(binned per thread starter’s request) CookieMonsta's Journey Into

https://www.forexfactory.com/showthread.php?p=3712930#post3712930

Auxesis is one of the taf members whom fti have considered to be holding on true to the core mo. He has arrived at the conclusion too. There are many clues inside.

I see how the 3 legged animal can be used,

But this, hmm
Fti:
..........((cable/chf/yen)).........
usd ..((........................)).Euro ...........very synthetics

End of fti post

If long gbpusd and short usdchf, one gets, short dollar, then short usdjpy and short eurusd, one gets long jpy and short eur, so short USD, long GBP, long chf, long jpy, short eur.

What's the relationship between them?

Basket of currencies model?

If so, then ro3k with USD as core, then assessment with USD as core, and other currencies, meaning, USD will always be at 1 wing either long or short, middle are inverted, right wing is inverted to middle. Meaning strength/weakness detected from charts, and so currency basket model is used to synthesize portfolio?

Just my gut feel, this is ro3k not just for pulsing markets but for actual use to organise portfolio according to currency strength in a basket of currency model.

Thinking back, fti once asked this question, where will they be parking their money. Perhaps this is it?

I remembered this question before, and I figured this question in relation to the Chinese market crash and how ro3k works on this, it was that when the Chinese markets crash, since they hold so much USD treasuries, it makes it such that USD would be highly correlated and because of that since USD is driver the rest gets moved together and the moves may be sustained according to how the Chinese investors are going to position for defense for the crash, by parking their money in the 7 other currencies apart from USD.

So if that's the case, the basket of currency model would fit this as well, hence if so, does that mean that the butterfly is spotting currency strength and positioning for it?

Perhaps the key is in how the money is flowing, how ro3k is organized and all is how the currency is flowing. Hence the butterfly is attempting to play the cross current and attempting to diversify and take a calculated approach on how these 7 to 8 currencies interact with each other and how the money is flowing.

By Jacque:

Hi fellow readers,

Would like to seek your advise on adapting the MO to trading equities. Understand from earlier posts by fti that he trades asian index using the same MO with delta hedging - if I have misrecalled any content and this is inaccurate, I ask for your indulgence.

My question how to adapt it to equities with the constraint that it cannot be delta hedged - i.e. cant buy options. Reason for my asking is that if the day so happen to be in retrace, then it will turn into a rescue ops which may be needed to carry overnight after the market close. Given no options purchase, then the position cant be delta hedged for the overnight. And if the overnight limit is small, it means that losses will have to be booked. One method that hit me was to book the losses first and note the avg cost before the position was closed, on the next day, then resume the rescue ops by entering 1 spiral higher. This is all assuming higher time frame does not show trend change yet. Would like to seek your views and any alternatives on this.

End of jaque post.
Fti:

You not seems have good understanding of delta.
delta not necessarily mean options only.
Please try read more about the subject.
And please never say this to your employer.
If he understand the greeks, you will draw very shallow picture and low understanding of strategic positioning management.

For laymen is understandable.
For pros, if one not have full hold of subject , is best listen to the experts.
Ask questions instead of draw erroneous conclusions is wiser.

There will never be delta zero positions, in traders blotters.
always only hedged(neutral) deltas. Try read indepth about delta subject.

For homework try calculate delta of butterflies.
and butterfly positions not exist only in options.

Also try make boxes without using options. Boxes are delta neutral for given time span.
You may get light bulb there.


regards

and remember delta neutral does not mean zero. means neutral AS AT only

End of fti post

Seems to indicate long short book? In equities, there are specific funds running long short books being market neutral aka, pairs trade. So to remain delta neutral, or rather dollar delta neutral, one can do long short to hedge against beta, hence the alpha comes from spread of portfolio. Idea is used here?

Question, what is the box fti is talking about? I know options box, I know futures spot lock and futures butterfly is to trade contango and backwardation, for spot what's the way to butterfly and box?

wait a second, 3 legged animal, butterfly and why the 2 legged animal fails, the key is inside, how the money flows, and boxing and delta neutral has its key in how the money flows, how the currency flows in the 3 legged animal, you long eurusd, you have 2 choices, either spread out eur or usd, cross manifest by how the eur or gbp works, the money flows. delta neutral means delta 0 as at that single price, so possible for tearing, so, all evidence points to this.

holy sh*t this is the box!!! so if this is also a box and you use collar, you can engineer against losses in extremely precise and specific ways!!!

its all back to ro3k, terrain, rescue and attack, can you see that? it never violated the core, it enhanced the core.

In volatile markets and sudden counter trends, the key to defending book, is implementing lock against volatility in its inception not that far out. That was the keep.

I saw more insight now, things I read in the TAF thread but could not understand.

Fti:
ok.
options is not a binary decision game.
so have more strategic plays.

long call = long underlying
long puts = short underlying

so if long options is buyer of option, so need pay premiums for either long call or long puts.

short call= short underlying
short puts = long underlying.

short options means is writing the options, so recieve premiums writing either the put or call.

the difference between long or short options is that:
if long options need pay premiums, so risk is limited to premiums paid.
if short options, ie writing the risk, is behaving like insurance company, recieve premiums but risk is unlimited and depends on market volitility+4 other market components.

options can be quoted strike price deep in the money, in the money, which means the option has bookvalue.
or quote at the money which means is at where the spot market is.
or out of the money,or deep out of the money, which means that the oprions has no value unless the strike price comes in the money in the spot market.

options is not easy subject for general trading. So unless you want be very professional then you will need to do very intensive course on the subject.

because you will be managing 5 factors
while in general trading is only 1, buy or selling the underlying.
in options the permutations for strategies is unlimited and therefore profitability is not dependant on market movement alone, but speed of market+time+strike +intrinc +volitility++ all becomes strategically useful for profitability.

to discuss this subject , i would need you understand basic options strategies , like the back of your hands. oTherwise i would need write a book, just to get you understand the basic possibilities.
If i go into the advance strategies of the forms of option synthetics possible, probably need write 50 books.
so if you want talk with me about options, you need master the basics of it form, only then would you understand what i am talking about.
Because if i started talking about the different "butterflys" that you can make and the type of "boxes" you can contain the market within you will be lost.
if any trader want go there , we can discuss the implication of "strangles' and "straddles" of the basic forms.

This methedology is only necessary if you are managing very large books, so is not cost effective for small traders. So is not discussable in public. So has no standing on the forum. Discussing the myrid strategies here could drive all the general traders insane. but these the most powerful tools professionals use to contain risk and make "sure and free" moneys from markets. If you like to try, then study about fair pricing of the markets & options via the different models available. The grand daddy of which is the Black and scholes model..

End of fti post

The 5 vectors are in red. Interesting. Will go figure them out, the keys to options. Interesting thing is, speed of market is not in the pricing model of black scholes. Probably terrain read, my conjecture is correct, that's short sword mo is the model to handle the terrain read aspect.

And there is no physical component in black and scholes to specifically target speed of move except using spot.

Anyway, pound and EUR in their own world? Other currencies scuttling around them, only GBP and EUR making strong pushes.

Seems jpy the one taking all the punches.

Dollar feels neutral like it wants to move but can't move.

Not sure is it because I am slow in the brain or something, ro3k tells us terrain, and also shows us possibility of rescue or not, together with trend impulse or pullback.

This finally kicked in today for me.

I kept rescuing against the trend, and the 3legged animal sort of helped ease the problem by being able to rotate it out, but keep rescuing against trend will still have a chance of blow out, so, this was the part I could not wrap my head around, when it is still alright to rescue or not.

1 of the most important skills i would like to learn, is to be able to trade blind, and end up coming out ahead, the most important aspect of this is being able to get out of all kinds of bad positions and instead by any means necessary, generate either break even or profits, in the worst case, i lose alittle here and there.

learning 1 pair, allows one to trade 2 terrain types range and trendy, and there is the volatility aspect of it as well, high and low, so in relation to your position there is actually 3x2 configurations, trendy in your favour, trendy against your favour, rangy, and its volatility high and low permutations. so 6 different configurations, use your mind to consider all battles and scenario transitions from all 6 into 1 another, there will be afew configurations trading 1 pair cannot allow you to effective handle without taking loss.

but 3 pairs, now, we have something to work with, notice that the combination will not be 6^3, which is 216 permutation, because 2 pairs and 1 cross, will cause the 3rd to be 1 type of terrain, so typically its 6*6, about 36 permutations. and when this is the case, you have quite abit of leeway to handle scenarios because there is how the money flows from each of the currency to the next.

its all in the counter measures. when you are right on a move, just plain old attacking will do the trick, but when you are defending, many many tricks to be able to survive the volatility.

https://en.m.wikipedia.org/wiki/Flatland

If your mind is stuck on 2d land, how can you comprehend 3d land?

Where is your limit? Your limit is set by you and the real environment around you, if the world is 18d, and you limit your mind to only 2d, then you truly cage yourself in.

Since the 3 legged animal is a derivative of the butterfly, it's incredibly useful to protect book while markets are unsure. Wide volatility type market with no direction, which keep giving false break signals and many breakout traders get sucked in real hard.

The key is to be able to cover your risk back to back and not let floating loss get out of hand.

The money management is as follows, for 1 pair, you need to be able to mobilize say 50 troopers, so for 3 pairs, 150 troopers, and assuming at the critical stage, all 50 is sunk in for pair 1, and you need to rotate out with 2 more pairs, you essentially locked with the other 2 pairs so, 150 troopers.

So from that, 1.6x for 1 pair to repair exposure, so my guess is total of about 4.6x to use the 3 legged animal properly, but if it can be used properly, you can essentially cover your position back to back.

Hence, from total cap, divide by 4.6x then from that do the normal skewing, and you will get your base size.

Assuming fibo, with 3 levels, from base of 2, which is 2 3 5 8, 18 units, about 83 units from base skew of 2, although if your assumption is lvl 3 is used only if all tank and need a strong rescue, regroup all from before and deploy 16 instead. And that's not 18 units but 26 units.

Hmm, usually when you hit about 18units each, means you gotta try to bring troopers back out till about 10ish as next step will be critical and is essentially not good for riding.

As for the strong rescue, it would be, 120 units. As you can see the base size will be rather different then.

Having lots of tricks to stay alive in the markets is always a good thing.

When you hit the critical point of 50 in each pair to get the lock, what you MUST do is to bring as much troopers out as possible otherwise you risk your whole book on hope only, as once you hit 150 trooper in 3 pairs, you have no chance to profit, and no chance to lose, and you have no more troopers to deploy, and if you decide to leg out, and are still caught out with size, you books sigma will probably be difficult to handle. Effectiveness of rescue will not be there as you do not even have enough size for effective rescue, that is why the 1.6x from 50 reserve troopers. This is the curve ball which this 3 legged animal has.

But if it can be employed well, initial counter trend moves can be handled effective without much risk as well. Especially those which look like pullbacks but are really killer moves that just suddenly slams you without warning.

The protocol will be to try to bring troopers here and there out as much as possible and also to reduce troopers exposure and to allow for further rescue when the chance arise.

Best if you could reduce trooper count on all 3 pairs down symmetrically.

Careful in gbpusd, seems flows are really not in it, see how they tank like that 40-50 pips on brexit news in 1 5m stick, feels like the flow is really from else where, gbpusd is just where they pop people's stops. Feels like gbpusd is really thin.

Hello CookieMonsta,

I'm of the same feeling. Cable requires a very specific, the same time flexible and robust, approach. Hands of fakes and stop hunters. It must be a paradise for those who are able to tame it. Or for bold ones, just waiting for another 1000 pips spike...

I'm currently live testing DAX.

Hope that you are fine in your progress out from the box.

Best regards, Exnav

actually, whatever that goldenfinger posted in the TAF thread, makes me wonder is there an arb opportunity? arb of the betting vs options, this is advanced stuff, which is creation a financial engineered scenario to bet in such a way where there is no way to lose, its pretty much dutch booking.

in the market wizards series, some professionals are able to engineer models which are like multiple scenario and they win money, for example they have narrowed down to either eurousd would move up or gbpusd would move up, so they do barrier options on both and either way they profits if either scenario is fulfilled. this is not really taught in TAF thread, but these are kind of like probability engineering meant to target specific scenarios, say through fundamental analysis, it narrows down to 2 high probability scenario, rather than to bet on 1, they bet on both, leaving a small probability where non is met, then money management is done to complement survivability.

basically, 1 way is to check the odds and how much it pays off, and those companies doing this, are essentially probably free orderflow too, then you can see how you can engineer the portfolio and do a dutch book and arb them big.

Hi, Exnav,

things have been going well, on top of moving out of the box, it seems like by being able to handle the 3legged animal, it instead of moving out of the box, it reinforced the box, now i am able to feel terrain of ro3k better than ever. it seems the 3 legged animal in active management is actual practise for ro3k and actually helps sharpen the feel of price action and ro3k sensing.

Regarding gbpusd, there are ways, but 1 pair may require your mm to be extremely robust, since volatility may be very bi-variated, so what is measured on the charts needs afew legs to measure maximum volatility leg, and spec the mm from there

regards.

seems like my analysis of my mistake is correct.

terrain is the main problem.

following identification of the mistake, i had gone on to figure out how i can trade better, by being able to handle terrain better.

today's dance was the result, it was a churning whipsaw market for eurusd and usdjpy. however, what allowed this dance to be so much better was the fact that, it had gone on a churn and i was sucked in, but because of the 3legged animal mo, and doing uneven spreading, i was able to be inline with the momentum and result in profits even though my original eurusd position was off and in loss, the usdjpy kicked in and helped me out, especially when it was a whipsaw into break out transition, this position is usually fairly difficult to handle if you have sunk in level 1 to 2 in to rescue and all have sunk, leaving last level of 3, lets say after level 2 is put in for both eurusd and usdjpy you have 10 on eurusd and 10 on usdjpy, what you can do is wait for the momentum to come in, rotate it into an uneven spread, and attack with 6 on the one with the momentum, and for today it is 10 on eurusd and 16 on usdjpy. instead of having to deploy 16 on eurusd, a skew in attack on usdjpy with 6 can be deployed instead of a level 3 rescue, so alittle lesser size can be put in, and still yield a fairly good rescue, of course assuming usdjpy is fairly near your entry point. and then when in the money, it can be slowly pared down to 6 10 ratio and so on to ride out, then maybe take all profits on usdjpy then initiate rescue on remaining eurusd position if it is still desirable.

this is 1 way to use the 3 legged animal too.

seems like the 3 legged animal and strengthening ability to handle all forms of terrain except counter trend, reinforce each other, strengthening 1 is strengthening the other, and the 3 legged animal is the missing piece to handling counter trend moves. and it is a complete cycle.

Interesting thing is, for the past 1 week, after having concerted effort to work on my terrain read skill in conjunction with the 3legged animal. I am able to rescue fully, in all circumstances which occured from last week till now, within my scope of management which is about 4hrs per session, no losses.

This definitely have potential, and I think I am on the right track.

Will definitely be interested to see how far I can go with this 3 legged animal.

Implication of being able to rescue within short timeframe means, book is managed with exposure low and maximum intratrade draw down minimized, i.e. bleeding is stopped the moment momentum is spotted and possibly reversed by uneven spreading.

Hi CookieMonsta

remember my spiral drawing with skew and line chart..... .

thought you understood it.... well done my friend. .

regards

Phil.