Similarity Trading - The ZZBB Method

Introduction
This is a trading journal on my application of the ZigZag Bollinger Band Method (henceforth known as ZZBB) that was derived from the thread "The Similarity System" by Eurusdd. Eurusdd is the originator of the method along with its components. Through various discussions, observations and trades a new method has evolved which I wish to explore in this journal.

Objective
This journal actually represents attempt #2 in applying this method. The first attempt resulted in a $5K demo account increasing to $30K in 3 weeks (mainly thanks to FOMC news announcements), but the trades were placed using the ZZBB. I want to make sure that success was not a fluke and will post all my trades in this journal. Hence the stated objective is:

1. To turn a $5K demo account into a $50K demo account using only the ZZBB Method

Thread Rules
I don't wish to impose too many rules on this thread. I am not a mathematician or computer programmer - discussion on these topics should be directed to the other Similarity Threads here (links coming soon). I didn't aim to make this an interactive journal but I am allowing members to post with a cursory warning that if discussions get out of hand I will not hesitate to turn posts off.

Trading Method
Attached is Version 1.0 of the method
Additional Steps to starting with the method

Hi Vlady,

wish you good luck with your own thread and many green pips for your second try. Go on man!

Cheers Matt, looking forward to it!

Assumptions

1. The method separates the definition of time into Minutes and Hours
2. The method does not use the definition of time equivalent to Days or Weeks

Application
On the MT4 platform, the 4H is the highest timeframe delineated by the hour. Some systems allow 8 hours but having I don't consider 2 bars to be enough in providing visual information about a day's trend.

I consider it to be like Base 10 series of numbers. 0-9 are like the minutes but as soon as 9 completes you write 1-0 to make 10. The "ten" is the base, not the zero to nine. Yet, we always tell the time in context of the hour and the minute... thus providing some juxtaposition between Small and Large time.

We know that 24 hours is 1 day, but when we see that 24 hours is really 1440 minutes - that encapsulates 3 trading sessions - I believe that the HOUR becomes the most robust timeframe to summarise the intricacies of the minute activity whilst summarising the total of a session's trading activity in 8 simple bars.

Days, weeks and months pose a more complicated fractal problem in that the trading sessions are not equal among MT4 broker providers. You also have the problem of different starting times. Do you include Sunday? Do you allow for daylight saving? Do you account for leap years? Public holidays? The list could go on. These differences, whilst not insurmountable, mean that the definition of time at the "day/week/month" level is not as consistent as it is at the hour level - and therefore require a different set of instruments calibrated to that level - that are not covered in this method.


Charts
Before I start trading, I will start to compile some thoughts and journalise the method I have for preparation. Coming back from a holiday, this routine should hopefully re-align my views and thoughts. The diary/journal should also hopefully counteract any desire to place stupid trades that I am also still prone to do.

Here is the current view of the 4H:

1. 4H Long Term: Since January 2013, on the back of Draghi's speech, the EU has created that key low and jumped back above the 300EMA creating 3 tops and 2 bottoms on the ZigZag indicator. I label these ZigZagTops (ZZTop or ZZT) and ZigZagBottoms (ZZBot or ZZB).
2. 4H Short Term: Despite having formed a top and therefore expecting a bottom in the next sequence, only 2nd tier bottoms have formed. This creates difficulty in forecasting the next sequence - does it go higher and cause a repaint or does it go lower and establish the low?

The indicators used in the ZigZag are:

1. Standard MT4 ZigZag : set to 24,5,3
2. 3 Level ZZ Semafor : set to default settings

I have previously used different settings on the Semafor, sometimes aligning the setting to the ZZ. I have found that leaving them to default provides consistent enough resolution and filtration for the swings. That is, the *3* swing that accompanies a ZZT or ZZB tends to stay put most of the time if left at default. It also coincides with the MT4 ZigZag lines... except in some key circumstances.

Currently, you will see that the ZZ has formed a leg but the Semafor has not printed a ZZB or ZZT, thus effectively showing that the market is in flux and waiting a major decision to move the market into a trend. I posted on the Practicality thread that it may be worth not trading this week until something establishes a movement with force.

Conclusions
The 4H at present:

1. could post a ZZT or ZZB thus implying that the 1H could post either of these swings within the next 30 bars since the start of the week... or 5 trading days
2. there has been a ZZT or ZZB marked as *3* for the past 15 days and prior to that 2 big swings within 5 days.
3. the current swing high ZZT must mean that a ZZB should print at 1.3300 but since it hasn't any ZZT will result in an anomaly with price wanting to resolve again at 1.3300
4. price remains above the 300EMA, creating a default bias of UP. The 300EMA has provided support thus far, with 2 clear bounces. A test and fail would herald a Down Bias
5. when price is above the 300EMA and stochastic is above the 50Line, long trades seem to have more force - particularly when the stoch is in the upper half of the Bollinger Band. During retraces whilst price is still above 300EMA, stoch crosses the mid of the Bollinger Band (BBMid) and travels to the lower half of the Bollinger
6. Tops coincide with the Stoch being at the extreme top of the Bollinger, ie. 100
7. Bottoms coincide with the Stoch being at the bottom half of the bollinger and touching the Bollinger but not necessarily being at Zero of the stoch meter. The only time Stoch is at Zero was at the last major bottom, and price was below the 300EMA

1H
The current 1H chart is in a precarious position of potentially repainting from 1.33969

We are looking for a ZZB on the next sequence but price action has clearly rejected the 300EMA and 1.3337. The price formation itself is similar to that of an inverted head and shoulders (even though it's not)... and the consolidation of price into a flag formation implies that prices will break 1.34 this week.

The swing low or ZZB is a higher low. The day's "top" may not be the finish of the move and we could probably take a breakout trade at 1.34 during Asian session....

It would be better if price retraces to 1.3371 for a long scalp during Asia session.

EDIT:
Added another chart of the 1H showing possible move.

1.3371 pending Long order placed

I'm about to go to bed. This is just to test the reflexes after a holiday :-)
Tomorrow has lots of news.... fireworks. Either direction. This trade would be a scalp in my opinion.

EDIT:
15M chart added. Still slightly scattered in how to construct these posts but I'm getting there.
The 5M and 15M have Dissimilarity (DS) Zones marked in Green. The top and bottom of the zone coincide with the BAR of that timeframe where a dissimilarity occurred (see other threads for a full explanation of what Similarity/Dissimilarity is).

The pending long was placed beneath the 5M zone. It happens to coincide with the 1H BBMid which is an important support line if price is to remain on an UP bias.

I am banking on a gut feel that if Asia creates a top and rejects it, that price may swiftly fall and cancel out one of these Zones but that the 15M tf will act as support. This could allow London Open to re-set and retest the Asia High for a fail which would coincide with jittery negative reaction to news for another swipe at the 1.3337 price and 300EMA

Added another long at the top of the DS Zone which was triggered last night. The order at the bottom of the zone was not triggered.

Good luck mate

Current State of Play

The 5M Zone has been cleared and the pending long at the bottom of the zone has been triggered, with a ZZB in place. Expecting a ZZT (hence the longs)

The only short term spoiler is the 15M which also has a Green Zone that I expect price to either (a) avoid or (b) bounce off... which is why I have put a pending long just underneath the top of that zone. It has also printed a ZZB (which could repaint lower as per above) and now expecting a ZZT.

The bottom Stochastics fro 5M and 15M are at zero level extremes so they are higher likeliness to be ZZBs. In addition, we are right on the 300EMA so this is a 50/50 scalp really. My TP on the first long is set to 15 pips, no TP on the others.

Note: all my trades are going to be placed without direct influence on news etc. I normally wouldn't trade like this but I really want to focus on getting all the signals from the ZZBB instruments. If I was to incorporate my normal style then I'd have to throw in Pivot Points, Fibs, S/R lines, D/S boxes and it would be a mess and more work to try and write meaningful posts. So I will dispense with those things in this journal.

Thanks Josh... hope this works!

Looks like the 15M zone was the kicker. Bounced off that but must be careful as the zone is not cleared. It could suck price right down into it.
May re-evaluate and take my profits... will see at the coming hour's close.

Didn't quite do what I thought it would but Asia did post a high and London did go to 1.3371 eventually. If the Asian High is taken and rejected, then I will try to short for 1.3337

What a ball breaker!

I targetted 1.3337 for a short target, but not off piddly moves like this. Grrr.
I definitely wouldn't have shorted off that bounce I posted above.... it just doesn't smell of that typical short setup.

So basically I didn't short it down and was building longs. I've placed another long close enough to 1.3340 with TP @ 1.33657
What a wasted opportunity.

Oh well... next

EDIT:
War or no war... this may be a Long play by big players

I see your not off to a great start!! What is ur MM? SL? becoz it all good and well trading without SL but trust me when it real money it alot harder holding....

over 20% down in a day is alot!!!

Just some advice best of luck

Mate! It's not my best work let me tell ya.
I've not worked out the MM yet on this baby. This method doesn't provide me yet with the confidence I have with say Fibs or Pivots where I can calculate a SL based on a level. This is mainly due to the repainting feature of the indies.

As it stands the only way to mitigate this is to hedge but on a day like this where I am hardly on screen I can return with an absolute whopper of a drawdown, so that's not going well but will need to be addressed. I'm not satisfied with just calculating 2-3% of account yada yada but clearly something needs to give - I'll look at this over the weekend - if I survive!

But thanks for the heads up Josh. I know you've got excellent work using S/R and D/S zones. Do you just use the DS to trigger your trades and as a result your SLs are pre-set?

I only really open and close my trades with PA, I will put my zone on chart and see how price react to it... SL depends, normally above/below my zone or the Hi/low of the move...

Good luck mate

P.s 1.3270 Is my next Zone below!

Yep, got that on the 4H. That's where 300EMA is at present.

When you say PA are you doing candlestick formations and the like such as flags, breakouts, h/s, usual deal?

Exactly...

Everything you need to know is in Price Action!!

If you want to build positions so you have a better and faster % wait till a position is in profit and use that profit for you next position...

Just to let you know, using the CI method I have over 100+ consecutive wins but the drawdown where to much! Risk to high....

That is why I say be careful because holiday period is coming to the end and you don't want to get caught with a lots of position in the wrong directions....

GL

Yep, understood. I had the same thing in Attempt #1 and obviously today for me!
Good to know someone else experienced it.
Cheers for the encouragement.

Today's Recap

Overall today was a shot in the bunker although I managed to partially get myself out of the sand trap back onto the rough. A sum total of 41 pips.
I had roughly the right idea but executed it like a dog's breakfast and at one point was $1000 underwater. Not good.
Technical difficulties connecting to the VPS didn't help and neither did various ad hoc meetings at work. I remember coming back to my desk and instead of $200 down being $800 and almost gagging on the coffee.

Lessons in MM needed! LOL

I had expected a trip south to revisit 1.3337 but I didn't read the price action properly. The sequence of the 1H and lower timeframes confused my interpretation: I thought that the Black Hole price on the 1H would have sucked price north but it didn't. It drove it away and I didn't spot a short setup.... not even at 1.3371

The chart below shows that a ZZTop is due on the 1H - tomorrow or the next day. The Bollinger Band is too wide for a ZZT to print during Asian session, but I suspect that if 1.3371 holds then it's another narrow range day. Hopefully that will help me close the bad trades near enough to 3371. If by chance we get to 3395, it will be a bonus.

Due to my mistakes today however, I've been observing the printing of the *2* semafor. If a brown *1* prints then often it's a retracement, but a red *2* does imply a medium term swing. As of now, as we transition to a new day, a *1* ZZT has printed meaning we should expect a *2* ZZB in the sequence.