Fractal model base findings

Finished up my new model and got the chance to take a look at some of the baseline stats that come with it. The model is using the base fractal indicator where every fractal is either a higher high, higher low, lower low or lower high, and then I connect the HH to LL with some filtering/condensing to create waves. I picked it because it’s a pretty simple one, and I like that it contains micro points for me to use should I find a need for it.

HH_LL_model

Compared to the previous model, this model’s trend->swing ratio is a bit lower

baseline stats, 3 wave pattern probabilities and 5 wave pattern probabilities.

fractal_model_baseline3_wave_pattern5_wave_pattern

I think these numbers need more trading context which these numbers don’t show, but it’s just interesting to see how these numbers compare to the previous ones.

This next one is Retracement over time, with trends and expansion waves being greater than 1 since their leg is larger than the previous. It looks like trend/expansion waves are pretty similar with no big distinction between them, while flats are a bit shorter than swings.

retracement by swingOn a zoomed-in scale though, it’s not super clear where any particular levels are denser than others.
micro_flat_swing

All of this is kind of expected – no obvious edge here but trying to find some way to take advantage of the natural tendencies of flat->trend legs or expand->swing legs seems like a good way to go. I have some things that I’m mentioned in previous posts that I haven’t really done much of in the past that I’m working on now that will hopefully be more interesting, but it will take a while to correctly map and dissect. It’s a topic worth it’s own post when I get there 🙂

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Some MFE MAE findings

Mostly writing this one just to have record of what I worked on here since I generally don’t keep all the plots I make when doing analysis.

One of the things I’ve really been working on and thinking about is making as much of my analysis as possible in an extra dimension – that is, from a simple frequency distribution to a scatter plot.

I created a simple strategy of sorts (more of an extrapolation of a model with some filtered parameters) and in general just wanted to learn more about it. Putting the strategy into a trading simulator, pulling out all the data I want to examine, and plotting it is a good way to do this.
First:

winslossesThis is simple win/loss in green/red with risk/reward ratio of the y axis and hours til trade completion on the x axis. Thus you can see already by this point there has been some filtering of the system (no RR greater than 10, no trade duration greater than 30). These other points not pictured can either be removed completely or analyzed separately.
Second:

mfe1
The next iteration takes the data and looks at MAE/MFE, with winners in green and losers in red. More filtering and improvements can be made here: almost no winners have MAE lower than -.01 (100 pip drawdown) and no losers have MFE greater than +.005 (50 pips “left on the table”). Below is a more blown up image of the negative region:
mfe2
Thus it’s an easy adjustment to say if a trade reaches -50 pips in drawdown, it’s probably easier to just cut it as a loser and save additional risk.

Lastly:
mfe3
Trimming off the +50 and -50 gives a better look at what the rest of the trades look like. Then if possible, take a look at the new scatter plot, made observations, and go through the process again; Making trade adjustments, looking through individual trades for patterns, or moving on to the next project.

First Look at MTF analysis on transient waves

Model: Fractal n=24, Transient waves

Here’s my first look at MTF. I took the model I had for the 1 hour, and simply multiplied it by 4 and applied it to get the equivalent 4-hour chart. I was curious about the ideas of traditional wave theory; That smaller waves have a 5, or 7, or something legs that are equal to 1 leg of the higher frame. I don’t know much traditional wave theory, and I don’t expect my model to be that perfect instantly, but I was curious about to just explore: what kinds of 1-hour legs are contained in 4-hour legs?

MTF1MTFWave
A simple “T” is pictured on the right – A single trend pattern (3 legs). A 1, in this case, means that the leg completed in 1 move – the 1-hour leg and the 4-hour leg are identical. A single leg, simple ABC wave, a 2x ABC, and 3x ABC leg make up an overwhelming 80% of the wave formations in 4 hour frames.

This is somewhat interesting because while present, it shows that TEE is actually a very rare type of way to complete a leg.
MTFex

It means that in the scenario above, as price is rising on the 4th leg, the soft resistance is a marker for how price can react. One way to look at it is to say a short at this level is potentially a good opportunity – At this point, it is not a “1” move. It is either a T move, and the move is over, or it is more (perhaps TST or TSTST). It is fairly close to 50-50 here, so the risk:reward here is crazy (Now, what is the probability that a move makes it this far and continues down? That’s another test). However, if price were to break into the “unlikely” area, now we are basically in reversal mode. It would be a good chance to load longs by the blue box because breaking the lows here would be very unlikely.

It’s not perfect because sometimes a full TST wave will have already been created on the 1h frame before the 4hr frame is “confirmed”. It’s easier to trade when the 1hr and 4hr frames are confirmed in the same leg, and even then it’s not always a sure thing. The need to “backfill” full waves occasionally on this model is it’s biggest downside.

completed:
-Learning the Oanda API to create an automated trading bot. Learning MQL seems a bit much for a programming novice like me, so if I can do it in python, why not try?
-Learning how to draw lines with the matplotlib library to better create pngs with wave lines drawn in
-Additional work on the main framework to allow testing new ideas/models easier/faster
-Trying MultiTimeFrame analysis
-Automate data collection into sql database (woo!)
-Begin test/live deploy of first automated trading bot

to do:
-Work on new model

It’s Already July

Wow! A small self-blog and an update. I had to scrape my initial plan for the year because, after some research, I realized I didn’t quite have the tools (yet) to be able to play with. Maybe in another couple years 😉

It’s been a slow transition, but I’ve finally made it to the point where my self-taught skills in python are about on par with where my excel skills are. For quick things, I still default to excel, but programming is so powerful. It should absolutely rank #1 on things I regret about my trading career. Rel suggested it to me one of the first times we spoke, and I didn’t follow up on it. I was too eager to get as much done ASAP, and couldn’t be bothered to take the steep learning curve to learn how to do things the “right” way. I did learn a lot about excel, but most of those skills are useless now. It’s a shame really, but I did eventually learn. Programming, if it’s not obvious by now, allows iteration SO much faster. It allows one to port a model into a higher time frame, or to be tweaked and run again almost instantly. It allows you to run “what-if” scenarios and trade simulations much easier and can help you visualize so much better as well. I can create a way to model waves, iterate through data, create a OHLC charts, and save them into PNGs to view individually and think of new ideas. Again, Wow. I’m still learning a lot and simple things to explain take me days/weeks to complete, but I’m getting there and it’s worth it. I’m much busier these days so I don’t have nearly the number of hours to spend on trading related things as I used to but the dream will never die. Back to work.

Things I’m working on:
-Learning the Oanda API to create an automated trading bot. Learning MQL seems a bit much for a programming novice like me, so if I can do it in python, why not try?
-Learning how to draw lines with the matplotlib library to better create pngs with wave lines drawn in
-Additional work on the main framework to allow testing new ideas/models easier/faster
-Trying MultiTimeFrame analysis

The New Years Resolution

Return to research. I’ll cross these off as they occur 🙂

1. Learn the tools (estimated time 7-9 months)
2. Complete initial research (1 month)
3. Tweek and adjust (1-3 months)
4. Complete write up (2 weeks-1 month)

Like most research, it will either reveal a large edge in the market, or be completely useless. However, either way, the write up should provide a great summary of everything that has been done on this blog and something that everyone can understand. I’m excited! Tentative finish date is, of course, the end of the year. Let’s get to work.

My Final Post.. for now

If you can’t tell from the lack of posts I’ve been making, I haven’t done research in a while. And for the first time since I started this blog, and for the first time since I started my journey as an aspiring trader, I don’t plan to do any research for the foreseeable future. I want to structure this final post in 3 parts: The personal side, the analytical side, and the future.

On the personal side, having to quit sucks. It really sucks. Having to admit to all the people who told me I would never make it that they were right hurts. Having to invest literally thousands of hours (I would estimate 4500-5000) and get practically nothing out of it is depressing. Trading for a career was THE career as I saw it years ago – full time, hours a day watching the charts like Morse code, seeing things 99%+ of people couldn’t see, acting on part gut, part knowledge, seeking the dream of being an elite at something. I could go on and on, but the short answer is it didn’t happen. Perhaps the focus should really just be on one word: why?

Per usual I’d like to think that there were 3 main reasons:

First: Lack of useful screen time

I’m big on visual learning and learn by doing, and trading is no different. I’ve learned over the years (in a lot of aspects of life) that to learn things well, I take them and break them apart into as many different parts as possible and analyze them to death until they make sense to me. Seeing the actual process of getting into and out of a trade was something that I never quite got the hang of. Sure, testing in the lab I got a good sense of what structure I want to trade being given the candles, but I’d argue that there’s a difference between trading OHLC candles in and of themselves (really only trading the open and close) and trading the candles AS they are forming. Getting an idea of what “live flow” looks like isn’t something I’m familiar with. I felt that not being able to actively trade the London and NY sessions hurt my ability to learn this feature of the market greatly. Additionally, not being able to piggyback another person’s trades (understandable) or viewing someone’s past trades (also understandable) added on to this. Let me explain. In so many other trades (pun not intended) or elite skills, such as poker, chess, strategy games in general, there are replay features, streams, etc. It allows a user to passively absorb the “correct” trading environment. Junior pit traders and the like get mentored in this aspect, and it was one I think would have been very helpful to me.

Second: inability to network effectively

This is an area that while I wish it could have happened; I think it was simply a goal and not an expectation. Many people make it without it. To be specific, I was unable to find another person, or group of persons, to share ideas with on a peer-to-peer level. I’ve found in my numerous encounters with people that as aspiring traders get closer and closer to a working system, they guard it closer and closer. New traders happily share all their ideas about how they think the market works (unfortunately generally disproved statistics) but more seasoned traders either a) speak very vaguely about how they trade or b) trade a specific way or have a certain understanding of the market and are adamant about not straying from it. Again, I don’t wish that I could have someone spill all their secrets to me, but having someone who could both test their own theories and challenge/offer input in my theories would have been the ultimate “2 heads are better than 1” situation. I met a lot of “thanks but I think this instead” which isn’t very useful given the scope of the availability of forums already. Not a requirement, but another “nice to have”. I’ve shared all the relevant findings in my career, but I don’t expect the same of everyone else.

Lastly: Inefficient use of time and incorrect initial analysis.

I think this might be my biggest reason, and this one is my fault completely. I think I picked the wrong approach to the market. I spent so much time analyzing waves and movements in micro frames (30m/1hr) and not enough on the big frames (d1/w1). Looking at micro frames absolutely requires one to trade full time to effectively make use of it. As stated with screen time, I never had time to actually trade what I was studying. IF I found a big enough edge, I would have had to go straight into full time trading and hope that it was enough to make a career out of it. Wrong wrong wrong. So wrong. In hindsight, my thought process was simply: have no knowledge->acquire edge to trade full time ->trade full time. However, I should have taken an extra step or three and done something more like the following:

have no knowledge->acquire edge to swing /position trade(1-4 trades a month) ->earn some extra income (5-10k/year)-> continue to acquire knowledge to swing trade smaller frame (1-6 trades a week) -> earn substantial income(10k+ a year) ->gain enough knowledge to trade intraday = trading full time.

Aren’t time frames just reflexive of themselves and they’re all the same? No, not really. Trading on a larger frame grants a lot more wiggle room to be wrong (since position sizes are so small). You can be saved in a position trade in so many ways. Unexpected news, expected news, interest rates (carry trading), light weight martingale strategies, random chance, etc. The probability that a specific point will be revisited is obviously much larger when you allow weeks rather than hours/days. You can afford to miss your entry by 50, 60, 100 pips and it’s not that big of a deal. In a live environment, it’s different.

When I think about scalp and intraday traders versus swing and position traders, I think of this comparison: precision vs. prediction. I think scalpers are extremely niche in their knowledge. They know a few things and they know them damn well. They’re reactive and quick. Swing traders on the other hand are more about preparation. They have to continually adjust their outlooks based on news, and rather than react, they anticipate. That’s how I see it anyway.

If I could offer one last point as to why I failed to go fulltime, I’d simply say that I was missing “it”. Not seeing the things that other people couldn’t see.  Not being creative enough. Not thinking outside the box enough. Not thinking inside the box enough. Not enough coding power. Not enough preperation. In my opinion of trading, the ends does justify the means. If you failed, you have no one to blame but yourself. There’s no rigging. There’s no luck. It simply is. While I still have thoughts that I could do it one day, I couldn’t do it in the prescribed timeline.

And with that, I’m off for now. If you were looking for the happy ending, so was I. It’s not all doom and gloom however. I have learned a LOT in the past 3-4 years. I’ve surprised myself with how well I can work data in excel, how easily I can manipulate raw data into swings for analysis. I could probably be more efficient in anotehr language like R, but perhaps that’s for another time. A reboot of sorts. I know so many FACTS about the fx market. Not opinions, not thoughts, not theories about the “market marker” that is out to get us. Statistical, raw, empirical evidence about how price moves. And that’s kind of cool. Maybe I do have the edge. Maybe I just need to work it over time and play my spots that I know. There’s always tomorrow, another trade, and I WILL trade.

With that, I’ll be on vacation until the end of the month, and hopefully by the time I get back I can upload one last live account to myfxbook. Until then, remember: Question, Research, Profit.

-LiquidGenius