LOSS OF OPPORTUNITY IS PREFERABLE TO LOSS OF CAPITAL

THE OSCILLATOR PREDICTOR :

In the early 80s, I decided that I needed a means of capturing profit that was more efficient than any I had seen to date. At that time, I was unaware of Fibonacci Expansion Analysis and although the Displaced Moving Averages I had developed gave me reasonable entries, I gave back more "paper profit" than I wanted to in the exit strategies I was using at that time. Any paper profit was to me, my profit. I had assumed risk to achieve that profit. I had done considerable work to enter the trade initially and I didn't want the market taking any of it back! The problem simply stated was, "How could I exit on extremes in price, rather than wait for a DMA crossover?" Since I was convinced the Detrended Oscillator was my best Overbought/Oversold tool, and using my background as an engineer, I reasoned that a set of parametric equations could be created which would produce, a day ahead of time, the price level that would correspond to an OB/OS condition in the market. I approached my programmer, George Damusis, with the problem. He crawled off to his office for two weeks and after applying his considerable talents to the challenge, the mathematics behind the Oscillator Predictor were created and the study was graphically programmed into the CIS TRADING PACKAGE.

Consider what this discovery meant to me. I could accurately forecast a full day ahead of time what level of price would produce a logical (historically-based) profit, a businessman's profit. When you take Logical Profit Objectives, your percentage of winning trades can't help but increase. The main problem in taking logical profits is the lack of knowledge traders have in attempting to re-enter the market at a lower risk point. This issue is addressed in CHAPTERS 8 through 13.

Appendix G shows an example ofhow the Oscillator Predictor works in practice.

Before we get into the Fibonacci work, let's do a quick summary ofthe overall plan, (CHAPTER 3), and see what we've learned so far:

THE NECESSARY ASPECTS OF A SUCCESSFUL TRADING APPROACH

1. Money and self management

See the Bibliography and the Reference material sections.

2. An understanding of market mechanics

References on market mechanics have been made as we have progressed to this point. When appropriate, more references will be made. For more information, see the reference materials.

3. Trend and Directional analysis

Lagging and Coincident Indicators theory has been covered.

We've learned how best to identify Trend.

We've learned about certain very powerful Directional signals that overrule Trend.

4. Overbought/Oversold evaluation

The theory has been covered.

We've learned how to effectively filter and quantify trades.

We've learned how to take certain Logical Profit Objectives.

THE BOTTOM LINE IS:

WE NOW KNOW WHETHER TO BE LONG, SHORT, OR OUT OF A GIVEN MARKET, AND WE HAVE A MEANS OF DETERMINING WHETHER OR NOT A TRADE WELL HAVE A REASONABLE EXPECTATION OF A GAIN.

5. Market entry techniques (Leading Indicators)

Next we'll see how to position ourselves as safely as possible, within a market that we have chosen to enter according to the above criteria. We will also investigate powerful stop placement techniques.

6. Market exit techniques (Leading Indicators)

Then, we will cover additional methods of determining Logical Profit Objectives.