Formalising common approaches to trading - page 31
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In my opinion, the horizontal local level is the liquidity zone and everything else attributed to it, it has its own rules. But a sloping one is a horizontal level and there are other considerations for its formation.
Could you give an example "on your fingers" of the transition process (the process of transformation) of a sloping line into a horizontal one?
That's a lot of finger bending, isn't it?))
Have you heard of the Fibonac fan? Such fingers.
So, I think we've come to the point of studying Market Profile, which Avals quietly hints at ;) and which, in fact, this thread has brought us to.
I think it needs a separate thread to look at it in detail :)
Could you give an example "on your fingers" of the transient process (the process of turning) of a sloping line into a horizontal one?
Can you give an example of the "on your fingers" transitional process (the process of transformation) of a sloping line into a horizontal one?
I don't know how inclined lines turn into horizontal ones, but on the contrary I think so: inclined levels as well as other levels are related to liquidity allocation patterns, or simply - how people place pending limit orders and stereotypes in people's perception of graphical information.
Suppose the price formed an extremum - for example, a local minimum. Some traders wanted to buy on the pullbacks and those who were not lucky enough to place orders above the local minimum were not satisfied. They see that the price went up without them, so they decide to wait for the pullback again and place new limit orders, but closer to the current prices. They have formed a support zone and the price has set a new local minimum, but higher than the previous one. Again, all of those who placed orders below this extremum were left out of the trend. Likewise, new traders excited by a more pronounced trend have also joined the willing buyers. But now there are 2 points through which a straight line can be drawn, as everybody was taught at school in the geometry class))). And it becomes a self-fulfilling prophecy - a mass guideline for purchases and not only by limit orders, but also by market when the price approaches the line. I.e., in the beginning, before the formation of 2 points, it was an unorganized attempt to connect to the trend on a pullback, and after it becomes a mass graphic stereotype, which is rooted in the geometric perception of graphic information by man. After the third point is formed and if it coincides with a line drawn through the previous two - more traders already see and believe it.
Behind most speculative methods is some kind of stereotype in trading. Those who exhibit this stereotype can be called the "target group" (TG) - their actions we try to predict and they will presumably become the source of our profits. We are interested in actions that can be formally described - i.e. systemic. Having described all possible systemic trading options, we will describe various subclasses of TFs and how they can be used for trading. I.e. we should describe the general scheme of making trading decisions.
The first branch is opening and closing of a trade. Correspondingly, TFs will be both opening trades and closing ones. For closing trades, there are two main options - closing profit and fixing loss.
For opening a position, we can formalize the rules of opening. Purely formally, it is a set of filters and Boolean operations between them: if (A<>=B) and/or/not (C<>=D) ........ (let's call it FILTERS) The output may be immediately a buy or sell order at the market, or a computational unit (CU) that places a pending order at a certain price.
To close a position there are two main options - either the level or time of exit is established at the moment of entry and does not change, or is recalculated in the course of the trade (exit by signal). In the first case it would be immediately VB, in the second case it would be FILTERS-VB.
In general, we should find a mass strategy or a common mass part of FILTERS-WB strategies. And then create a strategy that uses it effectively. You can call it a counter-strategy)))
But FILTERS and UB can be represented not as one rigid set of filters and one UB, but as many sets with slightly different settings (range of parameters). The TF is not exactly homogeneous and some diversity may be assumed. For example, we do not set orders strictly at one price but within a certain range. But in this case each parameter will have to be given a weight - i.e. its prevalence in the TF will have to be accounted for.
In general, formalization can be done by describing the most popular FILTERS-WBs or even separately WBs. For example, a separate widespread WB is the placement of stops behind extrema. But creating a counter-strategy for such a massive system is not always trivial.
Of course, massiveness also changes over time. But the definition of mass may be part of the FILTER block. That is, identifying the phase of the market when many participants are willing to adhere to this strategy. Or context, if one prefers ;).
More complex options are accounting for TFs who entered the market and then predicting their exit.
The proverb "Every cunning nut has a cunning bolt" or its vulgar version :). It is only desirable to look for more widespread nuts so that the bolt was universal enough.
P.S. Bulkiness is meant from a financial point of view, and not the total number of traders, although it also affects the amount of money that will be at stake.
Niederhoffer, in his Practical Speculation, which he wrote after he merged, has a curious letter, probably on point.