MR. MARKET, PROVE MY CONTRADICTIONS WRONG!!

“I desire the proof of the negative that can’t happen!”

The Version 4 Algorithm “Quick Guide” is out and available, and while very brief and concise, there are 2 important criteria I want to bring up; 1) the reason it works and is powerful, is that it pinpoints the end of the corrective phase inside a contra short term trend, and 2) it first waits for the “trend followers” and moving average folks to “puke” and liquidate, and then on the turn makes the call for a position; it simply uses the M1 against all those using it for trend and “fades it” at the turn. So, in essence, the algorithm waits for and wants the Moving Average [MA] folks using the M1 for signals to liquidate on a trend change that is 1) the least effective of all time frames and highly unreliable, and 2) takes the appropriate opposite position.

As I have written before, there are “non-computable” problems in trading that computers can’t solve; so, if for example, I tried to “code” this Version 4 algorithm into an EA [Expert Advisor], how do you define “at the turn”? Exactly what is it? An engulfing pattern, a reversal, simply a color change, what? And here is where the problems mount exponentially, cuz if you don’t “act” in a literal second, the trade more than likely will be gone … there is “zero” time for you to analyze the setup and make a decision … which of course can lead to paralysis and that’s not good either.

Now, we all know that there is absolutely nothing in the trading financial realm that is 100% guaranteed; always have and always will be dealing in “probability waves”. Over time, everything will happen, you just have to wait long enough to see it. Having said that, in the “Quick Guide” I mentioned the algorithm’s limitations, one of which is that when the M5 changes trend, and goes from one side of the “Kumo Cloud” to the other, the position has a much higher probability of loss than at other times. But, inside the short-term trend, it gives some great turning points … some give the signals from the Version 3.2 algorithm, but whether they are present or not, if the M5 doesn’t change trend, the M1 signal trade will be a good one from a profit perspective.

What I’ve done, essentially, is turn the market on its donkey and ask it to prove me wrong; I’m not asking for a continuation of a “breakout” trend on the M1 “Kumo Cloud”, or try and follow any breakout of the traditional MA’s (2) that come with the indicator on the MT4, that says to the market, “can you please continue a little further so I can profit”? With probabilities greater than a casino in Las Vegas enjoys, I know what the answer is … to ask the question is to answer it!

It all starts with, “tell me what you can’t do with ease? … what’s hard for you Mr. Market? … what and where is the highest probability event inside a short-term trend to make a trade and profit? … and what is it approximately”? And the answer is,  all of the “fake out” breakouts on the Ichimoku MA’s, the “Kumo Cloud”, and by default the other indicators that follow right along and get people to make the wrong trade [e.g., MACD, RSI, etc.], cuz what’s happening in real time is that the “big money” has the time, money, and computer capability to know with certainty what the top 500 trading systems are doing in real time, and the software “know how” to exploit traders without the trader ever knowing he/she is being exploited by a large hedge fund or bank. [“What, you expected them to tell you first”?]

And as we find ourselves [without anybody’s permission of course] in the “Central Bank Paradigm” of trading now, the first question every trader should be asking themselves is, “why has trading changed and what can I do about it”? … but instead ask, “things have changed but I don’t know why … should I be worried about it, or just trust the market? So, the Version 4 algorithm started out in its genesis, not with “help me with better trend following signals Mr. Market”, but with “show me … Mr. Market … what’s the most difficult thing for you to do to NOT screw people, the least amount of the time”. Cuz when I know that, or have a good idea of what it is, I can do the “OPPOSITE” and achieve consistent success and profit.

And really, that’s what lies at the philosophical heart of the Version 4 Algorithm and how it is different than previous versions. Once I realized I didn’t have to “reinvent the wheel”, and that the math was available inside the “Ichimoku Kinko Hyo” indicator on the MT4, and that I could pick apart what I wanted and discard the rest, things fell into place rather quickly.

Turning to today’s market … “vapors” anyone? … seriously, I’m getting more than a little annoyed with the Dow30 showing every single damn day that basically, about 99% of every rally happens away from New York, when the market is easily manipulated when everybody is asleep. Then, New York is a simple “protect & defend” the manipulations higher, but no more … the action is disgusting, the volumes pitiful, and the ranges along with volatility [VIX] the worst in 50+ years.

The DAX30, on the other hand, exhibiting what a semi-free stock index market looks like when allowed to go up and down. Not the best of days, as the market has put in a solid reversal to the downside, inside a somewhat small range… going in and out of the M5 “Kumo Cloud” twice with a short term trend change. A little unusual, as reversals of this magnitude are somewhat rare in stock indices [approximately 3% - 5% probability on any given day], but certainly not a “one off” like a “double reversal” which are extremely rare and happen once every 5 – 10 years.

In total, I made 3 DAX30 trades today for the PAMM [yes, the Excel spreadsheet is working now], 2 from the long side and 1 from the short side; on the second long trade, the market trapped us with a “twofer”; 1) price on the M5 went into the “Kumo cloud” thus going from bullish to neutral, and 2) price slowly drifting away from my entry point on the M1 … in sum, took a small loss and moved on. The other long trade and the short sale played out very well, so it’s a profitable day … not as much as I’d like, but the fact is the cash market in the DAX30 opened today and went straight up … after its high, its straight down to new lows … even the M1 spent an enormous amount of time over, and then under, its “Kumo Cloud”, and therefore there were only a few signals generated before the cash close at 11:30; smaller than most days to be sure.

The Dow30? … I’ve run out of adjectives to describe the trading action … it’s simply “nonexistent”, and it’s pointless to mention what’s going on, cuz nothing is going on that is worth repeating in front of children … leaving it alone until something / anything happens that can get an M1 > than 3 – 5 points! … I’m not sure there aren’t 15 minute intervals where you can’t even get outside the 2 point spread … and the SP500? … worse than the Dow30, and to be totally honest, I don’t know how anybody can be expected to trade this puppy it’s so sickly. Two great markets placed into utter obscurity by central bank manipulators hellbent on using the stock market as a social policy tool … the utter hubris and pomp they place on themselves, that history may show them soon what total fools they really are in retrospect.

Well, here we are about 30 minutes from the close in New York, and it has been truly one of those days in the Dow30 & SP500 you can forget and file under “waste of time”. I don’t know how much worse the price action can get … it’s simply unbelievable how pitiful conditions have become, especially when you realize that outside of less than a handful of days, since April which is 4 months, practically every day the Dow30 is higher comes from overnight “vapors” … New York is a disaster, pretty much a nothing burger with more movement in the DAX30 when it is closed, than the Dow30 when it’s open. But, here we are, and this historically low VIX [50 + year lows, and an all-time record low the other day at 8.63; something the market has never seen … ever.] has people lulled to sleep with complacency and risk, so over loaded on the hype the FED “has their back” … “hi, I’m from the government and I’m here to help”! Onward & Upward!

PAMM spreadsheet directly below.

 “Hey, who put my ice cream dish in here? … I wasn’t done yet!”

Time for the beach! … “the ice cream King” and I are outta here … until tomorrow.

Have a great day everybody!

-vegas

OUR TURNKEY FOREX “PAMM/MAM” IS NOW OPEN AND OPERATIONAL; SEE “PAMM/MAM MANAGED MONEY PROGRAM” IN “DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN FOR DETAILS [VIEW ONLINE AND/OR DOWNLOAD] AND START YOUR JOURNEY FROM WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!

YES, THERE REALLY ARE “NON COMPUTABLE” PROBLEMS IN TRADING

“Hey, let’s go hiking!”


Today’s blog post is really just a continuation of the ideas & thoughts from the weekend’s special update; specifically today, I want to write about the 2 dynamic variables that occupy our thoughts continually [whether you admit it or not] when trading, and that is “time” and “price”. The concepts seem simple enough; trust me, they’re not.

There is a very simple reason why I have never been in favor of EA’s [expert advisors], which are of course the automated trading algorithms that the brokerage house executes on your account’s behalf without any input from you; the dirty little open secret is that neither you nor anybody else can “input” all the data or parameters necessary in the computer code to make it functionally profitable like you want. It should be obvious to everyone [but isn’t of course], that no matter the genius of the computer code or those that write it, the code simply executes [in a linear fashion] mathematical and/or mathematical logic [e.g. “if”, “and”, “or”, “then”, “else”] instructions based on the “input” guidelines. Nothing more, nothing less.

So, for example, let’s say my algorithm for the scalper USDJPY algorithm has been meticulously and scrupulously proof read, thought about, agonized over, and finally coded into an EA. And since you know the “rules” for buying, let’s set up the following hypothetical trading situation.

All 3 lines on the algorithm are sloping up; USDJPY has 3 M1 down candlesticks in a row, and in the 4^th M1, it is sitting just a couple of PIPS in the red from the third down candlestick. USDJPY is trading at 113.10, with the day’s high = 113.36 and the day’s low = 112.55. From the algorithm’s rules, you know that if the M1 goes green to initiate a long position, and so you’re sitting there with the order box up, waiting for confirmation. 

If the algorithm was “EA’d”, the computer code is also waiting to execute as well. Of course, you have no input into this as the code will determine mathematically the course of action, while you sit comfortably at the beach drinking a strawberry whatever, and basking in the future knowledge of untold riches.

Without warning, the market wires receive unexpected “news” from the BOJ [Kuroda & crew] and the market reacts violently; a few milliseconds earlier, USDJPY is trading at 113.10. Now, a few milliseconds later USDJPY is bid at 114.25. You immediately see this and your first natural reaction is, “WTF is this”? I doubt very few of you, and for sure me, are NOT going to be hitting the “buy” button; I want to know what the hell happened. In any event, I’ll wait for some kind of break if I’m going to buy.


But here is what your “EA” does; 1) it sees a higher M1 that goes “green” and it places a market order to buy, 2) the LP fills you at the high offer price, with a 9 PIP spread at 114.36, 3) you have instructed the EA to use a 7 PIP stop loss, 4) once filled the market gaps lower in 20 PIP increments back to 113.80 on “knee jerk” selling, 5) your calculated stop by the EA at 114.29 [market order to sell] gets “run” because the next bid after 114.30 is 114.07 and then a nanosecond later its 113.80, and finally 6) your stop loss fill is at 113.80 for a loss of 56 PIPS.
When you get back from the beach, what’s going to be your reaction to this? [“Cuz I know what mine would be”.]

So you tell me, “well –vegas, I would have code put in that prevents this; if the market “bid” goes up 20 PIPS or more, then it would not execute. Problem solved I think”.

MY RESPONSE: “Ok, the market just jumped exactly 19.9 PIPS on the “bid” side from buy stops above the previous high of the day; you are going to get filled because 19.9 < 20. And again, your stop of 7 PIPS gets immediately taken out and you still lose anywhere from 15 – 30 PIPS from 1) wider spread, and 2) lousy fill from the LP because you were buying at the market on the way up and your stop was selling at the market on the way down; EXACTLY OPPOSITE OF WHAT THE ALGORITHM CALLS FOR FROM YOUR TRADING.

YOU: “Ok, I’ll just widen the stops a little bit, from say 7 PIPS to 20 PIPS. Again, problem solved I think”.

MY RESPONSE: “Ok, you’ve just decided to “hand” the market more money. Your buy still gets “screwed” no matter what number you fill the code with; what happens if the market comes back exactly 20.1 PIPS from the high bid to stop you out and then spends another 3 M1 going down 4 PIPS before gapping higher AND doing all of this to you again for the second time”?

Meanwhile, as a human not subject to “forced actions”, I can sit back and decide what the EA cannot under any circumstances calculate; which is to say, “do I want to be a part of this or do I want to stay away? Is this going forward a good trading environment or one that is almost guaranteed a losing proposition?” 

And so it goes “ad infinitum nauseum” adding code to cover the “what ifs” to prevent your account from getting wiped out while you are away playing and counting monopoly money; “I hate being the one to break the news to you, but it will forever be like this because these “non computable” problems will always be here waiting for you. THEY ARE INFINITE IN SCOPE & YOU CANNOT ESCAPE THEM! … deal with it, please”.

And all of this brings me back to “time” and “price”; “what’s acceptable in terms of measurement and what isn’t? What is ‘volatile’ and what isn’t? Where is the ‘line’ for chop and when isn’t it there in the market? What time is ‘right’ for making money and what time isn’t? Where, oh where, is the line for optimum profits, cuz I most definitely want to be on the right side of it? And so here we are; you can’t code these questions because in essence they are simply probability wave functions where, until you finish a trade and ‘book it’, infinite possible outcomes are viable and present. 

In other words, you can’t code “common sense”; all I or anyone can do is build a “framework” from within which you can thrive based on favorable historical market probabilities that have existed and repeat consistently. With this proper “framework”, you can then do things that further increase your probability of success; 1) trade liquid markets only, 2) trade only those markets that have the lowest “net” cost to your account, and 3) use the volatility of the market you’re trading to your advantage by setting a PIP [or $$ per OZ.] goal and remaining disciplined. Nobody ever suggested you have to be in every squiggle 24/5; pretty much every day there is a “move of the day” to capture.


The M1 signal parameters have been changed from time to measure deviations in price from a slightly longer time perspective; in essence, every minute the algorithm is plotting approximate 15° and 7 ½ ° changes in Gann’s ‘Square of Nine’ to give us [in my opinion] a very optimal look at changes in price momentum as we go through our trading day with as few “false positives” as possible given a minimum level of intraday volatility.

Obviously, if the momentum of price is “up” [3 lines sloping up] we want to be long, and if momentum of price is “down” [3 lines sloping down] we want to be short. If any of the 3 lines are not in agreement with the others, we sit and do nothing. However, we don’t want to be “long” or “short” from just anywhere, we want to be “optimally” in a position that has historical probability on our side [70/30 to 80/20], and so our threshold is 3+ M1 closing candlesticks contra-trend to short term momentum before we enter.

Now comes the fun, because with each person sitting out there reading this comes probability wave functions based on 1) your risk profile, 2) your short term profit objective, and 3) your PIP goals, etc. Throw in the element of the “free trade” concept when appropriate, which I have mentioned before, and the results can be as varied as the people trading the same algorithm. So, when I get people who ask, “hey –vegas, what’s the exact, right way to liquidate?”, only semi in jest do I say, “tell me where you got out, and let me look at a chart, and I’ll tell you if it was the “right way.”

This is why, in an earlier blog post I said, “have no memory”. This trade, that trade, this day, that day … whatever … the only thing that matters is did you make money today and did you achieve your PIP [or $$ per OZ.] goal? If the answer is “yes” … no worries, no introspection, no “what ifs”, no nada … go live life [it’s called “balance”] and come back tomorrow and do it again. Cuz if you do, you’ll find yourself smack dab in the middle of that “earnings projection” table I have posted several times in prior blogs, and by definition you have “escaped to success”.

If the answer is “no” from above, it isn’t most likely going to be the market that spoiled the day … it’s gonna be you! When I talk to people, invariably something went wrong in implementing the algorithm … and then to compound the problem it was time for “Plan B”, even though there was no “Plan B” thought out beforehand. 

If you spend your time trying to figure out where any market is headed before you trade, you’ll win just enough to keep you coming back to the analysis while your account is getting bled to death. The only “analysis” that is proper is to judge yourself on how well you followed directions; and make no mistake, it isn’t just with my algorithm. If it pleases you, there are thousands of trading methods, EA’s [God forbid], systems, what have you with their attendant requirements and technical indicators; the vast majority you don’t use because you’ve looked at them and their respective limitations are glaring.

What makes people “uneasy” about trading, either as a professional trader who makes his living off of it or just being successful with a “plus” balance, are 2 things; 1) people don’t like to think their lives are “probability wave functions”, and 2) nothing … and I mean literally nothing … in your life either prepares you in an educational sense or allows you to experience what trading is like before you get into it. 

And while people dance around the edges by saying, “well, I heard of a guy once who did it … I read about a guy that did it … and every once in a while I’ll read about a guy who did it”, what they are really saying is that they can’t possibly figure out, even with shiploads of alphabet degrees or Pudding Business experience, how this works cuz there is no parallel in the universe they can relate to or go to for answers … so it stays that mystical mystery.

Of the really good traders I have known over the years, all had that “go with the flow” mentality inside their trading methods; if things changed, they went with it. They didn’t sit there and try to “intellectualize” remaining the same, while at the same time watching their incomes drop. You want to see a really pissed off trader’s wife or girlfriend? Go ahead, tell her she has to “cut back” her lifestyle for a bit and then give her the “intellectual” reasons why the market is not behaving. Yea, call me and let me know how that goes.

Bottom line is recognizing limitations that heretofore were unknown, and then doing something about it. You can have the worst algorithm in the world, and if market conditions are right for an extended period of time, you can make stunning amounts of money. Where many traders “trip up” is their lack of realizing this is not the end of the road but just the beginning; there will be many periods ahead that will bring out into the open your algorithm’s flaws. Question is, will they be tiny ones that you can live with, or ones that seriously hurt you when conditions change?

What I am most interested in as a trader, is getting to the market early enough so there is plenty of time left in the day to make money, followed by successive profitable signals that I can capture profits, even if I have a losing trade or two. In the meat of the day, where liquidity and volumes are highest, I want as few “false flags” as possible, knowing that double and triple reversals in price are rare and usually accompany news events. Once I achieve my goals, there isn’t much chance I’m going back in and potentially give it back.

With the changes I have made, unless intraday volatility really falls off a cliff in gold [some days it has] & USDJPY, the “meat of the day” should have the fewest “false positives”; that doesn’t mean there won’t or can’t be any, it simply means there will be much fewer than before. And now that President trump is in office, let the volatility games begin!


Turning to markets today … it’s all Trump folks … whatever he tweets … whatever he decides to do. Here at mid morning markets are a complete mess, with gold & USDJPY putting in rallies & breaks all over the place; gold as illiquid as ever, with not much better conditions in USDJPY, as I have seen panic on both sides of the market within about an hour. Directly below, earlier today, a very good sell signal in USDJPY.
 

Beach beckons … I’m outta here … until tomorrow.

Have a great day everybody!

-vegas

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