TRO, why do you say that a trader should only follow green rat or red rat reversals, and not both? Why can't you play on both teams?
I have been working on the PRICE TURN indicators. Price "turns" when the candle color of the current candle is not the same as the previous candle's color. You look for price to cross over the previous candle's open to confirm the turn has been made. For those who trade trend reversals and/or pull backs, this helps to spot entries. I made a YouTube video that explains price turn.
"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative. The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat." P64 HOW WE DECIDE (italics added)
I understand your point, but I disagree with your analogy. In the case of the maze, the choice of going left or right is mutually exclusive for the same event. For the trading setups, the mutually exclusive choice would be trading the setup as a reversal or a breakout. You advise to always trade a reversal, which is analagous to always turning left in the maze. This is OK, assuming that probabilities favor this approach. But you can do the same from a daily high (resistance) or daily low (support) and not violate any lesson from the maze experiment. The relevant choice being made is to trade a reversal. Whether that reversal is from a high or low shouldn't matter. The distinction is not red rat vs green rat, it's reversal rat vs breakout rat. BTW, I've looked at some of your indicators and you are an exceptional programmer.
Maybe this will make it clearer... It is trading both breakouts AND reversals in the same direction (long or short) vs. trading both directions (long and short). The RAT won because it always went in the same direction - left.
PRICE TURN Price "turns" when the candle color of the current candle is not the same as the previous candle's color. In the above chart the candles that indicate a price turn up are marked in green and candles indicating the price turned down are marked in red. You look for price to cross over the previous candle's open to confirm the turn has been made. The DOTS on the candles mark the previous open price level. You can see where price crossed the previous open and then reversed. These are entry points. If the previous candle has a red line then when price is at/near the previous open (red dot) and moving down, you enter the trade short. If the previous candle has a greenline then when price is at/near the previous open (green dot) and moving down, you enter the trade long. But you are only looking at one time frame and that's where the multimeter comes in handy... Some trend traders like to enter on "PULLBACKS". The multimeter makes it easy to see when price is pulling back to the next higher time frame or continuing the "trend". The light blue color means price is going up and price went up on the previous bar. Think "light blue sky". The dark blue color means price is going down and price went down on the previous bar. Think "deep blue sea". Look at the M15 chart and you can see price is now turning up and back to the "trend" on M30. H1 is turning up AGAINST the "trend" on H4 and D1. While price is turning down on W1 and going WITH the "trend" on MN1. Please post any questions you have in this forum. PLEASE DO NOT PM ME WITH TRADING/INDICATOR QUESTIONS.
NO. Price only MOVES up or down. Price has to CHANGE in order for it to move. If there is no change in price, there is no movement. If there is movement, then price changed. One must be PRECISE in the use of language.