October 25, 2020

Startup PRISM. Analysis of model development in example No. 1

Recently, I published the forecast reversal / price correction level based on the External model of attraction. it one of the models that will be used in the future PRISM technical analysis service.

Now that the actual price movement relative to this level is known, I propose to understand how the published model and its level actually worked.

Before placing warrants for conclusionof the transaction, I needed to determine where I plan to take profits in case the correction / reversal forecast turns out to be successful. Looking ahead, I note that in my trading system there are usually 2 such levels and I close the position in parts. But in this example, we consider only the near take profit level. The blue segment in the graph below is the minimum range of model development. If the upper (in this case) boundary of this range is reached by price, then the model has worked, and if not reached, then the model has not worked.

In addition, we must decide at what point wemust open a position. Initially, our guideline is level 6 and, according to the simplest logic, we must open up against the trend when the price reaches this level.

Startup PRISM. Analysis of model development in example No. 1

However, practice and logic suggest thatlevel calculated t.6 fulfills (gives a reversal or correction) with an error. One of the advantages when working with a future service will be able to find out where the boundaries of this error are. Moreover, this error can be both in the plus zone (i.e., not reaching the level of t.6), and in the minus zone (i.e. beyond the level of t.6). The combination of these zones (plus and minus errors) is denoted by yellow fill. The following events are noted in the screenshot below: the price reached the level of t.6, and then not Having reached the level of the first target, it leaves the yellow range in the direction of the breakdown of level 6. Thus, the model did not work.

Startup PRISM. Analysis of model development in example No. 1

However, was it possible to predict such ascenario before reaching level 6? Of course, yes, that’s why I canceled the orders before opening the deal. The thing is that after the price has reached the yellow zone, it has reached the level of the first target. That is, as soon as the price reached the zone of error, I immediately began to track the 1st target. Therefore, I call the yellow zone the first target tracking zone.
As soon as the first goal was achieved, I immediately realized that, in fact, level 6 had already worked out, and from that moment, level 6 had already worked out by default.

Now a few words about a potential deal,which I was planning. In order for the transaction to comply with the rules of MM, I would not open in any case simply because the price entered the tracking zone of t.6. But it is not always advisable to wait for reaching level 6; very often it is not achieved until the first goal. Therefore, we calculate a certain amount of error, which is statistically often achieved by the price, and at the same time allows us to get a good correlation of potential profit and potential loss on the transaction. In the graph below, this error is indicated by the green segment. Its upper border would be an entry point, and the lower one would be a stop loss level.

Startup PRISM. Analysis of model development in example No. 1

That's all for today, we will soon continue to publish potential deals;)

P.S.
We slightly (almost imperceptibly) edited the cartoon about Vika, so the old link no longer works, but the new one:
youtu.be/agu9JOiqFtU