Diversified Trend Trading Approach

AUD NZD short looks interesting. A lot of room to fall.

USD SGD chewing through supply zone...

Attached Image (click to enlarge)

EUR AUD did not manage to go through the supply zone and fell.... now trying to get short to demand zone....

Attached Image (click to enlarge)

The kinda guy you stop in the street for :-)



For you BN :-)




....and a little slice of Poland for R and BN :-)

TU C!
Love Basia Trzetrzelewska ...

a piece called Copernicus

Not a bad remake.....

Using principles of Momentum to give the added boost

As readers would be aware the EDTT has changed form over the last few months where we are focusing on the M30 timeframe to extract momentum from the market. The theory behind this principle works on any timeframe...however to ramp up trade frequency (as we are only watching 24 pairs under discretion), we are now simply focusing our efforts towards the single M30 timeframe, but extracting as much juice as we can from momentum bursts.

The way we do this is to keep our powder dry until we can define using the SDC a short term momentum swing within a longer term momentum swing. Note that it is critical that the shorter term momentum swing has higher momentum than the longer term swing. You visually see this with the angle of the SDC of the short term swing compared with the angle of the SDC of the longer term swing. If you cannot define a short term momentum pattern with higher momentum...then conditions are not ripe for a setup and wait for these conditions to emerge. You want the greatest chance of achieving a profit on both the short term momentum burst plus the longer term momentum swing. The short term momentum assists the longer term swing. Without this short term booster...then avoid the trade.

Here is how a setup in which both short term and longer term conditions are being met. If we cannot define a setup where both short term and longer term momentum are present, we simply push out our pending order entries further away until we can. It is essential that both conditions are present as it is the shorter term momentum pulse that gives impetus to the longer term momentum and allows the longer term to have the greatest chance of reaching a breakeven condition as quickly as possible.



So look at the chart above to see what I mean. Notice how we can define a short term swing within a longer term momentum swing that is reaching a breakout point well above the prior swing high of 7 August. What this signature means is that momentum is clearly building as we reach new highs. In the absence of volume measures, the short term momentum pulse is a proxy for building volume.

So now we have confirmed our setup conditions we place two order entries at the pending order entry. One order entry is configured to address the short term term swing whereas the other position is configured to address the longer term momentum swing. What we are doing here is having two bites at the momentum cherry with two distinct trajectories and different position sizes. When the burst in short term momentum is over, we exit the short term momentum swing and ride the longer term momentum swing with the remaining position.

All the same rules are still applied as per the EDTT strategy in regards to how to configure the SDC however note that we now risk 1.00% per trade (as opposed to 0.25% per trade). Note that the following simulation is configured for 0.25% per trade. In live trading we adopt a 4 x multiplier.

Let's see how it pans out. Pending orders are set and we are ready for lift off.



We have now committed and we are riding the momentum train.



Notice that so far the short term momentum burst has continued in line with our momentum trajectory and we have now reached a breakeven position (worst case scenario) on our short term term swing. All our attention at the moment is focused on our short term momentum burst. We don't have to worry about the longer term swing as every momentum addition of the shorter term burst brings our longer term position towards break even. Remember that each time a new high is made we extend the SDC's to capture this higher price.

Let's continue.........



Short term momentum is starting to dry up so it looks like we are about to lose our first line of defence.

Let's continue....




Hasta La Vista short term momentum. We managed to squeeze a small profit from the trade but more importantly we have now setup our long term momentum with a good chance of standing the test of time.

Let's see how it pans out.

Well at least we are beyond breakeven on the longer term but it looks like momentum has had its day in the sun.



Damn....you can't win them all but at least both trades added some small profit to the result. However the purpose of this post was to update you all in how we now tackle momentum. Ensure that conditions are ripe for both a short and longer term term momentum burst. If both conditions are not present, then avoid the trade and wait till your setup confirms both conditions. We use the shorter term momentum burst to add muscle to the longer term momentum swing and it is our proxy to reflect that volume and momentum is building for a good breakout.



Cheers

C

Dear C

SDC trading is great but head and shoulder formations are sometimes superior...

Thank you for the explanation.

What in situation where there is only short term momentum and not long term SDC? Would you still enter?

Evenin' R.

I tend to need both as the short term is the impetus behind the long term but with your variation (where you go for the breakout from your congestion box) then it might not work that way for you. You always tend to nail them early using your congestion boxes which can be great when they have a head of steam on them....but I don't tend to use the congestion box principle and use price momentum from the SDC as my guide. I am not sure which is better.....so it probably needs to be tested.....but what I was finding in my backtest was that there were many more failed breakouts when I simply used the long term momentum in isolation. Adding the short term momentum requirement more often than not lead to short term swings closing close to breakeven but the long term swings were in general far more successful. What I also found was that occasionally I nailed the short term swings under parabolic moves giving fantastic R:R results which compensated for many break-even trades and small losses.

My gut feel at the moment is that your trade frequency is far higher than mine given your refined technique..but I am tending to nail those that I go for.

When volatility picks up you will find that you nail it with your breakouts from congestion boxes....and I will be left in your dust....but at the moment under current conditions of fat sumo's...I am slowly but surely building the capital account.

LOL :-)

Don't forget descending triangles.

I was under impression that you put alerts over highs/lows (I use the same logic, but I draw rectangles). Does it mean now you don't consider highs/lows anymore?

Yep I still have alerts on pending order entries that are placed in logical breakout positions but the final decision to enter now is based on the requirement for both short and longer term momentum swings to be in place. The way I am visualising it now is whether price action is heating up as it moves towards the pending order entry. If it is simply moving to pending entry with no momentum signature building then I move my pending order entry further away until that signature is present.

Given the array of fat sumo's around....this seems to be one way of filtering out the false breakouts. Even with the fat sumo's around lately if price is picking up steam it can move those fat bastards a fair way before they revert.

Nikkei is still driving ahead under some great steam. :-)



It's like a long train running

Do you have any thoughts on maximum distance between buy/sell pending orders.... because there is always a case to extend it further... For example 2 x average daily range?

We need actively battle against this programming in our mind....

https://en.wikipedia.org/wiki/Hyperbolic_discounting

Given two similar rewards, humans show a preference for one that arrives sooner rather than later. Humans are said to discount the value of the later reward, by a factor that increases with the length of the delay. This process is traditionally modeled in the form of exponential discounting, a time-consistent model of discounting. A large number of studies have since demonstrated deviations from the constant discount rate assumed in exponential discounting.[3] Hyperbolic discounting is an alternative mathematical model that accounts for these deviations.[4]

Let your profits run... is the solution....

What I do find is that when a trade is exited at the trailing stop my pending order placements are roughly equidistant above and below the exit. When I have some spare time I will have a look and try to get a general width for you.....but given the adapation made to the EDTT....it is how price action moves as it approaches the pending orders that is the chief determinant at the moment.

Nice mate :-)

IMO almost every tendency we have as humans is contrary to good trading discipline. Overtrading has been my major enemy in the past and I have consciously taken steps to control that propensity. Whenever I am about to enter I force a break where I evaluate the why? I continually remind myself that I can still catch every real trend even if I delay my entry and psychologically that seems to do the trick.