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STF discretionary spot Forex system development journal


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STF discretionary spot Forex system development journal

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  #201 (permalink)
CA
 
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Hi bnichols, just wanted to do more than click the "thanks" button which I've already done several times - utterly fascinating journal, most of it way over my head but stimulating none the less.

Hope you come back to NT soon so we can get your updated indicators!

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  #202 (permalink)
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@NW27: I finally bit the bullet, took your advice and installed TWS_KeepAlive.exe to prevent TWS shutting down. While I'm extremely wary of adding doodads to the trading system so far the benefits of this gadget vastly outweigh any downside

Thanks for the vote of confidence @cv2low. I suspect however some of the "fascination" factor right now stems from lack of focus due to sleep deprivation and the effect of toxic substances I consume in poisonous quantities to regulate (mostly avoid) sleep :-/

On that topic (sleep deprivation) the main disadvantage aside from what it does to our health may be that efficiency drops in proportion and it takes forever to get anything done. On the other hand the main benefit, such as it is, may be that the near dream world we live in tends to expose the inner workings of the mind, which might enhance creativity but if nothing else we get to observe quite clearly how trading alters the way our brains work. Assuming this close & objective look at the thoughts & feelings that occur when while we're making trading decisions is real (rather than hallucination ) IMO there is some evidence it may speed up the learning process.

On a practical note I'm still working on statistics for the scalping method and writing/debugging/improving indicators** and probably should mention am no longer trading spot EUR.USD exclusively. The reasons for branching out include the following:

1. IMO there is enough commonality in spot currency behaviour that experience with one carries over to another; and therefore,
2. if we're profitable in one we can be profitable in another; and,
3. more currencies means less time sitting on our hands, idle hands being the devil's plaything (i.e., less tendency to see setups that aren't there); and,
3. more currencies means more trade opportunities if we have a means to spot setups over a large number of them.

Therefore in addition to trying to come up with a way to spot setups over a large number of instruments at the moment I'm also trying to reduce the population of currency pairs under consideration from approximately 85 to a reasonable number, whatever that may be. This task is made easier by the fact that even though IB recognizes certain symbols (like AUD.CNH) it does not provide data. Otherwise the number will likely be reduced according to how actively traded they are, their volatility and the degree of correlation between them.

A main area of interest remains momentum, however we define it, since like most I depend on divergence to determine when trends are failing (to trade retraces and either full blown reversals or consolidation patterns). The reason for the interest is that it's not that "sometimes divergence doesn't work" but that momentum speaks a language that is more complex than I first thought.


**A new version of MC indicator TDWave is attached that does a better job of numbering waves in a complex retrace and fixes a potential bug. This version still does not label extrema in complex retraces ("ABC" patterns).

Edited to add a chart of AUD.JPY illustrating the wave numbering scheme as well as a couple of momentum based reversal scalps, last one (long--a "retrace of the retrace"--based on divergence in the short time frame 200 tick chart) still in progress when this screenshot was taken. [The last trade was soon stopped out but losses recouped in what was close to a revenge short trade entered with the assumption gravitation of the nearby floor trader pivot below was enough to overcome any upside momentum. The moral of that story is wait for divergence to actually complete :-/]


Attached Files
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  #203 (permalink)
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More on the topic of momentum. Either real money is pausing here before moving higher or it will revisit the pivot (yellow dashed line) via yesterday's high (magenta dashed line). I'm betting it revisits the pivot.

I like the fact IB goes into it's server reboot more or less like clockwork about now. It's like being in orbit on the far side of the moon, when communication stops.

Waiting for Houston to reconnect, the TV drama due mostly to the fact most folks have no concept of gravity or momentum.

Wishing I were an engineer at NASA right now.


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  #204 (permalink)
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While we wait for IB to come back up I have this image of IB drones scurrying but the question arises: if we can put a bot on Mars why do we still need to reboot servers here on earth, long after the accounting has been done? There are solutions, starting with firing your IT guy.

ETA: Sorry--forgot we're in the new age of Aquarius. Shouldn't say "fire". Let's retire the IT guy or doll and get with the program. Don't need another of IB's 18 hour "reboots" right now.

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  #205 (permalink)
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Restarting TWS seems to have resolved the issue. Perhaps there is more in heaven and earth after all than keeping that puppy alive all week with a point and click bot.

That said, back to the real issue. USD.JPY still has not collapsed.

ETA: ah there we go. So far no indication momentum trading has a downside.

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  #206 (permalink)
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Enjoyed a productive dialogue over several hours (including lunch!) today with my youngest son about the work, topics including the state of the work, factors involved in the transition from manual to automated trading, models/roles/limitations of artificial intelligence (mainly neural nets), potential further work on K-Means clusters (hypothesis essentially to what extent & by what means retail traders can profit from K-Means analysis by trading currency pairs and commodities as if a relatively gigantic range trade, essentially to rescue previous work from its one banal conclusion so far: namely, buy low/sell high), the basis (psychological or otherwise) for S/R levels, principles of trend and momentum trading, and particle oscillators. We also spent some time looking at NT Market Replay on his laptop using his Gain connection, which finally explained a couple of frustrations I have with it (frustrations with NT Market replay and as usual Gain historical data blows IB out of the water ). I think we both learn as much as we teach in these chats.

Focus for the time being is development of the MACD wave counter (MACD our analogue for momentum), IMO necessary for retrace/reversal trading, likely nothing to publish in the next few days, narrowing the field of currency pairs for activity/range stats on the back burner.

Somewhat trading related I spent the evening (which included supper!) assisting my oldest son who was hell bent on organizing my workshop, not only to make room to store our our motorcycles for the winter but hopefully to instill in his old man some degree of self discipline outside the trading room. In that respect at least it seems the child is the father of the man.

Edited to add: This post doesn't mention my daughters and on the topic of happiness, which comes up from time to time in discussions about the goal of trading, I want to debate (which is to say refute) a claim I read some time ago the jist of which was that in order to live life fully we would have to endure 5 or 6 lifetimes. I suspect the author of that sentiment was merely experiencing the regret of not enjoying the benefit in the here and now of making kids, and who so far may not have been lucky enough to enjoy his or own time alive to the fullest, and moreover suffers the additional setback of not sharing the expression of his or her genes (so far our only hope of immortality) with his or her offspring. My experience is our kids seem to manifest ourselves, via our genes and by the way we ourselves manifested our ancestral genes (how we raised the kids--the nature/nurture debate), in ways literally we have only dreamt about, as our ancestors dreamt, for better or worse. Consciousness--being alive in the moment in the material world versus a ghost in the first person inhabiting our own dreams or inhabiting our genetic legacy, whether a butterfly or a man (the butterfly or a man debate)--after much research IMO is vastly overrated. All of our lives lived simply when the kids show up.

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  #207 (permalink)
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bnichols, I agree with cv2low, thanks for sharing your journey.

But instead of NJ it would be way better for ya to head over to Sierra charts so I could get your awesome charts.

Kidding really, just trying to tell you that your posts are appreciated and your charts enjoyed.

Take care!

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  #208 (permalink)
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Thanks @Poocher. You made me laugh. Not very often I head for bed content.

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  #209 (permalink)
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As I confessed to @PandaWarrior the last trade on Friday was a complete bust. It was initiated and managed by a bot I put in charge on the 200 tick chart to capture a (what I thought was inevitable) Friday afternoon reversal while I ran errands. Perhaps if I'd glanced at the higher time frame charts I might have noticed there was absolutely no sign a reversal was going to happen, that what the 200 tick chart was indicating was merely a pause while the market caught up to itself While as is the way of the market it rewarded my hubris with a kick in the pants I'm grateful it was only a kick in the pants and for being provided the learning opportunity

Failed reversal trade (one mistake was using the STF chart for the setup)

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  #210 (permalink)
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After battling with the MACD wave counter for the last few days and trading very little am taking some time off to catch up on sleep and recreate, which means reviewing a number of trading techniques I rarely use, like candlestick patterns, Ichimoku, Fib, trend lines & regression channels, measured moves via Fib extensions. Noticed a couple of Gann indicators in the MC library but so far haven't messed with them.

The Ichimoku indicator I'm using was provided by @Ykarius in this post.

Musing over charts now so cluttered with indicators that price is almost obliterated @Fat Tails' opinion of lines on charts comes to mind. Indeed, if we draw enough lines we can see patterns everywhere :-/

As an aside, as far as I know MC can draw objects like lines and text only on charts (and subcharts) that contain an instrument; which is to say it can't draw objects on indicator-only panels. Therefore to annotate the MACD wave counting indicator with numbers & divergence lines corresponding to divergence lines on the price chart I resorted to the following fiddle (not original):

1. Insert a copy of the instrument as a subchart of the main chart
2. Make the instrument in the subchart invisible by changing the style to "Dot on close", dot color the same as the background ("Hiding" doesn't cut the mustard apparently because "hiding" makes the instrument inaccessible in what follows)
3. Hardwire the Y scale of the subchart to something appropriate to MACD
4. Apply the MACD wave counter indicator to the (invisible) instrument and overlay in the subchart.
5. Hardwire the wave counter scale to the values chosen in step 3, above.

[The MACD wave counter (not yet fully debugged) draws both the regular "TDMACD" indicator as well as the wave numbers and divergence patterns]

While this trick works swimmingly with bounded oscillators like stochastics, as one might imagine hardwired scaling is a bit of a pain with unbounded indicators.

Edited to add: this issue (apparently can't draw on non-instrument subcharts) is not a show stopper because the wave counter is conceived primarily as a bot input rather than for manual trading.

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  #211 (permalink)
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I want to reiterate for the record my take on one detail of bot design that came up in the discussion with my son last weekend, to do with why IMO a bot will only ever trade as well as its creator but never better, and more often than not considerably less well as many are quick to point out.

Recent experience adding S/R energy to a bot styled after Barry Burns' Top Dog trading system, which has been under construction for almost 2 years now, brought home the distinction between tweaking a bot and improving it. As others on futures.io (formerly BMT) have noted, early in the bot craft learning curve when comparing the price chart with bot trading performance we may be inspired to modify the bot to handle particular instances of price movement (missed profit opportunities or "unnecessary" losses), switching perspective from the general to the specific (from the system to those devilish price details), an approach commonly called "adding filters" or the like.

This initial propensity to tweak bots for the wrong reasons may stem from our earliest impressions of automated trading, the evolution of which for some of us might be summarized as follows: having no trouble picking highs and lows on the first charts we encountered we conclude we are natural born traders & start planning retirement accordingly. Subsequently bloodied but not bowed after doing battle at the brutal right edge of the chart for a while, we surmise that a bot could be the antidote to new & unexpected feelings of confusion, uncertainty & self loathing because a bot does not feel. Surely bot writing requires not much more effort than we've put into manual trading since all it has to do is "look back 50 bars and do what it should have done back then", which is how WE learned to trade, after all, and furthermore a bot can buy the lows and sell at the highs 24/5, freeing us in the meantime to get a head start on the lounging around and umbrella drinks while the bot toils unattended to build our fortune. Still later, after many more blind alleys and Holy Quests, we conclude that if we can't trade we can't teach a bot to trade either, sadder & broker but perhaps more appreciative of the sarcasm in the remark, "Those who can do; those who can't, teach". Which pretty much explains the Interwebz.

Arbitrarily "adding filters" may be educational when the bot is being used to test ideas but if being developed to implement a potentially profitable trading system this approach--switching focus from general behaviour to performance artifacts--is doomed from the start.

Assuming we capture the essence of a system in the first instance bot performance reflects 2 things:

1. the degree of fidelity of the implementation; in other words the extent to which the bot embodies what is necessary to the system; and,
2. the sufficiency of the system being coded

Any performance issues have to do with one of those 2 factors, and not ever with particulars of price behaviour.

Bot performance can be improved only by incorporating additional aspects of the thought process when trading the system that might have been excluded in the first cut (e.g., due to project management issues).

Except for looking AT the chart as a debugging aid therefore a rule of thumb when developing a bot to implement a trading system may be to focus only on the performance report--hence to avoid altogether looking TO the chart in the hope of improving performance. If testing shows any kind of perspective switch is warranted it must be toward greater abstraction (i.e., in terms of a different system).

The above remarks do not address the fact that modifying a bot to deal with chart particulars moreover defeats the purpose & effect of backtesting (a point made by Kevin Davey in his webinar), merely curve fits the bot to the test set, which is in the category of engineering uselessness.

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  #212 (permalink)
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A daughter who is doing a graduate degree in neuroscience at Western University (Ontario) in town for the holidays still dismisses any suggestion I make to study traders' brains ("probably full of holes" is all she will offer) but did say she had the opportunity recently to chat up Terry Stewart over dinner when he delivered a lecture on Spaun (the "big artificial brain" that made the news a while ago. Terry Stewart is a Post Doc at U. Waterloo Centre for Theoretical Neuroscience and a Spaun team member). She couldn't answer all of my questions about the model so I downloaded the paper from the distribution site here. A quick read renews my interest in that sort of research but the model doesn't look like anything one could implement any time soon for trading.

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  #213 (permalink)
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Just a quick observation waiting for IB to finish rebooting its servers.

Basic indicators like MACD, stochastics and SMA's fascinate me so still in recreation mode earlier tonight I reviewed the 2nd installment (continuation and advancement) of @perryg's method (webinar here) and @NJAMC's work to automate an earlier version of perryg's system (automation thread here)

The reason for doing so stems primarily from the hypothesis that a successful system has elements in common with every other successful system even if terminology may vary and these elements may be expressed somewhat differently. By virtue of these difference perspectives therefore comparing systems may be one way to increase depth of understanding of a given system.

A number of differences in perspective between Barry Burn's & perryg's systems IMO include the following:

1. what perryg calls "divergence" (measure of spread between moving averages) appears to be BB labels "momentum";
2. "fractals" (definition of which in perryg's system attributed to Bill Williams in "Trading Chaos") appear to be what BB calls (& essentially dismisses as) price pivots.
3. inclusion of indicators from higher time frames what Barry Burns refers to as fractal energy, both serving as entry confirmation
4. in any event neither of these definitions of "fractal" matches my definition of it, which is more along the lines of the Hurst indicator described in previous posts.

What both appear to agree upon, and IMO is the alpha and omega of Ichimoku, is the the significance of moving averages. In my own experience simple moving averages are a species of low pass filter (not a very good one) with a lag equal to the length divided by 2 and a messy impulse response as follows (courtesy of course notes for an engineering course at Berkley,

H(w) = (1/L) * ( 1 - 1 / exp(jwL)) / (1 - 1 / exp(jw)).

where H = amplitude, w = angular frequency, L = MA length, j = sqrt(-1), exp = exponential function (base of natural logarithm "e" to the power of...)

Figure 1. Normalized magnitude (amplitude) for 3 MA lengths: L = 4 (red), 8 (green), and 16 (blue) (from the same source as the equation)


Abrupt changes in an MA due to early samples dropping out aside, in the figure the points at which the magnitude of the response falls to zero signify that price energy of corresponding wavelength is suppressed in the current value of the SMA, whereas price energy of wavelength corresponding to response peaks is expressed in the current value of the SMA. While the existence and cause of cyclical price energy may be debatable (i.e., "event Y occurs on the 20th day of every 3rd month"), AFAIK it is what was originally the basis for choice of MA length, including Tenkan-sen and Kijun-sen lines of the Ichimoku indicator, possibly predating e.g. the sentiment that "everybody is using an XXX MA and that is what explains their power as S/R levels".

The art & science (magic & mystery?) of fast and slow SMA crossovers is another topic entirely, but IB is back up so back on our heads.

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  #214 (permalink)
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Not strictly relevant to this journal (which has to do with spot Forex system development) spent most of today watching webinars by @FuturesTrader71, some from his site and all 4 futures.io (formerly BMT) presentations listed in this post and reading posts in volume profile threads in preparation for tackling a volume profile & footprint trading plan.

One thing this exercise has taught me so far is it really is no contest in terms of data quality & responsiveness between IQFeed and IB as data sources

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  #215 (permalink)
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Scalping small sizes and single targets in several spot currencies on the cash account through the European open this morning to see the effect of some changes to the spot trading plan, one of which was inspired by a remark @FuturesTrader71 repeated often in his videos; namely once the trade is entered don't mess with it.

A second change is to forego momentum exits in favour of strict S/R exits and the combination of changes is resulting in trades like the 2 illustrated in the charts below. Previously (as a finger-on-the-button scalper) I would very likely have been out with 1-2 pips the instant momentum faltered, so this is something new and painful for me. Setups and entries are still determined according to BB's system, and I attribute the fact the small number of trades I've made thus far have been successful to the system. In any case I don't mind the boost to "emotional capital" even if it's short lived.

Unfortunately it's early days and until I can code BB's setups for backtesting the effect of any change to the plan must be determined by manual trading, which means 100's more trades before the potential value can be estimated.

Once MC is configured for volume profile and cumulative delta the plan is to see if those can be incorporated into the system (using futures to cue spot trades). I suspect this approach will not work for the sort of time frames (ultra short) we've dealt with so far, so that work may be the preamble to trading longer time frames.

Figure 1: short AUD.USD


Figure 2: long EUR.USD

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  #216 (permalink)
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Having spent most of today working with MC 8.5 beta volume profile and cumulative delta implementation I'm starting to miss the good old days when if a feature needs tweaking all one had to do was modify the open source NT code on futures.io (formerly BMT). IMO MC's cumulative delta works well enough but volume profile features need work.

As a consequence I've dusted off NT, done a quick sanity test with IQFeed and installed @gomi's code per @redratsal's excellent video and started reviewing the many threads on the topic.

This venture is still in the category of recreation and in no way impacts the bread and butter trading plan, merely revisits topics that sent me into info overload when I first joined futures.io (formerly BMT). Learning how to trade is an iterative process after all, and I'm only a few years into it. On that note, having stumbled across @Zondor's contributions at every turn would take my hat off if I wore one. Instead I'll fuss with my do-rag (keeps the hair out of my face).

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  #217 (permalink)
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For anyone who still follows me, my wife accuses me of autistic tendencies (and she should know as a professional in the field) but please bear in mind I carry along everything I've ever thought about looking to apply it.

Oh look, there goes a butterfly.

Edited to add. If I'm autistic then the hallmark of autism is the autistic are simply bored beyond imagination.

Does not affect IQ and does not affect the ability to know when fundamentals indicate a particular economy, government, stock or currency is FUBARed.

Yep. Lately I like to short things.

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  #218 (permalink)
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bnichols View Post
For anyone who still follows me, my wife accuses me of autistic tendencies (and she should know as a professional in the field)

Yes I'm following and really enjoy your thread. We seen to share a lot, both in our trading lives and personal lives.
Personally, I have a mild form of " Asperger's Syndrome. ". My father is a full Aspi. Have your wife have a look at this and see how you fit.

Regards,
Neil.

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  #219 (permalink)
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Oh boy back to NT hallelujah!

I've been really enjoying your TDStochastic, it's helped my trade entry quite a bit.

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  #220 (permalink)
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Just a quick note mostly as a reminder to myself, taking another look at time of day stats decided to rework the (MC) indicator to process future volumes from IQ data the following preliminary unannotated plot (Open Office Calc) of raw data (unfiltered e.g. for dead time on Fridays and Sundays) made me do a double take.

The plot shows cumulative hourly volume (Y axis) vs EST hour of the trading day (X axis) for the last 120 days from a 6e-03-13 200 tick chart. Guess we know when retailers with day jobs tend to trade


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  #221 (permalink)
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While methodology discussed in this journal is restricted to short time frame spot currency I use other methods in other time frames on other instruments and often compare what is going on e.g. in daily charts to what is happening at the 200 tick level. Tonight for example I thought it was interesting to see AUDUSD pause at 88 rather than 90 (where I expected it to pause), which happens to coincide with Ichimoku Senkou Span B on the daily chart.

Not so much easily amused as trying to avoid clicking buttons while waiting for the last target in an AUDUSD trade to be hit


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While it might not be news to some, stumbled across an interesting artifact of IB historical data while testing a quick and dirty bar timing indicator with spot currency tick data in MC; namely "flat" spots that occur at random on different spot currency charts at the same time (haven't confirmed it in data for other instruments fed from IB), where bar duration (in seconds/bar) suddenly becomes more or less equal to the tick size of the bar (e.g., 200 seconds for 200 tick data) and can stay that way apparently for days.

The fact tick bar duration does not flatten for IQFeed data for the same instrument and time period rules out a nefarious plot by some agency to manipulate the currency markets (yes.....I confess that occurred to me in the first WTF??? moments )

Seconds per bar indicator applied to IB feed EUR.USD 200 tick data shown in the bottom panel of the chart below. [The spike in the indicator around midnight of each day due to the fact at the moment the indicator ignores days when calculating time differences.]

I notice after the fact that while I've been messing with this EUR.USD has been on a 40 pip tear



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Wither goest JPY before the close of trading later today?


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Compared to a number of other futures.io (formerly BMT) journals this one reminds me of a remark made by a science celebrity in the introduction to his autobiography, the English translation of which is


Quoting 
"Is this supposed to be an obituary?" the astonished reader will likely ask. I would like to reply: essentially yes. For the essential in the being of a man of my type lies precisely in what he thinks and how he thinks, not in what he does or suffers. Consequently, the obituary can limit itself in the main to the communicating of thoughts which have played a considerable role in my endeavors.

With that observation in mind, as one who will not without conscious effort see a thing sitting in plain view that I don't expect to see interesting how we tend to appreciate things for the most part only when preconditioned to appreciate them--Marshall McLuhan's insistence "the medium is the message" aside, a tendency exploited via media by anyone with an agenda to sell the agenda, advertisers to generate sales, government to engineer consent, and so on. Simply put we're more receptive to an idea we've encountered before, the principle that has transformed media into a wasteland of commercial & ideological tripe, incessant bombardment by jingles, sound bites and bon mots parroted by a parade of beautiful con artists through our livingrooms elbowing out friends and family and wisdom of ages gathering dust on bookshelves, a barrage of information in the war for hearts, minds and wallets serving the same purpose as x-ray pin-down in nuclear war (don't give the target a chance to launch a defense; or in this case to form an independent thought).

This tendency was a factor in the rise of the Interwebz and inevitable "social" phenomenon (won't say "craze" since I'm trying to put a positive spin on this)--clustering of "like mindedness", where "like mindedness" means a pattern of serendipitous associations occasioned by the hyperlink characteristic of the Interwebz. Bizarre, far-flung and tenuous ideas that might otherwise rattle freely around in our heads caught in this sticky web of associations, in no case necessarily an embodiment of truth but nevertheless embodying our worldview.

All of that no more than a lame excuse to explain why I'm off on yet another tangent (and to bookmark the links to revisit later) this time apparently triggered by a reference to a video posted by @j4mes in this post. documenting the not-so-convincing soul searching of Wall Street quants who feel some responsibility for the effect of their work on markets, in particular the physicist's world view vs the economist's and the impact of simplifying assumptions made when conceiving a theory.

I set out this morning to clarify some aspect of EasyLanguage to complete the daily activity stats algorithm (what aspect now slips my mind) and in the process stumbled across this page on the topic of EasyLanguage algorithmic trading, which branches off via hyperlinks in a number of fascinating directions including papers on precisely the kind of issues raised by the quants in the video

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Obama is among us.

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While you are still connected to the Interwebz as you know it, it's gone.

There is no more free speech in the Interwebz connected to the US.

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The reason I like random entry when testing a new strategy is it focuses us first on money management and second on order entry. Once those are in place we proceed to the nuts and bolt. Since there always seem to be a few left over.

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bnichols View Post
Compared to a number of other futures.io (formerly BMT) journals this one reminds me of a remark made by a science celebrity in the introduction to his autobiography, the English translation of which is



With that observation in mind, as one who will not without conscious effort see a thing sitting in plain view that I don't expect to see interesting how we tend to appreciate things for the most part only when preconditioned to appreciate them--Marshall McLuhan's insistence "the medium is the message" aside, a tendency exploited via media by anyone with an agenda to sell the agenda, advertisers to generate sales, government to engineer consent, and so on. Simply put we're more receptive to an idea we've encountered before, the principle that has transformed media into a wasteland of commercial & ideological tripe, incessant bombardment by jingles, sound bites and bon mots parroted by a parade of beautiful con artists through our livingrooms elbowing out friends and family and wisdom of ages gathering dust on bookshelves, a barrage of information in the war for hearts, minds and wallets serving the same purpose as x-ray pin-down in nuclear war (don't give the target a chance to launch a defense; or in this case to form an independent thought).

This tendency was a factor in the rise of the Interwebz and inevitable "social" phenomenon (won't say "craze" since I'm trying to put a positive spin on this)--clustering of "like mindedness", where "like mindedness" means a pattern of serendipitous associations occasioned by the hyperlink characteristic of the Interwebz. Bizarre, far-flung and tenuous ideas that might otherwise rattle freely around in our heads caught in this sticky web of associations, in no case necessarily an embodiment of truth but nevertheless embodying our worldview.

All of that no more than a lame excuse to explain why I'm off on yet another tangent (and to bookmark the links to revisit later) this time apparently triggered by a reference to a video posted by @j4mes in this post. documenting the not-so-convincing soul searching of Wall Street quants who feel some responsibility for the effect of their work on markets, in particular the physicist's world view vs the economist's and the impact of simplifying assumptions made when conceiving a theory.

I set out this morning to clarify some aspect of EasyLanguage to complete the daily activity stats algorithm (what aspect now slips my mind) and in the process stumbled across this page on the topic of EasyLanguage algorithmic trading, which branches off via hyperlinks in a number of fascinating directions including papers on precisely the kind of issues raised by the quants in the video

All this amounts to is an experience of "push" versus "pull", concepts important in the early days of the info age but likely long forgotten.

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In the process of watching a random entry bot running on 2 different JPY quote currency pairs (EUR and AUD) decimating a paper account during forward testing. Painful to watch so trying to find something else to do, even though there is no substitute for experiencing what academics call the "efficient market" in action. The decimation is also called "downdraw". This bot has positive expectancy and there is no better education in account size than watching positive expectancy in action.

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Preamble

I spent a lot of time doing research over the holidays and in the process slipped back into a polyphasic sleep pattern (interspersing a few minutes or a few or 20 hours of work with a few minutes to a few hours of sleep, as opposed to monophasic sleep--getting the necessary amount of sleep in one stretch) and was reminded that for me napping and working to the exclusion of all else inevitably becomes my undoing. The associated mental state may encourage lateral thinking for a while but after a number of weeks there is a point at which lateral thinking turns into an inability to pursue any given idea to its outcome--which is necessary to get anything done--and reality starts to unravel. Above all one should plan to return to regular patterns before the hallucinations start .

In any event mixed results of the last few weeks remind me of the "many failures" quote attributed to Edison who is famous for his napping among other things:


Quoting 
"I have not failed [fill in a number] times. I have successfully found [fill in the same number] ways that will not work."

Have to wonder if his "number of ways that will not work" would have been reduced, and hence might have wasted less time, if he slept normal hours

The following summarizes results of the last couple of weeks, such as they are.

Pair Study Population

A "shorter" list of a dozen spot currency pairs was compiled from dozens available based on importance as a major pair, activity, whether the base or quote currency contributes to the USD index, or "all of the above". The list comprises the following (in no particular order):

1. EUR/USD
2. GBP/USD
3. USD/JPY
4. EUR/GBP
5. USD/CHF
6. AUD/USD
7. NZD/USD
8. EUR/JPY
9. AUD/JPY
10. USD/CAD
11. USD/SEK
12. SEK/JPY

As might be expected a number of these are fairly well correlated, especially pairs involving JPY presumably because of its popularity as a carry currency. My favourites so far include EUR.JPY and AUD.JPY because of their relatively high level of activity and relatively large price movements.

Statistics

An activity baseline for each pair for the last 90-120 days of 2012 was established by counting 200 tick bars and recording price extrema in each 30 minute bracket of the (approximately 24 hour) trading day. Here "price extrema in each 30 minute bracket" is no more than the difference between high and low price of a 30 minute bar. The results for each pair were visualized using plots like the one in the figures below for AUD.USD price extrema and bar count:

AUD.USD Price Movement per 30 minute time bracket


AUD.USD Activity measured by 200 Tick bars per 30 minute time bracket


In each plot the curve labelled "Maximum Price Diff" or "Maximum Bars" refers to the maximum value attained in the corresponding 30 minute bracket for all days over the period analyzed. On a frequency (or probability density, "PD") plot of values in a given bracket this maximum value would correspond to the point on the extreme right of the PD.

While I plotted PDFs (probability density functions) for a number of brackets and instruments and any of them would illustrate the last statement, unfortunately none is handy; rather than break to look for one and risk getting distracted by something else and not returning to this journal update any time soon may add later.

In any case the maximum, standard deviation, median and mean suggest pretty much all there is to see in the bracket PDFs. The difference between the median and mean in general indicates the distribution of price extrema in each bracket is heavily skewed toward smaller extremes, as expected, with the maximum values well beyond e.g. Chauvenet's Criterion for outlier removal. Consequently I spent some time pondering how to deal with the stats since first, a lot of stats metrics assume a normal distribution and second, as I may have mentioned elsewhere on the topic of outlier removal, one trader's outlier is another trader's meat and potatoes especially if the tails tend to be "fat".

In the future, rather than coerce price PDFs into something resembling a normal distribution e.g. by applying a nonlinear function (logs, square root) to the values, instead plan to use "5 number summary" (descriptions in terms of the min, max, median and quartiles) if the need arises. The standard deviation therefore in the meantime should be taken with a grain of salt.

These stats may say when to expect most bang for the buck (i.e., the most price excursion in the least amount of time, no surprise generally during the European session and especially its overlap with the US session) but nothing about direction of any trade. Since (to paraphrase Al Brooks) there is a bear case and a bull case at every moment, so direction in any bracket likely can't be abstracted--remains entirely a function of a given trader's time frame and method.

Bots

With that in mind I next developed a couple of simple strategies to experiment with bracket based stats, including a random entry bot to provide a baseline and another based on a number of popular bull/bear reversal candlestick patterns. IMO this kind of bot isn't entirely without merit since one of mine (loosely stats based, that trades opening range breakouts for commodity ETFs) has been chugging along more or less profitably since inspired back in the day by Market Profile's 80% rule.

All I want to say about these 2 bots at the moment is that the random entry bot performs more or less as expected, which is to say might even be profitable over the long haul with appropriate money management, but promises to be useful when the time comes to explain why candlestick reversal pattern bot profitability appears to be sensitive to instrument. That is, initial results show the candle bot is overall profitable for most pairs, unprofitable.for others but in at least one case (GBP.USD) remarkably unprofitable in that it's the only bot/instrument combo I can recall whose fortunes reverse to the point of being viable when signals are reversed.

More Research

One apparently blind alley I traversed subsequently also had to do with candle patterns. I wondered what has been forgotten about the other patterns if time has reduced candle pattern trading to e.g., the 10 most popular? Moreover, what do stats say about every possible 2- or 3-candle pattern occurring in any time frame chart of any instrument in terms of the ability of these patterns to predict the next candle?

Perhaps the first question to arise (aside from "who in their right mind would do this", since I can't claim to have been in perfect control of my faculties at the time) is how to go about determining in one's lifetime how well the 100's of thousands of 2- or 3-candle patterns available to us predict the next candle given that it's relatively simple to reduce a chart to a data file that can be input into an analysis program.

Inspired by @NJAMC's latest work with SVM I decided to

1. write an indicator to dump charts to disk as 2 candle pairs;
2. write a program to preprocess the 2 candle pairs into one 32x32 bit image of the pair and a classifier indicative of the direction of the 3rd (predicted) candle; and,
3. run the images through a slightly modified version César Souza's SVM based handwriting analysis program.

The upshot of that so far is all I've proved is what César mysteriously warns, that training classifiers "...may take a (very) significant amount of time...". Training on 500 candle pair images took a few minutes and produced disappointing results. Since training on 1000 images took 5-10 minutes and did somewhat better I decided to see what analysis of 10,000 images would produce. Unfortunately the program has been running for 4 days now, no telling when processing will be complete.

While waiting for the 10,000 pair analysis to run I wrote an indicator to dump OHLC sequences keyed to Zig Zag function extrema, which since Zig Zag identifies pivots with swings of one's choosing I find a handy, automatic way to generate large numbers of input vectors and output goals (e.g. "associate this OHLC sequence or this sequence of indicator values with bullish/bearish conditions, buy/sell/don't trade signals") for training pattern recognition machines.

This last endeavour treads ground covered at the beginning of this journal in the work on classification by K-Means clustering and lately by NJAMC in his work with SVMs. It's worth revisiting at least to test the hypothesis that the mixed results I obtained were due to shortcomings in the implementation (software engineering) rather than because it's an unworkable concept. Lastly, I'm revisiting the work in MC since so far MC seems to better support rapid prototyping of what I want to as trader, even if MC.Net and NT may better support what I want to as a programmer.

Trading

Discretionary trading STF spot currency results have improved over last year in the first couple of weeks of this one--at least since I've begun to repair my sleeping habits--mainly because when price starts to move the first thing I ask myself is whether I'm fit to trade and absolutely do not touch the keyboard if the honest answer is no. I miss a lot of opportunities when groggy--too often lately it seems--but more importantly lose far less often. I still find the way trading acumen increases remarkable--as inexorably slow as the process seems it does occur even if I'm at a loss to pinpoint any one change that made a difference. I suspect this may be due to the fact that while I may think I know something about trading, what matters is whether the knowledge has become intuitive (new pathways in the brain created?). Until that point "what we know" is at the whim of emotional and physical condition.

A second factor may be I'm paying more and more attention to price action guided by Al Brooks' books and webinars, although it seems we don't appreciate a trading tip (aren't able to use it) until we've reached a prerequisite level of awareness. For example, in his webinar on Monday Al distinguished between "stop order markets" and "limit order markets" and a light bulb seem to turn on above my head (e.g., it seemed I finally had some grasp of candlestick reversal patterns), and I've been able to apply that bit of info since the webinar.

Code

All of the experimental code referred to above was done in MC PowerLanguage and will be posted once it has been cleaned up a little.

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bnichols View Post
Preamble

I spent a lot of time doing research over the holidays and in the process slipped back into a polyphasic sleep pattern (interspersing a few minutes or a few or 20 hours of work with a few minutes to a few hours of sleep, as opposed to monophasic sleep--getting the necessary amount of sleep in one stretch) and was reminded that for me napping and working to the exclusion of all else inevitably becomes my undoing. The associated mental state may encourage lateral thinking for a while but after a number of weeks there is a point at which lateral thinking turns into an inability to pursue any given idea to its outcome--which is necessary to get anything done--and reality starts to unravel. Above all one should plan to return to regular patterns before the hallucinations start .

In any event mixed results of the last few weeks remind me of the "many failures" quote attributed to Edison who is famous for his napping among other things:



Have to wonder if his "number of ways that will not work" would have been reduced, and hence might have wasted less time, if he slept normal hours

The following summarizes results of the last couple of weeks, such as they are.

Pair Study Population

A "shorter" list of a dozen spot currency pairs was compiled from dozens available based on importance as a major pair, activity, whether the base or quote currency contributes to the USD index, or "all of the above". The list comprises the following (in no particular order):

1. EUR/USD
2. GBP/USD
3. USD/JPY
4. EUR/GBP
5. USD/CHF
6. AUD/USD
7. NZD/USD
8. EUR/JPY
9. AUD/JPY
10. USD/CAD
11. USD/SEK
12. SEK/JPY

As might be expected a number of these are fairly well correlated, especially pairs involving JPY presumably because of its popularity as a carry currency. My favourites so far include EUR.JPY and AUD.JPY because of their relatively high level of activity and relatively large price movements.

Statistics

An activity baseline for each pair for the last 90-120 days of 2012 was established by counting 200 tick bars and recording price extrema in each 30 minute bracket of the (approximately 24 hour) trading day. Here "price extrema in each 30 minute bracket" is no more than the difference between high and low price of a 30 minute bar. The results for each pair were visualized using plots like the one in the figures below for AUD.USD price extrema and bar count:

AUD.USD Price Movement per 30 minute time bracket


AUD.USD Activity measured by 200 Tick bars per 30 minute time bracket


In each plot the curve labelled "Maximum Price Diff" or "Maximum Bars" refers to the maximum value attained in the corresponding 30 minute bracket for all days over the period analyzed. On a frequency (or probability density, "PD") plot of values in a given bracket this maximum value would correspond to the point on the extreme right of the PD.

While I plotted PDFs (probability density functions) for a number of brackets and instruments and any of them would illustrate the last statement, unfortunately none is handy; rather than break to look for one and risk getting distracted by something else and not returning to this journal update any time soon may add later.

In any case the maximum, standard deviation, median and mean suggest pretty much all there is to see in the bracket PDFs. The difference between the median and mean in general indicates the distribution of price extrema in each bracket is heavily skewed toward smaller extremes, as expected, with the maximum values well beyond e.g. Chauvenet's Criterion for outlier removal. Consequently I spent some time pondering how to deal with the stats since first, a lot of stats metrics assume a normal distribution and second, as I may have mentioned elsewhere on the topic of outlier removal, one trader's outlier is another trader's meat and potatoes especially if the tails tend to be "fat".

In the future, rather than coerce price PDFs into something resembling a normal distribution e.g. by applying a nonlinear function (logs, square root) to the values, instead plan to use "5 number summary" (descriptions in terms of the min, max, median and quartiles) if the need arises. The standard deviation therefore in the meantime should be taken with a grain of salt.

These stats may say when to expect most bang for the buck (i.e., the most price excursion in the least amount of time, no surprise generally during the European session and especially its overlap with the US session) but nothing about direction of any trade. Since (to paraphrase Al Brooks) there is a bear case and a bull case at every moment, so direction in any bracket likely can't be abstracted--remains entirely a function of a given trader's time frame and method.

Bots

With that in mind I next developed a couple of simple strategies to experiment with bracket based stats, including a random entry bot to provide a baseline and another based on a number of popular bull/bear reversal candlestick patterns. IMO this kind of bot isn't entirely without merit since one of mine (loosely stats based, that trades opening range breakouts for commodity ETFs) has been chugging along more or less profitably since inspired back in the day by Market Profile's 80% rule.

All I want to say about these 2 bots at the moment is that the random entry bot performs more or less as expected, which is to say might even be profitable over the long haul with appropriate money management, but promises to be useful when the time comes to explain why candlestick reversal pattern bot profitability appears to be sensitive to instrument. That is, initial results show the candle bot is overall profitable for most pairs, unprofitable.for others but in at least one case (GBP.USD) remarkably unprofitable in that it's the only bot/instrument combo I can recall whose fortunes reverse to the point of being viable when signals are reversed.

More Research

One apparently blind alley I traversed subsequently also had to do with candle patterns. I wondered what has been forgotten about the other patterns if time has reduced candle pattern trading to e.g., the 10 most popular? Moreover, what do stats say about every possible 2- or 3-candle pattern occurring in any time frame chart of any instrument in terms of the ability of these patterns to predict the next candle?

Perhaps the first question to arise (aside from "who in their right mind would do this", since I can't claim to have been in perfect control of my faculties at the time) is how to go about determining in one's lifetime how well the 100's of thousands of 2- or 3-candle patterns available to us predict the next candle given that it's relatively simple to reduce a chart to a data file that can be input into an analysis program.

Inspired by @NJAMC's latest work with SVM I decided to

1. write an indicator to dump charts to disk as 2 candle pairs;
2. write a program to preprocess the 2 candle pairs into one 32x32 bit image of the pair and a classifier indicative of the direction of the 3rd (predicted) candle; and,
3. run the images through a slightly modified version César Souza's SVM based handwriting analysis program.

The upshot of that so far is all I've proved is what César mysteriously warns, that training classifiers "...may take a (very) significant amount of time...". Training on 500 candle pair images took a few minutes and produced disappointing results. Since training on 1000 images took 5-10 minutes and did somewhat better I decided to see what analysis of 10,000 images would produce. Unfortunately the program has been running for 4 days now, no telling when processing will be complete.

While waiting for the 10,000 pair analysis to run I wrote an indicator to dump OHLC sequences keyed to Zig Zag function extrema, which since Zig Zag identifies pivots with swings of one's choosing I find a handy, automatic way to generate large numbers of input vectors and output goals (e.g. "associate this OHLC sequence or this sequence of indicator values with bullish/bearish conditions, buy/sell/don't trade signals") for training pattern recognition machines.

This last endeavour treads ground covered at the beginning of this journal in the work on classification by K-Means clustering and lately by NJAMC in his work with SVMs. It's worth revisiting at least to test the hypothesis that the mixed results I obtained were due to shortcomings in the implementation (software engineering) rather than because it's an unworkable concept. Lastly, I'm revisiting the work in MC since so far MC seems to better support rapid prototyping of what I want to as trader, even if MC.Net and NT may better support what I want to as a programmer.

Trading

Discretionary trading STF spot currency results have improved over last year in the first couple of weeks of this one--at least since I've begun to repair my sleeping habits--mainly because when price starts to move the first thing I ask myself is whether I'm fit to trade and absolutely do not touch the keyboard if the honest answer is no. I miss a lot of opportunities when groggy--too often lately it seems--but more importantly lose far less often. I still find the way trading acumen increases remarkable--as inexorably slow as the process seems it does occur even if I'm at a loss to pinpoint any one change that made a difference. I suspect this may be due to the fact that while I may think I know something about trading, what matters is whether the knowledge has become intuitive (new pathways in the brain created?). Until that point "what we know" is at the whim of emotional and physical condition.

A second factor may be I'm paying more and more attention to price action guided by Al Brooks' books and webinars, although it seems we don't appreciate a trading tip (aren't able to use it) until we've reached a prerequisite level of awareness. For example, in his webinar on Monday Al distinguished between "stop order markets" and "limit order markets" and a light bulb seem to turn on above my head (e.g., it seemed I finally had some grasp of candlestick reversal patterns), and I've been able to apply that bit of info since the webinar.

Code

All of the experimental code referred to above was done in MC PowerLanguage and will be posted once it has been cleaned up a little.

Hi @bnichols,

Looks like fun, keep us posted. If you are using external data, you might want to try the libSVM library as that is MUCH faster than the ACCORD version. ACCORD is nice because I can easily integrate it into NinjaTrader, but for research the libSVM could save you days in time. I had one run on ACCORD that took 36 hours and a similar test on libSVM took only 5 hours (not identical).

Also, for sequencing, I have always thought HMM might work better. I haven't any experience with that library yet, but should be good for developing the probability of something based upon the last sequence of something.

Have Fun!

Nil per os
-NJAMC [Generic Programmer]

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Artificial Bee Colony Optimization
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Hi @NJAMC,

Roger HMM for sequences--will likely have another look, for now via Accord.Net. I reviewed the topic briefly some time ago for the reason you suggest but took another path at the time. Happily I'm not a poet (i.e., Robert Frost) so have no problem retracing my steps to go down the Road Not Taken

Regarding the length of time Accord.Net SVM engine takes to process a training suite, not sure what the issue is but coding efficiency aside notice the learning part of the code at least appears to be single threaded. Not having studied the source I don't know if it lends itself to multithreading or some other form of distributed processing (e.g., CUDA), but it may be you and @Big Mike have given it some thought.

Edited to add: Visual Studio just advised one of the reference DLLs in the Accord.Net HMM sample app (might have been Controls) requires a .Net version > 3.5 as specified in the project properties. If so this might have implications for NT, which may still depend on 3.5.

Edited to add: Using the Accord.Net framework from the CodeProject site the namespace MarkovSequenceClassifier referred to in the sample HMM app, which probably ought to be in reference Accord.Statistics.Models.Markov, is not (or is no longer) present in the DLL (or apparently in the entire Framework either). Not sure what to make of that at the moment.

In other news it occurs to me another reason HMM might be appropriate is its ability to handle sequences of different lengths during classification, something one has to deal with if using Zig Zag to generate sequences.

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Should add a note on machine learning feature filters for future reference, to wit that while Zig Zag provides a decent filter for sequence generation, use of a cycle oscillator (e.g. stochastics, MACD in a pinch) is another approach that exploits the fact an oscillator may be better tuned to a given trading strategy and time frame, assuming one uses an oscillator at all.

In other words, the stock Zig Zag logic will give us swings based on a fixed % price change or point spread, whereas an oscillator may give us swings more consistent with the swing a strategy will tolerate. The fact that Zig Zag determines pivots in hindsight, long after the moment has passed, is not an issue any more than the fact cycle oscillators are lagging indicators since we're analyzing a chart to extract features, not trading. [In fact when trading I pay attention only to oscillator divergences, which divergence I (and many others) consider leading indicators, for setups and to slope of the higher time frame momentum oscillator for entry].

The 3 charts (1800-, 600- and 200-tick EUR.JPY) in the figure below illustrates the difference. In the figure the blue box in each chart contains what these days I would consider one long trade since it spans the period in which both Stochastics %D was above 50 and MACD above zero on the 1800 tick chart (left hand side of the figure).

In each chart the Zig Zag indicator with a 0.1 point minimum swing is applied to close price (shown in cyan). A modified Zig Zag indicator, also set to 0.1 minimum swing but which picks the high of the bar for swing highs and the low of the bar for swing lows is shown in yellow.



Considerable difference can be seen between the behaviour of both Zig Zag indicators and the behaviour of the oscillators in the bottom panels of each chart (MACD(5,20,30) and Stochastics(3,5,2) during the "trade". In the case of stochastics this difference is due in large part to the fact there is in general no reliable correlation between size of price movement and size of e.g. %D movement, yet IMO stochastics gives a better idea of what traders are up to at any moment than eyeballing price pivots alone in hindsight.

The point is choice of filter method & parameters greatly influences the nature of the feature vectors extracted.

Having said that the following issue arises. If one is going to consider extracting feature vectors using a (dynamic) oscillator swing filter instead of a (kinematic) Zig Zag filter why not consider filtering by the entire trading methodology? I don't mean to imply trying to filter based on setups predicted by the trading methodology, which (the equivalent of a bot) would be very hard if not impossible to implement, but rather why not extract feature sets filtered by actual trading outcomes somewhat the same as Monte Carlo analyses are applied? In other words, why not capture features or sequences that led to each trade as the input data set, using the outcome as the classification? This approach essentially uses the state of our trading brain at that moment as the filter, presumably comprising everything we know about our trading method albeit distracted as it might be by emotion and fatigue--far more than we could easily code. This way we are working toward encapsulating our trading method in a bot and perhaps even improving it, as opposed to writing a bot that especially in the case of Hidden Markov Models applies criteria we know not what.

Given that geeks like me (like one of a million monkeys coding) will some day accidentally extract the complete works of Shakespeare as a feature set little doubt this approach has been taken by others and if so at this point I'm curious what conclusions were drawn.

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Or "I came, I saw, I almost got my butt kicked."

Making this post as a penance. These days I may make a half dozen relatively boring trades a day, pack it in around noon local time and get on with my life. Over time it's easy to slip into a rut and lose focus--kind of like dozing off at the wheel when driving and when it happens we have to take it seriously. In this case it was not so bad, worst moment down only $100 or so, but a mistake is a mistake and any mistake can end up costing real money if not nipped in the bud.

Moreover this error is in a category I thought I mastered a long time ago but apparently not--entering trades impetuously, without thinking them through.

Finally, while there was a time I would congratulate myself at having managed to turn a bad entry around I've learned since then that the market sometimes overlooks mistakes and even rewards bad behaviour occasionally, and when it does we should be very afraid; it's one way the market sets us up to clean us out.

Sequence of events

Last trade of the day around 11:00 EST, trading since London open and tired but happy after a profitable session, turns out not so much happy as over-confident & feeling greedy.

The following sequence of images tries to capture the right hand side of the charts I trade from as I entered the last trade of the day (short 1 contract USD.JPY), the point I realized the mistake I'd made and how the market let me weasel my way out of it.


What I saw: On the 200- and 600-tick charts price in free fall above an abyss devoid of visible support.
What I should have seen: The bear climax bar forming on the 1800-tick chart. The more rapid price movement the greater the vacuum, both bulls and bears standing aside, waiting until it's run its course before going long and closing shorts, respectively.



What I did (next 2 images): Sell at the lowest possible price, on impulse.
What I should have done: Whether I noticed the bear climax bar on the 1800-tick chart or not I should have remembered:
1. there is never an abyss. Just because support is not marked by a line on the chart does not mean it isn't there, like the magic number 50 that I sold into .
2. one never trades a breakout/spike/gap or any rapidly moving price action without have anticipated it previous to the movement and planned for it and for its reverse.
3. when one hasn't anticipated a movement one waits to see how it plays out. In this case probably 90% of the time one can assume a retracement is imminent, at which point all will be revealed.
4. worst case waiting means a missed opportunity, which is a far better outcome than foolishly taking the trade and risking the worst case outcome of being in the market on the wrong end of a trade--losing a ton of money.




What happened next Price action plays out, indicators catch up, divergences scream reversal. Fight or flight kicks in and the mind finally focuses: bail with a relatively small loss now or double up at high probability resistance and risk a full boat loss later.


What I did: Fight--double up at R1. While I put the short order in place ahead of time I was prepared to yank it. It was now a calculated risk Price action and indicators suggested estimated to be 50/50 so I went with the Hail Mary.


What a full blown reversal looks like Exited with a small profit when price rebounded off R1. As a newbie when price gave me a chance to bail I'd assume instead I'd been right after all--being right was important back then--and I would have stayed in the trade to see how much money I could make. Now I get out the instant the getting is good.

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For anyone anticipating the release of code promised in an earlier post or more thoughts on machine learning, it's in process. Code is ready but still collecting my thoughts. The main issue may be whether to wait to publish final analysis of Accord.Net behaviour (and plans for mods to the Accord .Net library), first impressions of the libSVM library and plans for more classification experiments. Hidden Markov Models are on a back burner.

The slow turn around is influenced by the main stumbling block, which remains my obsession with coding my discretionary short time frame method, which has proven itself and ought to be coded. I've done more experimental coding but so far the essence--the brain computer connection--continues to elude me.

Funny how bleeding edge stuff that is not profitable but is easy to talk about comes naturally, but old school stuff--what puts turkey on the table--is so hard. I speculate the bleeding edge stuff is just stats revisited--a new, cool look and feel, just like new, cool computer languages merely wrap the same old machine code in Gen X/Y/Z think.

In my experience, and despite my best efforts, so far computers can't think.

When I was younger someone proclaimed the Interwebz ushered in the foundation of (the equivalent of) SkyNet (non Terminator fans may have to look it up)--computers from microcontrollers to Big Blue and the Dorval & Tokyo Crays all talking to each other. So far no sign of that

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bnichols View Post
Or "I came, I saw, I almost got my butt kicked."

So Latin is useful after all, despite what I thought at school!


bnichols View Post
1. there is never an abyss. Just because support is not marked by a line on the chart does not mean it isn't there, like the magic number 50 that I sold into .
2. one never trades a breakout/spike/gap or any rapidly moving price action without have anticipated it previous to the movement and planned for it and for its reverse.
3. when one hasn't anticipated a movement one waits to see how it plays out. In this case probably 90% of the time one can assume a retracement is imminent, at which point all will be revealed.
4. worst case waiting means a missed opportunity, which is a far better outcome than foolishly taking the trade and risking the worst case outcome of being in the market on the wrong end of a trade--losing a ton of money.

Great! You only have to come up with 96 more and you will have as many as Al Brooks put in the back of his first book!


bnichols View Post
As a newbie when price gave me a chance to bail I'd assume instead I'd been right after all--being right was important back then--and I would have stayed in the trade to see how much money I could make. Now I get out the instant the getting is good.

Interesting and seemingly useful mindset. I would like to know if I understand, but unfortunately I don't think I will.


bnichols View Post
When I was younger someone proclaimed the Interwebz ushered in the foundation of (the equivalent of) SkyNet (non Terminator fans may have to look it up)--computers from microcontrollers to Big Blue and the Dorval & Tokyo Crays all talking to each other. So far no sign of that

They do communicate with each other all the time, the only thing is that they communicate about what a human told them to talk about.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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Trying hard to get a strategy built in PowerLanguage .Net (MC's C# extension) by market open this AM--my first MC .Net strategy.

First observations:

1. If NT C# is from Venus, MC C# is from Mars.

2. On the complete lack of documentation (by "complete lack of documentation" I mean the PowerLanguage .Net "Help" file and the IDE which is devoid of examples, explanations, Intellisense links to function definitions or even comments in sample code) I'm reminded of one of the favourite phrases of a programmer I used to manage (one in a stable of programmers, programmers very much like thoroughbred horses just much less likely to pull a muscle): "If it was hard to write it should be hard to understand."

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Momentary side track into ES


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This post deals mainly with recent work on SVM classification. An updated MC indicator (TDEMA) is attached for reasons mentioned at the end of the post

SVM Testing

Following @NJAMC's lead I've been experimenting with State Vector Machines (SVM) for pattern classification off and on for almost 2 weeks more to gain experience with the technology than to apply it to trading. So far the one issue that stands out with the Accord .Net implementation at least (as NJAMC points out) is that the time to train a feature set appears exponentially proportional to the length of the feature set as suggested by the results below for a generic 2-bar pattern recognizer mentioned in a previous post.

2 Bar Pattern Classifier Results

The test procedure was as follows:

Step 1. An MC indicator ("TD2BarrPatternPredictor2" [sic], attached in the MC .PLA and as a text file) was written to dump a chart to a data file as date/time/bar#-stamped 2-bar patterns in OHLC format normalized to the maximum high price and minimum low price of the 2 bars in the pattern.

In the example shown here a 5-minute chart for EUR.USD was dumped to a data file comprising approximately 28,000 pairs. The selected 2 Bar Pattern and "predicted bar" in the following figure ...



... becomes the following line in the dump file (ignoring the header row):

 
Code
Date,Time,BarNumber,O2,H2,L2,C2,O1,H1,L1,C1,Expect

[...]

120827,203500,528,0.00,1.00,0.00,1.00,1.00,1.00,0.50,0.75,-1.00
Step 2. Open Office Calc (spreadsheet) formulae were written to reconstruct the 2-bar patterns from the data as 32x32 bitmap images (a pattern of ASCII 1's and 0's in UCI's Optdigits Dataset format) as a sanity check (sample spreadsheet "EURUSD.FXCM_240__1_barPatternDataSimple2.ods" for EUR.USD 240 minute 2-bar patterns attached).

Each 32x32 bit map was divided into 2 halves, 1 half per bar, and "color coded" as follows:
........2.1 uptrend bars (close > open) print as 1's (black) on a background filled with 0's (white);
........2.2 downtrend bars print as 0's (white) on a background filled with 1's (black).

The next 2 figures show spreadsheet reconstructions of 2 patterns, the first preceding a bull bar and the second preceding a bear bar. The actual bar patterns (2-bars + "predicted" bar) as they appear on the chart are inset in the upper right of each figure. The 3rd figure below contains a screenshot of the spreadsheet itself (Open Office Calc spreadsheet attached), showing formulae used to perform the reconstruction.

2 bar pattern followed by bull bar:




2 bar pattern followed by bear bar:




Spreadsheet:



Step 3. The OHLC pair data were then converted to 32x32 bit images using a purpose built program ("SVMBarPatternClassifier", MS VS 2010 project attached).

For example, the pair mentioned in Step 1 above coded as follows:

 
Code
11111111111111100000000000000000
11111111111111100000000000000000
11111111111111100000000000000000
11111111111111100000000000000000
11111111111111100000000000000000
11111111111111100000000000000000
11111111111111100000000000000000
11111111111111100000000000000000
11111111111111111111100000011111
11111111111111111111100000011111
11111111111111111111100000011111
11111111111111111111100000011111
11111111111111111111100000011111
11111111111111111111100000011111
11111111111111111111100000011111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
11111111111111111111111111111111
0
Step 4. The bit map image file was input into a slightly modified version of César de Souza's SVM based handwriting analysis program. In the figure the horizontal red arrow points to the encoded 2 bar pattern mentioned in Step 1, above.




2 Bar Pattern Classifier Run Time as a Function of Training Set Size

The run time data listed next is summarized in the plot below:


Quoting 
Run 1: 100 vectors
Train start: 0
Train end: 99
Test start: 1800
Test end : 1999
Run Time : 0.188 seconds
Support Vectors: 86
Threshold : 0.5445
Classification Hits : 87/200 (47%)

Run 2 - 200 vectors
Train start: 0
Train end: 199
Test start: 1800
Test end : 1999
Run Time : 1.942 seconds
Support Vectors: 158
Threshold : -0.0996
Classification Hits : 103/200 (52%)

Run 3
Vectors 2000
Train start: 0
Train end: 299
Test start: 1800
Test end : 1999
Run Time : 11.500 seconds
er: 0.01667
Support Vectors: 231
Threshold : -0.4284
Classification Hits : 108/200 (54%)

Run 4
Vectors 2000
Train start: 0
Train end: 399
Test start: 1800
Test end : 1999
Run Time : 14.889 seconds
er: 0.0125
Support Vectors: 302
Threshold : -0.86990
Classification Hits : 107/200 (54%)

Run 5
Vectors 2000
Train start: 0
Train end: 499
Test start: 1800
Test end : 1999
Run Time : 321.293 seconds
er: 0.04
Support Vectors: 368
Threshold : -0.95200
Classification Hits : 105/200 (53%)

Run 6 (3 runs simultaneously on 8 cores)
Vectors 2000
Train start: 0
Train end: 599
Test start: 1800
Test end : 1999
Run Time : 786.204 seconds
er: 0.0433
Support Vectors: 414
Threshold : -0.90289
Classification Hits : 103/200 (52%)

Run 7
Vectors 2000
Train start: 0
Train end: 699
Test start: 1800
Test end : 1999
Run Time : 1134.478 seconds
er: .04
Support Vectors: 493
Threshold : -.86834
Classification Hits : 116/200 (58%)

Run 8
Vectors 2000
Train start: 0
Train end: 799
Test start: 1800
Test end : 1999
Run Time : 2376.665seconds
er : 0.0537
Support Vectors: 527
Threshold : -0.96230
Classification Hits : 114/200 (57%)

Run 9
Vectors 2000
Train start: 0
Train end: 899
Test start: 1800
Test end : 1999
Run Time : 6156.827 seconds
er : 0.05444
Support Vectors: 587
Threshold : -0.88710
Classification Hits : 110/200 (55%)

Run 10 (retrained run 9)
Vectors 2000
Train start: 0
Train end: 899
Test start: 1800
Test end : 1999
Run Time : 6002.761 seconds
er : 0.05667
Support Vectors: 596
Threshold : -0.90012
Classification Hits : 111/200 (56%)

Run 11
Vectors 2000
Train start: 0
Train end: 999
Test start: 1800
Test end : 1999
Run Time : 17042.985 seconds
er : 0.058
Support Vectors: 656
Threshold : -0.97665
Classification Hits : 108/200 (54%)

2 Bar Classifier Run Time vs Training Set Size




Parallel Processing

The Accord .Net based SVM app described here, derived directly from César's, uses fairly lengthy feature vectors (order of 1024 samples in size) and lends itself to distributed processing but more work needs to be done to achieve it. Mods made to César Souza's Handwriting SVM program included the following:

1. it was recompiled with .NET 4 and renamed (versus 3.5);
2. fields were added to the GUI to allow training and test section at run time (previously hard coded)
3. the learning algorithm was wrapped with Task.Factory.StartNew() in anticipation of progress monitoring and use of a cancellation token.

While the most recent version of the Accord .Net library appears to support .Net 4.0 multithreading via the Parallel.For wrapper for the .Run() method of MulticlassSupportVectorLearning class, César's code (and hence this code) does not seem to refer to the latest version.

Other approaches to parallel processing that come to mind include

1. CUDA (for which see the NVIDIA site and threads on futures.io (formerly BMT))
2. MPI.Net and threads on futures.io (formerly BMT)

My own attitude toward developing a parallel processing framework for applications in trading is mixed, somewhat jaded by 2 isolated experiences. The first in the early '90's was implementing the Biham-Kocher plain text attack on an encrypted ZIP archive across a half dozen UNIX boxes [algorithm described in the paper by Biham & Kocher, "A Known Plaintext Attack on the PKZIP Stream Cipher" still floating around on the Interwebz]. The rationale for that work was that a programmer for a company in a large Canadian city had ZIP-encrypted the company's entire accounting system and high-tailed it to Cuba with the encryption key and his daughter in tow. He was demanding a ransom for the key and the company was willing to pay something less than the ransom to anyone who could restore the accounting system in the meantime. It took 2 weeks to implement Biham & Kocher's algorithm (C language, Unix operating system) and 2 weeks computer time to crack the archive & discover the key, which turned out to be a simple alpha string--his daughter's first name concatenated to his, both of which EVERYONE INVOLVED ALREADY KNEW. [Subsequently I offered to give the code to PKWARE to keep it off the street, but when no reply was received published on sci.crypt, snippets of it turning up on ZIP crack sites for quite a while afterward]. Take-away from that episode: throwing technology at a problem may not always be the smartest approach.

The 2nd venture involved helping develop an ultra-cheap video-on-demand system aimed at the hospitality industry, its low cost to manufacture being its claim to fame IMO mainly a consequence of the design principle; namely, a distributed operating system running on a network of microcontrollers that pooled resources (including compute power) by piggybacking on the available broadband video infrastructure rather than trying to cram a supercomputer into every set top box. My responsibility was prototyping the hardware and firmware, which was based on a neural model, and then sitting behind a desk, wearing pretty clothes and taking credit for subsequent breakthroughs made by the development team who turned it into a marketable product. This distributed approach allowed for relatively high sales margins and the company prospered, was bought out. What eventually killed the company (and the work) was not so much the increasing availability of high demand content (euphemism for porn) on the Interwebz which made the walled garden basis of VOD obsolete, but a string of business types who repeatedly bought the company for its cash flow, starved R&D of funding and resold it for the price of its assets. These wheeler-dealers the sort who figure they can fake their way in business by latching on to a cash cow; or more properly perhaps a "cash goose", since they have little or no understanding of why when you cook the goose the golden eggs stop. I see one of these guys was recently arrested on murder charges after fleeing the country--character = destiny it would seem. Take away from that was--why freeeeeeking bother.

Conclusions

There are a host of issues affecting the outcome, from choosing to represent the pattern as a bitmap (which is then reduced by the classifier to a 1D array) to choosing to color the bars and background as done. These issues could be addressed in future work, if there is any. For example, an MC indicator ("TDZigZagPnts2") has been attached in the .PLA file and as text that dumps OHLC data leading up to a significant pivot high or low, in preparation for coding sequences of the sort NJAMC was working with. BTW, what the pivot dump indicator records as an SVM feature vector file need not be OHLC data--could be other metrics one finds useful for trading.

While a "hit" rate for the trained generic 2-bar pattern classifier of between 50% and 60% may mean something to a trader (if nothing else it might suggest what initial stop/profit ratios have to be to maintain Al Brook's Trader's Equation) in this context I prefer to think we could do just as well and moreover get to the Jack Daniels a whole lot sooner if we flipped a coin.

A larger training set in this case does not appear to promise any better results and run times quickly become prohibitive.

Finally, it may be worthwhile as a matter of interest isolating the "TOP 10" 2-bar reversal patterns referred to in a previous post that prompted this study, to see if they produce better classification scores than 2-bar patterns in general. I wrote a strat to detect and trade them some time ago so it's just a matter of dumping the chart instances detected in a chart to a file and running the numbers.

Other Work

I continued to trade during this time, 3 or 4 to 14 pedestrian trades/day in a variety of spot currencies but last week also one experimental sojourn into ES on paper. In addition I will do a trade in gold miner and/or oil company ETFs if a setup occurs. I seem to have passed the point a while ago discretionary trading STF spot currencies where the issue is not whether I can make money but how much I can make; i.e. what amount of risk I'm willing to bear. I'm still trading 1 or 2 contracts split into 2 to 4 targets. While issues remain, the mindset (especially the nature of confidence) is vastly different then (as a newbie) and now. Hopefully I can one day capture whatever it is that makes the method profitable in a bot. So far I've proved (over and over) as others have claimed profitability is more than a list of rules strictly adhered to.

I love the London session, which for me means going to bed early enough to get up bright eyed and bushy tailed prior to 4 AM local time. Not only are currency markets generally active it means 3 or 4 quiet, uninterrupted hours before the rest of the house stirs and I get to experience the sunrise. Good for the soul.

The danger at this point is no longer out of boredom seeing setups where they don't exist but allowing one instrument to draw required attention away from another.

I've attached an updated version of the MC indicator TDEMA (trivial to code in any other language--simply the 15EMA colour-coded for slope). The update added a second monochromatic EMA separated from the first by 1 ATR, the reason being that I wanted a trailing stop target removed from the 15EMA itself which more often than not gets penetrated during insignificant retraces. It appears the 1 ATR corresponds more or less the point in a retrace where the next higher time frame MACD slope becomes negative (for a long trade) or positive for a short trade, the slope of the next higher time frame MACD being what I tend to use to bail from a trade before targets are reached.

The 1 ATR also serves as a kind of chop indicator as can be seen in the chart below. I know chop indicators are a dime a dozen and don't work if we rely on them, but I find they can lend a little peace of mind nevertheless. I also know what price action purists think of indicators in general but bots depend on some sort of price action metrics and until I code Al Brooks MAs will have to do


Attached Files
Register to download File Type: zip SVMBarPatternClassifier.zip (7.35 MB, 17 views)
Register to download File Type: txt TD2BarrPatternPredictor2.txt (1.8 KB, 10 views)
Register to download File Type: txt TDZigZagPnts2.txt (5.2 KB, 5 views)
Register to download File Type: txt TDEMA.txt (1.3 KB, 6 views)
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What was advertised in Step 3. in the previous post as a project to convert scaled OHLC pair values to bitmaps and posted as "SVMBarPatternClassifier" is in fact the modified version of the bitmap classifier itself referred to in Step 4 of the previous post.

The correct project for Step 3 (that converts OHLC pair data to bitmaps) is attached to this post ("SVMBarPatternRecogition")

Attached Files
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The figure below showing charts for spot AUD.USD summarizes the current look & feel of my trading setup before it gets pruned to whatever form it will take -- very noisy.

One recent change was to replace the 1 day chart with the 240 minute chart (far right).

Setups are done by eyeballing the 240 minute, 1800- and 600-tick charts. Entry chart is the 200-tick (chart 2nd from the right of the 4 shown), confirmation on the 600-tick chart (2nd from left).

Like many, many others I trade primarily reversals, which tend to deliver the most bang for the buck, and trends. Range and chop (scalping) not so much anymore because I find them higher stress.

The setups are pretty much identical to what many, many others use --some sort of momentum/cycle divergence followed by momentum/cycle/price reversal confirmation. In the case of the trade underway in the figure below weak divergences can be seen in 1800-, 600- and 200-tick charts between MACD/Stochs and price prior to entering the trade. For better or worse I didn't wait either for price confirmation or for 240-minute stochs to turn this time before entering.

If signals support it I'll double up on the entry if it initially goes against me (happened here).

Study continues into how to manage the trailing stop


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Regarding trailing stops, or even reversing the reversal trade if always-in, the figure below illustrates the dilemma ---twiddling thumbs and tying up capital while waiting for price to negotiate a spot of bother and either resume direction and hit the 3rd and final target (1/2 contract runner just above the floor pivot at 1.04295) or the trailing stop (at the 15EMA + 1 ATR on the 600-tick chart):



Edited to add: coming from a scalping background and almost 3 HOURS INTO THIS TRADE can't get rid of the song "Hot Rod Lincoln" that started playing in my head some time ago...in this case probably the part about "drive me to drinking"



Bottom line is that 1/2 contract, if hit, will pay something over $250 on top of what's already in the bank from the previous targets, whereas I could take about $50 now. May boil down to what our time is worth. In any event time to apply the balance of the account to potential opportunities in other pairs and let this trade fend for itself.

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Another one just like the other one. Finally ran out of patience and closed AUD.USD for 24 ticks or so, life being tooooo short, jumping from the frying pan into the fire trying to trade a measured move on USD.JPY. Fortunately USD.JPY finally found its fingers.

1st figure shows the trade on the 200-tick chart (2 contracts, 4 targets).



2nd figure shows the bigger picture (measured move setup on 600-tick chart)



Edited to add: I noticed long after I peremptorily exited the AUD.USD trade that it would have been stopped out anyway. Nothing more maddening than waiting hours for a trade to complete (on principle, say) only to have price reverse and take out the stop. This raises the oft-debated question of whether one should close automatically after a given period elapses. I'm of 2 minds but agree a trade should be closed before one passes out from unmitigated tedium (either snoring loudly, head over the back of the chair, mouth agape and drooling like those unfortunate denizens of intercontinental redeye flights, or forehead on the keyboard sending an incessant string of characters to a bewildered trading app which finally crashes, having struggled in vain to decipher what you mean by ".......ttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttt....")

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For future reference: GC front month vs cumulative delta @Silver Dragon


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I placed 26 orders today, starting late (slept in until 5:30 AM EST) with an accidental order before I'd finished a first cup of coffee to sell 1 unit (as opposed to 1 contract, or 100,000 units) of USD.JPY. As explained below it took a while to realize the order had even been placed.

Things improved somewhat after that but overall it was an inauspicious day.

TWS's trade summary shows 400,001 units of USD.JPY were bought and sold in 7 transactions while managing that first unit traded. Total Yen value traded was ¥36,512,091.27, which grossed ¥6,250.02 (Cdn $68.70) or about $51.20 after commissions. The high number of transactions was partly due to the fact it took me a while to realize the beta version of MC I'm using was not acknowledging entries even though it was sending the orders to IB and I had managed to create a sizable position by repeating the entry a number of times more or less blind. It takes a while to shut MC down and restart it in an orderly fashion so I spent some time maneuvering the position using TWS to close it without a loss.

MC unfortunately has no memory of the incident-- no historical order indication on the charts and no Trading Performance Report for USD.JPY today.

TWS also shows trades in AUD.USD (the first trade a very public loss detailed in the home page chat box) and GBP.USD. AUD.USD trades (14 orders!) grossed -$1.50 or -$34 after commissions. GBP.USD grossed $108.65 in 2 trades (4 orders) or $97.30 after commission.

I cut the session short at 10:15 AM EST up $148.55 after commission because it was becoming clear I was in no shape to trade, and spent the rest of the day reading material on futures.io (formerly BMT).

Later I attended a 2 hour webinar sponsored by the CBOE featuring Jan Arps ("Scanning for Profitable Setups in Futures, Forex and Stocks"), Alla Peters ("Fibonacci Price Waves"), Justin Weinraub & Dave Johnson ("Relative Aggression Bars", a system built around what seems to be an interesting way to paint bars as a function of volume delta and a velocity metric) and Kevin Davey who talked about 5 unarguably effective ways to improve trading if one is not already practicing them. I like Kevin's definitions of Do It Yourself'ers and Expert Followers

I went through a stage (about the time I was learning my first system) where I couldn't bear to read about other traders' methods. The differences were a distressing distraction from principles I was labouring to grasp. These days all I see is similarities between systems and can't get enough of them, but solely for the purpose of putting my own system in perspective. For that purpose IMO I don't have to look farther than futures.io (formerly BMT) to learn all I need to know.

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Started late again today, first trade between 9:14 & 9:20 EST (trend reversal trade, 1 contract GBP.USD, stopped out & lost $66.00 after commission, Figure 1 below), second trade 9:34 - 10:32 EST (momentum based range trade, 1 contract EUR.GBP, hit both targets and made $233 after commission, Figure 2 below).

Nursing a Cdn gold miner ETF since N. American stock market open put the kibosh on more currency trading; presume I'll multitask better once I trust the ETF trading system (such as it is) and am able to relax.

The interesting thing about the 2nd trade, aside from the fact it was never in trouble and made money, was I had time to add horizontal lines at what seemed to be pivot-based potential resistance levels that might be encountered on the way up. While I know some folks feel such lines are pointless, at this stage in my development it's educational to watch price action in their vicinity--especially allows me to maintain equanimity when price otherwise (without the lines) out of the blue seems to run into a brick wall, if only temporarily

Figure 1: GBP.USD stopped out


Figure 2: EUR.GBP 2 targets

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MC .NET ES CD


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VP/CD influenced spot trade following employment news, long AUD.USD on MC while watching @AD# on MC .Net. VP/CD shown below, actual trade in progress below that (trade was subsequently stopped out at 15ema - 1 x 15ATR)

VP/CD



Trade:

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MC's version of ES at the close today


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I slipped back into "research" mode over the weekend, undoing sleep patterns in the process. As a consequence no trading today.

The main endeavor was to expand the wave counting algorithm (TDWave MC indicator) to monitor momentum and cycle divergences. In the process a new MC indicator derived from TDWave was prototyped that combines wave counting and divergence ("TDDivergenceWave") and draws arrows on the chart where it concludes there is some chance of a long or short setup (or target) occurring. The good news is the code as it has progressed so far appears to be be bug free, can ferret out divergences I would never spot (remains to be seen how useful these obscure divergences are) and when it's right it's dead on. It also appears to be able to handle "limit order markets" (i.e., where bars are overlapping, characteristic of trading ranges including chop) and I'm hoping it will support the only kind of breakout trading I'm interested in; namely, a limit order reversal (or counter trend) trade that keeps going (through the roof or the floor), whereby one begins to take profits about the time "breakout specialists" are entering and hence accelerating the move.

Bad news is it doesn't yet assign a quality factor (or probability) to its deductions and generates a relatively high number of low probability signals based on a single, questionable divergence, which may fall yet into the category of "take profit" signals as opposed to entry signals. Some of the low probability signals are related to a suspect part of the algorithm that for the time being has been assigned responsibilities beyond its pay grade, so to speak (it is making strategy level decisions based on indicator level information for the purposes of this evaluation).

The screenshot below shows the prototype running on a 200 tick USD.JPY chart, for now large cyan numbers associated with arrows indicating the nature of the divergence (i.e., short or long /enter or exit conditions based on stochs low/high, macd high/low divergence or some combination). The pair [2 short => 10 long] highlighted by the blue box illustrates what I mean by the sort of breakout trading I favour--short entry at the top of the chop, exiting only once momentum decays. The alert for a subsequent decision point [2 short] can be seen in the lower right hand corner of the screenshot.

Other work over the weekend involved comparing COT reports for currency futures with price data over the last 13 months to study how reported positions correlate with price action and metrics of price action regularly used in trading (from conventional indicators to volume profile and cumulative delta), in particular if any conclusions can be drawn about price action ensuing from flat positions. Some effort was made to model Fib retracement and extension in terms of reported positions, for example given that in theory institutions that are always-in (with-trend in the case of producers/users/consumers of the underlying versus counter-trend for pretty much everyone else) whether continuously buying or continuously selling maintain identical break-even price point equal to 1/2 the maximum price excursion (e.g., the 50% Fib line). That work is ongoing.

Divergence indicator on current 200 tick USD.JPY chart

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Not a disastrous day but almost hit my daily loss limit (3%) at one point and considered switching to paper. I found the market in 8 spot pairs that I monitor choppy in my time frame (200-1800 tick) but that's not necessarily an issue these days. Today I seemed constantly unsure of what price was telling me. Rarely hit the first target, more often trailing stopped out if not stopped out immediately. I think one clue to poor performance is in the action illustrated in the figure below, in which I fell for a bear trap. Diagnosis: unfit to trade. (Won't dignify the mistake by calling it a trade since it was more of a brain fart ).

Figure 1. What not to do: get so hyped up about if and when trend is going to carry price through a major support level that when the gaping maw of the trap presents itself, ignore all rules & jump right in. Entry appears in the middle of 200-tick chart, 2nd chart from the right



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What Eternity looks like--GBP.USD after London close.

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It was a good week. Lost money on Wednesday but made it back plus more by Friday.

I did trade paper between Wednesday and now, after my losses on Wednesday, the same way some folks flog themselves but I'm becoming less able to trade paper. It's not the same punishment. I can't make it seem real any more.

I suppose there comes a time when we can't pretend anymore, there is no refuge from the responsibility to be profitable.


Becoming an adult is not all bad. There's this Maserati I have my eye on.

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Especially when trading without a stop Managed to make $100 or so after the dust cleared but am kicking myself.


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Relatively large loss today in AUD.USD. The loss was in cash and psychologically seems to stem from a problem I still have from a recurring stock investment wound (2007-2008 and the recovery). I started trading to take control of losses like that, and have no problem scalping, but it seems when I try to trade fundamentals & news I panic.

I think the real problem is I do not take loss seriously. Too much Shakespeare, Ibsen, Bergman, Nietzsche, Nabokov, Kafka, Kierkegaard, Hesse as a child perhaps. But if it persists it will blow this account. I've become a statistic, a contributor to DailyFX's SSI index (which charts trends based on the amount of short activity in an uptrend, long activity in a downtrend).


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Especially when trading without a stop Managed to make $100 or so after the dust cleared but am kicking myself.

Hi bnichols,

Read this yesterday and your post this morning. That situation yesterday was scarey from my understanding. No stop and 100 pip news spike against you - and you traded out of it by buying the dip and yes price came back to get you out of trouble. But next time?

I read your thread and you obviously have a lot of experience. Pardon my question but - no stop loss, why not?

I don't know your specific set-up / strategy for the AUDUSD trade but that was on a rip all day yesterday, didn't look like coming back at all. But you were trying to call the top and got run over. I compared that story to the ample examples in this journal of your scalping exploits which almost always seem to result in profitable sessions. I am envious when I read them.

My question - why not concentrate solely on scalping?

Hope you don't mind the input.

know thyself
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Hi @mokodo,

Thanks for the input!

I trade without a stop when scalping and often enough when discretionary trading because by definition stops take away some of the discretion, and I have no problem closing a position without a 2nd thought if my spider sense starts to tingle (if not always the reflexes). Trading mechanically is a different story of course--there is no room for discretion when trying to achieve the P/L expectancy of a system.

I'm familiar with the sort of moves USD.JPY can make and don't actually panic in those situations. While I probably wouldn't have re-entered the trade if stopped out--settled for the loss instead--as long as the situation is changing rapidly enough I'm generally able to cope and kind of like the rush.

I get into trouble when the situation takes hours to unfold (trust you've heard the story about how to boil a live frog--increase the water temperature s-l-o-w-l-y . Perhaps there is an an amphibian part as well as a reptilian part of the human brain stem).

"Next time" turns out to have been AUD.USD, and I think the problem is not technical (my knowledge) but psychological--it took longer to turn around than I'm able to deal with when day trading. The account is probably able to average a position in AUD.USD all the way up to 1.1000 (from where it is now at 1.0350, say) without difficulty but after a few hours in a trade the voices in my head start telling me to do bad things. More or less kidding about that but the stress level rises astronomically and I start making mistakes. It doesn't make too much sense to me since I swing trade stocks all the time. The only difference is when I swing trade I enter with the expectation of managing the position for a period of days, if not weeks.

While I can make money scalping it's hard work compared to mechanical trading and expensive in terms of commissions, and so far I haven't been able to code a scalping technique. [I was therefore intrigued by a remark made IIRC by Rob Mitchell somewhere in his basic volume profile webinar to the effect "If you can't code it, it doesn't exist" ]

Guess I'm looking for a style somewhere between scalping and mechanical.

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No trading today--trying to get caught up on reading (Thomas DeMark "On Day Trading Options" at the moment to learn something about his indicators, which I understand are proprietary and not to be disseminated except under license)--except for one trade just now for relief (long spot USD.JPY, figure below) inspired by the Wyckoff "spring" mentioned in Trevor's webinar a few hours ago.

With no volume available I was depending on the divergence in the 600-tick MACD, bottoming stochastics in the 600- and 200-tick charts and rapidly accelerating price action (downward) as clues a breakout below the previous bottom would be rejected. Target was the 50% Fib of the last leg down. I may look at volume in the JPY front month later to see if it might have been usable. The rate at which price changes is a big part of deciding whether to enter (I assume high velocity correlates with a momentary demand vacuum) and any bot would have to incorporate it.

Edited to add: I did place a stop below the low pivot this time

Edited to add: The outcome of this trade was the opposite of the identical EUR.JPY trade on Feb 6, mentioned above (post 251), where I went short under the same circumstances. If old dogs can't learn new tricks at least they can learn from their mistakes In any event "long" may be the right move well over 50% of the time, perhaps approaching 80% if as Al Brooks suggests breakouts fail that often.


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6e VP/CD after Europe recession news prior to N Am session start




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Put my trailing stop way too close to price in the last EUR.GBP trade on the chart shown below because it was past end of my trading session, price action was slowing down and price was showing signs of weakness. What were the chances it would go to the moon anyway and figured if it were going to take me out I'd grab a little more $$$ before it did. Normally I use a negative slope on MACD at the close of the bar on the next higher time frame to exit a trade (in this case 600-tick chart) and ASSUMED slope would go negative by the time price hit the stop.

Price took out the conveniently placed stop and resumed climbing. MACD slope on the higher time frame never did show any sign of turning down. Fat Lady never did sing and as we speak price is still climbing. Now I'm going to go slam my fingers in the door.




Edited to add some time later: EUR.GBP--regular Energizer Bunny


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Spot EURUSD trade based on 6e VPOC at 3337, CD divergence, entry at yesterday low

Divergence



Trade

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Golden Fib ratio 261% for 6e


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6e cumulative delta trend line on Friday afternoon. Guess drinks are being served at the G20 conference later, or they started a long time ago and the 'crats have passed out--no disturbances.

Could be wrong about the booze. There is a difference between a meeting of left wing politicians and a meeting of right wing politicians. Right wings go to convention to drink, left wings to enjoy the company of a lady friend. Not that they don't engage in both, but each tries harder to disguise one or the other.


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Spent a little time this weekend working with NT (strategy development, backtesting and forward testing in and out of band via market replay), in the process acquiring a new appreciation for BetterRenko bars, and doing more reading ("Mathematics of Financial Markets" by Eliott & Kopp). Now prepping for London open.

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It was an active trading day (31 trades in EUR.USD, 2 in AUD.JPY), purely discretionary, ended well particularly after FOMC lent a little direction to the market.

I find short time frame discretionary trading when price is moving relatively fast easy to do but still somewhat unnerving. While I look at MACD, stochastics, S/R, bar formation and lately volume profile and cumulative delta, interpretation of short term bias and especially entry is pretty much intuitive. In hindsight discretionary trading usually feels more like a performance (like painting a picture or what I'd imagine pitching or hitting in baseball must be like) than a "regular 9-5 job", which for me used to involve a lot of conscious thought and drudging attention to technical minutiae, and I still never quite know for sure ahead of time whether I'm going to pull it off. If price action slows down I start to think about what I'm doing, which like thinking about what we're doing when learning to ride a bicycle tends to end badly.

Today I started out looking to go long EUR.USD based on what I perceived to be bullish sentiment in Europe but ended up short most of the time. I have far less of a problem these days accepting what price is actually doing (and hence likely to keep doing for a period of time) over preconceived notions of what it ought to do, which (changing my mind, essentially embracing a totally opposite point of view on the spur of the moment) used to involve fairly complicated mental gymnastics.

In any event the 2 figures below show today's cash trades in EUR.USD and AUD.JPY. At one point in the morning I switched to paper briefly after wrangling a long trade to breakeven when price went in the "wrong" direction, managing the trade my preference over taking a loss in a ranging market and in the mood. While there were a number of losing trades I ignore them (if small ), and at the end of the day profits were substantially higher than usual due primarily to the FOMC statement which caused prices to trend.

EUR.USD (31 trades shown on 200-tick chart)


AUD.JPY (2 trades)

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Winding down the week today ahead of family commitments tomorrow with a little scalping and a little philosophy, including research into flocking behaviour (especially 1D flocking) and an always-in model of trading that in a nutshell manages the average entry price in such a way to always take profits, never losses. Not the first to consider the latter but as with most things that seem to come naturally (i.e., it's how I dig myself out of holes I dig myself into, so why NOT develop a continuous digging model that avoids the P&L model altogether and the tiresome necessity of being right or wrong) prefer to abstract some of the concepts and form a few opinions of my own before struggling with others' 2 cents on the topic.

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Part 1. Preamble

I expanded the work with an NT strategy than depends on BetterRenko bars over the last few days to include out of band portfolio backtesting. Bugs in NT that have workarounds aside, it appears NT portfolio backtesting won't so far (i.e., as of version 7) display a cumulative P&L curve for the portfolio as a whole so was faced with porting the strategy to Multicharts, which doesn't have BetterRenko bars, or writing a separate program to display the aggregate P&L. As an aside, the interest in doing portfolio backtesting stems from the well known fact that diversification is a good thing and a strategy that is reasonably robust with respect to multiple instruments can take advantage that well known fact.

This post is to share a VS 2010 project that will aggregate cumulative P&L for multiple instruments.

The approach used in the program is based on interpolation by cubic spline so the first step is to minimize noise by smoothing raw cumulative profit data (cumulative profit recorded after each trade) for each instrument by accumulating cumulative profit for trades that are close to each other in time.

Cumulative profit noise arises for a number of reasons but in this case primarily because I chose to associate a profit datum with the entry time. When a single trade generates a number of orders each of which closes some time in the future the resulting time series reflects this by associating multiple cumulative profit values that can be widely varying with the same point in time. Using the exit time for each order as the datum reduces the noise to a large extent but the residual still has to be dealt with by the same means.

The bottom line is it's not how we record the change in cumulative profit but how we interpolate the outcome to sum a number of such series, since trades in a number of instruments are asynchronous even if the strategy is the same simply because price action among instruments is not the same. Even if the instruments are "uncorrelated" temporary correlations lead to spikes in cumulative profit.

The strategy displays some sensitivity to number of simultaneous orders placed in a given direction so to test the program in these preliminary results the number of orders in a given direction was restricted to 2 to deliberately impair strategy performance and lead to wider variation in cumulative profit. For the same reason a short, out of band time interval was used, limited to the period between 1 January 2013 and the present.

The next 2 installments of this post will illustrate some of the concepts using figures and detail program use.

The project is attached as well as data for 3 pairs used in the study.

Attached Files
Register to download File Type: zip PortfolioStrategyTradeSum.zip (387.3 KB, 11 views)
Register to download File Type: csv EURJPY.csv (5.6 KB, 4 views)
Register to download File Type: csv EURUSD.csv (1.9 KB, 4 views)
Register to download File Type: csv USDJPY.csv (11.9 KB, 4 views)
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Part 2 (of previous post)


Program Design Considerations

An updated version of the VS 2010 project to sum cumulative profit of a strategy (or strategies) applied to a portfolio of instruments is attached ("PortfolioStrategyTradeSum.zip", including executable & alglib library required to perform the spline) as well as sample data files ("SampleData_6SpotCurrencyPairs.zip") for testing.

The sample data was obtained by exporting NT strategy performance report Trades sheet to Excel for each instrument in the portfolio, converting cumulative profit to a common quote currency (in this case CDN), copying "Entry Time" and converted "Cumulative Profit" columns to a new sheet, converting Entry Time from ASCII time format to 4 or 5 decimal place Number format required by the summation/aggregation program and exporting the new sheet as a .CSV file for input into the program. Example input file format showing file header (instrument name) and comma-separated data/time and cumulative profit fields:

 
Code
EURJPY
41212.11568,-301.2565707
41212.24163,147.7531772
41213.75986,-191.8381689
41214.17133,-82.36500314
...
2 significant changes to the algorithm in the new version are as follows:

1. Previously when P&L values were time-binned (or "smoothed") prior to splining the value assigned to a given bin was the latest P&L value encountered, reasoning that last was more representative of the whole. In the new version the value assigned to each bin is the least P&L value that falls in the bin, reasoning that this approach is more conservative. The effect is shown for 3 pairs in Figure 1:

Figure 1: Raw cumulative profit data for a strategy applied to EUR.USD compared to data binned on last value and data binned on least value


The process of summation of individually splined cumulative profit data series is illustrated in Figure 2 for a 3 currency pair portfolio. Note that the left-hand-side axis applies to individual spline curves while the right-hand axis applies to the sum.

Figure 2: Splined cumulative profit summation


2. Edge effects occurring at the beginning and/or the end of the splined P&L curve for a given instrument have been reduced by setting the values of the splined data for times prior to actual data to zero and to the last actual data value of original data for times greater than present in original data before summing the splines. The effect on the summed (portfolio) cumulative profit for a 6 instrument portfolio is shown in Figure 3:

Figure 3: Edge effect of truncating individual splines prior to summation (6 instrument portfolio)


Program Use

To use the program the attached .Zip file must be downloaded and decompressed into a folder of the user's choice. At this point the project solution can be opened in VS 2010, code viewed or changes made and the program recompiled as desired.

To run the program standalone, run <path to unzipped project>\PortfolioStrategyTradeSum\bin\Debug\PortfolioStrategyTradeSum.exe

The opening window is shown in Figure 4. At this point all the user can do is open an input file (cumulatiive profit data series for an individual instrument in the portfolio) via File>Open... or exit the program (File>Exit). [Exit must be confirmed to avoid accidentally closing the app.]

Figure 4: Application Initial GUI



As suggested in Figure 5 cumulative profit files for each instrument in the portfolio are loaded one-by-one by repeatedly clicking File>Open and selecting the appropriate input file (e.g., each of the 6 sample input files attached in turn) until data for all instruments has been loaded.

Figure 5: Loading instrument data


After data has loaded some stats for the instrument are shown on a status line at the bottom of the GUI (Figure 6)

Figure 6: Status line stats


When data for 2 or more instruments has been loaded the "Process" menu item will be enabled. The "Process" function will permit the user to repeatedly perform 1 of 3 tasks as indicated in Figure 7:

1. Save the aggregated (portfolio) cumulative profit to a disk file as a .CSV file (click "P and L Sum" menu item)
2. Save smoothed (binned) cumulative profit data for a component instrument (i.e., data just prior to being splined and before summation)
3. Save splined cumulative data for a component instrument (i.e., data after binning and being splined, but before summation)

Figure 7: Saving results to disk (including intermediate result for QA purposes & debuggiing).


Happy to answer any questions.

Attached Files
Register to download File Type: zip SampleData_6SpotCurrencyPairs.zip (8.1 KB, 11 views)
Register to download File Type: zip PortfolioStrategyTradeSum.zip (392.6 KB, 11 views)
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As mentioned previously the advantage of running a mediocre strategy that may nevertheless (temporarily) have a somewhat positive expectancy on a portfolio of relatively uncorrelated instruments is that the approach may lessen the effect of individual component drawdown.

As an example of this, forward testing this week the stock NT strategy "SampleMACrossOver" optimized on individual portfolio components over the last few months of data for 6 spot currency pairs today resulted in a transient gain of over CDN $6000 when the market shunned news about the Italian election, whereupon price snapped out a consolidation phase and went looking for a new value area in all 6 currencies. In general mediocre strategies perform well when price is trending and poorly during chop.

Figure 1 shows the forward test underway on paper since last night, which for 1 contract traded per pair in real life might require margin somewhat in excess of $12,000 (minimum account size before losses).

Figure 1: NT portfolio forward test

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For @dakine

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For @Xav1029

6EVP + spot EURUSD (FXCM)


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Another view of EurVP


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Preamble

I didn't make any manual trades between 22 February and last week. The time was spent instead meditating upon forward tests of built-in NT strategy SampleMACrossOver and a strategy proposed by one of my sons, which turns out to be along the lines of the "breakout/momentum" strategy developed by @kevinkdog in his recent futures.io (formerly BMT) webinar, applied to a portfolio of 6 currency pairs, which activity (observing forward behaviour of simple bots--the "everyman" of the bot world) was not about the test but like having a radio on in the background while staring at wallpaper.

Since these periods of introspection invariably lead to a deeper appreciation of what I think I know about trading the exercise brings to mind the "10000 hours--really?" debate about how long it takes to learn how to trade and how to measure the hours, what time should be counted if there is such a thing as wasted time and productive time. IMO in fact all we can say about time & how we spend it is that our days are numbered and having time to spend time beats the alternative--it is what it is. In that regard I expended some effort hypothesizing that if a conventional bot were to become self aware in the trillionth of a second a billion times a second it manifests its raison d'être (the time it takes to execute the "if...then" statements comprising its thought process and which presumably underlie its epistemology) what its worldview might be like, including whether it experiences repeated awakenings (each awakening "rounded by a little sleep" according to the famous playwright BotSpeare ) and if so does this sense of eternal recurrence suggest its being is embedded in a higher plane of existence and even the existence of a Programmer whose being nevertheless may be embedded in an even larger plane of existence ad infinitum--a foray into the Flatland of machine consciousness. Hard to say whether this should be categorized as productive time or time wasted if I were inclined to categorize it, which I'm not.

Consequences of the Forward Test

First, I'm more convinced than ever bots of this sort, that generate trades via a few rules applied to a few indicators, are not my cup of tea. I can't help peeking at their progress and the idiotic trades they are prone to during inevitable losing streaks (even while they are operating within spec let alone when they start to fail) still makes me want to bang my head against the wall. Mainly however, while I may imagine I want to lie on a beach with an umbrella drink in hand while a bot does the heavy lifting, in fact I don't. In my case having nothing to obsess about is far more stressful than watching bots behaving badly: if trading is boring not trading is even more boring.

As expected SampleMA does well when out of band price statistics match training set stats, poorly when they do not. When optimized on data reflecting overall stop order market conditions the strategy behaves like a trend trader. For trend trading optimally fast MA period << (very much less than) slow MA period, which leads the strategy to buy when price apparently starts to rise and sell when price starts to fall. When optimized on data reflecting limit order market conditions the strategy behaves like a range trader (ideally fast MA period >> slow MA period), selling when price starts to rise and buying when price starts to fall.

The example shown in following figure illustrates this behaviour for SampleMA trained on trend data when the price action changes to "chop" (cycle period falls below the average period of the training set). In time series analysis the situation could be thought of as the emergence of dominant frequencies higher than the Nyquist frequency giving rise to aliasing in the response:



If watching bots is like having the radio on, watching SampleMA in action is like tuning the radio to a favourite station. MAs still fascinate me more than anything except perhaps Fibonacci patterns--the trading equivalent of cornstarch and water mixtures, slinkies, gyroscopes, etc.

MAs (like all "lagging" indicators) are occasionally dismissed as useless precisely because they lag price action, which IMO is rather like criticizing a leopard for its spots because it doesn't have stripes like a zebra; if one wants something that doesn't lag price then one might consider learning how to trade price. In real life lag is the basis of all confirmation and the only issue is whether to pay the insurance of a few ticks (the cost of confirmation) or to depend on intuition. I suppose MA crossover systems ideally ought to be tuned to a particular market so that crossovers occur precisely at a time and price corresponding to collective point traders en masse are reaching their individual decision points, reminiscent perhaps of Gann's strange geometry, suggesting new avenues of research--new ways to invest those 10,000 hours.

Resources

On the topic of tools I was reminded that if IQFeed did not exist it would be necessary to invent it. IB's historical data is usable if one starts loading data a couple of days ahead of time, but when doing research I'm not always sure initially what instrument, time frame or bar type I'll be using so this often implies loading data before I know I need it and makes me wonder if IB policy was designed by a practitioner of the Welsh art of self defense at least as defined by someone with a jaundiced view of the Welsh** (LLAP GOCH, the art of thuggery: "attack your enemy before s/he's even aware you exist").

**I should hasten to add personally I have no issues with Welsh, having very much enjoyed time spent years ago at University College of North Wales.

NT was used for the forward test but IMO still surprises with too many WTF moments (in this case oddities arising trying to test with limit orders and more advanced order management). I'm prepared to admit as others have suggested it may be my lack of experience, lack of intelligence and/or poor fashion sense even after several years battling NT, but if life is short from my perspective MC's relative stability makes life at least seem somewhat less brutish.

Further Research

What the exercise did do was strengthen my conviction that while entry is important, trade management is more important. In conventional entry/stop/target trading trade management boils down to risk/money management but in this case meant time spent subsequently live trading paper soley for the experience of managing an average position around price action by decreasing a position as required to lock in P&L and free up capital and by increasing a position to adjust average entry price and lever P&L.

This approach to trading differs in effect not at all from any other approach but was perceived in the sense of keeping the account directly engaged to price action (i.e., always-in) via a trading system that might be modeled as the transmission of some sort of Rube Goldberg machine, operated in the effort to be on the "right side" of price when it is trending between value areas (especially when reacting to value area highs and lows) so that account balance increases whether price increases or decreases. That is, the machine transmission could be thought of as in "forward gear" when balance increases as price increases and in reverse when balance increases as price decreases. From this perspective first results suggest shifting between forward and reverse involves a temporary martingale as trends decay into consolidation and/or reverse, which is where profits and losses occur in the conventional sense (i.e., are locked in), the minimization of which (unlike negative expectancy games) depends ultimately on experience. That is not to say account balance does not fluctuate in terms of conventional unrealized profits and losses as price fluctuates, unrealized losses perhaps equivalent to grinding the gears of the machine.

As an aside, for me the longer term aim of always-in research is a deeper understanding of Fibonacci patterns. In the process I finally experienced what it is to trade for the sake of trading, which is to say not for the money.

Next Steps: Flocking

As mentioned in a previous post in this thread (or perhaps elsewhere) these days my interest in bot development tends toward developing a trading engine based on a model of the processes that express themselves as price action rather than an engine that reacts to price action (i.e., reactions guided by heuristics derived from price action metrics or informed by one pattern classification scheme or another). In other words, e.g. instead of teaching a bot to trade Market or Volume profile (concepts that nod in the direction of auction theory), I'm curious whether a bot can trade auction theory from first principles.

Price action explained in terms of auction theory from the perspective of modelling calls to mind emergent behaviour (collective behaviour of an ensemble of autonomous individuals governed by a simple set of rules; e.g., flocking of birds). Part of last week was therefore spent unearthing where economic & finance theorists went after floating the "efficient markets" lead balloon in the 1970's, in particular whether they had anything to say about flocking.

Like all mathematicians quants seem compelled to sweep the empirical origins of their ideas under the rug, expressing everything in canonical form (for rigour, they say, whereas to the untrained eye canonical form might also make their work seem less mundane than it actually is and themselves seem more important than they actually are). Once I discovered that (in the spirit of dispensing with the origins of an idea) they'd decided to abstract the notion of flocking in terms of networks of "heterogeneous agents" (and "Heterogeneous Agent Models", or "HAM") it became apparent they've been very busy. In contrast to the mostly useless "postulate a spherical cow" approach by most academics to what moves markets, in particular research by Buz Brock and Cars Hommes is refreshingly precise and grounded in reality, reinforces some naive thoughts I had about how flocking might apply to price action (see e.g., https://www.tinbergen.nl/discussionpapers/05056.pdf). If nothing else saves me exploring caverns of thought that have already been thoroughly spelunked by others.

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Preamble

I've been trading paper almost exclusively since the last post mainly to experiment with variations on the method for short time frame spot currencies--as usual essentially Barry Burns' 5 energies system augmented occasionally by Wyckoff methods, regression channels, Fib retracement lines, "volume profile" and cumulative delta.

The other reason I've been trading paper is I'm still digesting the death of my father. We were not close. 3 things his death underscored for me were how precarious life is, how fleeting its enjoyment, and how thin a trader's edge.

"Volume profile" is in quotes because I'm referring to profiles obtained by applying MC's VP indicator to Interactive Brokers FX tick data to plot total ticks and up vs down tick counts. While those who like to point things out may point out that IB's tick data is worthless and there is no such thing as FX volume on which to base "volume profile", in fact the resulting profile (more properly a time-price-opportunity profile or TPO perhaps) resembles actual volume profiles obtained for currency futures based on IQFeed tick data closely enough for my purposes (i.e., VAL, VAH and POC are pretty much in total agreement once the front month futures/spot price difference is taken into account).

I want more experience with Wyckoff's concept of reversals but with vacation season upon us it's time to buckle down to pay for a planned month long motorcycle trip across the continent (NS to Oregon and back), especially since my camping days are over and the thought of staying in low cost no-tell motels no longer appeals. I'm also starting to reconstruct an old 17.5 inch reflecting telescope, a little like the Cheshire Cat of Alice In Wonderland of which all that remains is the primary and secondary mirrors. In other words it's time to trade in order to afford to do the things I'd rather be doing.

The last few days trading cash suggests the experience this time around is focused on trading setups, not trying to trade every move price makes (i.e., not so much scalping). For the first time it seems what price does between setups is of no consequence except to the extent that what price does contributes to the setup--I no longer have feelings one way or the other about "missed" moves. I may still favour counter-trades and range/consolidation trading over with-trend trades for the relative excitement (to increase trading frequency and to capitalize on better risk/potential reward during reversals) but even though patience never was my strong suit now seem able to wait patiently for momentum to give a clear signal.

The number of spot currencies I monitor is now 2, (EUR/USD and USD/JPY at the moment) down from 9. Haven't yet come up with a way to monitor than 2 without distracting from the focus and subtracting from the time required with each one to trade enjoyably at my level of experience.

Bots
I continue to forward test / walkforward-optimize a strategy proposed by my oldest son against spot NZD/USD (his most hated instrument--what is a bot for except to do what we hate to do?). IMO its behaviour in walkforward testing is interesting enough to continue to gather data but since it's his bot he has the final say on disclosure.

I've done nothing with flocking. Days are brighter, victims of the northern lifestyle everywhere are turning off their lamps, packing away their snowshoes, summer after all soon upon us, thought eventually turning to things that make less demand on thought.

Software
I've attached 5 recent experimental projects to do with time series analysis and flocking, intended for experienced programmers only. All app executables are in the associated .../bin/debug directory, which means they need to be optimized for real-world (Release) use.

- FFTFormsApp exercises alglib.dll and will compute the Fast Fourier Transform of a real time series and output the amplitude spectrum to a file. Input file format is the same as used in the last project posted. I've used it to compare price spectra with spectra computed by more recent methods (Hilbert transform, e.g., Ehlers methods) but mostly like it because it does not care if you forget to observe powers of 2 when choosing the length of the input time series

- Flocking_Boids implements a bulls/bears versions of the familiar Boids flocking algorithm (2 flocks driven by different aversion criteria)

- EMDV1 is a C# program that calls a .DLL version of the Hilbert–Huang transform translated from a version C++ written by an author whose name escapes me at the moment. After some experimentation IMO the algorithm does not approach the sophistication of the R-Language implementation, but the translation is a start.

- EMDV2 is the C# version of the Hilbert–Huang transform by the same (unspecified author) as a .DLL callable from MC.Net (or NT)

- EMDTest.cs is an NT indicator that calls the DLL from NT. Note that my experience so far with the indicator is that it is useless at the moment--included for completeness (as a template).

Attached Files
Register to download File Type: zip FFTFormsApp.zip (1.96 MB, 21 views)
Register to download File Type: zip Flocking_Boids.zip (47.0 KB, 21 views)
Register to download File Type: zip EMDV2.zip (24.2 KB, 20 views)
Register to download File Type: zip EMDV1.zip (196.5 KB, 15 views)
Register to download File Type: cs EMDTest.cs (6.8 KB, 15 views)
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Yet again I'm struggling to repair my sleeping habits, the body having apparently settled into inconvenient Circadian rhythm from my youth, wanting to lie down at dawn and get up around noon--inappropriate for trading the London market / US overlap. Not sure if the cause is psychological or biological but something has to change.

Since the last post I've been trading using an MC order placement/exit strategy combo similar to NT's ATM to remove some of the discretion from scaling out. At the moment the same exit strategy is automatically applied to any order the moment it fills to place stops, move stops to BE + costs when the first target is hit and trail until either the runner scales us out completely or the trailing stop executes.

Advantages of such an exit strategy (exit bot) in a pseudo discretionary system are the following:

1. stops and targets are canceled automatically when flat (for folks prone to leaving one or another dangling after a trade has ended, especially those prone occasionally to sitting down at the trading desk to discover they've been margin called overnight on a mysterious order they don't remember placing )
2. it reduces the urge to second-guess the trade if IQ sky-rockets as the trade progresses (which causes us to fiddle and/or exit prematurely). If we're able to bow to the authority of the bot and leave stops & targets alone a bot will save us from ourselves more often than not.
3. for better or worse stop and target orders placed at the broker remain in effect as last updated when the platform inevitably crashes
4. mainly it gives us something (targets, initial and trailing stop offset) to analyze and optimize

This doesn't mean that stops and targets placed by the bot can't be adjusted initially to account for specific price architecture, just that we have to estimate the impact of adjustments when analyzing results.

The disadvantages of an automated exit strategy stem from the fact automated strategies in general are idiots (at best idiot savants). While there may be the odd exception, built- in exit strategies in particular think in terms of tick offsets from entry rather than in terms of price geometry and dynamics routinely used in manual trading. Especially they have no knowledge of the trading system in use and therefore, having no knowledge of what conditions got us into the trade, have no clue whether present conditions still justify the position. This is not to say human traders don't suffer from the same deficiency (no clue when to quit), given that trading is about paying to test probabilities and hence the popularity of fixed offset stops & targets. Since a chart (like any optical illusion) can change from bull to bear in the blink of an eye it's probably best to let expectancy unfold, which is what fixed offset orders tend to encourage.

Figure 1. Bull or Bear?


A couple of EUR/USD trades executed between 10:56 EST and 11:14 EST this AM in Figure 2 below illustrate the exit strategy in action: 1st trade jumps the gun with a short entry in anticipation of price turning back down in the vicinity of the floor traders pivot (yellow dashed line)--2 contracts stopped out at -6 ticks (3 pips). While timing in momentum based trades of this sort may be a bit of an art entries should not be as badly managed as this one was, probably a consequence of lack of focus. I was paying attention for the 2nd trade shown, choosing to fade the stop run/bull trap above the pivot. First 2 targets (1/2 position + 1/4 position) were hit, runner eventually trailing stopped out.

As an aside, I recently heard someone suggest it may be best to get rid of anything on the screen that gives rise to conflicting signals. That may be, and the clutter of multi-timeframe charts and indicators in the figure below definitely generates conflicting signals, but it's what works for me and IMO "what works" trumps "what's best". IMO consensus is not necessarily a good thing; ambiguity of price action can be reduced only so far before we start trying to inflict personal belief on the market (and reap the well known outcome of being too sure of ourselves). I find noise generated by the configuration is an excellent indicator of market sentiment, entries tending to coincide with a lull in the cacophony.

Figure 2. Two EUR/USD spot trades each with 4 auto-placed targets, initial & trailing stops

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bnichols View Post
Yet again I'm struggling to repair my sleeping habits, the body having apparently settled into inconvenient Circadian rhythm from my youth, wanting to lie down at dawn and get up around noon--inappropriate for trading the London market / US overlap. Not sure if the cause is psychological or biological but something has to change.

Have you been programming or staring at your screen a lot recently? It affects most programmers that I know of, because the brightness of your screen inhibits melatonin production, which in turn regulates sleep. You might also be suffering from SWSD, nacrolepsy or asthenia.

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Have you been programming or staring at your screen a lot recently? It affects most programmers that I know of, because the brightness of your screen inhibits melatonin production, which in turn regulates sleep. You might also be suffering from SWSD, nacrolepsy or asthenia.

Screen brightness is a very good point--the brightness is cranked on 2 x 24" LED monitors, probably equivalent to a SAD lamp (seasonal affective disorder) and when the display darkens due to inactivity (i.e., when not trading, specifically when I should be sleeping rather than programming or watching TV/playing Spider Solitaire :-/) I find myself nudging the mouse to bring them back up for the brightness rather than to see the charts, suggesting I may be hooked on it. Just reduced the brightness considerably.

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From the poem "To A Mouse, On Turning Her Up In Her Nest With The Plough" by Robert Burns (see e.g. the poem here), à propos tonight for a couple of reasons.

First, because I'm trying to tame a baby mouse that has been nosing around my trading desk while at the same time trying to eradicate its extended family with poison and a trap line set around the house. It's been quite the battle and while I felt initially I had the intellectual upper hand in such a simple matter, as optimism fades I'm beginning to suspect Douglas Adams in "HitchHiker's Guide" may have been right about the relative importance of humans and mice on this planet after all. [We were invaded recently coincidentally after a well-meaning neighbour took it upon himself to obliterate the local feral cat population.]

Second, it turns out at the moment I can't run MC's Master exit strategy mentioned in the last post without bringing MC to its knees--no clue why. Details in a general MC support discussion forum here.

P.S. last stanza of the poem is devoted to mice and trading:


Quoting 
Still thou art blest, compar'd wi' me
The present only toucheth thee:
But, Och! I backward cast my e'e.
On prospects drear!
An' forward, tho' I canna see,
I guess an' fear!


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  #280 (permalink)
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...for posterity.



Continuing....



Shock sets in....


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@Big Mike: confess I panicked when my name turned red--only one of many reasons I stopped posting. While I might welcome red when on top of my game I'm a blue person by nature and these days prefer green. I accept red means "stop posting, start trading"


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  #282 (permalink)
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Pleased to say I spent much of the morning with Andrew from Multicharts who stepped me through the difficulty I was having with MC attached exit strategies. Very thorough. Reminded me of more unpleasant Drs appointments that I knew were for my own good.

Hard to trade on command but it turns out I made money on paper during the exercise, so happy about that. I chose USDJPY for the demo, the same way we choose short sleeves for blood pressure checkups and loose pants for anal exams. USDJPY can be counted on to offer trading opportunities on short notice during Drs hours.

IMO results show there is an issue with one or more of my custom indicators (all written by me). When indicators are turned off MC goes like stink. Andrew's kind assessment was MC may not interpret what I'm trying to do well, and could I please upload to the cloud a Zip archive containing data compiled during the test for the engineers. I managed to do so, once I got over issues I have with cloud computing and figured out how to do it. I assume this is MC's way of putting the case on a back burner, but that doesn't matter to me. Trading is not about the platform or the method--all about getting the right sort of kick in the pants.

I confirmed I can trade 2 contracts profitably by intuition more easily than I can trade 1/2 contract

I also learned I trade better when I think the screen is being recorded by a 3rd party. When I mentioned this to my wife she asked, "...because you are more cautious?" and I had to reply no--I just trade better.

Which reinforces the notion trading is best when it's about performance, which requires conditioning if not an audience.

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  #283 (permalink)
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Continuing to focus on attitude trading (or, "attitude while trading") lately since at this stage attitude appears to be the factor controlling whether I make mistakes and consequently what percentage of what the market offers I'm able to capture.

By "attitude" I mean a tangible mental state--for lack of better words "mindfulness" perhaps, a perspective characterized by awareness of self (or just increasing resignation to inhabit the same skin as that self without trying to sabotage it) or of objectivity rather than a particular emotion-- that is required to trade well consistently. Could be nothing more than an attack of acute common sense for the first time in my life . In any case I suspect all profitable traders endure a similar sort of awareness at some point, over and over probably, but hope the sensation fades over time (i.e., that common sense loses it's novelty after a while) since too much of anything can be disconcerting.

To clarify (assuming it can be clarified), the state of mind at the moment could be described as what ensues when all the emotions we've experienced when trading illuminated by what we've read about trading psychology & technique--what we think we know, in other words--coalesce into a single frame of mind that seems more than the sum of its parts (i.e., reinforcing the feeling that what we thought we knew until now was mere wishful thinking). Each time it happens the feeling of "assuredness" increases, "assuredness" what allows us to trade properly. This episode may represent another stage of learning, perhaps a culmination of some sort, and in theory may signal the whole (learning) process is about to repeat in some sense, as it always does.

This seemingly new awareness is nevertheless consistent with my theory of how one learns to trade--by abandoning thrill-seeking and love of money in favour of ceaseless repetition of experience in order to deepen understanding--which may be nothing more than philosophy internalized in my formative years bubbling to the surface of the Jurassic tar pond of the mind; e.g. of Kierkegaard's notion of repetition and recollection or Gurdjieff's notion of crystallization. In other words, the path to profitable trading seems similar to what Kierkegaard portrays as the transition from the aesthetic to the ethical life (e.g., in Either/Or, a theme repeated in various forms by many, many others).

Trades themselves are pedestrian, straight out of Barry Burns' book. The transition a while ago from trading 1 contract to 2 suits me, suggesting continuing to increase position size (while maintaining the same 1% risk/trade money management rule) may not be too much of a psychological issue. It should go without saying that increasing position size while maintaining the same risk/reward ratio implies increasing account balance (by leaving profits in place or by adding additional capital), since setups must continue to respect price architecture or the whole thing will fall apart. I still peek at P&L from time to time during the session however, so that bad habit will probably be first against the wall when the next revolution in my trading comes.

At the moment USD/JPY seems less chaotic and therefore more satisfying to trade than EUR/USD.

In terms of strategy the first target (1/2 position) is always placed at 1:1 risk/reward since it so far appears that if price architecture (which includes an S/R backstop) supports this ratio then the trade can be characterized as high probability (consistent with remarks Al Brooks has made on the topic but which here reflects new insight for me on why that is so). The remaining 2 targets (1/4 position each) are placed at obvious S/R levels with risk/reward ratios preferably at least 1:2 and 1:3. Protective stop is moved to BE + costs when the first target is hit. Suspect the art of the trailing stop will remain an issue forever.

Still looking forward to discovering and fixing whatever is causing MC to be sluggish. Appreciate the effort MC support has invested in the issue to pinpoint the exact cause, since as mentioned previously IMO it very likely one badly behaved custom indicator or another.

Today's USD/JPY trades, net $400 or $500 after costs:

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  #284 (permalink)
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No real-money action today except for one brief CL trade (1 car for for 9 ticks, chart below) to test the account connection. While commodity trading does not belong in this thread, briefly I'm migrating from commodity ETFs traded through an investment bank to trading futures through IB using the same system used for trading spot currency. So far so good trading crude live on paper and the plan is to switch to real money later this week.

The rest of today was spent on a pet project (a channel trading bot) being tested on paper (that managed to lose about $6000 in the last 12 hours ). Maybe back to the drawing board on that one.

The figure below shows CL trading setup, more or less identical to currency trading setup with the exception that a 5 minute subchart has been added for the time being to the bottom of the 200 Tick chart (2nd chart from the right, below MACD and Stochastics panels). I have no interest in trading the 5 minute chart and its only purpose to vary the 200 tick bar spacing in the chart above in proportion with the passage of time to give another indication of trading activity.


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  #285 (permalink)
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On the eve of trading CL real money thought I'd share what CL looks like to me after hours when all indicators*** are on. I don't trade all indicators.

I'm tempted to repeat what Stewie (of Family Guy) said when he first glimpsed a naked female but this is a family forum. Suffice it to say I--like he--am horrified.

*** Volume and cumulative delta turned on, so far no volume profile except in the 1800 tick chart (far left). The 5 minute chart coupled to the 200 tick chart is distorting everything.

While some may not define Market or volume profile as an indicator, I do

The bottom line is indicators--any mark on a chart that is not a tick--bore holes in our skulls. Price does not care about time or volume or how we divide things up. What price thinks doesn't really matter to me as long as I can deduce what it will probably do next. The issue is I hate a meaningless and ugly chart.

I have a water bottle picked up on a trip through the NE US at a tourist trap apparently on the site where Thoreau lived and wrote. Big Thoreau fan since I can remember. The water bottle is metal, fire truck red and inscribed with the words "Simplify, simplify, simplify". I suppose in a pinch it could be used as a weapon but any motorcyclist will tell you dehydration is an issue. I prefer to use it to hold water to drink or to pour down my neck. But I bought that particular bottle because of the inscription.

If I were to interpret this sudden avalanche of associations it might seem I'm not ready psychologically to trade CL real money. Funny how the mind works. Or do we plunge in waving a sword as we usually do (now that sword waving usually earns us more heads than it costs us)

In the meantime these thoughts are distracting me and hence this thread from STF spot currency trading.



One reason for the switch to futures from the "safe" practice of swing trading ETFs is the sort of nonsense shown in the figure below--a mini flash crash in a banking ETF on the TSX that took out the trailing stop. If I'm exposed to that kind of risk why not trade futures, where at least the potential reward is commensurate? I've asked the bank if the exchange is going to man up and cover the cost to investors of the glitch--not holding my breath but you can't win it if you're not in it

Recent flash crash of BMO ETF ZWB:

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  #286 (permalink)
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Got my butt handed to me today trying to trade option expiry in USD/JPY (and what is turning into another swing at long awaited level of 100.00, which may happen outside my trading session if the bulls can show enough interest to overcome the offers at 99.90), my error as usual being frenetically trading limit price action like stop price action (trading chop the wrong way) during relatively brief periods of consolidation. [I no longer make the mistake of bucking trends e.g. because price is at the top or the bottom of the screen and there is nowhere for it to go except retrace ]

Don't really know why it happened except that someone said under certain conditions we regress to what we learned first--warts and all--no matter what experience has taught us since, the implication being would-be traders can avoid a lot of grief later on by seeking proper mentoring from the get-go. Episodes like the one today seem to be evidence of that, one reason I try hard to teach my kids about the mistakes I made learning to trade in the hope they might avoid them. In vain of course (the education of kids)--you can hold a horse's head under water until he drowns but you can't make him drink :-/

"Chop" can be traded as long as we have our chop hat on and our wits about us, meaning mainly (at least in my case) we're able to rein in profit expectations to match the price excursion (mini-trend, say) being offered by the market, trading in the direction of any detectable bias to increase the odds that we're in a breakout long before conventional breakout specialists. The downside is that some fraction of the time (guessing << 20% if breakouts in general fail 80% of the time) we're going to be on the wrong side of the breakout The other downside is if we don't have our wits about us and continue to trade (continuing to trade loss after loss unfortunately how we finally twig to the fact we don't have our wits about us) we lose money hand over fist. In my favour I did muster enough of a survival instinct to halve the position size from 2 to 1 contract.

That said the figure below summarizes today's trading activity, after the (blue) smoke cleared a loss about $200 in 23 trades.


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  #287 (permalink)
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Today's long bomb trade: note to self to respect floor trader pivots and TPO boundaries marking consolidation under whole numbers a little more:



Edited to add: that (USDJPY) trade was the only trade of note today, the week probably ending up net $200 or $300. Nothing to write (home) about but better than a poke in the eye. Won't know exact figures until the IB report is available tomorrow.

In other news, work with Multicharts continued this AM when MC support recruited an engineer to observe and/or trade the installation in order to get first hand experience with the lag when the Master exit strat was invoked. My guess is the info dumps earlier in the week did not show what the issue was clearly enough. In any event after weeks of driving me nuts lo and behold the problem vanished before we got started--could not reproduce it. If Andrew of MC had not seen it previously as well I'd think I was actually going nuts--assume he will back me up on this one

All I can say is, having brought products to market myself, manned the response line, worked with clients trying to use those products and having a power similar to that of the unknown engineer--to make bugs tremble & hide with a mere glance in their direction--I have some idea what the engineer must be thinking (aside from "can't fix it if it ain't broke") . That said, something in the installation was giving me grief--just a matter of time until I find out what it was.

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  #288 (permalink)
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Continuing to trade, develop models of price action and maintain an offline log--unfortunately the mind set since the last post not really conducive to sharing, social media always somewhat of a mystery to me. [Huge topic IMO that doesn't belong here].

One departure from the pattern of humdrum setup-driven trading occurred Friday when I slipped back into always-in trading for the day, the principles of which are well documented by many others elsewhere.

The move was partly inspired by a post on futures.io (formerly BMT) about whether and how to trade news and partly because I'm less and less interested in scalping, more interested in following the herd when price decides to migrate to happier hunting grounds; i.e., search for a new point of control (POC) even if it chooses to revisit a previous one. [Migrations between POC's can be observed on longer time frame charts, where bars begin in one POC and end in another).

The main attraction of always-in trading for me is that I'm exposed to the market if & when price moves so don't feel compelled to analyze every wiggle when price is consolidating (i.e., oscillating between value limits) especially during that peculiar calm before news events. By initiating minimal positions in up to a half dozen pairs based on a best estimate of sentiment the idea is to let the universe of event risk unfold as it should. I'm rarely totally wrong about all spot pairs when they react to news, which means worst case account balance tends to remain more or less static until I can reverse direction in the offending pairs, at which point the sun comes out and we're lying on the deck of our private yacht surrounded by blue ocean umbrella drink in hand, unmanned wheel spinning and rudder slapping side to side, at least until the familiar sound of coral against the keel brings us back to reality.

I suppose always-in trading works for me because I'm only engaged when I need to be. Until then the mind is free to wander, and the mind must wander.

The bottom line is, if we don't have our chop hat on when price is ranging traders like me (irrational Type A impatient) can lose significant money, and Job 1 is Don't Lose Money. Always-in means managing chop as required to ensure we're on the right side of the breakout when it comes rather than suffering the psychological trauma of repeated failed setups when not in the mood. The other bottom line is, the approach requires some amount of experience, especially finessing losing positions into winning positions. As a corollary of experience always-in is probably for better funded accounts, that presumably became better funded because if we learned nothing else experience taught us to cut losses before they become ridiculous.

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  #289 (permalink)
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Example of initiating an always-in session from this morning, which unfortunately didn't turn into anything after the session was cut short by an unexpected errand. I exited all trades just as pairs were reacting to US personal finance numbers--ordinarily would reverse with a "2 x position" trailing stop.

Initiation of positions with 1/2 contract each was straightforward with the exception of GPBUSD, which took a couple of tries before it chose a direction. Net after commission on all trades was probably $200 or so.

EURUSD


USDJPY


GBPUSD


USDCHF

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  #290 (permalink)
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You are weighting yourself heavily with the USD compared to the others, no? May I suggest EUR/USD, EUR/JPY and USD/JPY for balance? Although in that case USD and JPY correlate a lot more to each other than to EUR, so maybe throw in USD/CHF and EUR/CHF as well.

In that case you would be

3 x USD
3 x EUR
2 x JPY
2 x CHF

You could even throw in CHF/JPY depending on what spread and slippage you would expect from your broker.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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Adamus View Post
You are weighting yourself heavily with the USD compared to the others, no? May I suggest EUR/USD, EUR/JPY and USD/JPY for balance? Although in that case USD and JPY correlate a lot more to each other than to EUR, so maybe throw in USD/CHF and EUR/CHF as well.

In that case you would be

3 x USD
3 x EUR
2 x JPY
2 x CHF

You could even throw in CHF/JPY depending on what spread and slippage you would expect from your broker.

Thanks for your post Adamus.

Will get back to you. b.

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Good luck to you all.

Leaving the forum.

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  #293 (permalink)
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bnichols View Post
Good luck to you all.

Leaving the forum.

I assume this is because you were previously warned about 'flooding' the chatbox with a lot of posts talking to yourself, keeping in mind this is on the home page of the site. This happened on many, many occasions so I had to ask you and warn you to stop.

Then tonight you said you were very drunk, and even admitted you knew you would be banned, etc while posting once again to yourself in the chatbox.

So, I banned you from the chatbox --- not the forum --- which prevents you from continuing your drunk ramblings on the forum homepage.

Now I see your post that you are leaving. Presumably upset that you were not allowed to continue.

In that case, cya!

Mike

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