The Delphic Phenomenon Buying and selling System

Guess you by no means heard of this earlier than.

Contents

The title is in reference to the Oracle of Delphi, a extremely regarded prophet on the Temple of Apollo in Delphi of Historical Greece.

Scot Lowry named his buying and selling system The Delphic Phenomenon for its prophetic skill to foresee value actions upfront.

This technique is documented in his guide The Magic of Shifting Averages.

To him, the magic shifting averages are the 18-period, the 40-period, and the 4-period easy shifting averages.

He had spent years of painstaking analysis shifting averages and value patterns.

It might be value our time to listen to what he has to say.

This guide was printed a really very long time in the past, in 1998, when he needed to cellphone his dealer to put commerce orders.

The examples within the guide are primarily day by day OHLC charts on Futures.

OHLC (Open Excessive Low Shut) bars had been used earlier than candlestick bars grew to become widespread.

On this article, we are going to pick some patterns from current candlestick equities charts to exhibit his ideas and to indicate that his patterns nonetheless maintain at the moment.

The essential sample on the bullish facet begins with the 18-period shifting common crossing above the 40-period shifting common.

This isn’t a easy shifting common crossover technique.

That is solely the beginning of the setup and definitely not the set off.

Right here, we see the SPX index 18-MA (inexperienced line) cross above the 40-MA (blue line) at level 1, as indicated beneath.

After the cross, we await the value to drop again down beneath the 18-MA again into the zone outlined by the 18-MA and the 40-MA (see level 2 within the graphic).

The set off to go lengthy is when the value comes up above the 18-MA out of the zone (see level 3).

As soon as triggered into the commerce, put a cease beneath the 40-MA.

Because the inventory strikes up, begin shifting the cease up as nicely.

The cease needs to be positioned between the 18-MA and the 40-MA traces.

On this instance, we see that the commerce received stopped at level 5 as a result of in a single day hole down.

The commerce made about “1R”, which implies it made earnings equal to 1 instances the preliminary threat.

The technique shouldn’t be meant as a 100% mechanical system.

There are nuances that the dealer wants to look at to make a discretionary determination as as to if to take the commerce or not.

The standard of the system depends upon the standard of the dealer’s discretionary selections.

The upper the win fee, the higher.

However it doesn’t must be very excessive as a result of the typical win measurement tends to be bigger than the typical loss measurement.

With an preliminary cease positioned beneath the 40-MA, the dealer rapidly is aware of when the commerce is flawed and exits with a small loss.

One nuance that the dealer wanted to evaluate was the space of the 18-MA from the 40-MA on the level of the set off.

If this distance is just too giant, the dealer ought to forgo the commerce as the chance will likely be too giant for the reason that cease needs to be past the 40-MA.

For this instance, we are going to take a look at the bearish crossover model.

Right here, we see that Coca-Cola (KO) had an 18-MA crossing beneath the 40-MA:

We await the value to come back into the zone, again above the 18-MA.

The promote set off is when the value exits the zone once more by dropping beneath the 18-MA (see level 2 above).

The cease would then be positioned above the 40-MA.

We see that on the level of the set off, the space between the value and the opposite facet of the zone the place we positioned the cease may be very giant.

This needs to be sufficient for a dealer to justify not taking the commerce.

If they’d taken the commerce, they’d have been stopped when the value gapped up on earnings, inflicting fairly a big loss.

Another excuse to not take the commerce is that the time from the crossover (level 1) to the set off (level 2) may be very lengthy – almost a month and a half has elapsed.

That is one more reason to not take the commerce.

By the point of the set off, the downtrend had already occurred, and the value had not dropped a lot additional.

A discretionary distinction {that a} dealer wants to contemplate is that if the value takes too lengthy to come back again contained in the 18-MA, the dealer ought to forgo the commerce as a result of entry is just too late into the development.

Right here, NVIDIA had the shifting common cross on Could 16, 2024.

However we didn’t get the purchase set off till Jun 25. NVDA had gone up for a month already.

It’s too late within the development to purchase. We’ve got to let the commerce go.

4 Suggestions For Higher Iron Condors

Scot emphasizes within the guide that the purchase set off (or promote set off) is just when the primary time the sample occurs.

If the sample makes use of the identical crossover once more, the second time shouldn’t be a set off.

For instance:

Scot additionally talked about trying on the greater timeframe to find out the development.

Don’t go in opposition to the development of the upper timeframe.

Here’s a day by day chart of Microsoft (MSFT) the place there was a bearish setup after which triggered in September 2024:

Ought to the dealer take the quick commerce that was triggered?

No.

A dealer taking the commerce would have been stopped out when the value rallied up, breaking the down trendline and arising above the 40-MA.

To begin with, the time from the crossover to the promote set off is a bit lengthy.

However extra importantly, if the dealer had checked the weekly chart, he would have seen that the longer timeframe development is bullish and, subsequently, shouldn’t be taking bearish trades.

The weekly chart is bullish, with an 18-MA above an upward-sloping 40-MA:

Now that we’ve got realized what ought to occur after a shifting common crossover, we have to study what Scot calls the “system failure” sample.

That is when what ought to occur doesn’t occur.

Then, it might be time to do the alternative.

Check out Journey Leisure Co (TNL), the place at level 1, it had a bearish crossover:

At level 2, its value got here into the zone and is meant to come back out beneath the 18-MA.

Nevertheless, it by no means did. As an alternative, on Jan 25, 2025, it went up above the 40-MA at the place the cease would have been.

It is a promote failure sample.

Ought to we then do the alternative and purchase?

Let’s examine the upper timeframe on the weekly chart on the candle for the week of Jan 21:

The chart is clearly in an uptrend.

So sure, we must always go lengthy on the day by day chart on Jan 22.

If the dealer needed to play directionally with the bull name debit unfold:

Date: Jan 22, 2025

Worth: TNL @ $53

Purchase one name Feb 21 TNL $50 name @ $4.15Sell one name Feb 21 TNL $55 name @ $1.07

Debit: -$308

The dealer would have seen a revenue of $127 about two weeks afterward Feb 7:

Or see a max revenue of $192 whether it is held to expiration.

The Delphic Phenomenon buying and selling methodology was developed by Scot Lowry 1 / 4 of a century in the past.

Nevertheless, we will discover current examples of inventory trades and choice trades that present that the system nonetheless has some validity.

The reader is inspired to see in the event that they discover the patterns to carry true by trying by means of the historical past of many charts.

Like many methods, it isn’t so easy to say that when we study the foundations, we will be worthwhile immediately.

As a result of there are vital selections that the dealer must make particular to that specific commerce, it requires follow and seeing many examples of those patterns to succeed.

And, in fact, it helps to learn value motion.

A few of these selections embrace:

is the crossover, and the set off occurred shut in time and value.
is the set off within the path of the development of the upper timeframe
Is that this a system failure sample
When to lift the cease
When to exit the commerce with earnings.

We didn’t get an opportunity to speak in regards to the 4-period shifting common.

Nevertheless, Scot does discuss it in his guide.

We hope you loved this text on the Delphi phenomenon buying and selling system.

In case you have any questions, ship an e mail or go away a remark beneath.

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Disclaimer: The data above is for academic functions solely and shouldn’t be handled as funding recommendation. The technique offered wouldn’t be appropriate for buyers who should not acquainted with alternate traded choices. Any readers on this technique ought to do their very own analysis and search recommendation from a licensed monetary adviser.