Higher Edge within a Single Candlestick

Yep cognitive bias definitely plays a part IMO.

For example if I superimpose a 'pseudo random' price series series on top of another 'pseudo random' price series, I can actually reduce the randomness present in the blended system. This is how engineers reduce the noise in signals using principles of destructive and constructive interference (eg those noise reducing earphones you might wear on your flights to Monte Carlo). Applying this to the market, what is noise on the lower timescales gets progressively reduced to amplified non-random signals in the longer term. The signal to noise ratio is amplified over the longer term time horizon.

The good things about discussions like these is that it encourages you to think about the logic of your approach and try to define the underlying assumptions. What is less interesting are those forms of discussion where white is white and black is black....or he said she said type of argumentative discussions. The posts on this thread have unfortunately occupied too much of my time today *thinking*.....but that's why they are fun. :-)

Speaking about noise and interference.

This is the noise of a 100% efficient market.



This is the noise of a real market.



But this is the noise I like the most borne from hundreds of years of dampening the randomness :-)

A thoughtful post worth the read. My true realization and turnaround began when I stopped starring charts and contineous flipping of timeframes for years and years resulting in cognitive and optical illusions and biases. When we stare we only see what we want to see searching for things that appear to exist but it is never there! A major turnaround happened in my life when I started to learn how to code, started tracking ALL my trades on a timeframe basis, started to collect my trading stats based on timeframes, started to backtest based on timeframes....everything I do now is based on timeframes i.e. duration. Pick any trading style and it has to be dependent on the window of market's 'life cycle'. To the naked eye, ALL timeframes look alike or similar on charts but when you analyse the underlying data (and I mean heaps of data across many pairs and across many timeframe combinations), there lies an underlying sequence of events that are repeatable and via statistics, predictable to a certain extent to give you an edge. These sequences are not at all easy to find and it takes years of hard work and analytical and data science skills to get there. I am talking over 35Million candles worth of YTD analysis to come up with the sequence for intra-day signals across 28 pairs and over 85Million candles. Incredible amount of processing power and rigor is required to find an edge over 50/50 to put your hard earned money on the line. When I was trading on charts, it was always based on hindsight bias based on historical patterns, SR, SD, 00 line and the rest of the nonsense. Now, it is 100% based on statistical bias/edge. I only take signals that have proven to generated over 70+% winrate. FX is a game of numbers and more larger the distribution of numbers, the better the quality of edge that works in your favor. I have some signals that have proven to work over 90% of the time on weekly timeframe but with bigger drawdown as it takes time for trade to develop and progress towards my direction. To circumvent that, I trade both long term and short term trades in the same account via automation resulting in a far superior performance. Time is the most important component. You have nailed it brother !!! There is an edge in a single candle but if you stare at just one candle on one chart, you will keep on starring for the next 10 years. I am learn a tremendous amount from CP and PipEasy (both have superman logos!).

My entire automation is now based on the combination of this thread title (using CP's theory) along with PipEasy's
"Buy if the current candle closes above the opening price of previous DOWN candle"
"Sell if the current candle closes below the opening price of previous UP candle"
When automating these concepts is when I accidently ran into some very unique and pecular observatons taking me last two yrs to get to where I am now (and I am still not completely there yet!). Finding edge to tilt odds in your favor is an astronomical effort. There are no freebees in life. Just my 2 cents to compliment this thread if it helps.

I still use FXCM but no longer for charts. I love the movers and shakers indicator which is my holy grail for manual trading of events.

Finally the discussion is getting interesting again.....I will subscribe again hoping the shit has gone.
So here is the point: in a complex system variables are what make it uncertain and they are infinite, but the system, meaning it as an organized order, is still in place; therefore chaos is part of the scheme.
The longer the period of reference considered to collect data the more the variables that can affect your forecast, so the fallacy of any bias: it is very similar to weather forecasts: till 3 days they are quite precise, beyond that they are no more reliable.
However the more you zoom in to analyse details the more you will lose the order finding only in comprehensible chaos.
Nature offers many example of this: for instance consider planet Sathurn.
You can see beautiful and elegant rings around it, they appear perfect and linear: you are observing a perfect ordered system; now zoom in with the telescope, and what you see is a tremendous number of ice blocks running wildly and crashing with one another all around and this time you are observing chaos; but you are not observing the truth because all that chaos is part of the same ordered system, so chaos contributes to create order.
The only thing that changes is the view of the observer: therefore, what matters is how you look at things.

Hey man, please don't forget about that Goldman Sachs trader

So um... is anyone aware of Peter Crown / Dibs / The Real Thing ?
What are your opinions on the "hot hand" ?
I asume that it's a directionaly biased state of the specific market.
I was amazed to learn that the concept of some strength weakness indicators originated from Tom Yeoman's excel spreadsheet.
The fundamental principle of which was to compare the daily candles of each pair. The Low was given a 0. The high was given 100. And based on where in relation to the range the current closing price was, each pair was given a number which was used to measure strength/weakness

The only thing that changes is the view of the observer: therefore, what matters is how you look at things.
-Strongtrader

That is a very good observation Strongtrader and applies to many aspects of the Market. Thank you for that.
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Thanks for the responses everyone,

Hello Skyway,
You are correct, longer time periods do increase the random characteristics of the Market (ex, "Less Fat Tailed"). However the Market is still on average heavy tailed even when using longer time frames, once trading costs are factored in, it remains difficult to profit. (So I do not advocate trading longer conventional time frames example 4H, 1 Week, etc). I in fact advocate against trading, until the individual has developed methods of finding and trading biases that they have control over. What I do advocate for is research.

What I will repeat from my first post is:
Notice how the period used to analyze an event can change the observable characteristics of that event, now if you were making bets (trading) the outcome of an event (ex. will it continue to rain?), would it not be crucial to take into account the period of time used to observe such an event, or perhaps omit time out of the equation completely?

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Simply take into account the following which is true (It is a "Market Constant" <throwback to an old thread of mine), so take a mental note:
Market Data (or just about any type of Data) is either Heavy Tailed, Random, or Thin Tailed, dependent upon the period of time used to analyse it.

The conventional time frames such as 1M, 5M, 15M, 1H... etc. create a bias Heavy Tailed environment. So I would suggest experimenting with unconventional methods of observing the markets, once you have a solid understanding of conventional methods: time based, renko, etc.

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We know for a fact (as mentioned earlier) that,
TIME directly effects the observable CHARACTERISTICS of just about any form of Data
^ that is missed by so many individuals yet it is something that is easy to see once you begin looking at it, so just imagine what else might be missed due to cognitive bias, think outside of the box my friends.

I will leave you guys with this for now:
The same way TIME effects the observable CHARACTERISTICS of Data
There is a variable which directly effects the observable CHARACTERISTICS of PRICE

When looking at price charts, traders do one of the following, but there is only one way that the trader has control over the observable characteristics of price:
A. Use time
B. Not use time
C. Other

NOTE: there are ways which a trader can observe price that gives the trader control over the observable characteristics of price.
The same way traders create bias using TIME vs. DATA by simply by modifying the period of time used.

So take some time and look into what happens to the Characteristics of price when using answers: "A. Use time" or "B. Not use time" from the above.

If you do enough work you'll have better perspective and then can begin dabbling in "C. Other." But investigate A. and B. thoroughly first.

Remember how the correct answer was "Other" for the Rain question regarding Characteristics of Data/Time, well the correct answer is also "Other" for price too.

****************************************

The answer to "Time vs. Data" was provided in my first post, but there are many things that need to be looked into:
TIME
- Time vs. Data = Observable Bias (Time directly effects Tail Distribution, mentioned a few times)
- No Time vs. Data = ?
- Unconventional Method of Observation vs. Data = ?
PRICE
- Time vs. Price = ?
- No Time vs. Price = ?
- Unconventional Method of Observation vs. Price = ?

Before anyone starts running around frantically I would suggest investigating the basic relationships mentioned here first. Simply because as explained in my first post, something so basic was missed by the majority. By jumping into more complex theories one would be wasting time if they do not have the proper foundation to understand the more unconventional methods of observation and their significance.

The more observable biases you find the more profitable your trading methods. I will tell you this, without the cost of trading 1 Bias is more than enough to make money (I have shared that bias in my first post and mentioned it again several times in this post). However, due to the costs of trading and slippage, more than 1 bias is needed to make stable profit.
I have found a total of 3 Biases during my time, and I do believe there is a 4th Bias that can be achieved. However, it took me the better part of 3 years to find my first Bias, and additional time for each additional Bias (the last 2 Biases were easier to find due to the research that was done trying to find the first Bias).
Ps. a Bias is also known as a "Market Edge"

To get the ball rolling for some of you,
Biases can be found by: unconventional thinking, lots of work, observing and documenting (relationships of) something I like to call "Market Constants,"
they do NOT change regardless of if you're using them 70 years ago, or today. Below is a link to a thread that I made sometime ago, which shares just a small handful of Market Constants,
https://www.forexfactory.com/showthread.php?t=581678
Market Constants definition = "A Characteristic which has existed in the past, does exist, and will continue to exist as long as there is a Market to trade."

In short my friends,
Find Market Constants, look for relationships (the same we walked through how there is a relationship between Time and Observable Characteristics of Data)
And you will eventually run into Market Biases that can be used for stable system development.
So don't rush it and think that you'll "get it" quickly, research and develop patience. This is a marathon, stay focused, and question even the simplest of things that are taken as-is and you will start to advance your perspective.

Godbless, lots of love for you all!

Rparm

Exactly. Allow me to comment on this. Surely, the time duration of a trade/bet will affect the distribution of it's outcome. However, it doesn't usually change the expectation for the outcome (mean) if we look at truely random markets.

However, if you plan to hold a trade for a longer time (and thus to withstand the drawdown) you will increase the odds in your favor. At least this is what you can conclude from the recurrence property of the markets. If you wait long enough the prize will come back to your entry level (and go even beyond it to generate some profits, too) ...

hey rparm, what type of charts do you use ? probably not candlesticks, and also are you a scalper ?

Thanks for your posts, Copernicus.

I have a question about the quote, quoted above. Is it certain that quantum systems are fundamental random or is it still possible that scientists find in the future that quantum systems are non-random?

Hi Gu-Night. :-)

Nothing is certain.....but......IMO I genuinely think there is an impassable roadblock at the planck scale where we will only be ever able to mathematically project into this domain to attempt to understand it as we are classical observers immersed in a classical domain. A bit like a fish that is confined to the aquarium when a broader domain exists outside the aquarium.....or a 2 dimensional flatlander living in a 3D geometry.

The main obstacle we need to overcome to be able to delve into this different domain and attempt to understand it is our cognitive biases brought about by our learning through indoctrination and through the way we are physically wired and have evolved in this world. It is not intelligence you are wrestling with here in understanding mathematical notions of QM....but it is the 'mind' roadblocks that stand in the way which do not allow us to confidently navigate this different system terrain. For example observer A who views a tree from one location sees a different system state than observer B who views that same tree from another location. The tree to observer B is smaller than the tree for observer A for example. We understand this as a very simple notion of 'different perspectives' but if we dug a bit deeper into this very common notion, our blinkers would be taken off and we could understand some of the deepest things. Who is right...observer A or observer B? Well the classical way we resolve this conundrum is that we adopt the position that the height of the tree is taken from a reference point C at the base of the tree itself. What in reality is the case is that if I understand the entire state of the system from observer A's vantage comprising the tree and observer and the geometry of this relationship, I can transform that state into the exact new state seen from Observer B's vantage. In other words, all vantages are correct. What they don't tell you is to observe the entire system and simply focus on the tree. If you can understand this, the 'weirdness of the special and general relativity theories of Einstein is a breeze to understand and not counter intuitive in nature. The same for understanding quantum mechanics. You need to observe the system for what it is and not what you would like it to be. Is this starting to ring alarm bells in your head in relation to the markets? Can you possibly see how different participants and the way they interact with a complex system can exploit edges from various perspectives?....and all are in fact right....not wrong.... but attacking the features of a complex system from different vantages? Does this give you a warm fuzzy feeling that an understanding of complex systems for what they are might lead you to a sustainable living within certain caveats of applied risk management? I will let you be the judge.

Another key point to note is the following:
a) are you an external 'passive' observer peering into the system (eg. from outside in) which is the way we like to think we stand with respect to experimentation; or
b) are you an 'active participant' in the system itself observing from within (eg. from inside out). The role of the observer is fundamental for both relativity and quantum mechanics. If you do not interact with the system, you do not entangle yourself within it. For example in the famous double slit experiment if you do not measure which way the electron passed through the double slit, then it actually as a superposition, and not a particle, passes through both slits. If you interact with the system to measure the 'which slit' then you collapse the wave-function and an electron as a classical particle only passes through one slit.

If you put QM on the same footing as GR (eg. from vantage b) there is a strong possibility that you may be on the right path to solving this long standing riddle between General Relativity and Quantum Mechanics. In a nutshell it ALL is relativistic and dependent on where you are doing the observing from in the context of the system you are seeking to understand. For example, if quantum entanglement is a real system relationship, and if it is non-local and connects with a universal quantum wavefunction as deduced by the Wheeler-De Witt equation, and if the universe is all there is.....then you must be looking from inside out. There is no god's vantage from outside this universe to do the peering taken from the conventional viewpoint of interpreting QM classically. :-)

Current attempts at understanding the quantum domain in classical terms is confounding.....once again those classical roadblocks of ours get in the way. The best we can do when we approach the problem of it's interpretation is by applying classical concepts such as where a physical particle (or thing) is located in the context of a 3D and 1T geometry (spacetime). These attempts to extrapolate classical notions into the quantum domain lead to an array of different interpretations. The last I checked there were at least 10 different successful interpretations, each being mathematically consistent. This is the time when some bright spark like Edward Witten or in our forum PipEasy comes to the rescue and says....hey dufus....doesn't that mean that these solutions are just different viewpoints or manifestations of the same underlying process or symmetry? :-)

The problem we appear to be facing is that we are delving into a domain into which the 'classical domain' is just a subset or is an emergent feature of an underlying system. To derive a classical result from the quantum domain, we need to 'collapse the wavefunction' which transforms a quantum state into a classical state where a singular outcome is resolved in terms of a 3D and 1T geometry.

What this means is that we can only describe a quantum state in terms of a wave function which is a mathematical description of a system in an abstract space (Hilbert space) and as soon as we attempt to 'map' this state into classical terms we must irreversibly 'collapse' this wavefunction into a classical state by interacting with this state with our classical measuring instruments. This is a bit like trying to re-define an abstract concept into a box.

Some of the properties we have to deal with in delving into this domain are notions such as 'fundamental uncertainty' which is evident through Heisenberg's uncertainty principle. This fundamental inability to apply a binary outcome associated with questions such as is a particle here or here?, or what location and velocity does a particle have etc? leads to what is referred to as non-commuting properties in quantum mechanics which in classical terms is underpinned by statements that can only be defined in probabilistic terms.

Please forgive me GU-Night for the long winded roundabout way to tackle your question but in Quantum Mechanics, understanding the context of the query is essential if you want find clarity. In specific response to your question....then, ......no there is no way around the uncertainty principle. Many, including Einstein have tried....to no avail. Unfortunately Neils Bohr had the last laugh in his wild debates with Einstein about counterfactual indefiniteness or non-locality . This fundamental uncertainty is not attributed to a problem arising from technological limitations of measurement, and is truly fundamental' leading to 'truly' random outcomes classically. For example when dealing with radioactive decay, we can define the decay in terms of a probability outcome with an amplitude of of X, but that is the best we can do. We find that there is no ability to find a more fundamental answer.

Below the level of the Planck scale, concepts such as spacetime and 'things' as we know it take a new abstract form which can only be resolved mathematically in abstract terms using 'abstract' geometries (eg. Hilbert spaces) that are a different geometry that we classically reside in.

So some of the things that we can state with a degree of confidence is as follows:
1. It is not 'turtles all the way down'. What this means is that we can't address the problem by reducible means....eg. get smaller and smaller resolution to find out what is going on. We actually come to a finite barrier referred to as the planck scale where to understand things further, we need to apply different concepts to what we are used to. Below the level of the planck scale, the classical predictions of quantum field theory no longer apply. We need new maths to interpret it and we can never actually probe it with classical instruments to understand it's 'real' nature;
2. The collapse of the wavefunction is unidirectional and a fundamental process. Once collapsed it stays collapsed. This is because if we interrogate the quantum domain with classical instruments (as we are participants in a classical system) we contaminate the result and need to then be described with the 'thing' that we were trying to interrogate as a new wavefunction comprising the entire classical state of measurement and the thing under observation.
3. The uncertainty principle tells us that at the fundamental level 'seperate things' do not exist and concepts of spacetime or classical geometries of 3D and 1T no longer apply. The classical domain appears to be an emergent outcome of processes arising from the quantum domain. If you dig deep enough, the best way to understand this domain is not in terms of objects or things but rather as processes within processes. This riddle when viewed classically poses problems in our interpretation such as the Schrodinger cat problem. Is it dead or alive?....well in fact in the quantum world it is neither. The best we can muster is that in the quantum state it is not a binary outcome. It is in a superposition of states of dead and alive.
4. Quantum concepts are universal and inter-connected. In classical terms, what occurs here also impacts on what occurs on the other side of the universe. Remember that the rules of 3D and 1T no longer apply if you are scratching your head with this one. Bell's inequality tells us that these processes are either non-local or counterfactually indefinite.
5. Classicalism and it's baggage such as causality, spacetime, 'things' etc. are an emergent outcome arising from deeper processes. Clues are arising that relativistic symptoms such as length contraction and time dilation, the fundamental speed limit of massless particles etc. are an emergent symptom of underlying quantum processes.
6. At the deepest level we can go, the reality we understand appears to actually be a reality derived from information theory. In the words of John Wheeler who spawned so many of the great physicists today, it is the its from bits that create the universe we know and like to think we understand. "all things physical are information-theoretic in origin and that this is a participatory universe"......Yes, at a very deep level, we probably do live in some form of Matrix :-)




I hope this intrigues you mate as it is fascinating. They say that exploration is dead...but it really does still exist....not in discovering new lands perhaps...but in discovering new domains......to seek out new mathematics...to find new ways of describing systems.........to boldly go where no man has gone before :-)



Cheers

C

PS. I am not sure what is harder. Trying to interpret the physics of natural systems or trying to interpret the physics of these classical markets. My gut tells me that the latter is harder. If less time was spent trying to get a handle on this universe and more time was spent in the important stuff such as interpreting financial markets then we might get somewhere with this damned riddle of how to make a sustainable living from trading....tic :-)

"Biases that are inconsistent can be profitable as well as consistent ones."

Hey RondaRousey,
I'm sorry, I don't quite understand your statement.
A "Bias" as I mentioned earlier is the equivalent of a "Market Edge." (my definition at least)
So, having an "inconsistent Bias" as you mentioned, or "inconsistent Market Edge" will mean inconsistent system performance no matter how one looks at it.
The relevancy of such a thing when it comes to trading should be noted down as something to avoid when developing a trading system.
If you can elaborate on what your talking about that would be appreciated, because as of right now what you said is quite esoteric when presented without any examples or proofs. If you can provide an example of:
"Biases that are inconsistent can be profitable as well as consistent ones."
that would be beneficial for this discussion.
(note the example does not have to be from trading, it can be anything. Just as I used Precipitation earlier to explain one of the relationships of Data and Time. I do respect your private research/trading.)

"To use a poker analogy, you can win without looking at your cards."
IMO the same way one can win at roulette, however to make a living off of it for an extended period of time is highly unlikely.
The same could be said for games of lower probability. So, yes a person can make money as long as there is a fraction of a chance of them winning, be the odds 99 to 1 against them. However, to live off of such a thing, consistency is needed IMO.

*****

Hello metta87,
I do not do scalping.
I trade using automation, I do not use any charts.
Instead of analyzing my trading methods look for Market Biases, and spend time researching about Market Constants.
I say this because when you use someone else's system (use or copy) without knowing the fundamental reasons why each Input/Function exists, you are essentially blind (no disrespect, just a figure of speech my friend).
Although my system is based upon Market Constants, if I were to give out my system today with it's ideal inputs, if there were any change in market structure in the future: ex. "All Retail Traders must hold positions for 1 Month minimum." How would the system need to be modified to take into account this new constant?
Anyone that doesn't understand the nature of constants, and what are true biases will have a useless system in their hands.
So all I'm trying to do is promote unconventional thinking in regards to what is constant, what is profitable, what should and shouldn't be used when developing trading systems.
Recently, it took about 3 weeks for me to document the majority of my Trading System's logic as a simple word file. Not because of the length of code, but more so because every single function of the system has a Bias reason behind it that provides an increased likelihood of profitability. Even after writing it all down there are many things that still require further descriptions. Every function's reasoning has to be described, there should be a constant behind everything.
There is still one function which till this day remains partially undefined for me, that would be the Entry.

Best of luck friend!

*****

Hello AntiCre,
What you mentioned is a "Market Constant" however by itself it is unprofitable as I'm sure you know. These types of characteristics are the "True Nature" of the market and should be focused upon instead of things that are inconsistent. These types of constants will eventually show you more and more Biases which can eventually be put together to create the core of a trading system's logic which will have consistent performance. IF the performance of ANY trading system is inconsistent that means one or more of it's functions (reasoning behind the functions) is not a Market Constant. Nice work AntiCre keep at it.

Lots of love and respect as always!
Rparm

ROFL !

Hey S. I had to edit my post to include what you were on about....that damned cognitive bias that infects us all :-)

The DIBS strategy was a great thread and what attracted me to the forum in the first place. That and Hanover's quality posts.

Here is how I interpreted the 'hot hand' way back in April 2013 :-)

Good stuff S

hmm ok good to know, dont worry im not really trying to analyse your system, im just interested when people mentioned unusual way to trade especially when its not related to timeframe. Those constants you talk about, do you mind sharing a couple of them, not how you trade them of course. Lastly, i know that 1-2years ago you were digging deep into eurusdd transient-reccurent zones, do you still find value in them ? thanks a lot

There's a coherence in your thinking but it's based on a wrong assumption about what is time.
After 6 or more decades since Einstein' s relativity theory, it still is very difficult for the majority to truly comprehend what it says.
When we think to time we are thinking to an illusion which is so ingrained into our mind that is so hard to bring us beyond it.
So, what is time? Food for thoughts.

My idea about time.
We are deceived. We have been deceived and we will be deceived.
Rparm gave a nice example when he said that market is static, price is static. We think it is dynamic but it is a static sequence of values.
I do believe we are living in a multidimension world. First, second, third, fourth, fifth... dimensions.
Currently we are in third.
To us living in third dimension seems that time exist and does influence us.
How about going into fourth dimension and analyze time? I wish we could.
I do believe that anything in this universe is a static sequence of moments.
You can say "But I remember what I did yesterday, I have the feeling of time?". True but I believe it is your mind deceiving you. It is your mind putting together all the static moments and create a dynamic flow.
Example. When you record a video with your camera it has a defined frame per second. It means that there are X frames in a second. X static images in a second.
When you play your video at speed of 60 frame per second it seems a dynamic flow, whic it is not. Mind tricks you.
I do believe time does not influence this world and does not influece the market.


Alex