HAC & RAC - A Simple-Minded Approach

GBPJPY - M15 pullback example

I really wish I had been watching THIS pair more closely. Anyway, recall that a bounce had been called earlier. It came down the same way it went up, only with a much better setup. M15 had an RSI pullback setup. The RAC was below 10 and very flat, which makes this setup near perfect.

After the bounce up was completed, M1 triggered and then M5. M15 crossed the green HAC line within the same period or just after. This is the kind of nice, clean succession we want.

Now if only I can get myself to find THOSE setups instead of the choppy crap!

GBPAUD - Potential bottom

I almost gave up on this pair but after two weeks of futzing around, it finally began to move. Anyway, this pair is up against a W1 HAC line with the RAC > 80. There's also an RSI PB setup on this TF.

But that's not what got my attention. At the 1.9990 level there are several x levels clustering together as follows:

H4 has two 2x levels
H1 has a 4x level
M15 has a 3x level

This is a good area to watch for a solid setup. It might have to jockey around for a bit, as I'm sure there's a lot of interest so close to a round number.

Isn't there some kind of trader's maxim that says to stick with one's original plan? Oh if only I could! Haha!

But I suppose that's another skill, isn't it? Planning and analysis is one thing, but sticking to it is quite another!

Anyway, my original plan on this pair was fulfilled.

I Wish I Could Trade Better...but

I wish I could trade better in order to build confidence in how this works. I'm just not there and I want to be.

I know how much time a person has to invest in order to learn something new and seeing somebody that's successful already makes it appear worth the time and effort one has to put in. Time is, after all, finite. I want to be able to give that confidence. I mean, a lot of the calls I've been making have been pretty good; it's just the execution on my part that's been missing. There's the actual trading I need practice with, but there are also subconscious undercurrents in my thinking to examine; beliefs about myself, what I deserve and what I'm capable of.

I'd like to think that everybody has those same 'arrangements' they've made with themselves with which to contend. It's helpful to be honest about these agreements and beliefs. Otherwise, those beliefs, whether they reflect the truth or not or even our best interests or not, will alter thinking in such a way that it will be impossible to make a success with this or any other endeavor. It simply cannot be done. Nobody can go against their beliefs for very long. They are intrinsic to who we think we are; to go against them, whether they serve us well or not, is to bring about a sense of self-destruction. My trading, right now, is actually showing me what I believe about myself. That's where I'm at and it's a kind of middle ground - a neutral zone between success and failure. I imagine I won't be seeing much growth in my account until this is rectified...so for God's sake, don't follow any trades I make! It's likely to be a crap shoot!

But getting back to the method, I have noticed over the years of my 'thread surfing,' that no matter what the method is, there are, generally, only a few who can actually use it with any efficacy on a long-term basis. It speaks to them somehow. It becomes a part of them because it's conducive to who they are and their natural inclinations. They "get it" because it virtually gets in their bones. There's an intrinsic understanding going on there; an understanding that has built a sustainable confidence.

This thread hasn't been up that long and I've posted a LOT of examples to study. Not only have I posted examples, I've discussed at length the philosophy behind all of it. While 'simple,' this method really has a lot to it in that I think there are ways to improve timing and risk management. It's a bit like Elliott Wave in that there's a price structure underpinning everything and a logical reason behind it. Then there's the cyclical aspect and a timing component. There's a lot going on with the two indys on the charts and then of course there's the multiple TFs that all nest together. It's actually a lot to take in, but the more I do this, the fewer surprises I find in the markets. Because I've been posting so much, it's helped me to integrate it into my thinking. (Thank you again for reading them. It's been a great motivator for my thoughts.)

I believe that there is more to this than I have been able to find. It's still a wide-open set of potentials that are yet to be discovered. I hope people to whom this speaks will help discover things with me and share their thoughts too.

I'm going to stop posting for awhile because it's time for me to focus on my execution and mindset. Plus I will be on a retreat until March 3rd. However if anybody wants to post something or has as question, I will check in a few times a day. Oh...and that retreat I'm going to deals extensively with unconscious beliefs My wife went to it last Summer and loved it. Definitely a life-changer!

http://www.choose-again.com/home/

It definitely seems to me that there are a lot of (uncovered?) posibilities with what you so kindly offered here - unique stuff! I hope to find some step-wise approach so I can trade this. I need a "structure" of some kind. After all, if we can get some nice statistics trading only a 2:1 ratio - that's all we need, isn't it? Maybe even adding some other "cycle" system like Brooky's KST, who knows, I am looking at that.

Wish you a nice retreat - time!

I totally agree with you Go5, I am trying to work out some easy methodological approach to trading this. may be even add a third HAC line on the same chart from another timeframe? (What do you think Almuten?), Then all I want to do is quickly scan the 4H bars at the end of every 4 hour period and see any potential coming up, like all three lines starting to line up etc. Then place a trade, stop in place and as you said 2X is plenty enough if this works more than 75% of the time, then walk away and not even bother watching the trade develop. Simple! Ha, I wish.

I have always loved the idea of cycles in the market, and Almuten, I really like your unique approach to this, thank you for sharing.

Thanks Almuten, I really like the way you are posting. There are many examples to properly learn I think. I just am occupied at work and testing my daily strategy, once that is finished, this thread is pinned in Chrome for that time

Have a nice time till March.

I'm Back!

After a week away I got some clarity (or at least I think I did) on how to deal with this methodology. On one hand, if somebody was to 'specialize' in just one or two markets, this method has a lot to recommend itself. On the other hand though, looking for trade setups is a real pain when dealing with many markets. There's just too much to analyze because in a way, it gives almost too much information.

Originally my intention was to locate areas where major reversals happen and to 'stack' TFs on top of one another in order to get the tightest trade with the highest probability possible. I think I've done that, yet there's just so much temptation to over complicate the issue with other things. So now my goal is to go back to the goal of making as many trades as possible rather than analyzing markets to death.

I did a few things:

1. I did a risk of ruin calculation and determined that if the payoff ratio is 4:1 (I will show how this can be achieved) and the probability of success is 33% or greater, then the risk of ruin is zero. So far, I've seen no evidence that anything close to a 33% success rate will occur. If all the rules are followed, the rate of success will be far greater.

The graph below shows the equity curve of trading a $500 account and taking a 2% risk on each trade. The probability is set to a 40% success rate, but this is very, very conservative. Profits are not put back into the account. This is only to show what happens if the risk amount is the same for a static amount of money. In my judgment, the equity curve is pretty smooth and can be mentally handled pretty well.

2. Next, I recognized that the best trades have two things that tend to be true:

First, that where the green HAC line is crossed tends to hold and not be revisted.

Second, that the green HAC on the higher TF tends to be crossed during the same period that the red HAC on the lower TF gets crossed.

Calculating the risk portion from the point where the green HAC on the higher TF gets crossed to the place where the red will be crossed is a lot better than using the prior swing low or high. It cuts the pips in half most of the time, which allows for a greater position size. The truly good trades will always move away quickly. If they don't, then it's generally better to just be out of it and on to the next one.

The advantage to approaching it in this way is that prior to a position taken on the H1 example below, there is already a good M15 trade in progress and thus, greater confidence that the H1 will actually succeed.

3. Finding the 4:1 payoff

Another thing I recognized is that there will be some situations where the risk will be too great relative to the payoff. My goal is to find situations of the highest likelihood for a 4:1 payoff and I want them as quickly as possible.

A good way to find this out is to put on the x levels. If a 3x target can meet or exceed a 4:1 payoff, then it's a great trade. The best ones will offer 10:1 sometimes. But to find the likelihood of that 3x being hit, move to the next higher TF and see if when it's green HAC was penetrated, the red HAC on the TF you're trading was penetrated also. If so, then that means the "stars have aligned," so to speak.

4. Trailing Stops

In order to keep this as simple as possible and the 'analysis' out of it as much as possible, there's a way to simplify it.

a. Once the 1x is achieved, then the stop moves to breakeven
b. Once 2x is achieved, then the stop is moved to 1x (this will generally secure a 2:1 on the risk)
c. Once a 4:1 payoff is accomplished, then trail the stop above/below the last heiken-ashi bar.

The first ("a") will actually pare down the losing trades considerably. There are times when things seem to align and then suddenly peter out and reverse the other way. Generally though, trades will hit at least a 1x before doing so. Again, the best trades (and this method is designed to find them) will take off right away, blow through 1x and at least up to 2x before having a correction of any depth. If after a 1x is hit, then it ought not to return back to the point of entry. If it does, then it means the market is not doing as expected. If that's the case, why be in it?

beginning non-farm

Nice trade. It did hit an M1 3x target to the pip. Is that what tipped you off or was it something else?

We continue to buy traffic

in theory, go right

best of all is when to move the stop.

the market is always right.

Hi Almuten, thanks for sharing your strategy. I discovered it yesterday and studying it.
I have a simple question: in your opinion, is it fine to trade indices (intraday)?
In such case, I like European indices (EuroStox, German Dax,etc ) and their opening time is 14 hours/day (they are not 24/24). Since your system is strongly based on cycles, do you think it (indicators) should be consequently 'fitted' to this shorter trading time?

Thanks

Giacomo

Welcome back Almuten!

Question is, how would you know that the green HAC will hold and not be revisited? What about when the price is ranging and crossing the HACS back and forth, how would you know when the price will take off? Because I tend to keep an eye on only a few markets, and ranging happens a lot, but then the price just takes off, and I miss it!

You'll have no argument from me over that one! But hey, if what you're doing is working, then by all means keep doing it

That's a good question jack-fx and one I don't have an answer for. I used to trade the Nasdaq & S&P indices but have not testing this on them yet. Since I live in the U.S., I can't trade those so I've concentrated on currencies only. But since cycles are only a small part of the underlying theory, it might work well on those too.

Years ago when I was trading the S&P, the idea of profit targets based on aggregate risk worked well (but I did not use anything like I'm using now back then). To my mind, the idea ought to hold. It might even work better if the trading hours were limited because the hours of listless chop will be more limited.