ABC Points

Last modified 15:02, 10 Mar 2015

sitmicon34.gifThis content is provided in support of the Safety in the Market (SITM) module for Your SOFTWARE and may not be applicable to your package. For more information, go to the Modules topic of this help.

ABC Points - Long and Short

This function highlights the position on the price chart of all price formations that meet the ABC criteria.

abctradplanscrensmall.gifTwo general types are available - Long or Short - the correct type will depend on the trade to be analyzed and the general trend of the market, see below. Apart from the directional settings, all other elements of the type are identical.

A variety of settings are available in the ABC Parameters dialog box to fine tune the detection criteria for the ABC points. Parameters such as entry limit used, allowance for expanding ranges, overbalance in price calculations can be varied readily through the ABC Parameters dialog box, offering greater ease in back testing and optimizing the ABC parameters to be used in real time trading.

The rules for determining the ABC points are those described in the Smarter Starter Pack, refer to Section 6 ABC Trading Theory (page 93) of the Smarter Starter Pack manual (3rd Edition) for further reading.

In addition to adjusting the calculation and display of the ABC formations, the ABC Points Trading Tools pop-up menu links users to other tools allowing the ABC formation to be profitably employed in your trading activities.

ABC Long

A long trade generally occurs in a rising market and a BUY order is placed with the expectation that the price will rise.

Long Points occur when the value of C is HIGHER than the value of A or in other words when the price is rising.

A general condition of a Long ABC is B must be higher than A unless a formation known as overbalance in price occurs.

ABC Short

A short trade is a SELL order that is usually placed when price is moving downwards.

Short Points occur when the value of C is LOWER than the value of A.

A condition of this formation is that B must be lower than A unless a formation known as overbalance in price occurs.

ABC Points Trading Tools pop-up menu

The ABC Points Hi-Lite can access a number of tools that will facilitate active trading using this feature.

To display the tool's pop-up menu, first place the cursor over an ABC formation. When the cursor changes to a pointing hand, right mouse-click to open the ABC Points Trading Tools pop-up menu:

tpabcpointspopupblu.png

The top half of the pop-up menu contains links directly relating to the ABC point formation.

ABC Points - Properties

Click this to open the ABC Parameters dialog box to access a number of settings affecting the calculation and display of all ABC formations for this symbol. Settings in this dialog box affect all the ABC formations currently displayed on the chart.

For more information, go to  the ABC Parameters section of this topic, below.

Draw ABC Pressure Points

Select a single ABC formation, then select Draw ABC Pressure Points to display ABC pressure point drawing tool lines plotted from point C at the standard ranges of 25%, 33.3%, 50%, 66.6%, etc.

This display is the same as the ABC Pressure Points drawing tool, except that in this case all of the ABC points are already defined by the ABC Points Hi-Lite calculations. This tool is only applied to one ABC formation at time.

For more information on its settings and parameters, go to the ABC Pressure Points drawing tool topic.

Details for this Formation

Select a single ABC formation, then select Details for this Formation to display ABC Point Details dialog box.

This dialog contains detailed information about the location of the ABC points as well as other relevant points and ranges calculated using them. These levels and ranges are essential for analyzing and managing ABC trades.

This details displayed in the dialog will only refer to one ABC formation at time.

For more information, refer to the ABC Point Details dialog topic.

Convert Formation to Trading Plan

To convert the currently selected ABC formation into a trading plan, click Convert Formation to Trading Plan from the pop-up menu.

A Trading Plan Wizard will open with the ABC points data for the selected formation populating its data fields. Users then enter the trade's details (number of securities, exact purchase price, brokerage, etc.).

Go to the Trading Plan Wizard topic for more information.

The ABC Point Details dialog, also has a Convert to Trading Plan button.

ABC Listing Report

Click on ABC Listing Report to create a printable report containing details of all the displayed ABC formations for the current symbol using all available data.

For more information on the contents and format of this report, go to the ABC Listing Report topic in the Reports section of this help.

An ABC Listing Report created from this pop-up menu has the same content and format as in the Reports feature, except that from this pop-up menu the symbol is already selected, and when creating directly from the Portfolios Reports dialog, the report can be set to show all Short, or all Long, or all Short and Long ABC positions for the symbol.

Note - If you have not specifically selected an individual ABC formation, the two tools relating to individual formations, Draw ABC Pressure Points and Details of this Formation, will be disabled (grayed-out), and only the ABC Parameters and Listing Report relating to all ABC formations for the symbol will function. If the two tools are disabled, close the pop-up menu, zoom- in on the individual ABC formation, and select and right mouse click again.

ABC Parameters

ABC Parameters dialog box allows you to alter settings and filters used to calculate and identify the ABC point formations.

Settings

Entry Limit

The entry limit, also known as the Enter By level, is calculated by multiplying the reference range by either 25% or 33% (or another user defined amount) and adding it to the point C value.

The resulting level must not be exceeded when entering the trade, as it indicates an overbought market in long trades (or oversold in short trades).

Users can select 25%, 33% or manually enter another amount (not recommended) in the Other text box.

The exact level suitable for individual trades and traders, as well as a discussion of risk and reward, can be found on pages 107-108 of the Smarter Starter Pack manual (3rd Edition).

Point Size

Point Size is the value of minimum fluctuation for the instrument selected.

Select Automatically Set Point Size to adopt the system data's default.

  • For stocks this will be .01 or 1 cent.
  • In the case of a futures contract, this will be the value of Minimum Fluctuation (to check this select Action, Actions for "Symbol" and Information. When the Detailed Symbol Information dialog for the futures symbol opens, click on the Futures Specs button in the bottom left to open the Detailed Futures Information dialog box. Minimum Fluctuation is the second group of settings on this dialog box.)

When viewing ABC's on Forex pairs this point size will need to be changed to a value of '0.0001' due to the point size of the data.

If you wish to manually adjust the value of the point size, de-select Automatically Set Point Size and enter the desired value in the area with the heading Point Size.

ABC Style

Choose the style of font used to display the ABC points' labels.

Three different display styles are available.

Filters

Include Overbalance in Price Trades

Overbalance in Price means that the current favorable A-B range swing so greatly exceeds the previous swing range movement in the same direction (not necessarily an ABC formation) that the ABC formation can be identified as a potential ABC trading formation even though the relative level of point B's swing does not exceed the previous swing top or bottom.

Normally if the current point B does not exceed the level of the previous swing in the same direction, the formation will not be identified as an ABC formation.

Selecting Include Overbalance of Price Trades allows these ABC formations to be identified because it ignores the normal rule when the overbalance of price level is met.

An overbalance in price can be the first indication of a pending change in trend. Use this filter so that ABC formations that are affected by this situation are not disregarded by the normal ABC criteria. In this way valuable trading opportunities can be identified.

The multiple by which the A-B swing must exceed the previous swing (i.e. its overbalance) is defined by the user. The default is 3.

This filter is not affected by the Entry Level setting, and will work with either 25% or 33% (or Other) Entry Limit settings.

Allow for Expanding Ranges

The normal entry limit for a legitimate ABC trade is calculated by adding 25% of your A to B reference range on to Point C (for a long trade).

When the market is in a clearly defined trend, i.e. higher swing tops & bottoms in a long market or lower swing tops & bottoms in a short market, the current A to B reference range will be larger (expanding) when compared to the previous swing in the direction of the trend.

By selecting this option, users can override the Entry Limit set on the Settings tabbed page when such an expanding range is encountered. The result is to identify some ABC formations which would otherwise be ignored because of the 25% limit.

For an example of its use, refer to the discussion on the Stock Index trade example beginning on page 194 of the Smarter Starter Pack manual (3rd Edition).

It should be noted though that many traders choose to use 33% as their standard entry limit. The Smarter Starter Pack manual discusses the relevance of entry limits in relation to the Risk/Reward ratio on page 108 (3rd edition), however this lesson is expanded on significantly in the Number One Trading Plan.

Exclude Abnormal Ranges

Overbought and oversold situations can prove dangerous for the novice Smarter Starter Pack Trader. When a market has moved a great distance in either an upward or downward direction over a short period of time the market could be in these overbought or oversold territories, making the next ABC trade potentially more dangerous.

The Exclude Abnormal Ranges filter will overlook any legitimate ABC formation if the A to B reference range exceeds a certain number of times the average swing size.

Selecting Exclude Abnormal Ranges will cause the software to first average the range of the number of previous swings set by the user (the default is 50), and then exclude any ranges where the current range exceeds the previous range by a user defined multiple (the default is 1.5) of the previously calculated average range for the security.

The Starter Pack Software will not automatically apply this filter, however users can select it and save the setting as their default.

This filter is not affected by the Entry Level setting, and will work with either 25% or 33% (or Other) Entry Limit settings.

Note - This filter can significantly reduce the number of trades identified.

Include Open Outside Limit Trades

An Outside Limit Trade is one where the market opens outside of the Entry Limit (usually either at 25% or 33%), but which then retreats back into the range between the Entry Limit and Entry Stop.

Some traders feel it is acceptable to enter a trade in these circumstances when the price is between  the Entry Limit and Entry Stop.

Other traders hold that once the Entry Limit is exceeded, the trade should be abandoned. This is so even when the price returns to the entry range, they hold that the trade should be abandoned because the market has in fact reversed and to enter a trade under those circumstances is tantamount to trading against the trend.

Traders who accept the risk and enter into "outside limit" trades should select Include Outside Limit Trades to display these otherwise invalid ABC formations.

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