To start, Shift Theory™ is completely new concept. In order to understand how it works I have included the story of how I figured out this trading system. For years Shift Theory™ was something I knew was there but just could not put my finger on it. It has always been like the word that is on the tip of your tongue but you just can’t seem to say it.
Shift Theory™ is a category of technical analysis techniques that studies how entire bars on a chart shift to change the direction of the price or trend.
Discovery and the Eureka Lunch at Mom’s
|I was having lunch at my parent’s house and broschol was the main dish. Before eating the broschol I pulled out the toothpicks and put them on the napkin. At that moment I realized that the toothpicks were like the bars on a chart and they all have similar lengths. I quickly started playing with them and discovered that bars on a chart shift and that is how prices move. This was the eureka moment that solved all of the issues I have been having trying to develop an automated trading system. The toothpicks were arranged to reproduce three types of price action:||
Choppy or sideways markets have one thing in common. That is the bars or toothpicks have a high percentage of overlap over the previous bar. In a perfectly sideways or consolidating conditions the bars or toothpicks overlap each other 100% of the time.
Strong or up trending markets have bars or toothpicks that stick out above the previous bars high. A market cannot go higher if it does not make a new high. The stronger the trend is the higher the percentage of the current bar is shifted above the previous bars high.
The formula used for this measurement is simple. The high of the current bar minus the high of the previous bar. This way the only data that is measured is the change between the two highs and it avoids most of the noise that causes traders so much confusion.
Weak or down trending markets have bars or toothpicks that drop down below the previous bars high. The weaker the price the more a bar will drop below the previous bars low.
The formula used for this measurement is the opposite of the up trend. The low of the previous bar minus the low of the current bar. This way the only data that is measured is the change between the two lows and that keeps trading signals simple and clean.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.