Envelopes, Waves, and Cycles

[expiated]

Saturday / February 1, 2020

Having essentially run out of thoughts about my trading system yesterday, other than applying it to turning Nadex into a virtual ATM machine...

Regarding my quest to find a way to get Nadex to hand over returns on a regular basis, I deleted a couple of the wider envelopes and moved down to an even lower time frame to focus in on the more concentrated waves/cycles, resulting in the following configuration...

My plan is to see if I can use this to make strategic purchases of two-hour contracts (with as little time left on them as possible) and perhaps even five-minute contracts that I'm hoping will be just about always in-the-money at expiry. Given that I'm now concentrating on waves, envelopes, and cycles, I guess I'll nickname this setup WEC so I'll have an easy way to refer to it (not to be confused with the Web-Empowered Church or the Worldwide Evangelization Crusade).

 

[expiated]

Sunday / February 2, 2020 / 5:30 PM PST

This is a WEC trade based purely on the numbers. It is a test in that Numerical Price Prediction prohibits entering a short position while the intraday trend is bullish. However, price range, frequency amplitude and wave analysis data all combine to forecast little chance of USDJPY having a value as high as 108.58 less than an hour from now, so I would like to research just how valid and reliable the above configuration (Post #11) is going to be, hence my purchasing a binary option put contract.

While I was typing I missed the opportunity to purchase a call contract with a 108.38 strike price as well, so if this trade works out, it will be the last WEC trade I will comment on and I will instead turn my attention fully to executing the strategy—not writing about it.

UPDATE: It appears that the contract will indeed by in-the-money at expiry. Nonetheless, I think it wise to stand by the prohibition against trading against the intraday tend, even when using the WEC system...

 

[expiated]

I wanted to check whether I had translated my daily price range charts to the one-hour time frame (forgetting for the moment that I had deleted all but two of my one-hour setups) and in the process of doing so, ran across a four-hour configuration (one of only three that I'd saved) that I liked so much, I decided to convert it to the one-hour time frame.

After doing so, I compared it to the second one-hour chart of the only two I saved from all the templates I created in the past, and I found they were very similar. However, I think the one that was translated from my four-hour template (the one on the left) is more accurate...

I will be using these charts, not to confirm longer-term trends or to find better entry or exit points per se, but rather, to get slightly different takes on a given situation or set of circumstances—a fuller view, if you will—to make better decisions more generally as opposed to picking better entry or exit levels specifically.

 

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Monday / February 3, 2020 / 7:45 PM PST

Based on the WEC system I would expect to see GBPJPY climb from 141.33 and GBPUSD from 1.3000.

 

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Monday / February 3, 2020 / 9:45 PM PST

Based on the WEC system I would expect to see GBPJPY climb from 141.33 and GBPUSD from 1.3000.

I took profit two hours later, when GBPJPY was at 141.66 (33 pips) and GBPUSD was at 1.3017 (17 pips).

 

[expiated]

After having just read Brain Millard's Preface, I'm looking forward to finding out what he has to say about moving averages. Here's what he wrote in his book as compared with what I wrote in mine...

It's worth noting (to me) that Millard's book is focused specifically on stocks, whereas my area of interest is in foreign currency pairs. Nonetheless, assuming that his statement about "the change from one day to the next" being highly random is true in both contexts... as I think about this, my systematic observations lead me to conclude that while the amount of price fluctuation within a single day might also be highly random, the maximum amount of fluctuation within a single day (or week, or month) is not—at least not when it comes to Forex exchange rates.

I'm skimming through Millard's book rather quickly because most of what I'm seeing I've either discovered or thought about on my own... rendering it not so valuable to me at this point (or even boring).

I don't quite agree with Millard's first bullet point above in that I personally like to use dynamic adaptive price range envelopes that adjust to market conditions. I feel this gives me a more accurate picture of what I might expect from the market at any given point in time and provides me with information which will enable me to better interpret what might happen in the near future. (I started off using simple moving average envelopes, but moved to adaptive envelopes as I recognized the need.)

 

[expiated]

My systematic observations lead me to conclude that while the amount of price fluctuation within a single day might also be highly random, the maximum amount of fluctuation within a single day (or week, or month) is not.

As I was saying...

How I see Fractal Market Hypothesis fitting in...

Hmmm? I don't think this book is going to add anything to what I'm already doing, and this includes what it has to say about moving averages.

My WEC Setup/Configuration:

 

[expiated]

I took profit two hours later, when GBPJPY was at 141.66 (33 pips) and GBPUSD was at 1.3017 (17 pips).

Bought GBPUSD again at 1.2955 and sold it at 1.2972.

 

[expiated]

I fully agree with Millard's view of there being a need to smooth out moving averages to eliminate traces of random movements, though the way I go about accomplishing this is very different...

My take on the centered average to which Millard refers is to generate a measure as close as possible to the zero amplitude of the applicable waves/cycles, though my channels do not necessarily have the same shapes as these lines.

I also very much agree that logic should be applied to the selection of the averages from which channels can be produced, which is why I reject the use of the standard 10-, 20-, 50-, 100-, and 200-period moving averages and opt instead to generate lines dictated by the data.

 

[expiated]

In reading what I could find online from Millard's Future Trends from Past Cycles book, I ran across an acronym I'd never seen before—FLD—which stands for Future Line of Demarcation. After watching the video below on the topic, I have to say that the indicator strikes me sort of the same way as Fibonacci ratios, that is to say, if you plot enough lines all over your chart, you are bound to find spots where something appears to match up in some way with price action, which I personally don't find to be of very much value.