Uploaded with
ImageShack.us
Uploaded with
ImageShack.us
CTJ, the best way of answering the question is by posting a couple of charts. Both are the 4-hour charts of crude oil. The one on top if set to 9.48.52, and the one on the bottom is the default settings of 9.26.52.
Oil was in a sharp uptrend, and so it stayed above the cloud for quite awhile. The bottom chart shows where oil ended the week, and that is on top of the bottom of the cloud. The one on top, price action is just sort of aimlessly floating around. Will it one of these days eventually hit the cloud? Of course it will! But, that is not the object for price just to hit the cloud, so we can say it did it.
The reason the final 2 numbers are 26 and 52 is that 28 is a generally accepted number for a trend's cycle. If the settings are set for 26, then it means the setting will catch the cycle or alert to price action right before the move begins. The 52 is simply double the number, which takes inot account 2 complete cyclical patterns.
This is very important as the cloud peers into the future. You can tell with current price action and the looking at the cloud 26 candles ahead to gauge where the current price is within the proximity of the cycle. With the 48, there is no way possible to gauge it, because the number itself relative to trend cycliality does not even make sense.
There will always be a gravitational pull to an MA. By definition, it is an average or median. Therefore, when price action drifts too far from it, there is always a gravitational pull back to it.
This is why when traders line up 3 or 4 MA's, and then say you go long when the candle rises above it, or short when it goes below it is really a phony, losing system. By the time price has risen above it or went below it, by definition, you have already missed half the trend, because those lines represent an average.
Salesman like to market these kinds of systems because they are salesmen and not traders. Another thing they like to do is use different MA's, or even use the EMA's because it makes them look smart and makes them look like
they know what they are talking about. MA's can be useful, but they have their place. BTW, that validates your statement that price will "always 'react' to any level". You have also validated why trading straight MA's is a bogus trading system.
The cornerstone of my methodology is the ichimoku cloud. I have used it for 4 years, and I love it, because of the predictability it adds to my trading. I also use a proprietary set of S&R's, and the stochastics.
Now it is time to address your question concerning lagging indicators, because the stochastics is one of them. The stochastics has to be used in conjunction with and as a confluence with other indicators. When the stochastics has reached OB/OS territory, then you have to be able to anticipate when a reversal is about to happen. If it is open-mouthed, you have to anticipate when the current trend is coming to an end. Have a solid set of S&R indicators such as my proprietary set and the ichimoku cloud abets that effort in finding reversal points or continuation points.
As far as smooth data is concerned, you don't want the indicator to be choppy, because you don't want it reacting to every move price makes. You don't want the indicator toggling all over the place. The object of indicators is to add some predictability to your trading.
Let me give a personal example. I entered shorts on the AUD/NZD and the EUR/NZD, and then added a position to each after the prices took off, and then pulled back. Both were entered when the stochastics was in the 90's, and had a beautiful smooth crossover, before it took off in my favor. They were closed today for a net gain of +594 pips. I had other indications that made me go short relative to the ichimoku, my R level, and the curvilinear envelope, and the MT sigma bands. The point is you get the strong reversals like those 2 experienced this week when the crossover is smooth. You don't want it to be herky jerky, because that indicates uncertainty. As traders, we want certainty in our trading.
The last part of what you mentioned is exactly why trading is so personal. I love the ichimoku and know how to trade using it. It has brought me great success. You have found price action and volume has brought you great success, so far. That is what counts. I hope you continue to do well with your new system!!!
I don't want to sound like a know-it-all, but let me also give you some friendly advice. If you find that what you have using price and volume brings you success over the long haul, keep an open-mind, but be smug enough to turn a deaf ear to anyone changing you from your system. You would be surprised how many people have told me indicators don't work, your stops are too wide, you have band MM, you can't continue doing what you are doing, etc, etc. I have to turn a deaf ear to all of that, and just laugh, because I know what trading forex has done for me. Yet, if you can show me one little trick that will help me be a better trader, you have my ears, my time, and my unadulterated attention.
One thing I noticed after tearing ichimoku apart is that no matter what settings you use or strategy, etc...price will always 'react' to any level. Try this. Take your favorite instrument and put it on the 5 min. Close your eyes and draw support and resistance lines. I bet price will react to those as well!!! Every single EMA whether it is 5,8,9,12,13,20,34,50, etc. will see prices reaction to it. I see some traders say (including myself!!!!), "oh price is up here now, it will need to come back and re-test this EMA, etc."
Why smooth price data when it doesn't need to be smoothed at all? Why take trades based on lagging information!? We know this but we still do it. Price and volume is all you need to know. Strip your charts of every indicator and your strategy should improve. I was doing pretty well with ichimoku but not as good as I would like to have been. I've stripped my charts of everything but price and volume and my trading has been spot on. 5 trades this week and 5 spot on wins with no special indicator at all. We search for this holy grail when the entire time we know there is none. Everything we need to know is in price and volume. Volume is important because it is the only indicator that doesn't use price in it's calculations.
Please share your thoughts.
[/URL] Uploaded with ImageShack.us[/IMG]
[/URL] Uploaded with ImageShack.us[/IMG]
