Managing The Latitude Lines

Now I want to show you something that can make your job a little easier when it comes to selecting your latitude lines. Some of my traders use this method exclusively and truly swear by it. This method works great with a choppy environment, as well those periods when the markets are quiet, like the middle of the day. I’ll let you decide if it’s right for you.

Basically, we analyze past swings to determine the direction and distance of the next swing that might give us a profit from one latitude line to another.

We do this by keeping track of past swings, and then averaging them out to see how far the next swing might move. If the next swing could cross two latitude lines then we would have a winner. This 5 minute chart from October 24th 2007 is a good example.

I use a log that helps me keep track of the swings. Each time I believe a high or low has occurred I jot it down in the appropriate column (note I often use just the last two digits plus the pipette, i.e. 35.7). I also log the time, since often the time difference between swings can help me determine a turn.

But mostly I rely on a unique program I created with Qbasic that shows me what the length of the next swing might be. Here is the basic formula in longhand.

First of all, to get an average of past swings, we could simply add up the last three up or down swings and divide by three.

A better way is to "smooth" the figure by multiplying the previous up or down average by two, adding today's swing, and then divide it by three.

For example, if we take the UP avg. at 15:50 (see log of the 5 minute chart on next page) of 12.6, and multiply it by 2, we get 25.2. Add that to the upswing at 18:10 of 17.0, and we get 42.2. Divide 42.2 by three and we get 14.1 rounded off. If we did a simple average of the last three swings we might get a distorted figure. By the way, the first entries on my example (10.2 and 11.8) are just arbitrary figures based on earlier swings.

How do we use the average? We simply add or subtract the last up or down average to the high or low and get a “target” point. If it appears the move would cross two or more latitude lines then we could plan our trade accordingly. It’s surprising how accurate the target often hits its mark.

If you want to use Qbasic to speed up your calculations I’ve reproduced a copy of the program at the end of this chapter. Simply copy it as you did in our previous chapter on using Qbasic. I’ve also reproduced a blank copy of my log in the appendix.

Then used, it doesn’t matter if the swing is going up or down. Just follow the instructions. The 25% figure applies to the average we obtain and, as we’ve seen earlier, can be helpful in determining if a turning point is valid.

Highlight and copy (Ctrl + C) this program. Then paste (Ctrl + V) to Notepad. Save it as Avg.bas and move it into the Qbasic folder.

10 PRINT
20 INPUT " HIGH NUMBER: ", A
30 IF A = 1 THEN 220
40 INPUT " LOW NUMBER: ", B
50 INPUT " LAST AVG UP/DOWN ", C
60 LET D = A - B
70 LET X = ((C * 2) + D) / 3
80 LET Y = X * .25
90 D = INT((D * 10) + .5) / 10
100 X = INT((X * 10) + .5) / 10
120 Y = INT((Y * 10) + .5) / 10
130 V$ = " DIFFERENCE: "
140 W$ = " NEW AVG: "
150 K$ = " 25%: "
160 PRINT
170 PRINT V$; D
180 PRINT W$; X
190 PRINT K$; Y
200 PRINT
210 GOTO 10
220 END

The printout will look like this: