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Some discussion
about
Advanced Fibonacci
Trading Concepts
and the Kane Trading
methodology
The following is excerpted
from my daily
commentary of February 4, 2004:
"Let's move on to the second topic that I
want to cover. I was originally planning to do a free article at some point on
why I feel that my material is new, innovative, and 'advanced', and completely
different than most of the 'cloned' material that is out there. I have so many
responsibilities and so little time that I haven't been able to get to
that.
As it
is, I've had to push Kane Trading on: Trade
Management back multiple times. I decided that I would present some of
the concepts here in this column. What I want to do is not only explain why I
feel my material is different, but explain, in detail, some of the ideas that
perhaps aren't as clear to the readers as I thought they were.
It's easy, if the
idea is your own, and clear in your own mind, to write something, read it, and
think it explains the idea well. The real test is if others can understand it.
Kane Trading on: Advanced Fibonacci
Trading Concepts was my first book. I wasn't quite 'up to speed' yet
with my writing. Things that I think are totally clear may not be clear at all
for many readers. I'm getting the impression that many people may have missed
the gist of the book.
I think a lot of readers understand the techniques presented in the
basic sense, but not many of the overall, holistic concepts. To me, those
latter concepts are what I have produced that is unique and valuable. If they
haven't been grasped, much of what I am presenting is lost. Let me go back a
little in time and start from there.
When my books were first released, I got a
lot of e-mails asking how my material was different than this or that author's
material. I tried to explain, and did a lot of long back and forth e-mails with
people from all around the world. Mostly I had a difficult time convincing
people that I had anything special. It really bothered me, because I know what
I've developed. I then had a conversation with my 'better half' (much
better half).
She said simply: "If they don't see your material as advanced and
unique, they simply don't understand it". I spent some time pondering that. It
came to me that she was right, and that the fault was my own. I didn't do a
good enough job explaining the holistic concepts. I didn't 'spell it out' clear
enough. I didn't put enough time on the overall. I explained the techniques,
but somehow didn't do enough with the 'gist' of it.
At about this time I started
getting e-mails from many of those same people. They started to apply the
concepts and started to see the merit in them. Many complimented me in
amazingly flattering ways and said how they couldn't believe I could come up
with some of this stuff. These weren't beginners; these were highly skilled,
originally skeptical veteran traders.
That's when I realized that it took them this
long to start to see it. I decided I needed to put out something to clarify the
holistic point to my method, to allow traders to have that in their minds when
they read the book for the first time, or re-read it. Hence, I will present
what I hope is a better explanation here.
My methodology is based on a concept of
'harmonicity' in the markets. I feel that issues move in harmonic ways, and
that I can use that in my trading. This concept is not new, and is the basis
for great trading sites like Harmonic Trader. I felt that what
helped me in my trading was determining whether an issue was harmonic, and if
so, how harmonic.
Most authors and traders determine if an issue is
harmonic by seeing if it turns at Fibonacci numbers. If an area is formed with
three key numbers and the issue reverses in that area, it is harmonic. For me,
I needed way more than that. The problem was, I was 'out of numbers'. I
couldn't add anything to the area. In my endless experimenting I began to find
many 'harmonically derived' numbers.
If these numbers were truly harmonic they
should overlap with each other in an issue that is, itself, harmonic. I found
that to be the case. Not only that, but I found that they would form very
distinct, very close groupings. The layout pretty much always had a distinct
look to it, too. This was the start of my methodology. It was the start of
something that I have not seen mentioned anywhere else.
I coined the phrase 'layered
harmonic support (or resistance)'. I didn't put that term in any of the books,
but I should have. It was one of many oversights. This term does not
mean the same thing as when some authors put together a loose grouping of three
numbers, and another loose grouping with three numbers below that, and say that
if the issue goes through the first area it will likely continue to the second
area.
I'm
talking about one area the size of some other's single area, but the area has
three to five very distinct, very tight groupings within that area. This is a
layered support area, with each layer being very harmonic. Now, what does it
matter, especially if the area turns out to be the same area the next guy
formed with just three numbers? If you are asking that, you missed the entire
point of Kane Trading on: Advanced
Fibonacci Trading Concepts.
As I said, though, that's my fault. That's
why I am trying to provide some detail here, to make up for the lack of a
spelled out explanation in the book. I don't care, per se, that I have these
three to five levels in my area. I care that they exist. What? I am
trying to determine how harmonic the issue is, in a much finer way than just
seeing if it reversed off of three loosely fit numbers in a broad area.
For me, I need to
make decisions on how harmonic I feel the particular issue is. To do
this, I need the large array of Fibonacci numbers that I have derived. I
need to see if they fall in tight groupings or not. That's how I determine
the level of 'harmonicity'. If the lines don't fall together, the issue is
not harmonic and I move on.
It's not enough for me to see it reverse a
few times near a couple of numbers. I need to look deeper to set the odds more
in my favor, in my opinion. As a trader, I have many possible choices on what
to trade. I have to select. What I've done is come up with a way to filter out
things that I don't want to trade. And the filter is based on Fibonaccis and
harmonics.
This is why I go back three, four, five or more years to look for
the very small Fibonacci retracements, as in the FDX example. I was asked in an
e-mail about one of my examples in Kane
Trading on: Trading ABCD Patterns if my reason for showing one or two
of these retracements wasn't really just for making the example an even better
'well-chosen' example. The very nature of the question shows that what I am
trying to present here is not clear.
The answer to a question like that is
absolutely not, not even close. The sole point of adding those
retracements in is to see how harmonic the issue is. If none of the numbers I
add in fall in my groupings I feel that something is up, and I only have one
thing to say: NEXT! I no longer know 'what the issue is thinking' and I look
for one that I feel I can 'trust'.
Keep mind that I feel the Fibonacci numbers provide me
an edge in my trading because they show the harmonic areas. That's the
trading premise. I assume it's the trading premise of all the Fibonacci traders
that are reading this column right now. I feel that I have found a
substantially better way to judge the level of 'harmonicity' than anything
presented anywhere else (just an opinion).
The techniques in Kane Trading on: Advanced Fibonacci Trading
Concepts, and to some extent the techniques in all my books and
articles for that matter, show how to find the potential trade areas. And they
show how to use the many new numbers to build the tight groupings. Perhaps it
wasn't clear just why that was important, beyond the fact that they pointed to
areas where a trade might want to be put in place.
I have never seen any material from
any source discussing the important nature to evaluating the tightness and
level of overlap of the groupings using well over twenty Fibonacci derived
numbers. If you have found such a source (outside of here), please let me know.
It is unlikely such a source exists, since many of these numbers I have derived
myself.
Deriving and quantifying the .886, for example, was uniquely my
creation. Without the .886, I just couldn't do most of what I do. That's just
one of many brand new numbers that I have incorporated, and that I feel are
essential, for me to create the layered support or resistance and to judge the
'harmonicity' of the issue.
That's the gist of the methods and I've not
heard anything remotely close to this anywhere else. I am still developing new
methods and I'm active in several projects right now. I have found a new
Fibonacci number in an area where people are using non-Fibonacci numbers
because they are close. I knew there was a Fibonacci number there, but I
couldn't find it.
I did extensive research and looked at an endless number of cases,
and figured out what the retracements actually were. I then found that the data
formed a very nice distribution curve, with the mid-point at a certain
retracement. I did the same for the reciprocal area, and came up with a number.
It turned out the two numbers were exact reciprocals (a coincidence?)
I now had numbers
that were helping me in my trading, that I knew were significant, but I didn't
know how to derive them. I tried for over three years to derive the numbers and
couldn't. Then one day I was looking at some charts and an idea just popped
into my head, like a vision on a screen. I quickly picked up my calculator and
tried something, something I would never have thought of in a million years
(no, wait, I did think of it, subconsciously), and it worked. Lo and
behold it gave me the exact numbers right to the hundredth. I still
can't believe it.
Now, do you really think anyone on planet earth knows these two
numbers besides me? If you want them, you're going to have to wait until I
release them, and their derivations, in whatever book or format it is going to
be in. Or you can wait and see it in someone's software a year later, or in a
whole slew of new books by other authors. My point is I'm deriving this
material.
It's my ideas that motivate me to seek these numbers and techniques
out. I'm doing it to try to make my trading better. Now, is my presentation of
things like these, with my thoughts and concepts and derivations, where you
want to be, or do you want to just 'get the number', out of context, without
any of the why's behind it, from some clone site or book? I'll let you
decide.
As
far as the release of these latest numbers, I'm not sure when that will be. I'm
working it in with patterns and other things and it's 'in production'. I'll
release it when it's ready. I have other things cooking, too. In the meantime,
what I have out right now should be more than enough to work with. Don't keep
looking for more if there is more than you fully utilize right in front of
you.
I hope
this explains the holistic point a lot better for everyone. If it doesn't, then
perhaps I'll just give up trying to explain all this stuff and get back to
having my full focus where I enjoy it most, on my trading."
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