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I am thinking about a method using VWAP in combination with TICK. The idea is to fade TICK reading +/- 800 above and below but only in the zones abobe/below 2nd standard deviation of VWAP. This is entry only, first target could be VWAP, second other 2nd deviation.
The problem here is that trader must define condition of the market first. I think this method will work well in rotational markets, and will fail in strong directional move. The so0lution to this could be to watch other indeces and trade only when they dont move in sync, because in the indeces the strong move will happen only when all 4 participate.
I am trying to implement this method to trading intraday ES, watching 1 min bars.
VWAP serves as indicator to locate trade location and TICK is more a timing tool - trigger, to enter trade.
This sounds like a great idea, actually. The 2nd standard deviation of VWAP is a great indicator of extreme, unsustainable conditions in non-directional markets.
You are never in the wrong place... but sometimes you are in the right place looking at things in the wrong way.
As a suggestion for "defining the condition of the market" add a 10 period simple moving average to your tick chart to define sentiment of the market. For instance, when the moving average is below 0, as it has been all day today, it tells you that negative sentiment is dominant and would limit you to only short trades.
I think this is a good starting point to build a viable trading system. Did you pursue this idea further more? The idea of price reaching an extreme condition is an elusive concept. Bollinger, VWAP and Keltner channels are all interesting ideas to measure relative highs/lows. Market Profile offers another perspective with more variables to condider before assessing if we are at a relative extreme point. There are tons of possibilities. It would have been interesting to read about your discoveries.
