JFC Self Adaptive Indicator Signals

Buy Stops and Sell Stops – The Ultimate Purpose of the JFC Entry Point Indicator

As you will recall from your study of the JFC Entry Point Indicator Manual that the primary use of the Entry Point Indicator is the definition of short term support and resistance in the market .

The Entry Point indicator concept is incorporated into many of the signals in this section.

Signals using this concept are easily identified by the “ept” (EntryPointT) designation in the name of the individual signal.

Signals carrying the ept designation use the support or resistance point as generated by the Entry Point Indicator as the entry point for the generated trade.

Using the Reversal Buy ept signal as an example, the signal first looks to the Reversal Indicator to open a buy window. After the buy window is open, the signal then calculates the appropriate resistance level above the market as designated by the Entry Point indicator and places the buy stop at this point. The position is then established when the market breaks through the resistance point, activating the buy stop.

Inputs

All signals carrying the ept designation have associated with them two additional inputs: Ept_Sens, defaulted to 2, and Fade, defaulted to 0.

The Sens input is simply the same Sens input that is used to govern the sensitivity of the Entry Point indicator. Be sure to set this signal input to the identical value being used on the chart by the Entry Point indicator. See the manual section entitled Input Considerations for further details on the importance of this concept.

It is important to understand that the market be forced to break support or resistance to activate the buy or sell stop and therefore establish the appropriate market position. This means that the market must actually trade higher than the buy stop or trade lower than the sell stop to establish these positions. Here’s where the Fade input becomes important.

The resistance number calculated by both the Entry Point indicator and the signal carrying the ept designation is the actual support or resistance. Simply requiring the market to trade at this level is not the same as requiring the market to break support or resistance.

The Fade input sets the amount by which the user of the signal requires the market to break support or resistance prior to establishing a position. Setting the input at an extremely small number (.01 or lower) will require the market to break support by one tick, or minimum price movement, to establish a position as determined by the rules of the signal. By altering this input signal users have the ability to adjust the degree by which the market must break support or resistance to establish a market position.

This is an important concept to understand prior to the use of any of the signals carrying the ept designation. Leaving the Fade input set to 0, as is the default, will cause the signal to occasionally get long on a double top or get short on a double bottom. These are not the situations which lead to a profitable system in most circumstances.

The above chart represents the buy signal which occurred with the Fade input set to 0 on this chart of the S&P 500 futures on February 5, 2002 . Note that there is a buy window open courtesy of the Reversal indicator. With the Fade input set to 0 the long position is established when the market trades at the resistance level established by the Entry Point indicator, effectively getting the system long at a double top. The market then declines, creating a losing position for this trade.

With the Fade input set to .01 the market in unable to establish a long position as the resistance is not broken.