Using Basic Statistics to gain an EDGE. - page 4

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Ergodic-CCI

Hi FX Sniper,

this is provably not the right thread to my post but i couldn't find a better one where you participate.

I did a few searches for information on the meaning of the input variables of your Ergodic-CCI & Trigger (SRDC) without success.

Could you please point me to a place where I can find their description?

I'm thanking you in advance.

Mario

 
FX_Sniper:
Standard Deviation

Standard Deviation is a statistical measurement of volatility. It measures how widely values range from the average value. The larger the difference between the closing prices and the average closing price, the higher the standard deviation will be and the higher the volatility. The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility.

High volatility levels can be used to time trend reversals such as market tops and bottoms. Low volatility levels can sometimes be used to time the beginning of new upward price trends following periods of consolidation.

From the attached screenshot based of the 1 Minute EUR/USD chart, it is quite clear and fairly easy to spot possible reversal zones or exhaustion zone using the StdDev indicator included in Metatrader 4 as default set to 14.

I toyed with the idea that when the StdDev rises above 0.0004, it would signal that a change in the direction of the current price leg is imminent. On the chart I highlighted a couple of these points. (The point 0.0004 has been chosen based on a quick visual inspection although I am sure it is possible to determine the most significant level, there are some other issues that I am aware of that motivates me to use this level also, I will discuss this perhaps in future posts if anyone is interested).

If you care to look at point A for example, and notice that on the StdDev it just closed above 0.0004, thus signaling that a change is imminent and closing or partially closing out a open SHORT position would be prudent.

Point B signaled the end of a possible LONG position, Point C the end of a possible SHORT position, point D the same, point E also the same.

Point F formed on the second bar after the StdDev signal, see the next paragraph for possible usage.

I am toying with a few possible rule sets for example; to use the HIGH of the bar that just caused the StdDev to close above 0.0004 as the immediate exit if it is breached by subsequent bars. If the next bar makes an even low high, this exit stop would be adjust down to fit the new lower high etc until stopped out.

A second idea I am toying with is to do the same as the above, but only start applying it when the StdDev close down the first time.

Which ever way it will end up, I think one can hardly ignore the accuracy and significance of using a simple statistical tool in this manor.

Uhm now who said statistics are boring and difficult to relate it to trading

In future posts, I will indulge in some more uses of statistics especially using my favorite statistical indicator the R-Squared, I will share my research into using it to pinpoint entries with a high degree of accuracy and low risk.

If there is anyone out there thinking in these lines or doing some other lite statistical research, let us know what you are up to.

It is general knowledge that the markets are not linear or at least not linear most of the time, knowing when it is, can reveal interesting results

Catch you laters,

FX Sniper

FX Sniper,

I have been experimenting with two exit methods to eliminate pip wastage. The first is an indicator I got from Kalenzo's website- Dev Stops:-

"Most of trades is searching great entry and the best point to take their profits. But I think very important thing is to let your profits run, and trail stop. But simple traling stop may be not enough. That is why we need the DevStops. Method and calculation was described in Kase's book "Trading with the Odds".

The DevStop is the closest we can come to an ideal stop level in the real world. The indicator mathematics accounts for volatility (which is directly proportional to risk), and also for the variance of volatility (how much risk changes from bar to bar) and volatility skew (the propensity for volatility to spike higher from time to time).

Specifically, the DevStop places exit points at 1, 2 and 3 standard deviations over the mean two bar true range, corrected for skew. So we can take profit or cut losses at levels at which the probability of a trade remaining profitable is low, without taking more of a loss or cutting profits any sooner than necessary.

Source from:

http://purebytes.com/archives/metastock/

http://www.guppytraders.com"

------------------------------------------------------------

The second is my basic CCI,150 on 5min charts charts idea. In any daily move (let's say long) CCI,150 will go to extremes +200. I've found that no matter how significant the extreme, the ideal exit usually occurs when CCI reverses back to 100. This consistently outperforms 30min psar etc by 20-40 pips (on Cable). Also CCI Divergence is actually quite a good entry strategy on 5min charts (although I usually look for more confirming signals for entry using other MTF indicators for entry). Having said that it definitely can work, and when it does you get, the perfect early entry.

I'm sure you've probably experimented with other divergent methods that are more sophisticated than that...but as a basic set-up I've found that to be ok.

Caio

 

FxSniper,

Wonderful explanation above...you hit the nail on the head...in all areas!! I have a few ideas, some are a bit technical,but i'll just start with one:

What is the probability distribution of the FX market? I believe that if I 1) took all the data available, let's say daily bars, 2) calculated the change each day, 3) sorted the results into bins, and then 4) charted the bins with biggest negative move on left and biggest positive move on right...this would do it?

My plan for this is to use it in monte carlo simulation. I have a friend who used to own an actuarial firm, and I'm going to see if I can get him to come up with an equation that would estimate the resulting curve.

There are a lot of possible uses for this information, but I'm not sure my process would be right, having never done it before.

BW

 
 

Derik,

It would appear that FXSniper stopped posting back in April. I have seen it mentioned that he stopped posting on any forex forums .....an unfortunate thing as he seemed to contribute quality......

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