The ACD Method

ehegenberger · Nov 19, 2016

SteveM said:
I created a custom numberline table in ToS that some here might be interested in.
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This looks very useful, I'll definitely give it a try. I'm new to trading, having mostly just grown my account slowly over the years selling far otm options, and I luckily stumbled across Fisher's book before blowing it all out again. I've programmed ACD and pivot into my ToS charts but so far my biggest gain from the book has been stop times!

justrading · Nov 19, 2016

Some weekend thoughts, please all feel free to weigh in, especially you Mav, since it's all your fault.

Someone on another thread said for him, forex is king. I posted saying I agree. You don't get the 10%-30% swings you commonly see in stocks. A quiet day in some commodities futures might be a 1% move; in forex if you miss a 1% move, you do an analysis to see if you missed something, or it was just one of those things you couldn't catch.

I suspect forex has more in common with bonds than anything else. There is an obvious commonality; interest rates, monetary policy, fiscal policy, typically no blinding moves. Some would call it all boring.

Yes, as has been noted, when headline news moves FX, ACD is useless in the short term. But for every time that happens, there are a dozen times when NLs, and the derivatives especially, point you to a move that nobody can see.

Whilst I'm at it, does anyone on here trade the DAX or FTSE? Either the futures or CFD. My questions are, most importantly, do you see it as being amenable to ACD, and what is your data feed?

I start trading from the London open, and since Sierra Charts has a CFD feed for both as part of my package, I've been looking a bit. Seems to me clean, decent moves, less chop than ES typically.

Any and all thoughts appreciated.

ETFoption · Nov 19, 2016

Maverick74 said:
So here is the soliloquy I promised on currency trading and ACD. This text has two purposes. One, to help guide any newbies reading this thread who are trying to start out in trading and don't know where or how to begin. The other is to show some of the more veteran traders what I believe are advantages that currency trading offers in context of ACD. I'll start with the veterans. And by veterans I mean active readers of the thread who have been using ACD for quite some time and are fully aware of the benefits and limitations as well as all the idiosyncrasies involved in ACD and there are many. At it's core, ACD is all about volatility. The volatility input affects almost every aspect of ACD from opening range, the ATR's to number lines, pivot ranges, etc. So most of you should have figured out by now that ACD works best in environments were volatility is best modeled. Or put another way, where the day to day volatility is consistent. Consistent does not mean the same, it simply means that the given product has predictable volatility cycles. The more predictable the cycle, the more accurate the A levels will be. The more accurate the A levels will be, the more accurate the number lines will be and so on. Over the last seven years, my observations have shown me time and time again that that volatlity in currencies seem to be the most reliable. And to that end, the A levels are almost pinpoint accurate. Currencies exhibit very predictable patterns over and over and over again that lend itself perfectly to ACD trading.

So what are my theories about this. One, I simply think the flow of money around the world is much more calendar oriented then perhaps say Corn or even Crude Oil. Currency fluctuations are driven by many factors, one being the demand for money in a particular currency relative to another. This demand comes from transactions between countries, interest rates, demand for particular products in a given country (their stocks, debt, resources), and lastly, the actions of large macro global hedge funds. These behemoth monsters control billions notionally and trillions via leverage and they aren't buying TSLA, they are moving into Yen. Pounds and Euros. And these global hedge funds have redemption cycles, annual marks to hit, etc that lend itself well to the various ACD cycles. So money by itself seems to follow very predictable patterns. While there may not be a "right" time to buy GOOG, most Americans get paid ever other Friday, increase spending around the holidays and weekends, reduce spending around tax time and tend to respond according to the cost of money (real interest rates). All these things create cycles that model well with ACD.

Next, we have the spread component of ACD. I've spent some time on here discussing spread trading and how spreads work very well with ACD. This makes intuitive sense when you think about combining two products that are producing opposite ACD signals. It also makes sense in that ACD is very much a methodology about relative value. If I'm telling you that GOOG has a strong number line, it's not only saying that GOOG is acting well against it's historical price action but I can compare the number line of GOOG to another stock or an index itself. Well, if you think about what currencies are, every one of them is a spread trade. Currencies do not exist as a stand alone product. Their value is derived in relation to another currency. If you change the denominator, the value changes. If you change the numerator the value changes. So if one is long USD/JPY, these are in fact two separate trades, not one. You are long US Dollars and short Japanese Yen. You can't really simply buy US Dollars, you have to sell something against it. Why Yen? Why not Pounds or Euros? It has to be because you believe putting Yen in the denominator will increase the spread value more then putting Pounds there. Therefore you have yourself a spread trade. This allows one endless combinations and permutations to create pairs. Using the number lines, one can easily isolate which country has the strongest demand for money against which that heave the weakest and by combining the two, one gets a more robust product then simply having a stand alone product. This makes the number lines on currencies VERY robust.

Third, let's talk about the execution of this product. Many products gap a lot and that creates havac on many a ACD chart as well as the number lines. This is obviously most common in stocks but can also happen in commodities when they go limit. Since currencies flow 24/7 there is a much smoother transition at the price level that allows the ACD levels to stay intact and the number lines to not have to make adjustments for gaps. Along these same lines, getting "into" the trade is easier. What happens when you get a buy signal in TSLA after it makes a large move? Do you chase? Do you wait and run the risk of missing the trade? Currencies in general chop. This is a good thing. They move in sine or wavelike pattern even when trending. This lends itself perfectly to ACD. It allows one to get entries at good prices almost 100% of the time as they can enter on daily pullbacks, weekly pullbacks, monthly pullbacks or even QTR pullbacks. Currencies don't go to the moon. The EURO/USD is not going to 200 this week if it breaks out like a stock could. It might move 200 pips with 100 pip pullback entries. This also allows the skilled trader to actively trade around his/her position to take advantage of the wave like motion. This is caused primarily because currencies trade around the clock with three major market time zones that often produce counter trend moves. The Euro might break out during the Asian session but get hit hard during the London session only to recover to new highs by the US session. With stocks and most commodities you have a very limited time window to get in or out. You can wait for a pullback but time is not on your side. With currencies you have nothing but time.

You often hear people talk about the trending aspect of currencies. This is true for the most part as the demand for money in various countries is controlled by their central banks monetary policy. And since this policy does not swing up and down the way a stocks earnings do, the trends tend to stay in tact longer. This is why it always puzzles me to hear people talking about the move being over in the Yen. The Bank of Japan (BOJ) can print for years and years and years. They will keep printing until they GET the result they want. THIS is why the move in the Yen will be sustained. It's very hard for stocks or commodities to do that because the natural demand is not fixed, it's variable. TSLA might be trending for weeks and then GS comes out and downgrades the stock and it takes a hit. Or some WSJ article comes out and says their cars explode. There is a lot of noise that can shake stocks. Oil and gas has inventory reports, grains have crop reports, stocks have earnings, upgrades/downgrades. While it's true currencies do get volatile around central bank meetings, the volatility in context of the bigger picture is rather tame and actually works IN the traders favor. In fact, volatility can only really help the FX trader. Why? Well, we are making two assumptions here about FX. One, a currency can't go to zero. And two, it can't go to infinity. In fact, as it approaches zero and infinity (in a relative sense of course) the brakes get slammed. This is not true of the ES or AAPL or even Oil. In fact, when large moves happen in these products, it tends to accelerate volatility, not slow it down. This is because stocks CAN go to zero and they CAN go parabolic. Oil went from 12 to 147 back down to 35. AAPL from single digits to 700 back down to 350 and back to 550 plus. As currencies get too expensive or too cheap, central banks will step in and supply money or reduce supply to stop volatility or minimize it. The point I want to get to here is that if one wanted to buy the USD/YEN and some news came out that sent the pair down 200 pips, it's much easier for a trader to step in and take advantage of this volatility and buy the pair on a long signal then say step in front of GOOG while it's in free fall. GOOG will run you over, the USD/JPY won't.
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Hi Mav,

Do you still stand by this post, still feel FX offers the best instrument for ACD trading, especially cash FX ? thnx

Maverick74 · Nov 19, 2016

ETFoption said:
Hi Mav,

Do you still stand by this post, still feel FX offers the best instrument for ACD trading, especially cash FX ? thnx
More...

Yes. I think one of the aspects that makes currencies difficult for most traders is what makes it good for ACD. The fact that volatility in FX is pretty constant means A levels tend to hold better and provide more usable extractable information from. Also the spread aspect of currencies works well. The danger is going to be the temptation not to over trade. Since FX moves 24/5 it's very easy to over trade. Therefore one must exercise great discipline and patience.

ETFoption · Nov 20, 2016

thnx

over trade good point.However if you enter on 30 NL ?

You mentioned cash fx, lets say I want to buy, where can I read/learn about the correct, size? Anyone can develop a stop calculate how far it is from entry and be comfortable its < than 2 percent, seems to simple ? Are not some trades better than others , and I would want to use maximum size on one vs. another based on some other parameters such as volatility ?

Also known as dynamic allotment

thnx

sleepy · Nov 20, 2016

Maverick74 said:
Yes. I think one of the aspects that makes currencies difficult for most traders is what makes it good for ACD. The fact that volatility in FX is pretty constant means A levels tend to hold better and provide more usable extractable information from. Also the spread aspect of currencies works well. The danger is going to be the temptation not to over trade. Since FX moves 24/5 it's very easy to over trade. Therefore one must exercise great discipline and patience.
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Hi Mav,
Do your comments equally apply to futures currencies ... or do you feel there is a difference between FX and futures currencies when using ACD?

ETFoption · Nov 20, 2016

also have noticed many people have come and gone on this thread, its all over the place. Not sure if people get frustrated or they learn that ACD is not helping them

justrading · Nov 20, 2016

ETFoption said:
also have noticed many people have come and gone on this thread, its all over the place. Not sure if people get frustrated or they learn that ACD is not helping them
More...

A few of the old timers are still around, they just don't post much, if ever.

Yes, some who never really understand ACD get frustrated and stop using it. One I know voiced his frustration at how late the 30 day NL was in flagging direction, I think I responded to him and later he came back to say he had coded the NLs, so I guess he found a way to make it work for him.

What some folks don't do is read this thread from the start and make notes. They think the book is enough. Well to me the book is like learning to read, write, and do arithmetic. That alone will not make you a great author or scientist. What is in this thread, often very clearly laid out, but sometimes just the tiniest of hints, is what you really need to make it work well.

ACD is not some magic pill or holy grail, it takes really hard work to be able to use it effectively, and that hard work begins with reading this thread from the beginning and learning the rich lessons here.

ETFoption · Nov 20, 2016

justrading said:
A few of the old timers are still around, they just don't post much, if ever.

Yes, some who never really understand ACD get frustrated and stop using it. One I know voiced his frustration at how late the 30 day NL was in flagging direction, I think I responded to him and later he came back to say he had coded the NLs, so I guess he found a way to make it work for him.

What some folks don't do is read this thread from the start and make notes. They think the book is enough. Well to me the book is like learning to read, write, and do arithmetic. That alone will not make you a great author or scientist. What is in this thread, often very clearly laid out, but sometimes just the tiniest of hints, is what you really need to make it work well.

ACD is not some magic pill or holy grail, it takes really hard work to be able to use it effectively, and that hard work begins with reading this thread from the beginning and learning the rich lessons here.
More...

points taken...... thnx

ETFoption · Nov 20, 2016

justrading said:
A few of the old timers are still around, they just don't post much, if ever.

Yes, some who never really understand ACD get frustrated and stop using it. One I know voiced his frustration at how late the 30 day NL was in flagging direction, I think I responded to him and later he came back to say he had coded the NLs, so I guess he found a way to make it work for him.

What some folks don't do is read this thread from the start and make notes. They think the book is enough. Well to me the book is like learning to read, write, and do arithmetic. That alone will not make you a great author or scientist. What is in this thread, often very clearly laid out, but sometimes just the tiniest of hints, is what you really need to make it work well.

ACD is not some magic pill or holy grail, it takes really hard work to be able to use it effectively, and that hard work begins with reading this thread from the beginning and learning the rich lessons here.
More...

ETFoption said:
points taken...... thnx
More...

Anyone familiar with volatility studies in TOS ? for example how can I know approximate what options for underlying were trading at given price point historically ? Can I assume that HLVolatility study is an approximate gauge of what ATM options were trading at in Vol terms ? I noticed that the OptionVega study is blank with no data available...... simply want approximate of what Vol's were back in time... thnx