Above is historical buy/sell potential for a continuous 200 bars. This is a simple representation of continuous MAE/MFE. And of course the real chart:
These are both showing 200 bars even though there should really be 248 bars in the real chart to show what the MAE/MFE chart is displaying. What’s more important is seeing how the MAE/MFE chart is extrapolating from the real chart, and looking at what pros and cons looking at one chart over the other would be. Different/cleaner/better charts are how I aim to spot and clarify patterns that may exist.
yellow-blue-red here is 5/10/20 pips. 20 pips is ideal but considering this is h1 data 10 pips should be reasonable.
-Basically anytime where both lines are above the target (blue/red) means that your trade direction basically doesn’t matter. That’s not to say the market is in full chop in those areas, or that one direction isn’t better still because of drawdown, but a target is a target.
-The bigger the gap between the lines, the stronger the market is trending.
Trading from extremes:
I played with this for a couple of hours because I thought there was something there, and I ended up creating additional columns to be able to look at past and future together.
For this movement (potential down movement), there’s something that really stuck out to me from all the time I spent looking at TCDs: Noticing extremes.
Since I’m calculating past and future for every bar, the time axis is actually the present, and so any connection that I can directly draw from the past to predict the future is quite powerful. What’s highlighted here is the observation that whenever the past price potential is in a low extreme, it projects future price to be much higher than that.
Given the present bar (with everything on the right of the present bar as the “unknown”, we know that the down potential of the box on the far right 48 bars ago is extremely low. Thus we can project forward that future down potential will not be the same, and short. Neat! This is a new area of exploration.
Continuous bar MAE/MFE percentiles:
Using a 48-hour future look, about 60% of the time you can expect 20 pips from either direction. About 84% of the time you can be safe to get 7 pips. These are the base probabilities so it’s worth seeing if waiting for a past period to enter the “danger zone” has any effect on the future:
The difference is there for sure, but the effect is very small and thus not really a relevant difference. As an indicator, this suggests that the future up/down potential is not really affected by the current state, or to be more specific, it is not significantly affected when the past state is below average. Tl;dr Cool, but not useful.