Envelopes, Waves, and Cycles

[expiated]

@expiated can you elaborate on what you mean by adaptive envelopes? I’m assuming they are changing in real-time? But isn’t this the case with all technical indicators?

Supposedly I finalized my charts last July, but since I am now doing the best trading I have ever done and have pretty much deleted all the indicators, templates and profiles I’ve used in the past, hopefully no addition modifications will (ever) be necessary.

Note how when the market became volatile near the middle of the chart, the purple and pink adaptive price range envelope expanded out into the layered (gray) standard simple moving average envelopes, but by the end of the chart, the purple and pink adaptive envelope was completely inside the gray ones. In other words, the standard envelopes did not adjust to volatility (i.e., change in real time) as did the adaptive one.

And the bold black adaptive envelopes tell me EXACTLY when and where I should enter positions and/or take profit, but ONLY in conjunction with the (orange) baseline (that you cannot see on this chart because it is WAY too tiny). Bollinger bands and other channels/envelopes cannot do this for me, or if they can, I was never able to figure out how.

As long as the pale yellow green baseline was sloping upward, it would have been crazy for me to give any attention whatsoever to the S1, S2 or S3 pivot points, or to the R1, R2 or R3 pivot points whenever the baseline was sloping downward. Moreover, I have no interest in using pivot points to determine where to set my take-profit targets given that I regard them as little more than guesses and because I no longer attempt to trade based on any kind of predictions in this manner. Where to take profit is determined 100% by price action, as defined by dynamic, up-to-date, data driven price ranges and baselines in real time—not by predetermined levels.

This is especially true given the ebb and flow of price action, which lends itself to entering and exiting positions several times during a given ascent/decent to maximize returns via overlapping trade opportunities rather than sit around hoping price will eventually hit a somewhat arbitrarily set target while, in the meantime, I look on fretfully watching price bounce back and forth in and out of profit territory.

 

[expiated]

in fact aren’t envelopes, channels, bol bands just measures of magnitudes around spot price?

Out of curiosity, I slapped (black) Bollinger bands on my chart just to see what they looked like and I deleted all but the one indicator they seemed to match up with the closest. (I no longer have a Keltner channel in my indicator files.) I suppose I could make use of the Bollinger bands, but the lines are so wobbly compared to my purple and pink adaptive price range envelope!

 

[expiated]

Friday / April 3, 2020 / 10:00 AM PST

What I ended up with was a system predicated on the following three suppositions:

1. The best “atmospheric barometer” for predicting the direction in which an exchange rate might ultimately be headed is what’s known as a moving average, with a handful of key moving averages evidencing superior accuracy in this role.

I'm afraid that one simply isn't true. It's just "wrong".

2. Generally speaking, exchange rates distance themselves only so far from these moving averages before they are compelled to return to more typical deviation levels. I refer to these “maximum degrees of separation” as “statistical support/resistance levels,” which I assume are controlled by market makers and/or automated trading algorithms.

That one rests on a lack of understanding of - or allowance for - the mean reversion fallacy: briefly, the principle of "mean reversion", as many traders (perhaps unwisely) call it, lets them down on the positive-expectancy front because their logic fails to recognise that the mean itself is a moving one.

In other words, the price can be at the bottom of a channel (e.g. lower line of Keltner, or lower Bollinger band, or just "below a moving average to which it will revert": the principle is exactly the same in each case), and then "revert"/"rise" to its "normal level" ("mean-reversion principle") but actually drop further in the process, because the moving average midline is itself also moving (and that's the key concept completely ignored by the statement above), while the price is moving.

So, yes, eventually the price must revert to the midline ... and that's what many people (in practice typically and especially undercapitalised, overleveraged, relatively inexperienced spot forex traders) find attractive about it: superficially, it "looks predictive". Unfortunately, the point they're typically missing is that that reality doesn't actually predicate which way the price will have moved, overall, by the time it's actually done so!

As I pointed out to Xela two years ago (on March 18, 2018), “it’s just ‘wrong’” is a completely unsupported rebuttal, and in continuing this week’s work on finalizing my envelopes, waves and cycles based Numerical Price Prediction one-minute chart configuration, I just now added a second “layered” series of simple moving average envelopes (the “layers” are a means of noting and adjusting to the degree of market volatility) to the wider series already plotted...

Regardless of the so-called “mean reversion fallacy” mentioned by Xela, results from yesterday and today recommend to me that I begin using what Xela called “positive expectancy” as my go-to strategy at the one-minute level.

Again, the proper use of baselines completely eliminates the possibility of a trader being “tricked” into falling for such an obviously faulty line of reasoning (the so-called “mean reversion fallacy”), and as for the use of baselines being just wrong, I only found one out of all the systems I recently evaluated (which stated one moving average is just as good as any other, you just need to pick one and get used to it, though I don’t remember which author wrote this) which held to this position. Yet, the statement was again made without citing any supporting data.

From my point of view, such a statement is stupid on its face. If I might be permitted to use an argument to absurdity to illustrate my point… If an investor were to claim that he could buy stocks just as profitably using a 200,000,000-day moving average as he could using a 200-day moving average, I’d have to conclude the guy was a freaking "maroon," as Bugs Bunny used to say (I risk offending Matthew 5:22 here only because I am writing in the hypothetical). That’s like over half a million years (including weekends). The market has not even been in existence that long!

If you have documented the maximum and the typical amplitudes of key market cycles and use this information to enter and exit positions at strategic levels via the dictate of valid baselines, it appears to me that you are almost certain to make money—at least if this is the only strategy you use and God does not will otherwise...

(Note that most of these trades were executed by setting take-profit targets and walking away. Had they been monitored and managed to let profits run, some of the returns would have been three to five times as large as what is seen here.)

 

[expiated]

How Parisboy describes his approach to using Envelopes, Waves and Cycles...

I just shared this screen shot of the configuration I'm currently using, and will be curious to see if Parisboy comments on it...

It's a simplified version of the setup from Post #43.

 

[expiated]

Saturday / April 4, 2020 / 9:00 AM PST

It's a simplified version of the setup from Post #43.

I translated the configuration from Post #43 to my 5-minute chart setup and made slight modifications based on the new perspective. I then returned to my 1-minute charts and applied the adjustments from the higher time frame. The subsequent result yielded an even better looking configuration that the one directly above, so much so that I've decided to keep it private, at least for the time being.

 

[expiated]

This SentientTraderVideo Hurst Cycles clip was just brought to my attention, but as I began listening to it, I was struck by how often David Hickson said things like "probably," "I was wrong," "I could be wrong," "I wasn't expecting," "there are many FLDs," "not expecting...but it seems that has happened," "some people have suggested," etc. It just reinforces my feeling that the best way to trade is in accordance with what the market is doing in the present and not what anyone predicts it is going to do in the future.

 

[expiated]

in fact aren’t envelopes, channels, bol bands just measures of magnitudes around spot price?

On March 18th I wrote that Bollinger Bands cannot tell me when and where I should enter positions and/or take profit. However, yesterday (April 9th) it occurred to me that the parameters I set here (see image below) were the ones I should have been using to get Bollinger Bands to fit my system of trading.

 

[parisboy]

panzerman , you made a very common error . J.M. Hurst has nothing to do with the Hurst guy who produced the Hurst exponent centered on statistical persistence.

May be you are like expiated and have not the time to invest to read otherwise than superficially the papers on Envelopes, Waves and Cycles

 

[.sigma]

On March 18th I wrote that Bollinger Bands cannot tell me when and where I should enter positions and/or take profit. However, yesterday (April 9th) it occurred to me that the parameters I set here (see image below) were the ones I should have been using to get Bollinger Bands to fit my system of trading.

View attachment 224695

What was the exact tweakage of your formula that changed the bands to fit your parameterization?

 

[expiated]

What was the exact tweakage of your formula that changed the bands to fit your parameterization?

What I did was find the Bollinger bands set at the appropriate period and deviation levels to define the price range beyond which the candlesticks painted on a higher time frame chart almost never go past (see the image displayed below on the left) and then I extrapolated those settings/parameters down to lower time frame charts.

However, if you take a look at the price range envelope on the right, it’s obvious (or at least it appears obvious to my eyes) that this envelope defines the price range much better. So though I was momentarily entertained by this little study of sorts, I don’t think anything practical is likely to come of it.

By the way, here is that same envelope on the right extrapolated down to a lower time frame...