HAC & RAC - A Simple-Minded Approach

Thanks again.

Roy

By the way Thanks for the tpl...look better now

What are the 2 red lines for...Probably just 2 lost lines...

Now l will try to understand your system
thx

Oh boy....not enough sleep I guess. I forgot to delete them. I'll replace that template!

Thanks!

You're welcome! That was obvious for me (for obvious reason) ... but as the additional indicator hasn't to be applied on chart, it is easy to forget about it!

Keep up the great work you are doing here ...

Thanks Ferru. I appreciate that coming from you.

Thank you.

Ok, here's a trade that's setting up right now on AUDUSD. First, it has hit a 3:1 profit target on H4, so it's good to start thinking about looking for a trade once this occurs. M1 through H1 have been active for some time and H4 has only triggered recently. There could be some problems with it in the form of a choppy market and I will show you why.

The RAC has made a cross below 80 while the price action was still in the HAC so this part is good. Moreover, the shorter, green HAC line was above the red, which shows nice alignment.

Now I have switched the fibs from showing the trade that has just passed to the one setting up now. As it happens, the 3:1 level to the short side ends up just below the swing low on the D1 chart. This is a pretty sensible, normal expectation too.

Ok, now when I compare the place where H4 made its cross to where H1 made its cross, there are about 11 hours difference. This is acceptable, but it could indicate some chop before a big surge down. Generally, if a big move is going to happen, H4 will trigger within 4-8 bars.

Plus there's another reason to think it could get a bit choppy. The heiken-ashi bar wasn't touching the HAC when the RAC dropped below 80 on H4. It's close, but precision is actually pretty important and needs to be attended to and accommodated.

Now this is where, in situations like this, I like to go down to the next lower setup to see how "clean" it was. If the H1 and M15 relationship was tight, then it might be better to use an H1 profit target and be more conservative. When H1 made its cross, M15 had done so 17 bars earlier, so that too is a little dubious and we have to accommodate for chop when that happens. Mustn't make the stop too tight.

Going back further, let's look at the M15-M5 relationship. Here we have a great example of how important patient and attention to accuracy is. On the M15 chart there is a HAC cross a few bars after M5 made a HAC cross BUT the RAC did not confirm on M15 because it had not gone below 80 yet. This is why the market came back and made a higher high, stopping out the premature. The second cross however was proper and it occurred within 3 periods.

Moving down still further, the M5-M1 relationship was tight as well. Within a few minutes M5 triggered after M1. Overall, this trade looks pretty clean and should do well, even on H4.

Here's another example of the RSI pullback setup that's in conjunction with this trade that we can see on D1. The market went into the HAC area while the RAC is buried < 20 and the RSI popped up. It's now heading back down. It kind of adds another confirmation to an already good-looking trade.

2 important current observations

Earlier I said something about HAC lines on larger TFs needing to catch up to ones on the shorter TFs. What I have here is an example of GBPUSD. It had a hard short run recently and is now consolidating. Anyway, I think this is a good example of why one should wait....wait....wait... until things align themselves. I know a lot of people are tempted to just buy at certain levels for no reason - round numbers, fib levels or what have you. But there's no point to that if you know it simply isn't time. This method will NOT miss good moves.

1. What I did in this example was show the relationship between the longer HAC (red) on H4 in relation to the shorter HAC (green) on D1. On the D1 chart there is an orange cross. This is where the red HAC on H4 is. They are over 300 pips apart from one another. In normal market conditions, they are generally at least in the same area. Abnormal markets like this will cause extended consolidation.

2. There is an H4 signal that happened on Jan 22, but so far it has only hit a 2x profit target. It actually bounced off it several times, which shows there's something going on. WHEN THIS HAPPENS, it often means a very hard continuation - very fast and often, very sustained. This happens a lot when the 3x target isn't reached. I'm not saying it will happen THIS time (I couldn't know that), but this is the sort of situation that makes it more probable.

Here's another good example of what will happen when alignment starts to occur. In the GBPUSD example, I showed the spread between the higher TF green and the lower TF red. Well now they are getting aligned. I would expect the pound to break one way or the other quite soon. It ought to begin forming swings that can be more easily traded.

I put the cursor on the red H4. Notice its correlation with the green on D1. This is important. These two haven't met in a long while, so when they do it will be significant.

I thought now might be a good time to say a few things.

First, I've been working on this for quite a long time and I wasn't sure how to start illustrating it. It's almost second nature to me now so I apologize if I'm not clear. Please ask any question you want or even for me to look at any market you're working on now. Actually, I think it would help me quite a lot if you did. I'll do my best to help.

Second, just because there are only two indicators doesn't mean it's without technique or skill. There is technique, but it has fewer things to look at. Those few things require more focus is all. I'm a terrible multi-tasker and have a hard time focusing on more than a couple of things at one time - and if I'm forced to, those two things had better be related to each other. Otherwise I'll feel uncertain about what I'm doing.

Third, everything in this method is designed to adhere to a single value system: Making money. With everything I did, I kept this in mind. Because I have Asperger's, my mind gets overwhelmed and because I'm given to analysis anyway, the more indys that are on the chart, the more likely I'll scare myself and see things that aren't there. I see "cool" things in every indicator constantly. Drives me nuts! Anyway, then I forget why I'm doing this because I'm way too busy enjoying all the cool things the indys are doing.

Now, some price action purists out there might be saying "Well indicators are lagging, so why not just focus on PA?" While I understand your viewpoint and have espoused it myself at one time, here's what I say to that: Price alone does not cooperate with what I want to do. Sometimes it jacks around forever, faking this way and then that. For me, there's too much to look at and be confused by. Too many questions that take too much time to find an answer for and even then I'm never sure. I certainly can't relax and chill out about it. Price action has way too many "if this then that" scenarios for me.

What I'm really hunting for are what I like to call "Statistical Events." It's different than statistics because all indicators generate statistics in the form of facts. Statistical events differ in that I'm looking for the unlikely. It's the unlikely that moves markets into large moves, not what people generally see.

So far, so good on the AUDUSD trade. Only the M5 & M1 went above the red lines and even then they re-penetrated them.

What's happening now with the USDJPY is kind of cool. It might turn out to be a great trade. It's not what I typically look for, but it's happening now so why not?

1. Notice H4 on the far right. The RAC is well above 80 and the RSI of it is indicating a PB and then a resumption of a long.

2. The next chart over, on H1, notice that when the HAC was crossed to the downside, the RAC did not break the 80 level until six bars later. As in previous examples, this indicates that it will return at least to where the HAC was at the time of the cross.

3. M15, M5, and M1 are coiled and ready for a ride north.They are all "in position," so to speak.

This is a very interesting thread. I will surely be watching this further. I will start this on demo once I fully understand it from some more example live trades, like you are posting now. Thanks for the thread!