Stochastics

Stealth............Bullseye my man. I always enjoy your no nonsense approach.

 

smells..like a SCAM

and it's a SPAM


Justina


you have come to the wrong place to throw this dirt!!


people know here better than that

 

Yoohoo et al.,

I've been following the stochs thread with great interest, and have a few questions if you would indulge me?

1. When you speak of Momentum, are you referring to the physical concept where momentum = mass * velocity? i believe the analog to mkts would be momentum = volume * change in price.

So the first derivative of mkt Momentum might be used to indicate future price direction?

2. Or are you speaking of Momentum in the non-Physics sense (as I often see the term used on these boards) where Momentum = Acceleration. Mkt analog is first derivative of price.

Thanks for any advice you can give. My trading has been stuck in a rut for about a year. Trying to expand my strategy.

Happy Trading

 

Great question luckyday, but boy you are swimming in deep water now. To say that price precedes momentum and therefore momentum is worthless as a forecasting tool (as mentioned in this thread) is like saying the wave precedes the tide therefore knowledge of the ocean tides is worthless. The wave is driven by the tide.

I’m not interested in theories, I’m only interested in a proven workable model that makes money for me and FWIW here’s the course I took.

I see the market like the ocean tides; many different tides acting under different influences and we are still developing our understanding of ocean tides and their interactions.

I began my research using linear time cycles but got frustrated that it would work well for a time and then there would be a period of chaos only for it to resolve once again into something profitable for an unpredictable period. There was something I was missing – momentum was not linear.

My greatest influence and breakthrough was Hurst who saw the market in terms of multiple cycles and this is how I see momentum – like interacting tides. Now I could see that a cycle was working perfectly, and that it was not a perfect sine wave, but the big breakthrough was seeing the coming impact of a bigger cycle that disrupted the smaller cycles and threw them into chaos.

R-MESA adapted this model attempting to determine the dominant cycle and also when it was tradable or “in phase” and when the cycle was “out of phase” i.e. it was in trending mode. For many years R-MESA produced top or near top black box performance (I have not checked in a few years).

This is important because I am not interested in theory but only in what works in the real world. MESA-Systems used rocket science to develop several approaches to cycles but I still found these limiting.

My personal discovery that works for me is that the cycles are fixed in periodicity but because they act on each other they throw out the perfect sine wave linear projections, thus linear chaos is predictable and in fact it’s a very, very tradable cycle. All you have to do is catch the two fastest cycles trading in the direct of the most major cycle. The major cycle always gets to a period when it dominates all other cycles.

This is why MACD for eg will diverge calling lower prices and yet prices continue to rise on the dominant wave, or Stochastics remain overbought/oversold while the trend continues.

Bressert uses Stochastics to help identify the most tradable cycle and I have found stochastics helpful in cycle trading but don’t subscribe to Bressert’s use of them. The best I have found is Mallard, and how he developed Hurst’s ideas – I consider Mallard to be the best in the world but having spoken to Brian I found that he felt it best to confine cycle trading to three month cycles for best profits whereas I find it works brilliantly in all time periods – 2 and 3 min on the ES is my favourite.

Ok, I’ve mentioned a number of influences that you can research if you so choose to, but this is a very deep field that took me many years to arrive at my own conclusions. I’ve used all the software and loads more, read every book on cycles I could find and discussed with some of the best math minds on the planet (Brian was a chemistry lecturer at Cambridge but left it to trade).

The reason for my lengthy answer is to warn you the if you employ a simplistic math model to momentum you are going to fall into the same trap as those who use linear time cycles and get a hit–and-miss result. Here’s my simple interpretation of how I think momentum works – perhaps my understanding is wrong but my results are right and that’s what counts.

The market is made up of all kinds of players from scalpers to swing traders. In any given timeframe there are the early reactors, quick followers and next to notice right through to those who use techniques developed decades before the computer age – some of whom are the most vociferous in this thread!

True momentum analysis will identify the cycle of influence for each of these groups and allow you to trade accordingly. This is why I said much earlier in the thread that there are times when stochastics need to be ignored in the way I trade. If the momentum cycles are cascading downward using stochastic buy signals is not clever.

Sorry about the lengthy answer, but you are asking a question that has occupied many of the greatest minds on the planet as well as my feeble mind. I think my breakthroughs came from taking an artistic approach rather than mathematical. Does momentum lead price? Momentum drives price – price has to follow the dominant cycle.

So luckyday, if you were looking for a quick and simple answer, sorry… but it still might be your lucky day. Check out Mallard and you might start an amazing and profitable journey. PM me and tell me why you are stuck in a rut and I’ll try and give you the fastest way out. Understanding momentum took me a good 10 yrs from Gann to Elliot to Hurst so it’s not going to be the breakout answer in my opinion.

Notwithstanding that, I encourage you to be a student of the markets and test everything you come across whether if fits in with your approach/beliefs or not.

 

In certain momentum cycles, stochastics or any other oscillator should not be used at all. A few of my posted charts have shown that.

All in all, a good post to show folks where to get started if they want to learn more about cycles.

 

oops - in case anyone wants to research anything on cycles I spelled this guys name incorrectly... should be Brian Millard

 

oh and to make it a no-brainer to locate Brian here's the URL

His books are excellent, software astounding and if you want to go all in you can get the software and a day with Brian for around $10,000...

http://www.qudospubs.co.uk/QHome.htm

it works

 

... sorry guys, I meant to say the software is $600 and in my opinion is light years ahead of anything else on cycles but...

the fantastic thing is it lets your creativity go wild

 

In working with %D it is important to remember that there is only ONE valid signal. "That signal is a divergence between %D and the security with which you are working."

%D is a leading indicator. Stochastics compares the closing price of a security to its price range, to predict turning points. That is what it does.

Stochastics should be charted as a 3-line oscillator to get rid of all this nonsense about fast, slow and super slow. You need at least three things to act on divergence, the best being at a double (or triple) bottom.

In the appropriate crossover areas, at a cycle bottom.

1. Divergence
2. Right hand cross
3. Crossover area
4. Cycle bottom

Just run this over the history of whatever security you are trading. You will see the patterns repeat, and learn what to expect when you see them again.



Your initial sources should be George himself:

Jake Bernstein: who worked with George to develop the ÒStochastics pop,Ó
¥ ^ Hot Stock Market Strategies: 5 Secret InvestmÉ (2005) by Jake Bernstein pg 57 ISBN-10: 1932531254
¥ ^ Jake Bernstein's ÒThe Complete Day Trader.

and traders like:
John Person: a student of LaneÕs who has taken up the pen on Stochastics.
Â¥ ^ Person, John L (2004) A Complete Guide to Technical Trading Tactics: How to Profit Using Pivot Points, Candlesticks & Other Indicators pg 144-145 ISBN-10: 047158455X

Would you like to see some of George LaneÕs actual charts?
This is not the complete story, if you or anyone else is interested email me. And I will email you a copy of one of the books from his classroom. The story here is in the charts.

 

IsnÕt this why people trade Seasonals?
The annual cycle can easily smash the smaller cycles for a while.

If the seasonal cycle can be considered a major cycle.

I think Jake Bernstein worked with George Lane to sort that one out. They call it a Òpop.Ó The idea is not only do you need a divergence from price, and a right hand crossover from and extreme area. But in times of super great momentum you also wait until Stochastics bounces off resistance some arbitrary amount from 5% to 25% before you act.

A change in momentum leads price.