Yes You Can... Cash In On Chaos!


One of my ONE-A-DAY Subscribers sent me EMAIL with this question:

Are you going to codify rules so that eventually we can determine the trades independently?

I replied:

MoonTides are a tool for trading the market. I am not sure there is one set of rules which always will work. One has to use the tool in a way that fits the market, your own trading style, and the risk you decide to accept. That said, here is my approach.

The approach I use is actually pretty simple. First, I look at the tides to see what the pattern is. Is today a 1 swing, 2 swing, 3? 4? 5? If too many, stay out. Two or three are good. Then is the pattern up-down, or down, up, down? Is the high (or low) in the morning or the afternoon? What's my strategy- buy the low, or sell the high? Does it look like the market will congest or trend? If both, where, roughly, is the transition? The tides get me within an hour, two at the most, of the major turns of the day. With some other techniques, that's close enough.

Even without knowing the precise phase shift, this is good information. Then I look at the pattern and see where the major highs or lows of the day are likely. That gets me in the ball park, and lets me look for a long or a short.

Now I have to narrow it down.

For the totally blind way in advance One-A-Day hotline, I try to precisely locate the MoonTide. Recently I have been working on the shift factor. This is done with a program, which gives multiple answers. I pick one, and set up the mechanical One-A-Day rules to try to catch those. If the shift research continues to work out, I'll supply the shift computation with the MoonTide program. But knowing the precise shift isn't really necessary. I need it for my blind One-A-Day hotline, because novices need exact, precise, don't think, just execute rules.

On can do better if one adds thinks a bit while watching what the market is doing. MoonTides provide a pattern. There is no greater pattern matcher that the human brain with its 10 billion neurons.

The real way I use MoonTides is not quite so mechanical as my One-A-Day hotline. I first try to confirm the proper placement of the pattern early in the day. I do this with my on-line system, but one can trace the pattern form the faxout onto a sheet of mylar, and hold that up to your screen. It helps if you have an online system that shows you the future. Another way is to plot the 10 minute closes on the faxout. Once you see the pattern fitting, you can see where the major trade opportunites are. When I see a good set up. I then Trail In, and Trail Out.

I also use simple trendlines. If the tides call for a down, then up day, I wait to see the down, draw a trendline along the highs, and buy a breakout of the trendline. I protect under the low, and move the protection up, collecting any good profit. This works even if the tides shift a bit. And I don't need to know the shift, just the pattern.

Another approach is to look at the length of the moontide swings. If there is a 120 minute rally, and a 150 minute decline, the swings average about 135 minutes. An exponential moving average on one minute bars set to half this length, or 62 minutes will track the swings, and can be used as a simple moving average breakout system.

One can also use this moving average to locate the proper position of the moontide. If this average is moved back in time one-half its length, or 31 minutes, it will locate the MoonTide turns within a few minutes. This knowledge is most useful in that the length of swings forecast by the moontides tends to be very accurate-within 5 to 10 minutes. This can be used to anticipate the major Change In Trend. That Change in trend should be signaled by a break of the moving average, then a pullback to it. I use a stop to catch the continuation.

One doesn't even need to adjust the moving average. I find that just using a 36 minute exponential moving average almost always works. (36 bars of one minute closes). Here is an example from September 10, 1998.

Yes You Can... Cash In On Chaos!

The MoonTide forecast is the green line marked at A. It said to watch for a low, a high, a low, another high, and a late drop. We decided to trade the late drop. The high was expected between 2 and 3 PM (14:00 and 15:00 on the chart). It is marked at B.

The yellow line at C is my 36 minute moving average. It confirmed the proper position of the MoonTide at D, where both turned down. A second confirmation came at the low at E. The high at B came close, but the moving average didn't turn down until at F, a few minutes late, but close enough. I sold the retest ot the high at 3:00, at 992.50. I put a disater stop above the hight of the day.

The market dropped sharply into the low at G. It came on time in both the MoonTide and the moving average. When prices touched the moving average, I covered for a 7.5 point gain. I would have covered earlier had I not been distracted by my copier repairman. How would I have known to get out earlier? I'll answer that in a moment. First, a few more observations.

Notice how at D,E,F, and G, that prices broke through the 36 minute exponential moving average. That signaled the CIT's. Note also how between these points, that prices stayed mostly above or below the moving average, with only minor penetrations. The pentrations, and the extremes away from the moving average are the "swings."

Now look closer.

Yes You Can... Cash In On Chaos!

Chaos Clamshells have an arguable 7 swings. This is a guide, and not anything like an Elliott Wave count. Just start counting when the moving average is broken. That's 1. Look at the break at A. The break is 1. The first pullback is 2. Count to 7. That brings you near a MoonTide low. Expect a break of the moving average to the upside.

That break came at B. Count that as 1. Now look for 7 swings into a high between 2:00 and 3:00 PM. Swing 5 broke well above the moving average. Swing 6 stayed above it. Then the drop at C dropped below the high at 5, and penetrated the moving average.

See how I knew to sell the high at 2? The MoonTide was dropping sharply, and the penetration of the moving average could be a 1. So it was time to place a bet.

And how would I have known to cover better than I did? Just count to 7. That drop took out the low of the day. A 50 percent retracement or a break above the former low of the day is time to CASH IN ON CHAOS.

I missed the ideal cover because I was distracted. That can be expensive. I covered immediately when I saw that I missed the ideal point. So I still made money. That's all that matters. And one subscriber did call and tell me he covered 4 ticks off the low.

So you see, trading the MoonTides isn't that hard. They are a good roadmap to the trading day, and if you couple that with some other techniques, you can get a trading edge.

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