Flux Capacitor - by Back to the Future | Trading Reviews and Vendors


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Flux Capacitor - by Back to the Future

  #216 (permalink)

East Bend
 
Trading Experience: Advanced
Platform: NinjaTrader, Tradestation, MetaTrader
Broker/Data: Mirus/Kinetick
Favorite Futures: Futures, Oil, Gold, NQ
 
Posts: 49 since Mar 2010
Thanks: 2 given, 64 received

Hey Gentlemen,

When analyzing behavioral time patterns, traders should look at local trend to identify the propensity of the people who move the market to move more in that direction when a certain time comes up again in the cycle.

Referencing the chart above - each of those times were analyzed using a historical look back to identify specific times in the past when institutional traders had bought or sold CL.

Richard Wyckoff, father of modern "Volume Spread Analysis" techniques proposed a way to interpret the market in one of two formats - either the accumulation phase - or the distribution phase. Up trend, or down trend.

If we analyze the chart above posted by Mark - we see information (not trading signals as Mark suggests). The information being analyzed for accuracy is held to a specific benchmark - did structure bear out the existence of someone buying or selling when the cycle came around again?

It's especially important to look at the times that are in the direction of the prevailing trend - using Wyckoff's theories. In that case, we'd evaluate based on trend and compare to the dots. We'd look to see - did the market close higher, after the green dot printed in an uptrend - did the market close lower, after the red dot printed in a downtrend.

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When you identify a time that the market has a tendency usually go up at - or down at - watching for activity that corresponds to an accumulation phase or distribution phase can enhance the probability of that behavior recurring again. In the case of the chart Mark posted - watch at the times like 10:00am....there is a consolidation phase - 10:00 was the swing high inside the congestion, and then the market broke down for 2 hours - directly into the 12:15 "green dot" time.

Wyckoff would call the green dot time at 12:15 a "re-distribution" phase. We don't expect a move up here. If anything, we expect congestion (which is what appears, structurally), or very small retracements. The expectation of congestion at the predicted time is met, as the market consolidates for 5 bars (1.25 hours).

The next "red dot" signal lines up with Wyckoff's market theories as well. If there's an expectation of another move at a certain time - identified however it's identified - we'd expect that time to be a 'structural high'. That is to say - if the institutions are in fact about to sell again (as identified by time), structurally, what would we expect to see at that time?

a. a pullback, in the direction of the trend
b. a structural high, at the identified time (the market 'peaks out', indicating the pending "sling shot" move)

At 11:00pm - we see both of those criteria met. Using time analysis - however you do it - you could look forward to the next point in time where buying behavior patterns have been observed. In Wyckoff's world - it has the potential to either be another congestion area (re-distribution) or an actual low (conversion from distribution to accumulation with a "spring" pattern prior to the reversal). In either case - we're looking to see if that behavior pattern is observed. at 3:30 am did,

a. the market put in a structural low, and/or
b. consolidate for a structurally significant period of time (indicating institutional involvement), and/or
c. reversal of the market directionally

Go back in whatever market you trade, across days/weeks/months and make a list of the times that the instrument has a tendency to go up, or down...and keep track of it. If those cycles/behavior patterns repeat into the future, overlaying Richard Wyckoff's market theory has tremendous value. Down times in down cycles are powerfully forceful moves with minimum adverse excursion - up times in a down trend are areas where the downtrend is expected to stop, retrace slightly, or congest. Up times in an uptrend, the exact opposite (reference Mark's chart, above, at 12:00pm on the very left side of the chart).

If you had generated the above times in your personal analysis (you don't need our software to do it - you can do it by hand), and overlaid an accumulation/distribution model on top of those times, you'd have given preference to the following times:

12:00 pm (green dots, up trend)
11:00pm (green dots, up trend)
10:00 am red dot, down trend)
11:00pm (red dot, down trend)
6:45 am (red dot, down trend)
3:15pm (red dot - when price action closes below down trend)
3:15am (red dot - down trend)
9:30 am (red dot - down trend)
10:00 am (red dot - down trend)
4:30 am (red dot - down trend)

Traders that use timing analysis would benefit greatly from Wyckoff's market theories. I find, personally, that it took me 5 years of personal trading angst to realize I was bottom and top picking at places where there was not much meat, theoretically, to be had. I was in fact choosing to enter the market where it was most likely to chop, with volatility. Learning to trade with trend signals - and using counter trend signals to identify profit areas, or re-entry areas with break out was a pivotal moment for me...something any of us could agree is a painful lesson to learn.

One great quote that captures the methodology pretty clearly comes from Wyckoff directly,

"…In order for there to be an effect (change in price), there needs to be a cause. The effect will be in direct proportion to that cause. Best price moves occur when there has been enough time to allow*for a period*of*accumulation or distribution..."

If you go through your charts - on any instrument - with a watch and an excel sheet - you can identify the areas where the "cause" exists. These causes can be anything from unknown Institutional buying and selling program times - or moments when the moon is directly overhead Chicago on a Tuesday. Reverse engineering that "cause" and applying it directionally (with trend) seemed to be something he endorsed. After observing WD Gann trade for a number of years, Wyckoff's methodology begins to hint that he was studying time, as well,

"....The experience of the past few years has emphasized the value of disregarding all considerations except those which relate to price movement, volume, and time…”

So in his mind - identifying the "cause" times before they occurred again - and watching for his market theory/ VSA theories to play out at those times were the highest probability entry areas for him.

Try the experiment with any instrument you trade - put a NinjaTrader "zig-zag" indi on there and record the times the swings occur on your time frame of choice. Then watch those times in the future and see what happens when those times line up with prevailing local trend.

Please send me a Private Message if you have any questions about BTTFT services

Last edited by BTTFT Michael; August 16th, 2014 at 02:02 PM.
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