Yea, I feel like when my NL confirms, it's kinda too late to jump in. I am trying to get a feel for the weakening and strengthing of the NL instead for an earlier read.
Markets follow a random walk with drift. In futures the drift equates to the shape of the forward curve. In cash markets the drift is equal to some interest rate factor. I would ask traders these questions: 1. Are you currently bullish or bearish in any particular market right now? If they answer, I don't bother with the rest of the questions. 2. How do you price risk? 3. Define opportunity cost as it pertains to trading. 4. If a trader is right 100% of the time on his market calls, can he have 100% losing trades any why? What is the mathematical term that describes this phenomenon. 5. You are given a choice between buying two assets. Asset A you expect to return 7% over the next year (avg return of market). Asset B you expect to have a random return. Both assets are highly correlated to the sp 500. You have to hold both assets for one year. Asset B allows you the opportunity to time your sale. Which asset has the higher expected return mathematically? Which asset would you buy and why?
Hi Koolaid, Just thought I would give you my 2c on this, and explain the stage that I am currently at in my own studies. With the number lines it seems hard at least in my own experience to detract from the fact that a number line is in no way similar to moving averages etc. You should think of the number line moreover as a scorecard for price action. If a number line is strong it doesn't mean that you would buy the instrument, it should be clarifying what you already know, is the product is acting strong or weak. Think of looking at number lines like looking at a league table in football etc i.e You can tell who the strong teams are but that still doesn't mean they are going to win the next game. Personally I was never happy with the way that a confirm works, my reason for this being that you cannot trade Apple in the same way as you would trade Natty. The problem I see with the original Fisher version of the number line, is that for example Natty may confirm faster than Apple since they are both unique products. Its unlikely that one setting will work seamlessly with two separate products. If you watch a lot of different instruments, you can see that by the time you get a confirmation the meat of the move has already occurred. As Mav & running_bare have pointed out, you really want to identify moves before other participants do and avoid rush hour. Another thing I would like to point out on this is as Mav says, the number line is only a foundation to build from. But the foundation Fish has given us is rock solid, especially for relative analysis and identifying marginal change. So I have been looking at a way of speeding up the confirmation process, there are two possible ways I can see of doing this. The first is as Wappler and co mentioned in this post, by optimising your number line confirmations on a product by product basis.The second is as Mav has mentioned by using ACD derivatives. From my own analysis I like Mavs idea of using ACD derivatives. The 30 day indicator is excellent for gauging the strength of the trend. Because it is over a larger timeframe, it is much smoother than shorter timeframe ACD indicators such as the 5 day. What this means is that the 30 day is far less susceptible to noise. If you follow a 30 day over a long enough period of time you will see what I mean. What I am currently working on is distinguishing the difference from what may be just a bump on the 30 day line to what might actually be a change in trend. The best way I can see of doing this is measuring the slope of the 30 day, then ascertaining the direction of the trend(slope +-), strength of trend(slope steepness), trend transitions(slope changing from pos to neg). This in itself is a lot of useful information and should be a great aid in identifying when the market is experiencing regime shifts. This is still all work in progress but looks highly promising thus far. Something I used to ignore on this thread was the other posters saying that you really must make ACD your own. The more and more ACD grows on me, the more I seem to be using this advice and the greater confidence I have in applying it to my trading. Hope this helps and apologies for repeating, what Mav or others may have already written.
Anyone watching EBSB? Its been showing strength on the number lines lately along with holding up well against the overall market. You would not have thought it was so strong by taking a daily chart at face value. It gapped down this morning at the open and went on to make an Aup which is strong action. One last important point, its not even being mentioned on the media. Might be worth keeping on the watch list.
It's a pretty thinly traded stock not sure using acd for it would work. The gap down you mentioned where it lost 7% on no news happened on 2.8k shares traded.
KRE has been holding up relatively well. I find that pretty interesting considering Fed futures are now pricing the next hike to be in 2017
Mav, no long debates now, rugby season and I don't even trade Friday's anymore, unless I'm taking a position or closing something. I considered the random walk hypothesis, and rejected it. I believe markets are efficient on average, but there are periodic inefficiencies that can be exploited. If the markets are totally random, there would not be predictable trends. I've provided a couple of papers to Surf that demonstrated the existence of trends. They should still be around. Trends happen because of a change in fundamentals, either actual or perceived, leading to a repricing of assets. I will grant that the change, regardless of whether actual or perceived, precipitates an imbalance in the markets, and the search for equilibrium moves price. I understand your point about drift, but there is also a behavioural aspect to pricing that transcends drift caused by interest rates or cost of carry. I know you will agree the forward curve is also about perception of future supply and demand, but many reading this would benefit from understanding that point. To me a 5 minute chart is noise, but many here believe they can see short term imbalances and exploit them profitably. I'm not going to argue that, there are many ways to skin a cat and the biggest idiots on ET are the ones who insist there is only one way to do things, their way. Let me give you a few instances to illustrate my point about trends. When BoJ launched their version of QE, USD.JPY went from circa 105 (I got in 106+) to about 121 or 122. That was a trend due to repricing of the Yen. There was nothing random then. Just this week the RBA revised inflation expectations downwards, that led to a quick repricing of the Aussie. I entered after the fact, I think I'm up over a hundred pips. Nothing random. FOMC announcements, if contrary to popular belief, lead to repricing of treasuries and precious metals. The same thing happens with earnings announcements, outlook guidance, WASDE Reports, GDP data, and so on, endlessly. If you have someone who is trading the ES or CL every single day, then they are trying to spot momentary imbalances and exploit them. I have no doubt some are very successful doing this, I can't. Genuine asset repricing, even if just because cheap money is seeking the best return, causes trends that can be exploited. It does require patience, but it is there. So no, I don't believe markets are random. For the rest of it, if one doesn't understand probabilities and risk, it will be a pretty short career. There was also a question about the 30D NLs. Not to make a long story longer, if I am sitting in front of the screens for the day looking for short term trades, the 5D NLs and especially the derivatives dictate what I do. An overextended market can yield something counter trend, and my 5D NL derivatives are better than any oscillator at predicting that. Has anyone looked at a 3D NL and derivatives to flag day trades? I'm considering evaluating that.