jperl

Probably not, but I haven't investigated this in any detail. When the real breakout occurs, there won't be any retrace. It just goes.

Yes, this is the problem with breakout trades against the skew in general. There can be several pseudo breakouts that fail. This is why they are so difficult to execute properly and why I don't like them. If you are using risk tolerance, then yes, wait for the market to retrace to the VWAP and scale-in. If risk-tolerance is not your cup of tea, then you have to set a hard stop and it might as well be the high of the entry bar. Correct, that's why I suggest using a risk tolerance approach to trading Correct, I use risk tolerance with scale-in rather than tight stops for trades in the skew direction. For break-out trades against the skew, I will use a break even stop quickly, but if I can't do that, I will put a stop just below the VWAP. There really is no good scale-in point. That's interesting. How many ticks different are they?

Yes that would have been a good basic short trade O66. "VWAP seems to slow" is an interesting way to put it. What you are observing is the slope of the VWAP is going to zero with price action sitting in the PVP zone as described in this thread. A difficult place to initiate a trade as you are learning. There were several attempts at a break out to the downside from this zone starting at 12:42 (East Coast time) with the final break out occurring at 13.54. Here is where risk tolerance plays a crucial role. The first false breakout at 12:42 was below the SD @ 774.92. Could you have tolerated the market moving back to the VWAP at 778.76? which it did at 13:36. That's $400/contract. If the answer is yes and you stuck with it, you would have had a good short trade of at least 4 points and more to the downside. If the answer is no, then you would have been stopped out.

If you are afraid of using risk tolerance as a trading philosophy, then you need to have a nearby hard stop for your trade. If you entered short using the Shapiro Effect, then you entered below the low of a nearby up bar. Set the stop 1 tick above the high of that bar. Simlarly for longs. If that's your risk tolerance, then by definition you are comfortable with it. If you are not comfortable with it, then you need to redefine a different risk tolerance. The number of ticks up where I would set a break-even stop depends on what I'm trading. For me a break-even stop is discretionary, it depends how the trade is going. I hope you are not thinking that I am giving you a method to trade, rather than a tool to use for understanding price action. The "method" will depend on your trading style. Exact entry, stoploss points, and profit targets will depend on your trading style which only you can develop for yourself. That being said, the stats for trading wil be based on your trading style. If you know where and how I trade, then you know my stats. But my stats won't be anyone else's stats using the same tools. If you have to wonder whether the trade is any good, then you probably shouldn't have been in the trade in the first place. Before you enter a trade you must have all your ducks set up so you know exactly what you will do when the market decides to move against you.

work around: edit the post then go to advanced and hit the save button

Glad you like them John. Hope they help you in your trading

I haven't investigated this in any detail Dogpile, but my feeling is that the nature of the instrument your trading shouldn't matter that much. As long as the statistics are valid, any violations of the VWAP or SD should occur in a random fashion. Use of the Shaprio Effect should help find those.

We are now in a position to discuss trading aspects at points in the volume distribution function near the PVP. WARNING!! This is not for new traders. If you have not read and understood threads [thread=1962]I[/thread],[thread=1990]II[/thread],[thread=2008]III[/thread],[thread=2101] IV[/thread],[thread=2130] V[/thread], and[thread=2189] VI[/thread], and practiced with entries, exits and scale-ins using simulation mode until you are comfortable, then entries described in this thread are not for you (click on the thread numbers to see them). This is a dangerous place to be entering a trade. Anything and everything can happen and you can be caught with your pants down. You are probably asking, why is JERRY telling me about this place to trade if it is so dangerous? Two reasons. If you are a basic trader taking entries at the VWAP and 1st SD, you might find yourself caught in this trap and not know what to do. Secondly, if you like excitement and like living on the edge, like the bikers in the first attachment (a picture I found on the internet), and if you have a correct entry, there are lots of bucks you can pull out of the market by trading here. So what's this all about? Well it has to do with price action at and around the PVP. The PVP as you've learned in [thread=1962]part I[/thread], is the dividing line between the low volume zone and the high volume zone. All of the trades we have discussed so far have been in the direction of the skew at the VWAP or its 1st SD in the high volume zone. When price action is around the PVP, it's decision time for the market. The market has to either move back into the high volume zone and continue trading there, or look for new territory in the low volume zone. Thus like the bike riders in the picture, you as a trader will be riding a fine line between the safety of the high volume zone, and the sudden fall into the abyss. How does price action end up at the PVP anyway. There are only two ways: a)the PVP suddenly jumps to where the price action is or b) Price moves there. In either case, if you are in a trade, you are going to want to know what to do. If you are not in a trade, but want and exhilarating experience, here's your chance to do or die. In case a) the skew suddenly flips its sign from positive to negative or vice versa. (Remember the skew is proportional to VWAP - PVP). While skew flips can occur anytime during the day, they usually occur early in the trading day when the volume distribution is beginning to form. Sometimes this is a sign of an imminent reversal. What should you do if you are in a trade and find yourself in this situation? Simple answer: GET OUT!, Dump the trade, win, lose or draw. When price action is near the PVP, price is sandwiched between the VWAP and an SD or betwen 2 SD's. You might notice that price will tend to oscillate back and forth for a while between the VWAP and the SD, across the PVP line or oscillate between the 2 SD's. The market is thinking. Do I want to go back to the safety of the high volume zone where most of the trading has taken place or am I adventurous and want to discover new territory in the abyss of low volume. Don't trade in this region unless you are a scalper. Just wait. Wait for the market to decide what it wants to do, before you decide what you will do. In the first video, we see price action in the PVP area with the VWAP on the downside. The Video shows when to take a trade to the upside on the break out of the 1st SD. YM BREAKOUT TRADE In the second video, we again see price action in the PVP area, but this time price breaks through the VWAP. We show how to apply the Shapiro Effect discussed in post 16541 to enter the trade. YMVWAP WITH SHAPIRO EFFECT TRADE And finally in the third video, we show a skew flip, where the PVP suddenly jumps to the price action. A trader may have taken a trade just before the flip as shown in the video and exited before the flip occurred, but if he didn't he should exit at the flip price. ESSKEW FLIP Regardless of whether price action has moved to the PVP or the PVP has moved to the price action, the effect is the same. You are now looking at a zone where trade entry is precarious, so be cautious. In the next thread [thread=2285]Part VIII[/thread], we will discuss what to do when the skew is close to or equal to zero and the volume distribution function is symmetric. YMbreakoutAug10.swf YMVWAPTradeAug10.swf ESskewflipAug10.swf

I was going to wait until a later thread to discuss this, but since you brought it up here, dbntina, I will talk about it now. The question is, when price action retraces to the 1st SD or the VWAP which is a signal to pull the trigger, how would you know not to do it? I use a simple technique due to Larry Pesavento which he calls the "Shapiro Effect". The Shapiro Effect states "If a trade is good now, it will be good in 5 minutes". Don't take this statement literally, but use it interpretaively. I use it in the following way. Let say you are looking for a short entry on a retrace to the 1st SD or VWAP. The first UP BAR that touches the SD is your signal. Don't pull the trigger yet. Apply the Shapiro Effect. Wait for a down bar that confirms the signal. A confirmed signal would be one that drops below the low of the signal bar. Then pull the trigger. Look at the attachment. This is the same 2 minute chart of NQ for Aug 10 that you posted dbntina. At point "a" we get a signal to go short at the 1st SD. Apply the Shapiro Effect. There is no confirmation of the low on the next bar. Don't pull the trigger. It took 7 bars later to confirm that low, which was below the 2nd SD. I usually don't trade there. At point "b" (the VWAP) we get a signal to go short. Apply the Shapiro Effect. 2 bars later there is a confirmation of the low of the "b" bar. Pull the trigger short. At point "c", we get a short signal at the 1st SD. Apply the Shapiro Effect. There is no confirmation of the low. Don't pull the trigger. At point "d" we get a signal to go short. But there is no confirmation of the low. Don't pull the trigger. You can see how this works. Applying the Shapiro Effect will keep you out of most bad trades. The downside of course is you might miss some good trades.

Yes, today was a day for breakout trades against the skew. We haven't discussed that yet. Coming up next.

Eventually it did, but would you hang on that long.

Here is another one that touched the 3rd SD Cooter. NQ touched, but continued on down.

Ok, now I understand what you are referring too. When the market is near the PVP, a trade against the skew is possible by an advanced trader. It's called a break-out trade which we discuss in the next thread coming up.

Good trading O66.

Good question Nvesta. Previous days statistics do play a role in the price action for today, but not in the way you might think. They act as Hold Up Prices which I call HUP. We will discuss these in a future thread.

Good observation Dogpile. Also note in the attachment here that the VWAP = POC = 1497.50 at the end of the day, a sign of a symmetric distribution. We'll discuss trading a symmetric distribution in a later thread. Cooter if you are reading this, here is an example of price action touching the 3rd SD at 15:26 EST.

If you want to do more advanced trades (which I only recommend once you have passed the basic test, lol), you will want the volume histogram and its VWAP,SD's for 1 day,2 day,1 week, 2 week, 1 month, 2 month and 1 year. You will also want these lines to update dyanamically for the day you trade. We will get to what all this means when we discuss Hold Up Prices ( HUP )

Nice charts BlowFish. On the first chart, the first blue up arrow at the VWAP is a good entry. You pull the trigger on the retrace when price is at 1 tick above the VWAP. If you are an aggressive trader, you would have pulled the trigger 5 bars back when price crossed the VWAP, maybe exited the trade part way up and then pulled the trigger a second time on the retrace. Again this is all a matter of style. 3 bars after the retrace, you notice price touched the 1st SD. If you were in a trade with more than 1 contract, exit half there and hold on for the ride up to the 2nd SD with stop at break even. You would have been stopped out of course, on the second contract, but that's ok, you made your profit on the trade. We'll discuss what to do when the PVP abruptly changes in the next thread on counter trend trading. Again that's coming up in the next thread. When the PVP changes so the skew flips sign (in your chart from positive to negative), life gets very interesting and dangerous. The next thread and beyond will be the start of the advanced trader's threads. Comments welcome. Cheers.

the PVP is computed by ensignsoftware. I believe it's computed on a bar by bar basis by dividing the volume for the bar equally between the fixed tick size interval for each bar. However you can ask Howard Arrington at ensign about that

Well first, I haven't defined a method as such. I've given you a tool from which you could develop your own method. Every trader using the volume distribution function will use it differently. So far I've shown you some basic entry and exit points, which you could incorporate into a style of trading. Secondly, if you call yesterday a trend day for NQ, it worked pretty well, don't you think? I wouldn't have called yesterday a trend day for NQ, because there was considerable rotation from one SD to another. A trend day from my perspective is one with little rotation, ie, market just creeps up one of the SD curves all day long. There is no preference for environment type as far as using statisitical analyis like this to make a profit. What is more important is how you adjust your trading style to conform to the statistics for the day. You can make money (or lose it) on any type of day.

Well it's tough to answer your question Blowfish, because I haven't kept any data on every possible trade that could have been taken. As far as getting stopped out, that is, my risk tolerance hit, it doesn't happen that often, maybe once every couple of months (turns out it happened yesterday). Usually when it does happen, it's because I did something stupid, like scaling in too early, or not having my system stop in the right place, or not seeing something that I recognized after the fact. Generally markets rotate daily many times, so there is ample opportunity to exit a trade after scale in. On trend days, you wouldn't scale in, but I think it would be pretty obvious. Trend days usually just creep up an SD with little or no rotation.

If you are going to use risk tolerance procedures to trade, you need a sufficiently large account so that 2% of it represents enough dollars to scale-in or reverse trades when necessary. Once you have computed your risk tolerance, you can then decide what instruments to trades based on their current SD. Personally, I wish I had known about risk tolerance years ago when I first started trading.

The VWAP and SD are both computed using the volume of each bar and the average price of that bar (O+H+L+C)/4 as input to the computation as stated in post 14559. So depending on the time scale of the chart, the VWAP and SD will be slightly different. The differences get small as more bars are added to the charts (less than 1 tick). For example at 11:54 EST today for NQ, VWAP computations gave the following numbers: 2 minute chart VWAP = 1959.88 4 minute chart VWAP = 1959.82 10 minute chart VWAP=1959.67 These are all within 1 tick of one another. so yo don't need to use tick data for the computation which is very CPU intensive.

in reply to my statement: By entering a trade at the 3rd SD, I meant entering in the same direction as the breakout. By fading it, you are doing a countertrend trade. This is also dangerous because you are trading against the skew. The breakout could just continue. We will discuss countertrend trades in the next thread. And yes you should wait for a pull back to the 2nd or better the 1st SD and enter in the direction of the breakout.

good question cooter. yes price will reach the 3rd SD at times. This usually occurs on a fast momentum break out. In the last week there has been a lot of this. Extremely difficult to trade, if you didn't catch the move at the start. You don't want to enter a trade when price hits the 3rd SD. A rebound could catch you off guard.