R/R Oscillator and FLD
CIT Channels are inspired by the pioneering work of J.M Hurst, and provide a powerful visual aid for defining the trend and determining the trading range with high accuracy and confidence for the following day, week, month, etc. (depending on the time period you’re viewing). In addition, CIT Channels allow you to determine the risk profile of your next trade.
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Unlike the majority of traditional technical analysis (TA) tools, CIT Channels are forward looking. A properly drawn channel should include all but a few extreme data points. Although the default settings should work for most instruments in any time frame, users have the ability to adjust the distance between the channels from the Settings dialog.
Values between 8 and 10 for the short channel usually yield best results.
Swing traders should look for long/short opportunities when price reaches the upper or lower channel or when it crosses above/below the Pivot or Alert line, or when the Pivot Line changes direction/color. Trend traders should stay with the trend until the longer term/outer channel changes direction.
Channels are indicated by the blue and yellow lines as a default setting, but users can change the colors from the Settings menu.
The grey horizontal dotted lines show the price levels which were determined in the past when the trading range was first calculated. While the channels are dynamic and change as price evolves, the current trading range will remain fixed for the current time period. In simple terms, there's no other indicator that allows you to track the forecast and the result of the forecast at the same time. It is also an efficient and intuitive way to track the evolution of trend in real time.
The yellow horizontal lines show the future trading range.
For example, the daily price targets for March 9th are calculated on March 2nd. At the beginning of a strong up-trend, price should be able to exceed the upper target. The opposite is true for a down-trend. In a sideways, range-bound market, or when the trend weakens and is about to end, these lines will act as support/resistance and reversal levels. For ease of use, the target zone is shaded in green, when both the short and long channels are pointing up:
yellow, when they point in different directions, and red, when they are pointing down:
The Pivot Line is indicated by the green and red dotted line. It is independent of the Channels and is designed to help traders manage their positions.
The CIT Risk/Reward Oscillator is a proprietary oscillator designed to quantify the risk profile for any time frame. This is a forward looking indicator and for trading purposes should not be used as a stand-alone tool, but in conjunction with a coincidental indicator, such as the pivot line or the SAR indicator.
The latest version of the RR Oscillator includes: 1/ Outside channel oscillator, 2/ Inside channel oscillator, and 3/ RSI oscillator, giving users access to current and forward looking oscillator readings at the same time:
When using CIT Channels there are three possible scenarios: both channels point up, both channels point down or they point in different directions.
When both channels point in the same direction the analysis is pretty straightforward, as this is strong evidence that price is trending.
When the channels point in different directions, the strategy is to wait for the shorter channel to bottom/top and then enter in the direction of the longer channel. When in doubt about the direction of the channels remember to always keep track of the longer and shorter time frame.
In Hurst’s words, a buy signal must be capable of being set up in advance of actual price action. We must be able to say: “for these logical reasons, if the stock behaves in the future in a certain, specific manner, this action will be interpreted as a signal to buy.” In addition, “the buy signal must have the characteristic of assuring us the highest possible probability that the stock will immediately proceed to make us the largest possible profit in the shortest possible length of time.”
Hurst was the first to admit that envelope analysis meets some of these requirements, but not all. To improve the situation he advocated the use of a “valid trend line” in order to achieve “edge-band” transaction timing. Such a line can be drawn manually, of course, and the traditional way of doing this is to look for at least two peaks or troughs and then connect them with a straight line. We prefer a quicker and less subjective approach by using the Pivot Line, which is displayed by default along with the channels, or by using CIT Angles. Any of these two methods should generally be counted on to provide maximum room for upside/downside price motion for the selected trading time frame.
In addition, the CIT Risk/Reward Oscillator is also an excellent tool for filtering periods when to take trades, and when to sit on ones hands. Users have the option to display High and Low Alerts (orange and blue horizontal lines) which are triggered when the oscillator reaches overbought/oversold levels:
Once a High or Low Alert is triggered, start looking for Pivot Line reversal (change in color) as a confirmation for long/short entry and exit points.
A second set of Alert lines can be displayed when price crosses above or below the Pivot Lines:
Hurst also advocated the use of a FLD (future line of demarcation, or displaced moving average), which you can easily display on your chart:
In summary, CIT Channels are an excellent tool for determining future price range, and for visualizing the short, medium and long-term trend and trend reversal targets. They accomplish these tasks automatically, without user interference and the need to subjectively pick price levels from which to calculate extensions and retracements, to select the associated ratios which go into such calculations, and to perform other tedious tasks which slow down the analytical process.
Since both the channels and the oscillator are forward looking and self adapting to changing market conditions, we've included the Pivot Line and the Alert and Target lines, and would recommend any other indicator from the package, such as the CIT Cloud, the CIT Angles, or the SAR line from CIT Angles, as an independent trend confirmation and trade management tool.
If you have any doubt about the value added of CIT Channels, please display them along with any other "channel" , "band" or "envelope" indicator from the NinjaTrader indicator menu.
If counting waves is your preferred method of analysis, then CIT Channels will make your task much easier, as they have an unparalleled ability to highlight waves of different degrees on the same screen.
As for the time savings which can be achieved with CIT Channels, please consider this all too familiar scenario. Elliotticians spend an inordinate amount of time calculating extensions and retracements, and the accuracy of their calculations depends on subjectively selected pivot points which can widely vary from one analyst to another. With CIT Channels, however, all you have to do is select a higher time frame to get accurate and upside and downside price targets. For example, if you trade based on a daily chart, check the price level of weekly, monthly and quarterly channels to get realistic and automatically calculated extension and retracement levels.
As with most indicators, it is good practice to keep an eye on the higher time frame when price action seems to reach extreme levels within a lower time frame. This is because what may seem overbought or oversold on the hourly chart my just be the beginning of a new daily or weekly trend.
Recommended reading: J.M. Hurst, The Profit Magic of Stock Transaction Timing, Cycles Trading & Trading Course.
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure
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 of 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 which can adversely affect trading results.