Natural Support and Resistance

[websouth]

or we could call it
"poor man's linear undecimated Haar transform wavelets implemented via lifting available on any trading platform"

Add a large wave on your chart 1-1440sma (template attached) Watch the folds and bends and compression of the wave. These points are natural points of support and resistance. Put your favorite candle bar coloring on the chart and reverse the colors (because you know they are always late) Now look for your candle color to correspond to a fold in the wave. Breakouts fail a large percentage of the time so the best is exhaustion @ a compression line. Pick a time frame to control your risk and place stops below the current fold or whatever works for you.

enjoy.

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excerpt -
http://www.bearcave.com/misl/misl_tech/ ... trangeTrip

Given the vast literature on wavelets, there is no need for yet another tutorial. But it might be worth while to summarize my view of wavelets as they are applied to 1-D signals or time series (an image is 2-D data). A time series is simply a sample of a signal or a record of something, like temperature, water level or market data (like equity close price).

Wavelets allow a time series to be viewed in multiple resolutions. Each resolution reflects a different frequency. The wavelet technique takes averages and differences of a signal, breaking the signal down into spectrum. All the wavelet algorithms that I'm familiar with work on time series a power of two values (e.g., 64, 128, 256...). Each step of the wavelet transform produces two sets of values: a set of averages and a set of differences (the differences are referred to as wavelet coefficients). Each step produces a set of averages and coefficients that is half the size of the input data. For example, if the time series contains 256 elements, the first step will produce 128 averages and 128 coefficients. The averages then become the input for the next step (e.g., 128 averages resulting in a new set of 64 averages and 64 coefficients). This continues until one average and one coefficient (e.g., 20) is calculated.

The average and difference of the time series is made across a window of values. Most wavelet algorithms calculate each new average and difference by shifting this window over the input data. For example, if the input time series contains 256 values, the window will be shifted by two elements, 128 times, in calculating the averages and differences. The next step of the calculation uses the previous set of averages, also shifting the window by two elements. This has the effect of averaging across a four element window. Logically, the window increases by a factor of two each time.

In the wavelet literature this tree structured recursive algorithm is referred to as a pyramidal algorithm.

The power of two coefficient (difference) spectrum generated by a wavelet calculation reflect change in the time series at various resolutions. The first coefficient band generated reflects the highest frequency changes. Each later band reflects changes at lower and lower frequencies.

There are an infinite number of wavelet basis functions. The more complex functions (like the Daubechies wavelets) produce overlapping averages and differences that provide a better average than the Haar wavelet at lower resolutions. However, these algorithms are more complicated.

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some wavelet links
http://www.traderssoft.com/sys/wt/ts/
http://www.amara.com/current/wavelet.html
https://www.wolfram.com/mathematica/new ... -analysis/

[Rifouly]

Really Interesting.

Could you please share more of your expirience with this art of reading charts.

[monkeh]

looks to good to be true.
ive think ive heard it somewhere

thanks so much for sharing!

[websouth]

Really Interesting.

Could you please share more of your expirience with this art of reading charts.

How about you play with the template then ask me some questions...
This is just another way to visualize data. Everyone has a sweet spot that makes sense to them. This is mine... Think of it as a way to try and find support and resistance dynamically via confluence. Take your favorite indicators and lay them on top of this and see if it makes sense to you. Look @ different instruments and time frames. You will find that hard edges are usually persistent on multiple time frames and that this makes them even more important.

looks to good to be true.
ive think ive heard it somewhere

thanks so much for sharing!

It works for me. Don't know who else is using this the way I do. I post one other place and that is about it - so I dunno. Steve Hopwood has been a real creative force and a giver for a long time. That's the main reason I posted here. If I can give some people an idea that helps them then happy to do it.

Theory is loosely based on Guppy, Haar wavelets, Hull, Cyrox, etc. Question is - Can you visualize the cycles of various lengths (wavelets) and do they come together and create visual patterns of congestion or edges in the data that are exploitable to a retail trader. I think they do. At what point does it become not usable. 3500sma 10000sma. (I have tried them all ) For me 1440 makes sense because 1440 minutes in a day and after that you tend to just get straight line banding across the data.

Watch the folds and bends and compression of the wave. These points are natural points of support and resistance. (imho - your mileage may vary) You will see some structures leave an echo of compression which will ripple through the overall wave. These edges tend to be low risk entries.

If you were to overlay vwap or market profile POC over the wave you will generally see those key numbers represented as compression waves...

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[websouth]

here's hard right edge...
Friday was pretty explosive so here is 5min then 1min to show detail after breakout plus 1hr for some perspective.

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[monkeh]

i have to say you got me interested very much.
if i could also ask few minutes of your time posting few trade setups you would take or you actually take, i would be most greatfull.
of course - if you dont mind sharing your strategy that is.

have lot of green pips,

[websouth]

Here was my trade from Friday. Poor entry should have been closer to the edge I marked...and obviously I got out too early. 120 pips. risk 25.

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here is a markup for today I did not trade.

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[GT3RS]

EURUSD Weekly chart.

Am I seeing what you're teaching!!??

[websouth]

Yes you are... spooky, huh? Now think impulsive, corrective, impulsive, corrective, etc.

impulsive is the longer move on any particular time frame... the "trend"

so market moves as
impulsive, corrective, impulsive, corrective, impulsive, corrective, impulsive, corrective, impulsive, corrective, impulsive, etc

until... wait for it ... wait for it

an impulsive fails to make new ground

or a corrective overshoots the previous impulsive

in which case our count is now off and we have to switch the count on the last 2 pushes which assumes the opposite direction is now dominant ....

or we wait for confirmation of direction by looking for the longer legs again.

lean against perceived support/resistance (shown with this wave) and plan for being wrong.

2012-09-17_0758.png

[websouth]

If you were watching this 1hr/5min and you watched price moving up. What would be your expectations as price approaches the top of the wave on the 5 minute...?

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