# Trading Chaos



## sinner (2 November 2009)

Hi guys,

I would like to start a thread about Bill Williams "Trading Chaos" style.

If you are unfamiliar with this style, there is a complete set of information/signals available on the Alpari website:

http://www.alpari.co.uk/en/market-analysis-guide/chaos-theory/index.html

Using this style I generally trade the first 6 hours from London open (giving me the first hour of NY also). I trade the following pairs on the hourly chart (or 30-min if things are looking good there):

GBP/USD, USD/JPY, USD/CHF, EUR/GBP and USD/CAD. This gives a comprehensive (but de-correlated) market profile to cover, profits in multiple currencies (allowing for a smoother equity curve) and generally keeps me busy.

The main reason I like this style is it allows me to continue living my life, only need to check the computer about 5 minutes every hour and place buy stops and sell limits appropriately. The use of stops/limits also keeps me from buying on sell days and selling on buy days (famous pit trader advice).

My main strategy is simple:
To follow all the BW signals on the pairs I have decided to trade that night. At the end of the evening I do a quick EW count on the daily chart and if my positions are against what I believe to be the current or next wave, I will cash them in. Otherwise exit half at profit and let the rest ride at reduced risk. For example, if we are in corrective wave on a daily, I will generally cash positions in. If I am lucky enough to be holding longs at the beginning of a wave 3 move up, I will try to hold those positions at reduced risk.

So let's start it off (a bit earlier today), all the pairs listed above are in corrective mode on the hourly except for EUR/GBP (and the inversely correlated GBP/CHF). So I will place a buy stop at the most recent fractal high + spread (because I am using a bid chart) + 1 pip. Trailing stops at the MAs (gator).



The bullish divergence on AO is my impetus to buy rather than sell.


----------



## sinner (3 November 2009)

Good morning guys.

It is a less than ideal way to trade, but I had some internet issues last night and was unable to follow the EUR/GBP wave like I had planned.

Looking at the charts now, the other pairs I like to trade were mostly corrective type movements overnight anyway so I didn't miss much.

The E/G order was filled a few hours into London, and there were a few Chaos style addon signals along the way, but it seems the initial buy fractal was the best signal.

I have highlighted the addon signal with a green thumb (two AC bars above the 0 line) and in purple squares shown what BW refers to as "the zone" a bullish area where many positions can be added. For further info about these signals hit up the original link posted above as I don't want to re-write them here.

As you remember the original risk was 24 pips and the current floating P/L is something like +26 pips. One of my favorite S/R tools is the fibonacci of the most recent completed wave, and despite the hourly rejection of that 38.2% fib we managed to close NY above 0.90 and stay there.




So to take advantage of the possibility of a new trend beginning I will exit half of the position here at just over 1:1 risk:reward, which puts me in a free trade (as if I am stopped now out the effect on my account balance is now 0).


----------



## sinner (3 November 2009)

To my view on the daily, U/J has completed 5 impulsive waves down to 88, which should be followed through with a corrective a-b-c type pattern. Looks to me like wave a up and wave b down are complete so I am interested in looking for longs at this area. Especially with the huge hourly pinbar from yesterdays Tokyo open (strong bear trap).

So while things are still relatively quiet before Tokyo gets driving, I will place a buy stop at the bar which caused momentum (AO) to cross above 0 line + spread + 1 pip.



I am keeping stops tight at 28 pips (just below the 50 fib and MA confluence) as the possibility of a strong down-trend resumption in U/J is still there!



See you London, or if there are any especially tempting addon signals before then I will take them and post charts here.

EDIT: As I typed this position was filled so we are now in the market. Let the games begin!


----------



## JonnoB (3 November 2009)

Good idea for a thread.

I have just started to look at this system/frame work and also like the fact that you can trade and have a life at the same time.

Did you code the system yourself? I have completed most of the system except for the balance line addons. I started with code I found on the amibroker site.

Do you trade anything else with the system?


----------



## sinner (3 November 2009)

JonnoB said:


> Good idea for a thread.
> 
> I have just started to look at this system/frame work and also like the fact that you can trade and have a life at the same time.




Yes, it seems as long as you are trading > 30 min charts the profit potential is high regardless of time frame. I have successfully traded this using the daily for great profit, which involves maybe 10 minutes of "work" per day around the NY close/Sydney open.



> Did you code the system yourself? I have completed most of the system except for the balance line addons. I started with code I found on the amibroker site.




No. I didn't code it myself, all the indicators are provided by default in most/all Metatrader 4 installations. However, on the Alpari website I linked above there are formulas for all the indicators so it is really easy to write them yourself.



> Do you trade anything else with the system?




I used to try and cover equity markets, commodity markets as well as forex but there are too many issues in the way for my liking. These days I just pick pairs (as mentioned above) to gain exposure to the overall equity market and commodities. 

For example, USD/JPY used to be highly correlated to the Dow but since the crash it is highly inverse correlated. So trading U/J gives some exposure to equity movements, and if I feel equity markets will move very strongly I will trade USD/CHF. USD/CHF and EUR/USD are extremely inverse correlated and EUR/USD is 90% positively correlated to the SP500 so between U/J and U/C I can get some good exposure to equity movements.
GBP/USD provides good exposure to leading market movements as well as risk appetite, USD/CAD provides exposure to commodities (especially gold and oil) and EUR/GBP provides a USD neutral trading instrument with a tighter spread than GBP/CHF.


----------



## sinner (3 November 2009)

I don't normally trade Tokyo using this method (prefer to scalp on shorter TF) but I feel today is great day to build some longer term positions.

Gold is moving up right now and this is pushing USD/CAD down. I have taken short from 1.0763 with a 25 pip SL confirmed as an AO saucer sell signal. Down-trend confirmation would be break and close on the hourly below 1.0717 area.

Combined with the current U/J long this brings the account back to a USD neutral position, it is synthetically long CAD/JPY now.


----------



## sinner (3 November 2009)

RBA rates decision made a big dent in the market just then. USD/CAD short stopped out on the spike, my guess is AUD/CAD longs were liquidated at the decision which pushed USD/CAD up. U/J took a dive but got bought back to the 90.3 zone pretty quickly (gap fill). Hoping it will hold.

Remembering now why I don't trade Tokyo normally, it's pretty hard to reach free trade state on low volatility pairs.

Not too concerned about USD/CAD stopped out, also long gold from last evening in free trade state. Re-entering USD/CAD short at 1.07705 with an 18 pip SL.

EDIT: Alright, obviously trading beyond my weight here USD/CAD stopped out again on a rather large looking market gap. Moscow has just opened for trading, was hoping for some USD selling. I will step aside, let my in market trades run and wait for better positions later.


----------



## sinner (4 November 2009)

Good morning guys.

Once again without internet at home so no trading overnight for me. Optus will soon be installing fiber at my house!

EUR/GBP free trade got stopped out unfortunately, but that's ok it was free! If I was live last night would have taken profit the second time it rejected from the 38.2% fib posted yesterday. 
USD/JPY got stopped out at -28 also. Probably my fault for trading when Tokyo was on holidays.
USD/CAD was extremely frustrating as it spiked higher then slammed lower when gold went crazy last night. But no new trades were placed on this pair.

Nonetheless, the equity curve is still in shape, thanks largely to being long gold from 1045 (chart and call in the gold thread).

With Tokyo back online today I will try to regain the CAD losses scalping G/U and possibly try to rebuild USD/JPY longs. Going to be away for a few days so don't forget about me!


----------



## cashflow_08 (4 November 2009)

Hello Sinner

I appreciate your generosity and sharing of your trading technique. Before I was educating myself to trade BW, however it didnt go well with me. But if you success with it, Im willing to learn. How has your success rate been with BW and how long have you been trading it for? Is there any educational resources you have which could extend our knowledge of it?

Many Thanks
c_flow


----------



## sinner (5 November 2009)

Good morning guys,

Looks like it has been an eventful evening overnight on the markets. I don't have a lot of time this morning and am late as it is so just a couple of quick charts and justification from me.

1. Still trying to rebuild E/G longs, we are provided with a momentum and acceleration divergence as well as our momentum oscillator crossing up from 0 again. I have taken an at market long (got to the computer too late to enter proper orders and this works out cheaper anyway) for E/G at 0.8982 with 20 pip SL.
2. USD/CHF is in an interesting place and although we are not presented with any clear signals, I will try and take a very tight long here at 1.01535 with 10 pip SL to see some love above the 61.8% fib (hopefully). No big loss if I am wrong, trading small lots on this gamble position. Oversold and looking for a bounce hopefully!

I will have to let both these positions ride without supervision as I will be away from tonight till Tuesday!

Gold continues to perform and make me happy to not be trading overnight when it is doing all the hard lifting for me!

EDIT: When I was drawing my fib for E/G this morning I noticed it had become slightly different, unsure why considering the engulfing wave from which it was drawn is still unchanged. Will need to look into it, but it will have to wait for Tuesday.


----------



## arco (8 November 2009)

Hi Sinner/All

I was trading Profitunity system quite successfully in 06/07, not sure why I transferred to other methods, but heres one quite nice trade - $7600+ at this point.

I have forgotten some of my signal system as per the chart, but will try to see if I kept any paper records.

arco


----------



## sinner (19 November 2009)

Sorry have been real busy guys but got internet at home again now so back to nightly shenanigans. Been trading the E/U alone to great success. It is a great pair for breakouts, makes me interested in trading commodities perhaps.

Breakout of the blue line (sell fractal) and my work is done for the day in one fell swoop. To satisfy Trembling Hand the spread on exit was 1, no commission. Drawdown on the trade was less than 0.005% of account. Same conditions on yesterdays trade which was a long from just a bit higher up on AO cross 0 line.

5 minutes of work to place the order 3 hours ago (right before I left work) filled in 15 minutes, 50+ pips profit (the chart below is about 40 minutes old, she goes down to 844). I was playing with the dog!


----------



## sinner (24 November 2009)

Hi guys, I have been a bit busy this week, so haven't been maintaining this thread but please rest assured next year will be live calls every time.

For now we can settle with a good example of how useful Bill Williams Chaos Style is. Obviously it is just combining a few well known trading methods together but I like the combination very much! 

Today I will show the E/U entries from the last 5 days to show you can still make money from a chop market. First, let's look at what E/U has looked like on the Daily for the last 5 days:




As you can see, E/U has been stuck in heavy chop. But that doesn't mean we can't profit from it, and still using only trend following rules.

The blue box highlights taking every valid H1 fractal and exiting on 3 AO bars which move against you (i.e. if you are long then 3 red AO bars is exit signal on bar close). I have shown a pipcount of profit for each box, which is only 1 original trade using the fractal breakout, not including adding on any positions using AC, AO, "the zone" and balance line trades (these addon signals allow you to milk the trend significantly if you are willing to increase your risk on new trades as they develop). In all cases using gator and "the zone" for SL definition.

I didn't take all these trades as I am mostly done for the year, just trying to highlight what consistent application can provide in term of returns (also because I have been watching E/U all week and very impressed with its breakout reliability)




Box1 +~70 (this box doesn't look like a fractal because it is filled before the second hourly close, I accept that as valid fill)
no trade next day due to news
Box2 +~40
Box3 +~30
Box4 +~30


----------



## Timmy (24 November 2009)

Good thread thanks sinner


----------



## sinner (24 November 2009)

Timmy said:


> Good thread thanks sinner




Thanks Timmy, glad you are enjoying it. Just goes to show you don't have to be a hot hand 1 tick stoploss futs trader like TH to make money. Those of us exploiting macro order flow with the trend do ok too! (for a lot less effort).

Now that people who are interested in the idea have probably read up on the signals I will try and include some more advanced concepts to maximise profits further. Remember, I am not including explanation or understanding of any of the BW signals they are all provided for free in easy to understand format on many websites (and I included a link to them in the first post).

What you see in the EURUSD chart I just posted is that generally, we will either get a good breakout fractal for the day, there will be no trading (due to news for example) or we will get a fakeout and be stopped out when the price retraces to the moving averages where our SL is.

1 fractal is ok, but it can often lead us to longing at or near the end of a price wave, by the time the MAs are moving up and a fractal is formed we have already missed some of the best moves.

To that end, we can add a bit more volatility to the mix by using a JPY cross instead of the corresponding major. This volatility should provide us with better breakout signals if you think about it.

Compare the above chart to this one of EUR/JPY and you will see what I mean. On most days we should get an "advanced warning" of the trend provided by a fractal formed in Tokyo (which generally won't occur on the major) and several more fractals for entry during the trend itself.

If anyone has trouble understanding that concept let me know. I have not included any blue boxes on this chart so you can go through yourself and see that it works.


----------



## sinner (24 November 2009)

State of play before Frankfurt comes online. Preferring a move to the down-side but hold no bias and will buy a break of yesterdays high. Risk would be approx 50 pips either way on fill. Apologies for the chart clutter, but in congestion zones like this one everything tends to bunch together a lot.


----------



## caribean (24 November 2009)

Hi, interesting thread indeed.
Though i don't trade the EUR/JPY, i would imagine the IFO coming out at 8 PM would affect it, do you bother with the news? or not really concerned?


----------



## sinner (24 November 2009)

caribean said:


> Hi, interesting thread indeed.
> Though i don't trade the EUR/JPY, i would imagine the IFO coming out at 8 PM would affect it, do you bother with the news? or not really concerned?




Always depends on the news for me matey. You can see in the 5 day example chart I provided above for E/U that I did not trade that day due to the news (even though it would have been profitable in the end). Today I did not give a rats about the German GDP q/q even though it could've spiked on better than expected news. I *do* care about German IFO but...guess what?

I am done for the day already!

+50 and out! We have a few options at this level. Cut and run (what I did) or exit half to make a free trade (so if stop is hit on remaining half balance remains steady) or exit half and move stops to breakeven level to lock in some profit.

Like I said at the beginning of the thread, it really depends for me which of the above 3 I will take. If I feel my daily EW count is accurate and we are going to see more of the same I will make a free trade. If I feel I am against the EW count but still more down-side to come during the session I will cut half and move stops to BE. Sometimes I just can't be bothered holding or when trading chop like E/J has been for the last 15 days (I am also swing short from 135.691) I will just cash it right in.

You can't really beat that, set my order 4PMish, left work 5PMish right after the order was filled, came home to see +25 and within the first 15 mins of London took another +25. 

Some of you may be concerned about the initial stoploss level which is set (in this case 50 to make 50) but it's worth noting that by the time your breakout order is filled the stoploss has already moved significantly closer to the market and you can continue moving it each bar close. I would never take the whole -50 hit anyway, probably exit if it had broken back above 133 in this case at -30.

As I type the price of E/J has moved further down but remember we are no longer concerned, have taken our chunk of work and done for the day!

Blue box is todays trade.


----------



## sinner (25 November 2009)

Hey guys,

The market is still giving us nice clean breakout zones. I am a seller below yesterdays low and a buyer above that 61.8 daily fib line as it clearly is line in the sand for bears (in fact I made a good 20 pips scalping it short from Tokyo open)!


----------



## sinner (25 November 2009)

Alright, my order was filled without any slippage and I am long E/J at 132.685.

Just noticed this. Double bullish AO divergence. The first one is a hidden bull div and second is standard bull div:


----------



## sinner (25 November 2009)

Stops hit on the long, now in from the daily sell fractal, will just try and hedge a portion of my loss and get out.

EDIT: Ok she dropped hard, hedged the loss and took +5 for myself. Out for the day!


----------



## sinner (26 November 2009)

Hi guys,

I was a bit shaken up last night by the move against the original breakout but on examination of my basket of trades yesterday I noticed a few key things:

1. I broke my own rules about which fractal is valid (needs to be formed outside the MAs)
2. Only managed to save my equity curve by following the rules!
3. I traded against obvious resistance established during NY session and confirmed during Tokyo.

So will try and keep things as disciplined as possible from now on, we are trying to make this into a consistent thing here!


----------



## sinner (27 November 2009)

Follow the rules and all will be well.

Sells from yesterdays low hit within the first hour of open! Took +80 and got out quick! Obviously there was more room to move but I was afraid of volatility as well as possible buying at the 100% fib line. She didn't make it back above the line but there WAS volatility!

Alright so I missed a good chunk of one of the most explosive moves this month, but I took *my* chunk, good enough for me.

This might seem awful rudimentary to you all, I mean, selling breaks of session and daily hilos...but hey, it makes money! I'll try something more complicated once it stops...


----------



## nomore4s (27 November 2009)

sinner said:


> This might seem awful rudimentary to you all, I mean, selling breaks of session and daily hilos...but hey, it makes money! I'll try something more complicated once it stops...




As long as it makes money who cares.

I'm having a play around with this system now, very interesting. Thanks for bringing it to my attention, great thread.


----------



## caribean (27 November 2009)

nomore4s said:


> As long as it makes money who cares.
> 
> I'm having a play around with this system now, very interesting. Thanks for bringing it to my attention, great thread.




Ditto!!! if it works for you, be happy, and don't worry about what others might think.


----------



## sinner (27 November 2009)

Alright we are putting it to the test now, I am short AUDUSD from 9010 (avg) 2 positions of sell fractal and AO saucer sell signal. This trade is a classic example of a breakout -> retrace occuring, leaving hourly traders pissed off when their trade fills and goes to -20 in 5 seconds. London open has brought it back into profit a tad though, we will see how it pans out.

Stops 10 pips above last weeks low and near the MAs @ 9070. Just trading small lots as I don't want to risk too much of todays profit. AUDUSD has already dropped 1.5%ish we could be due for retrace.

Blue lines for sells.


----------



## caribean (27 November 2009)

Bring one up of the GBP/USD,if you can, it will be interesting as i'n trading it right now
i'm short with intermediate exits at 349


----------



## sinner (27 November 2009)

nomore4s said:


> As long as it makes money who cares.
> 
> I'm having a play around with this system now, very interesting. Thanks for bringing it to my attention, great thread.




My experience so far (which is just looking at charts : ) is it works damn well for commodities on the daily chart if you can get a broker that will allow you to trade small enough lot sizes for the expectancy to pan out. I don't like it for stocks (prefer pure VSA). I think it is great for forex, especially the two major JPY crosses (not so much AUD/JPY).

Alright guys, at this time of the year I am happy to take what the market is willing to give and run, I will exit both short positions here at +30. Reasoning, as said before could be due for a retrace, US on hols and I can't be bothered sitting around for the next few hours if A/U is going to do its usual breakout -> range -> breakout routine without some big dogs hitting the sell button.  As usual, while I type she continues to move to +60 but I am done for the day with +80 JPY pips and +30 USD pips on smaller lots size.

caribean, I am unsure about G/U hey. I have heard rumours BoE will keep G/J and G/U in range for a long time. This could just be wave 2 down on the daily of 5 impulsive waves up. I would prefer to trade another currency right now until I know what's happening with G/U and G/J (even though G/J is like a pip fountain right now I am still sticking to E/J). If trading the pound at all right now I prefer GBP/CHF or inverse correlated EUR/GBP.

In the shorter term, I have included an hourly chart for you, there is 3 green AO bars, this could indicate the downmove is near completion. That doesn't mean it will not continue to move down, just that retrace is more and more likely on the cards. As another trader pointed out today, G/U rarely goes six days in a row in any direction without a retrace...


----------



## caribean (27 November 2009)

Yeah thanks man, it's just conversation really, will wait to see what it does around 6200.
I can't go past S/R myself, it's interesting to see someone do well out of this,
I'm genuinely happy for you.


----------



## sinner (30 November 2009)

Guys every day on forums like forexfactory I see probably in excess of 100 posts per hour in the "Interactive Trading" section, as newbies and oldies try and predict the next move, post their analysis, bla bla bla.

I don't care if a move is mark up by the banks, or if this is a "push" to fall in the opposite direction. What I care about is following the rules, and banking some pips on the other end.

Seems like a lot of work by a lot of people, meanwhile I just placed buy orders within the first few hours of market open and made a pretty pip or two from what turned out to be a great opening short squeeze.

London hasn't even opened yet...


----------



## sinner (30 November 2009)

New long on AUD/USD, buy above the balance line signal. This will be my first balance line trade in quite some time, let's see if we can make it work. Long from a break above the high of the bar labelled "2".

For those accusing the "Chaos" style of being all indicators and whatever, well balance line trades are purely PA based.


----------



## sinner (30 November 2009)

Stopped out on that last A/U long, and just now I got snapped by BoJ intervention on U/J.-50 pips on that one. All good, todays gains from the open still leave me ahead onthe day.


----------



## caribean (1 December 2009)

sinner said:


> Stopped out on that last A/U long, and just now I got snapped by BoJ intervention on U/J.-50 pips on that one. All good, todays gains from the open still leave me ahead onthe day.




You tried that long did ya? i thought it was good for a lot more, but decided to exit and wait for the next train (i fell asleep before it arrived)


----------



## sinner (1 December 2009)

Congestion can be annoying, especially if news doesn't give the instrument a kick in the pants.

At times like these, especially if you only trade a single instrument, patience is all you've got.

Wait for setup. Play the setup. Ignore all the speculation about whether it will go up, or down or bla bla bla.

Ooops forgot the chart!


----------



## sinner (1 December 2009)

Talk about frustrating! Here is an M1 chart of AUDUSD showing demand coming in 0.3 (or less) of a pip above where my order would have been filled.

Yes, I put my sell stop a teensy bit below where I would normally put it (put it at 91050) to account for yesterdays range being tight against todays S1.


----------



## sinner (2 December 2009)

Well, that short posted above never got hit and I ended up long from the break of the green line posted earlier. Today has been a bit trickier, I took 20 pips out of the market on 3 positions right before it reversed. The current chart formation on AUDUSD is looking decidedly wedge-ish and I don't want to push it. Happy to take what I can and run, with a few lots left on from yesterdays efforts.

Had to use multiple signals instead of clean fractal breakouts like normal to grab the pips, yellow box is entry and profit, I pretty much got out 2 seconds before reversal. As you can see, not a lot of juice, even though there is room to go higher, I am not game to push more positions long into a possible large sell.

I have included arrows to show the signal bars, buy stops placed at their highs from bar close. This chart is a good example of how multiple signals can get you your daily pip quota from even a <10 pip  move.

+20 is enough, I won't bother trading London.


----------



## sinner (3 December 2009)

I am sort of getting bored posting profitable charts over and over...today was plenty of pips now I am risking 10 of them on a speculative short. Come on RBA!

Anyone got a question or something?


----------



## n5032245 (3 December 2009)

Sinner,

Great thread, thanks for posting. 

Just starting to do some reading on this now. I reckon i will paper trade this for a bit to see if i can replicate your results. 

how long have you been trading this system live? how long did you paper trade for? have you noticed that your profits have started to become more steady? do you have any stats on your performance?

I am sure that i will have more questions as i delve deeper. 

thanks again for a refreshing thred.


----------



## inspira (3 December 2009)

Yes, thankyou Sinner!

Just having a quick read before delving deeper tomorrow...

I'm sure will have some Qs for you.

Love your talk about fx and correlation with other markets - all new to me so great info!
Are you looking to take any leads from other markets for your fx trading?

cheers,
inspira


----------



## sinner (4 December 2009)

n5032245 said:


> how long have you been trading this system live? how long did you paper trade for? have you noticed that your profits have started to become more steady? do you have any stats on your performance?




Ok I don't want to sound rude, especially because I asked for questions, but this is the standard newbie set of qs and it is not going to be answered by me other than yes I trade this style live. As I said, it is just the accumulation of some well known trading techniques, nothing special!

I did not paper trade this method as by the time I discovered it I was already trading 4-6 hours a day using similar (but not identical) methods. From the top of my head I can imagine there are probably 4 or 5 other well known trading techniques which will be putting orders at essentially the same spots.

As for profits, stats, etc this is the bit that newbies ask the most often about and will not get answer from me. This information, even if I provided it to you is USELESS TO YOU as a new trader. You need to work through a system yourself, not to see that it will make you rich, or that it has a hardcore arbitrary number expectancy that will play out every time because IT WON'T. You need to work through the system yourself to see that there will be winners and losers, to decide when it is safe to trade or not, which signals are useful and which aren't etc. You need to see that there will be losers but this system will save you from big losers and put you in line for a winner next up if the market allows for it. You can see from this thread those points exactly. For me to say I started with $1000 and now have 1 bajillion is not only useless info to a new trader, it is actually a detriment to your technique. 



> Love your talk about fx and correlation with other markets - all new to me so great info!
> Are you looking to take any leads from other markets for your fx trading?




Yes mate, good q.

My trading watchlist consists of:
USDCHF/USDJPY/GBPUSD/EURUSD (4 forex majors)
EURJPY/GBPJPY (JPY crosses)
AUDUSD/NZDUSD (regional majors)
EURGBP (ratio cross, I use as a sort of risk barometer - when **** hits the fan, GBP always gets dumped for Euros)
the most recent crude oil and gold futures
the most recent SP500/DAX/FTSE/HSI/ASX200/Nikkei futs

So if I am trading during Tokyo I am interested in what SPI/HSI/Nikkei as well as gold and oil (I also might watch coal and wheat futures if trading AUD). By the time London rolls around I am watching DAX and FTSE along with the commods and then as NY opens I will be keeping a close eye on the SP500 futs (ES is their ticker name).

This gives an overall sense of market direction, but I try not to let it influence me too much. It is just good to know for example, if gold is going up and oil is going down I would prefer to trade AUDUSD or USDCHF over the NY session, but if gold and oil are going up together I will make more money trading USDCAD.


----------



## n5032245 (8 December 2009)

Sinner,

I will try to summarise what you have said in this post to better understand you. 

You trade BW Chaos model

during the London open to NY open
combining it with Elliot wave, resistance lines and fib retracements

You also sometimes layer the entries, but have held back on going into those, to keep it simple. 

A couple of questions. 

1. Do you still trade those same times? i have noticed as the thread went on that you started to trade the asian time period as well. can you give some more info on this?
2. you do not use fib, EW, etc on every trade. what makes you combine the two on certain BW signals, but not others where they would apply?
3. you said at the start of the thread that you set up the order in the evening and walk away. do you set a time expiry on it? if you just set it up, and another similar directional BW signal was released, you would not have the correct entry settings (or if the MA's crossed and the gators mouth was closed). can you help us understand how you do this?
4. the trailing stop of the green/red MA. do you always use one or the other? how do you set this up in metatrader4? i can see the trailing stops option, but can't set it to the MA 5 period.
5. do you ever layer with multiple fractals, AO signals, etc? what makes you use layering in comparion to not using it?

(i hope these questions are a little more constuctive then the last)

thanks.


----------



## sinner (8 December 2009)

n5032245 said:


> Sinner,
> 
> I will try to summarise what you have said in this post to better understand you.
> 
> ...




Hi Mate, when I started the thread I was "working" trading. For the last few weeks I have been on "holidays" from trading, so I have a bit more time to identify levels for breakouts during Tokyo. Sometimes this means catching a move a bit quicker, but GENERALLY speaking a level established during Tokyo won't get broken out of till Frankfurt or London anyway. So whatever you do in the morning isn't confirmed or even active until 7-8 hours later.



> 2. you do not use fib, EW, etc on every trade. what makes you combine the two on certain BW signals, but not others where they would apply?




I don't include everything I use on the charts all the time but everything I use on the charts is included here in one screenshot or another. This is simply to keep them as clutter free as possible. Once you know where a level is on the chart you don't really need the lines there as you can see the PA respecting those zones.



> 3. you said at the start of the thread that you set up the order in the evening and walk away. do you set a time expiry on it? if you just set it up, and another similar directional BW signal was released, you would not have the correct entry settings (or if the MA's crossed and the gators mouth was closed). can you help us understand how you do this?[




Great question bro. Generally my first trade of the day using this style is a breakout of the Tokyo range. If there is no valid fractal to represent this I will use a breakout of yesterdays hi or lo (or possibly the NY sessions EOD range) with the trend. Generally you are right, a better breakout signal will appear, but I still leave my order on at that area because a breakout of yesterdays high or low is generally more reliable for a few pips. I will include an example explaining what I mean in a sec.



> 4. the trailing stop of the green/red MA. do you always use one or the other? how do you set this up in metatrader4? i can see the trailing stops option, but can't set it to the MA 5 period.




Check the Alpari link on the first post. Which MA you use depends on the volatility of the pair (how you measure and decide is described in the link - stoplosses section). Sometimes if I am catching the first impulse from a correction and the original R:R is good I won't trail the stop at all and just leave the trade on after taking half profit at 1:1 R:R. I trail the stops manually, just by checking the chart every hour and moving it to the new value (sometimes I might use the MA of the bar before the one that just closed to give a bit of room or whatever). 

Don't get too hung up on squiggly lines, Chaos style also has another method of trailing stops as described in the same link (in the same section) based on the statistics of how many bars a wave tends to last before retracing.



> 5. do you ever layer with multiple fractals, AO signals, etc? what makes you use layering in comparion to not using it?
> 
> (i hope these questions are a little more constuctive then the last)
> 
> thanks.




Generally I am aiming for a daily profit target if I don't think there is going to be a trend developing around my trade. So if I think a breakout can provide 20-30 pips on AUDUSD or EURJPY or whatever is moving, then I won't add on positions (why add on risk for a reliable signal?). 
But if the wave is slow i.e. will only have a prospective 10 pip move to make 20-30 pips then can trade breakout of every bar when the signals are reliable. Conversely if the move is really big and I want to capitalise on it i.e. will have a 100 pip prospective move and want to make 200-300 from it.

So for example of range breakout to decide which fractal level I wish to sell from, last two days trading E/J (not including todays action):


----------



## n5032245 (9 December 2009)

Sinner,

on the Alpari explanation of BW chaos model, it mentions that



> Close all open positions if a signal in the opposite direction appears. Bullish divergence / bearish convergence between the Awesome Oscillator and the price signals that the trend is about to end:




does that mean that the first fractal buy signal that is shown in the attached file is invalidated by the following sell fractal signal? which would mean that the third fractal buy signal is entered?


----------



## n5032245 (9 December 2009)

Sinner

I am better understanding how you manage your trades but have a couple more questions surrounding your

1. entry



> Great question bro. Generally my first trade of the day using this style is a breakout of the Tokyo range. If there is no valid fractal to represent this I will use a breakout of yesterdays hi or lo (or possibly the NY sessions EOD range) with the trend. Generally you are right, a better breakout signal will appear, but I still leave my order on at that area because a breakout of yesterdays high or low is generally more reliable for a few pips. I will include an example explaining what I mean in a sec.




do you always look for confluence of a breakout with a fractal to initiate a trade? would you do this on the majority of times you enter a trade?

2. stop loss



> Sometimes if I am catching the first impulse from a correction and the original R:R is good I won't trail the stop at all and just leave the trade on after taking half profit at 1:1 R:R. I trail the stops manually, just by checking the chart every hour and moving it to the new value (sometimes I might use the MA of the bar before the one that just closed to give a bit of room or whatever).




how do you calculate this R:R? money management seems to be what would make or break this system (as always)

from  what i can understand, you combine your knowledge of EW, Fib, etc to set stops. more examples of thses would be appreciated. 

3. targets/exits

can we get some more info on whether you set specific pip targets or follow the BW chaos model exit paramaters.

and how is the trading looking today and this evening. 

i will have to start looking at trades and posting myself now that i am gaining a greater understanding.


----------



## sinner (9 December 2009)

In the case of your chart, only fractals in the direction of the gator are valid. 



n5032245 said:


> Sinner
> 
> I am better understanding how you manage your trades but have a couple more questions surrounding your
> 
> ...




This question, doesn't make sense. They are the same thing. Think of it like this: 

Trading a "breakout" of the days high or low is another way of saying trading a breakout of yesterdays highest or lowest fractal. The high or low is by definition a fractal.



> 2. stop loss
> 
> how do you calculate this R:R? money management seems to be what would make or break this system (as always)
> 
> from  what i can understand, you combine your knowledge of EW, Fib, etc to set stops. more examples of thses would be appreciated.




Go back and look at the EURGBP trades as an example for the 1:1 R:R trades. I will try to find examples and explain this q soon. Go and read the section on stoplosses on the alpari page like I said.




> 3. targets/exits
> 
> can we get some more info on whether you set specific pip targets or follow the BW chaos model exit paramaters.




It all depends. I've provided examples in this thread of both the styles you mentioned (for example see the blue box EURUSD chart exiting with 3 AO bars against you). I'm terrible at holding positions so generally if I see anything around 1:4 1:5 R:R I will just take it right off the table hehe - usually it goes further after I get out. Targets/exits all depend on YOU I reckon. Make a plan and stick to it.




> and how is the trading looking today and this evening.




Well...um...if you can't spot the giant bear paw on the chart for the last few days...might still need some practice?


----------



## sinner (3 January 2010)

Posted this on forexfactory too, apologies for the double post.

December is supposed to be the "low volume hard to trade" month, right? Right? So how come I pretty much cleaned up across a lot of pairs trading the daily compared to November?

Total spread cost: 10 pips
Total carry cost: 14 days short - 6 days long
Total profit cashed in: +~350 pips short
Floating P/L: +~160 pips long
Monthly ATR: ~600 pips


----------



## sinner (15 January 2010)

Still holding December longs in this pair...well into the money now, getting some good cash from the carry too.


----------



## sinner (29 January 2010)

sinner said:


> Sometimes I just can't be bothered holding or when trading chop like E/J has been for the last 15 days (I am also swing short from 135.691) I will just cash it right in.




Cash in E/J swing short here for +1000 pips.

Any questions?


----------



## sinner (7 March 2010)

Hi guys,

I have written a rudimentary Metatrader 4 EA for some backtesting results. It trades only on each bar close using only stop orders to enter the market and limit orders to exit. It just trades 0.1 lots with no MM right now.

Include a screenshot of the EA in action (using visual backtest mode) as well as backtest results of EURUSD H4 from 2008.05.26 to current date. I coded a few different methods to trail stops and currently it is trailing stops using the "alligator jaw". There are more "profitable" stop techniques available for use within the system but I haven't coded them yet and wanted to see what the results would be like trying to stay in each trade as long as possible. Full EA source code attached, comment or uncomment various bits to disable or enable features for now.

I have diverted some of my profits from the recent GBP freefall to trade the ASX20 using this system on the daily chart and would like to continue documenting my thoughts on this thread. To that end I have imported 2 years of daily ASX20 data into Ninjatrader 6.5 and installed the Chaos indicators. Is it possible to get this thread moved out of the forex section into the systems section?

If so I will begin posting trading ideas later this evening.


----------



## professor_frink (7 March 2010)

sinner said:


> Is it possible to get this thread moved out of the forex section into the systems section?



done


----------



## sinner (7 March 2010)

Thanks frinky.

Alright, first up I apologise as my AMP and WPL data seems broken somehow (or at least the import into NT6.5 doesn't work good), so I can't look at those charts right now.

Coming into the new week, I am interested in three stocks:

1. BXB
Fridays daily bar closed as an IB and we got a valid Accelerator Oscillator signal to place a buy stop above Fridays high.



2. CBA
This is a bit of a cheat trade, as I am just getting started trading the ASX20 using this technique I missed last weeks signals. However, Fridays low close might give us an opportunity to enter at a slightly cheaper price.



3. WDC
The 3rd of March high has formed a "buy fractal" as of the Friday close. Buy stops above this high could provide a good first entry into a new uptrend.



*Plan for Monday 8th March 2010:*
*Buy stops*
BXB
Entry: 7.34
Stoploss: 6.80 (below Monthly Pivot Point at Feb 26th low)
Signal: AC 2 green bars > 0 + inside bar above MPP
Targets: none

CBA
Entry: 55.35
Stoploss: 52.98 (below last swing low and MPP)
Signal: AO 0 cross + AC 2 green bars > 0
Targets: none

WDC
Entry: 12.36
Stoploss: 11.97 (below potential swing low forming)
Signal: buy fractal above gator jaw
Targets: none

*Sell stops:*
None.

*Fills:*
None.

*Exits:*
None.

*Order Adjustments:*
None.


----------



## sinner (9 March 2010)

Hi guys,

I apologise for not writing a trading plan for today (9th March) last night, as I was extremely ill last night.

Today I am still not feeling so great but mustered the strength to import yesterdays daily candles to Ninjatrader and look through the ASX20.

The only chart of interest for me today (thankfully, I don't have the strength right now for anymore) is TLS. We have developed a strong sell fractal at the March 2 low. 



*Plan for Tuesday 9th March 2010:
Buy stops:*
None.

*Sell stops:*
TLS
Entry: 2.8
Stoploss: 3.11 (MPP)
Signal: sell fractal
Targets: none

*Fills:*
BXB long: 7.34 (no slippage)
CBA long: 55.6 (terrible slippage of almost 30c into the open yesterday)
WDC long: 12.38 (2c slippage)

*Exits:*
None.

*Order Adjustments:*
None.


----------



## sinner (10 March 2010)

Morning guys,

Plenty of interesting developments in yesterdays trading:

ANZ developed a strong "wiseman 1" reversal candle on the 8th followed by an inside bar.



CSL posted a strong "wiseman 1" reversal candle



*Plan for Wednesday 10th March 2010:
Buy stops:*
None.

*Sell stops:*
TLS
Entry: 2.8
Stoploss: 3.11 (MPP)
Signal: sell fractal
Targets: none

ANZ
Entry: 23.64
Stoploss: 24
Signal: wiseman 1 "bearish divergent bar" + inside bar
Targets: Evaluate at the MPP (22.44)

CSL
Entry: 35.74
Stoploss: 36.76
Signal: very strong wiseman 1 "bearish divergent bar"
Targets: Evaluate at the MPP (33.54)

*Fills:*
None

*Exits:*
None.

*Order Adjustments:*
Possibly move BXB stoploss up closer to the $7 mark at EOD or tomorrows open after yesterdays strong performance. If unsure will just leave at current price.

EDIT: 

Two notes.

1. It is worth pointing out that I have done no backtesting or anything as a decision point to trade the ASX20 using this method. I have simply diverted some of my recent trading profits into testing this market. So it is just as much an experiment for me, but I am taking it seriously.

2. Can anyone please provide a poor soul with an odd years worth of AMP and WPL EOD data? I import mine from Comsec currently, but NT doesn't seem to like those two stocks. I am not so much concerned about AMP because the index is already overweight financials, but I would like some exposure to oil.


----------



## sinner (10 March 2010)

Another extremely interesting day on the market. CBA attempted a challenge at the 56 level and failed it seems. BXB made a new high for this trend also but posted a bearish/neutral close. ANZ posted a new high as well so I will be removing my sell stop for it tonight. WDC had a rather bearish day and came close to stopping me out, a shame if that happens because this trade looked really good to me on Sunday night.

Of interest to me today is the NCM chart. We have posted a clean "higher high" buy fractal from March 8 highs after strong test of support. If I was secretly harboring hopes of a hyperinflationary collapse of the economy, surely NCM would be the stock to hold : 




*Plan for Thursday 11th March 2010:
Buy stops:*
NCM
Entry: 34.64
Stoploss: 32.12
Signal: buy fractal 
Targets: Some gap filling around MR2 and MR3 would be nice. Will evaluate if we get there.

*Sell stops:*
TLS
Entry: 2.8
Stoploss: 3.11 (MPP)
Signal: sell fractal
Targets: none

*Fills:*
CSL short: 35.74 (no slippage)

*Exits:*
None.

*Order Adjustments:*
Remove ANZ sell stop (higher high posted, wiseman signal invalid).
BXB long stoploss moved up to $7 (might adjust this down a few cents at tomorrows EOD, $6.97 I guess).
CBA long stoploss moved up to $52.99


----------



## Lone Wolf (10 March 2010)

G'day Sinner,

Just looking at the backtest results you did for this system on the H4 EURUSD - The equity curve looks nice overall, but I notice that there can be long periods of loss. The worst of which was from about March 09 through to December 09 where the system slowly lost money the whole time. That's steady losses for 3/4 of a year. How do you feel about that? Was it because the EA was incomplete? Do you expect your live trading to have the same issue? Were you able to identify the market conditions in which the system performs poorly? More importantly, can you do anything about it?

Looking at the charts during that time, price looks to have a fair bit of chop with an upward bias. But if you stop trading when it looks like sideways action you might miss the next big move.

I'm not saying the system is a bad one, when it does make money it seems to make it quickly. I was just curious as to what your tolerance level is. How long is too long for a losing streak? You said the ASX20 trading is an experiment. Considering the EURUSD backtest shows long loss periods, how long would you allow the ASX20 trading to lose before you decided the system isn't working?

I enjoy reading your posts by the way, thanks for sharing.


----------



## sinner (11 March 2010)

Lone Wolf said:


> G'day Sinner,
> 
> Just looking at the backtest results you did for this system on the H4 EURUSD - The equity curve looks nice overall, but I notice that there can be long periods of loss. The worst of which was from about March 09 through to December 09 where the system slowly lost money the whole time. That's steady losses for 3/4 of a year. How do you feel about that? Was it because the EA was incomplete? Do you expect your live trading to have the same issue? Were you able to identify the market conditions in which the system performs poorly? More importantly, can you do anything about it?
> 
> ...




Hey mate.

Great questions! 

The Chaos system is (as I said in the first post of this thread) essentially just an accumulation of a few well known trading ideas like Dr. Elders Triple Screen Trading techniques, fractal breakouts, Elliott Wave momentum shifts, Elder-Ray style trades using the AC oscillator, etc.

All of these techniques have one thing in common: they are all known to traders as LTTF methods. LTTF stands for "Long Term Trend Following". You may have heard the well worn trading phrase before "let your winners run and cut your losers short". 

Well that is the goal of all LTTF systems. To provide a set of highly reliable signals which will almost guarantee you money during a strong trend (because all you are trying to do is hop in on the trend). Now, these same signals are probably utterly useless during a period of extended chop. 

The EA provided, is just a rudimentary mechanical one, it has no discretion or money management (MM is known to smooth the equity curve considerably). But you can see it still manages to adhere to the phrase "let your winners run and cut your losers short". So we don't really care about the periods of extend chop, because we know that over a large enough set of trades we will eventually run into a trend which will pay off our losing streak and then some. 

This is a really important point to understand:* the market is very paradoxical.* For any given trade the outcome from our perspective before we place said trade is essentially (although not 100% deterministically) random. But if the market were truly random, trends would almost never occur. Yet, trends occur all the time.

So for all LTTF trades, it is a truly essential part of our trading psychology keep this point in mind. We are trading the market structure. We wish to make money from higher highs and higher lows or lower highs and lower lows. That means standing first in line to hit the bid or offer when everyone else is fading the trend or already entered the trend 100 pips above you using some MA cross or something.

But the fact remains, we are trading the market structure secure in the knowledge that eventually a trend must eventuate from any breakout of consolidation. We will never be late for any trend that develops, we are always first in line. Nobody wants to buy the highest point, it even seems silly when you first think about it. But, think about it some more and you will realise 1 pip higher than the current high is the only confirmed place that a new trend might be developing.

I hope that sort of answers the fundamental question here but I will reply to each of your actual questions now:



> That's steady losses for 3/4 of a year. How do you feel about that? Was it because the EA was incomplete? Do you expect your live trading to have the same issue? Were you able to identify the market conditions in which the system performs poorly? More importantly, can you do anything about it?




1. Steady losses after 20% gains, I feel fine with that. I programmed the EA to take what the market structure provides and it did exactly that. For 3/4 of the year, the market was in unfavorable conditions for LTTF trades but the EA only lost ~3000 of the ~9000 it had made. Pretty good work if you ask me! 
2. EA is not incomplete, it was just a rudimentary program to run some backtests, there is no way I would trust an MT4 EA to do my job as a trader.
3. RE: live trading. One of Bill Williams core rules is "never trade when the alligator is sleeping", this is a discretionary rule that is hard to plug into the EA but very easy to apply visually when you open your charts. But this is the core rule to keep you out of chop trades so the EA is obviously trading in some cases where I wouldn't. There is no issue about "missing the good trade" as you said because we only ever start trading in the direction of the trend once a swing high or swing low has been established outside a consolidation. i.e. None of the good trades for us are in the consolidation anyway. Please see the Alpari link at the beginning of this thread for more info on using the alligator to time your trades.
4. See above.
5. Yes, you can do something about it: stand aside. I show many live examples in this trade of standing aside until the trend is confirmed.



> I was just curious as to what your tolerance level is. How long is too long for a losing streak?




Seriously, great question.

It is worth looking at this PDF for the answer (think I linked it previously in this thread too). 
View attachment Trading%20for%20Infinite%20yield--%20Utility%20theory%20and%20you.pdf




> You said the ASX20 trading is an experiment. Considering the EURUSD backtest shows long loss periods, how long would you allow the ASX20 trading to lose before you decided the system isn't working?




Well, EURUSD backtest is a single trading instrument. Trading the ASX20 is very different because you are essentially taking on 20 instruments which are not necessarily correlated (although often can be during periods of extreme market strengh or weakness). This actually allows a much better risk profile than what can be gathered from trading a single instrument. As you can see I am holding both longs and shorts against different components of the index, whereas if I was trading just the index itself I would probably have to be long everything. e.g. tomorrow if I wake up to find the SP500 tanked 50 points overnight I might get stopped out of my long trades but the short ones will remain happily intact.

It might be worth looking at this PDF to answer some of your questions in that regard. Trading LTTF it is very often important to spread your trades out across a variety of instruments to achieve a smoother equity curve.
View attachment turtlerules.pdf


I honestly hope this helps and I wasn't just rambling for the last 30 minutes as I typed this post. Please get back to me if you feel unsatisfied, I will try to respond again.


----------



## tech/a (11 March 2010)

I maybe wrong but I think your going to find it difficult to make a profit without a bias to either the long or short side of the market.

Interesting thread.


----------



## lukeaye (11 March 2010)

sinner said:


> Hey mate.
> 
> As you can see I am holding both longs and shorts against different components of the index, whereas if I was trading just the index itself I would probably have to be long everything. e.g. tomorrow if I wake up to find the SP500 tanked 50 points overnight I might get stopped out of my long trades but the short ones will remain happily intact.




Are you sure about that? You have picked two stocks, which traditionally when the market tanks, do not follow suit. I wouldnt short defensive stocks in a hope that when the market tanks they will cover your longs, because those longs will go down alot harder and alot faster then CSL or TLS.

You might want to short stocks which more closesly correlated with the index. TLS and CSL are prob the worst two i can think of.

But good luck anyhow i know how much you value my opinion.


----------



## lukeaye (11 March 2010)

tech/a said:


> I maybe wrong but I think your going to find it difficult to make a profit without a bias to either the long or short side of the market.
> 
> Interesting thread.




I havent come up with a way either.

Sinner have you had success with a strategy using a long and short bias?


----------



## sinner (11 March 2010)

tech/a said:


> I maybe wrong but I think your going to find it difficult to make a profit without a bias to either the long or short side of the market.
> 
> Interesting thread.




Lovely post tech, just come in here, spout some statement without any thoughts or reasoning to back it up, gee thanks for the insight. How come you aren't this helpful all the time? 

Since you provided absolutely no thoughts at all, I am wondering why you believe I should bias my trading by believing the NCM share price is somehow related to the TLS share price is somehow related to the FGL share price?

As I already stated in the above post, during periods of extreme market strength or weakness share prices across sectors are often strongly correlated. So what? I don't trade a bias, *I trade the chart*. When all the sectors are tanking or uptrending at once it'll show up on the charts. I won't need a bias, I will be following the same plan then as I am today.

Until then, I will be happy to *ignore* the index, hold longs on CBA, shorts on CSL and whatever other setups my charts *not my bias* indicate.


----------



## sinner (11 March 2010)

lukeaye said:


> I wouldnt short defensive stocks in a hope that when the market tanks they will cover your longs, because those longs will go down alot harder and alot faster then CSL or TLS.




I don't *hope* anything.

I just trade the chart as the setups come along.

If you want to *contribute* some *thoughts* that would be great.

Until then, I will be sitting here quietly trading the plan posted each day before the market opens.

So far from a forex perspective, I have had absolutely no issues trading each individual setup on each individual chart and IGNORING the market bias. If I was paying attention to market bias I would've missed the awesome play that has been happening for weeks now: long comdolls short Eurozone, USD neutral. Because I probably would've been flip flopping between USD bearish and bullish and losing money like all the other idiots on forexfactory who are looking at the EURUSD chart to short AUDUSD.

What a rubbish way to trade.


----------



## lukeaye (11 March 2010)

sinner said:


> I don't *hope* anything.
> 
> I just trade the chart as the setups come along.




And i don't know what set up you saw. NCM down and CSL up, you have lost both ways. Doubled you loss. If you had of been long both, you would at least be making some money.


----------



## nomore4s (11 March 2010)

lukeaye said:


> And i don't know what set up you saw. NCM down and CSL up, you have lost both ways. Doubled you loss. If you had of been long both, you would at least be making some money.




Are you serious? As far as I can tell neither position has been stopped out yet and if they are so what? Move on to the next trade.
The set up was what it was and he traded it that way, so to say he should be long both because he's down a few cents on each trade is childish.

Sinner is trading his set ups with full explanation on why and how, if you don't agree with it leave the thread alone so those who are interested can learn.


----------



## sinner (11 March 2010)

lukeaye said:


> And i don't know what set up you saw. NCM down and CSL up, you have lost both ways. Doubled you loss. If you had of been long both, you would at least be making some money.




The signals for all orders have already been posted with charts so if you "don't know" you can just go back and look instead of posting rubbish "ifs" and telling me what I have lost.

CSL isn't a loss until my stoploss limit is hit. I am not even in an NCM trade yet (do you actually know what a buy stop is? Doesn't seem so).

In the money on 2 of the 4 trades I am in, despite receiving a 30c slip on my CBA entry.


----------



## Trembling Hand (11 March 2010)

For what its worth I tend to agree with Techs idea. With many "if" attached to that idea. To put some meat onto it as we all know I never make a statement without the stats to back it up rolleyes: yeah right). I have put together a back test of sorts to find the rolling correlation of each XTL (ASX20) constituents to the actual index. Have ran out of time right now but have got to these messy graphs for now. Not the XTL (thick black line) right in the middle of them all, no surprise there.

Trouble is though the time frame. Clearly over a long period you have stocks moving in separate directions. But over a short period say 20 - 40 days they are actually very closely correlated. This may be where your idea breaks down. If not breaks down maybe at least fights against the stats if you are actually trying to be long and short at the same time.

Will come back latta with the correlations over a 20 day period, if anyone cares about it.


----------



## sinner (11 March 2010)

Trembling Hand said:


> For what its worth I tend to agree with Techs idea. With many "if" attached to that idea. To put some meat onto it as we all know I never make a statement without the stats to back it up rolleyes: yeah right). I have put together a back test of sorts to find the rolling correlation of each XTL (ASX20) constituents to the actual index. Have ran out of time right now but have got to these messy graphs for now. Not the XTL (thick black line) right in the middle of them all, no surprise there.
> 
> Trouble is though the time frame. Clearly over a long period you have stocks moving in separate directions. But over a short period say 20 - 40 days they are actually very closely correlated. This may be where your idea breaks down. If not breaks down maybe at least fights against the stats if you are actually trying to be long and short at the same time.
> 
> Will come back latta with the correlations over a 20 day period, if anyone cares about it.




Thanks TH, great stuff. It would be nice if you post the 20 day slice, I would certainly appreciate it. Possible for you to post a few different slices from a few different market periods over the last 2 odd years?

It seems the main issue has been caused here because I posted a couple of reversal trades. To me this seems rediculous. It's not like I said, "hey I am shorting CSL tomorrow to see all time new lows". All I said was, "we are high up, supply has possibly entered at a resistance level, on a break of daily lows shorts to support could pay off". By the time we hit support I might be taking longs again on that stock. Or maybe by the time we hit support I will decide to take more shorts on a break of that support. Who knows! I'm certainly not going to ignore a great looking short signal just because the SPI is up on the year and RBA is hiking rates or something like that?

Frankly, I'm pretty surprised to see lukeaye dissing CSL shorts, as he is supposedly now using Volume Spread Analysis as his "example of conservative trading strategy"...if I was VSA trading CSL there is no way in hell I would be long today.


----------



## tech/a (11 March 2010)

sinner said:


> Lovely post tech, just come in here, spout some statement without any thoughts or reasoning to back it up, gee thanks for the insight. How come you aren't this helpful all the time?




Always a pleasure.



> Since you provided absolutely no thoughts at all, I am wondering why you believe I should bias my trading by believing the NCM share price is somehow related to the TLS share price is somehow related to the FGL share price?




I have not stated that you should have a belief that shares are correlated.Only having a bias toward a direction may be more benificial and easier to trade. Of course timeframe related.



> As I already stated in the above post, during periods of extreme market strength or weakness share prices across sectors are often strongly correlated. So what? I don't trade a bias, *I trade the chart*. When all the sectors are tanking or uptrending at once it'll show up on the charts. I won't need a bias, I will be following the same plan then as I am today.




So you trade both long and short until the market shows a bias then you trade WITH that bias.



> Until then, I will be happy to *ignore* the index, hold longs on CBA, shorts on CSL and whatever other setups my charts *not my bias* indicate.




Fair enough as there is no distinct bias makes sence.

CSL
You may wish to work on your VSA with a 1.2% rise today.


----------



## Lone Wolf (12 March 2010)

G'day Sinner,

Thank you for taking the time to write such an in depth response. I very much appreciate it.

If you have faith in your system and know that over time it will be profitable then it's psychologically easier to make it through a drawdown period. This would be the case if you had backtest results indicating your system has an edge. If your system makes a 20% gain before going into drawdown then it's easier to wait out the drawdown period because you're handing back profits rather than losing initial capital.

My initial thought was that you are now starting to trade on a market you have no backtest results for (ASX20). If you now started off with a drawdown period, how long could you let it run before you start to worry that the system doesn't work on the ASX20 and that there might not be a recovery at all? A certain number of instruments in the ASX20 will trend nicely. A certain number of instruments will give you entry signals that suck you into a losing trade. The rest won't even trigger an entry signal. Do you have confidence that you will find enough trends to cover the losses of the rest? You answered this by showing me that you have faith that the system has an edge in any market that often trends and that you can reduce the number of the bad trades taken using the alligator. Your tolerance for drawdown will likely be high due to this faith in your system combined with your previous trading success. Beyond that, how much capital you're willing to throw into an initial drawdown period is a personal choice.

Thanks again. I'll be reading more about it all over the weekend.


----------



## Trembling Hand (12 March 2010)

Ok Sinner here are some stats,




And a rolling Chart. remember a correlation of 1 is locked together while anything above 0 is moving in a similar way, anything below 0 moving in the opposite direction.




I would say that _mostly_ if you are long & short this group of shares you will be taking some heat on one side while winning on the other. A quick look at the occurrences when a share does move in negative correlation to the rest is, barring Dog TLS, is a surprise announcement and they are swift moves.

Anyway as an idea of _trying _to be long and short I would say - pain.


----------



## Garpal Gumnut (12 March 2010)

This is a beaut thread, and one of the best examples of chaotic thinking on ASF. Keep it up. Mandelbrot would be proud. 

gg


----------

