Elders SafeZone

[cpatte7372]

Hello,

I was just wondering if anybody has written a script for Alexander Elders safezone. If not, has anyone used it successfully in their trading?

Thank you.

Carlton

[cpatte7372]

Oh well,

I guess no one's familiar with Elders SafeZone.

Damn!

Carlton

[FibbGann]

If you post the specs maybe someone can help you.

Fibbgann

[cpatte7372]

Hello Fibgan,

Below is excerpt taken from Elders book on SafeZone, it also includes the specs


The SafeZone Stop
Once in a trade, where should you put your stop? This is one of the
hardest questions in technical analysis. After answering it, you’ll face
an even harder one—when and where to move that stop with the passage
of time. Put a stop too close and it’ll get whacked by some meaningless
intraday swing. Put it too far, and you’ll have very skimpy
protection.
The Parabolic System, described in Trading for a Living, tried to
tackle this problem by moving stops closer to the market each day,
accelerating whenever a stock or a commodity reached a new extreme.
The trouble with Parabolic was that it kept moving even if the market
stayed flat and often got hit by meaningless noise.
The concept of signal and noise states that the trend is the signal and
the nontrending motion is the noise. A stock or a future may be in an
uptrend or a downtrend, but the noise of its random chop can obscure
its signal. Trading at the right edge is hard because the noise level is high.
I developed SafeZone to trail prices with stops tight enough to protect
capital but remote enough to keep clear of most random fluctuations.
Engineers design filters to suppress noise and allow the signal to come
through. If the trend is the signal, then the countertrend motion is the
noise. When the trend is up, we can define noise as that part of each
day’s range that protrudes below the previous day’s low. When the trend
is down, we can define noise as that part of each day’s range that protrudes
above the previous day’s high. SafeZone measures market noise
and places stops at a multiple of noise level away from the market.
TRADING 173
We may use the slope of a 22-day EMA to define the trend. You need
to choose the length of the lookback period for measuring noise level.
It has to be long enough to track recent behavior but short enough to
be relevant for current trading. A period of 10 to 20 days works well,
or we can make our lookback period 100 days or so if we want to average
long-term market behavior.
If the trend is up, mark all downside penetrations during the lookback
period, add their depths, and divide the sum by the number of
penetrations. This gives you the Average Downside Penetration for the
selected lookback period. It reflects the average level of noise in the
current uptrend. Placing your stop any closer would be self-defeating.
We want to place our stops farther away from the market than the
average level of noise. Multiply the Average Downside Penetration by
a coefficient, starting with two, but experiment with higher numbers.
Subtract the result from yesterday’s low, and place your stop there. If
today’s low is lower than yesterday’s, do not move your stop lower since
we are only allowed to raise stops on long positions, not lower them.
Reverse these rules in downtrends. When a 22-day EMA identifies a
downtrend, count all the upside penetrations during the lookback
period and find the Average Upside Penetration. Multiply it by a coefficient,
starting with two. When you go short, place a stop twice the
Average Upside Penetration above the previous day’s high. Lower your
stop whenever the market makes a lower high, but never raise it.
I anticipate that SafeZone will be programmed into many software
packages, allowing traders to control both the lookback period and the
multiplication factor. Until then, you will have to do your own programming
or else track SafeZone manually (see Table 6.1). Be sure to
calculate it separately for uptrends and downtrends.
Here are the rules for calculating SafeZone using an Excel spreadsheet.
Once you understand how it works, try to program SafeZone
into your technical analysis software and superimpose its signals on the
chart. Compare the numbers from the spreadsheet and the trading software.
They should be identical; otherwise, you have a programming
error. Comparing results from two software packages helps overcome
pesky programming problems.

Rules for Longs in Uptrends When the trend is up, we calculate
SafeZone on the basis of the lows because their pattern determines
stop placement.

Obtain at least a month of data for your stock or future in highlow-
close format, as shown in Table 6.1 (lows are in column C
with the first record in row 3).
2. Test whether today’s low is lower than yesterday’s. Go to cell
E4, enter the formula =IF(C3>C4,C3−C4,0) and copy it down the
length of that column. It measures the depth of the downside
penetration below the previous day’s range, and if there is none,
it shows zero.
3. Choose the lookback period and summarize all downside penetrations
during that time. Begin with 10 days and later experiment
with other values. Go to cell F13, enter the formula =SUM(E4:E13),
and copy it down the length of that column. It will summarize the
extent of all downside penetrations for the past 10 days.
4. Mark each bar that penetrates below the previous bar. Go to
cell G4, enter the formula =IF(C4<C3,1,0) and copy it down the
length of that column. It will mark each downside penetration
with 1 and no penetration with 0.
5. Count the number of downside penetrations during the lookback
period, in this case 10 days. Go to cell H13, enter the formula
SUM(G4:G13), and copy it down the length of that column. It will
show how many times in the past 10 days the lows have been
violated.
6. Find the Average Downside Penetration by dividing the sum of
all downside penetrations during the lookback period by their
number. Go to cell I13, enter the formula =F13/H13, and copy it
down the length of that column. It will show the Average Downside
Penetration for each day, that is, the normal level of downside
noise in that market.
7. Place your stop for today at a multiple of yesterday’s Average
Downside Penetration below yesterday’s low. Multiply yesterday’s
Average Downside Penetration by a selected coefficient, starting
at 2 but testing as high as 3, and subtract the result from yesterday’s
low to obtain today’s stop. Go to cell J14, enter the formula
=C13−2•I13, and copy it down the length of that column. It will
place a stop two Average Downside Penetrations below the latest
low. If today’s low penetrates yesterday’s low by twice the normal
range of noise, we bail out.
8. Refine the formula to prevent it from lowering stops in uptrends.
If the above formula tells us to lower our stop, we simply leave
it at the previous day’s level. Go to cell K16, enter the formula
176 THE THREE M’S OF SUCCESSFUL TRADING
TRADING 177
MAX(J14:J16), and copy it down the length of that column. It will
prevent the stop from declining for three days, by which time
either the uptrend resumes or the stop is hit.
Rules for Shorts in Downtrends When the trend is down, we calculate
SafeZone on the basis of the highs because their pattern determines
stop placement.
1. Obtain at least a month of data for your stock or future in highlow-
close format, as shown in Table 6.1 (highs are in column B
with the first record in row 3).
2. Test whether today’s high is higher than yesterday’s. Go to cell
L4, enter the formula IF(B4B3,B4−B3,0), and copy it down the
length of that column. It measures the height of the upside penetration
above the previous day’s range, and if there is none, it
shows zero.
3. Choose the lookback period for summarizing upside penetrations.
Begin with 10 days and experiment with higher values. Go
to cell M13, enter the formula SUM(L4:L13), and copy it down the
length of that column. It will summarize the extent of all upside
penetrations for the past 10 days.
4. Mark each bar that penetrates above the previous bar. Go to cell
N4, enter the formula IF(B4B3,1,0), and copy it down the length
of that column. It will mark each upside penetration with 1 and no
penetration with 0.
5. Count the number of upside penetrations during the lookback
period, in this case 10 days. Go to cell O13, enter the formula
SUM(N4:N13), and copy it down the length of that column. It will
show how many times in the past 10 days the highs have been
violated.
6. Find the Average Upside Penetration by dividing the sum of all
upside penetrations during the lookback period by their number.
Go to cell P13, enter the formula M13/O13, and copy it down the
length of that column. It shows the Average Upside Penetration,
the normal level of upside noise in that market.
7. Place the stop for your short position today at a multiple of yesterday’s
Average Upside Penetration above yesterday’s high.
Multiply yesterday’s Average Upside Penetration by a selected coefficient,
starting at 2 but testing as high as 3, and add the result
to yesterday’s high to obtain today’s stop. Go to cell Q14, enter
the formula B132•P13, and copy it down the length of that column.
It will place a stop two Average Upside Penetrations above
yesterday’s high. If today’s high shoots above yesterday’s high by
twice the normal amount, it hits our stop and we bail out.
8. Refine the formula to prevent it from raising the stop during a
downtrend. If the above formula tells us to raise our stop, we
simply leave it at the previous day’s level. Go to cell R16, enter
the formula MIN(Q14:Q16), and copy it down the length of that
column. It will prevent the stop from rising for three days, by
which time either the downtrend resumes or the stop is hit.


SafeZone offers an original approach to placing stops. It monitors
changes in prices and adapts stops to the current levels of activity. It
places stops at individually tailored distances rather than at obvious
support and resistance levels.

[fabrizio]

cpatte7372

From trader to Trader, one question that arise from your last post.

How do you plan your entry /exit and therefore your stops?

Thanks

[cpatte7372]

Hi,

My entries come from a number of systems, e.g. Force Index, EMA Crossovers, etc. At the moment exits are primarily based on the Parabolic curve, highest high being reached, or when prices crosses ema three times.

Carlton

[fabrizio]

RE: Reply to post 'Elders SafeZone'

Thank you.
My question is just because we are here, in the Tom Joseph AGET domain
and I wonder if you ever followed the AGET approach :
Typpe 1 buy/sel
Type 2 Buy/sell

or the simpliest and very efficient XTL trade managememnt.



Cordialmente

FJF







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-----Original Message-----
From: [email protected] [mailto:[email protected]]
Sent: Sunday, December 28, 2003 9:39 AM
To: [email protected]
Subject: Reply to post 'Elders SafeZone'


Hello fabrizio,

~~~~~~~~~~~~~~~~~~~~~~~~~~~~

[cpatte7372]

fabrizio

Can you show me where I can get more information on the AGET approach?

Cheers

Carlton

[fabrizio]

Originally posted by cpatte7372
fabrizio

Can you show me where I can get more information on the AGET approach?

Cheers

Carlton

Sure with pleasure.
Follow those links:
ADVANCED GET where you will find Marcus Reinheradt threads

Than Subscribe to his group ADVANCED GET GROUP

It is the most comprehensive "booster" to understand how to trade safely, making money and preserving your capital.

Marcus is a living Bible of expèerince and a great and prolific teacher.
At no cost.

You can even find his suggestions on opportunities to trade RIGHT HERE

I'm sure that once you'll be more familiar with our methodologies you will find them easy and absolutley profitable.

[fabrizio]

Let me add one more thing

This community is one of the most advanced in the world of trading for what concern level of preparation and support.
And the #1 in terms of dimesnion and care/support of the partecipants either customers or not.

ESIGNALCENTRAL is one of a kind, and - if you allow me- worth to be thoroughfully "explored".

Enjoy what you can find here.

[cpatte7372]

fabrizio

Thanks a lot. Unfortunately, because I'm very new to trading and don't have a great deal of money at the moment I don't think I can afford AGET just yet. However, once I become successful and have built up enough equity I will certainly subscribe to AGET.

Cheers.

Carlton

[cpatte7372]

fabrizio,

I couldn't agree with you more. This group has been a pillar of strength in helping me become a successful trader. I really owe a lot to the members of this forum.

Carlton

[Gavishti]

Should have your SafeZone efs soon. Just working out a few last issues. Hope to have it to you today for testing.

[cpatte7372]

Gavishti,

I shall look forward to testing it out.

Cheers

Carlton

[Gavishti]

I believe this is what was described in your post. Several parameters can be changed through Edit Studies. My apologies for taking so long. It has been several years since I was a programmer and JavaScript is a new language to me.

Test it out and let me know if it is working properly.