Link to the post here [members only]
I had to stop and think. Well one thing is clear Mike can write. He is the writer among us for sure. That award goes to him. The pen of trading.
There are many things he talked/wrote about. It was a long post and I do recommend reading it. However, my conclusion is this.
Mickey keeps searching for new indicators and strategies or so it appears to be the case. But perhaps he’s still stuck to one or 2 methods that he trades. But in this post I could finally understand why he keeps adding removing indicators. He just plays around with it. And I think there is nothing wrong with it besides waste of time. Time is precious.
There is a question of a trading edge. How do you get one?
Random combinations adding and removing indicators is not the way to find your edge. An edge would be formed only when you do an extensive back-testing of a trading method. And yes that might, at some stage involve adding removing indicators. But what is the purpose of this exercise?
e.g. AIMS method focuses on the core idea that the market has a structure. Its not a structure that is similar to an engineers blueprint of a skyscraper or an amazing bridge. The human designs mostly have boxes, correct angles, straight lines, perfect spheres and such, but nature has a more “chaotic” design. The science of chaos has now revealed to us that what might appears to be very random, which we often confuse with noise, actually has an underlying structure. And a structure has rules. Though Chaos has “chaotic rules”. So rules mean “constant and rigid” in the normal geometry and mathematics. Here the sum of all three angles of a triangle is always equal to 180 degrees. Unfortunately this applies only to us mere mortals on earth. In space, e.g. the sum might be greater or less than 180. Its Chaos.
[Designers has started using AI for creating the most robust most efficient structural designs for buildings and cars etc. And what amazes me is that the AI designs surprisingly look quite similar to the structures we see in nature. e.g. the design of a chassis of a modern 3D printed car might look exactly like the structure of the bone. Efficient design means one that is the strongest, lightest yet uses the least amount of material to build. Nature seems to be very good at that]
anyway back to earth and trading.
Here is an interesting opinion of mine: don’t laugh. ok.
Almost all indicators at the bottom are useless. YYes, they are, unless you have one that has other meanings to it. One that is more than just the red and green bars or cross over of two lines. e.g. eWave is the only indicator that I would use because its not merely a signal generator or confirmation of a signal. Lets first learn about the AO a littel but. or AIMS Wave Indicator.
History of The Awesome Oscillator
Before AO got its fame, there was another indicator that did nearly the same as the AO but it was much more complex. It actually really highlighted something very important in the market. But you need REAL market data for that. You needed the most important data that futures and shares market need. VOLUME. It was the Bill Williams indicator he named THE MFI. (market facilitation index). It did volume analysis. But Bill found that you can do the same analysis with less effort plus count waves using AO. So MFI was dropped. [Just like that, we can actually drop the gator for AIMS box. With box you can literally kill to birds with one stone.]
The AO or the more advance form of AO i.e. AIMS wave or even better Snorms eWave [or even better Snorms eWH] is our mechanism to highlight the wave structure or shall I say, smooth out the edges of the chart and give us a different smoother picture of the underlying structure of the market.
It unveils the “underlying” wave. Everything in the universe is Energy, and energy follows the path of least resistance. And that path of least resistance is set out by an Underlying usually unseen “structure”.
In human geometry its straight lines and perfect spheres, in nature, its not that. Its wiggly jiggly dingle chops.
It mostly appears to be very random chaotic patterns. The branch of a tree just grows this way or that way. Water flows in random fashion. But Nature has an underlying usually unseen structure that governs the behaviour of most things.
Take of example the the riverbed that governs how the water at the surface will behave. Think about a rive in the mountains, how violent and energetic it is now think about the wide slow moving calm and relaxing river in the plains. Its all to do with the underlying structure. the Riverbed in this case is the underlying structure.
So what is the structure of the market?. The river is made of trillions of molecules of water. And the river bed is made of rocks in the mountain and soil and mud in the plains.
What is the market made of? Millions of orders? correct. Who create those orders? Humans or human created machines? Correct. What goes through a machines mind? Exactly what the human coded into it. Where did that code come from? The Human mind indeed. So does it make sense to assume that the structure of the market is based on the structure of the human mind/brain? = Elliott Wave analysis.
So back to AO.
Price might go from 1000 to 1500 in a month a week or a day. it does not matter to AO. AO literally takes the price change out of equation and focuses on the momentum of price. And Elliott wave analysis is really the analysis of momentum of waves.
AO has uniformity to it. In a way its stuck to a ZL and thus it stays uniformly where it is most of the time. That makes the Elliott wave count effortless and far more effective than the elaborate and tedious work of an Elliotticion. (whew). Thanks but no thanks Robert Prechter. We have AO, the 10 Seconds to Elliott Wave mechanism.
Enough about AO, I hear. I know.
So why do we use AO, well the above might be some short intro to it. It gives us an edge. But how do you calculate an edge? that is the question. And you do that by systematically testing the idea. If you sit down today, put the setup 1 or the Hunt template on. Start from the 1st of Jan 2016 or even the 17, and start to look for Setup 1, apply the entry rules, apply the trade management rules, in short your trading plan, in simulation you will find out what is your edge.
But back testing is hypothetical data and the past is never the indication of the future. The future might be completely different. Well then forward test it.
How to forward test the idea. You will take 100 trades. Record its outcomes and then run some simple analysis on it e.g. how many were winners, how many were BE and how many hit the SL. You can then apply this to a dozen more charts on the same time frame. These would be your individual test and finally you can put the data of lets say 10 pairs and find the results. It will give you a huge insight to your method. And perhaps help increase your “confidence” in what you’re doing. In fact, this act should be an AIMS Ritual, rather a TRADER’s Baptism if I may say so.
hope this useless post is not as useless as I think it is…
peace