Why do indicators not work/work? Why is Forex not truly random?

thread about price randomness are starting to be popular

i would say that these discussions dont lead to some productive concepts (no offence to OP) and they are too much philosophical, anyway most of people have different opinions about price randomness and about indicators etc....

my opinion is that there are no shortcuts to trading and i think it cant be packed, trader has to be flexible

do the indicators work?? i dont know, maybe yes, maybe for somebody, but for me they dont (or i was not clever enough to find it out )

Np. The thread was not about finding a new concept but explaining why such calculations don't work on a single cross.

hi,posted this somtime time ago on my journel,thought it might be helpful on topic,i found it on another forum so cudos to OP.its regarding an indie,but the topic has some relevence

,If the FGDI is equal to 1,5 there is a 50/50 probability.

The FGDI estimates the fractal dimension of the times series.
The fractal dimension = 2 - Exponent of Hurst (H)

So if the exponent of Hurst is equal to 0.5 we have a FGDI equal to 1,5.
Exponent of Hurst of 0.5 means that the movement is random without long term memory processes.
Exponent of Hurst > 0.5 - persistent
Exponent of Hurst < 0.5 - antipersistent

This is explained elsewhere and I just remember that basic stuff. The FGDI (FDI) according to me is better than the fractal dimension indicator published by Ehler, and moreover its mt4 implementation is not free but in the elite section of TSD.

The IVAR is similar to the FDI but its scale is different. The center line is 0.5.

The interpretation is the same when it goes below 0,5 the movement is persistent and vice versa, it is antipersistent.

According to the statistical mechanics if the time series are random walk the H should be equal to 0.5.

Hurst has discovered that a lot of natural phenomena follow a "biased random walk" or trend with noise. The strength of the trend can be measured by how the Hurst exponent is above 0.5 (that means FDI and FGDI below 1,5 and Ivar below 0.5)

In fact all those formula are estimating the Hurst exponent. I think that the easiest is to understand the Rescaled range analysis as a method, to understand what is going on. I precise that I have no high education in mathematics and I was able to understand the logic.

The fundamental principle is if the time series are random their range will increase with the square root of time (this is original idea of Einstein in his paper for the Brownian motion). Einstein found that the distance a random particle travels increases with the square root of time used to measure it.

And Hurst decided to make a ration dividing the Range by the the standard deviation of the observations (R/S) R- range S - standard deviation.

So

R/S = (a*N)^H

R/S = rescaled range N = number of observations a = a constant H = Hurst exponent

So we expect to have H=0.5 if the price time series are random. But they are not folks, that does not mean that they are easily predictable either .

All this may seem very theoretical. The exponential moving average is either theoretical but easy to use. This is the same.

Fractal break -out

Basically the ideal price movement is in a price channel. The price channel can be horizontal (range channel) or directional (trend channel). In fact it does not matter the type. When a price breaks the borders of a chart channel we have a break - out of the channel. If that happens we have a probability that the market conditions has changed and the price will further go away from the channel.


The channel can be regular but it can be irregular. All the classifications of the channels is in fact the technical analysis.

A channel defines a trading range. We have up limits and down limits of the channel. You need at least two points from above and from below to draw a price channel. Then just draw a line connecting the up limits and the down limits of the channel.


Well, but when the prices goes beyond the channel and the gets back to the channel often the technical guys will tell you that you have drawn the channels improperly and you need more educations. When you get more education you will draw the lines properly but again you will see the prices go beyond the channel and get back to the channel. As in the avatar the pilot says before going to battle Ain't that a shit.


This is called a false break - out that happens more often that we want to admit (50 % of the cases ). Ain't that a shit again?


Anyway My idea is to get new details how to trade a Break - out.


1. Use of the volatility probability
We have a break - out probability in periods of increased volatility. So it is necessary to check statistically the volatility. This is well known by the professional players. On the net there are studies with the volatility. Usually we expect a break - out during the open of the European Session and the US session


2. Use of fractal indicators FGDI, IVAR, FDI
We use a fractal dimension graph index indicator (FGDI). When a breakout occurs it is accompanied with a change of the fractal state of the price series.

That means that the graph goes from a state of high fractal dimension to a state of low fractal dimension. We have a shift in the internal structure of the price time series.

2.1 Fractal Break - out
Conditions: We are at a blue zone with fractal dimension greater than 1.5. We move to a zone below 1.5. This is a fractal breakout


This is usually observed after a range (FGDI greater than 1,5)


2.2 Fractal Break - in
We are at a red zone, fractal dimension less than 1,5. The fractal dimension get lower.
I call it so because we are in a red zone of low fractal dimension and the fractal dimension gets lower.

This is usually observed in an established trend when we have a breakout in the direction of the trend


3. A peak in the Hurst Difference
Well this is a kind of measure of the change of the transition of the fractal dimension from one state to the other.
This is a new indicator find in the code base of mql. So the idea is to measure the rate of change of the Hurst Exponent. A high peak means that something is going on.

So when we have a lower fractal dimension the movement is persistent. There is a bigger probability that the next movement will be in the direction of the previous. So when there is a reversal, the reversal tends to be quick and abrupt (Black noise). So that explains how the V tops and V bottoms are formed.

On the other hand when the fractal dimension is higher than 1.5 we have a bigger probability that the next movement will be in the opposite direction.
And the price goes up and down in a lot of oscillations. There we can find pink noise, a lot of whipsaws up and down.


If the price time series were random there would be no correlation of each movement with the previous movement.

I can give a lot of examples of this. This approach is different and independent from the TA perspective so it combines really well with it.

H - Hurst exponent
When H = 0,5 the FGDI = 1,5

Pink noise 0<H>0.5
Black noise 0,5<H<1.0

See chapter 13: Fractional noise ans R/S Analysis
From the book fractal market analysis.


The best use of the system is when there is a low dimension in both two key levels 15 and 30.

If we have red on both 15 and 30 time frame our Persistent Movement Roller Coaster can begin . We will show to the old guys how we can pick tops and bottoms. If we have on both 15 and 30 time frame high fractal dimension that means that the phase space is deemed to be too complex. I call it high phase space singularity. The phase space is so complex that nobody is right. The price goes high and low like crazy.

The theory is that the market is not a signal. What we have is a multidimensional phase space. In those multidimensional space there are fractal attractors. There are many of them there are simple and complex (point attractors, cycle attractors etc.). For example when we see some number of cycles that does not mean that we have a signal with periodicity and frequency etc blah blah blah. The theory is that we have an underlying phase space wherein some attractor produce those cycles.

The fun thing is that the complexity of the phase Space is changing. Sometimes the phase space is relatively simple and sometimes it is really complex with its multidimensionality.

When the phase space is extremely simple we observe a Low Phase Space Singularity. When the phase space is extremely complex we see High Phase Space Singularity.

I call it singularity because the market dynamics start to be different from the normals market conditions.

Low phase space singularity. What is typical of that is that many different algorithms are able to find the same solution simultaneously and act accordingly. Is it an accident that the Brain trend, the ASCTrend stops with digital smoothing, the ASCtrend signal, the Trend magic with or without digital smoothing and the SSAsqueeze find simultaneously the same solution?

You see brain trend had good results, ASCTtrend had good results, Trend Magic had good results. A simple moving average will have good results. The human trader judgement is blown out the statistics may be blown out and we can go against the trend and can be hurt.

The idea is that when we have a relatively simple phase space of the possible solutions the algorithms are able to find simultaneously a solution. The algorithms are able to cooperate, but the humans we do not cooperate (one guy think it is oversold, the other it is overbought, one guy has long term horizon the other has short term).

And if FGDI (FDI) is in red (iVAR below 0.5) at both 15 and 30 m. time frame is a good approximation of the possible Low phase space singularity.

This Low phase space singularity is scary for the public policy makers, because all the market participants start to have the same horizon simultaneously. They are not able to adjust the economies to the market neither to guide the market as efficient as they would like.

They even may not have an idea what is going on and how their direct expensive interventions fail one after another on the Forex market.

Sometimes the Singularity goes into one direction, sometimes we have a series of ping - pong movements. All that is highly unpredictable several movements into the future, try to train a Neural Net to predict those market conditions and you will see, in fact whatever predicting algorithm you try to implement you will fail predicting the low phase space singularity. You have to react as quick and intelligent as possible, and even a SMA is good enough.

The High Phase Space Singularity is exactly the inverse phenomenon. The Phase Space is terribly complex: nobody is right. The market gos up and down up and down. In that type of market conditions the statistical methods are the best. The Gaussian model approximates very well the market during those times.

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Applied to price-action patterns, thx.





(First day, don't know if'll work.
Did reorganize how I think of all patterns, tho -- Another thanks.)

exactly,i find i need to tweek my patterns,some would suggest im curve fitting,but not the case,the most testing engineering solutions require this.

infact the best way of using this,not possible on mt4,but look at a lower time frame chart,with your diaganels and horizontels,whilst in normal view and if you buy from a supporting vertical,then zoom out as you do your level will no dout change its angler position,your eliminating time,your new found level position will be prices atraction point.

anyways heres another example of point to point.

a,.yesterdays london short to point b,followed by newyorks open and back to point a,

into twighlight zone,chaos .

london open price back down short to point b,prices across all instruments out of synce,all drifting or ranging whatever we want to call it,

from point b traveling back upto point a .only this time all the instruments working in harmony,price travels past point a,momentum of all instruments taking it to point c.point c being the overshoot from original 2 min channel line,Applied to price-action patterns, thx.
this point c price stops to the within a few pips,also this level can be seen on 4 hour towards 16200.

we need to scan the timeframes to find the atractor

this price action across all instruments could be seen clearly in the value changes.

Does anyone know of fractal channel indicator for MT4?
The attachment is an indicator from another format and the black lines are the fractal channel.
Thanks
George

If price is truly random, then Support and Resistance wouldn't work. Just spot some obvious support or resistance, you'll see hesitance there, therefore we know beforehand that there'll be something there; and it's definitely not like lotto when we have no idea what will happen.

My 0.02$

------------------------------------------

Result:

http://i46.tinypic.com/xvinl.jpg


Two bars of Daily data yield a wealth of information about the short-term market. With more bars of data as input into a new kind of technical analysis, the precision is even greater. The more granular the input, the more precise the targets.

This example was done merely to demonstrate the power of new ideas in trading. Something that a lot of people think no longer exists. An indicator based on what I call, Statistical Inertial Referencing, will typically have levels of trade accuracy that far exceed that of conventional Point-to-Point Data Referencing, which comprises just about 97% of all conventional TA on the market.

Here are the next two Daily bars of data:

http://i47.tinypic.com/jf7ln5.jpg

Can you determine the probability for a minimum number of pips in either direction from just this data? That's the power of Statistical Inertial Referencing.

Current price = 61576

From here, 45.8 pips short has an 81% probability, while 28.9 pips long has a 99% probability.

Now, keep in mind that these probabilities are not etched in stone. These are the calculated probabilities as of the time of this post and from the current price level of 61576. As you saw on the last set-up, the actual distance that price moved on the short side of the equation was greater than that which was shown in the initial post (I don't have time to make real-time/dynamic updates here).

In addition, also keep in mind that I'm only using two (2) Daily bars to make these snap-shot projections and the system that I use has nine (9) levels of granularity for making such calculations/projections. So, you are only seeing 1/9th of the degree of precision available and you are not seeing the dynamic adjustments that are part of the overall system as well.

Also keep in mind, the nine (9) indicators used in my system, are part of a one hundred and seventeen (117) total input system of fully integrated indicators - all designed using a different flavor of Statistical Inertial Referencing.

I definitely believe in Redundancy, when it comes to indicator and system design.

Does technical analysis work? It does if you design it right.

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have you made this indie into a an ea,sounds very precise,i prisume it has some type of new logic within it,but again out of my depth.

the 97 % of conventional ta is being done incorectly.

example on cable today as price moved from point a to point c,price pierced 12 pips above,to the very pip on daily and 4 hour diags on those charts,a very easy 30 pip short back to point a

ill post the charts,

good trading and idea exchanges

This is a very logical post. If traders take everything off their charts it's much easier to read the behavior of candles and where the battle lines are drawn on the timeframes above the one you're trading.

Searching for short cuts takes away from time learning how to read a chart.

these are the charts from last couple of days,

yes its been good for this type of trading,but thats in hindsight ,we never know what the conditions will be,but using the value changes you can get plenty of clues,its straight forward trading once you tie everthing together

Most people like to think that way - probably because it is "cool". However bear in mind that the majority of this market is traded by algorithms. Algorithms don't trade off naked charts... (not that you cannot do it... it is not as clever though as a lot of retailers like to think). TA/Quant is no shortcut. It actually is _much_ more difficult than the fundamental or simple pure PA analysis that most people (try to) do. That is also the reason why everyone runs around shouting... naked charts only... ta for wannabies... fundamentals only... blah blah blah... If someone failes at something and does not understand it it must be wrong of course... God forbid that one just don't understand it... The real money is in TA first (and almost only there if you daytrade with 1+ trade a day) and even more if you combine it with FA as an afterburner. However out of the few that are successful in trading even fewer have the mental capabilities to understand real TA. Attaching a few indicators has nothing to do with real TA. That does not mean that the principles of TA are not based on the very same calculations - just way more complex.

Indicators, show what has happened, nothing will show you what is going to happen, that is why there pretty useless.

indicators work because algos rule the trading sceen

Way too easy and fits in the above category just like thinking that indicators will make you money. A candlestick doesn't give you more information... just different. Both alone without proper understanding don't mean shit. This is not black/white.

Nothing will show you, if a bank will get an order from 1 of it's clients to dump 1Mil lots at market in the next 10mins.

The advantage we've got is, it takes a while to dump 1Mil lots, which creates tradeable moves.

Btw MAs are indicators... and of course no indicator will tell you market turns now... but if you work with them in the right way e.g. they will show you exactly your example nd even in what way they accomplish it.

Read my first post it was exactly my point... indicators don't predict anything (as in they don't work) but they if used the right on different instruments they will show you how to join the money early on (as in they work... used in the right way).

Why I use them

The High Phase Space Singularity is exactly the inverse phenomenon. The Phase Space is terribly complex: nobody is right. The market gos up and down up and down. In that type of market conditions the statistical methods are the best. The Gaussian model approximates very well the market during those times.

Sounds great, wish you good luck...chances are : randomness, plus spread, plus poor position size, plus brokers cheating (latency, spikes, news, bad fills..etc..)...BINGO another winner for the House...and another loosing trader.
Problem is we loose money, and time which is far more precious..money you can recover, time never comes back.

In the end, flipping a coin, plus a decent traling stop, plus accurate position size, makes a little (very little though) money...and looses less time...

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