HAC & RAC - A Simple-Minded Approach

Hi Folks,

I wanted to share the system I'm developing to gather opinions and criticisms from more experienced traders. I've only recently started trading a live account and frankly, it scares me quite a lot. I've been in constant study of the Forex market since the Spring of 2013 and within that time, I've tested systems of all kinds; systems that others have prospered with. For some reason, whether from ego or from a creative spirit, I had to design my own.

I also found that I needed something that could keep me from becoming confused; something that would definitively tell me when I was wrong, how much to risk and what a reasonable profit target would be.

I developed some ideas from several places, but the majority of it came from forexalien's thread. Many thanks to him, dear teacher that he is. I studied his ways for two years and I'm so grateful to him for his generous spirit. His concept of multiple time frame analysis made perfect sense to me but the difficulty is that I have Asperger's and tend to get overly fixated on things. With Alien's systems (and I think they are wonderful), there are a lot of things to look at and I feel that it's too easy for me to focus on one thing while ignoring others. Anyway, I had to try to boil down a few elements and see if I could find a way to do the work of many indicators using only two. Moreover, there had to be little left to interpretation - the fewer "if this then that" scenarios, the better.

First, I'll explain the underpinning of the indicators. Next, I will illustrate how best to use them (as far as I could figure out anyway).

The first element is the indicator I call the "HAC." It's an acronym for "Hurst Average Composite." I learned that one could project profit targets using Hurst averages on tradingfives.com, so I thought I would incorporate that into my analysis, but as always, cycle length is an issue. What length to use? Well I decided that I would have a dynamically-adjusted cycle using John Ehler's formula.

I have four moving averages involved here. The base one is the cycle period displaced forward by half its length. The other three are 1/3 the base, 1/2 the base and 2x the base, all projected 1/2 their lengths forward. Again, these are dynamically adjusted according to the current market cycles.

The next component was to average the four MA's, so this is what that looks like:
It seems a little jumpy, but bear with me.

The next component I call the "RAC," which is an acronym for "RSIOMA Average Composite." This is calculated in much the same way as the HAC, only the calculations are converted into an oscillator. The two work hand-in-hand and confirm one another beautifully.

Forexalien loves using the RSIOMA and I learned to love it too. This version responds differently than the original because it's dynamic. Again, it adapts to whatever the current market cycle is.

Note that when the RAC makes a cross, the market also crosses the HAC.

The RAC also has another type of cross. Rather than cross its own average, it can cross below 80 or above 20. When it does so, the market will cross the HAC on the very bar that this occurs on. This is actually quite useful during runaway markets because as long as the RAC is above 80 or below 20, the market will not cross the HAC. Observe:

Ok, now I said that I owe Alien a debt of gratitude to his MTF analysis and I want show you why. In his methods, he waits for wave structures to align themselves. The small TFs will go first, then the larger and so on. "The smaller time periods drives the larger," as he likes to say.

Anyway, this is also true of this method. Moreover, the market really has to sometimes shake rattle and roll before it's ready to do something (as you all know far too well). Anyway, this method seems to catch very large moves once the cycles shake themselves out and align.

Last week there was a very large move in USDJPY. What I'm going to show you now is what the indicators looked like prior to that move. It began with M15, then H1 and finally H4. I put the cursor on H1 and I have a tool that shows the cursor position on the other two charts (indicated by the orange vertical line).

Ok. I might as well share my indys, which I should have maybe done in the first post. I had FerruFX program them for me and the code isn't visible, but you understand the underpinnings of it to know what's going on.

I also included a cool indy that I found on Steve Hopwood's forum. You can place it on one chart and then control the cursor position of the others using just one chart. It makes it a lot easier to see the relationships between time frames that way.

Ok, I said earlier that profit targets can be calculated as well so I'm going to demonstrate that. It's very simple. What I do, say, for a long, is to take the last swing low to the HAC. I've adjusted my fib tool to show 1x, 2x, 3x, etc... that amount. 3x seems to be the average trade. When calculating PTs, I generally use the middle time frame just to be conservative. In this example it worked very well - nearly to the pip - and then had a sizable retrace.

Now when I move to H4 and perform the same operation - swing low to HAC cross point, the market hit a 4x target to the pip. This is actually a bit unusual, generally speaking, but since the RAC held above 80 the whole time, then I guess one could hope for more than the average.

There's some other bits of information that can be gleaned from this method as well. Again, the whole thing is predicated on the alignment of cycles. When alignment isn't there, then the trade will not go as expected. In the example below, the market crossed the HAC BEFORE the RAC made a cross.

When this occurs, in the majority of cases, the market will retrace before it goes very far and then get in proper alignment before making its move.

Below, on the yellow line is where the RAC made its cross. Notice that the market had pulled away from the HAC for some distance before the RAC jumped in. Then it retraced all the way back to the beginning.

this might be the best so far

I always seem to be missing trades so this method helps a bit with that. For instance, if there is an H4 or H1 trade running and it is yet some distance to a 3x level, then I can ratchet down to the lower time frames like the M15,M5 & M1 trio and wait for setups there. I guess you could say that there's some context established with this method in that way.

Another fine point is that the profit target projections don't work well using daily, or higher time frames. I wish they did! However, the HAC & RAC work beautifully on them. These will align themselves with the H4 and below prior to great moves.

This is especially true when the market goes sideways for a long time. What's happening is that all the HAC lines get into the same general area and then the move happens. What you'll often see is the HAC on a lower time frame racing way ahead of the HAC on a higher one. The higher one will have to catch up first before the move happens. You will see this during prolonged topping/bottoming formations after a large, fast move has occurred.

Well that's all for now. Guys, I just wanted to see if you saw what I saw with this. I mean, maybe I'm hallucinating or something, I don't know. There just seems to be something here, but I would like other points of view from more experienced people.

Many thanks and Good night.

Almuten

Well we have a tough crowd here, so we'll see.

Unfortunately i see no lines on indicators

Gosh, I'm sorry laksior. I don't know why that is. Did you shut down and restart the platform?

Yes i did
My platform

Curves indicators is not visible.

Same for me. Indicators not visible. I have Windows 8.1 64bit and have tried it with different mt4s...