Ranging

Market in ranging conditions last 2 months (on hindsight). Hard to trade. I put up the following research goal:

How to spot a ranging market early in its development?

Updated 25th Jan:
Have some vague idea. If market is setting up to be ranging, retracement will be a lot after a rally. (how much is a lot, more than 38% fibo retracement?) This makes it easier to lead to big sideways patterns like triangles or rectangles, with no trending tradability.

In other words, if market is not going to be ranging, after a rally retracement will be minimal, thus setting up for next round of rally? The feel of price movements resemble a snake wriggling up freely, instead of keep revisiting similar price levels. Or is it? To chew.

Updated 29th Jan:
Has this any sense?

Trend Strength = ease or efficiency of price movement?
(relative distance travelled for period T) /
(absolute distance travelled for period T)

Updated 1st Feb:
Contributions from fellow traders -

• price contained within high/low boundaries
• usually occur after a huge climb or huge crash
• compare standard deviation of trending/ranging

Updated 2nd Mar:
No need reinvent wheel, just use MACD/ADX if needed.

Guess what the Trend Strength above looks like? ... MACD.
And if I abs() the relative value what do I get? ... ADX.

Updated 9th Mar:
Anti-ranging not in System Z prototype.
For enhancement in Project B2.

Principles

A discussion on technical principles.

Zeroth Law - rule of buy resistance & sell support
In bull market, buy on break resistance, sell on break support. This method works because that's the most basic idea majority of market participants follow. Resulting in the herd action which is necessary to support a trend.

Acceptance - trends is testing and establishing of boundaries
If you learn to look at trend this way, suddenly everything becomes clearer. Its all about testing water and breaking new grounds, so to speak. However, note that market can "accept" a false territory longer than you expect, before a nasty turn.

Consensus - huge tradable moves occur after consensus in price
Consensus basically means indecision as price stagnate within a small range. At this point, participants choose and take up their sides. When trend finally appears in one direction, wrong participants are forced to switch sides, strengthening the trend.

Timeframe - trade in the direction of the next bigger timeframe
Important concept to emphasize on the big picture. Visualise this - in every small movement there is an "invisible" but real force influencing it. That force is a herd of market participants sitting sidelines looking at the big picture.

Symmetry - suggest potential support levels after trend reversal
Another method that works because so many people are relying on it, creating a self-fulfilling prophecy. Symmetry forms the basis of estimating the potential/timing of up and down waves of a cycle, and hints magnitude of the upcoming move.

Pattern - trading edge through probability of entry & exit points
Chart patterns help to visualise the interaction between supply and demand. Supply in excess of demand lead to price depreciation. Demand in excess of supply leads to price appreciation. The smaller pattern is influenced by the bigger pattern containing it.

Failure - every method is set to fail no method is always profitable
If not everyone will be a millionaire and the efficiency of economic systems will break down. Cutting losses short and letting profits run, coupled with sensible trading methods, sets the longterm winner apart from the longterm loser. 要赌, 必须服输.

Rules

A discussion on trading rules.

Public sustain strong trends
The public interest and participation is the pre-requisite for providing "madness of crowds", the very fuel that sustain big and strong trends. To have big gains, somebody has to be lured into taking big losses - public.

Patient entries decisive exits
Most of the time spent in trading is in waiting. Waiting for breakout, waiting to reach support, waiting to reach target price, cutloss price etc. You can say that its patient & decisive entries/exits.

Trade along with major trend
Plainly obvious, you are stacking the odds on your side. By identifying major trend correctly, you can still make money with improper entry. Remember this, only major trend yield big profits.

Have a cutloss and stick to it
When price shoot pass cutloss and you did not cut, you might end up keeping the stock in the freezer. When you ultimately have to cut, it does much more damage to your confidence and capital.

Let profits run when running
With prospect theory, people have tendency to take quick profits for fear of losing them. Dont. Let profits run on it own, when its still running. When its no longer running as it should, get out.

Price never need a reason
Prices never need a reason to move. Those business analysts are just finding excuses after a price movement. Its their job. Respect actual price action instead of rumours or personal opinion.

Never ever average down
Why make further commitments to a losing position? For price to move against you means higher probability of a wrong position. Never do this unless its part of plan building a position.

UJ Trend

A chart of UJ to study concepts of trendline and HHHL.

STRAITS

Countertrend hit-and-run. Market choppy.


Updated 20th Jan:
Cut when price never breakout but breakdown instead.

Updated May:
System still in short mode then. Using system would avoid trade.

Vision

Have 2 goals driving my professional life when I master trading.

1. run an investment company to help people grow their money
2. teach people how to grow their money (avoid losing badly)

Underlying vision is helping people find real happiness in life, by being financially secure.

Looking at those Hi-notes and Madoff cases makes me think any sensible chap can do better. Is there anything stopping me from getting there? Yes, many. Am I ever going to give up? No, never. (hopefully)

I aim to be a millionaire by 35 (in 7 years).
Its tall order now. Talk less, work more.

Trading

Testing a trading strategy. 3 rules.

1. play it like a game
2. one counter at a time
3. only aim is biggest gain

Method - technical breakout with tight cutloss, sell on resistance.

Updated Feb:
Not possible with full time job, can't time entry and hold tight cutloss.

Positions

Technically, trends is testing and establishing of boundaries.
Practically, trends is taking up and unwinding of positions.

When price goes up, it can be:
Participants taking up long positions expecting markup
Participants pushing to test upper limits for markdown

Bottomline remains - given a technical picture,
has one more to gain by being long or short?

Pattern

Very rough notes on pattern recognition.

ACCEPTANCE TESTING
bottomtail = if low(period) < (1-f) * low(close(period))
toppingtail = if high(period) > (1+f) * high(close(period))

PATTERN RECOGNITION
for period from short to long
for chart from begin to end
plotshapes(scanshapes)

SCANSHAPES
scan shapes using pattern rules
choose bestfit shape for period

PLOTSHAPES
if currshape = prevshape then extend shape
plot shape using coordinates from scanshapes

PATTERN RULES
rectangle =
gradient(bestfit(lows)) = gradient(bestfit(highs)) = 0

uptriangle =
gradient(bestfit(lows)) > 0 AND gradient(bestfit(highs)) = 0

downtriangle =
gradient(bestfit(lows)) = 0 AND gradient(bestfit(highs)) < 0

symtriangle =
gradient(bestfit(lows)) = - gradient(bestfit(highs)) < 0

upchannel =
gradient(bestfit(lows)) = gradient(bestfit(highs)) > 0

downchannel =
gradient(bestfit(lows)) = gradient(bestfit(highs)) < 0

headshoulders =
high(left) < high(middle) > high(right) AND bestfit(neckline)

invheadshoulders =
low(left) > low(middle) < low(right) AND bestfit(neckline)


Updated Mar:
Pattern recognition not used in System Z Prototype. For enhancement in Project B2.