REQUIRED U.S.

Government Disclaimer
NOTICE: HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY
INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED
BELOW. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES
SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY
SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND
THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY
PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF
HYPOTHETICAL PERFORMANCE IS THEY ARE GENERALLY
PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION,
HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK
AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY
ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL
TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES
OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE
OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN
ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE
NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN
GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC
TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED
FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE
RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT
ACTUAL TRADING RESULTS.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
SUCCESS. DO NOT TRADE WITH MONEY YOU CAN NOT AFFORD
TO LOSE. ALL ASSET CLASSES INCLUDING FUTURES, OPTIONS,
FOREX, ETF'S AND STOCKS HAVE LARGE POTENTIAL REWARDS
BUT ALSO LARGE POTENTIAL RISKS. YOU MUST BE AWARE OF
THE RISKS AND WILLING TO ACCEPT THOSE RISKS IN ORDER TO
INVEST. ALWAYS CONSULT A REGISTERED FINANCIAL ADVISOR
BEFORE TRADING OR INVESTING TO DETERMINE IF THE
INVESTMENT IS APPROPRIATE FOR YOU. THIS WEBSITE IS FOR
INFORMATIONAL PURPOSES ONLY AND IS NOT A SOLICITATION
TO BUY OR SELL ANY ENTITY MENTIONED.
ABSOLUTE PERFORMANCE INDICATORS
Throughout this manual we refer to the Absolute Performance Indicators
as the AP Indicators. Whether you are a neophyte to trading or an
experienced trader, the AP Indicators and trading strategies will provide you
with tools that you can begin to use immediately to improve your technical
trading approach.
Every AP indicator is founded on evidence based technical analysis.
Evidence based technical analysis means that every indicator in this package
must show its medal as part of an empirical test using clear and simple entry
rules and clear and simple exit rules.

Right now you probably have a 100 or so technical indicators on your
technical analysis software. Not one of them comes with instructions that
shows you how to use the indicator, and/or provides any sort of evidence
that the indicator provides any edge that can aid in making profitable
trades. We will show you how each of our indicators works with some
simple entry/ exit strategies. All test rules are fully explained such that users
can program the same tests themselves.
AP INDICATOR FEATURES
Indicators can readily be displayed on a chart and called up just like
any other indicator your software displays.
Indicators can be easily imported to your own trading system or
strategy test as your software allows.
Indicators are displayed free of distracting screen clutter. Price
ultimately is what we are trading, and the indicators were designed to
be able to see price, with minimal competition from anything else on
on the trading screen.
Trading Set Ups are clearly explained and readily recognizable on the
fly as markets are trading. A trader can process only limited
information in the moment and the indicators are designed with that
philosophy.
The following explanations are as focused as possible, such that the info is
readily available when you are learning. We will give one example of each
buy and each sell set up.
SCOUPE
Our first indicator is Scoupe which rhymes with Scoop. The "Scoupe"
Indicator is designed to identify entry points for trades in the primary
direction of the market under study. There are no user inputs or optimizable
parameters in Scoupe and it is applicable to virtually any market on any time
frame.
The Scoupe chart display was designed to be clean, simple, and immediately
visually intuitive. The Buy Set Up occurs when the Scoupe Histogram is
above zero and the Scoupe Line is below zero. The Sell Set Up occurs when
Scoupe Histogram is below zero and Scoupe Line is above zero. These are
Set Ups representing potential trade entries, not immediate entries. We have
several techniques we use for entry as we will discuss next.
SCOUPE DAILY BASED TRADE ENTRY
In our testing on daily charts with Scoupe we used a couple of different
entry methods. Our tests were not designed to be finished trading systems.
They were basic bare bones modeling to try and help answer the question
does the Scoupe Indicator provide an edge?
The most straight forward test was a simultaneous Scoupe Buy Set Up and a
Trend and Retrace Buy Set Up or a simultaneous Scoupe Sell Set Up and a
Trend and Retrace Sell Set Up. When both Set Ups occurred together we did
not require any further entry trigger. The combination was the trigger and
entry was at the market at next open.
We used electronic market hour data to test using the 5 most liquid futures
markets including e-mini SP, Crude, Gold, Soybeans, and Euro Currency.
We used a modest profit objective such that the winning percentage was
above 80%. The only optimizable parameter was the size of the stop, which
was tuned to each market in the back test.
This was a very basic but complete system as it had all the basic components
of a system entry, exit, money management. It is the basis for further
system development, but is perhaps a little too basic to trade as is. But again
the purpose was not to develop a finished system, the purpose was to see if
the Scoupe Set Up has merit.
The second Scoupe test method we employed used the Daily Trend
Breakout. The Daily Trend Breakout is a formula we developed particularly
for daily based entry. This method facilitates buying on a stop entry if and
only if a breakout point is hit to the upside. Conversely it sells on a sell stop
if and only if a breakout point is hit to the downside.
The test we ran was a simple test. After a Scoupe Set Up a market was
bought or sold on a breakout that was calculated off the next day open price.
We used electronic market data where applicable, which includes overnight
trading.
The entry formulas in English stated:
Buy:
If Scoupe Histogram greater then zero and Scoupe Indicator Line less then
zero then buy at the next day open plus (Daily Trend Breakout * optimized
multiplier) on a stop.
Sell:
If Scoupe Histogram less then zero and Scoupe Indicator Line greater then
zero then buy at the next day open plus (Daily Trend Breakout * optimized
multiplier) on a stop.

The optimized multiplier was an amount that was multiplied times the
Daily Breakout Amount. This gave an optimized threshold for the entry
breakout point in the back test. This was the only optimized parameter in the
test.
This test always held through the day of entry. Thereafter it checked every
day open to see if it was profitable in relation to the entry price. If profitable
then exit at the market. Other then that the only exit in this test was a signal
in the other direction.
This was not a complete system test that could be traded as is. It had no
money management. It was not meant to test so much for profitability as
probability. It was meant to help answer the question as to whether the basic
Scoupe Set Up had merit most of the time. With those caveats, below are
results.
MARKET # TRADES #WINS #LOSSES % WINS $/TRADE
USD FOREX/CURRENCY
EUR
JPY
CHF
AUS
CAD
COMMODITIES
Corn
Soybeans
Wheat
Crude Oil
Heating Oil
Natural Gas
Cocoa
Cotton
Coffee
Sugar
10 Year Notes
Ger. Bund
Gold
Silver
HG Copper
STOCK INDEX FUTURES
E-mini SP
Ger. Dax
FTSE
STOCKS/ ETF's
SPY ETF Daily
SPY ETF Weekly
Goldman Sachs Daily
Goldman Sachs Weekly
Apple Daily
Apple Weekly
Google Daily
Google Weekly
Amazon Daily
Amazon Weekly
118
189
240
89
177
188
103
121
251
230
263
197
121
161
76
172
156
128
181
278
259
182
250
387
45
318
25
94
47
137
13
320
50
110
165
222
87
167
177
99
115
223
208
239
180
109
148
75
160
145
121
165
252
237
165
226
345
43
284
24
85
43
125
13
277
46
8
24
18
2
10
11
4
6
28
22
24
17
12
13
1
12
11
7
16
26
22
17
24
42
2
34
1
9
4
12
0
43
4
92.4%
87.3%
92.5%
97.8%
94.4%
94.1%
96.1%
95.0%
88.8%
90.4%
90.9%
91.4%
90.8%
91.9%
98.7%
93.0%
92.9%
94.5%
91.2%
90.6%
91.5%
90.7%
90.4%
89.1%
95.6%
89.3%
96.0%
90.4%
91.5%
91.3%
100%
86.6%
92.0%
$272
$215
$258
$228
$229
$121
$366
$200
$535
$553
$720
$158
$206
$265
$184
$126
$119
$343
$525
$260
$208
$414
$220
$187
$1684
$564
$1771
$675
$2448
$1425
$14,098
$308
$552
The table above is based on one contract per futures market and one thousand shares for stocks
and ETF's. Test period 2000 through February 2013 for futures and Forex and since inception
and/ or liquidity considerations for stocks and ETF's.
A SIMPLE SCOUPE ES SYSTEM
This is a simple system that tests consistently well every year in the ES v(e-
mini SP) using daily bars.
Buy Signal
If Scoupe Histogram > 0 and Scoupe Line < 0 then buy at (highest high of
last 2 days) or at the (close + (Daily Range Breakout Amount * 2.5)) on a
stop entry. Whichever level is lower will be elected first on the entry stop.
Exit Long
Entry Price + (Entry Price lowest low in the trade) * 1.5
Exit Long
Lowest low since up to the day before entry.
Exit Long
If occurrence of close > entry price and yesterday close > entry price and
close > yesterday close has happened since trade entry then stop loss at
lowest low since entry.
Exit Long
Stop Loss $500
Exit Long
Profit Target $1200.
Short Signal
If Scoupe Histogram < 0 and Scoupe Line > 0 then sell at (lowest low of last
2 days) or at the (close - (Daily Range Breakout Amount * 2.5)) on a stop
entry. Whichever level is higher will be elected first on the entry stop.
Exit Short
Entry Price (Highest high in the trade entry price) * 1.5
Exit Short
Highest High since up to the day before entry.
Exit Short
If occurrence of close < entry price and yesterday close < entry price and
close < yesterday close has happened since trade entry then stop loss at
lowest low since entry.
Exit Short
Stop Loss $500
Exit Short
Profit Target $1200.
211 trades
Average Trade $255
Win 55%
Total P/L since 2000 $53,000
Drawdown: $4175
Profit Factor 2.23
You can really jump the stats, but fewer trades if you require either the day
before entry to be lower then yesterday or lower then the day before for buys
and be higher then yesterday or higher then the day before for shorts.
With the above simple addition:
100 trades
Average Trade: $430
Win: 64%
Total P/L since 2000: $43,000
Drawdown: $2000
Profit Factor: 3.63
REQUIRED U.S. Government Disclaimer
NOTICE: HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE
DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE
PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES
BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY
PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE IS THEY ARE
GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT
INVOLVE FINANCIAL RISK AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE
IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO
ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH
CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO
THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH
CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND
ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE SUCCESS. DO NOT TRADE WITH MONEY YOU CAN NOT
AFFORD TO LOSE. ALL ASSET CLASSES INCLUDING FUTURES, OPTIONS, FOREX, ETF'S AND STOCKS HAVE LARGE
POTENTIAL REWARDS BUT ALSO LARGE POTENTIAL RISKS. YOU MUST BE AWARE OF THE RISKS AND WILLING
TO ACCEPT THOSE RISKS IN ORDER TO INVEST. ALWAYS CONSULT A REGISTERED FINANCIAL ADVISOR BEFORE
TRADING OR INVESTING TO DETERMINE IF THE INVESTMENT IS APPROPRIATE FOR YOU. THIS WEBSITE IS FOR
INFORMATIONAL PURPOSES ONLY AND IS NOT A SOLICITATION TO BUY OR SELL ANY ENTITY MENTIONED.
SCOUPE INTRADAY
Scoupe Intraday we have had success trading based on Range Bars though
these same principles can be applied to time based bars.
A Range Bar is the same number of ticks in size then a new bar starts. Hence
a chart based on 10 Range Bars means all bars in the charts are 10 ticks from
high to low.
We often use 40 Range and 10 Range bars. These can be adjusted for the
relative volatility of the market you are trading. For example the ES may
require slightly smaller range bars perhaps 32 and 8. But this can change
a bit as volatility changes.
There are no magic numbers but getting down to less then 5 on the
smallest range bar and you get closer and closer to market noise.
In our example the 40 Range determines the direction we want to trade. We
want to trade in the direction of a Scoupe Set Up on the 40 Range.
At this point we also might be aware of the Pivot Trading Channels so we
are not trying short into long term support or buy into long term resistance.
You need a big picture chart somewhere on your trading screen at all
times. Trading in sympathy with the longer term chart and never against the
longer term chart is one of the keys to success!
Remember that the market is 90% losers so you want to avoid what
everyone else is doing. And as you probably already know most of that 90%
is fixated on very short term charts.
We construct the trading screen such that it has at least 2 time frames of
Scoupe displayed simultaneously in different windows.
-150
07112/201~ 07/1112013 0710312013 0710512013 0711012013
1.3000
1.2950
1.2900
1.2850
1.2800
1.3250
1.3200
1.3150
Fri 04126/1316:59:56(66E201306)0=1.3040 H=1.3047L=1.3011C=1.3033
: 711211316:59=1.3068(-0.0033)
... G6E067: 0212512013*0711212013 (40 tick breakout bars) Euro FX (Elee) CA<@J lEJ ~ ~@~
The above chart is the basic Scoupe Set Up. A Set Up by itself is not an
entry. The entry may occur at any time in the highlighted box and sometimes
not at all.
INTRADAY SET UP
A Scoupe Set Up is not the same as an entry. We do not catch falling knives
or stand in front of rockets!
So after we recognize the basic set up, we need to go to step 2, which now
means going down to the shorter term chart. We are looking to the short
term chart to confirm what the long term chart is telling us about the
potential direction.
Essentially the shorter term or 10 Range Bar chart time frame is used as a
confirmation or permission to enter a trade in sympathy with the longer
term or 40 Range Bar time frame.
The major way we look for confirmation or permission to attempt an entry
on the lower time frame is to see the 10 Range Bar momentum start to turn.
The sign that momentum is turning is shown by rising Scoupe lows for longs
and falling Scoupe highs for shorts..
After we see the Histogram and Scoupe Line turn then we are looking for a
10 Range bar closing at the high, then enter.
Even after the momentum turn, the price bar itself showing evidence is
needed to enter the trade. These bars would be referred to a pin bars or
engulfing candles or piercing candles.
When we go down to that lower time frame it is not going to look like the
higher time frame. The higher time frame has that intuitive set up that says
buy set up or sell set up by the contrast of each on either side of the zero
line.
On the short term or 10 Range Bar both the histogram and the line are going
to be on the same side of the zero line.
The best entry permission is when the histogram has rising troughs for longs
and falling peaks for shorts. The charts below show it much clearer then we
can say it.
150
07/12/201~ 07/11/2013 06/27/201307/02/2013 07105/201307/10/2013
75
1.2900
1.2850
1.2800
. .,'
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
, " ' ,
, ,
, ,
, ,
" , ~ .1 .. J -' .1 .I.
I ,. ,
, ,
~- - - ..- - - .. - - - - - . . - - - .. - - - - - .. - - - - ..- - - - - . . - - -
" ,
, ,
, ,
, ,
, ,
1.3250
1.3200
Men02125/13 02:2t:27 (66E- 201303) 0=1. 3209 H=I. 3237 L=I. 3197 C=I. 3237
7/12/13 16: 59=1. 3068 (- IJ . 0033);
. . . . G6E- 067: 0212512013" - 0711212013 (40 tick breakout bars) Euro FX (Elee) CA~0~ ~@)~
STEP 1
Identify on the 40 Range Bar chart a potential Scoupe Buy Set Up as shown
in the chart below.
-150
02:50 03:33 04:02 05:34 07:59 08:36 09:33 1022 1039 _
1.3100
Wed 05122/1316:59:57 (66201306) 0=1.2866 H=1.2868 L=1.2858 C=1.2866 Duffy Trading Band Lower=
7/1111311 :24=1.3051 (+;0.0165)
.;.. G6E067: 02/24/20130711212013 (10 tick breakout bars) EuroFX (Elee)cA<ffl013 b]@)@
STEP 2
Go down to the 10 Range Bar chart and look for rising momentum in the
Scoupe Oscillator.
The blue shaded box is the exact same area outlined on the 40 Range Bar
chart.
Points A and B clearly show rising momentum. This is the trade permission.
Against that backdrop buy the first 10 Range Bar that closes at the high.
08:25 08:51 09:47 10:26 1058 11:52 1400 15:06 15:51
1.3060
Tue04123/1316:18:14(66E-201306)O~1.3008 H~1.3016 L~1.3006 C~1.3016 DuffyTradingBandLower~
:7 /11/1321 :08=1.30931"".lI~'
J . G6E-067: 02124/2013" - 0711212013 (10 tick breakout bars) EUfOFX (Hee) (A~013 l]@)
The next best permission after rising lows in the histogram is rising lows in
the Scoupe line.
After the rising momentum at Point B and Point C in the Scoupe Line the
entry is the first 10 Bar strong close.
., ..,
1.2950
... G6[067: 0212512013*-07112/2013 (40tiek breakout bars) [uro FX(E1ee)CA~13 ~@)@
Next we'll look at the Sell Set Up that was highlighted in the Set Up example
Remember even though this short Set Up above does not look great on this
chart, at the right edge of the chart as it is happening no one knows how it
will turn out.
So we will proceed through with our rules to look for a sell short signal to
see how it would have played out.
1.2860
1.2880
... G6E-067: 02124/201307/1212013 (10 tick breakout bars) Euro FX (Elee) cA@lEJ lZl ~@]
First of all the rally yielded no falling momentum in the histogram until the
40 period set up had passed without any permission to enter on the 10 Bar.
The chart blow illustrates this.
Even if one decided to stretch the parameters and trade on the falling
histogram when it did show up at Point B, the trade would have been a
scratch or a small winner. We'll discuss our Trade Plan Exits in just a minute
that explain why.
12920
1.2900
1.2880
1.2860
1.2840
.... G6[067: 02/24120130711212013 (10 tick breakout bars) [uro FX ([lec) CA~~13 [';J @)
The more aggressive trade would have been to sell lower momentum at Point
C or Point D based on the falling Scoupe Line highs. Point C would have
yielded a good return according to our exit rules. Point D a small gain.
To recap always, always start the trade off on the longer term chart. If you
start to trade off the shorter term chart you will get beat around by the bigger
trends. Be the 10%, not the 90%!
Only go to the short term chart when you know what direction and exactly
what set up you are looking for. This will allow for calm, patience, and
discipline. You have a plan and are not ruled by the noise of lower time
frames.
TRADE PLAN EXITS
If we are entering intraday trades based off the 10 Range Bar we would use
an 11 tick stop. If our shortest Range Bar was 8 then we would use a 9 tick
stop etc.
We usually work in terms of 3 lot trades.
We set up the DOM such that upon any fill on the entry the 11 tick stop is
entered automatically.
We always set profit targets to exit. If the market is active we will use profit
targets at +11, +17, and +21 ticks from out entry price.
When the market hits the first target at +11 we then move our stop loss to -5
on the other 2 contracts or trail the stop at -15. We do not move the stop loss
to the entry point. When the +17 target is hit we use a trailing stop of -15
from the best price in the trade looking for +21 target on the last contract.
If the market is less active we will set targets at +6, +11 and +17 ticks from
entry price.
When the +6 target is hit move the stop loss to -5 on the other 2 contracts.
When the +11 target is hit we use a trailing stop of -14 from the best price in
the trade looking for +17 on the last contract.
The principle oft HOW to move the stop ---- and NOT to move the stop to
breakeven too quickly and knock the legs out from under your edge ----. are
principles that we have tested empirically across many different trading
systems and methods, not just with Scoupe.
In this sense the principles are important, the exact numbers are not. So
please feel free to change the 6-11-17-21 to whatever. But here are the
principles we adhere to:
Initial profit targets can between .5 and 1 of initial risk. You will need to be
right at least 3 of 4 in achieving first target at .5 to 1. Your edge should
provide that.
After first target do not move your stop loss to breakeven.
After first target do cut your stop loss amount by 50%.
By cutting your stop loss in half you now raise the risk/reward on your
remaining trades to better then 2:1 and better then 3:1.
Time in the trade is important to the edge. Remember that the longer the
time that has passed since the entry edge, the more likely the effect is to
dissipate. Act accordingly.
Price distance traveled is also important to the edge. The further price travels
from the entry price the less effect your initial edge continues to have.

PLEASE STOP HERE.
If you can manage the entries above with success you can read on. But what
follows is harder to do and not as reliable in intraday trading!
More Aggressive Scoupe Entries TREND
The trend occurs after the initial set up starts to move in the forecast
direction on the longer term or 40 Range Bar chart.
In these cases using just the Scoupe Set Up with the entry bar trigger is the
more aggressive entry.
A rabbit ears or double bottom or double top in the Scoupe Oscillator Line
can sometimes appear in these situations and when it does it adds to the
probability of the trade.
The the strong entry bar trigger is still required to enter the trade.
This is not as high a probability trade as the first set up we discussed. But in
sustained trends it is an absolute killer entry technique.
In the following chart we see a 10 Range Bar with no filters other then just
wait for the set up and then an entry trigger. In trends it works fantastic. But
when trends die and pullbacks rollover like at Point A
Points B and C did provide good entries with the trend.
07/09/2013 1500 1018
. - - - . ; _ . i - . . - - . . - - . . - . . . ; . . . - - . . - - . . - - . . - f - - - . - _ .- - _ .- - - + - _ .- I - _ . . - - . - - - - i--+ - _ .- - - - - - - - - - - _ . -75
1. 2820
1. 2830
1. 2840
*~- - - ~- - - '- - - - - - - - - - - - - - - - ~- - - - - - - - - - - - - - - _I. - - - - - - - - - - - - _, - _
i , , , l
, , ,
Mon07108/1307:33:09(66E201309) 0=1.2853 H=1.2855l=1.2845 C=1.2845DuffyTrading8andlower=
, , 7/~/1J, 04:27 =1,. 2~89 (+ 0. 0011)
, , i I ~ :
... G6[067: 02/24/2013" - 07112/2013 (10tickbreakoutbars) [uroFX(lee)CAl~13 [)@)~
In these circumstances also have a look at using the Scoupe set ups with
Down-A-Level divergence and pay attention to the information the Pivot
Channels are giving you. This is getting further away from combinations we
can test empirically and as such it is not as much our preference.
The rabbit ears or any type of double top or bottom in the Scoupe
oscillator is more reliable. Example in the chart above.
TREND AND RETRACE
As the name implies this indicator provides evidence based analysis to the
trader on two fronts; the strength of a trend and the identification of
retracement levels within that trend.
Through many, many historical tests we found that in most markets and
under most conditions entering on a signal after pullback in the direction of
the main trend is a superior strategy to entering on signals that do not follow
pullbacks.
Given this evidence we needed an indicator to help identify high probability
trade zones after a retracement in the trend.
Our research eventually led to another very important discovery; the strength
of the trend is directly related to the probabilities of successfully entering
during a retracement to the trend. The Trend and Retrace indicator therefore
first measures trend strength and second identifies the area of a potential
retracement.
There are zero user optimizable parameters in the Trend and Retrace
indicator. However in a system test, or using highlight bars, a strength of
trend measure is optimizable by the user if desired. This does not change the
indicator, as it is not an input into the indicator, rather it is a threshold
measure of how much strength does the indicator show.
For Trend and Retrace we set up another very basic entry and exit. Our test
is:
Buy Signal
If Trend and Retrace < -100 trend and strength of trend > 4 buy at the
market next day.
Sell Signal
If Trend and Retrace > 100 and strength of trend > 4 then sell at the market
next day.

You could optimize the threshold for different markets. For example instead
of strength of trend being set at 4, one could use an optimizable parameter
for this value. We set the default at 4 as that works for most markets on a
daily time frame.
The higher one sets the strength of trend parameter to higher more
demanding levels, the fewer trades one will get. This is logical as markets
are exceptionally strong or weak a smaller percentage of the time. We have
found that in general the higher the strength of trend requirement the fewer
trades, but the more high quality trades produced. Additionally some
markets in general will work better with a higher strength of trend
requirement then others.
We ran the test with no exits on the day of entry and thereafter exit any day
the market opened in a profitable position relative to the entry price. A
simple dollar stop loss amount was used as well.
The results below show the e-mini SP across various strength of trend
(SOT) parameters to illustrate the points made above.
Strategy Optimization Report ES
SOT Win% #Trds P/L P/F Avg Drawdown
-1 88.6% 175 $40,363 2.11 $231 ($3,600)
0 91.5% 130 $42,538 3.11 $327 ($3,600)
1 93.1% 102 $36,300 3.79 $356 ($3,450)
1 93.8% 80 $30,063 4.20 $376 ($3,450)
2 93.8% 64 $25,800 4.39 $403 ($3,450)
3 92.7% 55 $20,513 3.70 $373 ($3,450)
4 94.6% 37 $17,313 5.81 $468 ($1,800)
5 93.5% 31 $15,563 5.32 $502 ($1,800)
6 100.0% 21 $15,263 999 $727 $0
7 100.0% 17 $10,238 999 $602 $0
8 100.0% 14 $8,163 999 $583 $0
9 100.0% 11 $6,963 999 $633 $0
10 100.0% 10 $6,888 999 $689 $0
The general tendencies exhibited here hold true over pretty much every
market we have tested. This concept of buying dips after strength, or selling
rallies after weakness using the Trend & Retrace Indicator holds across all
markets we have tested including futures, forex, and stocks. Of course some
markets work better then others, but as a concept it is exceptionally robust
--- the latter meaning that across non correlated markets and different time
frames the concept still produces positive expectancies in historical testing.

Simple System for the 6E (Euro Currency) using Trend and Retrace
Based on Daily Bars
Buy Signal #1
If Trend Retrace < -100 and Strength of Trend > 4 buy at market
Buy Signal #2
If Trend Retrace <-50 and Strength of Trend > 7 buy at the S1 pivot point.
Exit Long
If occurrence of close > entry price and yesterday close > entry price and
close > yesterday close has happened since trade entry then stop loss at 50%
of original = (entry price - $1100 stop loss)
Exit Long
Entry price + ((Entry Price Lowest Low since day before Entry) * 1.5)
Exit Long
Entry Price + $50 but not on day of entry.
Exit Long
Entry Price +600 limit
Exit Long
Entry Price - $2200 stop.
Sell Signal #1
If Trend Retrace > 100 and Strength of Trend > 4 sell at market
Sell Signal #2
If Trend Retrace > 50 and Strength of Trend > 7 sell at the R1 pivot point.
Exit Short
If occurrence of close < entry price and yesterday close < entry price and
close < yesterday close has happened since trade entry then stop loss at 50%
of original = (entry price + $1100 stop loss)
Exit Short
Entry price ((Highest Low since day before Entry Entry Price ) * 1.5)
Exit Short
Entry Price - $50 but not on day of entry.
Exit Long
Entry Price - $600 limit
Exit Long
Entry Price + $2200 stop.
195 trades
Average Trade: $272
Win: 93.8%
Total P/L since 2000 $53,125
Drawdown: $2500
Profit Factor 3.00
DAILY TREND BREAKOUT
Some of the empirical tests we use particularly on daily data employ an
entry trigger commonly called Daily Trend Breakout. If you are not using
daily data, and not interested in running your own historical test trading
simulations, you can skip this section.
Those who have been around markets for a while may have heard of the
volatility breakout concept. It is nothing more then following an increase in
volatility in the direction of the volatility.
The thing about it though, is volatility breakout works. It works across a
wide variety of markets. It works across different decades. Markets cant
really move without it occurring. It is one of those concepts the market has a
hard time outsmarting! So we use it.
The theory of Volatility Breakout is that there is a threshold level above the
market that if breached triggers a buy entry. If and only if that price
threshold is reached or exceeded then one buys. Similarly there is a sell
threshold below the market. If and only if that sell threshold is reached or
penetrated then one sells short.
The major advantage of using volatility breakout on daily data is that it
allows intraday entry. If the trader had to wait until the close of the daily bar
to enter a trade, that would often prove to be a significant obstacle to
profitable trading. Volatility breakouts use stop order entries such that no
intraday monitoring is required. If the entry threshold is reached the resting
stop order becomes a market order.
Most volatility breakout uses average true range or simply a measure of
the average days trading range over recent history. Any test that we have run
that uses average true range as an entry breakout, can be in virtually all cases
improved using the Daily Trend Breakout.
In our tests we use a percentage of the Daily Trend Breakout formula and
that percentage is an optimzable parameter. For example in plain English a
buy signal would be coded as
Buy at the next day open price
+ (the Daily Trend Breakout Value * opt1) stop entry.
In this simple code above opt1 is the optimizable variable.
DOWN-A-LEVEL INDICATOR
The "Down-A-Level Indicator" was designed to be used as an adjunct to
"Scoupe" but it is optional. Intraday traders should keep things as simple as
possible. We use it our SP Trading System to good advantage. As the name
implies this indicator gets down "inside" the recent bars to give additional
information.
There are several ways we use the "Down-A-Level" Indicator to aid in entry
triggers after a "Scoupe" and/ or a "Trend & Retrace" entry set up. All are
simple, visually intuitive, and can be recognized easily and quickly on a
chart.
SIMPLE DIVERGENCE
Most traders are familiar with the concept of divergence. It simply means
that either a new high in price is not accompanied by a new high in the
indicator, or a new low in price is not accompanied by a new low in the
indicator.
03/01/11 01/18/11
-75
o
1.3800
1.3600
1.3400
1.3200
1.3000 - - <g >- , -
... G6E- 067: 0110312006 - 0711 212013 (Oaily bars) Euro FX (Elec] CAdj Uq -- Te[!, ]~J. ~@)
Of course divergence can and often does signal far too early in a strongly
trending market. Other times divergence can nail turns precisely. So how
does the trader differentiate when divergence will turn out to be valid?
Of course traders can never know anything for sure. However when using
Down-A-Level exclusively with a Scoupe Set Up, one narrows down the
market situations to those that we found provided an edge in historical
testing.
The charts below show the examples of divergence entry signals with the
Scoupe Set Ups and Down-A-Level Indicator on both the buy side and the
sell side.
I ;J\tAL~6 j\~~'~
J; ~: ~'T ; 0
06/05/12 06/19/12 07il 07/12120121/17/12 07/31/12 08/14/12 ...
Tn" 07/1212012(66E-2012091:0=1.2290 H=1.2298l=1.2215 C=1.2254Dully T.adingBandlowe.=1.2229
08/27/2012 =1.2541{..Q.0015} 2 00
- ~ 1. 8
.... G6E-067: 0110312006 -07/1212013 (Daily bars) EuroFX (Elee) CAdj Liq-- Te{E[f>J~. ~@)
FIVE WAVES
A 5 wave pattern on the Down-A-Level Oscillator consists of 3 waves in one
direction with 2 intermittent waves dividing such that a 5 wave structure
completes. This is a much better visual and will be readily seen in the chart
example below.
For an up 5 wave to complete the following guidelines are employed:
1. Start the count from most recent swing low in the Down-A-Level
Oscillator, which may or may not be also a swing low in price.
2. The Oscillator swing low start point should be below the 20 level.
3. Each of the 3 drives up has a higher high.
4. Each of the two drives lower has a higher low.
5. The 5
th
and last wave completes above the 80 level.
For a down 5 wave complete the following guidelines are employed:
1. Start the count from most recent swing high in the Down-A-Level
Oscillator, which may or may not be also a swing high in price.
2. The Oscillator swing high start point should be above the 80 level.
3. Each of the 3 drives down has a lower low.
4. Each of the two drives higher has a lower high.
5. The 5
th
and last wave completes below the 20 level.
PIVOT TRADING CHANNELS
The empirical testing on the channels though was focused on the times when
price closed outside the channels and what that was likely to mean for price
action in the near future. In practice it is our experience that the channels can
also be used effectively as support and resistance.
HOW TO USE PIVOT TRADING CHANNELS
We offer the channels as an adjunct to the indicators to aid in identifying
support, resistance, as well as early identification of new trends.
Closing outside of the trading channels on consecutive closes does not occur
very often and hence when it does there is information being given by the
market:
1. Two or more consecutive closes outside of the channel means the
emerging trend is strong enough that it should not be faded or played for a
reversal.
2. Two or more consecutive closes outside of the channel means that traders
should look to the first pullback to enter in the direction of the trend.
12200
12400
12600
f l r l l ~
~ I'I~ 1
F ri 07l 0612011I G 6[ 2012091: 0=1.1447 H =1.1453 l =1.1310 C =1.1337 <C ul l om H i gh6ghI B .,,) D uf f y T radi ng B and l ow er= 1.1345 D uf f y T radi ng B and U pper= 1.1811 T O oI M =5 T O ol Y =134
1 0 / 2 3 / 2 0 1 2 = 1.3020 (0.0057) 1.3400
.j. G 6[ 061: 0 1 1 0 3 1 2 0 0 6 ' 0 1 1 1 2 1 2 0 1 3 I D ai l y b ars) [ uro F X I E l ee) C A dj l i q .. T empl ate: T ri mae ~ m l 3~@]~
The strength of the trend as defined by the markets ability to close outside
the channel for consecutive or a series of closes shows a clear probability
that the first retrace can be traded. It is not an overwhelming majority, a little
over 60% depending on the definitions used.
CONCLUSION
The number of trades you make is usually inversely proportional to your
success.
Start with the bigger picture.
Know what you are looking for and know the only direction you will trade
when you go down to look at the shorter term charts.
Wait for the trigger.
Follow the exits in the Trade Plan.
If you have any questions about anything please contact me.
KeyPoint@sympatico.ca
Thank you.
Joe Duffy
REQUIRED U.S. Government Disclaimer
NOTICE: HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY
INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED
BELOW. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES
SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY
SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND
THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY
PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF
HYPOTHETICAL PERFORMANCE IS THEY ARE GENERALLY
PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION,
HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK
AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY
ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL
TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES
OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE
OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN
ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE
NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN
GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC
TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED
FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE
RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT
ACTUAL TRADING RESULTS.
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