jperl

Sorry for the delay in getting back to you Dogpile. Just got back from China. I took a look at the Sept 20 data for ES. Here is my take on it: In the first chart you can see that the skew is positive until 14:20 PM. So I would have been biased for breakout trades to the upside. There were quite a number of these that would have been good trades to the 1st and 2nd SD. Breakout trades to the downside would have all failed until 12:28 PM when the market broke out to the downside. It was only at 14:20 that the market became symmetric (PVP=VWAP at the last bar shown in the the first chart). As a trader you then had to decide whether to take an upside move back to the VWAP. Here is where the Shapiro Effect comes in handy. In the second chart which shows the whole day, there was no Shapiro effect to the upside after 14:20. In fact all the Shapiro effects occurred to the downside with good trade entries at 14:44, 14:58, 15:30 and 15:56. By 14:44 the skew went negative, so I would have only looked for short entries anyway. Too bad I had already left for China. It would have been a great trading day. JERRY

You are right on track Darth. There are two kinds of HUP, static and dynamic. The static ones are for example yesterdays high, low and close. The dynamic ones are all the VWAP and SD's from yesterday, 2 days ago, 1 week, 2 weeks, 1 month 2 month, 1 year ago. I think you can see that how these cluster will be important for determining price action. The rest of the story you will have to wait until I come back.

I usually use only the last trading session for a position trade. Once I decide on a trade entry, I will then take a look at the VWAP and SD's from previous 2 days, 1 week, 1 month, 2 months and 1 yr data to see if there is anything that would block the progress of the trade. I haven't gotten around to preparing a thread on this for want of time. Probably do so when I get back from my China trip.

To restate this question, how large does the SD have to be before you enter a trade? If you are only using today's distribution, then at the open, the SD is virtually zero. As more price/volume data is added, the SD grows. What's nice about watching this is you can see how the volatility is changing as the day continues. First growing, possibly leveling off, then growing again, then reaching some kind of stasis. So when should you first consider taking a trade? My rule of thumb is, don't trade until the range of the bars on your chart are less than 1 standard deviation. If the high of a bar touches 1 SD level and the low of the bar touches a second SD level, then the bar range is too large to consider entering a trade on that time frame. You either need to wait until the bar range gets smaller, or go to a faster time frame.

Both Blowfish and Dogpile have correctly stated when to use today's distribution and when to use yesterdays. Since today's distribution has not developed yet at the open, use yesterdays distribution and simply add on to it as the morning price/volume data develops. I do this for position trades as described in [thread=2423]part X[/thread]. You can then switch to today's distribution at your convenience.

This unfortunately is a misleading statement. Near perfect balance would be price = PVP = VWAP. Very often when PVP=VWAP, price action can be far from the PVP, even as far as the 3rd Standard Deviation. That's not a balanced market.

Your initial thought was correct The sign of the skew tells you where most of the trading has taken place. Positive skew: Most of the trading has taken place above the VWAP Negative skew: Most of the trading has taken place below the VWAP. Your first order of business when looking at a volume distribution is to determine the sign of the skew. Once you have done that, see where the price action is. a) If price action is above the VWAP and skew >0, look for long trades only. b) If price action is below the VWAP and skew <0, look for short trades only. These are the best trades to look for and Newbies should only do these to begin with. When you take these kinds of trades, you will be trading in the high volume zone of the distribution. It's when price action is BELOW the VWAP and skew > 0 or price action is ABOVE the VWAP and skew < 0 that things get interesting and exciting. Then your looking for breakouts into the low volume region with range extension. "Exciting" means "Living on the edge". If you like the rush of living on the edge, then look for trades in the low volume zone. These types of trades are described beginning in [thread=2232]Part VII[/thread]

Your very welcome. I thank you for providing a forum where we can post videos. Without that, I would not have begun these threads The thread on position trading [thread=2423]Part X[/thread] describes how I use the previous days volume distribution to take a position trade near the open. Today's developing volume distribution is simply added onto yesterdays. Once the position trade is completed, I then switch to using todays volume distribution for further day trades. I pointed out in this thread that the PVP is a dividing point between a high volume trading zone and a low volume trading zone. Consider for example a distribution with a negative skew. Several things can happen around the PVP as follows: a)Price can break out into the low volume zone above the 1st SD, in which case you want to go long or b)Price can break back into the high volume zone below the VWAP in which case you want to go short or c)Price action may simply oscillate between the 1st SD and the VWAP, in which case you might consider a short after a bounce off the 1st SD or a long after a bounce off the VWAP. So at the PVP itself you have no idea of any expectation until one of the above 3 conditions occurs Trading at the PVP thus becomes a slippery slope as I described in [thread=2232]Part VII [/thread]. Not quite sure what you meant in the first part of this question. With a negative skew (VWAP<< PVP) and price action above the VWAP, wait for a breakout to occur above the 1st SD for a long trade. If that does not occur (if for example price bounces off the SD) then go short with the VWAP as the profit target. As I indicated above you might get oscillations in this region between SD and the VWAP. Once the breakout occurs say above the SD, you would only consider long trades away from the VWAP. example a retace to the SD, go long, or if price action is above the 2nd SD, again go long on a retrace to the 2nd SD. Such trades should be viable as long as the skew is negative. Eventually however the skew will become zero as the breakout continues. It's at that point you would take a countertrend trade TOWARD the VWAP. This is described in the thread on counter trend trading [thread=2285]Part VIII[/thread] Above SD2, you are on your own. I usually don't take trades above SD2, mainly because continuation to SD3 is not that viable. And as I say that, you realize that in the last two months trades to the SD3 and beyond have become quite common. Beyond SD3 is no mans land. When I see the market extend beyond SD3, I just shake my head in amazement, take a break and go have a cup of coffee.

Hi James, Chart is a 2 minute chart of YM. To answer your question, breakout trades are dangerous to take under any circumstances. As you indicated, you noticed four bars back, price action broke out above the 1st SD and then failed to continue. Second breakout could have failed also. Tough call. I usually don't take breakouts. But if I do, I will move my stop to breakeven quickly.

Position Trading is generally described as a trade which you enter and expect to hold for a considerable period of time during the day. Such a trade can be entered at any time after the open. My personal preference for a position trade is at the beginning of the trading day using market statistics from the previous day as my guide for determining entry, profit target, stoploss and scale in points if necessary. The direction of the trade is based on interpretation given in the last 9 "Trading with Market Statistics" threads but using the previous days statistics as the starting point. Position trading is thus no different than any other type of trading that I have previously described. Here is the idea: a)Set up a chart with yesterdays volume histogram, PVP, VWAP and SD's on it. Leave sufficient room to the right of yesterdays close so that at the open you can continue to add to the statistical data as todays market begins to unfold. In effect you are continuing to update yesterdays volume distribution as more data is added to the chart. b)Before the open, decide on your trading plan. Pick a direction for the trade, an entry point, profit target and stoploss based on what you see in the volume distribution function. It will help to reread the previous threads to determine what you should be looking for. c)When the market opens, execute the plan. In the following video on trading the ER2 (Emini Russell 2000), you will see that the previous days volume distribution ended the day in a symmetric state with the VWAP = PVP. I then concluded that I should look for a countertrend trade back toward the VWAP as described in [thread=2285]"Trading with Market Statistics Part VIII"[/thread]. Watch the video to see what I did on September 06, 2007. ER2PostionTradeSep06 This trade was a good position trade which would have been even better if I had traded more than one contract. After having climbed up to the 2nd SD above the VWAP, the price action continued on down below the VWAP to the 1st SD and then evenutally to the 2nd SD, a very typical signature of a symmetric distribution.

This actually was a good example of a developing symmetric volume distribution. Notice in the attached chart the fact that the VWAP touched the PVP at 15:50 eastern time (light blue line crossing red line) and then 4 bars later crossed back above the 2nd Standard Deviation, the perfect long entry for a return back to the VWAP. If you were willing to hold on till the open the next day you could have bagged 7 ES points.

Otto--the Shapiro Effect doesn't say anything about which bars to use. But here is what I do: Long The last down bar that touches the SD is your test bar. Doesn't matter where or how it touches. Entry bar: The first up bar with any price higher than the high of the test bar, pull the trigger The simplest situation would be 1 down bar touches SD. Next bar has a price higher than the high of that down bar. More complex situations would be several down bars touching SD. Next up bar does not have a price higher than the last down bar high. But the one after that does. Pull the trigger on that second up bar. It is also possible that your entry bar which looks like it is going to be an up bar and you pull the trigger long, eventually turns out to be another down bar. Tough luck.

Check out the [thread=2322]"Trading with Market Statistics"[/thread] threads. There you will find a description of one scalping technique with a video of the technique.

I don't know when I will get to discussing HUP in detail. Next week I will be away for most of the week, and the the week after I'm heading off to China for 3 weeks. So you won't hear from me for quite a while. The break out trades occur when price action is near the PVP Nick. If you have the situation where the PVP is also near the VWAP at the same time, you do nothing. Just sit and watch. Yes, that is correct. In fact Cooter mentioned this one early on. I usually don't do anything when the market reaches the third standard deviation. It's a tough call.

There are some interesting statistics being presented here that the probability of the high/low occuring in the first hour of trading is very high. The first hour of trading represents about 15% of the trading day. So the expectation is that the high or the low will occur in the first 15% of the trading day. Here is something then to think about. If you think markets have a fractal behavior, then the time span for the high or low to occur should scale on different time frames. Example: Suppose my trading day is only 10 minutes!! If the 15% figure for the high and low is correct, then I should expect that within my 10 minute trading day, the high or the low should occur within the first 90 seconds of my trading day. This should be correct for any time frame that you trade in. If you trade 30 minute bars, then the high or low for that bar should occur within the first 4.5 minutes of that bar's open. Check it out.

Good show Steve. Keep up the good trading.

Yes Steve, that's one way to trade the open. I usually use a 15 second chart on the open and watch to see if there is a NEWBIE entry for a quicky.

The Interactive Brokers front end is from http://www.zerolinetrader.com. Use a player like Nick suggested for easier replay of the videos. Yes, it should be useful for stock daily data. I look at a 1 year chart with the PVP and VWAP on it for the various futures I trade.

Well, if your intent is to integrate over a small price region, where the integration is consistently done for the whole distribution, then that is another interpretation for the distribution. But that's not how I look at it in terms of determining the types of trading zones. The PVP is whatever it is. It's possible for the PVP to oscillate back and forth between the two peaks, but to do that requires price action to oscillate.

Yes. Simple trade simple stop. Only 1 complication. Profit target was arbitrary. Correct. Still reasonably straight forward. I probably should have introduced the Shapiro Effect at this time to help eliminate bad entries. Yes this is essentially correct. Break outs are difficult to trade under any circumstances. It's still possible to use the Shapiro Effect if you get a retrace. If not, tough luck. Correct again. As you are seeing, the trade threads get more and more complicated and more difficult to manage. This does not mean you have to expose yourself to these more difficult trade setups, but you should be aware they exist. I did say that, for those who feel queasy about risk tolerance trading. Not sure what you mean by wide action points. If you are referring to days when the SD is very large, don't trade those days if the SD is near your risk tolerance. (We have had a bunch of those lately) The Shapiro effect is a two edged sword. You don't get something for nothing here. If you use it, as you point out, you will decrease your profit potential and increase your risk. And yes, you can drop down a time frame to find a better entry point. Sounds like you've got the statistics down pat, NICK. Now all you have to do is trade it and see how it works out for you.

Yes, that is correct Nick. Every time you add a new bar, with new volume, you have to renormalize the VWAP computation to include this new volume. What that means is computing the VWAP terms beginning at the start time each time you add a new bar.

What makes it difficult to trade even with market statistics, is that the slow creep usually hugs one of the standard deviation lines rather than rotating between the SD's. As a result while you may have an entry point, you don't have an exit target that get's touched before you get stopped out.

I don't maildigger. If I have to reverse the trade, I'll do that instead and increase position size

Yes, in fact I did try that, but discovered that it didn't add anything to understanding the price action.

Good points Steve. These two issues are related. I was going to do a thread on HUP but discovered that the presentation was too complicated. I'm still searching for a simple way to start it.