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Here is another example of Entropy interpretation, this time in conjunction with other indicators.
As a reminder, Entropy measures how 'orderly' energy accumulates and dissipates. When energy accumulates, it may have to go against current movement until prices start changing directions. One can also see prices reacting like a coil spring stores and releases energy, hence price reaction can sometimes be sudden when compressed. Again, one must be very cautious to pay attention to those discrete times (events) when the indicator really carries information, and simply ignore the rest. There are so many traders trying to read some information when their favourite indicator does not contain any...
Let's have a look at a few events described on the above charts:
Event (1)
Entropy has bottomed and LEntBin is very low and this clearly confirms there is a reversal potential here. Swing is still down but one should prepare for a long after pivot 1.
Event (2)
This is a minor event. Entropy is crossing over 0. It is likely Swing indicator is about to turn up at this time. This confirms an upward potential, yet MTFS is not great yet. One can choose to enter or to wait. Since we are sitting on a strong MM support, one can maybe wait that the support is tested again (as often), but one can also try and enter immediately.
Event (3)
Entropy is peaking momentarily, yet one does not trade against the Swing indicator, so this event is simply ignored.
Event (4)
Swing is firmly engaged upward, MTFS is showing white line separation: if not long yet, it is about time to enter!
Event (5)
Like event (3), this event is ignored, but at the same time, we wee energy dissipating fairly quickly. This up move may not last too long.
Event (6)
Same as (3) and (5), the bull run is probably going to end soon. Let's prepare in case Swing and MTFS turn around...
Event (7)
One should have entered short when Swing has turned firmly south and MTFS lines have now crossed. If not short yet, Entropy crossing below 0 is one more confirmation it is time to enter a short trade.
We then see that Entropy seems to have found a trough, and RUT is close to a strong support again. MTFS is still fairly bearish, but nothing wrong with taking profits...
