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automatic trend lines

MTG

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MTG

MTG

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Hi Jerry,

 

I feel like the auto trend lines need updating.  They are potentially very powerful indicators, used by most professionals (in contrast to stochastics, MACD etc, etc which no one seems to use).

 

To be meaningful, trend lines need 3 touches.  2 touches can be drawn between any two points on the chart... anywhere at all.  4 touches are extremely rare.  So it's all about 3 touches.  As it is, MT doesn't find 3 touches, only 2 ("strength" parameter doesn't work).  These can't be used in trading unless they happen to find a 3rd touch somewhere.

 

So my suggestions:

 

- find only 3 touch trendlines

- have the option to extend the line right until the price crosses above/below.

- have the option to show all/last lines across the chart, to see how well it has performed as an inidcator

- don't limit where the lines can be drawn:  any 3 lower highs or any 3 higher lows which create a straight line should be shown, even if the points are consecutive bars or months apart.  These are very meaningful lines!

- the first and second points will be exact.  The 3rd touch will have to allow a tiny error allowance (ie. slightly above/below where it should be ideally).  If this isn't included, you might get no lines at all.

- allow the user to alter the sensitivity of the 3rd touch error allowance.

 

Thanks,

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Mike Medved

Mike Medved

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When you say "2 touches can be drawn between any two points on the chart" you really don't mean that, right? You mean between any two local minima or maxima. Same with the third touch - it has to be the local minimum or maximum.

 

That's what the "strength" parameter is for the current auto-trendlines - it is the # of candles that define a local minimum or maximum.

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MTG

MTG

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Sorry, I misunderstood what 'strength' meant.  So the minima/maxima are like fractal pivot points, and the higher the strength, the more 'pointy' the point.  And the lines will only appear when they join two of these points.  Got it.

 

I thought 'strength' meant the number of candle touches the line receives.

 

Still, the lines are hard to use for trading.  I have ATL on every chart because the concept is great, but rarely get a useful line for trading.

 

In terms of trading, I think my suggestion would work really well.  ie. join any 3 highs which form a straight line (allowing for a slight tolerance on the 3rd).  And join any 3 lows which form a straight line (again with a slight tolerance on the 3rd point).  I know it sounds like lines would appear everywhere, but they don't.  3 touch trendlines are reasonably rare, but again, unless a trendline gets 3 touches it is largely disregarded by traders.

 

[edit]  I've been a bit pointy myself with the tone in my posts, so I probably will get ignored.  Apologies for that.  If you can oblige, that would be great.

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MTG

MTG

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Thanks Mike!

 

I'd imagine that the 1st and 2nd touches (ie. the furthest left on screen) would be exact.  And that the third touch (most recent or most right on screen) would be the one where some tolerance might need to exist.  The reason I say this is that when drawn manually, they say you are supposed to start on the left of the pane and drag the line across to the right, seeing if you can get 3 touches anywhere. 

 

[edit++] For a support trendline, the most recent potential touch would need tolerance only if the low is slightly above the line.  If it's below the line by more than a certain amount, the line should not be drawn because now we'd only have two real touches.  In a manual trading situation, we'd look to then join the 1st and 3rd with some future candle... if it eventuates, that is.

 

As you know, most software developers have used the fractal pivots exclusively to plot automatic trend lines, and these can work fine (I wouldn't want to delete these).  But there are many other useful lines that get 3 touches without starting or ending on one of the pivot points.  These are the ones I'd like to see plotted, with an extension to the right until it is broken.   There's quite a few TA sites where the importance of the 3rd touch is talked about, and how to trade the break.

 

The developers of 'True Trendline' have a huge number of options for their lines (unnecessary in my view), but might give some way to approach this?

http://www.truetl.com/true-trendline-indicator.php

 

regards

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Mike Medved

Mike Medved

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MTG, I tried playing with this stuff...

 

1. I think one of the parameters needs to be "minimum distance between touch points" - in candles/bars, because very often it creates a trendline on points that are very close to each other.

 

2. It really does not find many (almost none) 3-point lines on any charts I tried, unless you increase the "error" range on the third point quite a bit.

 

3. I presume if the chart goes through the 2-point line at some point, before it becomes a 3-point line, that kills the 2-point line, right?

 

4. Can you give me an example historical chart that has a 3-point line like that so I can test my code on that stock's data?

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carlisle

carlisle

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I really like the idea of 3-touch auto-trendlines, but I have been trying this out and not sure I am finding the advantage/clarity I assumed it would yield.. as yet.

 

If you guys find a few stocks that you can see reasonable use of these lines, please feel free to share them if possible, that way I can examine more closely.  I have subscribed to the thread just in case.

 

I should ask..  are you guys using these for intraday charts or just  daily?

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MTG

MTG

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Hi Mike,

I'd like to make a suggestion for a refinement of the 3-touch trendlines.  It will result in a display of the only the best lines to trade.  Will also look cleaner.

-- make it so that the earliest of the 3 touches must be a zig-high (or zag-low) point, with a param to adjust the zig-zag %.  The 2nd and 3rd touches can remain as they are currently.

-- Have a filter for lines where the touches are reasonably equidistant. ie. days between touch1 and touch2  approx.= days between touch2 and touch 3.  Param to adjust sensitivity.

Thanks for the great product.  These lines are better than TrueTL by a mile.

 

@ Carlisle - see Bulkowski's books or website for trendline trading, statistics etc.

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MTG

MTG

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Hi Mike,

I love this indicator, but it still feels unfinished.  It would be a masterpiece if there was a just one more tweak.  If we could make the first and second points major fractal truning points - not as an option, but as a fixed thing - then only the very best lines remain.  I think that will mean more people will use it.  It would tidy it up nicely.

 

 

 

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