July Commentary

AlphOmega is working on a points  based Zigzag indicator to alleviate the problem of disproportional price movement between the peak and the trough trigger. The Zigzag is preferably applied as a percentage of the price value at either the peak or the trough thus you can move to different securities and the trigger will always be tuned to the price. The price movement the confirm a wave will be large for a high price and the converse. However it will even be larger from a peak down than a trough up. Using points would make the value of retracement constant between peak or trough but would need to be adjusted to the price range of each security. For example, a 3 points move ($3) would be appropriate for securities above $20 and oversized for securities of $5. The challenge is to match the points value to the price level of a security and have this step computed automatically. If you wonder why it is such a big deal, just think of a security moving in a trading range where the high is barely above the retracement level to confirm a trough, and the low is not enough retracement to confirm a peak. Our previous commentary showed this situation. With points, this problem would be overcome as the retracement is identical for peak or trough. Let's look at an example of points retracement.

                                                                      

Click on the image to enlarge.

The red zigzag is the points version using 0.4 while the green one is the conventional 21%. First, the red zigzag picks correctly the peaks and troughs that the green one missed. On the second to last bar, a trough was picked and although it is by no means final, it tells us that there was enough price movement downwards to confirm the peak at green (1). To get this comparative between the two versions, we had to adjust the points to 0.40. To find the appropriate value of the points, we can apply the percentage of the percent version to the price value of the trough. In time one can see that the point value will need adjustment as the price value of the security moves to a different range of price level. This is the major drawback and it is fortunately off set by the percent version. To summarize, it will be necessary to use both version at times, the points one only in times of trading range and the percent version for trending range. To close this commentary, I give you a fine example of the points version of a trading system.

AlphOmega Inc. will be closed for vacations between July 31st 2004 and August 15th 2004. The technical support will not be available during that period. We thank you for your support!