Duxon's Archive

Discussion in 'Journals' started by expiated, Feb 1, 2019.

  1. expiated


    I'm not doing much trading at the moment. Just mainly working at finishing up a HUGE project and waiting for delivery of my MetaTrader 4 Expert Advisor (EA).

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    #11     Feb 13, 2019
  2. expiated


    How I define trend reversals has just become extremely well defined, so tomorrow I plan to begin cataloging my preferences and deleting the many indicators I will no longer be using. I have also completely abandoned the use of lower panel indicators, though I just saw something I called a "shadow oscillator" in a recent post from this thread that I want to compare with the well-defined forecast models I just mentioned.

    I am way too busy with other work at the moment to give serious attention to trading, so for the past week I have only been trading my two demo accounts sporadically, and will continue to do so until and unless I am able to develop an expert advisor (EA) to trade my live account for me autonomously, or finally complete the project I've been working on, whichever occurs first...

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    The best thing about the guidelines for the forecast models I plan to begin cataloging tomorrow is that I think they will enable me to finally establish and maintain an acceptable ratio of profit trades to loss trades on an ongoing basis.
    Last edited: Feb 21, 2019
    #12     Feb 21, 2019
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    My expert advisor is supposed to be delivered today, at which I point I'll want to see if I can apply the same principles I'm using with respect to the trading reflected below to lower time frames.

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    #13     Feb 21, 2019
  4. expiated


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    #14     Feb 27, 2019
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    Others repeatedly attempt to convince me that if I continue trading in the manner I have adopted, I will ultimately fail. Nonetheless, as long as I continue to meet with success, the motivation to change my approach does not even reach the level of fleeting.

    Since the development of this system seems to be complete, and given that I am unable to find what I do described anywhere on the Internet (other than a single trader on this forum who says that he trades in a similar manner, or did so in the past) I’m going to begin writing down my thoughts in an effort to help me clarify my methodology, beginning with the following…

    From tradeciety.com

    So what is the “best moving average” for your trading?

    Believe it or not, we get asked this question multiple times each day so let me share my view on it. And by the way, the answer you’ll get from me also applies to any indicator setting because the underlying principles are the same.

    Step 1: Fast, Medium, Slow?

    Whether it’s your moving average, the STOCHASTIC or the MACD indicator, you have three choices for your indicator setting: a fast (low period), a medium (mid period) or a slow (high period) setting.

    My thoughts:

    I do not categorize the moving averages I use is medium, fast, or slow. Rather, I select moving averages in accordance with the time period supposedly associated with the trend they are presumably tracking, or more specifically: (1) day-to-day, (2) intraday, (3) hourly, (4) short-term, and (5) immediate. So I guess I feel I have five choices rather than three.

    As a day trader, anything beyond the day-to-day trend is, for my purposes, essentially irrelevant (i.e., of no effect).

    When it comes to moving averages, here are a few common examples:

    Fast: typically, anything from 5 period to the 15 period

    Medium: anything from 20 period until 50

    Slow: Above 50 with 100 and 200 as popular long-term moving averages

    My thoughts:

    The above is meaningless in the context of how I trade. If I am using a 15-period simple moving average as a fast line on a one-minute chart, it makes no sense for me to use a 15-period simple moving average as a fast line on a one-hour chart as well, given that the trend it will be tracking is going to be 60 times slower. My perspective does not change just because I change time frames. What is up and what is down, what is fast and what is slow, remains the same, whether I am flying a single-engine civil turboprop aircraft or an Airbus A380-800. Speed and distance remain constant from one context to the next, and I view financial markets in the same manner.

    Step 2: What’s your goal with the moving average?

    Most traders just ask for the ‘best’ moving average but do not really understand what they want to achieve with their tools. We have talked about moving averages and how to use them before, but generally traders use moving averages to: determine trend direction, time trade entries, use them for stops and targets, or exiting their trades.

    I consider myself a medium-term swing trader which means I hold trades for anything between 12 hours and multiple days. Thus, I use a moving average in my trading that helps me with my medium-term trading decisions. A fast moving average would generate too many signals and provide too much noise, while a long-term moving average would give signals that are too late.

    My thoughts:

    I agree. A fast moving average would generate too many signals and provide too much noise, while a long-term moving average would give signals that are too late.

    It therefore follows logically that there exists a happy medium—with the ultimate moving average being that which maximizes the suppression of noise while at the same time maximizing the timeliness of signals. Therefore, the best moving average is not dependent on my goal with it, but rather, is a matter of statistical calculation. It is a question of what moving average results in the greatest number of successful trades along with the fewest number of head fakes, false positives, and stop losses.

    This moving average ought to be identifiable via an objective, mathematical analysis of statistical data.

    I don’t like to move too close to one extreme which is why I settled right in the middle by choosing a 20 period SMA. This is probably the most standard moving average but it does work very well for my purposes: entry timing, trade filtering etc. I don’t need super-fast signals and I am not interested in holding trades for an extremely long period.

    My thoughts:

    Personally, I have no interest in standard moving averages. Once again, my goal is to come as close as possible to identifying the single best moving average for a given time frame based on an objective, mathematical analysis of statistical data. If this coincidentally turns out to be a standard moving average, then so be it. But simply using a 10-, 20-, 50-, 100-, or 200-period moving average just because that's what everybody else is doing does not fit with my notion of being rational.

    Step 3: Avoid over-thinking and over-optimization

    Although moving averages and indicators are great tools (if you say otherwise, you probably don’t know how to use them the right way) it’s easy to completely mess up your strategy by using moving averages the wrong way.

    Here are the most common problems I see every day when it comes to using indicators:

    Trying to make up for a disadvantage by using too many moving averages. This creates confusion and paralysis by analysis. Understand that you cannot create a perfect system.

    (I don’t understand what this means unless it is saying you cannot create a system in which every single trade is a winner, in which case, I think that's sort of obvious. But for me, a system that lets me know immediately when to exit positions due to conditions no longer being in my favor comes pretty darn close to being perfect for what I need a system to do. That's good enough for me.)

    Changing indicators all the time to ‘react’ to changing markets. This creates a lot of noise and inconsistency.

    (No kidding! If I had to change indicators all the time to react to changing markets, it would force me to conclude that my indicators had no validity whatsoever.)

    I will say it again: you cannot create a perfect system and you should not try it. Much more important is it to learn to live with the imperfections and faults of your system which means understanding when it doesn’t work, when and how to take a loss and when not to trade.

    (But from my perspective, if my system advises me as to when I should take a loss and lets me know when not to trade—then the system IS working, and working perfectly!)

    Step 4: Commit to one thing

    Once you have made your decisions, don’t change it regardless of how much money you lose or how bad you think the moving average is.

    (Then again, this is not even going to be an issue for me if I am using a good system, because I am not going to lose all that much money in the first place, and I will have fallen in love with the moving averages I am using as indicators in which I have gained total trust.)

    It is very important that you get a large enough sample size (you take many trades with the same moving average or indicator) and then you look at all trades in your trading journal and ask yourself:

    What do my winners have in common: market condition, price in relation to the moving average, how did price trade into the moving average, how did price break the moving average, etc.

    What do your losers have in common…?

    Most traders just think: losing trade à my moving average is not good, I need another one. Winning trade à good moving average.

    A moving average is no magic tool and it DOES NOT MATTER whether you have a 15 period, a 16 period, a 20 period, an EMA or SMA. The only important thing is that you make consistent decisions, find out when the market conditions favor your tools (so you can take more of such trades), and when your tools don’t work (so you can stay away from trading).

    My thoughts:

    I DISAGREE with this 100% and believe THIS is why my system is so successful! Of course, it is also why virtually everyone tries to convince me that I am eventually going to fail. Nonetheless, it DOES matter whether I have a 15-, 16-, or 20-period moving average.

    I would add to the above factors the importance of knowing how far price will typically deviate from a given moving average before regression toward the mean becomes almost inevitable.

    I don’t find a whole lot of details written about using moving average envelopes to identify overbought and oversold conditions—but this is one of the most essential aspects responsible for the success of my system. However, the way I conceptualize this use of MA envelopes is as defining usual/normal/typical price ranges—not as identifying overbought or oversold conditions.

    No magic bullet?

    If you made it through this article, congratulations. Most traders have already given up reading this article because they just want me to throw a random number at them that they can use for their moving average. Once you understand that trading successfully has not much to do with the exact tools you use but how you use them, you are a big step closer to profitable trading.

    My thoughts:

    Again, my goal was to identify the exact tools that it would be best for me to use personally, which I believe I have done—and they are anything but random numbers!

    It took me from November 2011, when I began trading Forex, to November 2015, to come up with the multiple simple moving average envelope trading system that turned out to be my Holy Grail of sorts; and then from November 2015 to February 2019 to settle on the specific, final “magic bullets” that I have at long last set in stone, along with the guidelines for how they are best employed.

    In this context, I like to talk about the hit-and-miss vs. the evidence-based development. The trader who always looks for the “next best thing” will move in circles without getting anywhere. The other trader understands that he must push through hard times to slowly improve and work on his system. It’s the same with any skill; you don’t just suddenly become an expert, but you slowly work your way up.

    I wasn’t looking for the next best thing, I was looking for the BEST best thing (for me personally). Indeed, I feel I did use evidence-based development because I grounded my quest in the biblical principles of learning to recognize the signs of the times and of testing everything and holding fast to that which is good.

    I did not see myself as a hapless newbie caught in a never-ending cycle of getting excited over something new and then abandoning it as soon as I experienced a dry spell before ever giving myself a decent chance to become proficient with it (moving in circles without getting anywhere) and I feel that time has proven this view of myself to have been a fair assessment.

    I have now deleted indicators, templates, and profiles rejected from the past, am archiving those now in use, and am not looking to change anything.
    Last edited: Mar 22, 2019
    #15     Mar 22, 2019
  6. expiated


    The basic core of one of the Numerical Price Prediction forecast models:
    ScreenHunter_4432 Mar. 22 13.35.jpg

    If not all, then just about all traders talk repeatedly about the importance of trend. However, the Numerical Price Prediction forecast models assign an extreme amount of importance, perhaps even allocating equal importance, to the role price range plays in predicting the likely behavior of exchange rates.

    For example, if a trader were to enter short positions when the exchange rate made contact with the upper band of the green moving average envelope in the above image, and then exit those positions when the rate made contact with the lower band of the green moving average envelope (see the first five red circles) s/he would have done quite nicely.

    The reason for entering short positions is the fact that, for the most part, the slope of the red moving average was, generally speaking, angling downward. Nonetheless, a trader might have even profited by entering long positions if the individual waited until candlesticks made contact with the lower band of the whitish moving average envelope—again highlighting the importance of defining price ranges in the context of market direction.

    “But wait!” one might argue. “If a trader had entered a short position when the exchange rate made contact with the upper band of the green moving average envelope at the point indicated by the sixth red circle, that individual would have lost money.”

    This is true, and that is why it would have been advisable to hold off on executing such trades until and unless the behavior of the white moving average provided some indication that the exchange rate might be in the process of trying to initiate a reversal. Numerical Price Prediction (NPP) not only stresses the importance of trend and price range, but also the interaction between the two, along with horizontal support/resistance levels and reoccurring price patterns.

    (NPP also analyzes the relationship between the moving averages themselves, which include the: (1) day-to-day; (2) intraday; (3) hourly; (4) short-range; and (5) immediate trend lines—but only two are pictured in the above screenshot.)
    Last edited: Mar 22, 2019
    #16     Mar 22, 2019
  7. expiated


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    You might have noticed that the graphics on a line chart are so jagged it is easy to mistake a temporary pullback in an upward or downward trajectory as a wholesale reversal in the overall trend.

    This is due to an aspect of price movement often referred to as “chop.” The term refers to a reoccurring up and down fluctuation of price, typically in the short term (within a short period of time) around an asset’s intrinsic value, often with no clearly defined up or down trend (i.e., the asset fails to gain any significant ground in either direction).

    Chop can lead to a trader experiencing significant loss as a result of whipsaw—when price is moving in one direction, but then quickly pivots to move in the opposite direction. The initial move will entice a trader to execute a trade in the corresponding direction. However, price continues along that trajectory for only a very short time, and then suddenly surges in the opposite direction, losing ground relative to the asset’s original position, thereby handing the trader or investor a loss.

    The origin of the term whipsaw is derived from the push and pull action of lumberjacks when cutting wood with a saw of the same name. A trader is considered to be "whipsawed" when the price of a security s/he has just invested in abruptly moves in the opposite and unexpected direction.

    In a choppy market, this can happen over and over again, leading to a trader dying the death of a thousand cuts.

    The best solution to this problem is perhaps to replace the confusing, haphazard, saw-toothed line segments generated by raw data with what is known as a moving average.

    Rather than connect each and every individual data point, a moving average calculates the mean of a specified number of points, and then draws line segments that connect these alternate figures instead.

    If the sample size of the data included in the average is large enough, it will generate a relatively smooth line, effectively eliminating the occurrence of chop so that a trader can avoid or minimize the experience of being whipsawed by the market.

    Unfortunately, moving averages evidence a problem of their own, known as lag. A lagging indicator is one that trails the price action of the underlying asset, changing only after price has begun to follow a particular pattern or trend.

    The result is that by the time the indicator signals a significant move in the market (by the time an economic shift is made apparent) it is already too late for a trader to take advantage of the event.

    So then, the ideal moving average would be one that smooths out chop while simultaneously tracking shifts in price action in real time. To my knowledge, the closest anyone has come to accomplishing this task is what is known as a zero-lag moving average, created by John Ehlers and Ric Way.

    However, the Numerical Price Prediction system has its own solution, based on what is referred to as an instantaneous moving average.

    By ineffectively reproducing on lower timeframe charts the instantaneous moving averages generated on and transferred from higher timeframe charts, the system provides crossover signals that its originator believes to be even more reliable than the crossover signals produced by Ehlers’ and Way’s zero lag indicator.

    The resulting cluster of moving averages is represented by the blue trendlines pictured in the image below.

    Instantaneous MAs.png

    On a 15-minute chart, the blue lines consist of the Xxxxxxxxxx, Xxxxxxxxxx, and the Xxxxxxxx.

    Unfortunately, every once in a while these lines will generate a false positive. They are therefore accompanied by the red moving averages, which do not suffer from this problem, but unfortunately, do evidence a slight bit of lag.

    On a 5-minute chart, one would expect the blue lines to translate to…

    On a 1-minute chart…

    No use is made of 30-, 60-, or 240-minute charts in that these timeframes have been judged too slow to allow for timely market entries and exits at the intraday level.
    #17     Mar 23, 2019
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    “Kale, I want to thank you for coming in this morning. My listeners have been looking forward to this interview all year long, so I want to get right down to business and ask you: To what do you attribute the unprecedented success you’ve had thus far in the financial markets?”

    “Well Ruwaya, the best way I can think of to describe it is that I use an area of my mind that we as humans are normally hardwired to ignore. To explain how it works, let me use as an example something our brains are designed to do…

    “Though unaware of it, we are all performing calculus constantly. For instance, if I throw you a ball, to catch it you have to calculate the gravitational field, the arc of the ball, the time lag from your brain’s signal to your hand, and a whole host of other computations. But you do all this in the background, because if you had to consciously crunch all the numbers, it would take you too long and you wouldn’t be able to catch the ball.

    “Well, in a sense, I’m able to do the same when it comes to trading financial instruments. Everything in the universe displays wave-like behavior, with fractals generating repeating geometric patterns that are the building blocks of everything in the known universe, including price fluctuations.

    “Everything that is moving does so relative to a matrix or a grid structure, like pixels on a television screen, and I am somehow able to see all of this visually. So, to define the motion of price, all I have to do is look at two different moments in time—two picture frames—and then compare the differences in the changes between them.

    “I look at the picture frame of where price is now, and then imagine the infinite possibilities of where it might be in the future, constantly updating my projections to match them up with the real-time journey price is on at any given moment.

    “This provides me with a visual representation of price projections based on a numerical price prediction forecast model, a sort of profit landscape, which then guides me to the highest potential profit destination from among all the infinite possibilities.

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    "The best example I can think of are the root systems that trees form underground."

    "I'm kind of intrigued, Kale, by the forecast model you just mentioned. What's that all about?"
    Last edited: Mar 24, 2019
    #18     Mar 24, 2019
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    Since I am no longer developing/designing my system, I want to begin archiving examples of some of the real-life trades I've made in case I should ever have reason in the future to explain to others what I do and why I do it.


    I entered a short position on the long blue candlestick circled in black, even though the two immediate (instantaneous) trend lines represented by the black moving averages were evidencing an upward reversal.

    My reasons for doing this were twofold:

    First, the three blue short-term trend lines were still located south of the two green non-fluctuating intraday trend lines.

    Second, the two green non-fluctuating intraday trend lines were still sloping downward.

    Fortunately, my take profit target was hit three to four hours later, but had candlesticks began forming above the deep pink, magenta, and yellow confirmation trend lines, I would have had to have abandoned the position.
    Last edited: Mar 28, 2019
    #19     Mar 28, 2019
    studentofthemarkets likes this.
  10. expiated


    Numerical Price Prediction (NPP) Review/Summary:

    NPP is predicated on the following three suppositions:
    1. The best “atmospheric barometers” for predicting the direction in which an exchange rate might ultimately be headed are moving averages, with a handful of key moving averages evidencing superior accuracy in this role.
    2. Generally speaking, exchange rates distance themselves only so far from these moving averages—will normally experience a maximum degree of separation—before they are compelled to return to more typical deviation levels. These boundaries are referred to in NPP as “statistical support/resistance levels,” and are assumed to be controlled by market makers and/or automated trading algorithms (though without any hard evidence).
    3. By correctly interpreting the relationships between the above-mentioned moving averages and their corresponding statistical support/resistance levels, it is possible to forecast when and where price is likely to reverse direction; enabling a trader to buy and sell ONLY when the odds are very much in his or her favor.
    At one point I was using the direction of one simple moving average and its alignment with three others to help me identify reversals in the intraday trend. Also, the interplay between the candlesticks and the (slopes of the) two longer-term moving averages helped me identify good entry levels when exchange rates experience pullbacks from their dominant trajectories.

    However, the final version of NPP uses five sets of moving averages, about half being proprietary, consisting of: (1) three day-to-day trend lines, (2) a set of intraday moving averages, (3) an hourly trend line, (4) a cluster of short-term trend lines, and (5) a pair of fluctuating/vacillating immediate (instantaneous) moving averages.

    A contributor to this forum (now banned from the site) expressed the opinion that the above assertions are just wrong, evidence a lack of understanding regarding the mean reversion fallacy, are mistaken, and are basically nonsense.

    Though never delineated, proof of these contentions can supposedly be found “to some extent” in books such as Tushar S. Chande's Beyond Technical Analysis, Paul Ciana's New Frontiers in Technical Analysis, and Van Tharp's first book. This person also implied that unless I changed my “underlying orientation and belief-set,” it would be impossible for me to achieve the goal of long-term, steadily profitable trading.

    However, I think it would be foolish of me to abandon an approach based on such claims in the face of its continuing to generate daily profits, and I will therefore carry on as usual until and unless the system breaks down, which I think is highly unlikely as long as up remains up and down remains down.
    #20     Mar 28, 2019