Spud's Predictive MTF Stochastics

If it were me, I'd wait for a long to setup. The M30 and H1 are too low to attempt a short. It may work out but like Spud says, it's just not sensible to assume that much risk..it's completely unncessary actually. Yep, if it were me, I'd definitely pass on any short right here.

Ok. Thank you

Well let's see if I can try. As you may guess and one reason why I think JD is having a good time is that he has MTF Stochastics well in grasp. However, I know that not everyone has such a good grasp of how the different time frames and stochastics move together to tell you what is happening.

I showed this with the balls, but I think that was a bit confusing. So, I've stolen Cja Stoch Bars indicator 's basic design, modified the look and then spent a huge amount of time making sure a 14,3,3 setting on M5 wouldn't mess thinks up.

Looking at the indicators below. They measure the stochastic movement from Nov 12 18:15 to Nov 12 24:00. Each indicator represents the best entry into a trade where there was significant price movement to make a trade worthwhile.

This is Spud's Predictive indicator...only problem is it doesn't exist. This was done by hand but the important thing I'm trying to show is how the stochastics movement tells you what to trade and better yet, where you are in a trade.

Notice I have used M1, M5, M15, M30, H1, H4 and Day. I have set all the stochastics to 14,3,3 as we will not use the M5 trigger here but only the position of the stochastics. You could set up a seperate chart with the M5 trigger at 14,1,1 to use as a further guide for trades.

Now the indicator is very simple. The Blue bars are last candle close upward movement of the stochastics and the red downward. Don't get too drawn into if a stochastic is moving up or down last candle. If you saw this live or looked at the charts the motion is so much easier to detect.

The bars represent 10% increments of %K...that is important. But it is the relationship of the stochastic time frames to each other that is more important than the exact value of %K...other than what we assign as our trigger.

In this example I will use M1. In real life, I believe without a moving indicator it would be real tough to analyze by M1. The big advantage with M1 is that it tightens up our trades...the disadvantage is that if you don't read the other stochastics correctly you can start chasing your tail.

We also need a pivot point. Thing of this like a guage...our needle starts at our pivot...in this example I used the Day. You could use the H4 or H1..even the M30. Your pivot must be a higher time frame than your trigger. I've drawn this pivot to trigger relationship on the indicator as a red dotted line.
The day is nice to use because it doesn't move for an entire day! So it is a really fixed point. I don't think I'd use a week...that's just way too out there in our time frames unless you have the bucks for huge stops to trade for H4 trends.

I'll explain each indicator in detail. Remember each represents the entry point of a trade in sequence. So this is a fluid motion through time and our indicators are moving up and down..bouncing all around...but every move tells us something and when we get the right relationships we can pick entries and exits, guage our current trades strength and momentum and know pretty well where our trade is.

Below is the overall time time period....I'll go post by post and explain and add the indicators like a movie in slow motion. This may take me quite a few posts so be patient.

Put oh so eloquently,lol

Yeah, I should know better, I guess I'm just getting an itchy finger....

J

So, let's pretend it is Nov 12 and we open our Forex charts at around 18:00 Forex server time (that's about 11:00 am EST using my charts). Our first goal is to get a reference point. We can trade it but more important is to know where all our stochastics are.

I've decided to use the Day stochastic as my pivot point and the M1 as my trigger. You could use H4 as a pivot and M5 as a trigger, it really doesn't matter because the movement relationships are all the same. The more time frames we use, we simply get more information...to a limit, I would not go past the Day.

So if we had been watching things we would have seen a fairly bouncing price chart before this and price has just dropped. We've actually missed the best long entry point on this chart it came at about 18:09. In our chart below you would have seen M1 moving from the bottom 10% upto where it is now at 18:15 (these times are the close of the candle).

As M1 move ups we are looking for some important moves in our other stochastics. First we want to watch M5 and M15. M5 just moved down after moving up...so M1 and M5 have both moved up overall. If you use M30 as a pivot for a second and visualize that M1 has moved from the bottom then our guage has risen. Same with the Day as our pivot, our guage has risen.

You can trade and exit when the M1 hits the maximum height at 90% or even 80% to be safe. But we can do much much better using the other time frames.

M1 is going to cycle like crazy between 0 and 100 over the course of our long trend. So will M5 to a lesser extent and M15 even less and so on to a point where some stochastics won't even move.

As price trends upwards our M5, M15 and M30 will all trend upward..the longer the trend the more time frames we are likely to see move upwards.

So skipping a bunch of moves it is now 19:30 and we can see in our second indicator how M5, M15 and M30 have moved up and now M1 is yet again (it would have cycled 3 times to the top) at the top at 90%+.

See how I've drawn the line from the Day to the M1. That's our maximum guage move. If you look at the charts for this period you'll actually see M5 has been falling since about 19:00 after peaking at 90. M15 peaked just above 80 and is falling. M30 has steadily been rising. H1, H4 and D haven't moved.

So the important factor to enter our short trade here is:
1. M1 hit the trigger point >90%
2. M5 and M15 both peaked high (2 is always better than 1) and are dropping...while M1 has been rising to reach it's trigger. Remember our shorter time frames must rise to bring our longer time frames down.
3. M30 has moved up 30%..that's a lot. More on this later.

Here's where treating each longer time frame as a pivit can really help you visualize the coming movement. Take M5 as the pivot and M1 as the trigger...expectation is M1 will fall. M15 as the pivot and M1 as the trigger....M1 will fall. M15 as the pivot and M5 as the trigger micgt be a climb need more info.
M30 as the pivot and M1 as the trigger..M1 falls. M30 as the pivot and M5 the trigger...M5 falls. M30 as the pivot and M15 the trigger...M15 falls.
and so on...H1 to M1, fall; H1 to M5, fall, to M15, fall, to M30, fall. H4 to all of them..fall.
So everything says fall except M15 to M5. But since we know M5 and M15 are already falling and expect M1 to fall being our trigger...we only need to see M30 fall now to verify we have a good down trend we can follow.

I bet you are thinking...what if M1 stays up above 90% and M5 rises? This is why our trigger is so important and the downward move. Earlier in this thread when I explained the M5 short trigger we wanted the M15 to move down to confirm our short trade before entering. This is the same logic...except we use our M1 and M5. Since we also have downward movement from M15 we simply can't build a much stronger case to go short.
Can it go the otherway? Yes, but the odds are highly against. More so..even if it does go against most of the time it will be a small price move. The odds are simply huge against a major price move up where we are now.

Ok, one more thing before I leave this is the 30% M30 move upwards from the start. The longer time frames move much slower than the shorter time frames. Stochastics live in cycles of up and down. A cycle fore M30 is when the M1,M5 and M15 move up and then down. Generally such a cycle involves many more M1 up and down moves than the M15's. This again is our relationship of fixed pivot points to lesser time frames. Anyways, if you count these cycles and watch M30 as an example, we can usually expect that in price upward move, M30 will move about 10% up per cycle. This is not written in stone, but it is simply another way to guage things. Usually a move greater than 10% is a burst that exhausts the upward trend. This works the same down as well. M15 is more on the 10-20% scale and M5 more on the 20% per cycle. In this example I know M1 cycled 3 times to the top peak and M30 moved up 30% (3 x 10%)....this is another expectation that M1 will go down at this peak and not get stuck in an overbought situation that will not drag M30 up another 10%. Only use this as a you would sticking your finger in the wind to measure wind direction and speed...as a rough idea of direction.

big ditto Cindy

and I would add that Stochastics, properly understood and executed, is in the upper crust of indicators. My profitability curve took a profound upward angle when I started understanding and wisely using Stochastics. That is my main indicator.

This next move (at 21:15) is an upward move in a downward trend. I call it "elasticity" and you can clearly see it here. Our M1, M5 are down at the bottom and M15,M30 and H1 are much higher.
These can be very lucrative trades and not. This is a pure stochastics move and how much price bounce we actually get can be large or small. The danger of this trade is staying in it too long. This is a counter move within a trend not a change of trend typically..so don't get greedy.
This long setup again relies on our trigger hitting below 10%.
M15 dropped 10% in 5 M1 cycles....nothing great and just like a big move is a reversal sign...so is a "freeze"...where the M15 doesn't move and M1 and M5 dropped like rocks in comparison.
Entering anywhere on the M1 trigger is not a big risk, but if you like safety wait for M5 to rise.
You can see here we also had the benefit of seeing H1 move and it moved a lot in comparison to M15 and M30.
If you look at your charts we waited for M5 to fall all the way down with our M1 trigger before initiating the long.
Again, repeat after me ....in order for M15,M30 and H1 to fall....M1 and M5 must climb first.

I'll let you ponder this next one a bit. Think about why this is the short signal.....besides the M1 trigger. There are 2 major reasons and I've explained them already in the last 2 posts.

I've been gone for a few hours and I see a new posting has been done by the man himself. I'm off to brew some coffee and coming back to study this. Thanks Spud, Not sure if I'll have some questions or not when I'm done reading but I'm definitely enjoying this.

It is, (if i understand it correctly) following the cycles within, the cycles, withn the cycles. And once you can find the rythem and understand the reason for the cycles your on your way to predicting the most probable move.

I must admit I'm stumped on this one - Any ideas...

My only thought is that the positioning of the other stochs support a short...

The daily as a pivot: 15m trigger 15 falls, 30m trigger 30 falls, h1 trigger h1 falls
The H4 as a pivot: H1 trigger the h1 falls, 30m trigger 30 falls, 15m trigger 15 falls
H1 and 30m as pivots: 15m the trigger 15 falls.

So I guess in conclusion the 15m as a trigger for all higher timeframes as pivots will fall.

So everything says fall except M15 to M5. But since we know M5 and M15 are already falling and expect M1 to fall being our trigger...we only need to see M30 fall now to verify we have a good down trend we can follow.

Well I think thats 1 reason......

Reason2: 30M already falling?

here is the last version of the stochsatic bar created buy cja
with arrow direction added and a choice to move the indicator to any window
thank you spud for all the teaching you give us
im a big fan of your work

hi
spud or anyone who understand well this method , could you please tell me if i entered this trade following the rules ?
thanks

My guess. Since the last long trade was an elastic trade where only the M1 snapped back upward, the positions of the rest of the stochs(M5, M15, M30...D) remained relatively unchanged. So the earlier pivots that support the short trade are still valid.

Harry

Yup, nice set up. I was in this trade using just the 5M crosses 15M stoch as entry.

+140 pips and counting nice one. There was a nice 70 pip short before that long too.

hi cindyxxx and harry123
what about the exit , when you will exit cindyxxx?
thanks