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"Ratios & Harmonics: a Different Way to Trade." Summary 37 replies

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Ratios & Harmonics: a Different Way to Trade

  • #18,281
  • Mar 17, 2016 8:06am Mar 17, 2016 8:06am
Quoting jmezz
Mr Pip I have a question on price action. In the screenshot I've attached you see a nice burst of momentum which I put a cyan line next to. However then you see that the move was retraced back almost 100% however did not close beneath the start of that momentum leg. How would you take this? I would think that you would not want to see strength retraced like that and any retracement that doesn't go past 50% of the momentum leg should still be taken as bullish, right? Or can we also take this as bullish because bears did not close underneath the start...
I actually think you have placed the cyan line in the wrong place...

It should extend further downward, and you have a NSH, a HL and then a NSH... the retrace would then be in line with expectation (difficult to tell without more of the chart) as we can not see the prevoius momentum projection and depth..

But in my eyes, the Cyan line shoudl be extended downwards to where the clear Low is, not just to where the succession of bullish candles start...

Also if you look to where the vertical is on the crosshair to the left of the chart... if you take the retrace, and do a 1:1, the second retrace to the right of the chart is pretty much a perfect 1:1 harmonic...
  • #18,282
  • Mar 17, 2016 8:08am Mar 17, 2016 8:08am
Yeah it's interesting indeed. I'm still trying to wrap my head around it. the link I pasted gives an example of starting with $1000 and looking for 200 pips to move ot the next level. With that, I compared it to what my 2% would get, and it's blowing my mind the difference... Here's a quick snippet example...

** Even more interesting, if you expect to get 10 pips per day for 20 days to achieve it, and you assume a risk to reward of 1 : 1. Meaning you're risking 10 pips to gain 10 pips. That let's you continue to risk 2% per trade. Your first month risk is 2%, 2nd month is 1.667%, 3rd month risk is 1.85%, 4th is 1.818%, 5th is 1.6%, by the 8th month your risk is actually only 1.212% .. which in my other system risk is always always 2%!!!

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Quoting rolandW
{quote} The idea is really quite simple - if you start off with a $500 account, and you start with 0.01 lots (for example) every time you increase the account size per lot, you increase the lot count. So, if you want to increase your lot size by 0.01 for every $50 - ie, your delta is 50 in this case, you increase your lot size when you reach 550 in your account. Because it is per lot, and not based on your account size, your account would be 650 before you increase to 0.03 lots... (2 lots of 0.01 - delta of $50, multiplied by 2 lots is $100... ie...
Markets can remain irrational longer than you can remain solvent - JMK
  • #18,283
  • Mar 17, 2016 8:09am Mar 17, 2016 8:09am
Quoting rolandW
{quote} The idea is really quite simple - if you start off with a $500 account, and you start with 0.01 lots (for example) every time you increase the account size per lot, you increase the lot count. So, if you want to increase your lot size by 0.01 for every $50 - ie, your delta is 50 in this case, you increase your lot size when you reach 550 in your account. Because it is per lot, and not based on your account size, your account would be 650 before you increase to 0.03 lots... (2 lots of 0.01 - delta of $50, multiplied by 2 lots is $100... ie...
So how would that be done on a futures contract where you can't do .01 lot?
  • #18,284
  • Mar 17, 2016 8:11am Mar 17, 2016 8:11am
Quoting rolandW
{quote} I actually think you have placed the cyan line in the wrong place... It should extend further downward, and you have a NSH, a HL and then a NSH... the retrace would then be in line with expectation (difficult to tell without more of the chart) as we can not see the prevoius momentum projection and depth.. But in my eyes, the Cyan line shoudl be extended downwards to where the clear Low is, not just to where the succession of bullish candles start... Also if you look to where the vertical is on the crosshair to the left of the chart... if...
The cyan line is just to illustrate that I'm asking about that momentum burst.

When you see a burst of momentum like that it shows money entered into the market and it entered strongly. However the move was retraced almost 100% which erased that power.

I'm asking how to take that in regards to just that momentum burst.
  • #18,285
  • Mar 17, 2016 8:16am Mar 17, 2016 8:16am
Quoting jmezz
{quote} So how would that be done on a futures contract where you can't do .01 lot?
You attribute the relevant contract size... so 1!!!!

You choose the delta that gives you the right risk to reward ratio... an important point, is that the delta is mainly decided by the Drawdown amount. so if you have a SL of 40 with futures, at $5 per point, your drawdown on 1 contract woudl be $200, so you need to work out what your libaility and sustainability would be... you woudl be dead in the water with a $500 balance, and the general rule is 10K per contract on the fixed ratio side, and that woudl give you a 2% risk per trade (based on initial starting balance)

so you woudl need to start with 10000, delta probably in the region of 5000, so for each 5000 dollars, you can increase the contract size. That means every 5K you woudl add another contract so you would then be aiming for 25000 to move up to 3 contracts...

hope that makes sense! If you extrapolate this out over 10 lots you will see that the risk increases per lot to a point where it starts decreasing

The fixed ratio is designed to give you the maximum growth to your account up to a point, and then the risk starts decreasing (but so does the growth)
  • #18,286
  • Mar 17, 2016 8:54am Mar 17, 2016 8:54am
First 2 futures papertrades went pretty well. Took 61.8 / structure sells on ES and YM, tightened stops on both when price was nearing the opposite 50fib retrace.

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  • #18,287
  • Mar 17, 2016 8:55am Mar 17, 2016 8:55am
Quoting rolandW
{quote} You attribute the relevant contract size... so 1!!!! You choose the delta that gives you the right risk to reward ratio... an important point, is that the delta is mainly decided by the Drawdown amount. so if you have a SL of 40 with futures, at $5 per point, your drawdown on 1 contract woudl be $200, so you need to work out what your libaility and sustainability would be... you woudl be dead in the water with a $500 balance, and the general rule is 10K per contract on the fixed ratio side, and that woudl give you a 2% risk per trade (based...
Thank you for clarifying this, makes a lot more sense now.

Going to research it more as well.
  • #18,288
  • Mar 17, 2016 8:57am Mar 17, 2016 8:57am
Quoting jmezz
{quote} The cyan line is just to illustrate that I'm asking about that momentum burst. When you see a burst of momentum like that it shows money entered into the market and it entered strongly. However the move was retraced almost 100% which erased that power. I'm asking how to take that in regards to just that momentum burst.
Such momentum burst can mean that price went too far too quick but in your example the number of bars that formed the retracement is made of many bars . The burst contains 4 bars while the retracement contains 14 bars. The only conlusion is that it is tough for the bears to bring price down. They (the bears) face some resistance , it is not that easy for them. Given price is making HH HL i would look at it as bullish neutral. I'd wait for more information before taking a decision. In your example price makes a W formation after the retracement, this is bullish.
  • #18,289
  • Mar 17, 2016 8:57am Mar 17, 2016 8:57am
Quoting jmezz
First 2 futures papertrades went pretty well. Took 61.8 / structure sells on ES and YM, tightened stops on both when price was nearing the opposite 50fib retrace. {image} {image}
nice trade man. This is what im currently in.
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  • #18,290
  • Mar 17, 2016 9:09am Mar 17, 2016 9:09am
Quoting jmezz
{quote} Thank you for clarifying this, makes a lot more sense now. Going to research it more as well.
I got the book for free as a pdf from a book site a few weeks back... it is interesting to see how it builds up - a lot of numbers in there, and is very focused on futures and contracts, as opposed to lot size, but it is all attributable to any finance except buy and hold stocks... the main point though is that the numbers really back up why it is important (money management that is) and why fixed ratio is massively importnant!
  • #18,291
  • Mar 17, 2016 9:11am Mar 17, 2016 9:11am
Quoting SteeP7
{quote} nice trade man. This is what im currently in. {image}
Yours is working out excellent as well, awesome!

But here's my question... Once price broke the green trendline at the swing low wouldn't that change the long term order flow to down until the main swing high was broken?

What was your reason for going long? I think I missed something.

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  • #18,292
  • Mar 17, 2016 9:21am Mar 17, 2016 9:21am
Quoting Timwelch
How do I translate this into Forex and lot sizes? :-) This looks like it's for futures and contracts. I'm trying to make a spreadsheet but not doing very well. lol {quote}
Tim I had one made I will be posting it soon
If you fail to plan, you plan to fail.
  • #18,293
  • Mar 17, 2016 9:25am Mar 17, 2016 9:25am
Quoting jmezz
{quote} Yours is working out excellent as well, awesome! But here's my question... Once price broke the green trendline at the swing low wouldn't that change the long term order flow to down until the main swing high was broken? What was your reason for going long? I think I missed something. {image}
not sure if this helps but this is what i see
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  • #18,294
  • Mar 17, 2016 9:29am Mar 17, 2016 9:29am
Quoting jmezz
Mr Pip I have a question on price action. In the screenshot I've attached you see a nice burst of momentum which I put a cyan line next to. However then you see that the move was retraced back almost 100% however did not close beneath the start of that momentum leg. How would you take this? I would think that you would not want to see strength retraced like that and any retracement that doesn't go past 50% of the momentum leg should still be taken as bullish, right? Or can we also take this as bullish because bears did not close underneath the start...
It depends more on how you are looking at your swings and if you are working off of clear high and lows. If you are then it's a higher low that corrected deeper then expected and that would give you a slightly weaker NSH expectation.
If you fail to plan, you plan to fail.
  • #18,295
  • Mar 17, 2016 9:45am Mar 17, 2016 9:45am
Quoting SteeP7
{quote} not sure if this helps but this is what i see {image}
I missed so much of the up move x_x
  • #18,296
  • Mar 17, 2016 9:46am Mar 17, 2016 9:46am
​Just a bit of a structure trade against expectation (USDJPY 4H), but weakness approaching the bottom of the S/R leads me to think this is still in a range, and has turned on the point of the previous structure. The big push down and rejection shows a bit of strength and resistance from the Bulls to allow this to go lower...

I think that the price should come back to the top of the shaded area, which will give me about 90 pips or so, but even if it turns, I am at breakeven, and my initial stop loss was 30 pips, so risk free trade. Extended target is all the way to the top bottom of the top shaded area, which is c. 215 pips.

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  • #18,297
  • Mar 17, 2016 10:24am Mar 17, 2016 10:24am
I think I got it. :-) Changing the top 5 values will generate the spreadsheet values and show you where the next level balance is found. It also display (for my own benefit) the initial Risk % required and the maximum risk % required as you grow.



Quoting Mr. Pip
{quote} Tim I had one made I will be posting it soon
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Markets can remain irrational longer than you can remain solvent - JMK
  • #18,298
  • Mar 17, 2016 10:33am Mar 17, 2016 10:33am
looks like The day will end at +27 ticks for me.

Couldn't find anywhere to get back in long.

Mr. Pip would love to see your trades if you could provide them and see if you were able to get in on anything else.

The retracements today were too shallow for me to find anything else to jump into.

Anyways thank you for all your help.
  • #18,299
  • Edited 11:54am Mar 17, 2016 11:42am | Edited 11:54am
Trades I managed to take today on EURUSD and GBPUSD.

I aimed for a 1:1 and didn't really aim to trail beyond there, but rather reenter on a good retrace and other rules per my trade plan.

6 moves: 3 TPs, 3 BEs
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  • #18,300
  • Mar 17, 2016 1:01pm Mar 17, 2016 1:01pm
Where did you get your news indicator? It looks pretty awesome. :-)
Quoting djbenny1
Trades I managed to take today on EURUSD and GBPUSD. I aimed for a 1:1 and didn't really aim to trail beyond there, but rather reenter on a good retrace and other rules per my trade plan. 6 moves: 3 TPs, 3 BEs {image} {image}
Markets can remain irrational longer than you can remain solvent - JMK
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