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this is truly a masterpiece. congratulations on your work.
have to excuse myself, I'm a little slow. not quite sure how you determine a positive or negative bias. where do price, vwap and pvp have to be in order to make that determination.
thank you for sharing.
Can you help answer these questions from other members on NexusFi?
Hey, thanks for thanks. I love posting here because I am a frustrated author I suspect, but sometimes wonder if I am not using Mike's bandwidth just to talk to myself!
There are apparently many different skew schools etc. etc. and the only thing I have studied on this was a set of videos linked by Alyosha in another thread. I was interested because they were about using VWAP with SD bands and I have been looking at bands for quite a while recently, although have tended to favor other types to SD which I find too 'raw and wriggly'. Also I don't know exactly what it is.
But what I took away from Perl's presentation which I have yet to review again at more leisure after initial rapid run-through is the following and it is VERY simple:
When the VWAP is above the POC, bias is bullish.
When the VWAP is below the POC, bias is bearish.
There were many other tactics and nuances in the presentations.
One major one is that if the price is sort of stuck around a POC zone, it is generally better not to trade because it can chop around there ferociously.
So let's say that price has been around POC creating a nice big VP ledge for a while. Then it breaks out. This is where the skew is handy. If the skew is clearly negative when price breaks upwards, it might be better to fade the move. And usually once this happens, any MA like a collective will be more or less flat because the mkt has been sideways for a while. So around Upper Band1, if you are me you are looking for SR zones around that band. The band itself is not all that meaningful (at least to me), but does give a sense of meaningful move versus just wriggling around aimlessly. So if there is a clear SR around there, some sort of short pattern entry is advisable with this short bias.
So let's say this happened. Broke out of POC congestion zone, made a runup and then pulled back down. At this point a likely target for the pullback is around the top of the recently formed ledge or the POC price itself which at this point could well stop the pullback. If/when that happens, this is quite bullish, skew or no skew, but especially if the skew is only slightly bearish, i.e. the VWAP is close the POC, and also if the VWAP has started rising (it doesn't rise and fall easily like most MA's).
So if you use a collective and that recent upmove started to move the slope upwards, might be a good time for a long with a stop below the recent RL, or if there is a move up that takes out the recent RH, gets the VWAP at or above the POC to make a bullish bias, and you get a nice pullback after the initial breakout, that could be a good trade. The point here is if the price is around the POC for a while, not a good time to trade. But if it has left it and made a move, then that price can often become a significant SR price even though usually you can't see it clearly in the bars because it's lost in all the bars that churned around that price for a while. And this price is not always in the middle of a clear trading range either. Now we have the dynamic indicator, for the first time we can review where it was and for how long and the price action around it. This dynamic PVP is going to prove (at least for me) to be a very important indicator, probably the single most important one I use. I feel I have been waiting for this for a year now and am ready for it just as it was developed. Synchronicity.
In the example in the chart, the skew was very definitely negative and interestingly enough a rather steep and deep upthrust did little to change the VWAP - in other words volume was not all that heavy relative to what had happened earlier in the day. So the higher the mkt went, the better it was looking as a short especially as the day-session end was looming and it was increasingly unlikely that a totally new, huge up-move would develop suddenly in the last hour given the day session bias/skew was negative.
The VWAP is the median price of all trades in the session which is defined as whenever you start the VWAP. Well, not median, the better way of defining it is: above and below the VWAP there are an equal volume of trades. So the VWAP represents the median of all price action of the day when volume is factored in because if there are 100 vol at 1050 this is heavier/worth more than 1 vol at 1055. Once you have 100 at 1050 and 100 at 1055 (and nothing in between say), then the VWAP will be 1052.50.
The POC, however, is the single price at which there has been the most volume thus far today. Now dValue and other indicators have different ways of calculating it. Gomi counts actual buy-at-bid and sell-at-offers tick by tick. This is the most accurate but processor intensive and also doesn't work if you go over to a chart you didn't have data running for that day.
dValue has a time-based and a volume-based method, essentially. I prefer Volume. Time is that at the close of the bar, all time at price for that bar is divided and then the time added up during the session. i.e. if the bar is 1050 - 1054 (5 ticks at 1 pt per tick) and the Volume is 100, then each point is given 1/5th in time because there were 5 ticks. If there were 10 ticks each would get a tenth. If this is a one minute bar, then each gets a fifth of a minute which is 12 seconds. Then the next bar unfolds and the same thing is done. Maybe the next bar is higher but the same deal, 5 ticks with the low at 1053 and high at 1057. In this case, 1053 and 1054 get another 12 seconds each so they will look thicker than anything below or above them. And the POC of these two bars would be 1053.5.
The same thing is done with volume: instead of splitting up the time by tick for the bar, the volume for the bar is split up and divided amongst the ticks, in the example above each getting 20 of the 100 volume and 1053 & 1054 getting 20 both times assuming the second bar was 100 too. Both methods often yield similar results but I suspect with non-time bars they don't. In fact I know they don't. And when I have checked dValue against Gomi, it is the volume method that is closest to Gomi and rarely are there more than 1-2 ticks difference in the two POC's and often they are the same, so the averaging method seems to work even though it is not based on actual price and volume action.
In any case, there is the POC which shows the price at which the most volume/action occurred. And the VWAP which shows the point above or below which there has been equal volume. In a perfectly balanced market, POC and VWAP would always be identical. But then that is almost impossible because over time markets oscillate up and down. Still, the relation between the VWAP and the POC, both of which are factual statistics based on market action, not derived from fancy math, square roots etc., is important, or rather I should reveals valuable information about the underlying volume structure of the current dynamic.
I find the combination of these two allows one to make more sense of the volume ladder and also to gauge the 'sincerity' or 'believability' of various types of move in which case it becomes easier to get wholeheartedly behind trading with the trend, or to be a cynic and keep fading any moves that are going against the bias and that you have reason to feel are less sincere.
Relationship with previous days POC, Weekly SR and so on of course comes into play.
Am generally tired of late and sense that I need a break from this and the holiday season is a natural time for it even though I have nothing set up this year (my family live all over the world far away).
Took several quick trades after late start (not sleeping well of late either) and in nearly every case moved stop to BE too quickly. On the one hand, it meant I had very little MAE which personally I like at the beginning of a day in order to reduce probability of having to come back from underwater; on the other hand, this is exactly why you get into the 'I just lost 5 days small profits on the last three trades' syndrome. In all cases the trades would have yielded far more if I had held for more because in all cases the entries were valid in the sense that they were 'right'.
Am still incorporating the Vwap-PCO methodology into my trading; I know this is the element that will tie together volume and price. At least for me. So there is an underlying sense of confidence that the last piece of the puzzle has been found and placed and now I have a good sense of the overall market picture.
Trades: I followed the rules in the sense that moving stop to BE in the early going is perfectly acceptable to reduce risk of loss. But I was not in the zone before beginning, started too soon after opening the chart and generally am sort of stale from having done too much work with programming, testing out indicators during past two months review period etc. So I am going to give myself only 25% because I really wasn't with it this morning and should not have put on any trades, even in SIM until I was ready.
I did change the SS over the weekend so that now it has more stats. But I am not happy with the R-R reports: I think I need one set that shows MAE/MFE if I did not adjust stops and targets etc. with corresponding RR, and another that shows the R-R of what I actually did, i.e. take 10 ticks heat, exit for +2, and if I had held +15 was possible. This way I can drill down into the difference between what I am doing after entry and what is possible after entry. Otherwise the results don't really tell me all that much although having the averages is helpful. For example: my average MAE is 5.4 ticks and MFE average is 15.5. That's pretty good. But some of those MFE stats come from my entering what was possible if I had not exited early so it is not precise enough to be really meaningful.
Bottom line: I find the POC 'flip' in the revised dValue very good and have far more confidence in picking a bias. I won't always go with the daily skew/bias but if I don't, it will be because a) a trend is strong and obvious no matter the bias and b) the weekly bias on the LT chart is still very much in my favour.
For example after the trades in this journal entry I put on a short which was against the daily bias but in favour of the weekly. Quick winner.
My New Year's Resolution comes down to finally making a comprehensive trading plan and then sticking to it. So I suspect I will tinker around with that the next couple of weeks and might even stop trading even in SIM just to step back for a while and gather myself for renewal of live trading in January after this 3 month review/analysis/preparation period. I am resolved not to start live trading again until I have a solid plan.
Gary and I worked on a lot of spreadsheets earlier this year to analyze MAE and MFE, specifically what the "real" MFE was or could have been. I think it's important to know this figure, how else can you measure how good your exit was?
The way we ended up doing it was with a shared Google Docs spreadsheet, and we would manually input each trade that met our entry criteria, and then document the results. For the MFE column, we would show the best-case realistic scenario, for instance, if we were long then we would stay long until we got a short signal, or if we're long, we would stay long until there was a big pullback (maybe not enough to trigger a short, but definitely a pullback nearing a reversal).
We entered a couple months of data by hand, one day at a time, one trade at a time. Then what we did was use this spreadsheet to spit out what our ATM should look like. We had multiple columns for targets (ie: target1, target2, target3) and let the spreadsheet crunch the numbers and spit out probabilities for hitting each target. For instance maybe we would do Target 1 = 80%, Target 2 = 50%, Target 3 = 25%. Maybe target 1 was 6 ticks, target 2 was 15 ticks, and target 3 was 75 ticks.
Anyway, it was a tremendous amount of work, lots of formulas, lots of data input. We eventually stopped doing it after we proved (disproved) our method we were using for a trigger. We've since then moved on to a different trigger, but we learned a lot about money management with the exercise.
Could be body, could be mind, could be not enough indicators, could be food poisoning or bad water last week when had to stir up weird things in my well! Could be middle age and beginning of winter season!
Came back today after markets closed and ran through some other instruments. Crude has a good example of a helpful POC 'flip'. (Is Jan no longer the front month?)
Again, it's a pretty nifty leading indicator, though it doesn't always lead. It lagged on the move down around 11.50 but then there was a very sharp downmove, then it flipped to bullish at 2.08. Too late for day-session trade, but still, a much faster flip than most other methods would give so soon after such a sharp and deep move down.
Mike, thanks for that input. Very helpful. I am disappointed that I can't get better stats from Ninja because a) I can't code in most of my setups in any meaningful way and b) I have not been disciplined enough with the ATM in SIM to properly separate 'official' from 'unofficial' trades. I meant to do it but then didn't follow through. It is also not as easy to change accounts as I thought. Sometimes I have two workspaces running to test different approaches/charts and Ninja automatically gives each a different account. If I want to change them I have to disable the being always in SIM and several times I have found on opening up again that it has flipped the accounts or even put in into actual trading and I didn't notice until after the trade unfolded so I don't like monkeying around with that any more.
In any case, manually inputting and reviewing the trades on one's own SS is better. I have almost of year of this but I made the mistake of putting it into a Word Table which is harder to work with. So starting this journal here and moving to an Excel SS was a good move.
I like your Tgt 1 2 3 deal. Personally, even though I know it is harder, I have made the decision to work with single contracts until I can get consistently profitable. This does tend to over-emphasise entry technique more than I would like and also it is very unforgiving in terms of not being able to take small profits on 1, have a BEX on 2 and then if you are lucky you get a nice runner. But I am sticking with 1 for now.
I am going to have one set of columns showing my actual trade MAE/MFE; and then another showing what could have happened with original system stop and max MFE with the same sort of criteria as you described above. And perhaps it would be worth my while to spend a day or so going through the trades from this past month in the journal to get those stats so that by the end of Jan I will have 2 months worth.
I am increasingly confident now that I know what I am doing with the markets, basically, and that the main issue is money management and discipline. But I haven't done sufficient homework in terms of MAE/MFE etc. in order to nail down the exit rules and this is something I absolutely positively need to do. And will!
Ash, for the tracking of two separate 'methods', try opening up two DOM's (same workspace) and then just name the ATM differently. The performance/trade tracking can be sorted by ATM template and you can dump to csv and delete the unwanted entries.
Here is an example of an old spreadsheet. Far from perfect, but just so you can see what we were doing. This strategy was a bust, but the journal/spreadsheet were good.
I can't remember all the specifics, but the cell highlighting was all automatic if the number was outside the average, etc. Lots of conditional stuff like that, and the next tabs showed all the graphs and such.
I've been reading thru this thread and am very intrigued by the work you're doing on the VWAP and POC though I've got a few questions.
1. You mention Perl a few times, who is this? Is there a website or something where I could watch/read some information from Perl to learn more about this approach?
2. Which line do you watch to flip trend bias? What paints that line? (I've included one of your screenshots with a note I attached pointing to what I think is the PVP line)
Thanks again. I've been working on trying to find a way to utilize volume to help with pinpointing where trapped positions are to aid directional bias. I think you may have found it, I just need to wrap my head around this.
