Just for the heck of it, I post a chart I sliced up but now it does not look very good to trade. Almost 1 big lousy sausage.
Hmmmmmmmmmmmmmm, since I trade GBPUSD with success I must not trade the chart the way I sliced it here.
Why?, because the slicing was done as a hindsight.
Good Lesson, don’t try to recreate what I should, would, could, or did in hindsight.
Yet since Tymen came up with the CBL, I look at the chart and count the candles up/down make a note where the line goes across and use it to stay longer in the trade.
Hope he (Tymen) does not ban me now because I still would like to hear the rest of the story.
I know, you know how to make winning trades but I still consider your trading, experience and instinct.
Thank you once again for your tireless work here in the midst of your move. My findings over 30 bubbles:
EUR/USD 5m
In how many cases was the mid BB against the price direction - 30
Calculate this as a percentage of the total you have observed - 100%
In how many cases did the price action ignore the mid BB and go straight thro to the opposite BB - 20
Calculate this as a percentage of the total you have observed - 66%
In how many cases did point P (the TP2 point) appear at the junction of the bubble end and the squeeze beginning - 13
Calculate this as a percentage of the total you have observed - 65% Regarding this, the bubble always ended at this point but sometimes went into a sausage or almost straight into another bubble. It didn’t always squeeze though.
Do you notice a consistency?
Obviously, trading the end of the bubble on it’s own is a satisfactory system. It regularly goes to at least the mid BB and also regularly makes it to the opposite outer BB.
There were some fake-outs where price looked like it was set to go to the mid BB, but then continued in the trend direction a little before going for it a second time.
There were, of course, other circumstances where the price never made it to the mid BB despite the bubble contracting.
One observation I also saw was that the larger, neater and more “bubbly” the bubble is, the more regularly the price went all the way to the opposite BB.
One thing I’m noticing when looking at this is that not too seldom the entry point will occur pretty close to the mid BB, thus making for poor R:R.
This subjectively seems more common on the higher time frame charts, but does occur on all time frames.
Thoughts on this Tymen?
Something else that I’ve thought about in the past and that came to mind again now is that it has always slightly bothered me that price spends so much time outside the outer BB when using 2 SD (the standard settings). If we seek to even further increase our selection of extreme price levels to base entries on, one might consider increasing the SD from 2.1 to as much as 2.5
I’m just throwing the idea out here to be discussed/criticized.
I have not performed your exercise as I need several hours to do that properly and time is lacking. It’ll have to be a task for the weekend. Suffice to say that the CBL concept is very clever in many ways and in its conceptual simplicity. What it does is basically that it allows entry only as price over the last X number of bars added together forms a reversal formation.
This combined with the location at an outer BB which signifies that price has reached an extreme, makes this a very logical concept to me.
Here’s my input. 1 HR timeframe EUR/USD since Mar 1st 2010 til today. I found 14 bubbles. My findings over 14 bubbles:
In how many cases was the mid BB against the price direction - 13
Calculate this as a percentage of the total you have observed - 93%
In how many cases did the price action ignore the mid BB and go straight thro to the opposite BB - 7 times
Calculate this as a percentage of the total you have observed - 50%
In how many cases did point P (the TP2 point) appear at the junction of the bubble end and the squeeze beginning - 7
Calculate this as a percentage of the total you have observed - 50%
Do you notice a consistency? At the end of the bubble there was 92% chance that the PA goes to at least the mid BB and there is a 50% chance that it makes it to the opposite outer BB. Depending on placement of stop loss i think I could have been stopped out 2 times.
One thing that worries me a little is that its easy to spot bubbles in hindsight. When trading in real time I have a fear of a my beautiful bubble turning into a ugly sausage after I enter and then of course getting stopped out. Your opinion here Tymen1 would be helpful. Thanks once again.
Price action went straight through mid BB to opposite BB. 38%
Price action went thru to TP2 to squeeze. 69%
These numbers are not as high as other pairs and time frames. I thought it would be interesting to see how my evaluation compared to sijeeva’s results.
How many cases did PA go though mid bb all the way to opposite BB = 4 -50% of the time
How many times did PA hit point P at the end of the bubble at the squeeze
2 times or 25% 2 other times it came really close that I would say 50% of the time it did
6 of 8 times PA hit mid BB
Should we consider the actions taken with Greece for example when planning our trades utilizing this method?
1&2) cases where mid BB was against the price direction - 8 or 100%
3&4) cases where price action ignored the mid BB for the oposite BB - 3 or 37%
5&6) cases where P (the TP2 point) appeared at the junction of the bubble end and the squeeze beginning - 5 or 62%
Do you notice a consistency? i might be doing this wrong…, but pls note following observations-
a. it is difficult to discern wether a bubble will become a sausage on the fly
b. depending on where stops were placed, 60% of the above setups could have been stopped out
following are setups recorded - times noted are London time:
1.) 01.03.10 15:00 2.) 05.03.10 21:00 3.) 10.03.10 11:00
4.) 11.03.10 13:00 5.) 12.03.10 13:00 6.) 15.03.10 12:00
7.) 23.03.10 00:00 8.) 30.03.10 14:00
Also, I noted that the price action goes against the middle BB only when direction of the trend is changing (for example uptrend to downtrend and vice versa). If the PA is inside upper band and middle band of the sausage it follows the middle band.
am I right?
We need not worry about the stop loss at this stage.
I will show you how this works as we go along.
In the above examples, if the price action did not reach the mid BB and retraced instead, the Fibonacci 38.2% line would decide whether to exit or not.
[B]Knowing in advance whether we are dealing with a BB bubble or sausage is not really important.[/B]
This method works with everything, even level BB.
When the price action reaches the mid BB in a bubble you will usually know by then what you have got.
If you see a bubble with the mid BB against you, then set TP1 at the mid BB, then [B]smile [/B]because you will probably see TP2 on the opposite BB hit as well.
The aim of this exercise was not to get you to recognise BB bubbles, although it would have given you good practise at doing so.
The aim was to get you to be familiar with one of the price action types.
The use of statistics is an excellent way to go into detail in the learning process.
Remember that I have been dealing with this method for some time now and are familiar with the concepts.
This exercise was aimed at getting the readers to understand the concepts too.
If this exercise has increased your understanding of the OM price action type in a real situation, then it was well worth the effort!!
Yes, I noticed this too when I first developed the details of the method!!
But the good news is that this happens in certain cases only.
The answer to this lies in the modified CBL which does not swallow as many pips to get an entry.
It still serves the purpose of keeping us out of the worst retracements after entry.
Further, we remember that the mid BB is only relevant if it is going against the price action direction, in which case we are forced to place TP1 at the mid BB.
[B]We now need to go on from here as I have not yet finished explaining the method.[/B]
We note that since we are trading the internal " rungs" of the Bollinger DNA ladder, we are generally trading the subtrends of major trends.
These subtrends tend to be very efficient - that is, a trendline place against them would show many contact points.
I must now show you the modified CBL.
Then to show you the stop loss - pretty simple really, the same as before?
The modified CBL are of 2 types - they are easy to do!!
I have noted that 3 candles in the CBL swallows a lot of pips and is not really necessary in these DNA trades.
We instead employ 1 or 2 candles.
The chart explains it best with the 2 cases of CBL >>>
Here we have two cases of extreme candles on the BB indicating a trade.
The CBL in each case is different, showing the 2 modified types…
In the first case, we use two candles if the previous candle body is smaller than the extreme candle.
In the second case, we use only one candle if the previous candle body is larger than the extreme candle.
In both situations, if we have used the original 3 candle CBL, our entries would have been so close to the mid BB so as to give very little, if any, TP1 profit.
