Example 1A - Gold (XAUUSD)
Update - The Momentum Ratchet and Volatility Extension
You may think that the SDC represents a linear representation of price action.....but think again. The SDC breathes in association with the data sample that comprises it and responds to non-linear mechanics.
In a previous post I showcased how with momentum increases in the direction of the underlying bias, that the SDC ratchets in the direction of the bias. What you will also observe in the chart below is how the SDC also extends or contracts with volatility. The blue rectangles represent the original representation of closing prices across the data range since trend commencement up until trade entry of 1.0 sigma. Now observe how the momentum push since entry has increased the variation of closing prices within 1.0 sigma according to the now extended data set. The orange rectangle represents the current volatility range of closing prices within 1.0 sigma.
What this actually achieves is that with momentum accelerations in the direction of price bias, you are afforded more breathing room for your stop. If momentum in the direction of historic bias declined, then the narrowing of the SDC naturally reduces the breathing room. This has important risk management benefits which is the name of the trading game.
What this tool explicitly ensures is that when your are right, you are given room to allow profits to run. When you are wrong (which is more often than right), the SDC ensures that you are out of the trade via SDC compression in quick time in a very objective (non-subjective) manner (cut losses short). Once again we are using statistics of price action to make the judgements....not our intuition.
Update - The Momentum Ratchet and Volatility Extension
You may think that the SDC represents a linear representation of price action.....but think again. The SDC breathes in association with the data sample that comprises it and responds to non-linear mechanics.
In a previous post I showcased how with momentum increases in the direction of the underlying bias, that the SDC ratchets in the direction of the bias. What you will also observe in the chart below is how the SDC also extends or contracts with volatility. The blue rectangles represent the original representation of closing prices across the data range since trend commencement up until trade entry of 1.0 sigma. Now observe how the momentum push since entry has increased the variation of closing prices within 1.0 sigma according to the now extended data set. The orange rectangle represents the current volatility range of closing prices within 1.0 sigma.
What this actually achieves is that with momentum accelerations in the direction of price bias, you are afforded more breathing room for your stop. If momentum in the direction of historic bias declined, then the narrowing of the SDC naturally reduces the breathing room. This has important risk management benefits which is the name of the trading game.
What this tool explicitly ensures is that when your are right, you are given room to allow profits to run. When you are wrong (which is more often than right), the SDC ensures that you are out of the trade via SDC compression in quick time in a very objective (non-subjective) manner (cut losses short). Once again we are using statistics of price action to make the judgements....not our intuition.