Fibo Quantum Scalper Magic

Forex Scalping Strategies

Get Instant Access

Clearly it's hard for these abbreviated illustrations to convey the full meaning of the concept or the flexibility of the software, but they may give readers an incentive to investigate further.

€ Interview 1 - Joe DiNapoli

In the course of researching this book, we interviewed Joe DiNapoJi to ask him in detail about the software and his own trading methods.

^^ How could a user make the best use of your software?

A The best way to start is to visit our website: In it you will find a "Confused start here" link. Click on it and it will show a flow chart depicting the process to go through to implement the strategy. The beginning is, of course, the book, then the software to help implement the strategies in the book.

It is important that the user reads the book first. The knowledge is the first thing. Software is the second. We will actually not sell someone the software if you don't have the knowledge base. This is because the software helps you to implement the strategy. If you don't understand the strategy, the software is not of much use.

Once you have learned the approach and strategy, it is best to tailor it to your own needs. Let me give you an example.

Let's say you've worked for 10 years on RSI (relative strength index) and you are now an expert in it. You can use the RSI to determine whatever you determine with it, oversold/overbought conditions, and so on. After that, you can use FibNodes to pinpoint entry, exits, and logical profit objectives.

QWhat were the main challenges you faced in developing your trading strategies and software?

A In days that 1 did research on this strategy, I was trading small. It was a come down from my prior trading in terms of generating cash. I had to be satisfied with the research as a reward. It was extremely difficult. Prior to the development of DiNapoli Levels, I spent three intense years working on displaced moving averages and the oscillator predictor. I don't know that many people who will shut the door and make research their mistress for four or five years. But that's what I did. It was a challenge doing it and it was something I loved doing. 1 wanted to figure out this puzzle called the market to the extent that it is possible. I believe DiNapoli Levels has helped me to do that.

^^ What are the disadvantages of your trading style?

A Since it is designed as a low-risk trading approach, it is possible you will want to buy or sell a market and your entry will not be hit. Traders can, if they wish, adjust the levels to be more aggressive. I simply wait for the next trade.

QWhat exactly did you look for when you began developing your system?

A 1 started serious research in 1980 and I did not do the typical optimization technique that is available today. What I did was look at the markets' datasets. First, I developed the analysis program, and then I looked at the markets. 1 literally looked at thousands and thousands of markets and different datasets, primarily futures markets, but also in equities. I looked at them with the eye of the trader and decided what 1 could live with and what I could live without.

For example, I looked at risk-reward evaluations. They formed the basis for the techniques using displaced moving averages that I developed. The interesting thing is that they still work today as well as they did in 1980. Why? It is because 1 did the research without using optimization and 1 did it using my experience as a trader.

Do you do any back-testing then?

1 don't back-test in the traditional manner because paper results give me erroneous answers. Paper-testing does not take into consideration the fact that when you are right you may not get a fill and when you are wrong, you will definitely get a fill. A lot of people don't understand this. The fact that you may or may not get a fill can depend on whether you are right or wrong in the market and it can work against you. This is critical to the way you analyze the results of your system. I therefore do my testing by trading in the market. That way, I get real results.

^^ What do you look for in your test?

A Well, 1 look at the profit and loss account. I always wrant a high percentage of winning trades. If I am not in the 75-80% area, I generally think something is wrong and I would adjust the levels to ensure that 1 reached that percentage of winning trades.

One way to increase the percentage of winning trades dramatically is to make logical price objectives. That is one of the main things that I've always been after and that's what the oscillator predictor was designed to do in the early 1980s before 1 knew anything about Fibonacci. Now I use advanced Fibonacci, as displayed in the DiNapoli levels, to calculate price objectives ahead of time.

QWhat would you like to improve further in the software or your trading?

A I really don't think I can improve greatly what I am doing. You can only get so close to the market. You can grind and grind, research and research, and you may increase your equity and your accuracy by half a percentage point, 1% or 2%, and sometimes it is simply not worth the effort.

QHow has your software kept up with the changes in the market place since 1980?

A If the software reflects quality techniques, significant changes should not be needed. Eventually we will improve the software in terms of convenience, but it's not fundamental change. Any improvements we make will be noted on our web site

We've also had a lot of interest from major software vendors like Aspen Graphics, Genesis Corp, Global Forex Trader, and E-signal. They want to integrate my studies directly into their graphics packages. I won't allow my name to be used unless it's done right. CQG has implemented my studies in their software, and they have done a stunning job.

Markets themselves will improve tremendously when they move from floor or pit trading to electronic trading. This will make markets easier to trade as well as fairer for everybody. Electronic trading will be dramatically better for all participants.

How would you sum up your philosophy?

You have to realize the limitations of software. If you are a writer or an author, a piece of software is not going to make you a great author. But a piece of software will allow you to implement your ability as an author. For example, Word is an excellent word-processing software. But Word is not going to write your book. Word can help you greatly in writing your book, but it won't do the writing for you. This is what I think software should be. Software should help you implement your strategy. Software should help you implement your knowledge base. When you expect too much of software, you are bound to be disappointed.

Fibonacci Trader — Fibonacci Trader Corporation

Robert Krausz passed away on 11 October 2002, a few months after he was interviewed over the telephone by the authors. We would therefore like to take this moment to remember and thank Krausz for being a friend and educator and for his contributions to technical analysis.

Robert Krausz, featured in Jack Schwager's best-selling book New Market Wizards (Wiley 1992), cut his teeth trading actively in the late 1970s and early 1980s. It was a time when gold in particular had been in a bull market and was at its peak. "I thought I was trading, but in reality I was just buying and selling a few days later, making a profit."

And inevitably the party had to end. ''The market decided that it was not going to play my game any more. It punished me and I lost every penny I made and more." Luckily he still had other successful businesses. So instead of "walking away and never trading again" he decided to study. "I read Gann's works to the very end to try and learn what this business is all about," he confesses.

But why Gann in particular, and technical analysis in general? Why not fundamental analysis too?

Krausz's reason for studying the market from a purely technical point of view is his long-held belief, common to all technical analysts, that all the information that one really needs is in the last price that is available in the market. He reasoned that if anybody has inside information, they have to take action in the market with that information or it is pointless having it. All traders, big and small, will have to show their hands in the end. And unless you take action in the market, all the talk is meaningless. To Krausz, therefore, price always expresses the true feelings of the market.

He added that while fundamentals can be open to a number of interpretations, in technical analysis, what you see is what you get. The information (the high, low, and close of the day) cannot be fooled, massaged, lied about, or falsified. All the information (encapsulated in the price bar) is available to everyone at the same second worldwide.

While the majority of the calculations in the Fibonacci Trader are based on the Fibonacci series, the central and most important concept is that of the application of multiple time frames. What this means is that when trading, a trader should use riot just a single time period chart. Short-term traders, trading on the basis of five-minute charts, should also look at hourly and dailv charts. Those trading on daily charts, should look at weekly or monthly ones. It was through his research into WD Gann's work that Krausz first learned about the concept of multiple time frames.

Further hard work, and a tremendous amount of reading, experimenting, and studying confirmed Krausz's suspicion of the importance of using more than one time frame to trade. One confirmation came from the work of Richard Donchian on moving averages. Krausz also studied the formulas of George Cole, who wrote in the 1950s. In particular, one of Cole's formulas outlined the concept of a fulcrum point and how, by using it, a trader could find the projected high and low for the next period. The formula runs something as follows:

Fulcrum - (High + Low + Close)/3 Projected high = 2 x Fulcrum - Low Projected low - 2 x Fulcrum - High

Krausz has said that all these experimentations and observations started off his work on multiple time frames.

The idea is relatively simple. While every time frame is independent of another, and has its own specific structure, momentum, trend, volatility, support, and resistance zones, it is also part of the entire universe of time frames. In other words, while an hourly bar stands alone in its own universe, it is still part of the daily universe, Intraday movements, whether minute by minute or hour by hour, always go to make up the daily movement.

Furthermore, the theory and observation suggests that information from the longer time frames is more important than information from the shorter time frames. So the weekly trend is more important than the daily trend. If the market is destined to go down, the daily support will fail before the weekly-support. Prices in the shorter time frame will therefore gravitate towards the critical points of the longer time frame.

The reverse is also true. The support and resistance points in the longer time frame can be validated by the action of the shorter time periods. And what appears to be chaos in one time period can represent order when viewed from the perspective of another time period.

Krausz has never professed that the ideas behind Fibonacci Trader were entirely his own. "I was not the first one to discover it. I never claimed that. There was a lot of work done before I came along." But he adds, "I was the first one to fully computerize it."

Most traders would use more than one time period to determine their strategy but the FT is the first and only program to incorporate three time periods simultaneously on one screen. This means quicker recognition and verification of developing trading patterns simply because there is no need to toggle between two or more charts. An upward movement in the daily charts could either mean a change in trend or merely a retracement. But by looking at the weekly charts, one would arrive at an appropriate trading strategy.

The FT therefore takes what is intuitive and puts it all visually onto one screen. It gives the user the ability to project the supports and resistances of the longer time frames onto the shorter ones and not only that, to be able to put all the indicators and trading ideas in the longer time frames into the charts based on the shorter time frames.

In Krausz's terminology, the time frame in which you execute your trade is the "current period," the one on which you do your analysis is the "next period," and the longer term time frame is the "higher period."

Hence, if you are a day trader, you might have the five-minute bars as the current period, the hourly bars as the next period, and the daily bars as the higher period (Figure 7.12). If you are an end-of-day trader, the current period is the daily bars, the weekly bars the next period, and the monthly bars the higher period.

If you are a super long-term trader, you could be trading the weekly bars as the current period, the quarterly bars as the next period, and the yearly bars as the higher period. Whatever you choose, even down to tick-by-tick data, can be plotted on the charts, and all done in real time as the action unfolds.

To make the software even more visually useful and to validate the multiple time frame analysis, Krausz patented his own creation called "encapsulation." The idea is that the encapsulation will enclose the bars that make up the next period time frame as one fat bar or box (Figure 7.12), and thus allowing for a more exact analysis of the two time periods.

What else does the software include? Basically, most of the common standard technical indicators can be shown within the system.

These include RSI, Stochastics, moving averages, MACD, Bollinger Bands, and so on. The software also has Krausz's proprietary indicators, which he has developed for his own trading. These include the Balance Steps, Dynamic Trio, Fibo Ranger, and others.

The Balance Steps (BPs) is a moving average plotted in step formations. It defines the tradable trend. Unlike standard moving averages, BPs are plotted one period ahead. Hence, in a sense, it is a leading indicator. It defines the direction of the next period and hence the tradable trend.

Figure 7.13 shows the hourly-daily-weekly time frames of the MSC1 Taiwan Futures (SGX). Notice how the hourly bars traded below the BP Next Period at the beginning of the figure, and even though it breaks above the BP Next Period in the center of the figure, the BP Higher Period still halts the move and the downtrend continues. This is what is meant by the importance of the longer time frame over the shorter one. This means you can use the BP Next and Higher Period to determine the tradable trend. Trades made against the tradable trend are counter trend trades and should only be undertaken with caution.

Figure 7.12 MSG Taiwan Futures Index (SCjX) (5 -min.-GO min. dailv): multiple time frames and encapsulation

Figure 7.12 MSG Taiwan Futures Index (SCjX) (5 -min.-GO min. dailv): multiple time frames and encapsulation

Figure 7.13 MSCI Taiwan (60-min.-daily-week!y): tradable trend as defined by BPs

The Dynamic Trio (DT) (Figure 7.14) is also plotted in steps. It moves with the trading range and can be used to define entries and exits such as trailing stops. In a bearish scenario, the DT will appear above the price bars. Once the price turns and breaks through the DT, another DT will be defined below the price bars. The reverse is truie for a bullish scenario when a break of the DT occurs on the downside.

The high-probability Fibonacci Zones and Fibonacci Ranger are used to determine the support and resistance points, and also the range for the next trading period.

Figure 7.15 shows how prices traded within the range and how the support and resistance levels held the price. More importantly, the figure illustrates the importance of the Friday closing in determining the following week's likely move and range. A Friday close above or below the resistance zone would indicate a highly likely move in the same direction in the following week.

All the indicators can then be put together to form a trading plan as shown in Figure 7.16.

While this chart is complex, understanding how each of the individual components works allows an experienced user to interpret the patterns with ease.

The system requirements for the software are as follows: Pentium II 266; 64 MB RAM (128 strongly recommended), 200 MB free disk space, CD-ROM, SVGA monitor and Windows 98/ME, NT with SP4 or later, WIN2000, or XP.

Figuri 7.14 USDJPY {daily-weekly-monthly): Dynamic Trio if if

Robert Krausz Multiple Time Frames

yw fi yw fi wacom 10*0001 imoooi iawd 2*00» 3/10002 «neoo? MJMM eo/xo? 7<ioxii

Figure 7.15 AUD/USD (daily-wcekly-monthly): Fibonacci Zones

Figure 7.15 AUD/USD (daily-wcekly-monthly): Fibonacci Zones

Robert Krausz Multiple Time Frame

--------_------------------------— ■ ■ ■ ——-------- -- . - . J 05JL

_ _ ^y300'"1 s/iif*»o? s.?a?oo: tnrmoi ¿s/xre knyrao: ^rao: VH W

--------_------------------------— ■ ■ ■ ——-------- -- . - . J 05JL

_ _ ^y300'"1 s/iif*»o? s.?a?oo: tnrmoi ¿s/xre knyrao: ^rao: VH W

Figure 7.16 Singapore MSC1 Futures (SGX) (daily-weekly-monthly): entry and exit

Figure 7.16 Singapore MSC1 Futures (SGX) (daily-weekly-monthly): entry and exit

Robert Krausz Multiple Time Frame
MtfXi i." YX. yiicc

For real-time data the minimum is Pentium III 600, 128 MB of RAM (256 strongly recommended), 500 MB of free disk space, CD-ROM, SVGA monitor and Windows 98/ME, NT with SP4 or later, W1N2000 or WIN XP. The developer strongly recommends the use of WIN2000 or WIN XP with 256 MB of RAM or more.

There are various compatible data formats. For real-time use: eSignal, Bonneville Market Information, S&P Con ¡stock (TID, CSP, or Internet), CQG, TalTmdc, DTN, DTN 1Q,, Ten/ore, MyTrack, AT Financial, Future Source (using Calcsource), Dow Jones Telerate, Reuters, Rescam (Australia), and Broadcast (Brazil).

End-of-day data formats supported are: Pinnacle Data Cory, TC2000, CS1, Metastock (old and new formats), and Computrac.

The end-of-day version of the software sells for $549 and the real time version for SI,095. Data costs are extra.

e Interview 2 - Robert Krausz

As part of the research for this book we conducted an interview with Robert Krausz shortly before he died. Our objective was to get an insight into how he developed his ideas and incorporated them in the software.

How long did you take to put the whole Fibonacci Trader package together?

It is not finished yet. It is an ongoing tool. You have a theory, a methodology, and a concept. But people are changing all the time. As there are fashions in clothing, so also are there fashions in trading. I remember when candlesticks first came out, everybody thought it was the Holy Grail and the answer to everybody's trading dreams. And then they realized that it was just another tool and that you have to learn how to use it. There is not one single tool in my program - or anyone else's - that works 100% of the time.

How different is Fibonacci Trader today compared to the version you first launched 10 years ago?

There are big differences. It is now faster, more sophisticated, and it has users worldwide. There is much more private information in there.

Every few months we receive new ideas and concepts from users. They give us the feedback and we incorporate their ideas if they wall make a difference to the performance of the program. We also give total credit to those whose ideas we incorporate.

What challenges or problems do you face?

The main problem is that while I do not want to tell people how to actually trade with the software with a fixed solid trading plan, at the same time T cannot leave them alone either. I try very hard to give users the very best product within the framework of reference that I specialize in - that's to say, charting using multiple time frames - at the best possible price.

QWhy can't you tell people how to trade it with a fixed solid trading plan?

A It's very simple. The reason is that my trading plans and my trading ideas may not fit another user's psychological profile. However, what I do say is that I will give sufficient information to help users - either in workshops, seminars, free journals, or my book. In other words, what you see is what you get. I've found that this approach works well because it forces people to think for themselves. They can find the concepts and the tools that suit their own trading psychology and their own personality. I don't want to teach a plan that works on the S&P three minutes and have a guy working on a small $25,000 account and trying to play two contracts.

I do give several workshops, however, so that users have some starting point. You just can't leave them alone completely. You can't just write a book and say read this technical analysis. There are hundreds of books on technical analysis but very few will take you through the processes of all the programs for sale or those that suit their own trading methodologies. So my goal is to let the traders themselves find their own way, with some guidance from me.

^^ So how can users get the full benefit of the program?

\ By just using it, by observing the results, and through hard work. There is no easy route to the pot of gold at the end of the rainbow.

Is the software suitable for traders of all levels?

Yes, the reality is that you can start off in a very simple way. And as you gain knowledge and experience, you can add other monev management techniques. You can also combine intraday time frames with daily time frames.

So what would you say is the most important feature in Fibonacci Trader?

Multiple time frames. But what is even more important is that you can see the trend, the support, and resistance of the longer time frames and how the shorter time frame can be traded within it, including all the usual single indicators and oscillators.

In other words, if you are trading the 10-minute bar, you can see the daily time frame and any period in between for all the oscillators. What you want to be able to see is that the trend of the 60 minutes and the timing tools of the daily and 60 minutes support your plan in one chart. Most programs can't do this.

Was this article helpful?

0 0
Stocks and Shares Retirement Rescue

Stocks and Shares Retirement Rescue

Get All The Support And Guidance You Need To Be A Success At Investing In Stocks And Shares. This Book Is One Of The Most Valuable Resources In The World When It Comes To

Get My Free Ebook

Post a comment