Aleš’s Lessons #18 – Sophistication

Sophistication comes with being able to distinguish between say a top and the top.

After a top you want to be playing the upside still by buying low, while after the top you want to sell high. This is where all tend following systems would end up putting you on the wrong side.

The spohisticated method is plotting a CI DV on a 4-hour chart to find exhaustions, beats and beat attempts and making a stochastic (crack ho) comparison to find reversal divergences.

The following image shows how to spot a beat attemp – for the beats are automatic plots anyways.

On this image you are looking at the top, the bottom and the top (the last one had a valid beat).

The next step is to make the comparison. The Crack Ho would come out to be a 15-sample high-low stochastic signal with 3 smoothing and 2 delay, but that’s a bit crude, so I would look fir those two wicks on the hourly chart and use the Crack Ho straight up.

There is one more thing. The exhaustion itself has to be qualified by the Crack Ho being above 90 or below 10. Otherwise you are looking at a top or a bottom by default.

This is how the exhaustion (second image) on the left that coincided with the beat represented a top and thus the T2 target wasn’t hit versus the one on the right which was the top.

Back testing the consolidation mean at 1.1844

overbought still starting at 1.1854

more automatisation – magenta beat attempts