GANN ARTICLES

of PI, or 3.14 divided by 4. Most textbooks
will tell you that a TRIN index
below 1 is bullish and above 1 is bearish.
After further observation, .78 - .88 is
completely neutral. Only after the market
has been trading below .78, should one
expect any signifi cant advances for the
market. It’s almost as if the market needs
extra air in the pump to keep things
primed. Oh sure, the market “bucks” the
wind often. But if one is to put the odds
in favor of a “big break” occurring, it is
best to trade with the wind. In the fi rst
30 min. of trading the TRIN can be less
effective because specialists are “shoring”
up their books from open orders,
etc. For the fi rst 30 minutes, the opening
tick takes precedence. Otherwise,
checking the TRIN before making the
trade can lead to a “10-bagger”. It’s the
only technique discussed that addresses
the odds favoring the reward side of the
equation. Now for the risk side...
Money Management
“Cut your losses short; let your profi ts
run” is probably the best laymen version
for one of Newton’s laws of motion
ever stated. Letting profi ts ride always
seems less challenging (psychologically)
when the position has moved in one’s
favor beyond the point of break even.
But nothing seems more paralyzing than
watching a P&L “pivot” between profi t
and the risk of the position. A “catch
22” seems inevitable for those who have
only risked a small amount on a position
because prematurely moving a stop loss
to break even can fl utter one out on volatility
alone. On the other hand, “letting
profi ts run” calls for letting the trades
play out.
Here is a technique that accelerates
the position to risk free, without prematurely
moving the stop loss to break even
and jeopardizing the trade’s ability to
“play out.” When momentum is quantifi
ed properly as discussed earlier, a
position can hit risk free in a matter of
minutes, prompting additional patience
on behalf of the trader to “let the house’s
money ride.” The trick is to catch a
break by which one covers half of the
position back at a profi t equal to the
original risk on the trade. The accompanying
chart shows this trade technique.
Of course there is less profi t, but money
management is focused on the expense
side: limiting losses.
More times than not the cover point
on half the position is very close to
where the fi nal cover signal comes in or
the trail stop is hit. Additionally, one
can discover that he/she was originally
wrong on the trade, but did not withstand
a loss. When profi t on a position hits 3-4
times the amount at risk, a .382 trail stop
is in order. When you fi nd yourself frequently
canceling and replacing a stop
order due to a parabolic move in your
favor, enjoy the process; as it is a good
problem to have as a disciplined money
manager. For those of you fi shing for the
big one, where .382 is too much to give
back (on such a parabola), PI’s inverse
of .318 or .214 may serve as alternatives.
.214 is the difference of .786 from
1 and the inverse of Feigenbaum’s constant
4.66 for parabolic bifurcation.
Hopefully these aforementioned
techniques illustrate a professional
approach to stacking the odds in one’s
favor. Certainly additional statistical
studies can be applied for correlating
market turns, etc. However, the key is
to place oneself in a position to receive
only what the market is willing to give
as frequently as probable. Joe Montana
is considered one of the most successful
professional quarterbacks ever to play
the game of football. Those who
enjoyed the privilege of watching Joe
play for most of his career, remember
a quarterback who constantly exploited
what defenses were willing to give up.
Whether it was fi nding the open receiver
in the “soft spot” of the zone or capitalizing
on a particular man to man mismatch,
Joe was the best. The result: a
movement of the chains, and some of the
best drives in football history. The best
way to “keep the chains moving” in the
brokerage account is simply taking what
the market gives by those who can recognize
a “stacked deck.”
For more information on this program go
to www.tradersworld.com/doubleedge
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tradersworld.com Spring 2001 35