ADVANTAGES OF VIBRATIONAL OVER DIRECTIONAL TRADING

 

Main Challenges to Conventional Trading / Investing

Directional vs. Non-Directional Methodology

By far, the most popular trading approach is directional. This requires a trader to make a bet on the possible future direction of price. We see this approach used heavily in Scalping, Day, Swing and Position Trading, especially in instruments offering high leverage such as FOREX, Futures, CFDs and Options. If price moves favourably, all is fine. The problem surfaces every time price moves adversely which results in trading capital being gradually eroded by the amount risked on each trade. Therefore, to avoid obliterating the entire account, a directional trader must ensure that the system is profitable not only over time, but in fact, indefinitely, for that matter, that is until the trader decides to cease all trading. If a trader fails to maintain this ongoing condition of consistent profitability, all trading activity will eventually come to an end, without any future prospect or means of extracting further profits, unless new capital is injected into the trading account. Furthermore, it is observed that once the trading account’s equity is down by over 50%, recovery is usually extremely difficult and if trading is allowed to continue, it is very likely that the account will deplete all its trading capital in the process.

To overcome this, many traders resort to ‘non-directional’ strategies where they hope to negate the effects of ‘directional risk’ by attempting to profit 'bi-directionally'. There are basically two ways that traders can accomplish this feat.

A trader may employ a ‘straddle-type’ breakout strategy where two stop entry orders encapsulate the market, hoping for a breakout in either direction. Unfortunately, many traders start to experience very rapid oscillation losses across the straddle zone, especially with false breakouts, or price whipping, in a prolonged and inactive sideways markets. Even if the initial breakout was successful, trying to gauge a suitable exit becomes the new challenge. If the exit is taken too soon, there may be insufficient profit accrued to offset future oscillation losses. On the other hand, if there is already some oscillation losses, exiting before breakeven will lock in the losses.

In summary, the ‘straddle type’ breakout may seem to overcome the directional risk issue, but it comes at a high cost when the market regime switches to sideways, volatile or any uncertain behaviour.

Another popular way that many traders strive to eliminate ‘directional risk’, is to resort to ‘non-directional’ Options strategies. But the main problem with non-directional Options strategies is that it is, in reality, ‘directional’ as it requires the trader to predict the degree of future price movement within a given time constraint. This means that even though it is supposedly ‘non-directional’, it still requires price to respond in a specified manner, depending on the strategy employed. So in reality, the trader still ends up having to predict the strategy to be used, for the ‘expected’ or predicted market outcome. Basically, it is still very much ‘directional’ as you must predict where you think price will likely end up at various points along the Option’s expiration path in order to collect positive premium.

For example, a long straddle Option strategy requires price to move at least a certain distance before it is profitable even though it is ‘in-the money’ (ITM) on one of its long Options. This is further exacerbated if the long Straddle was purchase during a period of high implied volatility, which raises the premium of the bought Options, therefore further pushing out the breakeven point of the long straddle. Hence you need price to move a certain distance in order to overcome the premiums of both the long call and put options, in order to profit. If price fails to move at all, you lose both the premiums and hence experience capital erosion. This is may be even less desirable than the standard, non-Option based bi-directional breakouts, because if price fails to move, the very most you incur is the spread or commission. The reverse applies to the short Straddle Option strategy. Here, price has to stay stationary, or within a profit zone. If price made a significant or extended excursion in either direction, the trader will lose.

So, the ‘non-directional’ Options trader still needs to predict the type of price action that will ensue in order to select the appropriate Options strategy, otherwise the strategy will generate losses. Different strategies are required for different market or price action! Again, it is essentially still a ‘directional’ strategy.

But in Vibration Trading, or Vibratrading, a trader uses the very entry SAME strategy for ALL price and market outcomes! This vibrational entry mechanisms will generate profits in up, down and sideways markets, including perfectly ‘flat line’ markets.

Vibration Trading is a truly unrivalled in efficiency and flexibility in handling EVERY type of market condition

In Vibration Trading, you do not need to predict the expected future outcome of price, or predict which strategy to use. There is only ONE vibrational entry mechanism that is required to extract profit, no matter what the resulting market or price action may be. This means that even if price falls after a long entry, you will still generate returns, even if price never returns to its original entry level or average price.

In fact, you will be exposed to the greatest returns when the market is at its weakest.

On the other hand, should price explode to the upside, the very same scaling mechanism will capture trend profits, and will begin pyramiding in more positions to maximise upside profit potential, once certain conditions are met. The reason that this unique scaling mechanism can capture profit in all markets, regardless of direction, is the direct result of its ability to MORPH into whatever scaling or trending ‘construct’ that is required for that market. This ability to morph is only possible if the entry executed as part of what is called a ‘Capstone Entry’. In fact, every vibrational entry must be capstone-based in order accommodate every possible future price action. This important entry condition will be covered in detail.

Problem of maintaining long term consistent positive trade Expectancy - the toughest challenge

To be profitable in trading, you will need to either need to win using a Martingale-type system with pre-knowledge of the maximum number of losing trades possible, or via an anti-Martingale system that only increases successive bets if it is profitable and in the process must able to maintain a positive trade ‘expectancy’, consistently over the longer term. For those unfamiliar with the term or concept of trade expectancy, it simply refers to the profitability of a series of trades as a function of winning percentage to the average dollar win or loss per trade. Basically, expectancy tells you whether you have been profitable or otherwise, over a number of trades, based on your entry and exit rules.

Every trader knows, or rather should know, that the ONLY factor you can actually ‘control’ is your dollar win or loss per trade, also called reward to risk ratio, since you only have absolute control over your entries and exits. Winning percentage, on the other hand, is purely determined by the markets, as you cannot, for all effective purposes, influence the subsequent direction of price to elicit a winning trade. No amount of fundamental or technical analysis, no matter how advanced or sophisticated, be it discretionary, mechanical or neural in nature, can possibly guarantee the subsequent direction that price will take. To make matters worse, expectancy is just that. It ‘expects’ the winning percentage to remain consistent! As we all well know, that is akin to wishful thinking and the markets are by no means under any obligation whatsoever to generate a consistent winning percentage for anyone.

This unrealistic attempt to assume that a trading system’s expectancy will remain consistent over the longer term is one of the biggest challenges to directional trading.  Nevertheless, expectancy remains of vital importance to directional traders, albeit being a condition that is highly difficult to sustain, especially in the face of inexplicable market randomness.

The sheer challenge of maintaining consistent positive expectancy indefinitely over the longest term, which is based on the uncertainty of predicting price direction, is undoubtedly the main reason why most traders lose their entire trading account over time.

Remember, anyone can be profitable over the very short term. Even gamblers. Though the application of Money Management plays a pivotal role in the final determination of trading expectancy, the actual task of producing net profits from being able to maintain a consistent level of winning percentage is still undoubtedly a formidable task for most retail traders and average investors.

Profitability under the Vibration Trading methodology does NOT depend on winning percentage and therefore totally circumvents the challenge and sheer difficulty of maintaining a consistent positive expectancy in the long term. The idea of winning percentages, reward to risk ratios and expectancy in is completely irrelevant in Vibrational Trading.

Predictive & Reactive Approaches to Risk in Trading

The other issue that plagues many traders is the use price prediction as part of a trading strategy.

It is universally accepted that price and market action are either random or at best, semi random in nature. This is due the inability to access all relevant trade information instantaneously in order to be able to asses the actual force of supply and demand at specific entry price levels. Even if you could, you will still require information as to the possible future actions of all markets participants in order to anticipate the future supply and demand at approaching price levels. Finally, you would need to be able to anticipate unexpected market ‘shocks’, or events, including the degree of possible reaction of all its participants!  Not only do you need to possess all the instantaneous and future information, expected or otherwise, but you will also need to consider intermarket interactions, which may affect the market that you are trading or investing. As you can see, trying to maintain a reasonable and consistent winning percentage in trading while trying to maximise the reward to risk ratio, is going to be a never ending challenge to the predictive trader.

The reactive trader faces similar challenges of trying to maintain consistent positive expectancy. The difference is that the reactive trader only initiates a trade entry after price has confirmed a breakout, pullback or rebound. For example, in terms of order entry, a reactive trader would enter a rebound from a support level via a buy stop order, after price has confirmed the rebound, whereas the predictive trader would have entered at the same support via a buy limit order before any proof of a rebound.

The reactive trader may indeed also use various techniques to predict future price direction, but the difference is that the reactive trader will only initiate a position once price has confirmed a favourable move that was predicted by the analysis. Therefore the reactive trader is consistently late in initiating entries, whereas the predictive trader enters a position in anticipation of its predicted outcome, before a move is actually confirmed by the market. (There is of course one instance where they merge.) 

In Vibration Trading, the concept of risk and reward is not applicable. The idea of ROI, or Return on Investment, does not suitably lend itself to Vibration Trading, as vibrational returns are better defined over time, and not necessarily with respect to a fixed initial invested value.

Also, the relationship of time and risk is in total contrast to what it is in directional trading. Generally, the more time you spend in the markets, the lower your chances of achieving consistent profitability. But in Vibration Trading, the more time spent in the market, the less risk becomes. This must be one the most significant and distinguishing characteristics of Vibration Trading.

Profiting from Trader Inactivity and Volatile Price Activity

In most directional trading approaches, a system will suffer losses in the form of slippage when a trade entry or exit is executed at a price that is different from the expected price. These losses only occur with Stop Orders. Being filled at an unexpected price above a buy stop will result in additional losses for those exiting from short positions, and reduced profits for those entering long positions. The reverse is true for sell stop orders. Either way, it has a negative effect on the trades. 

But with Limit Orders, slippage can only have a positive effect. Being filled at a price below a buy limit may result in additional ‘potential’ profit for those entering long positions, while ensuring additional real profit for those exiting short trades.

In Bounded Vibration trading, only Limit Orders are used. The principles of ‘Boundedness’ forbid the use of Stop Orders. This means that all bounded entries and exits are executed strictly via buy and sell limit orders, respectively.

As such, price gapping and volatility is very much welcomed. Should a vibrational trader experience price gapping over any limit orders placed for exiting a position, the trader will experience additional profit. On the other hand, should any vibrational trader experience price gapping over any limit orders placed for entry into a position, the trader may experience additional ‘potential’ profits upon a favourable exit, since the trader has entered at a much lower entry price for longs. This represents a real trading and investing advantage, or edge.

Hence, all price or market volatility, be it gapping or aggressively energetic price action, whether the result of some economic release like earnings, or a major broad market or inflation report, will always be advantageous for vibrational traders. They either exit with added profit in their long positions, or enter into positions with a favourably lower buy price. It is ‘win-win’ situation either way.

Finally, with limit orders, there is no missed opportunity. A vibrational trader can profit from certain inaction. For example, if a vibrational trader or investor misses an exit point by forgetting to place a sell limit order, he or she may experience additional profit as price may continue to proceed favourably. Similarly, if a vibrational trader or investor misses an entry point by forgetting to place a buy limit order, he or she may experience additional ‘potential’ profit upon a favourable exit, since he or she bought at a lower price. The lower you buy, and the higher you sell, the more you make. Generally, you always buy as low as you reasonably can and sell as high as you possibly can.

Subjectivity vs. Objectivity in Trading and Investing

Another challenge to trading or investment analysis is the issue of subjectivity. There is subjectivity in both the trade execution as well as trade analysis. There are countless ways of analyzing price and market action. There are also countless ways of executing a trade. Fundamental, Neural, Statistical and Classical Technical Analysis are but a few of the more popular forms of trade analysis used today. The main challenge inherent in all forms of trade analysis lies with the subjective nature of its interpretation. This also applies to the subjective nature of selecting a particular trade execution technique.

Trying to match up one form of price action analysis, which is subjectively interpreted, to one form of trade execution, which is subjectively selected, in an attempt to create a trading system which accurately anticipates the actual action of price and market reality, is in itself is a daunting task!

Fundamental Analysis is the study of intrinsic value, including cause and effect relationships of interconnected geo-political-economic infrastructures. But there is no absolute way to verify or even derive with any certainty or high level of accuracy, future market action, like predicting the rise and fall of oil or gold prices, from such a complex web of economic, political, financial and geographical factors. The sheer amount of variability and modes of interaction inherent in, and between each factor renders the final interpretation subjective.

Classical Technical Analysis also suffers from the effects of subjectivity, namely its subjective interpretation followed by its subjective application to trade execution. For example, even the drawing of a simple trend line can be highly subjective due to the many ways it can be defined. Once a desired definition of how a trend line is to be constructed is accepted, which is subjective in itself, then the desired way in which to the trade this ‘subjectively defined’ trend line must be defined as well. Do we trade the breakout or the pullback from the trend line? At which point do we ‘pull the trigger’? Do we use a time trigger, percentage penetration / pullback trigger, intraday trigger or a retest trigger? The trend line is the trade signal. Depending on the type of filter we use to define a trade entry, the fulfillment of those filter conditions results in the triggering of a trade. As you can see, both the signal and the trigger are subjective choices. Whether price will actually react favourably, and consistently to the entire signal / trigger set up, which exist by virtue of a trader’s choice, is at best undetermined, especially in the long term, though not impossible.

In Vibration Trading, the entire vibrational trade set up is ‘objective’. The entries and exits ar e ‘objective’ in the specific sense that they can be placed arbitrarily, i.e. in the absence of any analysis, if so required. What this means is that the there are no ‘fixed’ rules of determining price levels for entry or exits, though there are various scaling models that can be easily constructed to suit the historical price volatility of your selected commodity or ETF.  It is ‘subjective’ in the sense that you still have choice in the type of scaling construct you desire to build in order to match a stock’s historical volatility, but your choice is never erroneous, since scaling constructs can only determine the speed of your returns. There is never a ‘wrong’ entry in vibrational trading as the entry mechanism adapts and morphs itself to accommodate to whatever market or price action that follows. A vibrational trader can enter long at any level, even modifying the subsequent levels as he or she goes, all the time retaining full trading flexibility, as long as the total allocated capital structure is conserved for that particular macro-retracement scale construct.

In summary, vibrational entries and exits are essentially arbitrary, totally modifiable at any time, and may be aligned, if so desired, via morphing to match the stock’s historical volatility and price action behaviour for more expedient returns. In essence, there is never a ‘wrong’ entry or exit in vibrational trading, as wrong only implies a less expedient rate of return. Therefore there is no ‘loss’ per se, in the Vibration Trading methodology, as returns are defined over time, and not per initial investment.

Some characteristics of Vibration Trading (Vibratrading):

  • Vibration Trading makes scale trading affordable and safe for ETFs & Commodities
  • Vibration Trading instructs traders and investors, for the first time, on how to implement a diversified, price-based, scale trading methodology in the equity & commodity markets with a clear, easy to learn and objective plan of action
  • It profits in all market environments, bull or bear, and makes the most significant returns when the market is at its lowest or weakest! And it can even profit from total price inactivity, or ‘flatline’
  • Vibration Trading presents the most advanced and comprehensive treatment available, on the art and science of Scale Trading, and makes these new techniques accessible to the average equity and commodity trader and investor
  • Vibrational strategies supersedes conventional scale trading techniques by incorporating specific techniques for Speed, Percentage and Consistency of returns as a function of the entry mechanism itself
  • It uses the exact same vibrational scaling entry mechanism to extract profit regardless of market direction (i.e. you  do not need to try to predict the use of the right entry strategy for an expected market outcome, as seen in so-called ‘non-directional’ Options strategies)
  • Vibration Trading teaches traders and investors the important techniques of securitising and monetising profits with emphasis on risk free vibrational position accumulation (which also functions as a false breakout protective mechanism)
  • Vibration Trading overcomes the weaknesses inherent in conventional Futures scale trading, Dollar Cost Averaging and Value Averaging
  • Uses the principles of ‘Boundedness’ which protects the trader’s true profit potential irregardless of trade performance or drawdown
  • Profits earnt vibrational may be spent immediately, without fear of using it to buffer potential future losses, as opposed to directional trading!
  • The trading system is totally objective in nature and hence avoids the challenges associated with subjective interpretation of price and market action
  • There is no need to ‘time’ the markets as entry can be initiated anytime
  • Vibration Trading will demonstrate how a scale trader can enter the market at any price level, and not just restricted to entry at the ‘conventional lower end’ of the instrument’s historical range
  • No prior knowledge of fundamental or technical analysis is required
  • Bounded vibratrading is most profitable in volatile markets, even with gapping action
  • The rewards increases over time spent in the market, unlike conventional trading where risk increases over time. Vibration Trading presents a unique perspective on the concept of returns by defining returns in terms of time rather than the conventional approach of defining returns based on initial investment
  • It is both trend trading as well as counter-trend trading
  • It is simultaneously both a short term and a long term methodology
  • It is fully customisable; there is no need to adhere to the preset macro-retracemen t scaling constructs given (the vibrational trader may improvise and adjust acco rdingly, as the trade progresses – in real ‘freestyle’ mode!)
  • Vibration Trading introduces multiple levels of diversification for maintaining the over all integrity of the vibrational scaling structure as well as generating the most returns during a ‘systemic risk’ event
  • The vibrational trader is allowed to practice inactivity, as non-action can only result in additional real and ‘potential’ profits
  • Vibration Trading uses specific Option strategies to supercharge vibrational profits