The big re-start pt1: What doesn’t work and why

In approaching Rels system/strategy it’s important to first look at everything else and what went wrong. Nothing is a waste of time if there’s something to be gained from it.

If we take the assumption that most retail traders fail, we should look what what they’re doing. I’ve come to see all them in the simple umbrella term of indi(cator) trading. With the exception of pure PA trading as shown in Johnathan’s thread, almost every system to date attempts to use some “price derivative” indi to create a setup.

Remember that every indi is created with the attempt to make some aspect of the chart, created from price, more clear. E.g the good old 2 MA cross over strategy. While it boils down to the noob trader to mean buy at some cross and sell at the other, it actually shows one thing: when the fast crosses the slow, recent price has moved more in one direction than typical. The crux of this strategy “working” is basically a momentum based style of trading.

note: I’ve noticed in some indicators, such as an oversold/overbought indi, that sometimes when the indi is wrong, it’s REALLY wrong. An overbought indi will show a sell at some level, and will remain overbought as it moves 100 pips up. This is because the indicator can’t take things like breakouts into account. It’s not meant to. It’s only looking at certain aspects of price.

Therefore, if a true indicator is going to work (that is, if we’re going to be using an indicator(s) to trade), it must take certain things into consideration. This is sort of how we end up with Rel’s (and others) requirements of a trade bias: Waves, Levels, and Volatility. Most typical systems unknowingly trade using a few of these aspects, but not all three. The presence of all 3 makes the system “complete”.

Waves: I think this is perhaps the aspect of trading that most typical systems don’t take into account. Wave Analysis (WA) is simply some form of putting the market moves into single lines. Solid analysis filters out noise but at the same times gives a good impression of real price movement. WA is intuitively linked to dow wave theory, which imo is too much theory. There are so many different patterns that you can fit every move into the theory, but it’s practicality leaks out. The goal of WA is to put waves in such a way that they can be contained in a subset of wave structures, to allow us to predict what will happen after. Typical ways to measure waves involve some sort of ZigZag tool (ZZ), or a fib tool.

-The simple problem with waves for the time being is knowing when the current wave will end, when the next wave will begin, and how far it will move.

Levels: Levels are more commonly known to be price levels. Session/Daily/weekly/Monthly Pivots/highs/lows/opens/closes create a lot of price levels already, and there are the standard price rejection/acceptance levels as well. S/R levels are quite intuitive for average traders.

Volatility: A volatility tool’s goal is to find some sort of momentum. Where is the big money being put into a position? Where is money leaving? Trading a volatility tool looks to find some way to track volume. Since volume is quite tricky to deal with, most systems attempt to side step the issue by: only trading during certain hours of the day when volume is known to be entering the market(LO), not trading certain pairs or certain hours of the day, or buffering another tool such as levels. By this we look to the following point:

When you split 24 hours into 1 hr chunks with volume, some hours will have much greater vol than others(aka, the variance of volume in the chunk is large). Therefore, trading in those hour zones would be the wisest to incorporate the volatility tool. However, when you split a month into days, each day has roughly the same volume (with perhaps mondays/fridays having slightly less but not by much). In other words, Shorter time frames are more sensitive to differences in action/volume than price. If you trade a 5m chart, you need to be careful that you are trading in a good “vol” zone. If you trade a daily chart, you get a bit more slack(in the sense that if you trade important levels such as a monthly high, it is known that there will be volume there).

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