Transcript:
Tim Bourquin: Hello, everybody. Welcome back to TraderInterviews.com. Thanks very much for joining me for another show this week. And today, we're going to do something a little bit different. I spoke with Cynthia Kase at the recent Traders Expo and took a look at some of her charts and the way she looks at the market, so I wanted to get her on the phone today and talk to her about that and show you some of her slides as well. So Cynthia, thanks for joining me on the phone.
Cynthia Kase: You're welcome.
Tim Bourquin: Well, let's talk about kind of your overall approach to the market. Can you kind of describe your philosophy about trading and investing?
Cynthia Kase: Well, my focus has always been more on the trading side. I started out in the market as an oil trader and so my focus has been as opposed to selecting an instrument that looks good in developing techniques to trade a particular instrument of interest. For example, if one is a crude oil trader, you don't have the option to trade corn if corn looks better than crude. You have to trade crude oil. If you are a wheat trader working for a large food company for example, you don't have the option to trade crude; you have to trade wheat. And so, my focus has always been in very precisely trading a particular instrument of choice as opposed to what I call blunt instrument trading, and that is trading a large portfolio, cutting your losses, and letting your profits run with very simplistic systems. Our approach has been to precisely enter, precisely access a particular commodity or issue.
Tim Bourquin: Okay. So you're developing ways to look at the markets that would apply to any market then?
Cynthia Kase: That's right.
Tim Bourquin: Okay. And one of the things that I wanted to talk about right off the bat was case bars because you kind of developed a unique way of looking at bars in the market. Talk about that a little bit.
Cynthia Kase: Well, years ago, back in the 80s, I began to think about volatility and how volatility is really the life and breath of the market. And I began to think about the market three dimensionally as a maybe a torus where a where in actuality, the diameter so to speak of the market would expand and contract based on volatility. So I thought of time charts as looking at let's say the diameter of the torus expand and contract. So for example, if in a given hour, an hourly bar with a dollar high, then the diameter was a dollar. If the if the bar was two dollars high, the diameter was two dollars.
And I began to think, well is there a better way to look at the market rather than just time? And I thought well, why not normalize the market charts for volatility and look at bars with equal volatility? So, because volatility is kind of the underlying measure of the market, I thought it would be better to look at the market based on volatility. And just to give you an idea, volatility is proportional to the square root of time, so I wanted to look at something that was directly proportional to the x-axis, not proportional to the square root of the x-axis.
So very simply, what we decided to do was to look at the market based on a measure called average true range. And the first time I read about the average true range was in a book by Welles Wilder, New Concepts in Technical Trading, which was published in the late 70s. And so I decided to I developed bars, price bars that are equal average true range as opposed to time on the x-axis.
Tim Bourquin: All right. So looking at the first slide that our viewers are watching in the video here, the bottom right shows you on the left is kind of what regular bars would look like and then on the right side of that is what your bars look like because they're all the same size now.
Cynthia Kase: That's right, the ticks that make up make up the price action, the actual transactions and prices reported that make up the price action are the same, okay? The prices are the prices. However, the way that the bars start and end on the left is dictated let's say by a 60-minute bar, a 5-minute bar. On the right, it's dictated by the range of the particular bar.
Tim Bourquin: Okay. How does this help you then see the markets more clearly?
Cynthia Kase: Before we go to it, I have got a couple of slides that show you that. I just want to make a comment that on this slide is the is the formula for the true range if anybody is interested in that. So going to the second slide...
Tim Bourquin: We're on the case bars versus time bars now.
Cynthia Kase: Okay. So if you look at the case bars versus time bars, this is gold. And let's start by looking at the right, which is a standard 60-minute chart. You can see that there are some very large bars going up, some very small bars dropping around, and at during periods of sideways consolidation, the market has become very choppy and very difficult to trade.
If you look on the left, you can see much cleaner price action, that whole choppy period, beginning of the chart is condensed into a clean move up and a clean move down. And then when the market starts to move up, the choppiness at the beginning of the move, it basically disappears and you just get a nice clean move up and then a clear correction down, nice move up again. And more clearly, on the move down after the peak towards the right-hand side of the chart, if you look at gold, you can see that there were a number of small bars, and then the move down took place in basically one hour with another large move down the following hour. Where on the case bar chart, the move is broken up into four or five bars of equal range and makes it much more easy to trade, enter the market to see the see the charts, et cetera.
Tim Bourquin: All right. So could I apply then a moving average or something else along any other indicator to case bars as well?
Cynthia Kase: Yes, you can work on it. You see an example of that in the slides. Shall we take a look at the national gas chart where we have the candlesticks?
Tim Bourquin: Let's do that. We're talking about the slide now, case bars versus time bars, NGN10.
Cynthia Kase: Yeah, I wanted to specifically show the case bars with candlesticks because some people mistakenly think that case bars is a different type of bar. In other words, it's not an open-high-low-close bar or a candlestick. So the case bars is essentially equal range on the x-axis, but the bars and the candlesticks display like an open-high-low-close bar or a candlestick normally displays.
And here for example, you can see that there was a huge dropdown in one hour, and on the case bars, that one big hour gets broken up into many, many different hours, I think maybe six or seven, excuse me, six to seven bars, and you can see the decline much more clearly and trade it much more easily. And then the sideways move to place overnight gets compressed into a couple of bars as opposed to the sideways small range action that we see overnight on the on the hourly candlesticks.
Tim Bourquin: All right. So, because I have more bars, I can start to see this decline more clearly than if I saw it just happen in one bar. Is that basically the essence of it?
Cynthia Kase: Well, you can take advantage of it. I mean, certainly, you can see it on the right, but you can take advantage of it because u get a signal. The indicators update after every bar, right? So rather than waiting until the move is over before you get a signal, you'd get a signal somewhere after maybe the first and second bar down as opposed to waiting till the move is over and then you get the signal.
Tim Bourquin: Got it, got it. Okay. So if I'm if I'm trying to automate my system, maybe I'll get a signal earlier than it would than if I just had it at the end of the bar.
Cynthia Kase: Yeah, I mean, we're calling this whether it's automated or not. I mean, if you're using a manual moving averages, stochastic, or whatever you're using, you're going to get the signal sooner.
Tim Bourquin: Are we ready to move on to the peaking case bar range?
Cynthia Kase: Yeah. Certainly, I think people understand the concept, but then comes the challenge of how to choose the range. What range should I use? And the methodology is very simple. Here at the top we have a 15-minute chart. So for example, if you were a trader and you normally would trade a 15-minute chart, you'd set up a 15-minute chart like you always do and then you would apply the true range to the 15-minute chart.
Now here, this is a 24-hour market and we've got a very low true range overnight and then the true range comes up during the day. So just on this chart, the true range is varying from about 1.85 to 2.65. And on most charting systems, the average true range is available. You just apply it to the chart. So I'm going to pick 2.25 as my target true range.
Tim Bourquin: And why is that? Why 2.25 did you just want?
Cynthia Kase: Well, it's kind of in between the range between 1.85 and 2.65.
Tim Bourquin: Okay.
Cynthia Kase: So I'm just trying to pick a representative true range for this chart. And so then I'm going to go into my case bar chart and I'm going to set my target to 2.25. And whereas you can see at the top, the range varies around a bit from 1.85 to 2.65. On the bottom of the chart, the true range varies by very little. It's right around 2.25 for every bar.
Tim Bourquin: Now, I didn't ask, am I able to get case bars? Is it something that's available in say like at Trade Station or Meta Stock or anything like that?
Cynthia Kase: It's available presently on Trade Station, and it will be made available on Bloomberg Professional later on this year.
Tim Bourquin: Okay. Is it something is it an extra feature I have to pay for?
Cynthia Kase: It's free on both systems.
Tim Bourquin: Okay, got it.
Cynthia Kase: Okay. And here is a similar chart. The next page shows a similar chart, the same instrument for a 45-minute chart. So it's a similar type of thing. We set up a 45-minute chart. We see that on average, the true range is between about 3.68 and 4.10. So I'm going to pick 3.89 kind of as a representative, a size, and at the bottom, I'm going to set my target for the case bar at 3.89.
Tim Bourquin: Yeah, I can see on the bottom too when we do input that, that even on a sideways market, you still get more of a feeling of being able to pick tops and bottoms a little bit easier I guess.
Cynthia Kase: That's right. It condenses, it spreads out high range bars, and it condenses small range bars.
Tim Bourquin: So it eliminates a lot of noise I think in the market as well.
Cynthia Kase: Tremendously. Let's look at one more chart on just comparing time versus case bars, and then we can look at some actual examples of charts, time versus case with some indicators on the screen to see how it would make a difference in trading.
Tim Bourquin: Okay.
Cynthia Kase: The next chart is the E-mini and the 60-minute chart. I've got a 60-minute chart on the bottom. And then I've got two different case bar links up on the screen. The top you could just see by looking at it that the top chart has a few more bars than the middle chart, which means that the case bar range is slightly smaller. And what I've done here is because the E-mini tends to have a high range during the day and a low range at night, the top chart is set to a representative true range for the 24-hour period, and the middle is set to a representative true range just for the day's session. So anybody that's setting it up can kind of pick the maximum range if they just want a representative of the day's session or just an average range if they want a representative of the whole 24-hour period.
Tim Bourquin: Does anyone give does one give more signals than the other?
Cynthia Kase: Well, the more bars you have, the more signals they're going to have.
Tim Bourquin: Okay, right.
Cynthia Kase: So the next chart shows the time chart at the top and case bars at the bottom and with just a simple moving average system, double moving average system, crossover system and the MACD. And so if you compare the signals from the top to the bottom, you can see start out on the top with the time bar with the whipsaw, with the moving average whipsaw, and that whipsaw is absent on the bottom chart, the case bar chart.
Then moving along in red, there is a momentum divergence signal, higher high in price, lower high in momentum. On the time chart, which gives a false exit system signal and there is no signal at all on the case bar chart, then moving forward, there's another momentum divergence with which would trigger an exit. It confirms at 1089.75 on the time chart. It confirms at 1090 on the on the case bar chart. So it confirms at a better price on the case bar chart.
And then following that, there's another whipsaw. However, it's a 10-point whipsaw on the time chart and a 3.5-point whipsaw on the case chart. Also to get back in, the time chart crosses over 2.75 points higher till the case bar crosses back. And then at the very end, they both charts have a momentum divergence calling for an exit of the same high. So that's just a real simple example of the type of behavior that one sees on the time bars versus case bars.
Tim Bourquin: All right, good. So, it sounds like it gets you into better prices and then keeps you out of bad trades with those false signals.
Cynthia Kase: That's correct. Just a couple of snapshots to wrap up, just a couple of snapshots with the Kase StatWare System. We're only looking at entries here. But first of all, just looking at the charts, you can see that the chart on the right is just cleaner, smoother. The price action is just more regular. And if you look towards the right of the chart, of the time bar chart on the left, you can see there's a huge single bar single bar move down and that's broken up very nicely on the case bars.
Now, our methodology is to take second signals from the direction of the trend. So, we would look for a long signal with the low holding and then followed by another long signal. And if you look on the left, you can see that there is an L, a pullback and a new L. And then, the market draw declines. So on the minute chart, on the 60-minute chart, there is a false long signal, where on the case chart, there's only one L so there is no false long signal.
On the bottom of the move, after the down move is over, the opposite takes place. It's that you have a down move that's bent over. And then on the time bar, you only get one L so you don't have a chance to get in or let's say out of your short and into a long. Where on the right, there's on the case bars, it's two L's. So you're able to see that you have a second signal to reverse the trade or get out of the short and reverse the trade or just go along.
Tim Bourquin: All right. So you've found that the waiting for that second signal gives you a higher probability of trades.
Cynthia Kase: Yeah. I mean, it's all it's all based on Elliott Wave Theory. We have either 1, 2, 3, 4, 5 or A, B, C. So normally, if you're going to have a move, you'll have an A, B, C so you can take the C or a 1, 2, 3, 4, 5 and take 3. So that's the theory behind that.
Tim Bourquin: All right. And you've got one more chart here for us, case bars versus time bars and CLN.
Cynthia Kase: Yes, I have the last chart. It's a case bars versus time bars. And before we look at the actual signals, let's take a look at the flag. You could see that on the case bar chart, you could see a flag. You could see a corrective flag. It's very clear. It's very clear about what's going on. And so a trader that knows anything about geometric patterns will be looking at that flag and saying, I'm not sure I want to trade this short. But certainly, if I'm I've gone long, I think I want to stay long and wait for a breakout to the upside. Or from out of the market, I'm looking for a long signal to get back into the upside.
Where on the left, that flag more or less disappears. It just becomes this very strange-looking pattern. Also, so that's one feature that these patterns show much more clearly. And then the other thing is that if you look at the long signal coming up off the bottom, you only get one L. So on the 60-minute chart, we never get a pullback in the second L to get long. So we'd either have to jump in without confirmation or with the second L, which comes at the top of the move. Where on the case bars, you could see again an L, get a nice pullback, and then a new L and it goes up from there.
Tim Bourquin: All right. And so again, these signals, these long and short signals, even though the Elliot wave is not counted there or that's what the signal is based on though, it's the Elliot wave counts?
Cynthia Kase: Well, it's based on the idea that very few market moves are comprised of one wave, okay? So we don't count the waves. We just wait for a pullback and a new wave to start. So it's really based more on swings, pivot lows, pivot highs and swings. So you have a pivot low, you have a long signal, you have a pivot high, a pivot low, and then a new long signal.
Tim Bourquin: Well, we've just scratched the surface here. We kind of covered a lot of grounds I guess.
Cynthia Kase: That's right.
Tim Bourquin: Can people go to your site to kind of find out more about case bars and how to use them?
Cynthia Kase: People can go to our site and there's the description of case bars in our manual for Trade Station. And those people that have Bloomberg can go to Kaseco within Bloomberg and take a look at Kaseco.
Tim Bourquin: All right. Well, we'll link to Cynthia's site at Kaseco. It's kaseco.com. Cynthia, thanks very much for your time today. I appreciate you spending some time showing us the slides and showing us your case bars.
Cynthia Kase: You're welcome.
