overview of profit-taking index (pti)

8/8/2019 Overview of Profit-Taking Index (PTI)

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Advanced GET Trading Strategies

O O v v e e r r v v i i e e w w o o f f P P r r o o f f i i t t - - T T a a k k i i n n g g I I n n d d e e x x ( ( P P T T I I ) ) (By Marc Rinehart)

There are some misunderstandings in interpretation and in application with the Profit-Taking Index (PTI) feature. I was Tom Joseph’s first employee at Advanced GET when Tom first developed

and introduced the PTI. I left the company to gain money management experience. When I returnedI was amazed to find how much importance users where placing on the PTI. It has prompted me towrite this review of the PTI study, highlighting its primary purpose and then introducing a fewexamples of proper use.

We need to start first with a brief review of the Elliott WavePrinciple. This principle teaches a ‘wave’ sequence is made up-- inits most basic element-- of a pattern of five waves: three waves with the trend and two waves against the trend . We define the twowaves against the trend as a Wave 2 and 4. The unique quality inthese two countertrend pullbacks, they are really considered more

"profit-taking" waves where accumulated profits are finally taken.The Type 1 trade setup we teach is an attempt to catch the end ofWave 4 or the early beginning of a Wave 5. Determining whether aWave 4 is in fact 'normal’ profit-taking is our paramount concern.How do you know if a Wave 4 retracement is normal?

The "Profit-Taking Index" (PTI) is an algorithm developed inAdvanced GET that is quantifiable and attempts to define the buyingor selling momentum at different stages of development. Thisstatistical conclusion provides visual insight into the real nature ofprofit-taking going on that WAVE 4. It is important to distinguishing

between normal and abnormal profit-taking because thatidentification of real differences can lead to greater odds for moresuccessful Type 1 buy or sell attempts.

To answer this question the PTI algorithm takes the data from theprevious Wave 3 and compares it to the Wave 4 trading action. This comparison is then taken andcompared against a historical database. The algorithm then represents this comparison as a numberIt uses a scale from 0 to 100. If the PTI is greater than 35 it is said to have "normal profit-taking." Ifthe PTI is less than 35 it is said to "not have normal profit-taking."

If the PTI is greater than 35, the market statistically exhibits a greater tendency to initiate a fifth

wave or a second attempt phase. If the PTI is less than 35, reciprocally the market generally fails toinitiate a fifth wave or second attempt phase.

The Profit-Taking Index (PTI) is designed to work in either Wave 4 direction; the PTI numbersrepresent the same values in either up or down Elliott Wave sequence direction. The PTI numericalvalue has the same interpretation no matter which direction the price pattern is trending.



Does a very high PTI value increase the odds of a more successful Type 1 buy or sell setup? Theanswer is, NO, it does not. The way the study is designed a PTI of 35 is a threshold value. A valueequal to or greater than 35 represents ‘normal’ profit taking. Values below 35 means: be forewarned,something else other than normal profit-taking may be going on in this Wave 4 pullback. Now, on apersonal level-- I do like to see very high numbers when searching for a good Type 1 setup. Veryhigh PTI values are always appreciated. However, a high value PTI is NOT a guarantee of a winningtrade setup. Equally, a lower PTI does not necessarily mean it is not a Type 1 setup, but it does

mean this is not a time to be lazy and do minimal research or analysis if thinking about taking a trade.While the PTI can play a good role, it should not be the only study used in the decision-making tradesetup process.

Always remind yourself the primary purpose of the PTI-- to quantitatively, empirically help visuallygauge is the Wave 4 exhibiting "normal" or traditionally expected profit-taking one would expect tosee in a healthy Wave 4 retracement? The same goes with a very low PTI. In the chart below the lowPTI served as a good advanced warning this may not be a quality Type 1 buy setting up. The priorityshould not be to recognize how low the PTI is or as an indication of how weak it will be. Rather, thefact it is below 35 is the priority observation. Below 35 simply means it may not be "normal" profit-taking going on and it really requires more caution to be exercised when looking for a Type 1 buy

setup. If the PTI falls below 35 it means something else may be going on is not easily identifiable justlooking at the stock. Greater due-diligence is required with these warnings.



The question is, “would I take a trade just because of a very high PTI, or would I NOT trade a Type 1 because of a very low PTI? ” The answer to both is, NO. The PTI is only one tool in helping setup asuccessful Type 1 trade. There are times when I will trade a Type 1 setup when the PTI is not idealbut several other tools show an encouraging Type 1 setup. If the PTI is above 35, I am grateful.When I see a low PTI, I think more it is like a caution flag raising a warning. A caution flag may notstop a race, but it should get you to slow down and pay closer attention.

I do not second-guess the PTI. I have seen quite often a low PTI ultimately vindicating itself. Backin the early stages of a not so recent tech sector selloff people complained because of low PTI’s onweekly tech charts. We all know later where they ended up. A low PTI mostly means do moreresearch to determine what really is going on if you still want to take a trade. It means be willing toprotect a position quicker if going against a low PTI. It means now may not the time to be greedy.

Respect the Profit-Taking Index, but remind yourself periodically it is not the only reason for takingor not taking a trade. Remind yourself its primary purpose is as a simple-to-read "profit-taking"measurement tool, designed to help you better gauge what kind of profit-taking is going on in a Wave4 pullback. Remind yourself the PTI was never meant to serve as any kind of mechanical trading

trigger. Remind yourself while a PTI may appear to be measuring intensity of profit-taking whenextreme values exist that is not an accurate assessment.

Finally, remember the PTI really does work best when combined with other Advanced GET tools,studies or indicators to help develop a comprehensive Type 1 setup picture.

While we have not focused here on the Wave 4 Channels, both studies work tandem in nature.Together they can support an improved picture of real Type 1 setup potential.

overview of profit-taking index (pti)

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