ANYONE WHO WILL TRY TO MAKE MONEY SOLELY BY TRADING AND SUCH SYSTEMS OF TRANSACTIONS SHOULD BE AWARE THAT THERE IS A VERY POWERFUL AND ALMOST UNBEATABLE COLLECTIVE WILL SO AS NOT TO SUCCEED! NO-ONE WANTS PEOPLE TO QUITE THEIR JOBS AND MAKE MONEY THIS WAY AS IT IS SOMEHOW PARASITIC. IT IS IN SOME SENSE UNETHICAL AS A PRACTICE ENFORCEABLE TO THE MAJORITY. AND OF COURSE NEITHER THOSE WHO HAVE LARGE CAPITAL WANT THAT A MAJORITY WILL MAKE MONEY THIS WAY, AS THEY WOULD PREFER THAT THEY WORK IN THEIR COMPANIES FOR THEM. ONLY IN SPECIAL CONTINGENCIES AND SITUATIONS SOMETHING LIKE THIS WOULD BE ETHICAL. AND IN PARTICULAR A HIGHER MORALITY THAT WOULD SUPPORT SUCH A PRACTICE, WOULD BE PROVABLE WITH COLLECTIVELY BENEVOLENT DEEDS FROM A POSSIBLE SURPLUS OF SUCH MONEY!
ABOUT THE PSYCHOLOGY OF ORGANIZED THINKING (By Andrew Carnegie)
ABOUT THE PSYCHOLOGY OF ORGANIZED THINKING (By Andrew Carnegie)
Here is what Andrew Carnegie says about organized thinking in the book( "The wisdom of Andrew Carnegie as told to Napoleon Hill " ):
The benefits of organized thinking are so numerous that it is difficult to decide where to begin or where to stop, but these are some of the more obvious advantages of this habit:
1) Organized thinking enables one to become the master of his own mind. This he accomplishes by training his faculty of will to control his emotions, turning them on and off as the occasion may require.
2) Organized thinking forces one to work with definiteness of purpose , thereby enabling him to set up a habit that prohibits procrastination. Organized thinking is based on the controlled formation of thinking habits that are also related with emotional and action habits. From a certain perspective Self-discipline and organized thinking are synonymous!
3) It develops the habit of working and cooperating in groups with other people with definite plans instead of blundering ahead by the hit or miss method.
4) It enables one to stimulate the subconscious mind to greater action and more ready response, in the attainment of desired ends, instead of allowing the subconscious mind to respond to the "tramp" thoughts and destructive influences of one.s environment.
5) It develops self-reliance
6) It gives one the benefit of the knowledge , experience and education of others, through the medium of Alliance of Group Mind, which is an important medium to coordinate group will and also invoke the Collective Infinite Intelligence, which has been used by all able thinkers. Organized thinking attracts energies and power that is channeled in the organized activities, while otherwise it would be a dangerous "mental explosive".
7) It enables one to convert his efforts on to greater material resources , larger income and wealth and by capitalization eventually to financial freedom. Because organized mind can produce more than one that is not organized.
8) It develops the habit of accurate analysis, through which one may find the solution to his problems, instead of worrying over them.
9) It aids in maintaining sound health, because mind power that is organized and directed towards the attainment of both private and social worthy and desirable good goals, it attracts and involves positive emotions and has no time to be wasted in connection with self-pity or imaginary ailments. Idle minds for a long time, tend to develop ailing bodies.
10) Last but not least, organized thinking , as it functions intensely but also knows how to periodically relax and seas activities , leads to peace of mind and that form of permanent happiness which is known only to the man that can keep his mind fully occupied.
There is a thin line that separates business and investments as gambling that destroys the human spirit from business and investments as applications of scientific statistical knowledge under general principles that protects and reinforces the human spirit. This book contributes to see the difference and put the investors from the side of protected human spirit.
Probably the best instantaneous rewarding "why?", of manual trading is the joy and satisfaction in perceiving, among the situations of higher or lower uncertainty, with news , fundamentals and technical analysis and sound scientific statistical inference , of what will happen in the global economy and markets, so as to plan and conduct a strategy that lets you know, on occasions, through data information , mathematical, and economic principles, what will happen with acceptable low uncertainty. In this way the local goal of the game is to maximize the success rate of the (groups of) trades. And probably the best cause for this why as both local and global goal of the game of trading is so as to reduce economic inequalities in the world.
Probably the most important psychological virtue of a trader, is an anti-Machiavellian virtue: his disregard and contempt of fear of future failure, of fear of temporary failure and memory of past failure. The success is founded on a successful system of beliefs about you your tactics and the market behavior as inherited from a social and natural structure.
There are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading.
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend , with sample size half the period of a dominating cycle.The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes. (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of top minority of those who determine the markets.
In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT.
VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.
1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts.
2)The statistical models of time series are more robust , when they apply to the entity MARKET as a whole and are better as non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks. Linear time series models or derived like ARMA, ARIMA, SARIMA etc are destined to fail for particular patterns like those described in the post 32, because the true equations are non-linear and in addition with random, time varying coefficients that derive the random emergence of the 4 basic observable patterns (see post 32 ). In addition the standard application of the time series by the researchers, focuses on stationary time series after they extract a stable exponential trend, while in the reality the main concern should be the random path of the average value of the prices that shapes the patterns and is neither constant exponential trend neither zero ! The "statistical momentum conservation" might then be nothing else than an hypothesis that the random and time varying 1st order in time steps , partial correlation of the prices , is always positive. This can be easily tested statistically. E.g. in the cross exchange rate EURUSD but also in the indexes, the partial correlation of the current to the previous time step bar is measured indeed positive, in almost all time frames, except at the daily time frame, where the cyclic behavior prevails. In the daily time frame the partial correlation is negative , which means if one day is up the next day it is more probable that it is down. In addition, the cyclic behavior is even stronger in pairs of two days with negative partial correlation (two days up two days down etc). In searching for random cycles or periodicity, of say a single index or even instrument , the valid statistical practice requires the creation of a sample of paths over a time interval of a whole period, by collecting the pieces of the path at different periods as the market move as far as the searched periodicity is concerned may be considered as moving independently at independent periods.
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price.
4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression, cluster analysis , goal programming etc are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory.
5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it.
6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.
The less hypothesis we use in applying statistical hypotheses, the better. That is why non-parametric statistics is better. An exception is our knowledge of the application of the Pareto distribution in various aspects of the market which we is parametric.
That is why we avoid applying very complicated with many hypotheses and time consuming to estimate models to forecast the markets, but we prefer to respond to the market, by measuring only in a valid statistical way, the average position of the price, and the channel around it, the velocity (trend, 1st derivative) and acceleration-deceleration (2nd derivative) of the prices.
THE VALID AND COLLECTIVELY ACCEPTED SCIENTIFIC STATISTICAL METHODS GIVE A COLLECTIVELY SUPPORTED NON-BETRAYING AND SUSTAINABLE WAY OF BELIEVING, THINKING FEELING AND ACTING, IN OTHER WORDS A VALID AND NON-BETRAYING CREATIVE PATH, SO THAT NO MATTER WHAT THE MARKET DOES AND HOW IT BEHAVES , WE ALWAYS HAVE A VALID WAY TO INTERACT AND RESPOND TO IT WITHOUT INVALIDATING OUR PRACTICE AND SO AS TO SUCCEED IN THE LONG RUN IN THE REQUIRED GOALS.
The statistical quantities from the front-office in trading need to me measured are
1) the price position in the channel around the average, 2) the velocity (1st derivative) and
3) the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval.
4) The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , the trend, reversal, and
5) (Eliot) waves but also
6) the spikes.
7) It is required also an in advance in the past measurement and discovery of the basic stable cycles in the markets (see post 5)
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
8) An in advanced in the past measurement and discovery that trends duration and length, and volumes follow the Pareto distribution (see post 11,25 etc).
In addition for the back-office of trading we need to measure the
9) probability of success of trade based on the past history of trades, to apply the Kelly criterion, and also
10) the average rate of increase of the trading funds and
11) its variance again from the past history of trading.
There are many who complain that the indicators have lag, and prefer not to use indicators at all, but only the prices. This is rather stupid! The indicators when are measuring a statistical quantity MUST have lag, because we are not interested for the price at the now only, but in a short-term past horizon too, which defines the statistical momentum which is statically conserved. The science of statistics is the best fr the moment one can have , from the collective scientific thinking, and we must trust , respect it and be confident and humble when applying it. When we are applying the statistical mode of thinking for the markets, we never run serious dangers of being "burned"and "busted" in our deductions, as statistics claims everything only up to some probability, or probability inequality and interval.
THE OVER ALL STATISTICAL BEHAVIOR OF PRICE PATTERNS
We notice that although the price patterns are essentially 4 categories in details there are 6 distinct statistical patterns of the random or statistical position, velocity and acceleration of the prices (see post 32).
A class of stochastic processes can be defined as the behavior of the markets based on these 6 basic patterns P1, P2, P3, P4, P5, P5, P7. The Pi i=1,2,3,4,5,6,7 are essentially random statistical patterns with random and variable parameters of size duration, and relative analogies that define them. E.g. we may have a Pareto distribution of the duration and price height of the patterns because of the inequalities in the markets. The 7th pattern P7 of stationary behavior we may call intermittency pattern. We may then assume a class of Markov processes with random and variable transition probabilities, where each random type of pattern occurs and then a next one occurs. Bu the transition probabilities are not arbitrary! E.g. spikes occur usually at the begging (initial spikes) and the end (terminal spikes) of trends, up and down trends with stationary channels in between them, shape cycles, that in the average of stable period, and some times of fixed beginning and end.
The probability that a type of pattern occurs changes also according to the time scale. In 2, 5 or more years annual bars time frames, the non-waving trend pattern is dominating, while say in 5-minutes bars time-frame flat patterns are dominating.
We notice that, by utilizing only pattern P3, of non-waving trend, and intermittency P7 we may derive all, other patterns with appropriate patterns of transition probabilities of the P3! I have coded a simulator of such a class of stochastic processes, superimposed on many time frames called Multi-time scales Rainbow Walks stochastic processes.
This is the overall behavior of patterns of the markets, and there are some invariant properties like
1) Cyclic behavior as alternation with up and down trend patterns with flat channels at the bottoms and tops
2) Statistical momentum conservation (see post 10) where the 1st time-step partial correlation of a price is almost always positive,
3) A Pareto distribution of the duration and height of the patterns, due to the inequalities of the enterprises in the economic system (see post 10, 25, 57,63 )
REMARK
Such high rates of return (e.g. say for one month) have been recorded by account statements, posted in this post below , and are so beyond doubt. But they require a mental , attention and emotional concentration from the part of the trader, which is very high, and not feasible to continue for very longer. In addition this effort of intraday manual trading fills the body with rather negative toxic energy which is not good for the health. This is a natural limitation of very high rates of returns in manual trading, which requires human-subjective pattern recognition that a machine cannot do. The simpler the method, the longer it can be sustained, but also the lower the rate of return. That is why machine trading has in general lower rate of return compared to human trading.
Manual trading is based on the human charts-pattern recognition (indicators ,support-resistance trend-lines etc) which in its generality cannot be done with coded computerised pattern recognition.
A proof that even "simple distorted" patterns cannot be recognized by any know for the moment computerised pattern recognition is the captcha distorted words that we have to type in various sites to prove that we are real human users . (See the very interesting video by the inventor Louis Von Ahn of this in http://www.ted.com/talks/luis_von_ahn_massive_scale_online_collaboration.html).
So here when I am talking about human manual trading, I mean a trading system with an algorithm (rigid protocol) but which in some steps involves the human observation of charts, and therefore human pattern recognition. It is the only non-computerised discretion that I assume. No other discretion, relevant to news or of improvising without fixed trading algorithm.
Therefore it is not easy to have automated backtests. Actually it is possible to create special expert-advisors with buttons buy-sell etc on the charts, and to backtest by manually trading in the MT4 tester, but it is not an easy task, and the manual trading backtest may last for many hours or weeks, if you want say a 5 years backtest.
Therefore another smarter way must be used to create the intellectual and emotional certainty equivalent to the backtest of an Expert-Advisor. The smart way is to use mathematics and some special specifications while trading that I list below, and that Bill Williams in his books (part of them) somehow calls the "Holy Grail" of manual trading:
THE TOP 6 FACTORS OF ATTENTION IN MANUAL TRADING
1) NEVER USE ALL YOUR FUNDS FOR TRADING. DIVIDE THEM TO TRADING AND NON-TRADING FUNDS BY THE RATIO f=R/a^2 RULE (see below for this ratio or in posts 3,13,33). THE DIVISION OF FUNDS AT EACH PERIOD IS ADJUSTED TO CONFORM WITH THIS PERCENTAGE RATIO. NEVER WITHDRAW PER PERIOD FROM THE NON-TRADING FUNDS MORE THAN HALF OF THE AVERAGE PROFITS OF THE TRADING FUNDS PER PERIOD. This division and adjustment of the funds has been applied for many years in buy and hold investments by professor Michael LeBoeuf.
2) THE ONLY CERTAINTY, WHILE TRADING IS ALSO OUR FIRST PRIORITY: WE MAY DETERMINE THAT OUR LOSSES AT EACH POSITION WILL NOT BE LARGER THAN A SPECIFIED PERCENTAGE DEFINED BY THE KELLY CRITERION (see below or posts 3, 13, 33)
3) FOCUS ON MACROSCOPIC INSTRUMENTS LIKE STOCK INDEXES WITH PERMANENT STRONG LONG TERM TREND, OR AT LEAST STRONG AND CLEAR SEASONAL TREND, even if you want to trade at short time scales. (e.g. of the American Economy which is young and strong and indexes like Dow Jones, SnP500, Nasdaq etc).The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes.
4) FOR VERY LOW RISK AT OPENING POSITIONS ON THE PREVIOUS INDEXES WITH PERMANENT STRONG TREND, OPEN BETTING UPWARDS, AT TERMINAL SPIKES AGAINST THE TREND. This is the Bill Williams technique.
5) READ THE NEWS AND FINANCIAL STATEMENTS BUT THE ASSESSMENT OF THE PATTERNS OF THE MARKET REQUIRES THAT IT IS DONE IN MANY SUCCESSIVE TIME FRAMES CHARTS. This is a basic recommendation by Alexander Elder, which, by now, it is a common knowledge to traders
6) BE FLEXIBLE IN RESPONDING TO THE MARKET AND DO NOT HESITATE TO FOLLOW PROMPTLY ANY UNEXPECTED CHANGES OF THE TREND OF THE MARKET, ALWAYS WITH GRADUAL BUILD OF THE POSITION. (This is called by Bill Williams his psychological Holy Grail in trading)
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
THE TOP 6 FACTORS OF ATTENTION IN MANUAL TRADING
1) NEVER USE ALL YOUR FUNDS FOR TRADING. DIVIDE THEM TO TRADING AND NON-TRADING FUNDS BY THE RATIO f=R/a^2 RULE (see below for this ratio or in posts 3,13,33). THE DIVISION OF FUNDS AT EACH PERIOD IS ADJUSTED TO CONFORM WITH THIS PERCENTAGE RATIO. NEVER WITHDRAW PER PERIOD FROM THE NON-TRADING FUNDS MORE THAN HALF OF THE AVERAGE PROFITS OF THE TRADING FUNDS PER PERIOD. This division and adjustment of the funds has been applied for many years in buy and hold investments by professor Michael LeBoeuf.
2) THE ONLY CERTAINTY, WHILE TRADING IS ALSO OUR FIRST PRIORITY: WE MAY DETERMINE THAT OUR LOSSES AT EACH POSITION WILL NOT BE LARGER THAN A SPECIFIED PERCENTAGE DEFINED BY THE KELLY CRITERION (see below or posts 3, 13, 33)
3) FOCUS ON MACROSCOPIC INSTRUMENTS LIKE STOCK INDEXES WITH PERMANENT STRONG LONG TERM TREND, OR AT LEAST STRONG AND CLEAR SEASONAL TREND, even if you want to trade at short time scales. (e.g. of the American Economy which is young and strong and indexes like Dow Jones, SnP500, Nasdaq etc).The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes.
4) FOR VERY LOW RISK AT OPENING POSITIONS ON THE PREVIOUS INDEXES WITH PERMANENT STRONG TREND, OPEN BETTING UPWARDS, AT TERMINAL SPIKES AGAINST THE TREND. This is the Bill Williams technique.
5) READ THE NEWS AND FINANCIAL STATEMENTS BUT THE ASSESSMENT OF THE PATTERNS OF THE MARKET REQUIRES THAT IT IS DONE IN MANY SUCCESSIVE TIME FRAMES CHARTS. This is a basic recommendation by Alexander Elder, which, by now, it is a common knowledge to traders
6) BE FLEXIBLE IN RESPONDING TO THE MARKET AND DO NOT HESITATE TO FOLLOW PROMPTLY ANY UNEXPECTED CHANGES OF THE TREND OF THE MARKET, ALWAYS WITH GRADUAL BUILD OF THE POSITION. (This is called by Bill Williams his psychological Holy Grail in trading)
1) We chose a favorable market prices "initiating setup" to open positions which means that the probability to anticipate correctly is greater than 50%. So we are not all the time with open positions but rather rarely with open positions. The grey-zone of uncertain market is much larger than 1/3 of the time. In fact the assumption that the probability of forecasting that it will go up or down is larger than 50% is not necessary. What is adequate is that at the "initiating setup" the market will go either up or down with unknown probabilities but will go on with a relatively constant trend for sufficient long time (momentum conservation). In other words let the market decide the direction and the "departure" time, and you "get on" its momentum. (E.g. such "initiating setups" are on the last exhaustion-spike of a long-time, trend or break-out Lighnings or Blows price-spikes after very good and uniform trends ["take-off corridor principle"], where the market decides that it will go up or down for a considerable time length. Bill Williams' trading was based on such spike-setups [looking for terminal spikes] or flat-ranging market setups [Darvas support-resistance levels for initial spikes]. Other such "initiating setups" are the end of (wave) triangles, either contracting or expanding.)
2) We start with the smallest available position size, when a favorable market prices "setup" appears, so as to be able to correct or reverse the position if the initial assessment was wrong. And if it is right, to increase it gradually with pyramiding (forward till the TP, if TP exists, and backwards till the SL) and also apply trailing. Pyramiding with trailing increases also the final reward-to-risk-ratio discussed in 3.
3) We always put the tightest stop-loss SL on a particular price level, so that if the price goes further away from it, the initial forecasting is no longer valid, and it may even reverse in direction.
We also put a take-profit TP (if there is a TP in the system,otherwise only trailing) greater or equal to SL , so that the reward-to-risk ratio is larger than 1 : TP/SL greater than 1. If there is no TP in the system, but only trailing we make sure that Average_trade_profit>>Average_trade_loss
4) If, when the price goes further way from the stop-loss level, the forecasting reverses, we do insist to open position in opposite direction. This creates a correlation among trades (the losing first and probably the winning second) which is a kind of recovery mode, which increases dramatically the probability of success of the setup (say from 55% to 85% or more). In other words:Let the market do what ever it wants, never oppose it. But you can also do what ever you want, and in particular you know how to insist successfully more than the market, so that you and the market finally agree.
5) Usually we risk about 1% of the funds for trading for each individual position, and about 6% for all positions simultaneously open. In special occasions (e.g. during strong spikes) we may increase the above risk percentages (e.g. 5%-25%) as a policy of depending the position size, on the intensity of the accelerating trend of lower noise. In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage s of funds risked in the trade should be about s=p1-p2. The stop-loss as in 3), after the risk percentage, determines the position size, and therefore the actual leverage. But the 1% and 6% maybe considered very restrictive, emotionally based and arbitrary. The true and scientific correct rule, is to be able estimate the kelly optimal risk per trade, and apply it, even if it is 5%,10% or 15%!
5) Usually we risk about 1% of the funds for trading for each individual position, and about 6% for all positions simultaneously open. In special occasions (e.g. during strong spikes) we may increase the above risk percentages (e.g. 5%-25%) as a policy of depending the position size, on the intensity of the accelerating trend of lower noise. In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage s of funds risked in the trade should be about s=p1-p2. The stop-loss as in 3), after the risk percentage, determines the position size, and therefore the actual leverage. But the 1% and 6% maybe considered very restrictive, emotionally based and arbitrary. The true and scientific correct rule, is to be able estimate the kelly optimal risk per trade, and apply it, even if it is 5%,10% or 15%!
It can be proved mathematically that a consistent application of 1)-5) leads to a systematic winning trading, and is equivalent to a long-term backtest of a successful trading. Of course the assumptions about the laws of momentum conservation of the markets is required as stated in this Blog (see post 9, 10 etc) . The assumption also is that at each trade that we apply the 1)-5) the probability of correct forecasting is p larger than 50% after following consistently the market till it has finally decided. Therefore the probability for each trade to result in to the take-profit TP level is p larger than 50%, while at the stop-loss (where the forecasting is no longer valid, and is usually a Darvas price level) 1-p less than 50%. The average profit of the trade (without pyramiding and trailing) is p*TP-(1-p)*SL which is larger than 0.
Simple mathematical probability arguments shows that the average profit of each trade is positive, even if only 1) and 3),5) are applied. So we can easily apply the simulator described in the post 43 to compute the maximum draw down and standard deviation of the average rate of return. The application of 2) , 4) does increase significantly this positive profit.
Here is another very powerful and successful trading method:
The CORRECTIVE ESCALATION , trading method (a method for two-sided not one-sided trading).
In the discussion below we must not conceive the pyramiding and escalation as a greedy tactic, but rather a precocious tactic. Because till the end of pyramiding we never exceed the maximum allowed percentage of exposure of the funds , at the worse case scenario of losing. Instead the pyramiding or escalation is a gradual build of the position, where we approach the a maximum allowed percentage of loss of funds in the worse case scenario, gradually as we become more confident that the trend goes on, and while at the same time with a trailing it will close if the trends stops.
According to this method it is not so important the pattern recognition method and the pattern recognition in other time frames, or the focus on the 3rd wave in the current time frame, as it is the corrective adjustment and escalation of the position. Less than 20% of the success is in the initial high probability forecasting based on charts, technical analysis, indicators, and pattern recognition, and more than 80% of the success is on the corrective escalation technique after the Kelly criterion. We may start at a support-resistance level, (which may be the boundary of the channel of a continuation pattern, or its final mid level line ) and we open position at the most probably direction of little size only. In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend, at the faster two time frames (spikes included here as 1st and/or 2nd vector-wave). If we do not predict well and the prices go to the opposite direction we increase and open in the opposite direction , and we repeat it so as to have always a net position size towards where the prices are going. We do not use stop-loss as the role of the stop loss is the level where we open the opposite position. When the market breaks out finally to a direction we escalate (pyramid) and increase further the position. Typical sequences of position sizes are (1,-2,3, 5,4,3,2) or (-1,2,-3,5,4,3,2 ) We close by trailing or to the next support resistance level. Or we close at the predicted (by Babson median) end of a wave-vector between the 1st and 3rd (in Elliot counting).The starting leverage is usually 1 and it increases to 2, 3 etc. While the percentages f of risked funds, start with 1% and in the average is is safe if it is at the 5%-6%. In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to b, then the percentage f of funds risked in the trade should be about f=(b*p1-p2)/b. This is the Kelly theorem (see http://en.wikipedia.org/wiki/Kelly_criterion ). Nevertheless we prefer to risk in the average only 5%-10%, of what the Kelly formula suggests, that is about 2%, and the reason is that after simulations (see post 43), the paths with 2% exposure, are much more smooth and psychologically bearable in their volatility and draw-downs, compared to the exposure suggested by the Kelly formula! Let us say that with pattern recognition we have a success rate of 65% and the reward-to-risk ratio is 70% , then by the Kelly formula we must not exceed risking (0.7*0.65-0.35)/0.7=15% If it was a pattern recognition with 70% success rate (something very difficult) then the Kelly exposure would be 39% ! With the CORRECTIVE ESCALATION let us say that we start say with risking 1%, and then we correct in the opposite direction with 2% and then we re-correct in the initial direction with 5% (in total 1%-2%+5%=4% in the correct direction or -1%+2%-3%+5%=3%),then we continue pyramiding with 4%, then 3%, then 2% and no more. Thus in total 4%+4%+3%+2%=13% thus less than the Kelly exposure.Such sequences of trades are called excursions, and permit the definition of hierarchical sampling, where while at the level of trades the success rate may be say 55% at the sample layer of excursions it may be 75% or higher. With the CORRECTIVE ESCALATION we have the chance, even if the probability of an up or down move to be 50% to increase the success rate of the trades, to 70% - 75% with the above sequence (given of course the average momentum conservation).
Although we start with an assumed probability of success rate of the individual trades close to 50%, and we start with exposure (that is % of risked funds from 1% ) , after some trades (preferably about 30) we have a sample to measure it!. If e.g. the sampled measured success rate of the individual trades is 65% , (and e.g. a binary options broker gives us reward to risk ratio 70%, or our particular non-binary options trading with stop loss and take profit gives us reward-to-risk ratio 70%) then the Kelly criterion formula calculates for us an optimal exposure of (0.7*0.65-0.35)/0.7=15%. This would be the upper limit of exposure for us , starting from 1% and escalating to 15%. In other words the success rate for the Kelly criterion is practically measurable(from the history of trading of the back-office and not from the charts of the front office)! This is very important for the corrective escalation method! And at the beginning till the 30 trades, we have not a reliable method to measure it, this is another reason , why we start with very small and safe exposure of 1%. Also at the beginning of an excursion of trades, we may have not assessed well the market, while after some tardes we know it better, and thus we may calculate the success rate. This also filters out some weird situations of markets, where they are not well predictable and the low success rate at the excursion , suggest to us to abandon trading for that particular time, and come back again another time.
In more detail the corrective escalation improvisational interpolation, deals with the patterns of the markets as follows.
1) FOR FLAT CHANNELS , above the middle channel line (or also a support resistance level) we sell, and bellow the middle channel line we buy. The channel may be a Bollinger Bands of two standard deviations and of number of periods half the period of the closest active price cycle in the time scale we trade. We prefer non-decreasing width channels, for this method. The size also of buying increases as we get away from the middle line (according to a rule we decide) This is the adjustment part (or moyen) of the corrective interpolation. We consult charts at two more slower time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting. We may have open positions simultaneously in opposite direction if e.g. the channel break out. The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes.
2) FOR NON-FLAT BUT SKEW CHANNELS we apply the Elliot waves. In the Elliot sub-waves of a trending channel we escalate (or pyramid) the volumes of the positions so that in the average per sub-wave the position increases according the numbers 5,4,3,2,1 ,for the first, second, third, fourth and fifth Eliot sub-wave correspondingly. Opening positions at break-outs of a channel is good only for non-waving trends if we can predict that. We consult charts at two more slower time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting.This has been applied essentially by Bill Williams in his older books. We may have open positions simultaneously in opposite direction if e.g. the channel turns from a trend to a flat continuation pattern.
3) FOR SPIKES and during the spike , we only escalate , we do not adjust , with the numbers 5,4,3,2,1 . And after the spike and during the reaction of the spike, in direction according to if the spike is initial or terminal. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting , in other words if the spike is terminal or initial. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
4) FOR LONG TERM STABLE TRENDS. When in the market there is a long term stable trend, a very good starting point to open a position is at a terminal spike opposite to the trend . We open at the opposite direction of the terminal spike, thus in the direction of the long term trend. Due to the terminal spike, we may exceptionally put a very tight stop loss. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting of the trend.This is essentially the basic way of the Bill Williams trading in his more recent books. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
5)THE ONLY CERTAINTY IN TRADING WITH MARGIN. FIRST PRIORITY IS TO BOUND LOSSES WITH THE KELLY CRITERION. At each state of the multiple positions usually there is an expected move in some direction of the market. It is of primary priority that we have set opposite direction orders ,playing the role of stop loss, of doubling each of the open positions, at some critical level that signifies move of the market in the opposite of the expected direction . In this way at a worst case scenario, we have bound the losses , according to the size of the total position , and be sure that are never larger in the percentage from the accepted limits, that are e.g. 1%-6%, or as the Kelly criterion defines. It is the only certainty that we can have in trading.
6) THE CLOSING OF THE EXCURSION OF POSITIONS. We may apply all-group-take profit or partial-group take profit of the positions, while opening at the opposite direction as stop-loss, according to the pattern action. In other words the first time all the open positions gaining or losing have in total a predetermined profit, we close all positions.
7) ONE SIDED DIRECTION CASE. If we want to apply the corrective escalation improvisational interpolation method to one sided, up only trading on stock indexes , at short time scale (e.g. 5 minutes or hourly bars) we start the excursion at up ward only cases. But if the short time scale market moves surprises us by turning from trend to stationary channel or from stationary channel to downward trend etc, the instead of closing the position by a stop loss, we correct it with opposite direction positions as above , till we close with a group-positions total profit of the excursion of positions.
8) CONSTANT RATIO WITHDRAWAL RULE . We may divide the funds to 2/3 of them that we trade, and 1/3 that we do not trade. The exact percentage should be defined by the ratio (f=R/a^2) (that we mention in posts 13, 1nd 33 from the book "Stochastic Differential equations" by B. K. Oksendal (Springer editions) page 223, example 11.5) where R is the average per period rate o return of the trading on the used funds, measured on a sample of periods and a^2 is the variance of this rate of return on this sample of periods. E.g. of the rate of return is 10% per period and the standard deviation a of it is 34%, then the percentage f is 2/3. Each period we re-adjust the total funds so that this ratio f applies as division of the funds. As the sample of measurement of this ratio is not small, usually it remains rather constant. We withdraw e.g. from the 1/3 non-trading funds ,each period never more than half of the average profits per period of the other 2/3 of the funds that are traded. The current withdrawal rule that e.g. has been applied for many years by professor Michael LeBoeuf in his investments (see https://en.wikipedia.org/wiki/Michael_LeBoeuf and http://www.nightingale.com/beat-time-money-trap-mp3.html ))
The general psychological feeling of the corrective escalated improvisational interpolation, is that it is the simplicity with which we may deal with the chaos of the randomness of the short scale stationary markets. We must not have an attitude that we "possess" the market, because it will spoil our psychology. We must keep a psychological distance from the market , but also have a keen awareness of its observable moves. In the successful conduction, it is required a correct balance between changing MENTAL IMAGES of a changing forecasting, FEELINGS and beliefs from what we see in the market and our positions and our ability for faster response by positions, than the moves of the markets, and successful ACTION of adjusting and opening and closing positions. And It is important to feel that we are able to adjust faster our positions than the speed with which the market moves. And it is important to be aware that what we feel and believe during such fast and short time scale trading is not enforced without our consent by a possible discrepancy of our choice of some open position and direction that the market moves. In fact in this method of trading it holds that we FOLLOW THE MARKET rather than we predict the market. Because we continuously correct our position. Eventually because there is something that may be called "statistical conservation of the momentum of the moves of the market", we end up being successful. We may very often start against the market, but what ever the market does we respond continuously and in a rather improvisational way, till we close following the market. And although we are never very exact at forecasting the market or level where we open positions , we are almost always, and in more than 80% of the excursions, gaining!
There is also a famous rule which says "be content with the middle third and do not expect to open and close at the very bottom and top". For the trends this usually means entering at the "Blow" move and exiting at deceleration.
For a scientific mind , here are the 3 sources of certainty in going on for a successful trading.There are three mathematical-economic principles on which systematic long run successful trading is based:
1) There are hidden almost periodicities on the volumes and volatility of the prices. The most characteristic are , the daily cycle , the monthly cycles and the annual (or quarter) cycle. (Law of cycles or rhythms, and law of action see posts 9, 10 )
2) The duration of the trends, is usually a multiple of the characteristic half-periods as above, and together with the size of the volumes, the size of price changes, etc they also follow approximately the distribution of the capitalization sizes of enterprises, in other words a Pareto or a Power distribution. The logarithm of such a distribution would be a straight line! (This holds for the currencies too, as the "packets" sizes ,to exchange currencies, are defined by the enterprises, and executed by the banks.) (Law of attraction and inequality, see posts 9,10)
3) The demand-supply functions under the three coupling modes a) Domination b) Competition c) Cooperation, and as result of this the 6 basic price patterns of (1) spike, (2) trend, and (3) flat channel, (1+2+3=6) emerge, placed on poles or support-resistance levels. The price waves created by the demand-supply follow of course the laws of periodicity and universal attraction or economic inequality as far as period and amplitude is concerned. (Low of polarity or duality, see posts 9,22, 32)
Among these three , mathematical statistical laws, the Low of polarity (and from this the placement of the poles or support-resistance) seems to be the most important for designing a statistically successful trading system.
In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend (spikes included here as 1st and/or 2nd vector-wave).
If a uniform randomness would rule the markets (efficient markets assumption) , the probability of long duration trends would be much less that what it is observed, and their distribution would be a geometric or exponential, and not Pareto or power. Thus the law of "universal attraction" in enterprise formation makes also the markets non-efficient and more predictable that what the academic world believes.
A professional trader extracts certainty and perseverance from the above 3 Macro-Fundamental facts and laws , and not from the details of Technical Analysis. The professional trader, knows that it is not him that makes the profits; it is Science that is becoming rich. The science of planetary prosperity.
Even if a market as a stochastic process, would be a sequence of spikes alternating with flat continuation channels (that is a market without trends) , with 50% probability of the next spike up or down (a random walk of spikes) , still an external trading of the breakouts of the flat intermediate channels would be a very profitable trading. The same with systems like the gratido, below.
In the same way, let us assume that market, as a stochastic process, was a random walk within parallel reflection zones of support-resistance (darvas zones) , such that at each parallel zone support-resistance there is 80% probability of reflection and 20% probability of break-through to the adjacent zone. We may call it parallel support-resistance reflection levels random walk. Even in such a market the above trading methods and in particular the gratido system, would be a consistent profitable trading.
1) We utilize 1-minute bars charts, and we set the orders whenever we have 1-2 hours free time which is not be interupted. We utilize a Bollinger bundle of 30-minutes period and 2-standard deviations width. We may utilize also a zig-zag (e.g. based on the standard deviations, and of period of 5 minutes). We may also add a force index (by Alexander Elder) which utilizes volumes too, and where we can see the divergence, of period 2 minutes.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar . To conform we consult the force indicator so see a reversal or divergence. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 5 minutes bars (equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index or oscillators to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize basically multiple time-frames pattern recognition. But if we want to be even more selective of the trades, we trade only the indexes of the stocks and only on one direction that of the seasonal (6 months-3 years) trend , plus we consult the Bollinger bundle of hourly bars with n=12 and also the daily bars with n=10, to get a triple of signed phases φi i=1,2,3 together with the minutes Bollinger bundle , that helps to order the cases by favorability.
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode). We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. We prefer to continue another day, and time, as we may be more successful. An alternative way to define the exposure is the next. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
6) We do apply pyramiding backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55. We avoid correcting-pyramiding more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements.
7) Because of the ultra-simple indicators template (2-3 indicators only) and rules, we can persevere the trading practice for a long time, and we attribute all failures not to any wrong pattern recognition but to unavoidable randomness. In this way psychologically it is a an attractive practice. Human based pattern recognition of the appropriateness of the forecasting is essential here, and it could not be programmed to an expert-advisor or robot! The 98% of the decision should be based on observable pattern recognition rather than non-observable. But when trading at the direction of the channel, we may do so after choosing times of calendar news and announcements, that suggest the emergence of a strong trend, no matter what direction (e.g. from here http://www.forexfactory.com/calendar.php ). As it is binary options the exit rule is not our choice. And for the entrance rule it is better to be on a direction that it has already showed to emerge. taking 1/3 of the total movement is absolutely adequate for our purposes. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years , on daily bars which is about 300% annually. If we want to transfer it ,as an upper bound of the rate of return, to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 1-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/1minutes)/12=squareroot(1440)/12=37.94/12=3.16 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 1 minutes bars, with 2 hours per day we make only at most 3.16 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself! Only if we measure the success rate and standard deviation on excursions of trades rather than on trades (hierarchical sampling) the value of the success rate increases and the the standard deviation of the rate of return of excursions decreases and the trading thus become psychologically acceptable.
We may also define an additive score for the above factors a), b), c),d),g) and classify opportunities and instruments according to their score.
The above manual trading protocol, has a simplification that gives the Darvas trading system at the daily periodicity as described in the post 42.
This Gratido or Golden Fleece system is based of course on the three mathematical-statistical laws of the markets of a) Rhythms b) Attraction c) Polarity (see above).
A general remark about news: News sometimes create a surprise movement to the previous based on the technical analysis. But once the new direction is created from the calendar news-event, we may proceed to apply the technical analysis, and thus utilize scheduled calendar-news as a good filter to trade only in special occasions.
ULTRA SIMPLE VERSION FOR BINARY OPTIONS ON DAILY BARS
Some of its advantages and in a multiple way optimal features are
Here is another very powerful and successful trading method:
The CORRECTIVE ESCALATION , trading method (a method for two-sided not one-sided trading).
In the discussion below we must not conceive the pyramiding and escalation as a greedy tactic, but rather a precocious tactic. Because till the end of pyramiding we never exceed the maximum allowed percentage of exposure of the funds , at the worse case scenario of losing. Instead the pyramiding or escalation is a gradual build of the position, where we approach the a maximum allowed percentage of loss of funds in the worse case scenario, gradually as we become more confident that the trend goes on, and while at the same time with a trailing it will close if the trends stops.
According to this method it is not so important the pattern recognition method and the pattern recognition in other time frames, or the focus on the 3rd wave in the current time frame, as it is the corrective adjustment and escalation of the position. Less than 20% of the success is in the initial high probability forecasting based on charts, technical analysis, indicators, and pattern recognition, and more than 80% of the success is on the corrective escalation technique after the Kelly criterion. We may start at a support-resistance level, (which may be the boundary of the channel of a continuation pattern, or its final mid level line ) and we open position at the most probably direction of little size only. In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend, at the faster two time frames (spikes included here as 1st and/or 2nd vector-wave). If we do not predict well and the prices go to the opposite direction we increase and open in the opposite direction , and we repeat it so as to have always a net position size towards where the prices are going. We do not use stop-loss as the role of the stop loss is the level where we open the opposite position. When the market breaks out finally to a direction we escalate (pyramid) and increase further the position. Typical sequences of position sizes are (1,-2,3, 5,4,3,2) or (-1,2,-3,5,4,3,2 ) We close by trailing or to the next support resistance level. Or we close at the predicted (by Babson median) end of a wave-vector between the 1st and 3rd (in Elliot counting).The starting leverage is usually 1 and it increases to 2, 3 etc. While the percentages f of risked funds, start with 1% and in the average is is safe if it is at the 5%-6%. In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to b, then the percentage f of funds risked in the trade should be about f=(b*p1-p2)/b. This is the Kelly theorem (see http://en.wikipedia.org/wiki/Kelly_criterion ). Nevertheless we prefer to risk in the average only 5%-10%, of what the Kelly formula suggests, that is about 2%, and the reason is that after simulations (see post 43), the paths with 2% exposure, are much more smooth and psychologically bearable in their volatility and draw-downs, compared to the exposure suggested by the Kelly formula! Let us say that with pattern recognition we have a success rate of 65% and the reward-to-risk ratio is 70% , then by the Kelly formula we must not exceed risking (0.7*0.65-0.35)/0.7=15% If it was a pattern recognition with 70% success rate (something very difficult) then the Kelly exposure would be 39% ! With the CORRECTIVE ESCALATION let us say that we start say with risking 1%, and then we correct in the opposite direction with 2% and then we re-correct in the initial direction with 5% (in total 1%-2%+5%=4% in the correct direction or -1%+2%-3%+5%=3%),then we continue pyramiding with 4%, then 3%, then 2% and no more. Thus in total 4%+4%+3%+2%=13% thus less than the Kelly exposure.Such sequences of trades are called excursions, and permit the definition of hierarchical sampling, where while at the level of trades the success rate may be say 55% at the sample layer of excursions it may be 75% or higher. With the CORRECTIVE ESCALATION we have the chance, even if the probability of an up or down move to be 50% to increase the success rate of the trades, to 70% - 75% with the above sequence (given of course the average momentum conservation).
Although we start with an assumed probability of success rate of the individual trades close to 50%, and we start with exposure (that is % of risked funds from 1% ) , after some trades (preferably about 30) we have a sample to measure it!. If e.g. the sampled measured success rate of the individual trades is 65% , (and e.g. a binary options broker gives us reward to risk ratio 70%, or our particular non-binary options trading with stop loss and take profit gives us reward-to-risk ratio 70%) then the Kelly criterion formula calculates for us an optimal exposure of (0.7*0.65-0.35)/0.7=15%. This would be the upper limit of exposure for us , starting from 1% and escalating to 15%. In other words the success rate for the Kelly criterion is practically measurable(from the history of trading of the back-office and not from the charts of the front office)! This is very important for the corrective escalation method! And at the beginning till the 30 trades, we have not a reliable method to measure it, this is another reason , why we start with very small and safe exposure of 1%. Also at the beginning of an excursion of trades, we may have not assessed well the market, while after some tardes we know it better, and thus we may calculate the success rate. This also filters out some weird situations of markets, where they are not well predictable and the low success rate at the excursion , suggest to us to abandon trading for that particular time, and come back again another time.
In more detail the corrective escalation improvisational interpolation, deals with the patterns of the markets as follows.
1) FOR FLAT CHANNELS , above the middle channel line (or also a support resistance level) we sell, and bellow the middle channel line we buy. The channel may be a Bollinger Bands of two standard deviations and of number of periods half the period of the closest active price cycle in the time scale we trade. We prefer non-decreasing width channels, for this method. The size also of buying increases as we get away from the middle line (according to a rule we decide) This is the adjustment part (or moyen) of the corrective interpolation. We consult charts at two more slower time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting. We may have open positions simultaneously in opposite direction if e.g. the channel break out. The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes.
2) FOR NON-FLAT BUT SKEW CHANNELS we apply the Elliot waves. In the Elliot sub-waves of a trending channel we escalate (or pyramid) the volumes of the positions so that in the average per sub-wave the position increases according the numbers 5,4,3,2,1 ,for the first, second, third, fourth and fifth Eliot sub-wave correspondingly. Opening positions at break-outs of a channel is good only for non-waving trends if we can predict that. We consult charts at two more slower time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting.This has been applied essentially by Bill Williams in his older books. We may have open positions simultaneously in opposite direction if e.g. the channel turns from a trend to a flat continuation pattern.
3) FOR SPIKES and during the spike , we only escalate , we do not adjust , with the numbers 5,4,3,2,1 . And after the spike and during the reaction of the spike, in direction according to if the spike is initial or terminal. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting , in other words if the spike is terminal or initial. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
4) FOR LONG TERM STABLE TRENDS. When in the market there is a long term stable trend, a very good starting point to open a position is at a terminal spike opposite to the trend . We open at the opposite direction of the terminal spike, thus in the direction of the long term trend. Due to the terminal spike, we may exceptionally put a very tight stop loss. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting of the trend.This is essentially the basic way of the Bill Williams trading in his more recent books. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
5)THE ONLY CERTAINTY IN TRADING WITH MARGIN. FIRST PRIORITY IS TO BOUND LOSSES WITH THE KELLY CRITERION. At each state of the multiple positions usually there is an expected move in some direction of the market. It is of primary priority that we have set opposite direction orders ,playing the role of stop loss, of doubling each of the open positions, at some critical level that signifies move of the market in the opposite of the expected direction . In this way at a worst case scenario, we have bound the losses , according to the size of the total position , and be sure that are never larger in the percentage from the accepted limits, that are e.g. 1%-6%, or as the Kelly criterion defines. It is the only certainty that we can have in trading.
6) THE CLOSING OF THE EXCURSION OF POSITIONS. We may apply all-group-take profit or partial-group take profit of the positions, while opening at the opposite direction as stop-loss, according to the pattern action. In other words the first time all the open positions gaining or losing have in total a predetermined profit, we close all positions.
7) ONE SIDED DIRECTION CASE. If we want to apply the corrective escalation improvisational interpolation method to one sided, up only trading on stock indexes , at short time scale (e.g. 5 minutes or hourly bars) we start the excursion at up ward only cases. But if the short time scale market moves surprises us by turning from trend to stationary channel or from stationary channel to downward trend etc, the instead of closing the position by a stop loss, we correct it with opposite direction positions as above , till we close with a group-positions total profit of the excursion of positions.
8) CONSTANT RATIO WITHDRAWAL RULE . We may divide the funds to 2/3 of them that we trade, and 1/3 that we do not trade. The exact percentage should be defined by the ratio (f=R/a^2) (that we mention in posts 13, 1nd 33 from the book "Stochastic Differential equations" by B. K. Oksendal (Springer editions) page 223, example 11.5) where R is the average per period rate o return of the trading on the used funds, measured on a sample of periods and a^2 is the variance of this rate of return on this sample of periods. E.g. of the rate of return is 10% per period and the standard deviation a of it is 34%, then the percentage f is 2/3. Each period we re-adjust the total funds so that this ratio f applies as division of the funds. As the sample of measurement of this ratio is not small, usually it remains rather constant. We withdraw e.g. from the 1/3 non-trading funds ,each period never more than half of the average profits per period of the other 2/3 of the funds that are traded. The current withdrawal rule that e.g. has been applied for many years by professor Michael LeBoeuf in his investments (see https://en.wikipedia.org/wiki/Michael_LeBoeuf and http://www.nightingale.com/beat-time-money-trap-mp3.html ))
The general psychological feeling of the corrective escalated improvisational interpolation, is that it is the simplicity with which we may deal with the chaos of the randomness of the short scale stationary markets. We must not have an attitude that we "possess" the market, because it will spoil our psychology. We must keep a psychological distance from the market , but also have a keen awareness of its observable moves. In the successful conduction, it is required a correct balance between changing MENTAL IMAGES of a changing forecasting, FEELINGS and beliefs from what we see in the market and our positions and our ability for faster response by positions, than the moves of the markets, and successful ACTION of adjusting and opening and closing positions. And It is important to feel that we are able to adjust faster our positions than the speed with which the market moves. And it is important to be aware that what we feel and believe during such fast and short time scale trading is not enforced without our consent by a possible discrepancy of our choice of some open position and direction that the market moves. In fact in this method of trading it holds that we FOLLOW THE MARKET rather than we predict the market. Because we continuously correct our position. Eventually because there is something that may be called "statistical conservation of the momentum of the moves of the market", we end up being successful. We may very often start against the market, but what ever the market does we respond continuously and in a rather improvisational way, till we close following the market. And although we are never very exact at forecasting the market or level where we open positions , we are almost always, and in more than 80% of the excursions, gaining!
The application of the above specifications of manual trading, can be done in a excellent way by purchasing options. The fact that options are obligatory wrongly valued with the assumption of a neutral and trendless market (50% probability up 50% probability down) , and the fact that the final value of the options is asymmetric relative to where the underlying will end at expiration, give systematic favourable opportunities to make a better successful trading compared to spot-trading of the underlying.. The risk is always limited to the cost of the option, and even if prices go lower than the strike price of the options the position does not close, as is the case of spot positions with stop loss. In other words, when utilizing purchases of options for the above protocol, no stop loss is necessary. By far manual trading with reward/risk>1 can be done better with option purchases that with spot market. The disadvantage with options here is the decaying time value, but it can be handled (by as close as is wise expirations, and preference to the in-the-money options), and is a lesser disadvantage than the advantage of lower risk and no need of stop loss.
Options purchasing compared to simple spot or underlying trading has the next optimal advantage: In spot trading it is optimal to pyramid, but this has extra transaction costs. If options are utilised then the pyramiding is automatic, from the very-definition of the option fair price, that increases or decreases the price of option, as the price of the underlying goes away or not from the strike price, exactly as in a kind of pyramiding of the underlying. The disadvantage of time-value decay of option purchases is covered by the above advantage. Thus in over all it is more optimal to conduct a seasonal trading of the underlying, with option purchasing instead.
Options purchasing compared to simple spot or underlying trading has the next optimal advantage: In spot trading it is optimal to pyramid, but this has extra transaction costs. If options are utilised then the pyramiding is automatic, from the very-definition of the option fair price, that increases or decreases the price of option, as the price of the underlying goes away or not from the strike price, exactly as in a kind of pyramiding of the underlying. The disadvantage of time-value decay of option purchases is covered by the above advantage. Thus in over all it is more optimal to conduct a seasonal trading of the underlying, with option purchasing instead.
There is also a famous rule which says "be content with the middle third and do not expect to open and close at the very bottom and top". For the trends this usually means entering at the "Blow" move and exiting at deceleration.
For a scientific mind , here are the 3 sources of certainty in going on for a successful trading.There are three mathematical-economic principles on which systematic long run successful trading is based:
1) There are hidden almost periodicities on the volumes and volatility of the prices. The most characteristic are , the daily cycle , the monthly cycles and the annual (or quarter) cycle. (Law of cycles or rhythms, and law of action see posts 9, 10 )
2) The duration of the trends, is usually a multiple of the characteristic half-periods as above, and together with the size of the volumes, the size of price changes, etc they also follow approximately the distribution of the capitalization sizes of enterprises, in other words a Pareto or a Power distribution. The logarithm of such a distribution would be a straight line! (This holds for the currencies too, as the "packets" sizes ,to exchange currencies, are defined by the enterprises, and executed by the banks.) (Law of attraction and inequality, see posts 9,10)
3) The demand-supply functions under the three coupling modes a) Domination b) Competition c) Cooperation, and as result of this the 6 basic price patterns of (1) spike, (2) trend, and (3) flat channel, (1+2+3=6) emerge, placed on poles or support-resistance levels. The price waves created by the demand-supply follow of course the laws of periodicity and universal attraction or economic inequality as far as period and amplitude is concerned. (Low of polarity or duality, see posts 9,22, 32)
Among these three , mathematical statistical laws, the Low of polarity (and from this the placement of the poles or support-resistance) seems to be the most important for designing a statistically successful trading system.
In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend (spikes included here as 1st and/or 2nd vector-wave).
If a uniform randomness would rule the markets (efficient markets assumption) , the probability of long duration trends would be much less that what it is observed, and their distribution would be a geometric or exponential, and not Pareto or power. Thus the law of "universal attraction" in enterprise formation makes also the markets non-efficient and more predictable that what the academic world believes.
A professional trader extracts certainty and perseverance from the above 3 Macro-Fundamental facts and laws , and not from the details of Technical Analysis. The professional trader, knows that it is not him that makes the profits; it is Science that is becoming rich. The science of planetary prosperity.
Even if a market as a stochastic process, would be a sequence of spikes alternating with flat continuation channels (that is a market without trends) , with 50% probability of the next spike up or down (a random walk of spikes) , still an external trading of the breakouts of the flat intermediate channels would be a very profitable trading. The same with systems like the gratido, below.
In the same way, let us assume that market, as a stochastic process, was a random walk within parallel reflection zones of support-resistance (darvas zones) , such that at each parallel zone support-resistance there is 80% probability of reflection and 20% probability of break-through to the adjacent zone. We may call it parallel support-resistance reflection levels random walk. Even in such a market the above trading methods and in particular the gratido system, would be a consistent profitable trading.
By involving the 7 main factors of front-office in trading:
a) Support-Resistance lines and channel (which may require to involve the W. Babson media lines recursive forecasting, and channel width-zones or width-phases rules, or the Darvas parallel support-resistance lines).
b) Deceleration (or divergence, and the case of Darvas lines, the skewness of the formed triangle)
c) Volumes (especially as periodicity in the 3 sessions in forex. Or e.g. with the indicator On-Balance-volumes which is an excelent smoothing, the deceleration is also easy to read. For daily periodicity, volumes periodicity is also defined by the session-less time zone, and the start-end of the sessions) Low volumes means also low volatility and is not good for external trading of channels but it may be good or internal trading of channels. And vice-versa.
d) Correlation of start-end of trends with spikes (or Breakouts).
e) Pyramiding (as Pareto trend-duration optimality)
f) Adjusting (or anti-pyramiding, as optimal position size adjustments relative to random fluctuations, during constant trends. See posts 3 and 33. In optimal adjusting we increase the position when losing and it decrease when gaining, due to random fluctuations. It is best aplied to the equity curve which in a successful system has it own constant trend , but it can apply also to the spot market during constant trends.) Adjusting has another meaning too: Higher probability of success of the trade requires higher position size, and vice-versa.
g) The focal frequency of periodicity and one background periodicity (periodicity of the volatility. All relevant parameters of the indicators of the focal periodicity, are powers of 2
[=(1/2)^n)] submultiples of the focal period. The same with the background period. We may take as focal the month=20days (star spin), and as background the half-year=120days. We could as well take focal the day=24 hours (planet spin) and as background the month=20days, but this would require automation almost 100%. Furthermore we could utilize as focal the day=24 hours (planet spin) with double background the month=20days (star spin), and as 2nd background the half-year=120days. I call it the tri-angular system.).
g) The focal frequency of periodicity and one background periodicity (periodicity of the volatility. All relevant parameters of the indicators of the focal periodicity, are powers of 2
[=(1/2)^n)] submultiples of the focal period. The same with the background period. We may take as focal the month=20days (star spin), and as background the half-year=120days. We could as well take focal the day=24 hours (planet spin) and as background the month=20days, but this would require automation almost 100%. Furthermore we could utilize as focal the day=24 hours (planet spin) with double background the month=20days (star spin), and as 2nd background the half-year=120days. I call it the tri-angular system.).
It is hardly possible not to have a very successful trading with the above rules.
The rest of the back-office factors are the exposure and leverage rule, and the reinvestment and capitalization growth rules.
ULTRA SIMPLE VERSION OF MANUAL TRADING FOR BINARY OPTIONS ON MINUTES BARS
Remark. As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar . To conform we consult the force indicator so see a reversal or divergence. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 5 minutes bars (equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index or oscillators to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize basically multiple time-frames pattern recognition. But if we want to be even more selective of the trades, we trade only the indexes of the stocks and only on one direction that of the seasonal (6 months-3 years) trend , plus we consult the Bollinger bundle of hourly bars with n=12 and also the daily bars with n=10, to get a triple of signed phases φi i=1,2,3 together with the minutes Bollinger bundle , that helps to order the cases by favorability.
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode). We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. We prefer to continue another day, and time, as we may be more successful. An alternative way to define the exposure is the next. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
6) We do apply pyramiding backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55. We avoid correcting-pyramiding more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements.
7) Because of the ultra-simple indicators template (2-3 indicators only) and rules, we can persevere the trading practice for a long time, and we attribute all failures not to any wrong pattern recognition but to unavoidable randomness. In this way psychologically it is a an attractive practice. Human based pattern recognition of the appropriateness of the forecasting is essential here, and it could not be programmed to an expert-advisor or robot! The 98% of the decision should be based on observable pattern recognition rather than non-observable. But when trading at the direction of the channel, we may do so after choosing times of calendar news and announcements, that suggest the emergence of a strong trend, no matter what direction (e.g. from here http://www.forexfactory.com/calendar.php ). As it is binary options the exit rule is not our choice. And for the entrance rule it is better to be on a direction that it has already showed to emerge. taking 1/3 of the total movement is absolutely adequate for our purposes. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years , on daily bars which is about 300% annually. If we want to transfer it ,as an upper bound of the rate of return, to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 1-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/1minutes)/12=squareroot(1440)/12=37.94/12=3.16 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 1 minutes bars, with 2 hours per day we make only at most 3.16 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself! Only if we measure the success rate and standard deviation on excursions of trades rather than on trades (hierarchical sampling) the value of the success rate increases and the the standard deviation of the rate of return of excursions decreases and the trading thus become psychologically acceptable.
We may also define an additive score for the above factors a), b), c),d),g) and classify opportunities and instruments according to their score.
A system protocol to trade trend-patterns, based on the previous factors that creates the "initiating setup" would be
1) We check that the focal trend just started and it is the same direction with the background trend(s).
2) We make sure that there is still acceleration and deceleration has not started. We confirm it also with the volumes, to be sure that it is a genuine acceleration.
3) We look also for an initiating spike to confirm the trend start
4) We pyramid each time by opening more positions, near the support or channel backward zone. Because adjustment and pyramiding are superimposed, pyramiding is diminishing as the trend proceeds (e.g. like the numbers 5,4,3,2,1.Obviously the size 5 corresponds to the "Blow" Elliot subwave)
5) We adjust optimally during the trend by partially closing near the resistance , or channel forward zone. We may trail also as rule of optimal adjustment of the position size relative to the random fluctuations.
6) If deceleration appears, then the partial closing of 5) becomes a complete closing of all positions.
In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend (spikes included here as 1st and/or 2nd vector-wave).
In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend (spikes included here as 1st and/or 2nd vector-wave).
To apply the above protocol not as volatility long but as volatility short mode, to the flat waves, and stationarity-ranging patterns also , we do not pyramid and adjust at each channel boundary (in other words along the trend or expedition), but during the movement that crosses transversally the channel (in other words along the subwave or excursion), and we may do it up only or down only or up and down, according the background periodicity, three states (up, down, neutral)
The above manual trading protocol, has a simplification that gives the Darvas trading system at the daily periodicity as described in the post 42.
There are indicators for each of the above factors.
a) For the Support-Resistance lines it can be used, an indicator that gives a zig-zag with s/r lines , and/or pitchfork lines, or the Dochian channel for horizontal support-resistance lines.We may also utilize a statistical histogram to define horizontal support-resistance. And we may also use the extrapolator channel indicator, so that its 5-line channel gives non-horizontal s/r . The extrapolator gives mainly the trend-channels, while the Dochian gives best the horizontal flat channels. We may use also, the Ketler channel (simple or hull moving average) for curvilinear , non-horizontal support-resistance lines.
b) For the deceleration we may use the On-Balance-Volume indicator, or the Awesome oscillator of B. Williams, or the MACD, plus the pitchfork lines as in a). We may also use the extrapolator indicator which is a sinusoidal function fit , thus it gives deceleration-acceleration.
c) For the volumes we may utilize an volumes-oscillator if we are interested for sessional periodicity, or the On-balance-volume indicator if we are interested for he deceleration or divergence.
d) For the spikes, a custom oscillator for spikes, or the spike-runs indicator or the aligator of B. Williams.
e) For the frequency of periodicity, we may focus on the star-spin (monthly) periodicity, with daily time frame, that is once per day monitoring. Thus the Ketler channel or Dochian channel as in a) should be at 20 days,or we may utilize the aligator of B. Williams which is at the periodicity of star-spin.. For background periodicity, the planet-orbital, that is 6 months or 3 months harmonic of the annual periodicity. We may use a EMA 50/100 days cross, or a bollinger bundle at 80 days and 2s.Or we may use faster helioseismological frequencies, at minutes time frame.
Probably the best instantaneous rewarding "why?", of manual trading is the joy and satisfaction in perceiving, among the situations of higher or lower uncertainty, with news , fundamental and technical analysis, of what will happen in the global economy and markets, so as to plan and conduct a strategy that lets you know, on occasions, through data information , mathematical and economic principles, what will happen with acceptable low uncertainty.In this way the game accumulates volatility.And probably the best cause for this accumulation of volatility is so as to reduce economic inequalities in the world.
Probably the most important psychological virtue of a trader, is an anti-Machiavellian virtue: his disregard and contempt of fear of future failure, of fear of temporary failure and memory of past failure. The success is founded on a successful system of beliefs about you and the markets.
Finally we describe here probably the best manual system that is the epitome of 15 years of research and practice, based also on the succesful trading practice of Bill Williams, Alexander Elder, and Chuck Hughes, and is also the result of divine inspiration. This system is is an opportunity for some traders to make miracles. It has a performance between 10% and up to 80% monthly. I call it GRATIDO DAILY or GOLDEN FLEECE.
For years I was thinking that, the right approach to a successful trading, was to find a combination of carefully selected or invented indicators, that would define the anticipated up or down movement of the markets. But although this is the widespread approach, it is not the best. The best approach is the pattern recognition of the 3 basic patterns, spikes, trends and flat channels. And this also involves the statistical fact, that the main state of the market is neither up neither down but a neutral state of a flat channel. Once the pattern recognition has been done, then the other details, like stop loss, trailing size, pyramiding spacing, position size, etc are more direct and easier to define. Now the pattern recognition may involve many indicators, but is neither one indicator, neither an additive score of indicators. Of course the pattern recognition is done best in a manual human based way.
It is important to realize that the Pareto rule of 20%-80% applies to the pattern recognition and opportunities on the basic 3 patterns
"More than 80% of the profits are obtained from the trading of less than 20% of the opportunities among the 4-price patterns"
In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend (spikes included here as 1st and/or 2nd vector-wave).
And obviously the best profits are obtained from the rare spikes , and the 3rd wave trading rule, (see post 32) which is a local rule to apply the Pareto 20%-80% rule of filtering opportunities . The global filtering rule is of course the filtering based on many background time-frames and patterns on them. The way to do is to search among the accepted background patterns at what time-frame the pattern is most clear and strong, and considered it as tonal time-frame. Obviously half only of the opportunities at the focal time frame are accepted, those that agree in direction timing and phase with the tonal pattern. But we may also rank all acceptable opportunities of the focal time-frame of interest according to if or not the intermediate patterns from the total till the focal are favorably agreeing in direction, phase and timing. In this way much less of half the opportunities of the patterns of the focal time-frame are selected to trade. In this way by filtering locally with the 3rd wave rule and globally with the nested time frames after the tonal time-frame, the success-rate increases from say 52% to 80% or more!
A tree of questions to make a pattern recognition and make trading decisions is the next.
1) Is it a) a flat-channel? (constant width or diminishing, expanding width)
b) a trending waving channel?
c) a spike?
2) If it is a spike, is initial or terminal? Internal or external? (if terminal / internal we prepare for re-action trading, if initial/external we prepare for 3rd wave continuation)
3) If it is a trending waving-channel, are we on the start of its 3rd wave? Or at the start of its (2n+1)-wave? (for internal one-sided trading)
4) If it is a flat-channel, are we on the start of its 3rd wave? (for internal trading). If not is the channel diminishing or expanding leading to a new trend? (for external trading).
5) Check the acceptable background time-frames T1, T2, T3 (etc) to find a tonal pattern there, then rank the T0 (focal) time frame pattern in relation to the direction/phase/timing suggested by the tonal pattern and intermediate background patterns. As tonal pattern we search of course and prefer a spike or 3rd wave, as they have high predictability and low risk.
The global multi-time-frame filtering may let hidden probabilities to be better predicted on the patterns of the focal time-frame , especially if we have found as tonal pattern a spike or 3rd wave, like the next
1) If a trending channel will more probably decelerate and stop trending, or even reverse.
2) If a flat channel will more probably breakout up or down.
3) If a spike more probably will react to a counter-spike or continue.
After answering the above 5 questions, we then chose among the next four modes of trading
1) Trade only spikes, posterior with the 3rd-wave rule
2) Trade only with the 3rd-wave rule (this includes trend-channels, continuation flat-channels and reversal patterns).
3) Trade internally with the nth-wave for flat channels, or one-sided with (2n+1) wave for trending channels
4) Trade all the above and also externally, at the end of continuation flat-channels
It is important to realize that the Pareto rule of 20%-80% applies to the pattern recognition and opportunities on the basic 3 patterns
"More than 80% of the profits are obtained from the trading of less than 20% of the opportunities among the 4-price patterns"
In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend (spikes included here as 1st and/or 2nd vector-wave).
And obviously the best profits are obtained from the rare spikes , and the 3rd wave trading rule, (see post 32) which is a local rule to apply the Pareto 20%-80% rule of filtering opportunities . The global filtering rule is of course the filtering based on many background time-frames and patterns on them. The way to do is to search among the accepted background patterns at what time-frame the pattern is most clear and strong, and considered it as tonal time-frame. Obviously half only of the opportunities at the focal time frame are accepted, those that agree in direction timing and phase with the tonal pattern. But we may also rank all acceptable opportunities of the focal time-frame of interest according to if or not the intermediate patterns from the total till the focal are favorably agreeing in direction, phase and timing. In this way much less of half the opportunities of the patterns of the focal time-frame are selected to trade. In this way by filtering locally with the 3rd wave rule and globally with the nested time frames after the tonal time-frame, the success-rate increases from say 52% to 80% or more!
A tree of questions to make a pattern recognition and make trading decisions is the next.
1) Is it a) a flat-channel? (constant width or diminishing, expanding width)
b) a trending waving channel?
c) a spike?
2) If it is a spike, is initial or terminal? Internal or external? (if terminal / internal we prepare for re-action trading, if initial/external we prepare for 3rd wave continuation)
3) If it is a trending waving-channel, are we on the start of its 3rd wave? Or at the start of its (2n+1)-wave? (for internal one-sided trading)
4) If it is a flat-channel, are we on the start of its 3rd wave? (for internal trading). If not is the channel diminishing or expanding leading to a new trend? (for external trading).
5) Check the acceptable background time-frames T1, T2, T3 (etc) to find a tonal pattern there, then rank the T0 (focal) time frame pattern in relation to the direction/phase/timing suggested by the tonal pattern and intermediate background patterns. As tonal pattern we search of course and prefer a spike or 3rd wave, as they have high predictability and low risk.
The global multi-time-frame filtering may let hidden probabilities to be better predicted on the patterns of the focal time-frame , especially if we have found as tonal pattern a spike or 3rd wave, like the next
1) If a trending channel will more probably decelerate and stop trending, or even reverse.
2) If a flat channel will more probably breakout up or down.
3) If a spike more probably will react to a counter-spike or continue.
After answering the above 5 questions, we then chose among the next four modes of trading
1) Trade only spikes, posterior with the 3rd-wave rule
2) Trade only with the 3rd-wave rule (this includes trend-channels, continuation flat-channels and reversal patterns).
3) Trade internally with the nth-wave for flat channels, or one-sided with (2n+1) wave for trending channels
4) Trade all the above and also externally, at the end of continuation flat-channels
The choice of any of the above modes, which are in order from lower risk to higher risk, is also very much depending on having found among the background time-frames a tonal pattern which is spike or 3rd wave, as this has high predictability and low risk.
A standard way to apply the pattern-trading, is to choose a simple indicator, at the focal time frame which gives many signals, called the beat of the trading, but then execute only those signals that are in congruence with the pattern rules both at the focal time frame but also to the background time frames, and in particular the tonal-background time frame. The beat of the trading usually depicts the inner waves of flat or trending channels at the focal time frame. This will create the necessary intermittency and Pareto 20-80 rule on the opportunities. For example in the daily time frame or the 1-minute bars time frame we may choose the cross of moving average of 2 bars and 5 bars, or the force-index of 2 bars, or the Bollinger bands of 5 bars, and then select signals according to the daily, weekly and monthly time frame.
A standard way to apply the pattern-trading, is to choose a simple indicator, at the focal time frame which gives many signals, called the beat of the trading, but then execute only those signals that are in congruence with the pattern rules both at the focal time frame but also to the background time frames, and in particular the tonal-background time frame. The beat of the trading usually depicts the inner waves of flat or trending channels at the focal time frame. This will create the necessary intermittency and Pareto 20-80 rule on the opportunities. For example in the daily time frame or the 1-minute bars time frame we may choose the cross of moving average of 2 bars and 5 bars, or the force-index of 2 bars, or the Bollinger bands of 5 bars, and then select signals according to the daily, weekly and monthly time frame.
Probably the best instantaneous rewarding "why?", of manual trading is the joy and satisfaction in perceiving, among the situations of higher or lower uncertainty, with news , fundamental and technical analysis, of what will happen in the global economy and markets, so as to plan and conduct a strategy that lets you know, on occasions, through data information , mathematical and economic principles, what will happen with acceptable low uncertainty.In this way the game accumulates volatility.And probably the best cause for this accumulation of volatility is so as to reduce economic inequalities in the world.
Probably the most important psychological virtue of a trader, is an anti-Machiavellian virtue: his disregard and contempt of fear of future failure, of fear of temporary failure and memory of past failure. The success is founded on a successful system of beliefs about you and the markets.
This Gratido or Golden Fleece system is based of course on the three mathematical-statistical laws of the markets of a) Rhythms b) Attraction c) Polarity (see above).
A general remark about news: News sometimes create a surprise movement to the previous based on the technical analysis. But once the new direction is created from the calendar news-event, we may proceed to apply the technical analysis, and thus utilize scheduled calendar-news as a good filter to trade only in special occasions.
ULTRA SIMPLE VERSION FOR BINARY OPTIONS ON DAILY BARS
1) We utilize daily bars charts, and we set once per day (e.g. in the night or in the morning) the orders. We utilize a Bollinger bundle of 20-days period and 2-standard deviations width. We may utilize also a zig-zag (e.g. based on the standard deviations, and of period half of the Bollinger, that is of 10 days). We may also add a force index (by Alexander Elder) which utilizes volumes to, and where we can see the divergence, of period 2 days, and/or a MACD of 20 days or the Ausom Oscillator of Bill Williams, for waves inside the channel.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar. To confirm we consult the force index to see a reversal or divergence. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 3-5-10 bars (about half the period of the Bollinger Bundle or equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index and oscillator to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize basically multiple time-frames pattern recognition. But if we want to be even more selective of the trades, we trade only the indexes of the stocks and only on one direction that of the season (6 months-3 years) trend , plus we consult the Bollinger bundle of weekly bars with n=12 and also the monthly bars with n=6, to get a triple of signed phases φi i=1,2,3 together with the minutes Bollinger bundle , that helps to order the cases by favorability.
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode).We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. \we prefer to continue another day, and time, as we may be more successful. An alternative way to define the exposure is the next. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3, 13, 33 )). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. (we mention it in posts 13, and 33 from the book "Stochastic Differential equations" by B. K. Oksendal (Springer editions) page 223, example 11.5) We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds. The current withdrawal rule that e.g. has been applied for many years by professor Michael LeBoeuf in his investments (see https://en.wikipedia.org/wiki/Michael_LeBoeuf and http://www.nightingale.com/beat-time-money-trap-mp3.html ))
6) We do apply pyramiding backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. We avoid correcting-pyramiding more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
7)Because of the ultra-simple indicators template (2-3 indicators only) and rules, we can persevere the trading practice for a long time, and we attribute all failures not to any wrong pattern recognition but to unavoidable randomness. In this way psychologically it is a an attractive practice.Human based pattern recognition of the appropriateness of the forecasting is essential here, and it could not be programmed to an expert-advisor or robot! The 98% of the decision should be based on observable pattern recognition rather than non-observable. But when trading at the direction of the channel, we may do so after choosing times of calendar news and announcements, that suggest the emergence of a strong trend, no matter what direction. As it is binary options the exit rule is not our choice. And for the entrance rule it is better to be on a direction that it has already showed to emerge. taking 1/3 of the total movement is absolutely adequate for our purposes. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years, on daily bars which is about 300% annually. If we want to transfer it ,as an upper bound of the rate of return, to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 5-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/5minutes)/12=squareroot(288)/12=16.97/12=1.41 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 5 minutes bars, with 2 hours per day we make only at most 1.41 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself! Only if we measure the success rate and standard deviation on excursions of trades rather than on trades (hierarchical sampling) the value of the success rate increases and the the standard deviation of the rate of return of excursions decreases and the trading thus become psychologically acceptable.
DETAILED-COMPLICATED VERSION
Some of its advantages and in a multiple way optimal features are
1) It is the fastest possible manual system , over daily bars. Daily bars have the advantage of feasible manual conduction (say 15 minutes every night), without disturbing the rest of the daily activities. It is a star-spin based system, as the average trade duration is 2-5 days.The opportunities are plenty and every week, especially if applied to many instruments.
2) Exit Rule: It has tight stop loss and lets profits run, so that reward/risk>>1. (A reward/risk value of about 3 seems usual). Actually when we say (initial, or starting) stop-loss we do not mean an actual stop-loss, because in the corrective escalation method, that we follow here, the stop-loss is substituted with pending order to open a position in the opposite direction and usually with higher size. So the term (starting) stop loss is referred to this position enhancement without closing anything. For subconscious but also mathematical reasons this is a better approach. Nevertheless this is at the starting phase of the "excursion" of trades. When the position has acquired full size, the trailing itself will have an exit and in most cases profitable exit by trailing stop-loss. The stop-loss at the beginning before the trailing , is usually at the High or Low of the same or previous day bar, provided this is compatible with the 1%-6% rule of risked funds, below in 3). Alternatively the sop-loss is 2N of price movement and the trailing N. (For the volatility unit N, on the daily bars, see below).Putting the stop loss with the above rule means that we put it as the closest price level that if the market goes further than this the forecasting does not hold anymore. A similar rule for closing the position can be based on timing. If the market after opening the position does not proceed as predicted and stays rather static and horizontal for some bars, then we prefer to close the position with a small profit, than waiting to hit the stop loss, with a small loss. (A non-waiting rule).
Probably the current rule of reward/risk>=1 , and how the stop-loss level and position size is determined, is the most important rule of any trading system.
Probably the current rule of reward/risk>=1 , and how the stop-loss level and position size is determined, is the most important rule of any trading system.
3) It utilizes CORRECTIVE ESCALATION and trailing. It is probably the most ignored and important factor of success in trading. (Important remark: Corrective escalation is not used if we trade only one sided e.g. when trading only stock indexes, see 6) below). Pyramiding is the optimal policy when after the law of universal attraction in formation of bank and enterprises sizes, the trend durations and amplitudes follow the Pareto, or a power distribution. The pyramiding is utilizing the decimal key support-resistance levels, (or the in-between repulsion levels e.g. for EURUSD xx25, xx75) or in general, spaced at the 33% of the average daily range. Alternatively it is N/2-volatility units of the daily bars The pyramiding is done with sequences as the numbers 5,4,3,2,1. The trailing, for spikes and flat patterns but also for the ripples of the trends, is usually on the High or Low of the last daily bar. In other words the trailing can be with the Donchian channel of 2 days. But it can also be two levels xx50, xx00
(or xx25, xx75) away. Alternatively it is N-volatility units of the daily bars. (For the definition of N see below). When a group of positions is closed by trailing, all open positions by the pyramiding close too. In other words the 2) and 3) make it a grid-trading system, and parts 2) and 3) could be coded in a robot. But not all together with the rest of the rules. The starting leverage is usually 10. While the percentages f of risked funds, start with 1% and never exceed the 5%-6%. In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage f of funds risked in the trade should be about f=p1-p2. This is the Kelly theorem (see http://en.wikipedia.org/wiki/Kelly_criterion ). Nevertheless we prefer to risk in the average only 5%-10%, of what the Kelly formula suggests, that is about 2%, and the reason is that after simulations (see post 43), the paths with 2% exposure, are much more smooth and psychologically bearable in their volatility and draw-downs, compared to the exposure suggested by the Kelly formula! Let us say that with pattern recognition we have a success rate of 65% and the reward-to-risk ratio is 70% , then by the Kelly formula we must not exceed risking (0.7*0.65-0.35)/0.7=15% If it was a pattern recognition with 70% success rate (something very difficult) then the Kelly exposure would be 39% ! With the CORRECTIVE ESCALATION let us say that we start at a support resistance level (e.g. boundary of the channel at the focus time scale) say with risking 1%, and then we correct in the opposite direction with 2% and then we re-correct in the initial direction with 5% (in total 1%-2%+5%=4% in the correct direction or -1%+2%-3%+5%=3%),then we continue pyramiding with 4%, then 3%, then 2% and no more. Thus in total 4%+4%+3%+2%=13% thus less than the Kelly exposure.Such sequences of trades are called excursions, and permit the definition of hierarchical sampling, where while at the level of trades the success rate may be say 55% at the sample layer of excursions it may be 75% or higher. With the CORRECTIVE ESCALATION we have the chance, even if the probability of an up or down move to be 50% to increase the success rate of the trades, to 70% - 75% with e above sequence (given of course the average momentum conservation).
Although we start with an assumed probability of success rate of the individual trades close to 50%, and we start with exposure (that is % of risked funds from 1% ) , after some trades (preferably about 30) we have a sample to measure it!. If e.g. the sampled measured success rate of the individual trades is 65% , (and e.g. a binary options broker gives us reward to risk ratio 70%, or our particular non-binary options trading with stop loss and take profit gives us reward-to-risk ratio 70%) then the Kelly criterion formula calculates for us an optimal exposure of (0.7*0.65-0.35)/0.7=15%. This would be the upper limit of exposure for us , starting from 1% and escalating to 15%. In other words the success rate for the kelly criterion is practically measurable (from the history of trading of the back-office and not from the charts of the front office)! This is very important for the corrective escalation method! And at the beginning till the 30 trades, we have not a reliable method to measure it, this is another reason , why we start with very small and safe exposure of 1%. Also at the beginning of an excursion of trades, we may have not assessed well the market, while after some trades we know it better, and thus we may calculate the success rate. This also filters out some weird situations of markets, where they are not well predictable and the low success rate at the excursion , suggest to us to abandon trading for that particular time, and come back again another time. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
(or xx25, xx75) away. Alternatively it is N-volatility units of the daily bars. (For the definition of N see below). When a group of positions is closed by trailing, all open positions by the pyramiding close too. In other words the 2) and 3) make it a grid-trading system, and parts 2) and 3) could be coded in a robot. But not all together with the rest of the rules. The starting leverage is usually 10. While the percentages f of risked funds, start with 1% and never exceed the 5%-6%. In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage f of funds risked in the trade should be about f=p1-p2. This is the Kelly theorem (see http://en.wikipedia.org/wiki/Kelly_criterion ). Nevertheless we prefer to risk in the average only 5%-10%, of what the Kelly formula suggests, that is about 2%, and the reason is that after simulations (see post 43), the paths with 2% exposure, are much more smooth and psychologically bearable in their volatility and draw-downs, compared to the exposure suggested by the Kelly formula! Let us say that with pattern recognition we have a success rate of 65% and the reward-to-risk ratio is 70% , then by the Kelly formula we must not exceed risking (0.7*0.65-0.35)/0.7=15% If it was a pattern recognition with 70% success rate (something very difficult) then the Kelly exposure would be 39% ! With the CORRECTIVE ESCALATION let us say that we start at a support resistance level (e.g. boundary of the channel at the focus time scale) say with risking 1%, and then we correct in the opposite direction with 2% and then we re-correct in the initial direction with 5% (in total 1%-2%+5%=4% in the correct direction or -1%+2%-3%+5%=3%),then we continue pyramiding with 4%, then 3%, then 2% and no more. Thus in total 4%+4%+3%+2%=13% thus less than the Kelly exposure.Such sequences of trades are called excursions, and permit the definition of hierarchical sampling, where while at the level of trades the success rate may be say 55% at the sample layer of excursions it may be 75% or higher. With the CORRECTIVE ESCALATION we have the chance, even if the probability of an up or down move to be 50% to increase the success rate of the trades, to 70% - 75% with e above sequence (given of course the average momentum conservation).
Although we start with an assumed probability of success rate of the individual trades close to 50%, and we start with exposure (that is % of risked funds from 1% ) , after some trades (preferably about 30) we have a sample to measure it!. If e.g. the sampled measured success rate of the individual trades is 65% , (and e.g. a binary options broker gives us reward to risk ratio 70%, or our particular non-binary options trading with stop loss and take profit gives us reward-to-risk ratio 70%) then the Kelly criterion formula calculates for us an optimal exposure of (0.7*0.65-0.35)/0.7=15%. This would be the upper limit of exposure for us , starting from 1% and escalating to 15%. In other words the success rate for the kelly criterion is practically measurable (from the history of trading of the back-office and not from the charts of the front office)! This is very important for the corrective escalation method! And at the beginning till the 30 trades, we have not a reliable method to measure it, this is another reason , why we start with very small and safe exposure of 1%. Also at the beginning of an excursion of trades, we may have not assessed well the market, while after some trades we know it better, and thus we may calculate the success rate. This also filters out some weird situations of markets, where they are not well predictable and the low success rate at the excursion , suggest to us to abandon trading for that particular time, and come back again another time. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
4) Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
5) Among all the three interplay of demand-supply Domination, Competition, Cooperation, the most useful for trading is the Domination (waving). The pattern precognition manually requires 1) Assessment if the current situation give an opportunity for trading at all or not 2) If yes then of the opportunity is right now or we have to wait a bit 3) It requires assessing patterns in at least 3 time frames days, weeks months. As a preliminary review to start making a trading decision, we look 1) the most clear tonal pattern among the neighborhood time frames and its multi-frame phase signature weighted average score 2) the phase to be at a boundary of the channel or in general support-resistance of the focus time scale, and preferable of 1st,2nd or 3rd vector-wave. The tonal pattern gives the sign to all phases of all time frames, so that increasing phase is the predicted and preferred direction! If there is no tonal pattern direction the default is positive phase or up. By having a simple and clear pattern recognition algorithm we get a sharp separation of what we assume non-random and systematic and what random, and when we result in to a lost trade we must be able to decide if it was random or an error of the pattern recognition. It utilizes the 6 basic price patterns after the 3 ways of interplay of demand-supply (Domination, Competition, Cooperation, see post 32). The 6 price patterns are Spikes, channeled trends, non-channeled trends diminishing flat wave, expanding flat wave, constant amplitude flat wave. In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend, at the faster two time frames (spikes included here as 1st and/or 2nd vector-wave).
As a general rule we prefer also the internal-external trading of them, which always, takes advantage of the width of the channel. (But we must not forget that when we follow the corrective escalation method, there is no need of discrimination between internal or external trading of the channels. Most often it is channel internal trading, but we may correct and escalate with channel external trading, starting from the channel boundary as S/R). The main target of profitability in this system is not the trend but the excitation volatility or width of the channels. Because of the very short duration of the trades (2-5 days) compared to the 3-flat patterns larger sizes, there is no issue of "getting in too late". For spikes there is no such issue, and for trends, the divergence-acceleration and the very tight stop-loss, or trading the 3rd wave of the reversal so as to be early enough in the trend, do resolve this issue too. Spikes after flat patterns as break-outs of them and spikes as reaction of spikes are entered, and initial spikes of reversals are not entered during their shaping, they are entered though a posteriori as narrow flat channels or a priori (before their shaping) as breakouts of flat patterns, or as 3rd wave (blow) (we are talking about the fastest two time frames). The order of priority of the patterns to enter are 1) Spikes 2) the 3 flats 3) trends. In the case we that we trade one sided only stock indexes, then only spikes and trends are useful for trading. Some of the ambiguity of the pattern recognition is resolved by looking at the patterns of larger time scale. (E.g. if Looking at D1, time-frame some ambiguity is resolved by looking at W1 too). Actually the pattern recognition at D1 time-frame must suggest a trading not opposed by a suggested trading by the pattern recognition by the bars at the W1-time-frame. And even better if when we proceed to trade, at D1, it so that the pattern at W1 suggests for a same direction trading at W1 too. The "state of trading" based on the time frames D1,W1,MN in this way, is three component vector (x1,x2,x3) where x1,x2,x3=-1,0,1 (e.g. x1=0=do not trade at D1, x1=1=trade up at d1, x1=-1=trade down at D1). And even more useful is the channel-phase-of-trading or PHASE-SIGNATURE ,among the three relevant to the trade time frames, that would be a vector (φ1,φ2,φ3) , where 0% less or equal to |φ1,2,3|and less or equal to 100% , or φ1,2,3=Null. From this vector we may define a weighted average score either as average of signed +,- 0-100% phases or as average of the signs only. The nearest time frame starting from the focal daily with the most clear pattern, called also tonal, gives the priority direction. We set to chose from the time frames that as tonal, in which the direction is best clear, we call it the tonal time-frame. As tonal pattern we search of course and prefer a spike or 3rd wave, as they have high predictability and low risk. We search for 3rd-wave or spike (power-effect of demand-supply) in tides, waves or ripples. If two different time frames are equally clear in direction (e.g. weekly and monthly), we prefer the one which is the larger time frame, as long as it is still relevant to the duration of the possible trade, that is not larger than monthly. In other words no matter the length of the signature, it always has a sign and permits half of the cases. Nevertheless according to the number of agreeing signs to the tonal we may classify the opportunities to better and worse,and in this way much less that the half may be selected which in creases the success rate and decreases the risk. This is the global filtering of opportunities based on nested time-frames. The local filtering at the focal daily time-frame is based essentially on the 3rd-wave rule as below. The trading of the 6 patterns is the densest possible leaving no safe opportunity out. For the patterns, it requires appropriate human-based pattern recognition which is also a safety measure, to allow only humans not machines to have such a high speed performance. This simple but subjective pattern recognition factor is probably the most important success single-factor of discretion, for this system, as it is very flexible and appropriate for the mutations of the markets and no ordinary indicator can substitute it. From all the patterns and ways to trade them, only the external trading of the flat channels, after a spike or not, is the clearly pro-active method (with pending orders) , plus in most of the cases, the break-out with a spike, is the fastest speed of profit accumulation. That is why it is considered the best choice among all. More than 80% of the times the flat patterns (together with their spikes-breakouts) are those giving the most of the profits, (and not the trend patterns, as most people think), which is best fitting with the intended macroeconomic equilibrium balance of the currencies in forex and the unexpected or expected crises . It is very important for the high probability of the success of prediction that we are looking mainly for flat-patterns and not mainly for the duality of a trend! The success rate of the pattern recognition is expected to be higher than 80%. The template to detect the 6-patterns must have a zigzag for the 1st, 2nd and 3rd vector waves and their channel (e.g, a Donchian channel) , and must use indicators that involve volumes, and divergence (acceleration). The opportunities are screened-out and for each single instrument, there may be considerable intermittency time intervals. The flat patterns are at the focus scale of 10-days half-period zigzags and a monthly Highest-Lowest channel, or smaller. We remind that there is general rule of trading "Οpen at S/R and close going towards or at S/R". The S/R here may be the boundaries of the Donchian channel or the skew or horizontal S/R lines of the trend of the zigzag. This starting point of trading is to be combined with the corrective escalation method. The trend patterns are ripples of 1-5 days of the focus scale, that must have background parallel seasonal trend. Therefore counting bars from 1 to 5 is also important assessment of the trend so as not to enter too late. Being aware of the decimal S/R xx00, xx50 is also important to predict S/R. The spikes do not need background. The rules of trading of the 6-patterns are the usual as in the post 32. Rules 1) and 4) here guarantee high probability rate of success in the trades, which together with 2) and 3) that give reward/risk much greater than 1 , make in total the protocol winning. For this gratido, the focal frequency is star-based (star-spin or month and its harmonics) and the background planet-based (seasonal, annual harmonics). The pattern recognition must also assess if the emerging pattern is favorable enough to trade. That is a) for trends if they are non-waving but very steady and uniform, for waving trends if the waving is very clear and repetitive with clear divergence e.g. to trade the 3rd wave (blow) of the reversal , c) for spikes if they are abundant and long enough d) for flat channels if they are steady , of about constant width, and long enough , without too much noise and not changing horizontals levels too often without in-between spikes.
As a short summary to start making a trading decision, we look 1) the most clear tonal pattern among the neighborhood time frames and its multi-frame phase signature additive score. (For simplistic partial programmings of the pattern recognition of the tonal pattern we look for spikes on the 3rd or 4th larger time frame, here weeks, or months , months has priority, defined by the ATR(1),over 250 bars average ATR, as 1st wave). 2) the phase to be at a boundary of the channel or in general support-resistance of the focus time scale, and preferable of 1st,2nd or 3rd vector-wave.The tonal pattern gives the sign to all phases of all time frames, so that increasing phase is the predicted and preferred direction! If there is no tonal pattern direction the default is positive phase or up.
In an even more simplistic way, we look for the 1st,2nd, 3rd waves only in the 3rd or 4th time frame (the largest has priority),where wave 1 is a spike which is easily recognized and then we just wait for the two only phases in time frames 1st and 2nd to agree.
By having a simple and clear pattern recognition algorithm we get a sharp separation of what we assume non-random and systematic and what random, and when we result in to a lost trade we must be able to decide if it was random or an error of the pattern recognition.
As a general rule we prefer also the internal-external trading of them, which always, takes advantage of the width of the channel. (But we must not forget that when we follow the corrective escalation method, there is no need of discrimination between internal or external trading of the channels. Most often it is channel internal trading, but we may correct and escalate with channel external trading, starting from the channel boundary as S/R). The main target of profitability in this system is not the trend but the excitation volatility or width of the channels. Because of the very short duration of the trades (2-5 days) compared to the 3-flat patterns larger sizes, there is no issue of "getting in too late". For spikes there is no such issue, and for trends, the divergence-acceleration and the very tight stop-loss, or trading the 3rd wave of the reversal so as to be early enough in the trend, do resolve this issue too. Spikes after flat patterns as break-outs of them and spikes as reaction of spikes are entered, and initial spikes of reversals are not entered during their shaping, they are entered though a posteriori as narrow flat channels or a priori (before their shaping) as breakouts of flat patterns, or as 3rd wave (blow) (we are talking about the fastest two time frames). The order of priority of the patterns to enter are 1) Spikes 2) the 3 flats 3) trends. In the case we that we trade one sided only stock indexes, then only spikes and trends are useful for trading. Some of the ambiguity of the pattern recognition is resolved by looking at the patterns of larger time scale. (E.g. if Looking at D1, time-frame some ambiguity is resolved by looking at W1 too). Actually the pattern recognition at D1 time-frame must suggest a trading not opposed by a suggested trading by the pattern recognition by the bars at the W1-time-frame. And even better if when we proceed to trade, at D1, it so that the pattern at W1 suggests for a same direction trading at W1 too. The "state of trading" based on the time frames D1,W1,MN in this way, is three component vector (x1,x2,x3) where x1,x2,x3=-1,0,1 (e.g. x1=0=do not trade at D1, x1=1=trade up at d1, x1=-1=trade down at D1). And even more useful is the channel-phase-of-trading or PHASE-SIGNATURE ,among the three relevant to the trade time frames, that would be a vector (φ1,φ2,φ3) , where 0% less or equal to |φ1,2,3|and less or equal to 100% , or φ1,2,3=Null. From this vector we may define a weighted average score either as average of signed +,- 0-100% phases or as average of the signs only. The nearest time frame starting from the focal daily with the most clear pattern, called also tonal, gives the priority direction. We set to chose from the time frames that as tonal, in which the direction is best clear, we call it the tonal time-frame. As tonal pattern we search of course and prefer a spike or 3rd wave, as they have high predictability and low risk. We search for 3rd-wave or spike (power-effect of demand-supply) in tides, waves or ripples. If two different time frames are equally clear in direction (e.g. weekly and monthly), we prefer the one which is the larger time frame, as long as it is still relevant to the duration of the possible trade, that is not larger than monthly. In other words no matter the length of the signature, it always has a sign and permits half of the cases. Nevertheless according to the number of agreeing signs to the tonal we may classify the opportunities to better and worse,and in this way much less that the half may be selected which in creases the success rate and decreases the risk. This is the global filtering of opportunities based on nested time-frames. The local filtering at the focal daily time-frame is based essentially on the 3rd-wave rule as below. The trading of the 6 patterns is the densest possible leaving no safe opportunity out. For the patterns, it requires appropriate human-based pattern recognition which is also a safety measure, to allow only humans not machines to have such a high speed performance. This simple but subjective pattern recognition factor is probably the most important success single-factor of discretion, for this system, as it is very flexible and appropriate for the mutations of the markets and no ordinary indicator can substitute it. From all the patterns and ways to trade them, only the external trading of the flat channels, after a spike or not, is the clearly pro-active method (with pending orders) , plus in most of the cases, the break-out with a spike, is the fastest speed of profit accumulation. That is why it is considered the best choice among all. More than 80% of the times the flat patterns (together with their spikes-breakouts) are those giving the most of the profits, (and not the trend patterns, as most people think), which is best fitting with the intended macroeconomic equilibrium balance of the currencies in forex and the unexpected or expected crises . It is very important for the high probability of the success of prediction that we are looking mainly for flat-patterns and not mainly for the duality of a trend! The success rate of the pattern recognition is expected to be higher than 80%. The template to detect the 6-patterns must have a zigzag for the 1st, 2nd and 3rd vector waves and their channel (e.g, a Donchian channel) , and must use indicators that involve volumes, and divergence (acceleration). The opportunities are screened-out and for each single instrument, there may be considerable intermittency time intervals. The flat patterns are at the focus scale of 10-days half-period zigzags and a monthly Highest-Lowest channel, or smaller. We remind that there is general rule of trading "Οpen at S/R and close going towards or at S/R". The S/R here may be the boundaries of the Donchian channel or the skew or horizontal S/R lines of the trend of the zigzag. This starting point of trading is to be combined with the corrective escalation method. The trend patterns are ripples of 1-5 days of the focus scale, that must have background parallel seasonal trend. Therefore counting bars from 1 to 5 is also important assessment of the trend so as not to enter too late. Being aware of the decimal S/R xx00, xx50 is also important to predict S/R. The spikes do not need background. The rules of trading of the 6-patterns are the usual as in the post 32. Rules 1) and 4) here guarantee high probability rate of success in the trades, which together with 2) and 3) that give reward/risk much greater than 1 , make in total the protocol winning. For this gratido, the focal frequency is star-based (star-spin or month and its harmonics) and the background planet-based (seasonal, annual harmonics). The pattern recognition must also assess if the emerging pattern is favorable enough to trade. That is a) for trends if they are non-waving but very steady and uniform, for waving trends if the waving is very clear and repetitive with clear divergence e.g. to trade the 3rd wave (blow) of the reversal , c) for spikes if they are abundant and long enough d) for flat channels if they are steady , of about constant width, and long enough , without too much noise and not changing horizontals levels too often without in-between spikes.
As a short summary to start making a trading decision, we look 1) the most clear tonal pattern among the neighborhood time frames and its multi-frame phase signature additive score. (For simplistic partial programmings of the pattern recognition of the tonal pattern we look for spikes on the 3rd or 4th larger time frame, here weeks, or months , months has priority, defined by the ATR(1),over 250 bars average ATR, as 1st wave). 2) the phase to be at a boundary of the channel or in general support-resistance of the focus time scale, and preferable of 1st,2nd or 3rd vector-wave.The tonal pattern gives the sign to all phases of all time frames, so that increasing phase is the predicted and preferred direction! If there is no tonal pattern direction the default is positive phase or up.
In an even more simplistic way, we look for the 1st,2nd, 3rd waves only in the 3rd or 4th time frame (the largest has priority),where wave 1 is a spike which is easily recognized and then we just wait for the two only phases in time frames 1st and 2nd to agree.
By having a simple and clear pattern recognition algorithm we get a sharp separation of what we assume non-random and systematic and what random, and when we result in to a lost trade we must be able to decide if it was random or an error of the pattern recognition.
6) It is a universal system, that applies basically to all currencies and instruments. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
7) It is so simple to conduct, that although it may require custom indicators, it does not require expert-advisors or robots only pending orders, and stop loss, so it is server-side automation, which is cheaper and safer. Its simplicity is also a shield to what is mentioned later in this post, as "contaminated subconscious environment". In other words I do not need special meditation to forecast the market, only a simple human-based and algorithmic patter recognition; although I may need meditation in general in my life to keep confidence to myself, and a good quality life for me and others, for otherwise not matter how much the trading profits, they would not be of any value and would not serve to any good purpose.
8) It has such a high capitalization speed (0.1MDS-0,86MDS, world champions prove that 0.4MDS--0.5MDS or 40%-50% monthly is something they have achieved with real money, and possibly with options too) that is essentially pure freedom from the slavery of economic survival (by being forced to sell your time). It can be done starting practically from zero in a few months, especially if forex market is used, which has low initial funds and high leverage, plus balanced currencies. Actually the above estimation of 0.1MDS-0.86MDS is with external only trading of the channels. If we apply a) internal-and-external trading of the channels and b) apply it to narrow and short channels of 10, 5, 3 days as harmonics of the monthly cycle, detected by ATR(1)<=ATR(252) on daily charts (but analyzed by looking for opportunities of 3rd wave and spikes at 4-hours time frame also, even monitored only once per day) c) pyramiding every one xx50/xx00 key-level of support-resistance instead of every two such levels, and d) we apply the system to at least 10-20 pairs or instruments instead to one only pair or instrument, e) choose to trade all 1-day spikes detected by the ATR(1)>ATR(252) ,f) utilize starting leverage 10-25 (provided the 1%-5% risked funds rule is kept), then the capitalization speed can reach 0.4MDS-O.5MDS and some times 1MDS, as we can see with forward test examples below. Also the simulator in post 43, with a success rate 80%, 7 trades per month, and reward/risk ratio=2 , and risking only 3.5% of the funds at each trade, without pyramiding, also gives 0.4MDS-0.5MDS average max Drawdown 3.5% +- 2.5%. (The system gratido daily, has a corresponding similar at the minutes bars, or 5-minutes bars, so that the months that there are few opportunities with the system on daily bars, the version on minutes bars can be used, to make the performance uniform among months. Of course the system on 5-minutes bars may require to spend a few hours during the week, and some days in front of the monitor, but the trades last for a few minutes and are of 5-25 pips.).
Probably the most important psychological virtue of a trader, is his disregard and contempt of temporary failure.
Older examples (2010) of similar capitalization speed (1MDS) trading of spikes at 4-hour bars in the Bill Williams method or daily gratido on 1-day spikes detected by ATR(1)>=ATR(252), here
We may compare these results with the trading results of Larry Williams, which are close to 0.47MDS here
http://en.wikipedia.org/wiki/Larry_Williams_(a_publisher_and_promoter_of_trading_ideas)
Or with the trading results of Chuck Hughes that also about 0.4MDS
here http://www.chuckhughesonline.com/
Or with the trading results of Dan Zanger that are about 0.42MDS here
http://en.wikipedia.org/wiki/Dan_Zanger
ULTRA SIMPLE VERSION FOR BINARY OPTIONS ON DAILY BARS
1) We utilize daily bars charts, and we set once per day (e.g. in the night or in the morning) the orders. We utilize a Bollinger bundle of 20-days period and 2-standard deviations width. We may utilize also a zig-zag (e.g. based on the standard deviations, and of period half of the Bollinger, that is of 10 days). We may also add a force index (by Alexander Elder) which utilizes volumes to, and where we can see the divergence, of period 2 days, and/or a MACD of 20 days or the Awesome Oscillator of Bill Williams, for waves inside the channel.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar. To confirm we consult the force index to see a reversal or divergence.
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 3-5-10 bars (about half the period of the Bollinger Bundle or equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index and oscillator to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize basically multiple time-frames pattern recognition. But if we want to be even more selective of the trades, we trade only the indexes of the stocks and only on one direction that of the season (6 months-3 years) trend , plus we consult the Bollinger bundle of weekly bars with n=12 and also the monthly bars with n=6, to get a triple of signed phases φi i=1,2,3 together with the minutes Bollinger bundle , that helps to order the cases by favorability.
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode).We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. \we prefer to continue another day, and time, as we may be more successful. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
6) We do apply pyramiding backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. We avoid correcting-pyramiding more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
7)Because of the ultra-simple indicators template (2-3 indicators only) and rules, we can persevere the trading practice for a long time, and we attribute all failures not to any wrong pattern recognition but to unavoidable randomness. In this way psychologically it is a an attractive practice.Human based pattern recognition of the appropriateness of the forecasting is essential here, and it could not be programmed to an expert-advisor or robot! The 98% of the decision should be based on observable pattern recognition rather than non-observable. But when trading at the direction of the channel, we may do so after choosing times of calendar news and announcements, that suggest the emergence of a strong trend, no matter what direction. As it is binary options the exit rule is not our choice. And for the entrance rule it is better to be on a direction that it has already showed to emerge. taking 1/3 of the total movement is absolutely adequate for our purposes. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years , on daily bars which is about 300% annually. If we want to transfer it ,as an upper bound of the rate of return, to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 5-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/5minutes)/12=squareroot(288)/12=16.97/12=1.41 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 5 minutes bars, with 2 hours per day we make at most only 1.41 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself! Only if we measure the success rate and standard deviation on excursions of trades rather than on trades (hierarchical sampling) the value of the success rate increases and the the standard deviation of the rate of return of excursions decreases and the trading thus become psychologically acceptable.
The position sizing in the Gratido Daily is based on the volatility.
The Meaning of the volatility unit N.
The system uses a concept of volatility unit, called N to represent the underlying
volatility of a particular market.
N is simply the 20-day exponential moving average of the True
Range, which is now more commonly known as the ATR.
Conceptually, N represents the average range in price movement that
a particular market makes in a single day, accounting for opening
gaps. N was measured in the same points as the underlying contract.
To compute the daily true range:
True Range = Maximum(H - L,H - PDC, PDC - L)
where:
H – Current High L – Current Low PDC – Previous Day’s Close
To compute N use the following formula:
N = (19 × PDN + TR ) 20
where:
PDN – Previous Day’s N ,TR – Current Day’s True Range
Since this formula requires a previous day’s N value, you must start
with a 20-day simple average of the True Range for the initial
calculation.
The first step in determining the position size was to determine the
dollar volatility represented by the underlying market’s price volatility
(defined by its N).
This sounds more complicated than it is. It is determined using the
simple formula:
Dollar Volatility = N × Dollars per Point
Volatility Adjusted Position Units
The system built positions in pieces which were called Units. Units
were sized so that 1 N represented f=1% (sometimes till 6%) of the account equity.
In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage f of funds risked in the trade should be about f=p1-p2.
In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage f of funds risked in the trade should be about f=p1-p2.
Thus, a unit for a given market or commodity can be calculated using
the following formula:
Examples
X% of Account =Position size ×Market Dollar Volatility
or
X% of Account =Position size × N × Dollars per Point of 1 contract
Adding Units (Pyramiding). An alternative way of pyramiding is based on the unit N. The System entered single Unit long positions at the breakouts and added to those positions at 1⁄2 N intervals following their initial entry. This 1⁄2 N interval was based on the actual fill price of the previous order. So if an initial breakout order slipped by 1⁄2 N, then the new order would be 1 full N past the breakout to account for the 1⁄2 N slippage, plus the normal 1⁄2 N unit add interval. This would continue right up to the maximum permitted number of units (based on the risked 1% or till 6% limit). If the market moved quickly enough it was possible to add the maximum Units in a single day.
We notice that stop-loss is 2N or N/2 units , ((n)^1/2)N units where n is the length of the relevant half-period wave e.g. for daily bars n=10 , and pyramiding N/2 units. (where the position size is such the N price change means 1% change in the funds.)Such are mainly the rules in the fast turtle trading system too see post 53
We may summarize the trading of the 3 patterns (flat channel, trending channel, spike) as follows
1) There is external trading of channels and there is internal trading of channels. External trading of flat channels is better (of lower risk and higher performance) than internal trading, only at the end of the flat diminishing (contracting triangle) channel , when it is ready for a breakout to a spike. Otherwise the 3rd wave internal trading of flat channels is better.
2) The internal trading is of flat channels and of trending channels. The internal trading of trending channels is considered better, than of flat channels.
3) The external trading of flat channels, is of flat channels after spikes or not. External trading of flat diminishing channels before spikes is considered the best opportunity, for spikes as it is pro-active.
Also expanding flat channels are the worse for external trading, the best (among flat channels) for internal trading. Contracting flat channels, are the worse for internal trading, but good for external trading.
The corrective actions are of two types a) The same side or averaging, or adjustments or backwards pyramiding (the closest and first in time correction) b) The opposite side or hedging (the second timely correction when the market prediction changes direction). Hedging works best with brokers where the margin cancels out for equal and opposite positions. Same-side correction is better than opposite side correction, as it does not involve reversing of the prediction but only fluctuations around an average path. (Internal trading of flat channels could be hedge-corrected to external of them. But it is better not attempt internal trading of flat channels at all. External trading of flat channels could be hedge-corrected to internal. But it is better simply to exit with stop loss and insist to external trading than hedge-correct it to internal.)
The averaging or adjustment is usually a pattern-correction of the internal trading of a channel, and is equivalent to pyramiding as far as the result is concerned. The pyramiding can be done also in the internal trading of trending channels. Pyramiding during spikes can be applied here, in the manual trading , but it is practical only as automated trading with pending orders. As manual trading of spikes -wise we setup the trade either pro-actively as flat-channels break outs, or a posteriori, again as breakout of flat channels just after the spike.
The trading of the non-waving non-channeled trends, is done as the the trading of spikes, but obviously are less better opportunities. It is considered external trading.
The best opportunity for internal trading is at the end of a trend or flat channel (which appears as a reversal) , and which is the start of a new flat or trending channel, and in particular the "Blow" wave of the channel. (If the channel is flat it can be traded externally too). Of course a "Blow" wave a trending channel is a better opportunity compared to a "Blow" wave of a flat channel. The best opportunity of external trading is at a flat channel that exists for quite some time, and even better after a spike. Nevertheless as mentioned before external trading is better than internal trading. The only case where internal trading is better than external trading is at a trending channel.
If a break-out spike of a flat channel is missed , as external trading, we have the chance to trade the "Blow" wave, as internal trading, if the initiating trend by the spike, is a channeled trend.
The success rate of the "Blows" at the start of channels in internal trading is very high. The success rate of flat channels breakouts in external trading may be lower than 50%, but the loss is little while by insisting setting more, the one that succeeds has large profits.
The classical technical analysis continuation patterns are the flat channel of constant amplitude and the flat channel of diminishing amplitude (triangle). They are ideal for external trading. They are usually after trends without channel or spikes and most often continue the price movement rather than reversing it. The flat channel of increasing amplitude, is supposed to breakout as reversal rather than as continuation.
The reversal patterns of classical technical analysis are very short-life rather flat channel that reverse a channeled trend to a new opposite direction channel trend. They are ideal for internal trading of the 3rd wave towards the new trend ("Blow" vector).
We conclude that pyramiding is done both in internal or external trading of channels, and the triggers of pyramiding would be internal or external correspondingly.
We conclude that pyramiding is done both in internal or external trading of channels, and the triggers of pyramiding would be internal or external correspondingly.
Even if a market would be a sequence of spikes alternating with flat continuation channels (that is a market without trends) , with 50% probability of the next spike up or down (a random walk of spikes) , still an external trading of the breakouts of the flat intermediate channels would be a very profitable trading.And we may assume in a bold way that the forex market follows such a simplified model unless,we observe a channeled or not trend.
We may notice the resemblance of this system, and it volatility based stop-loss, trailing, pyramiding , and position sizing, with the turtle trading system, which is known to be successful and profitable in the markets for many decades. .But do not get deceived. We do not trade on all breakouts of the Donchian channel. Instead we apply pattern recognition. In the markets there are also the channeled trends not only spikes, and flat channels, and channeled trends are traded better internally rather than externally.
If the gratido-daily is applied to binary options , instead of the minute-wise, with a trade success rate of 70%, and a binary broker reward of 0.7 (reward/risk_ratio=0.7) and a 50% only of the exposure that the Kelly criterion suggests, in other words with about 13% risk of funds at each trade, where trades are place daily and expire the next day, then the simulation gives that the average monthly draw-down is about 30%, and the average monthly rate of return about 50%-66% with a standard deviation of 50% of it! These calculations are based on a 20-trading days month, and it is assumed that searching all currencies , commodities and other instruments that the broker offers, every day is set one trade. This says in other words that the famous world-champions records of trading rate of by return that are about 40%-50% monthly , can also achieved with binary options on various instruments, and with the previous specifications.
If the gratido-daily is applied to binary options , instead of the minute-wise, with a trade success rate of 70%, and a binary broker reward of 0.7 (reward/risk_ratio=0.7) and a 50% only of the exposure that the Kelly criterion suggests, in other words with about 13% risk of funds at each trade, where trades are place daily and expire the next day, then the simulation gives that the average monthly draw-down is about 30%, and the average monthly rate of return about 50%-66% with a standard deviation of 50% of it! These calculations are based on a 20-trading days month, and it is assumed that searching all currencies , commodities and other instruments that the broker offers, every day is set one trade. This says in other words that the famous world-champions records of trading rate of by return that are about 40%-50% monthly , can also achieved with binary options on various instruments, and with the previous specifications.
The GRATIDO MINUTE-WISE or GOLDEN FLEECE MINUTE-WISE is as following.
It is applied to brokers with very tight spread. E.g. 0.3-0.9 pips. If not we trade at shortest time-frame where the bar's average true range (ATR) is at least double the spread. For most brokers that have e.g. for EURUSD spread 1,6-2.1 pips, this means trading at charts of the 5-minutes M5, bars.
This Gratido or Golden Fleece system is based of course on the three mathematical-statistical laws of the markets of a) Rhythms b) Attraction c) Polarity (see above).
A general remark about news: News sometimes create a surprise movement to the previous based on the technical analysis. But once the new direction is created from the calendar news-event, we may proceed to apply the technical analysis, and thus utilize scheduled calendar-news as a good filter to trade only in special occasions.
1) We utilize 1-minute bars charts, and we set the orders whenever we have 1-2 hours free time which is not be interupted. We utilize a Bollinger bundle of 30-minutes period and 2-standard deviations width. We may utilize also a zig-zag (e.g. based on the standard deviations, and of period of 5 minutes). We may also add a force index (by Alexander Elder) which utilizes volumes too, and where we can see the divergence, of period 2 minutes.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar . To conform we consult the force indicator so see a reversal or divergence. If we prefer stock indexes and prefer to trade only on one direction , ten the tradable patterns are not the flat, but the skew , waving channel. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 5 minutes bars (equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index or oscillators to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize basically multiple time-frames pattern recognition. But if we want to be even more selective of the trades, we trade only the indexes of the stocks and only on one direction that of the seasonal (6 months-3 years) trend , plus we consult the Bollinger bundle of hourly bars with n=12 and also the daily bars with n=10, to get a triple of signed phases φi i=1,2,3 together with the minutes Bollinger bundle , that helps to order the cases by favorability.
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode).We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. \we prefer to continue another day, and time, as we may be more successful. An alternative way to define the exposure is the next. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
6) We do apply pyramiding or escalation backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. We avoid correcting-pyramiding or escalation more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years , on daily bars which is about 300% annually. If we want to transfer it to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 1-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/1minutes)/12=squareroot(1440)/12=37.94/12=3.16 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 1 minutes bars, with 2 hours per day we make only 3.16 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself!
Only if we measure the success rate and standard deviation on excursions of trades rather than on trades (hierarchical sampling) the value of the success rate increases and the the standard deviation of the rate of return of excursions decreases and the trading thus become psychologically acceptable.
DETAILED-COMPLICATED VERSION
Some of its advantages and in a multiple way optimal features are This Gratido or Golden Fleece system is based of course on the three mathematical-statistical laws of the markets of a) Rhythms b) Attraction c) Polarity (see above).
A general remark about news: News sometimes create a surprise movement to the previous based on the technical analysis. But once the new direction is created from the calendar news-event, we may proceed to apply the technical analysis, and thus utilize scheduled calendar-news as a good filter to trade only in special occasions.
ULTRA SIMPLE VERSION FOR BINARY OPTIONS ON MINUTES BARS
Remark. As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar . To conform we consult the force indicator so see a reversal or divergence. If we prefer stock indexes and prefer to trade only on one direction , ten the tradable patterns are not the flat, but the skew , waving channel. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 5 minutes bars (equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index or oscillators to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize basically multiple time-frames pattern recognition. But if we want to be even more selective of the trades, we trade only the indexes of the stocks and only on one direction that of the seasonal (6 months-3 years) trend , plus we consult the Bollinger bundle of hourly bars with n=12 and also the daily bars with n=10, to get a triple of signed phases φi i=1,2,3 together with the minutes Bollinger bundle , that helps to order the cases by favorability.
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode).We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. \we prefer to continue another day, and time, as we may be more successful. An alternative way to define the exposure is the next. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
6) We do apply pyramiding or escalation backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. We avoid correcting-pyramiding or escalation more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years , on daily bars which is about 300% annually. If we want to transfer it to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 1-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/1minutes)/12=squareroot(1440)/12=37.94/12=3.16 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 1 minutes bars, with 2 hours per day we make only 3.16 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself!
Only if we measure the success rate and standard deviation on excursions of trades rather than on trades (hierarchical sampling) the value of the success rate increases and the the standard deviation of the rate of return of excursions decreases and the trading thus become psychologically acceptable.
7) Because of the ultra-simple indicators template (2-3 indicators only) and rules, we can persevere the trading practice for a long time, and we attribute all failures not to any wrong pattern recognition but to unavoidable randomness. In this way psychologically it is a an attractive practice. Human based pattern recognition of the appropriateness of the forecasting is essential here, and it could not be programmed to an expert-advisor or robot! The 98% of the decision should be based on observable pattern recognition rather than non-observable. But when trading at the direction of the channel, we may do so after choosing times of calendar news and announcements, that suggest the emergence of a strong trend, no matter what direction (e.g. from here http://www.forexfactory.com/calendar.php ). As it is binary options the exit rule is not our choice. And for the entrance rule it is better to be on a direction that it has already showed to emerge. taking 1/3 of the total movement is absolutely adequate for our purposes. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved , on daily bars which is about 300% annually. If we want to transfer it ,as an upper bound of the rate of return, to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 1-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/1minutes)/12=squareroot(1440)/12=37.94/12=3.16 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 1 minutes bars, with 2 hours per day we make at most only 3.16 times more money than the trading on the daily bars!
DETAILED-COMPLICATED VERSION
1) It is the fastest possible manual system , based on the spread size of a broker (shortest bars such that ATR of a bar>=2*spread) . (Some people would call it scalper, but I do not like the term).Of course, to conduct this system, you must devote working hours in front of the monitor.
2) Exit Rule: It has tight stop loss and lets profits run, so that reward/risk much greater than 1. Actually when we say (initial, or starting) stop-loss we do not mean an actual stop-loss, because in the corrective escalation method, that we follow here, the stop-loss is substituted with pending order to open a position in the opposite direction and usually with higher size. So the term (starting) stop loss is referred to this position enhancement without closing anything. For subconscious but also mathematical reasons this is a better approach. Nevertheless this is at the starting phase of the "excursion" of trades. When the position has acquired full size, the trailing itself will have an exit and in most cases profitable exit by trailing stop-loss. (A reward/risk value of about 3 seems usual). The initial stoploss before the trailing, is usually determined by the 1%-6% rule of risked funds, below in 3), and it is only a few pips (e.g. 5-10 pips, in general a formula like 2*(trailing+spread)=StopLoss and Minimum_trailing=2*spread). Where the trailing must be by the anticipated spread during the spike, that is a bit larger, than when setting the pending order at the flat channel. Alternatively the stop-loss is 2N of price movement, and the trailing N. (For the volatility unit N on the focus bars, here usually 5-minutes bars, see below). While pyramiding N/2. A take profit is not usually recommended, as it reduces profits , but some times when it is expected that it will exit early because of tight trailing, it is meaningful to set it; then it must hold TakeProfit/StopLoss>=3, and it is usually at the closest xx50 or xx00 level. A similar rule for closing the position can be based on timing. If the market after opening the position does not proceed as predicted and stays rather static and horizontal for some bars, then we prefer to close the position with a small profit, than waiting to hit the stop loss, with a small loss. (A non-waiting rule).
Probably the current rule of reward/risk>=1 , and how the stop-loss level and position size is determined, is the most important rule of any trading system.
Probably the current rule of reward/risk>=1 , and how the stop-loss level and position size is determined, is the most important rule of any trading system.
3) It utilizes CORRECTIVE ESCALATION and trailing. It is probably the most ignored and important factor of success in trading. (Important remark: Corrective escalation is not used if we trade only one sided e.g. when trading only stock indexes, see 6) below). Pyramiding is the optimal policy when after the law of universal attraction in formation of bank and enterprises sizes, the trend durations and amplitudes follow the Pareto, or a power distribution. The pyramiding is not necessarily utilizing the decimal key support-resistance levels, (or the in-between repulsion levels e.g. for EURUSD xx25, xx75) or in general, spaced at the 33% of the average daily range, but it takes them seriously under consideration (e.g. we may set to channel breakouts at the repulsion levels xx25, xx75 or more standard at the decimal key support resistance levels xx50, xx00). The pyramiding is usually every 1 pips or N/2 times the volatility unit N of focus (5-minute) bars. The pyramiding is done with sequences as the numbers 5,4,3,2,1. The trailing is at least 1.5-2 pips. Or it can be with the Donchian channel of 10 minutes(=2 bars of 5-minutes) , or equal to the volatility unit N. When a group of positions is closed by trailing, all open positions by the pyramiding close too. We prefer not to use trailing but only take-profit in internal-channel trading, so as to be sure for the reward/risk>1 rule. While in external to channels trading (break-outs) we prefer trailing. The 2) and 3) make it a grid-trading system, and parts 2) and 3) could be coded in a robot. But not all together with the rest of the rules. The starting leverage is usually 10-50. While the percentages of risked funds, start with 1% and never exceed the 5%-6%.
With the CORRECTIVE ESCALATION we have the chance, even if the probability of an up or down move to be 50% to increase the success rate of the trades, to 70% - 75% with e above sequence (given of course the average momentum conservation).
Although we start with an assumed probability of success rate of the individual trades close to 50%, and we start with exposure (that is % of risked funds from 1% ) , after some trades (preferably about 30) we have a sample to measure it!. If e.g. the sampled measured success rate of the individual trades is 65% , (and e.g. a binary options broker gives us reward to risk ratio 70%, or our particular non-binary options trading with stop loss and take profit gives us reward-to-risk ratio 70%) then the Kelly criterion formula calculates for us an optimal exposure of (0.7*0.65-0.35)/0.7=15%. This would be the upper limit of exposure for us , starting from 1% and escalating to 15%. In other words the success rate for the kelly criterion is practically measurable(from the history of trading of the back-office and not from the charts of the front office)! This is very important for the corrective escalation method! And at the beginning till the 30 trades, we have not a reliable method to measure it, this is another reason , why we start with very small and safe exposure of 1%. Also at the beginning of an excursion of trades, we may have not assessed well the market, while after some trades we know it better, and thus we may calculate the success rate. This also filters out some weird situations of markets, where they are not well predictable and the low success rate at the excursion , suggest to us to abandon trading for that particular time, and come back again another time. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
4) Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)).. We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. (we mention it in posts 13, and 33 from the book "Stochastic Differential equations" by B. K. Oksendal (Springer editions) page 223, example 11.5) We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds. The current withdrawal rule that e.g. has been applied for many years by professor Michael LeBoeuf in his investments (see https://en.wikipedia.org/wiki/Michael_LeBoeuf and http://www.nightingale.com/beat-time-money-trap-mp3.html ))
With the CORRECTIVE ESCALATION we have the chance, even if the probability of an up or down move to be 50% to increase the success rate of the trades, to 70% - 75% with e above sequence (given of course the average momentum conservation).
Although we start with an assumed probability of success rate of the individual trades close to 50%, and we start with exposure (that is % of risked funds from 1% ) , after some trades (preferably about 30) we have a sample to measure it!. If e.g. the sampled measured success rate of the individual trades is 65% , (and e.g. a binary options broker gives us reward to risk ratio 70%, or our particular non-binary options trading with stop loss and take profit gives us reward-to-risk ratio 70%) then the Kelly criterion formula calculates for us an optimal exposure of (0.7*0.65-0.35)/0.7=15%. This would be the upper limit of exposure for us , starting from 1% and escalating to 15%. In other words the success rate for the kelly criterion is practically measurable(from the history of trading of the back-office and not from the charts of the front office)! This is very important for the corrective escalation method! And at the beginning till the 30 trades, we have not a reliable method to measure it, this is another reason , why we start with very small and safe exposure of 1%. Also at the beginning of an excursion of trades, we may have not assessed well the market, while after some trades we know it better, and thus we may calculate the success rate. This also filters out some weird situations of markets, where they are not well predictable and the low success rate at the excursion , suggest to us to abandon trading for that particular time, and come back again another time. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
4) Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)).. We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. (we mention it in posts 13, and 33 from the book "Stochastic Differential equations" by B. K. Oksendal (Springer editions) page 223, example 11.5) We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds. The current withdrawal rule that e.g. has been applied for many years by professor Michael LeBoeuf in his investments (see https://en.wikipedia.org/wiki/Michael_LeBoeuf and http://www.nightingale.com/beat-time-money-trap-mp3.html ))
5) Among all the three interplay of demand-supply Domination, Competition, Cooperation, the most useful for trading is the Domination (waving). The pattern precognition manually requires 1) Assessment if the current situation give an opportunity for trading at all or not 2) If yes then of the opportunity is right now or we have to wait a bit. we may perform some virtual trades in our mind, so check that are mainly successful, as warm up and secure that we understand the market. 3) It requires assessing patterns in at least 4 time frames 1-minute, 5-minutes 1-hour, and 1-day bars charts. As a preliminary review to start making a trading decision, we look 1) the most clear tonal pattern among the neighborhood time frames and its multi-frame phase signature weighted average score 2) the phase to be at a boundary of the channel or in general support-resistance of the focus time scale, and preferable of 1st,2nd or 3rd vector-wave. The tonal pattern gives the sign to all phases of all time frames, so that increasing phase is the predicted and preferred direction! By having a simple and clear pattern recognition algorithm we get a sharp separation of what we assume systematic and what random, and when result in to a lost trade we must be able to decide if it was random or an error of the pattern recognition. It utilizes the 6 basic price patterns after the 3 ways of interplay of demand-supply (Domination, Competition, Cooperation, see post 32). The 6 price patterns are Spikes, non-channeled trends, channeled trends, diminishing flat wave, expanding flat wave, constant amplitude flat wave. In predicting we assess the dynamics of the pattern in the focus time frame, but we also speculate and test the opposite prediction, and we assess which is more probable, and in accordance with the most clear pattern dynamics, of the consecutive 3-4 neighbor time frames. If the assessed probabilities are say 55%, 45%, we might not choose to trade, but we might wait to find assessed 80%, 20% probabilities. We always prefer of course the waving patterns after the domination coupling of buyers-sellers, and even better the 1st, 2nd or 3rd vector-wave of channeled trend, at the fastest two time frames (spikes included here as 1st and/or 2nd vector-wave).
As a general rule we prefer also the internal-external trading of them, which always, takes advantage of the width of the channel. (But we must not forget that when we follow the corrective escalation method, there is no need of discrimination between internal or external trading of the channels. Most often it is channel internal trading, but we may correct and escalate with channel external trading, starting from the channel boundary as S/R).The main target of profitability in this system is not the trend but the excitation volatility or width of the channels. Because of the very short duration of the trades (2-5 minutes) compared to the 3-flat patterns larger sizes, there is no issue of "getting in too late". For spikes there is no such issue, and for trends, the divergence-acceleration and the very tight stop-loss, or trading the 3rd wave of the reversal so as to be early enough in the trend, do resolve this issue too. Spikes after flat patterns as break-outs of them and spikes as reaction of spikes are entered, but initial spikes of reversals are not entered during their shaping, they are entered though a posteriori as narrow flat channels or a priori (before their shaping) as breakouts of flat patterns. The order of priority of the patterns to enter are 1) Spikes 2) the 3 flats 3) trends. Of course if we are trading in one sided only way the stock indexes then only spikes and trends are the patterns that are traded. Some of the ambiguity of the pattern recognition is resolved by looking at the patterns of larger time scales. (E.g. if Looking at M1, or M5 time-frames some ambiguity is resolved by looking at H1 and D1 too). Actually the pattern recognition at M5 time-frame must suggest a trading not opposed by a suggested trading by the pattern recognition by the bars at the H1-time-frame (and D1 time frame). And even better if when we proceed to trade, at M5, it so that the pattern at H1 (and D1) suggests for a same direction trading at H1 (and D1) too. And it is rewarding to assess if it is more favorable and optimal to trade at H1 or D1 rather than at M5. The "state of trading" based on the time frames M5,H1,D1,W1, in this way, is 4-component vector (x1,x2,x3,x4) where x1,x2,x3,x4=-1,0,1 (e.g. x1=0=do not trade at M5, x1=1=trade up at M5, x1=-1=trade down at M5).And even more useful is the channel-phase-of-trading or PHASE-SIGNATURE, among the relevant to the trade time frames, that would be a vector (φ1,φ2,φ3,φ4) , where
0% less or equal of |φ1,2,3,4| and less or equal of 100%, or φ1,2,3,4=Null. From this vector we may define a weighted average score either as average of signed +,- 0-100% phases or as average of the signs only. The nearest time frame starting from the focal 5-minutes , with the most clear pattern, is called also tonal, gives the priority direction. We set to chose from the time frames that as tonal, in which the direction is best clear, which is called tonal. As tonal pattern we search of course and prefer a spike or 3rd wave, as they have high predictability and low risk. If two different time frames are equally clear in direction (e.g. hourly and daily), we prefer the one which is the larger time frame, as long as it is still relevant to the duration of the possible trade, that is not larger than weekly. In other words no matter the length of the signature, it always has a sign and permits half of the cases. Nevertheless according to the number of agreeing signs to the tonal, we may classify the opportunities to better and worse,and in this way much less that the half may be selected which in creases the success rate and decreases the risk. This is the global filtering of opportunities based on nested time-frames. The local filtering at the focal 1-minute ( or 5-minutes) time-frame is based essentially on the 3rd-wave rule (blow) as below (we are talking about the the faster two time frames) . The trading of the 6 patterns is the densest possible leaving no safe opportunity out. For the patterns, it requires appropriate human-based pattern recognition which is also a safety measure, to allow only humans not machines to have such a high speed performance. This simple but subjective pattern recognition factor is probably the most important success single-factor of discretion , for this system, as it is very flexible and appropriate for the mutations of the markets and no ordinary indicator can substitute it. From all the patterns and ways to trade them, only the external trading of the flat channels, after a spike or not, is the clearly pro-active method (with pending orders), plus in most of the cases the break-out with a spike, is the fastest speed of profit accumulation. That is why it is considered the best choice among all. More than 80% of the times the flat patterns (together with their spikes-breakouts) are those giving the most of the profits, (and not the trend patterns, as most people think), which is best fitting with the intended macroeconomic equilibrium balance of the currencies in forex and the unexpected or expected crises . It is very important for the high probability of the success of prediction that we are looking mainly for flat-patterns and not mainly for the duality of a trend! The success rate of the pattern recognition is expected to be higher than 80%. The template to detect the 6-patterns must have a zigzag for the 1st, 2nd and 3rd vector waves and their channel (e.g. a Donchian channel) , and must use indicators that involve volumes, and divergence (acceleration). The flat patterns and trend patterns are at the focus scale of 60 minutes cycles or 180 minutes cycles (Helioseismologic frequencies) or sessions duration. Their desirable width is 25-50 pips (or 10 times the spread), if internal trading is intended. The traded trend patterns ripples are of 5 minutes in M1 template or of 30 minutes in M5 template, and must have background parallel trend too at 180 minutes or 6 hours respectively. The spikes do not need background. The rules of trading of the 6-patterns are the usual as in the post 32. Rules 1) and 4) here guarantee high probability rate of success in the trades, which together with 2) and 3) that give reward/risk>>1 , make in total the protocol winning. We remind that there is a general trading rule "Οpen at S/R and close going towards or at S/R". The S/R here may be the boundaries of the Donchian channel or the skew or horizontal S/R lines of the trend of the zigzag. This starting point of trading is to be combined with the corrective escalation method. At 1-minutes or 5-minutes time frames the duration of the trend is usually 5-6 bars. Therefore counting bars from 1 to 5 is also important assessment of the trend so as not to enter too late. Being aware of the decimal S/R xx00, xx50 is also important to predict S/R.One of the best filtering of good opportunities even in a single time frame that of focus , is to apply only the 3rd-wave rule among all methods of trading the patterns. It creates intermittency by itself, even without the many-time frame filtering. For this gratido, the focal frequency is star-based (3 helioseismologic frequencies, 180, 60 ,5 minutes) and the background planet-based (day).The pattern recognition must also assess if the emerging pattern is favorable enough to trade. That is a) for trends if they are non-waving but very steady and uniform without much noise, for waving trends if the waving is very clear and repetitive with clear divergence e.g. to trade the 3rd wave (blow) of the reversal , c) for spikes if they are abundant and long enough d) for flat channels if they are steady , of about constant width, and long enough with low noise, and not changing horizontals levels too often without in-between spikes.
As a summary to start making a trading decision, we look 1) the most clear tonal pattern among the neighborhood time frames and its multi-frame phase signature, weighted average score . (For simplistic partial programmings of the pattern recognition of the tonal pattern, we look for spikes on the 3rd or 4th larger time frame, here hours, or 4-hours , 4 hours has priority, defined by the ATR(1),over 250 bars average ATR, as 1st wave).2) the phase to be at a boundary of the channel or in general support-resistance of the focus time scale, and preferable of 1st,2nd or 3rd vector-wave. The tonal pattern gives the sign to all phases of all time frames, so that increasing phase is the predicted and preferred direction!
In an even more simplistic way, we look for the 1st,2nd, 3rd waves only in the 3rd or 4th time frame (the largest has priority),where wave 1 is a spike which is easily recognized and then we just wait for the two only phases in time frames 1st and 2nd to agree.
By having a simple and clear pattern recognition algorithm we get a sharp separation of hat we assume systematic and what random, and when result in to a lost trade we must be able to decide if it was random or an error of the pattern recognition.
As a general rule we prefer also the internal-external trading of them, which always, takes advantage of the width of the channel. (But we must not forget that when we follow the corrective escalation method, there is no need of discrimination between internal or external trading of the channels. Most often it is channel internal trading, but we may correct and escalate with channel external trading, starting from the channel boundary as S/R).The main target of profitability in this system is not the trend but the excitation volatility or width of the channels. Because of the very short duration of the trades (2-5 minutes) compared to the 3-flat patterns larger sizes, there is no issue of "getting in too late". For spikes there is no such issue, and for trends, the divergence-acceleration and the very tight stop-loss, or trading the 3rd wave of the reversal so as to be early enough in the trend, do resolve this issue too. Spikes after flat patterns as break-outs of them and spikes as reaction of spikes are entered, but initial spikes of reversals are not entered during their shaping, they are entered though a posteriori as narrow flat channels or a priori (before their shaping) as breakouts of flat patterns. The order of priority of the patterns to enter are 1) Spikes 2) the 3 flats 3) trends. Of course if we are trading in one sided only way the stock indexes then only spikes and trends are the patterns that are traded. Some of the ambiguity of the pattern recognition is resolved by looking at the patterns of larger time scales. (E.g. if Looking at M1, or M5 time-frames some ambiguity is resolved by looking at H1 and D1 too). Actually the pattern recognition at M5 time-frame must suggest a trading not opposed by a suggested trading by the pattern recognition by the bars at the H1-time-frame (and D1 time frame). And even better if when we proceed to trade, at M5, it so that the pattern at H1 (and D1) suggests for a same direction trading at H1 (and D1) too. And it is rewarding to assess if it is more favorable and optimal to trade at H1 or D1 rather than at M5. The "state of trading" based on the time frames M5,H1,D1,W1, in this way, is 4-component vector (x1,x2,x3,x4) where x1,x2,x3,x4=-1,0,1 (e.g. x1=0=do not trade at M5, x1=1=trade up at M5, x1=-1=trade down at M5).And even more useful is the channel-phase-of-trading or PHASE-SIGNATURE, among the relevant to the trade time frames, that would be a vector (φ1,φ2,φ3,φ4) , where
0% less or equal of |φ1,2,3,4| and less or equal of 100%, or φ1,2,3,4=Null. From this vector we may define a weighted average score either as average of signed +,- 0-100% phases or as average of the signs only. The nearest time frame starting from the focal 5-minutes , with the most clear pattern, is called also tonal, gives the priority direction. We set to chose from the time frames that as tonal, in which the direction is best clear, which is called tonal. As tonal pattern we search of course and prefer a spike or 3rd wave, as they have high predictability and low risk. If two different time frames are equally clear in direction (e.g. hourly and daily), we prefer the one which is the larger time frame, as long as it is still relevant to the duration of the possible trade, that is not larger than weekly. In other words no matter the length of the signature, it always has a sign and permits half of the cases. Nevertheless according to the number of agreeing signs to the tonal, we may classify the opportunities to better and worse,and in this way much less that the half may be selected which in creases the success rate and decreases the risk. This is the global filtering of opportunities based on nested time-frames. The local filtering at the focal 1-minute ( or 5-minutes) time-frame is based essentially on the 3rd-wave rule (blow) as below (we are talking about the the faster two time frames) . The trading of the 6 patterns is the densest possible leaving no safe opportunity out. For the patterns, it requires appropriate human-based pattern recognition which is also a safety measure, to allow only humans not machines to have such a high speed performance. This simple but subjective pattern recognition factor is probably the most important success single-factor of discretion , for this system, as it is very flexible and appropriate for the mutations of the markets and no ordinary indicator can substitute it. From all the patterns and ways to trade them, only the external trading of the flat channels, after a spike or not, is the clearly pro-active method (with pending orders), plus in most of the cases the break-out with a spike, is the fastest speed of profit accumulation. That is why it is considered the best choice among all. More than 80% of the times the flat patterns (together with their spikes-breakouts) are those giving the most of the profits, (and not the trend patterns, as most people think), which is best fitting with the intended macroeconomic equilibrium balance of the currencies in forex and the unexpected or expected crises . It is very important for the high probability of the success of prediction that we are looking mainly for flat-patterns and not mainly for the duality of a trend! The success rate of the pattern recognition is expected to be higher than 80%. The template to detect the 6-patterns must have a zigzag for the 1st, 2nd and 3rd vector waves and their channel (e.g. a Donchian channel) , and must use indicators that involve volumes, and divergence (acceleration). The flat patterns and trend patterns are at the focus scale of 60 minutes cycles or 180 minutes cycles (Helioseismologic frequencies) or sessions duration. Their desirable width is 25-50 pips (or 10 times the spread), if internal trading is intended. The traded trend patterns ripples are of 5 minutes in M1 template or of 30 minutes in M5 template, and must have background parallel trend too at 180 minutes or 6 hours respectively. The spikes do not need background. The rules of trading of the 6-patterns are the usual as in the post 32. Rules 1) and 4) here guarantee high probability rate of success in the trades, which together with 2) and 3) that give reward/risk>>1 , make in total the protocol winning. We remind that there is a general trading rule "Οpen at S/R and close going towards or at S/R". The S/R here may be the boundaries of the Donchian channel or the skew or horizontal S/R lines of the trend of the zigzag. This starting point of trading is to be combined with the corrective escalation method. At 1-minutes or 5-minutes time frames the duration of the trend is usually 5-6 bars. Therefore counting bars from 1 to 5 is also important assessment of the trend so as not to enter too late. Being aware of the decimal S/R xx00, xx50 is also important to predict S/R.One of the best filtering of good opportunities even in a single time frame that of focus , is to apply only the 3rd-wave rule among all methods of trading the patterns. It creates intermittency by itself, even without the many-time frame filtering. For this gratido, the focal frequency is star-based (3 helioseismologic frequencies, 180, 60 ,5 minutes) and the background planet-based (day).The pattern recognition must also assess if the emerging pattern is favorable enough to trade. That is a) for trends if they are non-waving but very steady and uniform without much noise, for waving trends if the waving is very clear and repetitive with clear divergence e.g. to trade the 3rd wave (blow) of the reversal , c) for spikes if they are abundant and long enough d) for flat channels if they are steady , of about constant width, and long enough with low noise, and not changing horizontals levels too often without in-between spikes.
As a summary to start making a trading decision, we look 1) the most clear tonal pattern among the neighborhood time frames and its multi-frame phase signature, weighted average score . (For simplistic partial programmings of the pattern recognition of the tonal pattern, we look for spikes on the 3rd or 4th larger time frame, here hours, or 4-hours , 4 hours has priority, defined by the ATR(1),over 250 bars average ATR, as 1st wave).2) the phase to be at a boundary of the channel or in general support-resistance of the focus time scale, and preferable of 1st,2nd or 3rd vector-wave. The tonal pattern gives the sign to all phases of all time frames, so that increasing phase is the predicted and preferred direction!
In an even more simplistic way, we look for the 1st,2nd, 3rd waves only in the 3rd or 4th time frame (the largest has priority),where wave 1 is a spike which is easily recognized and then we just wait for the two only phases in time frames 1st and 2nd to agree.
By having a simple and clear pattern recognition algorithm we get a sharp separation of hat we assume systematic and what random, and when result in to a lost trade we must be able to decide if it was random or an error of the pattern recognition.
6) It is a universal system, that applies basically to all currencies and instruments. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
7) It is so simple to conduct, that although it may require custom indicators, it does not require expert-advisors or robots only pending orders, and stop loss, so it is server-side automation, which is cheaper and safer. Its simplicity is also a shield to what is mentioned later in this post, as "contaminated subconscious environment". In other words I do not need special meditation to forecast the market, only a simple human-based and algorithmic patter recognition; although I may need meditation in general in my life to keep confidence to myself, and a good quality life for me and others, for otherwise not matter how much the trading profits, they would not be of any value and would not serve to any good purpose.
8) It has such a high capitalization speed (with 3-4 hours daily, at least 1MDS) that is essentially pure freedom from the slavery of economic survival (by being forced to sell your time). It can be done starting practically from zero in a few months, especially if forex market is used, which has low initial funds and high leverage, plus balanced currencies.
Probably the most important psychological virtue of a trader, is his disregard and contempt of temporary failure.
Probably the most important psychological virtue of a trader, is his disregard and contempt of temporary failure.
Here is an example of a detailed statement of manual application of gratido minute-wise during April 2013
This trading is of course standard forex trading in a broker that at that time had a very small spread of 0.2-0.5 pips. But I believe, this trading can be done also with binary options (especially 60 seconds and 5 minutes expiration) where there is no spread. As the success rate here is 81%, and it will be a well profitable 60-seconds binary options trading , based on appropriate filtering of 20-minutes Dochian channel signals, even with reward/risk ratio as low as 0.7 which is the lowest that binary options brokers give. The simulator gives that by risking 2.7% of the funds (no martingale) even with a 0.7 reward/risk ratio of the broker, with 81% success rate and 137 trades per month, it is about 1.88 MDS, with standard deviation of the profits 17%, and with average maximum draw down 6.17%, +,-2%. While with a success rate only 70% and the same other parameters as above, it gives about 0.43MDS or 43% monthly return , with standard deviation of the profits about 15% and with average maximum draw down 7.55%, +,-3%. About the same results are with success rate again 81% but only about 2 trades per day, that is about 40 per month. The latter performance of 40%-45% monthly, is about the same with the world championships below (Larry Williams, Chuck Hughes, Dan Zanger).
We may compare these results with the trading results of Larry Williams, which are close to 0.47MDS here
http://en.wikipedia.org/wiki/Larry_Williams_(a_publisher_and_promoter_of_trading_ideas)
Or with the trading results of Chuck Hughes that also about 0.4MDS
here http://www.chuckhughesonline.com/
Or with the trading results of Dan Zanger that are about 0.42MDS here
http://en.wikipedia.org/wiki/Dan_Zanger
1) We utilize 1-minute bars charts, and we set the orders whenever we have 1-2 hours free time which is not be interupted. We utilize a Bollinger bundle of 30-minutes period and 2-standard deviations width. We may utilize also a zig-zag (e.g. based on the standard deviations, and of period of 5 minutes). We may also add a force index (by Alexander Elder) which utilizes volumes too, and where we can see the divergence, of period 2 minutes.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar . To conform we consult the force indicator so see a reversal or divergence.
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 5 minutes bars (equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index or oscillators to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize multiple time-frames pattern recognition. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode).We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. We prefer to continue another day, and time, as we may be more successful. An alternative way to define the exposure is the next. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
6) We do apply pyramiding backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. We avoid correcting-pyramiding more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
7) Because of the ultra-simple indicators template (2-3 indicators only) and rules, we can persevere the trading practice for a long time, and we attribute all failures not to any wrong pattern recognition but to unavoidable randomness. In this way psychologically it is a an attractive practice. Human based pattern recognition of the appropriateness of the forecasting is essential here, and it could not be programmed to an expert-advisor or robot! The 98% of the decision should be based on observable pattern recognition rather than non-observable. But when trading at the direction of the channel, we may do so after choosing times of calendar news and announcements, that suggest the emergence of a strong trend, no matter what direction (e.g. from here http://www.forexfactory.com/calendar.php ). As it is binary options the exit rule is not our choice. And for the entrance rule it is better to be on a direction that it has already showed to emerge. taking 1/3 of the total movement is absolutely adequate for our purposes. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years, on daily bars which is about 300% annually. If we want to transfer it ,as an upper bound of the rate of return, to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 1-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/1minutes)/12=squareroot(1440)/12=37.94/12=3.16 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 1 minutes bars, with 2 hours per day we make at most only 3.16 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself!
The position sizing in the Gratido Minutewise is based on the volatility.
The system uses a concept called N to represent the underlying
To compute the daily true range:
True Range = Maximum(H - L,H - PDC, PDC - L)
where:
H – Current High L – Current Low PDC – Previous 5-minutes bar Close
To compute N use the following formula:
N = (35 × PDN + TR ) 36
where:
PDN – Previous 5-minutes bar N ,TR – Current 5-minutes bar True Range
Since this formula requires a previous bars N value, you must start
The first step in determining the position size was to determine the
Dollar Volatility = N × Dollars per Point
Volatility Adjusted Position Units
The system built positions in pieces which were called Units. Units
Examples
Unit = X% of Account Market Dollar Volatility
or
Unit = X% of Account N × Dollars per Point
Adding Units (Pyramiding). An alternative way of pyramiding is based on the unit N. The System entered single Unit long positions at the breakouts and added to those positions at 1⁄2 N intervals following their initial entry. This 1⁄2 N interval was based on the actual fill price of the previous order. So if an initial breakout order slipped by 1⁄2 N, then the new order would be 1 full N past the breakout to account for the 1⁄2 N slippage, plus the normal 1⁄2 N unit add interval. This would continue right up to the maximum permitted number of units (based on the risked 1% [or up to 6% limit]) .
We notice that stop-loss is 2N or N/2 units , ((n)^1/2)N units where n is the length of the relevant half-period wave e.g. for daily bars n=10 , and pyramiding N/2 units. (where the position size is such the N price change means 1% change in the funds.)Such are mainly the rules in the fast turtle trading system too see post 53
When in the charts of MT4 we put the entry stops in the buy up direction we must add the spread.
We may summarize the trading of the 3 patterns (flat channel, trending channel, spike) as follows
1) There is external trading of channels and there is internal trading of channels. External trading of flat channels is better (of lower risk and higher performance) than internal trading, only at the end of the flat diminishing (contracting triangle) channel , when it is ready for a breakout to a spike. Otherwise the 3rd wave internal trading of flat channels is better.
2) The internal trading is of flat channels and of trending channels. The internal trading of trending channels is considered better, than of flat channels.
3) The external trading of flat channels, is of flat channels after spikes or not. External trading of flat diminishing channels before spikes is considered the best opportunity, for spikes as it is pro-active.
Also expanding flat channels are the worse for external trading, the best (among flat channels) for internal trading. Contracting flat channels, are the worse for internal trading, but good for external trading.
Although external trading of flat channels is the best opportunity, has low risk and high profitability, they are set with pending orders and is unpredictable when they will trigger, maybe after half hour or after many hours. But the internal trading of trending channels, although a less good opportunity, has trades that is expected to occur within the next 5-15 minutes, so they are convenient to conduct when sitting for limited time in front of the computer.
The corrective actions are of two types a) The same side or averaging, or adjustments or backwards pyramiding (the closest and first in time correction) b) The opposite side or hedging (the second timely correction when the market prediction changes direction). Hedging works best with brokers where the margin cancels out for equal and opposite positions. Same-side correction is better than opposite side correction, as it does not involve reversing of the prediction but only fluctuations around an average path. (Internal trading of flat channels could be hedge-corrected to external of them. But it is better not attempt internal trading of flat channels at all. External trading of flat channels could be hedge-corrected to internal. But it is better simply to exit with stop loss and insist to external trading than hedge-correct it to internal.)
The averaging or adjustment is usually a pattern-correction of the internal trading of a channel, and is equivalent to pyramiding as far as the result is concerned. The pyramiding can be done also in the internal trading of trending channels. Pyramiding during spikes can be applied here, in minute-wise gratido, in the manual trading , but it is practical only as automated trading with pending orders. As manual trading of spikes in gratido minute-wise we setup the trade either pro-actively as flat-channels break outs, or a posteriori, again as breakout of flat channels just after the spike.
The trading of the non-waving non-channeled trends, is done as the the trading of spikes, but obviously are less better opportunities. It considered external trading.
We may compare these results with the trading results of Larry Williams, which are close to 0.47MDS here
http://en.wikipedia.org/wiki/Larry_Williams_(a_publisher_and_promoter_of_trading_ideas)
Or with the trading results of Chuck Hughes that also about 0.4MDS
here http://www.chuckhughesonline.com/
Or with the trading results of Dan Zanger that are about 0.42MDS here
http://en.wikipedia.org/wiki/Dan_Zanger
ULTRA SIMPLE VERSION FOR BINARY OPTIONS ON MINUTES BARS
Remark. As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
2) The system is complete in the sense that it trades all the basic tradable patterns like horizontal channels, waving trends and (terminal) spikes. We trade flat channels internally as an oscillator. That is whenever bars crosses the boundary of the Bollinger bundle we bet that it will close in opposite direction at the end of the next 2 bars. This is a bit tricky, as a little better rule is to wait for formation of reversal on the bars, after the first cross of the Bollinger bundle boundary by a bar . To conform we consult the force indicator so see a reversal or divergence.
3) We trade also when the Bollinger bundle is not flat but trending, in an internal to the channel way, at the start of the 3rd wave after the first "spike-wave"of the beak out of the channel. We bet that it will close in the direction of the trend within 5 minutes bars (equal to the period of the zigzag). We may trade 5th wave or higher but rarely, and after reversal internally to the channel close to the middle line of the channel in the direction of the trend. To confirm we consult the force index or oscillators to see a reversal or divergence. We also may trade the terminal or exhaustion spike of a trend, as the Bill Williams was doing. The Terminal spike of a trend reverses to a reaction spike, which is therefore an optimal opportunity to trade a spike from its start, plus the fact that it gives the opportunity of very tight error on the opposite direction (the direction of the old trend and terminal spike. If it was not binary options trading this would been very tight stop loss thus very low percentage of risking of the funds.
4) We do not utilize multiple time-frames pattern recognition. Here we must add that if we want to make it truly safe and great system with high probability of success due to improved predictability , we must apply it only to index funds (indexes of securities and preferably of American stock exchanges, like SnP500, Nasdaq, Dow Jones etc) because they have long term stable and strong trend or drift, which is inherited in lower time scales like on daily bars or minutes. This also requires that we trade always on the trend that is apparent in the seasonal and annual cycles or time scale of 0.5-2.75 years and never during that on the opposite direction. Obviously this means that we trade almost always in the upward direction as these indexes are essentially trending up. Furthermore that we prefer to enter only at terminal spikes opposite of the trend and thus take the trend at a very good start, that also allows us to have a very tight stop loss (Bill Williams entry preference).
5) We risk each trade 0.5%-1% of the funds. (Kelly rule in very conservative mode).We give priority to risk compared to gaining, which means that we make sure at first that we do not risk more than accepted and we do not lose our funds, before we proceed to profit. If we get a significant sequence of loosing trades, we prefer to stop, as it may be that we assess systematically wrongly the market. We prefer to continue another day, and time, as we may be more successful. An alternative way to define the exposure is the next. Consumption rule (Optimal funds adjustments by the constant ratio rule, see also post 3)). We divide our funds in to two parts, and we trade only one of them that we call trading funds, while the other is from where we withdraw for consumption, and we call them availability funds. If the rate of increase of the funds that are traded is R and its standard deviation of this rate of increase is s, then the mathematical rule is that the traded funds are as percentage p=maximum(R/s^2 , 1) of the total funds. We check our trading monthly and we adjust the ratio p of trading and availability funds so as to be always the previous (see also post 3 ). E.g. usually p=66%. This is the constant ratio rule. We may withdraw for consumption monthly or per period, at maximum of at most half of the average monthly (or period) return of the trading system on the trading funds, from the availability funds.
6) We do apply pyramiding backwards in both cases 2) and 3) above, to correct earlier that appropriate entrance, but the pyramiding is always less or at most equal to the size if the initial trade. We avoid correcting-pyramiding more than 2-3 times on the same initial trade. If all 2-3 corrections fail we stop and reexamining our perceptions of the situation as it may be radically wrong or we tune to inverse timing of the markets movements. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
7) Because of the ultra-simple indicators template (2-3 indicators only) and rules, we can persevere the trading practice for a long time, and we attribute all failures not to any wrong pattern recognition but to unavoidable randomness. In this way psychologically it is a an attractive practice. Human based pattern recognition of the appropriateness of the forecasting is essential here, and it could not be programmed to an expert-advisor or robot! The 98% of the decision should be based on observable pattern recognition rather than non-observable. But when trading at the direction of the channel, we may do so after choosing times of calendar news and announcements, that suggest the emergence of a strong trend, no matter what direction (e.g. from here http://www.forexfactory.com/calendar.php ). As it is binary options the exit rule is not our choice. And for the entrance rule it is better to be on a direction that it has already showed to emerge. taking 1/3 of the total movement is absolutely adequate for our purposes. The expected rate of return, is quite indeterminate! But we may utilize the standard that Bill Williams has achieved for 40 years, on daily bars which is about 300% annually. If we want to transfer it ,as an upper bound of the rate of return, to smaller time scale, e.g. n-times faster bars, then we multiply it by Squareroot(n) , and divide by the percentage of the 24 hours that we will stay in front of the monitor trading. E.g. of we shift to 1-minutes bars, and trade say for 2 hours the day then it is squareroot(1440minutes/1minutes)/12=squareroot(1440)/12=37.94/12=3.16 times. That is while with daily bars we spent say about 15 minutes every day, if we shift to 1 minutes bars, with 2 hours per day we make at most only 3.16 times more money than the trading on the daily bars! Of course the standard deviation for such rate is usually larger in value than the rate itself!
Only if we measure the success rate and standard deviation on excursions of trades rather than on trades (hierarchical sampling) the value of the success rate increases and the the standard deviation of the rate of return of excursions decreases and the trading thus become psychologically acceptable.
The position sizing in the Gratido Minutewise is based on the volatility.
The Meaning of the volatility unit N
The system uses a concept called N to represent the underlying
volatility of a particular market.
N is simply the 180-minutes or the 36 5-minutes bars, exponential moving average of the True Range, which is now more commonly known as the ATR.
Conceptually, N represents the average range in price movement that
a particular market makes in a single day, accounting for opening
gaps. N was measured in the same points as the underlying contract.
To compute the daily true range:
True Range = Maximum(H - L,H - PDC, PDC - L)
where:
H – Current High L – Current Low PDC – Previous 5-minutes bar Close
To compute N use the following formula:
N = (35 × PDN + TR ) 36
where:
PDN – Previous 5-minutes bar N ,TR – Current 5-minutes bar True Range
Since this formula requires a previous bars N value, you must start
with a 36 5-minutes bars simple average of the True Range for the initial calculation.
The first step in determining the position size was to determine the
dollar volatility represented by the underlying market’s price volatility
(defined by its N).
This sounds more complicated than it is. It is determined using the
simple formula:
Dollar Volatility = N × Dollars per Point
Volatility Adjusted Position Units
The system built positions in pieces which were called Units. Units
were sized so that 1 N represented f=1%-6% of the account equity.
In general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage f of funds risked in the trade should be about f=p1-p2.
Thus, a unit for a given market or commodity can be calculated using
the following formula:
Examples
Unit = X% of Account Market Dollar Volatility
or
Unit = X% of Account N × Dollars per Point
Adding Units (Pyramiding). An alternative way of pyramiding is based on the unit N. The System entered single Unit long positions at the breakouts and added to those positions at 1⁄2 N intervals following their initial entry. This 1⁄2 N interval was based on the actual fill price of the previous order. So if an initial breakout order slipped by 1⁄2 N, then the new order would be 1 full N past the breakout to account for the 1⁄2 N slippage, plus the normal 1⁄2 N unit add interval. This would continue right up to the maximum permitted number of units (based on the risked 1% [or up to 6% limit]) .
We notice that stop-loss is 2N or N/2 units , ((n)^1/2)N units where n is the length of the relevant half-period wave e.g. for daily bars n=10 , and pyramiding N/2 units. (where the position size is such the N price change means 1% change in the funds.)Such are mainly the rules in the fast turtle trading system too see post 53
When in the charts of MT4 we put the entry stops in the buy up direction we must add the spread.
We may summarize the trading of the 3 patterns (flat channel, trending channel, spike) as follows
1) There is external trading of channels and there is internal trading of channels. External trading of flat channels is better (of lower risk and higher performance) than internal trading, only at the end of the flat diminishing (contracting triangle) channel , when it is ready for a breakout to a spike. Otherwise the 3rd wave internal trading of flat channels is better.
2) The internal trading is of flat channels and of trending channels. The internal trading of trending channels is considered better, than of flat channels.
3) The external trading of flat channels, is of flat channels after spikes or not. External trading of flat diminishing channels before spikes is considered the best opportunity, for spikes as it is pro-active.
Also expanding flat channels are the worse for external trading, the best (among flat channels) for internal trading. Contracting flat channels, are the worse for internal trading, but good for external trading.
Although external trading of flat channels is the best opportunity, has low risk and high profitability, they are set with pending orders and is unpredictable when they will trigger, maybe after half hour or after many hours. But the internal trading of trending channels, although a less good opportunity, has trades that is expected to occur within the next 5-15 minutes, so they are convenient to conduct when sitting for limited time in front of the computer.
The corrective actions are of two types a) The same side or averaging, or adjustments or backwards pyramiding (the closest and first in time correction) b) The opposite side or hedging (the second timely correction when the market prediction changes direction). Hedging works best with brokers where the margin cancels out for equal and opposite positions. Same-side correction is better than opposite side correction, as it does not involve reversing of the prediction but only fluctuations around an average path. (Internal trading of flat channels could be hedge-corrected to external of them. But it is better not attempt internal trading of flat channels at all. External trading of flat channels could be hedge-corrected to internal. But it is better simply to exit with stop loss and insist to external trading than hedge-correct it to internal.)
The averaging or adjustment is usually a pattern-correction of the internal trading of a channel, and is equivalent to pyramiding as far as the result is concerned. The pyramiding can be done also in the internal trading of trending channels. Pyramiding during spikes can be applied here, in minute-wise gratido, in the manual trading , but it is practical only as automated trading with pending orders. As manual trading of spikes in gratido minute-wise we setup the trade either pro-actively as flat-channels break outs, or a posteriori, again as breakout of flat channels just after the spike.
The trading of the non-waving non-channeled trends, is done as the the trading of spikes, but obviously are less better opportunities. It considered external trading.
The best opportunity for internal trading is at the end of a trend or flat channel (which appears as a reversal) , and which is the start of a new flat or trending channel, and in particular the "Blow" wave of the channel. (If the channel is flat it can be traded externally too). Of course a "Blow" wave a trending channel is a better opportunity compared to a "Blow" wave of a flat channel. The best opportunity of external trading is at a flat channel that exists for quite some time, and even better after a spike. Nevertheless as mentioned before external trading is better than internal trading. The only case where internal trading is better than external trading is at a trending channel.
If a break-out spike of a flat channel is missed , as external trading, we have the chance to trade the "Blow" wave, as internal trading, if the initiating trend, by the spike, is a channeled trend. The success rate of the "Blows" at the start of channels in internal trading is very high. The success rate of flat channels breakouts in external trading may be lower than 50%, but the loss is little, while by insisting setting more (that is why we must not be away from the monitor in trading) the one that succeeds has large profits.
The classical technical analysis continuation patterns are the flat channel of constant amplitude and the flat channel of diminishing amplitude (triangle). They are ideal for external trading. They are usually after trends without channel or spikes and most often continue the price movement rather than reversing it. The flat channel of increasing amplitude, is supposed to breakout as reversal rather than as continuation.
The reversal patterns of classical technical analysis are very short-life rather flat channel that reverse a channeled trend to a new opposite direction channel trend. They are ideal for internal trading of the 3rd wave towards the new trend ("Blow" vector).
We conclude that pyramiding is done both in internal or external trading of channels, and the triggers of pyramiding would be internal or external correspondingly.
Even if a market would be a sequence of spikes alternating with flat continuation channels (that is a market without trends) , with 50% probability of the next spike up or down (a random walk of spikes) , still an external trading of the breakouts of the flat intermediate channels would be a very profitable trading. And we may assume in a bold way that the forex market follows such a simplified model unless,we observe a channeled or not trend.
In the same way, let us assume that market, as a stochastic process, was a random walk within parallel reflection zones of support-resistance (darvas zones) , such that at each parallel zone support-resistance there is 80% probability of reflection and 20% probability of break-through to the adjacent zone. We may call it parallel support-resistance reflection levels random walk. Even in such a market the above trading methods and in particular the gratido system, would be a consistent profitable trading.
In the same way, let us assume that market, as a stochastic process, was a random walk within parallel reflection zones of support-resistance (darvas zones) , such that at each parallel zone support-resistance there is 80% probability of reflection and 20% probability of break-through to the adjacent zone. We may call it parallel support-resistance reflection levels random walk. Even in such a market the above trading methods and in particular the gratido system, would be a consistent profitable trading.
We may notice the resemblance of this system, and it volatility based stop-loss, trailing, pyramiding , and position sizing, with turtle trading system, which is known to be successful and profitable in the markets for many decades. But do not get deceived. We do not trade on all breakouts of the Donchian channel. Instead we apply pattern recognition.In the markets there are also the channeled trends not only spikes, and flat channels, and channeled trends are traded better internally rather than externally.
For the Gratido minutes-wise, the session-less hours where the spread of the brokers is magnified, and the spikes not very probable are not considered good hours for trading.
Almost all of the "scalpers", in the web, are algorithms that with a combination of indicators, define two states of the market either up or down, (or at best 3 states, up. down, neutral, but the neutral say is less than 33% of the times) and then let you trade up or down. In fact, they are so determined by the indicators, that there is no real reason why it should be conducted manually, and not coded as an expertadvisor. And when coded as an expertadvisor, it can be discovered that it is a losing system. Nowhere is apparent why a manual conduction would not make it a losing system. But in Gratido minutewise, it is apparent where the human element enters, and why it cannot be coded. In addition it is not determined three states of the market, up, down, neutral, but rather active patterns. Then patterns are traded, (in the majority of times flat) in both directions in a proactive way, even if from the forecasting point of view, the market will go in one only direction with significantly higher probabilities, than anything else. That is why the Gratido minute-wise is radically different trading system compared to most of the known, and is so different in its psychology, and stability of the results.
We copy past here the part with what simplicity the corrective escalation method (see post 55) deals with the chaos of short time scale randomness of the stationary markets.
1) FOR FLAT CHANNELS , above the middle channel line (or also a support resistance level) we sell, and bellow the middle channel line we buy. The channel may be a Bollinger Bands of two standard deviations and of number of periods half the period of the closest active price cycle in the time scale we trade. We prefer non-decreasing width channels, for this method. The size also of buying increases as we get away from the middle line (according to a rule we decide) This is the adjustment part (or moyen) of the corrective interpolation. We consult charts at two more slower time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting. We may have open positions simultaneously in opposite direction if e.g. the channel break out. The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes.
2) FOR NON-FLAT BUT SKEW CHANNELS we apply the Elliot waves. In the Elliot sub-waves of a trending channel we escalate (or pyramid) the volumes of the positions so that in the average per sub-wave the position increases according the numbers 5,4,3,2,1 ,for the first, second, third, fourth and fifth Eliot sub-wave correspondingly. Opening positions at break-outs of a channel is good only for non-waving trends if we can predict that. We consult charts at two more slower time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting.This has been applied essentially by Bill Williams in his older books. We may have open positions simultaneously in opposite direction if e.g. the channel turns from a trend to a flat continuation pattern.
3) FOR SPIKES and during the spike , we only escalate , we do not adjust , with the numbers 5,4,3,2,1 . And after the spike and during the reaction of the spike, in direction according to if the spike is initial or terminal. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting , in other words if the spike is terminal or initial. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
4) FOR LONG TERM STABLE TRENDS. When in the market there is a long term stable trend, a very good starting point to open a position is at a terminal spike opposite to the trend . We open at the opposite direction of the terminal spike, thus in the direction of the long term trend. Due to the terminal spike, we may exceptionally put a very tight stop loss. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting of the trend.This is essentially the basic way of the Bill Williams trading in his more recent books. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
5)THE ONLY CERTAINTY IN TRADING WITH MARGIN. FIRST PRIORITY IS TO BOUND LOSSES WITH THE KELLY CRITERION. At each state of the multiple positions usually there is an expected move in some direction of the market. It is of primary priority that we have set opposite direction orders ,playing the role of stop loss, of doubling each of the open positions, at some critical level that signifies move of the market in the opposite of the expected direction . In this way at a worst case scenario, we have bound the losses , according to the size of the total position , and be sure that are never larger in the percentage from the accepted limits, that are e.g. 1%-6%, or as the Kelly criterion defines. It is the only certainty that we can have in trading.
6) THE CLOSING OF THE EXCURSION OF POSITIONS. We may apply all-group-take profit or partial-group take profit of the positions, while opening at the opposite direction as stop-loss, according to the pattern action. In other words the first time all the open positions gaining or losing have in total a predetermined profit, we close all positions.
7) ONE SIDED DIRECTION CASE. If we want to apply the corrective escalation improvisational interpolation method to one sided, up only trading on stock indexes , at short time scale (e.g. 5 minutes or hourly bars) we start the excursion at up ward only cases. But if the short time scale market moves surprises us by turning from trend to stationary channel or from stationary channel to downward trend etc, the instead of closing the position by a stop loss, we correct it with opposite direction positions as above , till we close with a group-positions total profit of the excursion of positions.
8) CONSTANT RATIO WITHDRAWAL RULE . We may divide the funds to 2/3 of them that we trade, and 1/3 that we do not trade. The exact percentage should be defined by the ratio (f=R/a^2) (that we mention in posts 13, 1nd 33 from the book "Stochastic Differential equations" by B. K. Oksendal (Springer editions) page 223, example 11.5) where R is the average per period rate o return of the trading on the used funds, measured on a sample of periods and a^2 is the variance of this rate of return on this sample of periods. E.g. of the rate of return is 10% per period and the standard deviation a of it is 34%, then the percentage f is 2/3. Each period we re-adjust the total funds so that this ratio f applies as division of the funds. As the sample of measurement of this ratio is not small, usually it remains rather constant. We withdraw e.g. from the 1/3 non-trading funds ,each period never more than half of the average profits per period of the other 2/3 of the funds that are traded. The current withdrawal rule that e.g. has been applied for many years by professor Michael LeBoeuf in his investments (see https://en.wikipedia.org/wiki/Michael_LeBoeuf and http://www.nightingale.com/beat-time-money-trap-mp3.html ))
The general psychological feeling of the corrective escalated improvisational interpolation, is that it is the simplicity with which we may deal with the chaos of the randomness of the short scale stationary markets. We must not have an attitude that we "possess" the market, because it will spoil our psychology. We must keep a psychological distance from the market , but also have a keen awareness of its observable moves. In the successful conduction, it is required a correct balance between changing MENTAL IMAGES of a changing forecasting, FEELINGS and beliefs from what we see in the market and our positions and our ability for faster response by positions, than the moves of the markets, and successful ACTION of adjusting and opening and closing positions. And It is important to feel that we are able to adjust faster our positions than the speed with which the market moves. And it is important to be aware that what we feel and believe during such fast and short time scale trading is not enforced without our consent by a possible discrepancy of our choice of some open position and direction that the market moves. In fact in this method of trading it holds that we FOLLOW THE MARKET rather than we predict the market. Because we continuously correct our position. Eventually because there is something that may be called "statistical conservation of the momentum of the moves of the market", we end up being successful. We may very often start against the market, but what ever the market does we respond continuously and in a rather improvisational way, till we close following the market. And although we are never very exact at forecasting the market or level where we open positions , we are almost always, and in more than 80% of the excursions, gaining!
2) FOR NON-FLAT BUT SKEW CHANNELS we apply the Elliot waves. In the Elliot sub-waves of a trending channel we escalate (or pyramid) the volumes of the positions so that in the average per sub-wave the position increases according the numbers 5,4,3,2,1 ,for the first, second, third, fourth and fifth Eliot sub-wave correspondingly. Opening positions at break-outs of a channel is good only for non-waving trends if we can predict that. We consult charts at two more slower time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting.This has been applied essentially by Bill Williams in his older books. We may have open positions simultaneously in opposite direction if e.g. the channel turns from a trend to a flat continuation pattern.
3) FOR SPIKES and during the spike , we only escalate , we do not adjust , with the numbers 5,4,3,2,1 . And after the spike and during the reaction of the spike, in direction according to if the spike is initial or terminal. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting , in other words if the spike is terminal or initial. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
4) FOR LONG TERM STABLE TRENDS. When in the market there is a long term stable trend, a very good starting point to open a position is at a terminal spike opposite to the trend . We open at the opposite direction of the terminal spike, thus in the direction of the long term trend. Due to the terminal spike, we may exceptionally put a very tight stop loss. We consult charts at two more time frames at least 5 times slower than the fastest and focus time frame, to assess the quality of the probability or risk of the forecasting of the trend.This is essentially the basic way of the Bill Williams trading in his more recent books. We may have open positions simultaneously in opposite direction if e.g. the market continues in an expected way to the opposite direction.
5)THE ONLY CERTAINTY IN TRADING WITH MARGIN. FIRST PRIORITY IS TO BOUND LOSSES WITH THE KELLY CRITERION. At each state of the multiple positions usually there is an expected move in some direction of the market. It is of primary priority that we have set opposite direction orders ,playing the role of stop loss, of doubling each of the open positions, at some critical level that signifies move of the market in the opposite of the expected direction . In this way at a worst case scenario, we have bound the losses , according to the size of the total position , and be sure that are never larger in the percentage from the accepted limits, that are e.g. 1%-6%, or as the Kelly criterion defines. It is the only certainty that we can have in trading.
6) THE CLOSING OF THE EXCURSION OF POSITIONS. We may apply all-group-take profit or partial-group take profit of the positions, while opening at the opposite direction as stop-loss, according to the pattern action. In other words the first time all the open positions gaining or losing have in total a predetermined profit, we close all positions.
7) ONE SIDED DIRECTION CASE. If we want to apply the corrective escalation improvisational interpolation method to one sided, up only trading on stock indexes , at short time scale (e.g. 5 minutes or hourly bars) we start the excursion at up ward only cases. But if the short time scale market moves surprises us by turning from trend to stationary channel or from stationary channel to downward trend etc, the instead of closing the position by a stop loss, we correct it with opposite direction positions as above , till we close with a group-positions total profit of the excursion of positions.
8) CONSTANT RATIO WITHDRAWAL RULE . We may divide the funds to 2/3 of them that we trade, and 1/3 that we do not trade. The exact percentage should be defined by the ratio (f=R/a^2) (that we mention in posts 13, 1nd 33 from the book "Stochastic Differential equations" by B. K. Oksendal (Springer editions) page 223, example 11.5) where R is the average per period rate o return of the trading on the used funds, measured on a sample of periods and a^2 is the variance of this rate of return on this sample of periods. E.g. of the rate of return is 10% per period and the standard deviation a of it is 34%, then the percentage f is 2/3. Each period we re-adjust the total funds so that this ratio f applies as division of the funds. As the sample of measurement of this ratio is not small, usually it remains rather constant. We withdraw e.g. from the 1/3 non-trading funds ,each period never more than half of the average profits per period of the other 2/3 of the funds that are traded. The current withdrawal rule that e.g. has been applied for many years by professor Michael LeBoeuf in his investments (see https://en.wikipedia.org/wiki/Michael_LeBoeuf and http://www.nightingale.com/beat-time-money-trap-mp3.html ))
The general psychological feeling of the corrective escalated improvisational interpolation, is that it is the simplicity with which we may deal with the chaos of the randomness of the short scale stationary markets. We must not have an attitude that we "possess" the market, because it will spoil our psychology. We must keep a psychological distance from the market , but also have a keen awareness of its observable moves. In the successful conduction, it is required a correct balance between changing MENTAL IMAGES of a changing forecasting, FEELINGS and beliefs from what we see in the market and our positions and our ability for faster response by positions, than the moves of the markets, and successful ACTION of adjusting and opening and closing positions. And It is important to feel that we are able to adjust faster our positions than the speed with which the market moves. And it is important to be aware that what we feel and believe during such fast and short time scale trading is not enforced without our consent by a possible discrepancy of our choice of some open position and direction that the market moves. In fact in this method of trading it holds that we FOLLOW THE MARKET rather than we predict the market. Because we continuously correct our position. Eventually because there is something that may be called "statistical conservation of the momentum of the moves of the market", we end up being successful. We may very often start against the market, but what ever the market does we respond continuously and in a rather improvisational way, till we close following the market. And although we are never very exact at forecasting the market or level where we open positions , we are almost always, and in more than 80% of the excursions, gaining!
Here is an example of a detailed statement of manual application of gratido minute-wise during April 2013. This trading is of course standard forex trading in a broker that at that time had a very small spread of 0.2-0.5 pips.The example gives a doubling of the funds within a month.
But I believe, this trading can be done also with binary options (especially 60 seconds and 5 minutes expiration) where there is no spread. As the success rate here is 81%, and it will be a well profitable 60-seconds binary options trading , based on appropriate filtering of 20-minutes Dochian channel signals, even with reward/risk ratio as low as 0.7 which is the lowest that binary options brokers give. The simulator gives that by risking 2.7% of the funds (no martingale) even with a 0.7 reward/risk ratio of the broker, with 81% success rate and 137 trades per month, it is about 1.88 MDS, with standard deviation of the profits 17%, and with average maximum draw down 6.17%, +,-2%. While with a success rate only 70% and the same other parameters as above, it gives about 0.43MDS or 43% monthly return , with standard deviation of the profits about 15% and with average maximum draw down 7.55%, +,-3%. About the same results are with success rate again 81% but only about 2 trades per day, that is about 40 per month. The latter performance of 40%-45% monthly, is about the same with the world championships below (Larry Williams, Chuck Hughes, Dan Zanger). For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
If we apply the n^(-1/2) rue as in the post 12, we may convert this 100% monthly rate of trading on hourly bars to a rate by trading on daily bars. We only need to multiply by (24)^(-1/2)=0.2041. Thus we get a rate of about 20% monthly. This if multiplied by 12 (which is something less than let it grow month by month in a geometric progression) , gives an annual rate of about 244% which is even less than what Bill Williams has measured as annual rate for his trading among the years. I conclude therefore that this result is feasible for very experienced traders with deep knowledge of the markets, and very efficient risk management. Again this is not to be considered a spectacular rate of return, because when recorded with the standard rules of accounting (e.g. as the banks do who also trade do or when recording profits from the credit-cards ), it must include the leverage, which in such cases is at least 100 , therefore dividing by it, we get a real annual accounting rate of return of 2,44% .
The next examples of manual trading , double the funds in about one month, nevertheless this requires a so intense concentration, that it cannot be continued in a regular basis. Intraday trading is like playing a musical instrument. It requires intense concentration. You cannot play for 8 hours continuously a guitar. Trading like playing a musical instrument requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
There is an additional reason why intraday trading is more risky and this is because of the brokers. As many brokers take opposite positions of the customers and then they hedge them, they are inclined to make transactions systematically at the stop-losses of the customers , that they know where they are, in opposite positions with profit, even if they have to distort the true bars or candle-sticks of the market movements of the prices. This has as result an non natural behavior of the market for the trading and the correct position of the stop losses and even in a way that correct stop losses cannot really be put without making the trade losing. This is feasible for the brokers for 5 minutes or even hourly bars, but is by far more difficult for daily bars that the distances are larger, and such manipulation of the price feed by the broker cannot be made, without exposing the broker to the public. Therefore trading at daily bars for this local reason due to the broker , is safer.
See also post 60: Outline of a stable and successful universal trading system .
See also post 55 about Corrective escalation improvisational interpolation.
And there are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading.
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle. The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes. (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
ANYONE WHO WILL TRY TO MAKE MONEY SOLELY BY TRADING AND SUCH SYSTEMS OF TRANSACTIONS SHOULD BE AWARE THAT THERE IS A VERY POWERFUL AND ALMOST UNBEATABLE COLLECTIVE WILL SO AS NOT TO SUCCEED! NO-ONE WANTS PEOPLE TO QUITE THEIR JOBS AND MAKE MONEY THIS WAY AS IT IS SOMEHOW PARASITIC. IT IS IN SOME SENSE UNETHICAL AS A PRACTICE ENFORCEABLE TO THE MAJORITY. AND OF COURSE NEITHER THOSE WHO HAVE LARGE CAPITAL WANT THAT A MAJORITY WILL MAKE MONEY THIS WAY, AS THEY WOULD PREFER THAT THEY WORK IN THEIR COMPANIES FOR THEM. ONLY IN SPECIAL CONTINGENCIES AND SITUATIONS SOMETHING LIKE THIS WOULD BE ETHICAL. AND IN PARTICULAR A HIGHER MORALITY THAT WOULD SUPPORT SUCH A PRACTICE, WOULD BE PROVABLE WITH COLLECTIVELY BENEVOLENT DEEDS FROM A POSSIBLE SURPLUS OF SUCH MONEY!
THE TOP 6 FACTORS OF ATTENTION IN MANUAL TRADING
1) NEVER USE ALL YOUR FUNDS FOR TRADING. DIVIDE THEM TO TRADING AND NON-TRADING FUNDS BY THE RATIO f=R/a^2 RULE (see below for this ratio or in posts 3,13,33). THE DIVISION OF FUNDS AT EACH PERIOD IS ADJUSTED TO CONFORM WITH THIS PERCENTAGE RATIO. NEVER WITHDRAW PER PERIOD FROM THE NON-TRADING FUNDS MORE THAN HALF OF THE AVERAGE PROFITS OF THE TRADING FUNDS PER PERIOD. This division and adjustment of the funds has been applied for many years in buy and hold investments by professor Michael LeBoeuf.
2) THE ONLY CERTAINTY, WHILE TRADING IS ALSO OUR FIRST PRIORITY: WE MAY DETERMINE THAT OUR LOSSES AT EACH POSITION WILL NOT BE LARGER THAN A SPECIFIED PERCENTAGE DEFINED BY THE KELLY CRITERION (see below or posts 3, 13, 33)
3) FOCUS ON MACROSCOPIC INSTRUMENTS LIKE STOCK INDEXES WITH PERMANENT STRONG LONG TERM TREND, OR AT LEAST STRONG AND CLEAR SEASONAL TREND, even if you want to trade at short time scales. (e.g. of the American Economy which is young and strong and indexes like Dow Jones, SnP500, Nasdaq etc).The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes.
4) FOR VERY LOW RISK AT OPENING POSITIONS ON THE PREVIOUS INDEXES WITH PERMANENT STRONG TREND, OPEN BETTING UPWARDS, AT TERMINAL SPIKES AGAINST THE TREND. This is the Bill Williams technique.
5) READ THE NEWS AND FINANCIAL STATEMENTS BUT THE ASSESSMENT OF THE PATTERNS OF THE MARKET REQUIRES THAT IT IS DONE IN MANY SUCCESSIVE TIME FRAMES CHARTS. This is a basic recommendation by Alexander Elder, which, by now, it is a common knowledge to traders
6) BE FLEXIBLE IN RESPONDING TO THE MARKET AND DO NOT HESITATE TO FOLLOW PROMPTLY ANY UNEXPECTED CHANGES OF THE TREND OF THE MARKET, ALWAYS WITH GRADUAL BUILD OF THE POSITION. (This is called by Bill Williams his psychological Holy Grail in trading)
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily and two days, cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
In order to conduct successfully an intra-day system of transactions , that is successful in the long run and easy to keep on applying it the next points must be met.
1) It must be relatively utterly simple! Only the "eye of simplicity"can put order and tame the chaos of intra-day price patterns! It must be manual and not automated!
2) Therefore it has to be one only pattern among the 4 price patterns (see post 32)
3) To deal with this one only pattern, we may apply simplifiers like , velocity or rate of change of prices, acceleration, support-resistance.
4) Celestial periodicity will give the long-run stability, but it need not be one only frequency or period but a few neighboring frequencies or periods in the spectrum of celestial frequencies or cycles.
5) But most of all the strongest simplifier is that , when measuring the velocity or rate of change , by a stratified sampling hypothesis test, then it has to be an extreme value , which will indicate a reaction or closing of the cycle. This in particular means that we entirely avoid the parametric predictive models of econometry that assume predictability at every time step, as for such to be succsesful they would need to be pod stochastoc coeficients and there practically no such econometric models, and we resort to the more robust and with less assumptions non-parametric statistics and in particular of a single non-parametric measurement of the velocity of the prices, with stratified sampling.
6) It must be a phenomenon tested scientifically with valid quantitative procedures , with sufficient good (intermittent) predictability , for many years.
7) The financial result should be adequate (e.g. >= 1MDS).
8) The financial result, in my case, is to be used not only for economic freedom, but also for a worthy goal e.g. so as to finance my innovative research in the new millennium digital mathematics.
9) The solution to all of the above 8 points leads to one only system: The (solar spikes) super-bubbles system:
The starting nominal position or effective leverage of the next example is between 5-10 (that is the nominal size of the first opened position is 5-10 times the funds in the account. Of course this means that as the leverage of that account is 400, that the margin of the first opened positions is about 1% of the funds of the account). In only one example it was applied starting effective leverage 50 !Of course the information of real value here (especially when CFDs are involved) is how the average daily volatility of the instrument , is represented as volatility of the funds in the account according to the size of the position.
It is used a risk-averse trading behavior, in the sense that , each time we measure carefully, that with the stop loss we set, and the size of all the positions to open, and the contract size (based on the fixed multiplier (in FX, or CFDs)) we never risk much of the funds. In total, if all the open positions were closed at the stop loss, the loss is about not more than 6% of the funds each time . We set at first the goal to survive the account before the goal to grow it. We may accept small loses each time and maybe many times losses, rather than few times losses and very big percentages of the account each time. The rest of the success is derived from the good predictability of the trading actions on the chosen instruments.
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may notice that the daily Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from spikes the hourly or 4-hours chart. But we decide to trade yes or no from the phase of the slowest which here is the daily where there is no need to observe a terminal spike too. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
If we apply this system to security indexes like SnP500, NAS100 etc, the trading as technical analysis and psychologically is easier, as we bet always on the increase of the index, and we are linked with the global collective optimism. Also these indexes the last 10 years have clear and stable trend either upwards almost always or downwards also fora couple of years. Finally as the indexes SnP500, Nasdaq, and Dow Jones are highly correlated, we may take advantage of it and bet on an upward move after we see it happening in one of the three and bet it on one of the other two that has not happened to it yet. (Phase delay in a correlated oscillation).
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment. Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
SIMPLICITY AND GREAT PERCEPTIONS IN TRADING ARE THE MAIN PSYCHOLOGICAL FACTORS OF SUCCESS
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
We remind the reader that of the 4 patterns of technical analysis may be derived as more complex combinations of the 3 basic laws of
1) Momentum conservation or trend (the first partial correlations is positive in an appropriate time scale)
2) The market moves in predetermined periodicity or cycles known in advance. (Cycles from 60-80 years, 22.2 years, 1 year, seasonal (3 months), monthly weekly, daily, and intra-day cycles).
3) In the very long run of many decades (at least larger than 11.1 years) the securities indexes have a constant growth or ascending trend.
Here in the next examples we are trading mainly the cycles of 1) Day 2) 2.5 days or half-week from the weekly cycle.
The exact starting effective leverage (ratio of value of opened position to available funds) in this example is about 50, and escalates to the double 100.
But I believe, this trading can be done also with binary options (especially 60 seconds and 5 minutes expiration) where there is no spread. As the success rate here is 81%, and it will be a well profitable 60-seconds binary options trading , based on appropriate filtering of 20-minutes Dochian channel signals, even with reward/risk ratio as low as 0.7 which is the lowest that binary options brokers give. The simulator gives that by risking 2.7% of the funds (no martingale) even with a 0.7 reward/risk ratio of the broker, with 81% success rate and 137 trades per month, it is about 1.88 MDS, with standard deviation of the profits 17%, and with average maximum draw down 6.17%, +,-2%. While with a success rate only 70% and the same other parameters as above, it gives about 0.43MDS or 43% monthly return , with standard deviation of the profits about 15% and with average maximum draw down 7.55%, +,-3%. About the same results are with success rate again 81% but only about 2 trades per day, that is about 40 per month. The latter performance of 40%-45% monthly, is about the same with the world championships below (Larry Williams, Chuck Hughes, Dan Zanger). For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
If we apply the n^(-1/2) rue as in the post 12, we may convert this 100% monthly rate of trading on hourly bars to a rate by trading on daily bars. We only need to multiply by (24)^(-1/2)=0.2041. Thus we get a rate of about 20% monthly. This if multiplied by 12 (which is something less than let it grow month by month in a geometric progression) , gives an annual rate of about 244% which is even less than what Bill Williams has measured as annual rate for his trading among the years. I conclude therefore that this result is feasible for very experienced traders with deep knowledge of the markets, and very efficient risk management. Again this is not to be considered a spectacular rate of return, because when recorded with the standard rules of accounting (e.g. as the banks do who also trade do or when recording profits from the credit-cards ), it must include the leverage, which in such cases is at least 100 , therefore dividing by it, we get a real annual accounting rate of return of 2,44% .
The next examples of manual trading , double the funds in about one month, nevertheless this requires a so intense concentration, that it cannot be continued in a regular basis. Intraday trading is like playing a musical instrument. It requires intense concentration. You cannot play for 8 hours continuously a guitar. Trading like playing a musical instrument requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
There is an additional reason why intraday trading is more risky and this is because of the brokers. As many brokers take opposite positions of the customers and then they hedge them, they are inclined to make transactions systematically at the stop-losses of the customers , that they know where they are, in opposite positions with profit, even if they have to distort the true bars or candle-sticks of the market movements of the prices. This has as result an non natural behavior of the market for the trading and the correct position of the stop losses and even in a way that correct stop losses cannot really be put without making the trade losing. This is feasible for the brokers for 5 minutes or even hourly bars, but is by far more difficult for daily bars that the distances are larger, and such manipulation of the price feed by the broker cannot be made, without exposing the broker to the public. Therefore trading at daily bars for this local reason due to the broker , is safer.
See also post 60: Outline of a stable and successful universal trading system .
See also post 55 about Corrective escalation improvisational interpolation.
And there are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading.
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle. The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes. (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
ANYONE WHO WILL TRY TO MAKE MONEY SOLELY BY TRADING AND SUCH SYSTEMS OF TRANSACTIONS SHOULD BE AWARE THAT THERE IS A VERY POWERFUL AND ALMOST UNBEATABLE COLLECTIVE WILL SO AS NOT TO SUCCEED! NO-ONE WANTS PEOPLE TO QUITE THEIR JOBS AND MAKE MONEY THIS WAY AS IT IS SOMEHOW PARASITIC. IT IS IN SOME SENSE UNETHICAL AS A PRACTICE ENFORCEABLE TO THE MAJORITY. AND OF COURSE NEITHER THOSE WHO HAVE LARGE CAPITAL WANT THAT A MAJORITY WILL MAKE MONEY THIS WAY, AS THEY WOULD PREFER THAT THEY WORK IN THEIR COMPANIES FOR THEM. ONLY IN SPECIAL CONTINGENCIES AND SITUATIONS SOMETHING LIKE THIS WOULD BE ETHICAL. AND IN PARTICULAR A HIGHER MORALITY THAT WOULD SUPPORT SUCH A PRACTICE, WOULD BE PROVABLE WITH COLLECTIVELY BENEVOLENT DEEDS FROM A POSSIBLE SURPLUS OF SUCH MONEY!
THE TOP 6 FACTORS OF ATTENTION IN MANUAL TRADING
1) NEVER USE ALL YOUR FUNDS FOR TRADING. DIVIDE THEM TO TRADING AND NON-TRADING FUNDS BY THE RATIO f=R/a^2 RULE (see below for this ratio or in posts 3,13,33). THE DIVISION OF FUNDS AT EACH PERIOD IS ADJUSTED TO CONFORM WITH THIS PERCENTAGE RATIO. NEVER WITHDRAW PER PERIOD FROM THE NON-TRADING FUNDS MORE THAN HALF OF THE AVERAGE PROFITS OF THE TRADING FUNDS PER PERIOD. This division and adjustment of the funds has been applied for many years in buy and hold investments by professor Michael LeBoeuf.
2) THE ONLY CERTAINTY, WHILE TRADING IS ALSO OUR FIRST PRIORITY: WE MAY DETERMINE THAT OUR LOSSES AT EACH POSITION WILL NOT BE LARGER THAN A SPECIFIED PERCENTAGE DEFINED BY THE KELLY CRITERION (see below or posts 3, 13, 33)
3) FOCUS ON MACROSCOPIC INSTRUMENTS LIKE STOCK INDEXES WITH PERMANENT STRONG LONG TERM TREND, OR AT LEAST STRONG AND CLEAR SEASONAL TREND, even if you want to trade at short time scales. (e.g. of the American Economy which is young and strong and indexes like Dow Jones, SnP500, Nasdaq etc).The statistical quantities need to me measured are the price position in the channel around the average, the velocity (1st derivative) and the acceleration-deceleration (2nd derivative), which is done as statistical quantities by a hypothesis test or confidence interval. The support-resistance levels can be measured also by action-volume histograms. The measurements are done with convenient indicators, and can also define in a statistically valid way, not only , the channels , and Eliot-waves but also the spikes.
4) FOR VERY LOW RISK AT OPENING POSITIONS ON THE PREVIOUS INDEXES WITH PERMANENT STRONG TREND, OPEN BETTING UPWARDS, AT TERMINAL SPIKES AGAINST THE TREND. This is the Bill Williams technique.
5) READ THE NEWS AND FINANCIAL STATEMENTS BUT THE ASSESSMENT OF THE PATTERNS OF THE MARKET REQUIRES THAT IT IS DONE IN MANY SUCCESSIVE TIME FRAMES CHARTS. This is a basic recommendation by Alexander Elder, which, by now, it is a common knowledge to traders
6) BE FLEXIBLE IN RESPONDING TO THE MARKET AND DO NOT HESITATE TO FOLLOW PROMPTLY ANY UNEXPECTED CHANGES OF THE TREND OF THE MARKET, ALWAYS WITH GRADUAL BUILD OF THE POSITION. (This is called by Bill Williams his psychological Holy Grail in trading)
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily and two days, cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
In order to conduct successfully an intra-day system of transactions , that is successful in the long run and easy to keep on applying it the next points must be met.
1) It must be relatively utterly simple! Only the "eye of simplicity"can put order and tame the chaos of intra-day price patterns! It must be manual and not automated!
2) Therefore it has to be one only pattern among the 4 price patterns (see post 32)
3) To deal with this one only pattern, we may apply simplifiers like , velocity or rate of change of prices, acceleration, support-resistance.
4) Celestial periodicity will give the long-run stability, but it need not be one only frequency or period but a few neighboring frequencies or periods in the spectrum of celestial frequencies or cycles.
5) But most of all the strongest simplifier is that , when measuring the velocity or rate of change , by a stratified sampling hypothesis test, then it has to be an extreme value , which will indicate a reaction or closing of the cycle. This in particular means that we entirely avoid the parametric predictive models of econometry that assume predictability at every time step, as for such to be succsesful they would need to be pod stochastoc coeficients and there practically no such econometric models, and we resort to the more robust and with less assumptions non-parametric statistics and in particular of a single non-parametric measurement of the velocity of the prices, with stratified sampling.
6) It must be a phenomenon tested scientifically with valid quantitative procedures , with sufficient good (intermittent) predictability , for many years.
7) The financial result should be adequate (e.g. >= 1MDS).
8) The financial result, in my case, is to be used not only for economic freedom, but also for a worthy goal e.g. so as to finance my innovative research in the new millennium digital mathematics.
9) The solution to all of the above 8 points leads to one only system: The (solar spikes) super-bubbles system:
The system: MAGNETIC SOLAR SUPER-BUBBLES (MSB)
1) It is the case where we apply a transaction system process e.g. on cross-rate currencies on 4-hours bins, and super-exponential extreme excitation or super-bubbles (Detected in an elementary way by the alligator indicator at H4 in MT4 or at M5 or at M1 (for M1 only if the spread is really tight or we utilize binary options) , in MT4 as Bill Williams describes when the super-bubble makes the alligator open its lines and the prices are also far away from the alligator lines as an extreme super-exponential move, usually with a terminal spike too. We wait till the move stops and starts reversing and we bet with minimum volumes on its reaction. If we fail initially we wait and insist again with higher volumes if the super-bubble completes a bit away and later (see also the post 55 about corrective escalation). In this way even if we say only 60% of the observed bubbles are genuine and reverse, we will have as success rate in the transactions more than 80%. We make sure that the lines of the alligator (that here we may refine to Smoothed moving averages of HL/2 or (H+L+O+C)/4 of periods 12,6,3 and offsets 6,3,1 for the H4 and M5 but the original alligator periods 15,8,5 and offsets 8,5,3 for M1.) are open and not closed thus indicating non-static but sloping averages, and that the candlesticks of the bubble show an acceleration with the few last candlesticks longer, thus indicating a terminal or exhaustion kind of spike or super-bubble. We prefer also not to bet on a super-bubble which is a continuation of the reaction to a previous super-bubble. Both the super-bubble and its reaction each one usually is of 6-12 bars so it lasts for 1-2.5 days at H4 of 4-hours bars or for 20-30-60 minutes at M5 of 5-minutes bars, which is again a solar cycle [see post 5] or even to 1-minute bars M1 in which case the solar cycle is of 5 minutes with half period 2.5 min . Then the system is not based on a constant growth rate, as e.g. the US index funds, and Bitcoin, neither on optimal risk separation rule. Still the maximum exposure rule still holds, and is the only rule , as positions are not kept open for long.(<= 2Day, s<= 5Days). And of course we still use the cycle of the markets called solar magnetic Parker spiral cycle (=month/4 period, thus 5 trading days with half period 2.5 days). The average waiting time for a super-bubble to occur is usually larger than the sum-total duration of the super-bubble and its reaction. But of course if searched among 10-15 instruments such super-bubbles occur one after the other. The super-bubble is of higher predictable reaction, if the previous longer time interval , the market had already a slower trend in the same direction as the super-bubble (so that the spike-super-bubble is an terminal or exhaustion move!)
Alternative way to filter super-bubbles:
THE STATISTICAL HYPOTHESIS TEST ALLIGATOR OSCILLATOR ABOUT THE RATE OF CHANGE OF THE PRICES.
Alternative ways to filter super-bubbles is to convert the alligator indicator to a statistical hypothesis test oscillator about the rate of change per bar of the prices. In other words we calculate a sample for the rate of change R(0)=(Price(n+1)-Price(n))/Price(n) of prices by the maximum period defined by the periods of the alligator, but also the rate of change R(i)=R(1), R(2) , R(3) (i=1,2,3 for the 3 lines of the alligator) per time step for the moving averages of the alligator indicator. Then take the z-scores of it
z(i)=(R(0)-R(i)) /sigma(R(0)), and finally the normal distribution function N(z) of it. By putting critical rejection area levels at 2% failure, we filter a super-bubble if the line of the rate of change of the prices is above 98% or below 2% , but also the lines of the 3 average rate of changes are away from the middle 50%. The Hypothesis test gives when with probability of error . This technique is essentially a stratified sampling hypothesis test about the velocity or rate of change of the prices, or of the velocity of a moving average, implicating a stochastic average rate of return as in the theory of Markovitz, thus necesarily startified or hierachical statistical sampling . If we utilize a Bollinger bundle, then it must have as period the middle period of the alligator, and as width 4 sigma or standard deviations. Then a super-bubble will get out of the channel, and at the same time, the middle line of the channel will have a considerable slope.
This in particular means that we entirely avoid the parametric predictive models of econometry that assume predictability at every time step, as for such to be successful they would need to be pod stochastic coefficients and there practically no such econometric models, and we resort to the more robust and with less assumptions non-parametric statistics and in particular of a single non-parametric measurement of the velocity of the prices, with stratified sampling. This is practically any statistical test of more complicated patterns of averages of prices, or of averages of rates of return of prices: By non-parametric statistical test over these averages as already 2nd order stochastic variables.
The stochastic model that is relevant is again the simplest possible one, e.g. starting from that of the Portfolio Theory of Markowitz, where for the rate of return R we postulate R(t)=R(0)+R(s,t)+e(t) where the R(0) is the constant average rate of return in time of the Markowitz theory of portfolio (constant trend) , R(s,t) is the seasonal part ,with average value non-zero , and on which we apply the above hypothesis test at various frequencies or sampling horizons or with stratified sampling , and e(t) has average value zero , it is normally distributed and is the random excitation part. The stochastic model has no-memory and for the sampling each step gives independent observation. From the above equation we may derive with the exponential function the final stochastic process of the prices and volumes that will be log-normally distributed.
Alternative way to filter super-bubbles:
THE STATISTICAL HYPOTHESIS TEST ALLIGATOR OSCILLATOR ABOUT THE RATE OF CHANGE OF THE PRICES.
Alternative ways to filter super-bubbles is to convert the alligator indicator to a statistical hypothesis test oscillator about the rate of change per bar of the prices. In other words we calculate a sample for the rate of change R(0)=(Price(n+1)-Price(n))/Price(n) of prices by the maximum period defined by the periods of the alligator, but also the rate of change R(i)=R(1), R(2) , R(3) (i=1,2,3 for the 3 lines of the alligator) per time step for the moving averages of the alligator indicator. Then take the z-scores of it
z(i)=(R(0)-R(i)) /sigma(R(0)), and finally the normal distribution function N(z) of it. By putting critical rejection area levels at 2% failure, we filter a super-bubble if the line of the rate of change of the prices is above 98% or below 2% , but also the lines of the 3 average rate of changes are away from the middle 50%. The Hypothesis test gives when with probability of error . This technique is essentially a stratified sampling hypothesis test about the velocity or rate of change of the prices, or of the velocity of a moving average, implicating a stochastic average rate of return as in the theory of Markovitz, thus necesarily startified or hierachical statistical sampling . If we utilize a Bollinger bundle, then it must have as period the middle period of the alligator, and as width 4 sigma or standard deviations. Then a super-bubble will get out of the channel, and at the same time, the middle line of the channel will have a considerable slope.
This in particular means that we entirely avoid the parametric predictive models of econometry that assume predictability at every time step, as for such to be successful they would need to be pod stochastic coefficients and there practically no such econometric models, and we resort to the more robust and with less assumptions non-parametric statistics and in particular of a single non-parametric measurement of the velocity of the prices, with stratified sampling. This is practically any statistical test of more complicated patterns of averages of prices, or of averages of rates of return of prices: By non-parametric statistical test over these averages as already 2nd order stochastic variables.
The stochastic model that is relevant is again the simplest possible one, e.g. starting from that of the Portfolio Theory of Markowitz, where for the rate of return R we postulate R(t)=R(0)+R(s,t)+e(t) where the R(0) is the constant average rate of return in time of the Markowitz theory of portfolio (constant trend) , R(s,t) is the seasonal part ,with average value non-zero , and on which we apply the above hypothesis test at various frequencies or sampling horizons or with stratified sampling , and e(t) has average value zero , it is normally distributed and is the random excitation part. The stochastic model has no-memory and for the sampling each step gives independent observation. From the above equation we may derive with the exponential function the final stochastic process of the prices and volumes that will be log-normally distributed.
The volumes measurement do provide better forecasting. The true rules of volumes are
1. A (statistical) momentum acceleration is a true acceleration, if the volumes are increasing too.
2. A (statistical) momentum deceleration is a true deceleration, if the volumes are decreasing too.
Of course the converse does not hold: An acceleration can be true, even if the volumes are not increasing. But if they are increasing we are sure it is true acceleration. The same with the deceleration.
The Log-Periodic Power Law Singularity (LPPLS) applies as the bubble reaches it point of crashing. In other words faster and faster waves appear with smaller amplitudes. (
see http://www2.math.su.se/matstat/reports/serieb/2009/rep7/report.pdf
https://warwick.ac.uk/fac/sci/maths/research/events/2013-2014/statmech/ght/programme/sornette_2.pdf
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0165819
https://www.sciencedirect.com/science/article/pii/S187538921000249X
https://en.wikipedia.org/wiki/Didier_Sornette
)
The Log-Periodic Power Law Singularity (LPPLS) applies as the bubble reaches it point of crashing. In other words faster and faster waves appear with smaller amplitudes. (
see http://www2.math.su.se/matstat/reports/serieb/2009/rep7/report.pdf
https://warwick.ac.uk/fac/sci/maths/research/events/2013-2014/statmech/ght/programme/sornette_2.pdf
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0165819
https://www.sciencedirect.com/science/article/pii/S187538921000249X
https://en.wikipedia.org/wiki/Didier_Sornette
)
2) Extreme excitation or super-bubbles are stronger , emotionally at the side of negative emotions , that is fear, panic etc. So it is exploiting by healing and counter acting fear, panic with the goal of reducing inequalities. If the bubble is a packet of real business transactions ordered in the big banks, then the reaction is by the hedge-market makers and liquidity providers other banks. The intuitive image that one gets from the idea of super-bubbles as they appear in the supply-demand of the markets, is the next: Imagine the balance of demand-supply in markets like the surface of a lake, then a super-bubble is a stone (of various sizes) as it falls on the surface of the lake, and the reaction to the super-bubble is the reaction waves that the stone creates.
3) At this system, the re-opened positions, may reach and usually start having exposure which is equal to the maximum exposure as traced on the Balance of the funds. There is no optimal separation ratio, and the nominal or effective leverage (see below in the definitions of terms) is much less (e.g. 5-10-20). E.g. if the elementary position may have exposure 5% at the begining , and there may be 10 such positions of effective leverage 5, (most of them insured my Stop Loss to zero loss, and in total of exposure <= 10%, the total nominal or effective leverage LE is about 10*5=50)
4) In conclusion this system has more difficult front office risk considerations and conduction, but easier back-office risk considerations and conduction compared to the Constant growth ratio system. As this MSB system is conducted at H4 scale (or H1 sometimes) it is even for this only reason more difficult to conduct.
5) Theoretically if given sufficient time in some cases the escalation of the positions may reach the optimal risk separation ratio (about 80% of the balance) , therefore of high effective or nominal leverage. Then it will become a faster capitalization , but also in total much more difficult conduction.
6) Demo practice 2 or 3 times in Alpari broker, during 2010-2011 , at various sizes accounts, as presented in 3 cases below, has shown a capitalization rate of 1MDS (doubling within one month) , but with maximum exposure in some cases reaching 20% (if the optimal Kelly criterion allows, after mainly subjective discretionary risk assessments). Also there is a demo practice in Strerling Gent broker below again with 1 MDS capitalization speed, but at higher frequency at M5 with more than 130 transactions (5 minutes bars, again super-bubbles detected by the alligator indicator). Nevertheless the spread in this demo account was really small, and probably this might work in real accounts with binary options where the spread can be avoided.
7) The system at h4 time frame , can be applied with binary options too, but the expiration must be 1 or 2 days after of the opening position, while the assessment that we are in a super-bubble, is done as mentioned above at 4-hours bars charts with the alligator indicator on them. In addition there must be applied an interactive-corrective escalation of positions too as described e.g.in post 55 .
8) Here are some pictures and examples of super-bubbles as detected by the alligator indicator, from the book by Bill Williams "Trading Chaos" 2nd edition, chapter 9. The superexponetial-bubble is the simplifying "eye" that turns the chaos of price movements in to sequence of randomly occurring simple pattern (that of super-bubble) which thus allows for randomly intermittent predictability. The average waiting time for a super-bubble to occur is usually larger than the duration of the sum-total of the super-bubble and its reaction. But of course if searched among 10-15 instruments such super-bubbles occure one after the other.
https://www.scribd.com/doc/177005696/Bill-Williams-Trading-Chaos-Second-Edition
9) Finally here is a ted.com video by Didier Sornette that explains why super-bubbles are unique, universal but predictable behavior of the markets (Log-Periodic Power Law Singularity) .
https://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis
THE SUPER-BUBBLES DO NOT HAVE ONLY THE EASIEST PATTERN RECOGNITION (E.G. WITH PROGRAMMABLE STATISTICAL HYPOTHESIS TEST) BUT ALSO THE HIGHEST PREDICTABILITY OF NEXT EVOLUTION, AMONG THE OTHER MOE COMPLICATED PATTERNS.
7) The system at h4 time frame , can be applied with binary options too, but the expiration must be 1 or 2 days after of the opening position, while the assessment that we are in a super-bubble, is done as mentioned above at 4-hours bars charts with the alligator indicator on them. In addition there must be applied an interactive-corrective escalation of positions too as described e.g.in post 55 .
8) Here are some pictures and examples of super-bubbles as detected by the alligator indicator, from the book by Bill Williams "Trading Chaos" 2nd edition, chapter 9. The superexponetial-bubble is the simplifying "eye" that turns the chaos of price movements in to sequence of randomly occurring simple pattern (that of super-bubble) which thus allows for randomly intermittent predictability. The average waiting time for a super-bubble to occur is usually larger than the duration of the sum-total of the super-bubble and its reaction. But of course if searched among 10-15 instruments such super-bubbles occure one after the other.
https://www.scribd.com/doc/177005696/Bill-Williams-Trading-Chaos-Second-Edition
9) Finally here is a ted.com video by Didier Sornette that explains why super-bubbles are unique, universal but predictable behavior of the markets (Log-Periodic Power Law Singularity) .
https://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis
THE SUPER-BUBBLES DO NOT HAVE ONLY THE EASIEST PATTERN RECOGNITION (E.G. WITH PROGRAMMABLE STATISTICAL HYPOTHESIS TEST) BUT ALSO THE HIGHEST PREDICTABILITY OF NEXT EVOLUTION, AMONG THE OTHER MOE COMPLICATED PATTERNS.
QUANTITIES-MAGNITUDES OF RISK-MANAGEMENT OF ESCALATION AND THEIR SYMBOLS.
LT : Effective (or nominal) leverage of the Portfolio. That is the ratio of the value of the open position by the portfolio and the balance (closed positions) of the funds
L0 , l0 : Effective (or nominal) leverage of the Portfolio of single elementary position.
LM : Margin leverage of the instrument in this account.
M0 : margin of elementary position P0
M : Size of the portfolio in number of elements or positions
P0 : Elementary position in volume size of contracts
V(P0): Value (nominal) of the open elementary position P0 .
Ind: Index fund or instrument in general.
Pr(Ind): Market price of the Index fund or instrument in general.
Mmax : maximum number of elementary positions in the portfolio, by escalation till optimal separation ratio reached.
Rs or Xs: Optimal separation ratio for the instrument and the chosen bins (usually days).
N: average true range of a bar (day) in price units.
RN: The previous N, as percentage of the price of the index or instrument.
F0 : Initial balance of the funds for transactions.
m: Contract size, at the symbol specifications of the instrument or constant multiplier to convert price changes into money for the instrument.
CS: Constant contract size in forex
e0: Maximum exposure percentage of the Balance of the funds , per elementary position P0 , usually 2%.
HYPOTHESES
1) Escalation spacing N of the grid, which remain constant during the escalation
2) Stop-Loss 2N
3) e0: corresponds to 2N exposure.
4) We assume funds remaining constant for the procedure escalation
5) We assume leverage l0 constant during the escalation.
For FX instead of index funds Contact size/Pr(ind)=m(t) which is variable while for index it is constant.
If the starting size of the elementary position (for indexes) is based on having the effective leverage equal to 1, then instead of the formula P(0)=e(0)F(0)/(2Nm) as above we use another by solving the equation P(0)mPr(Ind)/F(0)=1, which gives
P(0)=F(0)/mPr(Ind)
THE VALID AND COLLECTIVELY ACCEPTED SCIENTIFIC STATISTICAL METHODS GIVE A COLLECTIVELY SUPPORTED NON-BETRAYING AND SUSTAINABLE WAY OF BELIEVING, THINKING FEELING AND ACTING, IN OTHER WORDS A VALID AND NON-BETRAYING CREATIVE PATH, SO THAT NO MATTER WHAT THE MARKET DOES AND HOW IT BEHAVES , WE ALWAYS HAVE A VALID WAY TO INTERACT AND RESPOND TO IT WITHOUT INVALIDATING OUR PRACTICE AND SO AS TO SUCCEED IN THE LONG RUN IN THE REQUIRED GOALS.
P(0)=F(0)/mPr(Ind)
THE VALID AND COLLECTIVELY ACCEPTED SCIENTIFIC STATISTICAL METHODS GIVE A COLLECTIVELY SUPPORTED NON-BETRAYING AND SUSTAINABLE WAY OF BELIEVING, THINKING FEELING AND ACTING, IN OTHER WORDS A VALID AND NON-BETRAYING CREATIVE PATH, SO THAT NO MATTER WHAT THE MARKET DOES AND HOW IT BEHAVES , WE ALWAYS HAVE A VALID WAY TO INTERACT AND RESPOND TO IT WITHOUT INVALIDATING OUR PRACTICE AND SO AS TO SUCCEED IN THE LONG RUN IN THE REQUIRED GOALS.
The starting nominal position or effective leverage of the next example is between 5-10 (that is the nominal size of the first opened position is 5-10 times the funds in the account. Of course this means that as the leverage of that account is 400, that the margin of the first opened positions is about 1% of the funds of the account). In only one example it was applied starting effective leverage 50 !Of course the information of real value here (especially when CFDs are involved) is how the average daily volatility of the instrument , is represented as volatility of the funds in the account according to the size of the position.
It is used a risk-averse trading behavior, in the sense that , each time we measure carefully, that with the stop loss we set, and the size of all the positions to open, and the contract size (based on the fixed multiplier (in FX, or CFDs)) we never risk much of the funds. In total, if all the open positions were closed at the stop loss, the loss is about not more than 6% of the funds each time . We set at first the goal to survive the account before the goal to grow it. We may accept small loses each time and maybe many times losses, rather than few times losses and very big percentages of the account each time. The rest of the success is derived from the good predictability of the trading actions on the chosen instruments.
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may notice that the daily Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from spikes the hourly or 4-hours chart. But we decide to trade yes or no from the phase of the slowest which here is the daily where there is no need to observe a terminal spike too. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
If we apply this system to security indexes like SnP500, NAS100 etc, the trading as technical analysis and psychologically is easier, as we bet always on the increase of the index, and we are linked with the global collective optimism. Also these indexes the last 10 years have clear and stable trend either upwards almost always or downwards also fora couple of years. Finally as the indexes SnP500, Nasdaq, and Dow Jones are highly correlated, we may take advantage of it and bet on an upward move after we see it happening in one of the three and bet it on one of the other two that has not happened to it yet. (Phase delay in a correlated oscillation).
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment. Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
SIMPLICITY AND GREAT PERCEPTIONS IN TRADING ARE THE MAIN PSYCHOLOGICAL FACTORS OF SUCCESS
The most essential tool for successful and profitable above the average, trading from the three that the title of the book suggests (Law of growth, law of cycles, law of inequalities) is the law of cycles and the awareness to discover cycles in the charts of prices, that are not directly apparent. Especially when the cycles are 1) Daily cycles to be traded with hourly or 4-hours bars and 2) Weekly cycles to be traded with hourly or 4-hours or daily bars 3) Monthly cycles to be traded with daily bars 4) Seasonal 3-months cycles to be traded with daily bars.
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
We remind the reader that of the 4 patterns of technical analysis may be derived as more complex combinations of the 3 basic laws of
1) Momentum conservation or trend (the first partial correlations is positive in an appropriate time scale)
2) The market moves in predetermined periodicity or cycles known in advance. (Cycles from 60-80 years, 22.2 years, 1 year, seasonal (3 months), monthly weekly, daily, and intra-day cycles).
3) In the very long run of many decades (at least larger than 11.1 years) the securities indexes have a constant growth or ascending trend.
Here in the next examples we are trading mainly the cycles of 1) Day 2) 2.5 days or half-week from the weekly cycle.
The exact starting effective leverage (ratio of value of opened position to available funds) in this example is about 50, and escalates to the double 100.
https://dl.dropboxusercontent.com/u/107295772/MD_speed/DetailedStatementTM_1month_2013.htm
https://www.dropbox.com/s/c81jlaoscwtwqyi/DetailedStatementTM_1month_2013.htm?dl=0
https://www.dropbox.com/s/c81jlaoscwtwqyi/DetailedStatementTM_1month_2013.htm?dl=0
Older examples (2010) of similar capitalization speed (1MDS) trading of spikes at 4-hour bars in the Bill Williams method or daily gratido on 1-day spikes detected by ATR(1)>=ATR(252), here
The starting nominal position leverage of the next example is 5-25 (that is the nominal size of the first opened position is 5-25 times the funds in the account. Of course this means that as the leverage of the account is 400, that the margin of the first opened positions is about 1%-5% of the funds of the account).
Of course the information of real value here (especially when CFDs are involved) is how the average daily volatility of the instrument , is represented as volatility of the funds in the account according to the size of the position.
It is used a risk-averse trading behavior, in the sense that , each time we measure carefully, that with the stop loss we set, and the size of all the positions to open, and the contract size (based on the fixed multiplier (in FX, or CFDs)) we never risk much of the funds. In total, if all the open positions were closed at the stop loss, the loss is about not more than 6% of the funds each time . We set at first the goal to survive the account before the goal to grow it. We may accept small loses each time and maybe many times losses, rather than few times losses and very big percentages of the account each time. The rest of the success is derived from the good predictability of the trading actions on the chosen instruments.
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from the hourly chart. But we decide to trade yes or no from the phase of the slowest which here is the daily. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
SIMPLICITY AND GREAT PERCEPTIONS IN TRADING ARE THE MAIN PSYCHOLOGICAL FACTORS OF SUCCESS
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
We remind the reader that of the 4 patterns of technical analysis may be derived as more complex combinations of the 3 basic laws of
1) Momentum conservation or trend (the first partial correlations is positive in an appropriate time scale)
2) The market moves in predetermined periodicity or cycles known in advance. (Cycles from 60-80 years, 22.2 years, 1 year, seasonal (3 months), monthly weekly, daily, and intra-day cycles).
3) In the very long run of many decades (at least larger than 11.1 years) the securities indexes have a constant growth or ascending trend.
Here in the next examples we are trading mainly the cycles of 1) Day 2) 2.5 days or half-week from the weekly cycle.
In this particular 2nd example of trading below, we also utilized trading faster than the daily cycle (see cycles faster than one day in the table of post 5), in particular one-hour cycles with waves of 30 minutes. In order for such a trading to be at the 2nd level of simplicity rather than the 3rd level of simplicity of forecasting according to post 67, it is required that we focus on 30-minutes waves starting or ending at about the whole hours of the clock (because sessions of security indexes start or end at whole hours of the clock). We focus to observe (say on 5-minutes bars) such 30-minutes wave (preferable with a terminal spike at the end) and then we trade for the reaction 30-minutes wave in the opposite direction (after consulting the 1-hour and daily time frames). The stop loss is tight and the expected profit is at least 3 times larger than the risked stop loss. Trading in this way on a single instrument is not better than trading on it at daily bars, because of the lower predictability at 5-minutes bars, and because of the much more human effort and spending of time it requires. But if we trade on many instruments , then as such opportunities now are many (multiplicative effect on the rate of return of an intermittent sequential portfolio of instruments), the over all result may be better. Still no creative person that values a lot his time will go one spending his time on such intra-day trading just for the money result, except on special occasions, and for a limited time. Using starting and ending trades at about whole hours of the clock and such a simple and robust cycle-wave pattern recognition, gives a solid ground to stand for emotional beliefs and expectations, against the shifting sands of the markets at intra-day time frames. We should use also brokers with technology of Straight Through processing platforms and not market-maker brokers, so that the broker does not trade opposite to the customer and take on purpose their stop-losses.
The starting effective (not margin) leverage (in other words ratio of the nominal value of the position to the available funds) here is 5 and escalates as the funds are doubled.
Of course the information of real value here (especially when CFDs are involved) is how the average daily volatility of the instrument , is represented as volatility of the funds in the account according to the size of the position.
It is used a risk-averse trading behavior, in the sense that , each time we measure carefully, that with the stop loss we set, and the size of all the positions to open, and the contract size (based on the fixed multiplier (in FX, or CFDs)) we never risk much of the funds. In total, if all the open positions were closed at the stop loss, the loss is about not more than 6% of the funds each time . We set at first the goal to survive the account before the goal to grow it. We may accept small loses each time and maybe many times losses, rather than few times losses and very big percentages of the account each time. The rest of the success is derived from the good predictability of the trading actions on the chosen instruments.
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from the hourly chart. But we decide to trade yes or no from the phase of the slowest which here is the daily. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
If we apply this system to security indexes like SnP500, NAS100 etc, the trading as technical analysis and psychologically is easier, as we bet always on the increase of the index, and we are linked with the global collective optimism. Also these indexes the last 10 years have clear and stable trend either upwards almost always or downwards also for a couple of years. Finally as the indexes SnP500, Nasdaq, and Dow Jones are highly correlated, we may take advantage of it and bet on an upward move after we see it happening in one of the three and bet it on one of the other two that has not happened to it yet. (Phase delay in a correlated oscillation).
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment.Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment.Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
SIMPLICITY AND GREAT PERCEPTIONS IN TRADING ARE THE MAIN PSYCHOLOGICAL FACTORS OF SUCCESS
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
We remind the reader that of the 4 patterns of technical analysis may be derived as more complex combinations of the 3 basic laws of
1) Momentum conservation or trend (the first partial correlations is positive in an appropriate time scale)
2) The market moves in predetermined periodicity or cycles known in advance. (Cycles from 60-80 years, 22.2 years, 1 year, seasonal (3 months), monthly weekly, daily, and intra-day cycles).
3) In the very long run of many decades (at least larger than 11.1 years) the securities indexes have a constant growth or ascending trend.
Here in the next examples we are trading mainly the cycles of 1) Day 2) 2.5 days or half-week from the weekly cycle.
In this particular 2nd example of trading below, we also utilized trading faster than the daily cycle (see cycles faster than one day in the table of post 5), in particular one-hour cycles with waves of 30 minutes. In order for such a trading to be at the 2nd level of simplicity rather than the 3rd level of simplicity of forecasting according to post 67, it is required that we focus on 30-minutes waves starting or ending at about the whole hours of the clock (because sessions of security indexes start or end at whole hours of the clock). We focus to observe (say on 5-minutes bars) such 30-minutes wave (preferable with a terminal spike at the end) and then we trade for the reaction 30-minutes wave in the opposite direction (after consulting the 1-hour and daily time frames). The stop loss is tight and the expected profit is at least 3 times larger than the risked stop loss. Trading in this way on a single instrument is not better than trading on it at daily bars, because of the lower predictability at 5-minutes bars, and because of the much more human effort and spending of time it requires. But if we trade on many instruments , then as such opportunities now are many (multiplicative effect on the rate of return of an intermittent sequential portfolio of instruments), the over all result may be better. Still no creative person that values a lot his time will go one spending his time on such intra-day trading just for the money result, except on special occasions, and for a limited time. Using starting and ending trades at about whole hours of the clock and such a simple and robust cycle-wave pattern recognition, gives a solid ground to stand for emotional beliefs and expectations, against the shifting sands of the markets at intra-day time frames. We should use also brokers with technology of Straight Through processing platforms and not market-maker brokers, so that the broker does not trade opposite to the customer and take on purpose their stop-losses.
The starting effective (not margin) leverage (in other words ratio of the nominal value of the position to the available funds) here is 5 and escalates as the funds are doubled.
https://dl.dropboxusercontent.com/u/107295772/MD_speed/DetailedStatement0.htm
https://www.dropbox.com/s/oq1pgzm935qytad/DetailedStatement0.htm?dl=0
It is used a risk-averse trading behavior, in the sense that , each time we measure carefully, that with the stop loss we set, and the size of all the positions to open, and the contract size (based on the fixed multiplier (in FX, or CFDs)) we never risk much of the funds. In total, if all the open positions were closed at the stop loss, the loss is about not more than 6% of the funds each time . We set at first the goal to survive the account before the goal to grow it. We may accept small loses each time and maybe many times losses, rather than few times losses and very big percentages of the account each time. The rest of the success is derived from the good predictability of the trading actions on the chosen instruments.
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may notice that the daily Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from the hourly chart. But we decide to trade yes or no from the phase of the slowest which here is the daily. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
The exact starting effective leverage (ratio of nominal value of the position to the available funds) in this example is 5 and escalates as the funds are doubled
https://dl.dropboxusercontent.com/u/107295772/MD_speed/Statement1.htm
https://www.dropbox.com/s/21w8pfm1y3djln8/Statement1.htm?dl=0
https://www.dropbox.com/s/oq1pgzm935qytad/DetailedStatement0.htm?dl=0
It is used a risk-averse trading behavior, in the sense that , each time we measure carefully, that with the stop loss we set, and the size of all the positions to open, and the contract size (based on the fixed multiplier (in FX, or CFDs)) we never risk much of the funds. In total, if all the open positions were closed at the stop loss, the loss is about not more than 6% of the funds each time . We set at first the goal to survive the account before the goal to grow it. We may accept small loses each time and maybe many times losses, rather than few times losses and very big percentages of the account each time. The rest of the success is derived from the good predictability of the trading actions on the chosen instruments.
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may notice that the daily Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from the hourly chart. But we decide to trade yes or no from the phase of the slowest which here is the daily. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
If we apply this system to security indexes like SnP500, NAS100 etc, the trading as technical analysis and psychologically is easier, as we bet always on the increase of the index, and we are linked with the global collective optimism. Also these indexes the last 10 years have clear and stable trend either upwards almost always or downwards also for a couple of years. Finally as the indexes SnP500, Nasdaq, and Dow Jones are highly correlated, we may take advantage of it and bet on an upward move after we see it happening in one of the three and bet it on one of the other two that has not happened to it yet. (Phase delay in a correlated oscillation).
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment. Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment. Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
SIMPLICITY AND GREAT PERCEPTIONS IN TRADING ARE THE MAIN PSYCHOLOGICAL FACTORS OF SUCCESS
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
We remind the reader that of the 4 patterns of technical analysis may be derived as more complex combinations of the 3 basic laws of
1) Momentum conservation or trend (the first partial correlations is positive in an appropriate time scale)
2) The market moves in predetermined periodicity or cycles known in advance. (Cycles from 60-80 years, 22.2 years, 1 year, seasonal (3 months), monthly weekly, daily, and intra-day cycles).
3) In the very long run of many decades (at least larger than 11.1 years) the securities indexes have a constant growth or ascending trend.
Here in the next examples we are trading mainly the cycles of 1) Day 2) 2.5 days or half-week from the weekly cycle.
The exact starting effective leverage (ratio of nominal value of the position to the available funds) in this example is 10 and escalates as the funds are doubled
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
We remind the reader that of the 4 patterns of technical analysis may be derived as more complex combinations of the 3 basic laws of
1) Momentum conservation or trend (the first partial correlations is positive in an appropriate time scale)
2) The market moves in predetermined periodicity or cycles known in advance. (Cycles from 60-80 years, 22.2 years, 1 year, seasonal (3 months), monthly weekly, daily, and intra-day cycles).
3) In the very long run of many decades (at least larger than 11.1 years) the securities indexes have a constant growth or ascending trend.
Here in the next examples we are trading mainly the cycles of 1) Day 2) 2.5 days or half-week from the weekly cycle.
The exact starting effective leverage (ratio of nominal value of the position to the available funds) in this example is 10 and escalates as the funds are doubled
https://dl.dropboxusercontent.com/u/107295772/MD_speed/DetailedStatement1.htm
https://www.dropbox.com/s/a7nlqexcvf6zti1/DetailedStatement1.htm?dl=0
https://www.dropbox.com/s/a7nlqexcvf6zti1/DetailedStatement1.htm?dl=0
The exact starting effective leverage (ratio of nominal value of the position to the available funds) in this example is 5 and escalates as the funds are doubled
https://dl.dropboxusercontent.com/u/107295772/MD_speed/Statement1.htm
https://www.dropbox.com/s/21w8pfm1y3djln8/Statement1.htm?dl=0
It is used a risk-averse trading behavior, in the sense that , each time we measure carefully, that with the stop loss we set, and the size of all the positions to open, and the contract size (based on the fixed multiplier (in FX, or CFDs)) we never risk much of the funds. In total, if all the open positions were closed at the stop loss, the loss is about not more than 6% of the funds each time . We set at first the goal to survive the account before the goal to grow it. We may accept small loses each time and maybe many times losses, rather than few times losses and very big percentages of the account each time. The rest of the success is derived from the good predictability of the trading actions on the chosen instruments.
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may notice that the daily Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from the hourly chart. But we decide to trade yes or no from the phase of the slowest which here is the daily. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
SIMPLICITY AND GREAT PERCEPTIONS IN TRADING ARE THE MAIN PSYCHOLOGICAL FACTORS OF SUCCESS
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
The examples above gives a doubling of the funds within a month.
We may compare these results with the trading results of Larry Williams, which are close to 0.47MDS here
http://en.wikipedia.org/wiki/Larry_Williams_(a_publisher_and_promoter_of_trading_ideas)
Or with the trading results of Chuck Hughes that also about 0.4MDS
here http://www.chuckhughesonline.com/
Or with the trading results of Dan Zanger that are about 0.42MDS here
http://en.wikipedia.org/wiki/Dan_Zanger
The opening of the positions is as Bill Williams was suggesting that, is at an exhausting or terminal spike, which immediately after resolves to a new trend at the opposite direction. Bill Williams was suggesting to detect it with his alligator indicator, but it can also be detected with the Bollinger bands at 2 standard deviations (which for normal distribution corresponds to the 95% of the observations) or 3 standard deviations (which for normal distribution corresponds to the 99% of the observations) and number of periods the half period of the dominating cycle at the given scale. Here it was used a 4-hours monitoring by an 4-hours bar chart, but it was also looked the hourly charts for more detail. The Bollinger band was set in the 4-hours chart at the 30 periods (about a week) and at the daily time scale at the 10 days periods (half month). At the hourly chart the period is set at 12 hours. Mainly it was tracked weekly moves of 5 days, after a spike escalating on them! It was tracked of course on h4 4-hours bars. But it can a well be tracked on daily bars with less good results of course. Such cycles have celestial origin, and mainly solar origin. Even the weekly moves of 5 days as sub-cycle of the month are correlated to the Parker spiral shape of the magnetic field of the sun.
The trading of the Parker-Spiral cycle is almost the same as that with the parameters of the seasonal turtle trading but here we apply it for the 4-hours bars instead of the daily bars (See post 53)
We may notice that the daily Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
We may compare also the Bill Williams method with the Alexander Elder's method (in his book "Trading for a living") which are slightly only different, the latter enter a bit more often, as it triggers on only down waves of the focus channel , verified with the 2-period force index. Here of course Elder's method as well as Williams's methods is applied instead with say 15 minutes per day at W1=tides, D1=waves, H4=ripples (for trailing only), it is applied 15 minutes per 4 hours at D1=tides, H4=waves, H1=ripples. The former choice is when someone is working daily on another normal work, while the other method is when one is not working at another job, but e.g. his is retired.
The other time scales other than the fastest hourly, that is 4-hours, and daily, are handled as follows: The trigger to trade as we said is from the hourly chart. But we decide to trade yes or no from the phase of the slowest which here is the daily. Then use the 4-hours at first and then the hourly to determine the exact time of opening the position. If the terminal spike that triggers the opening of the position is not only apparent at the hourly chart, but also the wave in 4-hours and daily charts is a wave that started by a similar although maybe different terminal spike in its own time frame, then it is an even safer excursion of positions. It is imperative to keep the trading with a minimal number of indicators (here essentially one only for each of the 3 time frames) and attribute all other failures to pure randomness. Otherwise insisting for predictability through many indicators at such short time scales, where predictability is limited, will exhaust the human attention and will increase the probability of human error in the conduction of the trading.
Escalation of the position (pyramiding too) and trailing accounts for the uncertainty of the starting price move around the border of the channel and further move till the final closing of the position about the 2/3 of the width of the channel at the opposite side. For the reason that escalation or pyramiding is the appropriate position size management after the Pareto law of duration of the trends and the Kelly criterion see also post 55.
If we apply this system to security indexes like SnP500, NAS100 etc, the trading as technical analysis and psychologically is easier, as we bet always on the increase of the index, and we are linked with the global collective optimism. Also these indexes the last 10 years have clear and stable trend either upwards almost always or downwards also fora couple of years. Finally as the indexes SnP500, Nasdaq, and Dow Jones are highly correlated, we may take advantage of it and bet on an upward move after we see it happening in one of the three and bet it on one of the other two that has not happened to it yet. (Phase delay in a correlated oscillation).
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment.Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
It is important that a positive belief system is created that corresponds to the scientific statistical evidence e.g. that the trend either up or down will go on for the next hours days or one week and this is repeated in the next years. And in general a belief system that supports the continuation of the practice and supports the expectations of the outcomes. There is balance between how much scientific statistical certainty we require and how much plain business confidence for a successful trading, and this can only be found in practice. For example in my case the study of the success stories of Michael LeBoeuf and Bill Williams , and the 11 years study and scientific statistical and computer programming experimentation with trading, plus the success of the current four examples of one month manual trading , with various sizes of initial funds, were crucial in shaping such a positive belief system. The belief system is also somehow related with the way we interact with our family, friends , coworkers and direct human environment.Human relations are also a mirror where we see what we believe and conversely a mirror where the other people can see what they believe. I have discovered that it is not possible to have successful trading without an appropriate choice of good human relations and human environment.
Trading is like playing a musical instrument. It requires skill and practice, but most of all it requires that the emotional effect on us and impact on others is good , and supports the practice, otherwise it will fail, and we wont even understand where we did the procedural mistake.
As trading is based eventually on mental, belief-emotional, and action habits, it it more difficult the faster it is. At least because the formation and fixation of habits is more difficult when the involve behavior at faster tempo and frequency compared to more slow frequencies like those of the circadian daily cycle, or monthly cycle. Habits based on the circadian daily cycle are also stronger deeper and more stable.
This is well known to musicians , actors , machine operators and in general practitioners of fast tempo skills.
SIMPLICITY AND GREAT PERCEPTIONS IN TRADING ARE THE MAIN PSYCHOLOGICAL FACTORS OF SUCCESS
Another psychological advise is to avoid to budget and set (even statistical) future expectations of profit from trading. In the current examples I was not applying it as I wanted to prove the possibility of doubling the funds within a month. But normally in trading we should not put such targets. Especially when we want trading as supplement for income. We should leave trading free, without uniform future expectations of profits, in time and then budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading. For future targets of profit the advise is AIM LOW AND YOU WILL NOT BE DISAPPOINTED. But still take all opportunities that qualify for acceptable and low risk. Remember also that we live in a human environment that will envy and will put subconscious obstructions to any profit targets that outside the normal sizes of monthly income in this human environment.
The examples above gives a doubling of the funds within a month.
If we apply the n^(-1/2) rue as in the post 12, we may convert this 100% monthly rate of trading on hourly bars to a rate by trading on daily bars. We only need to multiply by (24)^(-1/2)=0.2041. Thus we get a rate of about 20% monthly. This if multiplied by 12 (which is something less than let it grow month by month in a geometric progression) , gives an annual rate of about 244% which is even less than what Bill Williams has measured as annual rate 300% for his trading among the years. I conclude therefore that this result is feasible for very experienced traders with deep knowledge of the markets, and very efficient risk management.
We may compare these results with the trading results of Larry Williams, which are close to 0.47MDS here
http://en.wikipedia.org/wiki/Larry_Williams_(a_publisher_and_promoter_of_trading_ideas)
Or with the trading results of Chuck Hughes that also about 0.4MDS
here http://www.chuckhughesonline.com/
Or with the trading results of Dan Zanger that are about 0.42MDS here
http://en.wikipedia.org/wiki/Dan_Zanger
I must point out here nevertheless that this remarkable doubling in one month in manual trading, performed on 4-hours charts, is not something that can be done continuously. In order to have all these intraday fluctuations more or less predictable, you must look in the monitor every 4-hours, and have in your mind the evolution of the prices during the checking and this pushes almost all other daily activities aside. In addition this focus and concentration in the markets almost all the day, fills you with a rather toxic and negative energy which is not good for the body and the health. The situation is radically different for manual trading on daily charts with 15-20 minutes per day looking in the charts and seasonal trends (see post 60, 62) .On the other hand if it is to code an automated trading program, this has by far worse pattern recognition than the manual pattern recognition and the current state of the art of technology does not allow but a small fraction only of the manual trading doubling (1MD , where MD=Monthly Doubling)
The Gratido-minute-wise can be combined with binary options in Forex, and lead to a system in binary options. Options in general (including binary options) is the best tool to handle the risk in trading. Without options trading is like driving in a wild non-asphalt road with a car without suspension system. In the current state of the art (2014) , binary options right now offer demo-accounts to test the system,and expiration times 10-15 minutes ahead each time. Therefore we need to forecast with gratido-minute-wise 10-15 minutes ahead. This is not possible normally during the day, but in some cases it is possible with a high probability of success (>50% and higher). E.g. missing symmetry at symmetric flat waves that each branch lasts for 2-5 5-minutes bars. Nevertheless we may apply it in some binary option brokers to 2 minutes forward expiration time , thus we are looking for 2-5 minutes bars waves branches (there are brokers that offer short term of 1,2,5 minutes expiration). The missing symmetry can be another term for the 3rd-wave rule of trading the patterns (see post 32). It is important to realize that it is not the offered expiration that must determine what expiration horizon we choose but the 1st. 2nd wave timing which is best clear pattern at an appropriate time frame say from minutes to at most of hourly bars, which in its turn will determine the 3rd wave timing and thus the chosen expiration, that can be from 1 minute to hours. The 3rd wave method is best suited for binary options as it allows timing prediction of the 3rd wave. On the other hand there are some (see e.g. http://www.youtube.com/watch?v=QeH60HPlNV8 ) who recommend , a channel-width trading based on the Bollinger-band 20 minutes, or Dochian 20 minutes, where we make internal trading with triggers at each touch at the boundary, betting for reversing. Of course we avoid trading when the channel is very narrow, or when the patterns in 5-minutes chart and 1-hour charts or 1 day charts, suggest clearly and strongly otherwise. We may also prefer one-sided only trading when the channel is strongly and clearly trending, and finally we may restrict to the 3rd wave cases only. As tonal pattern among the background time-frames, we search prefer of course a spike or 3rd wave, as they have high predictability and low risk. We search for 3rd-wave or spike (power-effect of demand-supply) in tides, waves or ripples. All the above restrictions , filtering and improvements are so as to increase the success rate. They suggest too, doubling the bet (martingale) if unsuccessful , immediately after the loss, without waiting for a next boundary touch, till success. This "corrects" the "effective success rate" which is initially low, at the cost of exposure of course. And as we go on with doubling due to the waves of the market the probability of winning the next trade increases too. So this martingale or doubling is essentially equivalent to pyramiding and increase of position size till the middle of the channel so that the total accumulated result from the boundary touch is positive. Mathematically it would be correct if the doubling is also parallel with an increase of the probability of success because of the market retrace movement. Of course this requires starting risking as little as 1%-2% of the funds and having an upper bound like 10%-20% after the martingale doubling. But a good risk management should consider that even very rarely this upper bound will be hit. The say that the 3rd doubling , which is the upper-bound of doubling , thus exposing 16% of the account if we start with 2%, (2%,4%,8%,16%, total 30% of the account if after the 3rd doubling all 4 lose!) it will still be a win 99.79% of the times, and a loss 0.21% of the times , as they say once per 4 months (that is an average percentage gain of 0.7*2%*0.9979-30%*0.0021=1.3970%-0.063%=1.334% which is positive!) That is why as the funds increase the starting exposure should become smaller and smaller than 1%. We will discuss below that this method may have more risks than it should, but indeed it is a valid method too. The 3rd wave method, creates the appropriate high success rate (between 60%-89%). When we put a High/Low type binary option trade instead of a standard trade, it has the advantage of a reward/risk ratio just a bit less to 1 (usually between 0.7 and 0.9). This is an advantage of avoiding many stop-loss , failure close outs of the trades in standard forex trading . when there is a tight stop-loss due to the 2%-6% risk requirement of risking funds. Thus the binary options somehow normalize the fast minute-wise trading as far as the reward/risk ratio is concerned and there is not also the problem that the spread is larger than the small movement. Some brokers offer also high-low forecasting probabilities for 4-5 cross-pairs. So instead of scanning, we may start with a pair that the deviation from the 50% is high [and only when it is high] and then go to gratido-system and check if the forecasting is good. Another advantage is that binary options of boundary type (inside an interval or not) are perfect also so as to bet on stationary times of the market (bet inside the interval) , again with normalized reward/risk ratio. The money management rule here is that if in general if p1 is the probability to win a trade, and p2 the probability to lose it (p1+p2=1), and the reward-to-risk ratio is equal to 1, then the percentage s of funds risked in the trade should be about s=p1-p2. In general of b is the reward/risk ratio (in binary options usually between 0.7-0.9) then the exact formula of percentage to risk is s=(bp1-p2)/b . E.g. of p1=0.7 and b=0.8, then s=(0.8*0.7-0.3)/0.8=0.325, that is 32.5% of the funds. (see Kelly criterion e.g. in http://en.wikipedia.org/wiki/Kelly_criterion ). To try by simulation how the average rate of return and its average maximum draw-down depend on the success rate, the reward/risk ratio and percentage o funds risked, in the post 43, is an simulator in Excel to make the simulations. To my risk tastes, with a success rate of 80% and reward to risk 0.8, I like to risk only 5%-20% of the exposure suggested by Kelly, in other words about 2%-10% of the funds each time, which leads to average rate of return per 20 trades of 1.6-2.6 times the initial funds and an average maximum draw-down of from 7% to 18% [+ or - 8%]. (see post 43)
Since the binary options brokers offer reward to risk ratio from 70% to 90%, if our system , has success rate 60% or higher, from the above Kelly formula we have a positive path of capitalization. While systems with success rate between 50% and 60%, at e.g. a reward-to-risk ratio of 70% will fail and lead to crashing the account.
So the optimal fastest speed of capitalization is not the martingale , as some believe but the above rule. The martingale (doubling at the betting size at a loss) maximizes the speed of recovering of each loss, but it risk more than it seems, and in the long run it is slower, than the above rule. The martingale has the attractive property that even with a probability 50% of forecasting correctly, it would initially give some starting capitalization, but not for ever!.
Instead of the martingale we could use the next fast recovering technique: If during a trade, and just before expiration it is clear that the market is going in the opposite direction from the predicted , we do not hesitate to open a new position of size (1+e)a, where a is the size of the previous position, and e=15%-30%, so that the loss is recovered with a small profit, and we have a break-even. This may be applied with 2nd or even 3rd trade, and it may even include pyramiding or anti-pyramiding . We go on (always with position size almost constant and almost equal to the initial) til the first time that we have in accumulative total (since the boundary touch signal), one bet profit, always before the price returns to the middle of the channel.
The probability p1 maybe assumed 51% at the beginning (so we start risking 2% of the account) and gradually it can be measured from our success rate track record. A smart application of the gratido-minute-wise should produce e.g. high/low bets of a success rate between 60% and 80%.
In the trading of the binary options we apply the CORRECTIVE ESCALATION (instead of martingale, and looks like martingale but it is not), as described in the rules of the gratido system above. It is probably the most ignored and important factor for a successful trading,that can increase a 50% success rate of initial guess for a movement to be up or down to 75% or 85% etc. (given of course the average momentum conservation).
Because of the small obligatory duration of each trade (10-15 minutes), it does not require spending many hours in front of the monitor, as the time spent is multiples of 10-15 minutes, which is another advantage of the binary options. Finally we must mention that binary options have also disadvantages compared to ordinary (vanilla) options,(e.g. do not over in-the money options only at the money, so strategies like those in post 41 cannot be applied) but for a minute-wise trading, they have advantage over vanilla options due to their liquidity, retail character of the accounts (usually a 250$ minimum to open with a 25$ minimum of trade size, but there are brokers with 20$ minimum deposit and 1$ minimum bet), and normalized reward/risk ratio.
If the gratido-daily is applied to binary options , instead of the minute-wise, with a trade success rate of 70%, and a binary broker reward of 0.7 (reward/risk_ratio=0.7) and a 50% only of the exposure that the Kelly criterion suggests, in other words with about 13% risk of funds at each trade, where trades are place daily and expire the next day, then the simulation gives that the average monthly draw-down is about 30%, and the average monthly rate of return about 50%-66% with a standard deviation of 50% of it! These calculations are based on a 20-trading days month, and it is assumed that searching all currencies , commodities and other instruments that the broker offers, every day is set one trade. This says in other words that the famous world-champions records of trading rate of by return that are about 40%-50% monthly , can also achieved with binary options on various instruments, and with the previous specifications.
Years ago, I was in denial for manual trading, mainly because the compelling emotional impulses that I had when guessing the market moves, were strong and mostly not successful.
Or because, I was feeling that "a second person" or "living by" was attached to me, who was trying to find the excuse for each trade result that seemed a loss, to force me feel very bad, like burned, inspite what by intellect or deeper beliefs was telling me (one trade does not define the statistical result of a trading system). This was lack of internal "congruence" about trading.
Or because, I was feeling that "a second person" or "living by" was attached to me, who was trying to find the excuse for each trade result that seemed a loss, to force me feel very bad, like burned, inspite what by intellect or deeper beliefs was telling me (one trade does not define the statistical result of a trading system). This was lack of internal "congruence" about trading.
When I was listening about consistently successful manual traders, I was thinking that maybe they have a unique guessing ability, that I do not have, and I should not expect or rely on having it too.
The good news is that I realized , as my expertise increased, that it is not a matter of guessing ability not based on the observables on a chart. Instead it is a matter of analysis based on the observables of the charts only, and the accumulated statistical experience in the subconscious of how such observable patterns in the past evolved. Both cannot be executed with such a high perfection with 100% automation only.
It is usual that more than 80% of the cases the market is unpredictable if it will go up or down (grey neutral zone) and less than 20% of the cases we have a clear decision of forecasting that the market will go up or down. That is why a trader must not press himself in all cases to decide if the market will go up or down as it may be a "grey neutral zone" , even if his open trading position may not be neutral. He only needs to be ready to adjust appropriately his position as soon as the market gives a clear forecasting that it will go up or down.
The way that the subconscious memory keeps statistical records of the appearance and evolution of price patterns is much the same as when kids learn, a new language through statistics of the repetition of the sound of words without knowing another language to translate. (See an interesting video about learning languages at http://www.ted.com/talks/lang/en/deb_roy_the_birth_of_a_word.html ).
Notice that there is nothing in the previous about discretion of decisions based on news analysis, or fundamental analysis, that I consider only as very bold orientations not capable of leading to precise and concrete daily trading, and on the contrary they may become shifting sands.
In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT.
As it is the subconscious that is doing the statistics from observations, the feelings about what is expected is at the realm of beliefs. So it is required an ability to have the right beliefs and control the beliefs when trading. A good question when being aware of undesired feelings is : What am I believing in order to feel that way? We must separate the feelings from the individual trade (leave it say less than 20% intensity of feelings) and focus on the feelings of the long run statistics, known to our subconscious (let it say more than 80% of the intensity of feelings). In this way we are not unhappy with the losing trades and keep on trading, as we align our feelings with the statistical success. In fact we should be prepared for a probability of about 50% of losing or gaining in any particular trade, and not a very high like 95% winning and 5% losing. When we are at the 50% expectations we do not get nervous or disappointed. If we cannot appropriate ourselves for such a feeling of risk that can be changed easily at will , maybe we are not ready for trading. Or if we want to attach feelings to something in the present and not wait for the statistical success, we may attach them to the protocol of the trading. Thus we strictly separate the feelings attached to the protocol of the trading that must be strong, from the feelings attached to the results of each trade that must be weak. So the feelings are not the problem in manual trading but the wrong way to choose and indulge them.
Notice that there is nothing in the previous about discretion of decisions based on news analysis, or fundamental analysis, that I consider only as very bold orientations not capable of leading to precise and concrete daily trading, and on the contrary they may become shifting sands.
There is no doubt that in the present "state of the art" of trading, if a trader is the creator and coder of an 100% automated successful trading algorithm, then he can do a by far better manual trading. Nevertheless there are times when the social conditions, or direct proximity human environment exert a firm and systematic negative influence so that the personal emotional , physical or mental state of a person-trader is in bad shape. We could call it a case of contaminated subconscious environment. In such a case a manual trading based on a very simple protocol on a very simple template, would make things easy and simple without many opportunities of error. But if even a simple chart template is not sufficient, then , the resorting to a 100% automated trading can be better than a manual trading. In such situations it is better not to trade manually, not because of the state of the markets but because of the subjective state of the trader. Therefore the alternative of the 100% automated trading although much less well performing, would be better than nothing.
I very much like also the definition of true prosperity by Michael Ray, lecturer in the Stanford University , in his book "The highest Goal".
It is also in accordance with the deeper sequencing that in order to have you must first act, and in order to act you must first think and in order to think you must first be. To be, to think, to act, to have is the true sequence of wealth creation. Private property itself is nothing else that a feature of abilities of the creative will of the existence. Therefore the ability to experience at will the various qualities and abilities of the existence is the true wealth.
"True prosperity is being happy by continuously experiencing the variety and infinity of qualities that make up our Existence. .....You achieve prosperity by having a full, rich feeling of self-worth." Michael Ray: The Highest Goal 2004
Probably the best instantaneous rewarding "why?", of manual trading is the joy and satisfaction in perceiving, among the situations of higher or lower uncertainty, with news , fundamental and technical analysis, of what will happen in the global economy and markets, so as to plan and conduct a strategy that lets you know, on occasions, through data information , mathematical, and economic principles, what will happen with acceptable low uncertainty. In this way the local goal of the game is to maximize the success rate of the (groups of) trades. And probably the best cause for this why as both local and global goal of the game of trading is so as to reduce economic inequalities in the world.
Probably the most important psychological virtue of a trader, is an anti-Machiavellian virtue: his disregard and contempt of fear of future failure, of fear of temporary failure and memory of past failure. The success is founded on a successful system of beliefs about you your tactics and the market behavior as inherited from a social and natural structure.
(And from a macroscopic point of view, probably the stronger reason for studying scientifically the capital and money markets, is that among all civilizations in the galaxy, this earthly civilization, is the only one with extremely complicated , massive alienating and evil economics. The more advanced civilizations do not even use money inside them, but only for simple commerce with different civilizations. For a mind therefore perceiving all reality, it is challenging to go through the underlying mathematical and scientific laws of such a rare economic phenomenon.)
Probably the most helpfull psychologically book about trading was a book that I read that was not written about the psychology of trading but about the Psychological Resistance the art creators are facing (Authors, painters, poets, musicians, entrepreneurs, personal development seekers etc). The book was written by the renown author Steven Pressfield 2002. with the title The War of Art. I quote one of its paragraphs substituting the word profit for fame and success and changing one or two words..
"The fantasies about profits are symptom of the Psychological Resistance. Sign of an amateur. The professional has learnt that the profit as well as happiness are byproduct of their work. Not the object of their work. The professional is focused on his work, and allows to rewards to come or not, now or later, ---what ever they decide."
For a scientific mind , here are the 3 sources of certainty in going on for a successful trading.There are three mathematical-economic principles on which systematic long run successful trading is based:
1) There are hidden almost periodicities on the volumes and volatility of the prices. The most characteristic are , the daily cycle , the monthly cycles and the annual (or quarter) cycle. (Law of cycles or rhythms and law of action see posts 9,10 )
2) The duration of the trends, is usually a multiple of the characteristic half-periods as above, and together with the size of the volumes, the price change, etc they also follow approximately the distribution of the capitalization sizes of enterprises, in other words a Pareto or a Power distribution. Deviations from the power distribution are a source of predictability too (See e.g.http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and_corporations.html and http://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis.html ) (This holds for the currencies too, as the "packets" sizes ,to exchange currencies, are defined by the enterprises, and executed by the banks.) (Law of attraction and inequality or law of power of volumes, see post 9,10)
3) The demand-supply functions under the three coupling modes a) Domination b) Competition c) Cooperation, and as result of this the 6 basic price patterns of (1) spike, (2) trend, and (3) flat channel, (1+2+3=6) emerge. (Low of polarity or duality see posts 9, 10, 22, 32)
If a uniform randomness would rule the markets (efficient markets assumption) , the probability of long duration trends would be much less that what it is observed, and their distribution would be a geometric or exponential, and not Pareto or power. Thus the law of "universal attraction" in enterprise formation makes also the markets non-efficient and more predictable that what the academic world believes.
A professional trader extracts certainty and perseverance from the above 3 Macro-Fundamental facts and laws , and not from the details of Technical Analysis. The professional trader, knows that it is not him that makes the profits; it is Science that is becoming rich. The science of planetary prosperity.
Even if a market as a stochastic process, would be a sequence of spikes alternating with flat continuation channels (that is a market without trends) , with 50% probability of the next spike up or down (a random walk of spikes) , still an external trading of the breakouts of the flat intermediate channels would be a very profitable trading. The same with systems like the gratido, below.
In the same way, let us assume that market, as a stochastic process, was a random walk within parallel reflection zones of support-resistance (darvas zones) , such that at each parallel zone support-resistance there is 80% probability of reflection and 20% probability of break-through to the adjacent zone. We may call it parallel support-resistance reflection levels random walk. Even in such a market the above trading methods and in particular the gratido system, would be a consistent profitable trading.
In spite the fact that there is sound science behind the predictability of the markets, and a systematically successful trading, the practice of a trader, will also be based unavoidably on a SYSTEM OF BELIEFS that define not only the reality of his experience of the trading but also the reality of his profits or losses. If only because there may be science behind the behavior of the markets, but it is not well developed yet, and therefore beliefs derived from statistical experience is the base. Example of such belief-system are the three statistical mathematical laws of a) Rhythms b) Attraction c) Polarity (see above).
When chasing spikes and 3rd waves, in multi-frame setting, is like basing the action, on the waves that a stone creates when falling on the surface of a calm lake creating a change of state, You may utilize the re-action or the secondary action. But the principle and phenomenon is always the same. The intuitive image is one of natural environment.
WHAT THE SPIRITUAL MENTORS WRITE ABOUT MAKING MONEY OR LOSING MONEY? HERE IS AN EXAMPLE OF WHAT THEY WRITE:
In my experience, I had for many years, the necessary intellectual or scientific, or technical analysis expertise to conduct a very successful manual trading, and also I had the strong desire to trade successfully, still I could not do it! I kept trying, coding, re-trying etc. No success! The thinking, the feelings, the beliefs and the actions would not be in congruence. Although I new right ways to trade, very often my beliefs would be against applying them. Or even when I was applying the right protocol , days would come that I had intellectual doubts about its validity, so I wanted to change it. Or even when I was applying the right protocol , days would come that I would have strong and compelling feelings not wanting to go on, in spite my intellectual reassurance that it the right way. And a day came that I had to make a "leap of faith" (supported of course by all my technical knowledge) so as to conduct a successful manual trading. Not a "leap of faith" about what the markets will do! No! But a "leap of faith" in believing in myself and in the success of my efforts! An ability to believe in miracles, miracles that I can perform. An ability to believe in the rare probability, among the average around. And of course this faith was also supported by the awareness of few other celebrities of trading that had succeeded in similar ways, plus backtested robots at the same timescale and with similar rules. In addition the more than 11 years of experience had somehow to be able to concentrate strong certainty and confidence to a simple but complete protocol of trading at the right timescale, and with the right global philosophy and principles. Maybe also the increase of the fequency of the physical reality of the body, helps for success. It may seem very dark what I said, but this is what was necessary for me! And the result was that suddenly my intellectual appreciation, my feelings in conduction, my strong beliefs support, and my consistency in conduction, all were in congruence and agreed. The remarkable profit result, of course, followed too.
Another advise is to avoid to budget and set (even statistical) future expectations from trading, Especially when we want trading for income. We should leave trading free, without uniform expectations, in time and budget for income only from the accumulated past profits in the account from trading, after withdrawals as consumption by the rules of the system. In other words if we have accumulate X amount for consumption , then budget for income from this amount and do not budget from future gaining of the trading.
I very much like also the definition of true prosperity by Michael Ray, lecturer in the Stanford University , in his book "The highest Goal".
It is also in accordance with the deeper sequencing that in order to have you must first act, and in order to act you must first think and in order to think you must first be. To be, to think, to act, to have is the true sequence of wealth creation. Private property itself is nothing else that a feature of abilities of the creative will of the existence. Therefore the ability to experience at will the various qualities and abilities of the existence is the true wealth.
"True prosperity is being happy by continuously experiencing the variety and infinity of qualities that make up our Existence. .....You achieve prosperity by having a full, rich feeling of self-worth." Michael Ray: The Highest Goal 2004
Probably the best instantaneous rewarding "why?", of manual trading is the joy and satisfaction in perceiving, among the situations of higher or lower uncertainty, with news , fundamental and technical analysis, of what will happen in the global economy and markets, so as to plan and conduct a strategy that lets you know, on occasions, through data information , mathematical, and economic principles, what will happen with acceptable low uncertainty. In this way the local goal of the game is to maximize the success rate of the (groups of) trades. And probably the best cause for this why as both local and global goal of the game of trading is so as to reduce economic inequalities in the world.
Probably the most important psychological virtue of a trader, is an anti-Machiavellian virtue: his disregard and contempt of fear of future failure, of fear of temporary failure and memory of past failure. The success is founded on a successful system of beliefs about you your tactics and the market behavior as inherited from a social and natural structure.
(And from a macroscopic point of view, probably the stronger reason for studying scientifically the capital and money markets, is that among all civilizations in the galaxy, this earthly civilization, is the only one with extremely complicated , massive alienating and evil economics. The more advanced civilizations do not even use money inside them, but only for simple commerce with different civilizations. For a mind therefore perceiving all reality, it is challenging to go through the underlying mathematical and scientific laws of such a rare economic phenomenon.)
Probably the most helpfull psychologically book about trading was a book that I read that was not written about the psychology of trading but about the Psychological Resistance the art creators are facing (Authors, painters, poets, musicians, entrepreneurs, personal development seekers etc). The book was written by the renown author Steven Pressfield 2002. with the title The War of Art. I quote one of its paragraphs substituting the word profit for fame and success and changing one or two words..
"The fantasies about profits are symptom of the Psychological Resistance. Sign of an amateur. The professional has learnt that the profit as well as happiness are byproduct of their work. Not the object of their work. The professional is focused on his work, and allows to rewards to come or not, now or later, ---what ever they decide."
For a scientific mind , here are the 3 sources of certainty in going on for a successful trading.There are three mathematical-economic principles on which systematic long run successful trading is based:
1) There are hidden almost periodicities on the volumes and volatility of the prices. The most characteristic are , the daily cycle , the monthly cycles and the annual (or quarter) cycle. (Law of cycles or rhythms and law of action see posts 9,10 )
2) The duration of the trends, is usually a multiple of the characteristic half-periods as above, and together with the size of the volumes, the price change, etc they also follow approximately the distribution of the capitalization sizes of enterprises, in other words a Pareto or a Power distribution. Deviations from the power distribution are a source of predictability too (See e.g.http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and_corporations.html and http://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis.html ) (This holds for the currencies too, as the "packets" sizes ,to exchange currencies, are defined by the enterprises, and executed by the banks.) (Law of attraction and inequality or law of power of volumes, see post 9,10)
3) The demand-supply functions under the three coupling modes a) Domination b) Competition c) Cooperation, and as result of this the 6 basic price patterns of (1) spike, (2) trend, and (3) flat channel, (1+2+3=6) emerge. (Low of polarity or duality see posts 9, 10, 22, 32)
If a uniform randomness would rule the markets (efficient markets assumption) , the probability of long duration trends would be much less that what it is observed, and their distribution would be a geometric or exponential, and not Pareto or power. Thus the law of "universal attraction" in enterprise formation makes also the markets non-efficient and more predictable that what the academic world believes.
A professional trader extracts certainty and perseverance from the above 3 Macro-Fundamental facts and laws , and not from the details of Technical Analysis. The professional trader, knows that it is not him that makes the profits; it is Science that is becoming rich. The science of planetary prosperity.
Even if a market as a stochastic process, would be a sequence of spikes alternating with flat continuation channels (that is a market without trends) , with 50% probability of the next spike up or down (a random walk of spikes) , still an external trading of the breakouts of the flat intermediate channels would be a very profitable trading. The same with systems like the gratido, below.
In the same way, let us assume that market, as a stochastic process, was a random walk within parallel reflection zones of support-resistance (darvas zones) , such that at each parallel zone support-resistance there is 80% probability of reflection and 20% probability of break-through to the adjacent zone. We may call it parallel support-resistance reflection levels random walk. Even in such a market the above trading methods and in particular the gratido system, would be a consistent profitable trading.
When chasing spikes and 3rd waves, in multi-frame setting, is like basing the action, on the waves that a stone creates when falling on the surface of a calm lake creating a change of state, You may utilize the re-action or the secondary action. But the principle and phenomenon is always the same. The intuitive image is one of natural environment.
And there are 3 contexts of laws required. The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading.
Compelling certainties, and compelling emotional expectations in trading, that do not fit the above three realms of laws, will lead to failure. What is more valuable is an attitude of confident neutrality, about the market going up or down.
And in order for a subconscious believe of ability of profitable successful trading to be shaped that , it seems that it is required about 21 days, or practically one month of trading. These subconscious beliefs are also chemical hard-ware (chemical substances) on our body called peptides, that encode in chemical level, our successful trading habitual behavior!
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of the top minority of those who determine the markets.
In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT. Compelling certainties, and compelling emotional expectations in trading, that do not fit the above three realms of laws, will lead to failure. What is more valuable is an attitude of confident neutrality, about the market going up or down.
And in order for a subconscious believe of ability of profitable successful trading to be shaped that , it seems that it is required about 21 days, or practically one month of trading. These subconscious beliefs are also chemical hard-ware (chemical substances) on our body called peptides, that encode in chemical level, our successful trading habitual behavior!
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of the top minority of those who determine the markets.
WHAT THE SPIRITUAL MENTORS WRITE ABOUT MAKING MONEY OR LOSING MONEY? HERE IS AN EXAMPLE OF WHAT THEY WRITE:
JANUARY 14, 2018
We of the Arcturian Group once again wish to send the blessing of a new and happy 2018 to all readers, a year that will usher in change on all levels of awareness. Personal as well as global change cannot help but manifest as the result of increasingly evolved states of consciousness--consciousness being the substance from which the outer scene is formed. The present has become rich with new information.
You have come to assist in the birthing of a higher world consciousness through attaining and then adding Light to the consensus consciousness. We, the Arcturian Group as well as many, many others, are standing by to help with this. Do not get discouraged or fall into the belief that it is an impossible job, for the burden does not fall only to the few awakened ones--you are never alone.
A few serious seekers have become overwhelmed and discouraged as they look out on a world that seems to be getting worse instead of better. These dear ones have come to believe that evolving the three dimensional system is their personal responsibility and that they have failed.
It is spirit, truth, and Light alone that does the heavy lifting. Individuals in and of themselves can do nothing for they have nothing real with which to do something.
You are never alone, nor could you ever be separate or abandoned regardless of any outer appearances to the contrary. Every individual is assisted and guided through even the most ordinary of situations toward whatever solutions will best serve the goals they set before incarnation.
Conditions of "humanhood" are based in beliefs of separation of which the bottom line is always; "You will never be good enough.". The material belief system teaches that it is only by sheer strength of either body or mind that a person can achieve success or even survive. This belief has brought about a non ending supply of self promoting human activity that may or may not accomplish personal goals and which frequently cause harm to others.
An intellectual knowledge of truth is the first step out of this maze, but it must evolve deeper and become an attained state of consciousness. The ego or personal sense of self regardless of how educated or intellectually aware is only able to create change at that level. This is clearly illustrated in the bible story of the branch that is cut off from the vine. Only through one's conscious alignment with truth, spirit, and the Divine Self can that sacred portal within open and allow the flow of Light that dissolves the dark.
That intuitive nudge, ideas that seems to come from nowhere, the sudden solution to a difficult problem will become ordinary experiences as you attain a Consciousness of completeness and wholeness as being available now, rather than at some future time when you are more "holy".
Learn to trust, always remembering that you are not simply a physical being who must struggle to survive by your wits, but are rather a spiritual being of Light briefly on earth to experience separation, learn from it, and share with others who are also seeking.
We wish to speak to the concept of money. Regardless of what country you live in, money represents a material interpretation of spiritual abundance, completeness, wholeness. Because humans are creators, they have over time and through the ignorance of duality and separation, created a global system of lack and limitation versus abundance. (duality)
Financial abundance or the lack of it is a concept having no law to support, maintain, or sustain it. It simply exists and will continue to exist as long as there is a belief in it. Wealth can easily come and just as easily go when it has been created from the energies of duality and separation. Observe at the blades of grass in a field for these represent the expression of the law of abundance. Could an omniscient, omnipotent, omnipresent Divine creator consciousness lack anything? Lack is a man made experience.
The temptation for most is to immediately go into denial about this, finding hundreds of reasons why this is could not be true and why lack is real and money is limited. We would say; Yes, lack is indeed very real for those suffering the consequences of this belief. We do not ask you to deny appearances, we suggest that as with everything in the outer scene, you are now ready to look and embrace a deeper realization regarding abundance.
Even if lack or limitation is not a part of your experience in this lifetime, begin to observe and register abundance in every area of ordinary life. This practice will begin to form a deeper consciousness of omnipresent abundance and re-train the mind to recognize it easily. Shift your thoughts to truth whenever tempted to give power to appearances of lack, never denying them, but rather translating them.
The belief that a bomb proof shelter or plenty of diamonds and gold constitutes safety and supply, will act to perfectly create separation from true safety and supply. Instead of dwelling on what you do not have or wish you had, begin to take note of the ordinary forms of abundance you see around you--someone's nice clothes, or a beautiful home, the infinite forms and varieties in nature, and whatever comes to your awareness.
Through acknowledging without emotional attachment the infinite forms of abundance all around you, you develop a consciousness of abundance. The mind will begin to automatically respond to and integrate abundance as an ever present reality which with time becomes a new and higher state of consciousness.
As you reprogram your mind to think abundance instead of lack, begin to express gratitude for everything in your life. Simple ordinary things such as a dog's wagging tail when he sees you, the neighbor's hello, or an unexpected hug are easy to disregard as being ordinary and unimportant but they are forms of abundance which when acknowledged as such, will serve to reprogram the mind away from thoughts of scarcity and into "I have".
There are many simple and basic ways to get the abundance energy flowing like giving away things you no longer use or need or dropping a coin or two however small into some donation jar. When these things are done with the realization that it is not the amount of the donation that is important, but rather the awareness of the Infinite Source of it, you will be expressing abundance on a much higher level and it will begin to multiply. Begin to pour physically, emotionally, mentally, and spiritually through a consciousness of "I have because I AM.
When you pay bills, do it in an awareness of your payment as not coming from you personally because in and of yourself you have no abundance, but rather that it is flowing through you from an Infinite Source--you are simply transferring money from your left hand to your right, because there is only one.
If you believe that the supply of anything is personally yours, it will immediately become subject to limitation where it can and often does run out. Your work is to attain that state of consciousness that realizes supply as an ever present flow of Divine energy that never will or could run dry.
Attaining a consciousness of I have, does not happen overnight because beliefs of lack and limitation are firmly entrenched in world consciousness as the result of hundreds of lifetimes lived firmly entrenched in the experiences of lack and limitation as well as with great wealth. However, know that there is not now nor could there ever be a law to support scarcity.
This is not to say that once you become aware that there is a the law of abundance you then sit doing nothing, awaiting your personal bag of money to drop from the sky. Rather, you take whatever ordinary human footsteps you are guided to take (get a job, be it any job in order to get the flow going, or invest as you are guided etc. ), but take these actions with higher awareness, one that does not give the power of abundance to them.
Money or goods that manifest out of an attained consciousness of spiritual abundance, can and will re-appear if lost because the substance from which these things were formed (consciousness) is still present. You are creators creating all aspects of daily life according to your attained state of consciousness.
Abundance is an ever present reality. It never changes or becomes non existent because it is a facet of Creator Energy, held forever in place by Divine law.
Regardless of your present financial circumstances, begin to evolve more deeply into the truth of supply as being spiritual, not material, while refusing to endow either good or bad appearances with power. If you are wealthy, open your consciousness to more than limited third dimensional concepts about investments, wealth, banking, and personal accomplishment. If you are presently experiencing lack, know that it is the manifestation of a consciousness of lack--go deeper.
Regardless of global or personal appearances, you are all ready to begin the inner work of embracing and understanding this issue in its higher reality.
You are that which you seek.
We are the Arcturian Group 1/14/18
To the above approach and insights, I think we should make some finer discriminations that are crucial though for a more progressive transformation of the society, and also a new moral about money. The emphasis that the result of having money and abundance is because of spiritual causes is correct! But a good question is : Are the above teachings really useful for the oligarchy that has the money and power, or for the majority that does not have either? We do not really want to imitate the spiritual background of those that have money and power and just diffuse it to those that do not! Because this simple perpetuates the current social reality. E.g. the motto "I have because I am" is mainly used by those that have money and power to explain that they have them, because of some spiritual superiority or meritocracy of providing something useful to the others. It is known that many get rich by providing also something harmful to the many and many that provide something useful are not rewarded at all! Or that they have a superiority e.g. a spirituality of abundance and not lack. The truth is that those that have conduct mainly a hidden will of lack for the many, in spite that fact that they themselves have an abundance of wealth. In reality, their spirituality of abundance is small, private and does not include the totality of the humanity. And what really is functioning in the background of this motto is "I have and they don't have, because I am". And what applies to the majority that does not have is "We do not have, because they are". Now someone that is in the majority and wants to be one that has, is not enough to claim inside him " I can have because I am". Because in this way he will become simply one of those that have money and power. The new ethics and new spirituality is "I have and they have, because I am" . We see immediately how more exact, different and radically more progressive this improved approach is, which does not perpetuate the existing inadequate reality neither justifies those that have against those that they do not have!
You can buy this Blog, in book form at
