Wednesday, December 26, 2007

Kalman Levels

Sometimes I feel like there's a little demon inside never letting me rest with the systems I have in my arsenal. Like an addiction to the new and cutting edge. Well, the flavor of the day is VWAP or Volume Weighted Average Price. Since MT4 has no register of volume, I have to use the brokers tick data. SO out of necessity  enter the Kalman levels, a proxy for VWAP.

The Kalman levels are nothing more than the raw standard deviation of the of the initial Kalman equation

I have borrowed heavily from this idea here. 

I know I am slightly misinterpreting the faith more mathematically inclined systems traders have in actual formulas and their ability to give accurate readings on the market at the time of trading. In a sense trade management is all that separates a win from a loss, not the entry. The shifting back and forth adding a subtracting indicators and filters is mere vanity. The only consideration that really matters in each and every trade made is where is the price now and where is it going. And this realization is somewhat liberating. However it doesn't mean I don't want to keep up with appearances and vanity myself.

I seems an incredibly cynical departure to the strict reliance I have in trading to the mean. In the end though system after system always attempts to achieve the same result, reverting to the mean. It's just the vanity of finding the simplest most effective way of participating in the inevitable trajectory of price back to it!

So for now the method is even more simple than before. 3 elements all registering different variables. Heiken Ashi for trend, Fib levels taken from the previous sessions high and lows and now introducing the Kalman levels.


Trades are taken after a fib level and a Kalman level are touched and the Heiken Ashi bar shows a positive divergence away from the levels initially touched.

In my new method of the moment, I take this double touch pattern into consideration before any entry.

Let's see how this method plays out for the next few days.

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