Spud's Predictive MTF Stochastics

Hi Spudfyre,

I have a question similar to M_J's question.... if we have 0% risk on M5 do we have to change timeframe to M15? If someone is looking for some small profit with low risk isn't it better to stick to M5 and trade what it offers?

Very nice analysis work. Since we are building a mechanical system let me put this in a more mechanical terminology....our system is much more like a transmission that fits to the market engine.

You are correct that the M5 Group is strictly an entry group. When our conditions are met we switch gears...we move up to the next time frame. If we jump into car talk, we've hit maximum revolutions and we are red lining...time to shift.

The M15 and M30 group is our driving gears...we will stay in these groups much longer and they will consistently provide us with enough torque and power range to trade throught the hills and valleys we must drive through. Sometimes our engine runs out of gas or overheats and dies...so do our trades. But on a day-to-day basis we know that we'll just chug along and keep moving.

Our levels are not arbitrary....well,... within reason. You could easily say that we must cross 83 or 72 or even 90 and 10. There is not only balance in chosing the levels but there is the overall market...the big dollars that ply their trade on the tradional 80/20 numbers. These numbers are measures of the overmarket.

I select 76.4 and 23.6 because they are Fib numbers. They are also a little further away from the traditional overmarket levels. Do Fib numbers have meaning? I think so. There is simply to much coincidence to ignore with Fibs.

The shift from time frame to time frame using the same levels is because we must apply the same rules to ourr overmarket conditions. The over market rules do not change with time frames....however, our Price and Over market conditions do change through the time frames. This is because each time frame stochastically has a different range between high and low.

Our mecahnical system is looking for "convergence" of the price and stochastics. This is what I showed you in the rope theory. When we have convergence we move out of the overmarket.

The mechanical system is using this same rope theory but instead of trying to figure out 26 stochastic lines on one chart I have simply broken it up over 4 groups of time frames.

Obviously, I have had to put some compromises in to make this work and to make the system mechanical enough. I would not trade such a mechanical system...not becuse it won't work but simply becuase I can read the other time frames and put a complete picture together in my head much easier.

Having said that, the levels are consistent with the rules of overmarket conditions for each time frame.
The "pure luck" is not luck at all, but convergence of our stochastics when our stochastics are in the same relative position through the time frames.
The filter is a tool to help us at least confirm we have one lower time frame in an opposite overmarket condition before we enter a trade..or change time frames. It is a filter and is used to keep our win percentage high in a mechanical trade.
The crossover is a very powerful indicator between time frames and reading all about the M5 trigger will tell you what is happening and how short time frames build longer time frames.
The 80/20 cross is the historical basis of overmarket exit conditions and also the fundamnetal rule in Escalator to Pips that is a tried and true condition over multiple time frames that support long trends.
The Price Line is our momentum indicator and being at the extremes tells us it is exhausted and will move..as will oscillate the slowest between 0 and 100 we know that using shorter time frames to trade around it will keep us within its boundaries. We want it at the extremes becuase it is predictable...at 50% it can go anywhere.

I think if you look at the grapghs (charts) you included you will see there is consistency there, just it is different than the way you are looking at it. (look at the overall picture).

The mechanical system doesn't work by coincidence or luck. I have explained every theory and transition in many thread postings before. I'll accept that not everyone is going to understand or use everything I write. I present it in different ways so that if someone doesn't understand the rope, they might understand this mechanical system better.

This mechanical system is the same rope, escalator, M5 trigger idealologies presented in a very "put your entry here", "take an exit here" way. In the mechanical system you see 5 combinations are true and switch time frames and if we have less than 3 combinations true in a time frame we exit.

The combinations are not knew they are just the overmarket rules.
The fact that they line up for long trends is just the convergence of the rope.
The consistent crossover after crossover, across 80, across 80 of each time frame is just escalator to pips
The 5 conditions to enter on M5 is just the M5 trigger (slightly modified).
The 2/5 conditions to exit (rather than 3/5 to stay in) is because our rope has spread and our price move is breaking down
The picking of the Origin Line opposite to the Price Line is elasticity
The Picking of Price Line and Origin line together at the oversold/overmarket extreme is escalator to pips, rope theory convergence, and overmarket reversal

The mechanical system is taking a lot out of each system. Not the math, but the decision making process of identifying the stochastic moves and how they relate to each other. That does not make the mechanical system one of luck or one that will never lose....it is simply a tool to learn how to trade stochastics with and if one uses it that way...they will succeed.

Any inconsistencies that do exist are out in to keep the trade in a safe magin...the goal of the mechanical system is to make pips consistently, lose as little pips as possible and keep drawdown to a minimum. All of that is going to come with trade offs such as getting out of trades earlier than we want, entering trades later than we want, and in some cases accepting minimum PIP gains when more are available.

The mechanical system will never be perfect. It can be tweaked, supecharged, add a some slicks, to do different things..to be more aggressive or likewise we can tinker it down and make it safer. But it does have to follow fundamental rules to work.

Thanks Spudfyre,

seems your Occupation: ' Professional Analystis' is correctly chosen http://www.forexfactory.com/images/icons/icon12.gif

MJ

YES! Of course you can. Those Brain Indicators are kicking in early and quickly. I presented to you the fundamentals of the MTFS Machine V1....any deviation of that is V2, etc. and you can tweaked and shape it all you want.

Just keep the combination rules in effect....they can be tweak but they need to stay somewhat true to the overmarket rules in general that exist in the markets themselves.

A chart below is all 4 groups and looking at this..what do you see? How would you say trade M5 only with what you see on M15, M30 and H1 groups.

Looks to me that M5 is in a nice oversold..M15 is headed that way and will M30 fall? If M30 falls what does it mean to M5? Is H1 getting ready to break out of it's oversold position? Are M15 and M30 on an elastic stretch about to snap back to the Price Line? What do our combinations tells us?

I personally choose M5 to be 14,1,1 and all the rest 14,3,3. The real difference to M5 is small but it just shows peaks better on 14,1,1 than 14,3,3.

Overall, you can use 14,3,3 for all if you like. I don't recommend using 14,1,1 for all...this will turn you into a bobble head. Honest, I've been sitting with people using 14,1,1 and watching their heads bobble with the peaks and valleys....don't let this happen to you!

Good question. Personally, I'd probably just stay out of it. You could enter it on the M15 and trade it on M15..annd just continue on. The problem here is that it could say turn a breakeven trade into a good loser, which is likely to happen more say than finding a really good down trend. I'd say you'd really need M30 and H1 lined up well to come in late to be far safer we have a longer trend shaping than say an elastic trade occuring.

One thing I should mention...don't be afraid to use M5 and even M1 as your fine focus for trade entry and exit. Picking out M5 moves on an M15 or M30 can let you max out your exit and profits. This isn't mechanical...it's more brain fodder.

If everyone thinks they have a handle on the mechanical system I layed out and the combinations, then perhaps we should take this next week and post our trades using it (on demo accounts!!!!). If you want to vary the system, then let us know what you did and if you like I can help analyze what went wrong...if anything

Thanks Spud for your answer and also annalysis of my Friday trade.

I have been running through my head many different scenarios of trades that may occur and one thing that I can't get my head around is what happens if we get say a 15m (0%risk) signal and therefore switch to our 30m TF, but the 30m is in no way set up for an escalator and in turn will obviously not meet an acceptable risk% at its next close

Do we...
a) stay mechanical wait for the 30m close and close the trade?
b) realise it may be the end of the road and close the trade immediatly?
c) ride the 15m down (in a short trade) to 20 and close it there? or
d) none of the above!!!!

Thanks so much -

Well, you have answered your own question in your question. "...but the 30m is in no way set up for an escalator and in turn will obviously not meet an acceptable risk% at its next close".

The question back to you is why stay in this trade? Trading is a game of risk management...the advantage of trading over gambling is that we can stack the house in our favour...at casinos we can't.

If you are up pips why risk them knowing that this trade is going nowhere...oh you might miss some more pips or it might just do something crazy and turn the M30 around....but what are the odds of that happening?

If your down a little you might try for a breakeven or losing your spread exit...or at least try and exit minimizing your losses.

But overall, over the long haul we are better just to exit. Sometimes we'lll kick ourselves for exiting but in the long run statistically we'll be further ahead.

My moto is never risk pips made if you are in "hope mode" for more pips and the charts are telling you to get out.

If you want to be stubborn and trade M15..then I'd trade the price level by fibs..so in a short as long as the orgin or price line is falling through the fibs and does not retrace 1 fib level up you stay in..but if it does retrace up 1 fib level you are out...if the origin line is oversold and the price level is falling, then if the origin comes up past 23.6 your done (you can set any level you like..say 20 or even 15...if you hit positive targets then tighten up the negative ones...say it retraces 1/2 fib up you exit after it drops a full fib....kinda thing. Look for small targets to be reached and set strong indicators in you rmind for an exit in this case....so you don't go into him/haw mode...say if it reaches 20...if that's your exit then exit...in this kinda case.

you did an excellent job !!! Thanks once more. Following your lead ....


may I ask you small of topic questions: -

You had mentioned once :
1. How do you define when we have a seond Entry

If I have a Risk 0 and Enter a New Short. How do you define when to Enter a new one. (talking purely mechanical now).

if there is not much changes - we will have the same Condition on the next Candle close.
(So what I do at the moment I cancel all required validations - which means especial the M5 Cross (76.4 or 23.6) and M5/M15 Crossover must happen again.)

The other option would be: If I have now a Short Trade - the next one can only be a Long one ??


2. MULTI TRADES
let's assume that we have a New Short Trade which has moved up 2 Levels to M30 Group.

Then we get on M5 a New Entry --- and it moves up to M15 Group.

I know it's theoretically not sure if it in reality happens - but if we trade till H1 (like your long trade 24 hours) we might have quite a couple of trades open -- hopefully.

Now: would you suggest to keep track for each Trade - on which TimeFrame Group it trades - or just bundle them all to the highest.

regards MJ

What you are likely to see is a normal entry trade progressing say to M30 and an M5 entry coming about by a full oscillation of the M5 (down to up). We might atick on M30 and yet again progress through M15 or be stuck on M15 and M30 and both give us an exit signal....just as an example.

You usually see a lot of "close" M5 entry situations..where say the Origin line climbs up very close to 76.4 and then falls again...and of course this is outside the mechanicals but we'd see this in a rope as an elastic opportunity on M5.

If your running say M15 with Risk 0 and switch to M30 and that is running say at Risk 40 and M5 is looking near entry again say at Risk 20 and looks like it will go to Risk 0 and H1 is floating around near it needs to be if M30 goes well than I would hop in again with another trade...it's pretty good odds n our favour.

If you simply get an M5 entry then just enter if you want to do it mechanically...just keep entering M5 on entry signals and thnen progress and exit each trade as normal...this may mean exiting some on M15 while staying in M30. We have to keep in mind that whipsaws may throw us out of an M15 much quicker than an M30 where we might ride the whipsaw through and get a prolonged longer trend even when M5 and M15 no longer support any more of the trade...likely they are stuck in an overmarket

Spud thanks for ALL of your analysis and contribution. I was out of town last week but I'm back and ready to start trading. I have some VERY nice moves using the 5/15 combination using the origin/price lines and the 76.4/23.6 crossings with the M1 filter. I mean, it was so easy. I think I'll trade that one the entire week coming up. I went thru a few ups and downs but decided I wouldn't exit unless the M5 crossed the M15 back upward which never occured. I exited on fib levels or when the M5 wen oversold.

It's been quiet here without ya

Just a reminder before we start our trading week why perfect entries are worth waiting for:

hi spud

i think you draw your percentage indicators by hand on your chart.

is it possible that someone do an indicator which show this waht you draq on your charts to follow also this rules. or do you have an indicator. because this would be of much help in real trading

thank you

lodol

No indicator yet I don't think it is a easy as we non-programmers think to make it.

hi ok thank for your quick answer

maybe someone can program this for us

would be a great help

because its really much to look at the same time

thanks

Brain Indicator:

You can see below we need to wait for the M30 to fall before we bite on a buy signal from M5. If you go with an M5 buy signal, you need to be aware of M30's likely move down. This will cause either M5 to range, cycle up and down or M5 to simply go oversold. Likely if M5 goes into range or oversold we wouldn't get an M5 buy signal.

We should have a good long retracement some point today once things settle in the oversod for a while.

Spud, why was the rule that M5 and Origin Line must be pointing down for short OR M5 and Origin Line must be pointing up for long not included in the risk level indicator?

Thanks/Harry

Hey Spud,

I was just wondering after stopping out long on what I thought was a good trade with all 5 criteria being met for a long....what other indicator could I use to avoid that sort of thing? Then you posted it: the BRAIN indicatoruggg (noise of disgust and self-loathing). Is there any tip re: higher timeframe that's specific that is good at filtering out iffy trades, such as the direction or location of the origin or pricline on the 30, etc? Thanks.