A non event trading day, as the world looks for another excuse not to trade, taking another Holiday after New Year’s because it happened on a Sunday … “wouldn’t want to cheat anybody out of a Holiday from a normal work day, now would we”? That being said, the only thing being traded today are the FX pairs, with very thin conditions and wide spreads the norm; stock indices and gold mercifully closed so as not to embarrass themselves. Conditions return almost too normal this evening with the Asian open, but remember that Japan & China are very slow in getting back to work because of week long New Year’s celebrations. In essence, it’s a 4 day trading week with the Bureau of Unicorns & Fairy Tales releasing NFP numbers on Friday morning; “oh fun & joy as markets get to exhibit 45 seconds of bat excrement crazy action at the speed of light, and then most likely … crickets.”
I did a little website change with the “Header”, changing my focus to 2 primary markets instead of simply gold; USDJPY & spot gold should give us all we want in the year ahead, and if these 2 markets go “dead”, there is a very high probability nothing else is moving as well, with the possible exception of WTI Crude Oil which can be dangerously violent from various news flows hitting that market on an almost daily basis.
The DOW30 remains my third choice for trading, but at the moment intraday volatility remains horrible, thus I haven’t traded it in months, and won’t up and until ranges start consistently hitting the 130+ index point threshold; and even then, the market is going to have to shake the addiction it is in with central bank manipulation [NOT just the FED, via their various ‘plunge protection teams’, but others as well like the BOJ & the SNB] of prices, designed to influence outcomes in the major averages. It’s a “tall order”, and it remains to be seen whether 2017 can see any volatility in the major averages that reflect historical norms.
Just to give you an idea how bad it is, 30 years ago when the SP500 was in the 250’s range, we generally had 4 index point ranges every single day with plenty of up/down action; now the SP500 is 9 times higher in value, and the market barely doubles the ranges from 30 years ago. “Sick … very sick, and the action over the last 2 - 3 weeks the slowest in over 30 years”.
On New Year’s Eve I uploaded the data for the exhaustion charts & accompanying spreadsheets, respectively, for Gold, DOW30, & USDJPY; there are now approximately 400 exhaustion charts available for viewing online and/or download over in the “Download Links” section of the website in the right hand column.
And while we always have to be cognizant when looking at, or thinking about statistics, it never hurts to remind yourself of the inherent limitations “behind” the numbers; namely, 1) is there real causation or are the data sets simply math manipulation, and 2) is there a discernible real life advantage to the truth behind everything, or are we chasing “rainbows”? Today’s post will most definitely answer these questions for you, as I will give mathematical statistical proof that the exhaustion moves are NOT RANDOM IN NATURE BUT CYCLICAL; AND MORE IMPORTANTLY, THAT WE CAN POSITION OURSELVES IN ANY 3 OF THESE MARKETS TO PROFIT FROM THE EXHAUSTION MOVES.
The purpose of the exhaustion chart archive in these 3 markets is threefold; 1) to catalogue exhaustion moves from either bottom to top or top to bottom in all 4 risk models [RM=1 to RM=4] so that you can easily access information of prior moves in the future without spending a tremendous amount of time doing the research and calculations, 2) allow you the ability to easily compare 3 different asset classes without the heavy time demands in collecting the data, and most importantly 3) allow you to ACTUALLY SEE FROM THE M1 CHART where the volatility algorithm M1 “buy” or “sell” signal [buy signal = change in slope of plum line from “negative” to “positive” when the plum line is under the yellow line; sell signal = change in slope of plum line from “positive” to “negative” when the plum line is above the yellow line.] actually happened and at what date and server time from LMFX.
From a research standpoint, I was simply cataloging the exhaustion moves on the M1, without regard of whether or not a “buy” signal was appropriate or a “sell” signal; all I was interested in was whether or not from an easily discernible recent trading “TOP” to an exhaustion line “hit” at the aqua & red lower exhaustion lines OR an easily discernible recent trading “BOTTOM” to an exhaustion line “hit” at the aqua & red upper exhaustion lines had actually occurred in the market.
In gathering this data, I specifically adhered to 2 key criteria; 1) I only cataloged lengths of time of exhaustion hits equal to 9 minutes or longer, and 2) I looked for the most recent “top” or “bottom “ from which a cycle could start and counted from that point. I previously stated in a prior blog post why I chose time lengths of 9 minutes or longer; the reason being that on Gann’s ‘Square of Nine’ all time lengths 1-8 are on Cardinal & Diagonal Cross cell numbers and that if I’m going to prove my premise of “cycles”, I can’t use data that has a 100% certainty without biasing longer time frames that favor my argument.
If you look at any of the approximate 400 charts in the archive covering these 3 markets, what you will see in every one of them are exhaustion moves that start at “tops” or “bottoms” and move towards the respective exhaustion lines; WHAT YOU WILL NOT SEE ARE “TOPS” & “BOTTOMS” THAT ARE EITHER 1) “CHERRY PICKED” FOR THE BEST OUTCOME, OR 2) RANDOM NUMBERS FOR “TOPS” & “BOTTOMS” THAT ARE PICKED SO THEY CAN FIT THE DATA ON THE ‘SQUARE OF NINE’ CARDINAL OR DIAGONAL CELL NUMBERS.
The respective spreadsheets put all the chart data into tabular form so we can easily see what each market gives us as well as for asset class comparison; directly below are 2 tables in succession that tell “the whole cycle story”. The first comparison table shows key stats, as well as the “cumulative error rate” for the appropriate market price off of the Cardinal or Diagonal Crosses cell numbers; in each market case the regression mean is almost exactly on Gann’s important Cardinal or Diagonal cross cell numbers. There is no way this can be random with a sample size of approximately 400 data sets. The second comparison table ends with the probability each market can be explained with “tops” & “bottoms” to the exhaustion lines that are random in nature; in other words, the “random walk” or “modern portfolio theory” financial dogma that moves in any market are random. And as you can see from the table, the probability of being random is so small it isn’t worth mentioning and is in fact totally impossible.
[NOTE: Click on table once with mouse to enlarge if needed.]
Now, and this is important, there is no predictive value in the ‘Square of Nine’, because we can always go out another level in time and/or price, and so the question is, “which level is appropriate for the next move”? SHORT ANSWER: “I have no idea and neither does anybody else. What I do know, and have for decades known, are that cycles [vibrations] do operate continually in markets, and that I don’t have to be exact in initiating a position at the low or high to take advantage of a cycle that is starting without my knowledge of it or how far it can go.”
You also have to keep in mind that the volatility algorithm exhaustion lines for each market is a “model”; its purpose is to mirror reality and hopefully pinpoint with great accuracy the end of moves. As a trader, this is what I’m interested in, and it doesn’t have to be perfect, just close. Do you really care if you’re ½ PIP off selling the high short term move in USDJPY after a 30 or 40 PIP gain? If you say “yes”, you need professional help.
Bottom line is that all of the charts and their respective spreadsheets are available to you for a myriad of reasons; they are archived for your use, free of charge and are in the “cloud” for viewing and/or download anytime you wish. As time goes by, on a monthly basis each market will be updated and the new data added. Even now, many of the M1 charts are “lost” to the M1 on the MT4 because they are too far back in the past to be scrolled and looked at, which makes the charts of “Brexit” for gold, and the 2016 election for all 3 markets that much more valuable for research purposes as time moves forward.
There is one point I want to emphatically make; and that is when viewing the exhaustion charts, take note of how close [time & price] to the “white arrow” [M1 top or bottom of the exhaustion move] the plum line slope changes to initiate a position; in “real time” at any of these tops or bottoms there is no way of knowing that an exhaustion move is about to occur, but the M1 algorithm automatically puts you into the trade very close to the top or bottom before you even know what’s going to happen! By treating all M1’s as exhaustion moves, all I have done is “map” the highest likelihood exhaustion moves [RM=1] that occur most frequently over the history of the market, along with those of higher exhaustion energies [RM=2, RM=3, & RM=4] that easily make up over 99% of all market action from day to day; everything else can be ignored from “trader analysis” because it’s a “one off”.
By making the volatility algorithm’s “visual” in form on the MT4, I free you up from the math and allow you to focus your attention on implementing the algorithm for maximum profit; you don’t have to “figure” anything; all you have to do is “act properly”, and all the charts, spreadsheets, manuals, & tutorials are here for you when and if you need them when you are away from the market. As always, questions/comments on any of this, please send me an email at email@example.com and I’ll respond as quickly as I can with a personal response. Enjoy the data everyone!
Have a great day everybody!
OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE THE “ZERO ACCOUNT”; REFERENCE ID# 6952 WHEN OPENING YOUR ACCOUNT] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”