I was planning to write more about the role of volume in trading, but question from a friend inspired me to change my plans and write about Szejk's waves theory. I have few reason to write about it now:
- Zbigniew “Szejk” Nowaczyk shows annual profits of 1235,9% in 2020, 821% in 2021 and 1348% by November 2022*. These numbers work on imagination (mine, for sure) and if we assume a reinvestment even half of the profits, they are simply stunning.
- Szejk is the CEO of the Alternative Investment Company Szejk Capital which will, among other things, invest on the Warsaw Stock Exchange using this waves theory.
- The Szejk's waves theory can be learned during the Szejk Pro+ training series, in which I have participated some time ago.
*Data presented by Szejk on the training website and during webinars encouraging to the training: https://www.youtube.com/watch?v=jWrPf3PO1as [1:02:00].
I am not convincing anyone to buy this training. I will try to show one of difficulties that is not exposed in the above materials, so that you have a more complete picture. This is not sponsored material, but I will be referring to this training, so I will describe it shortly: I received training recordings to watch at any time, temporary access to a forum where in case of doubt I could ask questions, short access to TradingView script drawing waves and access to the education portfolio, which in its assumptions confirms the effectiveness of this method.
The Szejk Pro+ training is a training that covers many aspects of technical analysis presented in the context of trend detection algorithm known as waves.
So let's start from this algorithm. Trend detection algorithms operate on common assumption, that the trend continues until continuation condition is sustained. Typically condition is defined by price distance from the high or the low with the use of some threshold. In the easiest scenario such threshold can be used for picking stop loss. By setting smaller threshold we increase sensitivity - detecting more trend changes, trends are shorter. We are making more transactions and transaction cost increases. With bigger threshold we can stay in trend longer but our stop loss and potential loss is bigger.
Waves are working in a different way. Trend condition is defined by a relationship between current and previous candle on the chart. There is no threshold or comparison with lows or highs. It detects both very long and short trends with the same algorithm. You can check waves in practice, with free Waves script available on the Trading View platform.
People familiar with this wave theory I encourage to look on the toolkit that I’ve prepared. Some of the scripts are available on my TradingView profile, but to get more up to date information just write to email@example.com.
Is this waves theory the Golden Grail of trading?
I don’t think so. Using this theory is not as easy as it may seem on webinars.
The important factor in waves theory is the lag between the high or low and wave change information. Below we see WIG chart on interval M1, that was shown during mentioned above webinar [0:08:20].
By dotted line we can see trend drawn over the highs and lows, as was shown on the webinar. It looks amazing, but this is just a backwards analysis. Solid line shows where the trend change was truly detected. First blue trend is ending around 2650, but we are notified about it around 2214. This is the lag I was writing about. Assuming we are investing only with this chart by buying longs and shorts at the open price of the next candle after trend was changed, we will receive transaction list:
- long from 1792 to 2214
- short from 2214 to 2336
- long from 2336 to 2173
- short from 2173 to 1730
- long from 1730 to 1530
- short from 1530 to 1844
Our results: 422 + -122 + -163 + 443 + -200 + -314. On 6 transactions we have 2 with profit and 4 with loss. Final result is 66 which need to be reduced by transaction costs. With the Waves script you can test it on any interval or stock. Lag is everywhere and the results will be similar.
This is why waves theory is using many other techniques of technical analysis: Fibonacci retracements, support and resistance areas, harmonic patterns. All of them are influenced by the aforementioned trend determination algorithm.
Below we have a chart with two trends: Black is drawn by classic trend detection algorithm, colored one shows medium waves.
As we can see highs and lows are the same, they will be, it’s the same chart. Medium wave algorithm is just merging some sets of smaller trends into longer ones which makes the chart clearer. Typicaly it merges small trends when price is moving up or down and leaves some smaller trends in consolidations. It’s a really interesting feature of this algorithm.
I recevied even more interesting results some time ago, when I compared the effectiveness of harmonic patterns predictions with and without waves theory. I was testing it only on few intruments that I was trading that time: WIG20, few stocks and cryptocurrences. The results supriced me. In almost all cases I've noticed a few percent improvement for the version with waves.
Finally, going back to the title question.
Are such annual results possible?
- Szejk has big knowledge and experience. He is spending hours on trading each day. I had access to forum thread beeing his educational portfolio and had seen informations about many profitable transactions there.
- Some participants doubted the results and were requesting the transaction reports directly from his trading account. This would be conclusive evidence, but at the time I had access to the forum, they have not been revealed.
- Education portfolio with “real-time” transactions is working like any other signal group, giving some boost to author results. Szejk is aware that followers are influencing the prices and says he is investing publicly only in a very liquid instruments like market indexes.
To sum it up, I don’t know if such results are possible or how they are influenced by followers using his educational portfolio. For me this waves theory is an interesting point on my trading journey and I’m glad that Szejk shares his ideas.
As always do not believe, check, verify and limit losses.