To: D998

7thSignalTrader

7thSignalTrader

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Ducati,

I decided put my reply to you here, as I thought it made the most sense. You made a very interesting post and it deserves an serious reply. Others who have sent me emails regarding the system can also learn from this reply as well as your post. So, putting it here made sense.

You wrote the following:

TV,
As your trading system is controlled by the technology that you have created, and you execute, or not as the case may be, possibly you may care to discuss some of the following items that I have picked up from your copious postings.

The system is, or can be negatively impacted by adverse news.
This would in point of fact indicate that all "risk" cannot be controlled.

"Risk is based on Accuracy and Probability. When you can trade more effectively, more accurately, more consistently, and with pre-stated Probabilities, THEN you will come to understand how the “risk” factors change. Until you get that, you won’t understand this."

It would seem that your RISK is defined as ACCURACY and PROBABILITY.
If we examine Accuracy first.
As your system can be affected by "adverse news" can we safely assume that your system is taking an outright position either long or short?

If so,then for your system to provide profit, price must "trend" in your desired direction.
Now,the trend is essentially a qualitative factor, the trend is, in fact, a statement of future prospects in the form of an exact prediction.
By placing preponderant emphasis on the trend, the likely result is one of overvaluation or undervaluation. This is true because no limit may be fixed on how far ahead the trend should be projected; and therefore the the process of valuation while seemingly mathematical, is in reality psychological and quite arbitrary.

This seemingly is bourne out by your own results in relation to "news events" and their negative impact upon your system. In other words, a "TECHNICAL" system that uses price data as an input will always be at risk of FUNDAMENTAL VALUATION shifts, that will change the "trend" of price data, or a shift in sentiment and investor psychology, thus showing you a paper loss, or an actualised loss if "stoplosses" are utilised as part of the system.

Cheers d998
-----------------------------

My reply to you was as follows:


Decati998,

I’ll respond to you before I go, as yours is one of the first “technically” cogent posts that I’ve seen in a while on this subject.

“The system is, or can be negatively impacted by adverse news. This would in point of fact indicate that all "risk" cannot be controlled.”
-----------

This is correct. This system and all other systems that I am aware of can be completely blown to bits, by what I call Adverse News. Therefore, no – not “all” risk can be accounted for in the strict sense, however, I have broken down “News” into several categories and classifications:

Category:

1) Adverse News
2) Enabling News
3) Nominal News

Classification:

A) Expected Parity
B) Unexpected Parity
C) Expected No-Parity
D) Unexpected No-Parity

For obvious reasons (or, maybe not so obvious) I cannot discuss the details of how I use these Categories and Classifications of “News”, in my system. However, each Category and Classification Title is given a 4 digit code. Those codes are then wrapped with statement logic and that code segment is given a specific alpha-numeric key (I had a billion ways to architect this). So, at this point you have base 6 code segment with up to 12 extensions or better put, 12 relationships.

Those relationships/extensions are then used as Input into the Primary Engine’s MetaBrain™ and made a part of the Probability Statement for trade success. The MetaBrain™ is a integrated signal layer within the Engine itself. It used to be the primary output layer, before I built the GlobalView™ Trader’s Interface – which is what I now use to make trading decisions.

I can do just so much and go just so far with the current development platform – I have pushed Excel to its limits and system Modules like this one, which are really intelligent applications, or applets themselves, won’t really get to show their true colors until I shift the prototype out of Excel and into Java, or some other OOP development environment.

However, at this time – I do get adequate boost from this current architecture – but I look forward to making the jump to OOP. Now, that should give a little background into how I view the concept of “news”. Not all news is the same and you have to find a way to deal with the variants of news effectively.



“It would seem that your RISK is defined as ACCURACY and PROBABILITY. If we examine Accuracy first. As your system can be affected by "adverse news" can we safely assume that your system is taking an outright position either long or short?”
-----------------------

Yes – accuracy and probability – in part, but not in whole. These are elemental factors that I use to determine the actual risk to my trade. There are others, but explaining them would require that I also explain core components of the system, and I just don’t do that online anymore.

To answer your question, no. I do not always take a naked directional/one dimensional position. Often times, the Profile will call for four (4) positions to be taken (or entered) simultaneously. However, only two positions get executed at the start of the trade. The remaining two positions get executed as LEO’s (Limit Entry Orders). All of this is dependent on the Signal given by the system AND the current status of the Price Structure as seen by the system.

So, I end up making a profit in 4 directions off of the same trade. The more typical result is that only 3 trades get executed with the 4th typically never coming into play. But, again – it depends on the state of the trade and the Price Structure. Other times – yes – I will take a simple directional position like I did on this forum when I took EURUSD Long up to $1.3433 from $1.3229.

In that case, the Price Structure was so clear and the signal was so strong, that I did not have to waste money on multiple spreads across multiple positions as the system knew what the next move was going to be before it happened. So, in that case, I used a simple STOP that was 100% of my previous profit. I can do this because I understand what Price Structure means.


“If so,then for your system to provide profit, price must "trend" in your desired direction.”
------------------

No – absolutely not. I don’t believe in “trends”. I don’t trade trends – I don’t even see trends. And, I don’t use trend language.

You are beginning to scratching the surface of what makes this system so unique and so stealthy. That is because while others are in the market looking for “trends”, I’m in the background looking for “Trajectories”. I call them Trajectories because they are components of the “trend” itself – but not the trend.

To understand Trajectories, you will have to understand how I view price. Most people think of price as being $1.3229. That is not how I see price. In fact, I don’t believe in price either. Other than when I exit a position and enter a position – I don’t concern myself with price – because price (as we think of it) is not real for the “trader”.

The Trader’s Frame of Reference is outside that of “price”. The trader can never fully comprehend "price" until he/she places them-self into the same frame of reference that price experiences. In other words, you need to view price from its own point of reference. When you do that – you immediately become aware the price is fictional at best, and Trajectory becomes the new reality as well as the basis for everthing else that you do in trading.

You can think of a Trajectory much the same way you do an electron. You can take electron microscope and “measure” for the presence of the electron orbiting the nucleus of the atom. However, once you remove that microscope you cannot say with any degree of certainty that the electron moved from point “A”, to point “B” – all you can do is measure it at point “A” and then at point “B”.

Similarly then, the price has no real “home” of its own. It has no real resting place – no anchor to anything. In fact, it changes so frequently that to focus on it [price] becomes a fools game. Therefore, I had to develop a new language to describe what I was seeing in the data that I was analyzing. I searched the text books, read all the technical analysis books on the market that were worth reading, and none of them could explain what I was “seeing” in the data. That’s when I developed the term: Trajectory. It is a composite term that describes the path along that which you call “price” MUST follow in order to maintain the Price Structure (which I have not defined for you yet).

Trajectories are trend segments that denote the highest high and the lowest low for each trading session. The question then becomes, how does one determine what the Highest high and the Lowest low will be for any given session. That, is what this trading technology does. For the short-term trader – including the swing trader – it is much more effective to think in terms of Trajectories, than it ever will be to think in terms or Price.

The last 4 paragraphs would basically make a good Forward for a book called: Inside the Trajectory – A Traders Dream which I hope to have published some day when I am done developing. This was one of the most pivotal discoveries that I’ve ever made regarding trade data.


“Now,the trend is essentially a qualitative factor, the trend is, in fact, a statement of future prospects in the form of an exact prediction.”
-----------------

Is it really? I don’t believe in “trends”. In fact, I don’t even see them anymore. It is a learned habit/trait. How do you properly quantify the “trend”? How can you define their origination and termination points before they occur in the physical world?

A trader – unlike an investor – needs to know more about “what happens next”, than anybody else in the market. The “next” question cannot be answered by searching through “trends”. That question can only be answered through the lens of the Trajectory. This is why so many people experience whiplash in the market. They just can’t seem to figure out “why that darn trend did not continue”. It is because they are focused on the wrong component of price. It is because they have not yet discovered what a Trajectory is, or how to use it to their advantage.

Trajectories are like hyper-short-term views into the future. I could not do what I do without my knowledge of them. Thus, while everybody else in the market (like you said) are making their “predictions” based on “trends”. I’m inside the trend making probability statements based on the “Trajectory” itself. That gives me the ability in many cases to be in and out of the market before most people even know what’s going on.

It is not about the Trend, its about the Trajectory.


“By placing preponderant emphasis on the trend, the likely result is one of overvaluation or undervaluation.”
---------------------

Yes! This is absolutely dead-on target! Correct, you will often times find yourself behind the power-curve when looking at and using “trends”. That’s why I don’t use them – at all.


“This is true because no limit may be fixed on how far ahead the trend should be projected;”
---------------------

Again – outstanding! Very true. However, it is the exact purpose of this system to project the “limits” of each Trajectory – and that is where the precision of this trading technology comes from (with the assistance of the Intelligent Self-Adjusting Targeting Module that I have not spoken about). There are over 20 core modules in this system and over 616 output signals with more than 150 primary calculations and reams of logical wrappers and algorithms. Right now, we are only scratching the surface on one of those modules.

Now, you get some sense of just how big this project really is.


“therefore the the process of valuation while seemingly mathematical, is in reality psychological and quite arbitrary.”
------------------

Inside the data (which is the only way that you are going to understand the roots of this system) is where you find, repetition, peace, harmony, tranquility, stability, frequency, predictable transitions and structure.

Unless you dig very deep into the data and explore it – you will never see it – and all financial market transactions will appear on the surfact to be random, chaotic, accidents just waiting to happen. In fact, the contrary is true. There is structure – and where there is structure there MUST be cause. And, where there is cause, there can be understanding.



“This seemingly is bourne out by your own results in relation to "news events" and their negative impact upon your system. In other words, a "TECHNICAL" system that uses price data as an input will always be at risk of FUNDAMENTAL VALUATION shifts, that will change the "trend" of price data, or a shift in sentiment and investor psychology, thus showing you a paper loss, or an actualised loss if "stoplosses" are utilised as part of the system.”
----------------

I saved your last paragraph for last, because you sum up perfectly what this system is not about. You now know at least conceptually how I treat news and how the system deals with news.

My research has shown me that fundamental vectors that impact trajectories are far outweighed by the normative technical balance in the market. When you study several decades of Forex data, you will find that the Trajectory structures themselves remain intact and highly predictable after news vectors impact the landscape.

In very strong new cycles where the vectors are large, you still see the data trying very hard to conform to its natural state. At the core of that “natural state” resides the Trajectory.

The Trajectory is king in the Forex. He who sees and understands it – can become a Prince.

Your post was excellent! And, a much needed breath of fresh air! :)
 
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TV,
Slowly we are identifying the key elements that form the core of your software. We have at the heart data........not obviously data, as would at first glance seem the logical fit, ie. price data.

The data that I now suspect you are referring to is data on a number of levels;
News data........General events
Economic data......CPI, Employment, GDP, M3, etc.
Political data........Fiscal, Monetary, etc
Fed data............Reserve Bank policy, interest rates,

"Price" data however is viewed in a specific context;
Quote,


"The Trader’s Frame of Reference is outside that of “price”. The trader can never fully comprehend "price" until he/she places them-self into the same frame of reference that price experiences. In other words, you need to view price from its own point of reference. When you do that – you immediately become aware the price is fictional at best, and Trajectory becomes the new reality as well as the basis for everthing else that you do in trading."

In this preceding paragraph, price to me is being described as "Value"
Value in the FX markets is an unusual reference, I hear of value in most markets, however I very rarely encounter it within the FX market.
The price is an integral part of every complete judgement relating to financial products. In the selection of prime investment bonds, the price is usually a subordinate factor, not because it is a matter of indifference but because in actual practice the price is rarely unreasonably high. Hence almost entire emphasis is placed on the question whether the issue is adequately secured.

In the field of common stocks, the necessity of taking price into account is more compelling , because the danger of paying the wrong price is almost as great as that of buying the wrong issue.

Now, are you in point of fact stating that your software is at the heart a "valuation" computational tool?

The next paragraph again would seem to address the topic of "price" and "valuation" within the currency markets from a historical perspective.
Quote

"Similarly then, the price has no real “home” of its own. It has no real resting place – no anchor to anything. In fact, it changes so frequently that to focus on it [price] becomes a fools game. Therefore, I had to develop a new language to describe what I was seeing in the data that I was analyzing. I searched the text books, read all the technical analysis books on the market that were worth reading, and none of them could explain what I was “seeing” in the data. That’s when I developed the term: Trajectory. It is a composite term that describes the path along that which you call “price” MUST follow in order to maintain the Price Structure (which I have not defined for you yet)."

I will have to return to the discussion centred upon the trend.
Current financial theory, originating in the 1920's, and "stocks" as opposed to currency, has sought to estimate future earnings by projecting the trend into the future and then used this projection as a basis of valuing the business. Because the figures are used in this process, there seems to have been aquired a scientific basis derived from the mathematical construct.

However, a trend shown in the past is a fact, a "future trend" is only an assumption. It may be objected that as far as the future is concerned it is just as logical to expect a past trend to be maintained as to expect a past average to be repeated. This is probably true, but it does not follow that the trend is more useful to analysis than the average figures of the past. Analysis does not assume that a past average will be repeated but only that it supplies a rough index to what may be expected in the future.

If I understand your model correctly, you would at the core, be calculating a "value" for a currency based on "data" input. This data, as you have stated is not price data, rather it is political,economic, general, in short almost everything that could effect a valuation, and contrasted to past historical indicies of said data.

This index of historical data will provide the "ACCURACY" component of the system, presumably based on the theory that the market over longer time frames would tend towards efficiency of valuation.
The "TRAJECTORY" is now looked upon as the speed, or timeframe that the valuation should occur in modified via the "news" data. This would also explain why hedged positions would be a necessity. ( possibly an arbitrage opportunity could also be exploited utilising derivatives )

Interestingly I would expect not the large 9/11 type events to be the problem, rather the subtle and not easily understood "news" to provide the greater complexity in modeling trajectory, as the system would assign weight to the data, while the general market would ignore it through an underappreciation of the significance.

The selection of the USD, would now make far more sense. As the reserve currency of the world, the volume and accuracy of the data one would assume to be far superior to lets say chickens in Sierra Leone. As the data is integral to the function, in point of fact structure governs function, the USD is a mandatory, followed closely by the Euro, lacking currently the historical data however.

I will pause here, only for the reason should my analysis of your work be incorrect, then any further discussion on an incorrect tangent or vector would be inefficient.

Cheers d998
 
“Slowly we are identifying the key elements that form the core of your software. We have at the heart data........not obviously data, as would at first glance seem the logical fit, ie. price data.”
----------------

In the United States, it is not uncommon at all for someone to go to college, study one thing (or, in my case three things) and then by some weird and bizarre stroke of life, actually end-up making their initial living (after coming out of college) doing something completely different than what they studied while they were in school. My personal history is no different – so I ended up (mysteriously enough) working in the Enterprise Software business as a Systems Engineer (both pre and post sales).

My specialty was multi-dimensional analysis applications and solutions. I designed, architected, installed, supported, trained, and project planned solutions throughout most of North America including Canada. At the core of what I used to do (when I was in the corporate world) was build teams that would use these tools to explore data. So, I had a rather “involved” affair with data before I became a trader. When you work with data as much as I did, you tend to develop an “eye” and a “feel” for patterns. Anyone that has done this type of work fully understands this. So, yes – data is the life’s blood that runs through the “veins” of this trading solution.



“In this preceding paragraph, price to me is being described as "Value". Value in the FX markets is an unusual reference, I hear of value in most markets, however I very rarely encounter it within the FX market.”
-----------------

That’s an interesting take on the concept. I tried to use this as a developmental premise and simply could not get very far with it. I kept running into the question of: ”Who’s value matters at price point X?”. The answer never really had any historical or empirical consistency to it. I kept getting frustrated – I felt like I was banging my head against a brick wall. As it turned out – I was!

I then turned to Physics – specifically, the structure of Atoms. What I found was rather interesting. The “behavior” of atomic structures seemed to have “similarities” to the behavior of what I then called “Price” (I was still calling it “price” at this point). The atom has a nucleus – so too does the Price Structure. The atom also has orbiting electrons – so too does the Price Structure. The “orbit” of the electrons about the nucleus of the atom can be altered (called decay) – so too can the “orbit” of “price points” about the nucleus. These elements of the atom have something called Electron Probability Patterns - likewise – the Price Structure has Price Point Probability Patterns. There’s more, but it is not necessary for this discussion.

In other words – I view the Price Structure as one large atom with a double-nucleus and two (2) orbiting electrons. Simple and elegant to me – but I’m sure rather radical to most traders. So, just like atomic electron probability patterns are hard to disrupt (requires a lot of kinetic energy to accomplish that – see: Linear Accelerators for more details like SLAC – Stanford Linear Accelerator) – the price point probability patterns within the Price Structure are also fairly hard to disrupt (of course, news is the wild card – which is why I despise news in any form).

The very real irony here is that when you plot a line chart on certain elements of data within the primary engine of this system, the graphic looks strikingly similar to very long Strands of DNA. I was shocked to see the DNA Double Helix pattern in the data when I first drew the graph on the computer. That DNA looking pattern in the data sits at the core of the reason why I can be fairly confident in my trading decisions. At the heart and soul of this system sits a data pattern that looks very similar to strands of DNA. That “spiral staircase” structure is the Price Structure revealed, and everything else in the system is wrapped around that double helix structure.

That’s about as far as I am willing to discuss this particular topic in public.


“The price is an integral part of every complete judgement relating to financial products.”
-----------------

It sure is!


“In the selection of prime investment bonds, the price is usually a subordinate factor, not because it is a matter of indifference but because in actual practice the price is rarely unreasonably high. Hence almost entire emphasis is placed on the question whether the issue is adequately secured.”
----------------

Which is really more like a Real Estate transaction when you stop to think about it. If I by a bond (which I have absolutely no reason to), the very first thing I want to know is: Who’s Backing, Who’s Backing, Who’s Backing. Sort of like Location, Location, Location in a real estate purchase.

On the other hand, the Price Structure is all about: What MUST happen NEXT in order for the “structure” to remain intact? And, If the structure fails to remain intact, what is the calculated historical probability for that happening under X, Y, Z conditions?

This is why I say that this is a Predictive Model for trading and not a Trend Following Model (in one of my much earlier posts).


“In the field of common stocks, the necessity of taking price into account is more compelling , because the danger of paying the wrong price is almost as great as that of buying the wrong issue.”
------------------

Correct! And, common stocks (I traded the overlying option contracts – never the stock outright) are traded inside a mechanism that leads to massive manipulation (even to the point of fraud and actual civil and criminal litigation!) which takes the “accuracy ratings” down the path of “most resistance”. There are a whole host of mechanical and structural problems with trading the conventional stock market at consistently high levels for prolonged periods of time.

This is not to say that there are no successful options traders in the world. There are some very capable options traders out there – I personally know of several, but their accuracy ratings cannot compare to mine – we make those comparisons all the time and they continually fall well short. A couple of them have made the move to the Forex to avoid much of the market manipulation. The Forex does have manipulation, too. However, the impact of that manipulation, provided you are on the right side of the Price Structure, is far less than it would be in the traditional stock market.


“Now, are you in point of fact stating that your software is at the heart a "valuation" computational tool?”
-----------------

Well – that really depends on how you define the phrase “computing valuation”. It is a predictive model, and it does need to perform calculations to derive the projection as well as the Decision Support data surrounding the Trade Signal (projection) itself. So, in that sense – “yes”. However, there is no “strict” appraisal process of underlying intangible elements, like you would find in a real estate deal, or something of that nature. That would be much closer to pure/rank speculation. There must be “some” speculation involved in any “future” type decision. No one knows the future to 100% certainty. The object of the task is to mitigate as much potential adversity to a position taken in the market as possible. Using good technology can help in that process – some better than others.


“Current financial theory, originating in the 1920's, and "stocks" as opposed to currency, has sought to estimate future earnings by projecting the trend into the future and then used this projection as a basis of valuing the business.”
----------------

Which completely terrifies me to even contemplate doing in the Forex. ;)


“Because the figures are used in this process, there seems to have been aquired a scientific basis derived from the mathematical construct.”
-------------

It is a simple Linear Regression – well, some are simple and some are rather sophisticated, but the idea of linear regression remains the same for the purpose of projected a future outcome in what people call “price”. I have to be careful with the language that I use, so that I don’t regress myself and start thinking my old thoughts about “price”. When I say “price”, I’m really saying “Trajectory” which is different animal.


“However, a trend shown in the past is a fact, a "future trend" is only an assumption.”
-------------

Which is exactly why I don’t trust trends. Just take a close look at what happened to many people on the EURUSD since December 16th, 2004 (yesterday). Yesterday, my system gave the Long Exit Signal very near the mid session point on 12/16/04 near the $1.3417 level. I “obeyed” that signal, and existed my Long position for a very small 20 pip gain on basically a Long Continuation move from 12/15/04 where I netted a much larger 150 pips.

Now, at this point – the “trend” was Long and had been since 12/10/04 (go look at the EURUSD chart) near the $1.3140 level. Now, the “Trend Trader”, on 12/16/04, is still thinking Long. However, I could clearly see that the 12/16/04 “Trajectory” was now Short – even though the “price” had not move short yet. In other words, the system “projected” forward – but only to the Price Point (think electron probability patterns) that initiates the reversal Trajectory (imagine the DNA double helix as it spirals).

Now, exactly what did the EURUSD do? I fell – and it fell like a rock. Those who could see this coming were already in position. I was in at $1.3410 and moved with the Trajectory down to $1.3241, where the next Short Exit Light came on inside the system. Shortly after this light came on, the breaks were put on and the EURUSD bottomed out at $1.3203, which is 38 pips below the Short Exist Light and only 8 pips away from my draw-down limit of 20 pips (I allow for a 20 pip drawdown on “most” – not all – of my trades). So, yesterday, I picked up a nice 169 pip gain which turned out to be a 338% net profit on the trade.

But, look at what happened ”next”. Now, the “Trend Trader” is really confused and at this point you could read all the chat rooms and newsfeeds as they talked about how choppy and violent the market was. Yet – I saw no choppiness and I saw no violence in the market. I simply saw one Trajectory becoming another Trajectory in a very orderly, sensible, rational, and coherent way. However, it was at this point that the “Trend Trader” got very frustrated with the “chaotic” behavior of the market.

What happened next? You can see that a very hard bottom was punched through the ground (like a meteor striking the earth and drilling a hole in the crust) right near the close of 12/16/04’s session. At this point, I had a Short Exit Light come on, but no Long Entry Light. Using 20/20, this would have been the optimal Long Entry point for 12/17/04’s session – but the light never came on. That is because Short Vector was too strong, for the system to give the “go” signal on the Long side Entry. So, I took my 169 pips and called it a day – waiting for the next engine update which happens at 2:00pm each day.

At 2:00pm pacific – I got the engine update and the Long Entry Light came on at the start of the 12/17/04 session. I immediately entered Long at $1.3240. I now sit at $1.3306, which is 66 pips and a 132% net gain. Now, I am holding this Long position until I can see what the next engine update will bring on Sunday at 3:30pm pacific – then I will let the system tell me whether or not I should HOLD Long, or take the cash and wait for the next signal.

However, at the end of 12/16/04, the “Trend Trader” was still thinking Short. At the start of 12/17/04’s session “many” (not all) “Trend Traders” were thinking Short Hold while the trend consolidated and then continued Short. That did not happen. And, that is what separates this system from the majority out there. I was already Long, while many Trend Traders were still thinking Short. That is what I mean by “stealth”. Getting in and getting out, before many people even know what’s going on.

None of this could have been possible, if the system did not make an ”assumption” about the next move. So, assumptions are not bad things – if they are based in high probabilities. The “way” in which “risk” is managed in this trading system, negates many of the negative effects of pure speculation type “assumption”.


“If I understand your model correctly, you would at the core, be calculating a "value" for a currency based on "data" input. This data, as you have stated is not price data, rather it is political,economic, general, in short almost everything that could effect a valuation, and contrasted to past historical indicies of said data.”
-----------------

No – there is price data. The system must have price data – OHLC. That data is tracked inside of two (2) engines: one Daily Engine and one Weekly Engine. Both engines are integrated to produce a synergy that shows up in the signal layer. So, price data is very much a part of this system. The news module is fairly new and it only modifies the Trade Signal depending upon the inputs from the market that I enter through code keys.


“The "TRAJECTORY" is now looked upon as the speed, or timeframe that the valuation should occur in modified via the "news" data. This would also explain why hedged positions would be a necessity. ( possibly an arbitrage opportunity could also be exploited utilising derivatives )”
-----------------

Not quite – but I think I’ve answered this one above already. Historical Price Data is use in the system – but in a way that has not been done before.


“Interestingly I would expect not the large 9/11 type events to be the problem, rather the subtle and not easily understood "news" to provide the greater complexity in modeling trajectory, as the system would assign weight to the data, while the general market would ignore it through an underappreciation of the significance.’
------------------

The “subtle” news is what I define as a “Nominal Parity” relationship and those relationships are systemic in the market. They are always present to some degree and the market deals with them very effectively. The analysis that this system does is performed on and across those Nominal Parities in the market by definition. The historical data contains this information and therefore it becomes “part of” the Price Structure itself because it is such an intrinsic component of the market.

The 911 type stuff destroys a perfectly good Trajectory if the Signal vector is opposite the News vector. If it is in the same direction – huge profits are seen. If it is opposite – the STOP will definitely get struck.

There is simply no way to deal with Unexpected Adverse News – none. Unless you have inside information and by all measures that I can take – obtaining such information and using it would be illegal. If not illegal, certainly unethical and in my view actually very immoral. I would never trade with that type of knowledge. Money is just not that important to me. So, I do it the old fashion way – I think of ways to utilize the ethical approaches to beating the less informed within the market ranks – and there are a lot of those people out there. That is fair game!


“The selection of the USD, would now make far more sense. As the reserve currency of the world, the volume and accuracy of the data one would assume to be far superior to lets say chickens in Sierra Leone.’
------------------

There are really only six (6) big world wide currencies. Five of them have the USD in either the Base or Counter position. Yes – this really does help the stability factors. :) However, I could revert back to the Stock Options Market using this system and still outperform most traders overall. I just would not be happy with some of the losses that occur due to some single person liability lawsuit, or some Market Maker jigging the price for the session. I did well in the Options market – I do extraordinarily well in the Forex.

Good post! There is a lot going on inside the system - it took 5 years to build - it would take a lot more than five posts to explain, however. But, as far as this forum is concerned, you probably have the best understanding, thus far.
 
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TV,
Quote;

" then turned to Physics – specifically, the structure of Atoms. What I found was rather interesting. The “behavior” of atomic structures seemed to have “similarities” to the behavior of what I then called “Price” (I was still calling it “price” at this point). The atom has a nucleus – so too does the Price Structure. The atom also has orbiting electrons – so too does the Price Structure. The “orbit” of the electrons about the nucleus of the atom can be altered (called decay) – so too can the “orbit” of “price points” about the nucleus. These elements of the atom have something called Electron Probability Patterns - likewise – the Price Structure has Price Point Probability Patterns. There’s more, but it is not necessary for this discussion."

Now we have a "price construct"
This price construct consists of a "nucleus", which can represent a form of intrinsic value. Intrinsic value is a rather nebulous concept at the best of times, but for ease, we'll ( I'll ) define it as "purchasing power" discounted by an arbitrary inflation rate.

The "electrons" subject to "covalent, hydrogen, or any other form of bonding" represents the fluctuating values as determined by the competing protaganists within the market.
As by way of example, the BOJ, who have been buying US debt to provide an artificial floor for the USD, purely for protection of the Yens competitiveness in export to the US markets.

Taking the visual example of DNA, (and I admit to making some rather broad assumptions here, and if inaccurate, well you have my apologies ), we have if visualised almost a "trendline channel" that progresses while concurrently being linked.......
Reverting to a traditional view of price, we can now see that due to fundamental macro-economic reasons, "price" has been trending lower over a period of time.
Within the overall secular trend there will be cyclical trends that seek to establish value within the parametres of the fundamental secular trend.

The software has been designed to identify not meaningless fluctuations, but the more profitable cyclical adjustments within the fundamental secular trend.
Herein lies the difficulty with trends. As previously stated the trend is, in fact , a statement of future prospects in the form of an exact prediction. In similar fashion, conclusions to the macro-economic nature and outlook are qualitative factors and are therefore of the same general character. They all involve the same basic difficulty for the analyst, viz, that it is impossible to judge how far they may properly reflect themselves in the price of a given financial instrument. In most cases, if they are recognised at all, they tend to be overemphasised. The results are seen in the market every day. The recurrent excesses of it's advances and declines are due at bottom to the fact that, when values are determined chiefly by the outlook, the resultant judgements are not subject to any mathematical controls and are almost inevitibly carried to extremes.

Now I understand that you do not view your application as analysing a trend at all, however, you have stated that you,
Quote;


"Which is exactly why I don’t trust trends. Just take a close look at what happened to many people on the EURUSD since December 16th, 2004 (yesterday). Yesterday, my system gave the Long Exit Signal very near the mid session point on 12/16/04 near the $1.3417 level. I “obeyed” that signal, and existed my Long position for a very small 20 pip gain on basically a Long Continuation move from 12/15/04 where I netted a much larger 150 pips.

Now, at this point – the “trend” was Long and had been since 12/10/04 (go look at the EURUSD chart) near the $1.3140 level. Now, the “Trend Trader”, on 12/16/04, is still thinking Long. However, I could clearly see that the 12/16/04 “Trajectory” was now Short – even though the “price” had not move short yet. In other words, the system “projected” forward – but only to the Price Point (think electron probability patterns) that initiates the reversal Trajectory (imagine the DNA double helix as it spirals).

Now, exactly what did the EURUSD do? I fell – and it fell like a rock. Those who could see this coming were already in position. I was in at $1.3410 and moved with the Trajectory down to $1.3241, where the next Short Exit Light came on inside the system. Shortly after this light came on, the breaks were put on and the EURUSD bottomed out at $1.3203, which is 38 pips below the Short Exist Light and only 8 pips away from my draw-down limit of 20 pips (I allow for a 20 pip drawdown on “most” – not all – of my trades). So, yesterday, I picked up a nice 169 pip gain which turned out to be a 338% net profit on the trade"

What is demonstrated is the requirement of the application to predict, or identify with a high probability inflection points within the cyclical fluctuations, and position accordingly. To profit from this movement you must by definition trade that price trend.

With one investment style, trend is truely irrelevant, as I will buy distressed, bankrupt bonds, that have entered Chap 11 proceedings, and the profit is realised via the catalyst of legal, court enforced restructuring.

Therefore my previous objections to trend being of a speculative nature are in my estimation found to be accurate.
This however is a minor quibble that is in essence unimportant. What is of importance however is that the software by examining and analysing price and trajectory within your proprietary methodology relates to the structure and function of the FX markets.

I still feel that the price data that you have appended into the algorythms, must at some point correlate to recurring fundamental "news", possibly an analysis of the yield curve and similar "price" based data.

Risk, in the form of adverse news, you freely admit to being beyond the systems ability to calculate for. This is in essence the "future" and as such random and generally unpredictable.
As such, your methodology must be defined as speculative, with the inherent risks attached to speculation.
I understand that you will argue that the accuracy of the system negates for all practical purposes the tag of "speculative", and time only will prove you right or wrong.

Cheers d998
 
D998

“Now we have a "price construct"
This price construct consists of a "nucleus", which can represent a form of intrinsic value. Intrinsic value is a rather nebulous concept at the best of times, but for ease, we'll ( I'll ) define it as "purchasing power" discounted by an arbitrary inflation rate.”
-------------------

Before the train leaves the station, I had better tell the conductor to wait a minute until all have boarded with the “right” ticket.

Valuations are not at the core of what the system does. At some point, if I’m going to make money in the market, I’ve got to actually pull the trigger on executing the trade. Trading is less about trading than it is making decisions. Let me repeat that another way: Trading is not about trading, it is about making decisions.

The decision to execute has to be based on a premise. The premise can only be based on what I understand about the expected outcome of the trade. The expected outcome of the trade is the premise revealed. I cannot make a good decision in a vacuum (i.e., without a sound premise). Therefore, I always have four (4) choices:

1) I can guess
2) I can follow the crowd
3) I can do nothing and sit on the sidelines
4) I can do my own thing

Number One is really a bad “decision”, yet you will find a very large percentage of the market (individual traders) doing just that. There are no lasting qualities in number one. You will eventually leave the market thinking that the market is totally a game of chance where the risks far outweigh the rewards. Years later, you (I mean they) will be sitting on other internet boards yelling at the top of your lungs that all trading is “gambling”. You will choose a different career path never to return to the markets.

Number Two is exactly the profile of the Trend Trader. The one who waits until the market has moved and then tries to join the bandwagon hoping that the “trend” continues. This is where the overwhelming and vast majority of individual traders reside and this is what made me a millionaire before my 32nd birthday. These types of traders make certain “decisions” that are very predictable – that is because in their minds, they see “trends” taking shape. This means that they are always reactionary in their decision making process by definition. Without this type of trader, the market would be extremely volatile and I would be in another business. On average, they make money a little bit more than half the time and they lose money a little bit less than half the time. They do just well enough to keep coming back for more abuse. If they are honest, they will tell you that this is stone cold true.

Number Three gets you nowhere and you end up on trading boards talking about what you “might” have done if you “only” had made that great entry a while back ago. There are tons of these people out there – they are not traders, but they really can talk a good game. They took a dip in the market before they were knowledgeable enough to do so, they got burned really bad and now they are gun-shy and very reluctant to re-enter the dance floor for fear of getting turned down by the cute guy/girl who says “no” to their favorite song.

Number Four sounds good – but it can get you flat broke, unless you get back to my original point of having a well defined Premise for entering the trade. Traders who fit this category are either stone cold nuts, or stone cold brilliant. They have either done absolutely no homework whatsoever, or they have spend YEARS honing their skill and developing helpers such as automated trading models. This type of trader is the very definition of the word Maverick one way of the other – for good, or for bad. They are either red hot, or they are stone cold – there is no middle ground with this type of trader. You will either read about them some day as being some of the wealthiest people on the planet, or you will read about them someday as becoming flat broke. The one’s who actually do their homework are the top 1% of all traders in the world. You know them when you see them, and you know them when you read them because they understand the world and the business of trading. But, must importantly, this type of trader relies heavily on the finding the correct Premise for entering the trade.

The concept of “value” really has no place in this trading technology. Bond Traders care about value – Real Estate investors care about value – Derivative Speculators care about value – Venture Capitalists care about value – M&A Specialists care about value…. I don’t care about value. I care about Movement. Nothing more and nothing less.

I care about the Physics of the trade. The Geometry of the trade (which I have not discussed yet). The Timing, Direction, Magnitude and Probability of the trade – but I do not care about the relative cost of the USD -vs- the EUR aka the Valuation of the spot price or the pair itself. When I enter a trade, I look at the GUI that I have designed called the GlobalView™. This is the Traders Interface. The GlobalView™ synthesizes the output from the primary Engine and turns it into a Visual Decision Support Center called the Annunciator Panel™. The Annunciator Panel™ provides me with the visual acuity that I need to make “good trading decisions”.

So, for me – it is all about the “decision” and not the “trade”. And, the decision is not based in instrument valuations – rather – instrument mobility.


“The "electrons" subject to "covalent, hydrogen, or any other form of bonding" represents the fluctuating values as determined by the competing protaganists within the market.”
----------------

Now, you understand that I don’t use language like “values”, “price” (other than to communicate with other people about trading) nor do I use language like “trend” (other than to speak the same language the other traders speak).

So, with that understanding, I would substitute the word “values” in your above statement with the new phrase: “Trajectory Price Points”, or TP2’s. The TP2 is one piece of information that you would discover when you use the “electron microscope” to examine the “Price Structure” (recall my earlier post and the relationships). View the trading system as that electron microscope. When you do, you get back information about the object being measured (the Price Structure) that relates to is Topography, Composition, Morphology and Crystallographic data. When you have this data, you have the fingerprint that identifies the type of Trajectory currently present in the market.

Armed with this information, you then have (the system now has) a Trajectory Price Point that can be projected and thus delivered to the GlobalView™ as a Visual Icon with supporting numerical information in the form of a Decision Support annunciation about what happens “next”. This is the essence of that this system does.

So, you can see that “valuations” take on a whole new meaning under this paradigm. It is a very different way to look at market data.


“As by way of example, the BOJ, who have been buying US debt to provide an artificial floor for the USD, purely for protection of the Yens competitiveness in export to the US markets.”
------------------

Prior to my entry in the trade, this would be the inherent nature of the data itself and therefore measured automatically (by definition) by the system. Subsequent to my entry into the trade the meaning of this data/information becomes a key input into the system as a relational news vector. (referring to my earlier post). Very good!


“Taking the visual example of DNA, (and I admit to making some rather broad assumptions here, and if inaccurate, well you have my apologies ), we have if visualised almost a "trendline channel" that progresses while concurrently being linked.......”
-------------------

I knew ZERO about DNA 5 years ago, so you are in good company!

Today, I can talk on the surface about Restriction Fragment Length Polymorphism (RFLP), Polymerase Chain Reactions (PCR), Mini Gels and Electrophoresis – various DNA amplification processes. However, I am no DNA expert by any stretch. I studied it enough to understand what the relationships were to my work – if any at all.

If you take a close look at the well known DNA double helix...

http://images.picsearch.com/is?474612663835

...you will notice the outer nucleotides (the two strands) represent the actual Trajectory in this system. However, those nucleotides are not composed of strict OHLC data. They are calculated components of the OHLC data, but not the actual data itself.

This now gets us into the concept of Meta Data, which is another layer within the system where few core calculations are performed, but where 5 times as many logical statement wrappers exist for the purpose of either generating Input or Output to some part of the system.

This system is really five (5) systems in one: A real-time numeric data construct. An historical numeric data construct. A core mathematical construct. A Meta Data construct and a Visual Output construct. The double helix structure that you get is derived from the Meta Data within the core engine – not the actual OHLC data.


“Reverting to a traditional view of price, we can now see that due to fundamental macro-economic reasons, "price" has been trending lower over a period of time. Within the overall secular trend there will be cyclical trends that seek to establish value within the parametres of the fundamental secular trend.”
----------------

Sorry. You’ve come too far now to turn back. No “reverting” back to “price” type language. Remember, in my world – “price” does not exist. You have to get “price” off the brain, or this stuff will trip you up forever. Take everything you know about “price”, and throw it out the window along with “valuations” and “trends”. You have to start from scratch and think way outside the box.

Macro economics are built-into the data! That’s the beauty of it all – you don’t need to worry about it. Just dump the data for any currency pair into the engine and bingo – you’ve got mail! Or, more to the point – you’ve got an instant snapshot of the Trajectory, and you move way ahead of the class in terms of understanding where the “next” move comes from.

I know it is tough. I’m trying to explain to you that which took me years to figure out and I’m trying to do it with words – and that makes your job of understanding it fully very hard. That’s no slight against you – that’s just a fact of life. This is not easy for me to put into words. Painting a mental picture of this technology is very difficult to do because of all the prejudices that traders bring to the table such as ideas about “price”, “trends”, “valuations”, “news”, “fundamentals” and traditional “technical analysis”.

This is quite frankly an entirely new breed of technical analysis. It is like the difference between sub-sonic aircraft and supersonic aircraft. When you sit them on the ramp side-by-side, they look similar in many ways – but that is where the similarities end. The structures and aerodynamics of both aircraft are quite different. The forces that a high-performance F-22 Raptor have to contend with in flight, would tear apart a Cessna 182RG – yet, they are both “aircraft”.

Likewise, this system is based on technical analysis – but, it is a whole new breed of TA. And, these old concepts just don’t have much meaning in this realm.


“The software has been designed to identify not meaningless fluctuations, but the more profitable cyclical adjustments within the fundamental secular trend.”
-----------------

Ok – because we are not sitting down at a coffee table hashing this out – I cannot stop you from using terms like “trend”. But, I do understand what you are saying, and yes – I can buy this statement – I get your point.


“They all involve the same basic difficulty for the analyst, viz, that it is impossible to judge how far they may properly reflect themselves in the price of a given financial instrument. “
-----------------

Impossible? No. Difficult? Yes.

This system does exactly that. The only difference is that the system is not measuring “price” – rather, Price Structure. Within that Price Structure resides the Trajectories in something like a double helix form. One Trajectory is Short, while the other is Long. Now, this might get a little confusing, but here goes:

There are always two (2) Trajectories running both Long and Short at the exact same time.

That is an advanced concept within this system. It was always there, it just took me 2 full years AFTER the discovery of the Trajectory itself, to fully understand that fact. The terminations points of each Trajectory (both Long and Short) are known data points before the trade is entered. The “job” of the system is to “recognize” which Trajectory is the Dominant and which is the Subordinate. I trade the dominant trajectory until the system tells me that the probability for its usefulness has expired, or is about to expire. This is when the system throws a Long Entry Zone or a Short Exit Zone, or several other visual text messages that come to screen.

The Decision Support System (DSS) module of the system is responsible for managing the details of the of the “quality” or “condition” of the currently dominant trajectory. This is why in volatile markets, I am able to make the entries and the exist at relatively close approximations to the actual morphing position of the Trajectory itself. The identity of the actual pivot is inside the transitional phase of the two trajectories. In other words, the system already has the DNA of the Trajectory typed, mapped and stored in the system database. When it comes across a trajectory transitional phase, it sees the distinctions between the two trajectory types, maps the transitional characteristics to a historically significant probability and then throws the “decision” light to the screen.

In other words, this application is not a simple black box – it actually thinks its way through making decisions. Therefore, it can be highly accurate in determining correct Entry and Exist Zones, as my last 3 trades and my current Long EURUSD trade testifies to.

Difficult – yes – Impossible – no. But, it does take a lot of research and some out of the box thinking.


“The recurrent excesses of it's advances and declines are due at bottom to the fact that, when values are determined chiefly by the outlook, the resultant judgements are not subject to any mathematical controls and are almost inevitibly carried to extremes.”
-----------------

If you are talking about so-called “trends”, then I would agree. If you are talking about Trajectories, then this does not apply – as shown above.


“What is demonstrated is the requirement of the application to predict, or identify with a high probability inflection points within the cyclical fluctuations, and position accordingly. To profit from this movement you must by definition trade that price trend.”
-----------------

No. And, that would be a very big mistake that I used to make – I don’t do that anymore. Research has clearly caused me to understand that the very last thing that I want to do is make trading “decision” based on some that does not truly exist. The actual trade decision is based on something far more interesting and multi-dimensional than a mere “trend” concept.

The Trajectory is a composite of many things. To wit: approximately 63.7% of all my trades would be considered against the trend by most traders. When one says the word “trend”, that has a lot of different meanings to a lot of different people. How much of a “trend’? How long a time-frame is being used to conclude that a “trend” even exists? How steep is the “trend”? When did the “trend” start? What’s the current health of the “trend”? And, many other questions that to this system are totally irrelevant.

Trend means nothing to this system. Trajectories rule in this new paradigm. The trade is entered on information provided about the Trajectory. The trade may or may not be inline with the Trend – the majority of my trades are what I term as hyper-short-term. Inside the so-called “trend”, one will find a wealth of information – but the mindset has to be freed to see “beyond” the “trend” and into the actual mechanics of the data.

Sure, when I’m running up pip totals as the “close price” moves either up or down the time-scale, one might say that I’m moving with the “trend”. That may, or may not be true – it depends on which Trajectory I happen to be trading at the time. It could be the Short Trajectory, or it could be the Long Trajectory. Now, here is something that is really going to blow some minds:

I can actually trade the Subordinate Trajectory, and STILL net a hefty gain on the trade.

This means that no matter which direction I trade in (Long or Short), on almost any given day (there are conditional concerns of course), I can still net a very respectable profit as long as I enter the trade at the right location within the Price Structure AND as long as the Price Structure itself remains intact, which is a known quantity long before I ever enter the trade.

This is why I can trade in the 93+% accuracy range and sometimes even as high as 100% accuracy for decent periods of time. Please note that when I do a Subordinate Trajectory trade, I am basically being very, very lazy, or I do it to demonstrate the systems capabilities. I much rather trade the Dominant Trajectory as I can typically meet and/or exceed my targets. With Subordinate Trajectories, the accuracy to “target” gets unstable, but the accuracy to a nice decent profit remains intact.

I can literally trade in either direction, and within 2 hours to 36 hours typically, I can also turn a decent profit. That is the power unleashed within the Trajectory. Understanding them has changed the way I look at the markets, forever.


“With one investment style, trend is truely irrelevant, as I will buy distressed, bankrupt bonds, that have entered Chap 11 proceedings, and the profit is realised via the catalyst of legal, court enforced restructuring.”
--------------------

Which is also true.


“Therefore my previous objections to trend being of a speculative nature are in my estimation found to be accurate.”
-------------------

Yes – trends are highly speculative – that is why I don’t trade them.


“I still feel that the price data that you have appended into the algorythms, must at some point correlate to recurring fundamental "news", possibly an analysis of the yield curve and similar "price" based data.”
--------------------

The way I trade is extremely tactical in nature. I move between day and swing trader based on what the system indicates I should do. I started 12/17/04’s trade thinking that I would be out by EOD. This is becoming more and more evident in my trading. The system is now smarter than I am (so to speak) and I have learned (and am still learning) to do what it says, when it says to do it – under certain restraints of course – I pull the trigger, the system does not. The system simply points me in the right direction a high percentage of the time.

Reoccurring fundamental new vectors will always be a part of the model (see my explanation above). The question is, how does that news get encoded into the system via the news vector key. Remember, I do not view all news to be the same, the system categorizes and the types the news into relationships. Those relationships are then used as inputs to the MetaBrain™, as described earlier.


“As such, your methodology must be defined as speculative, with the inherent risks attached to speculation.”
------------------

All trading on the planet has some speculation built-in, as I stated in my first reply, and this system is no different. What I also said, was that this system was designed to mitigate the impact of adverse news vectors by mostly placing me into position at the correct location within the Price Structure. This affords me more protection against adverse news than any trading that I have ever seen – and I’ve seen many as you might imagine in this business.

So, speculation is here to stay. The real question is, how does the trader account for it and how does the trader mitigate its effects when they occur – because sooner or later, they will occur and they will be adverse to your position. You will either be located in a good position within the Price Structure and be afforded the opportunity to recover (sometimes even make a small net gain), or you will have entered the trade in a non-optimal location within the Price Structure and ultimately wish you had never entered the trade in the first place.


“I understand that you will argue that the accuracy of the system negates for all practical purposes the tag of "speculative", and time only will prove you right or wrong.”
----------------

No, I specifically stated that speculation is a part of every trading system on the planet. I also stated that no one can fully know “every” next move 100% of the time. That’s a serious part of what all traders do – speculate. However, speculation is mitigated to a much larger degree with this particular trading technology because of the knowledge and application of the Price Structure, and the willingness to use it to the traders advantage.

I have always stated that I despise news in any form – because it can be so destructive when it comes in the form of Unexpected Non-Parity. That’s the worst form of all and I am not a happy camper when it occurs.

This is why I don’t just enter trades just for the sake of entering trades. When I am in what I call Production Mode (meaning using real cash), I always trade to a specific Revenue Model that leads to a specific and known account balance after X number of trades have been completed successfully. Trading to a specific revenue model, helps to keep me away from “emotional” decision making as it is a ruthless process of trade number elimination. This also helps to reduce a certain form of speculation that is hidden deep within the human psyche.

There are all types, kinds and forms of “speculation” – you can mitigate some and totally eliminate others. Smart traders try to do both as best they can.
 
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TV,

Although perhaps a bit late to the show here, I have enjoyed reading your posts, even if others haven't. I share your view on the terms common to market parlance (value, price, trend, etc.). I used to be analyst, so I'm well versed in them!

While I freely admit that my background in physics and genetic structures is lacking in any substantial depth (maybe I'll have to start reading up), I do feel like I'm starting to get a handle on the direction you have taken.

A question, though. You equate the term "value" to the phrase "Trajectory Price Point". Would it not be more correct to say that TP2 takes the place of "price" as it is commonly used? The word "value" is a nebulous thing, especially in forex, and not really applicable in this situation. You seem to be describing TP2 as an observation at a point, which to my mind seems more akin to "price" as commonly stated than "value". I am not saying TP2=price, though. Rather that a TP2 contains a number of elements, one of which could be expressed as "price". It also contains other elements related to its potential. Is that close to the mark?

Am I correct in saying that the input to the system is current and historical OHLC data? You made the comment that macroeconomic information (and news) is built in to the data. Since news and information, and the expectations for future releases and events, is essentially built in to the OHLC data, it would make sense. I understand, however, that you take it beyond that.

** The actual trade decision is based on something far more interesting and multi-dimensional than a mere “trend” concept. ...trends are highly speculative – that is why I don’t trade them.

I like these statements. They really hit on a very solid point. When people talk about trend, they really have no real knowledge of which they speak. By the time someone measures and identifies a trend, who is to say it's still in place. Making the statement "the market is trending higher" is part historical observation and part guess that it will continue, assuming that the overall move upward is still active at the time of the statement in the first place!

** When I am in what I call Production Mode (meaning using real cash), I always trade to a specific Revenue Model that leads to a specific and known account balance after X number of trades have been completed successfully.

This implies that you trade differently in demo mode. How so?
 
TV,
Quote,

The decision to execute has to be based on a premise. The premise can only be based on what I understand about the expected outcome of the trade. The expected outcome of the trade is the premise revealed. I cannot make a good decision in a vacuum (i.e., without a sound premise). Therefore, I always have four (4) choices:

Therefore this, the “premise” is the starting point. So far I am in perfect agreement with you. The starting point for an investment operation is the recognition of an “opportunity”.
The opportunity must then be assessed and evaluated for the risk to principal, and then to the profit potential.

Quote;

The concept of “value” really has no place in this trading technology. Bond Traders care about value – Real Esta
te investors care about value – Derivative Speculators care about value – Venture Capitalists care about value – M&A Specialists care about value…. I don’t care about value. I care about Movement. Nothing more and nothing less.

This is really now simply a philosophical difference. You state that movement, or price volatility is the component that has primary importance to your system. Now price volatility will have a bearing on a number of strategies that I employ, but value will always be central to the identification of the opportunity. However, price volatility will play no part in other investment operations. (see bankruptcy example )

The inconsistency that nags at the back of my mind however relates to the expansion of the ideas introduced within the “DNA” analogy.
Quote;

...you will notice the outer nucleotides (the two strands) represent the actual Trajectory in this system. However, those nucleotides are not composed of strict OHLC data. They are calculated components of the OHLC data, but not the actual data itself.

This now gets us into the concept of Meta Data, which is another layer within the system where few core calculations are performed, but where 5 times as many logical statement wrappers exist for the purpose of either generating Input or Output to some part of the system.

This system is really five (5) systems in one: A real-time numeric data construct. An historical numeric data construct. A core mathematical construct. A Meta Data construct and a Visual Output construct. The double helix structure that you get is derived from the Meta Data within the core engine – not the actual OHLC data.

If we now examine in greater detail the DNA analogy, we will then be able to approach parity in understanding at least of the semantics.
To do so, an examination of the structure, will lead to an understanding of the function.

The model proposed by Watson, Crick and Wilkins in the 1950’s is composed of two strands of a double stranded helix held in place by hydrogen bonds. These bonds are attached between the purine and pyrimidine bases of the respective linear molecules. The pairings are very specific.

The common form of DNA is said to be “right-handed” because as one looks down the double helix the base residues “form a spiral in a clockwise direction” Also, and this would explain your reference to the distinction between “long trajectories and short trajectories” the two strands each possess a “polarity” which is simply an electrical conductivity, either positive or negative, and are “antiparallel.
This is analogous to two parallel streets each running one way, but carrying traffic in opposite directions.
In the double-stranded molecules, the genetic information resides in the sequence of nucleotides on one strand, known as the “template” strand.

Now, what has all of this got to do with trading? The answer is of course rather simple, and relates to the same question that has had analysts of all philosophical approaches expending grey matter refining individual techniques. And that is of course how to consistently beat the market and make money. In addition, and this I believe to be important, is that DNA contains the repository of the genetic value that has been evolved through the passage of time. It most certainly is not influenced by by transient inputs such as one hot summer to modify the genetic code. This however is not a component of your system. Your system seeks to identify momentum in exclusion to all else, and this is the reason that it is negatively affected by adverse news.........the news may or may not contain information of fundamental significance, its interpretation will be reflected however in price volatility that may cause an adverse move in price against your position. This cannot I assume be ignored? For the value investor, assuming no change in the value is effected by the news, the news can be ignored, and will result in no actualised loss being taken.

Quote;
Macro economics are built-into the data! That’s the beauty of it all – you don’t need to worry about it. Just dump the data for any currency pair into the engine and bingo – you’ve got mail! Or, more to the point – you’ve got an instant snapshot of the Trajectory, and you move way ahead of the class in terms of understanding where the “next” move comes from.

I have always avoided macro-economic analysis in respect to investment decisions purely for the reason that the volume of information is prohibitive to rational calculation. Returning to the difficulty of calculating value in the worlds” currency markets it can be seen that the task confronting the analyst is of a magnitude that to date has escaped the abilities of banks with small armies of analysts and economists to succeed in with any consistency.


Time will have implications, and the time at which an instrument is analyzed may affect the conclusion in various ways. Nearly all trading/investment commitments are influenced to some extent by the current view of the financial and business outlook. In speculative operations these considerations are of controlling importance; and while conservative investment is ordinarily supposed to disregard these elements, in times of stress and uncertainty they may not be ignored.

Calculation of all these variables is the “raison d’etre” of the meta-brain and on a real time basis, constantly readjusting the trajectory from the input of price data.

Now I am certain that you will be conversant with Efficient Market Theory, and its offshoot variants, Modern Portfolio Theory, Value at Risk.

These theories have been discredited by the disciples who preached the mantra in the first instance. The meta-brain is fed price data that is the result of an imperfect and seriously flawed interpretation and calculation of value. Value has extreme relevance, as this concept of value is the driver behind price volatility that you seek to profit from.

The general question of the relation of intrinsic value to the market quotation may be made clearer by consideration of the following factors.
Technical Analysis is the purest form of efficient market theory that the markets possess. Yet the vast majority of technical traders profess no understanding or desire to place a valuation on the instruments that they trade. They in fact many times display pride in the fact that valuation plays no part in the trading process. That direction and momentum are king within their world.

Aberrant psychology dominates the exchanges month after month. The examples fill the textbooks and case studies on the markets and spawned the subculture of behavioral psychology to try and understand the process of decision making within the worlds financial markets.

My business partner, was for 20yrs the head FX trader at Citibank with a $100M daytime limit……..he uses technical analysis.
The price data that is fed into the meta-brain must therefore be seriously corrupted as vast swathes of data are based on nothing more than lines on a chart. There is no attempt from large financial institutions to place or calculate a value at all. My query regarding the weighting of the news inputs and their importance in calculating a real time value was answered by
Quote;

Valuations are not at the core of what the system does. At some point, if I’m going to make money in the market, I’ve got to actually pull the trigger on executing the trade. Trading is less about trading than it is making decisions. Let me repeat that another way: Trading is not about trading, it is about making decisions


This of course places a huge advantage directly into the lap of an investor who can calculate value. The decisions to place a position should be based on a rational calculation that allows the investor to exploit the irrational and fatally inaccurate valuations that creep into the markets with great regularity.
By way of example, from the Chapter 11 handling of assets either within a restructuring, or eventual liquidation, the values can with adjustments be calculated with a reasonable degree of accuracy.

A company’s balance sheet does not convey exact information as to the value in liquidation, but it does supply clues or hints which may prove useful. The first rule in calculating liquidating value is that the liabilities are real but the value of the assets must be questioned. I would value the balance sheet items in the following manner.

Cash Assets, including securities at market 100%
Receivables (less usual reserves) 80%
Inventories (at lower of cost or market) 60%
Fixed and misc. assets (real estate, buildings, machinery, intangibles) 15%

This value is calculable, and the price of the bonds will provide the price you pay to realize the asset value. Should the company succeed in restructuring, the value that is created usually reproduces at 50 cents in the dollar. Many bonds become available at 5-10 cents in the dollar. A simple calculation will illustrate your risk/reward ratio.

Let;
G = the expected gain in the event of success
L = the expected loss in the event of failure
C = the expected chance of success expressed as a percentage
Y = the expected time of holding in years
P = the current price of the security.
Applied.....CG – L (100% - C)
then divide by YP,
= Annualised Return

Now this example is not pertinant to currency, and I would never trade currency for that very reason. The difficulty of analysis and accuracy of analysis must be seriously questioned.

Cheers d998
 
Rhody Trader

Rhody Trader,


“Would it not be more correct to say that TP2 takes the place of "price" as it is commonly used?”
--------------------

Not really. That is because in the world that I trade in – “price” does not exist. It is a physical and logical impossibility. If I “allowed” price to exist in my model – then my model would not be my “model”. It would be just another Trend following model. (there are more than enough of those out there).

If the mode is to be a new kind of Predictive Model based on a new kind of TA, then “price”, as 99.999% of the world applies and uses it, simply cannot exist. Ironically, I use both real-time “price” data and static “price” data – but that is not for the purposes of actually generating execution level trade signals. So, yes – I use the price data – but I don’t trade it. I trade the Meta Data that comes from it – therefore – I have in effect created Synthetic Price Structures. And, that is just the first level – there are several layers of synthetic price structures in this system – but they look and feel nothing like “price” (ie $1.3400).

Without seeing the math, it is going to be fairly difficult to fully grasp all of this at once. You would have to see the math and the logic to fully understand – but of course, if I shared that, then you would know everything that I know about this system – and I’m not ready to fully release the details of this technology just yet.


“You seem to be describing TP2 as an observation at a point, which to my mind seems more akin to "price" as commonly stated than "value".”
----------------------

Yes – it is an observation point – but it is not price. It is a derivative of price – a Meta Price, if you will – a “representational” model of price and it comes in many different forms – not just one. All of these elements that make of the Price Point also comprise the entire Trajectory.


“I am not saying TP2=price, though. Rather that a TP2 contains a number of elements, one of which could be expressed as "price". It also contains other elements related to its potential. Is that close to the mark?’
-------------------

Yes – that is very much close to the mark. It is a multi-dimensional concept. Price, as most people think of it, is singular and very much one dimensional – so they never see what I see (or what the system sees) when it looks at “their” price.


“Am I correct in saying that the input to the system is current and historical OHLC data?’
------------------

Yes.


“Since news and information, and the expectations for future releases and events, is essentially built in to the OHLC data, it would make sense. I understand, however, that you take it beyond that.’
-----------------

Yes – about 5 years worth of research “beyond”.


“They really hit on a very solid point. When people talk about trend, they really have no real knowledge of which they speak. By the time someone measures and identifies a trend, who is to say it's still in place.”
-----------------

Exactly. Most people have no clue what a “trend” really is. They simply regurgitate what they’ve been told – or they “assume” that a “trend” by definition means the continuation of something.

I built the technology based on the fact that when I studied the data, I found something much more stable than the mere “trend”. So, much so that I ended up removing “trend language” from my trading vocabulary. I then came to the understanding that indeed, the “trend” really does not exist - just like price. Not in the model that I use.

It exists in the minds of other people and that is perfectly fine with me – because it allows me to get in and get out while they are still trying to locate their “trend”. Its very “stealthy” at the core and sometimes I feel like what I do should be illegal (seriously).


“Making the statement "the market is trending higher" is part historical observation and part guess that it will continue, assuming that the overall move upward is still active at the time of the statement in the first place!”
---------------

Correct. Equally as important is this: what’s “upward”? How can they define “upward”? You see – they are trying to define that which is indefinable because it is much too vague and it lacks real structure. So, they end up being very sloppy in their entry and exit to the trade, or their stops continually get hit and they can’t seem to figure out why.


“This implies that you trade differently in demo mode. How so?”
--------------

No – it only implies that there are times when I use cash (real) and times when I use demo dollars. I always trade to the Revenue Model. It is like flying with an INS (inertial navigation system) such as GPS. You will always arrive at your destination as long as you “progress” through the number of trades inside the Revenue Model necessary to achieve your desired revenue target.
 
Can you verbalize (or textualize) a description of your system? There is clearly a high degree of complexity involved, and some of the subject matter seems more philosophical than one would normally associate with trading systems. I was just wondering if you have ever put the core idea or process in to words.

As to your Revenue Model, did I read correctly that you are setting your risk at 50%? Clearly, your system has a very high trade success rate. How did you decide on the risk profile?

Are you still bringing folks in to help with your research/development? I thought I read something in an earlier thread that you were. This is a very intellectually intriguing project. I'd love to take part. Send me a PM if I can help out in any way.
 
D998

D998,

“This is really now simply a philosophical difference.”
-------------

When I was back in high school, the Mathematics and Philosophy Departments were basically one and the same. The core curriculum at the school that I attended would put these two together as often as possible. I don’t know if that is still done in “today’s” schools. So, if you are from the old school like I am – then you statement might be true.

However, my research shows that movement of “price” (used as other people define price) can be mapped and amplified (think DNA typing and RFLP/PCR) just enough to expose the “true nature” of the Trajectory. One that true nature is exposed, you can see things coming down a hyper-short-term road – which just far enough over the horizon to make the difference failure and success.


“The inconsistency that nags at the back of my mind however relates to the expansion of the ideas introduced within the “DNA” analogy.”
-------------------

I don’t see the inconsistency – maybe you can point it out for me?


“In addition, and this I believe to be important, is that DNA contains the repository of the genetic value that has been evolved through the passage of time. It most certainly is not influenced by by transient inputs such as one hot summer to modify the genetic code.”
------------------

Now, I see an inconsistency in this statement. If one is to believe in evolution (which I don’t), then one must conclude that indeed “transient” inputs have something to do with the evolutionary model. A thing cannot “evolve” unless it is impacted by something outside itself (the environment) – if it is a fully self contained organism. And, the only thing that can impact a fully self-contained organism is that which is transient relative to the organism’s point of reference (given to it for the purposes of illustration – not to imply the organism has conscious awareness – though it can).

So, evolution depends upon your “external transient inputs”. Or, else, there is no cause to evolve. The law of entropy states that energy can neither be created nor destroyed. Cause must proceed effect. To evolve means to change (the effect) and there can be no change without new information (the cause). Philosophers might argue that the Determinism is flawed, or lacking – but I don’t. There is a cause for effect in the known universe – and because of that rock solid principle, I can trace the cause for the Trajectory which aids me in mapping its source.


“Your system seeks to identify momentum in exclusion to all else, and this is the reason that it is negatively affected by adverse news.........the news may or may not contain information of fundamental significance, its interpretation will be reflected however in price volatility that may cause an adverse move in price against your position. This cannot I assume be ignored?”
--------------

This would be incorrect.

Re-read my post regarding “news” and how this system deals with news. This system does many things – the search for momentum is not one of them. The exclusion of news is also not one of them. The system includes news by definition.

Can the human body exclude its own nose, or its foot, or its eyes, or its arm? Can rain exclude Hydrogen? Can air exclude Oxygen? Can space exclude a vacuum? Neither can this system exclude news. The historical data contains all news vectors that have ever impacted the landscape of the currency pair. All news classified by the system as “Parity”, is already accounted for. Only Non-Parity news cannot be accounted for. But, saying that the system is flawed because it cannot account for Unexpected News, is like saying that an atmospheric High Pressure system is flawed because it cannot account for the atmospheric Low Pressure system that is about to occlude it. The warm are mass had no prior knowledge of the cold air mass or the occluded front that was about to up-root it and change its structure.

No price movement can be ignored – true. However, my research indicates that much of the price movement within the Forex, can be measured, understood, and planned for. If Adverse News has a Non-Parity result in the Price Structure, then a loss on the trade might be sustained. If Adverse News has a Parity result on the Price Structure, then a decision to wait for a recovery is made (typically resulting in full recovery, if not a small profit).


“For the value investor, assuming no change in the value is effected by the news, the news can be ignored, and will result in no actualised loss being taken.”
----------------

For the value investor – maybe. Traders on the other hand don’t have the same event horizons as investors (much shorter time segments), therefore, the accuracy of the “decision” to enter/exit a trade needs to be much higher than the investor.

Being an investor in the Forex has got to be the easiest thing on earth to do. I’m totally amazed that people would waste their money and their time (or the TVM – Time Value of Money) by giving it to a Mutual Fund that is going to return them 15% per year.

That simply blows my mind to bits. It makes absolutely no sense at all, when all that same “investor” has to do is study the Forex and it’s very long term (10-15 year swings) and capture at least 500% net return over the same time frame and there would be no more “money management headaches” than there would be in worrying about whether or not your Mutual Fund Manager was going to lose you money for you.

There is so much lack of understanding in the market place that it totally boggles my mind. If I were to launch a Fund, given the types of returns that I routinely see – it would be the most successful fund in modern financial history. I have absolutely no interests, however, in managing other peoples money. Especially, when the “investor” can easily do it on his/her own.

The truth is always stranger than fiction.


“I have always avoided macro-economic analysis in respect to investment decisions purely for the reason that the volume of information is prohibitive to rational calculation.”
-------------------

You cannot avoid macro-economics if you are a trader or an investor in the Forex. Its impact is there whether the trader/investor knows it or not, desires it or not, likes it or not, or understands it or not. It cannot be avoided or filtered out under any circumstances. Especially, in the Forex, macro-economics plays a major role in the direction of “price”. It is a very entrenched component of the “market”.

This technology merely maps its influence among other things. Macro-economic considerations are inherent to the Forex and just about every other financially traded market I know. I find it very difficult to ignore.


“Returning to the difficulty of calculating value in the worlds” currency markets it can be seen that the task confronting the analyst is of a magnitude that to date has escaped the abilities of banks with small armies of analysts and economists to succeed in with any consistency.”
-----------------

That’s because they are busy trying to calculate “value”, when they should be focused on Trajectories. They are bound by rules of analysis that I am not bound by. They are trapped inside a 33 year old technical analysis world view, and I am not. They are bounded by self-inflicted rules of “Risk Management”, and I am not. I have re-written my own personal views on “Risk”. They must be extremely conservative in their approach to profit and revenue, while I am extremely liberal in my approach in relative terms. I can be because my model for growth is base in the technology that I use and therefore, I am free to think outside the box. Most “professionals” in this business cannot.

The outside the box thinking is what lead me to discoveries that they have obviously not found yet. They must remain in the box (many times due to regulations and legal restrictions) and this is part of what gives me my advantage.


“Time will have implications, and the time at which an instrument is analyzed may affect the conclusion in various ways. Nearly all trading/investment commitments are influenced to some extent by the current view of the financial and business outlook.”
-------------------

All of my research uses all historical data available on the Forex. So, my conclusions are based in all data available and that is what makes it so strong. For every Signal that makes into the system as a contributor to the DSS (Decision Support System), there were at least 3-5 versions of it that never made it into the system. The reason for that, is because I won’t allow any new Signal into the system unless it can produce accurate signals a minimum of 85% of the time using all historical data. That’s the very personification of “strength”.

There were many ideas and concepts that were only 80%, or 75% accurate and I have decided that I would leave them out of the system. In addition, some Signals get weaker in Vertical Markets and stronger in Horizontal Markets, while the exact inverse is true for other Signals. This is why Signal synthesization and Signal balancing were so crucial to this system and why it takes so long to build a system like this. There is a continue integration process that goes on for a very long time before optimal output can be realized.

The first principle of this trading technology is in fact: Timing – followed by Direction, Magnitude and Probability. These are the four (4) pillars upon which the remainder of the system sits. These are the foundations of good hyper-active trading.


“Now I am certain that you will be conversant with Efficient Market Theory, and its offshoot variants, Modern Portfolio Theory, Value at Risk.’
-----------------

All of them operate on a level that cannot “see” what this system does.


“The meta-brain is fed price data that is the result of an imperfect and seriously flawed interpretation and calculation of value. Value has extreme relevance, as this concept of value is the driver behind price volatility that you seek to profit from.”
-----------------

If it were that imperfect and that seriously flawed, Well Fargo Bank would not “risk” $318 million per day in the Forex. Macro Funds, Micro Funds, International Banks, and large scale players all use the same data and they all come to the Forex to conduct business on a daily basis. $1.5 Trillion per day (more than 3 times that of the NYSE, NASDAQ and AMEX combined) would not flow through this global machine if those who make up the Interbank community thought the reality was too imperfect and too flawed.

The fact that this industry exists AND that it is a Global Industry, says a lot about functional nature of the market. Rather than complain about the data, I decided a long time ago to simply try to understand it. It is not going away and I cannot change it – all I can do is understand it. When I focus on that – I end up getting good results from my research. The market is what it is. I could develop market philosophies to try and rationalize what I would like it to be, but at some point, I’m going to have to accept the data as it is and just learn to work with it.


“Technical Analysis is the purest form of efficient market theory that the markets possess. Yet the vast majority of technical traders profess no understanding or desire to place a valuation on the instruments that they trade. They in fact many times display pride in the fact that valuation plays no part in the trading process. That direction and momentum are king within their world.”
-----------------

This is a Hybrid Trading Technology that uses both Technical AND Fundamental inputs. The Fundamental inputs come from the market in either expected or unexpected form. The Technical inputs are new and not related to old TA. I understand Fundamental “valuations” perfectly fine – and that is the main reason why I think they are a waste of my time. They don’t help with Timing, Direction, Magnitude and Probability anywhere near the same degree as the technology within this trading solution does on a routine basis.

To wit:

On 12/16/04 at 6:20pm, I wrote the following on this forum:

”At 2:00pm pacific – I got the engine update and the Long Entry Light came on at the start of the 12/17/04 session. I immediately entered Long at $1.3240. I now sit at $1.3306, which is 66 pips and a 132% net gain. Now, I am holding this Long position until I can see what the next engine update will bring on Sunday at 3:30pm pacific – then I will let the system tell me whether or not I should HOLD Long, or take the cash and wait for the next signal.”

So, clearly I’ve been Long the EURUSD since $1.3240 and I indicated that I was Holding Long that same position until Sunday at 3:30pm (which is the start of today’s session 12/20/04). So, you can now see that I am up approximately 150 pips on the trade. This trade is now a 288% net gainer. It was 304% earlier this morning. This comes right on the heels of several 200+% net gainers done just last week that you are aware of.

If you recall, this was trade number 9 of 56 on a Revenue Plan to $1+ million. With today’s revenue, the very next trade will be number 14 of 56. The beginning balance was $1,000. Today, it is approaching $5,000. By trade number 56 of this plan, it will be in excess of $1 million.

I’ve done this many times before, using the exact same technology. Accuracy is the key. And, in order to be this accurate in your trading, one will have to deal with the Technical issues of the market. One cannot be this precise relying solely on Fundamental theories. At some point, if one wants to be able to trade like this, one will be forced to deal with the Technical concerns that are a natural part of the Forex.

In the world of this trading technology, these types of results would not be attainable. The ultimate results are what determine the efficacy of any system – whether Technical or Fundamental, or Hybrid.


“My business partner, was for 20yrs the head FX trader at Citibank with a $100M daytime limit……..he uses technical analysis.”
------------

Which Technical Analysis? They are not all created equal.


“The price data that is fed into the meta-brain must therefore be seriously corrupted as vast swathes of data are based on nothing more than lines on a chart.”
------------

Yes – in light of the facts, this is a really big misunderstanding of what’s being done. This market would not exist absent that same data. However, regardless of the exactness of the data, it is the market data that the “market” uses. There is no Interbank Market Data which is separate and apart from “other” FX data. The data is what it is and it is used by the same participants in the market.

Any other approach to the market would stipulate that somebody else has the “real data”, and that everybody else is therefore making decision based on wholly inadequate data. This is simply not the case. The Forex runs very efficiently relative to this trading model, as the results above demonstrate time and time again. So, if the label is “corrupt”, then it is the kind of corruption that I absolutely want inside of this trading model because it generates the kinds of results that I have posted above and it does it on a routine basis.

The issue for the trader interested in driving home revenue on a daily/weekly and accurate basis, is whether or not results are being obtained AND do those results have any correlation back to the original decision support infrastructure that was used by the trader to get in and out of the trade. If the answer is yes on a consistent and prolonged basis – then all other things become moot, for the trader.

Academic Scholars can argue the common mechanical knowledge of the Forex. Traders need Signals that work over a prolonged period of time and with a high degree of accuracy to a specified target. The Technology is set aside from the Philosophy of trading to a very large degree and for very good practical concerns. As a practical matter, the trader must dissect the movements within the currency pair and derive a “premise” for going forward with a trade execution decision.

Applying mathematics to patterns and getting the results as seen above is far more important to this technology than theorizing about which Fundamental factor “might” impact the trade today. Being “aware” of the Fundamentals is very important. But, that does not build the tactical decision basis for making the trade in the first place. Fundamental factors have their place and Technical factors have their place in the market. Which is why this trading technology uses both.



“This of course places a huge advantage directly into the lap of an investor who can calculate value.”
------------------

Then where were their advantage on 12/16/04, 12/17/04 and today, 12/20/04 when they were being whipsawed to death in the market. Their “valuation” models are far too slow to keep up with the highly synergized technical approached afforded the one who trades with such technology.

The EURUSD (as do many currency pairs) is entering what the “professional value investor” calls a very volatile short term period. They call it this because they do not posses an adequate enough language to describe what’s going on at this level. So, they punt. They go down to the lowest linguistic common denominator and they simply call the market “sideways”, or “horizontal”, or “range bound”, or too volatile to make any good “valuations” baseline.

On the other hand – when I see a market like this, I get really happy because it is one of the easiest market conditions to trade very effectively. That’s because I use a technology that is capable of describing the market under any condition – horizontal or vertical. The technology itself has its own vocabulary and thus its own language for describing what it sees.

This trading technology is not about “Value Investing”. Value Investing is very slow. It is at least one universe away from what this trading technology does. It is like taking a grand of sand and using it to fully describe an orange. It is not even an apple to orange question. It is worse than that. Two entirely different worlds that approach the problem from entire different perspectives. The cannot be compared along any other line outside of results. And, I just don’t see any value investor in the Forex even remotely approaching the same level of results (as seen above).

Besides, how many Day Traders use “Value Investing” methodologies? Investing is worlds apart from Trading.


“The decisions to place a position should be based on a rational calculation that allows the investor to exploit the irrational and fatally inaccurate valuations that creep into the markets with great regularity.”
--------------------

Which is exactly what this technology does best. I’m in and out of the market with “stealth” while the majority of people are still playing catch-up, or looking for a trend to follow.


“By way of example, from the Chapter 11 handling of assets either within a restructuring, or eventual liquidation, the values can with adjustments be calculated with a reasonable degree of accuracy.”
------------------

Yes, however, this have very little to do with hyper-short-term Trading.


“Cash Assets, including securities at market 100%
Receivables (less usual reserves) 80%
Inventories (at lower of cost or market) 60%
Fixed and misc. assets (real estate, buildings, machinery, intangibles) 15%”
-----------------

Yes – and would it help me figure out the 12/16/04 to 12/17/04 EURUSD move? Or, would it have told me to Hold Long from 12/17/04 through the weekend into 12/20/04 and would it have lead to the now 290% net gain?

The entire concept of “valuations” in the Forex deals with a time frame that is totally foreign to this trading technology. By the time one finishing those static calculations this real times trading technology is both in AND out of the market with good revenue and searching for the next trade “decision”. This is rapid fire trading –vs- slow paced valuations and longer-term market positions. Two different worlds.


“Let;
G = the expected gain in the event of success
L = the expected loss in the event of failure
C = the expected chance of success expressed as a percentage
Y = the expected time of holding in years
P = the current price of the security.
Applied.....CG – L (100% - C)
then divide by YP,
= Annualised Return”
----------------


Great for Bond acquisitions – but, how does it help me determine the “next” move on the EURUSD from today to 12/21/04? This trading technology already knows that answer. :) (I’m happy to report).

Let:

Trade Signal = Long
Trade Probability = 94.78%
Dominant Trajectory = Long
Subordinate Trajectory = Short
Target Probability = 100%
Trajectory Resistance = 16.81%
Long RTA = 65.20%
Short RTA = 28.13%
Long SA = 54.15%
Short SA = 34.80%
RT Delta = 37.07%
SA Delta = 19.35
Delta Gamma = 17.72%
Zone = Long Entry Zone
Radar = Clear

If I start out with a system that looks like this, I go Long without worry and I Hold Long through 12/20/04 without worry AND I pick up a very tidy 150+ pips and between 280% to 305% net revenue in the process. This is the difference between long-term valuations and hyper-short-term tactical trading “decisions”.

As you can see, this 12/19/04 snap-shot taken from the MetaBrain™ was accurate today, 12/20/04 – once again.

The key to trading like this consistently is in understanding the Trajectory and being able to map it back to a high Probability (both Trade Probability and Target Probability). Having a nice clear “Radar” also helps. There is a tremendous amount of technical things that I have not discussed in this thread – but, the above is a snapshot of what the core of the trade profile looks like – all that is missing are the targets temselves.


“Now this example is not pertinant to currency, and I would never trade currency for that very reason. The difficulty of analysis and accuracy of analysis must be seriously questioned.”
----------------

Ok – thanks – I was getting a little bit concerned that you would actually use this approach to Day Trade the Forex!

Yes – analysis is very critical as it forms the basis for what the trader does, or does not do – therefore, it is extremely important. But, analysis of what?

If the analysis is based on “traditional and conventional” things, then I expect traditional and conventional returns. However, if that analysis is based on something other than traditional and conventional, then I expect returns that are “other” than what most people get.

If the analysis looks at factors that lead to consistently high returning trades, then those factors that are being analyzed must be the relevant components to good trading – otherwise, the results simply would not be there. The trader will know right away whether or not their analysis was correct, or whether adverse news has struck their position. So, it does not take much for the trader to understand where his/her focus should be placed in future research and analysis.

Both in back-testing and on actual trading, this model has fulfilled its mandate/purpose and it continues to do so consistently without wild variations in its accuracy. That lets me know that the core components of the system are relevant, substantive, functional and most importantly – well researched.
 
Rhody Trader

“I was just wondering if you have ever put the core idea or process in to words.”
--------------

At some point, I plan to write two (2) books on Trading the Forex. The first book will deal with the personal side of Trade System Development. I hope to talk about what I went through personally - anytime you spend 5 years working on, something pulling as much as 24 – 36 hour work-days – it does change you a little. You learn a tremendous amount about not just trading, but about yourself as well. I will also try to put into words, why the system does what it does so well.

The second book will be about “Trader’s Risk Management”. I think this is a very controversial topic. There are basically two (2) types of traders in the world: Those who think it is best to calculate “risk” first, and then determine their trading plan. And, those who allow their trading plan to determine the level of risk. Two diametrically opposed views on trading risk.

I firmly believe based on experience and research that if the trader can build and/or acquire a highly accurate trading model, then he/she has the advantage of allowing the model to dictate the risk. I’ve been trading like this for years and today, my average Production Mode trades are in the seven figure range. I don’t view risk the way that many traders do. I think that this is based primarily on the level of routine accuracy seen on one’s trading. I also think that there is a very large psychological component (obviously) that goes into individual trade risk calculations, however, that “mindset” is based on what? The traders historical experience with accuracy – of course.

Change the accuracy and the perception of risk also changes. Risk is dependent on what you can lose in the trade, but it is also hugely dependent on the “decision” making process used to execute that same trade.

If you never enter the trade, then you risk is zero. If you enter the trade on a guess, then your risk is higher, than it would be if you entered that same trade based on a sound decision making process. So, clearly – the decision is of paramount importance. The risk will always be present when any trade is made – the question is, how does the trader mitigate the risk each time they enter the market. There is more than one way to accomplish this task.
 
I agree with most of your comments on risk. Trade risk determination should be based on the system, not some blind pre-determined figure.

There's one point I would contest, however. No trade does not mean you risk zero. While you may not have the risk of losing money, you do have other risks - like the risk of missing a major opportunity. That can be a hugely important consideration in trading system performance and goes toward your comments on decision making and execution.

You have mentioned in several places that trading is/should be easy. Given that so few people are truly successful, obviously indications would be otherwise. There is clearly something that presents an obstacle to most people producing results. That begs the question: What is the difference between you and all the others?

By the way, I love your discussion of the value of "value". I think I'll show it to some academics and watch their head spin! :)

Did I read correctly in another thread that you are aiming at a multi-billion dollar balance? That brings up another question. Have you factored any transaction size based processing in to your system? I bring that up because as you account grows, trading larger and larger amounts, your executions are going to change.
 
Rhody Trader

“Trade risk determination should be based on the system, not some blind pre-determined figure.”
---------------

Exactly – you have to have some idea of what your capabilities and expectations are before you can ever accurately gage risk. However, those on the other side of the fence will tell you that none of that matters – only your cost basis + margin – the STOP = risk.

They are not wrong in the strict sense. That is in fact part of the measure of risk – but it does not adequately (in my opinion) tell the entire story. Risk is also very personal. Some people will calculate risk formulas with the intent to be as conservative as possible because they have never experienced anything greater than 70% accuracy to a simple profit in their trading experience for any prolonged period of time.

Still others will be ultra conservative and select an even high risk factor because in their experience, they’ve never really seen any long-term trading success above 60% accuracy to a simple profit.

The higher your long-term accuracy rating to a specific target, the more likely you will be to relax some of your previous super-ultra conservative risk factors.

“There's one point I would contest, however. No trade does not mean you risk zero. While you may not have the risk of losing money, you do have other risks - like the risk of missing a major opportunity.”
--------------

Yes – if you are in the business of trading – then there is the ever present Opportunity Loss risk associated with not taking a position in the market. But, that risk has a counter point, in that cash is always a position. It is not a very forward looking position, but it is a position nonetheless. However, growing capital is the name of the business and the only way to do that is to enter the market.


“You have mentioned in several places that trading is/should be easy.”
--------------

Yes – if the goal is to only pick-up 10 or 15 pips per week, as some have stated on this forum as being desirable, then that kind of trading is exceptionally easy and no trading system is required.


“Given that so few people are truly successful, obviously indications would be otherwise.”
----------------

Is it that – or is it the homework factor? How many people actually got off on homework when they were in school? I used to love homework – but how many people were like that?

One can become very successful at trading if they would dedicate themselves (for a period of time) to studying the markets. It is no different than anything else. Those willing to pay their dues and not just work “harder”, but also work “smarter” when they study, then they too can significantly enhance their trading capabilities. But, how many are willing to actually take this head-on full time and with an intense level of focus and concentration?

They will also need to learn how to interpret raw data and fashion that data into something useful. When you look at OHLC data, it looks like a bunch of numbers. Yet, hidden inside those numbers are the keys that unlock the one’s future potential as a trader.

I think it is more of a question of: how bad do they want it.


“What is the difference between you and all the others?”
----------------

Study, dedication, focus, commitment, desire, and the belief that the impossible does not exist. One needs an incredible amount of drive and energy, not to mention a sense of purpose in their work. I believe that what I am doing goes far beyond trading. I expect the revenue from what I do in the market to one day to build things that will ultimately touch the globe.

You need a vision and the ability to see it with crystal clarity even when no one else around you can see it. Ask any real leader/CEO/Founder of any fortune 100 or global 1000 type company whether or not this quality is essential to going beyond the norm in any business endeavor and they will tell you – absolutely, yes.


“By the way, I love your discussion of the value of "value". I think I'll show it to some academics and watch their head spin!”
---------------

Yes – the value question really has no place in this particular trading technology. It like trying to place a square peg inside a round hole.


“Did I read correctly in another thread that you are aiming at a multi-billion dollar balance? That brings up another question. Have you factored any transaction size based processing in to your system? I bring that up because as you account grows, trading larger and larger amounts, your executions are going to change.”
-----------------

There are six (6) major currency pairs at present being traded in the Forex. Some say nine (9), but I only care about six of them. The majority of those six have the USD as either the Base or the Counter currency. All six will be tracked by the system in real-time, so signals for all six will be displayed on one screen in real-time at once.

This will give me the big picture view that I need to be able to know how to place multiple trades. It will then be a matter of trading through multiple accounts. So, no one account will be allowed to grow forever. The pip value (not price value) varies from pair to pair, so I won’t be able to capture the $10/1pip EURUSD on all pairs – but most will yield between $7/1 to $10/1.

The net number of pips expected won’t change when I’m trading larger numbers, so having small delays in order fills won’t be factor worth worrying about. The length of time for my average trades and the minimum pips that this system is designed to seek, won’t allow the few pips in slippage at execution time to be much of a factor. Also, with lot sizing such as this, there are ways to mask your identity to the market so the market won’t know that it is always you walking through the front door.

Of course, none of that will be done as an individual trader - no one person trades at those levels. You establish entities to do the trading for you. Should not be a problem.
 
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Wow, amusing thread. I take it you are no advocate then of the KISS system.

Is that your L-39 TV ? Lovely aircraft, unfortunately with fuel and maintenance costs in this country being what they are these cost about $1000/hr to fly. Certainly need a good system if you want to keep that baby in the air.
 
>>They are not wrong in the strict sense. That is in fact part of the measure of risk – but it does not >>adequately blah blah blah ........


god , this is so horrible , it's a like a death sentence by verbage .

it's just a convoluted way of saying that his system claims near 100 % profit accuracy, which of course he shown no evidence of .hot air.


>>However, those on the other side of the fence will tell you that none of that matters – only your cost >>basis + margin – the STOP = risk.
>>They are not wrong in the strict sense.


that is because they are RIGHT , the strict sense is the only sense , except to people like you .

what he is saying here is that he has really big stops because he has 100% figured out the trend .

in theory that's fine, until the trend changes big time like the 17/4/2000 re : the Dow , then you are b*ttf**ked. and this is happening more than ever in case one hasn't noticed.

he also said he was never going to post here again - HA , chance would be a fine thing for this kingsized egoW'er .

OK , enough of this .

TV , straight questions and I want straight answers LIMITED to 30 words per question , otherwise you can keep talking to yourself.

1) have you used this system ?

2) what is your % return to risk capital for the LAST 18 MONTHS OF SUSTAINED TRADING ?

3) are you willing to show evidence in documented form of the above ?
 
TV

Is it that – or is it the homework factor? How many people actually got off on homework when they were in school? I used to love homework – but how many people were like that?

I'm guessing the answer to that question is "not many". :D

I know in my case I was never a particularly great student, though I managed to get by with pretty good grades. I did my homework, but was never enamoured of it.

That said, somewhere along the line I did pick up the lesson on the value of doing your homework. I personally want to be prepared and not go into something feeling completely ignorant. When I speak to young people, the value of preparation is something I harp on.

The real issue at hand, though, is not doing the homework, but how you do it. As you said, it's not about working harder, but doing it more intelligently, as you indicated. I think part of the problem in an endevour like trading is that most people who get in to it do not have good guidance as they progress through the early stages of their development. It's kind of a scatter shot sort of approach, with influences coming in from whatever books, advisories, or people they speak. It's kind of the extreme dependance in initial events. We are creatures of habit, so if something imprints on us early in our trading growth, it will tend to stick.

Then too, there is the ever present Holy Grail syndrome. Everyone wants the quick fix: Show me how to make a million now. Very few take the time to really learn how the market works. They just bounce from one "system" to another. Those that find long-term success eventual find something that works for them and stick with it. Everyone else wanders around fairly aimlessly.

Since you've obviously spent a ton of time doing research, what advice would you offer folks new to the game? How should they start their own path to discovery?
 
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