Rather than looking at probability numbers of past patterns and all that rubbish (imo) your best to look at whats actually going on in the pattern and the price action
Prior probability and its calculation is the single most important aspect of trading of any style. Ignorance of probabilities leads to certain ruin. Would you trade price action that resulted in 90 losses out of 100 trials?
Hi Jack, Can you elaborate on that? I understand you'd be using a very short (fast) fractal and you'd be continuously assessing whether or not you are on the right side of the move, thus reversing quickly. My question is: if these moves happen quickly and abruptly, don't they whip you? I will greatly appreciate it. I am new here. Still working on your old posts under grob109. Finished 2003 and just started 2004. What a contribution. Quite enlightening and quite humbling. Also, unlike many people here, I love your writing style. I thoroughly enjoy reading your posts.
Bold statement Bill and I understand your sentiment, but after thousands of hours of screen time I can assure you i have quite a good handle on whats probable and what isnt, all done with no trials, backtesting or whatever. I can tell you right now the probability of double tops, breakouts... I must admit ive been lucky to have had the help of some extrememly good traders in the past and calcs never came into it.... but hey, skin a cat and all that..
Why do you think your subjective probabilities interest anyone here? We don't know what was going on during your "thousands of hours of screen time" that attracted your attention away from the market and as a result affected your understanding of it. Maybe your wife was screaming at you calling you a looser. Maybe your kids were pulling the computer plug. Maybe you were watching porno at the same time or even drinking. Since we have no way of knowing who you are and what your actual expriences were, either present some numbers that can be checked or shut up...
The head and shoulders is an envelope of ranging price over time. thus, the head and shoulders is an intermediate term formation The 10 cases of adjacent bars are found within in H&S formations and they build the long or short patterns we use. Ahead and shouldrs is composed of the following 6 parts: B2B 2R 2B, R2R 2B 2R B2B 2R 2B, (WE ARE NOW AT PEAK PRICE) R2R 2B 2R, B2B 2R 2B, and R2R 2B 2R, The three moves to the peak price constitute a Pattern on the slower fractal. Long, short long going to the FTT. The three moves form the price peak constitute a short slower pattern (short, long,short). The six trades I mentioned would be considered "trading fractal " trades where ftt to ftt trading was going on for the above 6 patterns that make up the H&S. This should give you the "relative" picture on H&S boundarycontext for things going on in a H&S.. The current comparable situation, formation wise is the invertered saucer which began 10SEP09 when the retrace (long) of the Depression segwayed into the present inverted saucer. The last stages of the inverted suacer are now pending 15 months later. This thread PA BASED analysis is only that. PA only uses lagging indicators of price that are price derived. There are leading indicaotors of price that are price derived but they are not part of the PA convention since it is CW oriented so far. An ftt begins the first pattern (B2B 2R 2B) and an ftt ends the pattern. There price moves constitute the pattern (long, short long). You hold through the short move to get the benefit of the whole pattern collective moves. At the ftt you go short and hold short through the three moves of the short pattern. Then the climax run of the H&S begins and carries through in three moves (long short and long) of the pattern going into the peak. Please consult the pattern's leading signals (volume) elsewhere, I do not want to disturb the beliefs of PA traders in this thread. You do raise their continuing issue, however: whipsaw. In terms of one period of Oliver Velez's vandor carrer he advocated a combination of two MA's where by one (Faster) always stayed on the left side of the other (slower). Tahis happens in a H&S on the way to the peak. After the peak the slower MA goes south and during that transition the faster MA moves to the left side again and remains there. He prevented whipsaw by only trading the crossover and by scaling in on the convergence anding and the divergence restarting. Consider this a beginner level way for PA traders to prevent whipsaw by having two MA's which follow "two line" theory. Whipsaw only occurs for traders who use severely lagging indicators which are the cause of poor setups. Most PA setups are not validated with regard to their lagging inherent nature. The inherent causal factor for those who have whipsaw problems is their inability to recognize sentiment change in a timely manner. They recognize the change too late and in a lagging orientation. The pattern is an anti-whipsaw design. It uses two major leading aspects. I will limit myself to the price aspect only. WMCN is the means for annotating the fastest observable containers for price to "flow into" as the future comes into the present. You place the containers out into the future for their potential duration of use. Price then fills the container and then fails to traverse the container as its effort to continue comes to an end. we lable this ftt where the letter stand for "failure to traverse" Pattern segments overlap. ftt begins the overlap and the BO of the RTL ends the overlap. Sentiment change occurs in this time bounded. In trading, people have different levels ofsophistication typified by their trading behavioral actions. One style precedes the other conventionally. Staying on the correct side of the market is done with one tyle and sidelining is the other style. Whipsaw people trade from a pain perspective: reaction to markets. Antiwhipsaw people trade from a support and comfort perspective: anticipation via WMCN. The key differentiator of these two styles is "orientation" Reactors have an up/down orientation and anticipators have a right/left orientation. To go from one to another you have to have annotations on price. The container previously mentioned defines the RTL and the LTL of profit segments and they extend into the future for the duration of their utility from the moment they are drawn out into the future as a container for price to fill. Making money is done as price moves from right to left in a dominant sentiment direction. Losing money is done by trading from left to right in a counter sentiment direction. Up/down traders make and lose money when price is going up. Up/down traders make and lose money when price is going down. Adjacent bars make money in two out of 10 of the possible cases: HH and HL or LL and LH. All the other are "HOLD" periods where the hold obeys the sentiment. During these 8 out of ten cases, price does not signal sentiment; volumes does, however. Whipsaw oriented traders who react do not use a sendiment indicator (they are stuck with using price only) Anti whipsaw traders use sentiment determined by volume to assure that they are operating in "anticipation" Cipation is what they are against so they use anti-cipation. In the pattern you can feel safe about holding through the non dominant second move because you can "read" the market and understand a non dominant move does run against sentiment for a brief low momentum period. By reviewing the decile based Volume matrices; you can examine the triade of relationships of volume, volatility and overlap. (Goggle MAK). No kurtosis nor skewing are noticed vertically or horizontally. This means markets are either reverting or not reverting at any time and you always know which because you have the predetermined context. Non reverting times are when dominance and sentiment are couples and visa versa. The cardinal sin of PA tading is NOT reacting through the entire overlap period. It considered a whipsaw phenomena to the uninformed.