Better Moving Averages A Practical Guide to Tillsons T3s

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Better Moving AveragesA Practical Guide to
Tillsons T3s
Thursday, August 31, 2006

• This Presentation will begin at 330 Central
  Time.
• The Chat room will close once the presentation
  begins.
• The speaker today is Steve Karnish.

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Better Moving AveragesA Practical Guide to
Tillsons T3s
Thursday, August 31, 2006

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A Brief History of the Presenter

• Started with Merrill Lynch in 1975
• Moved to Denver in 1976
• Worked for MLFPS, Paine Webber and regional
  houses
• Retired from industry in 1990
• Mid-life crazy period award-winning baker,
  manager of Del Mar Race Track, manager of
  Carlsbad, Ca. airport, college degree pursuit
  of MBA
• Cedar Creek Trading (1997) Introducing Broker
  CTA
• 30 years of developing indicators and mechanical
  systems led to lecturing, writing articles,
  giving seminars and trading for clients and my
  own account

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Technical Trading
The question for the trader is whether it really
is possible to divorce the longer-term goal of
profitable trading from the potentially traumatic
short-term effects of incurring losses.  The
answer lies in the making of two specific
commitments.  The first is the commitment to use
a technical trading system which provides
automatic entry and exit criteria and which
incorporates money management principles.The
second commitment is the adoption of an attitude
toward oneself which is supportive of
trading. Tony PlummerThe Psychology of
Technical Analysis
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Decision Making
Psychologists have known for a long time that
people often act in a seemingly irrational manner
and make predictable errors when forecasting.
This behavior is harmless when it causes a zest
for the home sports team. Being overly
optimistic when rooting for you team is fun.
However, when this behavior affects your
investing decisions, it can cause you to make
small mistakes that lower your return or make big
blunders that devastate your wealth. John
Nofsinger INVESTMENT BLUNDERS of the Rich and
Famous and What You Can Learn from Them
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Risk
The trader is like a Masai Warrior who each day
must face the knife and hunt the lion with only
spear and bare hands.  His success will come from
relying on his wits and instincts at the moment
of truth, embracing risk as his ally to achieve
the desired outcome. Robert KoppelThe Tao of
Trading
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A Little Moving Averages Personal History

• Read a Stanley Kroll book in 1975
• Tested crossover systems in the still of the
  night (IBM 340)
• Tested a 3-10 moving average oscillator
• Optimized for periods and lag (Tandy I)
• MetaStock 1988
• Introduction to Tim Tillsons T3 (2001)
• Beyond Tillson T3 trading approaches

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Todays Program

• Whats a moving average
• An introduction to Tim Tillsons T3s
• How to trade moving averages
• Moving averages trend
• Moving average crossover
• Moving average retracement
• T3 templates
• T3 trading strategies

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Moving Averages by Definition

• A moving average is a technical indicator that
  shows a futures contracts average value over a
  period of time.
• Most popular are simple, exponential, triangular,
  variable, and weighted. Most useful and unheard
  of is the T3.
• Moving averages can be calculated on any data
  series(O, H, L, C).
• Moving averages of moving averages are common
  (i.e., T3).
• Moving averages can define trend, support and
  resistance.

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Moving Averages Definitions II

• Wednesdays close Tuesdays close Mondays
  close / 3
• The close of the last 30 days divided by 30
• The sum of price (H, L, O, C) divided by the
  number of periods calculated

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Moving Averages Textbook Explanation
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Tim Tillsons T3s

• Published in the Journal of Combinatorial Theory
  and Technical Analysis of Stocks and Commodities
• Proprietary C program as a test bed for filters,
  systems and options research
• TMA 1.7E .7E(E)
• E(E) EMA(EMA)
• Use as a proxy for price - or -
• Use instead of EMA in systems
• TMA has only 30 as much lag as an EMA of the
  same speed

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Tim Tillsons T3s Formula
e1Mov(C,3,E) e2Mov(e1,3,E) e3Mov(e2,3,E)
e4Mov(e3,3,E) e5Mov(e4,3,E) e6Mov(e5,3,E)
c1-.7.7.7 c23.7.73.7.7.7 c3-6.7
.7-3.7-3.7.7.7 c413.7.7.7.73.7.7 c
1e6c2e5c3e4c4e3
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How to Trade Moving Averages

• Directional changes in moving averages (the trend
  is your friend)
• Price versus moving average (retracements)
• Moving average versus moving average (crossover)
• Price versus moving average (over/under)

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Moving Averages Trend

• The Trend is Your Friend
• The Trend is Your Friend
• The Trend is Your Friend
• The Trend is Your Friend
• The Trend is Your Friend

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Moving Averages Crossover

• The Japanese have been using moving average
  crossovers for over 300 years
• It has been one of the most popular approaches in
  technical trading
• Suffers when market is not directional
• Makes fortunes in trending markets
• Low winning percentage, high average win to
  average loss

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Moving Average Retracement

• Identify strong trends (how steep is steep)
• Buy the first retracement of price to the moving
  average
• Place a reasonable stop (3-10)
• Use an exit strategy (any exit strategy is better
  than none)

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Build a T3, T5, T8 Template

• Allows a trader to see the interaction of the
  three best averages
• Each product has different supply and demand
  characteristics
• Template will point a trader to an average that
  best suits the particular issue
• Watching the price and the three averages
  interact gives a trader a great feel for the
  action

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Review

• Never trade against the trend pick any T3 and
  allow it to dictate the direction of the market
• Always consider trades in the direction of the
  T3, T5 or T8 when price retraces to these
  averages
• Trade long above averages, trade short below
• If you desire to make a living from trading,
  please invest in the tools to be successful

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Important Conclusions

• The trend is your friend
• Always use stops
• Pick easy markets(futures versus equities)
• Simplify your trading rules
• Dont change horses in the middle of the stream
• Invest time into technical research, but dont
  invest in high paying seminars

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Longevity in this business I have seen it
again and again is measured by
discipline.John W. Henry
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Everything should be made as simple as possible,
but not simpler. Albert Einstein
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Pursuing Technical Analysis
What objectivity and the study of philosophy
requires is not an open mind, but an active
mind a mind able and eagerly willing to examine
ideas, but to examine them critically. Ann Rand
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Applying Technical Analysis
From error to error, one discovers the
truth. Sigmund Freud
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Dont Take My Word For It
Do not believe in anything simply because you
have heard it. Do not believe in anything simply
because it is spoken and rumored by many. Do not
believe in anything simply because it is found
written in your religious books. Do not believe
in anything merely on the authority of your
teachers and elders. Do not believe in
traditions because they have been handed down for
many generations. But after observation and
analysis, when you find that anything agrees with
reason and is conducive to the good and benefit
of one and all, then accept it and live up to it.
Buddha
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