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Technical Analysis - Envelope Trading:
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Let's review the trading technique as presented in my last comment, and think further about some additional ideas I have conjured up based on some more research.

First, the trading rules for this technique reviewed:

(1) Run a five-bar Proprietary Look-Ahead Envelope on the tradeable with which you are working. The width of the envelope should be 1.25 - 1.5 standard deviations, depen ding on the type of tradeable (I'll discuss the proper width of the envelope in a minute). Each bar can represent any trading period. The bars can represent daily, weekly, or monthly trading periods. They can even be odd-numbered days, weeks, or "whatever" bars, and can number in the hundreds, for that matter, as long as each bar represents distinctly equivalent trading periods.

(2) If a bar drops through the bottom of the envelope, start entering limit orders to buy one unit of the tradeable at the price associated with the projected bottom edge of the envelope for each "next" trading period. Let's go through an example: Let's say you are trading S&P500 futures contracts, you are doing your daily analysis at 7:30 P.M., the projected bottom edge of the envelope for today was 460.17, and the low for today was 459.75. That means you droped below today's projected bottom edge of the envelope. Let's say the projected bottom edge for tomorrow's envelope is 458.53. Sometime before tomorrow's open, you would enter an order to buy one unit of the S&P500 futures contract at a price of 458.55. (These contracts trade in minimum movements of "0.05" and you want to be sure to get a fill if prices drop to the trading value closest to the projected edge of the envelope). If you don't get a fill for an order during the next trading period, keep putting in limit orders at the CHANGING projected envelope edges as the trading periods go by, UNLESS prices pierce the opposite edge of the envelope (in our example, the top edge of the envelope). If that happens, use the same logic to try to get a fill in the reverse position. In our example, this would be two piercings of the top edge of the envelope to go short.

(3) If you get a fill in a long position, start placing orders to sell at prices associated with the projected top edges of the envelope. Also place orders to buy TWO units of the tradeable at projected bottom edges of the envelope. Then, three things can happen after you enter a long position as the trading periods go by: The best thing that can happen is that prices can pierce the top edge of the envelope. If that happens, you will be sold out of your long position at the top edge of the envelope (hopefully at a nice profit). The second thing that can happen is that a trading period will go by without piercing either the top or the bottom edges of the envelope. In that case, you will neither sell out of your position, nor will you add more long units to it. You will have evolved from a trader into an investor! The third thing is that you will pierce the bottom edge of the envelope one or more times before you sell your position at the top edge of an envelope. Each time this happens, increase the size of your next order by a factor of 2.0. You should be getting closer to a turn back up in prices with each increase in your position.

(4) The trading bar that generates an exit signal counts as the first piercing of an envelope for entering the next (and opposite) position. Use a mirror image of the trading rules described above for entering, adding to, and exiting from short positions.

Well, those are the rules as described in my prior comments on Technical Analysis Principles. But as I indicated to you at the start of this comment, I have been doing some more research since writing this thing up for you. I'd like to discuss some ideas I've had about this since then.

First of all, sometimes you will experience what I call a "long bar surprise." (Cute, huh?) This happens when prices move well below the projected edge of the envelope. Then too, the next bar just might not "make it" to the bottom edge of the envelope. It would always be nice to have added more long positions near the bottom of the long bar which drops so surprisingly. And there is a simple way to do that: You enter a second order to go long at a price at the bottom edge of a 5 bar, 2.7 standard deviation envelope, on the same day. Increase your position as though it were an ordinary day of piercing the bottom edge of an envelope, using the "standard" rules. Often, a sharp thrust will move the next projected envelope edge so far that it is difficult to reach it without some way of increasing your position on the day of the strong move. This is sort of a "modification" on the "standard" rules, eh?

By the way, I frequently use weekly bars for trading individual stocks. Weekly bars will usually work better than daily bars for individual stocks because there isn't enough price movement in daily bars to overcome those darned commission costs of trading, in the first place.

Another observation I've had since we started to rock-'n'roll is that you should probably use entry prices associated with envelope edges of 1.25 for tradeables that are very volatile (like Sugar, pal). This would include futures contracts and individual stocks. Apparently, the higher volatility spreads out the envelopes to widths that are harder to hit. That makes it harder to get fills for your orders and too many good trading opportunities are missed. Remember in my prior comment, I used stock indices in two out of three examples? Of course you do! Well, stock indices are not as volatile as individual stocks and commodities.

Another "modification" to the "standard trading rules" which I would suggest is that initial entries be taken on the FIRST piercing of an envelope edge, if the trade would be made with the five bar trend. In other words, if the five bar trend is up, take an initial position on the first piercing of the bottom edge of the five day envelope. One way of defining that the five day trend is up or down is to look at the center line of the envelope. If it is projected as moving up during the next bar's trading, take an initial long position on the first piercing of the bottom edge of the envelope. If it projects that the center line is going to move down, take an initial short position at the first piercing of the top edge of the envelope.

Another way to define that the five bar trend is up or down is to look at the five bar least squares momentum. If it is above the dotted line (i.e., if it is greater than zero), it is okay to go long on first piercings of the bottom edge of the envelope. If it is below the dotted line (i.e., if it is less than zero), it is okay to go short on first piercings of the top edge of the envelope. Use the five day least squares momentum indicator to determine the five day trend of prices.

Well, that's the whole deal in a nutshell. I have a sneaky feeling that this trading technique can be further modified after more research, but it is still promising enough that I wanted to share it with you now. Hopefully, you will even be able to refine it in ways which I haven't even though of (yet)!