The Chat Room with the Magic Indicator.About two years ago I entered a trading slump. Genetic Algorithm Matlab Example Pdf Format more.
I didn’t know what to do to break out of it. When I don’t know what to do I surf the internet. I knew the answer must be out there somewhere.
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I needed a fresh trading idea. I began hunting around and came upon a chat room that dealt with only one indicator. I was intrigued. Here was a room with several hundred people all focusing their attention on two or three markets, and taking the trading signals generated by this one indicator. And it was free. How good could a free chat room be? Why would anyone put all that effort and work into something for free? It didn’t make any sense.
I was even more intrigued. I clicked a link on the web site and within a few minutes I was listening to the moderator’s voice, saw his charts on the screen, and could read text of comments by the other traders in the room.
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I had never been in a chat room before. I heard the voice of a very calm, relaxed man that had just taken 5. YM (Dow mini contract). Dozens of traders posted their comments into the room.
The posts were of the nature of congratulations for the winning trade, but more so as of congratulating the moderator for such a wonderful, magic indicator, and all the wonderful trading patterns on this magic indicator that were given to all. I observed for an hour or so. I noticed that there were no prices on any of the three charts that were posted. He kept repeating, like a mantra, that you didn’t need prices, the CCI was all you needed. The magic indicator being used was the old CCI, or Commodity Channel Index developed by Donald Lambert and introduced to the trading community around 1. I was quite familiar with it, as I had tried using it several times in the past.
In fact, I heard the inventor speak at a trading conference shortly after the indicator was introduced into early charting software. But it looked different. It filled the screen, as there were no price bars on the chart. And it had lots of colors that I wasn’t used to seeing. There were histogram bars that changed color with the trend.
Very innovative. There were many color changes on the horizontal reference lines as well. Also, instead of displaying just the plus and minus hundred lines along with the actual CCI line, which was the main point to the formula, there were also the 2. Lambert didn’t feel the need to display the zero line, as it was just a simple detrended moving average. But there it was on the chart with red and green dots. The moderator kept referring to the zero line as support. I guess it is, in a way, since a moving average with the proper length can act as support.
But I also noticed the parameter was set to 1.I always understood that the CCI lookback period should be set to use one full cycle, despite some misleading information on some web sites that I explain in more detail in “CCI – Making it Better,” located in the Indicators section of this blog. Activate Adobe Flash Player Mozilla Firefox Download there.
So why was a very short 1. Nobody in the room questioned the use of such a short parameter.
It did give a lot more movement in the CCI line to create the patterns, but I felt they were mostly based on noise, therefore a successful pattern was likely just a random occurrence. But what did I know only being in the room for an hour.
I then posted my opinion about the zero line and the short parameter.No answer on the short parameter, but to the zero line question I got this: “the zero line is not a moving average, it is where the support comes into the market NOW.” He emphasized the word “now” with a touch of irritation in his otherwise calm voice. Oblivion Knights Of The Nine Map .
But what was more interesting, there was a barrage of nasty, venomous comments to me from other traders in the room, chastising me for posting such a dumb comment. After all, this indicator is indeed a magic indicator. Logic doesn’t have to apply. How could I question and degrade it by saying the zero line, which seemed like the most important component, at least in the signals that were being called by the moderator up to that point, was nothing more than a simple moving average. Never mind the fact that a simple moving is in the second line of the CCI formula. I felt like I was the only person in the room that knew this fact. After listening, quietly this time, for another hour, the moderator made the claim that he invented the use of applying patterns to an indicator.
Not only did he make such a claim, but dozens of people typed in praise and thanks. Maybe he just meant he invented using patterns on this particular indicator. He did rename all the patterns, but I recognized a head and shoulders pattern on the indicator, which Martin Pring had written about on the RSI many years before this chat room existed. That bounce off the zero line was a rehash of Raschke’s bounce off the 2. The failure of the bounce off the zero line, as well as a divergence pattern that had a different name, were all described many years earlier by George Lane and others. I could go on with many more references to patterns on indicators that are well documented in the technical trading literature of many years ago.
There was really nothing new here. On the positive side it seemed he did an excellent job of categorizing many different patterns and putting them all together into a package that would be more readily accessible to new traders. So that was good. And there were many good concepts offered on trading in general and money management. And there was wisdom from an experienced person. He would say it would take a person ten years to become a doctor, or some other profession, so why does a trader think he can make a million dollars with two weeks training. That was excellent advice.
The chat room was upbeat and positive, as long as I didn’t post any dumb questions of course. I thought I should continue on.
I then thought I had better read the manual, which was in a PDF file on the web site. I learned from the trading manual that the color changes on the horizontal lines were some confirming indicators that had nothing to do with the CCI. One was a red light, green light idea based on a moving average.
On the zero line was a red light, green light based on what they called a least squared moving average, which is actually a regression curve. There is no moving average in the formula. But I kept my mouth shut this time, or I should say my fingers. I did start to notice that nobody in the room questioned anything. I asked a few technical questions but most were ignored. When I persisted I sometimes got a private message from somebody that apparently was monitoring the text chat. When I argued with or questioned anything that the moderator said I would get a message telling me to knock it off.
This set off some alarms. It partly answered the question why nobody was questioning anything.
Then I noticed that they kept putting up 1. Most of the time the charts were 3 or 5 minute. I simply asked why they chose that particular number, just out of curiosity. The main moderator said it was a fibonacci number. I knew that wasn’t so. The closest fibonacci number was 1. Not that it makes any difference.
I made the mistake of being nit picky again and posted that 1. I got another private message saying that the next time I questioned the master that I’d be permanently booted from the room. I was never to question anything the master said, and that what he said was correct.
In addition to that, a dozen or more posts from other traders said that I was wrong. A couple people came to my defense and said that I was correct. I hope they didn’t get booted.
The moderator stuck by his belief that 1. I know these points are not really important. If the trading methodology is sound I can forgive someone thinking that 1. But there was one thing being said over and over in the room by most of the moderators and essentially all the participants that bothered me. That is that the CCI is a leading indicator. And it seemed to be universally accepted as the truth.
He would show examples where it looks like the CCI gives a trend line break ahead of price breaking a trendline. He would only temporarily display prices just to illustrate his point.) Now, back to reality for a minute, it is mathematically impossible for a derivative set of calculations to lead the function from which they are derived. Anything said to the contrary is trying to redefine the rules of math. I’m sure what he was trying to say, and illustrate, was that momentum can (at times) lead price. It can in a non- trending market.
Providing Empirical Evidence from Forex Autotrading to Contradict the Efficient Market Hypothesis. In this paper, we compare results from an automated operational strategy (or autotrading robot) with results from other financial products. Our aim is to analyze the performance of this robot. To this end, we optimized and evaluated an autotrading robot based on differences in signals of moving average convergence divergence (MACD). We applied this technique to six major currency pairs (AUD/USD, EUR/USD, GBP/USD, USD/CAD, USD/CHF, and USD/JPY), for a time scale of 1 h.
We performed the analysis for an optimization period (2. August 2. 01. 1), obtaining satisfactory results for all currency pairs. In addition, to evaluate the autotrading robot’s performance, results for all currency pairs were compared with those of other homogeneous financial products, namely exchange- traded funds (ETFs). Returns from the autotrading robot for four currency pairs were considerably better than those generated by ETFs. Results from the autotrading robot were always positive for all currency pairs. In contrast, ETFs yielded negative returns in some cases. Findings also provide empirical evidence contradicting the efficient market hypothesis.
This article therefore marks a contribution to research into entrepreneurship in financial markets.