This is a continuing study of the behavior of the
Hurst_Channel_Four
and the
Hurst_Channel_Four_5
indicators. This will
follow the step by step operations that I find work for me in setting up a
futures or equity chart for trading with the Hurst concept of "edge band"
trades.
This study will be done on
the QQQ using daily data and will point out the strength and weakness of the
FOURLINE and the FOURLINE_MEM routines.
We start with a picture that is a plain chart with the QQQ equity as the
basis for the display.
Now we will add both the
FOURLINE and the FOURLINE_MEM analysis indicators to the chart so we can get
a measure of what is going on cycle wise at the present time.
You will note that I had to take the cursor, left click on selected peak values printed on the chart and drag them either up or down to clear things so I could read all the values. Easy to do but be careful to keep them aligned as they were since the left edge of each printed value is at the peak where the printed value occurs.
Note that I have put some yellow boxes around what appear to be rather
strong cycles in this picture.
Now let's take the FOURLINE_MEM values and add the Hurst channel analysis to the picture.
This points out a problem when we base our decisions on
cycles that have been seen in the past data but which may not be the cycles
that are in effect now.
It is quite clear that the 150 period cycle is TOO SHORT for the current
prices since this cycle has turned up rather sharply instead of the gradual
rounding that we would hope to see.
I don't make a big thing out of this. Just make the longer cycle a bit
longer than what it is and see how the projection shapes up -- here I did
what I normally do first, ADD 10.
Just for a frame of
reference, let's do a 170 and see what that says about the current prices
and a "low risk" opportunity for a trade.
Now is "gut" time. I think the 170 is too long but I'm not
willing to bet that it is wrong and so I would wait until the prices cross
the 160 projection on the upside before taking this trade.
Always be aware that cycles change.
Let us return to the FOURLINE information and see what happens
there.
Since we had the information from the FOURLINE_MEM routine we probably
should really expect that the 120 cycle would be way too short and the way
things reacted it definitely is !
Now let's use the 177 period cycle that was indicated and see what happens.
So again, although the prices appear to be at the bottom end of the shorter cycle predictions, caution should be exercised with this kind of showing.
You will notice that once the longer periods were adjusted to "fit the most
recent data" then the shorter cycle projections began to fall in line with
prices.
There will be times when it is necessary to adjust shorter cycles but
generally if you get the longer cycles correct the shorter stuff comes into
line. This is because the shorter cycles build on the computed values
for the longer cycle.
Cycle periods are the most important parameters with this indicator.
You may wish to adjust the channel widths to suit you in a historical sense
about where you think prices should be for a good trade.
