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The Logic Behind the Pitchfork

  • #61
  • Aug 12, 2011 2:11pm Aug 12, 2011 2:11pm
Good points. Dont think we need actual market prices to be normally distributed for reversion to mean to work. We can force data to exhibit normal properties through averaging. Individual candles contain a lot of data which is probably not centred by distribution. That's OK. Say if we take the individual midpoints of a series of candles, (H+L)/2, then apply an averaging function such as an MA to these calculated values, then this dataset will exhibit roughly normal tendencies (mean of means). Without even curve fitting an MA, price action will always "mysteriously" appear to be centred around or reverting towards the MA.

Really like CrucialPoint's insights into the use of MAs in forex trading. Dont have to use the midpoint in the exercise above but it aligns with what CrucialPoint says in his posts about using what is inside the pot to determine which way the wind is blowing.


Quoting Davidee
I don't know if Andrew's Pitchfork works or not, personally I doubt it. I did a rather crude mechanical test on my blog and couldn't find any evidence of reversion to the mean (or reversion to the median in my test's case) providing any kind of edge.

What the tests did show was that reversion to the mean strategies tend to win more often than they lose, but they don't win more than they lose, they lose more pips and it works out about 50/50 with no tradable edge. At least that was why my limited experiment showed.

http://www.myforexdot.org.uk/reversi...n-trading.html...
Audentes Fortuna Juvat
  • #62
  • Aug 12, 2011 2:40pm Aug 12, 2011 2:40pm
Quoting Nijee
Without even curve fitting an MA, price action will always "mysteriously" appear to be centred around or reverting towards the MA.
it might be just me but i don't find truth in this. over a long enough time, maybe. but it's the same old story. as soon as you think the market is going to revert to any mean it takes off, and when it takes off and you expect it to continue it reverts, and when it takes off and you expect it to revert it continues going, or you expect it to take off and it doesn't and instead reverts.

as soon as you get used to one behavior the market will move against you and move the field of play to another area. MA's don't mean a thing when a big event hits the market and shakes everyone out of their trades and strategies.

i think you are giving too much credit to MA's. you can certainly glean information and create a perspective about the market based on things like MA's and MACD's and pivot points etc, but you still have to create a way to continually extract pips from the market.
Congratulations ScalaFX for coming out of the closet!
  • #63
  • Aug 12, 2011 6:15pm Aug 12, 2011 6:15pm
Quoting nubcake
i think you are giving too much credit to MA's. you can certainly glean information and create a perspective about the market based on things like MA's and MACD's and pivot points etc, but you still have to create a way to continually extract pips from the market.
Agreed. Was not trying to say or infer to build a whole system around MAs only, just making the point that you can normalise any time series data. Sorry if it read that way.

Just trying to explain that price will always appear graphically to "mysteriously" or "magically" revert towards or fluctuate around an MA because of the way it is calculated. It has to. This happens faster with smaller period MAs and the ones designed to curve fit better eg ema, wma that give higher weightings to the most recent data. An MA1 (price) is the ultimate curve fitter!

As a relative newbie here, have drawn a lot of insights from posts from respected traders such as yourself and CrucialPoint. Why does price diverge away from its mean level, however calculated, for extended periods? Keynes called it "animal spirits", others now refer to it as the "herd mentality". In this context, agree that the central limit theorum/reversion to mean is seriously challenged when faced with so much market momentum. But as you point out in other posts, the dominate market condition is price ranging/converging, not trending. Me, I am still trying to work out all this shit
Audentes Fortuna Juvat
  • #64
  • Aug 13, 2011 1:20am Aug 13, 2011 1:20am
i think you can get yourself trapped into an incorrect perception, that's all. yes the market will always fluctuate around an MA... but that's because an MA is always chasing price, not the other way around. and that's the important part to remember. if price was always chasing an MA then that would be something and everyone would trade the price chopping back and forth as it crossed the MA becoming millionaires overnight.

as you have noted it's not like a disturbed Sine wave that keeps bobbing across the zero line with some added noise to make it appear random... it's more like the zero line itself keeps moving as well. if you normalize it all to the MA then it will appear to just keep ranging, but the real price is doing something else entirely usually.

so why does price shift away from prices and continually seek new levels to range around for different amounts of time... in my mind it is the result of conflicting agenda's between different traders entry and exit strategies, volume being traded, and the time period that each trader is going to be in or out of the market. e.g. if you had a handful of traders in a room trading against each other and a few of them were making all of the money then they would eventually walk away content, or the losers would change their strategy to adapt... in either case the situation has changed and so the price movement changes as well.
Congratulations ScalaFX for coming out of the closet!
  • #65
  • Aug 13, 2011 3:32am Aug 13, 2011 3:32am
Quoting CrucialPoint
=========================================================

In quantum physics there is a "force" that governs and animates every vibrations in this universe.... a force (energy) that governs and animates every atom. And this force which also animates and governs price movements. (this section has nothing to do with pitchforks)
The force binds us, surrounds us, and keeps he universe together.

"These are the charts you're looking for, move along, move along..."
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #66
  • Aug 13, 2011 8:23am Aug 13, 2011 8:23am
In case it helps your discussion I have posted some analysis of my recent charting/trading of GC via pitchforks here:

http://www.forexfactory.com/showthre...35#post4867435

beeb
  • #67
  • Aug 13, 2011 10:04am Aug 13, 2011 10:04am
MAs work well if used as support and resistance, especially, when MAs of different periods overlap and are trending, i.e. have a steep angle. With this method, you are trading AWAY from the MA, much better than looking for mean reversion !
  • #68
  • Aug 14, 2011 12:14am Aug 14, 2011 12:14am
Quoting Pipalicious
I agree that time is essentially man made. But HOW do you eliminate TIME from your trading?

All I can think of is by using charts that dont take into account the time factor, such as renko, range or other type of charts.

Because even by using MA envelopes, TRS, RSI, or any other assistance is usually being plotted by taking into account time.

Please enlighten me, because my forehead is bruised
Although I would use time based tools... I just simply ignore Time. I hope this explain my way of thinking.

Attached Image (click to enlarge)
Click to Enlarge Name: no time.png Size: 62 KB


At each point of (X) I have a quantitative measure of how Nubcake framed it; "a way to measure of how strong the wind is blowing" and then simply take the trade. I would second post Nubcake's response to your question regarding to No time basis.

Whether be it PitchForks or not, it is the wrong assumption or to embrace the philosophy; that you have a magic tool which is able to predict the future at a specific point in time. (This including using pitchforks)

Although I blab about quantum physics in trading, I still honestly can conclude that I make money not knowing anything about what is going to happen in the future and at any specific point in time.
  • #69
  • Aug 14, 2011 11:03am Aug 14, 2011 11:03am
Quoting CrucialPoint
Although I would use time based tools... I just simply ignore Time. I hope this explain my way of thinking.

Attachment



At each point of (X) I have a quantitative measure of how Nubcake framed it; "a way to measure of how strong the wind is blowing" and then simply take the trade. I would second post Nubcake's response to your question regarding to No time basis.

[color=darkred]Whether be it PitchForks or not,[b] it is the wrong assumption or to embrace the philosophy; that you have a magic...
So, what does the horizontal line without time mean?? Is it possible for you to provide any illustration for the extra dimensions ( more than 3 dimensions) you mentioned?

Thanks in advance.
  • #70
  • Aug 14, 2011 11:30am Aug 14, 2011 11:30am
Quoting p.warrior
So, what does the horizontal line without time mean?? Is it possible for you to provide any illustration for the extra dimensions ( more than 3 dimensions) you mentioned?

Thanks in advance.
Can you imagine a 4 Dimensional cube's structure in your head? This is very tough for a lot of people to imagine

Inserted Video


Now you still have to step it up into 6 dimensional cube.

Inserted Video


It's out of the scope of this topic and thread.
If you can understand this last vids, then you can imagine how the the graph is like in 6D.

Inserted Video

Inserted Video

  • #71
  • Aug 14, 2011 1:10pm Aug 14, 2011 1:10pm
Rectangles are used to build the pitchfork. Green circles show times that price has retraced when reached to a pitchfork line.

The pitchfork line shows most probable line of price high/lows in the future.
Attached Image (click to enlarge)
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  • #72
  • Aug 14, 2011 1:24pm Aug 14, 2011 1:24pm
Quoting mahdiquant
Rectangles are used to build the pitchfork. Green circles show times that price has retraced when reached to a pitchfork line.

The pitchfork line shows most probable line of price high/lows in the future.
yeah, great. except how many times did it have to cross these arbitrary lines before finally deciding "now" it will choose to randomly stop there. it seems to me that pitchforks are purely a poor mans fib tool.

you can find confluence anywhere if you try hard enough and close one eye.
Attached Image (click to enlarge)
Click to Enlarge Name: secret2.jpg Size: 561 KB
Congratulations ScalaFX for coming out of the closet!
  • #73
  • Aug 14, 2011 2:12pm Aug 14, 2011 2:12pm
Quoting nubcake
yeah, great. except how many times did it have to cross these arbitrary lines before finally deciding "now" it will choose to randomly stop there. it seems to me that pitchforks are purely a poor mans fib tool.

you can find confluence anywhere if you try hard enough and close one eye.
Have a look at the link I posted in message #66.
It shows how I've been trading GC for the past few months...
See if that helps you understand what forks are about...



beeb
  • #74
  • Aug 14, 2011 2:52pm Aug 14, 2011 2:52pm
Quoting CrucialPoint
Can you imagine a 4 Dimensional cube's structure in your head? This is very tough for a lot of people to imagine

http://www.youtube.com/watch?v=cbprfcSVcyQ


Now you still have to step it up into 6 dimensional cube.

http://www.youtube.com/watch?v=Bn7HDBj9ZQQ


It's out of the scope of this topic and thread.
If you can understand this last vids, then you can imagine how the the graph is like in 6D.

http://www.youtube.com/watch?v=Jkxie...eature=related
http://www.youtube.com/watch?v=ySBaY...1&feature=fvwp

...
Very cool Crucial.. I find this sort of thing extremely interesting, these vids explain multi dimensions very well, though I'm sure it will take a couple days for me to fully wrap my mind around it.

Thanks A lot!
  • #75
  • Aug 14, 2011 7:12pm Aug 14, 2011 7:12pm
Quoting nubcake
yeah, great. except how many times did it have to cross these arbitrary lines before finally deciding "now" it will choose to randomly stop there. it seems to me that pitchforks are purely a poor mans fib tool.
you can find confluence anywhere if you try hard enough and close one eye.
As I mentioned before to OP:
For every bounce I can show the same amount of breakouts.
Somehow people have a selective focus/vision/hearing... they gotta see the spinning lady!


Quoting beeb
Have a look at the link I posted in message #66.
It shows how I've been trading GC for the past few months...
See if that helps you understand what forks are about...
beeb
Here is what I saw Beeb:

Attached Image


Quoting mahdiquant
Rectangles are used to build the pitchfork. Green circles show times that price has retraced when reached to a pitchfork line.

The pitchfork line shows most probable line of price high/lows in the future.

Here is what I saw Mahdiquant:

Attached Image


===============================
This is what I meant that for every signal (in every system/method)there is a convergent/divergent nature to it. For every signal there is an equal opposite. For every bounce there is a breakout, for every breakout there is a bounce.

There are nothing wrong with pitchforks or trendlines or any other forms of TA if you know how to use it. Again, instead posting up the successful setup, why don't you guys post all the failed setups and see for yourself that it has an equal amount.

Why is this? Let me give you something for your brain to chew: If you are trading bounces, then the 1234/abcd formation means there are no such thing. And the 123/abc formation is the crucial formations of higher highs/higher lows and lower lows/lower highs (HH.HL/LL.LH).
If you are trading breakouts then your classic formations such as triangle, wedges, Head and shoulder, especially twin and triple tops/bottoms means that there are no such thing.

So, why are you guys posting only bounces... why are other guys only posting breakouts?

So the important lesson here is:

How can you determine a bounce or a breakout?

  • #76
  • Aug 14, 2011 10:51pm Aug 14, 2011 10:51pm
Quoting CrucialPoint
So, why are you guys posting only bounces... why are other guys only posting breakouts?

So the important lesson here is:

How can you determine a bounce or a breakout?

Maybe that's a million dollar question

I think Price Action can help to make a decision but I'm not sure, maybe PA itself has similarities to Bounce/Breakout which raises a question: How can you determine a Price Action setup will fail or no?
  • #77
  • Aug 15, 2011 1:35am Aug 15, 2011 1:35am
Quoting CrucialPoint



Here is what I saw Beeb:

Attachment



You're missing the point. I use forks to determine levels of support or resistance and I will be adding or lightening positions depending on what happens along the lines. You have to be very certain to jump in on a first bar touch so I tend to watch the action at the line and take a position after the first touch. I will also lighten when it reaches anticipated resistance.

Forks are not a "mechanical" system - there is plenty of art that goes with the science. Have another look at the chart you have put crosses on and see how many times entries also gave you close stops. On the timescale I've showed and with the detail, they are not a "trade and forget" system - they need managing.

FWIW I've been trading for thirty years and think that forks are the single strongest weapon in my armoury - but one needs to work at using them properly...

beeb
  • #78
  • Aug 15, 2011 3:09am Aug 15, 2011 3:09am
Quoting CrucialPoint

How can you determine a bounce or a breakout?



You can't, wait for confirmation.
Audentes Fortuna Juvat
  • #79
  • Aug 15, 2011 4:29am Aug 15, 2011 4:29am
Quoting CrucialPoint
So the important lesson here is:

How can you determine a bounce or a breakout?

By building a system that deals with both simultaneously?

By utilizing your "shift dimension"?

By clearly identifying and filtering all losing trades?
  • #80
  • Aug 15, 2011 5:02am Aug 15, 2011 5:02am
Quoting Nijee
You can't, wait for confirmation.
Confirmation will be too slow, even if you are using price action. Oh did I tell you I trade the ticks yet can see the hour's and daily's in one chart?

Quoting Pipalicious
By building a system that deals with both simultaneously?
By utilizing your "shift dimension"?
By clearly identifying and filtering all losing trades?
Then get to work
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