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Trader
Tom Bierovic Comments On His Successful Trading Methods
By
Jim Wyckoff
(Note:
I wrote this story a few years back, when I was a journalist with
FWN.)
Tom
Bierovic got a taste of technical analysis early. At the age of 13,
he had a part-time job updating daily and weekly bar charts for his
father, who was a member of the Mid-American Commodity Exchange.
Bierovic
has been trading for his own account since 1971. Through the years
he has presented seminars on technical analysis and trading in 35
countries, and contributed the chapter on oscillators in Jack
Schwager’s 1995 book: “Schwager on Futures: Technical Analysis”.
He
is a featured speaker here this weekend as part of the 20th annual
Telerate Seminars Technical Analysis Group (TAG 20) conference here.
He shared with FWN some of his general ideas on trading, as well as
one specific trading method.
“The
most important requirements for a trader’s success is that he
trades in a way that is consistent with his own personality and
belief system,” said Bierovic. “’To thine own self be true,’
as Shakespeare said.” Bierovic said he has always needed “simplicity,
structure and a clear vision of the path ahead” in order to trade
successfully. “My trading method has to reflect those values.”
“I
need to know why I’m getting into a trade, where I’ll get out if
the market moves against me, and how I’ll exit with a profit if
the market trends in my favor. I have to be careful not to
over-complicate my trading method, not to make up new rules as I go
along, and not to lose sight of my goals.”
Regarding
entering a market, the risk and profit objective in a trade,
Bierovic said one of his best indicators is called Momentum
Retracement.
“In
Momentum Retracement, I first determine the trend. I use exponential
moving averages (EMA) of highs and lows with a faster EMA of closes.
I confirm that trend indicator with the signal line of a sensitive
MACD (Moving Average Convergence/Divergence). Second, I check to see
if the trend has good momentum and consistent directional movement.
I use an RSI (Relative Strength Index) to reviewuate the momentum
and the DMI spread to reviewuate the market’s current ‘trendiness.”
(The DMI spread is the difference between the + Directional Index
and the – Directional Index of Welles Wilder’s Directional
Movement Index.)
If
Bierovic determines the market is in a good uptrend, he next looks
for retracement. “At least three of these four conditions must be
met: prices decline into a moving-average channel, the MACD line
crosses below the signal line, the RSI declines below its midpoint,
and the countertrend decline is at least a 38.2% but not more than a
61.8% retracement of the previous trend wave.”
After
he identifies a retracement: “In an uptrend with RSI declining at
yesterday’s close, I buy at a one-third retracement of the
countertrend decline. In other words, one-third of the way back up.
If RSI was rising at yesterday’s close, I buy at one-third of the
way back up or at a return to yesterday’s high--whichever is
lower.”
Once
in the market and long, Bierovic then sets a protective stop at the
low of the countertrend decline “or at one 10-day average true
range below my entry point--whichever is lower.”
If
the trade is going his way, “I trail a stop at the highest high
since entry minus one tick more than the size of the previous
corrective wave.”
To
review, Bierovic looks for an impulse wave and a corrective wave. He
buys if the market starts back up, and he sets a “reasonable”
protective stop. Then, he trails a stop the highest high since entry
minus one tick more than the number of ticks in the corrective wave.
Bierovic
does not always continue to trail a stop until the market stops him
out. “There’s a time to trail a loose stop and a time to trail a
tight stop. On the day that the market reaches my profit target, I
raise the trailing stop to the intraday low.”
On
his profit target, Bierovic relies on a “measured-move objective.
It’s a little complicated to explain, but here goes: After my
entry into a long position, I look back on the chart and find the
most recent pivot point low (a low with higher lows to its left and
right on the chart) that would make the recent countertrend decline
a 38.2% to a 68.1% retracement of the uptrend. Then I subtract that
pivot-point low from the high of the uptrend and add the difference
to the low of the countertrend decline. That’s the measure-move
objective.”
Bierovic
recently joined Omega Research, Inc. as product manager for
technical and quantitative analysis education.
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