Barros Swings and Re-labelling

 BarroMetrics Views: Barros Swings and Re-labelling

Baz wrote:

Hi Ray,Would your A,B,C, (fig1)labels change/renamed, because the %20 extension was exceeded? I actually took this trade and what stood out to me,initially, was the doji but i had also in my mindseye relabeled it and figured it was in the buy zone if my relabeling was correct.But it was seeing the doji that caused me to investgate further and try blending,”NOT”,to make a hybrid. cheers baz

The info is in the Nature of Trends (you read it, right? [G]). So, here I’ll do a quick summary why I would not do what you did for the reasons you stated.

To understand why, you need to understand the functions of the Boundaries of Congestion (see Figure 1). They:

  1. Provide the all important Primary Buy and Sell Zones.
  2. Provide the Maximum Extension Zones that act as a price filter for breakouts and the Spring (Upthrust) Change in Trend  Patterns.
  3. Provide the zones I call the Top and Bottom of Value
  4. Provide the ‘Death Zone’.

In this blog, it’s point (2) that I want to address. Once the market accepts beyond the Maximum Extension, I deem that it has passed the price filter test for a valid breakout. If I keep extending the boundaries of congestion on a breakout, then I shall be forever be in a contra-trend zone.

For example in Figure 2, we have the breakout of the S&P.  Right now we have (basis cash):

  1. The Maximum Extension at 1087.6
  2. The Boundaries of Congestion at 1075.5 to 1015.

If we extend the Boundaries of Congestion to 1092.75 to 1015, then we are automatically in a sell zone. What’s wrong with that? Well in a strongly trending market, we’ll keep looking for contra-trend trades. For example in Figure 3, we have the BPJY breaking a small congestion zone AB (197.44 to 186.48). If we extended the Boundary to 174.10, the low of the breakdown, then we are automatically in the buy zone and perhaps looking to buy?

The net  effect of the strategy would be to constantly looking for buy signals in a downtrend. That’s why I don’t extend the boundaries once a breakout occurs.

2009-10-18-blog-bpjy-18d.jpg

FIGURE 1 BPJY 18d

2009-10-18-blog-sp-5d.jpg

FIGURE 2 S&P 5d

2009-10-18-blog-bpjy-3d.jpg

FIGURE 3 BPJY 3d

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