Category Archives: Strategy

RHS #2.7 Swing Ratios

t2
Each type leads to one of 3 other types. Total of 6 types, plus dom/non-dom, makes this one set out of 12.
These ratios still don’t tell me about the reversal probability, but rather about the continuation probability and when price may not have to continue. I think I definitely need a new TCD completely to try to capture reversal moves. Distinct Vega or Vega prime maybe? hmm..

The way I’ve been using this is pretty simple; if the current wave ratio is in an extreme in terms of the histogram, then price should make a new extreme on the chart.

current

I find the 0-140 ratios to work much better than the 100-500 ratios, and since the dom and non-dom are roughly flipped, I pretty much always have a ratio that is in the favorable range that I can use. The histogram for the 100-500 range is much more spread out, and harder to be accurate.

I still need to look at how these ratios play out in the charts, but my gut hypothesis is that ~.84 ratio suggests that price is a bit over-extended (being in a ~5% extreme), but needs to “fix” the ratio to be in an acceptable range. These numbers are averaged over the length of the wave, so this would mean that if price wanted to create a “correct” ratio, it would need to make a new extreme to print a new number, but only after some time, in order to drag the average down. In other words, the expectation is pullback or pause, followed by new extreme.

c price

We’ll see how this one plays out. If these ratios really work like this it would be awesome. Not quite what I was originally aiming for, but still big.
Edit:
fail
Not quite there. Some good opportunity for profits if I wait for a good R:R probability which I did get. but the map did not complete..

Edit2: I’ve been studying the ratios over wave time. Oh boy does the rabbit hole go deep.

Signal bender, some thoughts on delta

SB being the Delta trader he is, finds enormous potential in Deltas. Where there are data points, there are exploits of data points. There’s an emphasis on thinking about what deltas are really showing, because it will lead the way to finding new deltas. Since a bar contains 4 data points (o/h/l/c) and since deltas can be strung across multiple bars, and they don’t always have to be continuous, the possibilities are basically limitless.

The omega is the delta of the high/low. You can then plot a new ‘price’ by creating a moving average indicator of the omega. You can also plot a moving average of this moving average… sure gets messy quickly.

(I think) A hint from today’s reading concerning how to string together multiple time frames: it seems that the direction I want to be going in is to first look at a low tf. Watch ‘PA’ and it should follow a sort of curve of normal probability in terms of movement. If price starts to break out of the norm (big moves) it will no longer be contained within the small tf. Instead, it’s actions will be following the curve for a higher tf, so I can get some indication that ‘more data’ is required.

Signal Bender pt 3

Summarizing how I think SB thinks, from the first couple lengthy posts that he makes, from pgs ~3-7.

The market prints a sort of signature that is visible in the right light, and this provides trade opportunity. SB sees these in deltas, and calls himself a delta trader, so we begin with what are called Delta concepts. Delta is later defined as:

“The mathematical differential between one or more data points that are either Internal (inside the same Bar); Contiguous (inside adjoining Bars); or Non-Contiguous (across multiple non-adjoining Bars).”

What’s important to take away is that he’s using delta in a pretty standard way. Back in chemistry class from high school, delta was simply the difference between two things. Remember that.

There are three delta trade concepts: Omega, TCD Long(and TCD Short), and Non-Continuous Delta.

Omega is the delta between two points, while TCDs are continuous between two adjoining bars of delta between two or more delta points. Lastly Non-continuous delta is simply between two non-adjoining bars of data.

Breaking down Omega: This is from the concept of market Magnitude. The closest standard thing to representing magnitude is ATR (average true range). The markets Omega refers to it’s magnitude.

TCD stands for Transequential contiguous Delta. There are two basic forms of TCD.
TCD Long:H-PL
TCD Short: PH-L

SB brings these concepts together wonderfully to bolster the idea of a moving living market.

Omega is king. It consists of the delta between two points within the same bar, bout accounts for all of the price action within the bar. The “energy” of the market is thought to be proportional to the product of the omega and the two trajectories(the TCDs), similar to the way e=mc I see this as a way of saying Omega is the net effect or force of the market, and inside of the Omega are the two TCDs interacting with each other: Long/short, bull/bear, positive/negative energy, with one force (one TCD) being dominant and the other being subordinate, creating the effect we see in the Omega.

“Thus, all Price action flows from Omega -but- is fully contained and fully defined within the TCDs.”

So the real representation of the market is not just in the Omega, but in the magnitude of the underlying TCDs as well.

Signal Bender Pt 2

I struggled for a long time to understand this simple picture:

Capture

Why are the price waves drawn that way?

Instead, eventually I began to ask, How would I want to draw price action accurately? My initial thought was open/close, however very quickly I realized this leaves out too much information, for obvious reasons. In trading smaller time frames, (1hr) volume is important. Movement is important. Where players are is important. ZONES are important. Price is not static. (obvious, but a bit of an a-ha moment after reading SB). I NEED to know the highs and lows to track what price is acceptable by big money. So o/c is out. Perhaps later this will come back, but again, following wave construction ideas, I want to be able to create a tool that follows price action as carefully and as best as possible. I simply require the highs and lows.

The eventual big question was: Why not H-PH PL-L instead of H-PL L-PH. Why cross high to low, and not simply high to high? I’m still not sure I have the correct answer, but I think it has something to do with the earlier thought of price not being static. See, connecting candles via H-PL L-PH crosses price. It connects them. In a way it forces price to flow and for the viewer to see price in a slightly different light.

“In my system, I don’t see “Price” per se, the way most do… I see Price as being smeared out over a particular Span of both Time and Distance. Thus, for me, Price has Shape, Form, Contouring, Depth, Height, Width, Length and Duration. In other words, in my system, Price is a living, breathing entity. Not static.”-Signal Bender.

Signal Bender(SB) pt 1

The next part of the thread is a transition from Barros Swing (BS) into Signal Bender (SB). It’s important to know the differences and why SB is preferred. This is an area I don’t feel too comfortable in, but lets see if I can dissect something from what I DO know.

A good wave indicator must basically play around with pure price (O/H/L/C) in a way that maps movement correctly, and accurately, and does not “break” the structure. It should not force a pattern(still wondering about that) but a pattern should emerge. Creativity! This is something I believe I lack at the moment; I hope more study into what I’m looking at will give me ideas to proceed. As Rel writes:

a-structual / specific repeating patterns (BS did not fully succeed)
b-tie in with volume (BS did not fully succeed)
c-multiple timeframe analysis of how a lower TF wave would interact with a higher TF wave (BS did not succeed well enough)
d-handling of inside swings on the same TF level (related to point a; did not suceed)
e-wave lengths time wise (succeeded)
f-wave lengths pip length wise (succeeded)

E and F are easy; it’s the first 4 that are difficult and ultimately help produce an edge.

 

In his post about SB basics expounded, he goes over a point which after reading for a third time, is starting to come together a bit more nicely for me. This set of posts has a lot of info in it read in the right light. Here are some of the points he makes:

http://forums.babypips.com/free-forex-trading-systems/42052-what-really-turned-my-trading-around-145.html#post415620

-2. There’s a difference between what we see from a candle pattern, and what price is literally telling us. “Manual visual chart reading VS Manual non-visual raw price data reading”

I see this kind of like subjectivity vs objectivity. A bearish engulfing to the candle reader suggests a bearish reversal. However on various time frames this kind of pattern may be slightly invalid, require more time, or non existent. However in correct wave analysis, we should see deeper than that, and know exactly how price is movement relative to the candle before it. There should be no variance between two charts due to broker platform, they should be uniform. After all, everyone is ‘seeing’ the same chart no? The wave tool’s job is to remove this ambiguity from chart to chart. It also removes eye bias; if the wave tool is printing down, it’s printing down. Price is price.

Pt 2 will look at why I think the construction of waves via SB makes sense

 

The big re-start pt2: What now?

If we being to look at the 3 types/methods of traders, which is most important? While all three are, if you were to create one to begin with, or one to capture the rest, Rel’s argument would be Waves. After all, volatility measures potential action(energy), levels measure potential zones, but waves measure pure price, and price is king.

Therefore, the grunt of the work needs to be put into some kind of wave tool. If the tool is wrong, everything using the tool with be wrong. If it fails to take certain aspects of the market into account, I’m screwed. Lets look at the barros swing tool.

First, Rel implied that the thread is essentially a diary. It shows the thought process, and someone who truly understands the thread will see what the all the work is trying to show. With this in mind I read the thread with the knowledge that the early tools were dumped, either because of some finding showed in the thread, or some finding not in the thread. “The tool is not necessarily obsolete, it is simply not used as is because it has evolved”. Wave analysis was not dropped, it’s just that that particular method of conducting wave analysis didn’t make the cut. Therefore, I began the thread with the headline: “What’s wrong with the barros swing?”. This is absolutely critical. The tool must be broken in some way. How? Why?

The barros swing, as I understand it, creates lines based on where price is relative to the input period. A 25 period barros will print a downswing if the current price is below the past 25 periods. The point of having 2 swings (one “set” of the indicator) is to account for multiple time frames. The minor swing would account for say the past hour while the major swing would account for the daily. This prevents the trader from, say,  taking longs on the minor swing while the current major swing is down, or at least makes him aware of it. In truth, it seems that when both swings are in one direction, it’s an opportunity to trade the other side.

So back to the original question.. What’s wrong with it?.. After putting the BS on my chart and looking at it for quite some time, a few things became apparent:

1. The swings look nice and all, but I didn’t understand what I was suppose to get from it. How would I know when a swing would end? How far would the next one go? I assumed this would come with more knowledge, such as taking trades when the trend channel(Linear regression channel tool) was broken.

2. Tied to 1, the swings didn’t help me see price much better. The fact that swings basically appeared where ever they wanted to didn’t really help me. What I mean by this is that I noticed how sensitive time was. If you changed the barros tf, it could print a different swing. Duh. However, if this swing indi is suppose map price swings correctly, shouldn’t it be a bit more uniform? Shouldn’t the swings show more obvious patterns? If I wanted to create a collection of possible swings the barros makes, I feel like that would be a massive collection. If I want to trade the market based on reoccurring patterns, this indi doesn’t cut it. The time issue is actually quite important. Rel assured me later (both on skype and in the thread) that this is one of the big errors; The correct WA tool should create MTFs as needed. It shouldn’t require input on my end to look at certain time periods.

3. If this tool is to be king, it also needs to take volume/volatility into account. If I trade only EU I suppose this is acceptable.. Additionally maybe the levels tool, when created, can solve this issue as well…

In all, there needs to be a better tool than the current barros. It must take volume into account (necessary or preferably?) and take multiple time frames into account. It should also ideally print waves in such a way that there is some structure to them. The waves should be able to be classified as A, B, C, D, etc, to create the potential for projection.

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).