Dogpile

<<Now that I'm starting to get this stuff, Mind Over Markets seems like a waste of time.>> Use the book for its concepts - it is excellent at that. For specific trade set-ups, Mind Over Markets is no good -- but that is not what it is trying to do -- MoM is about adding some 'context' to your existing processes. Look at todays profile based on 30-min charts. What you see is what Dalton refers to as a 'b' profile. This indicates that the market is no longer 'trending' down -- longer-term buyers stepped in today. The market will generally auction the opposite direction following a 'b'... watch for this tomorrow. If it doesn't, then that might be due to new information and a new trending profile down or that might offer asymmetric location for a great trade back up... we will just have to see. A low above todays low would be idael location for a big move back up. If it just auctions straight up tomorrow, then we will have to find good spots on pullbacks to go long. The media will be talking about how terrible today was -- but the 'b' profile is speaking to you if you are able to listen. It is very dangerous to be short at this point, in my opinion...

<<This is a Market Profile interpretation, that somehow markets if they are "out of balance" (that is skewed) will somehow move back into balance (market skew = 0). There is no evidence to support this assertion. >> I am not saying this with respect to skew but markets are well-accepted to come in and out of balance by technical experts. If you don't call this evidence, then I am sorry you don't see it. There is obvious coiling/balancing action here at the 1522.00 level. http://bp0.blogger.com/_5h-SWVGx6Ms/RqfSmOvXa6I/AAAAAAAAAV8/W9MY6-aw6wk/s1600-h/July+25+ES+Coil+Break.bmp

<<He wants price action to move away from the VWAP in the direction of larger skew.>> wouldn't a move in the direction he is trading tend to just re-set the skew at a different place. ie, the PVP changes... there is still going to be a skew, just a different skew. this is what happened in the video you just showed, no?

thanks Jerry, I think we are saying the same thing but using different terminology. I interpret what you said to be that newbies expectation is for the market to tend to want to revert towards a symmetric distribution from a skewed distribution. I am not saying has to be perfectly symmetric -- just that skew will change. Therefore Newbie should trade with the expectation that the market will tend to lose whatever the curret skew in the direction of a normal distribution. If this is right, then it is the same thing that I was suggesting but just that I was using different terminology.

<<I have posted my code in Tradestation forum for calculating cumulative SD of the price , centered about VWAP. This gets you closer to what Jerry is talking about. >> thanks nick... you can see how the bands you have act more like 'keltner channels' (steadier band-width) and the bands I did act more like 'bollinger bands' (expand and contract). each has its own interesting characteristics which I have studied for years. The flaw with both of these classic indicators is that they both assume the current 'moving average' to be a point of 'value' -- but this is often way off the mark. VWAP is a much, much better estimate of current value so this is really quite a powerful concept we are discussing here. I am going to leave both sets of bands on my chart to watch the interaction just as I have always done with the classic indicators. Volatility is not a constant in financial markets -- it is constantly oscillating between 'balance' (vol contraction) and 'out of balance' (price auctioning to a new point of balance). Every mathematical model must make an assumption about future volatility. This method Jerry has showed in the video uses straight historical data. If using this to trade, just be aware that this is effectively making the assumption that the 'future is like past' -- that is, expecting historical volatility to continue into the future. This assumption is loaded with risk -- known as 'model risk'. I think using both sets of bands (yours and mine) gives a more complete picture of the nature of financial markets. That is, you see the historical volatility alongside the expanding/contracting volatility-bands and this helps to show the way the market 'breathes'. See chapter 19 of the book 'Street Smarts' (Rashke) for more on this topic -- it is highly fascinating.

Jerry, can you explain in a mathematical or logical way why the PVP matters again for your directional bias? are you just saying that the VWAP can be considered the the 'real' point of value and so logic calls for the VWAP to be the 'eventual PVP'? Thus, if PVP is above the VWAP, expectation is for 'next PVP' to be something that is closer to the current VWAP and therefore odds favor the short side? and vice versa... is that right? if you could explain it in a different way that would be much appreciated. thx in advance

<<The period length is arbitrary and would have to be readjusted when market properties change as they do daily.>> yes I agree with you but I think the point of indicators is simply to aid you in identifying the current 'structure' of the market. my 90-minute indicator is not signalling a trade -- it is simply helping to clarify the current structure. I could have identfied this by simply drawing a triangle. But seeing the bands come together around the VWAP jumps out at me visually and 'speaks to me.' as Jim Dalton says ~"the human brain is particulary adept at identifying visual patterns" -- indicators are good but clearly only good in context.

Check this out... (first note that yes, my code is a bit flawed but I don't think by much since there is little movement here in the VWAP number so the numbers are not far off...) Look how my std dev bands compress and expand. This shows classic market behavior in that it is oscillating between 'balance' and being 'out of balance' -- a core market profile concept.... (this chart is using rolling 90-minute period for its std dev (45-period chart on a 2-min chart)-- its acting like a bollinger band does -- using rolling data -- but based on VWAP rather than a moving average). More interesting is look how price breaks lower out of the triangle/balancing and forms a classic 'bear flag' prior to breaking lower. I used to hate coils -- but the VWAP std dev bands show a market that is doing its thing -- coming out of balance then going back into balance -- then coming out again... knowing which environment you are in is crucial. you can see how the market shot out of the balance with a jolt down (it actually gapped). this was followed by a mini bear-flag which set up excellent location for a short... Yes, I traded this pattern today. http://bp0.blogger.com/_5h-SWVGx6Ms/RqfSmOvXa6I/AAAAAAAAAV8/W9MY6-aw6wk/s1600-h/July+25+ES+Coil+Break.bmp

Just awesome trading environment right now. Huge swings and clean patterns... This is an incredible 1600-tick pattern that set up this morning on NQ. Look at the follow-through here. Needless to say, I didn't catch most of this as I didn't manage to save a piece and play for big move (bad exit technique)-- but the entry was excellent... (Note that 1600t chart is similar to a 15-min chart but the 1600-tick chart is used for 24-hour pattern trading when volume is lower. I use both to scan for patterns... have found both to work). http://bp2.blogger.com/_5h-SWVGx6Ms/RqfGOuvXa5I/AAAAAAAAAV0/pmAAy0lrUo0/s1600-h/July+25+NQ+ABC+1600t.bmp here was my entry: http://bp0.blogger.com/_5h-SWVGx6Ms/RqfFPOvXa4I/AAAAAAAAAVs/AX0OywkaeB4/s1600-h/July+25+NQ+ABC+300t.bmp

<<Are you considering the parabolics on 2 min for exits ? they look very nice...>> Not usually, I generally just put limits out in pieces and see what fills and what doesn't. I like the CONCEPT of parabolics a lot (start with wider stop and exponentially move it closer as time passes). But I have found playing for # of ticks to work better... ie, play for 15-20 ticks with 15 tick stop. usually though, I will take 1/3 to 1/2 off after the first good push -- somewhere around 11/12 ticks... and exit other piece(s) on 2nd good push... today I entered and stopped for 15 ticks... it ran up another 26 ticks above that stop-out level -- then I re-entered and made 34 ticks back down... so on that 15-min I was 1-1 for +19 ticks....

ah yes, good point.. too bad that is a computation/coding nightmare...

<<I like to see this specific timing Dog... thanks Walter.>> I will try to post some more of those too. Specifics are indeed crucial to futures trading. Was just trying to re-iterate/explain my key point: short-term techniques ('trading tricks') generally are going to be a coin-flip without some analysis of higher timeframe 'structure'... but one without the other is kind of useless as you can't enter good reward-risk trades without the lower timeframe entry technique.

<<If you are going to use unweighted prices to compute SD, then use an unweighted average to compare it too. Be consistent. Don't compare apples to Oranges.>> I already do that with Keltner Channels and Bollinger Bands. I am looking for 'variation of price' around the point of 'value' (VWAP).... I am not looking for 'variation of volume-weighted price' around the point of value...

nickm, can I take a look at your code? personally, I like the comparison to 'bollinger bands' -- bollinger bands do not 'volume weight' each observation. yes, it does matter what volume traded where -- but it can also be argued that 'data outliers' are actually more important when doing statistical analysis -- even if they occur on less volume. but you can argue this either way... I think unweighted price versus VWAP_H could be a useful indicator...

<<same entry? buystop above last 2 bar high?>> Hi Bubba, I have played with lots of short-term entry techniques and currently have a few I select from. I try to find the one that seems to best capture the pattern I am trading but also has low risk... here is the one I used for that YM trade. http://bp1.blogger.com/_5h-SWVGx6Ms/RqU2u-vXa1I/AAAAAAAAAVU/nrQvUvwUoCk/s1600-h/July+23+ABC+Lower+Timeframe+Entry.bmp I like the '2-bar high' technique for NQ but not for YM. The focus of this thread is just to capture the higher timeframe pattern. The entry and stop technique you use are crucial for risk control but for me, these change over time depending on what is working and what isn't. If you are right on the pattern, it won't matter much what the lower timeframe entry technique you use -- but certainly, it is nice to get into a profit position soon after entering --- or take a small loss and look to re-enter.

<<Suppose you had just one VWAP value say at 12:30 and you wanted to know its variance. You would compute the difference between that value and all the old prices. Take the square of each difference and sum them up to get the unnormalized variance.>> right but when historically charting variance/std dev, don't you want the bands to show what the variance was relative to the distribution at the time of the 'price' reading. for example, lets say you wanted to plot the band that occured at 12:28 (1 bar before 12:30 on a 2-min chart)... you would then want the variance calculated through 1 bar ago, not the 'current' (12:30) VWAP... that is -- you want the distribution up through 12:28 (VWAP_H[1]), not the variance +1 period (the 12:30 VWAP_H) -- right?

<<Also each of the terms in the sum should be the same VWAP : value1= P1*square(C-VWAP) + P2*square(c[2]-VWAP) + .....>> this is not intutive to me... I would then be comparing the current vwap to old prices.. I am thinking about how bollinger bands work here and applying same concept. I am quite familiar with properties of bollinger bands so this is natural for me. bollinger bands compare the price to the moving average value that occured at the same time that the price occured. this is kind of like 'matching' concept in accounting. I do not know how to code it your way so will look for others for help. But this entire line of thinking is quite stimulating for new ideas.

thx Jerry, note that VWAP_H is hard-coded to already volume-weight for that side of the equation. I assume you are saying that I need to weight each 'price' observation by volume as well to be consistent? hmm, need to think about this more. can you post a chart of your ES 2-min chart with the bands for today? I would like to see how mine and yours compare as is... I have been using VWAP a lot lately and using my short-term trading techniques in conjunction with VWAP has so far been awesome -- and I will be thinking a lot about more ideas with VWAP. Look how NQ stopped just short of previous days VWAP again near 55.00 to offer a spot to look for a key reversal... this was sweet since my short-term entry techniques didn't signal a short until then anyway -- but gave extra confidence that this was actually typical behavior for the very volatile NQ contract.

<<Are you using the VWAP that is on tradestation boards ? and from there on aplying sd ?...>> VWAP_H is the code I am using -- Tradestation has this as a keyword. indicator can be written simply as: plot1(vwap_h,"vwap"); -------------- here is how I wrote Std Dev: first taking the squared difference of 'price' and VWAP_H and summing them: value1= square(c-vwap_h)+ square(c[2]-vwap_h[2])+... then taking square root of value1 gives you std dev, written in EL as: value2=squareroot(value1/n); where n is the number of periods... I just put it up on the tradestation forum to try to get some help: https://www.tradestation.com/Discussions/Topic.aspx?Topic_ID=66888 any help here would be appreciated...

working on my EasyLanguage VWAP Std Dev code (Tradestation)... gotta figure out the trick to how you do summation of all prices since the opening bar. if someone knows how to do this, please help out. here is what my ES chart looks like today: http://bp3.blogger.com/_5h-SWVGx6Ms/RqafxOvXa3I/AAAAAAAAAVk/quoPPnj8Z3I/s1600-h/ES+VWAP+Std+Dev+Bands.bmp

Abe, you probably won't listen... but just be aware that you are acting in self-destructive mode by trading in something you do not understand at all.... it takes 9-12 months of intense study for most traders to do anything more than breakeven. if you want to learn, I would suggest trading 50 shares of DIA (the etf)... it will track the futures and print the same patterns -- albeit it won't be as clean -- but you will not be able to lose -$500 in a day doing this and you shouldn't really by trying to make money yet.. you should be trying to break even. once you have a single profitable month of trading, then maybe raise the stakes a bit. after a few months of trading, you will realize how little you know right now. you will be pissed about how much money you just gave away during this time. a dollar saved is a dollar earned. realize that you are entering something this is just extremely complex and dynamic. if you want to learn, do it on the super-cheap for at least the first 9 months --- you have probably a year before you have a chance to actually make money.

15-Min ABC-up forms pattern that sets up large move down.... just an awesome day today: http://bp3.blogger.com/_5h-SWVGx6Ms/RqZM0OvXa2I/AAAAAAAAAVc/2TPVjWzT75w/s1600-h/July+24+ABC+Pattern.bmp

Jerry, it looks like a 2-minute chart, is that right? also, just to clarify -- the std dev is for all closing 2-min bars that day vs all respective 2-min VWAP closing values for that day?

hi Abe, man, you sound down. believe me, I have been there. we have all been there. first off, I almost never turn on CNBC and I almost never care what the fundamental news is -- I only care when the news is coming out -- not what it is. my belief is that short-term trading is best left independent of fundamentals. fundamental investing works -- but it works over longer-term periods. don't bother trying to trade short-term by interpreting fundamentals 'better' than others. I quote my favorite trading book of all time: "Your biggest enemy in trading is going to be a directional bias, an opinion... Learn to concentrate on the 'right-hand side' of the chart - in other words, on the pattern at hand." re fundamental news: "Logical thinking will lead you right to the poor house.... There is no trading edge whatsoever in trying to base decision on what the market should logically be doing. In fact, the more logical something is, the more likely you will lose when the market is moving the opposite direction of the prevailing logic." Street Smarts by Rashke

Have been getting 1 of these per day lately... http://bp2.blogger.com/_5h-SWVGx6Ms/RqUFlOvXa0I/AAAAAAAAAVM/aX87v2IHiXg/s1600-h/July+23+ABC+Pattern.bmp