Well.... the file is too large to post I guess. If anyone wants the collection of posts, either PM or email me. Thanks, Tradeit
The chart I posted is showing the waves. Can't you see price making lower highs and lower lows? That's what jjrvat taught us to see.
A few days ago I received and Email from a fellow trader in which she was concern that although she finds very useful the concept of wave analysis, she is not having the results she was expecting ââ¦at the end of day I look back at my charts â¦â¦ and canât believe how did I manage to finish the day in red â¦. â. It has been a long time since my last post and I think this maybe a good starting point to regain some ideas for this thread. ⦠â¦Jane75 I hope it helps. Taking the next step If the job for a trader is minimizing risk, a simplified imaginary trading equation can be defined as follows: Risk (R) = [ ( Direction (d) + Momentum (m) + Timing (t) ) * Physiological (p) ] + Externalities (E) Where; R = Is our final goal (minimizing risk) constrain to where, when, how and why we place a trade (d), (m) and (t) should follow this exact order of analysis. As you have read in my previous posts, in my opinion, itâs worthless to waste hundred hours and thousand indicators finding a trigger (timing) if you havenât defined the right direction and the potential range of the next wave. (p) Are our psychological constrains (one of the hardest problems to solve in trading), that are so personal that are difficult to generalize and quantify. They will definitively have a major impact on a trading plan regardless of the statistic edge a trading plan may have. (E) Market moves that are beyond the ânormalâ distribution and in my opinion should be taken as given (cost of doing business) without further analysis. If you have mastered and found useful analyzing price in terms of waves but you are struggling to move to the next step you have to look to the next basic variables in this equation which are momentum and timing. Therefore; Assuming you know by heart wave and basic price analysis principles, every time you see a chart you should identify chart #1 (Naked Chart) as this chart #2 : (chart 2 is an extra smoothed chart with an old template âBloomberg setupâ for explicative purposes) Today European Morning FDAXM9: Chart # 1 (Naked Chart) Chart # 2 (Smoothed Chart) At first glance you may think that the second chart is superior and is too good to be true, however they are showing the exactly same moves, what changes is PERSPECTIVE !!!. In any case if you have mastered wave analysis the results are the same. I donât want to repeat what I have said before so before moving to momentum a quick analysis of direction is detailed on these charts. Iâll continue later. jjrvat
Momemtum Conditions I find 3 fundamental conditions behind what I call momentum as a variable that if they are understood correctly may help you moving beyond only waveâs analysis. 1. The first condition is to determine if a wave will have momentum is given by wave analysis. HH, HL and LH and LL are indispensable. As you know it doesnât mean that they are many big moves that they donât require this condition, but in order to be consistent with your trading plan you need quantifiable objective and statistically favorable measures. 2. The second condition is the range of your waves (âvolatilityâ) and is given among others from your instrument, timeframe and time of the day. You need to calculate what are the probabilities of moving a certain amount of ticks in a wave that have satisfy your first condition (screen time, screen time, screen time, experience, a little of past statistical analysis). For example in this Fdax chart (only for this chart) I can tell that it will have 100% chances of at least moving 3 ticks to your side, 94% of moving 10 ticks, 82% 18 ticks, 53% 27 ticks, 22% +35 ticks⦠Knowing this doesnât mean capturing all available ticks⦠we are only talking about momentum not timing. [**** this numbers are calculated as soon as a bar has changed color to the opposite] Only when you know this measure you can apply money management rules. So your capital, risk aversion, maximum drawdown, P/L ratio, etc. they all come in to play determining if this particular chart (timeframe, instrument, time, etc) are convenient for your trading plan. Using the same example a healthy ratio for trading this chart is 5 full point max target (10 ticks), assuming a not so good 1 to 1 ratio, with at least 2 contracts to scale out (5 ticks half and 10 ticks the last half) but you will be aiming to trade each with a very good W/L % (around 97% of hitting both targets if you have a perfect entry, realistically it will be around 95% for the 1st target and +/-81% for the jackpot). Points A, B, C, D reflect entries that satisfy these 2 momentum conditions 3. The final condition and again respecting the order of analysis is given by price again. In order to validate a momentum not only conditions 1 and 2 has to be satisfied but also you need to determine exhaustion areas where your minimum wave range CANT be achieved because price is approaching to certain areas where it needs further confirmation to continue or reverse (or whatever you want to call it). I am not going in details on how to do that (if you donât know how to analyze this you need to gain some more experience before you move on) but obviously price based tools are much better for short term trading (fundamentals for longer timeframes): S/R lines in a higher timeframe, trendlines, H lines at round #, pivots or even fib lines, murray math, etc. In this example I will use Daily Pivots and the 240 WMA as key exhaustion areas. As you can see points marked with red X although satisfy the 1st and 2nd momentum conditions they DONâT satisfy this last one (the 1st X is only 8 ticks away from S1.5 and the 2nd 3 ticks from S1 and 8 to 240 WMA). From a strictly momentum perspective only trades A, B, C, D are valid, trades marked with X only meet 2 conditions so it shouldnât be consider and the rest of the trades donât satisfy any of the conditions. As you can see the name of the game is patience and consistency, if you at least respect these minimum momentum conditions and mastered this second variable in a trading equation you will be miles ahead in terms of trading and without even considering timing. jjrvat PS: Btw I am only marking the 100% clear trades, there at least 2 extra perfect valid entries but the focus was only on momentum