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Simple estimation trading
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Simple estimation trading

  #1 (permalink)
The fun is in the numbers
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Simple estimation trading

This thread is about estimation trading and will cover a few lessons, with examples for the month of June 2011.
(It is not an entry in the tablet contest as I cannot meet the time requirements - but will be in the spirit of pay it forward.)

The topics I hope to cover are:

  • trendlines and support and resistance levels determination using different time frames.
  • mathematical estimation techniques
  • Gann fan
If anyone wants to be an "enrolled" student then send me a PM and I will include exercises you can do and post - and on those I will give replies - once again time permitting.

I hope there are some profitable ideas for those who follow this thread where you can take the principles and apply them to create a trading platform for you.

---
FAQs are in a separate thread

Keep your mind in the future, in the now.

Last edited by aquarian1; June 6th, 2011 at 04:44 PM.
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Quick Summary
Quick Summary Post

Lesson 1 -
Step 1 : mathematical estimation of support resistance levels base on the last major move.
Step 2: picking the trade size/frequency that is right for your style

Lesson 1 - example1
Example of the value of the mathematical estimation of support resistance levels using the price action of July crude contract on Tuesday 7 June, 2011. Example shows entering with higher highs and higher lows (or 1-2-3-and -go!)

Lesson 1 - example2
Example entering with a triple bottom. Scaling targets is discussed.(July crude contract on Thursday 9 June, 2011

Lesson 2 Trendlines and telescoping in
Trendlines are drawn starting at the largest timeframe and zooming in. The example, using the TSX300 shows the basing period the breakout, the rise of the market to the 2000 tech bubble and the collapse into 2002. (Something is building here! More as we zoom in.) June 12, 2011

Lesson 3 Trendlines and telescoping in -Part 2
We zoom into the last 5 years. Are we in a new bull market or a bear market bounce? The example, using the TSX300, shows the rise from the depths of the crash of 2007 at the March 6 2009 low to the rise of segment 2. 19 June, 2011

Exercise - Estimating targets from a wedge
June 12th : Some chart formations have an estimation of target for the formation (such as the Head and Shoulders formataion). We look at estimating the measurement of the wedge forming in crude oil. What is interesting is to see that this the wedge did break. See also the follow-up post to this 25 June, 2011

Lesson 4 Trendlines and telescoping in -Part 3
Now we zoom into the last 2 years, 1 year and last 6 months. We find that support has been broken, price then retreated back up into the support area and a break below 12,800 - perhaps in the next few days - would target a minimum of 12,400. 24 June, 2011
Review exercise for Trendlines and SR

Gann Speed lines

What Gann speed lines are and how the connect time to price. 2 July 2011

Proving out the Gann Fan
A practical example of trying the Gann fan on the SPX to see what happened. The SPX from the crash of '07 and using the low of '09 shows how the Gann fan connects time to price. The incredibly valuable tool is greatly misunderstood to the investors grief. Gann asked his student to not take his word for the rules he set out put to review historical charts and proove the rules for themselves. 2 July 2011

END OF THREAD




Last edited by aquarian1; July 2nd, 2011 at 09:32 PM.
 
  #3 (permalink)
The fun is in the numbers
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Lesson 1

Step1
Take the last move and make divisions:
e.g. 114.83-94.63=20.20
20.20/2=10.10 1/2
10.10/2=5.05 1/4
5.05/2=2.52 1/8
25.5/2=1.26 1/16
1.26/2=0.63 1/32
0.63/2=0.32 1/64

0.32 = small enough.

You add your 0.32 to your low 94.63 and get your approximate S/R levels.
(note when I got to a half penny I rounded up or down. so check with the other levels.)


94.63 low
94.95 1/64
95.26 2/64 or 1/32
95.58 3/64
95.89 4/64 or 1/16
etc. until you are at the top 114.83

---------------
Step 2
Review the trading range of the last few days. How much does it move up and down in the swings?
If you are trading intraday look at the intraday swings.

Here I applied a zig-zag of 0.32 to see how many trades.For last Friday:
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6 trades

zig-zag of 0.64 = 5 trades - this might be right for your style, if so do a Point and figure of box size 0.60, I wanted less.

By visual inspection L98.12 to H 100.64=2.52
which is 1/8 .....EXACTLY !!!!
When you get a match like this TAKE NOTE OF IT!!!!

==>You are keying into the resonance of the commodity you are trading.

So, let's say we'll go for 1/8 move. This is a "splash zone" amount. By that I mean not hard and fast locked-in-stone amount but an amount to get you in the ball-park.

On a big day you might go for 1.5 times this (3.78=2.52*1.50),
on a smaller day perhaps 2/3 this (1.68) or 1/2 this (1.26).

Use some judgment and your indicators to help you fine tune your entry and exit. Don't miss a top for a penny!
---------------

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  #4 (permalink)
The fun is in the numbers
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Proof of mathematical - by example

Yesterday I posted lesson 1 the mathematical divisions of a move using Crude light (CL) and its fall from 2 May to 5 May of $20.20

Today, I looked at the CL chart and saw a great example of using these numbers.
(That is happen the next day - an so exactly is important - see Aside1 when written).

In this chart, I have shown how you can use the mathematical levels (ML) to support your trading technique.

I have also incorporated the 1-2-3-and go! (higher highs and higher lows) in the example. This is a conservative entry technique - "the safest place to buy"- Gann would say. This is not important to the ML levels. for that just look to the target. That is let's say you got in with moving average cross-overs and you just needed an idea of how far it would run.

(The chart got a little muddy so you can look at the blow-up below for the entry area of 1-2-3- and go! For example point 1 says "notice how the 3 bodies - of the candles at the first high- "all stop at the 98.42 level" its a little clearer in the blow-up. Also I mention using the uptrendline for a rising stop but I forgot to draw it and its too late at night to go back and add it in. Just connect low1 and low2. )


Quoting 
Homework:
Take the same chart CL for today, put in the horizontal lines at the MLs (I used the constant lines indicator in NT), and use your own indicators for choosing the entry.
If you knew that you were going to enter once it broke 98.42 and you were using you techniques for entering the trade:
-where would have you bought? how much profit is it from your entry to the target?
(optional homework - try putting on the other levels smaller than 1/16, that is 1/32 and 1/64 and even 1/128 in the area of the entry to the long trade. - did you catch the very low, low? )



------------------------

Just look how valuable and profitable, this simple yet powerful tool, ML, proved to be. You got the lions share of the move and more than $1,000 a contract.

------------------------


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Keep your mind in the future, in the now.

Last edited by aquarian1; June 8th, 2011 at 01:38 AM.
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The fun is in the numbers
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Example2 Entering on a triple bottom & scaling targets

Example2 Entering on a triple bottom & scaling targets

Triple bottoms are one of the safest places to go long.
In this example all 3 are below the 5/16 level (which is a bonus and not a requirement of estimation trading), it just makes them more obvious.

The zig-zag is set to 1/32 or 0.63 and this highlights the highs and lows for you. You set it to capture enough moves to suit the volitility of the contract you are trading and the target number of trades per day you are aiming for.

The point of the estimation is to answer the question:
"How far will this move likely run?"
or
"Where should I set my target(s)?"

Scaling out
Scaling out is done to reduce your risk if you are not confident of the magnitude of the upcoming move and also as a money management tool. Knowing that closing part of your position will let you ride the rest for "free" reduces trade aniexty for some people and allows them to stay in the (balance of) the trade longer - if cutting the trade short is a problem for them.

The downside to scaling out is that it reduces the confidence in your estimation techniques. You are really saying: "I am going into this trade with a target of 1.26, but I'm not very sure so I'll sell part just in case it turns against me."

(This can be a long subject - so I'll drop it here.)

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The fun is in the numbers
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review week 1

Heres' a review.

Good trading to all.

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The fun is in the numbers
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Lesson 2 Trendlines and telescoping in

When you draw trendlines - start wiht the largest time frame and work in - telescoping in.

In the following examples I and using the TSX index. It is the main Canadian index and is comprised of 300 large cap stocks - comparable to the DOW. (Statistics in Canada are about 1/10 of the USA pop 33M versus 330m etc and similarly for economic values GPD etc. The Canadian market roughly follows the USA its largest trading partner which accounts for 40% of its trade. The key difference is the commodity exposure of Canada is higher - mining and oil - so that if commodities are tanking the Canadian market will perform worse the the USA. The other difference is the lack of direct manipulation. While it is legal for the US govt to directly prop up the US equity markets at its pleasure - this is not true for Canada.)

The first graph is the all data graph from Barcharts.com

Uptrend lines connect higher lows. The first line drawn is the green line line connecting the low 1993 to 1999. Then there is a slightly lower low and the first purple line is drawn.

So when you get a lower second low you update the trendline at a lower slope.

As the price starts to rise we draw new and steeper trendlines connect the lows (last touch of the purple to the new higher low and extend the line ==> line 1). Similary, line 2 is the last touch of the blue line 1 to the next higher low and extend the line ==> line 2. And line 3 is the last touch of the blue line 2 to the next higher low and extend the line ==> line 3.

The lines get steeper and steeper indicating we are getting closer to a peak (high tech bubble).

Line 3 is broken by price in 2000 and the descent to 2002.

At this time 20002, we would be out of long positions and going short.

Downtrend lines are drawn from a high to the next lower high - none shown on this graph.

Homework: Connect the peak of 2000 to the high in 2002 and extend forming a downtrend line.
When does price cut this line? What is the price at that time? What is the difference in price from when we exited the long and went short to the time we exited the short and went long?

Once the low is in (shown by the cut of the downtrend line by price) we drawn a new uptrend.We connect the low in 1993 (A) to the low of 2002 and extend - this is the lower purple line.
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Something very exciting is happening with this index!!

Get a one year chart and draw both trendlines and support and resistance lines.
S&P/TSX Composite Index, CA:$ISPTX Quick Chart - (TOR) CA:$ISPTX, S&P/TSX Composite Index Stock Price - BigCharts.com

answer is next lesson post.

BTW you can trade this with the etfs HXD and HXU on the toronto exchange.
Graphs at bigcharts CA:HXD CA:HXU

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Exercise - oil wedge

There is a wedge building in CL. Pull-up a 240 min chart going back to the "big drop" and draw the wedge.
Questions:
  • Where does the wedge measure to?
  • What is the confirming indication required for the measurement?
  • When must the wedge break to have a high reliability?

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aquarian1 View Post
There is a wedge building in CL. Pull-up a 240 min chart going back to the "big drop" and draw the wedge.
Questions:
  • Where does the wedge measure to?
  • What is the confirming indication required for the measurement?
  • When must the wedge break to have a high reliability?

I measure the wedge to 89.50 areas. I'm assuming it breaks lower.
The confirming indication. I don't know. A close below the lower trend line?
When must it break? pretty soon. Not what you were looking for, huh. Before the Apex?

David

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The fun is in the numbers
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Go to the head of the class!



David_R View Post
I measure the wedge to 89.50 areas. I'm assuming it breaks lower.
The confirming indication. I don't know. A close below the lower trend line?
When must it break? pretty soon. Not what you were looking for, huh. Before the Apex?

David

Good Stuff David!

1. The wedge measures $10 wide from 105 to 95 and so IF it breaks down then 85 is a target at the low end.
IF it breaks up then 115 is a target at the high end.

2. Yes it must break before the end of the apex. (Before about 2/3 of the length of the measure to the apex is what I recall - not sure where I got this 2/3 from so use with caution).

3. The required confirming indication is increased volume.

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