zah1231 wrote:slowkey wrote:The EURUSD 1 hour SDC is slightly uptrend today but with the narrow ranges of several of these days and a negative D1 slope of around -.8 , I would be cautious. The SDC is reflecting some of the narrow range days we have been having up until yesterday.
I have been experimenting with SDC for the last 3 days and my feeling is that the lookback of 6 days is too sensitive and can suddenly change the slope direction giving false signals and resulting in losses. IMHO, a lookback of 10-12 days would be more stable, but that's just me. Thanks.
Hi Zah and thanks for following the thread and your interest in the SDC. I think it is a terrific tool.
The SDC I think has it right and let me say I said just to be cautious because we are coming off of a fairly strong down trend. But let me explain what I mean here when I say this by showing you what a longer look back would do.
You have to remember that the SDC is more than just a tool that gives you trend it also is a Fibonacci Tool so when you are attaching it to a chart the look back is important to how the Deviation channels work. There is math involved in the look back. If it is too large the Fibonacci channels will not be right. It is like drawing a Fibonacci from the wrong point to the wrong point on a chart.
Let me show you what I mean with what the EURUSD is doing the last 10 Days. You would have to set the look back to 8 days to still see it in a down trend. So I want to show you the difference between the two and also look at the Daily Chart. First the 8 day look Back.
eurusd 8 days.gif
Notice that when you look at where the check marks are on the bottom of each hour candle that is the lowest of the day you can literally draw a trend line that shows the Pair is up trending on the hour chart. You have to remember when you are trading intraday on an hour chart that you are trading 1/24 of one Daily candle. You are literally trading within the candle. However each one of these candles I have check marked would have been the low of the Daily candle for that day. However because of the 8 day look back the SDC does not reflect that change in trend. Also the deviation channels are just all wrong. they do not look right at all. They do not give you any guidance and the trend is all off. Now lets look at the 6 day look back below.
eurusd 6 days.gif
Now if you were to draw a trend line it would reflect the same trend as the SDC. Also the Deviation channels look right. Now at the very left of the chart looking back 5 days or so you can see that EURUSD had been in a down trend and if I could scroll the chart backwards that would be even more obvious.
Another thing to notice is the range of these days. Look how you would have been having to trade the Pair the last few days. You would have been getting short squeezed at the bottom of your short every day with the day ending in an uptrend as each day progressively ranged higher. Now yesterday was a little bit of an aberration because of the US Fed chairman speaking to congress and the effect this news had on the day. I tried to trade the early london and NY session before and the range all night was about 51 pips till 1 minute into his testimony the bottom went out of price. Than within the hour price was again trending upward quite strongly. I have not been trading today but if I had been I would have had to analyze what has been happening on the Daily.
Now the Daily below.
eurusd.gif
If you look at the last 10 candles you can see the unusual trading conditions reflected in the day candles. You can also see the start of a possible reversal or bottom in the daily candles. All the candles show fairly narrow trading ranges but with the last 5 of six candles you can see clearly that the candles have needle bottoms. You can also see that the last candle today is forming a doji which you can also see at pair bottoms or periods of indecision. Of course the day is not over and we will have to wait to see what this brings. You do not always have a bottom with a big spiked hammer candle for instance. Some times bottoms are formed by many needle like candles. Regardless, when you see this something is usually happening. Each candle shows a move down but the bulls push up the price each day. So if you were short these days you would have been at least in a intraday short squeeze. It would have not been terrible but you would have had a hard time selling the rallies which is what I was trying to do when the SDC was still showing a down trend. I just was not getting any cooperation. I was getting out ok but I was not making any big gains. The market also reflected this by where all the players had there bids and offers reported at. The ranges each day were narrow and none of these locations were really getting hit. However today as the SDC changes I would not be trying to sell any rally. Clearly things are changing some. This may only be temporary but it may be with the worsening conditions in the US that the EUR is going to catch a break or at least a break in the action. Now this analysis helped me too because if I trade this evening I will be using a different strategy because of the SDC. I sort of get from your statement that you may be relying on the SDC a lot. It is a great tool and my setup would be lost without it but the setup is a tool to analyze a chart and develop a plan. Try not to rely totally on the SDC in your thinking. Look at the trend lines. Look at the daily chart. Look at where the Bids and the Offers are in the market. Look at the whole picture to come up with a nice plan. The SDC is invaluable in the setup. However it is not perfect and your trading can not rely 100 percent on what it is telling you. The setup has many parts for that reason. If you use all the parts you can have success. I was an ICU nurse. When I first started I was totally absorbed in the details. As I gained experience I went through different stages until at the end of my career I was a supervisor and I could look at an emergency situation and know the whole over its parts. I reacted instinctively. To be a good trader you probably have to go through those stages to but the problem is our education can cost us capital. So learn to make a good plan and if it goes wrong you have the plan to review and understand what went wrong. If you trade interactively with the indicators on the chart caught up in the details you can loose the big picture.
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