Synthesizing Tharp and Alexander

I do believe I finished synthesizing Tharp, Elder, Chande, Kroll, Brooks, etc., to whatever degree I was able. So, in the end, these are what I consider to be the distinctive features of the Dynamic Price Range Trading Strategy, an offshoot of the Numerical Price Prediction Trading System:

Rather than conceptualize price action as a series of financial transactions roughly tracking the path of one or more trend lines, the Dynamic Price Range Trading Strategy views price action as a wave forming a band of a given amplitude that flows with a directional tendency.

Though a buy-and-hold approach is no doubt the most lucrative style of trading for the vast majority of retail participants (and most certainly for long-term investors) milking the absolute maximum amount of profit out of the market is better accomplished—theoretically at least—by entering and exiting positions at the peaks and troughs located near either extreme of a wave’s amplitude.

These levels are thought of as launch pads and landing sites, which I originally defined using multiple simple moving average envelopes that were later replaced, at least for a while, by Donchian channels, but are now represented by a combination of Donchian channels and adaptive price range envelopes.

Another distinctive feature of the system is the rejection of the use of standard trend lines, such as the 10-, 20-, 50-, 100-, and 200-period simple moving averages.

Each currency pair is instead assigned an “orbit.”

Just as our planet is marked by numerous systems, currents, rotations, and forces—yet all are subject to the same overall trajectory as the earth revolves around the sun—currency pairs too gravitate toward an ultimate destination via a specific circuit revealed by their orbits.

However, such “revolutions” do not fit standard moving averages and must therefore be calculated by uniquely, painstakingly selected ones. Due to their very nature, a trader should (hypothetically) always win in the end so long as he or she is seeking to touch down—as long as his or her landing site—is in the direction of a given asset’s orbit.
 
According to Jeff Quinto, two pieces of advice for anyone who wishes to become a successful trader are...
  1. You simply must be disciplined each and every single day. A great trader does not have to worry about discipline because it is ingrained.
  2. You need to have an unbreakable set of rules that you absolutely refuse to violate (that cut your losses short and let your profits run).
 
(I discovered this in my notes from April 2014, probably an entry from a blog I began on November 5, 2011, and am struck by the fact that I still agree with everything I wrote five years ago—except that my quest did not “genuinely” end until July of this year.)

Synthesizing Martha Stokes…

Final Conclusions:

On November 5, 2011 I re-embarked on a journey I hoped would lead to profitable trading, intending to document my endeavors using this blog/website. If I might be so presumptuous, today I am unofficially declaring my quest to have come to an end roughly two-and-a-half years later—God willing. I started with trading stocks, but currently buy and sell almost exclusively in the Forex (derivatives) market. Here is what I think I have learned…

Above all else, I have come to concern myself first and foremost with where an asset is located in terms of its overall trading cycle. Second in importance, at least in most recent months, was acquiring an accurate understanding of how true professionals trade. My research led me to conclude that if I, as a retail trader, was going to be successful, my actions had to be compatible with the decisions programmed into the algorithms running high-frequency trading systems.

Most of what I might say has already been said by Martha Stokes, so allow me to lean on much of what she teaches to finish this post in as efficient a manner as possible…

In terms of how true professionals trade, the strategies used by most—their trading processes—are relatively unique. No two are exactly alike. I was therefore fortunate to have avoided using the exact same trading systems I’ve seen taught at seminars or online webinars in that, according to Ms. Stokes, this would probably have led to something she calls "the cluster order syndrome."

This can be a problem due to the current market structure, which has changed more in the past 10 years than it did in the previous 100, with one of the consequences being that many retail traders are using outdated systems without knowing it, especially as relates to the growing number of high-frequency trading firms who have, especially since 2005, been using formulas (not charts) to track order flow, with their automatic triggers going off based on order flow anomalies.

These firms are trading per millisecond, or in other words, have 1000 trades firing off every second. Since most retail traders make decisions based, at a minimum, on what happens over the course of a few seconds, there is no way they can trade against the high-frequency traders (HFT) and therefore, MUST trade in harmony with them.

Unfortunately, most retail trading systems all use the SAME strategies, popular indicators, or signals, while the HTF firms are using proprietary trading processes they protect and keep private—processes that watch the afore mentioned indicators, formulas and strategies to spot anomalies in order flow, which is another reason to avoid following the crowd.

According to Ms. Stokes, when the “cluster orders” are identified by a quantitative analysis formula, it triggers automated, electronic orders that cause whipsaw price action for the retail trader (hence, you can dismiss the rumors that market makers are sitting around manipulating your stop losses on what they would consider to be puny-sized orders, and you should recognize instead that high-frequency trading firms have replaced the market makers when it comes to providing liquidity at the retail level).

As for institutional players, they buy and sell using controlled bracketed orders (i.e., don't buy any higher than this or any lower than that), and due to the fact that their controlled orders are a type of cluster that can be detected by high-frequency trading firms (not to mention that they trade in terms of 100,000 or 500,000 share lots) they do not trade on the exchanges, but hide their actions from HTF formulas by using broker-to-broker, broker-to-institution, or institution-to-institution "dark pools" for "over-the-counter" transactions.

All of this means that, like the "big boys," the only way for a retail trader to be as successful as he or she deserves is to break free from the crowd and develop a trading process that is right for THAT particular individual—one that is simple, focused and refined.

An additional factor that motivated me to design my own system is that in order to be successful, one must be confident about what he or she is doing, and probably the surest way to acquire such confidence is to come up with a strategy you yourself developed, resulting in 100% "buy in" and unprecedented expertise (since you are the system’s originator).

The criteria used to develop any unique trading process should be based on how true professionals trade the markets, which comes down to using proprietary trading processes that include rules and parameters which constitute a high performance trading plan—and then REFUSING to deviate from that plan (though this does not necessarily rule out monitoring and adjusting the plan to accommodate changing market conditions).

This requires you to learn the basics of market structure and include in the plan your choice of a trading style or styles, a written set of rules and parameters for each given style, the right set of indicators (and no more) for each style you use, identification of what market conditions are optimal for each of those styles, maximization of efficiency in terms of market analysis, and a set of risk analysis and order execution tools to streamline risk assessment throughout the duration of a given trade, given that high-performance trading is all about speed, reliability, focus and consistency.

Additional advice…

  • Make a point to specialize, since specialists in any profession make more money than generalists.
  • Use no more than two trading styles and don't mix them.
  • Trade no more the two types of instruments. (Hubert Senters would definitely disagree with this.)
  • Use one or two entry signals—not dozens.
  • Wait for optimal picks (i.e., don’t trade every day just to have something to do).
  • Accept nothing less than a 75-80% success rate.
  • Trade using charts in multiple time frames.
  • Write down your trading plan and adhere to the rules.
Thank God, I made many of the right decisions (according to Martha Stokes) without even being aware of it.

 
Building a Trading System with a Baseline as Cornerstone
Sunday / January 12, 2020 / 12:33 a.m. PST

According to Global Prime, a baseline is a personal decision based on one’s own findings and there is no one-size-fits-all type of baseline. I strongly disagree with this, though I completely agree with their contention that "after years of back testing, you must pick the baseline that best contributes to trigger the right entry signals to ride a trend while even more importantly, warning you when to abort the trade."

In my opinion, this is not a personal decision. This is a “crunch the numbers until you have eliminated every moving average other than the one that yields the highest winning percentage.” Preference has nothing to do with it. It’s all about analyzing statistical data until you have objectively pinpointed the one variable that leads to the most reliable, verifiable results.

To paraphrase some of the text GP posted on July 9, 2019: “When looking to build a system from the ground up, a baseline can be a priceless piece of information, one that can provide a mechanical way of entering the market and keep you disciplined in terms of engaging under the right conditions.”

They state that a baseline is simply a moving average that is going to be the road map to guiding you as…[to] when a pair is classified as bullish or bearish by analyzing where the close occurs. However, I would modify this to a certain extent, and say that a baseline is simply a moving average that serves as road map guiding you as to whether an asset’s sentiment/bias is bullish or bearish by observing whether candlesticks are tending to form above or below it, and whether the line is sloping up, down, or not at all.

The author states that “over the years, I’ve come across a handful of moving averages that do an excellent job in being accurately respected. In my own experience, a daily exponential moving average the likes of the 5, 13 or 21 can act as great visual cue to build a personal perception of a market in a bullish or bearish phase.”

For a time, I too felt that “a handful of moving averages can do an excellent job in being accurately respected.” But I have since come around to adopting the view that, given enough testing, one will invariably settle on a single line that turns out to be the best.

Also, I could never say that “a daily exponential moving average the likes of the 5, 13 or 21 can act as great visual cue to build a personal perception of a market in a bullish or bearish phase,” because for me, it all depends on context. Which line is best is going to depend on whether I plan to remain in positions for days, weeks, months or years.

In this sense, then yes, there is no one-size-fits-all type of baseline. But once I am operating in a given context—I believe there is.

The author then invites visitors to the web page to “look at how a baseline alone, in this case a 13-day ema, which as a spoiler I must state would only constitute an initial component out of building one’s full system, would have fared.”

Good…indeed a baseline SHOULD constitute only one component within a full system. But then the author writes “the GBPUSD daily chart below triggered a total of 19 entries so far in 2019, with the simple rule being if price closes above the baseline we go long and when the close is below the baseline we go short.”

But from my perspective, this is a very silly rule. As long as the baseline remains in a definite downward slope, we are ONLY going short my friend. For the author, the exit signal occurs when the price closes on the opposite side of the baseline, but for me, the exit signal occurs as soon as the short-term trend pulls back in the opposite direction against the prevailing trend, which is actually a take-profit signal.

The author later states that “the ATR is an essential tool for risk management.” However, rather than use the ATR, I prefer to use typical price ranges in multiple time frames, as defined by dynamic, adaptive price range envelopes.

And whereas the author recommends using volume to separate the wheat from the chaff, I’m not really all that concerned with volume. Up is up and down is down. Volume does not change this, so I’m not at all worried about it.

As for not overlooking building confidence through back testing, it’s all about live testing for me. If I’m making money every single day, that’s all the validation I need. If up is up today, it was up yesterday too, and it will still be up tomorrow. A 5% incline from a horizontal surface today is the same as a 5% incline from a horizontal surface two thousand years ago, so why should I need to back test it?

Moreover, this is not altered by market conditions, whether trending, choppy or ranging, so expanding simulations for testing is great, but once that’s completed, changing market conditions almost becomes a nonissue.

The last thing I think I should mention in connection with this topic is that: (1) since, for me, the exit signal occurs as soon as the short-term trend pulls back in the opposite direction against the prevailing trend; and (2) given that a baseline should constitute only one component within a full system; and (3) because I use typical price ranges in multiple time frames for risk management...I should mention that the other major component of my trading involves cycle theory—the belief that cyclical forces, both long and short, drive price movements and can be used to anticipate turning points.
 
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Numerical Price Prediction: A Biblical Approach to Buying and Selling Foreign Currency Pairs Online
Copyright © 2019 by Fred Duckworth

A 2014 research study carried out by the European Central Bank using information gathered from leading European brokerage firms reportedly found that close to 70% of retail Forex traders are losing money overall while trading foreign currency pairs.

Similarly, a survey conducted by Chris Davison of Trent University in London found that, according to the self-reporting of traders responding to his questionnaire, only 18% made a large profit over the previous six months with another 19.5% making a small profit.

Approximately 63% of those that remained said they either broke even, experienced a small loss, or suffered a large one.

So why are 60 to 70% of retail traders failing to thrive in the financial markets, and less than 20% reporting that they are realizing substantial gains?

When Fred Duckworth, a career educator from Lincoln, Nebraska, settled on buying and selling foreign currency pairs as the means of making money via the Internet with the greatest potential for realizing significant financial returns on the time and effort that would be devoted to it, he chose to answer this question by adopting two biblical principles as his guide.

To unlock the secrets to success in the Forex market, Fred would test everything and hold fast to that which was good, as advised in first Thessalonians, chapter 5, verse 21.

He would also heed the lesson conveyed in the 16th chapter of Matthew, where the Messiah took the Sadducees and Pharisees to task for not being able to interpret the signs of the times. And as encountered again in the 12th chapter of Luke, where the Lord admonished a crowd for not knowing how to judge the times in which they were living.

Indeed, anyone attempting to trade foreign currency pairs without the ability to forecast what’s coming is almost guaranteed to meet with disappointment. Fred therefore made it his business to discover the Forex equivalent of a red sky, or a south wind, or clouds in the west. Signs that would enable him to see beyond the horizon to know with some degree of certainty where price would most likely find itself at some point in the not-too-distant future.

Much to his surprise, this led him to reject many of the strategies wholeheartedly endorsed by any number of trading gurus, such as Elliott waves, Fibonacci ratios, harmonic patterns and the like.

Moreover, when strategies involving moving average convergence divergence, stochastic oscillators, the relative strength index and other indicators failed to live up to their reputations, Fred had no qualms about discarding them and searching elsewhere for the "signs of the times" which, if interpreted correctly, would result in market forecasts of unusual accuracy.

As it turns out, Fred found that the absolute best "atmospheric barometer" for predicting the direction in which an exchange rate might ultimately be headed was what's known as a moving average. He therefore set about systematically evaluating all the potential moving averages one might use to forecast price action in a given time frame until he uncovered the single best measure uniquely suited for each of the respective temporal settings.

But he did not stop there. Fred went on to discover that even more powerful than following market trends by monitoring moving averages was the adoption of a viewpoint that focused instead on conceptualizing price action, not as lines, but as a spectrum of values forming cyclical waves of given magnitudes that cut swaths of area to form bands or strips with directional tendency within the broader domain.

Fred visualizes these wave-like bands of designated amplitude as rivers of data and statistical currents bounded by riverbanks and shorelines which, if used as launch pads and landing sites, enable traders to navigate the Forex market with an adeptness and agility that inevitably leads to profitable trading.

He calls this system Numerical Price Prediction in that it mimics the numerical weather prediction methodology used by meteorologist when making their prognoses. In other words, the system constructs forecast models by collecting precise, up-to-date quantitative information and then interpreting the data to make accurate predictions about future price action.

The point of view from which Numerical Price Prediction scrutinizes the market just might spark a sense of familiarity in traders acquainted with a concept known as "fractal market hypothesis," which is an alternative investment theory to another way of seeing markers referred to as "efficient market hypothesis."

The efficient market hypothesis is a theory that evolved from a 1960's Ph.D. dissertation by Eugene Fama which posits that markets are efficient, meaning the current price of any given financial instrument is always fully representative of the asset’s true value because asset prices reflect all available relevant information.

However, fractal market hypothesis, formalized in 1991 by Edgar Peters, views financial markets as fractal in the sense that they follow a cyclical and replicable pattern. Note that fractals might be defined as "fragmented geometric shapes that can be broken down into parts which replicate the shape of the whole."

So then, fractal market hypothesis believes technical analysis is possible because one can see the fractals—the replicating geometric patterns—in which prices move through time. Analysis is therefore focused on the price movements of assets based on the contention and central premise that history repeats itself.

Following this framework, Numerical Price Prediction collects and analyzes arithmetic data related to trends, average price ranges, horizontal support and resistance levels, and market structure, and then interprets this data in light of established reoccurring price patterns to inform a decision-making process based entirely on mathematical odds and statistical probability—a process that accurately projects where price is likely to be in the not-too-distant future.

So let’s see how it works…
 
expiated said:
Dr. Elder’s analogy to tides, waves and ripples is not going to work for me.
More...
Thursday / February 13, 2020 / 8:45 AM PST

A little over half a year ago, I wrote that Dr. Elder’s analogy to tides, waves and ripples was not going to work for me. Interestingly enough, having forgotten all about this, I later came to view market structure in terms of tsunami waves, and river currents, so that now, I could see relating tides to my shorelines, waves to my riverbanks, and ripples to the fluctuations tracked by my tubes, worms, and snakes.
 
expiated said:
Thursday / February 13, 2020 / 8:45 AM PST

A little over half a year ago, I wrote that Dr. Elder’s analogy to tides, waves and ripples was not going to work for me. Interestingly enough, having forgotten all about this, I later came to view market structure in terms of tsunami waves, and river currents, so that now, I could see relating tides to my shorelines, waves to my riverbanks, and ripples to the fluctuations tracked by my tubes, worms, and snakes.
More...
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Fundamentals are a great screen, expiated .
Airline stocks, which tend to be trend weak over much time; have never have trended anywhere near as good as tech trends/stocks, tech ETFs. 200 day moving average is a good dividing line between up-trending bull markets[waves] + bear markets[waves].Same way with a{- 20% correction= bear market}
200 day moving average has been proven for many years; not a prediction.:caution::caution:.:cool::cool::cool::cool::cool::cool::cool::cool::cool:
 
murray t turtle said:
Fundamentals are a great screen, expiated .
More...
I know of traders like Jarratt Davis who were total failures until turning to fundamentals, which led to great success. But for me personally, I feel price action itself tells me all I need to know, without the danger of my interpreting things (i.e., expectations based on fundamentals) incorrectly, though I do like to check the news to find out why the market is doing what it is doing.

I'm definitely not an investor, but I no longer call myself a speculator either, as I once did, because all my decisions are based on what I see the market doing at the moment, not what I think in it is going to do in the future.
 
expiated said:
I know of traders like Jarratt Davis who were total failures until turning to fundamentals, which led to great success. But for me personally, I feel price action itself tells me all I need to know, without the danger of my interpreting things (i.e., expectations based on fundamentals) incorrectly, though I do like to check the news to find out why the market is doing what it is doing.

I'm definitely not an investor, but I no longer call myself a speculator either, as I once did, because all my decisions are based on what I see the market doing at the moment, not what I think in it is going to do in the future.
More...
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I also found Dr Van Tharp books very helpful . As far as fundamentals, among my favorite way to use them is; the simple long term ETFs tech trends tend to be so strong.......1st quarter, 4th quarter even more so.[What happens in stocks/ETFs in May, SEPT sells + such/LOL doesn't change my long term historic ]comment...........................................................................]:cool::cool:,:cool::cool::cool::cool::cool::cool:
 
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