Math Based Trading Strategy: AT-LaPlace bands, Projection Boss, RMLR and Powermean nails moves
Want a Math Based Trading Strategy? Learn to use the Alpha Trading indicators.
In order to demonstrate a working Math Based Trading Strategy, let’s look at this example from January 20, 2023 on the daily TimeFrame (TF). In this case, the BTCUSD Index chart shows that Bitcoin (BTC) tagged the 3rd Laplace distribution band on the AT-Laplace bands and closed just shy of it. It was a very nice move to the upside at more than 7.5%.
What this chart also shows is the power of the Alpha Trading Projection Boss indicators (PB1 and PB2) to visualize the distribution models and define the probabilities to the upside and the downside, either with Drift on or off. In this case, Drift is turned on.
In addition, the incredible value of the Powermean (built in to the AT-UPM indicator) shows accurately that when returns lead the price action to cross below the power mean, it is a fine time for Shorts and when the returns lead the PA above the Powermean, it is a good time for Longs.
On top of that, the Alpha Trading Reverse Mean of Log Returns (AT-RMLR) shows that when there are extreme outliers (ie: a move to the 3 STDEV Band Up or Down of a particular RMLR), after Price Action stops hitting that extreme band, mean reversion is typically in effect and will complete by reverting to the relevant RMLR, and most often will also complete a mean reversion to the actual power mean.
OK, so what’s the Math Based Trading Strategy here?
In short, the strategy is: When you know how to read these indicators, and when you comprehend the fact that trading markets are run largely by the massive and powerful trading bots developed and maintained and operated by the High Frequency Trading firms and Quant shops that build incredibly complex algorithms that literally move 70% – 90% of any asset’s orders at any time, running millions of trades per second, you don’t need a fancy or complicated or even a simple strategy, per se. You just need to be on the right side of the trade; that is to say, you need to be on the same side of the trades that the huge bots are making.
How can I know when to be on what side of a trade?
To accomplish that as a retail trader, you just need to know how to read the Alpha Trading indicators (which are built to work on TradingView) and take action to exploit the inefficiencies that are presented as occurrences of opportunity. Read them properly and it will be very clear when you should enter a trade, take profit and exit a trade, or even exit and flip your trading position. It will also make it very clear when you should get out of a bad trade in order to limit your loss.
How can I be confident that a Math Based Trading Strategy works better than Traditional Technical Analysis?
These tools give you a quantifiable, measurable edge, not some pie in the sky fake edge. These tools give you an edge you can actually calculate, and which, by the way, these indicators calculate for you. Once you know your edge and how these tools work, you will comprehend how powerful these tools are. Then all that is left for you to do, is to enter and exit trades properly. Make the right trades (buy low, sell high). Get out of any bad trades fast. And don’t get stuck on analysis paralysis or other psychological silliness.
Because the bottom line of any successful trading strategy can be outlined in these three simple phrases:
- Take Profit (early and often)
- Limit Your Loss
- Don’t be emotionally attached to your trade
Do that and you will never need to worry about any “trading psychology” mumbo jumbo.
This is why trading volatility, entropy, probability and statistics (VEPS) is at the heart of the trading indicators built and used by the traders of Alpha Trading. They would not use them if they did not work.
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