Eiger

Not familiar XTL & Advanced Get. The cumulative up/down swing volume just seemed logical from the chart. Nevertheless, I can see how useful this can be.

Or on the wave. To me, it looks as if you might be calcuating the small swings (or waves) and designating them as either up or down. Volume (or perhaps some other measure of activity) is cummulated by adding the volume in the up waves and subtracting volume in the down waves. Even if this is not on the right track, you have something that looks very good here. Eiger

The elephant is a good image. I agree with you about the different types of responsibilities we have as traders. I used to trade Wolfe Waves in a chat room with a trader who lived in the Midwest. Great guy and an excellent trader. After putting on a trade, he always said, "OK, I've done my part, now it's up to the market to decide." He saw the trade, assessed risk/reward, made the entry, placed his stop, etc - all the things we as traders can control. That was his part. Once he put on the trade, he let go of control. The market either paid him or didn't, and it didn't matter. The outcome was unimportant because he had a good edge and knew over time he would make a good profit. He didn't live or die on every single trade. Many traders aren't at this stage, though. This is some of the behavior change I was referring to. Letting go of trying to control the things we can't control anyway (what the market does vis a vis our trade). You must have an edge, of course. However, whatever the edge is or the style of trading you do is less important than your behavior, in my judgment. Eiger

I agree with you about the vendors - way too much snake oil out there. I also think it has a lot to do with the trader's ego getting hooked, which is never a good thing. "I've put the trade on, so it HAS to work." For some reason, the ego doesn't like to see the risk in a trade or be told it could be wrong. Also, taking ONLY one point is not a very grand trade from the eyes of the ego. It's always the ego looking for more. Funny, though, when getting more points doesn't work out and we end up with a loss -- then the ego is telling us, "You idiot, you should have taken the point!" A lot of reaching 'success' in trading is less about the indicators and more about self-awareness and making changes in your behavior, which sometimes aren't intuitive -- at least this has been my experience. Your posts ae very good. Thanks for the contributions. Eiger

When describing the lack or rally power after breaking the downtrend channel in the post above, I said that the market made lower lows. It should be lower highs - i.e., the market continued to make lower highs. Same with the chart - i.e., it should show LH rather than LL. Sorry for any confusion.

Hi Mcfotos, Thanks for posting this chart & trade. You have the exact right attitude about learning from losses. A friend who is a trader used to play the pro circuit in tennis always remarks on how the best players were always trying to make improvements in their game. When they made some error, they didn't get down on themselves (like so many do). Instead, they became excited at the potential for now learnng something new about their game and a chance to improve. It's a very useful attitude. I think this may have been difficult because of the background. It didn't really favor the long side. It started out favoring the long side, but it didn't pan out. I say it started out favoring the long side because of the Shortening of the Thrust, meaning that the legs down I, H, G, F showed less and less downside movement. SOT is one (early) way to identify a potential trend change. It also broke the trend channel (upper, or Supply Line). All of this is potentially bullish. It didn't pan out, however, because we got no good rally after the SOT and breaking of the trend line. Note that the market contiuned to put in lower lows. If you look carefully at the bars in this congestion area, you see no real evidence of buying going on. You would want to see the up bars in the two small rallies that occured to have wider spreads, closes near the highs, and some volume come in. Instead, you got narrow spreads and light volume - No Demand. A great clue for the future is to look for a rally that breaks an old top or high and puts in the first higher high (reverse this for changes in up trends). Had this market rallied well, it would have taken out the high made after G. The odds would then be very favorable for more upside progress had that rally occurred. So, one good thing to remember is to look for the largest rally to occur in the downtrend to indicate demand has entered the market before deciding that the trend has changed from down to up. On the bars at A-E: As A is approaching the support area at F (red line), both spread and volume pick up - not a good sign. The close at A is in the lower half - more bearish than bullish. B is narrow and has a lot of volume, but look carefully. Bar B is a down bar closing on its lows and closing under the support line at F. Same with the next bars. THis market was unable to rally away from the support level. This support level was the danger point for this market. If it can't rally away from the danger point, it will fall through it, which is what happened here. I drew what more bullish bars would look like to the left. Note that the closes would generally be clustered near one another, even though price was popping down lower. This would say that there is a price level that is tending to hold on the closes. Also, the closes are near the highs, and they are closing above the danger point or the support line from F. Hope this is helpful, and don't lose that good atttude of learning! Eiger

I found this post on "Re: Thoughts from a Professional Trader" interesting and have nominated it accordingly for "Topic Of The Month January, 2009"

Facinating work. Thanks for posting this. Have you thought about how these traders know where to trigger their high volume trades? They must somehow know where liquidity is pooled, otherwise, (it seems to me) such high volume orders would tend to rocket price and they would be putting price up or down against thier interests. They must also have a sense of the amount of liquidity in their price area and whether or not it could be drained by their high volume orders. If there was too much liquidity price would quickly go against them. It is sort of the obverse of what you have developed. Does your system look for these areas in advance? Would this even be possible? Eiger

Interesting and useful post. At some point, I wonder if you could talk about what you think helped make the difference in turning the corner to consistency for you, and how you knew it was happening? I know the last part of the question may sound a little weird, but I think that self-observation and self-awareness are important keys to learning to trade well. To me, it is always helpful to learn how someone knew they were doing something they had been striving for, whether it's becoming consistent, being able to step up size, or whatever the challenge. Eiger

This is not the man I know. A while back, you accused a member of your yahoo site of unseemly promotion of a seminar Gary held and on another site had an arguement with him. What you post here is hearsay and aspersion. Maybe you just have an axe to grind.

Tom Wiliams's Undeclared Secrets that Drive the Stock Market and The Wyckoff Course available from Wyckoff/SMI.

Thanks, JJ. I am working on my website today (despite good trading conditions!), so it was a happy diversion. What do you use to convert text to a pdf file. I have found a place of the web that does it or free, but since I will have a large number of articles on my website, I need something more reliable. Will it do powerpoints and excel files, too?

NYSE Ticks are very helpful in short-term trading. I have been using them for years, having first come across them via Linda Raschke. She and Bret Steenbarger have extensively researched, studied, and traded with ticks for decades. I would look to these individuals as the masters in using Ticks. Also, there is much more to understand about this highly useful indicator than divergence. Taylor was aware of the phase that the market was in and how it influenced market action, but focused more on tradig the 3-day cycle and its variations. I don't recall Taylor talking much about the specifics of accummulation, distribution, mark-up, etc. So I'm not sure that is such a good source for learning about the phases of the market. You can look to the Wyckoff/Stock Market Insitute for information on the Wyckoff method, which details accummulation, distribution, etc. As to db's ideas on cycles, you will have to talk with him about that. He has his own strong opinions on the way to trade which is not really relevant to VSA and this thread. Eiger

Yes, getting the background down is difficult for beginners, I understand. There is a reason for that, I think. It’s because people naturally center their attention on the current price bar. They see a No Demand bar, for example, on the right edge of the chart, get (naturally) enthusiastic (after all, it is a No Demand and these are our friends) and jump right in with a short position. This is understandable, but not a good idea. Here is a check list new and not-so-new folks might find helpful. This comes from Tom Williams's excellent book, The Undeclared Secrets that Drive the Stock Market along with my personal notes and observations. Note the order. The order is important. What phase is the market in? Markets move in phases. The basic phasing of the market is accumulation, mark-up, distribution, and mark-down. A basic way to think about this is that the market moves from consolidation phases with low volatility to trending phases with high volatility. This simpler way of thinking is often useful because accumulation and distribution can be hard to identify. Use a 60-minute or 180-minute chart to determine phases. Do this the night before so you are prepared for the next day. Is it trending or consolidating, or has it just broken out of a consolidation? Note trend lines and trend channels, as well as important points of S/R and overbought/oversold areas. These are places trades often set up. Knowing the phase and the market structure (S/R, trend lines, etc.) is a part of knowing the background. What is the background on the current chart? Look for spikes in volume, wide spread bars with closes in the middle. This is the ideal key to current background conditions and what we look for in finding reliable VSA setups. You may not see this on the current chart, however, so you look for other background conditions. Is the market making higher highs and higher lows? Was there an impulse move to the downside and the current rally is on receding volume? Is the current chart range-bound? Phase and Background are always the first considerations when reading a chart. Now we can get to the current bars. What is the relative volume on this and the last several bars? Note that we first focus on volume, not the price bar. Compare the volume to the prior bars. Is it higher, lower or about the same? You are looking at activity here. Is it significant or not? Is it picking up, sustained, or dying off? Once the relative volume has been determined, you now consider how the market responds to the volume. Look at spread. What is the relative spread on this volume? Again, compare the current spread with prior bars. Is the relative spread on this bar wide, about the same, or narrow? From this, we now have a sense of how the market responded to the volume. For example, did we get a wide spread on increasing volume - the market is moving price. Was the spread fairly wide, but the volume dying off - possible change in trend, or maybe a false picture. Or, did we get a narrow spread on high volume - lots of activity, but it didn't move price, an indication of capping the market. Look at the close. This gives you the direction of the spread and volume. Remember, spread is also an indication of activity in its own right—the wider the spread the greater the activity. So, by the close we know whether the direction of the activity contained in the spread and the volume was up (on or near the high of the spread), down (on or near the low of the spread), or flat (in the middle). What is the movement of price relative to the preceding close? The close tells us how price has moved relative to the last close. Has it closed up from the last close, down, or level. You now take your observations about the close and add your other observations about background (always, always the first consideration), relative volume, relative spread, and price direction. You can now make an informed judgment about whether or not a VSA indication has set up and whether or not this is a trade to take. This process is a little counter inuitive; our eyes naturally go to the current price bars. But, this process is a better way to orient both your reading and your interpretation of the chart via VSA. Hope this is useful, Eiger

Thanks. I was curious about this as I am playing around with a few early entry ideas, but haven't found anything reliably worthwhile yet. FWIW, I typically take the entry on the close of the No Demand or Test. I don't wait for price to break the low or high for confirmation. If there is clear SOW or SOS in the background, I view the No Demand or Test as sufficient to confirm the lack of buying or selling--whichever the case may be. Eiger

VSA works very well when combined with higher time frames. For day trading try using the 60-minute and higher charts (e.g., 180-minute to daily, though the 60-min usually works pretty well) to frame out the structure of the market (i.e., overall trend, S/R, areas significantly oversold/overbought, etc.). During the day, keep an eye on the 30-min or 45-minute chart. Look for typical VSA indications of SOS, SOW, No Demands & Tests, etc. on this time frame. It gives you a very good clue on how the market will be trading for the next hour to the next several hours. You can then coordinate smaller time frame VSA indications for reliable trades. Support and Resistance is important. Typically reliable trades set up with VSA indications at these areas. Look at both horizontal S/R as well as trend line S/R. Pay attention to the S/R from your analysis of the structure of the market on the 60-minute chart as well as S/R that sets up during the day. Don't just mindlessly buy or sell at S/R, though. Wait for a VSA indication. People seem to misinterpret Sebastian's comments on the Symposium DVD regarding S/R. He very much pays attention to S/R levels and looks in these areas for VSA setups. What he doesn't do is just buy or sell because price has reached S/R. That was the point he was making. It sounds like you may be using too small a time frame with tick charts. VSA is best used on a 10-minute down to a 3-minute chart when day trading. Anything lower than that will give too much noise for VSA setups and will cause frustration and doubt. Try using the 5 & 3-minute charts during the day. VSA indications typically set up several times during the course of the trading day on these two time frames, unless, of course, the day is a low volume, narrow range, flat day. Hope this is helpful for you, Eiger

Very nice. When volume expands into resistance and then dies like it does here (bars 2 & 3), it is a very reliable "tell" of lower prices. Bar 3 was a nice UpThrust of the resistance area, pushing above resistance slightly, then closing well below it. None of the subsequent bars (4 & 5) could muster a close above the resistance. Nice use of Ticks to confirm that in all that volume there was net selling rather than buying. I am curious about your description about your entry rules. In the future, could you post an example? Eiger

For low volume (e.g., for No Demand and Tests) look for volume on the current bar to be less than the previous two bars as a useful rule of thumb. For high - ultra high volume (e.g., for Stopping Volume, Selling Climaxes, Buying Climaxes, etc) look for high volume that clearly stands out on the chart. It should basically jump out at you quite clearly. You can also use a 20-bar simple moving average of the volume to help you see average volume. A useful trick that you will see in many of the charts i have posted is to apply upper Bollinger Bands or a standard deviation application on the volume. Again, use the 20-bar SMA and 2 standard deviations from the mean (you can also add a 3 SDs band, as well). Two Standard deviations captures 95% of all data within the 20 bar sample. Therefore, any volume bar that hits or exceeds the 2 SD threshold by definition is a fairly uncommon event (i.e., it falls within only 5% of the sample) and is therefore statistically significant and can be considered very high volume. If you are a bit obsessive about these things, then the 3 SD (capturing 97.5% of the data) is even more uncommon and indicates a volume level that occurs only 2.5% of the time and is therefore ultra high. The current spread should be compared to the last several bars. If you are looking at a Test or No Demand, the spread on the Test/No Demand should be compared with the spreads that lead to and include the climactic or stopping action. If you are looking at a reaction in an up trend, look at the spreads in the reaction and compare with the spreads in the impulse move (last up move) - reverse for a rally in a down trend. Try not to make it any more complicated than it is. Study the spreads and volumes in the charts. With a little effort, you should be able to distinguish high volume from low volume and wide from narrow spreads. Keep in mind that both the spread and the volume are indications of activity. If you have questions about the spreads or volumes in a chart, post it. People here will help you. Hope this is useful, Eiger

Happy Holidays everyone! See you after the New Year, Eiger

The divergence/non-confirmation between the Russ, S&Ps, Dow and Naz was telling today. In assessing the objective areas, do you pay more attention to the day session data or Globex data?

Hi Rich, Thanks for the clarity on this. It really parts the veils on Taylor. It is now making a whole lot more sense to me. He wrote in a bit of a code, but once you have this clarity, it does open up. Thanks again! Eiger

You are taking a prudent approach by asking this question. I am familiar with neither L Levin nor M Parnass, so can't offer a comment on these. As you mention, there is a lot of 'stuff' around. There is no real control over the quality of the material (e.g., no peer review panels), so some is high quality, some just stuff. From my perspective, I can think of two things to suggest: First, learn how to read a chart. Learn how to read bar-by-bar and how to read the structure of the chart. There are several useful sources on this. Look up the Wyckoff Course, Tom Williams, VSA, Merrill, Neil Humphreys. Even if you like indicators, you still need to know how to read the price and volume action and what they mean. Second, look for things that have stood a reasonable 'test ot time' and are recognized by most as significant, if not definative, in their area. New stuff is OK, but you would be better served by grounding yourself in the standards in the field first. Keep in mind that the basic action of the markets hasn't changed much from when the markets first began. This is because the markets are essentially an expression of mass human behavior, and that hasn't changed in thousands of years (nor will it change in the foreseeable future). The standards are, therefore, quite valuable. So, if you want to understand the MACD, look up George Appel; Market Profile, see Dalton; Fibonacci, check out Joe DiNapoli; channels and envelops, look to John Bollinger; day trading and short swing methods, Larry Conners; Elliott Wave, Prechter; basic chart patterns, Schabacher; trading the S&Ps, Linda Raschke; applied rocket science, John Elhers. When you have hit on something that 'speaks' to you, then go take a course on that subject, preferably by the author or someone recognized for that work. Hope this is helpful, Eiger

In my reading of Taylor (which I would rate as novice at this point, so take it with a very big grain of salt), today was a Sell Day in the 3-Day Cycle. Yesterday was a Buy Day. The action today was not a great Sell Day. On a solid SD, we want to see the open at or above yesterday's high. Taylor looked to sell out long positions on a penetration of the BD high early in the day. These would be long positions bought on a LOW MADE FIRST on a BD (yesterday). Today openned off yesterday's highs, which Sebastion's EOD indication suggested it would. Today's lows held and there was a slow, low volume rally to the 919.25 level, which was the high (resistance) of December 8th (see 60 min chart). The market reacted, but didn't sell off dramatically. Tomorrow is a Short Sale Day by my novice estimates. Taylor looked to sell short on a penetration of the SD (today's) high and when the HIGH IS MADE FIRST. Note the high volume on a down bar near the close. VSA & Sebastian's indicator suggests that buying may have occured (less clear than yesterday because of close) so that may happen (see 5-min chart). We shall see. Eiger

VJ - He does stick with the 3-day cycle, that's true. He "re-phases" the cycle, though, which I always thought either must extend the current cycle somehow, or left orphans floating around out there: "The rephasing attempts to relocate the three-day cycle when highs and lows don't occur as expected. Very often, a simple technique to find the 'correct' cycle is to push it ahead one day ... by pushing the cycle ahead one day, you can often find the pattern you are looking for ... Once you find the correct pattern, you can expect two or three cycles of winning trades ... (from Chapter 13 the LSS 3-day Cycle Method, G. Angell, Taylor Trading Technique, p. 112.

Thank you very much! I thought that might be the case. Taylor, of course, is difficult to read (but not impossible) and I couldn't see anything about resetting the cycle. Angell and Raschke do talk about extending it to 4-5 days, but that has been more confusing than helpful, at least to me. So your insight has high value to me - thanks again Since the cycle doesn't change, then that makes the rules much more important than the names of BD, SD, SSD. In other words, the BD, SD, SSD are just what Taylor named them to keep track of where he was in the cycle. We could call them Day 1, 2, & 3. The names BD, SD, SSD are pretty unimportant. It's the rules for each or the days in the cycle that are the key? Is this the way to really comprehend Taylor? Eiger