How to approach a volatile market?

I have repeated again and again that our toolset is self-adaptable and universal. However all physicists will tell you any filter has a suitable frequency spectrum and you have all seen your usual oscillator going haywire on a spike (high freq.) or on a standstill (zero freq.).

What happened last week is unique, and warrants looking at a few settings, which will revert back to normal in a few days or weeks.

MM ShowMe: We generally use a Frame64 value of 2 i.e. a 128bars lookback period. I recommend temporarily a value of 1 (64 bars).

Swing2: We generally use a value of 0 (for regular swing traders) and 1 for scalpers or fast swing traders. We now increase it to 1 for regular or 2 for scalpers. Note 2 is the max. value for this indicator.

MTFS (aka AdLag64StoK_MTF) increase acceleration and realtimeness factor. Your discretion is needed here. A value of 0.25 for acceleration should do fine in many cases. Realtimeness can be upped to 2 or 3, but one should not overdo it as this can induce a Dorie effect (cf. Nemo) i.e. neglect the historical part of the pattern a bit.

The rest remains unchanged.
Note however that these proposed changes are 100% optional. I personally haven't changed anything to my own charts. Let's not forget that one can also move to a faster time frame set, or stay on the sideline for a while. Nothing with taking a break...

Good trading to all,
bv

August Update.

Another minor update to the DLL and API.
LEntropy is now ... LLEntropy with the application of the same zero-lag smoothing algorithm. MTFS (a.k.a. AdLag64Stok_MTF) has also got an extra optional parameter to tune the "realtimeness" of the indicator (see screenshot).
Market reading is simpler particularly around extreme peak/troughs of the Entropy indicator ( EntBin around 4 or 5 resp. -4/-5).

Another current development is the implementation of the SQL DB support. First release will be for a MS Access database, but it should apply all the same to SQL Server. We shall first record "pattern depth" i.e. the last 64 or 128 bars for each realtime dynamic pattern, i.e. Swing, Smooth, MTFS, Fib, Recurrence Plots, and now Entropy as well.

I'll publish more details by the time first release is available later this year.

So more to come soon and in the meantime, enjoy your holiday!
bv

Blog Update

The Market Snapshot blog now publishes weekly posts on ER2 and ES.

A new private admarkan.blogspot.com takes over with daily snapshots. Contact me for access details.

Minor Update

MM lines have now been recoded inside the DLL, not only to have more calculations available through the API and the shared memory segment.
There is at most a few EL functions left to be recoded in C++. Ultimately, everything will be portable to other data feeds.

DLL + new TS files available on request.

Next step is the recording of Recurrence Plots (as well as every other calc) in a database for neural analysis.
Expected release: Sep 08

Recurrence Plots for TradeStation

The toolset is now slowly entering Phase 2 with a new tool soon to be integrated. Here is a short preview of Recurrence Plots for TradeStation.

Recurrence Plots represent a new and relatively easy way to detect patterns in chaotic environments. The principle is to determine a phase space representation and lay it out in such a way that salient features of the series appear as regular patterns and invariants on a 2D graph. Such picture can then be analysed graphically or analytically.

An interesting site on RPs is : http://www.recurrence-plot.tk/ (reading references below)

I have therefore implemented RPs in a VC++ program using the API provided by the toolset allowing extracting data and calculations in an external program. (Some minor updates were necessary, so a new version of the library itself will be soon released).

I here give you a preview of what RPs look like on a 60mins EURUSD chart, both using price (z-score) and a MTFS indicator. The price RP uses a delay based phase representation whereas the MTFS uses the built-in separation in 3 views of the stochastic indicator.


Z-Score Price RecPlot


MTFS RecPlot

We will now record, analyse first visually then with the addition of neural networks to better detect salient turning points in the market.

For more reading, see the links page on the above site. I particularly recommend reading Norbert Marwan publications.

sFLC3 Fuzzy Logic for TradeStation

Although not yet integrated in the main toolset, the Fuzzy Logic API is now available for testing on the main ForeTrade web site:

http://www.foretrade.com/fuzzy_logic_for_tradestation.htm

I understand it may sound a little complex at first, but rest assured it is very simple to use, and all FL functions have been grouped in a single EasyLanguage function.

http://www.foretrade.com/fuzzy_logic__easylanguage_code.htm

Two sample indicators are also provided for testing purposes:

http://www.foretrade.com/fuzzy_stok_indicator.htm

For more info, please contact Support@ForeTrade.com

A closer look at EURUSD

Hello everyone,

I am often asked about the EURUSD forex pair. Will the US$ drop further or will it recover? Again, no crystal ball, but let's have a look at the current set of EURUSD charts.

On the 60mins chart, we first notice a significance level that is fairly weak, and prices certainly confirm that confusion. SQ (Swing Quality) is not too bad, so we'll take the current UP swing as the most likely direction again. When it comes to entries though, one should clearly look at a lower time frame.
MTFS is kind of "stuck" in overbought zone, hence does not provide us any significant information. Nor does Entropy hovering around the zero line.
We therefore have a remaining upward bias with momentum exhaustion. We can also notice that Swing has detected a potential pivot (number 3 on last high), but has not toggled down yet. Lastly, we see a strong support level at SS:1.5625, indicating that current strong resistance MM level at 1.5625 at higher time frames could be tested for support.
That will be all for now. We have an upward bias with increasing hesitation, and should you want to trade in this confusing environment, just change time frames.

On higher time frames, the Daily chart is also UP and has a higher significance level. It is obviously way too late to enter long right now but one may want to stay in if one is long already, just tightening stops a bit. MTFS is also very much stuck in overbought zone, bars are blue, and if we didn't have that strong resistance level and fast decreasing entropy, we would be happily bullish still.
Where should we put our stops? Well, it's up to each and everyone, and i give no advice in that regard. Money management depends too much on available capital and personal risk profile. It is also likely that the Swing indicator will toggle down at some stage. Those of you who run the toolset can see the Swing indicator sometimes hesitating and adjusting when the pivot point is not confirmed yet. A warning can however be a good indication of an exit point particularly on a strong resistance level. Swings being UP-UP-UP on all 3 time frames, there is NO reason to go short anyway.

Lastly, the Weekly chart: all charts look the same* so the interpretation is simple and provides context for decision made in lower time frames. All we can see here is that it will certainly take a long time before we see the US$ recover significantly.

Obviously one must always refrain from reading too much into charts. I all too often see junior traders "wishful reading" charts, i.e. reading where they would want the market to go. It can be a fatal mistake...
For the time being we maybe hesitant to take profits and we should possibly adjust stops, but that's it.

* Reminder: the only indicator with significant parameters is MTFS aka AdLag64StoK_MTF. Some may have other settings than mine, but most important, one must be comfortable with one's charts. I personally hardly ever change any chart settings.