According to the Forex classicists, the tactics of opening/closing the deals, where the use is made of slanted channels, can be conditionally divided into the following groups.

1.  The work inside the slanted channel (recoil from the slanted channel level).

2.  The work on breaking through the slanted channel level. In its turn, it includes the following aspects.

a). One can work along the trend – i.e., under the condition of the ascending trend, it is the breakout through the upper slanted channel (the level of resistance). Naturally, under the condition of the descending trend, the situation is reverse.

b). One can work against the trend – i.e., under the condition of the ascending trend, it is the breakout through the lowest slanted channel (the level of support). Naturally, under the condition of the descending trend, the situation is reverse.

The scheme of presenting the materials is the following.

1.  We will examine the points of opening and closing deals in slanted channels as this subject is submitted by the classicists of Forex – J. Murphy, E. Neiman, T. De Mark, Jack D. Schwager , etc.

2.  We will criticize these techniques. It will be explained why a trader can lose his deposit when working strictly according to advices given by J. Murphy, E. Neiman, T. De Mark, Jack D. Schwager , etc.

3.  It is necessary to find out the sound decision to these problems for detecting proper points of opening and closing deals in slanted channels according to Masterforex-V Trading System.

Points of opening and closing deals in slanted channels according to J. Murphy

In his “Technical analysis of future markets: theory and practice”, J. Murphy recommends for opening deals in slanted channels to start from the 3rd (!) recoil towards the direction of the trend in force.

  J. Murphy considers that the trend line can be successfully used in solving a series of problems - when the third point is detected and the tendency type is determined. As regards this tendency, one of the basic principles is the following. The tendency under development is tending to continuer its movement. Consequently, as soon as the tendency takes a certain tempo and the trend line takes up position at a certain angle, as a rule, this angle is remaining the same during the tendency further development. Under these conditions, the trend line does permit determining corrective phase extremes. And what is more important, the trend line can indicate possible changes in the tendency.

Let us suppose that we deal with an ascending tendency. In this case, corrective (or intermediate) recessions either approach the ascending trend line very close or even touch it. Under the condition of an ascending trend, the future trader is planning to buy at recessions. Therefore, the trend line plays the role of the support edge (limit) below the market. This border can be used as a zone of “buy”. If the tendency is descending, the trend line can be used as a level of resistance for “sell”.

  Until there does not occur a radical turn in the trend line dynamics, the trend line can serve for detecting “buy” or “sell” zones. However, in Charts 4.7a and 4.7b (see below), at the point #9 such turn does take place. It is the signal for liquidating all positions opened towards the previous tendency direction. Often, the breaking through the trend line is the first evidence of a radical turn in the tendency type. 

Chart 4.7a.

As soon as the trend ascending line is established (fixed), one can use the subsequent recessions, which reach the trend line, as zones of “buy”. In this chart, the points ##5 and 7 can serve for opening new positions - or subsidiary long ones. The trend line breaking at the point #9 indicates a cardinal change in the tendency character – probably, the tendency has become descending. Consequently, at the point #9 all long positions must be liquidated.

Chart 4.7b

The points ##5 and 7 can be used as zones of “sell”. The trend line breaking (the point #9) testifies the possibility of the tendency turn towards the ascendance.

Criticism of J. Murphy’s technique of opening/closing deals in slanted channels

  J. Murphy recommends closing all long positions when the slanted channel level is broken through. However, this author has not explained the following aspect:

What is the difference between the false and true breaking through slanted channels?

  In order to understand why a trader who works according to J. Murphy’s technique will lose his deposit for sure, one must look at Chart 2.14, copied from the book by E. Neiman. That is, there occur false breakouts not only at the encircled point but also to the left and right of it.  

Chart 2.14

Losses will be inevitable if one works in this channel according to J. Murphy’s technique. J. Murphy’s erroneous advices are the following.

1.  One must open a deal only starting from the 3rd point of contact – i.e., the recoil towards the trend in force. To the left from the circle, there were three touches. Did J. Murphy imply these contacts when he recommended opening deals to start from the 3rd recoil? Probably, one can regard these three recoils as a single touch. Hence, what’s about the 3rd contact? That is, where is the recoil from the level of support in the ascending slanted channel?

2.  In this chart, the recoil from the channel lowest border (the point of the deal opening) differs from the breaking through the channel lowest border. Under the condition of the breaking through the lowest border, J. Murphy recommends closing all positions. For instance, I have detected 7(!) breakings through the slanted channel lowest border. Notwithstanding J. Murphy recommendations to close all positions, the currency is keeping on moving along the ascending trend.

3.  Why does J. Murphy recommend closing the positions after breaking through the slanted channel lowest border in the case of the ascending trend? Probably, it would be more reasonable to close deals in the vicinity to the ascending channel upper border. However, the problem is the following. J. Murphy designates the trend ascending channel just with one line. That is, according to his theory of the trend channel, the ascending trend upper border does not exist (the picture of the channel corridor is copied from the book by E. Neiman).

4.  J. Murphy`s advices are in evident contradiction with Elliot’s theory. According to the latter, the 3rd point of the trend recoil is the trend 5th wave – i.e., the point where begins the market backward movement.

Taking all these specificities into account, it would be amazing to notice the importance attached by J. Murphy to the 3rd check point in the slanted channel.

After detection of the 3rd point and determination of the tendency character, the trader can successfully use the trend line in solving a series of problems. One of the tendency basic principles is the following. A tendency under development is tending towards continuing its movement. However, at the same very page in his book, J. Murphy presents a chart that cardinally refutes his own statements.  

In Charts 4.7a and 4.7b, at the point #9 such a turn does occur. It is a signal for liquidating all positions opened towards the previous tendency direction.

It`s a pity, but J. Murphy does not explain either these contradictions or the ones enumerated below.

1.  As regards a point in the chart, he writes that all positions opened towards the previous tendency must be liquidated. However, further he writes about the same point that long positions must be closed.

2.  Why should one at first close long positions and then short ones?

3.  Was a long position opened at the point #5 (the 3rd point in the slanted channel)?

4.  What does the following phrase mean: the point #9 testifies the possibility of the turn in tendency? That is, one implies the turn or the possibility of the turn. This aspect is very important for the trader. Is it worthwhile to keep short deals open? Must one close all deals and remain out of the market? Otherwise, maybe one should open new deals towards the new trend possible development.

5.  What is the difference between the point #9, where all positions must be liquidated, and the false breaking through the level? One must compare the charts 2.14 and 4.9 from the books by E. Neiman and J. Murphy, respectively. Sometimes there occurs the breaking through the trend line several times within one day (see the chart 4.9). This confronts analysts with the dilemma. Must one preserve the initial trend line if it is still correct? Or is it better to draw a new line? A compromise may be possible. A new dotted line is drawn, the trend initial line being preserved. Later on one will see which of the lines is more correct.

6.  The most unexpected aspect is the following. J. Murphy confesses that he does not know the difference between the true and false breakings through the slanted channel.

J. Murphy is not sure what one must do with insufficient breakings through the trend line. He mentions that prices can break through the trend line during a day. However, at the moment of closing the initial pattern becomes developed again. Consequently, an analyst cannot be sure whether the breaking has really happened (see Chart 4.9). Must the trend new line be drawn with taking into account new data – under the condition that the trend line small disturbance is evidently of the temporal or occasional nature? In Chart 4.9, this situation is depicted. During the day prices “fell below” the trend ascending line. However, at the moment of trading closing they were above this line again. Is it necessary to draw the trend line anew? For pity, there is no unequivocal answer that could fit for all cases. Sometimes the breaking can be neglected – especially if the market further movement confirms that the trend initial line was true. As it is already mentioned above, sometimes a kind of compromise is required. An analyst can make use of two trend lines simultaneously: the trend initial line (the solid one) and the trend new line (the dotted one). There can develop the following situation. The trend line breaking can be relatively insubstantial and occur just within a day. If at the moment of closing the prices have reached a value above the trend line again, the analyst can neglect this breaking. The use still can be made of the trend initial line. As well as in many other areas of the market analysis, best of all is to rely on the experience and intuition. In many doubtful situations, they are the best advisers.

Comments. J. Murphy has become confused when dealing with slanted channel breakings. Respectively, he cannot explain the problem to readers. Really, what does it mean “one can neglect this breaking – especially if the market further movement confirms that the trend initial line is true? At the same time, one must liquidate all long positions at the point #9 in Chart 4.7a.

  E. Neiman considers the breaking through the slanted channel levels along the trend to be the most powerful signal for the deal opening (In the case of the trend ascending channel, it is the breaking through the upper slanted level. Respectively, in the case of the trend descending channel, it is the breaking through the lower slanted level).  

Let us trace the consequences of this approach in the real trade.

E. Neiman explains the essence of his technique in the following way. The technique of giving analysis to lines of resistance and support helps traders to follow changes in the tendency – i.e., its reversal or intensification. These levels are especially important for installing protective stop-orders.

  The people’ memory is an important factor in making use of these. For instance, a trader can remember that recently the price turned from a level of support and went upward. Hence, for him it is perfectly legitimate to make a deal on ‘buy’ at this very level the next time. On the contrary, the trader can remember that the price turned from a level of resistance and went downward. Consequently, it is mostly probable that the next time the trader will make a deal on “sell” at this very level.

Chart 2.4.2. Trend lines drawn along minimum prices (lines of support).

Thus, Neiman states the following.

a). (+++) denotes the intensive signal. It is a good position for breaking through the channel level along the trend (opening a deal, directed downward).

b). (++) is the signal of moderate intensity. It is the confirmation at the level of “A”-line. It is a temperate position for opening a deal, directed downward

c). (+) designates a weak signal for breaking through a slanted channel against the channel in force. Judging by the chart, it is to be specified that one talks about the breaking through two levels of resistance against the trend descending initially. The position is to be opened “after two confirmations”. There occurs the 1st confirmation at the level of “A”-line. One can find the 2nd confirmation at the level of “B”-line. However, this position is weak. It is better to receive other confirmations 

  E. Neiman does not dwell on points of closing deals.

Criticism of E. Neiman’s technique of opening/closing deals in slanted channels.

  One must again look attentively at the D1 Chart 2.14 from the book by E. Neiman.

1.  Only in the left corner of the chart one can see intensive signals (+++), which is a good position for breaking through the channel upper level along the trend. Thus, making use of Neiman’s technique, a trader misses the whole (!) trend. The trader must stay out of the market to start from half of a year and up to the year (see Chart D1).

2.  In all the three cases, intensive signals (+++) for breaking through the trend have resulted in the false breaking through. After this, there has taken place a spurt from the left part of the chart towards the opposite direction.

3.  That is, to beginners E. Neiman recommends opening deals where they always open such deals – i.e., at the end of the movement, directly before the correction and reversal.

4.  The reader should try to answer the following question. Why does not E. Neiman write about points of closing deals?

5.  As well as J. Murphy, E. Neiman does not submit clear criteria of difference between a true breaking through slanted channels by currency pairs and the false one. To be more precise, E. Neiman regards all false breakings through slanted channels as true ones.

In this connection, E. Neiman himself gives the following explanations.

There are the following contradictions in trend lines and models

·  Contradictions in the direction of the trend in force and the direction prognosticated in the course of the analysis (such contradictions are especially important under the condition of the trend reversal).

·  Trend lines and models, developed in different time intervals, can also yield contradictive conclusions. For instance, a weekly trend can indicate itself as “bull” trend, while the daily trend can indicate itself as “bear” trend.

·  When facing any of the above-described contradictions, it is better not to make deals at all and to wait till clarification of the situation.

Concluding this paragraph, it is worthwhile to mention one of the most important rules of analyzing trend lines and models.

One must not look for trend figures where they are absent. Don’t give vent to your fantasy.

Issuing from Neiman’s statements, one can make the following brief conclusions.

·  If in future the trend slanted channel will be confirmed, this will confirm “the correctness and importance” of this instrument of giving analysis to Forex.

·   If in future the trend slanted channel will not be confirmed, one must not look for trend figures where they are absent.

Thus, one must estimate “the usefulness” of Neiman’s advices concerning trend channels.

·  To miss an intensive trend in D1 chart – at least 1000 points as it is depicted in Chart 2.14.

· Simultaneously to manage three times “to catch” stop-losses at intensive signals.

·  Finally, one has to listen to “the classicist’s” advice “not to look for trend figures where they are absent and not to indulge one’s fantasy”. 

   Making use of the slanted channel and oscillator according to Ch. Lebo and D. Lukas

  In “Computer analysis of future markets”, Ch. Lebo and D. Lukas state that the secret of the recurring entrance into the market consists in the following. First, one must wait till the end of the temporal correction. As soon as one can understand the principal trend direction, one must buy quickly. Surely, it is too long to wait till there will arise a new peak in the market. However, one must become convinced that the correction is really finished. A sufficient intensity testifies this fact. Here one deals with a point of great nicety. This matter requires careful considerations. Besides, one needs a sensitive and reliable indicator.

   One can find a very sensitive indicator of the recurring entrance into the market. For this purpose, it is recommended to use the method of super short oscillator. For instance, one can take the 3-day relative strength index (RSI) as the recurring entrance starting signal (see Chart 1.7).

  Thus, Ch. Lebo and D. Lukas submit a method that combines advantages of the two instruments of giving analysis to the market:

1.  The slanted channel indicates the trend direction.

2.  The oscillator depicts the trend recoil. It is necessary in order to open a deal along the trend issuing from the recoil but not at local peaks (as E. Neiman recommended).

Notwithstanding all the advantages of this method, there is a problem that cannot be solved with the help of the oscillator. Under the condition of the trend recoil, the oscillator does not “distinguish” this reversal from the correction. Consequently, the traders who use oscillators in their work need an additional instrument of the market analysis. This instrument must indicate the trend reversal at the beginning but not at the end of it. Combined with such instrument, the oscillator can be used for the successful measurement of recoils when deals are opened in the opposite direction.

Opening/closing of deals in “Barishpoltz’s channels”

V. Barishpoltz’s technique is based on the work inside price channels.

1.  Deals on “sell” are made to start from the trend slanted channel upper boundary.

2.  Deals on “buy” are made to start from the trend slanted channel lower boundary.

According to V. Barishpoltz, the trading tactics is the following.

·  A trader chooses a working currency pair (EUR/USD or any other with the corresponding “stops” and “constrictions (contractions)”.

·  The chart period must be opted (e.g., 6 hours).

·  No indicators are used.

·  The lot under trading is arbitrary – but always constant.

·  The possible (admissible) maximum number of losses is three, each making 57 points.

·  The starting minimum deposit to be recommended is the margin required + 1800 (when one works with one lot of the size of 100000 of the monetary basis).

·  The effectiveness is not less than 100% per month.

·  The graphical layout is moving slanted channels.

The channels are charted on the basis of the three last extremes. A line is drawn through two minimums. The second line is drawn in parallel to the first one through the maximum. Otherwise, a line can be drawn through two maximums. Then the second line must be drawn in parallel to the first one through the minimum. That is, the lines are built on the basis of maximum/minimum values – i.e., a trader issues from candle shadows.

 Not less than two candles after the point under examination can confirm that the latter can be identified as an extreme. Between two extremes must be not less than two candles. The only exception is that neighboring maximums/minimums can be located at the ends of one and the same long candle.

·  When the channel bound is reached, the position must be opened towards the channel center. One may not open a position only against a distinct trend. A trader must judge by himself. Losses can be somewhat reduced in this way. At the same time, often one can miss the market reversal movements, potentially very profitable.

·  In the opening, the “stop” makes 57 points.

·  The goal is to reach the channel opposite boundary.

·  When the distance from the price of opening makes 50 points (towards the direction of profit), the “stop” must be transferred into the point of opening. Further, at the distance of 50 points “constrictions (contractions)” are installed at regular intervals (at every 10th point). The “constriction (contraction)” at the distance of 30 points is possible. However, this yields just an insubstantial increase in the effectiveness. The “constrictions (contractions)” is always fulfilled towards the direction of the increase in profit but never in the opposite direction.

·  If “the stop” has worked and the losses made 57 points, the position must be opened towards the opposite direction. The goal must be to regain 57 points. The “constrictions (contractions)” are based on the same principles.

·  After the reversal the price can turn anew. It can reach the channel border from outside again. In this case, one must close the deal – even if at a loss. One must leave the market immediately, not waiting for a “stop”. The break in trading must make 2-3 waves. Surely, this condition is not obligatory. However, it gives to a trader the opportunity to relax. In addition, a trader can wait for the flat storm extinction (such development of the currency movement is typical exactly of the flat storm).

On the face of it, it looks rather complicated, doesn’t it? To help the reader to grasp this pattern, I have attached the corresponding illustrative examples. For instance, I have taken the chart on August, 2003 at random. Here I must mention that that month was very unfavorable for trading. In fact, one can say it was fatal for the market and trading.

There is the opportunity to draw the channel with the help of the points ##1, 2, 3. At the point #4 the “buy” price makes 1350. “The stop” is 1293.

 

  At this level of the “stop” (1293), the resistance is realized. The damages make 57 points. The downward-directed position is opened, the “stop” being 1350. There appears “the White Dodge” (in the Chart it is marked with a blue dagger). Consequently, the channel is to be corrected according to new points (in the Chart they are marked with blue dots).

  As it is mentioned above, after the reversal, the trend passes through 57 points. At the level 1236, one must “constrict” the profit from above. The distance makes 50 points from the current price. The principal goal is to reach the channel border. However, here the trader has not succeeded in doing this (just “slightly”). The position is closed at the price of 1170. The profit is 123 points. The total balance is +76 points.

  The sell corresponds to the level 1205. The stop is located at 1262. At the same white candle occurs the “stop” with the upward-directed reversal. The damage makes 57 points. The balance is +19 pips. That is after one step onward, one makes two steps back. However, notwithstanding the poor situation, one must keep on smiling.

  Further, the trader must constrict the profit increasing continuously. After 50 points, the “stop” must be installed at the level 1300. Analogously one must work till the last candle. There the next minimum is processed. Thus, it becomes possible to plot a new channel (it is marked with the blue lines in the chart). As the deal is opened upwards, we will not “buy”. So, what will happen after this?

  The price “is oscillating”. However, our “stop” in 50 points touches the candle only at the level 1375 (the point of intersection is ticked off with red). The profit makes 115 points. The balance is +134 points. Rather poorly, isn’t it? However, it is not the end yet! We still have heaps of time to gain profit (or to lose – of course, it’s a joke!). After two white candles, we draw a new channel with making use of red points. One should buy at the blue point at the level 1325.  

 

  The two white candles are like honey to our souls (rather inspiring). However, these candles don’t reach the channel bounds (the black line in the Chart). Consequently, the deal must be closed at the level 1375 (50 points below the maximum). The profit makes 50 points again. The total deposit has grown by 185 points. And this result is achieved just during the weekly trading. Isn’t time for a break and rest? 

  Seemingly, it would be worthwhile to “buy” at the “A” black candle. However, by now we have a new channel at our disposal (the blue one). At the boundary of this channel we buy at the price of 1305. The “stop” is located at the level 1248. The downward-directed candle doesn’t touch our “stop”. The white candle does not reach the “blue” channel upper line. We close the position with the “constricting stop” at the level about 1325. The profit makes 20 points. The sum total on the credit side is equal to +205. At the small candle “B” appears a new channel (the green lines). When this channel is broken through, we sell approximately at the price 1335. Our patience is proved to be rewarded. Now the position is closed with the profit 107 points at the price ~1228. The balance is +312 points. However, here we must buy at the same price because it is the channel boundary!   

As it has turned out, this transaction was worthwhile to be made. This chart indicates that at the next to last candle a new channel comes into existence (black lines). Suddenly we can see that we have reached the channel boundary. We close the position at the level 1328. We now sell at the same price as it is the channel boundary. We have gained a figure (100 points). The balance makes +412 points. Everything went too smoothly. Therefore, it looks somewhat suspiciously. However, there is a very difficult flat before us – so many deposits already were lost because of it!

  Those individuals who are very busy can work with orders.

  For instance, let us examine the price inside the channel from this viewpoint. At the channel upper boundary, we put an order for the position opening during the next 6 hours. It is the order for sell at the price “A”. The stop-loss makes “A”+57points. Simultaneously we install an order for “buy” at the price “A”+57points, while the stop-loss is equal to the price “A”. It is necessary to develop the specular-reflected system at the channel lower boundary.

Unsolved contradictions in the deal opening within T. De Mark’s trading system

T. De Mark himself has pointed out drawbacks, possible mistakes and unsolved problem, inherent in his trading system. He has emphasized that none of the developed techniques can be regarded as perfect. It is quite difficult to predict the price movement in the market. Unforeseeable circumstances of all kinds can arise. T. De Mark states that events can develop according to the three principal scenarios. 

1.  There happens the breaking through the oppositely-directed TD-line. As the result, a new signal becomes generated. It contradicts to the original one. Under these conditions, a new breaking gives warning of the beginning of a new, opposite tendency. Coming it force, it substitutes for the previous one. Most often the tendency in price ceases to exist exactly in this way. The price guideposts, calculated with the help of this tendency, become nullified (abolished) – see Chart 1.30.  

 

Chart 1.30.

  One should pay attention to the following fact. The price guidepost is prescribed by the price projector (rated price level) #1 after the downward-directed breaking through the (A-B) TD-line. However, there is not enough time for it to be realized because the upward-directed breaking through the (C-D) descending TD-line of supply. This is why the price guidepost based on the downward-directed breaking through the (A-B) TD-line of demand becomes invalid.

  Thus, he example given by T. De Mark does not indicate the beginning of a new, oppositely-directed tendency. It just clearly exposes drawbacks of  TD-points and TD-lines, the notions of which are introduced by this author.

Masterforex-V Trading Academy approach to this problem 

  a). There is a flat because the lowest boundary A is not downward-broken.

  b). Any flat can be either a figure of reversal (the double-triple bottom) or a figure of the trend continuation as well.

  2. In the second case of the trend development, the signal for the TD-line breaking through is false from the very beginning. Otherwise, an unexpected event can abruptly disturb the balance between the demand and supply. This causes the price reversal immediately after the breaking. The situation becomes clear the next day after the event – when the first deal price is registered. Here the two variants are possible.

  a). The TD-line in force is descending. At the moment of opening the price can go below this TD-line broken earlier. Further the falling down will be continuing. Otherwise, the price can jump downward at the opening. Thus, a gap in prices becomes formed. To the moment of closing the price will drop below TD-line.

  b). The TD-line in force is ascending. The next day the price of opening/closing can rise above the ascending TD-line again. A gap in prices becomes formed. The prices keep on rising (see Charts 1.31, 1.32). Under these conditions, it is very doubtful that the price breaking is true. A trader is interested in diminishing the risk of losses conditioned by such an unexpected turn of events. For this purpose, one can give a stop-loss order the next day immediately after opening of trading.

Chart 1.31.

The prices have risen above (A-B) TD-line of supply. Notwithstanding this fact, the next day the price at the moment of opening is lower than the price of closing at the day of breaking. Further the price keeps on decreasing. It falls lower than the descending (A-B) line. The price dynamics of this kind nullifies the breaking.

Chart 1.32.

  The next day after the breaking through the (A-B) TD-line of supply, the prices have stopped falling. The next day the price at the moment of opening has turned out to be at the previous level. The price further ascending movement above the (A-B) line has started from that previous level. Thus, the price breakout has turned out to be invalid.

Drawbacks of the trend slanted channel classical theory

1.  Any technique of plotting slanted channel lines is rather subjective. That is, two slanted channels, plotted by two traders at the same chart, for sure will never coincide with one another. T. De Mark was the first to point out to this specificity.

2.  E. Neiman has enumerated a cluster of drawbacks, inherent in the classical theory of trend slanted channels. Such disadvantages are the following.

·  The direction of the trend in force contradicts the trend direction predicted by the analytical methods (especially under the condition of the trend reversal).

·  When a trend is detected, it is difficult to estimate the price of opening issuing just from a single general figure. In the given case, lines of support/resistance are helpful.

·  Trend lines and models, plotted in different time intervals, can also entail contradictive conclusions. For instance, the weekly- and daily trends can indicate themselves as the “bull” and “bear” ones, respectively.

The third group of weaknesses of the classical theory of trend slanted channels is conditioned by the following fact. The 3rd point of the slanted channel makes the 5th wave according to Elliot theory – i.e., it the point of beginning of the market reverse movement.

Jack D. Schwager  has pointed out to the 4th group disadvantages of the trend slanted channel theory.

Surely, trend channels and corridors are helpful. However, often their significance is exaggerated. One can easily overestimate the trend line reliability if such lines are plotted post factum. They often lose the sight of the following circumstance. In the process of development of the “bull”/”bear” trend, trend lines often have need for correction. That is, sometimes the trend line breakout can serve as an early (advanced) warning of the tendency reversal. At the same time, there are equal chances that the breaking can result just in the trend line correction. For instance, Chart 3.11 represents by itself the continuation of Chart 3.4 for the next 2 months. In Chart 3.11, the lowest trend line can be plotted issuing from all the data available. The upper line is the continuation of the trend line from Chart 3.4. The latter is drawn on the basis of price data available before June. The breaking through this line in June has not caused the tendency reversal. This breakout just has made the trend line correction necessary.

 

Chart 3.11. The ascending trend line correction – Silver; June, 1993.

Chart 3.12. The ascending trend line correction – EUR/USD; June, 1991

Chart 3.14. The descending trend line double correction. Continuous futures per French bond index at MATIF exchange (bourse).

  As one can see, Chart 3.14 is the continuation of Chart 3.13 for the next 4 months. In Chart 3.14, the lowest trend lines are copied from Charts 3.6, 3.13. They correspond to the trend lines before May and June, respectively. The breaking through these lines has not caused the tendency reversal. This breakout just has made the trend line correction necessary. This example demonstrates that sometimes the trend line must be subjected to correction several times.

Jack D. Schwager  has made the following conclusion.

  The given example testifies that the trend line breakout rather makes a rule than an exception. It is an undeniable fact that, in the course of their development, trend lines must be inevitably broken through – often more than once. It is the same as to say that trend lines are often subjected to correction during their prolongation. What’s important is that trend lines much better work post factum than in the regime of real time. Often trend line breakings are false signals.

  The 5th group is singled out according to V. Barishpoltz’s technique. The reader must answer the following question. Why the stop-loss has snapped into action at the 57th point - as V. Barishpoltz has described it. After this, you will understand the essence of the problem. This will help you to avoid making the analogous mistakes.

  The 6th group of drawbacks, inherent in the classical theory of trend slanted channels can be formed on the basis the technique of testing, developed by J. O. Katz and D. McCormick. 

   The 7th group of the drawbacks in question is the result of vague, inexact wording concerning the slanted channel breakout.

·  What breakout can be regarded as true – i.e., deals will be opened towards the opposite direction.

·  What breakout can be regarded as false – i.e., short positions must be preliminary closed, whereas long positions will be maintained open.

The reader should look at this chart carefully (this chart was for the first time was submitted in Murphy’s book).

·  Why is the given breakout false, the “bull” trend keeping on continuing?

·  Under what condition the given breakout can turn out to be true?

If a trader cannot answer to these questions, he should not open a real account at Forex. Such trader will inevitably get into the company of those 19 of 20 individuals who are forced to leave Forex for good.

One cannot find answer to these questions in the works by classicists of Forex.

It is so sad to read J. Murphy’s comments concerning the problem of slanted channel level breakout.

Sometimes prices break through the trend line during a day. All the same, at the moment of closing the prices resume their normal course (see Chart 4.9). This is why the analyst beats his brains over the problem “has the breaking really occurred?”. For pity, the unequivocal answer hardly exists. Sometimes the breakout can be neglected – especially if the further movement in the market confirms that the trend initial line is true. Sometimes a compromise is necessary – when, in addition to the trend initial line, the analyst plots the trend new line (the pilot one). In this case, the trader simultaneously has two lines at his disposal. In Chart 4.9, the trend initial- and pilot lines are depicted with the solid and dashed lines, respectively.

The following pattern can develop. The trend line breakout, being relatively small, occurs just within one trading day. At the moment of closing, the prices have leveled off, reaching a mark above the trend line again. As the practice proves, under these conditions the analyst can neglect this breaking. He should keep on using the trend initial line. As in many other areas of the market analysis, one must rely on one’s best advisers - the intuition and experience.

The comments of this kind clearly demonstrate that J. Murphy has admitted his incompetence in the problem of true and false breakout of the slanted channel.

Brief conclusions

1. There exist at least 6 techniques of plotting slanted channels

2.  Points of opening/closing deals can be determined according to each of these techniques. The use of any technique can result either in gaining profit or in suffering losses.

3.  To know when the opening of deals is correct and when it is wrong, one must answer to the following question. What is the difference between the true and false breaking through the slanted channel level?

I would like to emphasize that this important problem is still unsolved by classicists of Forex.

In the next chapter, we will dwell on this vital issue. In its essence, the slanted channel technique, developed by Masterforex-V, can give solution required.

You can discuss the chapter with the Academy members by following the link

Chapter 1. Trend definition in the Masterforex-V Trading System >>
Chapter 2. Levels of resistance and support in Masterforex-V Trading System >>
Chapter 3. Actual and false breakout of the resistance and support level. Rebound from technical level.>>
Chapter 4. Technical levels of Forex by Dow Jones agency. >>
Chapter 5. Pivot point of currency pairs >>
Chapter 6. Slanted Channels, as a tool of the Forex market analysis >>

Read more:

Chapter 8. Slanted channels in the Masterforex-V trading system >>
Chapter 9. Classic figures of technical analysis - Trend Reversal  >>
Chapter 10. Classic figures of technical analysis - Trend Reversal (ending) >> 
Chapter 11. Technical analysis - patterns of continuation of trend - rectangle >> 
Chapter 12. Patterns of continuation of trend - Gaps >>
Chapter 13. Patterns of continuation of trend - flag, pennant and wedge >>
Chapter 14. Models of the Forex technical analysis - triangles >>
Chapter 15. Symmetrical triangle - regularities and traps >>
Chapter 16. Ascendant and descending triangles - secrets of the strong signals for opening the positions >>
Chapter 17. Expanding triangle - unresolved problems of classics of the Forex technical analysis >>
Chapter 18. Trading On News: mistakes and unresolved secrets of classical analysis >>
Chapter 19. Trader's code of good practice by news under the Masterforex-V trading system >>
Chapter 20. Ally pairs: which gauge at forex is the most unbiased (impartial) and precise. >>

Book 1. The secrets of trading art from a professional trader (or what Bill Williams, E. Naiman and others did not tell traders about Forex) >>

Book 3. Points of opening and closing of positions at the Forex market (basic course) >>

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