Sunday, September 28, 2003
Roger Babson, Alan Andrews, and a few Rules
Alan Andrews had many rules and guidelines, but in his course, given under the auspices of his company named FFES (Foundation for Economic Stabilisation), the following five were stated right at the beginning.
Median lines (ML) can tell where the prices are headed, and the place they will reach, about 80% of the time, and when approximately that place will be reached. Slopes of alternate MLs of comparable length indicate the trend. There is a high probability that:1. Prices will reach the latest ML
2. Prices will either reverse on meeting the ML or gap through it
3. When prices pass through the ML, they will pull back to it
4. When prices reverse before reaching the ML, leaving a space, they will move more in the opposite direction than when prices were rising toward the ML.
5. Prices reverse at any ML or extension of a prior ML.
Use the search block to the right to find more comments on bisects and forks.
My own background with forks started in 1998, so I am not a grizzled beard. However, once I started using them, they "spoke" to me in much the same way RSI did: I was compelled to use them. No doubt this is what triggered my love of bisects, and which I have shared with readers of my stockcharts.com "Public Charts List" for a bit over three years.
It is also no coincidence that my love of Newton's first principle, "for every action there is a reaction"-- actio et reactio as I learned it in my first undergrad Physics class-- is at the core of my website, and at the root of the appeal of the median line to my way of thinking and seeing things. But that is another story.
Many people have written to me asking just how to use these lines. Drawing them is straightforward, but having drawn them, how does one trade them? How does one know which points to choose as pivots? Is it kosher to draw bisects from gaps, from mid-points, from close-only, etc etc.
While there are many who would be adamant about their particular use, and might even point to some of my work and claim foul, I would beg to differ. One must always go to first principles before piling on higher principles. Bisects are about as simple mathematically as it gets: pick a point to start from, choose two points in the future and divide the space between those two in half. If price "behaves" with seeming order relative to those points, stick with them until it no longer does, then draw another set.
Alan Andrews freely attributed his work to Roger Babson, who like Andrews, was also a scientist. Roger Babson, founder of
Babson College, says in his
autobiography, appropriately titled
Actions and Reactions,
Let me say that the ideas that underlie my work were selected from the Bible and the writings of Sir Isaac Newton.
Nearly a century later, people like me find themselves in agreement with much of what Mr. Babson had to say, about which I'd love to write someday as a meander.
Labels: bisects-forks-medianlines
