However my journey has a goal and I have a vision in exactly what I want from my charts and basically it is an algorithm.......but it is also a visual algorithm......if there is such a thing.
So in the interim period of time I do have 2 indicators at the bottom of my screen and they help me tremendously with divergence and trend "weakening" forecasting and I am used to it. But I have to be perfectly honest with myself......it could be really confusing for a new trader.
Well yesterday I was helping a new trader from the fund that I am part of.....and he just had to have my charts.. LOL!
So he took a Genesis Trade Navigator free trial and I gave him my library of indicators that I had built and I helped him set up his charts. Well we did not even finish....and I had to leave....but when I left he was set back a little. Those darn little diamonds are pretty cool when you couple them up with the Hull Moving Average.
He changed his diamonds to arrows......but I think his whole life changed yesterday....LOL.
So anyway this morning I was thinking of what my ultimate goal was and I turned off the two indicators at the bottom of my charts and looked at Friday's EURUSD short.....which by the way I got into really late. I was looking for a person on the internet helping out one of our members and I saw price take off on the other screen out of the corner of my eye.
I actually just hit sell because I was waiting for it.....but I just wasn't paying attention. So on the 60 min chart you can see the entry and it hit the 6:1 reward risk target by a pip.....but the 4:1 target was rock solid. I did get the 5:1 by accident I guess as I had a 100 pip limit exit on in case I wasn't looking.....and I wasn't looking when it hit. So accident...good planning....what ever. Just another trade...... just so we keep the emotions under control!
Okay...let's look at the chart below. First we look at the screening chart which in my case is a 240 minute...or 4 hour chart.
Click on image to enlarge
So we know the dominate trend is down and we know we were in a corrective pull back. The A,B,C could be argued....and I am not arguing with the market at all....or anyone else. But at the very least we had a double bottom and we knew the pullback would be significant. And based on the fact that price penetrated the 21 SMA we pretty much knew the 89 EMA would be tested. In short.....we were expecting the down trend to make another push down.
But the corrective up move was also significant enough to trade as this is a 240 min chart and the trade would actually take place on a 60 min or even a 15 min if we wanted to.
But the point of this blog post is....can an algorithm be visual?
Well......we have indicators and we have logic. And the logic filters out bad trades and only lets us take the good trades.
So the rules are:
- We need a BUY or a SELL indication which is a Cyan or Magenta Diamond. And usually they are right on time.....or early!
- The HMA must agree...and also be Cyan or Magenta and it is very fast also.
- AND the bars need to agree also....so they need to be Green or Red
- And lastly....at least two time frames must both agree! So if they do not agree totally on the higher time frames...we reduce the time frames...but they must agree.
So if I am not mistaken....this is pretty much a very simple algo in my mind.....and if I am stretching it.....it is at least logic. But my goal was for it to be colors...a trigger....and filtered. And something that almost anyone could master. I think we are getting close :) We are capturing at least 80% of the value of the indicators being used.....and bringing it up to the price bars.....to keep us focused on price!!!!
Anyway....lets look at the 60 minute chart and see how it worked out.
Click on the image to enlarge
Well the first thing you will notice is the huge down swing....and wow.....you got in really late Dave!!!!
Ha,ha,ha.....yes I did LOL. But I was helping someone and what I was doing at the time was important.....but we also have to accept that we were expecting this move and we were expecting a re-test of the previous low so my jump into it was of course a higher risk then my yellow strip down my back would normally allow.......but I kept my finger on the mouse. And it did not take very long at all to get to the break even trigger line (at 1.2730 or 1:1 reward to risk)....and after that it was a free trade.
But let's look at the corrective upswing. We got a Cyan diamond and the HMA turned Cyan.....but we did not get Green bars at first. Price then hit the 21 SMA and the bar turned green but we had our face right up against the 21SMA.....so why would we trade that? And immediately.....price stalled but it stalled above the 21 SMA...which is the white line.
Now price settles in and is using the 21 SMA for support.....and then a Cyan diamond pops up....on the bar...but slightly early for the buy. We needed the bar to close to verify. And on the next bar....it turns green and we have all of our rules verified....and there you go.
Now as the EURUSD does....we had a little down spike 5 bars later that triggered the Parabolic SAR.....and in my case would take me out because I go to break even when my trigger tells me to......but the very next buy signal would have taken us to the top.
Now to clarify the diamonds.....they are simply a cross over of a SMA on CCI. SO because its CCI driven it is very fast....so fast that many times it's early or right on. SO we do not close a trade immediately if one pops up....and we are only interested in the signals in the direction of our trade.....but the opposite signals...in this case the sell signals....are a heads up.
And if they agree with price candle's, the HMA....or what ever we use to determine a change of direction.....well then it is an awesome heads up indeed.
Now this looks really clean with out indicators on the chart. But if you are experienced enough to use indicators as well.....then I would use them. I started to trade a new market....well actually it is an old friend that always tricked me. And that was about 8 years ago and no matter what indicator I used that darn market would fake me out all the time.
Well I was trading it on the simulator to prove to myself that I knew more today then I did 8 years ago.....and it was going and going and going. I knew it was going to make a pullback.....but it just seemed like it wouldn't quit.
I was in it on a long position and yesterday when I woke up I turned on the charts and the thing spiked up.....and ADX and CCI was screaming at me that this was the end. I got the sell signals and the ADX and CCI conditions made me tighten my stop way up close anyway and I was taken out.
Then on the next bar the bar turned red.....and I was triggered into a short. And it was so close to the top that my risk was right in line with the rules.
Within the first hour I was triggered into break even and the entry was never challenged. So what does that all mean?
If you use the ADX....which everyone says is a lagging indicator.....to determine the strength, or more importantly the weakness of the trend.....and you use the CCI to determine the entry and also divergence....they can drastically assist you in getting into a swing at the right time. And what I mean at the right time.....I mean impulse power that drags us into profits and not challenge our stops....or even our entries in most cases.
I agree with all of the pro's that price is the fastest indication of direction, strength....etc. But lets also remember that only 1 or 2 of us out of every 10 traders will actually make it. SO we have to strive to be smarter and more efficient at our trading. We have indicators to help us....and I agree they can also distract us.
But we also have computers and that gives us such an edge over all of our predecessors. So use the darn thing. Make your charts work for you....and make them work hard.
And always, always......always.....trade it on a simulator until you are absolutely convinced that you have an edge and your stats prove it. If you can't prove it with your stats.....you have no business trading real money.
And lastly.....in my humble opinion and yes it is just an opinion of mine.....risk management and money management is the most important aspect of trading. If you constantly take care of managing your risk and your money.....with a vengeance.....your profits will take care of themselves.
Well......until next time....may God richly bless you and your family!!!!!
