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Directional Bias
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Directional Bias

  #21 (permalink)
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I'm pretty much over the directional bias now. I think what I didn't realize before were trends are fractal and you can have trends within trends. Looking left with horizontal S&R now keeps me on the right side. Now just working on the emotions to maximize the trade.

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  #22 (permalink)
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My Nemisis

I struggled with this for years, still do occasionally.

I just have a genetic flaw that causes me to believe whatever BS head-fake the market wants to sell me each morning.

For example, an opening gap and continuation pattern. Very familiar to all of us. So when you see an opening gap, how do you instinctively react to it ? The opening gap is an engineered event to induce that instinctive response from us. If the market is inducing an instinctive response from me, that instinctive reaction is almost always going to be wrong.

What cured me was learning to trade stock options from some very talented and experienced options traders in Chicago. You talk about head fakes, traps, and 100% BS, stock options are unbelievable the games being played during the first hour every morning. The options market is a field of landmines. Once I was shown how the options market is manipulated, and then seeing it play out over and over every single morning, I was 95% cured of ever having a bias about anything, that remaining 5% of my old hard wired brain still somehow tricks me once in a while. It's a little like being an addict, your never really cured, it's still one day at a time, this directional bias problem is like that for me. I am just hard wired to misread what the market is doing and instinctively do the wrong thing.

In a more down to earth and practical sense, what I had done to myself was create charts and indicators, a view of the market, that I was comfortable with, that made me feel good. Unfortunately most of that stuff was all wrong from the market's perspective. So in making myself comfy and cozy, I had inadvertently tricked myself with the workspace I was sitting here looking at every day. I had to let go of what I felt good about, and create a new view of the market and build a workspace for that new view, so I could be in better harmony with what the market is doing. I learned, we are going to trade whatever we are looking at in front of us on the screen.

So, I think it's a combination of three things:
1. Our market paradigm if you will, meaning our view of the market, our beliefs about the market.
2. How we express that market view in our workspace design. What we are looking at is going to strongly influence our actions.
3. The degree of separation between what the market is doing, how the market expresses itself, and our perspective and deeply held beliefs about the market.

The more strongly we hold onto a belief the harder it is for us to let go of it and follow the market.

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  #23 (permalink)
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Directional bias or any bias can be a tough one to get past. When trading I only look at trend intraday and do not care about the larger trend in the market. In fact I pay no attention and don't even look at the overall longer trend. I might be aware that a market has been moving up or down on a longer horizon but I don't look at longer time frame charts etc..... I have also found I cannot trade both longer frames multiday swing or even long longer term buy and hold because I start looking at market from a longer perspective which starts to creep into my intraday trading. So for me I had to make a choice between intraday or longer term. Some are able to do both but I just can't. Kind of a "know thyself" thing.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #24 (permalink)
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trendwaves View Post
I struggled with this for years, still do occasionally... Once I was shown how the options market is manipulated, and then seeing it play out over and over every single morning , I was 95% cured of ever having a bias about anything, that remaining 5% of my old hard wired brain still somehow tricks me once in a while...

So, I think it's a combination of three things:
1. Our market paradigm if you will, meaning our view of the market, our beliefs about the market.
2. How we express that market view in our workspace design. What we are looking at is going to strongly influence our actions.
3. The degree of separation between what the market is doing, how the market expresses itself, and our perspective and deeply held beliefs about the market...

Hi @trendwaves,

I'm intrigued by your comments, especially the ones highlighted above..

May you elaborate a little more on them? I understand you cannot explain nor reveal everything in just one post, but any practical insights would be appreciated..

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  #25 (permalink)
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trendwaves View Post
I struggled with this for years, still do occasionally.

I just have a genetic flaw that causes me to believe whatever BS head-fake the market wants to sell me each morning.

For example, an opening gap and continuation pattern. Very familiar to all of us. So when you see an opening gap, how do you instinctively react to it ? The opening gap is an engineered event to induce that instinctive response from us. If the market is inducing an instinctive response from me, that instinctive reaction is almost always going to be wrong.

What cured me was learning to trade stock options from some very talented and experienced options traders in Chicago. You talk about head fakes, traps, and 100% BS, stock options are unbelievable the games being played during the first hour every morning. The options market is a field of landmines. Once I was shown how the options market is manipulated, and then seeing it play out over and over every single morning, I was 95% cured of ever having a bias about anything, that remaining 5% of my old hard wired brain still somehow tricks me once in a while. It's a little like being an addict, your never really cured, it's still one day at a time, this directional bias problem is like that for me. I am just hard wired to misread what the market is doing and instinctively do the wrong thing.

In a more down to earth and practical sense, what I had done to myself was create charts and indicators, a view of the market, that I was comfortable with, that made me feel good. Unfortunately most of that stuff was all wrong from the market's perspective. So in making myself comfy and cozy, I had inadvertently tricked myself with the workspace I was sitting here looking at every day. I had to let go of what I felt good about, and create a new view of the market and build a workspace for that new view, so I could be in better harmony with what the market is doing. I learned, we are going to trade whatever we are looking at in front of us on the screen.

So, I think it's a combination of three things:
1. Our market paradigm if you will, meaning our view of the market, our beliefs about the market.
2. How we express that market view in our workspace design. What we are looking at is going to strongly influence our actions.
3. The degree of separation between what the market is doing, how the market expresses itself, and our perspective and deeply held beliefs about the market.

The more strongly we hold onto a belief the harder it is for us to let go of it and follow the market.

@trendwaves: excellent post above

the goal, which is much easier to articulate than to implement
is to employ objective heuristics in decision making,
and not allow stress, cognitive load, emotions, and bias,
to non-linearly affect the process.
the best way to accomplish this lofty goal
is to admit one's own ignorance,
and stop trying to predict the market
forget about popular opinion
organize and filter your ideas and
and determine what is relevant.
allow conflicting ideas to generate new conclusions
which will allow you to improve your strategies
AND discover new ones



the market is like a trojan horse

so,

beware of greeks bearing gifts
and single data points
they support a myopic view
and play into the hands of the deceivers

at any given point in time
an equally compelling case
can be forged in either direction
depending on one's bias

the thing about charts
is that they fail to let one see
the markets for what they are,
but instead, for what they appear to be

-tt


Last edited by tigertrader; January 20th, 2014 at 03:16 PM.
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  #26 (permalink)
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Mean Reversion vs Inversion

Hi @Fat Tails:

Thank you for this excellent explanation.

Quick question: On other threads, you have posted regarding the order of VWAPs and price and ideal order vs. Inversion.

Both charts independently make sense. However I am confused on tying in the Inversion charts with this chart of trend bias.

If possible, can you please post a chart combining these 2?

Thank you,


Fat Tails View Post
I always go into the session with a directional bias, which is based on the value areas of the prior day and the value area of the current day as determined by either the pivot range or the VWAP. That bias needs to be changed, if not confirmed by price action.

Below is a sample chart. In the beginning of the trading day

-> price is below yesterday' VWAP (1)
-> yesterday's VWAP is below the value zone defined by the VWAPs calculated over the prior 2 and 3 days

This is as good as ideal order moving averages and describes a downtrend. As prices were trending down yesterday, you may expect a mean reversion price move back to test value. My bias is short, and I would try to enter a short position near value (near yesterday's VWAP, near upper2SD band of today) in order to ride the trend, if it continues. My first exit would be near the lower 2SD band.

The first decisive battle took place at yesterday's low. The first swing saw prices down to 134'17. Price then retraced to the current day's VWAP. The problem now is the second swing. The bears could not drive prices down to perform a real test of yesterday's low, but the bulls took control shortly after the open of the bond market.

When price took successively out the night session high and the value area, it was clear that the bulls had taken control, and the bias had now changed to long.


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  #27 (permalink)
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It is probably a question of the time frame. The other chart probably referred to a higher timeframe. When price does the opposite to what is supposed to do, the new trend is ambiguous and needs confirmation (retest of prior value) before it may continue. This situation can be exploited by trading against the new trend, until the alternative scenario can be rejected.

The best entries can be found

- when a test becomes necessary
- when one of the possible outcomes can be rejected or one side has been trapped



courier12 View Post
Hi @Fat Tails:

Thank you for this excellent explanation.

Quick question: On other threads, you have posted regarding the order of VWAPs and price and ideal order vs. Inversion.

Both charts independently make sense. However I am confused on tying in the Inversion charts with this chart of trend bias.

If possible, can you please post a chart combining these 2?

Thank you,


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  #28 (permalink)
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Fat Tails View Post
I always go into the session with a directional bias, which is based on the value areas of the prior day and the value area of the current day as determined by either the pivot range or the VWAP. That bias needs to be changed, if not confirmed by price action.

Below is a sample chart. In the beginning of the trading day

-> price is below yesterday' VWAP (1)
-> yesterday's VWAP is below the value zone defined by the VWAPs calculated over the prior 2 and 3 days

This is as good as ideal order moving averages and describes a downtrend. As prices were trending down yesterday, you may expect a mean reversion price move back to test value. My bias is short, and I would try to enter a short position near value (near yesterday's VWAP, near upper2SD band of today) in order to ride the trend, if it continues. My first exit would be near the lower 2SD band.

The first decisive battle took place at yesterday's low. The first swing saw prices down to 134'17. Price then retraced to the current day's VWAP. The problem now is the second swing. The bears could not drive prices down to perform a real test of yesterday's low, but the bulls took control shortly after the open of the bond market.

When price took successively out the night session high and the value area, it was clear that the bulls had taken control, and the bias had now changed to long.


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@Fat Tails,

can you please post the link to download the study depicted on your chart?hard to guess as the name is blanked out.

Thank you

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  #29 (permalink)
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@Fat Tails,

i`d like to also ask,those Purple vertical lines to mark the Bonds RTH,if you apply them manually,or you have a study that does that?

Thanks

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  #30 (permalink)
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Thank you @Fat Tails. I went and re read the other posts and it became clear you use Prior Day and Day before Yesterday VWAP and Pviots for your bias. You do not use Today's VWAP for bias.

I was making mistake of comparing today's VWAP with Yesterday's VWAP for bias and not looking @ Day before Yesterday's VWAP.

So does today's vWAP carry any significance as far as trend bias goes?

Loved your posts on the other thread regarding Inversion and Ideal order of VWAPs and Pivots.

Thank you,


Fat Tails View Post
It is probably a question of the time frame. The other chart probably referred to a higher timeframe. When price does the opposite to what is supposed to do, the new trend is ambiguous and needs confirmation (retest of prior value) before it may continue. This situation can be exploited by trading against the new trend, until the alternative scenario can be rejected.

The best entries can be found

- when a test becomes necessary
- when one of the possible outcomes can be rejected or one side has been trapped


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