principle extraction

a study and how to go about

With PPT's 18th monthly birthday having passed, I found it appropriate to start providing some insight on how to achieve a 90% hit rate and how to create real edges by extracting new principles.

A good precursor is to experience the ability to shape one's mind in any way or form to experience the limitless possibilities of creativity.

One way of doing so is by experiencing.

"A course in miracles," and no, this does not require a belief in channeled material or any boogaawoogaa since anything you will read or practice is soundly based on principles. Just see for yourself.

Another helpful preset is building your process of approaching this task based on existing principles and eradicating doubt, which is one of the biggest obstacles in possibly most human endeavors of greatness.

Einstein said, "All I want to do is learn to think like God." From this notion, I initially derived, "All I want to learn is to think like the market."

To bring something from the realm of the unknown into the realm of the known requires a bold step forward. It is like squeezing through a needle's ear and coming out differently on the other side.

To squeeze, you need to know where, and for motivation, I used the principle of the Big Bang theory, where we continuously find ourselves with every time unit passing into a new world that has and continually will expand natural expansion as you will that our senses as such do not accept not to be overwhelmed with the vastness of new data.

To find the needle, an entrance, a pair of extremes is needed- just like in the market, like the open and the close of an exchange where market behavior is forced into abnormal behavior.

Let me use an example to align the above-mentioned basic function blocks to show how this can be done.

Shortly before the millennium change, I felt it beneficial to look where other traders typically looked less to extract principal edges for creating a system still in development.

I felt challenged by many statements in their publications by successful traders who had acquired fortunes in the prior 30-year bull market, stating market player limitations like "you can't have high hit rates and good reward ratios at the same time."

I felt compelled to prove them wrong.

At the time, the world was dominated by processing speed, with the bloom of computers and the Internet. A revolution was taking place, and I was fascinated by it right in its midst.

Quickly, I was able to derive with the at the time 9-month time cycle overlaying in the market fascinated from one computer chip realise to the double speed nine months later in compressing sand and starting to exploit this time cycle.

Further studies showed the meaningfulness of values 3, 6, and 9, and a deeper principle search brought Tesla's fascination with these numbers to the forefront.

Looking for a pair of extremes, I chose 3 and 18 (3+6+9=18), two ends of a spectrum. (No, this isn't numerology or otherwise flimsy structure. If you dive a bit into this, you will find that far beyond Tesla's fascination with washing his dishes with 18 napkins; there is a clear distinction that in all sorts of fields, from the religious to simple math, a significant importance exists in this number series should you want to go about and explore time, as was my intent.

The mentioned have been the first footprints on how I came about in 2018 to pick the crypto market as my main focus, a huge step from being dominantly focused on trading the S&P500 successfully for over 20 years. (and again, 18 in 2018 has nothing to do with this; all parts are a combination of principles, not some arbitrary random beliefs)

Let's look at some charts to illustrate how thinking outside the box can get one to see the market from a different view and apply edges that fewer people are inclined to use.

This first chart (a quarterly chart = 3 months per candle) shows how Bitcoin came to everyone's attention through its first staggering move to 20k.

I started studying this trading instrument behavior and, as seen in the following chart, became fully committed after a more significant retracement in 2018,

At this point, my time cycle calculations pointed towards an upcoming strong move, and after eight weeks, my paper trading showed solid performance for my forward testing and multi-month backtesting results.

The following chart shows how my 18-month time cycle applies.

You take the thrust candle and integrate it as the start of an 18-month cycle.

As you can see, it reflected a 100% retracement of the thrust candle and was near the 20SMA.

The next chart shows the 18-month cycle as an overlay to the price chart in a similar fashion, with the last grey box being a projection (the only thing for this box that we know is time; the upper and lower bounds of the box are unknown yet).

How to exploit this cycle idea is the following:

18 months pass, and then you expect a strong move (= 6 candle count, 6x3 months), and then a solid directional move is expected.

As you can see now, six years later, this cycle approach worked like a charm (and this isn't hindsight analysis; it is real-time documentation with the yellow signposts for larger time frames turning points).

Typically, time cycle edges break on the 5th or 7th cycle. This is based on the fact that even though time is a constant, it also bends under the law of change, and in the case of time, we have contraction and expansion models altering. This would be in line with the fact that BTC has become mainstream and already changed some of its typical trading behavior.

For me, it is time to walk away and find a new market where time cycle applications will be as efficient as they were here.

The next chart shows how all major moves were captured. Be aware that under the rules of the quad exit, all long runners are also still theoretically in play.

While this was an example of how time-based calculations can provide for edges, only a few consider it. On how to extract new principles, let me take the opportunity to give another example of an unusual trading approach.

I gauge an anticipatory fashion market change through indicator interpretations.

What this means is that in our BTC example, now I expect a deterioration of the 18-month cycle and am checking for rotation, meaning I view how typical CCI signals looked in 2018 at the time the cycle started.

The following is a quick excerpt from my journal from that time to illustrate how indicator models are also not stagnant but rather show differences in their nuances, representing the market changes of compression and expansion through time. These types of signals are to be expected next, with the fifth cycle to be completed in three more cycles.

Quick reminder which CI trades are reentries for trends and which are counter trend ones:

HFE:

VEGAS in the making:

ZLR in the making:

VEGAS long entry:

Zero Line reject long:

Zero line reject short:

Vegas Long:

Vegas short:

Hook from Extreme long:

Hook from extreme short:

Vegas with nice price divergence:

I do these reviews to confirm cycles and to train my mind to anticipate how good signals look so that I am not caught off guard and doubt my signals when they start changing their "face" again.

As you can see, I developed various approaches to evaluating the market. This individualist approach has given me larger-than-typical statistical edges like hit rate, risk/reward ratios, and, most of all, risk control, leading to more refined timing of entry and exit placements.

While the world looks at markets through price, I use different methods to create a tradeable edge. Two of them are time cycles and indicator nuances, among a few others.