Note: This is a first person piece written by the editor of 'librehash.org'
There was a user in the Discord that brought some issues with the 'ZN MA Whale Catcher' to my attention a little while ago.
After further review, I determined that said user was correct in their identification of certain issues with the indicator as provided and after some deliberation, I set about crafting a different indicator that would be more effective in its stead.
Below will chronicle that conversation I had with said user, the follow-up process and, finally, the proposed replacement indicator (to some truncated extent since this was a pretty long review already and there are a few other items that we need to clear off of the to-do list today).
Reviewing the Issue Brought By Another User
This is a quick look at the ZN MA Whale Catcher based on a question that was asked by P------- (name redacted for privacy reasons):
"Hi Boss. Hope you're well. Just wanted to pick your brain on your indicators - esp the ZN MA Whale catcher. It's an awesome indicator. When there's an anticipated sell/off or price increase, the indicator shows up on the graph but most of the time, the opposite action takes place. Am I just being thick or am I missing something? Please could you take a look at it . Screenshots attached"
Okay, this is legitimate. Let's take a look at the attached screenshots:
Quick notes here on the first screenshot:
- Can't tell what time frame that this one is on (will follow-up and ask about that).
- From what I'm seeing from the first picture, it does appear that the 'impending sell off' and 'impending price increase' signals are actually being signaled at the right time on the chart; but probably would need to get a closer view of the chart as well as the mouse / cursor placed over the chart at the exact point where this is being signaled (as well as the underlying asset that this indicator is tracking because that's not included either) for me to be able to cross reference this with my own TradingView indicator to determine whether this is 'acting right' or malfunctioning
What is stated above is not to invalidate what was reported by the user. I'm coming at this from the default assumption that either:
A) The user (don't mind that term 'user'; just formalization here) is entirely correct in their report stating that the indicator is signaling inaccurately
B) There was something unclear about the instructions accompanying the indicator or the implementation of the indicator itself that is leading to the misinterpretation of the values / readings from the indicator itself.
Before making any adjudication on it, let's take a look at the second screenshot that was provided (may give us a little more information on what's going on here):
This one here is a lot better (more visibility and information on the graphic, plus we can see where the signals went off in relation to the price at that point in time).
With that being said, here are some quick notes on the chart above:
- User is correct in stating that there was an incorrect signal here (with that initial 'impending sell off' signal). That one is erroneous and incorrect. Would be better to see what time frame that this chart is on.
- The other signals, however, should be considered correct on this chart here. That means that there was a failure on my part to be more clear on the types of signals that are given with this indicator (and the time frames that should be used with this indicator as well).
Doing some quick annotations here, I'm going to identify the signal on the chart here that caused some confusion (understandably, especially considering the fact that there was an erroneous signal earlier on ; although depending on the time frame that we're on, there is a slight chance that this may not have been an erroneous call here).
Some flaws that were made on my behalf:
- I should've been a lot more specific about the time frames that are meant to be used with this indicator (generally the H12 / 12-hour resolution or higher is very recommended for use with this indicator). That's because this indicator is attempting to forecast impending price action a few periods in advance (by aggregating price data from the past several periods along with a confluence of other metrics varying from 'fast' and 'slow' moving average periods to generate the 'green' and 'red' color changes in the underlying line overlaid on the price chart).
- The terms 'impending', 'sell-off' and 'price increase' are ill-defined in the context of this indicator. That is something that I'm going to amend today (January 30th, 2021; or I'm a dirty bum!) to ensure that there is no more ambiguity as to what those terms mean. The motivation behind the original name of this indicator, 'ZN MA Whale Catcher', was that I noticed that this indicator had the unique ability to catch some major price action. Since such price action, in general, is relatively rare, the actual 'impending price increase' and 'impending sell off' indicators are augmentations to the signals given off by the coloration change of the 'ZN MA Whale Catcher' line (overlaid on the chart). These signals are only supposed to go off when there is a major anticipated change in the price action (i.e., a >25% sell off or a >50% increase in the price; something that's fairly profound and not part of the average / ordinary / mundane). I don't think that I did a good enough job conveying this when I originally released this indicator, so I'm going to make sure that I do this the next time that I get a chance to do so.
Taking a Look at Some Live Charts With the ZN MA Whale Catcher Indicator
To give this one a test, let's take a look at some live charts at the time of writing (January 30th, 2021; 12:17 p.m. / GMT -5).
We'll start with Bitcoin on the daily resolution to see what kind of results that this indicator gives us (specifically where the 'signal' goes off for the impending sell off / price increase).
Take a look at the chart below (on the daily resolution):
From a bird's eye view, it appears that the indicator is doing fine on the daily resolution - but we're not just merely looking for the changes in the indicator color that signal us in and out of the underlying asset we're examining (Bitcoin on the daily resolution), but rather for one of those major "impending price increase" / "impending sell-off" indicators.
Going off top here, there should have been one that signaled at back in October (at the very least), since that signaled the beginning of this extreme price action that we've seen over the past few weeks (literally dating from the beginning of October when Bitcoin was $10k to this very point in time).
Unfortunately, there wasn't.
New Indicator (Replacement) Preview: Librehash Trending MA
If this hasn't been announced prior, then its being announced now.
After taking a look at the indicator as well as the deficit of options that it offered traders, I've decided to overhaul the 'ZN MA Whale Detector' Indicator.
In its 'stead is another indicator called the 'Librehash Trending MA' (this is the short name for it and probably be the most appropriate name for this indicator).
Below is what this indicator looks like, live in action:
Breaking Down Decisions Made During the Design Process
When creating this indicator, I wanted to ensure that it served as an adequate replacement to the original ZN MA Whale Catcher indicator (in spirit).
To explain, the original indicator that we were looking at was designed with the intent of letting users know whenever there would be a major move in the markets (going either way). But one major issue with this attempt (as we saw above), was inherent confusion over the ambiguity of the indicator itself.
Therefore, I decided to design this one with the intent of being very aggressive on the entries and lazy on the exits (while considering the exits to be entries on a short position).
This may not make sense the first time that you read it, but to help de-obfuscate this indicator, let's take it apart in a closer look below:
Zooming in on the chart, we can see that the indicator initially signaled us in here on the daily resolution on December 14th, 2021 (moving a candle ahead line turning green in order to account for its appearance on the chart in live time).
Below is what the chart should have looked like in live time with this indicator applied time (GIF):
As we can see, the indicator would've been signaled in directly on December 14th.
How We Avoid Re-Painting
- By relying on the hlc/3 as our price data source.
- The 'hlc/3' = high+low+close/3 ; this is critical because it accounts for the average price data by catching the high and low (to get the two extremes), then accounting for the prevailing value by adding in the close.
- So, for instance, if there were a high of 20, with a low of 10, with a close of 12 - the final calculation would be 14 [calculation: (20+10+12) = 42 ; 42 / 3 = 14].
- 14 is just a tad bit lower than '15' (which would be the straight average between 20 & 10 divided by 2). This allows for us to account for instances in which the bulls / bears were able to ultimately take control of the situation in the end to salvage their fate vs. the opposition.
- If the spread were greater with a close closer to one extreme or the other, then we would see an even greater divergence from the expected average between the 'high' and 'low'.
This (in my opinion) is a better metric to use than the OHLC/4 because the 'O' (open) is redundant if we're going to factor in the 'close' (since the crypto markets never close and the 'open' is always going to be right where the 'close' is). Using this fact, we can take advantage of the fact that the HLC/3 uses a smaller time period (which makes it more 'reactive' to price action by default).
Tracking the Potential Price Gains From Confirming an Entry into this Position
If we exit out of our 'time traveling' ,mode for a second to bring out chart to present day, then 'pan out' for a second, we can see what kind of gains that an entry in this position would've given us (at max):
As seen above, the gain would've been fairly substantive at >100% (110% at its height).
However, we must account for where the indicator officially signals out if we want to be literal about the actual gains that would've been gleamed from a strict entry/exit using this indicator explicitly:
While >84% is still quite a lot (on ROI), it leaves something to be desired when considering that the max ROI on this move was >110%.
Additional Warning Indicators
This is where the programming of the little 'plus signs' underneath candles & the 'x' signs above others came in.
The 'x' signs only appear over 'green candles' (typically) and are usually signs of impending bearish price action.
This is meant as a warning since the green candle could throw off traders that are explicitly viewing these candles and nothing else (green is considered to be bullish and its hard for us psychologically to exit out of a position on a green candle for a litany of reasons we won't get into here).
The same can be said of a 'red candle'. In a bull market, there may be times where it will be advantageous for us to enter into a position on the back of a red candle. This is a move that often seems counter-intuitive (for obvious reasons). So the purpose of the 'cross' being placed below red candles (typically; they can be green candles as well) is to signal that the move may either be reversing or continuing upward.
Let's look at a few examples below:
Above, we can see that there was an 'x' placed on top of the very last green candle before the flurry of red candles that followed it (this is significant to note).
Above, there were two signals that were given to us:
- The 'x' warned us of the intermediate price sell off
- The '+' tells us that we should be wary of a reversal off of that bearish candle (with the long wick to the south of it).
There's a lot more regarding this to come in the near future. This one is not quite ready yet to be released (as there are a few default settings that need to be tinkered here); but from this point I'm going to stop adding individuals to the 'ZN MA Whale Indicator' (due to the flaws in the indicator's readings and the ambiguity in the messaging for that indicator).
There's a lot more that can be written about this indicator here, but we're going to stop while we're head (as this is already long) and pick back up on it at some point in the near future when the indicator is officially released.
Thank you all again for taking the time to read and please do not hesitate to leave any feedback if you have any.