Beyond the hype of hershey futures method journal

R

RoughTrader

I'm strictly mechanical in my trading. I never massage entries and exits with discretionary observation, each order executed is planned in advanced at least one bar (often times, several more bars).

That being said, I am trying to digest the Hershey method using STRICT quantitative rules but still remain puzzled by several things. I'm not interested in any speculation concerning whether Mr. Hershey is full of it or not. He obviously has gone through tremendous efforts to document his method. Ultimately, I am trying to develop a mechanical construct that can be used to verify this method down to the T in backtest. If what I have heard is true, the profit factor should be infinite.

Firstly, I agree 100% that channels are a robust and universal tool to structure unfolding price action. I myself use a variation in my systems. They are effective in capturing the time-variations of support and resistance, and can be used exclusively to remain phase-synchronized with market movements.

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As mentioned in the previous post, my goal is to implement the Hershey method so that all trading decisions are implemented END OF BAR.

1) After reading some available documentation, I was left with the impression that traders who employ the method by putting in the screen time and manually entering orders in a DOM window take action intrabar. That is, depending on how price and volume are acting, orders can be entered any time between the start and end of a 5-minute bar.

If one is to allow order entry only at the end of a bar, one possible adjustment might be using a 1-minute chart for order entry, while using the 5-minute bars for channel creation / extension.

Comments please.

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Quote from RoughTrader:

As mentioned in the previous post, my goal is to implement the Hershey method so that all trading decisions are implemented END OF BAR.

1) After reading some available documentation, I was left with the impression that traders who employ the method by putting in the screen time and manually entering orders in a DOM window take action intrabar. That is, depending on how price and volume are acting, orders can be entered any time between the start and end of a 5-minute bar.

If one is to allow order entry only at the end of a bar, one possible adjustment might be using a 1-minute chart for order entry, while using the 5-minute bars for channel creation / extension.

Comments please.

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Recently, Spyder told someone to wait for the end of bar. Recently, Jack has said that he guages sentiment intrabar. You've really got to go to the source to get clarification on this issue, because it's very important.
 
2) I am very much puzzled with the timing of trades when new channels are being created. The concept of 1-2-3 triangle formation as the starting action of a new channel is clear enough. But it seems to me that the only way one could trade in the channel is to wait until the 1-2-3 formation has completed entirely.

My concern with this is that on whippy, sideways days, these formations can occur one after another in a "triangle-wave" type pattern, leaving the trader 180 degrees out of phase. OUCH!

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3) SCT inside a channel. Is one supposed to stop-and-reverse and the price action ping-pongs against the left and right trendlines? This would yield profits with 100% efficient use of the unfolding action, but seems dangerous in two aspects.

Every channel will either expand with volatility or die at some point. Let's say we have bullish channel. Obviously, one wants to stay long as price is moving with the dominant traverse. However, once the price hits the left trendline, do we reverse short in expectation that the price will zag back down (or sideways) to the right trendline? This would be bad news if the price violates the left line, expanding the channel.

Similarly, if one enters long as price touches the right trendline, a loss would occur if a BO occurs to the downside. At this point, we would be on the wrong side of the trade in a bearish channel.

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Quote from RoughTrader:

2) I am very much puzzled with the timing of trades when new channels are being created. The concept of 1-2-3 triangle formation as the starting action of a new channel is clear enough. But it seems to me that the only way one could trade in the channel is to wait until the 1-2-3 formation has completed entirely.

My concern with this is that on whippy, sideways days, these formations can occur one after another in a "triangle-wave" type pattern, leaving the trader 180 degrees out of phase. OUCH!

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There is a notion of RTL, which means Right Trend Line. If the trend is up, it may be best to enter when price touches the RTL, which is the bottom of the channel. When the trend is down, it might be best to enter when price touches the RTL, which, in a downtrend, is the upper channel line. Apparently they got the notion of Right Trend Line by extending the lines to the top/bottom of the chart and called the Right Trend Line the one that intersects the top/bottom of the chart to the right of the Left Trend Line. Draw it to see it.

Again, you have to go to the source(s) to find out whether it is permissible to trade before point 3.

Could you explain more about the triangle wave and being out of phase?
 
4) In the building channels for wealth document, YM is used as a leading indicator for ES. I personally don't have any fundamental objection to this, but instead fail to see the necessity. I hope I haven't misheard, but isn't the method employable on ANY electronically-tradable instrument, particularly for intraday timeframes?

It should work equally well on ER2, NQ, EC, ZG, QM, or any instrument that can be traded with sufficient liquidity. If this is the case, to trade this method mechanically on ES, why would we need anything more than price bars and volume? Furthermore, can the rules be formulated without even looking at volume? are the OHLC bars sufficient in and of themselves?

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5) The FTT. The concept is clear enough, but i'm still confused unfortunately. As an FTT is forming, what must we look for as a confirmation that the bar indeed is an FTT? Is it not possible for a bar to potentially be an FTT, only to see price continue on to reach the LTL (for the long case).

My point is, starting from the point where price is sitting on the RTL, there can be many bars that fail to reach the LTL. There still exists the possibility that eventually the price will make its way back to the LTL without a BO to the downside. If this is the case, do we need to wait for the close of a bar to BO of the channel to confirm we had an FTT one or more back?

My central problem is the timing of the stop-and-reverse as the bullish channel morphs into the bearish channel (meaning, the channels overlap). If we wait for the confirmation as described in the previous paragraph, we've already missed the opportunity. We've either taken a good hit to our open profit, or worst case, the open trade has turned into a loser.

RoughTrader
 
Quote from RoughTrader:

4) In the building channels for wealth document, YM is used as a leading indicator for ES. I personally don't have any fundamental objection to this, but instead fail to see the necessity. I hope I haven't misheard, but isn't the method employable on ANY electronically-tradable instrument, particularly for intraday timeframes?

It should work equally well on ER2, NQ, EC, ZG, QM, or any instrument that can be traded with sufficient liquidity. If this is the case, to trade this method mechanically on ES, why would we need anything more than price bars and volume? Furthermore, can the rules be formulated without even looking at volume? are the OHLC bars sufficient in and of themselves?

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I won't comment about YM leading ES.

By liquidity they mean that there is minimal spread and enough size at the bid/ask to accomodate the size you're trading. Aside from liquidity, a sine qua non is that it trends.
 
Are you here to ask questions and find answers or are you just entertaining yourself with this thread?

In order to quant this strategy you would probably need a lot of IF / THEN but only WHEN's written into it.

I have played with Spyders version of this method for many months and all I can tell you is to look for the obvious and if it's not there then it's just not there.

The main issue with the method is there is way to much subjectivity suggested in the volume analysis and therefor I doubt highly that you will succeed in programing it.
 
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