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Spuds Stochastic Thread Theory

  • #21
  • Jul 8, 2007 4:48am Jul 8, 2007 4:48am
Quoting Spudfyre
Remember why this is a theory...that dreaded 30% I haven't figured out yet.

When we go from comb threads to a new rope usually something is going to happen. That usual thing is a price reversal. So don't wait for a peak if you see a new rope...trade when all (all) the stochastics converge.

Sometimes we just can't have a reason for a change in direction like on this chart. Having said that, if we stuck with the trade until the fishnet occurred we wouldn't have lost much if anything.

Like I said, this starts to take some thinking and studying and paying attention to all those threads. It gets way way way more interesting but I think for now I'll leave you with this to mull over for a while, it is a good start.
Hi Spud,

I look forward eagerly to the introduction of the patterns and other methods with MTF stoch.

I do have a question with the chart in the above post (not sure if the chart has been copied in my reply). Where you have the first blue line (where the peak has occured), from my observations of the stochs over the last 2 mths, the only time to know that it was a peak would be at the close of the next hour bar, which is the big up candle. Is this what you also see? Would your (hypothetical) entry have been at the close of the bar on the blue line, or the next bar? This answer will go a long way to my understanding of what you are seeing.

Regards,
K.
  • #22
  • Jul 8, 2007 6:22am Jul 8, 2007 6:22am
Quoting Spudfyre
Spudfyre is derived from Spitfire...when I first joined the Internet many many years ago my nic was Spitfire wherever I was....of course as the Internet grew, Spitfire was well used and so it became Spudfyre (something no one would pick). I'm a Spitfire buff (it's a plane for all those not into historic aviation).

Think of everything presented by me as a tool. Nothing replaces anything, all the tools are designed to help and be selected to optimize our trading. Each of us will like some tools better than others and use them more. However, all the tools do use the same foundation that is explained early on in MTF Stochastics.

You are getting a littel ahead of me as I'm just starting with the basics of threads. However, from what we know so far I'll explain the chart you posted.

The first short entry is pretty basic with the LTFS (blue) on the inside wall and falling. The exit has 2 options. Use the LTFS inside wall rule or wait for the 1H 14,3,3 stoch (not shown) to cross back over 20. For the sake of keeping consistent with thread theory we are out when the LTFS crossed the wall.

The second entry is a loser. We would have stopped out based only on what we know of the thread theory so far. However, give me time and I will show us how to work around that one.

The third entry is again basic and the exit leads us to a break even point under thread theory alone. Again, we have tools in MTF Stochastics that will help us and one is following the 1H stochastic (14,3,3) until it recrosses the 76.4 level.

Again, this is ahead of where we are, so bear with me as I get all the info out there.
Thanks for your help spudfyre. By the way, spud is Australian for potato and fyre is Norwegian for fire, so I guess that makes you a hot potato!

I'm feeling really comfortable with this thread method as well as the whole MTF stoch system so I hope I can make it work for me. I've also been using some of the James16 PA to give me a heads up on possible turns in price and adjusted my stops accordingly. This seems to have helped at times, but the stochs seem to pick up just about everything anyway. Thanks again.

Mike
  • #23
  • Jul 8, 2007 8:13am Jul 8, 2007 8:13am
Quoting kermut
Hi Spud,

I look forward eagerly to the introduction of the patterns and other methods with MTF stoch.

I do have a question with the chart in the above post (not sure if the chart has been copied in my reply). Where you have the first blue line (where the peak has occured), from my observations of the stochs over the last 2 mths, the only time to know that it was a peak would be at the close of the next hour bar, which is the big up candle. Is this what you also see? Would your (hypothetical) entry have been at the close of the bar on the blue line, or the next bar? This answer will go a long way to my understanding of what you are seeing.

Regards,
K.
There in no "good" way to detect a peak before it happens and you are correct we wouldn't know it was a peak until the first candle closed after the peak. Having said that we can get a rough idea that a peak is building by watching the 15M chart. But generally we will trade after peaks are made or before peaks if we see a rope formed.

I'll be writing about peaks next and how we can use them.
  • #24
  • Jul 8, 2007 8:31am Jul 8, 2007 8:31am
Here is a indicator I made for this fantastic Thread theory....
The deployment histogram shows when a minimum range between the lowest and hightest stoch has been reached... Trade when histogram is 0.
If you don't want the deployment histogram to be seen, just put 0 as the FixedMinimum instead of -20.

Advantages of using the indicator.. you can easily change wall period, and slowing for all the stochs. (there is a limit of 8 lines for each indicator. So... 3 LTFS 3 HTFS, the wall and the histogram) If you want more stochs... just overlap another indicator with different autotf params... or manual params.

Tell me what you think or how could it be improved... maybe put an alert when wall is crossing 76.4 or 23.6 and deployment is less than a value...

Enjoy
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File Type: mq4 #MTF Stochastic Thread.mq4   5 KB | 2,519 downloads
  • #25
  • Jul 8, 2007 8:31am Jul 8, 2007 8:31am
a screenshot:
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  • #26
  • Jul 8, 2007 9:05am Jul 8, 2007 9:05am
Peaks and Trends

During a trend a peak occurring in the over bought or over sold regions generally translates into:
1. Over sold peak/upward trend = lowest low close
2. Over sold peak/downward trend = highest high close

Now when I write "lowest low close" or "highest lhigh close" it is a general statement that means looking at say an upward trend it will be a low point in that trend from that point upwards. It may not be exactly the lowest point but definitely one of the lowest points.

Below is a 4H chart showing an upward trend and a downward trend. These trends we are looking at are over a long period but quickly finding the peaks we can find the lowest lows and highest highs. Don't worry about the details, just look to see that the peaks are in the over bought, over sold zones and the price trend direction.
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  • #27
  • Jul 8, 2007 9:18am Jul 8, 2007 9:18am
Nice one Spudfyre I like it.

Thread Moto " Im no dope I trade the rope"


Mart
----o00o--°(_)°--o00o----
  • #28
  • Jul 8, 2007 9:23am Jul 8, 2007 9:23am
So we know the general theory of peaks and trends but the secret is in our attention to detail. This is going to be a rather lengthy subject but I think we can see by the previous post the importance of peaks and trends.

Find The Trend
Obviously the longer the trend the easier it is to see the trend. To find a trend starting live is a little tricky and can be a frustrating experience of whipsaws if one is not careful. Here is my take on trend finding.

Take a step back a zoom as far out of the chart as possible. Don't worry about specific details....just look for where the price is at and what the trend was before it. In this chart the price is quite high and we are in an obvious upward trend. Draw a trend line from the low point upwards to the latest low point. We must have a stochastic peak at each low point! A peak is has to be in the over sold zone of an upward trend.

Ok, so this is our current price trend. Our next trade will either be long when we have another peak in the over sold zone or we will be looking for a trend change.
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  • #29
  • Jul 8, 2007 9:37am Jul 8, 2007 9:37am
We come to our first peak in the over sold area of our upward trend. Remember we only care about the over sold peaks in an upward trend and are not interested in the over bought peaks.

I have zoomed in on our price chart so we can still see the trend line.

When we get this peak we buy long. We won't see the peak until the close of the candle so we are buying long at the close.

Notice the trend line is below the price.
Notice that our peak has all the stochastics.
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  • #30
  • Jul 8, 2007 9:51am Jul 8, 2007 9:51am
So we made our entry now how do we exit.

The chart below gives us a few pointers. The most important one is that we are up 95 pips before we have any hint to exit. So having any hint to exit after being up 95 pips is as good a reason for me to exit.

The hints to exit are:
1. We are up 95 pips.
2. The vertical red line marks the star of the rope.
3. The horizontal red line is the close of where the rope started.
4. The LTFS (lesser time frame stochastics) have reached 76.4 and are starting to turn and create a wall.

The formation of the wall is our strongest indicator to leave the trade. We might want to ride the wall a bit but in the case of being up 95 pips without any prior hint to exit, let us just take our bounty and run.

If you are wondering, the draw down on this trade was about 26 pips plus spread.
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  • #31
  • Jul 8, 2007 10:11am Jul 8, 2007 10:11am
Things get a little tricky when we are in an upward trend and a downward trend starts to form. As long as price remains above our first upward trend line we still consider ourselves to be in an upward trend.

However, now we can see a downward trend starting. Notice how the stochastics have peaked in the over bought zone and the high points of the price react (the second peak created a lower high price point). We draw a trend line here and this becomes our second trend line. We now have a trend within a trend.

There are two courses of action we can take. The first is that we continue trading only the upward trend and watch the downward trend. We have to keep in mind that this downward trend may result in small upward price actions. The second choice is to trade both trend lines. There is the third choice of only trading the new downward trend but that is risky when we are in an upward trend.

My personal choice is to trade both trend lines with a high degree of caution. We will try and grab a few pips until we get a single clear trend line again.

The last choice is not to trade at all and wait, but eh! We are traders..we wait for nothing!

This is where attention to detail is so important. Missing this 2nd trend formation robs us of valuable information. Don't get tunnel vision and if necessary use the zoom function and keep looking at the overall price action. We really need to catch these trends. Again this is best done on the 1H and 4H charts as we have time to think and look. You are far better to make a trend error and think you have a trend than not notice a second trend at all. You can correct any trend recognition errors but you cannot correct a bad trade made from missing a trend line. So, if in doubt believe you have a second trend line.
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  • #32
  • Jul 8, 2007 10:27am Jul 8, 2007 10:27am
Before I go into our next trade opportunity I should talk about peaks a bit more.

A peak only occurs above 76.4 or below 23.6
We don't consider a peak, a peak only made up of only LTFS (blue lines).

We want at least the "14" to peak but prefer all the HTFS (red lines) to be in the peak. This becomes a bit of discretionary decision making here. We might have some red lines and all the blue lines in the peak zone and consider that a peak. What we ideally want is all the stochastics in the peak so our discretionary decision making will always be how close we are to the ideal.

Just remember that a "24" peaking is much better than a "6" peaking. SO consider each stochastic value as a weight in your decision making.

Contrary to that is that the "6" will always lead the move before the "24".

If we score our peaks...so let us say all the stochastics are in the peak, this gives us a score of 6+7+8+9....+23+24=285 So a perfect score is 285.

If we only have some stochastics in our peak and our score is say...84..than our peak score is only about 29% (84/285).

If we had a score of say 175 with some stochastics then our peak score is 61%.

So to me...61% is much better than 29%.

We can trade all the peaks and figure the score so we can think about how strong the peak is in our trade and what we look for as a sign to exit.

How you want to rate your peaks is discretionary. I prefer to trade off strength rather than weakness, I find it much safer. I have not done a study on peak strengths but I am sure some one will at some point or I will and then we will have some statistics to follow. If anyone is into indicator making...a peak strength meter would be a great help.

Ok, so let's move on to the next trade.
  • #33
  • Jul 8, 2007 10:33am Jul 8, 2007 10:33am
So we need to back track a little to where we first dicovered our trend within a trend. We have a peak in the over bought to trade and a downward trend.
The peak in this case is what looks to be the end of a fishnet so not as defined as we would normally like. However it is the HTFS (red lines) defining our peak and creating a wall and the blue lines are moving inside the wall, so a short trade seems like a good idea here.
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  • #34
  • Jul 8, 2007 10:40am Jul 8, 2007 10:40am
Spud.. what do you think about trends in the stochastics chart? they can be useful for trend changes
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  • #35
  • Jul 8, 2007 10:47am Jul 8, 2007 10:47am
The exit here is simple and nets us about 200 pips before there is any hint to exit. So, if 200 pips and a hint appears to exit and you don't exit then you need to have Dr. Forex examine your head.

In this trade we simply follow the nicely combed stochastics down and when the first blue stochastic turns in and starts a wall we are out, done and gone.

The draw down by the way was about 15 pips.

As we can see the cardinal rule for exits to weigh risk against pip earnings. If we are making a good handful of pips and we get any hint to exit...then for gawd sakes man, exit! Don't stand there and explain to us how you will ride the price and take what the market will give you just friggin exit already.
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  • #36
  • Jul 8, 2007 11:15am Jul 8, 2007 11:15am
Quoting emda
Spud.. what do you think about trends in the stochastics chart? they can be useful for trend changes

Certainly another tool that will be addressed. I like price action trends a little more as I find them to be a little more reliable. However, stochastic trend lines are something that will be talked about.
  • #37
  • Jul 9, 2007 8:00am Jul 9, 2007 8:00am
Spudfyre,

Looking forward to the continuation of the thread theory. I always enjoy your threads; they are so well thought out and well presented. I specifically like the fact this one can be traded on the H4 time frame (I still have a day job).

Keep up the great work and thank you for all your efforts.

T4K
  • #38
  • Edited 7:45am Jul 10, 2007 7:44am | Edited 7:45am
I picked up a few pips (micro) in the G/J today using your new thread theory. I got in on Monday morning ( a little too early) and had to wait for the move to start this morning but it looked good and it hit my TP level.

Thanks again Spud!!


T4K
  • #39
  • Jul 10, 2007 8:34am Jul 10, 2007 8:34am
Look at that beautiful "rope" on the USD/CHF. Perfect!
  • #40
  • Jul 10, 2007 4:09pm Jul 10, 2007 4:09pm
a screenshot with my latest indicators for threads.
v1.1 of Threads and v1.1 of Elasticity histogram indicator.
The gray histogram is the same. It measures deployment of the threads from the wall.
The new elasticity histogram indicator (in LightSteelBlue colour) predicts a change in direction of the Stochs wall before it happens.
I'm new developing indicators... any comment appreciated.
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