2009.09.10 DRAIN THE BANKS - LIKE A RAT

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monarch
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Postby monarch » Thu Nov 12, 2009 10:00 pm

I have decided to post my trades in a new thread so I would not clutter up TRO's Rat Trade setups.

http://kreslik.com/forums/viewtopic.php?p=30319#30319

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Paul
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The rat against Yale

Postby Paul » Fri Nov 13, 2009 12:26 am

Hi there,

I would like to make reference to this quote:

"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat."

I absolutely agree that intelligence allows us to practically and successfully do what needs to be done in ever changing conditions. In real life nobody is searching for patterns. We adapt to new conditions by intuition and intuition is our experience based on subconsciousness. It means that lack of experience will lead to blind avenues sooner or later. Knowledge is not a synonym of experience. An experienced trader will do better than a knowledgeable one.

The problem with Yales and the like is that they believe knowledge and sciences give an edge over experienced people. What a grand misconception. Noone was teaching us the science of walking, noone was teaching us seeing, listening or speaking or even loving. Yet some people believe that Yale graduates will make better traders because they have attained higher levels of education unavailable to the average. The false idea that knowledge can substitute experience lies in the nature of selfish and lazy minds. There is a price for a very good experience, meaning that one needs both time and money to spare. A Yale thinks he or she may outwit others by not wasting his precious time or money and follow what the crowd is doing. Instead, having admitted that generally the crowd is doing pretty well, they would investigate the ways the crowd never takes or rarely takes hoping to find a hidden solution/pattern. The truth is that even if they found one, it would not alter the ways the crowd goes and their probability of success will never be on the right side of the curve. In everyday life we do not try to outsmart the others. It is not necessary. What is necessary though is avoiding some places at all cost and being in some places also at all cost. Trading shows exactly the same problem. You should know what places to avoid. And you should know where you should be for sure if you want to make some money. You cannot be the first to see and take every time. In the material world you would be pushed aside many a time. Tried to get on a crowded bus but failed ? Take another one.

Now a little about the hot stuff. The theory of information says that you need only two independent signals to make a trading decision. Independent means that ideally they should not be correlated. A substitute of it is when one signal comes from one indicator and the second piece of information will be derived from a different time frame but from the same indicator. Rather rare trades will be signaled. Two signals are enough to take a trading decision. No mention about the rate of success. The rate of success will be determined not by those two signals but by what you will do when the trade is opened. It is futile to incorporate any more signals than two into a trading system (my opinion of course) because it would only increase the entropy of the system and in some cases would cripple you for good. Many indicators on the chart are an excellent alibi for not trading. What you really need except for those two signals is, like in real life, the topology of the area in order not to stumble. The way topology is presented should suit your eyes. You should not manipulate with the image otherwise you will need to learn anew. Each time you learn anew your experience begins from zero. Topology of the market should be identified and understood at a first glance. If not then you need more experience. You do not have any problem taking a pretty woman from a mass of not very attractive ladies, do you? Now, I find the 3ZZSemafor indicator a very very valuable tool. That it overpaints? If you understand the market you will admit that it is an advantage, not a disadvantage in fact. The 3ZZSemafor is a true non-lag indicator. In order to utilize its full potential one should use it with another non-lagging indicator. Then its precision will be maintained and trading opportunities won't be missed. I know that it is a very difficult problem in general but could you tell me how many true non-lag indicators are there in the galore of standard TA indicators? One of the propositions is taking some solutions from non-linear dynamics. As I said earlier, the second indicator must be uncorrelated with the first one. So much more to enjoy.

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roger_over
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Postby roger_over » Fri Nov 13, 2009 1:32 am

Hi Paul, interesting reading, any advice on the other indicator to use ? I really find the 3ZZ semafor a valuable tool , However at this point and with so many RAT indis available I am a bit overwhelmed and want to keep it as simple as possible. However when I "SEE" the 3 ZZ set-up and then I see the H1 ,D1 bias opposite of the signal I start to "THINK" any advice?? to help me keep it simple?THank you so much
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Humble
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Postby Humble » Fri Nov 13, 2009 5:33 am

A Semafor is like your pretty woman, with a wig, nose job and breast implants. It will do whatever it takes to look good in the end! This just not involves repainting but includes changing numbers and jumping from one day to the next (on a 1 hr chart).

TRO made a similar indi that left a trail of the numbers as a higher high or lower low was formed.

In a sense an indi is like a road map showing how you arrived at this point (price) in time. Hence they lag. Mostly being formed from moving averages could also have a bit to do with it. A nice thing about this forum is it looks at trading without these traditional (squiggly) indis.

To answer your question you might be interested in the SHI Channel indi. TRO has a nice one. If you find something good to use it with (other than a semafor) let me know.
Is price closing higher or lower than something? Simple yet powerful question. ..MO

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To roger_over

Postby Paul » Fri Nov 13, 2009 6:46 pm

Hi,
Again about a setup of indicators.
Two indicators are enough, any more than two complicate decision making.
I do not understand why your two indicators can give contradictory signals.
It means that the setup is entirely wrong.

One signal (from one indicator) should tell you whether to open a trade, the second indicator should tell you the direction of the trade - not whether to trade or not.

Once again, all you need to know is when to take a trade (signal 1) and which direction - buy or sell (signal 2). You do not need anything more besides the topology of the market.

If your two indicators signal to trade then one of them is unnecessary. Abort it. Because you are missing a signal about the direction of the trade.
A one indicator cannot give you two kinds of information at the same time. There is no magic 2-in-1 indicator. It is a gross mistake to use two indicators performing exactly the same role (carrying the same type of information) and hope that an alignment of signals is what ensures a successful trade. Wrong. Very wrong.

Treat your trading in a manner similar to message encryption/decryption. To understand the message from the market you need two different (independent, uncorrelated) pieces of information.

Think about it like taking a bus. One information required by you is the bus number you have been waiting for. The second piece of information is which way it is going to take you and which way you want to go. You cannot know it from the bus number.

Do not multiply indicators carrying the same or very similar pieces of information. Do not mess up your setup. Keep it as simple as possible.

An example: GBPUSD. The arrows indicate to open a position. The semafor 2 shows the direction - two Buys.
Long @ 1.6678 and 1.6652. TP 1.6700 (Semafor 3). +22, +48 pips.
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roger_over
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Postby roger_over » Sat Nov 14, 2009 3:06 am

Would you mind sharing the blue area indicator ? Is that one of TRO's?
Thank you for sharing your trading experience with us all. It is a refreshing read as is this forum.
Genius is more often found in a cracked pot than in a whole one.

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the blue area

Postby Paul » Sat Nov 14, 2009 11:01 am

The blue area is a UPO.
It is not one of TRO's.
Do you have two indicators of which one tells you to trade and the other which direction to go? No? Then stop trading. It will ruin you.

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Postby roger_over » Sat Nov 14, 2009 10:46 pm

NP I was just wondering what that indi was.Thanks anyway
Aloha
Genius is more often found in a cracked pot than in a whole one.

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the indicator

Postby Paul » Sun Nov 15, 2009 12:34 am

The indicator is based on non-linear dynamics and it detects turbulent flow of prices. It gives a trigger to trade and marks a UPO.
In addition to it I have been working on the affine transforms to detect stable and unstable manifolds. What for? Only the manifold can show you the true turn of a trend. One turning point (only) instead of frequently repainting trend indicators. It is very time laborious and very difficult in implementation. So I am working on GBPUSD data now only. The concept is from Poincare's mathematics, in theory horribly hard, in idea quite simple. Imagine you have a printed chart of GBPUSD. One axis is with prices, the horizontal axis with time intervals. Every time one axis is perfectly vertical and the other is perfectly horizontal. Now imagine that you have suddenly moved the piece of paper with that chart and now it is lying in front of you at some angle and the vertical axis is no longer vertical but askew. This is called an affine transform. In practice the market makes gradual and floating changes of such an angle in general, only when a trend turns the change will be significant. In biological systems a sudden affine transform is found when a drug has been applied or there is some strong external factor (for example your mobile phone's electromagnetic radiation causes affine transforms in your brain cells and the changes are detectable with high maths tools on EEG data). In a very simplistic way you may treat the idea like a change of signs of a magnet. In a given trend prices were being attracted by a higher target, then suddenly they became repelled. Simple in words, horribly difficult in practice.

monarch
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Hey Paul

Postby monarch » Sun Nov 15, 2009 4:44 am

Paul wrote:The indicator is based on non-linear dynamics and it detects turbulent flow of prices. It gives a trigger to trade and marks a UPO.
In addition to it I have been working on the affine transforms to detect stable and unstable manifolds. What for? Only the manifold can show you the true turn of a trend. One turning point (only) instead of frequently repainting trend indicators. It is very time laborious and very difficult in implementation. So I am working on GBPUSD data now only. The concept is from Poincare's mathematics, in theory horribly hard, in idea quite simple. Imagine you have a printed chart of GBPUSD. One axis is with prices, the horizontal axis with time intervals. Every time one axis is perfectly vertical and the other is perfectly horizontal. Now imagine that you have suddenly moved the piece of paper with that chart and now it is lying in front of you at some angle and the vertical axis is no longer vertical but askew. This is called an affine transform. In practice the market makes gradual and floating changes of such an angle in general, only when a trend turns the change will be significant. In biological systems a sudden affine transform is found when a drug has been applied or there is some strong external factor (for example your mobile phone's electromagnetic radiation causes affine transforms in your brain cells and the changes are detectable with high maths tools on EEG data). In a very simplistic way you may treat the idea like a change of signs of a magnet. In a given trend prices were being attracted by a higher target, then suddenly they became repelled. Simple in words, horribly difficult in practice.


I have been reading your post lately and I am really having a difficult time understanding what your actually saying.

I agree with your concept and the idea of having separate indicators (2), but I was wondering, do you just mathematically or scientifically base all of your trade concepts with deep thoughts, or do you actually trade forex?

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