Consolidation then supply and demand breakout question

waterscalming

I know (as I already saw at least one chat discussion on this around Feb 2015) someone previously asked this question.

But I am asking perhaps a more specified (direct) question about it.

This is my question:

How would I be able to have an indicator parameter set-up where it indicates the last major movement (like a Harami, or a Bearish Harami, Hammar, or Hanging man), indicating a minimum of 2:1 size ratio (or greater) increased from last closing bar time-period and be able to use lagging indicators like RSI Stochastics referencing the moving average direction from differential time-frames (200 for more solid, 100 less solid, you get the idea to tweek as desired), with the ability to reference a future indicator pre-set to calculate once the bar has been produced the signal (2:1 size ratio or greater) increase from the last low or last high that was before the consolidation point to the next high or low to provide the best future indicator location of consolidation with supply and demand?

(RSI Stochastics will be one of the additional confirmations required by surpassing that consolidation trend, but not to indicate until it has moved back into the trendline again by one candlestick confirmation.)

And having a stop-loss indicator provided based upon the last high/low from that consolidation time-period after the last breakout's high or low.

I know this is a complicated process of series to replicate and produce.

My theory is if someone is able to provide the a model that can be back-tested upon previous movements with the MA time-frames, verified by the Consolidation breakout conditions pre-set (candlestick pattern confirmation with last high/low as stop-losses), and RSI Stochastics indicator (or perhaps a more trend indicator before breakout?), with a fib calculation it could be backtested, and tweeked as needed until I get my desired product before I actually invest any money into trading again.

markd

I've read your question several times, but I can't make sense of exactly what you want this indicator to do. It sounds like you want a formula that could be back tested on Tradestation or something similar. Maybe someone else here can point you in that direction. Stockcharts is a charting and scanning site. Although you can get real-time prices, it is not really intended to be a trading platform and it does not have automated tools for backtesting or for developing custom indicators.

If you want help setting up a scan that can find the conditions you are looking for on a daily or weekly chart, using conventional indicators, we can work on that, but I would have a lot of questions about just what you are looking for.

waterscalming

Markd,

Thank you for the response. I guess I have posted the question to the wrong site (assumed) thinking the question could be answered here.

Key attempt I had was to find a way to write a code/formula into some charting site that could backtest a breakout/consolidation of supply/demand using MA's, FIB, Stochastics, then be able to find a way to produce indicators to buy/sell after to include when to sell based upon parameters I have established further for an established computer program to run the trading for me without emotion and test the effectiveness in backtests.

Then again, if I could find something like this to just scan the market to know which are *prime* to enter that would be excellent, but I am unaware of all the specifics required to establish this at this time.

Very respectfully,
Waterscalming

markd

@waterscalming Well, I think that's PhD territory. And from my limited knowledge, it seems the quants are black boxing for pennies in price but trade thousands or tens of thousands of shares - far beyond the resources of most non-professionals.

I understand the wish to avoid emotion. But I don't think you can completely. The way to deal with it is, as you already know, is, first, know the odds of your trade set-up - and second, trade small - whatever you yourself consider small. That might be ten shares or a hundred or a thousand depending on your resources and natural temperament.

I would only add, complexity does NOT increase certainty. Instead, adding more conditions just reduces the number of set-ups you find. If you were lucky enough to come across some combination of indicators that works eight or nine times out of ten, it will likely occur only once or twice a year in maybe eight or nine out of ten years. And then the gains may not justify the wait. Maybe if you have enormous computing power you will find more, but for the non-professional, it's not practical.

It's a lot easier if you keep the set-up simple - maybe just two to three indicators or overlays - like MACD crossover when the 50 MA is above the rising 200MA. That's it. A lot of the trades will not work. That is just the way the market is. It is VERY NEARLY random. But not quite. When the market is trending, it puts the odds in your favor. That's why you trade small and have a plan to get out with a small loss while you wait for a good trade to appear and work out for you.

If you are not intent on building your own system, you might be interested in Gatis Roze's blog. His method piggybacks on the research of Fidelity portfolio managers and seems to be pretty popular with Stockcharts subscribers. He has a "chart pack" you can download into your Stockcharts account that includes potential trade candidates.

Happy hunting.