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Indicators are liars

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  #1 (permalink)
 Fat Tails 
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I hate indicators.

You take price, let it stew in its own juice, and the outcome is an indicator.

I just watched my 5 min chart and my 15 min chart for TF and tried to determine whether price was heading up or down.

Bullish or bearish?

5 min chart (chart 1)

- Momentum had crossed the zero line
- Pullback oscillator had moved to neutral-positive
- Price was above EMA 20
- Price was above the linear regression indicator

15 min chart (chart 2)

- Momentum had crossed the zero line
- Pullback oscillator was clearly negative
- Price was slighty above the EMA (20)
- Price was above the linear regression indicator

Looks bullish doesn' it. It is kind of bullish, indeed. It is bullshit. Scrap all the indicators. They are liars.


Looking at the larger picture (chart 3)

It is now the forth day that TF is sitting in a narrow trading range. The trading range was defined by Monday's low and high. The range is also defined by two large fib lines. Last week's close and the weekly pivot provided support. Do not expect that prices leave that trading range today. Everbody is waiting for tomorrows unemployment figures.

Looking at the 15 min chart of today (charts 4, 5 and 6).

Price traded within the opening range most of the day. Also price traded below the pivot range since 11:00 AM. If I look at the pattern, there is a strong sell-off prior to the open, which ends at the fib line. then a sharp retracement up, followed by two smaller hills. I call this Adam-and-Eve pattern, the sting is Adam and the two balls following is eve. This is a sign of weakness. You also can see a Gartley Pattern. All this is really bearish.

So there was never any point following those stupid indicators. Just look at the price action. Bears were in control today.

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  #3 (permalink)
 cory 
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depend on your indicator setting you get a diff picture/perspective.

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  #4 (permalink)
 cpi65 
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What?!

You can make a case for bullishness or bearishness using anything you like - indicators, price action, sentiment, news, fundamentals, whatever.

What you have said here is "these are reasons I picked for it going up, but it went down" (probably after the fact that you knew it was going down, because of the title of your thread).

I bet there were a hundred different indicators that were bearish all day long my friend.

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  #5 (permalink)
 Fat Tails 
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cory View Post
depend on your indicator setting you get a diff picture/perspective.

It is based on momentum, so it produces fewer divergences and fewer lies. But it is also lying.

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 cpi65 
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Here we go, TF (what is that, the russell?) 5m, under it's 200 MA all day long. It took me all of 5 mins to find that.

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 cory 
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easy to see when you look at a history chart.

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  #8 (permalink)
 Fat Tails 
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cpi65 View Post
Here we go, TF (what is that, the russell?) 5m, under it's 200 MA all day long. It took me all of 5 mins to find that.

If you take a 60 min chart, you will see that the 200 MA provided for support. Only broke down during the last hour. Took me less than 5 minutes to find that out.

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  #9 (permalink)
 cpi65 
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TF (whatever it is), 1000 contract bars.

With our skillz we'll be millionaires in a year!

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 cpi65 
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Yo!

I'm not trying to flame or whatever, but saying "indicators are liars" and pulling out two charts (of the same contract) with indicators that have *probably* been cherry picked isn't much evidence to support your case.

I'm not much of a fan of indicators, and I don't read my horoscope. My sister, though, reads hers daily and finds evidence for them to be true all the time.

People don't believe what they see, they see what they believe.

NON FARMS BABY YEAH!!

CPI

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 cory 
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then it's just matter of patiently waiting for your fav patterns.

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  #12 (permalink)
 Fat Tails 
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Any indicator derived from price contains less information than price. This can be useful, if you want less information. But to be consequent, you would than have to drop price and trade without. Is that reasonable?

The idea I have, is not creating a panoply of different indicators from price, but to take new information - not the same - and use one indicator on that new information.

What do you think would be more useful for trading

Option (1): A price chart for TF

with

- EMA(20)
- Linear Regression Indicator
- Bollinger Bands
- MACD
- RSI

Option (2): A price chart for TF

with

- some lines identifying support and resistance
- volume or bid/ask-traded volume
- the NYSE Tick
- price of another index future (ES is the leader)
- the US-Dollar Index or the Euro

Trade off 1 parameter revisited and repackaged 5 times, or trade off 5 different parameters, each of them displayed once?

I believe in volume and intermarket analysis. The midline of the Donchian Channel for the NYSE tick is a better trendfilter than an exponential moving average. You get additional information on market breadth, which is not provided by price action for TF. The EMA cannot tell you anything more than your price chart, but less.

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 fluxsmith 
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Fat Tails View Post
...The EMA cannot tell you anything more than your price chart, but less...

I get your point, but I think like any dogma the no-indicator movement can also be extreme. The EMA can tell me something about past price which I don't have the screen real estate to see without scrolling, and if I do scroll then I can't see the current price.

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 cpi65 
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dude

you are going to get instances where all your option (1) indicators are teling you to go long and your option (2) indicators are mixed and you are caught in the headlights. One will tell you long, other short. It all sums to nil.

Don't get me wrong, I'm no fan of RSI or Gann or whatever... but all of these techniques in option (1) and (2) and in volume alalysis and in intermarket analysis are using the same information.

My girlfriend says "baby, it's not what you got, it's what you do with it" - in technical analysis, we all have the same. It's what you do with it.

Like I said, "people" see only what they want to believe.

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 Fat Tails 
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fluxsmith View Post
I get your point, but I think like any dogma the no-indicator movement can also be extreme. The EMA can tell me something about past price which I don't have the screen real estate to see without scrolling, and if I do scroll then I can't see the current price.

Of course, I do use indicators.

-> They can repackage price for my simple mind.

-> If I use a longer lookback period than the visible fraction of the chart, they can transfer information from prior periods. My fib confluence indicator uses a lookback period of 300 days and then transports that information on my 5 min chart. The pullback oscillator I use, has a period of 144 bars. The pivot indicators display information from the prior day, prior week or prior month. So these indicators add new historical information to the chart.

But the idea is to use fewer indicators. I am writing this, because I have to convince myself to drop some of them.

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 cpi65 
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"the EMA cannot tell you more than the price itself"...

Sure, the EMA is a function of the prices that you have set it to. But your quote is like saying that volume bars don't tell you anything more than reading the tape will. Fact is you can't do the sums fast enough, same as an EMA gives you ballpark.

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 Fat Tails 
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cpi65 View Post
dude

you are going to get instances where all your option (1) indicators are teling you to go long and your option (2) indicators are mixed and you are caught in the headlights. One will tell you long, other short. It all sums to nil.

Don't get me wrong, I'm no fan of RSI or Gann or whatever... but all of these techniques in option (1) and (2) and in volume alalysis and in intermarket analysis are using the same information.

My girlfriend says "baby, it's not what you got, it's what you do with it" - in technical analysis, we all have the same. It's what you do with it.

Like I said, "people" see only what they want to believe.


Here I do not agree. The NYSE Tick gets you additional imformation. If it shoots up, stocks have left their Gaussian distribution and show positive correlation. This can only be achieved

- by a news release
- by arbitrage

If there is no news, it means that the index futures have gone up too far. You may expect a snapback, if the NYSE tick exceeds 900 (actually I am normalizing this to adjust a bit to the daily trend as measured by the NYSE tick). So you get a valid countertrend signal. I have put this on audio, so if I hear the music I know that it is time to check for an exit, if I hold a long position. Depending on the mood of the day you could also enter short.

This information is not available from the price chart of the index futures. It is genuine new and additional information. But maybe you don't want to believe that, see above.

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 cpi65 
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Fat Tails View Post
Here I do not agree. The NYSE Tick gets you additional imformation. If it shoots up, stocks have left their Gaussian distribution and show positive correlation. This can only be achieved

- by a news release
- by arbitrage

If there is no news, it means that the index futures have gone up too far. You may expect a snapback, if the NYSE tick exceeds 900 (actually I am normalizing this to adjust a bit to the daily trend as measured by the NYSE tick). So you get a valid countertrend signal. I have put this on audio, so if I hear the music I know that it is time to check for an exit, if I hold a long position. Depending on the mood of the day you could also enter short.

This information is not available from the price chart of the index futures. It is genuine new and additional information. But maybe you don't want to believe that, see above.

Well, OK you're right that NYSE TICK isn't the same as a futures price.

BUT

All of this information is from the same population - information produced by the market. This is the information that technical analysis uses, and it's all a function of time and sales across all market instruments.

The Gaussian distribution stuff... lol whatever floats your boat matey!!

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 Fat Tails 
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cpi65 View Post
Well, OK you're right that NYSE TICK isn't the same as a futures price.

BUT

All of this information is from the same population - information produced by the market. This is the information that technical analysis uses, and it's all a function of time and sales across all market instruments.

The Gaussian distribution stuff... lol whatever floats your boat matey!!

Sorry, I did not want to disturb you with Gauss, don't want to be blamed for your nightmares. Tried to say, usually there is sort of random behaviour, some stocks being sold others being purchased. If they all move together, either it is the news of the day, or it is a buy programm triggered by HFT algorithms.

Technical Analysis feeds on feedback, creates new feedback, and feeds that feedback back to where the feedback came from.

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 cpi65 
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Fat Tails View Post
Sorry, I did not want to disturb you with Gauss, don't want to be blamed for your nightmares. Tried to say, usually there is sort of random behaviour, some stocks being sold others being purchased. If they all move together, either it is the news of the day, or it is a buy programm triggered by HFT algorithms.

Technical Analysis feeds on feedback, creates new feedback, and feeds that feedback back to where the feedback came from.

Yo!

What is with the animosity Dude..??

You said that indicators were liars and pulled out two charts, I said two charts are crappy evidence for such a claim.

Thats about it.

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  #21 (permalink)
ziebarf
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Its all about comfort in my opinion. If you make money and have indicators "confirming" your actions, then thats awesome. Whatever helps you execute and manage trades smoothly. However I tend to think of all other inputs besides price as bull. But I still yearn for something extra to help me with my decisions, maybe one day

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 mahlonhersh 
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Fat Tails,

I was also feeling kind of jerked around today. This evening I looked at a scrunched together chart with a few trend lines and it became very clear that we formed a perfect wedge today. I expect a breakout, either up or down tomorrow.

Do you have any experience with Andrews' Pitchfork or Median Lines? I just came across some materials - both video and print - by Timothy Morge. It looks like it may have some potential. He calls it a "leading" tool as opposed to a "lagging" indicator. He makes it look so easy. I did use it a little bit today.

Good trading to you,

Mahlon

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 Zoethecus 
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There is a thread of the same title at ET which was started by the guy from Pivot Farm. It gave stats on SR, but he stopped posting after the beginning of 2010. I now see he's selling what was once free. Worth checking out if you like this sort of thing.

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 Twiddle 
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I am fairly skeptical of most indicators and in fact most technical analysis. (Although I am convinced some of it is valid to an extent)

In my opinion the things that move markets are transparent to indicators. Indicators show what IS going on, but not WHY. Indicators will help you confirm your thoughts on price action, but IMO you should have another reason to align your position with what the indicator is suggesting.

I am still new to this, but I think things like market profile and volume would be ways to get the other reason.

For example If I see a market trading extremely high, much higher than it's usual range and I see the beginnings of a reversal in the price action, a Lower high confirmed with a lower low for example, I would be much more inclined to take the short, because in my mind there is not only the confirmation that the price action is changing, but also the added reason that sentiment as a whole may be thinking the price is overextended.

I think the sentiment behind the markets is probably the most important thing, whether or not some type of indicator could capture that other than just telling you what is going on in that instant is debatable.

Take for example recently the news out of Greece and the subsequent dropping of the Euro. Many people using fundamentals would have made a lot of money on shorts during that time, no indicators needed. Indicators would show the market dropping, and would be correct, but only during the fact. What happens when the panic has passed - an indicator might give a sign of reversal, but how would you know if this is a true reversal with a proper move to the upside without any other confirmation?

Anyway, these are just my thoughts at this stage as a newbie.

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 Fat Tails 
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Twiddle View Post
I think the sentiment behind the markets is probably the most important thing, whether or not some type of indicator could capture that other than just telling you what is going on in that instant is debatable.

Quite true. The sentiment of the market is revealed by how the market reacts to news or to technical barriers.

Markets suffer by design - half of the crowd is buying, the other half is selling - from bipolar disorder. It is permanently trying to validate or invalidate one of the two scenarios, and the sentiment of market participants has a considerable impact on the result.

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 joe11 
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Over-use of indicators does not help. There are simple (like MA) and useful indicators that help in trading. It also depends of the type of charts (minute Vs daily/weekly) used.

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 Fat Tails 
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joe11 View Post
Over-use of indicators does not help. There are simple (like MA) and useful indicators that help in trading. It also depends of the type of charts (minute Vs daily/weekly) used.

Each indicator seems to carry a useful information. So you put lots of them on your chart. The chart becomes clustered and the indicators contradict each other. There is more information than can be reasonably digested.

Which indicators do I scrap? All of them are so useful. If I take them away, I will certainly lose an edge. If I scrap the linear regression indicator, it will only take a few setups, and I will make a mistake that can be attributed to the missing indicator. So if I take it away, it will result in a loss.

So I still have too many on my chart and do not know which ones to delete. I have by now created a sub-directory of NinjaTrader called Cemetery, where I put all the indicators that I do not intend to use anymore. Never touch them again, or they will return as zombies and plague me again.

Also I have put some indicators off my chart and created sound alerts. I do not need to watch the chart, the sound will alert me even during periods where I suffer from an attention deficit.

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 rajafx1 
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mahlonhersh View Post
Fat Tails,

I was also feeling kind of jerked around today. This evening I looked at a scrunched together chart with a few trend lines and it became very clear that we formed a perfect wedge today. I expect a breakout, either up or down tomorrow.

Do you have any experience with Andrews' Pitchfork or Median Lines? I just came across some materials - both video and print - by Timothy Morge. It looks like it may have some potential. He calls it a "leading" tool as opposed to a "lagging" indicator. He makes it look so easy. I did use it a little bit today.

Good trading to you,

Mahlon

Hi Mahlon
which are the 2 indicators in panel 2 in this chart

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 PandaWarrior 
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I believe in fibs. Natural order type stuff. Universal laws. Underlying principals that all nature moves to. A little esoteric I know but it seems to work.

Most indicators seem to complicated for me. I cannot follow a MACD, bollinger, RSI, ADX, etc all at the same time.

So I looked for something that would frame my believe in fibs in real time and give me a bit of confirmation on my though process. I have found that, at least for now.

Really its three things: Dynamic Fib Lines. futures.io (formerly BMT)CMA for a bit of confimation and a keltner channel with the outside bands set to transparent. I use this for potential reversal signals only.

Chart ends up pretty clean, I have a frame of reference for price in terms of the fib areas its trading in and I generally know what to do with price depending on where in the fib landscape price happens to be.

Still working on executing this of course but my research has shown this to be a valid method of looking at price. I also use a daily chart to determine the current day's potential movement and if price shows itself to be validating my hypothesis, then in theory anyway, that day's trading should be somewhat simple.

Simplicity is the ultimate sophistication, Leonardo da Vinci


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 mahlonhersh 
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rajafx1 View Post
Hi Mahlon
which are the 2 indicators in panel 2 in this chart

Rajafx1,

Panel 2 has a momentum indicator overlaid on top of the derivative oscillator. The derivative oscillator is available on NT support forum.

Panel 3 is bid/ask delta with the gom recorder.

I don't use these 2 panels very much. I pretty much watch price action in the main panel. I like what I have seen with the pitchfork so far and am planning to pursue that to see if I can make it work for me.

Good trading,

Mahlon

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 stephenszpak 
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Personally, I wouldn't pay too much attention to what stephenszpak has to say.

I read a long time ago about a successful trader that said he developed and used
certain indicators that worked. I think it was his mentor that told him that it wasn't
the indicators that worked but it was all the experience that he accumulated over
time as a trader that made him successful. That sounds reasonable to me.

One problem is that if you take a given instrument you'll see the amplitude and
period of the waves continuously change. So, of course, a 5 period simple works
and then it doesn't work, 6, 7, 8, and on and on. The same thing occurs if you use
just candles/bars. On a given day a 5 minute is great, but on another day a 15 minute.

Range bars and other charting that removes time (although it doesn't totally remove time)
seems to be better. Well, better on paper anyway. With range bars and such, you have
charting that shows the price moving reasonably soon to its move. If there is very little
movement there is no new candle/bar formed. A moving average crossover system will
often generate buys/sells during these times.

I thought about color coding range bars to add a time element a few days ago. It
probably has little value.

I guess everything here above is pretty obvious,

- Stephen

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 Fat Tails 
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aztrader9 View Post
I believe in fibs. Natural order type stuff. Universal laws. Underlying principals that all nature moves to. A little esoteric I know but it seems to work.

So I looked for something that would frame my believe in fibs in real time and give me a bit of confirmation on my though process. I have found that, at least for now.

Really its three things: Dynamic Fib Lines. futures.io (formerly BMT)CMA for a bit of confimation and a keltner channel with the outside bands set to transparent. I use this for potential reversal signals only.

Hi aztrader,

so we have two indicators in common. I use the dynamic fiblines since a long time. I have put them in the dwonload section. It is displayed in a slightly different version and hidden in my SessionPivots package. I also use Keltner Channels.

But I do not believe in this Universal Laws type of stuff. I have read a load of books and also scientific papers on fibs and markets. Fibs basically work as a self-fulfilling prophecy. Just as pivots. Lots of traders use them as reference points. No black magic or harmonic laws..

Below my chart with pivots and dynamic fib lines. The dynamic fib lines are only displayed as level on the right side of the chart.


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 emini_Holy_Grail 
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FatTails
Do u enter, user defined values for Previous day, H, L, O and close into this session pivots everyday?
can u say what is the exact version of session pivots you use that displays fib and pivots.

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 trendisyourfriend 
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Fat, i use indicators for specific purposes:

1) to form a directional bias (what direction price *WANTS* to go now)
2) to find sweet spots where the risk:reward is skewed in my favor
3) to gauge momentum versus lack of conviction also strength versus weakness
4) to easily spot recurring behaviors that seem to repeat over and over in a systematic way

In short, i use indicators to form a frame of reference in order to analyse price action as if i was using a special pair of binoculars to see things i could not see otherwise:


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 Fat Tails 
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stephenszpak View Post
Personally, I wouldn't pay too much attention to what stephenszpak has to say.

I read a long time ago about a successful trader that said he developed and used
certain indicators that worked. I think it was his mentor that told him that it wasn't
the indicators that worked but it was all the experience that he accumulated over
time as a trader that made him successful. That sounds reasonable to me.

One problem is that if you take a given instrument you'll see the amplitude and
period of the waves continuously change. So, of course, a 5 period simple works
and then it doesn't work, 6, 7, 8, and on and on. The same thing occurs if you use
just candles/bars. On a given day a 5 minute is great, but on another day a 15 minute.

Range bars and other charting that removes time (although it doesn't totally remove time)
seems to be better. Well, better on paper anyway. With range bars and such, you have
charting that shows the price moving reasonably soon to its move. If there is very little
movement there is no new candle/bar formed. A moving average crossover system will
often generate buys/sells during these times.

I thought about color coding range bars to add a time element a few days ago. It
probably has little value.

I guess everything here above is pretty obvious,

- Stephen

I agree that experience is important. Trading is a game, and you need to practice in front of your screen. But then you need to evaluate your performance, write down your mistakes as well as your achievements, to feed back the experience into your behaviour. So it is well possible that you use indicators that do not work and that you are successful. Maybe you just have not found out, what made your success.

I use time in my trading. That is the reason that I do not use range bars. My trades are based on scenario, and if this is not validated after a specific time - say 2 candles -, I quit the trade. If I use range bars, no candle will show up, if the price goes nowhere, and no candle will tell me to get out!

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 Fat Tails 
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emini_Holy_Grail View Post
FatTails
Do u enter, user defined values for Previous day, H, L, O and close into this session pivots everyday?
can u say what is the exact version of session pivots you use that displays fib and pivots.

Nope. Never use userdefined values. I use Kinetick EOD for daily data (first connection) and the pivot indicators are set to DailyBars mode. The last version I have published is SessionPivotsV23, can be found here



It includes both the daily, weekly and monthly pivots and the dynamic fib lines. You also can adapt it to two day session (preset for ES, there are 5 two day sessions per year). There is a thread that explains the detailed use of this indicator, which is here



The pivots indicator on the chart is V24, which is work in progress and includes the pivot range.

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 syxforex 
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Fat Tails, I have to agree with you regarding self-fulfilling prophecy, especially when you consider where the fibonacci trading language is most widely used, at the dealer level. You might replace the word lots in 'lots of traders' with the phrase biggest and best.

I read publications coming off the desks of currency strategy heads at several major houses and fib is the language of choice, in the fx market anyway. Considering that 4 houses control about 80% of the daily cash market flow, it's easy to see how these levels, however they are expressed, become real points of support and resistance where institutional clients of the dealers park huge stops and limits.


Fat Tails View Post
Hi aztrader,

so we have two indicators in common. I use the dynamic fiblines since a long time. I have put them in the dwonload section. It is displayed in a slightly different version and hidden in my SessionPivots package. I also use Keltner Channels.

But I do not believe in this Universal Laws type of stuff. I have read a load of books and also scientific papers on fibs and markets. Fibs basically work as a self-fulfilling prophecy. Just as pivots. Lots of traders use them as reference points. No black magic or harmonic laws..

Below my chart with pivots and dynamic fib lines. The dynamic fib lines are only displayed as level on the right side of the chart.



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 Fat Tails 
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syxforex View Post
Fat Tails, I have to agree with you regarding self-fulfilling prophecy, especially when you consider where the fibonacci trading language is most widely used, at the dealer level. You might replace the word lots in 'lots of traders' with the phrase biggest and best.

I read publications coming off the desks of currency strategy heads at several major houses and fib is the language of choice, in the fx market anyway. Considering that 4 houses control about 80% of the daily cash market flow, it's easy to see how these levels, however they are expressed, become real points of support and resistance where institutional clients of the dealers park huge stops and limits.

You hit the nail on its head! It is a fad that works as long as it works. But trading is no science, it is a game. And not all of the rules are fixed. So the fads and the rules undergo evolutionary change. Things that worked yesterday, may not work tomorrow.

Fibonacci levels are similar to floor levels, seen from within an elevator. It is an option to quit.

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 stephenszpak 
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Fat Tails View Post
I agree that experience is important. Trading is a game, and you need to practice in front of your screen. But then you need to evaluate your performance, write down your mistakes as well as your achievements, to feed back the experience into your behaviour. So it is well possible that you use indicators that do not work and that you are successful. Maybe you just have not found out, what made your success.

I use time in my trading. That is the reason that I do not use range bars. My trades are based on scenario, and if this is not validated after a specific time - say 2 candles -, I quit the trade. If I use range bars, no candle will show up, if the price goes nowhere, and no candle will tell me to get out!



If you have one or more things that work for you that's great, seriously.

I spent more time looking at charts than I'm going to confess to, and I made little if
any headway in understanding what was going to happen next. I could dissect a chart after
the fact, but there is no gold in that.

Sometimes looking back (on the YM or DOW) lets say the previous day, and the day before, and
the day before (P, PP, PPP) one can see support/resistance levels.

The attachment enclosed if of the Dow. If one looks at the first candle one can see that support was
found at the close, because that's where the price stops going down. The next day if one was to
assume logical price action within the candle, one can assume prices went down farther, then came
back up to what is now a resistance level and broke through, and of course closed on the high.
SO if one had these 2 candles to look at...
since if broke through the resistance level it is now a support level, with the third candle from the
left holding at that level. It closed lower on that day, but it closed on the support made the previous day.

Unfortunately trades don't come out of the books in real life. This is a text book scenario. I haven't
been paying close attention to this thread, so maybe all this has been covered.

- Stephen

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 cpi65 
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stephenszpak View Post

The attachment enclosed if of the Dow. If one looks at the first candle one can see that support was
found at the close, because that's where the price stops going down.

Everyone's right in hindsight and all, but I struggled to get beyond what I have quoted dude...

"support was found at the close" WTF??

Mate, I guess these are daily candles OK? - look at it, it opened and traded DOWN DOWN DOWN all through the session, and closed very near the lows. Support has left the building bro! Add to that what was going on in the fundamental scene and I gotta say it seems crazy to call the low/close of that candle as support.

I reckon don't **** around trying to pick where the next support/resistance will be, just take your chances at where it was. simples :-)

Sorry just my opinion.

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 PandaWarrior 
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Fat Tails View Post

But I do not believe in this Universal Laws type of stuff. I have read a load of books and also scientific papers on fibs and markets. Fibs basically work as a self-fulfilling prophecy. Just as pivots. Lots of traders use them as reference points. No black magic or harmonic laws..

I don't believe in the black magic or harmonic laws either, but order in seemingly random chaos I do believe in. That's the beauty of two differing view points. Your use of a "self fulfillment prophecy" reinforces my belief system and in turn contributes to the re-enforcing prophecy theory. Its wonderful, I benefit and so do you from my belief in order in chaos theory.

My view point happens to come from my personal world view that assumes there is order and universal principals throughout nature despite the apparent randomness and the order and universal laws like gravity, the laws of motion, etc, stem from at a minimum, intelligent design as opposed to the theory that everything sprang from a random explosion which by its very nature promotes destruction and disorder instead of creativity and order.

In the final analysis, it is immaterial whether or not one believes in the universal law theory or not, what is important is that the belief exists and many people use them to guide trading. That fact alone is sufficient evidence for me to continue to use them. I think people use them in many different ways which would tend to promote a degree of randomness in the outcomes they produce since in the fib world, every single tick of price movement is a fib number of some larger time frame and this will cause an exponential diffusion of outcomes.

I try to use them in more of a macro manner since using fibs in a more granular level is possible but time consuming and somewhat inefficient in my opinion. Thats why I use the dynamic fib lines for the daily range and a MA for some confirmation. Then the daily range fibs act as possible targets as well as possible S/R. Time will tell if I am right nor not.

Simplicity is the ultimate sophistication, Leonardo da Vinci


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 cpi65 
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syxforex View Post
especially when you consider where the fibonacci trading language is most widely used, at the dealer level. You might replace the word lots in 'lots of traders' with the phrase biggest and best.

I read publications coming off the desks of currency strategy heads at several major houses and fib is the language of choice, in the fx market anyway. Considering that 4 houses control about 80% of the daily cash market flow, it's easy to see how these levels, however they are expressed, become real points of support and resistance where institutional clients of the dealers park huge stops and limits.

Sounds like guff to me.

At least I'm honest about it.

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 stephenszpak 
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cpi65 View Post
Everyone's right in hindsight and all, but I struggled to get beyond what I have quoted dude...

"support was found at the close" WTF??

Mate, I guess these are daily candles OK? - look at it, it opened and traded DOWN DOWN DOWN all through the session, and closed very near the lows. Support has left the building bro! Add to that what was going on in the fundamental scene and I gotta say it seems crazy to call the low/close of that candle as support.

I reckon don't **** around trying to pick where the next support/resistance will be, just take your chances at where it was. simples :-)

Sorry just my opinion.

Yes support was found at the close because that's where the bottom was. If it went down 50 points less or
more that's where the selling stopped.

Yes daily candles, sorry for the omission. I used the BigCharts site so I can't confirm it's really top notch data.

Sometimes support/resistance works and sometimes not. If one looks at the 9th bar (bullish) from the
left and look at the three bars before that, one can see that the move up on the 9th bar went to the
previous resistance level.

Sadly, prices often crash through support or fly through resistance. I'd just thought I'd post on the
subject since I know a little about it.

- Stephen

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 cpi65 
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How do you know the only reason the bottom was there was because the bloody exchange closed!!??

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 Fat Tails 
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cpi65 View Post
Everyone's right in hindsight and all, but I struggled to get beyond what I have quoted dude...

"support was found at the close" WTF??

Mate, I guess these are daily candles OK? - look at it, it opened and traded DOWN DOWN DOWN all through the session, and closed very near the lows. Support has left the building bro! Add to that what was going on in the fundamental scene and I gotta say it seems crazy to call the low/close of that candle as support.

I reckon don't **** around trying to pick where the next support/resistance will be, just take your chances at where it was. simples :-)

Sorry just my opinion.

Don't agree with you here. The larger participants in the market cannot get out of their positions at the top or the bottom. Applied to last Friday this meant that they needed to buy at some stage, if they wanted to cover. If you look at the volume there was strong churning around the floor pivot S2 for ES. This revealed that some of the market participants were happy to exit their positions here. Price then went further down on lower volume to reach the pivot S3 and prior week's volume weighted average price, which also is a pivot. Starting from the churning point you could also observe a wedge, indicating that the downmove was losing strength.

Thursday's low worked both as support and resistance on Friday, and you could have made two profitable trades off that line.

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 stephenszpak 
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cpi65 wrote: How do you know the only reason the bottom was there was because the bloody exchange closed!!??

==========================================================================

2 attachments showing so-called flash crash of May 6, 2010. One can see
a FAR greater downward move in that trading day (with it stopping at
support and rebounding).

Everyone knows that the exchange closes at a given time (unless circuit
breakers go into effect) yet some days the Dow will close at its lows and
be down 150 points, yet on another day closing at it lows being down 175
points, or 217, or 242, or whatever.


- Stephen

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 cpi65 
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Fat Tails View Post
Don't agree with you here. The larger participants in the market cannot get out of their positions at the top or the bottom. Applied to last Friday this meant that they needed to buy at some stage, if they wanted to cover. If you look at the volume there was strong churning around the floor pivot S2 for ES. This revealed that some of the market participants were happy to exit their positions here. Price then went further down on lower volume to reach the pivot S3 and prior week's volume weighted average price, which also is a pivot. Starting from the churning point you could also observe a wedge, indicating that the downmove was losing strength.

Thursday's low worked both as support and resistance on Friday, and you could have made two profitable trades off that line.

Who's talking about last friday? Or about pivots or whatever?

Look at that candle on his chart. It is long and red.

End of.

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 cpi65 
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stephenszpak View Post
cpi65 wrote: How do you know the only reason the bottom was there was because the bloody exchange closed!!??

==========================================================================

2 attachments showing so-called flash crash of May 6, 2010. One can see
a FAR greater downward move in that trading day (with it stopping at
support and rebounding).

Everyone knows that the exchange closes at a given time (unless circuit
breakers go into effect) yet some days the Dow will close at its lows and
be down 150 points, yet on another day closing at it lows being down 175
points, or 217, or 242, or whatever.


- Stephen

Sorry dude but I don't really see what you are getting at here - at all.

I'm talking about that long red candle on the chart you posted, and you said "support was found at the bottom".

I disagree. I think anyone calling the low/close of that candle as support must be smoking crack or summit. Look at it, what on earth is supportive about that candle? the fact that it closed??!!!!

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 Fat Tails 
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cpi65 View Post
Who's talking about last friday? Or about pivots or whatever?

Look at that candle on his chart. It is long and red.

End of.


The red candle fell below support, as a trendline was broken. Trading is a multi-facetted game, and sometimes the inherent feedback mechanisms of the auction process prevail over the psychological feedback mechanisms, as was the case for the mini crash. But if you look at the price action following that wild day, you can see that both the upper and the lower end of that candle served as resistance and support.

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 cpi65 
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Fat Tails the candle I guess you are referring to (flash crash) isn't the one referenced in the original chart.

You can say what you like about red candles, long or otherwise, on any other day in history. My point is that the first candle in the first chart posted isn't anything like supportive.

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 stephenszpak 
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cpi65 View Post
Sorry dude but I don't really see what you are getting at here - at all.

I'm talking about that long red candle on the chart you posted, and you said "support was found at the bottom".

I disagree. I think anyone calling the low/close of that candle as support must be smoking crack or summit. Look at it, what on earth is supportive about that candle? the fact that it closed??!!!!

Support was found there (at about 10,060) because that's where the prices stopped going down, even
though prices COULD have gone down farther. The open of the next day, hypothetically now, could be much
higher or lower, with prices moving strongly in whatever direction after the open.

It seems we'll have to agree to disagree on this one,

- Stephen

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 Fat Tails 
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aztrader9 View Post
I don't believe in the black magic or harmonic laws either, but order in seemingly random chaos I do believe in. That's the beauty of two differing view points. Your use of a "self fulfillment prophecy" reinforces my belief system and in turn contributes to the re-enforcing prophecy theory. Its wonderful, I benefit and so do you from my belief in order in chaos theory.

My view point happens to come from my personal world view that assumes there is order and universal principals throughout nature despite the apparent randomness and the order and universal laws like gravity, the laws of motion, etc, stem from at a minimum, intelligent design as opposed to the theory that everything sprang from a random explosion which by its very nature promotes destruction and disorder instead of creativity and order.

In the final analysis, it is immaterial whether or not one believes in the universal law theory or not, what is important is that the belief exists and many people use them to guide trading. That fact alone is sufficient evidence for me to continue to use them. I think people use them in many different ways which would tend to promote a degree of randomness in the outcomes they produce since in the fib world, every single tick of price movement is a fib number of some larger time frame and this will cause an exponential diffusion of outcomes.

I try to use them in more of a macro manner since using fibs in a more granular level is possible but time consuming and somewhat inefficient in my opinion. Thats why I use the dynamic fib lines for the daily range and a MA for some confirmation. Then the daily range fibs act as possible targets as well as possible S/R. Time will tell if I am right nor not.

The fib world is a bit of wishful thinking and search for harmony. Human behaviour. Such as the statement attributed to Einstein that "God does not play dice". What, if playing dice is part of the plan. What if the random element is required to improve the design?

The fib universe is a closed system. Everything interrelates and fits nicely. The proportion of the larger wave in relation to the proportion of the smaller wave reflects the proportions of the wave itself. Such a beauty, such a regular structure. It is called Golden Cut. Inspiring. The pyramids show the golden cut. Probably just by chance. You will also find Pi wihtin the pyramids. Not by chance, because the guys have used some ropes to measure diameters. Nature does rarely offer such a regularity.

The point is that our mind, so trained in analogy and reduction wants order, just to reduce its use of brain RAM. The brain uses anchoring and heuristics to create an image of the utter world. Sun will rise today, because it rose yesterday. Repetitive structures such as fib retracements provide less information than the market itself contains. So our mind starts playing tricks on us, reducing information content, finding patterns, where there are no patterns to find. Irregularity becomes regularity, as to fit the information into our heads. Everything that does not fit is noise. A telephone directory contains more information than a poem. Why? Because the information is not correlated. So the telephone directory is more difficult to learn by heart than the poem. Well, I am sure that I can find you some fib patterns in the telephone book as well.

Marxism is a concept that largely simplifies social and economic life for those who can not accept its real dimension. Also it raises the hope of the poor and unsuccessful. Your time will come! Practicing marxists reduce real economics to the concepts suggested by Marx to a point that you cannot even discuss with them, because they cannot think outside of the categories implanted in their minds. Sounds a bit like Elliot Wave Theory. Marxism ignores that many elements of the theory are contradictory to empirical findings. Elliot Wave Theory ignores that statistical research has shown no significant arguments in favor of the waves proportions. So there you have two self-fulfilling prophecys, fads both with a limited lifespan. There is only a small step from Marxism to Wave Theory, to Dianetics or to Nazism.

Go ahead with religion. A common need for all of us to socialize the feedback loop created by our understanding that we are living creatures. My dog never saw himself in the mirror, but saw another dog, guess he became his virtual friend on the other side for occasional eye chats. We mirror ourselves and need an explanation. Going back to Spinoza, who discovered that God was subject of that feedback process and called him the cause of the last instance. Other focussing more on the details became Dschihadist or Crusaders, Fundamentalists or Creationists. Not really helpful.

Why is all this related to trading? Because we are permanently confronted with complex creatures showing up from nowhere, and then the answer that The Market has created this wave in Seven Days comes along because that is the answer that we want to see or hear.

The fib concept is incompatible with the multitude of feedback mechanisms created by the market participants and the auction process as well as external shocks transmittedd bynews. But collective blindness creates self-fulfilling prophecies and in the end it is rational irrationality to follow them, to follow fibs or to follow the predominant religion of your home country.

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Could not agree more with your post above Fat Tails.

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The fib world is a bit of wishful thinking and search for harmony. Human behaviour. Such as the statement attributed to Einstein that "God does not play dice". What, if playing dice is part of the plan. What if the random element is required to improve the design?

The fib universe is a closed system. Everything interrelates and fits nicely. The proportion of the larger wave in relation to the proportion of the smaller wave reflects the proportions of the wave itself. Such a beauty, such a regular structure. It is called Golden Cut. Inspiring. The pyramids show the golden cut. Probably just by chance. You will also find Pi wihtin the pyramids. Not by chance, because the guys have used some ropes to measure diameters. Nature does rarely offer such a regularity.

The point is that our mind, so trained in analogy and reduction wants order, just to reduce its use of brain RAM. The brain uses anchoring and heuristics to create an image of the utter world. Sun will rise today, because it rose yesterday. Repetitive structures such as fib retracements provide less information than the market itself contains. So our mind starts playing tricks on us, reducing information content, finding patterns, where there are no patterns to find. Irregularity becomes regularity, as to fit the information into our heads. Everything that does not fit is noise. A telephone directory contains more information than a poem. Why? Because the information is not correlated. So the telephone directory is more difficult to learn by heart than the poem. Well, I am sure that I can find you some fib patterns in the telephone book as well.

Marxism is a concept that largely simplifies social and economic life for those who can not accept its real dimension. Also it raises the hope of the poor and unsuccessful. Your time will come! Practicing marxists reduce real economics to the concepts suggested by Marx to a point that you cannot even discuss with them, because they cannot think outside of the categories implanted in their minds. Sounds a bit like Elliot Wave Theory. Marxism ignores that many elements of the theory are contradictory to empirical findings. Elliot Wave Theory ignores that statistical research has shown no significant arguments in favor of the waves proportions. So there you have two self-fulfilling prophecys, fads both with a limited lifespan. There is only a small step from Marxism to Wave Theory, to Dianetics or to Nazism.

Go ahead with religion. A common need for all of us to socialize the feedback loop created by our understanding that we are living creatures. My dog never saw himself in the mirror, but saw another dog, guess he became his virtual friend on the other side for occasional eye chats. We mirror ourselves and need an explanation. Going back to Spinoza, who discovered that God was subject of that feedback process and called him the cause of the last instance. Other focussing more on the details became Dschihadist or Crusaders, Fundamentalists or Creationists. Not really helpful.

Why is all this related to trading? Because we are permanently confronted with complex creatures showing up from nowhere, and then the answer that The Market has created this wave in Seven Days comes along because that is the answer that we want to see or hear.

The fib concept is incompatible with the multitude of feedback mechanisms created by the market participants and the auction process as well as external shocks transmittedd bynews. But collective blindness creates self-fulfilling prophecies and in the end it is rational irrationality to follow them, to follow fibs or to follow the predominant religion of your home country.

Fat Tails,

I do enjoy your thought process and your writing. I agree with some of your conclusions as well as analysis.

While I did mention intelligent design, I don't remember mentioning religion anywhere. Religion has been a source of trouble and oppression for centuries. Used by the powerful to enslave the masses. Hence Marx's famous statement about religion. It is true. Religion is the opium of the masses.

And yes, religion is very similar to our search for the holy grail of indicators. It is related to trading, as all of us would like to reduce the complexity of the markets to something simple enough that we can explain it to our 8 year old just as we use religion to explain what we don't understand.

The trouble I find with those that don't "believe" is the tendency to look at those who do with a sense of superiority and condescension. As though the non-believers are somehow more sophisticated, smarter and more informed and the believer (in whatever the non believer takes issue with) is just stupid. This seems to me to demonstrate the type of close mindedness reminiscent of many religious institutions.

This thread is about how indicators are liars. And we are talking about religion, Marxism, etc. I suspect that many people would discount the current discussion as irrelevant to trading but I think it makes sense. A persons world view, (believer or non believer) will affect to some degree, his or her philosophical approach to trading.

I think fibs work because of my world view. You think they work because of the idea of self fullfilling prophecy. Other people rely on entirely different sets of indicators for their own reasons.

In the end, I choose not to use other indicators because they do not fit with my philosophical approach to trading. While I am not an expert in any of the things we've discussed nor am I yet a trader rolling in money, I am self aware enough to know that multiple oscillators, divergence indicators and the like will not fit with me.

I think that's the point of the thread. Indicators are liars unless you find one that fits with your personality and trading philosophy. Then it will tell you the truth you want or need to see. In that regard, one man's truth is another man's lie.

A great example of this is all the hucksters out there selling indicators and systems. These systems and indicators work for them, or at least they say they do. But they don't work for the hapless purchaser. Why? Because they have no blood, sweat or tears in them. They don't really trust them because they did not build the system themselves.

This is why @Big Mike is always talking about having to really own your system or method. Only then will you trust it.

So what difference does it make if I think all indicators are liars if one of them actually works for you or someone else? If it works, it works. Whom am I to disparage your success with something I find impossible to decipher and maybe even find childish? And vice versa. That's what is great about this business. If you take the time to master something, a million different people can be trading a million different ways and all be successful. There is no one way to succeed.

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 Fat Tails 
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Aztrader,

thanks for your post. I really enjoyed reading it and would sign any of the statements without hesitation.

You have correctly perceived - although I have not said it explicitly - that I am a bit sceptical on the subject of intelligent design. First of all intelligent design works differently as expected. Currently, homo sapiens is not the pride of creation, but something like a plague that has overcome the planet.How could intelligent design have lead to such a creature? Alos there are paralllels with trading: homo sapiens, the wise or knowing human - sounds like a trader who has happily reaped some profits and now esteems himself being the master of the world. However, the master is the market and not the trader, and whe all know the where pride and overestimation of one's own capabilities leads to. The ancient Greek called this hybris. Hybris is a product of reinforcement of one's own convictions, it is genuinely produced by positive feedback. Our traditional moral system is designed to protect us against hybris. Religion plays its role in that game.

Now does the market follow an intelligent design? In the first place there are technical rules that define the way agents participate in the market place. These rules are simple and can be observed in many fields where a larger number of agents participate. But the rules have nothing to do with intelligence. Watch the movemements of a fish school. One can mdoel the turns and twists of the swarms by just defining how a fish reacts to its direct neighbours. The intelligence is not the set of rules, but rather the second dimension, how those rules can be changed. To change rules you need random elements, or let us call them errors. How would the evolution of the species be possible, if reproduction did not allow for errors? How can a trader be profitable, when always repeating the same setups? Setups exploit the behaviour of other traders and they can be exploited themselves. At some point they will stop working and the trader blows up. Richard Dennis, famous turtle breeder, retired when trend following strategies stopped working. Sounds similar to evolution of species. Over 99.9% of all species are extinct, I would also sign the statement that over 99.9% of all trading strategies do not work any more.

To further understand the parallels between the evolution of trading strategies and the evolution of species, read Robert Axelrod's books The evolution of cooperation and The complexity of cooperation. Or play a bit around with Sugarscape Sugarscape - Growing Agent-based Artificial Societies, which is an agent based model to grow artificial societies.

Intelligent design is evolutionary. Intelligence also is a collective property. Multi-agent systmes can exhibit intelligent behaviour. Interesting thriller on this subject: Frank Schatzing, The Swarm. Whether the intelligent design was intended or not can be debated. Intelligence itself looks like a very human way to measure the behaviour of complex systems. I cannot get rid of the impression that so-called intelligence is a property that measures the correlation between a complex system and the way our own minds work.


aztrader9 View Post
The trouble I find with those that don't "believe" is the tendency to look at those who do with a sense of superiority and condescension. As though the non-believers are somehow more sophisticated, smarter and more informed and the believer (in whatever the non believer takes issue with) is just stupid. This seems to me to demonstrate the type of close mindedness reminiscent of many religious institutions.

One note here: The non-believers are believers as well. Their superiority is derived from another set of beliefs. The marxist critizing religion has a set of beliefs as strong as the Christian fundamentalist. So he simply adheres to a pseudo-religion. Looks like beliefs are part of our heuristics system that takes over, when the brain is confronted with a complex problem that cannot be solved. Feedback loops created by the statement "Cogito, ergo sum" would usually lead to a mind crash, as there is no answer to the question. The belief acts as the ultimate circuit breaker. Also let me put it this way, if you are a believer, this increases the odds that you are a counter trader.

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One note here: The non-believers are believers as well. Their superiority is derived from another set of beliefs. The marxist critizing religion has a set of beliefs as strong as the Christian fundamentalist. So he simply adheres to a pseudo-religion. Looks like beliefs are part of our heuristics system that takes over, when the brain is confronted with a complex problem that cannot be solved. Feedback loops created by the statement "Cogito, ergo sum" would usually lead to a mind crash, as there is no answer to the question. The belief acts as the ultimate circuit breaker. Also let me put it this way, if you are a believer, this increases the odds that you are a counter trader.

Fat Tails,

I am obviously locked in a death struggle with my mental superior. But I have this to say about being a skeptic. It is perfectly fine to be a skeptic, dismissive on the other hand is rude....You've not been rude. Thanks for that.

Finally someone recognizes Marxism for what it is: pseudo-religion....along with all the other "ism's" out there. And currently, I'm ok with a mental circuit breaker for the really complex stuff. I like to think but at some point, my humble brain says no more......a certain amount of faith is ok with me. Me in intelligent design, others in Marxism.....well, no so much in the Marxism stuff....

I like my fibs. They like me. At least they keep telling me they do.......What more can I say!

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 Fat Tails 
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aztrader9 View Post
Fat Tails,

I am obviously locked in a death struggle with my mental superior. But I have this to say about being a skeptic. It is perfectly fine to be a skeptic, dismissive on the other hand is rude....You've not been rude. Thanks for that.

Finally someone recognizes Marxism for what it is: pseudo-religion....along with all the other "ism's" out there. And currently, I'm ok with a mental circuit breaker for the really complex stuff. I like to think but at some point, my humble brain says no more......a certain amount of faith is ok with me. Me in intelligent design, others in Marxism.....well, no so much in the Marxism stuff....

I like my fibs. They like me. At least they keep telling me they do.......What more can I say!

Yep. Using fibs as well. Preferably confluence lines, see chart below with my favourite indicators. Shows 3 confluence lines and trading ranges detected by my range indicator.


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 ZTR 
 
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If we are going to get into philosophy: there are two types I can quickly identify: those that want their model of the world verified and seekers of truth.

Model of the worlders make everything fit their model of the world.

Examples: Religion, extreme left & right wingers.

Seekers of truth allow new information to influence their decisions and are constantly iterating their model to fit the solution demonstrated by experimental method.

Examples: Open minded traders - the kind that Mark Douglas suggests you emulate.

JMTC

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 Fat Tails 
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ZTR View Post
If we are going to get into philosophy: there are two types I can quickly identify: those that want their model of the world verified and seekers of truth.

Model of the worlders make everything fit their model of the world.

Examples: Religion, extreme left & right wingers.

Seekers of truth allow new information to influence their decisions and are constantly iterating their model to fit the solution demonstrated by experimental method.

Examples: Open minded traders - the kind that Mark Douglas suggests you emulate.

JMTC

Thanks for pointing this out. I love that expression "Model of the worlders". Makes me immediately think about economists. All those equilibrium models that satisfy the needs of our rational minds, but which have little in common with reality. It also applies to traders which are being caught on the wrong side of the market.

It was the philosopher Karl Popper, who defined what is a seeker of truth. Behind is the problem of induction already emphasized by David Hume. If the sun rises every morning, you may assume - your model - that the sun will rise tomorrow. This is a theory that remains valid until it is falsified. The first observation that the sun did not rise will lead to a new model. That is exactly what you call iteration.

In your words the theory of relativity would be a reiteration of classical physics.

Popper also unmasked marxism and psychoanalysis as pseudo-sciences.

Seems that everything you stated is based on the work of Karl Popper. Have you read his books "The Logic of Scientific Discovery" and "Conjectures and Refutations"?

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Thanks for pointing this out. I love that expression "Model of the worlders".
Seems that everything you stated is based on the work of Karl Popper. Have you read his books "The Logic of Scientific Discovery" and "Conjectures and Refutations"?

You give me much more scholarly credit than I am due. I am a trained experimental research scientist, very pragmatic and eccentric (the medical definition - thinks partially in pictures, not the vernacular usage - meaning a little off), so I use both right and left parts of my brain. Believe that make me much more open minded. Plus I live in San Francisco where open mindedness is welcome (unless it goes against someone's political beliefs)

I came up with the Model of the Worlders, when I was forced to listen to Rush Limbaugh. Long story short, My Father-in-Law was dying of leukemia (before I realized I had it) and my wife was taking care of him. He listened to Rush all day. I began a debate with him about Truth seekers vs Model of the Worlders. It was a spirited battle. But it really make me think about how a person's preconceived notions shapes reality. The cliché is that perception is Reality.

Certainly holds when a position goes against you.

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 Fat Tails 
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ZTR View Post
You give me much more scholarly credit than I am due. I am a trained experimental research scientist, very pragmatic and eccentric (the medical definition - thinks partially in pictures, not the vernacular usage - meaning a little off), so I use both right and left parts of my brain. Believe that make me much more open minded. Plus I live in San Francisco where open mindedness is welcome (unless it goes against someone's political beliefs)

I came up with the Model of the Worlders, when I was forced to listen to Rush Limbaugh. Long story short, My Father-in-Law was dying of leukemia (before I realized I had it) and my wife was taking care of him. He listened to Rush all day. I began a debate with him about Truth seekers vs Model of the Worlders. It was a spirited battle. But it really make me think about how a person's preconceived notions shapes reality. The cliché is that perception is Reality.

Certainly holds when a position goes against you.

You don't mind that - being a non US-citizen - I never heard of Rush Limbaugh. His voice is somewhat less audible on the other side of the Atlantic Ocean. But we do have model of the worlders.

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Hi Guy's

i'm a novice trader, i use tradestation as a friend recommended this platform for me.

I wanted to know - do I need to use indicators? do they really help, or this issue is not determined ..

i saw many sites that sell all kind of indicators and I just wanted to know if its even something worth spending time exploring..

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 Fat Tails 
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gilzehn View Post
Hi Guy's

i'm a novice trader, i use tradestation as a friend recommended this platform for me.

I wanted to know - do I need to use indicators? do they really help, or this issue is not determined ..

i saw many sites that sell all kind of indicators and I just wanted to know if its even something worth spending time exploring..


Indicators are useful tools, but they are limited. First you need to understand, what an indicator is:

-> You take price. -> You perform some calculation. -> The result: price repackaged.

So if you look at the MACD, the RSI, the momentum, the CCI etc. all of these are oscillator/momentum type indicators, which tell you whether price moved up or down during a reference period and whether that price should now be considered as overbought or oversold. This information is already contained in price by itself, but the indicator may help you

- to reduce the information from price in a way that your brain is able to use it
- to include information from different reference periods (multi time frame) that are invisible on the chart

If you use Fibonacci or Pivot indicators, these are calculated from prior day's or prior week's highs and lows and use the volatility of the reference period, things that you cannot easily see on your chart.

However, I would not use too many indicators based on price, otherwise you will run into redundancy and information overload.

It is more interesting to look for different sources of information, such as

- volume (measures participation)
- open interest (measures the tactical position of other market participants)
- market breadth (for index futures, TICK and TRIN reval information on the underlying market)
- volatility expectations (VIX, OVX and other indices calculated from option premiums)
- correlated instruments

The diversity of the sources of information (looking at inter-market relationships) will more contribute to trading than a collection of 10 indicators all calculated from price.

With the exception of indicators drawing S/R lines, I have few indicators based on price: one oscillator which serves for entry timing and as a trend filter and currently the SuperTrend and Keltner Channels, which both convey information on historical volatility.

You won't gain anything by purchasing any super duper indicators.

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 davidmelnikov 
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gilzehn View Post
Hi Guy's

i'm a novice trader, i use tradestation as a friend recommended this platform for me.

I wanted to know - do I need to use indicators? do they really help, or this issue is not determined ..

i saw many sites that sell all kind of indicators and I just wanted to know if its even something worth spending time exploring..

While I am not a big fan of indicators some do help and can give you the sense of a direction and some can give you basic S/R levels ...

You have ALOT of wonderful indicators for free, I would not suggest investing any money in stand alone indicators. Unless they come for a proven trading system/mentor.

The question if its worth your time exploring all depends on your trading habbits and if you need any additional aids while trading.

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Fat Tails View Post
Indicators are useful tools, but they are limited. First you need to understand, what an indicator is:

-> You take price. -> You perform some calculation. -> The result: price repackaged.

So if you look at the MACD, the RSI, the momentum, the CCI etc. all of these are oscillator/momentum type indicators, which tell you whether price moved up or down during a reference period and whether that price should now be considered as overbought or oversold. This information is already contained in price by itself, but the indicator may help you

- to reduce the information from price in a way that your brain is able to use it
- to include information from different reference periods (multi time frame) that are invisible on the chart

If you use Fibonacci or Pivot indicators, these are calculated from prior day's or prior week's highs and lows and use the volatility of the reference period, things that you cannot easily see on your chart.

However, I would not use too many indicators based on price, otherwise you will run into redundancy and information overload.

It is more interesting to look for different sources of information, such as

- volume (measures participation)
- open interest (measures the tactical position of other market participants)
- market breadth (for index futures, TICK and TRIN reval information on the underlying market)
- volatility expectations (VIX, OVX and other indices calculated from option premiums)
- correlated instruments

The diversity of the sources of information (looking at inter-market relationships) will more contribute to trading than a collection of 10 indicators all calculated from price.

With the exception of indicators drawing S/R lines, I have few indicators based on price: one oscillator which serves for entry timing and as a trend filter and currently the SuperTrend and Keltner Channels, which both convey information on historical volatility.

You won't gain anything by purchasing any super duper indicators.

so maybe its a good plan to take use a few simple indicators and kinda... work a trade system around them? like a strategy but, not automatic.. more like a style. ( I have a more holistic way of looking at things ).

it looks pretty compelling just to "listen" to the indicators and act by them, but I know that it wont work - my question is how the pro's use the indicators in general, sounds like you need just the right amount of them to make good decisions.

Thanks for the explanation btw..

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 Fat Tails 
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gilzehn View Post
so maybe its a good plan to take use a few simple indicators and kinda... work a trade system around them? like a strategy but, not automatic.. more like a style. ( I have a more holistic way of looking at things ).

it looks pretty compelling just to "listen" to the indicators and act by them, but I know that it wont work - my question is how the pro's use the indicators in general, sounds like you need just the right amount of them to make good decisions.

Thanks for the explanation btw..

That makes pretty sense. It is all about getting a clue, what the other market participants will do next. It is a bit like playing poker, you have to make educated guesses, as the larger players will hide their intentions.

I believe in monitoring trends, volatility and volume. These are the traces left by others on their way to build up or reduce their positions.

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 MWinfrey 
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Something I would offer is to pick the ones you want and then commit to them completely. Don't start switching around. You will end up on a path that is never ending. There are so many indicators and so little time. Don't be distracted by someone saying "this" indicator is so much better than "that"one. You can read post after post in this forum where someone says that. So, it doesn't have to be a vendor making those statements. It can and will be someone just like you finding the next best thing. Read through some of these threads and I think you'll find that a minimal set of indicators is all you need. You will also find a few threads about trading without indicators. You might want to start with those threads and then branch out from there.

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 redegenerated 
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this entire thread is a must read!

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 MetalTrade 
 
 
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I trade without indicators.

I think indicators are overrated. I don't believe in them.

What's the use of an indicator if you know that buyers/sellers who were in the market in the past are not in the market anymore ? What happend in the past happend because of certain actions at that time. There is absolutely nothing that says that will happen again, but 99% of bigmike users puts their money on them.

The only way I would use indicators is to watch what the non-professionals would do, and go against them. That's how I put retail money in my pocket.

Weird.

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 vvhg 
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I just love indicators. I also love coding them and playing around with them, I also really like all the colours. They are absolutely great! Nearly all of them, some are boring, like the MA's.

BUT funnily enough the MA's are the only ones I actually use for my trading.......I simply can't trade with all the other wonderful coloury, shiny, highly complex, very clever or useless indicators.....I'm so sad

vvhg

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 Fat Tails 
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vvhg View Post
I just love indicators. I also love coding them and playing around with them, I also really like all the colours. They are absolutely great! Nearly all of them, some are boring, like the MA's.

BUT funnily enough the MA's are the only ones I actually use for my trading.......I simply can't trade with all the other wonderful coloury, shiny, highly complex, very clever or useless indicators.....I'm so sad

vvhg


Very similar here. Indicators are wonderful toys to play with. I also love colors. The problem is that, when trading, my brain cannot make use of all this stuff. So I am in a permanent fight creating new indicators and then trying to make them invisible in a way that they do not disturb me.

An indicator typically reduces price to something less than price. As a consequence there is redundant information on the chart, as this information is already contained in price. So why use indicators at all?


1st class of useful indicators - Support and Resistance

Trading is a game, so if you have indicators for which you know that others react to them, they are useful. This is the "self fulfilling prophecy" class of indicators, which includes all sorts of support and resistance (floor pivots, fibonacci retracements or confluence, yesterday's high, low and close, the opening range, trend lines, trend channel lines, Keltner Channels, Bollinger Bands etc.)


2nd class of useful indicators - Alerts

Indicators that alert you to something, which is already contained in price. For example a narrow range or inside bar can be best identified by looking at price. But most traders suffer from attention deficits, so an acoustic alert is very useful. The acoustic alert does not cluster your chart and tells you that volatility is low and that you can enter a position at a lower risk than usual.


3rd class of useful indicators - Information Not Contained in Price

All indicators that convey information, which is not contained in price, but taken from a separate source. This includes volume, market breadth (Tick, Trin), open interest, market depth (DOM), intermarket relationships and indicators which help you to grasp the big picture (time frame transfer). The big picture is only important, because it is the picture that large volume traders have of the market. So this a bit like Keynes beauty contest, you do not want to buy for fundamental reasons, but you want to figure out large traders and anticipate their moves.

So indicators can be considered as spice, but not as food. If used with discretion, the indicators may improve the overall picture of the intentions of your opponents and help you to digest the primary information available.

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 vvhg 
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Fat Tails View Post
So indicators can be considered as spice, but not as food. If used with discretion, the indicators may improve the overall picture of the intentions of your opponents and help you to digest the primary information available.

That is spot on! Though I like my food somewhat spicier than my charts!

vvhg

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 Fat Tails 
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vvhg View Post
That is spot on! Though I like my food somewhat spicier than my charts!

vvhg

If your food is similar to your avatar, the spices are certainly a good idea!

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 vvhg 
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Fat Tails View Post
If your food is similar to your avatar, the spices are certainly a good idea!

Same applies to you I guess

vvhg

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 redratsal 
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Fat Tails View Post
If your food is similar to your avatar, the spices are certainly a good idea!

Generally , the uglier fish (sea) the tastier


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 Fat Tails 
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vvhg View Post
Same applies to you I guess

vvhg

But I do not chase the bears. Just follow them, when appropriate.

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 Fat Tails 
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redratsal View Post
Generally , the uglier fish (sea) the tastier



Do you consider this one ugly or pretty? I do not really know your taste.

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 redratsal 
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Fat Tails View Post
Do you consider this one ugly or pretty? I do not really know your taste.

Hugly

But cooked like this



Tasty

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 vvhg 
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Stop exchanging recipes for my avatar!!!!!!

vvhg

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 Fat Tails 
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vvhg View Post
Stop exchanging recipes for my avatar!!!!!!

vvhg

This is a serious thread about indicators, not spaghetti.

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 redratsal 
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Fat Tails View Post
This is a serious thread about indicators, not spaghetti.

you can call it spaghetti indicator

Now I stop, sorry guys for the break

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 Fat Tails 
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redratsal View Post
you can call it spaghetti indicator

Now I stop, sorry guys for the break

The spaghetti indicator already exists, just go to this thread


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 tigertrader 
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I believe in fibs. Natural order type stuff. Universal laws. Underlying principals that all nature moves to. A little esoteric I know but it seems to work.

Most indicators seem to complicated for me. I cannot follow a MACD, bollinger, RSI, ADX, etc all at the same time.

So I looked for something that would frame my believe in fibs in real time and give me a bit of confirmation on my though process. I have found that, at least for now.

Really its three things: Dynamic Fib Lines. futures.io (formerly BMT)CMA for a bit of confimation and a keltner channel with the outside bands set to transparent. I use this for potential reversal signals only.



Chart ends up pretty clean, I have a frame of reference for price in terms of the fib areas its trading in and I generally know what to do with price depending on where in the fib landscape price happens to be.

Still working on executing this of course but my research has shown this to be a valid method of looking at price. I also use a daily chart to determine the current day's potential movement and if price shows itself to be validating my hypothesis, then in theory anyway, that day's trading should be somewhat simple.

I think your approach is sound. Any trading methodology whose framework is based on Fibonacci retracements/extensions is certainly valid, in my opinion. The problem with most of the beginners on this board, is they do not spend enough time on any one method. Most people jump from indicator to indicator, time-frame to time-frame, and method to method.They will use something for a few days, but as soon as they experience a few losing trades, they will move onto something else. It's a never ending cycle, where the person never spends enough time on any one method and never really gets to understand how to execute it properly.

Whether your methodology is " better" or not than mine, or Fat Tails, or any other trader, is not relevant. What's important is that you have created an approach to trading that is relevant to you, and have chosen the tools that make sense to you. It takes many months if not years of exposure to patterns to make them your own, but " If you really want to do something, you'll find a way. If you don't, you'll find an excuse."

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 zxxaxz 
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It takes a very long fish to make spaghetti. My avatar is an expert on spagetti.

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stopnlimits
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I'll keep my indicators, thank you.

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JetTrader
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The OP does have a point, however.

What's not mentioned anywhere inside this thread, is the fact that when the average trader says the word "indicator," what they typically mean is is a lagging indicator based on mathematical averaging. This is where most of the 40+ year old technical indicators live; in the land of Mathematical Average. So, by definition, their output depends on input that is lagged. However, that fact in and of itself does not make those types of indicators completely useless, it just makes them less than optimal.

What we are really talking about here is a word that no one has used yet: Innovation. More to the point, the lack of innovation. We don't like to use that word in trading, because innovation sounds too much like "holy grail" and that phrase has become something to be avoided by many traders. Despite the disdain for the phrase "holy grail," innovation is what moves most other industries beyond their previous "glory" and on to their "next level" of existence. Take the classic case of the Cell Phone. Remember this guy:



They called it the "Brick" back in the 80's and this was state of the art back then. You were considered to be on top of your game, if you walked around with one of these on your person. Well, that's kind of like what 40 year old technical indicators are like today: Antiques. It still works, but it is not optimal technology.

Another thing not being discussed in this thread is the concept of trader "type." Tell a Hyper-Day Trader that he should be using the 200MA and the 50MA, by way of an extended range Stochastic Oscillator and you'll get a blank stare back at you. At the very same time, tell the long range Swing Trader to drop the 200MA/50MA and start using multiple hyper-short range Stochastic Oscillators within the same indicator window and you will most likely derive that same blank stare. Even still, tell the Intermediate Range Trader to drop the indicators altogether and start using "Price Action" to determine entries/exists and somehow, that same blank stare will come to their face. So, depending on the "type" of trader you happen to be, logic will dictate the type of indicators that are best suited to derive the results you are after and/or more appropriately, the type of result you expect.

Another (very critical) thing not being discussed here is the idea of "Expectancy," or how positive expectancy is derived from trader to trader. If the trader has an expectancy of X, but is using a set of indicators that are not capable of producing X, then that trader will typically conclude that those indicators don't work. Why? Because the expectancy is not being met at a high enough rate of occurrence to satisfy the trader's needs. So, what's the solution? Change the expectancy -OR- change the indicators being used. Typically, the answer is to change the expectancy to "fit" the production quality of the indicators in use. Some traders feel that they are not really trading, if they are not making 100+ pips per trade. Yet, there are some traders who have found a away to meet their expectancy threshold by netting no more than 5-7 pips per trade. All of this depends on the mindset that the trader brings to the market.

So, do 40+ year old indicators still work? Of course, they do. They work within their range of capacity. They do what only they can do and they will never be able to do anymore than that. They produce a certain frequency of success and they will never produce anything beyond that. Therefore, the expectation must be set accordingly. Setting the wrong expectations with 40+ year old "Bricks" is like trying to successfully conclude a mission to Mars, using 1970's space shuttle technology. The shuttle was cutting edge stuff when it came to taking relatively lightweight payloads into low earth orbit (LEO), but it won't take us to Mars and back.

For that mission, we will need a different kind of vehicle, based on a different kind of technology that gives us a different level of expectation and thus, a different definition of what works and what does not work.


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 fluxsmith 
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JetTrader View Post
...when the average trader says the word "indicator," what they typically mean is is a lagging indicator based on mathematical averaging. ...

Very interesting. BTW - I had one of those early cell phones in my car. Boy did I think I'd arrived.

Can you point us to any useful indicators which do not fall into this category?

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 Lamboo 
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Fat Tails View Post
I hate indicators.

You take price, let it stew in its own juice, and the outcome is an indicator.

I just watched my 5 min chart and my 15 min chart for TF and tried to determine whether price was heading up or down.

Bullish or bearish?

5 min chart (chart 1)

- Momentum had crossed the zero line
- Pullback oscillator had moved to neutral-positive
- Price was above EMA 20
- Price was above the linear regression indicator

15 min chart (chart 2)

- Momentum had crossed the zero line
- Pullback oscillator was clearly negative
- Price was slighty above the EMA (20)
- Price was above the linear regression indicator

Looks bullish doesn' it. It is kind of bullish, indeed. It is bullshit. Scrap all the indicators. They are liars.


Looking at the larger picture (chart 3)

It is now the forth day that TF is sitting in a narrow trading range. The trading range was defined by Monday's low and high. The range is also defined by two large fib lines. Last week's close and the weekly pivot provided support. Do not expect that prices leave that trading range today. Everbody is waiting for tomorrows unemployment figures.

Looking at the 15 min chart of today (charts 4, 5 and 6).

Price traded within the opening range most of the day. Also price traded below the pivot range since 11:00 AM. If I look at the pattern, there is a strong sell-off prior to the open, which ends at the fib line. then a sharp retracement up, followed by two smaller hills. I call this Adam-and-Eve pattern, the sting is Adam and the two balls following is eve. This is a sign of weakness. You also can see a Gartley Pattern. All this is really bearish.

So there was never any point following those stupid indicators. Just look at the price action. Bears were in control today.


Hello Fat tail,

I see you are not happy with indicators,

I use an indicator that is called COG Center of Gravity which works very good!
I use it in a 5 min chart on EC and BP and gives me profit every day!



Lamboo

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 Fat Tails 
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JetTrader View Post
The OP does have a point, however.

What's not mentioned anywhere inside this thread, is the fact that when the average trader says the word "indicator," what they typically mean is is a lagging indicator based on mathematical averaging. This is where most of the 40+ year old technical indicators live; in the land of Mathematical Average. So, by definition, their output depends on input that is lagged. However, that fact in and of itself does not make those types of indicators completely useless, it just makes them less than optimal.

My initial post referred to this type of indicators and I agree with you.


Predict future prices with past prices?

Most so called indicators in technical analysis extract some information of past prices to predict future prices. This does not always make sense.

-> any indicator, such as a moving average, conveys less information than price itself
-> future prices can not be entirely predicted from past prices
-> in markets that follow a lognormal distribution, random price movements outweigh contingent moves
-> auto-correlation and pattern frequently change, so the famous backtest is no guarantee for a likewise behavior in the future

The moving average with the period n contains some information, it tells us where the average price was n/2 periods ago. This is not very interesting. However, if a bunch of technical traders use that moving average and declare it an important support for price action, that declaration becomes self-fulfilling.

This is not the realm of science, it is a simple game, where participants hide their intentions and try to anticipate - front run - the moves of other participants. It comes back to Keynes beauty contest, all your focus is on selecting the girl from which a majority thinks [that the majority thinks ....] that it will be elected.


Use other information instead

I do not see a class of 40-year old indicators and a class of modern indicators. Sophistication in this field does not give you a lead. If the super-duper indicator is just another transformation of price, you can well stay with a simple moving average. However, what can give you a lead, is to use information different from price. Markets appear as random, because the sheer number of nonlinear interactions makes it impossible to evaluate them mathematically. What can be evaluated, is the behavior of market players, as they tend to crowd.

Volume, open interest, put/call-ratio. cumulated ticks and other intermarket indicators can be more useful than just another fancy indicator calculated from past price alone.

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JetTrader
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Fat Tails View Post
Predict future prices with past prices?

The issue is getting the trader to establish an expectation (and thus a trading philosophy) of future price movements that are based on the highest probability for a range of price patterns to occur over a defined range of time. The statement: "Predicting future prices...." is somewhat incomplete. The statement: "Predicting a defined range of price behavior over a defined range of time...." might be a more optimal approach to the concept of making good price projections.



Fat Tails View Post
Most so called indicators in technical analysis extract some information of past prices to predict future prices. This does not always makes sense.

Assuming that we are only talking about directional trading and not non-directional trading (options strategies), I would agree with you. The moment a directional indicator "always makes sense," it stops being a mere indicator and it takes on the role of "perfect indicator" and I don't know of any directional based perfect indicators that meet the profit requirements of most traders.



Fat Tails View Post
-> any indicator, such as a moving average, conveys less information than price itself

What does "Price" really look like? And, when is "Price" instantiated? My observations over the years teaches me that the concept of "price" currently in use today, is less than optimal. In other words, my experience tells me that price is not a singular data point in the market. Even in a more practical sense, both buyer and seller are dealing with different versions of the truth about price, as one deals in the truth about the Bid, while the other deals in the truth about the Ask. However, that's just one reason why there is no genuine Price Singularity. Sure, there are "official prices" that the industry uses to demarcate one thing over another. However, from the trader's perspective and from the position have being in the business to net out profits each day, the concept of price is better seen as being continuous and not singular.

Some traders (especially the new traders) see price as some kind of singularity in time, or some kind of event on a chart. Research tells me that price is more like a clustering of 'apparent' random data points having a specific dimension (length, width, height), that travel in a certain direction and at a certain speed. Inside the price cluster, the existence of the Bid/Ask component at a particular location, has a certain probability for existing in that area of the cluster, across a certain span of time and with a certain rate of speed upon arrival and departure from that area of the cluster. Yet, regardless of the fact that a particular area of the cluster might be void of Bid/Ask "now," it has the potential (probability) to contain the presence of Bid/Ask at some point in the future. This is how I view the concept of price.



Fat Tails View Post
-> future prices can not be entirely predicted from past prices

I agree. Which is why I find it more advantageous to view price as a clustering of data points with a specific shape, or form. I call it a Mode Shape, but that's a bit beyond the scope of this thread. If I force price into a singularity, then I really make it hard for me to capture it. But, if I allow price to expand across its normal range of frequencies and let it take on the shape that it so desires, then it leaves a much bigger signature on my radar, allowing me to better approximate its dimensions, direction and speed. If I know that information about "price," then I can place an order somewhere inside the cluster, knowing the probability that both Bid/Ask will will show-up (on schedule) in the right place and at the right time relative to my entry order.

This way, I'm not chasing a prediction. Rather, I am allowing the prediction to simply unfold through my entry and limit levels. Price is going to behave a certain way, whether I like it or not. I might as well learn to map out its behavioral patterns as optimally as possible, to take advantage of what it is going to do, with or without my participation in the market. If I can only see "price" as a singularity, then I'm trying to throw a dart while blindfolded at a donkey that moves as fast as a pure bread race horse. But, if I can see "price" as a continuous cluster (so to speak), then I can take a shotgun and shoot fish in barrel.

If I'm given the choice of either throwing darts at donkeys (while blind folded) that move as fast as race horses, or shooting fish in a barrel, I'll take the fish fry any day of the week.



Fat Tails View Post
-> in markets that follow a lognormal distribution, random price movements outweigh contingent moves

But, in that case, what's the premise for the underlying lognormality? The underlying premise here is the word "random," and I think this is part of what separates highly successful traders from the rest of the pack.

When we typically say "random price movements," we are not usually talking about the same kind of chaos mode randomness to be expected in a physical system involving the lognormal distribution of say, molecules in a gaseous state. Price, unlike the molecules found in gas within a specific system, can only go Up or Down. There are no transverse paths for price to follow in a three-dimensional system. Molecules in a random gaseous state within a specific system do have transverse paths to follow. Even in a so-called "side-ways market" however, prices are constantly in a vertical flux (up or down only) while being driven through the dimension of Time. Therefore, we have to think very carefully about the kind of mathematical tools we bring to the market, in order to calculate the "probability" for specific price behavior and not necessarily a specific price point. Thus, the "randomness" which appears on the surface of "price" may indeed be lognormally discharged (distributed), but the structure of price is no more or less unpredictable because of it.

Think of light (from our sun) as price. Now, think of the physical components of light, photon Particles, traveling as waves. Price, has its complimentary particles, too. They are called Data Points within an OHLC stream. Well, they too, travel as Waves in many respects, but they do so as Clusters of Cycles. Within each Clustering of price action, you will find a Cycle of price action. So, you have to convert the Wave concept which encompasses the light's photon particles, to a Wave Cycle concept and then divide the Wave Cycles by the Time-Frames, or the size of the Bar of data in question to derive is Mode Shape. Once price is viewed in this way, its definition takes on a whole new meaning and the entire game becomes one of tracking Clusters (waves and cycles) instead of trying to track an elusive Price point (photon particles).

(again, well beyond this topic -- I'm only giving an example of how I differentiate your concept of price, from my concept of price)



Fat Tails View Post
-> auto-correlation and pattern frequently change, so the famous backtest is no guarantee for a likewise behavior in the future

Within the variable changes in the structure of price, there exists an underlying constant in its structural form. That constant, not the variable change that envelops it, is my primary concern as a trader. I'm concerned with penetrating the superficial chaos with analytical tools, in an attempt to locate the form's structural core. That core is what I'll target. I may not get all the pips available in the entire structure, but if I target only the core, I can reduce risk, increase accuracy and grow capital at an alarming rate of speed. But, if I focus only on the variability, I will never be aware that such variability has a rooted core.

While the frequency and timing of patterns do indeed vary, the underlying structure and form of price behavior remains fairly constant enough to benefit the observant trader (Harmonic traders already know this). The Matrix for this "core" is found in the fact that we impose "order and stability" on the markets by pushing its price points through an OHLC filter and by sub-dividing that primary filter across multiple dimensions of Time to arrive at Bars of data. Thus, forcing a template of structure on the market, which in turn reveals many things about the markets behavior - if we study the template carefully enough. Ironically, therefore, one of the biggest Indicators in existence, is the OHLC structure itself! Sitting right there under our noses all the time, is the biggest hint about what the market goes next.

From OHLC - we derive everything else we know about "price." OHLC is the grid that makes all other technical indicators possible. Yet, this very same grid has been overlooked and underutilized by many over the years. It contains more information than most traders realize. In fact, the number of useful indicators that can be driven off the grid are myriad and none of them have anything to do with the typical mathematical averaging of historical data points. But, that is not how most people learned to trade. Most people were taught to pick-up a chart and start plotting lines. Few people were ever taught to examine the raw OHLC data to look for patterns not involving mathematical averages. This is what gives my signature line (below) such frothiness and relevance. It takes a while for us to finally figure out what we don't know, or to realize that what we though we knew, is less than what is optimally available, if we simply looked at the data through a different lens.



Fat Tails View Post
I do not see a class of 40-year old indicators and a class of modern indicators. Sophistication in this field does not give you a lead.

Only true, if one has not identified the existence of something other than 40 years old indicators. As long as that remains unidentified, then it cannot be seen for what it is. There isn't just a class of new modern indicators out there - there's a super-massive class of new modern indicators out there and none of them are premised on the mathematical average. Now, their output can be averaged - sure. But, their baseline calculation and underling logic is definitely not average based. Harmonic Patterns are one example of this truth. Delta Patterns are another example. None of these are average based. Combining the two creates a powerful new approach to trading the markets. Most people have already heard of Harmonics already. However, few have heard of Deltas and for good reason - I created them.



Fat Tails View Post
If the super-duper indicator is just another transformation of price, you can well stay with a simple moving average.

A different [u]concept[/b] of price, as opposed to another averaging transformation of price.



Fat Tails View Post
However, what can give you a lead, is to use information different from price. Markets appear as random, because the sheer number of nonlinear interactions makes it impossible to evaluate them mathematically. What can be evaluated, is the behavior of market players, as they tend to crowd.

I agree partially, here. I tend to think that all information that drives price, is incorporated into the price by the time you are able to respond to it as a trader for the most part. Even certain external news drivers are often times baked into the price action already. Extending this idea of using outside sources far enough, and you end up being more of a fundamental trader.

Where I disagree is in the notion that we cannot mathematically evaluate the market. Actually, you can evaluate the markets mathematically - we do it all the time, in fact. The question is whether or not we are doing it optimally. For the past 40+ years, the dominant methodology has been based around averaging. However, patterns in market behavior do exist - but only if one has the right set of tools to observe them. It is no different than studying the night sky with the right equipment from the optimal setting of an observatory and realizing that other galaxies do in fact exist and that they do in fact have identifiable structure, just like our own Milky Way. I am sure that from the view of someone sitting in an observatory somewhere inside the Andromeda Galaxy, if they don't have a powerful enough telescope to see sufficient detail, that they would conclude that our Milky Way galaxy was to chaotic to support carbon based life. Yet, the very structure provided by our own galaxy, is partly what makes life hear on earth possible.


Fat Tails View Post
Volume, open interest, put/call-ratio. cumulated ticks and other intermarket indicators can be more useful than just another fancy indicator calculated from past price alone.

I've trading equity options long enough to realize that Volume can be very misleading - depending on who is doing the buying and who is doing the selling and for what reason. Open Interest tells me little to nothing, unless it is juxtaposed (properly) against something of relative or equal valuation and how often can I make that determination with any degree of precision when trading options (hardly). And, what do Accumulated Ticks tell me when there is a Bear Run on a stock (little), or when a market maker and a large scale brokerage decides to dip the stock like a chocolate bunny (even less), or when that lady who once had coffee spilled on her six (6) weeks ago, decides to hold a press conference with her attorney while standing directly outside of the establishment where she was "injured," to announce her billion dollar lawsuit in front of a CNN camera (virtually none).

I agree with you that obsolete indicators are not an optimal way to trade. However, I don't for one minute believe that we have tapped the full potential of what's possible, in terms of generating new ideas for a more modern approach to optimizing the trade with indicators that don't readily make themselves known with a quick glance at a price chart, or the smoothing of a nearby (handi-dandi-indi) Stochastic.

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 Fat Tails 
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First of all, thanks for your interesting post. I think we agree on many of xour statements, so I will not comment everything as it has a lot of merits on its own. I will just add a few points, where I think it worth adding something.

Regarding the concept of Mode Shape, I would be really interested, if you like to share. But it is certainly too heavy for this thread, so why don't you start an own thread on your concepts, I think it would be worth doing, and that there is a grateful audience here.



JetTrader View Post
I agree. Which is why I find it more advantageous to view price as a clustering of data points with a specific shape, or form. I call it a Mode Shape, but that's a bit beyond the scope of this thread. If I force price into a singularity, then I really make it hard for me to capture it. But, if I allow price to expand across its normal range of frequencies and let it take on the shape that it so desires, then it leaves a much bigger signature on my radar, allowing me to better approximate its dimensions, direction and speed. If I know that information about "price," then I can place an order somewhere inside the cluster, knowing the probability that both Bid/Ask will will show-up (on schedule) in the right place and at the right time relative to my entry order.

I am further interested in your concepts of Mode Shape.


JetTrader View Post
But, in that case, what's the premise for the underlying lognormality? The underlying premise here is the word "random," and I think this is part of what separates highly successful traders from the rest of the pack.

When we typically say "random price movements," we are not usually talking about the same kind of chaos mode randomness to be expected in a physical system involving the lognormal distribution of say, molecules in a gaseous state. Price, unlike the molecules found in gas within a specific system, can only go Up or Down. There are no transverse paths for price to follow in a three-dimensional system. Molecules in a random gaseous state within a specific system do have transverse paths to follow. Even in a so-called "side-ways market" however, prices are constantly in a vertical flux (up or down only) while being driven through the dimension of Time. Therefore, we have to think very carefully about the kind of mathematical tools we bring to the market, in order to calculate the "probability" for specific price behavior and not necessarily a specific price point. Thus, the "randomness" which appears on the surface of "price" may indeed be lognormally discharged (distributed), but the structure of price is no more or less unpredictable because of it.

We know that markets are most of the time at least similar to lognormal distributions. Obviously price has only two dimensions, if you compare it to molecules of an ideal gas. Sometimes markets change from lognormal distributions to other types showing fat tails.


JetTrader View Post
Think of light (from our sun) as price. Now, think of the physical components of light, photon Particles, traveling as waves. Price, has its complimentary particles, too. They are called Data Points within an OHLC stream. Well, they too, travel as Waves in many respects, but they do so as Clusters of Cycles. Within each Clustering of price action, you will find a Cycle of price action. So, you have to convert the Wave concept which encompasses the light's photon particles, to a Wave Cycle concept and then divide the Wave Cycles by the Time-Frames, or the size of the Bar of data in question to derive is Mode Shape. Once price is viewed in this way, its definition takes on a whole new meaning and the entire game becomes one of tracking Clusters (waves and cycles) instead of trying to track an elusive Price point (photon particles).

(again, well beyond this topic -- I'm only giving an example of how I differentiate your concept of price, from my concept of price)

I am very careful with applying cycle identifiers. Price action is mostly non-linear and there are few cycles. However, cycles do make sense, where introduced by human behavior. This applies to the daily cycle, with its regular expansion and contraction of volatility. It applies to the end of month phenomenon, which can be traded, and it certainly applies to (annual) seasonal cycles. Also news events can be considered as an external disturbance that translate into a dampened cycle. But otherwise, I do not believe in stable cycle periods.



JetTrader View Post
Within the variable changes in the structure of price, there exists an underlying constant in its structural form. That constant, not the variable change that envelops it, is my primary concern as a trader. I'm concerned with penetrating the superficial chaos with analytical tools, in an attempt to locate the form's structural core. That core is what I'll target. I may not get all the pips available in the entire structure, but if I target only the core, I can reduce risk, increase accuracy and grow capital at an alarming rate of speed. But, if I focus only on the variability, I will never be aware that such variability has a rooted core.

While the frequency and timing of patterns do indeed vary, the underlying structure and form of price behavior remains fairly constant enough to benefit the observant trader (Harmonic traders already know this). The Matrix for this "core" is found in the fact that we impose "order and stability" on the markets by pushing its price points through an OHLC filter and by sub-dividing that primary filter across multiple dimensions of Time to arrive at Bars of data. Thus, forcing a template of structure on the market, which in turn reveals many things about the markets behavior - if we study the template carefully enough. Ironically, therefore, one of the biggest Indicators in existence, is the OHLC structure itself! Sitting right there under our noses all the time, is the biggest hint about what the market goes next.

I am very skeptical of harmonic trading. Although I use it, I believe that it mostly relies on self-fulfilling prophecy. Fractal dimensions do not typically take harmonic values, this is a fairy tale.



JetTrader View Post
Most people have already heard of Harmonics already. However, few have heard of Deltas and for good reason - I created them.

Why don't you explain us, what deltas are? Again, I would appreciate if you presented your concepts in a separate thread!

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Fat Tails View Post
First of all, thanks for your interesting post. I think we agree on many of xour statements, so I will not comment everything as it has a lot of merits on its own. I will just add a few points, where I think it worth adding something.

I wrote about as much as I can on what I do, over in the Introduce Yourself thread, as requested by BM when I initially registered. If you read that post, then you will understand why I won't be able to launch a thread with full details on Mode Shapes. But, I do appreciate the interest. I could probably try to cover some basics, but without connecting the dots on the lower level concepts, which I would never be able to flush out, it will be difficult at best to glean much from the higher level ideas. but, I might be able to try.


Fat Tails View Post
I am very careful with applying cycle identifiers. Price action is mostly non-linear and there are few cycles.

That's gets right back to the question of: What is price anyway. If you look at it as a decoupled non-linear event, then finding cycles will be difficult. But, if you see price as a coupled to extra-dimensional substrates between the OHLC regions, then you'll have no problem spotting the waves and their cyclical moments. See - this is the whole point about the standard definition of "price" and it is one more reason why I believe that in the development of my system, I stumbled upon a new definition with real substance. It is very difficult to explain without a lot of lower level territory being covered that I cannot expose. Also, graphical presentations always speak louder than words and I don't have anything like that on hand.

Bottom line - in order for your version of price to move from the Open to the High (as just one example of the coupling to an OHLC substrate) it must move there, and in the process it must also create a delta between the Open and the High. That delta has a value and it is what provides the substrate upon which "price" is connected to all other points within the OHLC in that bar - AND - in all subsequent bars behind it. In other words, I have found that there is a real connection between each data point within each bar of data - across a finite range of bars. That range is what provides the Mode Shape of the data. It is simply a way of expressing the "status" or "condition" of the OHLC data, as it passes through Time, from the current (real-time) bar to all bars behind it.

Like I said, this is not ADX easy language type stuff that can easily be placed into a few posts on a forum. It is years of research (almost ten years now) culminating in a different way to interpret market behavior over a specified time period. I basically take the "stuff" (empty space) between the Open, High, Low and Close, and then I treat it as though it is real data - actual market data. Well, (lol) when you do that, you get access to a whole different universe of possible paths for analysis of market behavior. Why am I able to do this? Well, because the Open cannot remain the Open for the entirety of the Bar's life-cycle. If that were to happen, then there would be no market to trade.

Therefore, I capitalize on the fact that your "price" MUST move. It has no choice. And, what's so eloquent about it, is the fact that it can ONLY move to a High, or to a Low. The Close is ubiquitous and only has relevance at the end of the Bar's life-cycle, where it is nothing more than the Open, simultaneously. Thus, that leaves only two data points to consider - the High and the Low. Now, that applies to the mechanics of just one (1) bar of data. But, when you couple that bar mathematically to the bar directly behind it, you discover that there are in fact not just four (4) transverse substrates (O:H, O:L, L:C and H:C), but there are in fact a total of twenty (20) additional substrate connections, between just two bars of data!

So, lets put that into perspective. The typical trader who can only see the traditional idea of price, across two (2) bars of data, say: bar [0] and bar [1], will claim that bar [0] is connected to bar [1] through only the [0] Open to the [1] Close. Thus, being able to establish only one (1) relationship between the first bar and the second bar of data. Conversely, with my idea of price, those same two (2) bars of data now yield sixteen (16) direct relationships, plus four (4) additional indirect relationships, for a total of twenty (20) mathematically derived relationships that can be uses to take the pulse of the market.

That's an increase in probe activity of 20:1. A 2,000% increase in the level of market detail at any given time. I can probe the market with 2,000% more sensitivity than anyone I know. That's got to provide an edge. Increase the number of bars and do the math.

I'm mapping the very DNA of the market with this approach. It is one of the reason why I am typically in positions, before the crowd gets there and out of that same position before the crowd leaves. First in - First out.



Fat Tails View Post
I am very skeptical of harmonic trading. Although I use it, I believe that it mostly relies on self-fulfilling prophecy. Fractal dimensions do not typically take harmonic values, this is a fairy tale.

This issue confuses a lot of people. The "harmonics" being spoken of, relates to the use of Fibonacci derived sequences across multiple time-frames where specific retracement levels have been struck (within a margin of error) in a specific order. The word "harmonic" got accepted to mean something like "resonance," which is not quite what the originators had in mind, I don't think. The harmony simply comes from the synergistic effect of multiple pattern completions (under specific rules) within multiple time-frames, or multiple bars of data. The more synergy (harmony) at depth the market produces, typically the higher the probability, or chance for the market to move one way or another depending on the pattern type.

The issue with Harmonics, is that often times you will see smaller TFs producing consecutive bullish patterns t completion (for example) inside a larger TF that is producing a bearish pattern to completion. The inverse is also true. In those scenarios, when the smaller TF "harmonics" fail, people tend to throw-up their hands and say: Well, see - they don't work. But, because they don't have their Harmonic matrix set-up correctly, spanning across all time frames, they never saw that big Whale on the larger time-frame that was placing a lot of pressure in the opposite direction, causing the smaller TFs to break-down.

The market does respect the Fibonacci Ratios, but if one is not set-up correctly to see the appropriate harmonic synergies taking place (and they are happening all the time in the market) and fixates for too long a period of time on a singular time-frame, then one will typically conclude that they don't work, or are less optimal than they really are. Harmonics have to be set-up correctly; the appropriate ratios to use have to be understood thoroughly and the trader has to be patient enough to allow enough of the pattern to complete before taking trades.



Fat Tails View Post
Why don't you explain us, what deltas are?

I just did, but I can only go so far with what I'm willing to release. Check out my post under Introduce Yourself. I Delta is a very simple concept. The distance and magnitude between the Open and the Low, is a simple delta. Yet, there are many other deltas just like that one that nobody ever pays attention to. Those Deltas, when taken in the aggregate and across multiple time-frames, yield Magnitudes. And, these Magnitude values couple the real market values (price points) together along the four (4) basic substrates mentioned above, which in turn helps to produce the overall Mode Shape of the Price Cluster. The Cluster contains your definition of "price" plus the values that I derive from the coupling of the substrates together to form the Mode Shape. Your idea of "price" always travels through Time, with my Cluster of derived "prices" and they travel in the form of a Wave of Cycles, producing a probability matrix that tells me when the Bid/Ask stands the highest probability for existing in some region of the Cluster, at a specific time, with a certain speed and for a specific duration.

I apologize, but this is just one (1) concept within a system that contains 127 such concepts spanning ten (10) worth of research/work. There is simply no way I could do this online, even if I wanted to. Can't be done. However, I obviously understand and appreciate the interest and I hope that helps at least a little bit. I know it is not often that some thing like this comes along - or at least with someone willing to talk to some degree about it. Anyway, just use what you can as inspiration for new ideas of your own. That's what I hope people go out and do - ignite more innovation in this business.


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 trendisyourfriend 
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Fat Tails View Post
...Why don't you explain us, what deltas are? Again, I would appreciate if you presented your concepts in a separate thread!


Here is what i found:

It's based on a remarkable mathematical fact about lotto numbers and keno numbers.

What's a delta? The delta is the difference between a number and the previous number.

For example, look at this winning lotto number:

3-9-18-19-27-33

Now here is the same number, represented as deltas:

3-6-9-1-8-6
All the numbers are smaller, yet it still represents, and can be converted back into the same winning lotto number!

Source: How to Win at Lotto: The Delta Lotto System and Keno System

- Hope this helps

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 Fat Tails 
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trendisyourfriend View Post
All the numbers are smaller, yet it still represents, and can be converted back into the same winning lotto number!

Source: How to Win at Lotto: The Delta Lotto System and Keno System

- Hope this helps

Another trap for fools, worse than any indicator!

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 vvhg 
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Fat Tails View Post
Another trap for fools, worse than any indicator!

In my view it actually is an indicator. Computing past values to substitute the crystal ball....
What is worse is applying this indicator to clearly not correlated data.


vvhg

Hic Rhodos, hic salta.
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 Fat Tails 
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It is always interesting to read your answers.



JetTrader View Post
But, I do appreciate the interest. I could probably try to cover some basics, but without connecting the dots on the lower level concepts, which I would never be able to flush out, it will be difficult at best to glean much from the higher level ideas. but, I might be able to try.

Try and go as far as you like!


JetTrader View Post
Therefore, I capitalize on the fact that your "price" MUST move. It has no choice. And, what's so eloquent about it, is the fact that it can ONLY move to a High, or to a Low. The Close is ubiquitous and only has relevance at the end of the Bar's life-cycle, where it is nothing more than the Open, simultaneously. Thus, that leaves only two data points to consider - the High and the Low. Now, that applies to the mechanics of just one (1) bar of data. But, when you couple that bar mathematically to the bar directly behind it, you discover that there are in fact not just four (4) transverse substrates (O:H, O:L, L:C and H:C), but there are in fact a total of twenty (20) additional substrate connections, between just two bars of data!

I'm mapping the very DNA of the market with this approach. It is one of the reason why I am typically in positions, before the crowd gets there and out of that same position before the crowd leaves. First in - First out.

This would be like a neural net that can be exploited by a genetic algorithm?



JetTrader View Post
This issue confuses a lot of people. The "harmonics" being spoken of, relates to the use of Fibonacci derived sequences across multiple time-frames where specific retracement levels have been struck (within a margin of error) in a specific order. The word "harmonic" got accepted to mean something like "resonance," which is not quite what the originators had in mind, I don't think. The harmony simply comes from the synergistic effect of multiple pattern completions (under specific rules) within multiple time-frames, or multiple bars of data. The more synergy (harmony) at depth the market produces, typically the higher the probability, or chance for the market to move one way or another depending on the pattern type.

I agree that Fibonacci derived sequences work well as an overlay of multiple patterns and timeframes. The indicator on the ES chart for this morning detects 540 harmonic levels and then extracts confluences zones by adding up the single conditional probabilities for a price reversal.

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 monpere 
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Fat Tails View Post
Another trap for fools, worse than any indicator!

Dudes! so much ragging on indicators! Indicators get a bad wrap because most people just get bag of indicators and start slapping them on to charts, look at them for 10 minutes, and determine they don't work. What you need to do is find a trading concept you believe in, then find indicators that support that concept, then learn the specific indicators well to find how to exploit their value. I do pretty well trading 2 very basic indicators, but I don't use them in the same way that the masses use them. It's generally not the indicators that do not work, it is their incorrect application.

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 Fat Tails 
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monpere View Post
Dudes! so much ragging on indicators! Indicators get a bad wrap because most people just get bag of indicators and start slapping them on to charts, look at them for 10 minutes, and determine they don't work. What you need to do is find a trading concept you believe in, then find indicators that support that concept, then learn the specific indicators well to find how to exploit their value. I do pretty well trading 2 very basic indicators, but I don't use them in the same way that the masses use them. It's generally not the indicators that do not work, it is their incorrect application.

The purpose of this thread is to bash indicators. Of course, I use indicators as well.

Just wanted to issue a warning that

- indicators are mostly a transformation of price, so price itself can do as well
- you cannot use 50 of them, unless you want your charts to compete with a painting of van Gogh

We would then need to discuss, whether we prefer impressionist or expressionist workspaces.

Using just 2 of them, certainly makes sense.

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JetTrader View Post
I just did, but I can only go so far with what I'm willing to release. Check out my post under Introduce Yourself. I Delta is a very simple concept. The distance and magnitude between the Open and the Low, is a simple delta. Yet, there are many other deltas just like that one that nobody ever pays attention to. Those Deltas, when taken in the aggregate and across multiple time-frames, yield Magnitudes. And, these Magnitude values couple the real market values (price points) together along the four (4) basic substrates mentioned above, which in turn helps to produce the overall Mode Shape of the Price Cluster. The Cluster contains your definition of "price" plus the values that I derive from the coupling of the substrates together to form the Mode Shape. Your idea of "price" always travels through Time, with my Cluster of derived "prices" and they travel in the form of a Wave of Cycles, producing a probability matrix that tells me when the Bid/Ask stands the highest probability for existing in some region of the Cluster, at a specific time, with a certain speed and for a specific duration.

I apologize, but this is just one (1) concept within a system that contains 127 such concepts spanning ten (10) worth of research/work. There is simply no way I could do this online, even if I wanted to. Can't be done. However, I obviously understand and appreciate the interest and I hope that helps at least a little bit. I know it is not often that some thing like this comes along - or at least with someone willing to talk to some degree about it. Anyway, just use what you can as inspiration for new ideas of your own. That's what I hope people go out and do - ignite more innovation in this business.


Hi JetTrader,
I read and followed your comments with great interest. Unfortunately cannot relate to it as you are not prepared to share with others this fantastic "system" or revolutionary way to trade. I can understand if this is a trade secret and abide by your reluctancy to reveal it to the world, but then why did you bring it to the forum, as at the end of the day it is a futile discussion.

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