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Description of an effective Trading Technique with
TradeStation
Foreword... or my critical Words of Wisdom...
The technique outlined below is suitable for discretionary traders. It
is based on a fairly complex data analysis which has been translated into a set
of proprietary tools. Before describing these tools, we feel it is
important to have these first guidelines in mind, gathered along nearly 15
years of experience:
- Most indicators, either custom made or built in trading platforms, do
calculate one or several mathematical outputs at each bar. One may
also (correctly) say
that prices are noisy, chaotic in nature, which obviously make "market reading"
rather difficult.
However, in my opinion, the problem is elsewhere... Indeed, most of
the time, there is simply nothing to read in the market, and more
pragmatically, buying and selling are essentially discrete decision
points.
This simply means that trading is inherently dependent on an event driven
technique. In other words, if you wish to crunch large amount of
numbers in any crude or sophisticated way, irrespective of the rare salient
events where effective decision making is only sensible, well... you might
just be wasting your time... and LOTS of so-called trading gurus are
quite willing to take you for a ride along the meanders of the never ending
quest of the Holy Grail...
- Any sound decision can only make sense in perspective or context, unless
you stick to quick scalping or to the simplest reversal strategy, assuming
you get your pivot calculations right too.
The best way to represent context is
to work in a multi-time frame environment (2, 3 or even 4 time frames). It seems obvious that a
move in your time frame of choice, determined by indicators lining up nicely
either long or short, can only show strength if supported by a similar
set-up in a higher time frame. Choice of adequate time frames may
however not always be easy. For synch purposes, time frames will often
be in multiples like 1, 2, 4, 8 minutes. In addition, some will prefer finding
confirmation from 2 or more higher time frames. Others may find more
suitable to balance their time frame analysis with one higher and one lower
time frame. It is likely that using a conservative rule base over 4
time frames can reduce trading ambiguity to next to zero.
- There are always times of congestion, relative market inactivity, which
will inevitably affect indicator calculations. One way to reduce such
impact on indicator reading is to opt for tick charts or volume charts, or
alternative market representations like Renko charts.
- Markets are highly dynamic. Prices are chaotic, non stationary
etc... Still, this is no reason to try and throw everything but the kitchen
sink into your favorite trading platform. Do not forget to still be
able to fully understand the method you are trying to put together... You
are the trader... don't ever forget this subtle point. Successful
traders always know the finest details in trading calculations.
- Markets are chaotic, and contain fractal features. Once you have
found a sound technique, it should work the same on another set of time
frames, as well as on other financial instruments. This is the 'acid
test'. Many models just fit one instrument on a single time frame, and
are bound to fail sooner or later. There may of course be some
adjustments needed (not more than a few degrees of freedom if possible) to
adapt from one instrument to the next, but not more than that.
These forewords may sound like vague generalities, and there are admittedly many
ways to kill a cat (hmmm... I really hate this expression), but they can be a
crucial time saver to you in the end, and most important may prevent you from
wandering around lots of trading costly dead-ends...
Essential Tools
- A prerequisite to trading in my opinion is some knowledge of
Fibonacci
numbers, and in that respect, I can for instance recommend reading Jo DiNapoli's books. Most traders calculate
Fib retracement and expansion
numbers. There is more to it, and I may write about it at some point, although there
is already ample literature on the Internet.
- Another interesting calculation tool is the
Murray Math Lines
algorithms. It is still a proprietary algorithm, I believe, but it has
however been mimicked and rewritten for most platforms nowadays. We of course have
our own. A *FREE* VBA version of the algorithm is freely available on a
MS Excel
spreadsheet on this site.
- Adaptive indicators which calculate OK in a multi-time frame environment, such as
stochastic indicators.
I also believe a good pivot calculation is essential. It may at
first look like just another display method for swing analysis, but there is
more under the bonnet... Pivot sequences (in 2 or more time frames) can be
used to derive waves, and can be used with advanced artificial intelligence
algorithms to detect the next pivot with relatively high probability. We
use a numbering scheme (pivot classification somewhat remotely inspired by
Clyde Lee) Here is a recent
TradeStation screenshot (ES e-mini 8000V) for your perusal. The
indicators shall be available for sale some time this year.
More to come eventually... I can't disclose
everything, can I...?
In the meantime, here is an internal draft document now available:
BV_TSINDS.PDF which describes how to read our proprietary indicators for effective trading.
The document is also in HTML format (~600KB) on this
site, but some formatting may have been lost in the conversion.
Feedback / Contact
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