Putting a Few Things Together . . .

[BlueHorseshoe 10]

I thought it might be useful to see what the concepts shared by three others on TL might have in common (this is my interpretation, and isn't endorsed by any of them!).

 

All three are vendors (or have been), but all three have put lots of useful stuff into the public domain.

THE RUMPLED ONE

 

"All you need is a HORIZONTAL LINE on your chart"

 

The latest posts on TRO's thread suggest trading in the direction that price leaves the 'wick' of the prior day's candle.

 

Everything between the high and low is where someone was willing to "do business" yesterday. But not much trade is likely to have been done in the area that becomes the wick because by the close of the session traders were unable to sustain interest and find counterparties at these levels.

 

How is this reflected in what happens in today's session?

 

If we move from the wick into the body of yesterday's candle then this suggests that the valuation of the market is little changed from yesterday - most trade is being done in the area where most trade was done yesterday - yesterday's valuation of the market is being accepted in the today's session

 

If price moves above yesterday's high or below yesterday's low this suggests that the market may have revised the valuation of what constitutes a "fair" price.

 

All of this is only going to give a very vague picture because it tells us nothing about how much trade was done at each area of price. Maybe lots of business was transacted at each of the high and the low, and very little in the body of the candle?

DB PHOENIX

 

"If you can draw a straight line"

 

DB's threads have always placed an emphasis on understanding Price Action in terms of Supply and Demand.

 

Lines needn't be horizontal, but can be diagonal to reflect the dynamics of price change.

 

But the key idea is the same. Yesterday there was no demand from buyers at prices above the high. Quite literally, nobody was willing to do business above that price.

 

So, if they're willing to buy above that high today, then the market's valuation of "fair" price may be changing.

 

One key insight from DB seems to be that the blocks of price action you pay attention don't need to be constrained by daily divisions. Areas of consolidation are obvious on charts, and may not respect the arbitrary start and end of a cash session.

 

This goes some way to addressing the difficulties of the TRO wick approach.

 

ELECTRONIC LOCAL

 

"Market Profile for context, bar chart for timing"

 

Market Profile tells you how much volume was transacted within a daily candle. It also tells you where the bulk of trading took place - between the VAL and VAH.

 

Think of this in terms of a candle - everything between the VAL and VAL is the body of the candle, everything between the Low and VAH is the lower wick, and everything between the VAH and High is the upper wick.

 

Very little business was done within these wicks, so you can imagine that once price accepts value within the wick, the market's valuation is changing from yesterday.

 

You get two horizontal lines, and they should tell you something meaningful about how the market is valued versus how it was valued yesterday.

 

SYNERGY

 

This is not a strategy or trading system.

 

What happens if you just try and and buy breakouts from these levels? You'll get whipsawed. What happens if you try and fade these levels? You'll get whipsawed.

 

For this information to be useful you will still need an entry and exit strategy that has an edge. When the market begins to re-evaluate "fair" price, you'll still need a specific methodology to manage your trades. All the lines could do is give you a bias . . . "There's plenty of business being done at higher prices than yesterday - maybe the consensus is that the market should be valued higher today - maybe the next time I get a long entry signal I should take it?"

 

Hope that's all a helpful synthesis of the thoughts of others, and proves useful to someone.

 

Kind regards,

 

BlueHorseshoe

Edited April 16, 2014 by BlueHorseshoe

[BlueHorseshoe 10]

Okay, so with regard to the post above, take a look at the attached screenshot for yesterday . . .

 

Price rejects the VAL (this doesn't mean it appears to bounce off it, but that it actually does bounce off it, registering a higher high).

 

It climbs to the VAH (several opportunities to get long during that after the higher high). Then it begins to sell off (Did you really know what was happening in real-time there? I didn't - I just watched it until it came back through the VAL). Once it came down through the VAL then there's good opportunity to short. This is below the "2 Sigma" area where most of the prior day's business was done (only about 2.2% of yesterday's trade was done in the area into which valuation has now progressed).

 

So how do you do it?

 

That's up to you. If you're aggressive you start shorting as soon as it starts to head lower (could be something as simple as "as soon as I see a down bar").

 

If you're more conservative you might wait for a break of the prior swing low (I like this - those who got long in the upswing anticipating a bounce will most likely have their stops situated around this low - your short trade should get kick-started with a stop run, and if there's no follow-through you'll have a couple of ticks to play with to hoick your stop to breakeven).

 

You might have some kind of supply/demand or support/resistance line that you would like to see broken. You might have some purely discretionary read on momentum, or watch the DOM for order flow . . .

 

Disclaimer: I don't daytrade a live account with real money. Like you (maybe), I'm still working on sussing all this daytrading stuff out.

Edited April 16, 2014 by BlueHorseshoe

[BlueHorseshoe 10]

Here is a post with my actual entries (in SIM) from yesterday marked in white.

 

Why is this in SIM? I don't pretend to be any better than you. I've spent years (the last 36 months or so my swing trading has gone well) trying to get a handle on daytrading. It's difficult. It requires a bizarre combination of statistical bias and discretion (computers just don't do 'context').

 

If everyday was like this I would be in clover . . .

 

If you can improve what I do then I very much welcome your suggestions!

 

I'm trying to share where I've got to so far . . .

 

Kind regards,

 

BlueHorseshoe

[jpennybags 11]

Blue,

 

Could you explain more about the charts you are posting? What you are trading (not that it matters all that much), time frame, indicators, and such...

[BlueHorseshoe 10]

Blue,

 

Could you explain more about the charts you are posting? What you are trading (not that it matters all that much), time frame, indicators, and such...

 

Sure - I had avoided the details for fear of people getting bogged down in them, but they may be helpful . . .

Symbol is @TFm14

 

9 Tick Range Bars

 

The grey lines are the VAH and VAL from the prior day's trading (see opening post).

 

Up bars are painted green only if they follow another up bar; down bars are painted red only if they follow another down bar - this helps to highlight periods of momentum

 

Dots identify periods in which price action diverged with volume (eg a bar that closes higher despite greater volume on the bid than the ask) - these often signal turning points.

 

6 Period CCI - this allows me to judge the depth of a pullback relative to prior price action (you'll notice that trades 2 & 3 ignored this - seconds after the open I was counting on momentum to carry these trades).

 

Histogram shows volume delta for that cash session. I look at how this changes between price swings to try and identify places where other traders may have become trapped in losing positions - then I try and piggyback the run on their stops.

 

The bottom pane is kind of like an idiot's version of auto-correlation. All it tells me is what percentage of bars were followed by a second bar closing in the same direction - the market's ability to produces short term trends. An MA has been applied - ideally I want to see the percentage line above 50 and above the MA - that's what strong trending sessions look like.

 

Finally, you'll note that my actual entries in SIM (the white arrows) do not mirror the 'ideal' hypothetical ones I marked on the first chart.

 

Anyone got any thoughts about this or want to discuss? There are plenty of you on here daytrading . . .

 

Kind regards,

 

BlueHorseshoe

[jpennybags 11]

This may be a far too simple question, but why not enter at the yellow arrows and choose your exit somewhere in the yellow boxes? A simple MACD crossover system actually trades well on the TF most days (when there is volatility in play).

[BlueHorseshoe 10]

Yesterday's chart (below) shows this same concept - "all you need is a horizontal line".

 

The market tested both extremes from Thursday's very sideways price range, and then buyers became willing to do business at higher prices above the 1126 line. Where anyone would enter this move would depend upon their individual entry method.

 

The precise location at which you draw your line in the sand probably isn't too important - the VAL/VAH method here just relates to how the prior day's volume was distributed, but simply using the prior day's high (as per the TRO 'wick' method) would have worked just as well.

 

What's best to do - try and hold through a move like this (at a hypothetical very best there, you'd net $1000 per contract), or try and keep smaller bites at high probability points as it climbs higher? This is the question that JPennybags seems to be raising.

 

I'm guessing that most exchanges are observing some kind of holiday today?

 

BlueHorseshoe

[jpennybags 11]

This is the question that JPennybags seems to be raising.

 

BlueHorseshoe

 

My own trading style was constructed around being able to trade chop and a range bound market. It's also somewhat of a product of "me" dealing with "myself". It makes me "freaking nuts" watching 6 turn into 3 waiting on 9. Though I have begun to question my methods, as I leave a lot on the table.

 

It seems that the earlier the entry, and the longer you are willing to hold makes a difference in what you are able to drag off at the end of the day. This also involves more risk. Risk of the early entry, and risk of giving back profits... "a bird in hand is worth two in the bush".

 

I enjoy what I do... the methods I've assembled. Certainly, I do alright. I do question if I couldn't be enjoying a bigger cut if I held trades longer...