Forex Trading System- History

CHARLES B. GOODMAN

The principles of the Goodman Swing Count System (GSCS) were informally set forth
in a series of annotated commodity charts from the late 1940s to the early 1970s. These
trading studies, simply titled “My System,” were the work of Charles B. Goodman and
were never published.
I (Michael Archer) met Charles Goodman at the Denver, Colorado, offices of Peavey
and Company (later, Gelderman) in the fall of 1971. It was the occasion of my maiden
voyage in the great sea of commodity trading (later, futures). In 1971 silver prices were
finally forging ahead to the $2.00/ounce level. A 10-cent limit move in soybeans elicited a
full afternoon of postmortem analysis by traders and brokers alike.
The Peavey office, managed by the late and great Pete Rednor, employed eight
brokers (later, account representatives). The broker for both Mr. Goodman and me
was the colorful—and patient—Ken Malo. Brokers, resident professional traders—
including Mr. Goodman and the Feldman brothers, Stu and Reef—and a regular con-
tingent of retail customers drew inspiration from a Trans-Lux ticker that wormed its
way across a long, narrow library table in the back of the office. Most impressive was
a large clacker board quote system covering almost the entire front office wall. This
electromechanical quotation behemoth made loud clacking sounds (thus its name)
each time an individual price flipped over to reveal an updated quote. Green and red
lights flashed, denoting daily new highs and lows. Pete, apart from being an excellent
office manager, was also a fine showman who used the various stimuli to encourage
trading activity.
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THE RIGHT BRACKETS

Almost everyone made frequent reference to Charlie’s hugebar charts posted on 21/2-
by-4-foot sheets of graph paper, mounted on heavy particle board and displayed on
large easels. No one ever really knew what the numerous right brackets (])of varying
lengths scattered throughout each chart meant. But there was always a great deal of
speculation! The present work finally reveals the meaning of those mysterious trading
hieroglyphics.
The quiet chatter of the tickertape, the loud clacking of the quote board, the con-
stant ringing of the telephones. The news ticker that buzzed oncefor standing reports,
twice for opinions, and three times for hot news. The squawk boxes and Pete Rednor’s
authoritative voice booming, “Merc! Merc!” What a spectacular scene it was! No wonder
that this author, then a 21-year-old trading newbie, would soon make commodity futures
and currency trading his life’s work.
But nothing made a greater impression on me than the work of Charles B. Good-
man. He instilled first some very simple ideas: “Avoid volatile markets when at all pos-
sible.” “Trade only high-percentage short-term ‘ducks.’” “Sit on your hands, Dad, sit
on your hands.” It didn’t take long for me to adopt the ultraconservative “Belgian den-
tist” style of trading, that is, “Avoiding losing trades is more important than finding
winning trades.”
The Belgian dentist approach carried with me when I developed my artificial intelli-
gence (AI) trading system in the 1980s—Jonathan’s Wave. Even though it generated 48
percent annual returns with a zero expectation of a 50 percent drawdown (according to
Managed Account Reports), it drove the brokers berserk because it could easily go a full
month without making a single trade!
I am certain that Charlie’s trading advice allowed me to survive the financial bap-
tism by fire that destroys most commodity and currency trading newbies in a matter of
months, if not weeks.
Mr. Goodman was to be my one and only trading mentor. Over the decade that fol-
lowed he entrusted to me many, if not most, of his trading secrets. To the best of my
knowledge he shared this information on his work with no one else in such detail.
LATER DEVELOPMENTS

Charlie and I spent hundreds of hours together analyzing the trade studies from My Sys-
tem. We also analyzed hundreds of other commodity, currency, and securities charts.
Charlie was happy with My System being organized in his mind. But as a new-generation
technical analyst, I was anxious to see it formalized on paper and eventually in source
code on a computer. To be honest, this created a small amount of friction between the
two of us—Charlie was dead set against formalized systems and believed strongly in the
psychological and money management elements of trading.
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GOODMAN SWING COUNT SYSTEM
Notwithstanding, by 1979 I was finally ready and able to formally state the princi-
ples of My System. Because of its equal concern for price measurements (parameters)
and price levels interacting together (matrices), I originally renamed Charlie’s My Sys-
tem “ParaMatrix.” My first investment management company in the mid-1970s was Para-
Matrix Investment Management, and I acted as both an investment advisor registered
with the Securities and Exchange Commission (SEC) and a Commodity Trading Advisor
registered with the Commodity Futures Trading Commission (CFTC).
Contrary to ongoing speculation, only two copies of my original 1979 Principles of
ParaMatrixever existed. I possess both of them. Charlie’s original My System trade
studies were mistakenly destroyed shortly after his death in 1984. What remains of them
are fewer than 200 or so examples I had copied into Principles of ParaMatrix.
The present work (Part 5), “Goodman Swing Count System,” is a reorganized reis-
sue of Principles of ParaMatrixwith updated charts and a simplified nomenclature
that I am sure Charlie would have appreciated; “Keep it simple, Dad!” he would always
advise. In a later work I hope to expand on Charlie’s ideas by filling in some less formed
ideas such as his market notation, or calculus as he referred to it, and a method for
charting that I have dubbed Goodman charting. He also worked out a time-based, cycli-
cal count system.
My own direction in futures and currencies turned in the 1980s to artificial intelli-
gence (Jonathan’s Wave) and in the 1990s and today to artificial life and cellular au-
tomata (the Trend Machine). In spite of, or perhaps because of, these complicated
cutting-edge computer efforts, I continue to view the Goodman Swing Count System
(GSCS) in a very positive light. To this day, the first thing I do when I see any chart is a
quick Goodman analysis!
The GSCS is a natural system for pursuing the conservative Belgian dentist ap-
proach to trading, even without the aid of a computer. Part 5, in fact, could be used to
make Goodman analysis without a computer at all!
Goodman Swing Count System trade opportunities are as frequent today as (per-
haps more frequent than) they were 40 or 50 years ago. I believe that the system’s foun-
dations have stood the test of time well. Patterns today are no different than they were
decades ago, nor are the twin human emotions—fear and greed—that create them.
GSCS is an excellent method for finding support and resistance areas that no other
method spots, and for locating potentialturning points in any market. One of its best
suits is that it can easily integrate into other trading techniques and methodologies.
I would never recommend using or advise anyone to use a 100 percent mechanical
trading system, GSCS or any other!
Is it really a system? Depending upon your perspective, GSCS is between 70 per-
cent and 90 percent mechanical. The program available from CommTools, Inc.
(www.commtools.com) represents the kernel idea of mechanizing perhaps 80 percent
of the system. I now believe attempting to completely code Charlie’s work would be
inadvisable.
Mr. Goodman passed away in 1984. It was always his desire to share with others, al-
though as is usually the case with true genius—few wanted to listen. These days we are
History
231
ever more bombarded with ever more cryptic and computer-dependent software pro-
grams and black boxes. Perhaps now is the time for the simple yet theoretically well-
grounded ideas of GSCS to become popular.
The publication of this brief overview, I hope and pray, would meet with Charlie’s
wishes. His work in extracting an objective and almost geometrically precise (à la Bene-
dict de Spinoza) trading system out of a simple trading rule (the 50 percent rule) is most
remarkable. It has certainly earned him the right to be included in the elite group of
early scientific traders along with George D. Taylor, Ralph N. Elliott, William D. Gann,
and Burton Pugh.
Conforming to the spirit of the original My System, I have attempted to keep theo-
retical discussions and formulations to a necessary minimum. Trade studies at the end
of Part 5 of this book must still be considered the crux of GSCS, even though I am
pleased with the formalization of most relevant principles described in the following
sections. The trader weary of theoretical discussions and intrigue will find all the con-
cepts and principles delineated in the trade study examples. Nevertheless, those who in-
vest time in the theory of GSCS will undoubtedly discover an area for further
exploration where many new and fresh ideas are waiting to be mined.
In Mr. Goodman’s worldly absence, the responsibility for this work and its contents
is solely mine, for better or for worse.