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Not ice the clear s pace ABO VE the TL and BELOW the pr ice bars. Th is illus trates aregular cycle of "X" number ofbars between two PT's A and C.
10
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
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CHART 6INVERTED CYCLES IN AN UPTREND1.
This is the same cha rt as the one last viewed, but only th ree [3] INVERTED CYCLES (IC)a re illust rated .
2.
All INVERTED CYCLES in all exam ples a re ma rked B-C-D.
3.
All inve rted cycles a re in an u pt rend as shown by the slo pe of the TL that is d rawn betweenpoint B and D.
NOTE THE LENGTH OF THE CYCLES: 1 0 ba rs, 1 4 ba rs , 1 7 ba rs. Also note the length ofthe RC 's on the
previous cha rt.Notice that the clea r s pace is BELOW the TL and above the price ba rs on INVERTED CYCLES.This s pace hel ps to quickly identi fy the IC o rthe RC.The re a re many othe r inve rted cycles not shown on this cha rt. Can you find an inve rted cycle that is 20ba rs in length ?1ItNr:
Label the 1 0: 00 ba r as B, the 1 0: 3 0 ba r C and the 1 1 : 3 5 ba r as D. Now you see the IC the 20ba r RC on the previous page ! Remembe r, the IC should have a pproximately the same numbe r ofba rs as the RC.=
11
J.R. STEVENSON
08 /27/03
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CHART 7REGULAR AND INvERTED CYCLES IN A DOWNTREND1.
Not ice the down slo ping l ines on the first two [2] REGULAR cycles A-B-C. Th is shows that thesetwo cycles are in a downtrend. The first is 9 bars in length and the second is 1 2 bars in length.
2.
Not ice that there are two [2] INVERTED cycles B-C-D w ith down slo ping l ines. The first is 12bars in length and the second is 1 2 bars in length.
3. Not ice also another INVERTED cycle B3-C3-D3 that starts at the 11 :45 bar and ends at the 13:45bar. What is the trend of th is INVERTED cycle ? Answer: The slo pe ofTL between B3 and D3.
4. There are many other regular and inverted cycles not marked on th is chart.5. We do not determ ine the PTT 'S ofthese cycles, as at th is po int, as it is MORE IMPORTANT thatyou reco gnize the REGULAR and INVERTED cycles qu ickly a nd eas ily.
6. After the conce pts are g iven, then you can re turn to th is chart and determ ine the PTT of each cycle.Your attent ion should be renewed ifyou do th is exerc ise.7.
Note the PTT at 1 2:20 E T was not reached, suggest ing a stronger market, wh ich is what develo pedunt il the close.
12
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
CONCEPT #1PTT [PRICE AND TIME TARGET]1.
A REGULAR cycle will ALWAYS follow an INVERTE D cycle and/or an INVERTE Dcycle will ALWAYS follow a REGULAR cycle.
2.
The regular and the inverted cycles are expected to be approximately the same length.[Number of price bars or time.]
3.
The regular and the inverted cycle must ALWAYS be CO NNECTE D to each other andconsidered as a UNIT for a PTT. A regular UNIT is mar ked as A-B-C-D and an invertedcycle UNIT is mar ked as B-C-D-A in all the examples.
4.
A TL drawn between points A and C of a REGULAR cycle, CLONE D [meaning samelength and slope] and moved to point B, will indicate the PIT for that cycle unit [CU] at theend of the cloned TL.
5.
6.
A TL drawn between points Band D of an INVERTE D cycle, CLONE D and moved to
point C, will indicate the PIT for that cycle unit [CU] at the end of the cloned TL.
MOST IMPORTANT ! Expect every PIT to produce ACCURATE RESULTS, EVERYTIME in both price and time. EVERY TIME!
7.
Comment: A bas ketball player when shooting hoops, expects the ball to go in the hoopevery time, not 50% not 90%, not most ofthe time, but every time. Li kewise, the PIT's areexpected to be correct every time, BUT of course this is not possible. However by expect­ing perfection, when failure comes, much valuable information can be derived as to thefut ure direction ofprices.
8.
There are many cycles and cycle units of different lengths on every chart. This concept ,when fully grasped, will let the trader select the length cycle to trade, thereby choosing anacceptable profi tlloss ratio that suits the trader.
9.
A PTT is for one cycle unit. The larger the selected cycle is, the more time that is needed toreach the price target. There may be one or more smaller cycle units [CU] within the largerunit. [See examples]
13
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
UNITSThe ke y to the PIT (price and time target) concept is understanding the concept that an IC (inve rte dcycle) will follow a RC (regular cycle) and that the two cycles are connected with the same price action. Thetwo cycles will generally have about the same number ofbars but this is not an absolute in the futures marketdue to contracts ending and in some cases trading being stopped. In an Inverted Unit the connection is be­tween point C and point D and in a Regular Unit t he connection is be tween point B and point C.Another point that is di fficult to grasp is that t he cycles grow from one point to another. For example:from one low point early in the trading day, there might be another point 1 0 bars away and later in the day,another low point develops 30 bars from the flrst point. T his 3 0 bar RC will become far more important ingiving a larger PIT and more time to get there than the smaller cycles. Examples given should help ma ke thispoint more clear. The l Obar cycle and the 3 0 bar cycle may have the same starting point, but there will be 2di fferent PIT's plotted.Ifthe 30 bar cycle should develop when the l Obar cycle ends, then there could be 3 PIT's drawn : a1 0 bar PIT, a 30 bar PIT an d a 40 bar PIT . There should be inverted cycles [IC 's] of 1 0, 3 0 an d 40 barsalso.
15
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
PROCEDURE FOR MAKING A PTT IN REAL TIME1.
Inspect the last few bars on the chart for either a high point or a low point. Ifprice is ma king a highpoint, then
2.
Loo k bac k in time 1 5 -20 (or more) bars and see if another high point has been made. If so,
3.
Loo k for a low point between the two highs. What you have is an Inverted Cycle [IC] B-C-D.
4.
Draw a TL between Band D, CLONE it and move to the low point C and the time and price a tthe end ofthe cloned TL will be the target!OR
1.
If the price in going down and appears to be ma king a low point then
2.
Loo k bac kin time 1 5 -20 (or more) bars and see if another low point has been made. If so,
3.
Loo k for a high point between these two lows. What you have is a Regular cycle [RC] A-B-C.
4.
Draw a T L between A and C , CLONE it, move i t to point B, and the end ofthe cloned line i s thePIT.
5.
NOTE: A cycle can b e 3 bars or more i n length but a cycle selection ofless than 8 -1 0 bars will notprovide enough price movement to ma ke the trade profitable in most cases.
6. Generally spea king, the larger the cycle selected, the more accurate the PTT will be and the moreprofit will be available.
IMPORTANTIf the C point of a regular cycle is penetrated downside with a close, after a new PTT has beenprojected, then the PTT is ne gated, and should be deleted from the chart!If the D point of an inverted cycle is penetrated upside with a close, after a new PTT has beenprojected, then the PTT is ne gated, and should be deleted from the chart!17
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
How TO TRADE PTT's IN REAL TIMEAs previously stated, the PTT concept is not a trading method!1.
Buy or sell as soon as the Cyclic Trend Line [CTL] is bro ken with a close or on the test ofthe CTLafter a close above the CTL. See concept #2, page 2 1 .
2.
Buy or sell at the PIT, expecting a reversal at that point.
3.
Continue holding the position, in line with the trend ofthat cycle.
4. Trade the reactions or rallies caused by the small cycles, expecting the larger cycles to give morepro fit.5.
USE a moving average method and enter when the moving average i s moving in the direction ofthePIT.
6. Trade with the trend. The PIT will always give the trend ofthe UNIT that you have chosen totrade.IMPORTANT
It is strongly suggested you enter the mar ket with your own trading method and THEN loo k to thePIT's to help you manage the trade. Ifyour entry is in line with the PTT, the odds are greatly increased thatyour trade will be pro fitable. The use of stops is always advisable.
Once you become experienced in drawing the cloned TL's on the small and large cycle units, you willbe able to watch and understand mar ket action and use it to your advantage.
Remember, the PIT's are derived from pure mar ket action so what the mar ket gives, is what you willget. If the PIT's fall short, accept it, analyze the mar ket, and plan the next move.
19
PRECISION TRADING WITH STEVENSON P RICE AND TIME TARGETS
CONCEPT #2CTL [CYCLIC TREND LINE]This concept was discovered while working with concept # 1 as a tool to confinn when one cycle hasended and a new cycle [trend] has started. It can at times be used as a "stand alone" trading method. The proofof the validity of this concept is in the results. It was also found that the trend line is generally ''tested'' before thenew trend starts. The fact that most technical patterns, or points of resistance or support are "tested" at leastonce is well known by market technicians.Normally this concept will be used to draw a trend line from point
C to point D when analyzing an
inverted cycle unit to determine when the inverted cycle has ended and\or to draw a TL between point Band
C to determine when the regular cycle has ended.This concept can be used on very small cycles but more accurate results will be obtained by using it oncycle lengths of 10 or more bars Note: Examples will make this last comment more clear.Originally this concept was called "cyclic trend line" [CTL] as it has validity in cycle analysis. What isunique in this concept is that only one point of contact of the market action with the "cloned" line is needed. Thenormal trend line in technical analysis requires two or more contacts to be a valid trend line. Occasionally, thecloned line will have 2 points of contact with the price action, adding confinnation to the importance of this line.You will notice, after seeing examples that more often than not, a break of the CTL line by a close willbe followed by a pull back, touching the line [test] before resuming in the direction of the breakout. Patience,waiting for this "test" will often be rewarded with some low risk entry points.Drawing the CTL: At the extreme high of point Bdraw a line to the extreme low point at point
C. This
basic line is then cloned [meaning same slope] [length is not important]. Now slide the cloned line to the rightuntil it touches a price bar that is the largest distance from the basic line between points Bandbreaks this line, the trend direction should change. See example on the page 23 .
21
C. When a close
J R STEVENSON.
.
For a change from a trend going up to a downtrend, draw a line from the extreme low price at point Cto the extreme high price at point
D. Clone this line and move it to the right of the base line until it touches one
point that is the largest distance from the base line. When a close breaks the cloned line, the odds are high thatthe trend will change. See example on page 24.NOTE: Users of this concept have found excellent entry points by the breaking of the CTL or on the
retest of the CTL, often it is broken. The two minute charts often reflect some good profitableentry points with good profit potential. Stops are suggested for all entries!
22
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
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CHART 8CONCEPT 2This is chart #4 revisited. Likewise here, to detennine if the cycle from B to C had ended, a TL wasdrawn from point B to point C. This TL is then CLONED and shifted to the right until it touches a single pricebar, as shown. A close above this TL suggests quite strongly that the cycle from B to C has ended and the firstpart of the regular cycle has started up.Other examples will show this is a very valuable tool to help make timely entries or exits from themarket.Caution is suggested in drawing the basic TL too quickly on small cycles. A good rally, or correctionshould be present between the basic TL starting points to avoid "stopouts." A reversal or spike reversal bar isalso helpful in drawing the basic TL.
23
J.R. STEVENSON
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CHART 9CONCEPT 2Let's revisit chart 2. We had mentioned that concept #2 might have helped you decide to go short nearpoint D.Concept 2 is as follows:1.
A basic TL is drawn between the point C and point D. [The length is not important in this concept butthe slope is.]
2.
This TL is then CLONE D and the cloned line is shifted to the right until a price bar is touched asshown.
3.
When the price closes under this trend line, the odds are high that the previous cycle has ended and thelast part ofthe regular cycle has started.
NOTE: the TL drawn from the extreme low point
C to the extreme high point D is a valid TL as it shows exactly
when the TR started up and when it ended. The CLONE D line therefore, by association, is a valid TL. Also,when a PT exists as at point "D," the basic TL should be drawn to the last bar of the PT.24
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
How TO SELECT THE BEST CYCLE TO TRADE1.
Let the mar ket tell you!
2.
Ifthe mar ket has been very volatile , smaller cycles around 8-10 bars may wor kthe best.
3.
On a rather slow moving "trading range" type mar ket , longer cycles above 1 5-20 bars aremore accurate and provide more profit possibilities. See chart 23 for example.
4.
Generally cycles 8 bars or less are not tradable but do provide good mar ket analysis.
5.
To prevent over trading, select cycles 20 bars in length or more.
6.
Small cycles can be used to counter trade the trend of a larger UNIT.
7.
Try to select a cycle UNIT where the PIT will fall within the day trading hours.
8.
By dropping down to a shorter time frame , the PTT's may become more accurate andeasier to observe.
25
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
How TO TELL WHEN A CYCLE HAS ENDED1.
Use the CTL method or concept 2.
2.
When time and price has run out on the current cycle.
3.
Watch for certain price patterns t o develop around o r near a PIT.
4.
Watch for "spike reversal" or reversal bars after an extended move.
5.
Watch for volume spikes, which often develop at the PIT's, especially if a very oversold oroverbought condition exists.
6.
When the momentum dries up after an emotional large move, especially if a PIT is near.
7.
After an extended move of 5- 1 0 points, study the market swings for indication of a reversalas noted above.
27
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
WHAT IF THE PTT MISSES?USING T H E
PTT AS AN ANALYTI CAL TOOL: Even though every PTT is EXPECTED to be on ta rget ,
both in time and p rice, the reality of the ma rket place gives diffe rent results. Since the re is un known news ,suppo rt and resistance levels , di ffe rent trends, p rofit ta king, sell and buy p rograms , and a million othe r reasonsfo rtrading, it is amazing that even one pe rfect PTT can be on ta rget. On some days it has been obse rved andp rojected 3 o r mo re nea r pe rfect PTT's. Of cou rse the re a re many p rojections that do not reach the ta rget sohow can this appa rent "MISS" be used to the t rade rs advantage? Are these "MISSES" to be conside redfailu res? Do we say the concept is wo rthless? Befo re it is thrown in the t rash can, a few othe r inte rp retationswill be suggested:1.
The p rice target falls sho rt in a regula r cycle unit: often indicates that the cycle selected iswea ke rthan expected and the market may decline with a possible trend change ifpoint C ista ken out. See cha rt 10.
2.
The price ta rget falls sho rt in an inve rted cycle unit: often indicates the cycle selected isst ronge rthan expected and the ma rket may rally with a possible trend change if point Dista ken out. See cha rt 7.
3.
In a regula r cycle unit , ove r shooting the ta rget , suggests a la rge r cycle is dominate and longpositions should be held: conve rsely, ove r shooting on the inve rted unit suggest a weakma rket and sho rt positions should p robably be held.
4.
A p rice ta rget of a regula rcycle that is hit ea rly could indicate a wea kening market o r anaccele rating ma rket and this depends on the trend ofthe large r cycle in the ma rket.
5.
A p rice ta rget of an inve rted cycle that comes ea rly, could indicate a strengthening ma rketo r an accele rating trend to the down side.
6.
The time ta rget is gene rally mo re reliable than the p rice targets , as trade r's habits and emo­tions a re mo re firmly established in the market place. To illustrate this point, notice howmany cycles have app roximately the same numbe r ofba rs !
7.
NOTE: The re a re many othe r possibilities that exist with the PTT's. A study ofthe conven-
tional cycle theo ry would be helpful but good obse rvational habits should se rve thetrade rve ry well.
29
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
B ASIC QUESTIONSThe chart examples that will be shown in the balance ofthis manual should answe rmost ofthe follow ing questions. You will need a cha rt se rvice that allows quick and easy const ruction oft rend lines and be ableto CLONE the lines. No othe r tools a re needed fo r the PTT's but I have found that a 5 ba r RSI and a l Oba rmoving ave rage to be helpful and suppo rtive at times when trading , but the indicato rs a re not used fo r signals.
Q.
Do you sta rt with a regula r o ran inve rted cycle?
A.
See Cha rt 1 3.
Q.
How do you know when a p rice move [cycle] has ended?
A.
See cha rts 4, 5 and 1 6.
Q.
What length cycles should I look fo r to t rade from a 5 minute cha rt?
A.
See cha rt 1 5.
Q.
How do you know which cycle will wo rk?
A.
See cha rt 1 7.
Q.
Can a la rge cycle have smalle rcycles within it?
A.
Yes, see cha rt 1 4.
Q.
How do you know whe re to sta rt the analysis of a cycle?
A.
See cha rt 1 3.
Q.
Do I use the same length cycle th roughout the day?
A.
No, the cycle lengths will expand.
31
J.R. STEVENSON
Q.
Are there price patterns to look for at the turning points?
A.
See chart 8 and also page 27.
Q.
Will cycles keep me from over trading?
A.
Selecting larger cycles will reduce trading.
Q.
Is the PTT concept a trading plan?
A.
Not normally.
Q.
Is night data used for PTT's?
A.
No, because volume is not large enough.
Q.
Can the data from one day be used to find PTT's for the next day?
A.
This is not recommended for day trading.
Q.
When a CT or CB has multiple bars with the same price high or low, how is the correct pointchosen?
A.
Have the TR extended to cover all the bars that are equal.
Q.
Why is perfection expected of every PTT?
A.
See page 3 , "Overview of Concepts."
Q.
What do you mean when you say that a regular and an inverted cycle must be connected.
A.
See page 1 5 , "Units."
Q.
Will knowledge of conventional cyclic theory help in working with the PIT concept?
A.
Not necessary.
Q.
How can the PIT help confirm other technical patterns that develop in the market?
A.
See chart 1 8 .
Q.
What makes cycles work?
A.
See page 45.
Q.
Can more than one PTT be drawn at the same time?
A.
Yes, see charts 1 4 and 23 .
Q.
What about countertrend trading?
A.
See Trading Tips on page 53.
32
PRECISION TRADING WITH STEVENSON PRICE AND TIME TARGETS
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CHART 1 0FAILURE A ND SUCCESS1 . A trend line fro m A to C was drawn and then CLONED.2. This cloned TL was attached to point B and the end ofthe TL is the PTT for the cycle.
D [one ofthe three bars] but the price target fell way short, suggestingweakness and a likely decline. Note the TR of the RC was u p fro m A to C but the TR of the IC turned down,RESULT: A high point was made at point
also suggesting a change.
3 . A TL is drawn between Band D and this TL cloned.
4. This cloned line is attached to point C and the PTT was hit right on.NOTE: The TL ofthe next s maller