Monthly Archives: August 2015

Trend retracement filters on swing assumption

The trade set-up in wave trading as I see it is very straight forward: ID trend, spot possible swing point, bet or wait.

I “cheated” a little here and looked at only the swings where the trend remained in effect.

Capture

Capture2

For a rough visual analysis I looked at a heat map for the accumulative %s.

HM

Retracement point on the left, trend swing size bin on the top. I was a bit surprised at how smooth the heat map looks. What this suggests to me (which I guess is the real surprise) is that this seems to lend some evidence to the idea that the literal pip movement matters.

 

Retracement filtered by trend length

I’m sure this is something that I’ve done before, but I don’t think I realized the implications of it so I’ve redone it.

In a given 3 wave progression off of a trend, a trend move is likely to be followed by a spring wave (68%) or an expansion wave (32%). This means no matter your stop, you have a 32% chance to lose the trade. Given the easiest and highest density areas to enter, this makes for terrible R:R

trend progression

I’ve come to think that the wave length, although it has issues of being arbitrary (is 100 pips now the same as 100 pips 10 years ago?), is still important. I broke up the sets into 50 pip bins to hopefully get rid of some of the possible change to the value of a single pip over time.

trend wave retracement

Not a whole ton to learn from this since one should already expect that small waves are more likely to expand rather than contract, but as usual, it’s nice to know where the breaks are.

Next wave progressions

Long story short, I really tried to get the binaries off the floor but I couldn’t. I think I need more data and more experience to pick out really specific areas of the market that I can win in. Until then, back to the old.

Taking a break was nice because when I came back I had a lot more ideas about what I wanted to research. Some of it might be old stuff that I just forgot that I’ve done before, but to me that means I just didn’t work on it long enough to really remember what kind of stats it yielded.

I’ve been looking though old charts and trading on a small account and I think I can reach a reasonable return on a consistent basis as it is. However I’d like to refine it because I find myself asking statistic questions about a certain pattern when I could actually find out the number for myself!

So, hopefully in these next few weeks and months, I’ll be able to be more productive, both in trading and in life, and crank out more stats.

trend lag

Here are a few things I noticed and wanted to look more into.

  • We know that trends have a decent edge in themselves to continue
  • Trying to pick the tops and bottoms is actually not that bad of an idea if you can find the right balance between probability of success and expected R:R
  • The current pattern that I’ve been using to pick tops and bottoms performs much better in picking retracements bottoms rather than trend tops (in an up trending market)
  • That is, retracement swings tend to be more obvious, quicker, and easier to pick compared to trend lengths
  • Aka, where price is not likely to go is easier to discover compared to where price may likely go, within a retracement/expansion context
  • Trend moves tend to show the classic breakout, congestion, breakout move