Monthly Archives: December 2014

Intro to Momentum

Drafting drafting drafting…. After a lot of contemplation, reading, organizing, reflection, etc, I decided the main theme I want to start the new year with is the idea of momentum. I’d like to explain the reasoning and logic behind the direction as I think it will be helpful to a lot of “stuck” traders (me frequently being one of them!) The previous post “Zoom in Zoom out” is also helpful to get a better understanding of what my head is telling me.

1. I’m overall quite happy with how my work in transient waves turned out. I ended up with a “statistic of the market”; something that occurs in one time frame that seems to be true in all of them and has the benefit of actually saying something about the state of price and where it is likely to go and not go. The main focus of waves is to predict where price will go, aka, TP levels and future resistance levels. This leads me to try to do more of the other kind of analysis. That is, where price will not go.

2. My “interview” with Relativity made a lot of sense to me and I want to be able to build on it. I won’t end up doing the same thing, but if something works, I want to find a way to either incorporate it or understand it’s use and use that knowledge in future design

3. I believe that due to the market having some sort of chaotic variable, using a fixed h value or fixed anything value is difficult. To overcome this, everything must be made as dynamic and flexible as possible. For h waves this means completing them on multiple time frames and multiple (or minimum/maximum) h values. For support and resistance I think it must mean to use varying or “zone” levels. (that is, one that continuously changes or one that contains multiple price points, not just the current high/low) .

4. I have been and would like to explore the concept of point of no return more in detail. Is there a certain point where a trade is doomed? This is a very tall order, but I’d like to try to find out more about it if I can. Previously I most of the work was simply done with the level of retracement. In light of “Evaluation” I want to try to build another, better pivot indicator(compared to the traditional one and compared to the one I worked on previously).

5. I’d like to try to take advantage of the fact that went you enter on the correct side of the trend, you kind of win no matter what. My momentum work will try to focus on SL points to allow me to just go for it, but know where I’m dead. I’d rather manage winning positions than losing positions. Correctly implementing this will also allow me to “tsunami trade”.

The goal is simple, but can be easily forgotten when rummaging through research and numbers:

  • Establish baseline(s) for momentum
  • improve!

Zoom in, zoom out

As a trader and researcher, I think it’s important to do housekeeping every so often. I write up one of these “update where to now?” posts every now and then, and I’ve found them helpful for keeping everything in perspective. The main questions that should be asked are:

1. What do I know now that I didn’t know before?
2. What do I still want to know?
3. What do I think/know with some degree of certainty that works?
4. What do I think doesn’t work?
5. What do I think I still need to solve?

Most of these have 2 sides: Statistically founded and theory founded.

For example, I think now that some candle patterns can actually be quite useful. To recall a previous statistic, when an extreme is made, 3 particular patterns will appear at such an extreme 80%+ of the time. This is of course different from ‘when pattern x occurs, an extreme will follow’ but it is still beneficial to know. If pattern x has NOT occurred, the chances that the extreme has occurred are lower. At worst, you miss a winning trade. At best, you prevent yourself from taking a bad trade. Worth it.

(point 3) I think that wave patterns exist and are strong enough to produce a “fact” of the market that stands alone. Emphasis on the last 2 words. (statistically based)

(point 3) I think the idea of Transience bars can be expanded to view momentum, as well as potentially support and resistance areas. (theory based)

(point 5) I think Support and Resistance lines are still important, in the sense that they just make sense. How to quantify and trade from them is difficult.

It’s okay to think that something works, even if I have no (scientific) reason for doing so. What is important however, (and where most losing traders go wrong not doing)  is to strive and create experiments to discover if such a premise is true or not. When I began my research, I thought that “waves work” because Relativity said so. I worked hundreds of hours to make that theory become a statistical reality.  The above are simple and perhaps even vague questions. But when I think and answer them seriously, I often end up having conversations with myself that lead me to answer the real important question which is “What now?”

I think I will be laying off the statistics for the next couple weeks to do some New Years organizing. I plan to add another page to this site (similar to the Statistics tab) for my thoughts of how I view the market which were previously kept under the blog and journal categories but which I don’t think were well organized enough.