# William Dunnigan's One-Way Formula



## jj1929 (8 November 2007)

I am reading William Dunnigan's book on One-way Formula.  However, i have questions on how to identify tops and bottoms when coming across with bars with equal highs or bars with equal lows.
I wonder whether someone can help me.
Attached are some cases.  Please advise me whether my identification of tops and bottoms are correct or not.


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## Timmy (8 November 2007)

I.m not familiar with the formula he uses for deciding on tops and bottoms.  Can you post it and I would be happy to try for you.


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## motorway (8 November 2007)

http://www.allbusiness.com/personal-finance/investing-stock-investments/729934-1.html

Some background



> William Dunnigan was a technical analysis pioneer, especially with his "one-way thrust" concept that pinpointed market trends. Here's a recap of his method, developed back in the 1950s, and instructions on how to program it into modern trading software.
> 
> World-class traders are able to identify chart patterns in the market and take trades based on these patterns. They often look for patterns indicating trades in the direction of the long-term trend after a countertrend move has run its course. This is a powerful concept that can be used to trade almost any market and produce
> William Dunnigan combined this countertrend concept with chart pattern recognition to develop his one-way thrust method. We'll analyze this method, then mechanize and test a trading idea - the concept of finding support at double bottoms - which is based on his pattern-recognition methodology.
> ...




motorway


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## tech/a (8 November 2007)

Fine but how do you use it!


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## Timmy (9 November 2007)

jj1929,

Motorway provided the following definitions...

1. Up bar: A bar with both a higher high and low.
2. Down bar: A bar with both a lower high and low.
3. Outside bar: A bar with both a higher high and lower low.
4. Inside bar: A bar in which the range is inside the previous one.
5. Long-range bar: A bar followed by two or more inside bars.

Are those the definitions you are using also?  If so I can have a look at the charts you posted and attempt an answer to your question?


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## jj1929 (9 November 2007)

Timmy,
Thank you very much for your help!
1. Up bar: A bar with both a higher high and low.
2. Down bar: A bar with both a lower high and low.
3. Outside bar: A bar with both a higher high and lower low.
4. Inside bar: A bar in which the range is inside the previous one.
5. Long-range bar: A bar followed by two or more inside bars.
I use the above definitions.
To identify swing tops and swing bottoms, outside bars and inside bars are ignored.   
(Question 1): To ignore them, I am not sure whether I should compare the current bar with the bar before the outside bar or the inside bar.  
(Question 2): If the bar before current bar is an outside bar and the current bar is an inside bar when compared to the previous bar but the current bar is not an inside bar when compared to the bar before the outside bar, should I also ignore the current bar?
(Question 3): Referring to the charts I posted, I don't know how to deal with the bars with equal highs or equal lows when compared to the previous bars.     They cannot be classified as inside bars or outside bars.  William Dunnigan mentioned in his book that the longer-range bars should be used.  I am not sure whether he meant that the shorter-range bars should then be ignored.

I guess different traders deal with outside bars and inside bars differently.

Although he used his one-way formula to trade stocks with weekly charts and  commodities with daily chart, I plan to use it to day trade futures with 1, 2 or 4 minute chart.  I think the simplest way to identify swing tops and swing bottoms is the most useful as long as it is consistently used.
Jason


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## Timmy (9 November 2007)

OK JJ,

I am not familiar with Dunnigans rules, but if his instructions are to ignore inside and outside bars, then I suppose the idea is to completely ignore them.  (I dont think this is a good idea, but will disregard this and come back to it later).

So, if you are to ignore them, then ignore them completely, treat them as if they are not there.

So, the answer to Q1 is compare the current bar to the most receent previous bar that is NOT an inside or outside bar.

For Q2., What a great question!  According to the rules I don't know what to do with that one.

For Q3., If the high of the current bar is equal to the high of the previous bars, then the actual high that you are calling your swing high is unchanged, so you can classify the swing high at the high price.  Is it important to isolate what bar the swing high occurred on?  Seems to me either bar that formed the high would do, I would go for the latest one if you need to.


OK, back to why outside bars should not be ignored, and this may be outside your system, or may sound not right to you, if so ignore this.  If the price is moving higher, forming new highs, then an outside bar forms which also forms a new high in the upswing - why would this high be ignored?  I am sure someone will have a good reason for ignoring it but I don't.  If it forms a new high in the upswing then its a new high isn't it?  The other participants in the market who look for resistance at highs will not ignore this high, this high, even though it occurred on an outside bar will be regarded as the high of the move.  Take this on board or disregard it, if it doesn't fit your system disregard it.

As for your markings of the swing highs and lows, or the tops and bottoms, according to the rules you have outlined your notations look spot on to me!

Hope that is helpful JJ.


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