Thank you Robert. I agree, the UCL/LCL indicator lines provide us with an
excellent leading measure. :) They are true leading indicators derived from
information unrelated to old prices! This makes them the ideal addition to
traditional price derived measures (including our proprietary price derived
measures as well).

I am going to provide some additional information here for everyone. Some of
this is from a recent email and some from one of my evening reports. I think
this may help provide more insight into very important topics (different
aspects of the business). Yes its a little long, but use what you can and pls
forgive any typing erros.

Price derived measures and the UCL/LCL:
Price derived measures tend to lag the current price structure due to their
design. All price derived indicators use old information or recent market
conditions (derived from old prices, volume and open interest). This data may
be a day old or several weeks old (or anywhere in between). Now it certainly
has many uses, very important too, however there are limits to what can be
gained from looking at old price related information (including volume and
open interest).

The UCL/LCL and our other IMPA measures are derived from the weekly COT data.
This provide us with a live snap-shot (picture) of the market (exactly how the
participants are positioned) at an exact moment in time! This is something the
price data can never provide.
We are able to use this information in conjunction with price information to
determine what is likely ahead based on what eventually MUST happen. For
example, if the funds are holding a record size net-long or net-short
position, we know at some point in the future this position MUST be
liquidated.

The funds are the largest active participants on a day to day basis (with the
same goal in mind, to profit). The commercials on the other hand are aiming to
hedge (reduce their exposure, and in many cases they simply want to have no
exposure at all). They are able to achieve this goal by balancing positions
they hold in actual physicals with positions in the futures market.

Using our graphs and data we can see exactly how each group of participants
are positioned now and how they have been positioned in the past. When we
examine this more closely we also learn how price behavior correlates with the
positions of the various participants. We find certain specific correlations
exist (between the price and the positioning of each group of participants).
For example, we know certain IMPA conditions have correlated strongly with
major turning points in the past. And we continue to see these relationships
at work in recent situations as well. In fact this will continue to work for
as long as the markets exist because what we are seeing and using is exactly
how the markets work.

Using this information (in a trading system) provides us with a very reliable
method for determining what's ahead (a real view ahead through the front
windshield versus the preverbal rear-view mirror view obtained from lagging
price derived indicators)! In other words we let the participant positioning
provide us the view of what's ahead rather than relying on the most popular
price derived indicators which are followed by the masses (the crowd), whom
have the worst trading record. Using statistics also improves our ability to
pin-point a window in time when a turn is most likely to occur (based on the
probabilities of price behavior and the correlation of the participant
positions).

The right mix:
There are many ways to make a good cake (using various ingredients). Hence why
I call our trading criteria "ingredients". No trader is 100% mechanical unless
they follow a mechanical system 100% of the time. That means no picking and no
choosing, and trading all the setups without question. This can work to some
extent with intra-day systems or very short-term systems attempting to scalp
or exploit small opportunities (even large funds have used this method).
However most individual traders whom are position trading are using some level
of discretion whether they want to admit it or understand it. Thus as far as I
am concerned this is just as important as the mechanics of any system. A
professional race car driver for example does not win a car race simply
because he has the fastest car (the best mechanical system which is his car).
To win he also must have the right experience and instinct as well (and
sometimes a little luck doesn't hurt either, but that's not a determining
factor on a long-term basis of course). Clearing when it comes to racing cars,
SKILL is involved. The same is true with trading. SKILL is involved!

All professional traders have their own unique mix, even those using the IMPA
with our list of criteria may also incorporate some of their own unique
ingredients to the mix as well. This includes their own instinct and
experience too. Our criteria provides an excellent foundation and even by
itself it is a very reliable mix! :) But as far as duplicating the performance
of any mix, the only way to do that is to be 100% mechanical. And that can
only be achieved if one takes ALL the setup trades a mechanical system (or mix
of criteria) generates. In many cases however this is not feasible and
individual traders do not follow a 100% mechanical approach. They almost
always pick and choose (deciding to take one trade over another, or taking
time off and not taking certain trades at all, And those trades may turn out
to be the big profitable trades they needed to achieve the performance the
system is generating). So what do we do about all this?

First we have to accept the fact that some dissection is involved. Secondly we
need to identify what it is we are looking for when one picks or chooses one
setup over another. Thirdly, one of the things I clearly do is that I do not
go on vacation during certain times of the year because my experience has
taught me that there are certain times of the year I do not want to miss a
trade and there are other times during the year when I can take a vacation.
Thus, overall, there are many many variables to consider whether you are
trading a mechanical system or using a discretionary approach. Again,
discretion is going to be part of every approach and system (even systems like
the IMPA which has a defined set of criteria and rules). This is important to
understand. Once you realize this you can begin working on your own set of
discretionary rules and criteria (that applies to you and your own unique
situation only).

Respectfully,
Floyd