Sunday | October 15, 2023 About six years of an ongoing attempt to continuously strive for improved versions of what I claimed to already be a profitable approach to trading foreign currency pairs has in all probability concluded in this culminating (lower panel) forecast model... (Main [upper] chart indicators have been omitted.)
From the third chapter of my book... Copyright © 2023 Fred Duckworth Numerical Price Prediction's making was carried out by applying five biblical principles to the art of buying low and selling high; and as already stated, the first principle led me to reject the use of almost all common indicators, such as MACD, RSI, CCI, stochastic oscillators and the like, along with any approaches involving harmonic patterns, Elliot waves, pivot points, Fibonacci ratios and whatnot. Instead, I attempted to rightly interpret "the signs of the times" by devising a system based as much as possible on statistical analysis and mathematical probability via the adoption of a methodology similar to that used by meteorologist (numerical weather prediction) when making their forecasts. The idea was to gather and evaluate precise, up-to-date, quantitative data and use it to calculate the odds of price reaching designated values within a given time period by patterning my system's elements after the equations, wave functions, and computer models used in weather forecasting. But, instead of monitoring wind velocity/direction, cloud formation, humidity, temperature, and barometric pressure; I focused on the synergy between such factors as typical price ranges, reoccurring chart patterns, horizontal support and resistance levels, baselines, and market structures. To put it in biblical terms, I consulted "a multitude of counselors" that proved to be valid and reliable over time, with the result being graphical depictions (or computer models) of current conditions I could then use to help me make precise, well-timed trades. The system incorporates the idea of cycle theory, which holds that cyclical forces, both long and short, drive price movements, and can be used to anticipate turning points. It is also compatible with Edgar Peters’ fractal market hypothesis, which views financial markets as fractal in the sense that they follow cyclical and replicable patterns—ones consisting of fragmented shapes that break down into parts which then replicate the shape of the whole. I used such cycles to generate the baselines mentioned above by conducting a thorough analysis to first uncover the cyclical waves formed in the wake of price action, followed by the defining of their general frequencies and magnitudes; and then finally plotting centered moving averages that came as close as possible to approximating the zero amplitude of the corresponding waves/cycles. So as you can imagine, the notion that there are no "best" moving averages to use when trading is not one to which I subscribe. Again, at the heart of my system is the use of carefully selected baselines which I calculated in the manner just explained. And yet, it is my understanding that individuals such as Norm Fosback, the former head of the Institute for Econometric Research, believe there are no magic numbers in trend following, and that it should be a basic requirement of any moving average trend following system that practically all moving average lengths predict successfully to a greater or lesser degree. I have also read that the moving average one chooses is not as important as getting familiar with the way in which price interacts with it. But with all due respect, I regard both of these contentions as pure rubbish! The way I see it, even Fosback’s own statement suggests the possibility that there might indeed be "magic" numbers in trend following. For if practically all moving average lengths predict successfully to a greater or lesser degree, it follows that those which predict successfully to a greater degree are the better moving averages—which would in turn infer that the moving average which predicts successfully to the greatest degree is the best moving average of all. So then, one simply needs to wade through all that data to arrive at the one moving average which is superior. This is why the idea of applying the exact same standard settings to different time frames (i.e., the 10-, 20-, 50-, 100- and 200-period moving averages to five-minute charts, 60-minute charts, daily charts, etc.) has always struck me as counter-intuitive. Of course, I have had many traders who possessed far more experience and knowledge than me eagerly explain how it is impossible to use moving averages in the manner I envisioned. According to them, the core beliefs on which I based my suppositions conflicted with, and were therefore discredited by "the findings of practically every available objective, independent, systematic, statistically significant research trial ever conducted and published on the subject." Nonetheless, I continued on my quest, regarding myself as sort of a modern day Aristarchus of Samos or Nicolaus Copernicus within the world of Forex trading. As you may know, nearly everyone tried to convince these independent thinkers that it was impossible for the sun to be the center of our planet's system. Yet, just look at how wrong all the "experts" were! In all honestly, one can simply glance at my charts and see the logic behind my approach. That doesn't seem to matter, however, to many individuals. And even when I showed the naysayers hard evidence attesting to the profitability of my method, very often, their typical response was to dismiss the data based on the theory that the system would fail…eventually, or that my evidence was invalid because it did not constitute ten, twenty, or a hundred years' worth of back testing and ought to therefore be discounted. But in fact, the chances that the effectiveness of my approach will break down over time is virtually nonexistent given that the entire system is based strictly on mathematics—which does not fundamentally change. Let me ask…if an Airbus A340 is able to lift off the ground today by angling upward at two to three degrees per second with a maximum angle of 10 to 15 degrees, are we to speculate that doing so 20 years ago would have ended in disaster, or that this same maneuver performed 100 years from now will cause the plane to crash? Of course not! Likewise, as long as up is up and down is down, there is no reason to assume Numerical Price Prediction will not work as well tomorrow as it does today. Among stock investors, there is a theoretical concept known as a Holy Grail trading system—one that always produces profitable trades regardless of the market environment or asset class traded. Though it doesn't exist in practice, it can help an individual design a more profitable trading strategy to call their own, and this is exactly what I did. But, unlike so many hopeful treasure hunters searching for the one magical technical indicator able to unlock the secrets of the markets, I've adopted the view that there are any number of factors, or "data points" impacting foreign currency exchange rates, with the "Holy Grail" being the ability to unravel the hidden correlations between them. It's all about interpreting what's happening in the moment based on market generated information, which is to say, technical analysis. (I choose not to put my trust in non-market generated information—meaning fundamental analysis.) It comes down to what Peter Reznicek refers to as "ruling reason," which for me, is just another way of saying the numbers…the math…the summation of all those correlating data points that are a part of the market generated information. It's a matter of crunching the numbers and doing so in the correct manner—plain and simple. And speaking of "correct manner," I think I should probably end this chapter by mentioning that, though one often hears traders stating "the trend is your friend," from my perspective, it would almost surely be more accurate to say that the trend is merely one of several friends. For it seems to me that what would have to be considered at least equally as important as trend is the location of rates within the entirety of a given asset's price distribution. So then, though investors often speak of trend lines, I've ceased to think of trends as being represented solely by lines, and have come to conceptualize them as belts as well, with the location of price within the expanse of values constituting the width of these oscillating bands being just as important (when deciding exactly where to enter and exit positions) as the general direction that each "breadth of values" is headed. Accordingly, my final decisions on when to buy and when to sell are always made based on the consensus of various input data, sampled in multiple time frames—data which includes baselines, market structure, temporal support/resistance, horizontal support/resistance, price ranges, and reoccurring chart patterns. It is the consensus opinion of all these various factors that determines what I will decide to do in the final analysis. The moves I make depend on what each of these determinants means in light of all the others and how they all will affect and impact on one another. It is the interpretation of each moving part individually—and of all these assorted components as a whole—that constitutes Numerical Price Prediction (NPP), with the "belts" I just mentioned playing a key role in how the interpretation of the system's corresponding forecast models is carried out.
As of today, USDCHF's five-day baseline displayed its first possible indication of a southward bend. But, seeing as how the rate has been playing with 0.9005 for five days now, I'm not going to sell the pair. For that, I would first need for it to pull back to around the 0.9042 level, or at least 0.9020.
USDCHF couldn't reach 0.9042, but it provided traders with two separate opportunities to capitalize off short positions entered as price was rejected in the 0.9020 neighborhood.
Friday | October 27, 2023 I'm not really looking to gain any additional insights as relates to my trading system. My goal now is to simply implement it "as is" with more and more proficiency. That said, one of the first indicators I designed to help facilitate this kind of process was a replacement for Heiken Ahshi Candlesticks (i.e., my "instantaneous moving average") which I felt the need to do on account of the fact that the Heiken Ashi indicator conceals the actual Open and Close at the start and finish of each time interval its candles represent. I now have a second indicator designed to do the same job, but in a different manner...
Sunday | October 29, 2023 In the past you debated whether the 20-minute minute measure was at the core of your system and if it would be better to use its moving average or its envelope. Well... I believe this issue is now settled: It is the 30-minute baseline that serves as the core. The twenty-minute measure is not quite stable enough to be trusted in this role. Nonetheless, it still has an important function, which is to signal likely reversals in the fastest/shortest "actionable" intraday trend. The 30-minute moving average is a bit too lagging/slow on the uptake to recognize when this is happening in a timely fashion. Where I DO want to be using envelopes however is with the six-minute measure at 0.06% deviation and the 12-minute price flow channel at 0.04% to 0.09% deviation. The 34-minute price flow follows at various settings for various purposes, with the next critical channel being the three-hour envelope at 0.11% to 0.13% deviation. This measure represents the slowest/longest trend at the intraday level and therefore serves as the backbone of NPP's day trading methodology just as much as the 30-minute measure does. Accordingly, at the intraday level, you (I) ultimately want to be trading in the direction of the three-hour trend! But, if the 30-minute measure(s) constitute the fastest actionable intraday trend, what am I doing bothering with six and 12 minutes? The job of these measures is to let me know with pinpoint accuracy/precision when is the optimum moment for me to enter a position and when to pocket my gains before my winning positions begin to lose ground.
The 0.03% deviation setting is a level which tends to define breakouts that might very well constitute the beginning of a run, and the 0.13% level is typically the maximum degree to which rates pull back behind the 34-minute baseline before resuming a trajectory aligned with the slope of the three-hour measure(s). (On the other hand, if price continues a course beyond the 0.13% to 0.20% level, the odds are that the pair is in the midst of a fully-fledged reversal. And note also that the 0.11% deviation level tends to be the maximum degree of separation price will tolerate behind the three-hour baseline before succumbing to the pressure of mean reversion/regression toward the mean. So then, if candlesticks are located in the vicinity of BOTH the 0.13% to 0.20% deviation level of the 34-minute envelope AND the 0.11% to 0.13% deviation level of the three-hour envelope, don't be surprised to see them resume a course BACK in the direction of the dominant trend.)
Note how these measures tend to define the end of the ebb or flow on U.S. index charts (this same effect is NOT duplicated on Forex charts) and see if (evaluate whether) this is actually as helpful as it looks like it might be when it comes to live trading (this week). (The candlesticks on index charts are much longer than those produced by foreign currency pairs, so though the temporal measures are (in one sense) identical, the effects that they produce do not always or necessarily match.)
When it comes to many things in life, including trading, I find a certain elegance in simplicity. So generally speaking, I prefer to trade with the fewest number of indicators as possible. However, my (one-minute) charts have become very messy, yet (I feel) I am doing the best trading I've ever done in my life. So... just for the fun of it, I asked the Web if is true that it is better not to trade with a lot of indicators? I think this answer from Lucas Williams (Studied at Carnegie Mellon University) is pretty decent. Plus, nothing he said would recommend that I stop using indicators in the manner that I'm doing: There is no set number of indicators that should be used for trading. It depends on the trader's style and strategy. However, there are a few guidelines to keep in mind: • Using too many indicators can lead to "analysis paralysis" and confusion. It may be hard to determine which signals to follow and act on. As a general rule of thumb, 3 to 5 indicators should be sufficient for most trading strategies. • The indicators should provide non-redundant information. There is no point using multiple indicators that are based on the same data and show the same information. They should complement each other. • Traders should understand how each indicator works and how to interpret the signals. Just loading up a chart with many indicators is not helpful if the trader does not know how to use them effectively. • The indicators should match the trader's trading style and timeframe. Indicators that work well for long-term positioning may not be useful for short-term trading, and vice versa. • It is best to keep things simple. Sometimes just using a few basic but effective indicators like moving averages, MACD and RSI can work very well. Complex indicator combos are not necessarily better. • Traders can consider how well the indicators would interact with each other. Some indicators may generate signals that conflict with other indicators. Combining indicators that work well together can strengthen a trading strategy. So in summary, there is no magic number of indicators to use. Traders should choose a few indicators that suit their trading style and that provide complementary yet non-redundant information to make well-informed trading decisions. The key is to not go overboard and make things too complicated.
I discovered today that this same effect IS in fact duplicated on Forex charts, BUT by a different set of indicators. I also found that this second set of indicators replicates the effect on INDEX charts as well, as illustrated by this image of the exact same asset... So, whereas the top configurations works ONLY on Index charts, the bottom configuration works on both Forex charts AND Index charts.