Trial Run for Volume&Range Patterns

Thanks for your quick response. Okay great, I'm with you, I think we all will only have part of the puzzle, but overall it should be in the same direction. I'll study your methods and theories this upcoming week and post some charts on EFFI trend lines. Have a great weekend my friend.

Since there was a talk about Murray and SupRes lines – here is how I use them, only for the guidance in two cases.

1) Only for Murray. If the price is going up and stacks for a flat exactly below 7/8 level for several periods – it will very probably try to reach at least 8/8 level. I never sell in such a situation.

Vice versa. If the price is going down and stacks for a flat exactly above 1/8 level for several periods – it will very probably try to reach at least 0/8 level. I never buy in such a situation.

For the case 1): Sometimes the price may pull back after such a flat period for a take-off run. Usually it goes not farther than the nearest Supply/Demand zone.

2) Murray with SupRes. If the pink dash line (Pivot) of SupRes moves close to +1/8 (which is above 8/8), and especially if the pink dash line is between +1/8 and +2/8 – the reversal downwards is very possible.

Vice versa. If the pink dash line (Pivot) of SupRes moves close to -1/8 (which is below 0/8), and especially if the pink dash line is between -1/8 and -2/8 – the reversal upwards is very possible.

For the case 2): Sometimes during very strong trends the price may continue beyond the extreme levels. If you see an attempt to do it (a spike at least), switch the chart to another time frame and back to refresh Murray lines before the end of the chart period. Don’t buy at the highs or sell at the lows until Murray lines confirm that the price has really moved to another trading zone.

Hello my friend Shaltay,

Okay these are the questions I have in reading your posts only here on Forex Factory. I am still going to practice drawing the trend lines, and will post here in the next day or so. I know you haven’t explained everything and I may be touching on areas you will cover in the future. No rush as I am very thankful to have someone like you explain your theories.

Questions

1. I see you use an EA called “DD Signals” that gives you three prompts of Yes or No. Can you explain and share this so I am able to use this tool as it seems to be helping you in your trading decisions.

2. What is drift sand exactly? I understand it is a consolidated zone where buyers and sellers feel more or less comfortable until they find another idea where to move but is this something you draw or is it an indicator for something that appears on you chart that represents a flat zone? If you are drawing it, how do you make drift sand exactly? It seems to me it would be where price is ranging back and forth between a consolidated area. What timeframes do you use drift sand? Do you use it on a higher timeframe, and then zoom into closer timeframes to see when price breaks out of the sand zone

3. Can you explain a reinforcement candle in more depth? I understand a reinforcement candle must not exceed the last high or low. Otherwise it becomes just a common candle in the movement. When do you find a reinforcement candle? Many chief candles are higher or lower than the current candle, does that make the current candle a reinforcement? Only that the candle must not exceed the high or low of the previous candle, than I can spot so many of these candles. Can you explain further.

Also currently the EUR/JPY you have 2 sell orders, but I think both closed above the reinforcement candle, but you still have the positions. Is there a reason? Maybe because the channel is still down, but you have not taught us this, so I will wait.

4. Can you explain the “Yellow Blues” and exactly how it has a good attribute of a good outcome? I know you stated the patterns on higher timeframes may take awhile to develop, but still would like notes on how and why this develops, and what it means for us trading?

5. Does every trade have a panic stop set to 300 pips? So no order should really go past 300 pips in the red.

6. Phantom trend line? Don’t have to give details now as you said you would blog about it later, but don’t forget when you have time of course my friend.

Thanks again for everything, I am only asking you all these questions because I am very interested in your method and would like to master it so I can explore further how we can use these wonderful strategies.

Hi DrNoStopLoss,

I see, you have really read the thread, great! I will answer by parts, and I must warn: don’t try to digest all aspects at once. I closely work with these ideas for a year so far, but still often forget this or that aspect while trading. In the long run, all this information can be used separately, piece by piece, when there is a market situation for it.

Question: I see you use an EA called “DD Signals” that gives you three prompts of Yes or No.

EA “DD Signals” draws diamonds and dots on the chart. Three “Yes/No” are from the indicator “Status”. These tools were also programmed specially for my ideas.

“Status” indy is a predecessor of EFFI Index tool. “Status” works by another algorithm, but also evaluates different combinations of tick volumes and ranges. Each letter is for one of three possible correlations: Y - the correlation is present, N - it is not present.

“YNN” appears if the situation is good for a breakout. “NYN” appears if there is enough activity in the market, and the market will continue moving somewhere. “NYY” appears when many players invested much money in the trades, and pullback is quite possible (though in strong trends it may not happen). “NNN” appears if there is little money and little interest.

“DD Signals” looks for two type of divergencies ("Impulse" marked by a dot or "Disbalance" marked by a diamond) in the behaviour of bulls and bears. “Status” and “DD Signals” together create combinations, and some of them proved to be stable patterns. The pattern “Yellow Blues” you ask about is from the collection of such patterns.

Since “Status” and “DD Signals” proved to be of some use – I’m ready to attach the files. Put “Status” into the indicator folder, and “DD Signals” into the expert folder. “Status” will show the letters immediately and will change them after the close of the period (if there are any changes). In the current candle don’t forget that the letters relate to the previous candle. DD Signals will appear only when they happen, so at first you can get an empty chart. Both tools have sound and window alerts with some written phrases. If there is any confusion from these phrases – I can change them.

I thought to prepare a PDF with all the patterns I found, but it takes time, and now I think I can start posting the patterns by parts. So, the description of “Yellow Blues” is attached too.

To be continued…

I totally understand and am trying to digest everything slowly. Who knows in the end I may use your theories in a different way that may work for me. Just trying to understand it slowly and see how everything works. Thanks for the wonderful pdf file and the ea and indi. I will test it out in the next few days.

It would be perfect
Ok, more questions and answers.

Question 2. Can you explain a reinforcement candle in more depth?
I guess, you’ve already read the post about the model of the broken reinforcement in the blog (http://www.effimethod.com/hidden-eff...reinforcement/), so I’ll explain precisely the recent case. The reinforcement candles are marked with the red dots.

The price made a new high (the candle #1), and pulled back on the next candle. I take this high as a reference point and start from zero calculating/summarizing EFFI numbers of all next candles. The first candle was -46. So, 0 + (-46) = -46. The second candle was +560. So, (-46)+560=514. Here it is – the reinforcement candle. EFFI numbers went below zero and grew positive again, and the candle didn’t make a new high. It is like a condensed spring ready to shoot. If such a candle with such a significant attempt is broken in the opposite direction, the movement is very likely to stop and reverse.

This time the upward mood was still strong, and after some flat the price made another high (the candle #2). Again, several periods after I found another reinforcement candle. Calculation: 0+(-666)+422=(-244) // (-244)+(-252)=(-496) // (-496)+895=399. Here it is. Again, EFFI numbers went below zero and became positive again, and the candle didn’t make a new high.

Would it be in the bearish movement, a reinforcement candle would appear if EFFI numbers were above zero and became negative again, at the candle that did not break the last low.

And, by the way, despite the attempts to reverse the upward movement, the bulls did manage to move EURJPY higher.

And now my reasons why I didn’t close my Sells with all that.
First, I was going to close them above the level of the first reference high (above the high of the candle #1 on the picture above). On my H4 chart a candle did close above that level – but inefficiently, only 598. In terms of EFFI method it means a false breakout.

Second, during all move higher the daily candle didn’t reach an efficient EFFI number.

Third, the price bounced (for the first time) from the basic bearish trend line on D1 chart. It gave one more reason to wait for further reaction. So far, my Sells are not bad again.

Fourth, you mentioned Yellow Blues which offered to Buy. Yes, it was so three weeks ago, and there was a move upwards, and I earned something on it, and I was going to wait for its further development. But then the bearish week created another pattern (I’ll post it later), with a possibility for a downward movement. And now I prefer to think “bearishly”, while there is no any convincing reason to stop it.

A panic stop of 300 pips is for the cases of mad moves when I’m far from the comp. In the normal situation I will hardly keep the losing trade so long.

Question 6. Phantom trend line?

Very briefly, I still develop this idea. Phantom trend lines appear between the candles with EFFI numbers above 800. I’ve found some rules how to deal with various EFFI trend lines (will be posted soon), but phantom lines still need some statistics. (I call them “phantom” because they are not main, but spoil the expected reaction)

The question about the drift sand is a topic inside a huuuge theme about finding supply and demand zones. I need time to write this chapter.

Okay great, take your time as this will take me a few days to digest everything you wrote. Thank you.

Okay this is my understanding of a reinforcement candle. Please let me know if I am thinking like you.


For a Bearish reinforcement candle:


1. Candle makes new high. (We will call this Chief Candle)

2. The next candle(can be 1 or more candles) needs to pull back.
This candle can go up to the new high but cannot pass it, correct? Does this candle have to go lower than the chief candle before coming back up? In other words does this candle have to go lower than the bottom wick of the chief candle?

3. Reinforcement candle will come back strong, but can’t pass the new high of the chief candle. This number has to be positive EFFI number
Must come close to the high of the chief candle. EFFI does not have to above 600. If it is a positive EFFI number but does not come close to the Chief candle's new high it is not considered a reinforcement candle.


For Bullish Reinforcement Candle
1. Candle makes new low.
2. The next candle(can be 1 or more candles) needs to pull back.
3. Reinforcement candle will come back strong, but can’t pass the new low of the chief candle. This number has to be negative EFFI number.

If this is correct, it does not happen often, I could not find one when I quickly glanced at the charts. Let me know if I am thinking like you my friend.

Hi DrNoStopLoss,
I was writing a new post here, but met your questions. Sorry, you are partly mistaken.

The termin "Chief candle" is not from the model of reinforcement. I call so a candle before an inside bar.
So, it doesn't matter how far is a pullback. A candle that makes a new high or a new low is just a zero point to start calculating the total sum of EFFI numbers of the next candles. The wicks are not important at all.

Bullish reinforcement candle (bullish R-candle, to be short) can happen in upward movement, when there is a pause/pullback after a new high.
Bearish reinforcement candle can happen in downward movement, when there is a pause/pullback after a new low.
Bullish up - Bearish down. In your description it is vice versa.
Yes, this is right, except "chief candle". A bullish R-candle (with a positive EFFI number) can't pass the previous high, a bearish R-candle (with a negative EFFI number) can't pass the previous low.
Not necessary, may happen anywhere, usually not very far from the extreme, but variants are possible.
Right, it can be any EFFI number.
No, this is not about it.
Forget about the position of the candles on the chart, except one condition - not making a new extreme. Then take a calculator and sum up EFFI numbers of the candles after the extreme.
I'll try to illustrate with the example of MACD. The diagram is below zero - for bears, the diagram is above zero - for bulls. The same with the calculation of EFFI numbers.
For a bullish R-candle. You look for it during the uptrend. If the EFFI sum of the candles in the pullback is negative (below zero), the bears are ruling the pullback. Once the sum of the calculation returns above zero - the bulls are back again and want to continue the uptrend. A bullish R-candle is the candle that added the "last drop" to make the result positive (above zero).
For a bearish R-candle. You look for it during the downtrend. If the EFFI sum of the candles in the pullback is positive (above zero), the bulls are ruling the pullback. Once the sum of the calculation returns below zero - the bears are back again and want to continue the downtrend. A bearish R-candle is the candle that added the "last drop" to make the result negative (below zero).

Hope that helps. When I have time I'll try to make a video, may be, for this topic. By the way, you are right, R-candles don't happen very often, but do happen. Try the smaller time frames to practice finding this model. Fractal indicator may help in the history - check the candles after every fractal to see if there were R-candles there.

And back to my previous writing. OK, I stopped the trades finally, after the efficient close of H4 candle above the control level. In the post-analysis I see that H1 charts gave several nice possibilities, but I could check the charts 1-2 times a day only, and it ended with a loss.

There is a nice saying: “Remember: if you hold a girl with one hand and drive a car with another hand - you are doing both things badly!” That was my case. A loss here, and workers’ mistakes in wood cutting and mixing colors in construction works, I didn’t notice in time.

But what was really in time – a reminder about a “drift sand” (Thanks, Raymond!). I absolutely forgot about this tactic, and the last 5 days EURJPY is exactly in such a zone. There were so many opportunities…. Read about this tactic here – an update in the blog: http://www.effimethod.com/effi-candl...-demand-zones/
(I said the theme is huge, but I tried to write the essentials)

Sorry I wrote bullish and bearish in wrong spot. Okay I will study the reinforcement again. I think I have it now. After I repair my account I can have this coded for our personal use. I have a wonderful coder who can code almost anything we need. I'll let you know after sometime when my account is repaired to normal. Now 1k, was at 5k.

Hi Shaltay

I grasp your concept of the R-candle, but what confuses me is why do you go in the opposite direction from that being re-enforced? An example is the last trades that you closed, the two R-candles were bullish indicating that the trend will continue in the upward, but you went short. Another one is the example of the same on your blog, the R-candle was a bearish but the move became bullish. So similarly there the move went opposite the R-candle direction, how do you really determine the direction?

Thanks

Hi Tamzy1,
This is just my style, because I can't say how far the price will go if the movement continues (the echo of my phychological trouble that the trend "is not my friend"). You are absolutely right, the most logical action is to trade the reinforcement for the continuation of the movement, not for the reversal. I just try to catch a big move at the reversal, because if there is enough force to break the reinforcement - it is probably a major change of direction. Sometimes it works, sometimes it is stopped. And sometimes I simply miss this model if I don't think there are general signs of reversal in the market. My lack of qualification, I have to master it and trade both sides, depending on the general view

If you want to trade the direct reinforcement, not broken - please, do it, and choose a place for a stop loss in this case too.

Your question is a nice example - how the idea can be adapted for personal preferences.

EURJPY. Two illustrations for the old posts about Murray lines and EFFI candles of ABC types and a new Sell trade.

Pic.1. This is one of the variants how the price can act close to 7/8 level before trying to reach 8/8 level: many attacks, and all pullbacks didn’t go far from 7/8 level.

Pic.2. I had a Sell limit order at 131.53 at the high of a bearish candle type A, and besides by this moment this level coincided with the third resistance line of SupRes indicator. I don't like, though, that this level is very obvious, and may be not fresh in terms of the classical SupDem trading, as far as I understand it. I will not be surprised if the price goes to 131.80.

Anyway, I’m going to keep the position till the end of the day and then decide what to do with it. The daily candle crossed the basic bearish trend line (pic.2), and if it remains efficient at the closing I may change my attitude from bearish to bullish in this pair and will close the Sell trade.

Theoretical update for EFFI method.
Part 1. At the end of the last week I got in contact with the coder who helped me with my tools and asked him about some more coding for me. We also discussed the existing Effi Index tool, and he made some suggestions regarding the equation. After some mathematical elaboration, the volume went out of the formula, but the result (how the tool works) remained the same.
It means that Effi Index tool doesn’t in fact depend on volume, and its function is supported only by OHLC. I decided to inform honestly about this fact because
1) It makes the tool simpler, and it is good for KIS approach;
2) It doesn’t change or invalidate any of previously announced ways how to use the tool;
3) By no means I would like to pretend that the tool is an “innovative black box” – it is not that, it is just an idea that works, and I think you should know about that to avoid any confusion.

Part 2. Then I did really add volume to the equation and got one more script. This time it measures efforts, not efficiency. The less is the number – the better.
After some brief comparing with the original Effi Index I’ve found out that Effort numbers are unpredictable. For example in three doji (all with only 0.1 pip from being perfect) Effort numbers were 120, 450 and 109. And the same in all candles: no equal numbers anywhere.
The tool could seem useless, but yet I see some possibilities for finding divergences, forecasting the continuation or the reversal, and refining what direction to use in Effi inside bar.

Part 3. The coder also made for me one more indicator named “EffiTotal”. This is a simple assistant – it calculates the sum of Effi numbers from a chosen candle to the most recent candle. I have some ideas based on sum calculation, but it takes sooo much time to calculate by hand.

Part 4. In the near future I will be testing this new set of scripts and indicators. I want to find an optimum combination, not overloaded with the data, and the variants of possible applications. Do you think I should open such trades in the demo which is linked to TE, or may be better to keep it at any other demo for a while?
If anybody who is really interested in the method would like to have the new tools for an immediate experiment on their own, PM me please. As earlier, I wouldn’t like to offer the tools publically before they prove being useful.

What a strange amendment in the new version of MT4! Last week I placed take profits for my Buy positions in EURJPY. For a long-term trade it was at 135.50, and it is so on my live account. But on demo it happened to be 130.50 instead of 135.50, in both positions. I could admit that it was my typing error, though I did it on demo and live at the same time, so it shouldn’t be.
But it looks like now MT4 agrees that take profit can be below the entry for a Buy position?? In the previous versions MT4 didn’t allow to do this – there was a sound of mistake.
My live Buy trade continues running. But there is not the correspondent position in my TE now.

Hi Shaltay,



I am wondering why you would ever take volume out of the equation. I love the fact that it measures efficiency. If you take volume out and just use OHLC, I feel this will be as good as a type of moving average or another indicator. With just OHLC you can see this by look at the charts I think. With volume added to the equation this is based on pure price action. I use it to detect when the number is over 600 there are strong players in the market. In the end it is up to you, you have the experience of these methods, but just questioning why you would do without volume. I guess I really like the efficiency method with volume based on price action and can see it as a plus in my trading style. I know the calculation and think it’s great. Let me know how the other methods are working, and if you find a major plus in using it when compared to the non-volume method. Staying tuned. Thanks.

Hi DrNoStopLoss,

I’ve broken my brain over these Effi variants. My original equation (with volume in it) and the coder’s simplified version (without volume after the mathematical reduction) – both give the same result as they are. My original formula as part of a new equation works well, if to check calculations manually. The coder’s version, being inserted in the same new equation, changes the results absolutely, and I can't understand this bug, there is just no place for a bug in two simple lines of the code!

I agree the coder was right mathematically at the first stage, but at the second stage the coder’s version makes calculations wrong. I dropped the attempts to win this problem and returned to my original equation, with volume in it. With all that I must confirm again, that the current EFFI index is based, in fact, on OHLC. I also want to confirm that the method doesn’t suffer from this fact, not at all.

Yes, in many cases it is possible to see at a look if a candle is efficient or not. But without EFFi index I can’t choose which of two Effi candles is more efficient, and I can’t tell between Effi and unEffi candle when the shapes of the candles are similar. Without the current Effi index I would not find new trend lines, and I love them because I see again and again how well they draw the map; and other dithyrambs for the current Effi index.

It is not like MAs (they create price-like values). It is not like any oscillator – I put many of them to the setting of 1 (period, % or whatever, to work for one candle), and I couldn’t extract any similar idea from them. When I made a diagram indicator based on Effi script equation, I couldn’t find any other diagram indicator like that. I believe, the idea of Effi index is new even if it is based only on OHLC.

But I also loved the idea that the volume was participating in the calculations. When it was sent away from the party – I felt disappointed and added it again into the equation of another script – EffiCombi (I will be lost soon in Effi names). This one is really based on volume and price action. I had troubles with it because of the bug mentioned above, but now this script works as expected and adds new possibilities to the method.

Nevertheless, this new volume-based EffiCombi script can’t be approved as the main tool of the method, because:
It can’t be unified for all pairs and all time frames; sometimes it needs a coefficient adjustment to show usable results. (The current Effi index is always between 0–1000).
It can’t be taken for the tasks of trend lines, because numbers don’t repeat, and there are no reference points for trend lines.

The good point is that EffiCombi can expand the insight in the price action in certain cases. For example (pic.), I used it to find the better exit to find the moment when the numbers of both scripts decreased. (The left chart is with EffiCombi, the right chart is with Effi Index)

I can now see the hidden divergences in the price action. For example, I saw 3 of them on H4 EURJPY and stopped playing up with such aggravating signals. My attempt to sell was stopped at BE, but at least I was not caught in a Buy trade, though I’m bullish-biased now.

I chose several popular indies which could show divergences, but none of them warned about all three.
In short, 1) you can use the current Effi index as explained and be sure it is not useless; 2) it will be even more useful soon. I need a bit more time to test and to make the charts aesthetically acceptable, now they look a bit “un-feng-shui-ly”.

What a nice NFP stop slippage - 50 pips stoploss instead of 20 struck the live account, and 63 pips instead of 20 on demo. But a plus to the broker - live was not worse than demo.

EURJPY: The daily candle has recently crossed the main trend line and bounced from the basic trend line (on my chart), but without much enthusiasm.

If the daily candle grows efficient (for that it should close somewhere below 132.10, I think) – I will definitely trade with bears now. If the daily candle is not efficient, I may try anyway to keep the Sell trade a bit more to see how it goes. The zone from 133 and down (on my H1 chart) looks like a dense bears area.