Andy,
“A way of seeing is also a way of not seeing.”
Quill’s 'Simple Simon Says" methods will keep an investor (or trader) out of trouble when the investing/trading situation is simple. But his methods aren’t intended to deal all with the subtilties that happen in the tape. What’s needed is ‘Candle Pattern Analysis’.
Here’s a far better chart that shows exactly what was going on.
So, what’s going on?
On the 24th, a ‘starting gate’ was established. That we all can agree on. So far, so good. Now the ‘Wait One’ rule kicks in. The next day confirms --in multiple ways-- that the previous day had reversed the trend. Again, so far, so good. We’d now be ready to buy the next day at market open, and a good-enough entry price would be something around 16.50. But prices gapped at the open. Therefore, a smart trader backs away.
The day ended down at a price that would have made a good-enough entry. But that isn’t what happened. I don’t follow BITO, though I trade it occasionally. But I’d guess that there was some news that spiked prices, and something in the (other) currency markets happened that them that trade BITO were cuing off of. That surmise is all but confirmed by the next day’s price action which seeks to re-establish the previous day’s high, but --significantly-- fails to do so.
Now what are you looking at? A two-day, bearish Haramai pattern, right? that the following day confirms. That’s the drop-dead obvious ‘SELL’ signal.
In short, you need to understand what Quill’s methods can and can’t do and to not apply them where it is not appropriate to do so.
Again, look at the chart and then look “underneath” it and try to understand the tug of war happening between buyers and sellers. That’s what’s going to make or lose you money. That understanding is immediate and actionable. The other stuff in the chart – the indicators, the moving averages, etc.-- . are just eye candy that summarizes what a bare tape is already saying. Worse, they always lag price action. That’s fine when prices are moving glacially. But that’s not the situation in the currency markets, which can turn on a whisper of news or rumor.
In sum, match the trading method to the tradable and both to the skills and goals of the trader. Quill’s easy, simple methods will make plenty of money when they are used properly. But they aren’t going to work every time, in every market, and that’s not their purpose or virtue.
So, where does one go to learn how to “read the tape”? Justin Mamis’ books are a good place to start. And throw in Greg Morris’ intro to CPA (any edition, though the earlier ones are hard to find.) And Ed Lefevre’s bio of Jesse Livermore would be helpful. Linda Raschke is good on tape reading, as well as dozens of others who actually trade for their living and who write about how they do what they do.
One last summarizing thought. If you want make money trading, you’ve gotta realize that your counter-party is smarter, faster, meaner, and better capitalized. In a slug-fest with them, you’re going to lose. Therefore, you’ve got to be skating to where they are going to be skating to and to trade from their side of the market. That means trying to think how they think, which is always a couple moves ahead of where the chart is right now, much less where it was yesterday or the week before. That doesn’t mean you’ve gotta move to intraday charts. But it does mean you have to build charts that will do for you what you need them to do for you. I want my charts to keep me out of trouble. That’s why I read the tape, rather than follow what amounts to a recipe for buying and selling. (If it really were that easy, then no one could make money in markets, because all the moves would be as obvious as Tic-Tac-Toe, which always ends in a stalemate.)
Later. OK. Now that I’ve got my daily bike ride in, let me follow up on that ‘recipe’ idea. If a person just wants a batch of traditional oatmeal cookies, then following the recipe on the oatmeal box is a sound, fool-proof idea. Same-same with following Quill’s ‘Simon Says’ methods. If all one wants is an easy, fool-proof method of buying and selling stocks (or ETFs) that mostly keeps one out of trouble and that will be decently profitable --on average and over the long haul-- then his methods are the way to go.
I can back him up on that six ways from Sunday. What I wouldn’t claim for his methods --though he does-- is that there will never be a losing trade, because ‘simple rules’ and ‘market complexity’ just don’t mix well. Nor does adding complexity fix the problem entirely, either. Always, always, always, there are going to be losses.
What one wants to do about those losses and how one wants to manage them is a whole 'nother thing that Quill makes no effort to address, because he believes the high win rate achieved by Simon will take care of the losses problem. If positions are sized rationally, I’d bet he’s correct, though neither of us has done the necessary back-testing.
You bought BITO when you shouldn’t have, and you got clobbered. Specifically, how many hundred trades have you done using Quill’s method? How many dozens of times have you traded BITO? Putting even a simple set of rules into practice takes practice, a lot of it. Another name for it is “a learning curve”.
