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Peaks and Valleys (Trading Naked)

  • #201
  • Edited 3:07am Jan 18, 2008 2:03am | Edited 3:07am
Quoting Jared
I don't think taking all the signals is good. If I ride a trend up to where it starts to retrace and exit, I don't enter right away on the next peak or valley. Many times after a strong trend there is a period of consolidation. I try and make sure the market is not consolidating before I get back in, or at least in a large enough range to be able to range trade successfully. I then enter on a breakout of the range to catch the next trend.
I was just studying this consolidation issue on E/J for September and October 2006 before I came to the thread again. I am working out a method to detect the hazards.

One thing I noticed in that ranging period is once it was clear the up trend was over, there was an extreme high and low around the start of Sept and the next 2 months couldn't get out of either end so waiting for the break would be one approach.

The other thing I have been working on after staring at daily charts all day, we all know that in a trend, there are mostly new highs and lows in the direction of the trend, with the occasional travel beyond the stair step ideal situation (triggering a stop I guess) but then the trend may resume, so the way that may make sense to detect a possible consolidation vs a temporary stall in the trend that will resume - This needs more work because I only watched a few months but....

Say the trend was up, then suddenly you see lower highs/lows. If there are two of each formed successively, lower high and lower low, then put things on hold and wait. Don't consider it a reversal yet - consider it a range/consolidation pending investigation.

I haven't worked it out completely but one way to resume the up trend, or to fully accept a reversal and start taking a down trend, wait for another set of two successive higher highs and lows, or lower highs and lows. Then take the next high or low break out in the trend direction. So in the case of the up trend that suddenly ended up seeing two lower highs and lower lows in a row, if the next move went lower than that second low, I'd consider the trend now short and take a short trade on that break. Or if things just got messy in true consolidation fashion and there were highs and lows all over the place sideways, then nothing is traded until 2 consecutive in the same direction form and are broken.

So this might keep you out of ranging periods and during a trend you will occasionally get stopped out on those few out of bound peaks or valleys but you get back in when they are broken again as usual so you just miss out on a few pips without getting tossed back and forth (don't stop and reverse, just stop and wait to see if it re-breaks or forms consolidation).

I told you there would be a 20 page essay coming soon. Remember my fib days in late November, I didn't sleep until I was satisfied. I'm not feeling very tired tonight....

Edit: I just progressed onward in the chart and around July and August 07 there were those 2 big sudden down moves, very large moves with no warning and I wonder how I could have captured that if I didn't ease into a trend reversal, and didn't stop and reverse during the up trend. So I'm wondering about having a shortcut trend reversal if something drastic happens like a single counter trend move takes out two peaks or valleys in a row - use the first violation as a stop in the trend as usual and if the next one in line is taken out, take the counter trade. That was just a rough thought, I know it would trigger a lot of reversals falsely but maybe the stop outs would be so small on the false trades, it wouldn't matter. Or better yet, instead of a fixed number of highs/lows, find a recent significant looking support or resistance area, a sudden spike outside all the recent action, and if that is taken out against the trend, reverse. Or a reasonable trend line following the obvious trend in play, if that's taken out...Doesn't really matter how it's done. One good way might be to look at the chart and visually find the price at which the trend would be arc'd in the other direction and take that level as an emergency trend reversal to catch an unexpected move. That seems to look good in the mid-late 2007 E/J examples.

I don't mean to go curve fitting a fixed data set, just making notes in what I see, then when I'm done I'll review the observations and see if something can be summarized, then go test it on a long sample set of the pair, if it looks good, consider using it, and testing it on other pairs. If it only seems to work custom to that one pair it was developed on, nothing wrong with that. I don't mind coming up with a specific set of rules for each pair if I need to, as long as I make money.

It's art. And technical. Perfect balance of a career.
"Support and Resistance either holds or it doesn't." -Anonymous hillbilly
  • #202
  • Jan 18, 2008 9:44am Jan 18, 2008 9:44am
Thexder,

I appreciate your enthusiasm, and I am liking that you are thinking, as this is what I want people to do here: use their brains. I'm a little confused because I look at charts in the past and all I see are pips, yet you look at it and you see a lot of losses.

Maybe this post will help you. To be honest, I think you need to be forward testing this method on a demo instead of backtesting. I used to be quite an avid back tester, and realized it's really only realtime results that matter... You are not learning the ins and outs of the method when you are backtesting.


Here's a consolidating market in GBP/JPY that happened around 2 months ago and went for a while.

We lose a couple of trades as it begins to get choppy. At the Light blue vertical line, the candle has just closed, and a new valley has formed, but it's not lower than the last one. This is a clue that it's probably choppy waters. I would probably set orders on the extremes of the consolidation range and go from there.

If I had place orders at that point, I would have potentially lost a short trade immediately after the Light Blue vertical line.

On the red vertical line, it begins to indicate consolidation as a new valley forms above the last. Again, I would set orders for the consolidation extremes, and that helps me out for the rest of the consolidation.

Best of luck,

Kevin
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  • #203
  • Edited 1:16pm Jan 18, 2008 12:30pm | Edited 1:16pm
Here's the 2 month consolidation of Eur Jpy where I can't see how to come out on top mostly but it's this type of following the peaks that causes the net failure in my 2 years of observations.

The first red line at the top left marks a sell and reverse that happens to be at the end of an up trend. Then there's another red sell line on the way down, so far so good, then things shoot up and a stop and reverse occurs on the first green line, causing some profit taking from the first red line and a loss on the second one.

There is a narrow up and down area and a red line causes a stop of the green. Then a green causes a stop of that red.

Two red shorts follow, which are both taken out for a loss by the 3rd green.

After a few more broader peaks, a red takes out that green with some profit at least, if taken on the actual SMA points, but the short taken by that red...gets stopped on a ride up with another green, so we go long again and get taken out for maybe break even on the next red, and that red is taken out for a loss on the following green, but we get 2 greens in a row that get us almost out of consolidation, the last two reds with the 3 greens cause more losses..etc.

When I actually did the exercise I was trading on the extreme values at the candle areas where the peaks and valleys formed. Maybe that caused my problems.

Maybe I'll try another pip count with just taking the close value and making note of possible clues of consolidations. I chose to use the candle high/low instead of close price because I saw that was the latest method being considered...
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"Support and Resistance either holds or it doesn't." -Anonymous hillbilly
  • #204
  • Jan 18, 2008 12:42pm Jan 18, 2008 12:42pm
Quoting Thexder
Yeah, if there were successive peaks in the same direction I was up to a max of 6 positions at a time, then when a counter peak occurred I exited all 6 and took one the other way, etc.

Maybe EurJpy just isn't any good for this.
I am trying to figure the best kind of money/position management for this strategy. Now, it seems to me that one can pyramid indefinately, why limit it to six? For example, say I buy, a new valley forms, then a peak, I buy again and move my stop up to the valley just formed. If I coninue to move my stop up it is locking in my profits. I know the rule is to not risk an excessive amount of your account ballance, but say you risk 2%, and then that 2% risked is locked in at break even or better by moving the stop up to the next valley, then it is no longer at risk, and another 2% can be risked, while the first position is still in play. For each position you lock in at breakeven or better, a new position can be opened. You could have 20 positions opened and only be risking 2% of your account balance this way. Follow me?

When the trend finally reverses, your positions will be stopped out, and worse that can happen is the most recent postition might be negative, but all of the others are positive. That's the beauty of pyramiding.
  • #205
  • Jan 18, 2008 12:56pm Jan 18, 2008 12:56pm
Quoting Jared
For example, say I buy, a new valley forms, then a peak, I buy again and move my stop up to the valley just formed. If I coninue to move my stop up it is locking in my profits.
That's how I was doing it in my testing. Any time a new peak is triggering a buy, if I already have 2 lots in play, I add a 3rd, and whenever the first valley stop occurs I exit all the lots and enter one the other way, starting over.

The problem was all this reversing and going the other way ended up with a net E/J loss.
"Support and Resistance either holds or it doesn't." -Anonymous hillbilly
  • #206
  • Jan 18, 2008 1:13pm Jan 18, 2008 1:13pm
Quoting Thexder
That's how I was doing it in my testing. Any time a new peak is triggering a buy, if I already have 2 lots in play, I add a 3rd, and whenever the first valley stop occurs I exit all the lots and enter one the other way, starting over.

The problem was all this reversing and going the other way ended up with a net E/J loss.
One thing I have been experimenting with is taking a step back, maybe not on another time frame, but just click the - button so you can see a larger history of the market, and then try and determine what the MAJOR peaks and valleys are. Not every peak/valley is an entry/exit signal. While pyramiding I may have my most recent position stop behind the most recent peak/valley, but my other stops are behind a more major peak/valley as long as profits are still locked in. I won't reverse a position untill a major peak/valley is broken and I am stopped out.

Now, if the market flattens out, I move stops to the edge of the consolidation, to lock in profits, and then enter in the direction of a clear breakout.

If you get a couple of stop outs that may indicate choppyness. Take a step back, look at the bigger picture, and wait for a more clear entry signal to get back into the market. Sometimes it's best to not be in the market then to fight chop.
  • #207
  • Jan 18, 2008 1:21pm Jan 18, 2008 1:21pm
Along that train of thought of taking a step back, sometimes the market is in a very large range (noticed it with GBP/JPY especially). The peak/valley method can still work, but just treat the up and down movements in the range as small trends, and trade accordingly, being extra cautious around the support and resistance areas of the range.
  • #208
  • Jan 18, 2008 1:33pm Jan 18, 2008 1:33pm
Quoting Thexder
Here's the 2 month consolidation of Eur Jpy where I can't see how to come out on top mostly but it's this type of following the peaks that causes the net failure in my 2 years of observations.

The first red line at the top left marks a sell and reverse that happens to be at the end of an up trend. Then there's another red sell line on the way down, so far so good, then things shoot up and a stop and reverse occurs on the first green line, causing some profit taking from the first red line and a loss on the second one.

There is a narrow up and down area and a red line causes a stop of the green. Then a green causes a stop of that red.

Two red shorts follow, which are both taken out for a loss by the 3rd green.

After a few more broader peaks, a red takes out that green with some profit at least, if taken on the actual SMA points, but the short taken by that red...gets stopped on a ride up with another green, so we go long again and get taken out for maybe break even on the next red, and that red is taken out for a loss on the following green, but we get 2 greens in a row that get us almost out of consolidation, the last two reds with the 3 greens cause more losses..etc.

When I actually did the exercise I was trading on the extreme values at the candle areas where the peaks and valleys formed. Maybe that caused my problems.

Maybe I'll try another pip count with just taking the close value and making note of possible clues of consolidations. I chose to use the candle high/low instead of close price because I saw that was the latest method being considered...
This is why i use fractals and not close to draw the peak/valley patterns.
You can also use high price for peaks and low prices for valley as someone advised in a previous post. You will have a tiny channel doing so but you should have less whipsaw.
  • #209
  • Jan 18, 2008 1:34pm Jan 18, 2008 1:34pm
Kevin, great thread and some very sound advice for everyone. What timeframes are you using.
  • #210
  • Jan 18, 2008 1:38pm Jan 18, 2008 1:38pm
Quoting melpheos
You can also use high price for peaks and low prices for valley as someone advised in a previous post. You will have a tiny channel doing so but you should have less whipsaw.
So take the high of the candle tops and low of the candle bottoms as the peaks and valleys? I think that may be what I had done actually when I went the first time through, I saw the peaks on the close and then used the candle extremes to trade from....I am guessing if I looked at only candle extremes to form the peaks and valleys instead of first looking at close value peaks and valleys (then trading the extremes) it's the same result...the first time I looked at this method I had a sma1 high and sma1 low channel along with the sma1 close and decided if I trade the extremes either way, I don't need the outside channel, just look at the close waves and trade the spikes.

How does the fractal thing work?
"Support and Resistance either holds or it doesn't." -Anonymous hillbilly
  • #211
  • Jan 18, 2008 1:46pm Jan 18, 2008 1:46pm
Quoting Thexder
So take the high of the candle tops and low of the candle bottoms as the peaks and valleys? I think that may be what I had done actually when I went the first time through, I saw the peaks on the close and then used the candle extremes to trade from....I am guessing if I looked at only candle extremes to form the peaks and valleys instead of first looking at close value peaks and valleys (then trading the extremes) it's the same result...the first time I looked at this method I had a sma1 high and sma1 low channel along with the sma1 close and decided if I trade the extremes either way, I don't need the outside channel, just look at the close waves and trade the spikes.

How does the fractal thing work?
http://www.metaquotes.net/techanalys...cators/fractal

It explains it better than i could
  • #212
  • Jan 18, 2008 5:10pm Jan 18, 2008 5:10pm
Here's an idea instead of fractals. Pin bar chart, 2 ma's period 1, one on highs, one on lows, give it a little room to breath.
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  • #213
  • Jan 18, 2008 7:53pm Jan 18, 2008 7:53pm
Quoting Jared
Here's an idea instead of fractals. Pin bar chart, 2 ma's period 1, one on highs, one on lows, give it a little room to breath.
I think we all keep saying the same thing in different ways!

That's essentially what I was trading by taking highs and lows while viewing the sma close, but taking every peak/valley. So if we give it room to breathe by looking back at it zoomed out like this I wonder if something could be made of it. For example I can see several smaller peaks and valleys that could be considered insignificant within more major peaks and valleys now. Maybe this analysis would have a similar effect to what I was looking at with using a two successive peak/valley trend filter.
"Support and Resistance either holds or it doesn't." -Anonymous hillbilly
  • #214
  • Jan 18, 2008 10:43pm Jan 18, 2008 10:43pm
Hi Kevin,

Very interesting concept you have presented here. Thank you for your contributions to this community.

I would just like to clarify a couple of points on how to trade it. You first began employing this strategy on the 1hour charts but have seemed to move up to the 4hour charts. Any particular reason for this? Less whipsaws?

Also, there has been quite a debate as to whether or not to use the daily trend as confirmation or just to take every signal, be it on the 1hour or 4hour charts. Any take on this?

Thanks in advance.
  • #215
  • Jan 19, 2008 6:43am Jan 19, 2008 6:43am
Quoting Thexder
I think we all keep saying the same thing in different ways!

That's essentially what I was trading by taking highs and lows while viewing the sma close, but taking every peak/valley. So if we give it room to breathe by looking back at it zoomed out like this I wonder if something could be made of it. For example I can see several smaller peaks and valleys that could be considered insignificant within more major peaks and valleys now. Maybe this analysis would have a similar effect to what I was looking at with using a two successive peak/valley trend filter.
You are right.

This peaks and valley can be adapted in very different way but it will globally look at resistance/support whatever method we use.

The important point is pyramiding the winning trade.
  • #216
  • Jan 19, 2008 2:14pm Jan 19, 2008 2:14pm
I guess it's a matter of trying to see peaks and valleys clearly. I've been playing around with different ways of looking at the same thing to try and make P&V clear to my eye. I agree that the pyramiding is the most attractive part of this method.
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FF journal: Peaks and Troffs
  • #217
  • Jan 20, 2008 9:20am Jan 20, 2008 9:20am
Hey guys,

I had a chance to briefly study my charts this weekend in order to really address the concerns about maybe filtering out some of the bad trades. Ultimately, I came up with an idea of using Heiken Ashi candles instead of regular candles.

My idea was to require alternating color candles in order to confirm peaks and valleys. Does this make sense?

So, for instance, on the mini chart below, the first peak will be valid because it alternates from green candle to red candle, but the rest of the peaks and valleys would be invalid because the heiken ashi candles stay red the whole time.

My only problem with this is that it's adding an indicator.... and I like to be naked! The other main negative I see to this is the result of missing some good trades, but it tends to cut down losses on the same token perhaps.

Please remember that this is JUST AN IDEA! I WANT feedback from everyone because often I am inclined to think I have a good idea when in actuality I do not.

Best of luck,

Kevin
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  • #218
  • Edited 11:35am Jan 20, 2008 11:22am | Edited 11:35am
Isn't this method based on the idea of entering on a breakout of a period of consolidation in the direction of the prevailing trend? In short, entering on retracements/rallies when trend resumes? Don't the highs and lows of the consolidation period remain the same regardless of type of candle used? Haven't we been assured by swingtrader65 that this method works just fine, and that we need to ,"tweak," ourselves and not it? Shouldn't we just keep entering on breakout signals, secure in the fact that there will be eventually follow through on one of them which will exceed the losses and make a profit? I thought all this had been decided.
Vincit qui se vincit.
  • #219
  • Jan 20, 2008 4:22pm Jan 20, 2008 4:22pm
Quoting kharvell
First of all, what about sideways? Have you forgotten sideways already? This is very important. If there is a sideways trend, why would you care if it has broken one way or the other? You should probably be watching on the sidelines, because we like trends (at least I do), not sideways markets.
I realize this is an indicator free zone, but having traded a very similar way, I found that taking trades only in the direction of the long term guppy helps with my profitability. Or, look at LinuxTrolls system. It's basically the same thing, just using mma's and line price to better see the valleys and peaks. The nice thing with either is that you can visually see when the markets are ranging and based on this you can stay out or shoot for breaks of peaks/valleys that are further out. Either of these might be beneficial to those who need practice in seeing market direction before going purely PA for their entries.

Jason
  • #220
  • Jan 20, 2008 6:03pm Jan 20, 2008 6:03pm
I also spent the weekend staring at that most troublesome zone of E/J in Sept/Oct 2006 trying to make an observation about it. This may sound confusing, mostly because it's a lot of specific observing and I'm only just starting, but again just to get it written down and then sort it out later if something comes of it:

1. Whenever there are 3 consecutive days that don't have much luck continuing onward in the trend of the big picture and

2. Within those 3 days, two of them have changed daily direction consecutively (not counting whatever direction price was upon entering the zone) and

3. During the course of this stall, a stop out has occurred from a position prior to the stall (still working on that thought)....

Then consolidation may be coming and I am looking at ideas like waiting for at least 2 more consecutive days of the same daily direction and an apparent clear move from the trouble zone, either up or down, then wait for the next setup.

I am still working on thoughts such as, surely there's periods of 3 day support/resistance during a healthy trend but in those times I find that there doesn't seem to be the back and forth day to day direction shift and/or it occurs in a case where no stop outs occur as a result of the stall, so simply continue taking the peaks and valleys and adding to the position if no stops occur.

I'm also still somewhat unclear how to take the entries while avoiding false entries at the same time - like when you go long on a peak but during normal everyday movement that could have been falsely stopped on the next day with a minor retracement that in the end doesn't cause a new valley, but you get stopped...
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"Support and Resistance either holds or it doesn't." -Anonymous hillbilly
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