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HAC & RAC - A Simple-Minded Approach

  • #201
  • Feb 12, 2016 3:30pm Feb 12, 2016 3:30pm
Quoting Almuten
{quote} USDJPY & GBPJPY - HAC lines On both of these pairs the longer term HAC lines - green & red are coming into alignment. GJ M15 & H1 are only 25 pips apart; UJ are only 45 apart. By tomorrow the M15 & H1 will be meeting one another, so setups that occur on M15 & below should work well. H1 & H4 lines will likely take until Monday to get into alignment.
This pair had its HAC lines meet for the first time in quite awhile on H1 & M15 and had a nice run afterward. I hope to explain soon more about what to do with this information. At any rate, expect the H1 to now be setting ranges and 'x levels.' But don't expect those to go any further than 1x into profit until the green HAC on H4 catches up to H1 red.
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  • #202
  • Feb 12, 2016 4:27pm Feb 12, 2016 4:27pm
Quoting Almuten
USDJPY - X Levels I thought this was a nice illustration of how the x levels stack onto each other and is worthy of note. First of all, they did not occur in rapid succession and as we've seen several times before, this generally indicates a choppy or consolidating situation in the offing. Second, I want you to see that there's a definite relationship between time frames, which is why it's beneficial to utilize more than just one. Third, there was a sizable bounce from those levels, being all clustered together like that. {image}
Hi Almuten, thank you very much for the explanations and clear graphs you show us. I am just wondering how you would know that the m15 chart is not going any further than 1X? Or is it going further? Is there any way of telling? Or is it something like if the HAC and RAC align on all 3 timeframes, then the largest of the 3 timeframes will usually go 3X? Do I understand it right?

Thanks! and have a great weekend.
  • #203
  • Feb 13, 2016 11:58am Feb 13, 2016 11:58am
Quoting Timo7
{quote} Hi Almuten, thank you very much for the explanations and clear graphs you show us. I am just wondering how you would know that the m15 chart is not going any further than 1X? Or is it going further? Is there any way of telling? Or is it something like if the HAC and RAC align on all 3 timeframes, then the largest of the 3 timeframes will usually go 3X? Do I understand it right? Thanks! and have a great weekend.
Hey Timo,

I have a long answer to your question, but I think it will answer many questions you and others will have in the future... and you'll probably teach me a thing or two as well because, my God, people on this forum are smart!

At extreme tops and bottoms, especially after all H4 3x targets have been cleared away, for the market to have a significant move in the other direction, it will take some 'coaxing' and the drawing in of traders who have to lose their money first (or who are about to lose their money) in order for the market to move. This is the purpose of the heavily orchestrated "chop zones." These zones trigger all sorts of systems from support & resistance to oscillator-based methodologies and even discretionary traders playing various pattern formations. These are the places where most systems and methods experience heavy drawdowns, like being eaten in little bites by piranhas.

Moreover, traders tend to utilize one TF for their various systems and overall habits. To make money, you have to be a creature of habit; otherwise whatever probabilities you've calculated using whatever system or method you've developed means nothing. That's why traders tend to do the same things in the same ways. They have to.

Now the HAC lines, when they enter the area where a significant top or bottom was made, will also reflect the budding interest of the players who are trading from that particular TF. The higher TF green HAC line, when it is in contact with the next lower TF red HAC line, shows when that interest is beginning. It shows that the higher TF cycles are getting in sync again with the lower TF cycles. Small TF players are mixing in with the longer term and so on. The more TFs involved, the larger the moves will be.

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IF you don't want to think like a criminal (though I think it's fun), that's ok too. There's another way to see this. It's a mathematical principle that's based in "crowd wisdom." For instance, I once saw a documentary called "The Code." It's on Netflix if you want to watch it. Anyway, a mathematician did an experiment where he counted out something like 4,850 jelly beans and put them in a glass jar. Then he went around to random people and asked about 160 of them how many jelly beans they thought were in that jar. The answers varied widely. The extreme guesses were between 50,000 and 500. But here's the thing: When all the guesses were averaged together, that average was only off by 4 jelly beans. How profound is that?!

The lesson is simple: Precision is possible utilizing crowd wisdom.

The question is: "How do we make use of it?"

What's happening in the market is basically the same thing. The moving averages that comprise the HAC represent the range of "collective guesses" as to the true price of the market. The RAC represents the momentum toward one side or the other, or, which side will prevail on that particular TF.

The "winning side" will have an expectation for profit and take off their positions accordingly. They got what they wanted out of it and thus, the market will have to 'reset' and gather in both sides once again.
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Now, to answer your question more specifically... If, say, M1, M5 & M15 were the only TFs in the area, then I would use M5 for 3x targets and M15 for 1x. When H1 moves into the area, then M15 will have a better chance of hitting a 3x. When H4 moves in, then H1 can hit a 3x. When D1 moves in, then H4 can hit a 3x target.

In order for a lower TF to hit a 3x target, it generally takes the "juice" of a larger TF and the interest of the players on that TF to get it there. Initially what will be happening is that the longer term players will be taking off profitable positions and exiting. Why? Because they are seeing a top or bottom forming and that the swings are getting larger and and more powerful the opposite way that they're positioned in. That's where the first bit of juice comes from to get it to move the other way.

Also, consider that the MAs that comprise the HAC lines on the longer TF will begin to be penetrated. Traders on those longer TFs will be playing those averages and begin to make their 'collective guesses' accordingly. Some will be playing a 30 period, others a 21, etc... but when those averages start to get penetrated and the market spends more and more time on the opposite side of the direction they're positioned in, the less likely they'll add to their positions and the more likely they will remove the profitable ones they have.


Almuten
  • #204
  • Feb 13, 2016 10:12pm Feb 13, 2016 10:12pm
Thanks Almuten, excellent explanation. I just didn't understand your statement "The higher TF green HAC line, when it is in contact with the next lower TF red HAC line, shows when that interest is beginning."

Are you talking about the same TF chart? Also, after a period of consolidation, like in my example below, the two lines are entangled with each other, how would you know when the big move is going to take place? How would you read the RAC line? Or would you just not trade when the RAC is neither above or below 20 or 80? That by the way is the gbpjpy 4H chart.

gbpjpy.JPG
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  • #205
  • Feb 14, 2016 3:05am Feb 14, 2016 3:05am
Quoting Timo7
Thanks Almuten, excellent explanation. I just didn't understand your statement "The higher TF green HAC line, when it is in contact with the next lower TF red HAC line, shows when that interest is beginning." Are you talking about the same TF chart? Also, after a period of consolidation, like in my example below, the two lines are entangled with each other, how would you know when the big move is going to take place? How would you read the RAC line? Or would you just not trade when the RAC is neither above or below 20 or 80? That by the way is the...
Hey Timo,

There are several things I can talk about here. First, what I meant by the higher TF green HAC line making contact with the red HAC on the lower TF is not on the same chart. It's at the price level.

Second, it's fine to take trades when the RAC is not coming out of 80 or 20. Is it more likely that it's a big trade if it does? Yes, but is it necessary? No. Just crossing its own average constitutes a shift in momentum toward one side or the other.

Third, it's impossible to know when a big move is going to take place. All we know is how to determine the greatest probability factors involved. For instance, M15 & H1 triggered on the same H4 bar that went through the the HAC. And if that wasn't enough warning, the D1 triggered the very next day (so you had plenty of time to consider it). Regardless though, it's always a surprise, isn't it?
  • #206
  • Feb 14, 2016 10:47am Feb 14, 2016 10:47am
Ok, thanks for that Almuten, I am trying to understand this method to the best of my ability, have read your posts throughout the thread at least twice.

I like to trade 4H bars, so, what would I do?

-Should I check the instruments I like to trade at the end of every 4 hours,

-and if I see a bar has crossed the red HAC line, then I see if the green HAC line is nearby?

-If it is nearby, say 2 or 3 bars, (Or should that be a certain amount of pips?),

-then I check the RAC line if it has crossed within 2 or 3 bars,

-if it has, then I check the same things on the 1H time frame,

-and if the 1H time frame conditions are acceptable,

should I check the daily or the 15M?

I'm just trying to come up with a methological way to trade this system. Is this something that you do Almuten? If not, what do you do? and how are you going with your live $500 account?
  • #207
  • Feb 15, 2016 8:26am Feb 15, 2016 8:26am
Quoting Timo7
Ok, thanks for that Almuten, I am trying to understand this method to the best of my ability, have read your posts throughout the thread at least twice. I like to trade 4H bars, so, what would I do? -Should I check the instruments I like to trade at the end of every 4 hours, -and if I see a bar has crossed the red HAC line, then I see if the green HAC line is nearby? -If it is nearby, say 2 or 3 bars, (Or should that be a certain amount of pips?), -then I check the RAC line if it has crossed within 2 or 3 bars, -if it has, then I check the same...
Hi Timo,

I want to focus on trading H4 too so we're on the same page. Anyway, you will begin to see potential setups long before they occur on that TF. For instance, the RSI on the RAC will pop the other way first. This shows that the RAC has begun to turn. It's based on 2 periods of the RAC so it will catch the smallest, imperceptible (by eye) change possible.

If this occurs when the RAC is plastered against the ceiling or on the floor, then its' most likely a pullback in the larger trend (which you can trade, but will have to use a lower TF to find the setup on). However, if it's not above 80 or below 20, then it shows that within a few periods it's going to give a signal in the form of a crossing.

That's warning #1

Having seen this warning, you can check to see if H1 has done anything or if it's about to. Perhaps H1 has crossed its green HAC line. If so, check M15 to see if it's crossed its red HAC line. If it has, go back and check how tightly the lower TFs have aligned. This will give you a good idea as to the potential vigor of the move.

I would think that after awhile you can preempt a few things. For instance, if you're alerted by the RSI on H4 and you go backward and check the lower TFs and see, if they've formed good setups, that it would be wise to take a trade immediately, even before H4 has given an official signal, then that would be ok too. Check the PTs on them and see if they were met whether or not they would surpass the red HAC on H4. If so, it's even better.

If you do play preemptively you'll have to be careful to watch the curvature of the RAC on H4. If it's flat, then it shows that the market has been going sideways. In situations like that, the RSI will move back and forth a lot sometimes. Also, the other TFs will be giving signals both ways and if you look too hard, you might find justification for taking a trade early when you actually shouldn't. Just watch that.

As for my trading, I'm working on trying to stay in smaller trades for short time periods. I'm only playing .01 lots so it's no big deal monetarily. BUT I have made progress in that I can actually sleep now with a position on. I even took a loss the other day and it didn't bother me. When it comes to actually trading Forex, I'm just a baby in a lot of ways.

My issues are psychological for the most part. I'm learning to trust myself again to not go into self-destructive modes of operation. In the past I've put myself through hell and back by allowing my mind to play tricks on me. And it really can do that! It can see things that aren't there, be convincing that something is a good idea when it isn't, once exception to the rules is ok, and so on.

When I take trades now, all sorts of "thought forms" come up. They're like phantoms. So I just "look" at them and "breathe" until they're gone. This is really where I'm at right now with this. I know it's very basic and even laughable to a lot of people because they've been doing this for so long, but I've learned that it's best to just accept where I am and deal with it rather than try to "false bravado" my way through it. I know from experience that faking my way through my fears will bite me in the ass when I least expect it.
  • #208
  • Feb 16, 2016 8:42am Feb 16, 2016 8:42am
GBPJPY H4 Involvement

I've been watching this pair closely after it hit an M15 3x target. I wish I had the time to post this earlier but I had some job interviews, etc... Anyway, M15 gave signals in both directions prior to the drop, which is why it's good to watch what's happening on the higher TFs. Things start to move quickly after a longer TF comes online.

It's almost like H1 was "waiting" for H4 to catch up, isn't it? Once it did so, H1 could set up a good trade.
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Now that H4 is involved, we can start to expect 3x targets from H1. Let's now see where those targets end up. You can see that 3x on H1 is about 100 pips or so above the low and 4x is directly on it. If it makes it there, this will pull H4 down into an area where it can then align for an ideal trade setup.
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  • #209
  • Feb 16, 2016 9:01am Feb 16, 2016 9:01am
GBPUSD H4

This one is a messy H4 trade. It had a pullback prior to really moving down, but if you check the time of the crossing of the RAC, you'll see that it was late by a bar or two. The same happened on the H1 portion of this trade. This is one of the reasons that timing is critical because if you place a stoploss too close to a situation like this, you're probably going to lose 70% of the time or more.

Anyway, I wanted to point out, once again, the symmetry of these trades and how precise the collective thinking actually is.

The 1x on this H4 trade is EXACTLY in the same place as is the equilibrium point in the last long H4 trade setup.
The 2x is EXACTLY on the last major low found on the D1 chart

H4 is capable of hitting a 2x or higher because the green HAC on D1 matches exactly with the red on H4 (in case you're wondering)
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  • #210
  • Edited 9:24am Feb 16, 2016 9:13am | Edited 9:24am
NZDUSD H4

In this chart the D1 green has not caught up to the H4 red. They are still about 50 pips apart. This means that H4 will likely stop right where it is at 1x. It might sit for a bit and consolidate while D1 catches up and then go down to 2x or lower. If it does go to 3x, it will be a few pips from the low on D1.

But remember that on this pair, there is still an unfulfilled H4 long. Two weeks ago it hit its 2x target to the pip, backed off and tried again. It's going to be a factor in the overall balance.

If the current H4 short trade makes it to its 2x target, it will be in exactly the same place as the remaining active H4 long was triggered.

[edit] I just noticed something else about this. Look at D1. The RAC is above its average and the price is nearly resting on the red HAC line.
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  • #211
  • Feb 16, 2016 9:33am Feb 16, 2016 9:33am
NZDUSD - possible long setup to watch

Ok, now having seen that there's a good argument for a support area - an H4 1x and a D1 HAC line, we ought to look and see if the lower TFs are making x levels. On M15 and H1 both, 4x levels are coming up. Again, these levels are somewhat rare and generally indicate very pronounced reversals.

M5 green has caught up to M1 red. This is the first clue that a bottom could be forming. Then we'd watch M15 catch up with M5 and so on.

If you want to make a play like this, then be realistic with the M1 & M5. If they are far apart, then it's going to take more time for some kind of basing pattern. Once accomplished, there will be 10 or so bars in between an M1 and M5 trigger. But also look at M15. Is it coming into range of M5? If so, then it too might become involved. If not, then don't expect much without a lot of chop, etc...
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  • #212
  • Feb 16, 2016 10:14am Feb 16, 2016 10:14am
NZDUSD - Be careful with this

I want to point out that what the M1 chart is showing, in reality, is broker/market maker manipulation. At least that's what Cap'n Jack would say. This is some evidence that there's interest in this area already discussed.

However, if this is broker manipulation, then there's also a likelihood of then gunning everybody's stops by hitting 2x prior to going long.

Note the chart on the far right. It's an H1 - the first H1 trade to the short side initiated after a major top was made. Also note that the market has respected these levels thus far (this is something to pay attention to, btw).

What could likely happen is to get people interested in going long, get them long, and then gun the stops at the H1 2x level I marked out. This also serves to get more people involved on the short side who can then be taken for a ride to their stops at a significant swing high. If an M15 gets triggered long, we'll probably be able to find where that is.
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  • #213
  • Feb 16, 2016 11:35am Feb 16, 2016 11:35am
NZDUSD- Getting into position

Note the H1 - hit a perfect 2x target
M15 - a 6x (very unusual) target
M5 - 4x target

HAC green & red have to be pulled into position. If this is a good trade, then all the TFs should trigger one after another very quickly. A good way to do this is when M15 green is penetrated, then M5 ought to have triggered on the same M15 bar. The same with M5 green penetration. M1 should have triggered a trade on the same M5 bar (or within a minute or two).

The H1 chart will likely not be involved in this trade. The HAC line is very far away as yet and the RAC will take time to turn.
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  • #214
  • Feb 16, 2016 11:49am Feb 16, 2016 11:49am
GBPJPY - Bounce alert

In the chart below, several major targets are about to be hit and they are all in the same place - within a pip or two.

H1 2x
M15 4x
M5 4x

Also, the H1 RAC has just crossed the 50 line. Since this market isn't really trending right now in either direction, the 50 level often proves to be support/resistance. (More on this concept later)

If it set up long for any sustained period, it will have to rest for a bit first. M5-M1 setup would be ok, but don't count on M15.
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  • #215
  • Feb 17, 2016 12:20am Feb 17, 2016 12:20am
Quoting Almuten
NZDUSD- Getting into position Note the H1 - hit a perfect 2x target M15 - a 6x (very unusual) target M5 - 4x target HAC green & red have to be pulled into position. If this is a good trade, then all the TFs should trigger one after another very quickly. A good way to do this is when M15 green is penetrated, then M5 ought to have triggered on the same M15 bar. The same with M5 green penetration. M1 should have triggered a trade on the same M5 bar (or within a minute or two). The H1 chart will likely not be involved in this trade. The HAC line is...
I took this trade a little bit ago. It set up in the way it should've, but I wish H1 was a little closer to the action. But then again...they're never really 'perfect,' are they?
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  • #216
  • Feb 17, 2016 12:38am Feb 17, 2016 12:38am
Quoting Almuten
{quote} I took this trade a little bit ago. It set up in the way it should've, but I wish H1 was a little closer to the action. But then again...they're never really 'perfect,' are they? {image}
I probably have a pretty bad risk/reward profile on this trade. For one, I can't really depend on more than an M15 1x target because the H1 is still too far away to be of help. If I had been a little more alert, I would've taken the trade on M5 instead of waiting for M15.

Anyway, a 1x on M15 is in the same place as a 4x on M5 on this trade. I will have to take profits around there I think.
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  • #217
  • Feb 17, 2016 2:18am Feb 17, 2016 2:18am
Quoting Almuten
{quote} I probably have a pretty bad risk/reward profile on this trade. For one, I can't really depend on more than an M15 1x target because the H1 is still too far away to be of help. If I had been a little more alert, I would've taken the trade on M5 instead of waiting for M15. Anyway, a 1x on M15 is in the same place as a 4x on M5 on this trade. I will have to take profits around there I think. {image}
I got in earlier - too early? and also 10 pips late. Let's see if it reaches 6614. Comments welcome!
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  • #218
  • Feb 17, 2016 2:32am Feb 17, 2016 2:32am
I got out after the 3x on M5 was taken out. Then it backed off. I probably should have stuck with my original intent to hang on for M5 4x and M15 1x.

The H1 green HAC has been crossed, along with a 'green shorty' RAC crossing...but it doesn't sync up well with M15, which makes me think it will have to cycle down and then back up again.

[edit] I think there's a major meeting today as well. I've noticed oftentimes these 'cycles' will align/position themselves when the news events are about to come out.
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  • #219
  • Feb 17, 2016 2:34am Feb 17, 2016 2:34am
Quoting Go5
{quote} I got in earlier - too early? and also 10 pips late. Let's see if it reaches 6614. Comments welcome! {image} {image}
Yeah, it wasn't the best of entries. But you don't seem to have an issue pulling the trigger like I do Maybe you should play M1 crossings after a cluster of x levels are hit. You seem to have the nerve for it!
  • #220
  • Feb 17, 2016 2:55am Feb 17, 2016 2:55am
Quoting Almuten
GBPJPY - Bounce alert In the chart below, several major targets are about to be hit and they are all in the same place - within a pip or two. H1 2x M15 4x M5 4x Also, the H1 RAC has just crossed the 50 line. Since this market isn't really trending right now in either direction, the 50 level often proves to be support/resistance. (More on this concept later) If it set up long for any sustained period, it will have to rest for a bit first. M5-M1 setup would be ok, but don't count on M15. {image}
Ok, here are the results of that 'bounce trade.' After fiddling around (see highlighted area on M5 chart), the M1 and M5 gave simultaneous signals. A 2x level was hit for M5, which is pretty good considering that M15 offered no support. It was just a pullback in the larger trend.
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