Transient Zones - Basics

14TH NOVEMBER 2014
UPDATE: THREAD IS BEING RE-PURPOSED
This thread will now host discussions on more than just Transient Zones. It is open to Fractals, Probabilities, Mathematical Cycles and similar concepts.

The polls have indicated that a great majority are not beginners but advanced or intermediate. So I will now hold a new poll to see what topics matter most.


20th November
Additional Material:
Kiad's Indicators used in the testing period (30th October to mid November 2014) http://www.forexfactory.com/showthre...90#post7879790

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20TH OCTOBER 2014
WHAT IT IS
The purpose of this thread is to act as a journal of my views on the concept of Transient Zones.
The underlying purpose is to simplify the concepts for newcomers or beginners.

WHAT IT IS NOT
It is not meant to become a classroom, but it is meant to be informative.
It is not guaranteed that I will reply to people's comments.
It is not an interactive journal or a trading journal.
It is not a complete exploration of "The Similarity System" concepts. It is only ONE of at least 3 that have been discussed.

This thread does not make any claims to produce a "system" or mechanical step-by-step product.
Rather, it aims to make the concepts accessible to newcomers so that it can be incorporated into your own style of trading, if you find it useful.
If not, then disregard the thread and move on.
I will not be answering any private messages or entertaining any requests for private coaching.
If there are questions that repeat previous queries, I will endeavour to relay to the relevant post.


WHY
The underlying purpose is to remove or negate the basic queries that are coming up on "The Similarity System" thread.
By removing basic queries I hope to maintain a certain level of quality of discussion in that thread.
This will help those who have progressed, focus on new developments and contribute more openly without having to field basic questions on basic concepts.

WHO
I am not the originator of the Transient Zone concept. It is the product of Eurusdd, the op of "The Similarity Thread".
I am one of a handful who have interpreted the Transient Zone concept and incorporated this into our trading.
My time is limited, so I am doing this out of my own volition and make no claims to be responsible to anyone or for anyone's trading, understanding, reading comprehension or language skills. If however, there is a point of confusion, I will edit/re-edit/delete/omit/expand on any post so that full understanding is achieved.

YOUR RESPONSIBILITY
... is to read the content and all the posts. Hopefully, this thread will be short and to the point.

Hi Vlady1974,
I subscribe!!!

subcribed vlady but you will have to go slowly for me
Regards orid peter

Thanks guys! You're all seniors though! LOL
This may not be for you! You already know this stuff! You're all black-belts!

I subscribe Sir...
and thank you for your time and effort
best regard
MTH

you would be surprised or not to find out how much i dont know

Wooohooo!

Vlady,
I sometimes think that the probability is not applied properly. And Forex is a perfect place to apply it.
You've considered transient areas repainted many times before confirming an area?

#1 PROPOSITIONS & DEFINITIONS

Let’s recall Eurusdd’s original propositions and definitions:

 

1. If XT(t) at any time t relative to Timeframe T, then almost surely, there exists positive integers h and k such that every price belonging to the set [XT(t) – k , XT(t)+ k] is h(T) recurrent.

1. A price, XT(t0) is h(T) recurrent whenever XT(t0) is between the high and low of the bar in the time-frame T, then at least one of the previous or next h bars passes through XT(t0).

I believe we must start here to understand the entire premise of TZ and how the Similarity Thread has progressed this further to what it is now.
The above was extracted from a PDF of my early notes on Transient Zones (TZ). I have attached it here.

Hi I would like private coaching please sir. Transient concept new to me, thanks.

(also here is freefox's indicator)

Smarty pants!
Thanks for the upload, btw.
Where've you been chap?

#2 Transient vs Recurrent

Transient Zone: Price Action will not return to this zone defined by h and X(t0)
Recurrent Zone: Price Action will return to the zone that is NOT TRANSIENT.

Let's simplify this.

 

1. In the original definitions we are told that within the High and Low of a price bar, there would be Transient and Recurrent Prices.
2. We therefore need a way to isolate or filter the Transient prices from the Recurrent prices

1. One useful way is to look to the left and right of the bar in focus
2. We are looking to see if a bar to the left has breached or entered the HI/LO of the current bar.
3. We are also looking to see if a bar to the right has breached or entered the HI/LO of the current bar
4. The area breached is defined as recurrent. The area remaining is transient.

1. How many bars to the left and to the right do we search for? This is the value of h

On the attached image, we have the Central Bar in green. We want to know what is recurrent and what is transient.
Using the above, we can see that to the right of the bar (h=1) we see a bar that is within the Central Bar's Hi/Lo.
The remaining area that has not been passed through can initially be classed as Transient.

Indicator
Using the FreeFox indicator will obviously make this easier. But the above shows you why the zone is constructed the way it is.
Take the height of the Focus Bar and subtract any bar within h bars that has breached the Hi/Lo prices.
The remainder is a Transient Area.

Wicks
Also notice that it is a wick. This also tells you that within this bar, prices went lower then went higher and closed higher.... meaning price did not stay lower. Therefore the lower prices of this bar were transient. However, you cannot tell from the one bar which specific prices were transient/recurrent - you will need to go to a lower time-frame to work this out.

H-Value
We can see from the image, that only 4 bars to the LEFT of the Focus bar, breached the HI/LO prices. On the RIGHT there were 3 bars that breached the HI/LO prices.
So we could summarise that we have a Transient Zone over 4-recurrent prices. Where 4 is the maximum number of bars that have breached the HI/LO

#3 So What?

The previous discussion showed how a Transient Zone is defined on a price bar. If you define the Transient Zone, you also define the Recurrent Zone.
If you are using the Freefox Indicator, Transient_Zones, then it's quite simple. Recurrent Zone is anything above the box.

Let's make this simpler still. If you are using the Transient_Zones indicator, the Box defines Transient Zones.


Why is this Important?
The trading opportunity is that we have been provided an area where price is PROBABLY NOT GOING TO COME BACK TO within h bars.
If this is probable, then we can enter a trade in one of several ways.... but essentially it boils down to 2 directions:

 

1. Trade away from the Transient Zone
2. Trade back into the Transient Zone AFTER h bars have passed

#1
Put another way, we are betting on prices not returning to the Transient Zone. If we believe price will not return to the transient zone, then we make assumptions about the movement or direction of price. If "transient" means "no return" then by definition it must be a move away from

#2
Because Eurusdd's original proposition says that the Transient Zone exists for a given value of h.... what we are saying is that there is a Time Limit for the transient zone. Kind of like a ticking clock where price will not return to this zone. If you define your h as 5, then you expect prices not to return to the box for at least 5 price bars. If your timeframe happens to be Hourly, this would mean 5 hours of no return. What could you do with this information?

#4 Multiple Timeframes

Seasoned traders know this rule: Higher Timeframes are more powerful than Lower Timeframes.

Outside of this thread, it is well established that trends that exist at higher timeframes will always trump or beat or overrule lower timeframes.
You cannot fight a Weekly trend upwards, no matter how many times you short a 5 Minute chart. The chances are that prices will push higher because the weekly trend is up. Obviously this is the same for a downward trend.

This opens up a topic that can become quite complicated because of the nature of time/price. That's time-price not "time or price".... it is a combination of price and time.
I say this because if I say EURUSD has bottomed out at 1.2495 on the Weekly, the exact co-ordinate on the map is (x,y)..... x = price, y= time. You can't have one without the other on the Weekly Map. Similarly, if the 15M chart said 1.2495 it would probably give you the date... but also the time as well.

This is because Time/Price is fractal in nature. This means it can be divided into smaller parts and these parts form the equivalent values of the larger parts.
For example, 1 Hour = Four x 15 minute segments. While this seems logical, on a chart it would mean 1 price bar for an Hour will be represented by 4 price bars of 15 minutes.

This then presents an opportunity and a challenge as far as technical charting is concerned with regards to Transient Zones and h.
Since h = time..... then h represents a bar on a chart. But if you want to analyse where prices are Transient.... you will need to decide what Timeframes you are interested in investigating.

I highly suggest that you are aware of all timeframe Transient Zones when performing your routine analysis of timeframes.
Always check from Monthly to Weekly to Daily to Hourly (4H to 1H) to Minutes (30M to 15M to 5M).


My View on Fractals
The "day" is, in my opinion, the purest form of time fractal because 1 Day can be defined as 24 hours. There are no other adjustments to this definition. From this definition you can split the highest value "Day" into 24 Hours and split that out into multiples of 1 Hour and perform equivalences of minutes to the hour (ie. 1H = 60M).

So in theory you could say:

1 Day = 24 Hours
1 Day = 1440 Minutes

This means on any Minute Chart, you can apply 1440 as a setting that will give you the equivalent of 1 Day on your chart.
If you do the math, then you can represent the other Hourly divisions on a Minute chart as well.

If we were to go higher, it is not so clear cut because a Week can be defined as 5 days.... but when we talk about a Month, you don't necessarily have 4 weeks if you were to go by Calendar Month. Some Months have 30-31 days and there are public holidays.

So any time-frame higher than a Daily is harder to define in Fractals. And while I am sure that there will be some astute mathematicians who can say, "yes you can", for the purpose of this thread I will define those as out of scope and won't discuss those here.

So Why Are Multiple Timeframes Important?
In light of the previous post, the key effect of checking different timeframes is that the H value will most likely have different results for your analysis.
A frequently asked question is "What should the value of H be?"

The Answer is....."it depends"

It depends on your Trading Goals.
It depends on your Trading Style.

A scalper will probably opt for a smaller value of h.
A position trader or swing trader will probably opt for a higher value of h.
Or any where in between.

What h does is filter the original proposition: prices do not revisit a level during a particular time period.
Your treatment of h must therefore take into account the time-frame you are in and any equivalent timeframes that you are also interested in at a higher level.

For example, it is quite common practice for traders to look at 15M and 1H.
It would therefore make sense to use an H value at the 15M that equates to 1 hour of time.
But what if you are really interested in 4 hours of time but want to use a 1H chart? On a 1H chart, that would mean h =4. On a 15M chart that would mean h=16

Experiment with this and see what results you get. The idea is for you to now start getting a sense of what price does after these Zones present themselves.

hi Vlady,
i think, That is other concept. we must focus on "h" correct calculation.
and everyone will say that everyone has an "h" to their way of trade, but that's not right.
There is an "h" correct for each time interval. If you can calculate, then money without risk.

To do look for graphics and see how to capture the most movement. In earlier post, "Eurusdd" said "k" depends on demand. If you look, "k" sets the interval, ie, the areas width of transient right is respected in right bars. It is not amazing?
We know that "k" is an integer and therefore depends on previous X bars.
What is the demand in forex? how demand is measured? ....
In this way, you have not to wait for complete transient areas. This is "Eurusdd" Transient areas.

Not necessarily Burnsss.
I know some who use very low h values and have a specific trading style for that particular setting and it is profitable for them.
That means it works. For them.

I would replace "correct" with optimal. But then optimal, in my view, is not optimum in an absolute sense. Optimal is dependent on the trader's specific requirements.
You cannot say that every trader is the same or would view the same chart in the same way with the same risk/reward profiles. It's impossible.

Optimum, as a noun, means THE MOST FAVOURABLE condition which I am happy to agree with you can be mathematically worked out.
But for a newcomer or newbie to understand this..... I would say, it can only ever be OPTIMAL (adjective) which means a favourable condition for a specified set of requirements.

I may favour h=8 on 15M which may not be the optimum setting. But if I reap 12 pips every 9 out 11 trades, based on my style and preferences you cannot then begin to say if I adjusted this to the optimum of h=12 (as an example) that my results would improve with everything else being equal. Unless of course, I tested it out... but that's what I mean, I have to test it. It will be subject to Yes/No. Not because it is optimum or optimal but because it's dependent on Me, the individual trader.

This would have to go back to Objectives. Are we trying to build an EA? Or are we trying to understand what h is?
This thread is for beginners/newcomers (see Post #1) so my focus and emphasis is to define what h is and how one can practically find a value that agrees with them.

Okei, you're right. But I see in this thread the possibility of moving into a great concept. Thread of similarity I think is mixing. A new thread where people can take to further progress.
Maybe you're right with optimal value and correct value. The difference is time.
For the first time in life I saw how an indicator work in all time frames, all pairs .... Universality. That's the difference between optimal and correct?

I am open to the possibility of an Optimum h for each timeframe.
This means the BEST h for that timeframe where prices are transient within h bars.

I don't necessarily agree that having the best setting will give you the best results.
That's a completely different proposition altogether. People are different.