|Years of Development||2000-2004|
|Short Name||PTF SYSTEM|
|System's Algorithm||Computation of potential turning points (price targets) based on the mathematical analysis of historical turning points|
|Markets / Applicability||All: Forex, Stocks, Commodities, Indices|
Not knowing where to take profits, a trader will never be profitable.
They say that there is no concrete way to calculate a price target. This is not so. Studies have found that by analyzing historical reversals according to specific methods, one can accurately calculate future turning points which can serve as price targets or profit targets.
That task was put into practice with the Price Targets Forecasting (PTF) system after many years of research. The PTF trading system was specially created to define price targets that are reliably reached by the price.
The price targets defined by the trading system have a dynamic character: rather than calculating a static position (price and time) of a separate turning point, the system calculates its linear dynamic over time. The generated forecast displays its values graphically as lines and results in sloping or horizontal rays extended into the future - target lines.
The inclination angle of the target lines may vary with every generated forecast.
By analyzing historical tops, the system generates the line that projects a position of the future top over time. Accordingly, by analyzing historical bottoms the future bottom forecast is obtained.
A position towards the target line may be opened after some pullback from the forecast formation point.
Quite often, after some pullback from the forecast formation point, the price again reaches approximately the level of this point and then reverses. Thus, a trader may suffer a fairly large drawdown before the price reaches the target. The use of the Single Target Forecast does not allow one to predict the above market behavior.
An example of this kind of a price movement is shown below.
To predict cases of a price reversal in the area of the forecast formation point, an additional target line was developed. This line was called a Minimal Target Line. In turn, the main target line was renamed to the Maximal Target Line. Now the system began to analyze the occurrence of a turning point on the Minimal Target Line and generates a signal to close a position in such cases.
The 2-Targets Forecast still does not allow one to predict a magnitude of the price drawdown.
The price target forecasts are calculated based on historical turning points. Depending on whether these points belong to the tops or to the bottoms, a forecast of the future top or the future bottom is generated. There are always two opposite forecasts at a time: the upper and the lower price target forecasts.
To predict the price movement from a potential turning point (forecast formation point) in both directions and in real time, a 4-Targets Forecast was developed. As examples below show, the bidirectional forecasts, in addition to the main target, highlighted in bold, and an additional target, indicated by the dashed line (the minimal and maximal targets), also incorporate two opposite targets (minimal and maximal), that is, a forecast of the minimal and maximal position of the opposite turning point. It is believed that the main target reaching probability is 100%, while the other three target lines serve to model a possible price movement on the way to the main target.
Thus, the bidirectional forecast makes possible to assess the potential drawdown when opening a position in the direction of the main target, or to capitalize on the potential price movement in the direction of the opposite target.
Below are some examples of the 4-Targets Forecasts generated by the system when analyzing price charts of different time frames. As can be seen from the examples, the slope and location of the target lines varies from forecast to forecast.
We tried to systematize all possible variants of price movement from the potential turning point (forecast formation point), marked with red circle, towards the main target (bold line) within the forecasting area. This movement varies depending on the chosen forecast formation point.
It can be seen from the examples below that the price sometimes may not reach the main target. In such cases, there can be two variants of the price movement:
1. The price moves from the forecast formation point to the opposite maximum target line, and then
continues its movement.
2. The price moves from the forecast formation point to the opposite maximum target line, reverses, reaches the minimum target line, and then again reverses.
The Conclusion: The use of the 4-Targets Forecasts do not give an absolute guarantee that the price will reach the main target at least in the short or medium term.
After several years of research, a mathematical justification for forecast failures that occured from time to time was found. The forecast failures refer to cases where the main target line on a given time frame is not achieved by a market.
In order to pre-determine a correctness of the forecast at the forecast formation point on any given time frame, a method of analyzing higher time frames for the presence of an opposite forecast is used. In case of identifying the opposite forecast on the higher time frame, priority is given to such a forecast. This method helps, to a certain extent, to weed out the wrong forecasts. In fact, this is the most complicated part of the market forecasting.
The above method was realized with the help of the Complex Market Analysis (CMA System).
In addition to the forecasting function (determination of price targets), the system also has signaling functions, namely, the function of detecting and generating reversal signals which are used as entry/exit signals. As a rule, this function is used for signaling of the presence of a turning point when the price reaches one of the target lines. If this takes place, the signal is generated.
The forecast formation point can serve as a market entry point. Since the forecast formation point is a potential turning point, the position should be open towards the forecast of the opposite turning point.
When the price hits any of the target lines, the system starts analyzing a market for the presence of a reversal signal. There are always three possible scenarios of the reversal signal occurrence on the price's way from the forecast formation point to the main target:
1. A reversal signal occurs at about the forecast formation level.
2. A reversal signal occurs on the opposite minimum target line.
3. A reversal signal occurs on the opposite maximum target line.
The system is also capable of identifying off-target signals on the price's way from the forecasr formation point to the main target. This function allows one to predict minor price moves and price retracements within the forecast area. In this case, a new forecast is generated at the point of the occurrence of the off-target signal.
In practice, you can trade both on forecasts and on signals. When trading on forecasts, you can not know if
a reversal signal occurred when the price hit one of the target lines. You also cannot know whether the price
will go to the main target line right from the forecast formation point. Given all of the above, the following
trading scenario (one of many) can be proposed:
1. The forecast formation point serves as the market entry point in the direction of the main target line. In this case, the opposite target lines can be considered as the drawdown lines.
2. In the event of a price drawdown, a trader increases the position when the price reaches each of the drawdown lines.
3. And finally, a trader closes all open positions when the price reaches the main target line.
Of course, this strategy is more suitable for trading on the price charts of small and medium time frames (15min.-360min.), rather than for trading on the higher time frames (Daily-Monthly), but still requiring a sufficient reserve of available funds.
Trading on signals implies opening a position at the forecast formation point in the direction opposite
to the main target line, closing the position if a reversal signal occurs when the price
reaches one of the opposite target lines, and then opening a new position towards the main
Trading on signals needs less reserve funds, less time for transactions and makes trading more intelligent in comparison with the trading on forecasts. On the other hand, the initial opening of a position against the main 100% target requires highly accurate calculations of the opposite targets and psychological endurance.