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MTF Stochastics

  • #361
  • Apr 11, 2007 11:00am Apr 11, 2007 11:00am
Quoting waddij
Alcastro,

If you read Spuds explination again it says on the last line that on the middle solid bar there are over 100 pips from there to the close of the next bar, at least thats how i read it.

James

I really do not see any difference between the bars that precede and follow the solid line bar, and the bars in the other two solid bars.
I don't see how would you be able to tell that this trade looks like a bad trade without the benefit of hindsight.

I am sure I am missing something.
  • #362
  • Apr 11, 2007 11:01am Apr 11, 2007 11:01am
Spud what about M15 ? In your last explanation you didn't talk anymore about it
  • #363
  • Apr 11, 2007 11:17am Apr 11, 2007 11:17am
Quoting alcastro
I really do not see any difference between the bars that precede and follow the solid line bar, and the bars in the other two solid bars.
I don't see how would you be able to tell that this trade looks like a bad trade without the benefit of hindsight.

I am sure I am missing something.
I think the point was, that, looking at the chart, it would appear to be a bad short trade, but was not since the next candle opened then dropped 100 pips.
  • #364
  • Apr 11, 2007 11:40am Apr 11, 2007 11:40am
To illustrate how to do do this type of chart you can follow the current GBPJPY movement.

The 4H last candle closed at 81 on the stoch at 16:00. So now we have to wait for the 4H candle to close below 80....in 210 minutes or more.

The 1H closed below 80 at 12:00 GMT. The 30 at 10:30. That could put a long "2" dashed line on the 4H at 8:00 (8-12). Meaning 2 time frames made a over from above 80 to below 80 in that time period.

However, our main focus is still on the 4H, and we may have to adjust the 1H/30M if we get new confirmations from them.

You only worry about the last, most relevant confirmation of the 1H and 30M time frames to confirm our 4H move.

The trick is, if the 4H moves first. Here you need to pay close attention to what the stochastics are doing and where the 1H/30M are. If they have already turned and are heading down, then use the previous 1H/30M to the 4H. If they are near or above 80 then wait and use the 1H/4H after they come back across 80.

As you see in the patterns, most moves develop relatively close to each other (within 8 hours) so let that be your guide as well.

Your best trade of course is going to come when the 30/1H/4H are all in sync.
  • #365
  • Apr 11, 2007 11:53am Apr 11, 2007 11:53am
Alcastro,
I see what you're saying. For clarity, starting from the extreme left there are 4 solid lines.
Line 1 (solid) from extreme left is not considered (import not part of the process)
Line 2 (solid) form extreme left all 3 are aligned......strong buy
Line 3 (dashed) from extreme left, only two aligned.....risky
Line 4 (solid) from extreme left, if we draw a line on the stochs there appears to be divergence....Stochs goes down while price action is going up....is this right? The next 3 bars from line 4 appear to go down. Consistent with the rules. I do agree the signal may have turned here and forced an exit.

jj/.
  • #366
  • Apr 11, 2007 12:38pm Apr 11, 2007 12:38pm
Quoting Spudfyre
To illustrate how to do do this type of chart you can follow the current GBPJPY movement.

The 4H last candle closed at 81 on the stoch at 16:00. So now we have to wait for the 4H candle to close below 80....in 210 minutes or more.

The 1H closed below 80 at 12:00 GMT. The 30 at 10:30. That could put a long "2" dashed line on the 4H at 8:00 (8-12). Meaning 2 time frames made a over from above 80 to below 80 in that time period.

However, our main focus is still on the 4H, and we may have to adjust the 1H/30M if we get new confirmations from them.

You only worry about the last, most relevant confirmation of the 1H and 30M time frames to confirm our 4H move.

The trick is, if the 4H moves first. Here you need to pay close attention to what the stochastics are doing and where the 1H/30M are. If they have already turned and are heading down, then use the previous 1H/30M to the 4H. If they are near or above 80 then wait and use the 1H/4H after they come back across 80.

As you see in the patterns, most moves develop relatively close to each other (within 8 hours) so let that be your guide as well.

Your best trade of course is going to come when the 30/1H/4H are all in sync.
Now I'm lost.

On my charts, the 30 crossed from above 80 to below 80 at 14:00 GMT, just barely having made it above 80.

The 1H closed from above to below 80 at 16:00, again, it just barely exceeded 80.

OK, the 12:00 GMT candle closed at 81 at 16:00. So, if the current candle brings the stoch below 80 and closes, that will be at 20:00 GMT. Only the 30m or 1H closes from 19:00 to 24:00 GMT will be valid, so the above are disregarded and we start from there.

If and when the current candle closes below 80, then we'll look for the 1H and 30m crossovers below 80 within the next 4 hours, correct?
  • #367
  • Edited 1:38pm Apr 11, 2007 1:22pm | Edited 1:38pm
Quoting blueruby
Now I'm lost.

On my charts, the 30 crossed from above 80 to below 80 at 14:00 GMT, just barely having made it above 80.

The 1H closed from above to below 80 at 16:00, again, it just barely exceeded 80.

OK, the 12:00 GMT candle closed at 81 at 16:00. So, if the current candle brings the stoch below 80 and closes, that will be at 20:00 GMT. Only the 30m or 1H closes from 19:00 to 24:00 GMT will be valid, so the above are disregarded and we start from there.

If and when the current candle closes below 80, then we'll look for the 1H and 30m crossovers below 80 within the next 4 hours, correct?
Close. Let's say the 4H closes below 80 at 20:00. Now find out where the 30M and 1H stochastics are. Now look back and find when the 30M crossed the 80 and the 1H crossed the 80. Let us say the 1H at 16:00 and the 30M at 14:00. So on the 4H chart draw a line representing "2" time frames at the 12:00 GMT (this represents 12-16:00). Draw a line representing a single time frame "1" at 20:00 for the 4H cross. Open a short trade at 20:00:01 and grab some pips.

Should mention we still want to try and stay with the MTF Stochastic rules prior to this.
  • #368
  • Apr 11, 2007 1:40pm Apr 11, 2007 1:40pm
Quoting Spudfyre
Close. Let's say the 4H closes below 80 at 20:00.

Now find out where the 30M and 1H stochastics are. Now look back and find when the 30M crossed the 80 and the 1H crossed the 80. Let us say the 1H at 16:00 and the 30M at 14:00.

So on the 4H chart draw a line representing "2" time frames at the 12:00 GMT (this represents 12-16:00). Draw a line representing a single time frame "1" at 20:00 for the 4H cross. Open a short trade at 20:00:01 and grab some pips.
But the original post said that when the 4H crosses down (the signal), you look back 1 hour, forward 4 (the window).

So the 1H at 16:00 and 30M at 14:00 are not in the window if the 4H didn't cross until 20:00.
  • #369
  • Apr 11, 2007 2:43pm Apr 11, 2007 2:43pm
Quoting blueruby
But the original post said that when the 4H crosses down (the signal), you look back 1 hour, forward 4 (the window).

So the 1H at 16:00 and 30M at 14:00 are not in the window if the 4H didn't cross until 20:00.
The two are different. Remember the first is working on taking the data as it is dropped before us. Our filter is the time window.

The second is grouping the data (defragging the stochs) so that we are concentrating on the time frame group. You can see very established patterns for catching trends this way and retracements.

So by grouping the time frames and the peaks we are capturing and getting confirmation on price action happening.

Either way works, but I prefer the latter. I introduced the first as I think it is easier to understand.
  • #370
  • Apr 11, 2007 2:46pm Apr 11, 2007 2:46pm
Quoting skyline
Spud what about M15 ? In your last explanation you didn't talk anymore about it
The same rules of entry should be considered...with all the time frame syncing. You can use the 15M to guide you with the 30M and whether to wait or enter. This will help you avoid wild rides.
  • #371
  • Apr 11, 2007 3:06pm Apr 11, 2007 3:06pm
Ok, so our 4H closed below 80. Now we are waiting for some sync in the lower time frames. The 15M is moving up, the 30M is moving up. If the 30 and 1H peak above 80 and come down they become our new line and then we know if we have a "3" or a "2+1" and that helps us determine our target profit.

If neither make it above 80, then we use the previous line for 30/1H and we have a "2+1", so we will be going for a few pips.
  • #372
  • Apr 11, 2007 3:10pm Apr 11, 2007 3:10pm
Quoting Spudfyre
The two are different. Remember the first is working on taking the data as it is dropped before us. Our filter is the time window.

The second is grouping the data (defragging the stochs) so that we are concentrating on the time frame group. You can see very established patterns for catching trends this way and retracements.

So by grouping the time frames and the peaks we are capturing and getting confirmation on price action happening.

Either way works, but I prefer the latter. I introduced the first as I think it is easier to understand.
I'm sorry. Not trying to be a smartass, but totally not following.

The two what are different? I'm referring to post 355. Are you saying post 364 is a third method?

And by "first" you mean 355, not the first first? And by latter you mean 364? If so, then I now know why I'm confused.
  • #373
  • Apr 11, 2007 3:19pm Apr 11, 2007 3:19pm
Quoting blueruby
I'm sorry. Not trying to be a smartass, but totally not following.

The two what are different? I'm referring to post 355. Are you saying post 364 is a third method?

And by "first" you mean 355, not the first first? And by latter you mean 364? If so, then I now know why I'm confused.
Hmmmmm....maybe I should start this again and explain it better. Hold tight and I'll work on a clearer explanation of this stuff.
  • #374
  • Apr 11, 2007 3:55pm Apr 11, 2007 3:55pm
Quoting Spudfyre
Hmmmmm....maybe I should start this again and explain it better. Hold tight and I'll work on a clearer explanation of this stuff.
Spud,

I have a conference room that you can explain with live charts. Please take a look and let me know what you think. You are invited to join the conference MTFStochastics at the following hyperlink: http://24.91.46.73/?join=MTFStochastics


TimeFreedom
  • #375
  • Apr 11, 2007 4:22pm Apr 11, 2007 4:22pm
If you read this thread a little earlier I introduced two new concepts and have since removed them as I thnbk it was more confusing then helpful. So, here is another stab at explaining it.

As we already know we are using the stochastics 15M,30M,1H,4H to provide us signals to sell and maintain a trade when they are movin gin the same direction.

However, there are many times when stochastics seem like they ar ealmost all lined up for a trade and then it falls apart.

Stochastics also offer another interesting trait, that in detecting reverses to the current trend of their current time period. The math behind this is quite simple. As we know the stochastic has a resistance to hit the extreme (100) or (0). In a trend the stochastic also has a resistance to peak on one side. For example, find a nice strong trend in the 1H chart going up and look at the stochastic. Notice how many peaks are above 80 and how few are below 20. Almost every signal is a short signal from above 80 to crossing 80. When the price finally reverses you see a peak below 20 and a move across 20.

Unfortunately, over one time frame this doesn't hold true in every instance, some peaks are small moves or fakes and one peak is the big move.
So how can we see the bigger picture?
  • #376
  • Apr 11, 2007 5:00pm Apr 11, 2007 5:00pm
To see the multiple time frames and how the different 80/20 crosses affect the entire trade you could plot the time each cross occurs on one chart like the 4H. This gives you a "dump" of time data on a single chart but it is still hard to visualize any pattern from it. It just seems like a whole lot of vertical lines on a chart....which it is.

However, we know when the 4H passes the 80 or 20 we are getting a signal to start looking for a trade. What we know is that more than likely the 4H stochastic is going to move from 80 towards 20 or vice versa from 20 towards 80. However, simply trading the 4H is risky as price retraces along the way.

What we need to know is the correlation between the 15M,30M and 1H time frames and their positions and effects on the 4H. As always the surest trades will happen when all 4 time frames line up and "escalator" up or down.

As you know my "trend theory" is tha the 15M,30M and 1H time frames build the 4H's move. We can see this visually and use it to our advantage.
  • #377
  • Apr 11, 2007 5:27pm Apr 11, 2007 5:27pm
Looking at the chart below we can see that the 30M crossed the 80 at 20:30-21:00; the 1H crossed at 20:00-21:00 and the 4H crossed much later at 04:00-08:00 the next day.

We are not using the 15M because it simply isn't required at this stage, we will use the 15M later to better enter the trade.

Quick glance would bring us to the conclusion that the 30/1H lined up and the 4H is too late so we have no trade. There is more here. What we have is 3 time frames that have peaked and crossing back below 80. This means that all 3 time frames are screaming "reversal".

When all 3 time frames scream at the same time, it is very loud and the price reverses quite a bit. When only 2 scream at the same time and one is off by a bit, the scream isn't as loud and price only moves a bit. When only one time frame screams, it is but a faint cry in the wilderness hardly causing the price to react at all.

These patterns of "3" time frames lining up and crossing at the same time almost always signal a big price reversal. The other more common pattern is called a "2+1" or a "1+2" where 2 time frames cross and one other crosses earlier or later.

The example in the chart is a "2+1"
Attached Image
  • #378
  • Apr 11, 2007 5:36pm Apr 11, 2007 5:36pm
There is a "window" of opportunity. A 4H candle provides us price movement over a 4H period. It is hard to know what the price was doing in those 4H's unless you watched it. Well, I don't know about you but watching a 4H candle for 4 hours is like watching paint dry. So, what we have to look at is how much play we have with time...what is a "simultaneous" price move.

Interestingly enough it seems that if the closer the stochatics cross the line together, the stronger the move....in most cases. As the stochs move and the multiple time frames spread out the effect is much less. Think of it as as dropping a stone in water...the ripples are strongest right where the stone drops and as they spread out they get weaker.

It is just the way it works. I'm sure there is some quasi-pshycotic explanations like the number pi and ancient pyramids involved...but who cares as long as we know it works this way...let's just be happy.

So know we have a tool to see the big picture of time and stochastic trading working together and how it points to you like a big arrow...there's the pips..over there.
  • #379
  • Apr 11, 2007 5:51pm Apr 11, 2007 5:51pm
Below is a picture of a 4H chart. You can see vertical dotted lines....these represent a cross over 1 time frame in a 4H period. You can see vertical long dashed lines.....these represent a cross over 2 time frames in the same 4H period. Then you can see the dream line....a vertical solid line where all 3 time frames have crossed in a 4H period.

Each vertical line represents a price reversal to the 4H trend. I know..."never trade against the trend". However, since these lines point to price reversal so nicely...you just gotta do it....and every now and then you hit the big price reversal!

The lines also represent the trend....huh? How can the lines do both? Take a solid line (a "3") it usually is the beginning of a new trend. The lines in between are the "2+1" lines....these tell us that the price reversal isn't "real".

We now have choices! We can trade the trend, start from a "3" line and we know every time we see a "2+1" that we are going to see a price blip, but we can stay in the trend. We can trade the reverses from the lines, or we can trade it all.

We can also look at the lines and get a better idea where our "escalator" trade is in the universe....is it strong or weak.
Attached Image
  • #380
  • Apr 11, 2007 6:10pm Apr 11, 2007 6:10pm
So how do you use this in trading?

The first thing is there is nothing fundamentally different here. This is just a broader picture of what happens with stochastics and how they lead us to pips.

This is not a "new" method. You can make rules to trade this, but the number one rule still applies that we want all 4 time frames to line up to ensure ourselves of winning a trade. This is a hard and fast rule if you want to win steady pip income. When you deviate from that rule...you are obviously at more risk...this doesn't mean we have to trade ourselves to boredom either. There are great rewards with reasonable risk out there...we all need to be a little deviant.

If we deviate we can use a window of time as a filter..5 hours, 8 hours...whatever you like; we can go on the 15/30 aligned with the 4H; we can go on the 30/1H aligned with the 4H. it doesn't really matter...the price is going to move. If you enter early you are just going to have a wild ride and require bigger stops. If you enter too late you might suffer a loss so "read the stochastics" is a great way to know where you are. That just means the more that are aligned with your trade, the more likely you will succeed.
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