Well I received a lot of suggestions this weekend, but by far, the most popular request was an article on 3C, what it is and how t works. In the past, I’ve pointed people to Trade-Guld.net to read some of the articles about 3C and have always said, “If I were to write a handbook for 3C, it would probably take me a week.” So I’m going to start an article, which I will link and continue to add to until we have a really good composite picture of 3C.
First, what is 3C? It is a proprietary indicator, meaning I created it and you won’t find it in any charting software anywhere, which is probably one of the reasons it works. As I have mentioned, I am a long time Worden/TeleChart user and I Don Worden who is the father of the Worden Brothers, is a pioneer n money flow indicators. His Tick Volume was one of the first and sold to and used by Wall Street firms several decades ago. Tick Volume led to others creating similar indicators like OBV and MoneyFlow, so Don has impressive credentials in the field of money flow indicators.
When started using Telehart, I analyzed each of his proprietary indicators, Balance of Power, MoneyStream and Time Segmented Volume. I found TSV to be the most reliable and it gave frequent signals. In experimenting with a way to make TSV more user friendly, I crated the first version of 3C, which I named after one of Don Worden’s mantras for technicians, “Compare, compare, compare”-the 3 C’s.
After an hour of creating the first version, I realized I had something that I didn’t intend on creating, but had shown incredible signals that were, well almost fool proof. However, they lacked details, it was more of a “Big picture”. After tinkering awhile, I found the answer. TSV and many other money flow indicators provide raw data, but discerning a trend from the raw data was like looking at 1’s and 0’s. Worden’s answer was to average they data to create a trend in the indicator. However, whenever you average data, you lose bits of sometimes very important data. My solution was to use the raw data, but to create the trend, I didn’t want to average it and lose precious data, so I decided instead to compare it to a certain number of bars in the past. 3C asks the questions, is the raw data money flow higher or lower then it was X-number of bars ago and then 3C would move up or down according to the answer. Because 3C does this EVERY SINGLE BAR, it creates a cumulative line that forms the basis for the trend and no raw data is lost to averaging, this is why I believe 3C not only works better then TSV, but gives more signals.
In looking at the trend of 3C, it is compared to the trend of price, like many indicators such as MAC or RSI, 3C has the power to contradict price and create divergences, which are the basis of all 3C signals. However, unlike MACD and RSI which can contradict the momentum of price, 3C is contradicting the money flow within price, thereby showing whether institutional money is buying or selling.
Institutional money doesn’t trade in 100 or 500 share lots like many of us do, they trade in much larger volume. If I want to sell 500 shares of SPY, it’s not going to effect the supply/demand equation of price, however f Institutional money did the same and sold 5 million shares of SPY all at once, they would shoot themselves in the foot by altering supply and demand and sending pries much lower, causing their sale to perhaps be a loss. So 3C is perfect for the job of tracking institutional money which must sell in smaller units in to price strength, this is distribution and 3C can sniff it out and show us when institutional money is distributing or accumulating by simply comparing the price trend to the 3C trend.
That’s it for tonight, I’m still capturing charts for the market analysis that will be posted tonight, but I will continue to ad to this article and link it on the site so you have a comprehensive understanding of 3C.