Duxon's Archive

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Saturday / December 19, 2020

Anecdotal Notes:

From my perspective, the eight-hour price range is more-or-less indicative of the direction in which exchange rates are headed on a day-to-day basis.

But, in terms of directional information that is actually actionable, I’m most interested in the 40-minute baseline, followed by the 70- and 120- minute baselines.

Regarding temporal measures that govern where I’m looking for reversals (i.e., entry and exit points/levels), I’m watching for the highest highs or lowest lows in the last 20 minutes, 90 minutes, and five hours.

(So, what has happened to my former emphasis on three- and four-hour measures?)

P.S. I just reread my previous post, and having done so, am curious to go back and compare and contrast the configuration in the attached image with the anecdotal notes I just now recorded above...

UPDATE: I think it simply came down to looking at things from two different perspectives. That said, the best I might do in attempting to unite the two is to perhaps add the two-hour price range and instantaneous moving averages to the previous configuration...

(But, now that I think about it, I should probably add the two-hour baseline as well.)

I just did. In setting up a profile using this configuration, what I'm beginning to notice is that the benefit of the four-hour envelope is that it offers a smoother image for gauging the general direction of price flow.

 

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I should probably add the two-hour baseline as well.

The (black) instantaneous moving averages are too sensitive to less-significant fluctuations. The (yellow) two-hour baseline constitutes a better visual in helping to decide whether to remain in or abandon particular positions.

 

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Later Saturday / December 19, 2020

It seemed to me that, given the information I have, there ought to be a way expand NPP’s 85 to 90 percent success rate beyond intraday trading. This would be especially desirable given that a successful 0.01 lot trade might often return only 12ȼ to a dollar, whereas a losing 0.01 lot trade might often give up a dollar or more due to wholesale reversals.

So, I gave it some thought, and I believe I might have come up with the “secret sauce.” If so, it could theoretically make the average 0.01 lot winning trade worth between $1 to $3, or perhaps a lot more, and result in the successful purchase of winning out-of-the money Nadex binary option contracts at a rate of 80% or better, which ought to allow one to grow a Nadex account balance exponentially in a relatively short amount of time.

I plan to begin putting this theory to the test next week, given that I finished the project I was working on for a former client yesterday. The 60-minute chart pictured below illustrates how the strategy is designed to work.

Basically, a possible trade setup exists when the gray histogram in the lower panel is on one half of the channel and/or candlesticks are forming on one side of the dashed baseline in the main chart and/or the dashed baseline is sloping in a given direction; and the dark blue oscillator has reached (or come close to reaching) the floor or ceiling on the opposite side of the channel in the lower panel (or the opposite direction) as appropriate—at which point it would be wise to switch to a lower-time-frame chart to execute trades at the optimum moment and/or to avoid entering positions too early (i.e., head fakes).

(What about entering positions when the orange baseline is sloping unquestionably in one direction, and the candlesticks pullback behind it?)

I should probably note that it looks like the above category of opportunities appear to develop only once or twice per week per asset. I should also note that GBPUSD looks like it might be smack dab in the middle of developing such an opportunity. The same is true of USDCAD.

 

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I should probably note that it looks like the above category of opportunities appear to develop only once or twice per week per asset.

In evaluating the above strategy by examining the one-hour chart more closely and with all your indicators in place, you noticed that you will probably be able to increase (perhaps double) the number of profitable trade opportunities offered by the idea described in the previous post by not only entering positions when the dark blue oscillator has reached (or come close to reaching) the floor or ceiling on the opposite side of the channel in the lower panel (or the opposite direction) as appropriate—but also by doing so when the candlesticks reach (or come close to reaching) the opposing side of the four-hour price range envelope, regardless of what the dark blue oscillator is doing...

​

But again, you'll need to drop down to a lower-time-frame chart to get the entries right (i.e., avoid entering too early/suffering at the hands of head fakes). Or maybe it's here that the use of the yellow baseline mentioned in Post #372 will come into play.

EURGBP may also be setting up an opportunity, but only if it is switching from bullish to bearish. (NZDUSD might have been setting up a buy opportunity, had it not been the end of the week.)

 

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Or maybe it's here that the use of the yellow baseline mentioned in Post #372 will come into play.

...with the orange baseline being the ultimate arbiter of which direction rates genuinely (or eventually) intend to do.

 

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I believe I might have come up with the “secret sauce.” If so, it could theoretically make the average 0.01 lot winning trade worth between $1 to $3, or perhaps a lot more.

 

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I’m currently taking advantage of a free trial offered by Blinkist.com, a subscription service based in Berlin, Germany that breaks down nearly 3,000 bestselling non-fiction books into digestible 15-minute summaries.

The first book I checked out was: How to Make Money in Stocks by William J. O’Neil

The information was basically what one would expect…

The key message?

Before you invest in the stock market, you should learn how to read stock-price patterns; one particularly useful pattern to look out for is called "Cup with Handle." As well as stock-price patterns, you should make sure that your chosen stock is sound in other ways. For instance, it should be an industry leader, ideally with an innovative product or service, while, most importantly, showing an increase in earnings. Finally, watch what top fund managers are doing but do your own homework, too.

1. You should learn stock chart patterns, and one pattern especially (i.e., cup and handle).
2. An increase in earnings is the most important quality in a good stock.
3. Innovative companies can make for a good return, but you need to know when to invest in them.
4. Supply and demand is an important factor in stock picking.
5. You should buy industry leaders.
6. You should look for stocks with institutional sponsorship.
7. You should keep a close eye on the general market direction.

 

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Copyright © 2020 Fred Duckworth

I trade using a system I call Numerical Price Prediction, which is an approach I came up with based on five biblical principles:

1. The first being to test everything and hold fast to only those things which prove to be valid and reliable.
2. The second was a belief that, as in life, when you have a system operating at peak performance, more often than not, it's at least in part due to the interactions between its various components evidencing strong, healthy relationships.
3. The third is the fact that the best of plans are typically established in the presence of a multitude of counselors.
4. The fourth is the necessity of being able to rightly interpret the signs of the times.
5. And the fifth is that, once again, as with life itself, positive outcomes are usually the result of having made good choices.

The first principle led me to reject the use of almost all common indicators, such as MACD, RSI, CCI, stochastic oscillators and the like; along with any approaches involving harmonic patterns, Elliot waves, pivot points, Fibonacci ratios and whatnot.

Instead, I attempted to rightly interpret the signs of the times by devising a methodology similar to that used by meteorologist to predict the weather—one based as much as possible on statistical analysis and mathematical probability.

The idea was to gather and evaluate precise, up-to-date, quantitative data and use it to calculate the odds of price reaching designated values within a given time period by patterning the system's elements after the equations, wave functions, and computer models used in weather forecasting.

But, instead of monitoring wind velocity and direction, cloud formations, humidity, temperature, and barometric pressure; I evaluate the synergy (or "relationships") between such factors as typical price ranges, reoccurring chart patterns, horizontal support and resistance, trend lines and market structure (which is to say, "a multitude of counselors that proved to be valid and reliable" over several weeks and months) all in multiple time frames—with the result being a graphical depiction (computer model) of current conditions that I could then use to help me make precise, well-timed trades (or in other words, "good choices based on rightly interpreting the signs of the times").

The system incorporates the idea of cycle theory, which holds that cyclical forces, both long and short, drive price movements, and can be used to anticipate turning points. It's also compatible with Edgar Peters' fractal market hypothesis, which views financial markets as fractal in the sense that they follow cyclical and replicable patterns—ones consisting of fragmented shapes that break down into parts which then replicate the shape of the whole.

I used such cycles to generate what some call "baselines" by conducting a thorough analysis to first uncover the cyclical waves formed in the wake of price action, followed by the defining of their general frequencies and magnitudes; and then finally plotting centered moving averages that came as close as possible to approximating the zero amplitude of the corresponding waves/cycles.

So, the notion that there are no "best" moving averages to use when trading is not one to which I subscribe. Again, at the heart of my system is the use of carefully selected baselines which I calculated in the manner explained above. (By baselines, I mean painstakingly selected moving averages able to rightly discern whether price is rising, falling, or maintaining its altitude within a particular time frame.)

However, it is not enough, in my opinion, to stop at merely determining which are the best moving averages to use when trading charts of a given time frame. To trade with the clarity and precision I desired required me to carry out one final step in which I assigned a specific temporal value to each individual baseline and its corresponding or associated price-range envelope—to answer the question: What moving average best conveys in which direction and by how much price moves every five minutes? Or every thirty minutes? Or every four hours? Or even every day?

Determining the specific moving average that best represented price movement for each of the major time intervals along with their corresponding price range envelopes was the final step I needed to carry out in order to complete the development of my trading system to my full satisfaction.

And yet, even after this “final” step, their emerged an additional aspect or factor that proved deserving of my consideration which I had not envisioned at all—the concept of "temporal" support and resistance.

In other words, not only do I believe there is a certain amount of distance beyond which exchange rates will typically resist separating themselves from the central tendencies of key price distributions, it seems to me I have also observed that there is generally a limit to the amount of time exchange rates will advance in one particular direction without deviation.

It is these limitations that I refer to as temporal support and resistance, and they have proved to be a welcome enhancement to my system. As posted by ArchAngel...

"Analysis of the intraday price action at a granular level and use of a set of multi-temporal algorithms can project high probability zones of intraday support and resistance."

 

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MILESTONE

I just now realized that at the start of this week (Monday, December 21, 2020) I made probably the best trade I've ever executed in all my days of trading...

It was a long position I was in for I guess seven or eight hours, and resulted in a return of about 170 pips...

 

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Wednesday / January 6, 2021 / 10:00 AM PST

I have more-or-less settled into trading what I opted to call a "Secret Sauce" version of Numerical Price Prediction (NPP), though there is really nothing especially secret about it...

The system is employed as was described in another thread on Monday...

What I'm doing now is quite different from what I was doing back in October of last year. Using what I'm calling my "Secret Sauce" version of Numerical Price Prediction (NPP), I switch back and forth between 240-, 60-, 15-, 5-, and 1-minute charts to get different perspectives, even though all of these time frames are basically configured with the same relative/corresponding measures.

The main difference with this version is that I'm now relying on the three-day baseline to help guide my actions. But I would not regard this as an actionable measure in that it is too lagging, so when it comes to making a final determination as to which direction to trade, I am more interested in the 16-hour (two-thirds of a day) baseline along with the 8-hour price flow (i.e., the slope of the 8-hour price range envelope).

And rather than lean on mean reversion as a primary tactic, I'm looking for reversals in the four-hour trend at both price-range-based AND time-based support and resistance levels. (So actually, in this sense, there is still an aspect of regression toward the mean involved...at least when it comes to the four-hour baseline.)