Trial Run for Volume&Range Patterns

Example of drawing EFFI trend lines, and an indicator to help drawing Supply and Demand levels.

1) The weekend didn’t bring any changes in EURJPY, despite many gaps in other pairs, and I continue in the bearish mood.
Here is a recent example of my H4 chart

I opened a Sell trade at the pullback to the main trend line. It was already the second touch of the line, the first touch would be better, but I missed it last Friday.

Note: Sometimes you can see a lot of EFFI candles in a row, and it will be difficult to choose pairs for the trend lines. For example, I saw such a situation in USDCAD H1 last Friday.
In this case I would advice a) to switch to the higher time frame and draw the lines there; b) to be very careful with trading decisions, because this is the situation of a hot struggle between bulls and bears.

2) This is outside EFFI topic, but I hope it may be interesting.
Somewhere in 2009 I was browsing Codebase.mq4 site and found an indicator which could help with mechanical identifying of strong supply and demand levels (since the discretionary drawing is sometimes a problem). It is based on sorting of fractals – this logic is different from the classical approach in SupDem method, but it obviously has its fair merits, and it draws only three strongest levels.

I’ve translated several lines (the comments in the code are in Russian) which appear in the upper left corner, and here is the legend of the settings:
frNum = 3; // numbers of bars per fractal: 2=5-bar fractal, 3=7-bar fractal, etc.
frType = 1; // how fractals are chosen: 0=rigorous choice (all peaks), 1=unrigorous choice (missing repeated adjacent peaks)
frMode = 0; // 0=Support&Resistance, 1=Support, 2=Resistance,
dlt = 0.24; // freedom from the average range of participating bars
sBars = 480; // number of bars in the period to analyze

The numbers at the levels (on the chart) seems to be their middle price.

The levels always begin at 24 bars before the current candle; you can enlarge them by hand with a horizontal line placed in the middle of the zone.
For my personal more comfortable use I repeated the code in two split versions of the indicators with different colors of rectangles – one for supply, another for demand. (If you decide to do like this, you will need a separate chart for every version, they overlap if on the same chart). I’ve also chosen 9-bar fractals to denote very strong levels, and I cut the type size.

Tweaks in the use of this indicator:
In the classical SupDem method there is a term of a swap level, when supply is swallowed and becomes demand, or demand is swallowed and becomes supply. It is expected that the price may bounce from such levels as well.

Here I would suggest another approach: The price may bounce only from the corresponding levels – from demand in the uptrend, from supply in the downtrend. No swap levels here. That is, if the price broke a strong supply level, went upwards, but then returned to this level again – how can you expect to find a cow in a bear lair? (Only a dead cow, I believe ) A bounce could happen only if any demand level from any time frame was located in the same zone. And one of these two levels (supply or demand) would rule the situation in general – that which is drawn in the higher TF.

Here is how it looks in EURJPY now:
Classical approach: This green rectangle defines a zone from where the price started upwards. This zone also corresponds to the previous supply zone (at the left). The whole chart looks more bullish than bearish. So, it would be natural to expect a bullish bounce at this level. And it did happened, but after a deep penetration of the zone, and not very high, and went back again.

SupDem levels by fractals:
I’ve found that there was a supply zone on H4. At the same time there was a demand zone on H1, which was responsible for the first bounce. But then the H1 demand zone was penetrated several times, and the price is still kept in the H4 supply area, and I see no reasons to buy here. If my Sell trade is stopped by the rules of EFFI method, I will refrain from buying in this area anyway.

Some last notes: I’m not sure, but it seems that the indicator doesn’t recalculate automatically, sometimes. So – refresh from time to time to check the levels. May be it’s ok, and it’s only my wrong impression.

In terms of “freshness” – when the levels appear on the chart for the first time, they are always fresh as in the classical approach. If you see any past price action around a level inside those 24 bars of its length, it only means that you’ve found it too late. But it was drawn fresh initially.

Check different time frames to verify the levels. For example, now on my EURJPY charts there is a D1 supply zone from 131.42 down to 130.79, and there is a H4 supply zone from 130.85 down to 130.40, and there is a H1 demand zone from 130.75 to 131.03. So, in fact, there could be some bullish bounce at 130.75, but it would happen inside a bears municipality, and I will be very careful with Buy trades there, if any.

I think this would be a major problem for me, as I need something that is unified as I don't have time to learn each currency pair and coefficient adjustments, etc. and is why I love EfiIndex. I hope it works for you. Watching closely. Many thanks.

Another example of drawing EFFI trend lines in EURJPY and a bit of trading analysis around them (a slide show).

I closed my Sell trade in EURJPY with a small profit in the first minutes after the yesterday's news, since the price action was unstable and unclear. A signal for a Buy trade happened at night, and I missed it. There was one more chance to join the move, but again I was far from the comp. So, the entire move is lost for me. I've used the fall in GBPUSD after the news, but it was not that great as it could be in EJ.

The last two days in EURJPY were so interesting in terms of trend lines on H1, that I made a lesson about it. Hope, it covers all important moments. I've made two presentation files, for Microsoft PowerPoint and for OpenOffice.

The files are rather large (763 Kb and 731 Kb, Zip), so I posted them on my site. Please go to http://www.effimethod.com/new-look-on-trend-lines/ and scroll to the bottom of the page to download them.

Seems that I forgot to remove a pending order, and the entry was far from good. I don’t care much. I am very very busy lately; I didn’t even open MT4 in the last several days. A month ago I’ve won a new long term contract in my main work and short contracts are coming in a row. With the growing immersion in the analytical work I lose the concentration in Forex.

I’ve already made several stupid mistakes. First, I’ve set a buy limit instead of a sell stop order only because of inaccurate clicking, fortunately only on demo, on the live account it was a normal sell stop. Then by another inaccurate clicking I opened a live trade with the lot size 0.1 instead of 0.01. It was an immediate shock for me, but too late to cut. I decided to accept this challenge with the accumulating signals in my favor, and it was a happy end. Finally, there was this forgotten pending order which is running now on demo. I need a pause. The gain on my live account is about 660% now (from November 22, 2012, when this testing began). It is below the gain on demo, because I made withdrawals and sometimes was more conservative with money management, but it's quite enough to confirm the validity of the strategy.

I was going to present the tested versions of EFFI indicators with some solemn ceremony in my blog, but there is no time for it. So I attach the files, and here are a few brief words about them.

Throw EffiTotal and EffiCombiTotal-3 (or EffiCombiTotal-5, you understand) on the chart one by one. EffiTotal is a calculator assistant for EffiTotal Index (script). EffiCombiTotal is the same tool, but with the added volume in the equation. Move the blue vertical line to choose the starting point for the diagrams. I usually use recent (or not very recent) highs and lows. Don't pay much attention to the nominal values of the diagram in EffiCombiTotal - they will vary in different pairs and time frames (sometimes hundreds, sometimes thousands). Only divergences matter. Ah, one more - at the beginning of a new period the diagram of EffiCombiTotal looks a bit hysterical. It usually calms down after several minutes, when the calculation accumulates the ticks.

Watch the divergences – between the price and the diagrams; between the peaks of EffiTotal and EffiCombiTotal; between the shapes of EffiTotal and EffiCombiTotal. Use the indicators on H1, H4, D1. So far, these divergences were almost perfect. All my bad trades are now only because of the human factor – when the brain perfectly explains the situation, and the hands immediately do the opposite.

Hope, you will find how to use the indicators for your profit.
Happy trading!

P.S. I also include the improved version of EffiIndex 3/5 script. It writes 0 instead of dying at a doji.

Shaltay.

Thank you for sharing and well done! You have some awesome results there. I find your work insightful and will look more into it.

All the best.

Shaltay

Thanks for the indicator, I have loaded them onto my chart but I am unable to interpret them, I can't see the divergence you are saying. Don't know if am reading them correctly. I know that you are busy, but when you get a chance could you please explain how you use them on a chart. I am still amazed by your system and its result and still waiting for more. Thanks

Ive studied this method and I can see shaltay practices a lot of discretion with his trades.Ive been able to match most of his trades when manually backtesting and comparing it with his explorer.
However some trades I am not sure what he is doing.I can see he sometimes lets losers run(like current trade) and bets on the trend reversing.

All in all a different trading philosophy but its working great for him.kudos

Hi Tamzy1, thanks for your continuing interest!

Finally it came – a happy Friday evening, when nobody wants from me neither analytics, nor dinner, and even my dog is already happy after a long walk. Now I can spend some time for my hobbies.

I have made a first-ever video for a new YouTube channel explaining how to use EFFI indicators and their divergences. It lost in quality after conversion for YouTube, though I’ve chosen the highest resolution. Probably, my video programs are not the best.

The original version of this video in really good quality is *wmv of 23Mb; my own website doesn’t allow to upload it there. So I can only send it by e-mail, if somebody wants to have it.



A few words more, to add to the video. 1) Divergences at the end of Friday are not very reliable, this is simply the end of the week. 1) When choosing a period for the indicators avoid gaps. They don’t spoil the picture much, but still can impact. If there is a gap, start from the candle after the gap.


Hi pemully,

Yes, there is discretion in my trading, because I use different tricks in different situations, though now the main method is Effi. But there are also signals from the patterns which I’ve found during the first half year of this testing; and there is my own stop-loss management; and some habits developed through the years (sometimes not the best ones).

That is why with all my best intentions to compile a system I still can’t do it and can share only the parts of the method.
As for the last running loser – I’ve explained in the last post above: I forgot to remove a pending order, and I simply don’t care about it. The position has a panic stop-loss of 300 pips, it is demo, and I let it do what it wants. Besides, at the end of my video (at 10:35 min) I gave a trading reason, why this trade is still alive. And I don’t have such a position on the live account.

Best regards to everybody!

Shaltay, thanks a lot!!!

it is so simple yet so genius. it fits into some seasoned trader's book about candle bar by bar analsysis. but you do it better by quantify and grade the candle's quality!

awesome, thanks again! Never thought it this way......

Edited:

however, this EFFI bar readings are not core of your methodology, are they? looks to me, even without this EFFI bar, your analysis still give you a good edge over the market. Or can I ask, do you think that you can trade the market using EFFI reading alone?

thanks.

Hi OneMoreFloor, sorry for the late answer, there was no notification from FF.
I can honestly say that with EFFI analysis my trading became much better; the share of guessing and hoping was significantly reduced. And yes, EFFI readings are the core of my methodology now.

Earlier it was all based on the ideas around BW MFI indicator of Bill Willams (though I for myself made a small alteration regarding “fake” and “squat” bars, in line with the tick character of MT4 volume).

When I was testing the patterns shown by BW MFI together with my tools (DD-expert and Status indicator, post #164, http://www.forexfactory.com/showthre...51#post6903751), the results were not bad, but I couldn’t filter the situations when the signals didn’t work. Or, to be more precise, the signals worked, because they still were showing the hopes of some part of market players. But intentions of another significant part of traders remained invisible, and sometimes this group was stronger, they moved the market where they wanted, and “the signals didn’t work”.

EFFI tools solved this problem. Now I start the chart analysis from EFFI point of view, then I look if there are any interesting signals from DD and Status, and then a quick look on the map drown by MurreyLines and Support/Resistance indy, which add understanding in some rare occasions (I explained these cases in the thread). As for Supply/Demand Levels indy I posted above, I don’t use it in my main template; I keep it on demo and verify if it coincides with the levels/zones which seem very obvious for a bounce.

I think I could remove Murrey, and SupRes, and SupDem. BW MFI shouldn’t be removed from the chart, the colors of its bars are often important, but for the sake of an experiment – may be. I wouldn’t like to remove DD-signals, some of them are absolute insiders, and after all EFFI method grew from those patterns, but again –for an experiment, may be.

Anyway, your question seems interesting – from now, November 19, when I open new trades, I’ll try to trade the pure EFFI method: trend lines, inside bars, reinforcements, divergences, benchmarks for SupDem zones, flat zones (drift sand). I’ll monitor 4 pairs – EURUSD, GBPUSD, EURJPY, GBPJPY, to increase the frequency of possible trades. If the equity curve doesn’t suffer much, it would be a strong confirmation of the entire method. If it does suffer – well, then this is a set of tools to be used only after adaptation to every individual style.

Meanwhile, here are the results of the year of testing on my live account. The withdrawals are also shown in the curve, and it looks more irregular than it should be. I started with approximately 93 USD (in the local currency), and at today’s exchange rate my profit is 744 USD. My new task (and challenge) is to get accustomed to the bigger lot size.

Somewhere in the first red circle I took all profit out and started again to be parallel with a new demo opened after the crash of OS on my comp. Somewhere in the second red circle I started developing EFFI method and added it to the Volume&Range patterns.

EURJPY - pure Effi trade, the detailed explanation of the trading decision.

First, I was wrong removing BWMFI+Volumes from the chart. It absolutely belongs to Effi method. Volume values are necessary to determine supdem zones and drift sand zones. BW MFI colors are necessary to refine the character of these zones. So, the indicator is back.

For pure Effi trade I take 3 screens – D1, H4, H1, analyzing from the higher TF to the lower.

This time on D1 EURJPY I saw the signs of a possible divergence on D1, and at the close of the day it was formed though not confirmed yet. (See D1 part of the picture below). A gray rectangle on D1 is a drift sand zone, to have in mind in future.

H4 chart EURJPY shows a divergence between two “mountains”. Besides the common divergence marked by the red lines, there is also a great difference in the force of the first and the second climbing (marked by the red pencil. See H4 part of the picture below).

On H4 chart there is a drift sand zone where the price spent some time (a small gray rectangle at the top of the chart). The red horizontal lines are the demand levels at the Effi candles of type A (http://www.effimethod.com/effi-candl...-demand-zones/)

With these signals from the higher TFs I started looking for a short entry at H1 chart. At the close of the D1 candle, H1 chart showed the breakout of the R-candle. Moreover, this breakout was made by an Effi candle (see H1 part of the picture below, in the red circle).

Since the D1 divergence was unconfirmed, I started with a small lot for the first Sell trade. In my video I said “Wait for the confirmation of the divergences”, but I myself sometimes trade more aggressively when the signs from various TFs support each other.

Late at night the price jumped higher and bounced down from the main trend line. It was a good opportunity to add a Sell position, but I wasn’t there.
I also added a bigger pending Sell stop order below the drift sand zone on H4 (already triggered).

Stop-loss plans: The conservative variant – If D1 closes above yesterday’s close and there is no confirmed divergence on D1. The patient variant – if EffiCombiTotal diagram bar closes above the value 1026 and ruins that long divergence (see H4 part of the picture, the black line on the diagram). With the lots I have in game now I could stick to the patient variant, it would not overload the balance. If I find a chance to add, but the market turns the other way, it could be a conservative variant.

Take-profit plans: The first bounce could happen at the basic trend line on H1 (pencil zigzag on the picture). If the price reaches this line, I will look at PA and EffiCombiTotal bars, may be the pair will not be able to go down. It the price breaks the basic trend line, I could add one more position.
H1 chart also has drift sand zones (in gray). They coincide with the red levels on H4 chart. It is possible to predict a mess between 133.50 and 134. The profit target could be in that zone. Or, depending on the readings of EffiCombiTotal, I would let the trades wait for the deeper fall, to the D1 drift sand zone (132.20-133.20). And I think 133-133.15 will be a surefire bounce upward, if the price goes there.

Note: the quality of the drift zones is defined by the readings of BW MFI. Zones on the candles with squat bars usually provide a nice bounce first. Zones on the candles with fade bars can create a small bounce, but the price tends to reach such a zone and be bedded there.

This post grew long, and I will not be able to explain every Effi trade like this. But I tried to give you a general idea how to analyze and decide with Effi tools.

EURJPY: The price didn't reach my target zone, but I don't like the picture on H4 at the last minute before the end of the day. I closed the Sell trades here.

you are incredibly hecking profitable, it is 1000% ROI, if i'm right.

edited: do you notice that using EFFI didn't really put your equity curve's slope higher? your equity curve is like a straight sword pointing sky!

anyway, thanks a lot for your explanation. i learned a lot from your analysis.

I have doubt in your edge NOT being EFFI is becoz I somehow figured our what EFFI is. and I just cannot convince myself that info has such power in it. you can PM me if interested.

your reading on price action seems dominating, while EFFI serves a useful tool like a X-ray (only sometimes, not always).

all in all, great work done by great trader, I wish you expedite your success by adapting quickly to larger lots. it is actually not quite different. you should go LARGER!

Thanks for the kind words and encouragement, OneMoreFloor. I myself still have doubts in the power of Effi , after all it’s only half a year old, and it was a period of its discovery.

Effi was a logical development of my previous skills in price reading initially based on BW MFI bars, and I do insist that with Effi my vision of price moves became much more clearer. Effi is not just those diagrams with divergences. Trend lines are not usual, but drawn on Effi candles. Inside bars are filtered by Effi script, etc.

Every candle spends a certain number of ticks (volume) to create some range with consists of some tails and some body. Effi equation only measures how ticks were spent inside a candle. What to do with those measurements is about price reading, your are right .

I put pending Sell Stop orders in GBPUSD hoping for the breakout of reinforcement candles on Daily and Weekly charts (@ 1.6175 and 1.6055 accordingly).

There are no clearly visible signs of reversal yet, except the fact that on Daily the horizontal channel from October 1 remains in the red zone, by EffiTotal indies; and the fact that the green bars in the second red oval are weaker than in the first red oval, though the candle closed several pips higher (see D1 chart).

W1 chart also has R-candle (if to measure from the recent last high), and no visible signs of reversal (see W1 chart). I would even say that Effi diagrams on the weekly chart show a chance of an attempt to go higher. But who knows what can bring the news, so I bet for a possible fall after a false breakout upwards – pure Effi theoretical guess .

While waiting for pending Sell orders in GBPUSD I also opened a Sell trade at the breakout of Effi inside bar supported with the divergences growing down.

GBPUSD: The last stake didn’t win much. H1 candle efficiently closed above the bearish basic and main trend lines, and there is a divergence in the shapes of Effi diagrams (the red circle). I closed one position and put a small BE at the second (and it was already stopped while I was writing this).

P.S. If I had to be far from the comp, I would probably close the positions when the price couldn't get out of the drift sand zone yesterday. But I was near and waiting for a major fall which didn't happen.

GBPUSD bought @ 1.6170. Leaving the drift sand zone (gray) the price went upwards, then returned to the bullish main trend line (blue). Together with the difference of the shapes in Effi diagrams it was a strong buy signal. Stop-loss would happen if H1 candle would close efficiently below the bullish main trend line.

Important general note: When I see that a signal was strong, but nevertheless my trade was stopped – I know, it doesn’t mean that the method is wrong. It means that this time this signal was a countertrend one. Even if I can’t see a trend (or at least a strong movement) yet - it is coming.

i'm starting to see the significance you keep saying thru the thread.

this is a new tool, it takes sometime for my eyes to adapt

thanks a lot, i see the potential!

After several days of trading pure Effi I came to two conclusions:
1) I could use only this method without my other signals, but not immediately – I have to get accustomed to it.
I think, with enough practice Effi could become a system with quite a good potential. But honestly, I don’t like the idea of limiting or refusing the use of other tools with approved reputation. I still don’t have an absolute confidence in Effi and sometimes have doubts about what Effi signals tell me, not knowing which of them is more important. And this brought me a recent loss. With my other tools I wouldn’t doubt. Then I ignored the stop-losses offered by Effi, and my loss grew much bigger. This was my absolute mistake, Effi is good telling about stops. When I followed Effi stops correctly, the losses were small.

2) With this “effi-limited” trading I started feeling absolutely uninterested in the market moves. The charm of comprehensive analysis of the never-ending puzzle has gone and brought away the desire to trade. All in all, this experiment had its value – I’ve checked and confirmed my preferences for my trading style. I will continue using Effi together with my other tricks which I mentioned in the thread.

OneMoreFloor, I'm glad that you find Effi interesting, hope with some adaptation it will become useful for you