Category Archives: journal

Market Summary 2015

Here’s a bit of a summary of where I’m at and what I’ve been thinking about lately, to help me re-focus where I should be putting in the hours for the next year.
Market theory:

  1. The market is more or less most efficient when viewed in the 30m 7bar wave length (“The” chart)
  2. Retracements are much more common than rejections or trends.
  3. Markets do not often contract continuously (retrace->retrace->retrace) nor continually expand (trend->trend->trend). Happens, but not often.
  4. It is much easier to predict where a retracement will end as opposed to where a trend will end. This is pretty easily backed by theory that retracements are occurring in previously interacted zones (S/R) as opposed to trends that may be operating in “air” space where market participants are unsure of what the correct reference point is.
  5. Retracement moves occur with a minimum of 25-30% of the previous move. This may be have something to do with “minimum” profit taking at certain levels.
  6. The 40-80% range is where most retracements end. There are many “seen” levels at this point (50% half point, 61.8 fib), so it will give reason for a lot of people to jump in. If it’s enough, price will hold in this range.
  7. The 80-100% is the “danger” zone. If the level is being protected, it will usually happen here in the form of a large wick. The highs/lows may occur in this region, but closes (I think) are likely to be somewhere in the 60-80% range if it holds.
    -I think candles who’s high pops just a little over 100% but close under tend to then make a 30% retracement (need to check)
  8. 100%-120% is sort of a limbo between a breakout and a major rejection zone. Prices that reject this level tend to be similar to the level before this, often forming large wicks before shooting the other way.
    -It seems that the 80-120% range is where price is most unsure. I don’t really know of a good way to measure this, but it might be worth clearing up how price moves in these areas.

likely likely

rip

Following from the above, here’s what I’ve been thinking about in terms of how to apply this.
Trading Strategy Theory:

  1. Since price is limited in what it can do within the soft zone of 40%-80%, it makes the most sense to try to pinpoint a price within this area and trade it.
    -Doing so will set a hard stop at the break of the level, setting a max risk point.
  2. Pinpointing a single bar within the range will help minimize risk further and create a more ideal risk: reward ratio. This will reduce accuracy and result in taking multiple small losses, but open up the potential to ride out trend moves when they occur.
    -There are two methods to do this: either predicting that the current level will hold or waiting for the completion of a signal (3 bar fractal).
    -Alternatively, one can start small and continue to build positions behind (averaging losses) and maintain the “max risk point” from above. Doing so will allow more opportunity to get out of failed trades with minimal losses, but will reduce profit in trades that work out on the first attempt.
    -Trading with an absolute stop (at the 100% break) would require holding trades longer than what is normally the minimum expectation. This basically creates a fixed risk, variable reward. This may not be desirable because one wants to play as close to the “safe numbers” as possible and as frequently as possible.
    -A possible way to improve profits in this area would be to then stack trades in favor of the move (averaging up)
    -Since there is a roughly predictable number of bars that can occur within the soft zone, filtering out even half of them should allow for a very finite, crisp window of opportunity.Doing so will eliminate trades that do not occur within the soft zone (where no signal is possible, <30% retracement), as well as trades that do not provide a signal, while taking failed trades (where a signal appears but price continues to reverse past the 100% level). Trading this kind of style would require a lot of patience to stomach losing trades, since one would lose out on trading 2 potential winning areas while maintaining the losing area (since it is unknown), as well as the necessity to capture the winning trades to make up for losses and then some.
    -One must be very careful when filtering out trades in the soft zone. Since retracement moves are the most common, inaccuracy will lead to losing out on what is a likely opportunity.
  3. Since trend ends are much more difficult to anticipate, it is probably best to play into them rather than out of them. That is, hold trades and get out when a warning sign appears, rather than getting into a reversal trade at that point.

Statistical backings:
Currently I am using two types of edges.

  1. Histogram and curve distributions – taking all the data available, and matching the points of interest against them. If 90% of interest points occur between the values of 0 and 1, then if the current point is not in that range, it is likely not a point of interest.
  2. Max counts – Counting the frequency that a specific pattern or “signal” will appear within a set (range, wave, etc). If 90% of waves contain 3 or less patterns, then betting once the count is 2 or 3 is a good spot to be in.

My favorite histogram stat might be this one. The fill bars are okay, but the frequency of these bars isn’t high enough in my opinion to rely on them as an active trading tool. The left side range reference isn’t the strongest, but it is clean and simple to understand. My favorite count stat is probably this one from FF. The skew is there, the timing is implied, and the occurrence is decent. Trading after the first one shows means losing out on 30% of the trades, and there is a remaining ~60-65% edge.

It may be worth trying the above two figures out and seeing what issues I come up with, since my work in the rabbit hole is, well, a deep deep journey. If I try to follow the little pieces of gold from the more experienced, perhaps my aim should just be to continue to reduce risk and just sit on winners. It might be better suited for my lifestyle too.

“Debriefing” on MMLC v12

Been hanging around this thread:

http://www.forexfactory.com/showthread.php?t=565169

After a lot of thought, it kind of feels like the “path to profits” has been made both easier and harder. On one hand, the market has been simplified to:

  1. Find good areas to trade in (done)
  2. Find strong signals within these areas (not done)
  3. Find success and failure points (not done)
  4. Win

On the other hand, the methods used to find the next steps seem to make frequency distributions of price retracements/extensions less effective or not effective at all. These are the “other methods” or additional parts.

Having the trade spots known creates a sort of a filter on what price range are worth looking and excludes certain types of analysis making it easier in the hypothesis but harder in the design phase. Time to be “creative”.

*puts crazy hat on*

Ideas on profit and post-trade analysis

As I have been trading more and more, I have been doing less general research and now only really focus on the bits that I think I really need to work on (busy schedule has led me to not do much of that either though..). I spend most of my think time on random posts/topics that have stuck to my mind, as well as strategies and ideas that I think work and don’t work, and why. I try to juggle the thoughts of traders that have seem to have made it, ideologies that retail traders were taught to be true, as well as my constantly developing thoughts, and make sense of the whole thing and create a picture of how the market functions in a way that ‘upsets’ the fewest thoughts. One of these thoughts that I have spent more time thinking about lately is the idea of “cutting losses and letting winners run”.

There are actually so many ways to think about this idea. Cutting losses is one thing, getting big winners is another, and often traders face the issue of an expected or average yield of win/loss. Anytime you allow a “winner” (predefined by the system) to run, you risk it becoming a breakeven trade. Not bad, but when you rely on the winners to make the system a winning system, you really just need to win. Its tough analysis a lot of times to continue to section off winners into trades that may become big winners, because it may make the system worse, turning more winners into nulled (breakeven) or even small loss trades. After all, if the process to become a successful trader is losing trader->break even trader->winning trader, you’re really looking at the function of growing winning trades to further your equity growth.

One idea that I’ve enjoyed thinking about a lot lately is something I think TheRealThing from FF has said: that the breakdown of his trades is basically a lot of small winners, a lot of small losers, and a few, just a few, HUGE wins. It makes the grinding and focused aspect of trading more realistic, and it does make sense. In my study of transient bars, this is quite akin to catching a long right in the middle of a mid-transient bar. It’s not so much that you try to identify them as they occur, but you just kind of “luck out” (although I do think there may be something to be done in this area..). It also coincides with the Tsunami thread (now junked) that the goal is to move the stop to BE in a good place, and just wait for the black swan events to not be the things we fear and try to control as the risk factor of our trading, but rather accept and look forward to them, as they are the events that really make our account grow. In other words, if you can manage to get into a trade that just takes off, if you don’t “need” the trade, try to just sit on it stubbornly and not take 2, 4, or even 8% growth. Rather, sit and wait on it to grow into a 15 or 20% trade. I know I would be fine with catching one or two of these a month.

Of course, how do we really do this?

Currently I’m thinking about:

-Breakouts
-Further analyzing price movement post break
-Analyzing the time component for a trade to exhaust
-Average/middle leg lengths for 5M-H4 breakout waves
-Classic (my version) ABC waves in 1Hr-W1 swings (1 mo scale)
-Taking a look at mid-transient bars and return probability (BE) for 15m-1hr bars
-Possible “Speed” of breakout waves on 5m-1hr waves

Lots to think about, many ways to design them…

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

 

Tracking the Newbies

This was an idea that I, as well as many other people, have wondered for a while. If retail traders always lose, why not trade against them? There’s no way to accurately backtest such a strategy, so it really can’t be done until someone actually does it. I don’t read forums much anymore to know if someone is doing it, so I’ve decided to add it to the list of things that I do now!

With such a theory, there are so many ways to decide how exactly to trade against the retail traders. I won’t reveal the exact formula atm (though I have no issues doing so if it does well) but it is taking data (manually) from Oanda, ForexFactory, and Myfxbook. Not sure which pairs to trade, but I’m starting with 4.

Lets see how it goes!

Edit: discontinued.. didn’t have the time to keep up with it properly

Trend is your friend?

Is this scientific proof to follow the trend and it’s strength? (pt 2)

Continuation complete

I’m cautious to make more additions to this. I think at this point I want to be veryy critical and precise with improving at the core components. I’m kind of viewing this as “gen 1” of 1 part of a system of x number of components if we’re speaking about the SB metabrain style of trading.

The picture is pretty self explanatory given one is aware of what h values are. What’s interesting is the difference in strength between the low and high extreme h values.
For context:

Goal:
Capture

Currently (after nearly 18 months LOL):
com

The journey continues.

Progress on Metadata and TCDs

SO difficult!

When I find myself studying metadata and the resulting TCDs, I find myself struggling with a lot of philosophical, chicken-and-egg, and catch-22 type of issues.

Creating additional metadata is easy. Quite easy. The issue is analyzing it correcting and discovering what is “right” and what can be improved upon. I suppose first I should define how I view research in general.

The goal of research (for me) falls into two categories: Signals, and system/knowledge.
Signals: each signal has an absolute end: does the signal work or not? Is the bar recurrent or transient? Discovering strong signals (ones that don’t fail often) is difficult, but calculating whether or not your signal works is easy. You can set it with either a time control or pip control (stop loss) and at the end, you get a clean number. x% wins, y% losses.
System/knowledge: This type aims to take the information displayed through raw data, and strip it down to only what is necessary: highs, lows, critical points, etc. Things that fall into this category are like all the wave models I’ve created or market states.

SB TCDs clearly fall into the second category, and the issue with these types of analysis is that it’s hard to know if I’m right or wrong.

Since TCDs are based on raw data, they update as time progresses. The net end of a TCD is some sort of output, such as a number or translated into “long”, “short”, “flat”, “expand”.
Now, If my TCD is signaling “short” anywhere in the green box, is the information “correct” or not?

Capture

Clearly, the chart moves from an uptrend to a downtrend, and clearly the leftmost side of the box is capturing the end of the bull move. If I’m working on a TCD overfill signal that is suggesting that the longs are overfilled and a short movement is necessary, at what point is the signal considered correct? Given the nature of the market, an overfill, whether it be long or short, is bound to be correct at some point or another.

My conclusion from this was that “correctness” needs to be in conjunction or agreement with another TCD. But this leads to similar types of questions. If my signal changes from Sell to Buy, when do I buy? For how long? For how many pips? What determines if the baseline TCD is an accurate representation of price? Initially I thought it was possible to use something like the standard H-pL and pH-L. However to use these effectively, it seems like it’s simply morphing the chart into another chart. (from the standard OHLC time based chart to a TCD connected time based chart.

ok7k77

To take the chart from SB’s thread with the quote:

“Based on just these questions alone – I could look at this one chart alone and tell you that this currency pair was about to make a move Long for at least 80 pips (the harmonic average) and that it was going to do it within the next 24 hours.”

My issue is that historically I’ve seen stuff like this occur with other TCDs, but it has issues that I have with this chart as well:

1. Period 44 looks like a similar position where the Long TCD looks like it will cross the MA, but doesn’t.
2. Even if the long TCD DOES cross over the MA, it doesn’t mean that it will cross above the Short TCD and it looks highly likely that the Short TCD will still be higher.

I can think of some answers to these issues, but only in more general abstract ways. aka, to deal with point #2, develop a signal or indicator that will indicate when the short portion will be over so that the long portion may run. I see this as the following:
Tomorrow the day (starting from open) will see 80 pips up and 80 pips down with 75% probability. Based on this, you cannot successfully trade it. What you would have to do is to develop a way to know (or reasonably know) when the short or long portion will be over to trade the other side with good RR. On and on! Systems need to be developed to monitor other systems to monitor other systems that give output on what will possibly happen next. I believe that this is ACTUALLY how the “real” system works, but being able to develop these parts together yet separately is the catch-22 aspect that I struggle with.