Category Archives: Waves

Bars until swing termination point within the active zone

Trying to do a better job of explaining my posts.. makes it way easier to go back to later and understand what I did..

Following the debriefing, I decided to basically hop back into the “try anything I can think of” phase of development (time permitting T_T) with the understanding that the “active zone” or soft reaction point between the 40%-85% is the optimal point of entry for swing (retracement) trading.

The first of my ideas is a simple bar count of how many bars are in the zone before price either a) peaks out or b) blows through. The count is activated once price hits at least 40% retrace, and swings that don’t reach 40% (some UR/DR) are just not counted. The main interest points here are a) if there is a difference between retracements and trends, and b) particularly low counts and high counts.

Bars until swing termination point within the active zone

This is still with the 30m EJ data, and the 80% capture rate is about 6 bars/3 hours on retracement and rejection swings, and 5 on the trending swings. This is kind of interesting because of the following:

If you take DR swings, for example, there were 213 swings that fell between 40.01% and 99.99% (these would then be all the swings used in this analysis). Of that subset, 74.6% of the swings reverse before the 85% mark. On the other hand, if you take DT swings, 100% of them go above 100% (by definition) and therefore 100% of them go past the 85% mark. Yet, the time to reach termination point, be it 50%, 60%, or 85% has only a 1 bar, or 30m difference at most, and is generally not really noticeable.

The other thing to note that is slightly more obvious (and intuitive) is that the longer price spends in the zone, the more likely it is to be a retracement swing rather than a trend type swing.

Edit: I should note that this statistic also has what I would assume to be a pretty high probability scalp imbedded in it. Since about 80% of swings have multiple bars in the zone, it means that after the first bar prints, it’s highly likely that at least one more bar will print to complete the high/low of the swing.


Lower time frame swing breaks

It surprises me sometimes how fast live trading and accelerate the learning process.

Profit potential for breakouts

Results look fairly well, first 10-15 trades look as expected. Note to self to not trading during the news when scalping though. It’s a good way to lose all your gains and then some. Oops.

Currently working on 5m extended swings and just trading the break. Fixing waves to be 3 or 5 leg moves kind of works in some situations, but it detracts slightly from letting price tell the story. By requiring price to break out of one of the ends of the swing I think one can improve this story telling aspect, at least by a little. As long as it’s an improvement on the current model, then I think it’s worth it. The extra benefit is that the extended swings always contain the basic waves within them.

The other thing I like about it is that when I use extended swings, the average length of the wave increases. Using more time while maintaining swing points is essentially unlocking a higher time frame from within a smaller time frame. That is, I can more easily see the individual bars and lower frame fractals, while still acting within the “minimum” limits of swing sizes that are generally much larger than 5m swings will allow (by minimum I mean the size at which PA at that level is no longer considered noise. I am looking at the “real” moves). Of course embedded within all these swing sizes, time frames, fractal locations, etc are a lot of assumptions about what is truly correct or taken into account when making moves, but results are results.

When the model is more likely to be correct, then one can more confidently engage in active pattern seeking and what I call strategy patching. Something that a lot of new traders do is they find some strategy, and trade it. It wins and loses. Then the trader looks at the losses and tries to explain them. After a while of searching, they discover a few signs that the losses share in common. A pinbar tipping them off, S/R level, etc. So they up their criteria to take a trade, hoping to increase the quality. They patch it. However after resuming trading, the process loops and results don’t improve much. This is not a bad way to go about trading per say, but to do it correctly is a very difficult indeed, and in my opinion the effectiveness relies heavily on how strong the model (or strategy) is to begin with.

Loser notes and potential patches

Having the numbers to really know how many issues you solve with a particular patch helps as well.

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.



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


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.