Cycle Theory

[expiated]

Monday / October 14, 2019 / 1:30 a.m. PST

The first launch pad was a false signal, but it suggests to me that I should test the validity of a related observation, which is my suspicion that anytime price meanders to the "wrong" side of a sloping indigo moving average, it should be regarded as having pulled back from the direction in which it is ultimately headed in the near future (and if not anytime, that most of the time).

I will be actively looking for opportunities to test this theory.

The image below displays what would have been my first successful trade with this new system except that I was stopped out while half asleep and missed the opportunity to reenter the position.

Too bad...this would have been a decent chunk of change.

 

[expiated]

I should test the validity of a related observation, which is my suspicion that anytime price meanders to the "wrong" side of a sloping indigo moving average, it should be regarded as having pulled back from the direction in which it is ultimately headed in the near future.

According to the above premise, I should expect CADJPY to drop below the green moving average, at which point, I should enter a short position with 81.75 as my take-profit target.

 

[expiated]

Monday / October 14, 2019 / 7:00 a.m. PST

I am beginning to make back some of my initial losses and hope to finish doing so by the end of this 24-hour market cycle. After consulting a higher time frame I made my first major adjustment, which was to increase the time cycle by a factor of three. Doing so led to an interesting development in that the resulting Donchian channel now approximates one of the key simple moving average envelopes already in use. It might therefore turn out that rather than this being a new system, it may simply amount to adding a new wrinkle to an old one.

The other adjustment is more of a mental or procedural one which is to assign more weight to the indigo moving average. I think there is a very good chance that at some point in the future I will make a hard and fast rule to never enter a position until the indigo moving average begins to hook in the direction I plan to go.

Oh, and one more thing...I like entering positions using my one-minute charts better and will probably be making a habit of switching to them to make all entries and hold off on doing so until the one-minute charts look right structurally.

 

[expiated]

Monday / October 14, 2019 / 8:06 a.m. PST

At least I'm back in the black, and learned a little something new in the process...




NOTE:
You thought the length you would be using was going to be less than the 24-hour market cycle, but it now appears that the time will be longer.

 

[expiated]

This is a 10-day trial, Purple Trading demo account via a free FTMO challenge.

If I understand correctly, with a $50,000 initial balance, the challenge is to achieve at least 5 out of 10 days showing positive returns with a maximum daily loss below $2500, the maximum loss on the account below $5000, and a profit target of $5000.

It doesn't really matter if I succeed because if they plan to try to get €155 out of me by claiming they will fund me, I won't be interested. I am curious to see if I can pass their test however in that I enjoy this kind of thing.

But to do so, I'll probably have to trade 2 Lots at a time and not make any more mistakes once the currency pairs align themselves for the next trading cycle.

 

[expiated]

Monday / October 14, 2019 / 9:45 p.m. PST

Surprise, surprise!

I'll be if this attempt at finagling a more "hands off" approach to day trading Forex hasn't led to my painting a more well-defined picture of what I feel like I see exchange rates doing at the micromanage level, which I will also record in my personal notes without redacting the details.

One-minute Forex Chart Configuration

On a one-minute Forex chart, the white SMA (XXX) is the gravitational trend line. The intraday trend might be bullish if candlesticks are forming above this indicator or bearish if candlesticks are forming below it, but is definitely bullish if this line is sloping upward or bearish if the line is sloping downward.

Of course the short-term actionable trend line is the blue SMA (XXX), so the short-term trend is bullish if candlesticks are forming above this indicator, especially if it is sloping upward, and bearish if candlesticks are forming below it, especially if it is sloping downward.

Nonetheless, the short-term trend should not be regarded as reversing direction in any significant way until it pops through the purple and indigo SMA (XXX).

Moving back to the intraday trend however, its direction becomes clearer/more pronounce when the actionable trend lines fan out, referring to the medium blue xxx-, purple and indigo XXX, white and black XXX-, orange and maroon XXX-, black and crimson XXX-, and dark green/lime green XXX-period SMAs.

Look for price to begin evidencing regression toward the mean by crossing back over the medium blue SMA (XXX) once candlesticks begin making contact with the upper or lower band of the XXX-Period SMA Envelope at X.XX% deviation, and COUNT ON IT given one or more of the following conditions:

1. Candlesticks begin making contact with the upper or lower band of the XXX-Period SMA Envelope at X.XX% deviation.
2. The lower panel Price Anomaly Channel oscillator breaches level 3
3. The lower panel Price Anomaly Channel oscillator breaches level 5.68

You are fond of saying that the only indicators you care about are moving averages and (adaptive) moving average envelopes (i.e., price ranges). So it should probably come as no surprise that the above description seems to focus heavily on trades that are initiated by regression toward the mean.

So when does a retail trader trade with the trend, if ever?

You trade with the trend when you see the actionable trend lines (moving averages) fanning out, as described above.

Otherwise, you look to the slope of the indigo proprietary moving average on the 15-minute chart setup for the ultimate direction in which price is more than likely headed (this is roughly equivalent to the XXX-period SMA, which would be the XXX-Period SMA on a one-minute chart, or the XXX-period SMA on a five-minute chart—the wide burly-wood moving average in the above image).

In considering all of the above, do not lose track of (remain consciously aware of) the unique way you have come to conceptualize price movement (i.e., that it is best represented not by moving averages, but my bands, strips, or waves of a given amplitude which cover specified swaths of territory as price swings back and forth between the riverbed/shoreline of the associated “tsunami” as it betrays, conveys, or establishes a directional tendency).

(Trading successfully is a matter of correctly interpreting the relationships between all these measures.)

 

[expiated]

Otherwise, you look to the slope of the indigo proprietary moving average on the 15-minute chart setup for the ultimate direction in which price is more than likely headed (this is roughly equivalent to the XXX-period SMA, which would be the XXX-Period SMA on a one-minute chart, or the XXX-period SMA on a five-minute chart—the wide burly-wood moving average in the above image).

Given the above, it might make sense to adopt this measure as a given asset's "orbit."

 

[expiated]

Monday / October 14, 2019 / 11:55 p.m. PST

Back to Cycle Theory...

The Canadian and Cable pairs are at the edges of their cycle's corresponding amplitudes, but for the Cable pairs, this is due to advancing in the direction of the trend, which is not so great since entering positions would mean trading against it.

As for CAPJPY, it has been in consolidation for about 16 hours, so though the structure is there technically, it is at the same time sort of in the middle of a no man's land, making it an unattractive candidate for trading.

So at this time, USDCAD looks to be my best option. At 1.3226, it's been heading north for over 24 hours, but still has a bearish "orbit." If the ceiling of the Donchian channel flattens out above price action, it will provide a definitive stop loss level with a very acceptable reward-to-risk ratio, and the fact that the rate has been rising for so long should make it extremely easy to pinpoint exactly when the trend turns south, should it opt to do so.

UPDATE: The Cable pairs retreated probably at least about 30 pips, so the potential to pick up some quick profit in a 30-minute time span was there if I could have timed it right. That opportunity has passed however, and given that the moving averages are beginning to fan out, as soon as the short-term trend reverses to rejoin the direction of the intraday trend (assuming it does) I might try executing trades at that point and hope that the corresponding pairs follow through.

I'm waiting for USDCAD to pull back to the ideal entry level on the one-minute chart, at which point, I will probably enter a short position... It's later now and price is pulling back, but as it does so, there is nothing to suggest a turn south yet. It's after midnight, so I'd like to get some sleep, but to enter a position now based solely on cycle amplitude without confirmation of a new downward trajectory would evidence a clear lack of wisdom. I'll probably end up trying to get a little sleep while attempting to remain half awake until I get the signal, at which point, I'll be able to enter a short position and then submit fully to the Sandman.

 

[expiated]

UPDATE: The Cable pairs retreated probably at least about 30 pips, so the potential to pick up some quick profit in a 30-minute time span was there if I could have timed it right. That opportunity has passed however, and given that the moving averages are beginning to fan out, as soon as the short-term trend reverses to rejoin the direction of the intraday trend (assuming it does) I might try executing trades at that point and hope that the corresponding pairs follow through.

EURGBP was the first pair to give me a shot, followed by GBPJPY. They were the first trades I made today, and the first where I doubled my trade size to 2 Lots (the first three trades were mistakes left over from yesterday, when I was initially figuring out how to best implement cycle theory and managed to exit GBPUSD and GBPJPY with a little something, but had to eat a loss with respect to AUDUSD).

 

[expiated]

Tuesday / October 15, 2019 / 7:30 a.m. PST

GBPUSD cooperated as I slept, but USDCAD did not. My hope is that the Loony continues to consolidate long enough and vacillates up and down widely enough for me to eventually get out of the position near breakeven. I have moved my take-profit target to what I deem to be a realistic level where I will nonetheless incur a small loss.

If I can repeat today’s results during the remainder of my free trial period I should be able to meet the goals of the FTMO challenge. In fact, there are a few developments still in play that might theoretically unfold in my favor, in which case, I might walk away from today’s activity with more than a $1000 return in a single day.

More specifically, AUDUSD has reached the bottom of the cycle and I am waiting for the floor of the Donchian channel to flatten out beneath price action. Of course, it would have been better if the pair’s orbit had not turned bearish in the process, but it is what it is.

(CADJPY turned south, but then bounced off support as one would have wished. But that was three or four hours ago, as I slept, and depending on exactly how far below the anticipated trough of the cycle’s frequency I set my stop loss, I might have nonetheless been bounced out of the position for a loss had I gone long the pair last night.)

(USDCAD just now popped south. I COULD have exited the position with a bit of profit! Oh well…better safe than sorry. I still feel it was the right move to get out with a small loss when I had the chance.)

EURJPY now has a bearish universal orbit, but it too could offer an opportunity to pick up some dollars going long base on my interpretation of cycle theory. The same is true of EURUSD.

The Cable pairs are back near the top of their cycles, but I still don’t want to mess with them. Especially since I have a monthly price range chart (see image below) which suggests that, unless the pairs are going to reverse direction and head north, it would be foolish to expect them to give away much more up above—Brexit deal or not.

The New Zealand pairs are in the exact same situation as the Euro pairs, and in fact, the next time I get a pullback on my one-minute chart, I am going long NZDJPY.

The only other possible opportunity (in the near future) is USDJPY, which looks to be nearing the top of its cycle.