joshdance

He could show you his model, his strategy, and could sit him down next to you, and you still wouldn't make money with it, because you are asking the wrong question.

A couple of observations regarding this... if there is a correlation, then would we expect something like the high and low of the day to occur within +/- 5 minutes of a 30 minute bar close, with some regularity? If that is the case, then we already have a 33% chance right off the bat, just from pure randomness (out of every 30 minutes, 10 of them are +/- 5 minutes from the :30s), so what would be an acceptable percentage to mean there is some correlation? 50% maybe? Just a thought. Objectively measuring is an option. If there is some correlation, then another contributing factor could be that news releases are typically done on the hour and half hour, with a few notable exceptions. Not just US releases, but for other markets as well. As for your anecdotal observations from today bakrob, it may be noteworthy that 10:30 is one hour after the open, 3:00 is one hour before the close, 10:00 was news time (as you mentioned), and 11:30 is close of most major european markets such as the London stock exchange, and Frankfurt stock exchange, and DAX, STOXX, FTSE, etc., all stop trading. So 3am ET and 11:30am ET are very important times every day.

Your lack of logic and objectivity is actually quite stunning Dude. It's as if you are assuming the role of authority on a tool which you don't even use; you get to define it, then you get to call it crap. Wow...! :rofl: :rofl: This statement puts into perspective everything you've said so far. I won't "vendor bash" here Dude, but if you think he is legit, when he, like most every other vendor, has never proved that every single chart is not simply marked up at the end of the day, then your logic switch has a short in it somewhere, my friend. Pay him 10 grand, and you get to come trade with him for 5 days--what a deal! Even your writing style makes it clear that you don't really know what 'you're saying here.' Your lack of organization of thoughts makes it evident that you're pretty much just throwing stuff out there. I'm not really disagreeing with all your conclusions; but your assumptions are very suspect and don't hold a lot of water in my book.

I understand your point and agree very much with your premise, I just wanted to keep you "honest" And I agree with your thought on the Holy Plan, and the Rules of Divinity too. So, you advocate trading using the DOM, or what? Let's get down to bid-ness here Dude.

When did you close the trade in your backtest?

How many traders have you met? It's a reasonable question to ask, as you have cited purely anecdotal observations and implied by posting them that there are conclusions to be drawn from them beyond the scope of your personal observations, as if they might be empirically-based. I don't know anyone personally who's unemployed, but between 3 and 4 out of every 25 Americans are not working; my relatively limited observation really says little about the actual picture.

How about this one..?

Actually BH, I'd have to say that it does invalidate the underlying concept, practically speaking anyway. Markets do not always return to prior values; just ask anyone in Japan who was buying when the Nikkei was at 30K -- it will probably never come back to that price in their lifetime. Sorry BH, I just don't get or accept that "the present value of the market is on average the best estimation of its future value"; even for a futures market, it just doesn't work that way IMO. That sounds like a recursive function from hell to me; so, all prior prices will be revisited? So, I should be able to sell a new all time high and be guaranteed that the market will revert to lower prices at some point? Something tells me we will not see 100s in the S&P any time soon, and even if we do, that's a hell of a long wait (30+ years) to revert to that mean. Maybe I'm just really misunderstanding what you're saying. You talk about a "significantly" higher or lower value ... that's the key isn't it, and very subjective. Sorry if I'm incoherent; I'm quite tired and thinking about all this really complicates life for me as a day trader more than is necessary.

The premise did not play out as I had expected it might; the market made a new high a few minutes ago. The real trigger for me was the sustained strong volume on the selling that occurred after the original HOD. I must admit that I was simply fooled on this one. I have been paying lots of attention to price and giving only small amounts of weight to volume, in the last several months, with good results, and this time I gave quite a bit heavier weight to what I saw in the volume, and what I interpreted was not correct. If one thing can be learned from this example, it's that volume be interpreted many different ways (for example, heavy volume on the move down after the original HOD was absorbed quite strongly, vs. a viewpoint that it indicates heavy selling pressure), so one must be prudent and consider how much volume means to you as a trader personally!

I thought I would post this chart of today's action so far to illustrate how volume can be used. This is one approach, and this may not play out, but it's just one idea for you to work with, or dismiss at your leisure. So the market opened quite lower, and made a nice run up. The volume on the way up was decent, but declining. We have a huge peak at the top, and then a subsequent strong sell lower, with quite sustained volume on the move down. To me, this is bearish. The market moving lower after failing to hold above Friday's high, and the move down being on sustained higher volume, indicates strong selling pressure to me, and I will be looking to be short. I don't know what will happen, but this is an idea generated from one interpretation of what I see. If it goes up and looks strong, I will not look to short; I try to adapt to what's happening now. But this is what I see as of now. I am posting this as it's happening, and not in hindsight, because I feel very little can be gained from an opinion based on already knowing the outcome, which is tainted by hindsight bias. Let's see how the day plays out, and this theory will be proven valid, or not, depending on what happens later.

I think I agree with the general thought process of your post BH, but it does not really address my post, to which you replied. I replied to the poster who said that he would "fade the trend where the market should be" -- my reply basically said, the market is where it should be, right now. If he had said, "I'll fade the trend because it will be (in the future) going the other way," then I would recognize that as a valid approach (though not the smartest in most cases). But to say that the market "should be" somewhere makes it sound like it should never have done what it has done to get to where it is right now. In other words, if it's way up from a half hour ago, then had I shorted half an hour ago, I should be in a profitable position right now, but I'm not, so it's the market that is wrong, not me. That is what I specifically have an issue with, though of course anyone is free to say anything he wishes. I know what you mean, but for the cause of accuracy: there is no net difference between buyers and sellers. In the same vein, there is not "one more buyer." Every transaction has both, thus, they are always, unequivocally, forever, equal--end of story. You are using the word "incorrect" to mean that the present market price is not "right," compared with some future price. Okay, and using your above scenario, in some cases I might be happy to sell to the "one buyer" if my guess is that the market will be lower, and for me personally, it must be lower very soon, as I am a day trader. But that does not mean that the market is "wrong" right now, does it? What about a seller who sold a few points lower and is now negative on his position--is he wrong? Well, if he waits and the market heads lower and he turns a profit, then he was right about the market dropping. But he was not "right" enough on the timing to avoid a drawdown. So, right or wrong is not only with respect to where the price will be, but also when it will be there. Those who shorted the market in Q1 because it was "overbought" on weak economic data, minuscule volume the entire quarter, and for any other reason, may have been right, but they probably lost some money in the process, and at the very least got a bad price due to the fact that their estimation of where the market "should be" was early. And this is the heart of my point; thus, it is my contention that the market is where it should be in this moment. Sorry for the length here, and BH, you know you are one of my favorite TL posters and I enjoy your posts greatly, so I hope you read this as a friendly discourse; text is so challenging to navigate sometimes. I did not think your post belligerent at all, and I hope you take this the same way.

BH, I mainly consider volume on an intraday basis, so that may not really fit in with what you're trying to do. But as Friday was quad-opex, I ignore even intraday volume. The market does what it will do, and it was clearly trying to run up. I don't know about today and how the market will respond to Greece things after this gap up, but I don't worry about that and will trade what I see happening tomorrow. But seeing a rally up, making higher highs on low volume, is no good reason to short IMHO. Again, I don't mess with daily volume as it's outside the scope of my trading, but especially given the quad opex, volume doesn't matter at all in my world on days like Friday.

David, you are certainly not the first investor who has said that trading is gambling, and the like. I agree with your last sentence David; but investing is not trading. Some people simply aren't cut out for trading. Usually the ones who talk about how it's gambling, a losers' venture, a "bad game," are the ones who have been burned by it, or who have never actually done it. There are plenty of "weekend investors" who open an e*trade account and dabble with markets who would like to think they know what trading is, but they have no idea, not a clue. If you have had handsome returns, I congratulate you, and advise you to stick with what you're doing well, and to stay away from that which you have no actual experience with.

So David, when did you give this a shot, and fail at it?

I respect the choice of those who choose to use Renko. I have tried many times, but they are absolutely the worst bar type for me personally. I use time-based bars for certain things, and my main daily structure is plotted with hilo volume bars. Renko conceals the very things I like to see... it smooths out, but at a huge cost, a cost too high for me. All the range-based bar types such as kase, renko, range, and others like kagi and PnF, all attempt to "hide noise," but they wind up hiding a lot more than that. In hindsight on a static chart they look magical, but in real time it's a different story.

If a trader breaks risk management rules, and survives the trade, THAT is luck. Catching a big winner is not luck; for the trader has to choice to close the position at any time. But surviving a large drawdown in a trade is luck, because it was a mistake that allowed the drawdown in the first place, and yet one is getting out with his shirt intact.

It looks like your strategy only trades RTH? The Sunday gap up was huge on the day you were stopped out and good at least that you did not take a stop 10 points higher where it gapped to!

To each his own, and I disagree but respect that others may find it useful. I never suggest that people do not backtest, as they may find the results more interesting than I have. I think even replay does not simulate a live market. You cannot rewind or fast forward a live market, and the psychological control one perceives in a reply environment can carry a false sense of reality heading into a live market. Regarding news, I don't mean to imply that if the news is good the market will go up. I mean that a surge in volume on a past chart must be checked with news for that day to ensure that the volume is not due to news. Heavy volume every first Friday of the month at 8:30am is always due to the same thing, thus heavy volume at that time is not significant. It should not be confused with volume resulting from normal trading activity, and one would have to check every past day's news events to ensure this if backtesting. Happy trading today all!

Ok, but not only recent and historical context, but the context of this very day, of this very hour, is paramount and trumps all other context. I'm talking about the "right now" context, which unfortunately you cannot have by looking at old charts. I just saw DB's last post, and I'll go a step or two further and be a bit more blunt: back testing does not work, and you are wasting your time in doing so. There are too many variables that do not show up on your chart, such as news, day of the week, geopolitical events, and most importantly, you can't determine the market "mood" -- you can't simulate it, no matter how hard you try. Static charts are dead and lifeless, and we simply don't trade that way in real time. Yes, the problem is you are trying to perceive price and volume in a very mechanical way, and they simply cannot be viewed that way, because they are not mechanical. Anyone who says they are, and who develops a mechanical way of dealing with them, will soon enough be changing their mechanical approach anyway, and they will repeat the cycle many times over, always looking for the mechanical answer which does not exist--so, you can go down that route if you like, but I decided not to. There's nothing wrong with a visual examination of past data--but you should not find it "disconcerting" (in your words) that every retest of a high or low on lower volume does not turn into a reversal. I know that sometimes I come across as blunt or possibly rude in my replies, so I hope you do not take offense in my perceived tone. If you could hear me say it, you would realize I'm only being straightforward. I would want others to be so blunt with me.

This depends on the context so much that it is impossible for me to answer yes or no. The first chart attached shows ES this morning. The dark yellow area to the left is the overnight session. You can see that the area highlighted had provided solid resistance for the whole session. Yet, I was long at the time, and when the market tested this area during the morning session I saw heavy volume, and the market immediately traded down pretty quickly. I exited my longs, and the quick and strong push to break through and subsequent immediate failure to do so caused me to rethink my position. But had the volume been very strong, and then broken through, then that would be another scenario. The second chart shows a scenario that you described earlier. A retest of a high or low (high in this case) on much much lower volume. I was long at this time, and confess that I did scale the second of my three units when the market failed to break through the high convincingly. But no way I would short it. You can see what happened later if you want -- a nice squeeze up for another 6 or so points into the close, and I exited during this time to flatten. So, was there less "interest"? Yes, but there was more buying pressure than selling pressure, as evidenced by the fact that the market drove another 6 points into the close. There may have been less interest initially in buying above the high, but there was also less interest in selling... So, despite what the volume is telling you, what is the price telling you? Is this a good short opportunity, in THIS context? Well, we have an early day test below yesterday's low, (and yesterday was a huge selling day) a rejection, and subsequent 15 point move almost straight up. Does this market want to be long? In my opinion, yes, which is why I was long. So, am I going to short the high on the retest, even though it's on lower volume? No way in hell--we have higher lows, one bull flag after another, into the market's favorite time to screw people who love to fade: 3:30 to 4:15pm. My basis was 09.50, I had scaled, and was risk free with a stop at 08.00 -- the market would need to trade down there to change my bias. The market must prove that its sentiment is changing, and low volume in this context does not offer any such proof to me. Price offered proof. A lot of reading the market is due simply to looking at how it is behaving. Watching the bars/lines/candles/whatever as they move. This can be deceptive sometimes, but always tells a story different than a static chart. The quick rejection off the premarket highs as in the first chart was pretty clear evidence that I did not want to be long in the short term--it was the WAY it was rejected. However, the second chart, while showing an initial rejection of the highs, when observed in real time, showed no such urgency, or immediacy.

You don't sound that contrarian... "buy low, sell high" is pretty much what everyone says. And it's correct. But "high" or "low" is relative. What do you mean "where the market should be"? As determined by whom? The market IS where it should be, otherwise it wouldn't be there, it would be somewhere else. If the market is up, and you determine that it should be down, then it is you who should be long, instead of short. The market is always right.

But you don't have an issue with defining risk for a trade though, right? Just with putting it with some arbitrary (3:1) profit target... yes? I agree with you in general, if that's what you mean. However, I do think there's something to be said about what the usual pattern is for a trader. Is he always risking 10, and only taking 3? Seems like a problem with the methodology, if the risk needs to be so high, when the usual profit taking is so low. If the risk actually needs to be 10, then it would be better to invert his trades, and go for the 7-9 heat he's taking, instead of taking all that heat to begin with.

That's a very valid pattern, but have you ever made or lost money based on volume increases or decreases? What matters is where the price is going. Volume can help and I use it extensively, but if you find yourself with your eyes more on the volume than the price, then you're focused in the wrong place. DB has well illustrated this point. Regarding price vs. information risk: the earlier you get in, the less confirmation you have, but the better price you can get (risking less information, for a better price, is information risk); the later you get in, you have more confirmation, but the price is worse (risking a worse price, and more monetary risk on this single trade, while having more information to make your decision, is price risk).

"Low" or "high" relative to what? In your case, you're defining low and high in relation to where the market has been. But that doesn't matter--it only matters where the market is going. It's pretty simple (but not necessarily easy): don't fade a trend day because the price is "high" or vice versa. Buy high, sell higher, if that's where it's heading.

Sept contract became front month, technically, Thursday @ 9:30am EDT. But it usually takes until the next day for the volume to shift in favor of the new contract. That happened by Friday midday. Still some volume on June but most day traders are on September by now.