Revised Numerical Price Prediction (NPP) Explanation
Copyright © 2022 Fred Duckworth
Numerical Price Prediction is a unique and innovative day trading system crafted via the application of five biblical principles:
- Test everything and hold fast only to that which proves valid and reliable.
- Positive outcomes are typically the result of having made good choices.
- Rightly interpreting the signs of the times is an absolute necessity.
- The best plans are usually established in the presence of a multitude of counselors.
- Systems generally operate at peak performance when the interactions between their component parts evidence strong, healthy relationships.
The principle of "testing everything and holding fast to that which is good" suggested that I replace the age-old advice to "keep your eyes on the road" with a mandate to "focus on your destination," a subtle, yet profound, distinction.
Obsessing on the former tends to be constraining—dictating one's movements and limiting the parameters within which one is free to operate, often locking people into notions that are not truly worthy of the reverence bestowed upon them.
But, emphasizing the latter allows an individual to be creative and take any route desired, so long as it carries one toward that on which s/he has resolutely set his or her gaze.
Doing so led me to reject many approaches wholeheartedly endorsed by any number of trading gurus, such as Elliott waves, Fibonacci ratios, harmonic patterns, pivot points and the like.
And when strategies involving moving average convergence/divergence (MACD), stochastic oscillators, the relative strength index (RSI), the commodity channel index (CCI), the average directional movement index (ADX) and other indicators failed to live up to their reputations, I had no qualms about discarding them entirely and searching elsewhere for the "signs of the times" which, if interpreted correctly, would result in market forecasts of unusual accuracy.
Taking this path led me to a methodology similar to that used by meteorologist to predict the weather—one based as much as possible on statistical analysis and mathematical probability, which is why I call my system "Numerical Price Prediction."
The idea is 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 between such factors as typical price ranges, reoccurring chart patterns, horizontal support and resistance levels, trend lines, and market structure, all in multiple time frames—with the result being a graphical depiction of current conditions that I can use to help make precise, well-timed trades.
As it turned out, the absolute best "atmospheric barometer" for predicting the direction in which an exchange rate might ultimately be headed was nothing more than a simple moving average, with a handful of key moving averages evidencing superior accuracy in this role.
So then, the notion that there is no "best" moving average is one to which I whole heatedly disagree. Yet, the candidates for this role are not the ones commonly used by many traders, such as the 10-, 20-, 50-, 100- or 200-period moving averages.
In fact, I don't base the moving averages I use on ANY periods at all. One of the main differences that makes my system unique is that all my moving averages are based on TIME, which is something I have not seen used by any other trading methodology.
This is because trading with the clarity and precision I require demands that a specific temporal value be assigned to each moving average to answer questions like: 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?
I call these moving averages "baselines," which are defined as moving averages that serve as guides or road maps, clarifying whether a given asset is bullish, bearish or neutral for a specific period.
Of course the critics and naysayers told me that baselines as I envisioned them "conflict with the findings of just about every independent, objective, systematic, statistically significant research-trial which has ever been published on this subject." This is why I see myself as sort of like an Aristarchus of Samos or Nicolaus Corpernicus of the Forex market. For they too asserted what conflicted with just about every recognized, orthodox, well-established, accredited opinion on the topic (that the sun rather than the earth constituted the center of our local cosmos).
So then, my goal with baselines was to arrive at something reflective of flight dynamics, where the laws of physics explain how forces act on vessels to govern their performance, stability and control to ultimately determine their velocity and attitude with respect to time.
Hence, in the same way pilots are aware that a Boeing 747 will lift off the ground by angling upward at two to three degrees per second with a maximum angle of 10 to 15 degrees; I as a retail trader now know the parameters dictating whether an asset is rising or falling from the perspective of a day, swing, or position trader.
These baselines were identified, in part, by incorporating 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. (The system is 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.)
Again, I used cycles to help uncover the corresponding baselines by conducting a thorough analysis to first identify 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.
But, with all this talk about baselines, I should not fail to mention that, though one often hears traders stating "the trend is your friend," it would surely be more accurate to say that the trend is merely one of
several friends.
For the
location of rates within the above mentioned waves/cycles would have to be considered at least equally as important as the trend.
Accordingly, I've ceased to think of trends as only being represented by lines and have come to conceptualize them as
belts as well, with the location of price
within the expanse of values constituting the width of these oscillating channels being just as important (when deciding exactly where to enter and exit positions) as the general direction that each "breadth of values" is headed.
Yet, even after all this, there emerged still another factor impacting the interpretation of price action that proved deserving of my consideration, and that was 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.
I refer to these limitations as
temporal support and resistance, and they have proven to be a welcome enhancement to my system.
Accordingly, my final decisions on when to buy and when to sell are always made based on the consensus of various input data, sampled in multiple time frames—data which includes baselines, market structure, temporal support/resistance, horizontal support/resistance, price ranges, and reoccurring chart patterns.
It is the consensus opinion of all these various factors that determines what I will decide to do in the final analysis. The moves I make depend on what each of these determinants means in light of all the others and how they all will affect and impact on one another. It is the interpretation of each moving part individually—and of all these assorted components as a whole—that constitutes Numerical Price Prediction.
Chief among these measures are: the two-hour price range envelope at 0.50% deviation; the 80-Minute price range at 0.25% deviation; the 40-minute price range at 0.10%, 0.35% and 0.45% deviation; the 40-minute baseline; the 20-minute baseline; the 6-minute baseline; and the 15-hour temporal support/resistance level.
The most important measures from a more long-range point of view include the eight-, 16- and 24-hour baselines, the two-, five-, six-, 12- and 42-day price range envelopes, and the weekly price range.
