BMI - MacD Magic Monster

Hi fundamental.

I first need to answer the second question, then the answer to the first question will make more sense.

I had not learned much about mq4 at that stage, and I had read up what I could about MacD and various other indicators. Then I came accross a ZeroLag version of MacD, and I started investigating in the code as to what a MacD actually was. As I am sure you know, the help files of the Metatrader (specially for Newbies) aren't exactly the most user friendly descriptions of things. So the zero lag MacD code was the first code I came across that didn't use that amazing line:-

iMACD(NULL,0,12,26,9,PRICE_CLOSE,MODE_MAIN,0)

That transforms data into a MacD on your chart. Explanation of what the numbers are for in the help file? LOL not quite.

So one thing led to another, and I realised that the histograph was the crossover points. At that stage I had no idea what the 9 represented, since an EMA 9 on the screen did not resemble anything on the MacD chart. So I started messing around with EMA's and SMA's and weighted Ma's, trying to see if I could find a way (thinking at the time) of drawing a histogram of the MacD on the main chart.

It seemed seriously dumb to me that the zero line was not sloped at the trend angle of the two MA's that cross to form it.

So in my experiments, I placed various different Ma's until I found those that closely matched the crossover points (The climb above and fall below the zeroline).

Then I tried to find out what the MA9 in the MacD could match with on the main chart. From where it crossed the zero lines to where it crossed the histogram. I couldn't really find much there at all, and to be honest the 9EMA of the histogram isn't (to me at least) very useful.

The actual Ma's I came up with then, I have no idea now what they actually were numerically (my memory isn't too bad, but I can't recall numbers from 4 years ago)

So that was the end of that part in the evolution of the Monsters. It was basically to me it seemed at the time, sort of ok, but I just put the MacD in the usual way with an EMA(whatever number I used at the time, probably 50) on the main chart as a visual reminder of what trend the zero line is aimed at.

Then (as with all of us as Newbies) one thing led to another and I tried lots and lots of lots of indicators and 'systems' and webinars and... You know the drill.

Some time after that, I had become sort of ok with coding mq4, and I made a 'new' version of a MacD. Stealing parts of code from different indicators and patching them together to get it to work. Then still not really knowing what the use or purpose the Signal in the MacD's served, I wrote A MacD that puts a histogram of the difference between the MacD and the Signal.

It is actually quite effective as an indicator, but I haven't used it for ages.
It is attached. I used it as a crossover MacD with the Yellow histogram (as you can see in the pic) but the problem is in real time, when the Histo crosses above for only a short term, you don't know if it will stay above or if it is going to swing back down. Buy looking at the MacD histo, you can guess, but Burnt fingers is a frequent affair using crossovers without confirmations.

Then I got stuck in the usual Newbie pursuit.... SCALPING. So I forgot all about that 'useless' MacD thing, because trades there took ages, and I wantted profit NOW, not in a few days and definately not weeks from now trades.

There was one thing that completely did not enter my head, and I was actually totally unaware of it being part of the monster makeup, until I happened upon 'The Dance' by eclayf :-
http://www.forexfactory.com/showpost...04&postcount=1

After reading and practicing 'The Dance' it finally dawned on me that instead of using the MA's as indicators to enter when they are crossed over, I should use them as when the Bars touch and bounce off as entries for trading as well as the crossovers.

I sincerely suggest that you (and everyone) read his literature and practice The Dance, your trading will improve immensely.

That was when I drew the Monsters out of the dusty cupboard they had been hiding in for years. (They weren't coded yet, they were just groups of ma's on the screen saved as templates.) LOL, While I have been typing this epic, I have missed 2 perfect entries on the M5 chart. 1st one is 80 pips, second 50 pips.

<split>

So after messing around with the EMA's again using them together with MacD set to 75,365,60 ( I must see if I can incorporate and EMA for the original MacD's Yellow histo), I was seeking a different thing in their placing this time, yes I still wanted the crossovers to be as close as possible to the MacD (or earlier if possible) but my asttention was on the bounce off of the price actionm and searched for MA's that formed resistance and support levels.

I experimented with fib based MA's and random MA's, also changing bit by bit till they showed more promise. Basically trial and error. Then it dawned on me to try the MacD numbers added together to numbers similar to those I had found most effective by trial and error.

If you look at the first picture, or just load up the chart monsters (not the separate window ones) on your chart, you will see how the MA's for SR for both the Price AND the other MA's. As if they are one family supporting each other through the trials and tribulations.

I hope that answered your second question.


In answer to the first question, I use them on 6 charts, on a 22 inch monitor, M5, M15, H1, H4, D1, and a TickChart version of the Two Monsters.

The first two pictures depict the layout, and they are zoomed out to the max. (Will explain why shortly). I can not post the entire picture in one go, since it is bigger than 1500 wide, so I have split it into two pictures.

Since it is zoomed out to the Max, you can see that the purple MA (500) on the M5 chart is not exactly, but very close to FireBrick MA on H1(47) and is similar to Coral on H4.

If you put a 5MA on H1, 5x60=300 so to duplicate the same MA on M15, 300/15 = 20 and on M5, 300/5 =60 and so on per each timeframe.
In reverse, M5 MA has 2584 (a fib number) so 5x2584/15 = 12920.
For the identical MA on M15, 12920/15=861. MA30 = 12920/30=430 etc.

So what we have in effect is a scaled duplication of the Monsters from tick to Daily.

Two things have just occurred to me, and I thank you for if you did not ask your questions, these realisations would have stayed hidden from me.
I will check to see if using the Monsters replica's on the different time frames give any interesting results. In other words the MA periods wil change to our eyes, but in the different timeframes they will be the exact same periods.

The second things is the confirmation of the first thought, since as I looked on the M5 chart, I noticed that the prices were bouncing off the 290 MA, so I placed a replica of it on the M15 (MA 105) and the H1(MA 26).The H4 already has MA5 so the calculated 6 would make almost no difference, same with Daily. A large number of the 'almost touch' and bounce points off the 290, or the ones that 'almost break through' the 47 in M15 bounce clean off 105. Super cool, more close to zero risk entry points.

In essence, this means that when the FireBrick of a smaller timeframe crosses above the Indigo and Purple MA's, then the Firebrick Ma in the next timeframe up is heading towards it's Purple and Indigo Ma's.

This is useful, since let us say that Firebrick is seeming like it might cross above Purple on H1, but in M5 it is moving crossing downward over the M5 purple.

It is a forecast easily visible of the what is not so easy to see on the H1 chart. The M5 trends do not last as long as the H1 trends, But each smaller Timeframe gives quite clear indications for nice entry and exit points for the timeframes bigger than it.

This is not so easy to explain, but if you load em up on the same currency pair and the same timeframes, and check them from all angles. (zoom in and out, and watch them in realtime data as to how they interact with each other and you will see it easily.

Now once you know how they interact, you zoom them back to more normal levels, but as soon as they start x=over manoeuvers, you know what tendencies can be expected ahead.

The TickMonster is an extremely cool indicator for fine tuning entry points to tiny pip levels. It is like a microscope.

If for example there is a 290 crossdown in M5, and you wait for the price to strike back up to see if 290 has now become resistance, or if it is only a failed test. You look at the TickMonster, and if she crossdowns the purple thickline (I must sort out proper matching colours for TickMonster) at the same time the PA is touching the SR on the M5 chart, then you can bet your bottom dollar that the price has reversed and go short.

If you think I am joking, test it. Unfortunately you can not run the TickMonster in backtesting, since it is live of the tick prices.

Another thing is that you have to wait for the ticks to add up so all the MA's are present. Sadly, if you get a disconnection (even for a split second) the TickMonster clears and starts from an empty chart. One other thing, it makes zero difference to the TickMonster what the timeframe is. The zoom level is nice to play with. If you are in a scalping mood, Load up the M1, M5, M15 and the TickMonster. Using the larger timeframes for a reference fo trend etc, and the TickMonster for entry and exit.

If you prefer H4 trades, load up the relevant charts. M5, M15, H1, H4, D1 and TickMonster.

One other thing that amuses me quite often is how you see the exact same pattern forming in M5 chart as the pattern already present on the H1 chart, or in the TickMonster.

They are fractal by nature, and we think we set them.

Your final question, what is the first thing I focus on when first looking at the screen.

I check to see if any of the Firbrick 47's are turning, and if so I check how they might affect the other timeframes.

The next thing I check is (lets say the trend is down, and the price is below Coral (14) and firevrick(47) I look to see a touch on coral or a touch on firebrick (doesnt happen so often on down often on down).

For a clearer idea about how to figure the touch and bounce off SR's, go over to The Dance, and or, study the charts in backtesting/live.

Over and Out.
BMI.

<EDIT>
Oh bye the way, the Aqua MA's are the replica MA's as calculated earlier, just so you can see they are the same with different MA periods.
</EDIT>

If you wait for the cross, you will never get a confirmation until the close of the candle. How do you determine if there is enough momentum to drive price further since you would not want to get caught in a trend change....

Hi Blue...

Your explanation of two level MacD really caught my attention. If I understood your statement you said the draw back was knowing when a cross above the zero line would keep going in that direction or reverse back to the original direction.

I was looking at the daily chart with your BMI indicator and was taking notice of the heights of the waves formed by the yellow MacD when the aqua MacD was going in the opposite direction. I started placing different horizontal levels on the indicator and I think I may have come up with a solid idea that would keep you out of wipsaw moves up and down around the zero line. Now granted I've only looked at this on the daily chart and have found numerous examples but by no means am I claiming this will work on all time frames and every pair.

So I will use a series of charts to explain.

Chart 1 GBPUSD daily - Clearly we see a down trend with both MacDs under the zero line and pointing down.

Chart 2 - Price is making lower lows while the aqua MacD goes lower. We also notice the yellow MacD starts to make higher lows as price continues to make lower lows resulting in divergence. Now divergence is a nice signal that the trend is getting weaker but I wouldn't use it as my only trigger to get into a long position on a daily chart. As you can see we've been divergent for almost 2 months so if you get in long you might get stopped out really fast or would have to wait it out and hope that price turns around. I personally don't like either of those options.

Chart 3 - On this chart price moves up nicely and we get a higher high and the yellow MacD moves above the zero line. Now the question is will we get a continuation move and a change in trend to the long side or will price head back down? How can we filter these moves?

Ok here is chart 4 - We see that price has made a nice up move. Now notice how far the yellow MacD has come up and over the zero line. I placed two auqa horizontal lines on the indicator, one at +200 and the other at -200. Price made a nice up move and then went straight back down again leaving us with a possible false entry to the long side. Now notice where the yellow MacD highs are during the up move and the subsequent moves in the leg labeled "Opps not yet". The yellow MacD never goes past the +200 level. Also note the aqua MacD is still well under the zero line. In real time this would give us the appearance of a strong down trend and we might expect the down trend to continue based on the aqua MacD.

Chart 5 - Price has moved up after the "opps not yet leg" completed and what do we see? For the first time price has moved above the 200 level (green arrows in indicator window) and we have a higher high from the last low. Now that we are above the 200 level we wait until we get a pullback in price accompanied by a pullback in the yellow MacD. If the pulback in the yellow MacD stays above the zero line we look for some price action signals to enter long. If the pullback in the yellow MacD stays above the 200 level it is a very strong signal. Please take note that all of this is happening while the aqua MacD is still well below the zero line. If you wait until the aqua MacD confirms the up trend you would be waiting another 3 months. As you see the yellow MacD dips and stays above the 200 level and we see price action in the form of a pin bar and then a bullish outside bar for our entries. Only if we all could have gotten in on that move....sigh.

I hope that makes sense and helps...

The right MAs can indicate S/R, together with pa makes them non-lagging. The beauty of BlueMental's transformation of macd is that they seem to be an approximation of true pa.
just my $0.02

fun_demental

Here are some additional observations about the BMI 2 MacD set ups. What I've found is that each pair needs specific filter levels set on the MacD and each Time frame needs specific filter levels set on the MacD. So once you determine the time frame you want to trade with you will have to set the MacD filter level for that time frame. For example; AUDJPY is set to 0.25 on the 5 min chart but the daily chart may need a setting of say 2.0.

I'm not sure how this will look in real time I will assume on the longer time frame charts you will be able to see the MacD bars form and get the picture of what is going on with price and will have time to react to what you are seeing. With the smaller time frames you may not be able to distinguish the MacD pattern until the move is close to being completed. It's kind of like the Stoch indicator on smaller time frames, in retrospect the stoch looks like it gives you useful information but in real time it's next to useless on smaller time frame charts like 15, 5 and 1 min. At least it is in in my opinion.

Here is another example of how you might use the yellow yellow MacD and the filter level to determine a directional change on the 5 min AUDJYP chart.

We see price trading in a small range on the 5 min chart (between green lines). Price breaks out to the down side. Do we take the break or wait? Note the longer term aqua MacD is above the zero line indicating an uptrend is in place.

Now price breaks the - 0.25 filter level I have set on the yellow MacD indicator while aqua MacD is still above zero line. When this happens it alerts me to the fact we may have a directional change in price. Now we wait to see if we get a pullback that stays below the - 0.25 level which would confirm the directional change. If it pulls back to the zero line we still may have a change it just may not be as strong.
We see a pullback (red arrows on chart) and now we look for some price action ( pin bar, engulfing bar, inside bar) for our short entry. Look at the MacD and note the green arrows at the pull back points. These pull backs do not go below the
- 0.25 filter level. Also note the minor MAs in the MA window have all gone below the major MAs 290 and 500.

It looks like the combination of the MacD and MAs could be a very good trading signal. I'm going to do some more investigation this week on the "live" charts to see how this works. So far on the static charts it appears to have a lot of potential. Any feedback would be appreciated.

Hi ozziedave.

It makes perfect sense, but the aqua Macd is not needed at all. the Monster shows it clearly. Norice that as soon as the Small Monster (Think of them as Monther and daughter), the daughter crosses above the Firebrick, heading up towards the mother. It is just after the HL that follows the HH where Monsterdaughter confirms the reversal. Once FireBrick turns and the smaller than firebrick Ma's have crossed, You are in.

I posted and uploaded the aqua Macd as my explanation of how I got to the Monster. use it if you wish, either for extra confirmation, or as an indicator, but it is not needed.

In this particular setup, the High and low of the two monsters are the same, so the crossovers of the daughter with the mothers MA's are correct, but this is not always the case. Rather use only one indicator in the seperate window and set the 1st three to the Mothers settings (500,290,5) and the last 3 to the daughters settings (47,14,2)

Those horizontal lines you drew at +200 and -200 are more easily and clearly seen (look at the aqua pointers on the picture) as the price action (coral and goldenrod, testing firebrick) Once they crossover, Go LONG! If you are a conservative trader, wait for bounce 2.

Since we know (and can see) that the purple and indigo's are SR lines. we see that coral shoots through purple then stalls. Purple Test1 on the pic is actually the second test. But you can be 85 to 90% sure that the Price Action will channel between purple and indigo. Indigo test 1 confirms this.

Conservative trader leave at 1st cross below purple. That is a safe and profitable trade. From bounce 2 till the bottom of the cross below through is 1500 pips from a 5 month trade.

Yet think of this... it is very rare for the pattern to turn on 1 bounce (look at firebrick for the clear bounce formation. Frequently the bounces turn after bounce two, but 3 is generally the norm.

So knowing this, it is wise to not close the trade here after 1st cross below, rather wait for the price to attemp a second test on indigo. Or if in doubt, close half your position and wait for test with the other half.

From the bounce2 below on entry to test 2 on indigo, is 2200 pips.
From bounce1 below, where the two red lines numbered 1 & 2 confirm firebrick has turned, to 2nd test at indigo is 2400 pips.

Yet the most likely outcome of this trade (had I entered it) would have been entry at bounce1 and exit just after LH(probably I would accept LH as confirmed on PA touching firebrick) after purple test 2, totalling just over 2000 pips.

The next confirmed entry for a short is at test2 indigo. look at indigo numbers 1, 2 and 3. 1 is HH, 2 is HH, 3 is LH. From Test 3 number 3, till today, the pip count would be 2000 and rising.

I did not enter there. But on GY I entered a few days back (I think it was on tuesday) it is posted somewhere on this thread I think.
If one compares the same chart with GY, the confirmed entry point comes 2009.08 and pip count is 2400.

GbpUsd is going to range for the next week or two (seemingly volatile paranoia etc.) but look at the chart! it is exactly on form to the pattern.
It is the start of the third scallop. So wait until PA rises back up and bounces off coral (it might spike up to reach firebrick for 1 or 2 days, but I doubt it)
And on the downrun off that bounce, jump in and go short. You will have ZERO drawdown, and catch at the very least, 1000 pips.

The first scallop took 2 months, second took 3 months, third will take....? Are you seeing a partern here by any chance? Ask Mr Fib.
This scallop being the third will most likely end around september, but fib 0.618 is where the trough will be, July (that is when all the economists etc, will start telling you the crisis is under control and all is happy and smiley. The trend curves up. Hopefully we reverse and not get a fourth scallop.

So, hopefully this clarrifies some stuff for you. Ditch the MacD, Ditch separate window Monster, Use the Mother and Daughter on main chart Monsters.

BMI

The super clear serparation in your picture of the coral and firebrick MA's after the cross below the Mother MA's is all you need.
They are divorced! they are not even talking to each other (coral and firebrick.
Till they start seeing eye to eye and get back into the swing of things, there aint no way they are going to elope and cross over the firebrick.

I should never have uploaded the MacD. You are trying (as I did) to trade MacD in the conventional way based on crossovers only.

Yes, it is a useful MacD, but it is not needed at all.

If you place The Monster(both Mother and Daughter) on your main chart, and set your chart to Line chart and set the line color to NONE, You WILL trade better.

The up and down runnings of the little'uns are only useful for entry and exit levels. If you focus your attention primarily on them, all you get is heart attacks (like the whole world freaked out in panic last week, while all that was happening was Granny and Gramps had a ruckus and will be parting ways for a while.)

BMI

If you feel more comfortable with the MacD, there are only 2 things you need to focus on with that indicator.

1. Aqua and Red lines.

If they turn and curve upwards, the trend HAS reversed.

2. Once they have turned, the very first bounce off zero of the Yellow histo is entry point.

However this is only useful for the long trades (long in relation to the timeframe they are in)

The Monster (with all the bounce's off the MA's) Gives you long,medium,short AND scalping entries and exits.

BMI

Hey Blue ;-)

As for your charts that you would trade this method off are they as shown in
your reply to ozziedave ???

Thanks
Bluesteele

Hi Blue..

Thanks for the feedback. Yes, I was using the aqua and yellow MacD in a more traditional way I just found it to be very visual and easy to follow. I'll study the monster overlay on my price charts a bit more. I just found the MA lines were really obscuring the candles. That's very interesting that you say you can trade without the candles by just following the monster MAs.

Can't say I've ever heard of a scallop. Can you give me a quick explanation.

Hi again Blue,

Yes, I was looking at the MacDs as more of a longer term trading system, 4hr and daily. I will definitely take a closer look at the MAs and I won't post any additional MacD charts or questions. Didn't mean to confuse anyone about your system or the value of using the Monster MAs.

Hi Blue (you steele my blue? )

In answer to your question, Yes.

Speaking and analysing in hindsight is very easy. So I will do the following.
1. Assuming the trade is not a very short term trade (I do them too) I will post the runup as I see the trade forming. I will edit the post as I enter or choose to NOT enter (when the correct confirmations do or don't occur).
2. I will state how much I percieve to be an acceptable drawdown fo that trade for me, and how I figure my risk management for the trade.
3. I will state how many pips I think I am likely to get.
4. I will state how long I expect the trade to take for completion.

If you look through this thread, I stated a post I made on GY. I actually closed the trade, even though in that post I said I would leave it for far longer. The reason I closed the trade, was to lock in the profits after that drop last week.

My next trade (that I will post) will in reality be a continuation of that same trade.

I have been trying to find clear examples on the graphs that I can use to easily point out the Swing/Bounce patterns and how they tell you just before a reversal that a reversal has begun. It is difficult to draw them on the charts, but when I find a clear setup, I will post it.

It is kind of like learning to drive. In the beginning, everything seems confusing, but after a while, you no longer need to pay conscious attention to everything. It falls into place naturally. Same with these patterns I speak of. The more of them you see, the more easy it becomes to see them. To the degree that they allow you to be more specific in your choice of which you use or do not use.

I will say this in advance. I will be posting MY trades, based on my perspective, and if anyone follows and opens the same trades as I do, they risk their money out of their own decisions. I am not by any means a 'guru' and I do not say in any way that anyone should do as I say.

I merely state what I would/will do in a given situation.

BMI.

If you feel comfortable with MacD, then stick with it. By using MacD and Monster on the same chart, you will begin to see more easily the signals visible on the monster. (They appear usually very close to the same time) but you will also realise after a while that it is easier to see on the monster. The MacD creates problems (as shown in my initial postings) because you WILL forget to visually confirm the trend direction that the MacD displays as horizontal. And believe me, it bites!

The Scallop shape...
Before I go there, let me give you an interesting piece of info regarding the yellow histo on the MacD.

If you open up the code, and take a look, you will see that it is merely the (MacD-SignalLine) * 12 shown as a histogram.

SignalLineGold[i] = (MACDLineBuffer[i] - SignalLineBuffer[i])*12;

The actual code is pasted above this line. Now set up an OsMA indicator on your chart with the following settings (37,365,30) (the 1st and last are half of the MacD's Fast MA and Signal)

It gives you an almost identical copy of the yellow histo.


With regard to the scallop shape. It is the sea shell shape.

http://img638.imageshack.us/img638/6...lop2898795.jpg

They are in every chart, every timeframe, every pair. (They are in weather charts, they are in population charts, they are EVERYWHERE. Important, they don't always trend downwards)

Here are 3 small scallops (there are smaller ones forming the small ones, from tick chart into infinity) forming one ,'large' scallop.

BMI

Hi BlueMental, Thank you for the interesting thread. I also like MACD indicator but it's conventional style is not so informative as the way you treat it. Please keep posting. Also when posting you trades it would be helpful for newbies (like me) stop placement methodology. Or any thoughts on how we could try to fine-tune entry so the risk could be minimized (entry on some pivot breakout or using smaller timeframe...)

Here is a good possible trade growing.

I am posting imediately so you can see the pictures. Then I will come back and edit in the details.

<EDIT>
Yikes!! I uploaded the pics ages ago (when I wrote the above text) then the thread was giving me half the posts on this page. (some cache issue in my browser I guess)
So I rebooted and relogged in and still couldn't get to the post.

While doing all this, I issed the good entry point for the short, but no stress, I wait for the M15 scallop to go up and bounce off coral, then I enter.

OK, If you look at the two coloured sketches on the bottom right of the H1 chart. One is a copy of the coral MA, the other a copy ofd the Magenta MA. THOSE are tells that a reversal is imminent.

The two white sketches at the top of the chart were possible ways that the trend would reverse. Notice M15 has tested and bounce The Granny and Gramps MA's. Showing both a LL and a LH. On M15, they are also just below a Round Number. If you look at D1, you will notice we are not even a quater of the way into the scallop, so in spite of the apparent upsurge, the price will realign itself to make the scallop form fluid.
On H1, we are now at the start of her second scallop.
(Any of you follow Elliot Wave theory? Well the third zig is usually the one that moves the most.) Yes, that is this one.

I reckon somewhere around 75 to 80 hours from now, the price will reach very near 126.100 If that is the case, I get 1200 or so pips.

As I am typing, the PA dropped nelow FireBrick on M15 and also FireBrick has turned. I'm in the trade.
The Price may surge back for another test at purple and indigo, meaning my drawdown may reach 250 to 275 pips.

A fair Risk reward ratio 275:1200.

<EDIT> Sorry my calculating brain is on another planet today. 138.297 - 126.100 = 12000 pips (not the 1200 posted)
</EDIT>

The two pics I added are the entry of the trade, and the possible outcome of the trade.
</EDIT>

EURUSD M15 looks like an interesting scenario.

Pretty much the same as GY. But to see the bigger picture, zoom M15 out totally, and also notice where H1, D1 are in relation to their MA's and RN.
The big difference between EurUSd and GbpJpy is the volume GY moves in comparison. ( I will at some stage post a text on the inner workings of exotics and you will have a clearer understanding of how they tick)

All you really need to watch though with GY, is if GbpUsd is trending down at the same time as UsdJpy trending down, GY is dropping at 1.5 to 2 times the pip movement.

For some reason, FF isn't showing my posts today, I have to re-enter them to get them to show the pics.
So I am attaching them again in this reply.
LOL, I forgot to draw the scallop curve.

Yes, the 1.2800 round number seems to be acting as resistance at the moment. There is also a countertrend trendline that cuts up through the 1.2750 round number. If price gets there then it may seem reasonable to expect some back filling in that area. Time will tell all, as it usually does.