Post 008: Are Channels Dynamic?

Many people have the opinion that the channel tools in MetaStock change their direction with each new tick of data that comes in. Well, they are right, IF they have made the mistake of placing the End Date of the channel on the last bar/candle of data in the chart. If the End Date (or End Time in Intraday charts) is the last data point in the chart, as new data comes in the end-point shifts up or down based on the new data, and that makes the channel's direction shift, making it virtually worthless for trading.

Properly drawn (or placed) ERRCs or TW Channels don't behave this way, as they will never use the last point of data for the End Date.

Once an ERRC or TeamWork Channel is properly placed and extended into the future, it will be ready to chart Support and Resistance levels as they happen; however, they DO NOT change as new data comes in. A channel that changes with new data is of no value at all for a trader, particular not for a real-time trader. So, every effort should be made to place these channels accurately. Be as certain as you possibly can be as to their accuracy before making trading decisions based on them.

Formulaic Versions of the Channel Tools Do the Same Thing
A co-worker of mine at my former employer, who was very skilled in writing formulas for MetaStock was asked to write a formula to reproduce the Raff Regression Channel. Did he succeed? Yes and No! Yes, he managed to create a formula that seemed to duplicate the Raff Regression Channel, but actually, it drew it backward.

His formula, perforce, initially he used the last date of data in the chart and picked the 'start date' for the channel virtually at random. Later, he 'refined' it to allow the entry of a specific Start Date back to which it would be drawn, but he still used the latest incoming data for the End Date/Time, hence it was dynamic and kept changing the direction of the lines as new data came in, making it, in my view, worthless for trading.

In other words, he could produce a very real looking pseudo-Raff Regression Channel, but it differed from the real thing in two critical ways. First, it was dynamic, because, since it used the last data point in the chart as the 'end date', as new data came in, the path of the channel changed; and, 2) any calculated formula in MetaStock cannot extend to the right beyond the last point of data in the chart, thus it has no ability to project the path of the channel into the future.

A formulaic channel like this, being calculated, instead of drawn, makes it possible for MetaStock to determine whether the price is above or below one of the lines of the channel, but the changing nature of the channel's path makes this aspect of little real value.

I've seen other formulaic reproductions of the various channels that are hand-drawn in MetaStock, but they each have the same flaws, so in my view, they are not worth much.

The ERRC and TeamWork Channel must be drawn on historical data, and extended to the right (into the future), thus the Start Date (SD) and End Date (ED), which make up the Hand-Drawn Range (HD Range) are fixed points in the past that cause the channel to follow a specific path into the future. If drawn correctly, this path will cause the channel to accurately chart points of Support and Resistance in the future that the savvy trader can use to aid with trading decisions.



As you review this chart from Post 004, I'll summarize and emphasize: The last point of data in the chart MUST NEVER BE USED for the end date of an ERRC or a TeamWork Channel! If you do this, you're wasting your time, as the unstable nature of the last point of data would very likely negatively impact your trading results.

So what are the drawbacks, if any, of using the ERRC and TeamWork Channel? We'll discuss this in the next post.

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