Principles of structure,gearing, rythm, symetry and the use of some tested indicators

This is a discussion on Principles of structure,gearing, rythm, symetry and the use of some tested indicators within the Trading Delta Cycles forums, part of the Specialists' Corner category; I would like this thread to provide a platform to view the given trading instrument/s through the principles of market ...

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Old Jun 11, 2009, 4:03pm   #1
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Principles of structure,gearing, rythm, symetry and the use of some tested indicators

I would like this thread to provide a platform to view the given trading instrument/s through the principles of market structure, gearing, rythm and symetry. This by no means is the finished product, it is intended to be a workshop to share our finding/s and experience/s, so after doing our own work it can be further improved by others having a critical look at it with the view to make it better, or to scrap it if it proves to be useless.

I also would like to point to several well tested indicators, which I have been using for some time and look at their weaknesses and strenghts.
Indicators can provide a good assistance if used well, but they also can be very costly when used badly.

It would be helpful to provide the sources of a given content, whether a book, journal, blog or a website, in order to assist in learning.

The second page I would reserve as a page of content intended to be updated, where we can add automatic links to differrent postings and sources related to this thread.
From time to time I might update this page too, as it is an introduction, and in a good tradition, intro is usually written at the end. I shall see how this progresses and shall ammend this intro to reflect the content more truly.

Happy trading to all, and especially to those who are commited to enjoy it and to learning.
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Old Jun 11, 2009, 4:04pm   #2
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Old Jun 12, 2009, 12:30am   #3
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2be started this thread THE MARKET SRTUCTURE

What is the market structure?

The sum total of all the things that influence the given trading instrument (be it a FX pair, equity index, or a commodity) including the fundamental analysis, geopolitical situations, news, TA, crowd psychology, all of it and more, which is displayed on a chart, and discerned by a trader as a pattern that can be useful to trade.
One way or another, we are looking for the best ways to establish the most probable levels or zones of Support and Resistance. This applies to all the TFs, with more gravity given too the longer TFs, (within a reason) used in the trading strategy.
There are many different approaches to discern this structure with one not necessarily better then the other.
I like the well tested principle of Higher Highs and Highier Lows and the reverse to point me to a possible market move.
The other one is the principle of the Least Resistance in conjunction with the ATR and the S/R, especially useful for day-trading.
One of my favourite approaches is the Elliott Waves in conjunction with the historical significant Highs and Lows tacted by Fibonacci in relation to price levels and time.
Delta is a historic cycle of Highs and Lows, which is preoccupied with timing, but I use Delta with the fibs too, whether or not I can discern an EW structure.
There are other methods like 1, 2, 3 formation or M tops and W bottoms, of which I am aware and many other approaches that I am not familiar with.
It is important to use a well put together and studied approach, the one that once the structure has been spotted it provides the trader with confidence to act upon it.
It is also important not to read into the chart a structure which is not there, and therefore impose your own opinion on the market. It is usually a good guide, that if you do not see a structure within the first few seconds of looking at the chart, the structure might not be there for you to provide you with the confidence to trade in accordance with it.
Market structure is one of the most powerful tools that the TA trader has at his/her disposal.
It is a well spend investment of time and resources to get familiar with the different ways of recognising the well established patterns of the market structure.
As an example I will point to the Elliott Waves, where the 5EW impulsive and 3EW corrective structures are very useful when trading. This applies to all TFs. There is a lot of literature available to further your knowledge on EW, few of them I will mention at the end f this post.
In my own trading, market structure has priority over indicators, with a very few exceptions when the market ranges and I trade using momentum (usually for day trading, but even then on shorter TFs I try to discern a structure, like 3 consecutive significant Highs of an impulsive structure, or well overlapping waves of a corrective structure).

Why the market structure is important?

Personally for myself it has to do with confidence and a desire to trade in an intelligible way, meaning, at the very least to do my best to ensure that I know what I am doing. That does not mean that I do not have a loosing trade/s, but it keeps me away from having an account busting bad trades.
Once the structure is recognised it provides a good entry/exit zones for high probability trades with a very reasonable risk to profit ratio. Risk management can be a very taxing and if allowed a very emotional and draining activity in more then in one sense, draining your strength and your account/s too.
Once the structures are recognised, the nature of the market is to repeat them in an ongoing process of satisfying the demands of the buyers and sellers. In this way a well recognised market structure acts like a leading indicator pointing to a very probably price action to the right side of your chart. One has to be patient and disciplined to act when the profitable patterns are recognised.
In short, trading profitable patterns leads to good profits and is much less stressful.

EDIT: (reading list added by trendie)

Recommended books and sites to study:
Robert Miner, “Dynamic Trading” and “ High Probability Trading Strategies”
Carolyn Boroden “Fibonacci Trading”
Steven W. Poser, “Applying Elliott Wave Theory Profitably”
Frost and Prechter, “Elliott Wave Principle”, (classic, loaded)
EW international (pls. goggle it)
Elliott Wave Trading Discussion - Page 846 - DailyFX Forum

Last edited by trendie; Jun 15, 2009 at 7:28pm.
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Old Jun 12, 2009, 11:50pm   #4
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2be started this thread THE PRINCIPLE OF GEARING

What is gearing?

Gearing is an activity of comparing at least two and very often more then two entities which are correlated and engaged together in such a way that change in one of them is observed in the other/s. This change is proportional to the given ratio and a degree of gearing.

Gearing ratio – I would propose it to be the relationship of the two directly correlated for the purpose of trading entities, like a M30 to M5 TF. The value of the longer (stronger) TF is divider by the value of the shorter (weaker) TF, so 30 divided by 5 is 6, therefore the ratio between the M5 to M30 TF is 6 to 1 (I would call it the ratio of 6).

The degree of gearing – I would propose the existence of different gearings when there are more then two correlated entities, which are used for comparing for trading purposes. There can be many degrees of gearing but for trading only few are very meaningful.

For example, trader is using Daily charts, H4, H1, M15 and M5.
The example below illustrates the degrees of gearing between the different TF. Please bear in mind that these degrees of gearing is observes in many other trading related instruments an approaches like MAs, EW.

The relationship between the M5 to M15 is the 1st degree of gearing.
The first degree of gearing is made by comparing the shorter M5(weaker) TF with longer M15(stronger )TF.
I usually note it as M5 – M15.

The relationship of M5 (through M15) to H1 is the 2nd degree of gearing.
The second degree of gearing is made by comparing the shorterM5 (weaker) TF with longerH1 (stronger )TF, but taking into account (looking through the 1st degree of gearing, which in this case is M5 to M15).
I usually note it as M5 – M15 – H1.


The relationship of M5 (through M15 to H1) to H4 is the 3rd degree of gearing, and so on.


Traders use different TFs and different numbers of TFs resulting in different ratios and different degrees of gearing.
The first, second and the third degrees of gearing are most helpful for day trading and midterm trading, especially if one is using the shorter TFs.

In relation to the lowest TF used by the given trader, the first degree gearing is usually considered more significant.
For example, if Weekly, Daily and H1 TFs are used, the 1st degree gearing H1 – D is more significant for day trading than the 2nd degree of gearing H1 – D – W, as it is more applicanle to trading now, but the perspective the 2nd degree offers is also helpful.





What are the entities that are geared?

Many things that are used in trading that are compared are also geared.
The list below is not complete, though it does include some of the most used concepts in trading.

Gearing between TFs

Gearing between different MAs, like EMA21 to EMA72 , or gearing between SMA3Open to SMA3Close. Different MAs are compared in order to gain an additional perspective of the current market condition, e.g. be it trending or range bound.

Gearing between indicators, when some indicators are set up as “strong” and the other indicators are set up as “weaker”, e.g DiNaploi settings. One can also set up the same indicator on the same TF, even in the same window, eg CCI set up at 5, another at 8, another at14 and yet another at 34, similar settings can also be applied with Stochastic, or with many other indicators.

EW gearing

Delta TF gearing

Gearing between the different markets or different currency pairs (the Hot pair which has got more volatility then other pairs by comparison)



Why gearing is important?

The principle of gearing is important because it provides me yet another dimension, or depth with witch I view the market.

Let’s say a 100pips move on M5 is much more significant than the same move on Daily TF.

It also provides a forward looking type of arrangement, as the stronger entity is statistically more likely to point in the right direction, or the direction of the least resistance, that the market is likely to choose.

It provides a sense of direction on the given degree, whether in agreement with the other degrees, or only a partial agreement, e.g. Agreement with the 1st and 2nd degree of gearing but not with the 3rd degree, which is helpful to spot the potential trades, and their limitation/s.


Recommended books and sites to study:
Robert C. Miner, High Probability Trading Strategies
Marcel Link, High Probability Trading
Dr. Alexander Elder, Come into my Trading Room, with a study guide ( v. good reading)
DiNapoli, Trading with DiNapoli levels, ( first 160 pages, v.good, e book)

Last edited by 2be; Jun 13, 2009 at 12:16am. Reason: added content
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Old Jun 15, 2009, 11:36pm   #5
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2be started this thread PRICIPLE OF MARKET’S RHYTHM


What is market’s rhythm?

The principle of Market’s rhythm can be applied across a wide number of different tools, approaches and entities related to trading. Market’s rhythm is concerned with recognised historic patterns of price action in relation to time. These patterns have tendency to repeat themselves affording the trader to treat this principle as a forward looking arrangement with which the market can be viewed.


Market’s rhythm observed in relation to:

The market’s rhythm can be observed in many, many different ways. It really depends on a trader’s choice as to which instruments are chosen to make this observation/s. The scope of the possible choices is mind blowing.
Here I just mention a few very diverse approaches yet related to the same – Market’s rhythm.

The market’s rhythm observed by applying different MAs.

The rhythm is observed between at least two but often more MAs, of which one is set at a loner number of bars and the other /s, is/are set up with a shorter number of bars on the same TF.
I use different MA on different TF, but the principle of market’s rhythm is the same, I trade in the direction of a longer MA, and a good entry is often provided by the bounce of the shorter MA. This is based on a higher probability that the direction of the longer MA is more likely to be preserved, for the duration of the proposed trade at least.
Much has been written on this subject and without repeating I would point you to some sources you need to study to get familiar with it and in time to gain confidence to trade in accordance with the market’s rhythm.

Sources:
Dr. Alexander Elder, Come into my Trading Room, with a study guide
Phillip Nel.4HourStrategy (MACD ) FF
Phillip Nel 5 Min intra-day system FF
lever70, Cornflower Hourly System FF
These are free sites, please pay particular attention to the interaction of price and different MA, I am confident that studying them will improve your trading.



The market’s rhythm observed at the opening or closing price zones of the 3 main different sessions (FX)

There are recognised patterns of breakouts, creating another kind of market’s rhythm, from the opening or closing price zones at the 3 main Forex sessions.

US close +/- 20 pips as a “war zone” guide for the following day.
As an example, I have been using a very simple “indicator” which automatically draws lines after the close of the US session, +/- 20 pips. A close of a 1H candle on either side of this “war zone” is often followed to achieve many pips, especially in the delta direction, or in the direction of the EMA72 on H1. I have used this arrangement for the last 2 years, and statistically in conjunction with other filters it works well.
I shall elaborate further on this, and provide this indicator later on.
Opening of the London , US and Asian sessions often provides traders with the price zones, which when broken, provides tradable breakouts, in the direction of the price penetration. The basic principles that these type of the market’s rhythm follows are:
There is a zone within which there is a lot of indecision translated in a range bound market. When the price breaks either of the lower or the upper boundary of this zone, the breakout is likely to occur, especially so if this breakout in an agreement with the well established trend on a higher TF of the 1st degree.

Recommended further studying:
Catching the morning trade, FF
7am – 9am Big Dog USD Breakout Strategy, FF
Please goggle “London Rush”


The market’s rhythm observed at the different time intervals:


Delta – historic cycles

Recommended further studying:
Delta Phenomenon Thread
Cmellon Blog
Wells Wilder, The Delta Phenomenon, (essential if using Delta, try for the second hand)


EW and the rhythm tacted by Fibonacci

This rhythm is observed by confluence of different Fibs in relation to price and time. It overlaps with a market’s structure; I have mentioned it here to stress the rhythm element.


Robert Miner, High Probability trading Strategies
Carolyn Boroden, Fibonacci Trading
Fibonacci Trading, by Bobokus FF


The market’s rhythm observed using TL, Channels, Envelopes, Andrews' Pitchfork and Bands

This rhythm is observed by using TL, Channels, Envelopes and Bands, tested in such a way that they indicate a possible extreme level/s the market is likely to reach within a given TF.
I have been using Bollinger Bands with different STD settings for sometime now, with BB set at STD3 period 20 acting as a likely extreme.
STARC bands are also useful and I do use them on M5 and M4 on G/U fx pair to indicate an extreme, though I use some additional filters and the principle of market’s structure to assist the validity of a given scenario.
In a similar way Centre of Gravity and SHI channels, or Keltner’s channel is used.
I shall elaborate on these later on, but for the time being I would like to draw attention to the rhythm of the price action in relation to these instruments. When certain condition/s is/are met one is able to observe a very tradable rhythm of the price oscillating between the indicated extremes.
It is important to learn about a given instrument and set it in a way that the trader would like it to work.


Recommended further studying:
John J Murphy, Technical Analysis Of The Financial


Why the market’s rhythm is important?

Can you imagine a factory or an office without any rhythm? People could come and go at any time, working any amount of hours, and doing thing they fill they should do. Simply, such arrangement, however pleasant and desirable to some, will never work, and produce the intended outcome.
In a similar way trading against the market’s rhythm will lead to losses, disciplined trader will loose little, undisciplined trader will loose the whole account with some speed.
Markets are not predictable, and I am suspicious of any prediction/s of the market. Yet in that chaos there is an order of the market’s structure and rhythm. This order might not be linear, meaning a very exact pattern of its behaviour, from the beginning till now. The important thing is that market’s structure and rhythm can be observed in the recent past leading to the present “now market’s state”. The principle of probability allows trader to manage risk, which is ever present when trading. Being aware of the market’s rhythm makes a high probability trade/s that much more possible, it is useful in respect of the entries and exits alike.
I find the principle of market’s rhythm essential in my approach to trading.

Last edited by 2be; Jun 16, 2009 at 12:25am.
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Old Jun 23, 2009, 12:00am   #6
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2be started this thread THE PRINCIPLE OF MARKET’S SYMMETRY


What is the market’s symmetry?

Market’s symmetry is akin to markets rhythm, but there are some vital distinctions.

Firstly, it is the visual representation of the price movement, where the “aesthetics” or harmony of the proportion/s is concerned. This symmetry inevitably is observed in the axis of time and price with the emphasis on the distance covered by the price change. These distances of price change are measured, and projected into the future, thus acting as a forward looking arrangement to view the possible market direction, assuming that the given market symmetry is to continue. Tom DeMark well explains this type of projection/s.
(e.g. expectation N – day* /\/ , or a reverse N – day* \/\, when the second “leg” is expected to equal the first leg. )
There also can be observed a continuation of a number of N – days* forming a pattern resembling steps, with very symmetrical advances and retracements.

Secondly, the only necessary points of reference are the distances covered by the price movement itself.

Thirdly, this principle can be applied to all TFs.


How the market’s symmetry principle can be applied to trading?

The continuation of the symmetrical pattern provides a valuable assessment of the market sentiment and equally important is the break of the previously observed symmetrical pattern. Please study Carolyn Boroden’s book, “Fibonacci Trading”.
Similar to the trend, a well establish pattern of multiple N – Days* (or reverse N – Days*) is likely to continue, until the symmetry is broken, introducing a period of market’s indecision or a reversal, (in the “normal” market conditions).
Currencies seem to trend reasonable well to achieve the minimum ATR. It is often observed that a day will have the initial move, then retrace and the “second” leg often equals the first move in the approximate number of achieved pips. Please study Tom DeMark on this.
For fx day-trading I find using ATR very helpful alongside other principles including this one.

* Day – not to be taken literally, here it is meant as a period of X number of Trading Bars Carolyn Boroden, Fibonacci Trading,


Recommended books to study:
Thomas N. Bulkowski, Encyclopedia of chart patterns (second edition)
Thomas R. DeMark, The New Science Of Technical Analysis, (v. good reading)
Carolyn Boroden, Fibonacci Trading,
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Old Jun 23, 2009, 12:01am   #7
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2be started this thread Final word on the major market’s principles.


For my own benefit I call the above major market’s principles, because in my trading they are very widely applied, meaning different TFs, or different market’s instruments. I use these major principles (in the future I might add to them some more if I find them useful) as glasses through which I view the market. I might not use these glasses all the time, but often I do.
The above market’s principles do not constitute a complete list of the possible ones.
They are reasonably simple and once mastered they are applied with ease and speed, often providing me with advantage of a good entry or exit.
I also have got a list of the market’s principles with a narrow and more specific application/s. I shall mention some of them in my postings.

It is important not to impose on the chart what clearly is not there, but similarly if I spot a given set up, or confluence of different positive insights provided by these principles, I act with confidence.
The aim of these market’s principles is to enable one to trade with more confidence, and if that is achieved even in a small measure, I would propose that the time given to writing and reading these postings has not been wasted.

As time allows I shall post the description of some indicators I have been using for some time.
The term “indicator” is used in a very wide sense, including some well tested approaches to market, or market’s perspectives, which statistically provide a high probability outcome.
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Old Jul 8, 2009, 7:05pm   #8
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2be started this thread ATR - (Average True Range)

Currencies like to fulfil the given daily ATR, and in that sense they like to trend, until this is done.
The path of less resistance the market is likely to take is often in agreement with achieving this daily or weekly spread.

As an example I find it helpful to know where the current price is in relation to the information displayed on ATR & Range Data. I am more cautious if the price exceeded 60/70% of its 25 days ATR and would need to find more compelling reasons to enter a trade than at other times. For day trading I would also consider to take profit/s when I see a fulfilment of the daily ATR especially when at the same time the momentum is slowing down and the price is near the region indicated as an extreme by lets say STARC Bands.

All of it is a common sense, and these indicators help to put a number based on price action, so that what we see on a chart is also represented by a number with which I may consider the more probable outcome.
Attached Files
File Type: ex4 ATR & Range Data.ex4 (3.2 KB, 181 views)
File Type: mq4 Avg Range.mq4 (3.9 KB, 176 views)
File Type: mq4 STARC Bands.mq4 (2.4 KB, 164 views)

Last edited by 2be; Jul 8, 2009 at 7:29pm. Reason: added content
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