Yes, I think this is a good way to go. Conventional indicators cannot really do it at all, so it needs something innovative, in particular a set of decision logic that uses a comprehensive set of simple rules, examines all the aspects of what we do visually, but doesn't forget anything. I have spent a lot of time developing unconventional indicators.
A year ago, as an experiment, i spent several months day-trading futures using Price Action concepts only, without any indicators, just to see what would happen. What i found was that when there are good clean trends it is incredibly easy to make money. However if the market either becomes trendless or too noisy i.
This year, I find that Apiary's "Alignment Strategy" tells me much the same thing. So now i am trying to focus on developing an algorithm to identify consistent trend quality over multiple timeframes. Some days some pairs just cannot provide that, hence the need for proiritizing pairs, as we both agree. The challenge is to satisfactorily quantify "trend quality". In addition to consistent direction over multiple timeframes, the trend also needs to be moving sufficiently fast relative to the amount of noise present, so you are absolutely correct that momentum is an important part of it.
Cheers, all the best, TonyM. If i were actually constructing a correlation indicator, then i would use multiple different bar sizes and multiple different correlation window lengths, and then aggregate the results systematically. However, for this specific application, i think there are other far more important issues especially trend QUALITY over multiple timeframes , so my investigation of correlation here was brief and was designed simply to reduce the number of candidates for further evaluation.
In any cases where there were several different sets of highly correlated pairs, especially on the 1day-bar timeframe, i then only kept whichever pair had the highest liquidity, lowest bid-ask spread, and highest ratio of ATR to bid-ask. Following this procedure, i managed to reduce the number of "best candidate" pairs from 30 to about 14 or This cuts down subsequent work, but is not really essential. My aim was not to find "uncorrelated assets" because, as you observe, they are not.
Trend quality and correlation between pairs are not necessarily related at all. We are both, i believe, looking primarily for trend quality. If you are interested in correlation studies then, rather that looking at correlations between pairs, take a look at correlation of price with bar number for each pair separately.
All other things equal, the "best" trend is the smoothest one, which has the highest absolute value of correlation with a linear ramp, which is the same thing as correlation of price with bar number. Trading off the index just eliminates all the work. My question for you is how many pips per day is your target?
Why do I ask that? If a pair has enough daily movement how many do you need to study, follow, track, trade. Perhaps i will learn something quite different about FX correlations when i get to Gold Level, but at the moment i do not understand what you mean when you say that you "trade correlations". What exactly do you do with them? I have been trading for a long time, and i'm always trying to improve my game, so nothing that i do is "cast in stone", and i'm always open to change my ideas later if i find something better, but as for targets i currently have two separate perspectives.
The reason is that, at best, and even in theory, I can at most only squeeze out of the market what the market has to give at the time. Some days are good trend days and some are not. When the markets are trending well, i like to trade until i get tired or until my wife or my kids want me to do something else with them. On good "trendy market" days I will take as much as i can.
On other days, when there are no good trends and the market price fluctuations just look like "noise" to me, then i would prefer to stay out an make nothing at all but at least not lose anything either. If you want a number, then some days i do say "why stop at ?
I cannot force the market to do anything, so to me the idea of a specific daily target every day doesn't make much sense. On the other hand, if you are asking what i think would be a "good target for average days? Take a look at graphic 1. This helps to see the low and the high points of each session. At the end i will show you have to draw the Fibs. First I establish the direction of the trend. In the 4H chart is easy to see if the market is trending or not. I wait until the Stochastic in the 4H chart is in the Overbought zone and then i switch to the 1H chart.
Then i wait until the Stochastic in the 1H is in the overbought zone. Ok, how i draw my fibs? In this case the market is in a downtrend so I draw my fibs according to that. In the 1H Fib graph look for the high of the preview day and draw a fib to the low of the preview day.
Take a look at graphic 3.
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