Quote from Grob109:
I think your concept piece is a classic.....for how do design a lagging indicator system.
At least by using 3 bars you have come up with a finite # of possibilites that will fit into a finite # of subsets.
The most important thing you will learn is that the market migrates rather than jumps around.
As each 3 bar group transforms as a delete/add sequence you will find three basic transformation classes. The most frequently occuring one (Class A for convenience) is the class of no significant change in the sub set collection of transformations.
The other two classes are the next most powerful for making money and are on equal footing. Obviously the most common one cited above is the best for making money.
One of them I would call the "blocker class". This is the sub set of variations on the transformations which bring class A to a close (this is the signal for trading action). What makes this subset so important is that it is a definitve subset in the Venn sense of what is "outside" this subset.
Lastly, the third class is what allows for the beginning of making money and accelerating money velocity.
The factor that makes for debate is the fineness of measure of a 3 bar set. In limiting cases the aurgumentation is that infinity is a possibility. That is fine but then you approach lesser possibilities of any repetition at all. The goal for making money is obviously high rates of repetition while loosely coupled. All this, since change is required for making money and thus the more extended the opportunity is with an extreme 3 bar unchanging set.
A Venn universe matching a Ballentine overlapping triad is probably an optimum. The seven componet subsets show that risk is minimized within the exclusive extremes (you definitely know what stasis exists). You recognize that you cannot get to another exclusive state without a transition (this is a second level comment upon the fact that between a trend starting, a trend continuing and a trend ending, that there is a mixed interlude between each condition). The central subset where all classes overlap provides a major setting. Here the market is "on" but not functional. It is a location that is defined as "noise". It is the only place where random effects are valid and is a place where money cannot be made. It represents the focus of"random walk" and "chaos" machinations.
Once you have all the 3 bar sets located in these 7 categories by overlapping the three major classes. You can avail yourself to a magic place, not often seen by most. Take yourself through the seasons of the year. Enjoy what happens as quarterly reports and annual reportsimpinge. Then work your way out and then in. You need to do seven trips.
After that you will be able to see where efficiency lies, where risk is prevalent and what is the potential of each market in which you work.
If you are orderly, you can use the Venn as a map. It will be possible with overlays to define trends, S and R definitions, all formations and best of all the effect of volume 3 bar pairs (pairs with price 3 bar elements) for use as anticipatory indicators of price.
Did you ever notice how smart money bar sequences and cash bar sequences in future indexes corrolate?
What I think is best learned from this is that prediction is not necessary. And that anticipation is best acomplished by seeing all that is not possible at any particular time. It is all related to going with the flow since the flow is so orderly as a migration at all times.
The best single example is characterizing the differences between a BO and a FBO.
