Thanks for the chart.
I refer to this as CCC standing for congestion , convergence and centering.
Lets say a person wanted to back test this. congestion would be defined as a lateral flat channel. Convergence would be tested to show that the downward dfirft in volume would be influencing one or more sides of the former congestion. A signal on the first test would initiate the second test. Centering is a noise dominated VDU backtest period.
So all the above is a way to get a failure to show statistical significance in backtesting. What is missoing so far? Well several things. Make a list and add them to the backtesting scenario.
The idea of back testing is to get a signal that lets you make money. you ask in the back test for a specific signal. what is the signal for BO?
Look at sunnyskies comments. Do you see where he operates? For some reason he believes that doing the equities trading and the commodities trading have the same trading basis. They are as different as can be it turns out. Equities are position straded by using entries and exits. Both "anticipatory" where the fulll range of the half cycle is used to extract at least 50% of the run.
Commodities use a strategy of hold and reverse, being in the market all the time.
What are the signals for "entry" in back testing? What are the signals for exit in back testing? What are the signals for holding in commodities back testing? what are the signals for reversing in commodities backtesting?
Of course they are all leading signals of price. Do you think most people do back testing using price instead of the leading indicator of price? It looks like they may.
What does lead price for anticipating a signal that will let you make money?
Why does price BO? What changes that prevents price from not breaking out? Di you think anyone is designing backtesting software to deal with anything remotely related to making money by using signals that lead price?
What does a person who can backtest well and get the picture write? How does that person address what he looks for as a signal to then judge if a backtest indicates that any money is being made?
Do you know what JohnnyK is saying? Do you know how to measure what a person did when he saw the combination that he needed to take and action?
Monitor, analysis, decide, act. Repeat at the market dictated pace and volatility. no one ever even gets a glimmer of what backtesting is. It certainly is not an oversimplification of not using the pertinent data in the first place.
Making money has nothing to do with looking for anomolies. Anomolies do not create a decision to either hold nor reverse.
what creates any decision is quite clear: you have to have the knowledge, skills and experience to analyze what you have monitored which is that which is important to monitor. As the market has alternative after alternative cut off as a possibility, you have to know that the alternatives are being cut off and then know which one remains and what gates (triggers) that opportunity that remains.
What is it that not longer prevents a BO in price? when your backtest shows this particualr signal, then you have the first half on the money making back tested... Then you can go to work on the important second part..... LOL.