You can see so far this morning the 91.38 line predicted the opening range high to the tick and has provided resistance on the session.

Mike

Big Mike 

...Imagine for a minute you did not know the lines were random. What would be so different from the charts in this thread compared to the charts in other threads? The point is simply to get people to approach things from an angle they may not have previously considered, and hopefully in doing so they will benefit in some way and improve their trading. Mike

Thanks Mike for taking the time to give a more elaborate answer and not take my previous comment at the first level as an attack or criticism. Your idea is to explore new angles in order to faciliate a paradigm shift or change in our basic assumptions. My objective this year is to trade without indicators or unnecessary luggage.

One of the thing i find interesting with comments many traders make about lines they draw on their charts is despite the fact they use it as potential inflection point they still feel the need to monitor price action around these levels before considering a trade. But what is the real use of a line if you need to watch price action before placing your bet on the table.

Let's take the volatility bands created by Fat Tails as an example, in another thread he wrote this is one of his best indicator so far but despite this fact i am sure he would not put a working order into one of the zone before price reaches that zone. He would probably wait a little bit more for signs that price is ready to turn or reverse. So common sense tells me that if you need to monitor price action when price reaches a zone why do you need these zones ?

If you don't need to put lines on your chart to give you some potential targets, is it possible that the risk:reward concept be a false preoccupation! To be profitable, do we need to predict or evaluate the reward as after all, lines we put on our charts are at the core of the preoccupation of most traders that believe in the risk/reward trusted enchilada recipe.

trendisyourfriend 

Let's take the volatility bands created by Fat Tails as an example, in another thread he wrote this is one of his best indicator so far but despite this fact i am sure he would not put a working order into one of the zone before price reaches that zone. He would probably wait a little bit more for signs that price is ready to turn or reverse. So common sense tells me that if you need to monitor price action when price reaches a zone why do you need these zones ?

I am not responding to random lines, because they cannot be used for trading. They are just a fallacy that was created deliberately and they may help to unveil other fallcies.

I will answer here to the usability of volatility bands.

The volatility bands are based on human behaviour. Trading is a game with ever the same participants, and the participation of these actors will create volatility and drive price up and down by a certain amount. This typical behaviour can be measured via the average daily range.

Now imagine that you had a climax bar followed by a second entry and you want to take a countertrade. I will place more confidence in this trade,

- if the average daily range has already been reached (near the bands)
- if the opportunity occurs outside my Keltner Channel (trading outside in)
- if the time of the day is a reversal time

and I might skip the signal, if the daily range has not yet reached it expected value.

By using the bands you simply increase the probability of your trade. And of course this reasoning applies to exits as well. A climax bar that ends near the bands gives you a clear signal to exit the trade.

Todays fallacies , just poking at ya FT . Price did respond to the lines .

Heres tomorrows lines . No doubt that I could validate a random line as correlating to some point in the past either as a fib retracement or extension or a static SR level or myriad other things . It is quite difficult to randomly place a line on a chart and not have your eye automatically connect it to a level from the past .

Eric j 

Heres tomorrows lines . No doubt that I could validate a random line as correlating to some point in the past either as a fib retracement or extension or a static SR level or myriad other things . It is quite difficult to randomly place a line on a chart and not have your eye automatically connect it to a level from the past .

These lines do not look random. If you ask me to draw S/R levels based on today's price action, I would find some of those lines - and that is not a fallacy.

Fat Tails 

...By using the bands you simply increase the probability of your trade...

The bands are just an average like any moving average and i have some difficulty to believe they increase the probability of any trade. When all items you mentionned converge or match your criterias, it may just be a coincidence that reinforces your belief in the bands and we are getting back to the core of this thread, namely that we assign specific properties to lines we put on our charts.

trendisyourfriend 

The bands are just an average like any moving average and i have some difficulty to believe they increase the probability of any trade. When all items you mentionned converge or match your criterias, it may just be a coincidence that reinforces your belief in the bands and we are getting back to the core of this thread, namely that we assign specific properties to lines we put on our charts.

I disagree.

Here is the end of the session. You can see the 91.38 line really did a great job of acting as resistance.

I'll post tomorrows lines later tonight.

Mike

You have to apply risk reward in terms of probabilities. Yes if you randomly go long with a risk of 2 points and a target of 5 points, you'll probably get your ass handed to you.

If the market trades its daily range, and you know historically that going back 5 years, that once it hits that range, it tends to traverse 60% of the time and reverse X amount of points, and you use good risk reward measure to enter, then I don't see why you can't make money, or at the minimum break even.

If you don't believe me, do it on sim for a month and see how it trades.

Fat tails, I'm developing a better way or signal you can add which gives you better results in terms of fading ADR bands. I'm still testing it, but if you want in, i wouldn't mind. I could probably use your help doing some back tests, bounce some ideas of each other anyways. Send me a pm and well talk