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Trading the 6E Old School, With a Twist
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Trading the 6E Old School, With a Twist

  #31 (permalink)
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Trading the 6E Old School, with a "TWIST"






You know I had to

How 'bout those babes


There's no School like the Old School

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Cashish View Post
There's no School like the Old School
... As promised, on the chart below the spread between the two bands is charted as a histogram,

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Cashish,

I suppose that your chart is not on NinjaTrader. In any case, how do you get the spread between the two bands charted as a histogram ? Could this be achieved on NinjaTrader ?

Lolu

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lolu View Post
Cashish,
I suppose that your chart is not on NinjaTrader. In any case, how do you get the spread between the two bands charted as a histogram ? Could this be achieved on NinjaTrader ?
Lolu


@lolu

Your supposition is correct, I use Ensign Charting Software. All the indicators on all the charts I've posted are standard studies within the software, I simply put a check in a box and the histogram appears. Since my programming IQ is well below room temperature I'm happy with the program. I'm sure this visual could be programmed and displayed on NT and probably has been by someone. Good luck in your search and thanks for visiting the thread.

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There's no School like the Old School

Chubby Checker and Dick Clark

What do these two men have in common? They're legendary. Their style and methods have been imitated for decades, but the fact that they were the first qualifies them as legendary men in their field.


Richard W. Arms JR, J.Peter Steidlmayer, Jim Dalton and Sun Tzu

These four men are also considered legendary, but one name stands out, Sun Tzu. I'll assume most of us are familiar with the book, The Art of War. In my previous post introducing the topic of volume I made reference to the "Heavy Hitters" in the market and the size of the positions they may be controlling in the market. Many people compare the market and their personal interaction in the market as a battle, I don't. I've never been in a battle and I'm thankful for that, but my perception of a battle is, (to simplify.. sorry Veterans) it is a very stressful situation and when I trade I want to avoid stress at all costs. But Sun Tzu's teachings can be quite beneficial to traders on a factual level as well as a psychological level. Of a book filled with great information and insight I'll focus on three topics and how I relate them to the 6E. Although I'm not directly involved with the heavy (bull/bear) hitters in the market, (they're battling each other) they do define the landscape.

Know Your Opponent
My opponent in the market is Myself. The real battle in the 6E is being conducted by participants at a level far beyond the reaches of my meager account. If I believe differently, or if I believe my positions in the market are anything more than liquidity for the heavy hitters, I'm fooling myself. If I trade 4 contracts during the day and at the end of the day the total volume in that market is 250,000 contracts, I can be proud of making 0.0015999% of those trades. That's how important my trades are! Remember, I'm wandering around shell shocked on someone else's battlefield, this ain't my fight. The real opponents in this battle, are using extremely heavy artillery and firing from great distances (big picture). Although I'm not involved in the great battle (big picture) I may find myself in a hand to hand skirmish with another foot soldier. While involved in my skirmish I must remain mindful of the heavy artillery silently flying overhead. In a regulated market like the 6E there are some rules of warfare (e.g. position limits) but those too can be blurry. Even though this ain't my battle I need to know what tools and/or methods (artillery) the major opponents in this battle are using, because I don't want to get caught behind either's enemy lines. Many of the tools and methods used by the major opponents are based on volume data. Some methods are extremely complex mathematical models designed by individuals with IQs much higher than than average retail trader. We're talking large corporations and governments here who's methods of trading include, minimal impact algorithms based on Percentages of Volume (POV), Gamma Weighted Average Prices (GWAP), Time Weighted Average Prices (TWAP), and Volume Weighted Average Prices (VWAP) to name a few. These models are often executed at speeds limited only by the speed of electrons! This is how I interpret Sun Tzu's command to, Know Your Opponent, as it pertains to the 6E.

Know Your Battleground

Since the major opponents in the 6E base their methods on "the big three," time, price and volume like all of us little guys, not only can we know the battlefield we can map it. The work of Richard W. Arms JR, J.Peter Steidlmayer and Jim Dalton are well know for giving traders avant garde views of the markets based mostly on volume. These methods of charting the markets have evolved in the resent past with the changes in the quality, speed, granularity and descriptiveness of the data retail traders can now receive on our PCs. Arms, is quoted to say, "If the market wore a wristwatch, it would be divided into shares (insert.... contracts), not hours." Remember your history, Arms was devising his methods (Equivolume) with EOD volume data only, IMO, genius. Steidlmayer, on the other hand had limited intraday data available for his Market Profile charting/trading method. My understanding is, every 30 minutes transaction slips at the CME were processed and an estimation of contract by contract volume could be ascertained, again IMO, genius. Both Dalton and Steidlmayer continue to open new doors in the field of volume studies and of trading volume information. With the help of the work of these men I adhere to Sun Tzu's command to, Know Your Battleground. My method of "mapping" the battlefield consists of a Price Histogram (evolved from Market Profile) and Equivolume Candles (evolved from Equivolume Charts) displayed on different time frames.

Win Without Fighting

When I look at these previously mentioned pieces of heavy artillery used by the major opponents on the battlefield, (minimal impact algorithms based on Percentages of Volume (POV), Gamma Weighted Average Prices (GWAP), Time Weighted Average Prices (TWAP), and Volume Weighted Average Prices (VWAP) ) I notice they are all derived from averages. In previous posts I suggested identifying many averages to ascertain the norm or a benchmark to calculate deviations of price movements, simply a baseline. To heed the command of Sun Tzu and Win Without Fighting I must position myself close enough to the front line of the battlefield and at the same time keep the artillery of the "advancing" major opponent at my back or "on my side." If I get "to close" to the front line I may find myself trapped behind enemy lines. To chart the location of the constantly shifting front line I'll use the VWAP study. The VWAP defined is, the total traded value (price) divided by the total traded quantity (volume) over a given period (time). The VWAP is widely accepted as a popular benchmark value of a market over a period of time due to the accuracy of it's intraday performance.

Let's Review

Chubby Checker and Dick Clark are legendary.

I've identified the major opponents (forces) in the market and to a degree some of the methods they use that may effect my decisions to enter, exit or stay out of the market entirely.

My reconnaissance of their methods define the vastness of the battleground. My method of charting the battlefield consists of a Price Histogram (evolved from Market Profile) and Equivolume Candles (evolved from Equivolume Charts) displayed on different time frames.

To chart the location of the constantly shifting front line I'll use the VWAP study.

A Request

I use Ensign Charting Software, (E-10 version) and IQ as my data feed for the program. All these studies are standard within the Ensign Software and the settings are easily changed within the program. I'm not promoting the software in any way. I also use NinjaTrader, although I only use the DOM feature for order execution.

My request is, Please Do Not use this thread to conduct searches for indicators to fit your personal trading program. Please conduct your individual search elsewhere, thank you. The futures.io (formerly BMT) forum is equipped with a very convenient search engine and I would suggest it to begin your search, please honor my request and DO NOT post requests on this thread, Thank You.

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  #35 (permalink)
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There's no School like the Old School

Again, I want to restate my intention, My intention with this thread is to help traders find their way through a lot of the nonsense and develop "Their Own" method/strategy for trading the (6E) market using Old School studies. Later, I'll add the "Twist."

I believe traders learn much more from their own mistakes, than they learn from the mistakes of others. I'm no exception, I've made many mistakes. IMO, a very common mistake traders often make is not fully understanding the indicators they're using. Many of these indicators are math (processor) intensive, but with a bit of effort they can be manually calculated. I found this exercise of manually calculating each indicator on my chart gave me a thorough understanding of exactly, What the hell I was looking at! I'm not suggesting calculate an entire day's worth of data, just enough to understand the math behind the indicators you are depending on to generate trading signals. For myself, if I don't fully understand the indicator I'm basing my entries and exits on, I find it similar to trading on someone else's opinion. A personal example of this is my use of the Stochastic, these parameters are all set in single digits, far from the normal suggested settings.


Volume and Price Histograms

I'm usually pretty good at remembering the names of people I meet. I went to a wedding recently and saw a several people I hadn't seen in many years and only had to ask my wife the name of one. But when the 6E fell below the Oct lows I needed a little help in remembering the significant price levels in an area of the market I hadn't traded in over a year! This is one of the many benefits of the Price Histogram (PH) study, not only does it remember the area, it remembers the significant prices themselves.

The PH Study evolved from J.Peter Steidlmayer's Market Profile chart. I'm not going to get into his work but I will reference a few of his terms in my description of the PH Study. First, What the hell am I looking at! Well, depending on the settings most commonly we're looking at the largest of one or two things. 1) The largest amount of time the market traded on a price, or 2) The largest amount of volume the market traded on a price.

As a basic example if the volume is 400, and the formula is Price and the bar spans 4 prices, then the 4 counters (horizontal line) for the 4 prices will increment by 1. If the formula is Volume then the 4 counters divide the volume equally and each counter (horizontal line) will increment by 100. If the bar spans 8 prices, and the formula is Price the 8 counters still increment by 1. But if the formula is Volume the 8 counters will divide the volume equally and increment by 50.

During the predefined period, (e.g. (N)days, (N)minutes) one price will retain the largest value of the above calculations, that price in MP terms is called the point of control (POC), in MP "offshoot" studies it's often refereed to as the peak volume price (PVP). With this basic understanding of the Price Histogram (PH) and the differences in the formulas used for their calculations the study which charts the volume traded is commonly referred to as a volume histogram (VH). I use both studies, but for simplicity I'll focus on the volume histogram (VH) and refer to it as VH.

To make a point I'm presenting another example. Many traders use a 20 period moving average for a reference point in their trading. This moving average (MA) can be calculated many different ways, simple, exponential, weighted or smoothed are a few common formulas, and most often these averages are calculated from the closing price of the bar. But the notion of more data points while calculating an average has always been a more accurate method. As a simple example a 20ma calculated by first finding the average of the bar's (O+H+L+C / 4) and then averaging that number over the preceding 20 periods will return a much more accurate representation of price within the 20 periods compared to a simple 20ma calculated only on the close. End of example.

In the above example lays one flaw of the VH study. If a 1 minute bar has a range of 50 points and a volume of 5000 contracts traded most VH studies will divide the value of 5000 equally among the 50 points and plot the histogram as such. Even though we sat at our trading stations and witnessed 70,80 or 90% of the volume trade at one end of the range or the other the calculation is returned as an average over the range of the entire bar. Obviously the answer to this dilemma is to calculate and chart the volume within each tick. As you might imagine this would be an extremely CPU intensive task and other factors like the processing speed of the charting application would surely come into play. But I assure you, the heavy hitters I've refereed to in previous post are more than capable of charting this market data on a sub second level. Enough, I just wanted to point this out. I believe when "the stars line up" and the heavy hitter's algos parameters are met, the speed and frequency of their executions can trap traders "behind enemy lines" and torture them (apply heat on a trade) until they finally give up (stopped out or close trades for a loss).

To recap the last two paragraphs, know your indicators know what, how and when they're calculating your data, know their assets as well as their liabilities.

Anyone familiar with MP is likely to understand the theory behind the Value Area. From the POC an area of 70% (standard settings) is designated the value area. This area is a (close) estimation of 2 standard deviations (SD) from the POC. This 2SD is a number that keeps showing up in many indicators, (e.g. Bollinger Bands and later VWAP) the reason is studies have shown often 80% or more of the trading takes place within this area. Similar to the BBs the idea is if price ventures out of the value area the probabilities are high they will return to the POC. In a defined range, (stationary range) this theory has a higher rate of success, but it is a common practice still used by many traders. Most of the time I give no thought to the value area of the VH, so little thought in fact, I don't chart it. My main focus is charting the shifts of the POC from one level to another level throughout the trading session. These shifts of the POC indicate the highest levels of volume over the defined time frame of the study.
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Volume Weighted Average Price

This study (VWAP) has been around quite a while now and its definition is still widely misunderstood. To define; The VWAP for a given period is the total traded value divided by the total traded quantity. That sounds simple enough, and it is. But if we reflect back to the VH and remember how the data (intraday) was averaged for each bar we will see the value of the VWAP study. No trade is left behind in this monster, if your settings are not set to calculate on the close of the bar this CPU intensive calculation will bring many processors and programs to their knees. When I say monster I'm talking about a new calculation of all the intraday data beginning with the opening tick for every tick traded until the closing tick of the session. Did someone say CPU cooler! Obviously, this tick by tick calculation is just out of reach for most of us retail traders, but remember the heavy hitters and the vast resources available to them. Although we may choose to not calculate each tick real-time we can calculate the VWAP on the close of 1 minute bars on several instruments without much trouble using today's powerful CPUs. The accuracy of the VWAP Study's intraday performance has made it one of the (if not thee) most popular benchmarks of a market's value. Small trades at extreme prices will have little effect on this average, instead the average will be dominated by the largest trades. This is a very slow moving average when trading volume is low, but when big volume comes into the market it's quick to shows its worth. As like many other indicators traders often plot SD lines set at +1, -1 and +2 -2 from this average. Often traders will execute trades based on the same theory as MP and BBs, that is buy or sell at the extremes and anticipate a return to the mean. Since the VWAP is charting the volume at every price over the entire day (if that's the setting) the SD bands do not contract like the BBs which are only referencing the preceding 20 bars (if set to 20ma). With that in mind the SD bands of the VWAP provide an excellent indication of the markets total volatility prior to the last traded price.
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Equivolume Candles

With the improved access and quality of time and sales data on an intraday level I devised a method of visually displaying the intensity of the fight between the bulls and the bears at key levels indicated by the previous studies. Nothing really new here just a unique display. This display is simply the percentage and the quantity of trades traded at the Bid and Ask. Using the equivolume display the candle (pipe) is expanded width-wise as the volume inside the candle increases. Also, in real-time the color of the pipe changes with the percentage of trades traded at the Bid vs trades traded at the Ask. This information has many uses, one of my personal uses is, when used in conjunction with the extreme readings of the Bollinger Bands, the continuation or reversal of a developing or existing trend can often be ascertained. These "pipes" can take interesting shapes, and those shapes can signify different responses by the market, I call them "Oil Cans." Since we all know our car engines run better when there is an ample supply of oil in the crankcase. I've often told my children, "Money is like OIL, it makes life run smoother."
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Last edited by Cashish; December 16th, 2011 at 03:40 PM.
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  #36 (permalink)
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There's no School like the Old School

I was pressed for time when I posted the "Oil Can" chart and couldn't get back to this project before my "Edit Time" expired so I'm posting another. I've added some explanation as to what the oil cans are representing and labeled the data above and below each oil can for an accurate and quick reference. This data can be viewed many ways, per the example in the sub window. This can also be viewed in 2 sub windows using a bid/ask display along with the standard volume display.

The Oil Cans

I wanted to explain in more detail what I look for when using the bid/ask volume data. The most basic and simplest explanation is, I want to see significant price levels penetrated in an up move with high Ask volume and I want to see significant price levels penetrated in a down move with high Bid volume. In this example I drew one line at 1.3050. When trading the Euro whole numbers are usually a point of concern and this indicator is very good at "getting a read" on the value bulls and bears are placing on that price, at that moment. The next time prices test this level the outcome may be different, as this example shows when 1.3050 was tested later. Another example on this chart is the test of the previous early session high (since 2am), the 7th bar on the chart, I look for percentages greater than 60% (obviously more is better). OK, OK,,, What about the 5th bar on the chart? Why not go short there it has 63% Bid volume? Great question, but if you look closely at the oil can you can see a small black hash mark on each side, the one on the left is the open and the one on the right is the close. This is another significant indication, only one of these 5m bars closed in the lower range of the bar prior to prices hitting 1.3050. Furthermore, the momentum indicator I refereed to up thread should help confirm direction, mine did. OK, How about that one little tiny bar at 2:25? Thin bars signify low volume, short bars signify tight (small) ranges, look for a "change" or a continuation if already in a trend, since this move is just getting "its legs" look for a "wiggle" in your momentum indicator. Nothing is as it seems, even on a day old chart! But those of us who trade at this time of day will note it's 2:55am when price hit 1.3050. Also, there were a few other significant price levels in the upper area of this chart as well as the lower area. If you did your "Old School Homework" you would have identified them prior to the 2 o'clock open. This move from the Open or the low of the 2:20 bar was definitely tradable and all the entry signals have been explained in previous posts. I hope this post assures readers that "Oil Cans" are a lot more than a goofy looking chart.

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There's no School like the Old School

I've been pushing this project along this week because all hell is about to break loose at my house in the next few days. In this post I'm going to attempt to bring it altogether. I'm sure I'll omit (forget) some things but the basic concept should emerge.


Bringing it All Together

For this example I'm going to use the price action of the 6E March 02 contract from 2-6am est on 12-15-2011.

Assuming I've defined the time of day of my trading session and several of the averages (volume, range and volatility) that define a "normal" trading day, I take my seat at my trading station and anticipate the opening tick of the session.

First I identify preexisting conditions and preexisting significant price levels. The usual suspects are, Yesterday's O,H,L,C, the H and L of the current week, the Globex session open, Yesterday's VWAP, POC and it's shifts and the Trend Reaction numbers calculated from yesterdays H,L and C (settle). I write these numbers on a "cheat sheet" which is printed on my desk pad but I also suggest marking them on a chart.
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Price level chart
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It helps to have many screens. The above are charts with significant price levels identified, below is the "Trading Chart" with my indicators. These indicators also supply me with (more) significant price levels. To identify them I'll post a key.

2am Open = Yellow line
2am High = Blue
2am Low = RED

VWAP = Black line
VWAP +/- 1SD = Red line
VWAP +/-2 SD = Blue line

Bollinger Band 20ma = Red Dots
BB 2SD Expanding = Green
BB 2 SD Contracting = Small Red Dotted line

Stochastic in Sub Window
Fast = Blue
Slow = Black

POC of 2am VH = Bold Yellow line

"Oil Cans"
Ask volume = Red
Bid volume= Blue
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The chart above is the 2 o'clock open. I notice several things to take into consideration.

1. For 6 hours the range has been small (21 points), low volatility
2. The BBs are expanding, (increasing volatility)
3. The opening bar has below ave. volume for this session
4. Price is above the VWAP... at the close of the first 5m bar price exceeds 2SD with good ASK volume
5. The open @ 3012 was 2 point BELOW the pivot @ 3014
6. The fast stochastic is rising and appears about to cross the slow stochastic
7. The POC from the Globex open is 3007
8. At the close of this bar I'll have the first POC from a VH that begins calculating at 2 am

Everything here is suggesting a long trade, but my experience tells me when price is around a whole number WAIT ... But if price makes a new high above 3019 ..... waiting will be difficult. A short or long (mean reversion) trade at or above the VWAP +/- 2SD is a high probability trade MOST of the time at the 2 am open, but in this tight range with LOW volatility the risk is greater, and the profit potential is LOW. If this holds true I'll enter long at the "rising" VWAP. An important note here; the gravitational pull of the VWAP is especially strong in a prolonged range bound market, also the POC. At the open of the 2:05 bar the POC of the VH that began calculating at 2 am is 3014, That number (POC) will remain a contender throughout this session (every session). Also at the close of the 2am bar BOTH the slow AND fast stochastic indicators turned UP.
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The 2:05 bar closed UP at the high of the bar with increased volume, increased Ask volume, increased momentum, increased volatility while remaining ABOVE the VWAP +2 SD. Patience, will reward a trader more than anything else. The (third bar) opened 2 points off the high (close) of the preceding bar and never tested the high, Ask volume fell off, momentum waned and the bar closed near its low. Hope is rekindled for the enrty at the VWAP. I put an order in at 3014 (pivot and 1 point below the "new" POC) and one at 3009 the VWAP. The 3009 order was never filled prices traded at 11 and 10 but never 09. I entered another at 3014 and the market died. ALL volume fell off, the range tightened to 5 points, the BBs contracted and momentum stopped.
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Now that I'm in the trade, where do I get out? My targets are defined on the first chart. The POC shifts of yesterday. The first target that price will come into contact with is 3044. The other 4 targets for a long trade are POC shifts at 3051, 53,56 and the Trend Reaction Sell Number at 3063. ALL the numbers with the exception of 3044 have one thing in common. Price has to trade through 3050, plus 13 points to touch the TR SN. Whole numbers are usually "tough nuts to crack." The Oil Can will be my decision maker (see my previous post, "The Oil Cans").
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When price jumped above the BBs I felt pretty confident about this trade, but when price hit 3043 and wouldn't touch 44 I started to think 3063 wasn't going to happen I moved Both targets to 3050 and I'm glad I did. That FAT oil can says 3050 on top but it only touched it a few times very late in the bar. I moved my targets to 49 after what appeared to be an eternity, 2 or 3 minutes for sure. I've been a "Dick for a tick" many times but with the low volatility at the open on this session, I wasn't going to push my luck.

Thanks

I really wanted to get this particular post posted before the Holiday.

I've committed to this thread throughout the month of December and want to thank everyone who has taken the time to view it, Thank you. Once again I want to thank Big Mike for the opportunity he has given to all of us. IMO, if I would have attempted this project on the other forums I've visited, it would have been disastrous. Thanks, BM


Last edited by Cashish; December 19th, 2011 at 05:22 PM.
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There's no School like the Old School


Comments on Time, Price and Volume

A few weeks ago my Grand Daughter called me at 10:30pm from somewhere in West Virginia. She was visiting her other Grandparents and although I'm always happy to get a report on how she's doing, a call at 10:30 pm raised my concern. Quickly my concerns were diminished when I heard the excitement in her voice. She was standing in line at a Walmart store waiting for an opportunity to buy a laptop computer for $189.00. "I only have six and a half hours to go!" she told me. One of her concerns was the fact there was a limited supply of these laptops and although she was very near the front of the line the total number available was unknown, and she wanted two of them! Her perseverance was rewarded and she bought her two laptops shortly after 5:00am. If you think about it she was dealing with, time, price and volume.

In the 6E anyone can initiate a position at anytime so in theory the supply (volume) is unlimited. But, for every buyer there is a seller, and for every seller there is a buyer in the futures market. So, although there is an unlimited supply of contracts that are available for trading in theory, the amount of traders willing to take the other side of the trade is limited. When the sellers refuse to sell (at the current price), there are only buyers left in the market, conversely, when the buyers refuse to buy (at the current price), there are only sellers left in the market. When this deadlock (equilibrium) occurs price has to move to a different level. This movement to another price level doesn't have to happen on any particular time frame but it will happen. When the move does happen the market often tries to conceal the distance required to stimulate new enthusiasm from the buyers and sellers already in the market and more importantly from the new traders looking for opportunities to initiate new positions. This may be why many times we'll see the pivot and either the BN or SN traded during a session more often than both the BN and SN traded during a single session. Similar to the example with my Grand Daughter, when price is low enough buyers (volume) show up, when price is high enough sellers (volume) show up. This idea of traders moving in and out of the market at different price levels and different times of the day (different trading sessions) is the basis for why I use different VHs commencing calculations at differing intervals throughout the day.

Nonsense

Once again.
My intention with this thread is to help traders find their way through a lot of the nonsense and develop "Their Own" method/strategy for trading the (6E) market using Old School studies. Later, I'll add the "Twist."

A lot of the nonsense and confusion I've seen on different forums and threads has to do with the indicators I've included in "The Twist" portion of this thread, namely the VWAP and VH studies. A few posts up thread I suggested traders may find it beneficial to manually calculate the indicators they use to generate trading signals to get a total understanding of their assets and liabilities. After the charting program completes the calculations there may be many options for customizing the visual display with your charting program. IMO, a total understanding of this display is also very important. This is a complicated subject and I do not intend to pursue the depths of the math behind the common misrepresentation of these studies, but I do hope to offer guidance and direction to those individuals who may seek a deeper understanding of these indicators.

If traders pursue the truth about these indicators chances are these terms will emerge, normal distribution, skewness, kurtosis, peakedness, variance, deviation and a few more. But for my simple cautionary post I believe most of the misrepresentation is based on the term, normal distribution. Rarely (if ever), do we see a normal distribution of either price or volume in the market and IMO, a lot of the methods presented that use these indicators to generate trading signals assume a normal distribution of price and/or volume. These assumptions will leave traders "chasing their tails" trying to make sense out of these indicators. The problem is often compounded when traders try to merge the two studies (VWAP and VH) and generate "hard and fast" trading rules based on them. I'll refer to a quote by Jim Dalton about Market Profile, "It (MP) doesn't tell you to buy or sell or anything else. It is just a way to organize data. It gives you depth." A similar argument about normal distribution can be made regarding the VWAP, it is the benchmark value of an instrument at the last calculation, nothing more. If traders manually calculate a few bars of volume on price data and truly understand the results, many of the misrepresentations of the VWAP study will be quickly realized.

The PH, VH and VWAP are great indicators if calculated and used properly, they certainly are not the end all or "Holy Grail" of trading. "A way to organize data" is the best definition I could use to define how I incorporate them in my personal trading style. Combined with the Old School indicators, I believe they offer me a wide angle view of the overall market and a "high definition" view of intraday moves.


Last edited by Cashish; December 20th, 2011 at 09:57 PM.
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  #40 (permalink)
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Miami FL USA
 
Futures Experience: Advanced
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Posts: 803 since May 2011
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There's no School like the Old School

VH "A way to organize data"

In this post my intention is to show in more detail how I use the VH studies calculated during different time periods to expand my view of the market and alert me of potential high probability areas in the market that price may be drawn to or targeting. First some basics. Since we fully understand the calculations of the VH study and the liabilities of those calculations, I suggest using the same time frame for calculating the "look back" period as you do for your trading chart. This example is based on intraday trading positions and I'll use 5 minutes for all the VH calculations. With that being said, I also suggest looking at these charts as a road map. When we open a Rand McNally Atlas (old school I know) we see the "big picture" of the State we're traveling in. Later as we approach our destination, Rand McNally often provides an enlarged view of the city's surface streets to assure our shortest route. Another thought. Like the road map we use to find our way to a destination we're unfamiliar with, if we find ourselves traveling the same route again and again we often depend less and less on the map and find ourselves driving on memory. I believe the same is true in the market, but with all the pertinent market information rattling around in my head the VH is a great way "to organize data."

I'm using data for the March 2012 6E contract, for a cleaner view I may omit the price bars, however the highs and lows are charted by the VH.

This first chart is a VH of the 12-22-11 session which opened for trade @ 6pm est on 12-21-11. This chart shows the POC and all subsequent shifts plotted in red just prior to 2am est.

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This chart begins its calculations at 2am and after a strong move thru the 3100 level (attracting volume) causes a POC shift to 3119. As the market continues to consolidate ultimately a POC shift is triggered at 3111.

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Now we return to the previous chart and see that during the 2am session the volume of trades traded on the 3111 price level exceeded the amount of volume traded on the 3058 level. This is a KEY shift of the POC. At this time my focus is shifted back to the Globex chart since it is NOW in agreement with the 2am chart. The "trial by fire" will be the area on the 2am chart around 3080. If this level fails to hold (support) price in a down move, the next high volume level at 3058 / 3053 will be in play.

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This is the Globex chart. Price traded down and around the 3080 level but soon fell, down and thru the 3053 level (by one point) and bounced up to the 3080 area then down again to 3059, just shy of the 3058 line.

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The day continues to trade lower, since the 2am session traded higher at the open the volume on the lower levels wasn't charted, but the Globex chart had the levels and when price and volume returned, the chart once again began to chart them on the graph. This is why the 2am chart did not shift the POC to the 3058 level as did the Globex chart.

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So why did price stop where it did, You decide for yourself, I'm not selling anything here and many may consider my efforts on this thread total nonsense and a waste of time. But so far we've been looking at the surface streets, the next few charts IMO, are how we got here on the Interstate.

Two days
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Three days
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Since the Sunday night (Monday session) open
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This Santa needs to get busy in his workshop, I'm putting the finishing coats of paint on a three story doll house.

Merry Christmas Everyone


Last edited by Cashish; December 23rd, 2011 at 01:05 AM.
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