The Confession & The Secret

Difficult to type and swap at the same time, once it gets in the clear, I'll be back. Posting and swapping is costing me too much in Swap Expense.

Just changed the above V-Trigger pic to show that the First trigger was not traded. I'm still very close to the swap zone and don't have time to post.

Keep an eye on the Daily range. Because the U.K. session did not move it much, if it starts to unwind during the U.S. session, this could be huge later in the session today.

It is the market profile point of control. The MP I use is proprietary and locked code so I can't share it but there are numerous versions you can buy for any platform. I would recommend reading about it in depth before purchasing it because it is a very specific way to read the market behavior and trade. You may find it does not suit your style.

Today's synthetic loss is complete at -71 pips. If you read the trade journal, then you will understand that I'm going to do run this as two recoveries at the same time. Read the journal, it should make sense. If not, then I'll go through the math at the end of the day.

Line,
Some questions I am wondering about. I ran a quick test on the point of control and obviously that line has too much traffic to be useful with this idea. It seems you are looking for a level that is slightly out of bounds from the peak volume area. I see that you look at hourly volatility and a reading of 32 pips, is that a hard fast rule?

Also, my POC test showed me what I wanted to see with how tight I could defend any line and it ends up being a zone really. The spread, the close of the bar all play a role in widening where my (automated) trade entry and exits are. How are you handling that issue?

Lastly, what role does the double stochastic play? Since you are not interested in direction are you relying on it for an overbought/sold level?

No Jasmine Downy Pearl tea this morning!

I'll get to it later - I'm trying to earn my cup of tea this morning.

The hour volatility that I use comes from my custom volatility indicator. It is similar to ATR and uses two different moving averages that calculate different hour volatility across two different periods. So, the 32 pips average hour range came from one of the internal moving averages of hour magnitude and it is a dynamic (not fixed) moving average of hourly volatility. Both of them It moves with time depending on their respective period.


I'm doing it differently each time, until I get a consistent swap loss control. So, I'm still working on a good algo for that.

Today, is a great example of really poor Swapping on my part. Some of it had to do with the fact that I was trying to type updates while swapping. In rapid swap environment, that is impossible, as price moves too far beyond your swap point before you can switch positions - so that cost me big today.

The other problem was that the initial swap zone on the M15 was wild. So, I had too many double digit pip swap losses. My rule, is that any swap that costs more than 9 pips, is too much. I had some swaps today that cost me 25, 18, 17 and 11 pips (along with the synthetic swaps to produce a loss). That is way too many double digit pip swaps. I typically keep the swaps in the single digits.

The reason they got reached double digit levels, is because I kept getting pushed further and further away from the V-Trigger Swap Line with each position change during the initial swap sequence. The forced the taking of double digit losses - which is not normal for the way I typically run the swap sequence. So, those things combined, ruined what should turn out to be an otherwise very profitable day. We'll have to wait and see just how much energy the Daily bar can generate.

In general, I'm looking for any combination of interaction that leads to a market that needs to generate a Swing and do it with Momentum. That's it. The rest is a trade secret!

On that point - I have learned a bit more this week about how I might tweak/optimize my V-Trigger logic. I've seen several instances this week and in past testing where the certain V-Trigger configurations end up getting whipped around too much during the initial swap sequence.

If you recall, today, I indicated that the V-Trigger had "reset" itself. Well, I've seen that a few times before and decided to trade it anyway. What I've noticed is that when the V-Trigger resets just before it triggers, it usually ends up running the trade into initial confusion and that causes too much whipping action. I wanted to do it again today on a reset just before the trigger to see what would happen in real-time and sure enough, the whipping action was fierce at the start of the swap sequence and that lead to too much in swap cost.

So, while I am not concerned with a recover to at least BE, I will be going inside the numbers on the V-Trigger algo to better understand how to avoid those kinds of triggers and simply turn them "Off" completely when they occur, so I don't see them and don't trade them.

The absolute key to all of this is to make sure you get a trigger to begin the swaps at a definite point of Swing and/or Momentum. That is where the money is made because the swaps become few and easily recovered with lots of profit potential automatically built-in by the Daily range (if you make sure not to enter when the Daily range is exhausted).

So, I've still got some work to do on optimizing the V-Trigger to a point where I feel 100% confident in the Line being drawn.

However, I am close - very, very close to nailing that particular algo!

5-6 hours before this session is done. It is looking more and more like the portion of the volatility analysis (above) that talks about "compression" on the Daily bar due to "exhaustion" of the Weekly range, is pretty much being played out right now. Back at the 1500 GMT-1 M15 bar, I thought we might see the Daily bar come alive and start to expand the H1 range average, but that is not happening at this point in the session.

Still, I've seen plenty of Friday sessions start to come alive in the very last two hours of the day. So, I'm still awaiting more expansion on the Day, though yesterday's spike which pushed the Weekly range through 109% capacity, did skew the normal Daily range volatility for today.

All time-frame are interconnected with dependency relationships that are in a perpetual and constant state of variability, depending upon which time-frame reaches exhaustion first. A good study of multiple time-frame range analysis will provide you with that useful data.

With hourly volatility having gone to sleep for the weekend, this session is pretty much a token for the week, unless a wellspring of volatility comes from somewhere to move the EUR out of this 30 pip range.

With the original V-Trigger at 4141 and the current close at 4156, I'll terminate the Swap Sequence one minute before the close of the Friday session and wait for Monday morning (1200 GMT-1) to continue the recovery, using a fresh new V-Trigger line.

Current swap loss including both actual and synthetic losses is -95.5 pips at the current close. Take away the synthetic swaps and the position would stand at approximately -51'ish pips for this trade, which would be well within specs, as he Daily average range is now 156 pips tall, with only 65 pips having been consumed in the current range thus far - leaving 91 pips available for Daily High or Low expansion. Clearly, we won't be seeing those 91 pips today, unless something momentous happens in the market between now and the shortened Friday close.

Occasionally, this happens, where the entire Daily bar simply refuses to expand normally. A great example of why trading any line requires not both Swing and Momentum (magnitude/expansion) probability. Both were in abundance yesterday, but the Momentum to carry the Daily range to its exhaustion limit was not available today. Of course, high Daily range compressions like this are typically an indication of explosive Daily range activity during the next couple of sessions. So, one way or another, price will move.

In addition, Monday, will mark the start of a new Weekly range expansion phase, which will coincide and couple with a new Daily range expansion phase. That coupling should provide the momentum necessary to move the EURUSD out of its current envelope.

I went back to check this and the forecast for low hourly volatility was correct, as the move from the V-Trigger line at 4187, turned out to have one (1) Swap trade, followed by the move into today's low, for an absolute profit range of about 54 pips. Held to the current close of the time of this post at 4158, and the net profit would have been 29 pips - minus the cost of the one (1) Swap trade necessary to get into position.

The low volatility squeezes performance to the point of making line trades less than optimal for certain, which is why I did not take yesterday's last V-Trigger.

Hey man,

How about getting to the basics of what moves a market (stops) and using those as trigger points?

Forget range and any indicators, look at that move on Thursday even with a 20 pip trailing could have pulled it all in.

Go ahead and start a thread on "what moves the markets" - it sounds like a good title. In here, I'll be dealing with Swap Methodology and Swing/Momentum potential. Good luck with your new thread.

BTW - Trailing Stops, are one of the highest ranked reasons that traders lose optimization on a constant basis - contrary to what the concept implies. Most trailing stops are set too close to normative market volatility and those that are set further away, tend to be the primary causality for non-optimized trades. Trailing Stops are good for Bucket Shops, not for the average trader. To use a Trailing Stop effectively, would require a very complex algorithm -OR- someone experiencing a tremendous amount of fortunate luck over an extended period of time -OR- someone that has stumbled upon the volatility sweet spot for the issue they trade.

To get a trailing stop optimized, it needs to be "In Tune" with the market at all times. That requires a "Dynamic Trailing Stop" - not something that all Retail FX Brokers even offer.

In addition, fundamentally speaking, what moves the market today with Magnitude X, and Direction Y may move the market tomorrow with Magnitude X, and Direction Z, or Direction Y, and Magnitude X-1. Directional trading is obsolete.

Over the weekend, I've added a new Swap Method and will be deploying that this week. I've also added a Time based Trigger that I'll simply call the T-Trigger, for ease of discernment while reading posts.

First V-Trigger for today: Close of 12:45 GMT-1 on M15 bar at 4001.

Currently in Swap Mode. I'll discuss the changes made over the weekend after the market clears the V-Trigger area, as well as post the Technical and Fundamental Forecast. Can't swap and type at the same time.

http://www.freeimagehosting.net/t/2e034.jpg

I'm switching back and forth between the M1 and M15 to handle my swaps, and I mistaken used the M1 12:45 close, not considering that the actual close was on the M15 12:45. So, I've got the V-Trigger line correct now at 4001 for this Swap Sequence.

Volatility Forecast: Pretty much 5 hours of straight downward pressure on the EURUSD, followed by 8 hours of chop and sideways price action within a 78 pips range. Couple that with the Daily range being 134% of normal and that is what's locking-in the sideways behavior on the hourly and M15 charts. Not looking for too much more extension of the Daily Low, with the Daily bottom-to-top move still pending.

Fundamental Forecast: Same for the EUR. Not much has changed at all. Issues over what posture the austerity should take and how the debt will be handled, coupled to turbulent statements from leadership, place the EUR in a day-to-day volatility mode that can send the currency in just about any direction through high levels of its normal Daily range. I expect the exact same price behavior from the EUR, as the politics of dealing with the debt in the U.K. continue to wander. Until firm statements regarding how Italy, will be dealt with comes out from Europe, the EUR will continue to be volatile on a Daily basis.

Changes To Swap Methodology to Effective Deal with Sideways Hourly Markets: Been doing some testing over the weekend regarding choppy hourly ranges. It looks like, if I reverse the Swap direction during choppy hour range bound periods (such as this), I can mitigate or neutralize most of the Swap Loss during the period between consolidation and the next big move off the Trigger line. I'll label this the Roll Swap Mode.

In addition, once the sideways price action is detected, I can Swap off the outer limits of the sideways range itself in the reverse direction. So, when price reaches the upper limit of the horizontal hourly range; Swap Short. When price reaches the lower limit of the horizontal hourly range; Swap Long. I'll label this the Perimeter Swap Mode.

So, the key to that will be in being able to recognize when the chop begins (that's easy) and for how long the chop will last (that's a bit more difficult). If done correctly, I can even take some smaller profits during the rolling phase of the chop, as price "rolls around" the V-Trigger, or T-Trigger. So, I'm going to also play with that this week during periods of sideways hourly volatility.

At some point, I'll be able to pull together all the different Swap Methods:

- Standard Swap Mode (Swap on Close, Swap on RPO and Swap on Ask/Bid Cross) at V-Trigger/T-Trigger.

- Roll Swap Mode (Reverse Swap Direction in Horizontal Chop) at V-Trigger/T-Trigger.

- Perimeter Swap Mode (Swap at Upper and Lower limits of Horizontal Chop) at V-Trigger/T-Trigger.

This should make it easier to know which Swap type I'm using going forward. I'll try to remember to type the Swap Mode with the Trigger type. If I forget, just ask.

A couple items of recognition.

I've noticed the V-Trigger doing a good job of locating potential Swing, but less of a good job at locating potential Momentum. That's what runs the V-Trigger into a sideways market, which in turn, drives up the Swap Cost per cycle. That ends up being costly and a less than optimal way to trade the Line.

So, I've looked at the data over the weekend and made some runs through the back-tester. I found that Timing of the Trigger was critical (nothing new there), and that I might have to switch my trading hours a full 12 hours. So, that would start my trading day at 0000 GMT-1, which would run me through the Australia/Asia session and the start of the London session. Trading the Line typically requires fewer Swaps at that time.

Over the weekend, I've also come across an old Directional trigger that I used to use with the Fibonacci tool. However, instead of using it as a Directional indication, I've found that if I simply use that price level as a place to draw the Line, that price is typically accelerated near that Fibo level.

It is a simple 50% retracement level and I'll be testing that going forward as well.

Current situation:

I've been using the Standard Swap Mode since the start of the cycle, for the most part. I'm now trying to work-in the Perimeter Swap Mode as well, to see how much internal Swap Cost recovery I can get before the larger move off the V-Trigger happens. The last two Perimeter Swaps give me back +9 pips, from a total Swap Cost of about -27 pips. So, this Perimeter Swap Mode could really be a deciding factor in reducing overall Swap Costs - I just have to figure out a way to make sure that the horizontal market will remain intact.

I'm taking note of the Double Stoch arrangement as well as some internal Fibonacci 127% retracements, to help me figure out when the chop zone might collapse and require a move back to the Standard Swap Mode.

My hourly volatility indicator tells me that hourly magnitudes are dropping off a cliff. However, it is still extremely early in the global trading session for the EURUSD, with the bulk of the U.S. equities session still pending completion. A somewhat perplexing oddity, but this typically means that there is a price surge lurking around the corner.