thanksgiving. But the second week of December, the city sewer backed-up and completely flooded the basement, which is actually at street level as the house is on a small rise. Good grief! The contractors came in and tore out everything, absolutely everything. What to say of the many personal effects that could not be salvaged and had to be thrown away as bio-hazard. Two months later, and much upsetting of routines and place, the repair of the remodelling is complete.

The first time around, the discomfort was of our own choosing, so to speak. A flood is an outside disruption, and the element of the sewer only served to escalate the level of discomfort. Naturally we were able to accomodate for the work, but it did put a crimp into the day to day routines so necessary to this business of trading.

I heard a quote from the now 80-year old Norman Mailer, a novelist of the old and fine literary cloth. When asked what advice he'd give to an aspiring novelist, he said to

always have the discipline to do a good job on a bad day

This is also apt for traders, aspiring or otherwise. The last few months have been quite trying and created not only a physical flood in my home but managed to flood my psyche with all manner of emotional trials and tests. There were more than a few "bad days" and Mr. Mailer's reminder is one I wished I'd recited each day. Trading is so much more than having a tool box full of techniques, an escape route for each trade, a bank roll, and desire or natural talent. It is also having the maturity to bring to each day discipline to overcome distractions, unexpected reactions, and the randomness of life, and the market, in general. I thank the Great Spirit and my teachers for lighting my way.

using Median Lines on RSI

Last January 2002, "Dave", a member of the yahoo MedianLine group, shared some very interesting ideas about RSI and particularly how Median Lines ("forks") can be used as a timing device. The gist of his revelation is, to paraphrase,

It isn't necessary to know this in order to use his idea, but there may be a few who are interested.

I've often used this method and using today's SPX 15m chart, thought to jot down notes using a real-life example. For each price fork there is a corresponding RSI fork. Because RSI oscillates, this is straight-forward as RSI tops/bottoms are more obvious. Dave suggests using an RSI multiple of 7, but I haven't noticed that this is necessary for intraday work. So, having drawn the corresponding price & RSI forks, one then watches each for a failure, ie, inability to reach the next "balance" point. These "failure points" are potential pivots from which a new fork can be drawn. As price plays out, the new forks will either work or fail.

What is evident from the chart below is that yes, indeed, RSI fork failures are harbingers that a new fork is taking over. This is seen by looking at the blue fork labelled "4". Although price managed to reach the Median line, RSI failed to do so and reversed. This said that a new pivot was in the making and to watch for its reversal. The new pivot eventually developed into the orange fork labeled "5". This process again played out as the green forks came into play.

While one should remain open to what does happen (and not get wed to a scenario of what might happen), a modestly bullish open for Friday is suggested as price broke through the orange RSI fork, which is stronger relative to price, which is still within the orange fork (a positive divergence) .

If this all seems complicated, it's no more so than any other system.... once you've mastered the use of the tools. As I've said many times, practice by doing, repeatedly. It begins to make sense after a while (a long while -lol). Good luck!








moon phases
 

At last, over the rim
of the waiting earth
the moon lifted with
slow majesty
till it swung clear of the horizon and rode off,
free of moorings
- Kenneth Grahame,
The Wind in the Willows

About

blather: nonsensical talk.

At times my analysis log, at times sharing what I've learned. Always my own work and views.

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