Trend Trading All Pairs

I do love talking about that stuff, cause it's one of the things that matters. If the systems performed well in the past over a number of parameters and instruments, then it is likely to continue so in the future.

Great for you man. So we have different approaches to the markets. So what? Not sure what your problem is. People always seem to get so angry when somebody doesn't trade like them (like shomari).

sorry to have disappointed you.

Exactly, and my chainsaw are my backtests that are cutting through the crap.

watch out for videos by victor sperandeo. He always has great fundamental ideas.

cheers.

Skynet,

Brilliantly broken down all the way to the core.

cheers.

Yes, I also agree.
But some things cannot be backtested as tonight move.
current problem with many pairs that they got stuck between all those long term s/r levels. take for example gbp/usd. funny situation, it is within 50 pips s/r range. however, I think that trend breaks every s/r. I have been short gbp/aud for more than a month now. what a crappy support. still. hopefully it is getting broken and I have been around 600 pips at the lowest. the only pity I left too little to run. if this level gets broken, it might be a big run down.
I would divide all trades as 1. trend following and 2. speculative.
Hector uses 3 ema's generally as support/ resistance to enter trades on already developed trend but looks not very efficient. requires too perfect a trend to trade and it is mostly for people who are not very experienced. entering at the tops and bottoms leaving too many pips behind. I think the real trend follower enters when the trend just starting to ride it.
No targets only stop loss.

Bravo Very well put. I myself do not particularly watch these formations. i am mostly looking to enter when trend reversing to get onto next trend/swing and sometimes try to get speculative like double/triple tops/ bottoms or h&s or some serious s/r level where price stuck for a long time and then give some PA signal.
I would also say that from my experience TL are broken often and until it is tested at least 3 times it is not much of s/r as a target. so are s/r levels. the thing is that all break out trades most probably should be taken from another side. not on the fact of break out as it is old news but well before that.

thank you, sir. most humbled.


That is why my preference is for confluence of TL and S/R. Take a recent case: EXHIBIT A.


custos, you need to relax. i think i have seen a couple of your posts where you analyze or point out certain things about other people's method. I am just analyzing certain aspect of your trading. what is the big deal?

what on god's earth makes you think i give a shite if you trade or do not trade like me?

You've analyze other trading/posts before...i am just doing the same to your post. relax.

SHOMARI,

keep up the good work. Nicely done. any take on the summit?

I am totally relaxed, my friend , i think you need to chill out a bit.

i hate drama. Here is a simple solution: I will neither comment nor reply to any of your posts again.

This will totally end all drama. very effective.

nice knowing you, mr latin guardian.

Was nice meeting you too!

IGNORE LIST.

best thing ever! (SEE ATTACHMENT BELOW)

oh yes, forgot to add the second attachment

you little child. Let me guess, you are still in puberty

Good that your posts are also not very constructive, otherwise I would consider that a real loss

Looks like this thread is going to be deleted soon.
Ahhhhhhhh.

hey shomari,

I take it you also follow the COT report? Do you look for options barrier zones too?

Let me just add that apart from following these indices and markets to get a macro view of event...i also follow the compiled performance of the majors, that is, the GBP currency index, the USD currency index, the AUD...the NZD..the CAD...the JPY...the CHF...index(I DONT FOLLOW the USD trade index...i think it is too lagging in my opinion.)

If interested, there are ways of getting it...you can go to TOOLS-->history--> (in your meta4 and export the data into excel and use functions to analyze it. and plot it. and determine correlations.

Or you can use the bloomberg's version.

AUD Bloomberg Correlation-Weighted Currency Index, CAD Bloomberg Correlation-Weighted Currency Index, USD Bloomberg Correlation-Weighted Currency Index, EUR Bloomberg Correlation-Weighted Currency Index, NZD Bloomberg Correlation-Weighted Currency Index, GBP Bloomberg Correlation-Weighted Currency Index, CHF Bloomberg Correlation-Weighted Currency Index, JPY Bloomberg Correlation-Weighted Currency Index.

I HAVE ATTACHED THE CHARTS BELOW:
(in the second post....i will use AUD as an example)

In continuation...here is the JPY BLOOMBERG CORRELATION-WEIGHTED INDEX

How do i use it?

If i want to go long AUD/USD....it is advantageous if AUD index is about to bounce off support and if USD index is about to bounce off resistance. Get it? If i want to go short AUD/USD...it is advantageous if AUD index is about to run into resistance or just finished running into one, and USD index is bouncing off support or about to bounce off one. Get it? Same technical principles applies to EUR/USD or GBP/CAD or NZD/JPY....Of course, s/r is not the only way to use read these indexes as indicators..you can apply whatever technical tools suits you...even your SMAs if you like. whatever works for you. whatever helps you read them successfully.

In addition to a variety of analytical tools...i use this to look at turning points...when these indexes are at turning points....in a number of cases..the SPOT forex will lag these indexes... basically, i use it as an advance warning signal. To give you an example...look at the charts in the last two previous posts and compare their reactions to the charts of AUD majors/exotics below. You can see a number of cases where the indexes indicates what will happen in the AUD spot forex.(this can be apply to eur, cad, usd, chf, etc. ). Of course, it is not 100% proof(what is?). Just a tool in your toolkit. anyways, below is the charts of AUD major/exotics.

A SOLID ACADEMIC PAPER ON ORDER FLOW at s/r levels (2)and how order flows create reliable, repeatable SUPPORT AND RESISTANCE LEVEL in the first place.(3) And how to spot them. A bit academic, just so everybody knows.

http://arxiv.org/PS_cache/arxiv/pdf/...809.0822v1.pdf

APPLICABILITY:

 --- At a very fundamental level : how do we understand why prices move, how
information is reflected in prices and what fixes the value of the volatility?

--- At the level of price statistics : what are the mechanisms leading to price jumps
and volatility clustering?

--- At the level of market organisation : what are the optimal trading rules to
insure immediate liquidity and orderly flow to investors?

--- At the level of agent-based models : what are the microstructural ingredients
necessary to build a realistic agent-based model of price changes?

--- At the level of trading strategies and execution costs : what are the consequence
of empirical microstructure regularities on transaction costs and implementation shortfall?

BELOW IS A PRIMER:
(it cogently summarizes what the article is about. Give it a read. I highlighted in red what makes the article applicable to trading.)

In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view,(SKYNET: for those wondering what tatonnement means], reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly incorporated into prices. Because revealed market liquidity is extremely low, large orders to buy or sell can only be traded incrementally, over periods of time as long as months. As a result order flow is a highly persistent long-memory process. Maintaining compatibility with market efficiency has profound consequences on price formation, on the dynamics of liquidity, and on the nature of impact. We review a body of theory that makes detailed quantitative predictions about the volume and time dependence of market impact, the bid-ask spread, order book dynamics, and volatility. Comparisons to data yield some encouraging successes. This framework suggests a novel interpretation of financial information, in which agents are at best only weakly informed and all have a similar and extremely noisy impact on prices. Most of the processed information appears to come from supply and demand itself, rather than from external news. The ideas reviewed here are relevant to market microstructure regulation,agent-based models, cost-optimal execution strategies, and understanding market ecologies.

_____________________

.

HOLY COW,

I like the fact that you brought up that point. Below you will see my take on S/R and market turning points.

ON S/R

Like every other technical tool...s/r needs to be traded properly to be effective.

I trade S/R two ways:

#1. I trade s/r in the direction of the trend--in this specific case, i dont take my s/r lower than h4.

#2. I trade the s/r in an anti-trend direction...this is a special case and certain particular conditions need to be met....in this case, my s/r is usually weekly, monthly, sometimes, daily.

(b)Of course, i want a linear regression confluence at the point of entry too.

(c)This specific s/r has to be at previous market turning point and very fresh(never been tested). Why? S/R that happened as a result of market turning point are created through the fractionation of orders by fundamental big trading entities. They bleed into their position over days, sometimes, weeks in many cases, months. Thereby turning that region into a nice consolidation/market turning point. THERE ARE STILL FRESH ORDERS RESTING IN THAT AREA WAITING TO BE TRIGGERED. This will provide subsequent boost. Big players with long time horizon don't jam pack their orders in within seconds or hours. (Not just my trading experience, but yes, i do have analytical papers backing everything i just wrote.)

which leads to point #d.: The time range from when that s/r level was created to when it is now being tested should preferably not be more than 1 year at most and 1 month at least; 6 months for maximum efficacy. Why? Market Memory. One market trade have at least a memory of 2 weeks.(i have analytical papers for this too...yes, s/r can work up to 20 years, no doubt(i have analytical studies for this too)..but their efficacy diminished after a number of years.

If the time window is too narrow, you have a fake breakout reversing....if the time window is too large, then the fundamental factors that indicated to large fundamental traders that entering the market at that point is good value could have disappeared or rendered immaterial--which defeats the purpose of entering the market again at that level. Thereby rendering that spot less than optimal entering point again. If the fundamental reasons for entering AUD/USD at 0.9859 is no longer there, why then should fundamental trader that entered at 0.9859 before, thereby causing market turning point...why should they re-enter again at 0.9859? No reason at all. NZD/SGD at 58.00 with NZD good wool production is not the same as NZD/SGD at 58.00 with bad wool production.

this is one of the reasons why a S/R levels that look good may not work, because the fundamental reality of the market has changed. However, a pure technician may not be aware of that. Hence, it is highly recommended to pure technician: trade with the trend. Trend trading baked in fundamental info for the most part.

This issue of fundamental spoiling the show then leads us to the next question, which is: how do we avoid this apart from using trend trading?
Well, read up on fundamentals or use a proxy analysis. e.g. the indexes.
If the basket of NZD indices is at similar/same level where it was before when NZD/SGD was at 58.00, then, the relative fundamental strength is assume to the same with regards to other countries.

Market turning points? that leads us to point #E:
The market turning point needs to be at least 7 trading days of market action zone. In fact, the more trading days it takes to form the reversal == the more money it takes to bleed into the market to form that s/r zone== The better that s/r zone will be.

Which leads us to: how do we determine a good s/r zone apart from the usual suspects of requiring larger time range, requiring higher time frames formation, and requiring fundamental this or that? Are there technical formations that might tip us to a good S/R level? Yes.
(a)If your weekly s/r level that price is coming back to test look like a 1,2,3 formation on the H4. that is a good sign. (yes, i have statistical studies backing this up) Note that a 1,2,3 formation can look like a inside bar or a pinbar. Yes, candles = technical chart patterns too.
(b) If that 1,2,3 formation fits well into the concept of momentum ratio As succintly explained by entropylad. William O'Neil analyze this concept in his book although he didnt give it such a fancy name as "momentum ratio".
(c)If that 1,2,3 formation was followed by a breakout and pullback but the pullback was forced pushed away before touching the breakout point As beautifully explained by dazzdude and WMD. . That is golden.


HERE A FEW ERRORS WIDELY ATTRIBUTED TO GOOD S/R

That there are large block of orders at s/r levels. No. Point to me one serious analytical paper backing this claim up. Are there multiple orders residing there? yes. But they are fractionated. And if fundamental condition is plauribus ceteris, fundamental trader will keep their orders there still...however, their orders are fractionalized.

You dont want levels that has been tested from both sides. This will have eroded supply of orders clustering around it. The only thing that may still offer a bounce off that level is market memory. (just google market memory)

You preferably do not want that level to be proven as support or resistance previously. I know this is dogma:make sure that level was proven to be good support and resistance in the past. I am of the contrarian view. You dont want that. All that will do is eat into the cluster of orders residing there. And keep eating into it until the new direction of market orders overwhelm the ones at s/r level leading to price smashing through s/r. So, only go for untested levels for maximum efficacy.

IN A NUTSHELL:GOOD S/R LEVELS CONSIST OFF:

-- Higher time frames market turning points(not breakouts). Turning points.
-- Make sure the fundamental situation at the time of the turning point is similar to what it is now. or use proxy analysis if your fundies are weak. If the fundamentalists with enough market firepower to cause the market turning point, now see price retrace to their previous level....some of them will see that as a bargain to enter again. (that is assuming fundamental condition remains unchanged). They have much longer trading time frame horizon.
-- Which is why i prefer that S/R zone gets retested within 1month to a year. Not more or less.
-- Of course, i want the S/R zone to last at least a week in length.
-- Use confluence. I prefer linear regression analysis coinciding with the S/R
-- Make sure your WEEKLY s/r zone turns into 1,2,3 formation on H4.
-- Make sure your 1,2,3 formation has a momentum ratio to it.
-- Make sure your hook line is untested. check WMD thread.


***APART FROM MY TRADING EXPERIENCE, I CAN PRETTY MUCH BACK UP EVERYTHING WRITTEN HERE WITH ANALYTICAL STUDIES***

regards,

skynet

P.S. i like to google academic papers on financial trading(not just economics and finance; but FINANCIAL TRADING) as it pertains to areas that interest me. It could be how does triangle perform or how does sma14 perform or how does german bunds rate help trade the s and p 500. I found this to be much better than doing any backtesting myself. why? because these researchers would have attacked the problems with rigorous tools than i care to. I just read to see if it disproves my beliefs or introduce new things into my thought process. there are insane amount of research papers on technical and fundamental trading. You want to backtest anything? first, do a google search for academic papers on it...most likely it has been analyzed to death before.

ANYBODY SEEING ANY HECTOR SETUPS?

i am still scanning back and forth.....

I use this for my CDS info.

http://markets.ft.com/RESEARCH/Markets/Credit-Indices

do you have something better, shomari?. feel free to share.

Did not found any setup on the H4 and D1 this morning...

i am currently scanning H4 again...just in case i missed something.....