Financial Trading with Five Regularities of Nature

Subtitle: Scientific Guide to Price Action and Pattern Trading

Author: Young Ho Seo

Total Pages: 330 pages

About EBook

Technical analysis for the financial trading and investment has nearly several hundred years of history. Traders use the technical analysis to collect the scientific evidence to find out the probable market direction and volatility for their trading. When many people spot the same thing in the financial market, I think we should take it very carefully, especially if they are based on the scientific evidence. Price action and pattern trading strategies were extensively used by many successful traders to identify the trading opportunity to profits in the market. Price action and pattern trading strategies concern less on the traditional technical indicators. However, they concern more on raw price patterns. With many powerful trading strategies within the price action and pattern trading, their usefulness is already beyond the expectation of many of us.

As a quantitative developer and trader, my job allows exploring nearly thousands of different trading strategies to validate and verify. Several price action and pattern trading strategies have shown that their operating characteristics are much different from the typical momentum and mean reversion strategies. Those price action and pattern trading strategies are powerful. However, the idea behind these powerful trading strategies is poorly understood by many traders. There is a definite reason for this. It is simply because there is a lack of any unified framework encapsulating these trading strategies. It makes difficult to build any rational than just drawing some lines in your chart. When we can not compare or classify things due to lack of information, this is typically what happens. It is even sadder due to the high popularity of these trading strategies.

It made myself to think to come up with one unified but scientific trading framework to encapsulate these strategies. Fortunately, I found that the five regularities in nature could encapsulate thousands of different trading strategies just under the five categories. Simplification is good thing because it makes the communication much easier. Five categories can approach to any average person. Especially I was able to categorize most of the price action and pattern trading strategies under the fifth regularity. After the distinctive characteristics are identified under the fifth regularity, it was much easier to understand why these price action and pattern trading strategies were behaving differently from the rest. I believe that this will clear out your curiosity on why those price action and pattern trading strategy works like charm every time. It is probably even better because the trading principle is not vague any more. The main purpose for all this work was to communicate with traders for the potential market dynamics for the profitable trading. On the other hands, this was one very interesting study about nature, human and crowd too.

This book is geared up for your practical trading. We want average traders to make use of the knowledge and trading strategies in this book. Therefore, this book covers many working price action and pattern trading strategies in details and with examples. Especially, the book covers the support and resistance in great depth. We cover both identification and trading for support and resistance. We provide the six support and resistance patterns with examples for the twelve different trading setup. Furthermore, the book connects the concept of support and resistance to the equilibrium fractal wave trading. In the equilibrium fractal wave trading, we introduce how to use the “equilibrium fractal wave index”, “shape ratio” and “equilibrium fractal wave channel” for your trading. After we have covered support and resistance trading and equilibrium fractal wave trading, we present three other powerful trading strategies including Harmonic Pattern, Elliott Wave, Triangle and Wedge Patterns. We spend a great amount of time to explain how to use these trading strategies in the scientific way to yield better performance. We also provide many example trading setup too.

At the latter part of this book, we have also provided some useful information towards your trading management. We provide some practical knowledge on risk management and portfolio management for your trading. Especially we highly emphasize the importance of the risk management. We tried to offer the digestible information as much as I can. In addition, many free tools are available from the website: “https://algotrading-investment.com” free of charge. Especially, you might need the Peak Trough Analysis tool to follow some of the chapters in this book. You can freely download the Peak Trough Analysis tool from the same website above. Finally, reader should note that this book contains some strong technical language.

Table of Contents

Introduction to Five Regularities in the Financial Market

  • 1. Introduction to Technical Analysis 8
  • 2. Introduction to Charting Techniques 24
  • 3. The Five Regularities in the Financial Market 34
  • 4. Random Process 49
  • 5. Stationary Process 54
  • 6. Equilibrium Process 57
  • 7. Wave Process 65
  • 8. Fractal-Wave Process 72
  • 9. Equilibrium Wave Process 81
  • 10. Equilibrium Fractal-Wave Process 90
  • 11. Choice of trading strategy and Price Patterns 107
  • 12. Peak Trough Analysis to visualize equilibrium fractal wave 113
  • 13. Using Equilibrium Fractal Wave Index to Select Your Trading Strategy 128
  • 14. Appendix-Equilibrium Fractal Wave Derived Patterns 141
  • 15. References 148

Price Action and Pattern Trading 156 (2nd training in Price Action and Pattern Trading)

  • Overview on Practical Trading with the Fifth Regularity 157
  • 1. Support and Resistance 160
  • 1.1 Horizontal Support and Resistance 161
  • 1.2 Diagonal Support and Resistance 170
  • 1.3 Identification of Support and Resistance with the Template and Pattern Approach 180
  • 2. Trading with Equilibrium Fractal Wave 187
  • 2.1 Introduction to EFW Index for trading 187
  • 2.2 Trading with the shape ratio of equilibrium fractal wave 191
  • 2.3 Introduction to Equilibrium Fractal Wave (EFW) Channel 196
  • 2.4 Practical trading with Equilibrium Fractal Wave (EFW) Channel 199
  • 2.5 Combining the shape ratio trading and (EFW) Channel 206
  • 3. Harmonic Pattern 210
  • 3.1 Introduction to Harmonic Pattern 210
  • 3.2 Harmonic Pattern Trading 214
  • 3.3 Pattern Matching Accuracy and Pattern Completion Interval 223
  • 3.4 Potential Reversal Zone 232
  • 4. Elliott Wave Trading 240
  • 4.1 Introduction to the Wave Principle 240
  • 4.2 Scientific Wave Counting with the Template and Pattern Approach 243
  • 4.3 Impulse Wave Structural Score and Corrective Wave Structural Score 257
  • 4.4 Channelling Techniques 262
  • 5. Triangle and Wedge Patterns 266
  • 5.1 Introduction to Triangle and Wedge patterns 266
  • 5.2 Classic Perspective of Triangle and Wedge Patterns 269
  • 5.3 Diagonal Support and Resistance Perspective of Triangle and Wedge Pattern 277
  • 5.4 Elliott Wave Perspective of Triangle and Wedge Pattern 280
  • 6. References 284

Trading Management 286 (3rd training in Price Action and Pattern Trading)

  • 1. Risk Management 287
  • 1.1 Various Risks in Trading and Investment 287
  • 1.2 Position Sizing Techniques 293
  • 1.3 Reward/Risk Ratio in your trading 297
  • 1.4 Breakeven Success Rate 298
  • 1.5 Know your profit goal before your trading 300
  • 1.6 Compounding Profits 304
  • 1.7 Trading Performance and Cost Metrics 304
  • 2. Portfolio Management 309
  • 2.1 Combining different trading strategy 309
  • 2.2 Hedging 318
  • 2.3 Portfolio Diversification 319
  • 3. References 323

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