ARM2 R4
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Valid Trend Lines are essentially sloping support and resistance lines, as shown here on AGN.
Here, we see Valid Trend Lines forming across swings in AIG.
Citigroup shows shorter swings, with good lines.
About ARM2 R4
ARM2 Release 4 is based on ARM2 Release 3, with the addition of Valid Trend Lines (VTLs) to boost accuracy and performance. This technique provided a SUBSTANTIAL boost in performance.
What is a Valid Trend Line?
Valid Trend Lines are essentially tight lines drawn across price action, with specific factors measured to create the best possible lines, such as correlation, angle of line, break bars for the line, and so on.
To the right, you can see a few examples of this method. Valid Trend Lines essentially form sloping support/resistance lines that are very powerful.
When a strong line is violated, the odds of a move following the break are higher, leading to some of the most highly confirmed reversal signals possible.
Using Valid Trend Lines to confirm ARM2 signals
The Valid Trend Line system is a powerful "confirmer." When used in conjunction with ARM2, it helps to isolate those signals which are firing at key reversal points and have additional, favorable characteristics - resulting in greatly increased accuracy, as described below.
Valid Trend Lines can be added to just about any reversal (swing) strategy to improve it. Many Nirvana Club embers are experimenting with various hybrid concepts, and posting great results to the Nirvana Club Forums daily.
ARM2 Release 4 Accuracy *
With the introduction of ARM2 Release 4, Club Members were able to establish the accuracy they want to see in their signals for the first time.
Valid Trend Lines have a setting called "Correlation". This setting defines how well the lines fit the data in the chart. By simply cranking up the value of this setting, you can get more and more accurate signals out of ARM2. This was an important advancement that led to the creation of ARM3.
Here are some performance reports from ARM2 confirmed with Valid Trend Lines, on the S&P 100 over 500 bars. It is important to note here that ARM2 profiles are not optimized - you will get the same Signals whether you look at Forward Test or Back Test results. ARM2 Release 4 Signals were typically 70%-80% accurate. *
S&P 100
Accuracy = 74% * correlation at .90 ▼
Accuracy = 82% * correlation at .99 ▼
Tuning Performance
You can see from these performance numbers that, as accuracy increased from 74% to 82%, profit per trade doubled. However, the number of trades decreased to 1/10 the initial value. Some users will want more signals. For them, the former setting is preferable. Others will want the highest accuracy possible, and run thousands of symbols through the system. For them, the latter setting is preferable.
ARM3 Evolution
ARM2 R4 was released in 2003. In 2004, we wanted to increase signal count while maintaining accuracy. This was achieved by creating multiple Knowledge Bases and Neural Networks that are tuned to specific indicators and systems.
ARM3 improved on the ARM2 Release 4 concept by making available the Neural Network Scores and a "cutoff" setting. Users can do the same kind of performance turning with ARM3 that they did in ARM2 Release 4, by adjusting the cutoff setting in the Strategy. See ARM3 for complete information.
* We measured accuracy differently for ARM2 than ARM3. For a detailed description of how we measured the accuracy of ARM2, please see How Accuracy is Measured.