Trading with Market Statistics VI. Scaling In and Risk Tolerance

[jperl 11]

In [thread=2130]Part V[/thread] of this series on trading with market statistics (click here for Parts[thread=1962] I[/thread],[thread=1990]II[/thread],[thread=2008]III[/thread], and [thread=2101]IV[/thread]), I posed the question in the video about what TRADER should do if upon entering a trade at the 1st SD, the market should move against him. I suggested that based on the data given there was only 1 correct answer. That answer we will now discuss in this thread.

 

Before we address the answer, we need to discuss a related topic called risk tolerance. First what risk tolerance is not. It is not a stop loss that you set for each trade based on some support or resistance point you arbitrarily choose on the price chart. More often than not, this kind of stop loss is in the wrong place. These stop losses are not based on market volatility, but rather on some price point that "looks like it ought to hold", usually some local minimum (for long trades) or local maximum (for short entries). That they are wrong probably accounts for the large number of losing trades that new traders have. Unfortunately, most trading books tout these stoploss points as if they are written in stone. Phrases like, "you should only enter a trade such that your reward/risk ratio is 2:1 or greater" forces the trader to choose a stop loss which has nothing to do with the known volatility of the market.

 

So what should you as a day trader do about stop losses? Well for starters, you should set a "system stop". This is an in the market hard stop far from your market entry which protects you in case of system failure (eg, your computer crashes, you cable modem dies, you lose electric power in your neighborhood, etc.). It has nothing to do with the trade itself. Any other stop you wish to use you keep in your brain as a mental stop.

 

And where is this mental stop? Your mental stop should initially be a percentage of your account. Typical values bandied about range anywhere from 1% to 2% of your trading capital. So if you have a 50K account, you should be willing to risk up to 1K on every trade. The mental stop is flexible, it won't increase, but it certainly can decrease depending on the price action. For example if the price action makes the trade profitable, your mental stop can become a hard trailing stop.

 

TRADER is now about to have a second epiphany. He is about to realize that by using risk tolerance instead of some fixed stoploss, he will be able to scale-in to a trade and not feel any angst about it, if the scale-in is within his risk tolerance limit.

If it is not within his risk tolerance, then he should not have entered the initial trade to begin with. TRADER should always have a plan to either scale-in or to reverse a trade (to be discussed in a future thread), and the scale-in price should be a point where he could have taken a trade in the first place.

 

Risk tolerance and scaling in may make you feel queasy, because it requires a paradigm shift in your thinking about what trade management is all about. It is not about setting fixed stoplosses and profit targets and then sitting back and watching. It requires your active participation. Like the baby bird who is kicked out of the nest and told by its mother to either fly or die, if you are losing money from stoplosses and your account is slowly bleeding, you need to find a better way.

 

 

Now that our trader has some idea about risk tolerance, what does TRADER do when after his 1 contract entry at the 1st SD, price action takes the market backup to the VWAP rather than down to the 2nd SD? In the old paradigm of using fixed stoplosses, he probably would have been stopped out. In the new paradigm of replacing stoplosses with risk tolerance, you know what he has to do! He's done it many times before. The market is still skewed to the downside, he normally takes short entries at the VWAP. So why not this time? Indeed why not? TRADER pulls the trigger a second time and enters with a short at the VWAP because he knows that his risk tolerance is still quite large. He is now 2 contracts short. This is called scaling in. His expectation at this point is that the market will move back down to the 1st SD. Is this a reasonable expectation? Yes! Nothing about the volatility has changed. The SD is still where it was before the 2nd entry and that's the measure of volatility. Nothing's changed. TRADER should feel confident in pulling the trigger a second time. He is going to actively manage this trade. He still has a mental stoploss at his risk tolerance level. Where is his profit target? He has three choices now that he is short 2 contracts: 1) He can take 2 contracts off the table when price action hits the breakeven point-1 tick, 2) take 1 contract off the table at the break even point-1 tick and the 2nd contract off at the 1st SD, 3) hold both contracts and exit at the 1st SD. In all cases he ends up with a profit instead of a loss. Watch the video and see how TRADER manages his trade.

 

Scale-in Video

 

What TRADER did in the video is of course controversial (For previous discussions on this topic see the thread "Doc, my passion gives me much stress" beginning at post 13916 where Dogpile expounds upon his firm belief in hard stops and my response. Also the discussion in the thread[thread=1941] "Scaling In and/or Out"[/thread] where I discuss the difference between scaling in and averaging down (or up for short trades) beginning at post 13142.

 

Controversial or not, it is my firm belief that a trader needs to understand what scaling-in is all about. I personally didn't become profitable until I understood this and I use it as one tactic in my trading arsenal. If stoplosses are bleeding you, then consider this new paradigm.

NQscale_inJuly25.swf

[jperl 11]

If you have followed the details for scaling in, you should be able to answer the following questions. Take a shot at them and post your answers here

 

1)Assume your account is 50K and that you have a risk tolerance on any trade sequence of 2% of your account including commissions. A trade sequence is a group of related trades involving scale-ins and scale-outs and/or reversals (which we haven't discussed yet).

Let's say you trade the Emini Russell 2000 index futures where 1 tick is worth $10 (0.1 points) and your roundtrip commission/contract is $5.00. You enter a 1 contract trade long at the 2nd SD, but the market moves against you back down to the 1st SD where you scale-in another contract long. The market is relentless and it continues to move down to the VWAP where again you scale-in an additional 2 contracts long. Again the market continues it relentless move down. You finally hit your risk tolerance at the 1st SD below the VWAP, so you exit your entire trade and are flat.

 

Question: What is the value of the SD in ticks?

 

2)When you scale-in at the VWAP in the above scenario, the market finally rotates and starts moving back up. You exit the entire trade at break even +1 tick.

 

Question: Where is your break even point including commission measured in ticks above the VWAP?

How much money did you make on the trade?

 

If you were able to answere these questions without too much difficulty, then you are ready to become a full time trader with all the rights and privileges granted thereto. You are also ready for [thread=2232]part VII[/thread]

[dbntina 10]

I will reply while I have a minute:

 

50K Account

2% risk = 1k

1K = 10pts

4 contracts commission = .2 pts

Point risk = 10-.2 = 9.8

 

1) Let x = value of SD in ticks

 

Loss at 1sd below VWAP for long:

 

9.8 points = 1 * 3x + 1 * 2x + 2*x

ANSWER to #1

x = 1.4pts or $140 risk/contract/SD

 

2) Exit at breakeven + 1 tick

 

What is total loss at VWAP?

 

2nd SD entry = -2x = -2.8pts

1st SD entry = -1x = -1.4pts

VWAP = 2(0) = 0 pts down

 

Now you have 4 contracts and you are down 4.2pts

add in .2pts for commission to get be pt total = 4.4pts

 

Let x = the number of pts you need to get to b/e

 

4x = 4.4

x = 1.1points above VWAP to b/e on 4 contracts

 

An exit 1 tick above b/e would give you .1 pts on all 4

so .4 points = $40

 

Hopefully that is correct, so it needed to move less than

1 SD for you to b/e. SD is 1.4 pts and b/e + 1 was 1.2 points.

 

Jerry, I really am learning alot. Totally different from all the books

courses, systems and everything I have been taught. Very interesting. Although I am still in a quandry as I realize now that I can't follow along without having PVP on my charts. On that side it is a little discouraging as I am really short on time to develop a volume distribution indicator at this time.

 

One thing I like...it allows you to profit in 2 out of 3 scenarios:

 

1) The market moves your direction right away

Dont make as much money as you have 25% of a position on

relative to a loss where you have 4 contracts on

 

2) The market moves against you (1 or 2 SD's)

You make money and you could have 50% to 100% of position on

 

3) The market moves to opposite side of SD and you get stopped

And it really hurts because you lose on average alot more than

you make when you are correct

 

I love your ideas you are presenting but it seems the risk reward in my terms that I am used to thinking about will really hurt when you do get stopped out.

 

Thanks for sharing a new way to approach the markets,

 

dbntina

[Nvesta81 10]

Hey Jerry, pardon my laziness to look back older threads but did you ever mention how you familiarized yourself with this method? Is it of your own creation, or did you learn it from somewhere? Any books or reading material available on the subject? I am very pleased that you are helping us with this invaluable knowledge, thank you so much!

[Dogpile 10]

jerry, was curious if this is true or false:

 

given your assumption that SD will be generaly understated for any skewed distribution and therefore trading at the +1/-1 SD level will generally be profitable since it will be likely to go 2 SD's (if skewed) enough times to offset your stop outs... then would it hold that every tick closer FROM +1.0/-1.0 StdDev TO the VWAP is superior location to the point of exactly +1.0/-1.0 Std Devs... seems intuitive that this would be the case and if so, it begs the question why trade necessarily at the +1.0/-1.0 std dev... if any entry superior to that level is also expected to be profitable then there is something to be said for improving location relative to that level through some technique/filter that adds a little value to that, ie X ATR's better than the +1/-1 Std Dev price where X can probably be calculated through back-testing to give you the most number of trades that are still profitable enough to offset the extra variance they create.

 

I got the sense that you were just trying to increase the number of trades and picked +1/-1 std dev as a number that seemed to have some logic to it. but I didn't 'get it' if there was another reason why this price was important. you did say 'for any arbitrary distribution...' so I assumed you were saying that the expectation is for an artitrary distribution to develop and you have no expectation as to how it gets there -- such that VWAP price is superior to +1/-1 std dev and +1/-1 std dev is superior to +2/-2 std dev's and therefore; (-1 std dev + 1 ATR) would be superior location for say, a short, than; (-1 std dev), is that right?

 

if I am not right about the above assumption, can you explain why that is?

[dbntina 10]

Sorry this isn't directly on topic but for Tradestation users who are trying to follow Jerry's methodology I have a question.

 

I have coded the VWAP, SD bands and PVP on a tick by tick basis on a 1 Tick chart. I was thinking I could simply hide the 1 tick chart and plot the indicators on a 2 minute chart and everything would be cool...problem is that it gives me an error "Tick and Volume intervals cannot be used in a mult-symbol chart".

 

Does anyone know of a way around this to plot the data gathered from the 1Tick to plot on a minute chart? There has to be a way around this. Maybe creating a function and access...I don't know just thinking out loud...like I said I am new to the functionality of TS and need help.

 

I will post for all TS users for free if we can get this thing figured out.

 

Thanks...and sorry to but in on the thread but though this could help TS users follow along.

 

Any help is appreciated. This should be the fix that NICK was pointing out for accuracy in the indicator thread.

 

dbntina

[traderlu 10]

Does anyone know of a way around this to plot the data gathered from the 1Tick to plot on a minute chart? There has to be a way around this. Maybe creating a function and access...I don't know just thinking out loud...like I said I am new to the functionality of TS and need help.

 

dbntina,

 

you may want to look into the All Data Everywhere (ADE) DLL/function set on the tradestation forums. Apparently, it allows you to send receive data from chart to chart, without the time/tick restrictions you mentioned. I haven't had time to delve into it myself, but I think it's exactly what you're looking for. Here is a link to the ADE FAQ on the tradestation wiki:

 

https://www.tradestation.com/wiki/pages/viewpage.action?pageId=8975

 

Hope it helps.

 

-Luis

[darthtrader 10]

TRADER should always have a plan to either scale-in or to reverse a trade (to be discussed in a future thread), and the scale-in price should be a point where he could have taken a trade in the first place.

 

Jerry, I'm a little confused by this part. Maybe it would have to do with going reverse on the trade but say in that example you had waited until price had gone back to the wvap to even start the trade. Wouldn't you have not scaled in at the vwap and put on your full risk tolerance right away since that will be the highest probability trade you can get? I also don't see where above the wvap you would even want to scale in since if price had gone up to the pvp would'nt you have used that as your system stop?

[jperl 11]

I love your ideas you are presenting but it seems the risk reward in my terms that I am used to thinking about will really hurt when you do get stopped out.

 

Thanks for sharing a new way to approach the markets,

 

dbntina

 

Good show on the computation dbntina and your analysis of the outcomes for various trades.

As far as risk/reward, think of it as how much does it realy hurt if it only represents 2% of your entire account vs. how much you are hurting if you take multiple stoplosses. To get stopped out in the scenario that is described, the market would have to move 3 SD without a rotation against the skew. You can avoid a chunk of that by not taking trades at the 2nd SD, expecting a move to the 3rd SD, not a high probability trade.

[jperl 11]

Hey Jerry, pardon my laziness to look back older threads but did you ever mention how you familiarized yourself with this method? Is it of your own creation, or did you learn it from somewhere? Any books or reading material available on the subject? I am very pleased that you are helping us with this invaluable knowledge, thank you so much!

 

Except for basic ideas concerning statistical analysis which you can find in wikipedia there are no books or reading material describing what I've posted in these threads as it relates to intraday trading. It's all new stuff that I've developed over the years. I thought it would be a good idea to present it somewhere. There is also a short description of where I'm coming from in post 15717.

[darthtrader 10]

then would it hold that every tick closer FROM +1.0/-1.0 StdDev TO the VWAP is superior location to the point of exactly +1.0/-1.0 Std Devs... seems intuitive that this would be the case and if so, it begs the question why trade necessarily at the +1.0/-1.0 std dev... if any entry superior to that level is also expected to be profitable then there is something to be said for improving location relative to that level through some technique/filter that adds a little value to that, ie X ATR's better than the +1/-1 Std Dev price where X can probably be calculated through back-testing to give you the most number of trades that are still profitable enough to offset the extra variance they create.

 

Dogpile, I think I burned out a few neurons reading this over and over trying to wrap my head around it. :cry:

I think you do have a point there though. The first part has to be correct.

Then if price is between the vwap and +1.0/-1.0 std dev, price never goes back to vwap so you wait for price to get back to +1.0/-1.0 std dev and then put on the trade in that same direction you obviously have not got in at the best point all else the same.

In your example what would you actually backtest X for though? Would that be the number of atrs away from std dev/vwap that have occured the most over Y time? That would then be an entry point to also watch for all else the same?

[Dogpile 10]

its hard for me to relate to this 'scaling in' thread given the example in the video. the location of the initial short is just a location I wouldn't ever consider shorting NQ -- and I trade NQ every day. I am not saying this method isn't profitable, just that personally -- I place a premium on having good trade location and use a hard but reasonable stop against that -- then often re-enter if I believe my initial read was correct and my stop just wasn't wide enough. I can see the logic in your approach Jerry but I just don't think that is optimal trade location -- hence my question above.

[dbntina 10]

Darthtrader...I was LMAO at your comment.

 

I remember reading Dogpile's post and thinking "I used to think I was semi-intelligent but know I realize I can't even follow/understand this line of thinking".

 

I guess it's probably because my trading iq on trader's laboratory is only like 5% so I will have to hang around until I catch on.

 

Anyway...that was funny.

 

Luis thanks for the info, I will check out ADE and see if I can't get that to work, then I will post the code...actually I will probably send it to Nick and a few others to check it out before posting to make sure it is accurate.

 

dbntina

[Dogpile 10]

darth,

 

I got sidetracked and meant to clean up/clarify that question -- it was pretty murky. lol.

 

My question was born out of seeing the example and not being at all comfortable shorting in the spot that this method (-1SD) shorted -- the initial short in the video. NQ will often make its high or low for the day before 11am EST then trend the opposite direction all day -- in fact it did that today. again, I am not saying jerry's method isn't profitable --- its just hard for me to relate to this particular example.

 

I was thinking just that;

VWAP is better 'location' than 1SD

and 1SD is better than 2SD

-- therefore 0.80 SD's is better than 1.0 SD.

 

the only reason NOT to wait for VWAP is because you are looking for incremental opportunities as it won't always get back to VWAP. Thus, you are passing up 'positive expectation' by NOT trading at 1 SD. but there should be a point between 1SD and VWAP that is more optimal than exactly 1.0 SD. Was just curious if this was correct to think like this or is there some other factor that I am just not 'getting'.

[jperl 11]

jerry, was curious if this is true or false:

 

given your assumption that SD will be generaly understated for any skewed distribution and therefore trading at the +1/-1 SD level will generally be profitable since it will be likely to go 2 SD's (if skewed) enough times to offset your stop outs... then would it hold that every tick closer FROM +1.0/-1.0 StdDev TO the VWAP is superior location to the point of exactly +1.0/-1.0 Std Devs... seems intuitive that this would be the case and if so, it begs the question why trade necessarily at the +1.0/-1.0 std dev

 

You are quite correct here Dogpile. If a move from the VWAP gives the smallest SD (and thus lowest volatility), then trading at a price just above the VWAP (in the case of positive skew) should have higher volatility and should be a superior location for a trade in the direction of the skew. I thought to myself that this should be correct, but then realized that the probabilites for continuation in the skew direction is declining the further you move from the VWAP, which offsets the higher expected volatility. Exactly where the "balance point is" I don't know. I decided not to pursue this because there other interferences which I call HUP which are virtually impossible to include in a more general computation. HUP will be discussed in a future thread.

 

 

I got the sense that you were just trying to increase the number of trades and picked +1/-1 std dev as a number that seemed to have some logic to it. but I didn't 'get it' if there was another reason why this price was important.

 

You are correct here. The SD is a reference point rather than a point fixed in cement where you have to take a trade. When we discuss HUP in more detail in a later thread, you will see that more often then not, the entry for the trade is offset from the SD by the HUP. This can get quite complicated, so I don't want to get ahead of myself in a discussion of it here.

[jperl 11]

Jerry, I'm a little confused by this part. Maybe it would have to do with going reverse on the trade but say in that example you had waited until price had gone back to the wvap to even start the trade. Wouldn't you have not scaled in at the vwap and put on your full risk tolerance right away since that will be the highest probability trade you can get?

 

Good question and good observation darth. Here's the problem.In a short, if price is already below the 1st SD, (or above the 1st SD in a long) the probability of it returning to the VWAP diminishes with every tick that it moves down. Thus if you expect to take a trade at all, you have to find another entry point, since price may never return to the VWAP. You could of course develop a trading style in which you only take VWAP trades, but you may have to wait a long time for an entry. The 1st SD is then the next best entry target.

 

 

I also don't see where above the vwap you would even want to scale in since if price had gone up to the pvp would'nt you have used that as your system stop?

 

Yes, if you enter at the VWAP, scaling in becomes dangerous. At the PVP, other things can happen which we are going to cover in the next thread. Scaling-in there or at the next SD becomes a touchy situation, definitely not for newbies. Advance traders might do so, but can easily get caught with there pants down (as I did today, but I didn't lose my pants, only my shirt).

[Dogpile 10]

let me just make a point that I didn't initially get but explain it another way than the way Jerry did initially since it helps me to understand it if I try to explain it a different way anyway. (please correct anything that is wrong here).

 

the premise of this strategy is that for any non-normal (skewed) distribution, standard deviation will understate the 'true' volatility. thus, 2 std devs is not as far away as you might first think by the std dev calculation (ie, 2 std devs means something different if the the distribution were instead 'normal' -- normally distributed). we have observed many cases where price will not return to VWAP -- despite VWAP serving as the 'mean' for the distribution in the std dev calculation.

 

thus, for a skewed distribution -- you can kind of think as 1 SD as the 'new mean' (though that term 'mean' probably isn't right -- just think of it as a new potential 'pivot' since price might very well not return to the VWAP price) -- and price should be expected to rotate between the VWAP and 2 SDs (or more) -- the price pivots that are above and below 1 std dev. and if price doesn't do what is expected --- then many times you will be exiting since the PVP might have changed -- or price will trade down far enough away from VWAP just due to pure volatility to allow you to get out.

 

so skewed distributions are kind of funky -- you are using VWAP in the calculation as you would the 'mean' -- but it really shouldn't be thought of as the mean.

[Dogpile 10]

btw, until we figure out the PVP code -- I am using a screen like this -- call it poor man's PVP -- 2 windows side by side with font shrunk down to '5' (times new roman)

[darthtrader 10]

First Dogpile, I'm a total newb. Please don't take anything I say on here as rhetorical. That first part was ment to be funny because it was pretty true as a newb. Does that second part of my response make any sense? I think what you said make sense but would like to know how you would back test such an idea.

 

Good question and good observation darth. Here's the problem.In a short, if price is already below the 1st SD, (or above the 1st SD in a long) the probability of it returning to the VWAP diminishes with every tick that it moves down. Thus if you expect to take a trade at all, you have to find another entry point, since price may never return to the VWAP. You could of course develop a trading style in which you only take VWAP trades, but you may have to wait a long time for an entry. The 1st SD is then the next best entry target.

 

honestly, since I'm newbie enough to not have a paradigm to shift your stuff just makes sense. Thats why I asked in another thread about finding 4 uncorrelated markets and then just take trades at the vwap(with one contract). Surely, that wouldn't be the most bold strategy but it would at the least keep me from over trading and have the best probability. The biggest thing I have to ask though is should i start out with a really small account, play only 1 car at vwap over 4 markets or wait until i have more capital to be able to scale over a single instrument? or even wait to scale over 4 instruments?

Basically, if you were to start over trading, what would you do??

[darthtrader 10]

I think it would also make sense to make a TS thread for the easylang stuff that is needed to get Jerry's tools into TS. It doesn't make sense for everyone to be doing their own version.

Surely, I'm a bit biased here though since I have no clue how to program this stuff, heh.

[jperl 11]

Talking about burning out neurons, let me see if I can tackle this one from Dogpile:

 

the premise of this strategy is that for any non-normal (skewed) distribution, standard deviation will understate the 'true' volatility.

 

Sorry Dogpile, but this is just plain wrong. The standard deviation computation IS the true volatility, for the distribution in question, no matter what the shape of it, normal or otherwise.

 

 

thus, 2 std devs is not as far away as you might first think by the std dev calculation (ie, 2 std devs means something different if the distribution were instead 'normal' -- normally distributed).

No, 2 std devs doesn't mean anything different. It's just that most people exposed to statistics, have only seen the normal distribution and think the whole world revolves around that (I guess that's why its called "normal"), so they think that 2 SD should always represents 95% of the data for any distribution. The normal distribution,however, is not the center of the statistical universe. There are more different types of distributions than you can count on both your fingers and toes. Academicians have been trying to pigeon hole the type of distribution that markets follow for years. The closest they've come is something called the Pereto-Levy distribution which I don't want to discuss here since it really doesn't have any practical significance for trading. The point is, no matter what the distribution function looks like, the standard deviation is computed in exactly the same way for all of them. How much of the data this represents will of course be different depending on the distributions shape.

 

 

we have observed many cases where price will not return to VWAP -- despite VWAP serving as the 'mean' for the distribution in the std dev calculation.

If you are thinking here that the VWAP is some psuedo mean then that's not correct. The VWAP IS the exact mean for the volume distribution. For any finite distribution of arbitrary shape, you can calculate the mean in exactly the same way.

 

thus, for a skewed distribution -- you can kind of think as 1 SD as the 'new mean' (though that term 'mean' probably isn't right -- just think of it as a new potential 'pivot' since price might very well not return to the VWAP price)

 

Ok, just don't call it a new mean. I've already given it a name. It's called HUP. We will discuss the meaning of HUP and pivots in a later thread

 

 

so skewed distributions are kind of funky -- you are using VWAP in the calculation as you would the 'mean' -- but it really shouldn't be thought of as the mean.

 

Wrong on both counts. Skewed distributions are funky to you, because you are not used to them, but they have been around a lot longer than any of us have been on this planet.

And once again, the mean for a finite skewed distribution is well defined.

 

The VWAP is as mean as they get. lol

[Dogpile 10]

yes I meant that you shouldn't think that 95% of observations should be within 2 std devs if the distribution is skewed -- I should have said that rather than saying 2 std devs is different in its own right. clearly, I am not up to speed on the properties of skewed distributions so this isn't intuitive to me.

 

instead of saying:

 

the premise of this strategy is that for any non-normal (skewed) distribution, standard deviation will understate the 'true' volatility.

 

is it right to say,

 

the premise of this strategy is that for any non-normal (skewed) distribution, you would expect far more observations to fall 2 std deviations away from the mean than you would if the distribution were normally distributed.

 

??

 

re mean and VWAP --- most people used to something like a moving average would expect regression to the mean. but we have stated that this is not necessarily the case with regard to VWAP. thus in this case, 'mean' doesn't mean the same thing as 'mean' -- as in 'regression to the mean'.... or at least, regression to the mean would not be expected until the skew of the distribution changed.

 

on first read of your reply, it looked like I really didn't understand this at all. but now when I think about it -- what I said was not technically correct but the trading implications weren't far off -- assuming this post here is correct.

[jperl 11]

its hard for me to relate to this 'scaling in' thread given the example in the video. the location of the initial short is just a location I wouldn't ever consider shorting NQ -- and I trade NQ every day. I am not saying this method isn't profitable, just that personally -- I place a premium on having good trade location and use a hard but reasonable stop against that -- then often re-enter if I believe my initial read was correct and my stop just wasn't wide enough. I can see the logic in your approach Jerry but I just don't think that is optimal trade location -- hence my question above.

 

Well Dogpile, I wish I had traded NQ today instead of ER. There were at least four good long entry points including 1 scale-in point. In all trades, the VWAP was above the PVP, so distribution was skewed to the upside as you can see in each of the charts below.

 

Here are my NQ charts

 

#1 Enter long at the VWAP 1933.50, exit at 1st SD 1938.25 profit 4.75 pts

 

 

#2 Enter long at 1st SD 1939.75 exit at 2nd SD 1945.75 profit 6 pts

 

 

#3 Enter long at 1st SD 1943.75

Scale-in at VWAP 1937.25 giving Break even at 1940.50

exit at 1st SD 1944.00 or higher profit 7.00 pts

 

 

 

#4 Enter at 1st SD 1945.00, exit at 2nd SD 1952.00 profit 7.00 pts.

 

Total profit for the day 24.75 pts

 

Pretty good I'd say using just simple statistics.

[Dogpile 10]

nice. yes well today was quite a different set-up than July 25th (the day of the video). I could list all the ways it was different but I know you don't really care.

 

I did watch the PVP/VWAP relationship at times today and did factor this in as a slight (long) bias to my thinking -- I did make about 10 pts on NQ today. I should have made more but got sidetracked with thinking that the market was going to have a tougher time than it did with all that previous congestion/resistance from last week.

[darthtrader 10]

comeon guys, save this stuff for last....so over the head of who is following this so far.

HUPS and market rotation theory next??