Using Duckworth’s Numerical Price Prediction (NPP) system to trade binary options

Discussion in 'Journals' started by expiated, May 6, 2018.

  1. expiated


    For the purpose of his journal I will be referring to the system’s MAs as the bumblebee, crimson, sea green, and black moving averages.

    I shorted AUDJPY with the intention of making a “longer-term” trade (hours rather than minutes) following a reversal in the bumble bee moving average after price almost made contact with the corresponding statistical resistance level, due in large part to the fact that the general overall longer-term trend was headed south.

    Price bounced north about 40 minutes later, but resumed it southward trajectory “for good” about 20 minutes after that as the crimson moving average reversed direction as well. (The sea green moving average did not turn south until about an hour later, so it is extremely lagging.)

    ScreenHunter_7671 May. 06 19.38.jpg

    I probably jumped the gun on the second and third trades by using Heiken Ashi moving averages as a trigger instead of the bumblebee moving average. I reentered a short position with respect to NZDUSD as soon as there was a reversal in the bumblebee moving average, but price is bouncing around, and the crimson, sea green, and black moving averages are all bullish now to one degree or another, so I am currently trying to exit the position at about break even, but might have to eat a third loss thanks to this pair.

    I also shorted EURAUD a second time as soon as the bumblebee moving average turned south, but in this case the longer-term moving average maintained its neutral aspect and the trade was successful. I neglected to mention that these trades, along with the others on which I have yet to comment, were also executed due to the fact that price was located near (but not actually inside) the reversal zone.

    (The one exception was USDCHF, which was entered even though it was not near the reversal zone due to a reversal in the crimson moving average.)

    Based on these last six trades, it would seem that, at least during periods of low liquidity, this category of trade requires a minimum of twenty to thirty minutes to separate the rate a comfortable distance from the strike price, with thirty minutes probably making more sense.

    In terms of “traditional” trading, there appears of be little need to be so conservative in the amount of profit I was seeking per trade, which I should probably at least double the next time around.
  2. expiated


    I neglected to mention that the exchange rate’s having made contact with the statistical support or resistance level associated with the bumblebee moving average just prior to the indicator’s reversal was a critical factor in the decision to execute most of the above trades.
  3. expiated


    AUDUSD is once again skirting off bumblebee associated support near the reversal zone, but bumblebee has not yet turned north and all other moving averages (aside from the Heiken Ashi moving averages) are bearish, so let’s see where the exchange rate is 30 minutes from now.

    ScreenHunter_7672 May. 06 22.56.jpg

    UPDATE: The rate is oscillating back and forth, so perhaps it will head north “for good” if and when the crimson moving average does so. Had it been a 30-minute binary option trade, it would have expired out-of-the-money.

    All of CADJPY's moving averages suggest the pair should continue higher, but will it?

    ScreenHunter_7674 May. 06 23.29.jpg

    It’s taken CADJPY two hours from when its moving averages first assumed the “correct” alignment for the rate to make significant progress away from the would-be strike price, but I just exited the position with a small profit because price just fell below the bumblebee moving average, which has turned south.

    Based on what happened with NZDUSD you might want to consider executing trades when the crimson moving average reverses direction inside the reversal zone...

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    Last edited: May 7, 2018
  4. expiated


    It’s taken AUDUSD almost 90 minutes to get back to where it was. Perhaps EURUSD will take a more direct path to its take-profit target.

    ScreenHunter_7677 May. 07 00.42.jpg

    AUDUSD’s crimson moving average has formed a bowl near the reversal zone, but with such a lack of momentum, I’m planning to pocket some profit at 0.7520, if I can, before re-entering a long position.
    Last edited: May 7, 2018
  5. expiated


    I was unable to save the NZDUSD trade and did indeed have to eat a heavy loss relative to my average gains. As for my not needing to be conservative in terms of the average amount of profit I was seeking per trade, I quickly decided otherwise due to the herky-jerky nature of exchange-rate-price-action, which often tried to reverse direction before my targets were hit.

    ScreenHunter_7681 May. 07 10.43.jpg

    I concluded that this was because the bumblebee moving average, the main indicator on which I was basing my trades, was too short of an interval. To my surprise, the crimson moving average turned out to be the same. I therefore adopted a new, longer-term crimson moving average, and now use the way in which the bumblebee and old crimson moving averages relate to the new crimson moving average to provide me with clarity as to the true trajectory of the main short-term intraday trend.

    ScreenHunter_7682 May. 07 10.44.jpg

    This should now make it possible for me to go ahead and at least double the amount of profit I seek per trade. It should also make it possible for me to cut in half the amount of room I was previously giving price action when it came to setting my stop loss so that losses the size of that handed to me by NZDUSD yesterday should now be a thing of the past

    As for the seriously lagging sea green moving average, I replaced it with a set of five moving averages that, to me at least, are reminiscent of the Ichimoku Kinko Hyo cloud. However, they might simply served as an unnecessary security blanket. I have to evaluate whether they are really doing a helpful job assisting my eyes in identifying the main trend, and if not, I am likely to get rid of the sea green moving average altogether.
    Last edited: May 7, 2018
  6. expiated


    This is the kind of trade I'm going to try to make a lot more of starting tomorrow...

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  7. expiated


    I tend to be somewhat hesitant to place orders and then walk away, or to do so before retiring for the night, but I put on a number of trades before going out to dinner to put my confidence in the current, and hopefully final, set of moving averages I’m using to the test.

    I also wanted to illustrate the practicality of using the oscillating nature of price action to repeatedly milk profit out of the market (though I didn’t get a chance to short AUDJPY a third time before I had to leave, delaying my doing so until I returned, a trade that is still in progress) by using guerrilla-warfare-like scalping tactics as opposed to swing trading, only to see profits alternate between materializing and vanishing over a protracted period of time.

    ScreenHunter_7686 May. 07 20.41.jpg
    When I was researching such things, I read again and again that it is impossible to trade one-minute charts because you are essentially trading random noise, but one-minute charts are not random at all (though this statement perhaps goes just a little bit too far). In fact, I can forecast what is likely to happen next on a one-minute chart with far greater accuracy than I can on an hourly or daily chart, but I digress…

    Conducting this “mischief” meant setting stop losses that were not proportional to my take-profit targets, but if the validity and reliability of the moving averages I’m now using are at the level I believe them to be, that issue would be rendered irrelevant. (They seem to have passed the test.)

    I will have to wait to find out tomorrow, but I believe this tactic/technique (the approach represented above) will involve purchasing binary option contracts that have a ten-minute expiry to get the same kind of results in that arena.
  8. expiated


    Today struck me as a rather inactive (low liquidity/low volatility) day of trading, which presented somewhat of a challenge for me. But this was a good thing in that it guided me in further refining my charts.

    When I started the week, I was basing my trades on the bumblebee moving average, but yesterday that switched to the new crimson moving average, and today it switched again.

    ScreenHunter_7687 May. 08 11.28.jpg

    It is now the old crimson moving average that is at the heart of my decision-making process, except that I changed its color to black. (This is the magnet to which price is continuously attracted, unless fundamental factors have so exerted their influence as to override the magnet’s power). So the "old" black moving average will now be referred to as the black-dashed moving average, or simply as the general overall longer-term moving average.

    I could not see the ultra-short-term moving average well enough, so I changed its color scheme to green with a yellow core, so I’m now going to call it the lemon-lime moving average. Consequently, I changed the core of the bumblebee moving average to orange, so the bumblebee moving average is now orange and black instead of yellow and black.

    (I got rid of the new crimson moving average and the sea green moving average(s) altogether.)

    Deciding whether or not to execute a trade (i.e., answering the question as to which direction price is likely to travel over the next few minutes) involves answering a number of questions. First and foremost is:

    What is the slope of the black moving average?
    I also want of know…

    1. What is the location of the other moving averages in relation to the black moving average?
    2. What is the location of the candlesticks with respect to the trade zones?
    3. What is the amount of distance between the black moving average and price?
    To answer the last question, I established five levels of deviation. The greater the deviation, the less likely it is that reversals in price—signaled by a reversal in the lemon-lime moving average and confirmed by a reversal in the bumblebee moving average—will turn out to be false positives.

    Generally speaking, I am only interested in executing trades following reversals occurring at the third through fifth degrees of deviation—especially if the trade will be made in the same direction as the angle of the general overall longer-term trend, and even more so if price is located in a reversal zone.
  9. expiated


    This is a new NPP setup I’m testing that is designed specifically for (twenty-minute?) binary options.

    ScreenHunter_7689 May. 08 18.07.jpg

    It zeroes in on the two central intraday trends, with reversal alerts triggered whenever both of the two lower-panel oscillators make contact with the floor or ceiling of the “Price Anomaly Channel.” However, positions are not entered until reversals are confirmed by the lemon-lime and bumblebee moving averages.

    Thus far the tactic/technique is proving successful…

    ScreenHunter_7691 May. 08 18.16.jpg
  10. expiated


    It would appear that the tactics designed for binary option trading might also have application in terms of simply scalping the market.

    ScreenHunter_7694 May. 08 22.21.jpg

    Note that NZDUSD would have delivered a profit as well had I simply remained in the trade. But unfortunately, the pair sent signals that it intended to climb higher just before it decided to turn south (and I’ve been working on something else all night, so I have not been monitoring conditions minute-by-minute).

    (Note to Self: so I guess the crimson moving average—now referred to as the black moving average—was not too short of an interval after all.)
    Last edited: May 9, 2018
    #10     May 9, 2018