Statistics, Statistics and more Statistics

never design a trading system without proper prior analysis. post your market statistics here

Moderator: moderators

User avatar
TheRumpledOne
rank: 10000+ posts
rank: 10000+ posts
Posts: 11430
Joined: Sun May 14, 2006 9:31 pm
Reputation: 45
Location: Oregon
Real name: Avery T. Horton, Jr.
Gender: None specified
Contact:

Postby TheRumpledOne » Tue Feb 15, 2011 9:18 pm

Don't complicate matters.... that's what Yale students do.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

Please do NOT PM me with trading or coding questions, post them in a thread.

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.

Relativity
rank: 150+ posts
rank: 150+ posts
Posts: 364
Joined: Mon Nov 15, 2010 4:19 pm
Reputation: 0
Gender: None specified

Postby Relativity » Tue Feb 15, 2011 9:55 pm

TheRumpledOne wrote:
Relativity wrote:
TheRumpledOne wrote:Old Rat vs New Rat?

It's the same Rat!!

The difference is using Rat Reversals on D1 to select which pairs to trade.


Yes I see that as well, but the other thing is that the body : wick ratio on the average is pretty consistent across all timeframes. Of course we want to use the D1 candle since there will be more cheese to eat.

The wick size may also vary somewhat with different pairs, like USDJPY has it at less than 20 pips on the average. The ratio is slightly different as well. But its still tradable I suppose.

SB talked about the rat zone being both mobile in position and varying in size. My current system is now using a 96 LWMA outer band on M15 TF (with deviation based on body/wick ratio, computed around 1.9 to sometimes 2.2 depending on pair) to capture this.

The band can contract or expand in size depending on volatility. It can move with price. I call this the dynamic rat zone. Works almost like boilinger bands. It keeps me away from vertical markets, which increases whipsaw, unless a trend setup is prepared in advanced. If so, the same dynamic rat zone becomes a basic trend channel, allowing breakout trades (like a semafor?).

It also tells me when horizontal markets are (IMO nice for rat trading since you can scale in and out of the zones all day without getting hurt at all) are available. Then this same zone becomes a standard rat reversal zone.

At least, this is what I've observed so far.


"The band can contract or expand in size depending on volatility. It can move with price. I call this the dynamic rat zone. "

Careful or you will wind up in Yale!!


TheRumpledOne wrote:Don't complicate matters.... that's what Yale students do.


Yup I will be careful. That's why I had been trimming down on my strategy and only to its very core recently. To keep things as simple as possible, at least, when trading.

Before and after trading, that's where I do a little 'homework' on price action research like this to find all the edges possible. Then try some of these edges on backtesting, demo front testing, and in the next live trading session. Most of the time 99% of these get thrown out (typically during live trading itself) because it complicated the decision making (but archived somewhere for future research) What remains is what you see today, those that survived battles of sticks and stones lol.

Relativity
rank: 150+ posts
rank: 150+ posts
Posts: 364
Joined: Mon Nov 15, 2010 4:19 pm
Reputation: 0
Gender: None specified

Postby Relativity » Tue Feb 15, 2011 10:03 pm

pika wrote:
Relativity wrote:We have to overcome a few problems when looking into D1 ratios in this manner.

1- Standard D1 candles being of different timezone's due to different brokers.
I do not think we can use the standard D1 unless you trade a specific market timing/open, since the standard D1 is broker timing based. I trade almost all over the place, so it doesn't make sense for me to use a small D1 candle that is just formed. That is if the broker is based on NY timing. I solved the problem partially using M15 x 96 candles and putting them into a box marked with high/low/start time/end time. (ref: SB thread)

2- View of chart can be distorted
I tried to use ratio like how you did, but I realised the point of trading candle wicks is about getting pips either the average length known (my method) or a length that occurs at the highest frequency (TRO's method). Both happened to be almost the same length (20 pips for most pairs), so I am delighted with the results. Not the length of the current candle's wick derived from the current D1 candle ratio taken from its current range.

I understand about the issue of 'opportunity', but I realised the risk is not worth it since it will distort my view of the chart. Too many calculations here and there (e.g. in this case averaging price once and then averaging it further a 2nd time) can become a huge problem. Keeping calculations simple helps alot. Also, a single news based candle can blow up the ratio into pieces (spoken from my personal experience when I tried to use ratio).

About the M15 96 LWMA :

The idea is M15 x 96 = D1 candle timing. So the MA, in order to capture the day's movement has to be 96 on a M15 chart. And I chose M15 for its Pip/Time E being a good baseline.

How did it end up being LWMA : If you read the SB thread, there is a system 'created' by Wavetop/SB/whoever. It uses 108 LWMA on H1 and captures the weekly wave movement very very well. 108 hours = approx 4.5 days, around 1 week which is actually 4.5 trading days, excluding 0.5 day for the erratic news friday; very much excellent common sense. So I experimented using LWMA to capture the daily movement, 'just to see if it works'. So far, not bad!

But this doesn't tell me the top of the wave, but the bottom/correction. So I borrowed an idea from bollinger bands and played around it for a while. Standard deviations are a very basic math calculation like averages, so I thought why not test them out? The standard bands uses 2 dev for its outer bands, which happened to be almost the same as the body/wick ratio.

So you see, a lot of my current system comes from pieces of other systems that I find useful in following and capturing the PA, especially the PA entering the rat zone and PA exiting the rat zone. This is what the LWMA Band + SB does.

I had to spend a lot of time to make sure all of them work together without conflicting each other. At the same time not distorting the real market/chart view. TRO's main idea (catching the wick) still trumps in the end of the day. He mentioned that method of entry doesn't matter, which is very true. I had to work it out myself, but I will never scrap the general idea of rat zones from my system.

Either way, I wonder how do you get your ranges? As in setting the reversal trade zone at 10% of the long range daily ATR. I am not a fan of ATR since I find it 'overly calculated'.

Thanks Relativity, for your unreserved sharing. I will have to read your message carefully to understand it and maybe seek your advice again. You must have taken a lot of time and effort to integrate these concepts together.

How I get my ranges - I use 10% x average daily range (ATR 100 on D1). E.g. ATR100 of GBPUSD = 150pips, so the reversal trade zone will be within 15 pips from the prevailing daily high/low. I will wait for price to retest the zone with 2 or more M15 high/low bars penetrating the zone before taking a trade. Watching the price action and candlestick pattern within the zone is important. Stop loss is set to the same zone width (e.g. 15 pips for GBPUSD).

Why 10% of ATR? Rationale is if the average wick is 25% of ATR, then I can expect to profit the remainng 15% of the ATR, theoretically. Even on days when the range happen to be smaller, e.g. 60% of ATR or a 90pips range using the GBPUSD example, there is still a good chance to gain 25%x90 - 15 = 7.5 pips, provided that daily candle happen to fit with the wick:body ratio.


Admittedly, I still find this method over calculated... but I get your point. Thanks for sharing. Maybe you are thinking this way coz your eventual goals are different from mine? My intention eventually is to capture 1/2 of a D1 candle range (est 50 pips avg), which is why I study and research the price action surrounding the wick as well.

pika
rank: 50+ posts
rank: 50+ posts
Posts: 74
Joined: Tue Sep 21, 2010 5:00 pm
Reputation: 0
Gender: None specified

Postby pika » Wed Feb 16, 2011 1:47 am

Relativity wrote:Admittedly, I still find this method over calculated... but I get your point. Thanks for sharing. Maybe you are thinking this way coz your eventual goals are different from mine? My intention eventually is to capture 1/2 of a D1 candle range (est 50 pips avg), which is why I study and research the price action surrounding the wick as well.

With MT4 programming, coding the trade zone based on the formula is quite easy. More importantly, the concept must first be sound, otherwise coding is just another form of mental exercise. In practice my trade zone is rather stringent with less than 20pips. SL is set to be same as the zone distance because if it is lesser, then it becomes possible that a trade can be taken out within the zone. I want to leave no room for such incidence, so the trade zone should not contain any SL. Either price reverses from the zone or it doesn't, so if it dosen't, then let the trade be stopped outside the zone.

Humble
rank: 500+ posts
rank: 500+ posts
Posts: 576
Joined: Fri Mar 20, 2009 10:29 am
Reputation: 0
Gender: Male

Postby Humble » Wed Feb 16, 2011 1:59 am

Either price reverses from the zone or it doesn't, so if it doesn't why wait for your S/L to be hit? Yes you will miss the odd trade that fannies about and then takes off.

Just a matter of personal preferences with money management.
Is price closing higher or lower than something? Simple yet powerful question. ..MO

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.

Humble
rank: 500+ posts
rank: 500+ posts
Posts: 576
Joined: Fri Mar 20, 2009 10:29 am
Reputation: 0
Gender: Male

Postby Humble » Wed Feb 16, 2011 3:05 am

Relativity wrote: My intention eventually is to capture 1/2 of a D1 candle range (est 50 pips avg), which is why I study and research the price action surrounding the wick as well.


My thoughts, in case it helps and bearing in mind I have to keep it simple, for some reason that's too unflattering to mention :).

Use D1 candles.
Make it 50 pips for the time being.
Need to have a trade direction.
Need a bounce/pull back before entering.
An indi would be helpful to save screen time, but must be simple enough to trade without one.

1/. Take direction from previous candle and note the extreme price ie high for an up bar and low for a down bar.
2/. Require a pull back of at least (say) 50 pips from previous candle's extreme.
3/. Enter on passing previous candles close or extreme, subject to a min. 50 pips advance.
Is price closing higher or lower than something? Simple yet powerful question. ..MO

Humble
rank: 500+ posts
rank: 500+ posts
Posts: 576
Joined: Fri Mar 20, 2009 10:29 am
Reputation: 0
Gender: Male

Postby Humble » Wed Feb 16, 2011 3:49 am

Notes, assume a long trade for ease of discussion.

Would be unsuccessful any day price reverses direction, or continues in the same direction without a reverse wick. These days should (hopefully) mostly result in no trade rather than a loss.

A 50 pip pull back from yesterdays extreme would be yesterdays high wick plus today's low wick.

Do your stats. given any indication that this may be a worthwhile exercise?.
Is price closing higher or lower than something? Simple yet powerful question. ..MO

pika
rank: 50+ posts
rank: 50+ posts
Posts: 74
Joined: Tue Sep 21, 2010 5:00 pm
Reputation: 0
Gender: None specified

Postby pika » Wed Feb 16, 2011 4:10 am

Relativity wrote:We have to overcome a few problems when looking into D1 ratios in this manner.

1- Standard D1 candles being of different timezone's due to different brokers.
I do not think we can use the standard D1 unless you trade a specific market timing/open, since the standard D1 is broker timing based. I trade almost all over the place, so it doesn't make sense for me to use a small D1 candle that is just formed. That is if the broker is based on NY timing. I solved the problem partially using M15 x 96 candles and putting them into a box marked with high/low/start time/end time. (ref: SB thread)

2- View of chart can be distorted
I tried to use ratio like how you did, but I realised the point of trading candle wicks is about getting pips either the average length known (my method) or a length that occurs at the highest frequency (TRO's method). Both happened to be almost the same length (20 pips for most pairs), so I am delighted with the results. Not the length of the current candle's wick derived from the current D1 candle ratio taken from its current range.

I understand about the issue of 'opportunity', but I realised the risk is not worth it since it will distort my view of the chart. Too many calculations here and there (e.g. in this case averaging price once and then averaging it further a 2nd time) can become a huge problem. Keeping calculations simple helps alot. Also, a single news based candle can blow up the ratio into pieces (spoken from my personal experience when I tried to use ratio).

About the M15 96 LWMA :

The idea is M15 x 96 = D1 candle timing. So the MA, in order to capture the day's movement has to be 96 on a M15 chart. And I chose M15 for its Pip/Time E being a good baseline.

How did it end up being LWMA : If you read the SB thread, there is a system 'created' by Wavetop/SB/whoever. It uses 108 LWMA on H1 and captures the weekly wave movement very very well. 108 hours = approx 4.5 days, around 1 week which is actually 4.5 trading days, excluding 0.5 day for the erratic news friday; very much excellent common sense. So I experimented using LWMA to capture the daily movement, 'just to see if it works'. So far, not bad!

But this doesn't tell me the top of the wave, but the bottom/correction. So I borrowed an idea from bollinger bands and played around it for a while. Standard deviations are a very basic math calculation like averages, so I thought why not test them out? The standard bands uses 2 dev for its outer bands, which happened to be almost the same as the body/wick ratio.

So you see, a lot of my current system comes from pieces of other systems that I find useful in following and capturing the PA, especially the PA entering the rat zone and PA exiting the rat zone. This is what the LWMA Band + SB does.

I had to spend a lot of time to make sure all of them work together without conflicting each other. At the same time not distorting the real market/chart view. TRO's main idea (catching the wick) still trumps in the end of the day. He mentioned that method of entry doesn't matter, which is very true. I had to work it out myself, but I will never scrap the general idea of rat zones from my system.

Either way, I wonder how do you get your ranges? As in setting the reversal trade zone at 10% of the long range daily ATR. I am not a fan of ATR since I find it 'overly calculated'.

I have read through your post and understand how you try to capture the daily high/low. Just a note on bollinger bands is that this indicator is based on SMA and hence it trails behind the price movement and the 2 standard deviation lines are also derived from the SMA line which itself is a derived figure. Personally I find these sd lines rather distracting so I don't use BB and don't have much experience in using it.

Relativity
rank: 150+ posts
rank: 150+ posts
Posts: 364
Joined: Mon Nov 15, 2010 4:19 pm
Reputation: 0
Gender: None specified

Postby Relativity » Wed Feb 16, 2011 5:18 am

Humble wrote:Notes, assume a long trade for ease of discussion.

Would be unsuccessful any day price reverses direction, or continues in the same direction without a reverse wick. These days should (hopefully) mostly result in no trade rather than a loss.

A 50 pip pull back from yesterdays extreme would be yesterdays high wick plus today's low wick.

Do your stats. given any indication that this may be a worthwhile exercise?.


Sounds a little like new rat. Will think about the logic and code the stats out if I observe something about it in real time.

pika wrote:
Relativity wrote:We have to overcome a few problems when looking into D1 ratios in this manner.

1- Standard D1 candles being of different timezone's due to different brokers.
I do not think we can use the standard D1 unless you trade a specific market timing/open, since the standard D1 is broker timing based. I trade almost all over the place, so it doesn't make sense for me to use a small D1 candle that is just formed. That is if the broker is based on NY timing. I solved the problem partially using M15 x 96 candles and putting them into a box marked with high/low/start time/end time. (ref: SB thread)

2- View of chart can be distorted
I tried to use ratio like how you did, but I realised the point of trading candle wicks is about getting pips either the average length known (my method) or a length that occurs at the highest frequency (TRO's method). Both happened to be almost the same length (20 pips for most pairs), so I am delighted with the results. Not the length of the current candle's wick derived from the current D1 candle ratio taken from its current range.

I understand about the issue of 'opportunity', but I realised the risk is not worth it since it will distort my view of the chart. Too many calculations here and there (e.g. in this case averaging price once and then averaging it further a 2nd time) can become a huge problem. Keeping calculations simple helps alot. Also, a single news based candle can blow up the ratio into pieces (spoken from my personal experience when I tried to use ratio).

About the M15 96 LWMA :

The idea is M15 x 96 = D1 candle timing. So the MA, in order to capture the day's movement has to be 96 on a M15 chart. And I chose M15 for its Pip/Time E being a good baseline.

How did it end up being LWMA : If you read the SB thread, there is a system 'created' by Wavetop/SB/whoever. It uses 108 LWMA on H1 and captures the weekly wave movement very very well. 108 hours = approx 4.5 days, around 1 week which is actually 4.5 trading days, excluding 0.5 day for the erratic news friday; very much excellent common sense. So I experimented using LWMA to capture the daily movement, 'just to see if it works'. So far, not bad!

But this doesn't tell me the top of the wave, but the bottom/correction. So I borrowed an idea from bollinger bands and played around it for a while. Standard deviations are a very basic math calculation like averages, so I thought why not test them out? The standard bands uses 2 dev for its outer bands, which happened to be almost the same as the body/wick ratio.

So you see, a lot of my current system comes from pieces of other systems that I find useful in following and capturing the PA, especially the PA entering the rat zone and PA exiting the rat zone. This is what the LWMA Band + SB does.

I had to spend a lot of time to make sure all of them work together without conflicting each other. At the same time not distorting the real market/chart view. TRO's main idea (catching the wick) still trumps in the end of the day. He mentioned that method of entry doesn't matter, which is very true. I had to work it out myself, but I will never scrap the general idea of rat zones from my system.

Either way, I wonder how do you get your ranges? As in setting the reversal trade zone at 10% of the long range daily ATR. I am not a fan of ATR since I find it 'overly calculated'.

I have read through your post and understand how you try to capture the daily high/low. Just a note on bollinger bands is that this indicator is based on SMA and hence it trails behind the price movement and the 2 standard deviation lines are also derived from the SMA line which itself is a derived figure. Personally I find these sd lines rather distracting so I don't use BB and don't have much experience in using it.


Yes I understand that generally MA lags, regardless of type (LWMA in this case) The SD lines derived from the LWMA are just one of the general guides for me to plot the trend channels manually. I used to find them distracting and confusing as well until I defined their usage clearly.

Then I look to trade purely off the drawn trend channel bounces. If the channel breaks and happens to be within the rat zone, a reversal is impending and hence I will look to draw a reversal trend channel (using the SD lines to guide if there are any). The actual reversal happening is then observed : usually price will make a new high and then reverse (sounds familiar?) while setting its 1st reverse bounce into the new channel. If this is the case, the new channel is confirmed and trading the bounces repeats.

Humble
rank: 500+ posts
rank: 500+ posts
Posts: 576
Joined: Fri Mar 20, 2009 10:29 am
Reputation: 0
Gender: Male

Postby Humble » Wed Feb 16, 2011 6:06 am

Relativity wrote:Sounds a little like new rat. Will think about the logic and code the stats out if I observe something about it in real time.


Thanks.

Image
Is price closing higher or lower than something? Simple yet powerful question. ..MO

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.


Return to “statistics”