General Topics
Technical Topics
Brokerage Firms
Community Lounge
Site Support

# I just realized something huge...

Discussion in 'Technical Analysis' started by RangeTrader, Aug 13, 2012.

I primarily do statistical analysis of technical indicators rather than technical analysis. Mostly just calculated out in my head off indicator numbers and price levels instead of exactly precisely.

That is probably why everyone fails at technical analysis... They don't do statistical analysis in any shape or form!

ras72 likes this.

key word...analysis.

You can name it whatever you want, but you are doing the same things.

3. ### abattia

Sounds interesting ... Can you give an example of the sort of back-of-envelope calculation you mean? Thanks

Why is this concept so hard for people to understand? It seems people are afraid to admit they use TA I suppose.

5. ### Eight

statistics... really? They are used more often to "prove" that markets are totally random than to trade...

6. ### Digs

Bull...

between the trade idea, analysis and the trade strategy many folks use probabilities..

Iron condor with correct strikes can have a 75% chance of a win

7. ### BSAM

I've always knew you were a genius, and you're just now discovering it?

Here is an example on the euro.

The odds of a cycle turning on the 120m are extremely low for a reversal within 3 candles. With a lower high or lower low the odds are low even for a reversal at five candles. Once you pass above six the odds of reversal are VERY high.

Provided the euro continues to cycle the same way it usually does... The odds of trend turning on any random candle are 16.66%.

These odds are actually curved based upon the distance from the reversal candle. Lets just say odds of full reversal(double candle engulf) are 0% at 3 candles to make things simpler for quick estimation... And odds of reversal are 100% at 7.

This gives us a curve from 0% at 3 candles to 100% at 7 candles. 16.66% is located at candle six.

So... If I have done my calculations correct... The odds curve of a full double engulfing reversal occurring 120m chart looks something like this...
1 = 5%
2 = 10%
3 = 16.66%
4 = 20%
5 = 30%
6 = 70%
7 = 100%

Wait a minute... That should be 0% at 3, and 16.66% at six... Ergh, you get the general idea... My chart has signals so I don't have to calculate it out in my head. LoL...

So... If your going to take pips off the 5m-15m chart trends... Best to be playing in the first five bars of a 120m cycle and not pushing your luck toward the end...

• ###### trendprobability.png
File size:
29.5 KB
Views:
91

Probabilities are governed by more than the number of bars in a trend. They are also governed by the price cycle alignment, and the trend speed of the market which can be analyzed with MACD.

Thee three core elements if you want precision probability...

1. Candle Count
2. Cycle Alignment
3. Trend Speed (MACD or Similar Formula)

Those three are all you need.

There have been hedge fund managers in the past who have done things very simply... (Read market wizards)

This one guy made 40% year over year just buying mutual funds when an up day occurred after a number of down days and holding for a couple days or so. He would repeat this again and again and again...

Making 40% per year.

• ###### moreprobability.png
File size:
28.9 KB
Views:
85

Here is an example of why I am not bothering to watch the S&P right now...

Probability states that at our current trend speed of 15.69 and steady 10 day trend acceleration rate of 7.27... That the market will not break for multiple cycles.

The odds of playing short trades is very low until acceleration burns off which may be months from now and the market is moving far too slow to play long trades without a solid dip.

Things may get exciting on September 13th. That's about all I see... Hmmm...

• ###### spx-trend-speed.png
File size:
33.2 KB
Views:
98
#10     Aug 14, 2012
ET IS FREE BECAUSE OF THE FINANCIAL SUPPORT FROM THESE COMPANIES: