Trading on the Edge
If you have heard that there are rat traders out there I must say yes that is true and we like to consider that as trading on the edge.
Don't think that rat-trader is more clever than human! In fact they are less clever than a human and this is their advantage. There was an experiment with rats in labyrinth . 60% of time food was on the left site of the labyrinth. Rat has figured out that he gets more food at the left side. And no matter what, rat would always go to the left side. As result rat was successful 60% of the time. Rat didn't try to resolve theory of labyrinth and try to figure the mess. Instead he has accepted unavoidable uncertainty of food rewarding.
The same experiment is made with Yale students. Unlike the rat, students was trying to develop model which predict possible place for food to show up. First they have made predictions and after, they have learned from their mistakes. The problem was in a fact that there was nothing predictable. Students wanted better results than 60% and they have end up with results round 50%.
If we look at this example we can notice the similar behavior with the price.
TRADING IS SIMPLE!
- price goes UP or DOWN
- nobody knows what will happen next.
- cut your losses and let the profit run.
- reason of your entry into the position ain't related with outcome!
- you can control your risk but you can't your reward, reward is on luck!
- you must know when to claim your reward!
If you take in consideration that rat does not know nothing about charts and analysis. You can conclude that you don't need charts at all. Just watch the price and configure algorithm. If you trade by price only then you will look in front of you and not backward. You have heard that lots of traders trade backward. Like you drive a car and all time you look in the mirror.
If you turn of your charts and start to watch price itself you will find price moving algorithm. Price moving algorithm is a changeable concept. So every time when you approach the market you must watch the price itself to find algorithm.
Rule for trading this algorithm is: BUY dips and sell highs and don't be greedy.
We can call this kind of trading, trading on the edge!
Warning: Don't trade the market at certain times. For more information check TIME ANALYSIS!
Rats are being trained to become superior traders in the financial markets.
Using methodology in accordance with well-established animal training techniques, subjects learn to recognize pattens in historical stock and futures data as well as generating trading signals.
Don't think that rat-trader is more clever than human! In fact they are less clever than a human and this is their advantage. There was an experiment with rats in labyrinth . 60% of time food was on the left site of the labyrinth. Rat has figured out that he gets more food at the left side. And no matter what, rat would always go to the left side. As result rat was successful 60% of the time. Rat didn't try to resolve theory of labyrinth and try to figure the mess. Instead he has accepted unavoidable uncertainty of food rewarding.
The same experiment is made with Yale students. Unlike the rat, students was trying to develop model which predict possible place for food to show up. First they have made predictions and after, they have learned from their mistakes. The problem was in a fact that there was nothing predictable. Students wanted better results than 60% and they have end up with results round 50%.
If we look at this example we can notice the similar behavior with the price.
TRADING IS SIMPLE!
- price goes UP or DOWN
- nobody knows what will happen next.
- cut your losses and let the profit run.
- reason of your entry into the position ain't related with outcome!
- you can control your risk but you can't your reward, reward is on luck!
- you must know when to claim your reward!
If you take in consideration that rat does not know nothing about charts and analysis. You can conclude that you don't need charts at all. Just watch the price and configure algorithm. If you trade by price only then you will look in front of you and not backward. You have heard that lots of traders trade backward. Like you drive a car and all time you look in the mirror.
If you turn of your charts and start to watch price itself you will find price moving algorithm. Price moving algorithm is a changeable concept. So every time when you approach the market you must watch the price itself to find algorithm.
Rule for trading this algorithm is: BUY dips and sell highs and don't be greedy.
We can call this kind of trading, trading on the edge!
Warning: Don't trade the market at certain times. For more information check TIME ANALYSIS!
Rats are being trained to become superior traders in the financial markets.
Using methodology in accordance with well-established animal training techniques, subjects learn to recognize pattens in historical stock and futures data as well as generating trading signals.
Lehman Trading Gold Futures
Rat trader at work!
Rat trading box.
Reversal Chart Patterns
On the photo above you can see "Diamant" formation! It is also reversal pattern.When price break trough support line that is signal for sell! Target is projection of base!
Thomas Demark
The innovative approach proposed by Tom DeMark has changed the cyclical analysis to a precise and scientific technique based on some mechanical calculations. These allow us to identify in the cycles very significant price tops and bottoms, which can become trend reversals in the market.
By those instruments the trader can choose a certain market position by minimizing the risk .
There are two Trading Systems: the “SEQUENTIAL” and the “COMBO”.
They provide two indicators to enter into the market. The first entry signal comes during the first cycle creation ; it is weak and it is considered a set up for the second stronger entry signal coming during the creation of the second cycle.
The first indicator is verified when the calculation produces 9 (sometime 8 ) consecutive bars.
The second one is verified when the calculation produces 13 (sometime 12) NOT consecutive bars .
We have seen that the best time frame to consider is the “daily” (medium period) , which give a lesser margin of error .
Possible future set ups, that we can see during or after the count of 13(12) bars, can make stronger the first set up. For example, DeMark says that a very strong entry signal is verified when we have a setup formation of 9(8) bars after the count of 13, that is 9(8)+13(12)+9(8) bars.
In other words, to enter into the market after that configuration is not very risky .
If after the 13 bars what we are expecting does not happen, it is highly probable that the cycle will continue to grow. Therefore we will need to wait for a new set up and a new counting of 13 bars.
In any case we must always check both, the counting of the “buy” indicators and of the “sell” indicators and evaluate at each time what it is the best thing to do. Because sometimes an entry signal coming from one side can be neutralized by an entry signal coming from the opposite side.
SOME RULES
CORRECT ACTIVATION OF A BUY SETUP PHASE
On the fifth day preceding the first day of setup, the daily closing bar needs to be higher than the daily closing bar of the day before the first day of Setup.
CORRECT ACTIVATION OF A SELL SETUP PHASE
On the fifth day preceding the first day of setup, the daily closing bar needs to be lower than the daily closing bar of the day before the first day of Setup.
CANCELLATION
Cancellation means that the setup can be removed. As a consequence, the entry signal counting goes back to its zero setting.
This can happen when:
- REVERSE SETUP: it can occur when a contrary setup takes place after the setup and before the completion of its counting phase.
- LOWEST - HIGHEST SETUP: it can occur after the setup and before the completion of its counting phase. This means that a daily closing bar lower than the lowest closing bar of the setup occurs during the successive phase of the counting for the SELL signal.
Or a daily closing bar higher than the highest closing bar of the setup occurs during the successive phase of the counting for the BUY signal.
RECYCLE (optional)
The setup is replaced by a subsequent setup going in the same direction. This only involves the zero setting of the counting that might have started. The RECYCLE happens under the following conditions:
- A SETUP in the same direction of the first one takes place.
- The high-low value of the second Setup (the difference between the highest maximum and the lowest minimum of the Setup) is greater then the true range of the first Setup.
- But “not too much,” says DeMark: in the sense that the true range of the second Setup is smaller then the true range of the first Setup multiplied by a value between 1.618 and 3.
When one or both conditions b. and c. do not take place, the second Setup must be ignored, i.e. the first Setup and the subsequent counting for the entry signal both go on living.
COUNTING FOR THE ENTRY SIGNAL
The 13th bar price needs to be higher than the 8th bar price
- According to DeMark, the closing bar value of the 13th or subsequent yellow bar needs to be higher than the bar closing value of the 8th yellow bar for the SELL signal; or lower for the BUY signal.
- Then DeMark states also that the value of the 13th or subsequent yellow bar needs to be higher than the closing value of 2 previous daily bars for the SELL signal; or lower for the BUY signal.
ENTRY SIGNAL
- It takes place directly on the 13th (or 12th) bar.
- We have an entry signal when, after the counting for the BUY Signal is finished, a counting yellow bar is made on the opposite direction, that is to say on the counting for the SELL Signal. In the same way we have an entry signal when, after the counting for the SELL Signal is finished, a counting yellow bar is made on the opposite direction, that is to say on the counting for the BUY Signal.
- We have an entry signal when, after the counting for the BUY Signal is finished, a Setup bar is made on the opposite direction, that is to say in the Setup SELL. In the same way we have an entry signal when, after the counting for the SELL Signal is finished, a Setup bar is made on the opposite direction, that is to say in the Setup BUY .
Further complicated rules can be used to understand when it is the right time to enter into the market. But we use Sequential and Combo according to the analysis of the multi-cycles, which we consider an effective tool.
Pivot Point
A pivot point is a price level of significance in technical analysis of a financial market that is used by traders as a predictive indicator of market movement. A pivot point is calculated as an average of significant prices (high, low, close) from the performance of a market in the prior trading period. If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish.
Monthly pivot point chart of the Dow Jones Industrials average for the first 8 months of 2009, showing sets of first and second levels of resistance (green) and support (red). The pivot point levels are highlighted in yellow. Trading below the pivot point, particularly at the beginning of a trading period sets a bearish market sentiment and often results in further price decline, while trading above it, bullish price action may continue for some time.
It is customary to calculate additional levels of support and resistance, below and above the pivot point, respectively, by subtracting or adding price differentials calculated from previous trading ranges of the market.
A pivot point and the associated support and resistance levels are often turning points for the direction of price movement in a market. In an up-trending market, the pivot point and the resistance levels may represent a ceiling level in price above which the uptrend is no longer sustainable and a reversal may occur. In a declining market, a pivot point and the support levels may represent a low price level of stability or a resistance to further decline.
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