A useThinkScript Conversation re TMO vs RSI Laguerre w Fractal Energy (FE)Before we start answering questions, if you are using the set up that I shared, notice that the Slim Ribbon overrides coloring of candles. Whether you use Candles, Bars, or Heiken Ashi, it will not matter. If you're wondering where to get my set ups, here they are: http://tos.mx/bc1Hwy and http://tos.mx/onxiH8
Bars and Heiken Ashi are the two I use for no particular reason. They are just 3 exponential moving averages that are set to Fibonacci numbers.
In his video, I believe, Slim Miller states that it is a guide for your indicators as well as the chart pattern that you see. (see website AskSlim.com/slimribbon)
There is no holy grail or magic bullet in investing or trading. There’s only discipline, vigilance, and understanding that the market will do whatever it wants, and it does not care what you think. Have no ego. Ego can drain an account quite fast.
For me, watching markets is about the probability of Z happening if X or Y happen.
If the market or my position does X, Y, or Z then I will react in a certain way.
With Options, it’s about expected move and days to expiration (DTE).
About indicators: Indicators do just that, they indicate.
Just like seeing rain clouds does not mean that it will rain on you.
It does indicate, however, that there is a higher probability that it will rain on you.
Q: Start with TMO: Is there any tutorial or videos on TMO?
A: Possibly, but doubtful, though I have never looked. The study's creator, Mobius, only gave an occasional comment outside of the code since he posted the study. Read the code for clues. What makes it unique is that it is based on the Delta of Price, and not price itself.
Q: I would like to understand how you utilise both Week and Day TMO indicator for analysis?
A: The idea is that markets are "Fractal". Smaller patterns are just parts of larger patterns. The thought is that one should use at least 2 if not 3 time frames to be more certain of what the trend is. To make it easier we put the weekly and the daily TMO on the same chart.
If the weekly TMO is red and sloped down, any green daily uptrend may be short-lived, and so on. I use a daily and weekly chart to watch my chart patterns.
If you use a one hour chart, use a one hour TMO and a daily chart with a daily TMO, then observe.
Q: I did observe the Daily TMO polarity change as a precursor for potential direction change, but wondered if you use RSI as the confirmation when RSI cuts below .80
A: No, with the RSI Laguerre w Fractal Energy (FE) and the TMO on the same chart it is compare and contrast only.
However, you are correct, when RSILg w FE is dropping below .80, price will most often follow.
The same is said when the RSILg w FE moves above .20, that it is a signal that price will often start moving up.
That is where price action comes in. Price is the main indicator. Compare a stock to its peers, how is it acting?
Put price together with an indicator and look on multiple time frames and plan your course of action.
And no, it’s not that easy!
Q: As a process, you have the TMO under your RSILg on the chart, I presume your focus is to first define the strength of momentum with RSI and then apply TMO as direction?
A: Not at all, they could be in any order. On my chart the Daily/Weekly TMO is above the RSI Laguerre and only to compare and contrast until a person removes one lower chart or the other. (More on that later)
Q: On RSILg: I have read the tutorial on RSI Laguerre, need a bit more time to internalise it.
Info: this study is based off of the standard RSI (14) that many use. It works and looks different because of the Laguerre Polynomials that are used.
The polynomials make the study Time Adjusting, based on the “speed” of the underlying product eg. Stocks or ETF’s, etc.
Q: One clarification on what you mentioned: If gamma is up over 60, the likelihood of the stock moving in the direction of your other indicators is more likely. May I know if the "other indicators" refers to RSILg?
A: The statement about gamma being over 60 came from user Mobius in ThinkorSwim’s thinkScript Lounge. The notes in that tutorial were taken over a number of years of conversation by user zztop in the thinkScript Lounge. Mobius, rightly, never stated specifically which indicators. We are left to our best judgment on this.
Q: You have shared CHOP indicator, is that the same as FE with different setting?
A: That is a good question. The CHOP indicator came along in the mid-nineteen sixties by a commodities trader named EW Driess. The FE came along a little bit later. They are totally different math constructs but show nearly the same results. IMO, they are interchangeable.
If you were to stop using the RSI Laguerre w Fractal Energy and just used the TMO, then you might consider using the Chop indicator.
Chop or FE tell you when an instrument is charged up with the potential to move or exhausted with little probable potential to move.
Please recall however that just like with the RSI (14), a stock can continue to be “over bought or oversold”, the FE of the RSILg can remain charged up or exhausted for a longer period of time than one might think.
The RSI Laguerre with FE and the TMO are on the same chart for training and to compare and contrast how they work.
We run a danger of Multi-collinearity. Please see the study of this in the Tutorial section.
We should only run one of a type of study on a chart. Such as the TMO on a daily and the RSI Laguerre with FE on a weekly chart.
The idea here is to decide which one you like better for your style and learn from it.
If you rely on both of them, you will have competing signals, which could just cause a paralysis in one’s ability to decide on a course of action.
Good Trading, Markos & Nick