February 4, 2004
Today I'm going to discuss some different
ideas and concepts that have come to mind. Another day without charts, but I
think this one will be well worth it. And don't worry, I'm not going to go on a
I'm not all that sure it's clear what I am trying to do with the
daily commentary. My emphasis is on education. I'm trying to show
different ideas and techniques that I use which are outlined in detail in my
books and articles. Each commentary has one or several underlying themes. I
don't just show trades because I like to see how they look on my
In fact, I'd prefer not to show any of my trades. I only do so
because I don't feel that I could produce the level of educational value that I
want to without them. My intention is never to show how good of a trader I
think I am. It's to make a specific point or point(s) about a trading
Most of the trades that I show are winners. The reason for that is
not because most or all of my trades are winners. It's because I
don't have much to say about a quick stop out trade. I took a shot, it reversed
right back down, hit my stop, end of trade, on to the next trade. I just don't
know how to use that from an educational standpoint.
Many times I
mention it took me two or three tries to finally catch the move. If I showed
charts that showed the first two stop outs, and I did this on all my
re-entries, would that be a good use of the space? I haven't felt that it would
be, so I simply mention it and leave it at that.
There are cases, such as the recent
example in PDLI, where I mentioned the trade and then shortly after mentioned
that I was stopped out, in this particular case near break-even. I just don't
see what more I can say about a trade like that, and I don't see the point to
showing a lot of examples, with charts, showing entry and stop out.
What I'm trying to make clear here
is that I am not trying to avoid showing the losing trades, and I am not trying
to make it appear as though I have very few of them. If anything, my goal is to
paint how hard trading can be, not how it can make you a million a minute. It's
just an 'anomaly of reporting' that it appears this way on the site. For this
reason I will attempt to show more losing or breakeven trades if I feel that
there is educational value in the example.
Let's move on to the second topic
that I want to cover. I was originally planning to do a free article at some
point on why I feel that my material is new, innovative, and 'advanced', and
completely different than most of the 'cloned' material that is out there. I
have so many responsibilities and so little time that I haven't been able to
get to that.
As it is, I've had to push Kane Trading on: Trade Management
back multiple times. I decided that I would present some of the concepts here
in this column. What I want to do is not only explain why I feel my material is
different, but explain, in detail, some of the ideas that perhaps aren't as
clear to the readers as I thought they were.
It's easy, if the idea is your own,
and clear in your own mind, to write something, read it, and think it explains
the idea well. The real test is if others can understand it. Kane Trading on: Advanced Fibonacci
Trading Concepts was my first book. I wasn't quite 'up to speed' yet
with my writing. Things that I think are totally clear may not be clear at all
for many readers. I'm getting the impression that many people may have missed
the gist of the book.
I think a lot of readers understand the
techniques presented in the basic sense, but not many of the overall, holistic
concepts. To me, those latter concepts are what I have produced that is unique
and valuable. If they haven't been grasped, much of what I am presenting is
lost. Let me go back a little in time and start from there.
When my books
were first released, I got a lot of e-mails asking how my material was
different than this or that author's material. I tried to explain, and did a
lot of long back and forth e-mails with people from all around the world.
Mostly I had a difficult time convincing people that I had anything special. It
really bothered me, because I know what I've developed. I then had a
conversation with my 'better half' (much better half).
simply: "If they don't see your material as advanced and unique, they simply
don't understand it". I spent some time pondering that. It came to me that she
was right, and that the fault was my own. I didn't do a good enough job
explaining the holistic concepts. I didn't 'spell it out' clear enough. I
didn't put enough time on the overall. I explained the techniques, but somehow
didn't do enough with the 'gist' of it.
At about this time I started getting e-mails
from many of those same people. They started to apply the concepts and started
to see the merit in them. Many complimented me in amazingly flattering ways and
said how they couldn't believe I could come up with some of this stuff. These
weren't beginners; these were highly skilled, originally skeptical veteran
That's when I realized that it took them this long to start to see
it. I decided I needed to put out something to clarify the holistic point to my
method, to allow traders to have that in their minds when they read the book
for the first time, or re-read it. Hence, I will present what I hope is a
better explanation here.
My methodology is based on a concept of 'harmonicity' in
the markets. I feel that issues move in harmonic ways, and that I can use that
in my trading. This concept is not new, and is the basis for great trading
sites like Harmonic Trader.
I felt that what helped me in my trading was determining whether an issue was
harmonic, and if so, how harmonic.
Most authors and traders determine
if an issue is harmonic by seeing if it turns at Fibonacci numbers. If an area
is formed with three key numbers and the issue reverses in that area, it is
harmonic. For me, I needed way more than that. The problem was, I was 'out of
numbers'. I couldn't add anything to the area. In my endless experimenting I
began to find many 'harmonically derived' numbers.
numbers were truly harmonic they should overlap with each other in an issue
that is, itself, harmonic. I found that to be the case. Not only that, but I
found that they would form very distinct, very close groupings. The layout
pretty much always had a distinct look to it, too. This was the start of my
methodology. It was the start of something that I have not seen mentioned
I coined the phrase 'layered harmonic support (or resistance)'. I
didn't put that term in any of the books, but I should have. It was one of many
oversights. This term does not mean the same thing as when some authors
put together a loose grouping of three numbers, and another loose grouping with
three numbers below that, and say that if the issue goes through the first area
it will likely continue to the second area.
about one area the size of some other's single area, but the area has three to
five very distinct, very tight groupings within that area. This is a layered
support area, with each layer being very harmonic. Now, what does it matter,
especially if the area turns out to be the same area the next guy formed with
just three numbers? If you are asking that, you missed the entire point of
Kane Trading on: Advanced Fibonacci
As I said, though, that's my fault. That's why I am
trying to provide some detail here, to make up for the lack of a spelled out
explanation in the book. I don't care, per se, that I have these three to five
levels in my area. I care that they exist. What? I am trying to
determine how harmonic the issue is, in a much finer way than just seeing if it
reversed off of three loosely fit numbers in a broad area.
For me, I
need to make decisions on how harmonic I feel the particular issue is.
To do this, I need the large array of Fibonacci numbers that I have
derived. I need to see if they fall in tight groupings or not. That's how I
determine the level of 'harmonicity'. If the lines don't fall together, the
issue is not harmonic and I move on.
It's not enough for me to see it reverse a
few times near a couple of numbers. I need to look deeper to set the odds more
in my favor, in my opinion. As a trader, I have many possible choices on what
to trade. I have to select. What I've done is come up with a way to filter out
things that I don't want to trade. And the filter is based on Fibonaccis and
This is why I go back three, four, five or more years to
look for the very small Fibonacci retracements, as in the FDX example. I was
asked in an e-mail about one of my examples in Kane Trading on: Trading ABCD
Patterns if my reason for showing one or two of these retracements
wasn't really just for making the example an even better 'well-chosen' example.
The very nature of the question shows that what I am trying to present here is
The answer to a question like that is absolutely
not, not even close. The sole point of adding those retracements in is to
see how harmonic the issue is. If none of the numbers I add in fall in my
groupings I feel that something is up, and I only have one thing to say: NEXT!
I no longer know 'what the issue is thinking' and I look for one that I feel I
Keep mind that I feel the Fibonacci numbers provide me an edge in
my trading because they show the harmonic areas. That's the trading
premise. I assume it's the trading premise of all the Fibonacci traders that
are reading this column right now. I feel that I have found a substantially
better way to judge the level of 'harmonicity' than anything presented anywhere
else (just an opinion).
The techniques in Kane Trading on: Advanced Fibonacci
Trading Concepts, and to some extent the techniques in all my books and
articles for that matter, show how to find the potential trade areas. And they
show how to use the many new numbers to build the tight groupings. Perhaps it
wasn't clear just why that was important, beyond the fact that they pointed to
areas where a trade might want to be put in place.
I have never
seen any material from any source discussing the important nature to evaluating
the tightness and level of overlap of the groupings using well over twenty
Fibonacci derived numbers. If you have found such a source (outside of here),
please let me know. It is unlikely such a source exists, since many of these
numbers I have derived myself.
Deriving and quantifying the .886, for
example, was uniquely my creation. Without the .886, I just couldn't do most of
what I do. That's just one of many brand new numbers that I have incorporated,
and that I feel are essential, for me to create the layered support or
resistance and to judge the 'harmonicity' of the issue.
gist of the methods and I've not heard anything remotely close to this anywhere
else. I am still developing new methods and I'm active in several projects
right now. I have found a new Fibonacci number in an area where people are
using non-Fibonacci numbers because they are close. I knew there was a
Fibonacci number there, but I couldn't find it.
I did extensive research and looked
at an endless number of cases, and figured out what the retracements actually
were. I then found that the data formed a very nice distribution curve, with
the mid-point at a certain retracement. I did the same for the reciprocal area,
and came up with a number. It turned out the two numbers were exact reciprocals
I now had numbers that were helping me in my trading, that I knew
were significant, but I didn't know how to derive them. I tried for over three
years to derive the numbers and couldn't. Then one day I was looking at some
charts and an idea just popped into my head, like a vision on a screen. I
quickly picked up my calculator and tried something, something I would never
have thought of in a million years (no, wait, I did think of it,
subconsciously), and it worked. Lo and behold it gave me the exact
numbers right to the hundredth. I still can't believe it.
Now, do you
really think anyone on planet earth knows these two numbers besides me? If you
want them, you're going to have to wait until I release them, and their
derivations, in whatever book or format it is going to be in. Or you can wait
and see it in someone's software a year later, or in a whole slew of new books
by other authors. My point is I'm deriving this material.
It's my ideas
that motivate me to seek these numbers and techniques out. I'm doing it to try
to make my trading better. Now, is my presentation of things like these, with
my thoughts and concepts and derivations, where you want to be, or do you want
to just 'get the number', out of context, without any of the why's behind it,
from some clone site or book? I'll let you decide.
As far as the
release of these latest numbers, I'm not sure when that will be. I'm working it
in with patterns and other things and it's 'in production'. I'll release it
when it's ready. I have other things cooking, too. In the meantime, what I have
out right now should be more than enough to work with. Don't keep looking for
more if there is more than you fully utilize right in front of you.
I hope this explains the holistic
point a lot better for everyone. If it doesn't, then perhaps I'll just give up
trying to explain all this stuff and get back to having my full focus where I
enjoy it most, on my trading. Feel free to send e-mail comments on this
commentary, as I've covered a lot and it would help me to know if I've helped
at all here (but please, no nasty ones!).
We'll get back to charts
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