AIM UK

[lionhead0]

Hi Clive,

Thanks for your chart of the FTSE; I'm still looking for the right index symbol for my charting program for that index as I'm thinking more and more into utilizing int'l markets as I believe they will recover quicker than the U.S. when all the deleveraging is finished. I'll look for the U.S. equivalent ETF as a proxy.

I have no problem sharing the calculator/spreadsheet once developed. You've shared your's here and the ladder method and that was my inspiration for the tweak. The chart you've posted is indeed too "busy" and that's why I suggested having ladder rungs at major expansion/retracement levels otherwise too much trading costs begin to reduce returns.

As to the time spent, it takes me very little time to draw up the projections on a chart. Roughly about 5 minutes/tradeable. This is after lots of experience in doing it and having a very good grasp on the ratios that might come up as major levels. That said, anyone can learn it and when mastered it will be a short process.

I'm glad you added the ATR as it's nice to see the volatility in price ranges over the time span you've posted. Bespoke did a great chart on 10 week price change for the S&P 500 from 1929 to the present:

http://bespokeinvest.typepad.com/bespoke/2008/11/50-day-average-daily-sp-500-change-at-326.html

It really hi-lites the severity of our current economic malaise. I think most folks haven't grasped the scope of the problems. BTW, always use arithmetic scaling when making projection charts. That's a must...

"I opine that stocks price moves are to a large extent random, but equally are bounded with certain limits of mass greed/mass fear. Structuring your Ladder boundaries to historic levels of fear/greed, perhaps as depicted by dividend yield (or some other time independent measure) will help ensure that your ladder remains active across time, rather than encountering periods of prices being outside of the ladders range."

Yes, intraday and daily prices changes are for the most part random driven by news events, earnings reports, etc, but over a longer time frame the trend of the market reveals the collective mind either up, flat, or down until the concensus view changes. That's why in looking at charts, their are patterns that might complete or might not. What's driving the market is order flow from larger groups that either put on or take off positions and their doing so may have no correlation with anything technical or fundamental. It's just the normal random nature of the market in short time periods from the order flow.

The ladder as I envision it, will reflect the historical ranges, but with "bumpers" at the extremes to allow for worst/best case black swan events. Since we know markets overshoot both ways, that has to be built into the modeling. Fortunately, those overshoots also have a math component to them and can be built in to the ladder.

Since the ladder and the expansion/retracement levels are likely targets, not predictors, with the ranges built on natural ratios, they will not change unless human behaviours change and if that happens, then it can be rescaled to the new parameters. One's personally preference then is to fine tune to those natural levels or just divide the rungs by percentage or fixed steps. I just prefer the former and you may prefer the latter. ;)

Best regards, Tim