Fate has a strange way of playing out... I started my TA journey 1 yr ago, with one SOLE AIM
TO BE ABLE TO PREDICT PRICE & PROFIT FROM THIS APRIORI INFORMATION .
Tried my hand @ EWT , GANN's Sq of 9s & Classic TA too , but these were all too anecdotal as models, EMPIRICAL , not backed by MATHS, but based on observations alone.
Many Qs were unanswered, to my mind:-
1. Why does price follow the EWT model --> 5waves up & 3 down ?
2. Why did RN Elliott have to come up with so many diverse rules to accomodate Motives & Correctives in various Trending / Cyclic conditions ?
3. Why are Fibbo guidelines so wide & far-ranging for Sub-fracs ?
As far as EWT, Fibbo & GANN goes , Most Traders & TA's have adopted the dictum
" Kuch cheezein jaan kar chalo, kuch maan kar"
More alarming was the lack of mathematical base & lack of RELIABLITY for the more "number based" MOMENTUM INDICATORS & OSCILLATORS
4. Why did the MACD (a Momentum indicator) fail in Cyclic Markets?
5. Osciallators like RSI , SSTOCH , though much better in correctives, do not work 100% of the time.
Does it mean they DO NOT capture ALL THE FACTORS DETERMINING PRICE ??
The lacuna in the EW model is that it is ANECDOTAL, i.e it lacks the MATHEMATICAL RIGOUR that I would strive to establish in SYSTEMS.
PREDICTING PRICE based on multiple Alt LABLES (which can again be influenced by my EMOTIONAL STATE / TRADING POSITIONS) is @ 100% fraught with RISK.
For my mentality --> I had find a way to model Price action MATHEMATICALLY & Trade SYSTEMATICALLY (with SET RULES for ENTRY & EXIT).
The next few lines are possibly Trading / TA - Nirvana as far as I go & i place them thus for your perusal:-
When I came across Shri. Illango's blog JN & his 5Hi-Lo EMA system, the data driven nature of "FOLLOWING Price Action" struck a chord. EMA , a Moving Avg window that SAMPLED PRICE, & presented its CORE DIRECTION to the FOLLOWER
EMA says -->
SAMPLE PRICE @ A RATE > 2 x BASE FREQ OF THE SIGNAL (Nyquist criterion) &
FOLLOW THAT SAMPLED TREND HOME SON , I AM JUST THE 1st OF MANY BEACONS !!
Little did I realise then, that this system would be inspirational in my pursuit to Model price as a "Discrete Time Signal" , a BEACON to be followed to Prosperity !!
SMO SAR came into being as a POSTIONAL Alternate to JNSAR , a slightly more efficient way to TRADE LESS , but MORE EFFICIENTLY (avoid whipsaws)
SMO SAR looks very simple --> " Its NOT Rocket Science" is the phrase I've heard ;-)
Q : Then why does it work ??
Ans : Because the base of the 5-10 EMA x-over is equivalent to a BAND PASS FILTER , for discrete signals.
This is the same theory that is actually used in Satellite Comm & in simpler terms is the FILTER to DEMISTIFY a VHF - Hi FREQ MODULATED RADIO WAVE !!
Hahha.. SMO SAR IS ROCKET SCIENCE.. just realised it today :-)
Anyways, brownie -pts earned , lets move on....
Researching on why the 5Hi-Lo system works, I have come across the extra-ordinary works , exemplary genius of an Electrical Signal Engg in the US , called
JOHN F. EHLERS
EHLERS' papers on applying Digital Signal Processing principles to Price Action can be called REVOLUTIONARY to say the least.
Over the next few posts on RANDOM WORDS, I shall attempt to place in front of you the deep appreciation that I have developed for this genius who could look @ Price as a Non-stationary , Non-Linear, Noise-riddled Discrete Time Signal & filter-out the Hi-FreQ noise, leaving behind the
PURE MELODY OF THE CORE TREND !!
In this post I will leave u guys wid a few teasing equations.. u tell me wot u see
1. SSTOCH = {Price close - LL} / {{HH- LL} ,
HH - Highest Hi, LL - Lowest Low in that Time Period
2. RSI = 100* (Closes UP)/{Closes UP + Closes DOWN}
again in that Time Period being considered
3. Std Slow MACD (12,26) = EMA 12 - EMA 26
Signal Line 9 = 9EMA of the MACD
What are we trying to do with all these equations ?? And why do they not work 100% of the time ?
WHY , why , why ???? :-)))
And to now, pickle ur curiosity a Little more... I present a simple LOW PASS FILTER / CONTROL SYSTEM COMPARATOR Model to describe the popular EMA function ....
SIGNAL THEORY says:
1. MAIN TREND : Slower Low-Frequency DIRECTIONAL / TRENDING SIGNAL
2. CORRECTIVES : Hi-FreQ NOISE
EMA = A simple LP Filter Transfer Function y(x) = Time Domain Transformation of Price !
What if we tried to TRANSFORM this Eq in the FreQ domain ?? ... well, we land up in the Wonder - world of harmonics ... welcome Mr. Fourier & Mr. Laplace !!
Now, tell me u signal-lover, is this Ringing any bells in thy top-tier , sire ?? ;-D
cheers
