Dogpile

took a shot at a video. this helps explain where I am coming from on this volatility (std dev) stuff. I learned this principle years ago when I was swing trading stocks (my pre-futures days). but the concept is valid for any financial instrument that is liquid and active (has volatility and decent range of movement). quality of video is lacking for some reason. it wasn't bad until I transferred it to youtube. but you can still see what I am doing, I think. I use an AAPL daily stock chart and then bring that back to show what I am talking about with the futures market (S&P futures). to be clear, I am a student of this principle. I haven't seen it presented specifically like this but this is an 'old-school' concept that I think is quite relevant to recent discussions regarding volatility. comments/discussion are appreciated...

jerry got me going on VWAP and I have to say -- it was a missing ingredient in my trading. I have replaced POC-watching with VWAP-watching. The way the market responds to the VWAP price and forms patterns around it is fascinating. I just don't get the PVP part -- I mean I get it in principle but I just don't think its superior to what I was already doing -- but I do find it fascinating that many of the spots I am looking to trade line up with what Jerry is doing statistically. And I want to watch how I might be able to incorporate the PVP-VWAP-StdDev relationship into my trading. To me, pattern-recognition trading isn't optimal by itself -- and statistical trading isn't optimal by itself -- but put the two together and it is quite powerful. I will try a video out at some point and see what kind of response I get.... My view on trading is that us private traders need to work together to take on the massive program trading houses of the world. There are no secrets --- just good trading concepts. Every situation is a little bit different but having core concepts hard-wired into your brain lets you deal with whatever the market throws at you. I know I have improved my trading skills since joining this site. Collaborating is something I am definitely interested in. I will think about how to do something in a video.

fyi, I started a topic on Tradestation board seeking help for PVP code. If anyone can help, please do: https://www.tradestation.com/Discussions/Topic.aspx?Topic_ID=67207

Price action relative to VWAP is an extremely important concept in trading, in my opinion. As volatility contracts (bands compress) - successful trading strategies will be very different than when volatility is expanding (narrow bands getting wider). Also, I have added an indicator that tracks NYSE volume (not futures volume) versus the previous day. You can see we had a hard early push down today but volume was much weaker than previous day. This was indicator that trending action lacked conviction. This set up compressing std dev bands -- which in turn set the stage for new trending action as the market sought out a new equilibrium level from the 1467.00 area. Note that VWAP was already down versus previous days closign VWAP -- indicating a 'heavy tape'. The market repeatedly failed to break decisively through the 1473.00-74.00 area that market most of yesterdays trading...

nice job dbntina -- that looks visually right -- I am not an advanced EasyLanguage guy but the bands look great. would you know how to code 'PVP' to update dynamically? it is the same number that appears in the matrix window under 'Vol Bars'... would just like to place that into a 'chart analysis' window as a histogram indicator on the left side of the chart (Y axis).

<<It turns out, that there is no correlation between the size of the skew (as measured by the Karl Pearson definition of skew which is (VWAP-PVP)/SD ) and the momentum of the trade in the skew direction. What only seems relevant is that a skew exist. >> thx. the problem is that if not much skew, then the stop point (PVP) will be very close to the VWAP price -- where you might be entering. for example, market trades down and then retraces back up to the -1 SD level, you enter short with stop just above PVP. market trades to VWAP and overshoots a bit on noise. here is where a tight PVP might be a problem... I guess such is life.

jerry, since Newbie is using purely mathematical techniques, would you mind sharing the back-tested results for say, what you presented in 'V'? did the back-test optimize to an optimal stop placed above the PVP for a short/below for along? just curious if recent trading lines up with 'theory' of a skewed distribution... also, is there a minimum difference between the PVP and the VWAP before the skew is considered significant enough to 'play'... ie, # of ATRs difference...?

yes, I find trading extremely rewarding due its competitive dynamic but man you can feel awful when the market is tough or you aren't in sync. the only thing that works for me is getting exercise. it is the only way for me to clear my mind -- when in a hard sweat, you simply cannot help but focus on the task at hand and forget everything else. that said, I find futures trading to actually be much less stressful than trading stocks. all those gaps (upgrades/downgrades against your position) -- the worry at night of a big gap down due to futures etc... there is something so clean about making X trades and either winning or losing on them and just playing for good % and the occassional big win. would be interested in others thoughts on things to do so that you aren't totally checked out on your wife/girlfriend and/or kids.

I am going to treat this as a blog space for coil-watching for a bit... Here is todays chart: http://bp0.blogger.com/_5h-SWVGx6Ms/RrI82evXbDI/AAAAAAAAAXI/VFvtkAlmTC8/s1600-h/ES+Coil+Break3.bmp Note the differences in the 2 drawn rectangles. The second one is the one to remember to look for -- you have a triangle type of pattern at that point and you have low 5-min ADX -- the market has lost volatility and coiling for a potential trending move. Today was a lower volume NR-7 day so not the best trading environment. I did try a short near point C on the chart and stopped out for a small loss. Note the magenta circle signals the failure of the a-b-c corrective pattern. There was a test down out of the abc up pattern that led to a 'higher low'. Note that this was a 'bear trap' below the VWAP level -- similar to yesterday -- failure to trend in one direction after a coil break gives fuel (short-covering) for a move in the other direction. I did go long above the VWAP level and caught the quick move up. Thus, the small loss enabled me to catch a downside move, if one developed -- but the failure of that pattern enabled me to catch a good move up.

feel free to help out at the Tradestation forum site for this: https://www.tradestation.com/Discussions/Topic.aspx?Topic_ID=66875&SearchTerm=VWAP&txtExactMatch=

good example of this concept again today. VWAP std dev bands compress creating conditions for short-term trending auction. look how there is a final test of the VWAP after a push down which gives traders excellent reward-risk location. todays chart also shows how you can make good money in a coil break that eventually fails. a coil-break is a 'go-with' in the short-term. the failure of a coil-break can lead to a bigger move in the opposite direction (this is a Rashke concept -- not mine). todays chart was not quite as clean as recent days in that price did not tighten exactly on the VWAP number -- only near it... but the VWAP number was still a very valid pivot. the Dalton concept here is that there is usually a short-term opporunity to 'go-with' a break away from a balance. I traded a position scalping out 1/2 and putting it back on during pullbacks that didn't break the downtrend -- I also kept a core short that I eventually covered when the market petered out. just an awesome day to trade YM. http://bp3.blogger.com/_5h-SWVGx6Ms/RrD0BuvXbCI/AAAAAAAAAXA/2j-UbbdmT14/s1600-h/VWAP+Coil+Break2.bmp

Stay aware of the larger technical structure of the market: We had a strong break from balance yesterday afternoon. This morning shows a standard continuation pattern (A-B-C up) -- which led to a new price low. So now we watch for higher low to globex low or continue trend down. Many times on days after a strong afternoon trend (like yesterday) -- the market will form a new coil in the 11am - 1pm timeframe then breakout and trend directionally from there. But technically, we are still trending down at the moment. http://bp0.blogger.com/_5h-SWVGx6Ms/RrCgs-vXbBI/AAAAAAAAAW4/xHDOYyRNmNc/s1600-h/S%26Ps+Aug+1+2007.bmp

<<I have two questions regarding this thread. First, is there a TradeStation eld for plotting the PVP?>> you can use Tradestations 'Matrix' window to see the PVP (longest volume bar)...

<< If you backtest them, you will find that they fail 60-70% of the time. >> In many respects, a failed breakout is an even better set-up than a coil break since your 'location' will often be better and you may catch a very rapid rejection which puts you immediately into a profit position. The nice thing here is that you monitor the breakout early-on and either it goes or it doesn't. If playing for a failed breakout, then you can watch for failure as price attempts to breakaway from the equilibrium point and catch some of those times the coil does test one way and 'drive' the opposite way. Very similar to 'open-test-drive' concept from Daltons Market Profile books. Yes, good entry/exit trading skills are needed here.

<< there is more to it than just a break away from the VWAP>> Yes, there is ‘more to it’ --- which is really about how good your short-term trading (entry/exit) skills are, not about skew. Unlike most of my set-ups, this set-up is really about the lack of a directional bias for the set-up. As Linda Rashke says, you are better off without a directional bias on the exit of a coil. The pattern here is narrow-range breakout entry – an excellent core technical concept that acknowledges a markets tendency to alternate between ‘trend’ and ‘range-trading’ and specifically, the consolidation that often occurs just prior to a trending move. Trade location is advantageous because this set-up is all about being early-on in a potential trending situation. Proper entry should be somewhere not too far from the equilibrium point with risk defined as somewhere on the opposite side of the equilibrium point (after entry). With these as guideline rules, you simply cannot get into deep doo doo.

The bands are there only to help visualize the coil - not necessarily to define the breakout. I cannot really state a universal definition for when the equilibrium level has been officially broken -- it is up to the trader to decide this. I just wanted to get a thread going to help launch this concept. The point is really that when the market reaches a well-defined equilibrium point, you should recognize this and learn to kind of re-set your thinking that you had before the equilibrium point was established. That is, to get ready to 'go-with' the breakout as there will very likely be at least a short-term sustained directional 'auction' once the market exits its state of equilibrium. At the very least, you should try not to fight this early trend that develops after an equilibrium point has been established.

No matter what your bias, no matter what the pattern you see, no matter what your indicators say --- when a market has formed a tight equilibrium at the VWAP level: once a market has broken away from this level, keep your trades in the direction of the coil break. http://bp2.blogger.com/_5h-SWVGx6Ms/Rq-gouvXa_I/AAAAAAAAAWk/0MYV9xAg1vw/s1600-h/VWAP+Coil+Break.bmp

Right now, I am using them strictly to help define times when the market maybe ready to begin to trend after a period of consolidation. As price moves away from VWAP -- the bands will widen. If the bands are starting from a tight spot -- then you may be able to catch a trend early-on and ride it for a bit. If the bands aren't tight, then maybe there are just no 'asymmetric' opportunities available and you whoul wait for a higher timeframe pattern to set-up.

btw, here was the one from the other day that I did take walter: http://bp0.blogger.com/_5h-SWVGx6Ms/RqfSmOvXa6I/AAAAAAAAAV8/W9MY6-aw6wk/s1600-h/July+25+ES+Coil+Break.bmp

<<Dogpile did you enter the break of the lower band ?>> I didn't, I was watching closely for a bear flag or some kind of readable pullback to form but it didn't happen. In retrospect, I should have put something on (partial) at that trendline break at least.... I did have a set-up on NQ trigger on a very similar set-up that I have been trading for a while though. However the range has been so huge lately, I didn't have the balls to take it. I should have done it in reduced size but froze up because it had already dropped so much at the point of entry and didn't want to go 'in the hole' 5-10 pts simply if a bear flag did form. What can you do? Sometimes the market just doesn't let you in at a reasonable point with relatively low risk.... <<could you remind me what formula you are using for this bands ? thanks Walter.>> here is how it is written now... (note, I run it on a 2-min chart with 'custom session' start time of 5am. 45 bars of 2-mins gives you 90 minutes of time so I set the program to start drawing at 7am California Time -- 1/2 hour into trading -- so 1 hour of pre-market and 30-mins of actual trading starts the chart -- but I am not really using it for beginning of day -- btw, I am still learning this set-up) value1= square(c-vwap_h)+ square(c[1]-vwap_h)+ square(c[2]-vwap_h)+ square(c[3]-vwap_h)+ square(c[4]-vwap_h)+ square(c[5]-vwap_h)+ square(c[6]-vwap_h)+ square(c[7]-vwap_h)+ square(c[8]-vwap_h)+ square(c[9]-vwap_h)+ square(c[10]-vwap_h)+ square(c[11]-vwap_h)+ square(c[12]-vwap_h)+ square(c[13]-vwap_h)+ square(c[14]-vwap_h)+ square(c[15]-vwap_h)+ square(c[16]-vwap_h)+ square(c[17]-vwap_h)+ square(c[18]-vwap_h)+ square(c[19]-vwap_h)+ square(c[20]-vwap_h)+ square(c[21]-vwap_h)+ square(c[22]-vwap_h)+ square(c[23]-vwap_h)+ square(c[24]-vwap_h)+ square(c[25]-vwap_h)+ square(c[26]-vwap_h)+ square(c[27]-vwap_h)+ square(c[28]-vwap_h)+ square(c[29]-vwap_h)+ square(c[30]-vwap_h)+ square(c[31]-vwap_h)+ square(c[32]-vwap_h)+ square(c[33]-vwap_h)+ square(c[34]-vwap_h)+ square(c[35]-vwap_h)+ square(c[36]-vwap_h)+ square(c[37]-vwap_h)+ square(c[38]-vwap_h)+ square(c[39]-vwap_h)+ square(c[40]-vwap_h)+ square(c[41]-vwap_h)+ square(c[42]-vwap_h)+ square(c[43]-vwap_h)+ square(c[44]-vwap_h)+ square(c[45]-vwap_h); value2=squareroot(value1/45); value3=vwap_h+value2; value4=vwap_h-value2; value5=vwap_h+(value2*2); value6=vwap_h-(value2*2); if time>659 then begin Plot1(value3, "UpperBand" ) ; Plot2(value4, "LowerBand" ) ; Plot3(value5, "UpperBand2" ) ; Plot4(value6, "LowerBand2" ) ; Plot5(vwap_h, "MidLine" ) ; end;

Great post GCB. after you get over the mental vs real stop game, the next step is when you make a trade and it starts to go your way but you don't fill on your limit... now it comes back and below your entry. you decide you THINK you have a good trade on your hands, so you push your stop twice as far away as the initial stop. 'I am not getting stopped out on noise on this one,' you say. Flash forward 10 minutes... a well-meaning nice man's voice calls out to you "Order Filled" (its the Tradestation Voice-guy) -- yes, your loss doubled. Use a hard stop --- sometimes you stop out to the tick... but man is this better than the alternative. I have stopped out and heard that voice because some news hit the market and the market has moved so fast that my screen is now 10-20 seconds behind real-time --> trust me, nobody has real-time charts. but my orders were executed to the tick without 1 tick of slippage. had I had a 'mental stop' -- I would have not even SEEN the first 5-10 points of adverse move... then I have to react to that? that sucks. news just hit that Iran did blah blah blah to so-and-so or some Yankee pitcher just flew into a building or the price of tea in China just spiked causing the S&Ps to drop 6.

Market did it again today... Forms coil/balance/equilibrium around the VWAP level of 1482.25 -- notice how the std dev bands compress while price trades around the 82.25 pivot over and over. (sidenote: the PVP = VWAP here). This coil-break however offered no clean bear flag/pullback pattern to enter on. Instead, it just dogpiled away from 1482.25..... http://bp1.blogger.com/_5h-SWVGx6Ms/RqpaDuvXa9I/AAAAAAAAAWU/IjXqkPo2rH4/s1600-h/July+27+VWAP+Coil+Break.bmp

YM was awesome today with very clean patterns -- I made a lot trading YM today. Here is the very nice ABC up in the morning session: http://bp3.blogger.com/_5h-SWVGx6Ms/RqkXYevXa7I/AAAAAAAAAWE/De4D4kZHD4Y/s1600-h/July+26+YM+ABC+UP.bmp The morning move in NQ was very complex and I did lose money trading NQ today. In the morning, I really didn't understand what was going on in NQ at the time --- I got nailed on a short and then made that money back on another short -- but I don't think I read the pattern right -- the short-term trading technique was good enough to make me a profit. My net loss came later in day when I tried an entry for a potential overnight down-move but I stopped out on the little extra push up. Here is the NQ 24-hour chart. This is a pretty wild chart and very difficult to figure out the correct 'spots' for high-reward, low-risk trades. The second magenta circle in retrospect would have been the best spot for a short in retrospect --- I just couldn't figure this pattern out in real-time. Only later could I put it together. http://bp1.blogger.com/_5h-SWVGx6Ms/RqkcP-vXa8I/AAAAAAAAAWM/2N0fDePUARc/s1600-h/July+26+NQ+Trend+Reversals.bmp

<<A couple of years ago I would have been distraught at having missed "the Big Move" but now I'm pleased with myself for being disciplined enough not to care. >> I am with you. I hope it moves big every day and I miss most of it. Just give me a few good set-ups a day -- I really couldn't care less what the close-to-close pt/% move is...

YM was routinely moving 40 ticks in under 2 minutes today.... these are truly abnormal times -- I am definitely adjusting size... for example, today I was adding YM contract size 'around' my entry point. my usual 15 tick stop loss just doesn't make sense in this environment -- it can move that much in literally seconds. so I found myself 'averaging into' a position -- just 2 measly contracts at a time.... picking spots over the course of a 2-6 minute timeframe rather than lumping full size on at one arbitrary moment. much easier to ride out that first 40-tick range 2-minute bar when you only have a few contracts on... I am having big week but today was the least profitable day of the week for me. Made a lot on YM but gave a chunk to others on NQ. hope somebody here was the recipient of my NQ donation. NQ patterns today were needless to say --- 'highly complex' -- I couldn't interpret them until well after the fact.