Trading with Market Statistics VII. Breakout Trades at the PVP

[jperl 11]

is it fair to say that PVP is really a proxy for peak volume area? I mean, if you have a cluster of huge volume in one area -- but the PVP happens to be slightly higher in another area, it would seem to me that the cluster of huge volume is more important than the particular PVP... is that right?

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.

[Soultrader 12]

Hi Jerry,

 

How did you determine the breakout would be to the upside when the 4 bars back hit the high around 13230ish. I would usually consider that a flush and would have a hard time playing that particular breakout trade. Also, what timeframe are you using in your videos? Thanks

[jperl 11]

Hi Jerry,

 

How did you determine the breakout would be to the upside when the 4 bars back hit the high around 13230ish. I would usually consider that a flush and would have a hard time playing that particular breakout trade. Also, what timeframe are you using in your videos? Thanks

 

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.

[Soultrader 12]

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.

 

Thanks Jerry. I agree breakout at those points are extremely dangerous. I have been whipsawed heavily many times and now fear of taking these trades. I had thought maybe there was something you were seeing that led you to determine a breakout to the upside. Thanks again.

[Râlex 10]

Hi traders,

 

I asked the following question:

(In connection with the market profile and the poc)

 

-What pvp to choose if there is in some (2 or more in the same intraday volume distribution)?

That it closer to the middle of the distribution as for the poc?

 

byebye

Alex

[jperl 11]

Hi traders,

 

I asked the following question:

(In connection with the market profile and the poc)

 

-What pvp to choose if there is in some (2 or more in the same intraday volume distribution)?

That it closer to the middle of the distribution as for the poc?

 

byebye

Alex

 

When two humps form in the volume distribution, watch carefully. The peak in the second hump may become the new PVP. At that point in time, the character of the price action can change abruptly. If I am in a trade when that happens, I will usually exit.

[unicorn 10]

 

When price action is near the PVP, price is sandwiched between the VWAP and an SD or betwen 2 SD's. You might notice that price will tend to oscillate back and forth for a while between the VWAP and the SD, across the PVP line or oscillate between the 2 SD's. The market is thinking. Do I want to go back to the safety of the high volume zone where most of the trading has taken place or am I adventurous and want to discover new territory in the abyss of low volume. Just wait. Wait for the market to decide what it wants to do, before you decide what you will do.

 

 

Hello Jerry;

 

when skew exists and price breaks through the sd1 curve against the skew, we enter a trade against the skew.

( price < sd1 < pvp < vwap

OR

price > sd1 > pvp > vwap )

 

 

I have the following questions:

 

what is the appropriate course of action when the pvp is between the sd1 curve (first standard deviation) and the sd2 (second standard deviation) curve and price breaks through the sd2 curve?

i.e. when

price < sd2 < pvp < sd1 < vwap

OR

price > sd2 > pvp > sd1 > vwap

a) we enter a trade against the skew

b) do nothing

and why?

 

Additionally, what is the appropriate course of action when the pvp is between the sd1 curve (first standard deviation) and the sd2 (second standard deviation) curve and price returns to the sd1 curve

a) we enter a trade against the skew

b) do nothing

and why?

 

Thank you.

Unicorn.

Edited February 7, 2008 by unicorn

[jperl 11]

I have the following questions:

 

what is the appropriate course of action when the pvp is between the sd1 curve (first standard deviation) and the sd2 (second standard deviation) curve and price breaks through the sd2 curve?

a) we enter a trade against the skew

b) do nothing

and why?

 

Unicorn,

I discussed this in the first post of this thread. It doesn't matter where the PVP is located(between SD and VWAP or between two SD's), the result is the same.

You have three choices:

a) do nothing. If you are novice this is what you do.

b)play the oscillations between the two SD's. This is what you do if you are a scalper

c)Wait for a breakout out of the PVP zone(the regions between the 2 SD's)

 

As I indicated in the first post, this is a difficult trading region, but can be very profitable if you get it right.

 

 

 

Additionally, what is the appropriate course of action when the pvp is between the sd1 curve (first standard deviation) and the sd2 (second standard deviation) curve and price returns to the sd1 curve

 

 

Same answer as above, you can play the oscillation back to SD2 or wait for a breakout back to the VWAP.

[darthtrader 10]

Hey Jerry,

I'm not sure if this would be the thread or not, but any chance you could post a little "trader bio" on how your trading evolved from when you started and what eventually led you to these ideas?

I'm still slowly integrating your ideas into my style and something like that would be quite interesting/inspirational.

[unicorn 10]

As I indicated in the first post, this is a difficult trading region, but can be very profitable if you get it right.

 

Same answer as above, you can play the oscillation back to SD2 or wait for a breakout back to the VWAP.

 

Thank you Jerry;

 

I do have another question, posted due to its relevance in section X, position trading.

 

Take care.

Unicorn.

[jperl 11]

Hey Jerry,

I'm not sure if this would be the thread or not, but any chance you could post a little "trader bio" on how your trading evolved from when you started and what eventually led you to these ideas?

I'm still slowly integrating your ideas into my style and something like that would be quite interesting/inspirational.

 

I've already posted this in the "Trading with Market Statistics V:" darth.

The specific post is here .

[BlowFish 10]

Hi Jerry,

 

Do you always deploy the Shapiro effect (excepting break outs)? My thinking is this:- if the bar that touches your your entry 'line' is long you might add 1/2 SD risk and reduce your potential profit by 1/2SD risk or even more. It's the old traders dichotomy trade location or confirmation. I guess one option is to use slightly smaller bars maybe 1 minute. Any thoughts?

 

I think I may have mentioned this before but going through the videos it struck me again that the extra risk and lesser reward can be quite costly to buy some conformation.

 

Edit: With the recent volatility we have seen this maybe less of an issue. It is noticeable in the videos though.

Edited July 18, 2008 by BlowFish

[ammo 10]

Hi traders' date='

 

I asked the following question:

(In connection with the market profile and the poc)

 

-What pvp to choose if there is in some (2 or more in the same intraday volume distribution)?

That it closer to the middle of the distribution as for the poc?

 

byebye

Alex[/quote'] if there are 2 boobs in one day ,you bet that it returns to the cleavage,deepest spot between the 2 nips,on a bar chart that would most likely be a gap fill,that shows a market imbalance and both buyers at upper nip and sellers at lower nip feel they were wrong and a high percentage of the time it goes back to the middle

[Guest forsearch]

if there are 2 boobs in one day ,you bet that it returns to the cleavage,deepest spot between the 2 nips,on a bar chart that would most likely be a gap fill,that shows a market imbalance and both buyers at upper nip and sellers at lower nip feel they were wrong and a high percentage of the time it goes back to the middle

 

You're, ummm, talking about MP right? :rofl:

[jperl 11]

Hi Jerry,

 

Do you always deploy the Shapiro effect (excepting break outs)? My thinking is this:- if the bar that touches your your entry 'line' is long you might add 1/2 SD risk and reduce your potential profit by 1/2SD risk or even more. It's the old traders dichotomy trade location or confirmation. I guess one option is to use slightly smaller bars maybe 1 minute. Any thoughts?

 

I think I may have mentioned this before but going through the videos it struck me again that the extra risk and lesser reward can be quite costly to buy some conformation.

 

Edit: With the recent volatility we have seen this maybe less of an issue. It is noticeable in the videos though.

 

You're quite correct blowfish. Any kind of confirmation scheme, reduces reward and increases risk. As to whether I use it or not, it depends on what kind of trading I'm doing. For position trading, I do use it. For scalp trading I don't. For everything in between, I will use it on a fast time scale chart (such as a 15 or 20 sec) to gauge entry.

[jperl 11]

if there are 2 boobs in one day ,you bet that it returns to the cleavage,deepest spot between the 2 nips,on a bar chart that would most likely be a gap fill,that shows a market imbalance and both buyers at upper nip and sellers at lower nip feel they were wrong and a high percentage of the time it goes back to the middle

 

Ammo, you present an intriguing scenario which needs to be investigated further. The question is: Can the shape of the volume histogram be used to determine price action? You've presented one example, but there are many more. For instance, in your terminology, what happens if there are 3 boobs? How about 1.5 boobs, where 1 boob is larger than the other? How about a p or b shaped histogram, where the boob is split in two? There are clearly many examples. Perhaps you should start a new thread on this subject?

[ammo 10]

jerry thats really as far as i've gotten with mp,on a 3 boob day ,we had 2 in the last 10 days,7/7 and 7/14,1 retraced all the way to cleavage under the first boob at 64,and the second one went back to just under the 1st cleavage off the bottom,1238,they were both down days. These are not to common,they show up in these market turning whipsaws ,i do use the p and the b patterns,the only thing i'm bringing up is the cleavage,its always there and no one has given it a fancy 3 letter term ,meanwhile i've been making a good coin on the return to it since i started using mp. Thats all i watch,p and b patterns,nips and cleavage, and when we retrace as we did recently i use the nips and cleavage and daily lows as points to get out of longs,mon,7/7 was a 3 boob day,we retraced from 1240 ,bottom of 3rd down boob to 1265,cleavage under 1st boob of day.the cleavage there is 61-64.Thats a retracement thru all the nips and cleavge so far,The next res if we go higher is the p shape on wed,7/7,the nip on that day is 72-3 and the high for that day is 78,if you combine this with daily trendlines,you will find more res there which is a good confirmation.I find mp useful for this last explanation and mostly for scalping,the small gaps and ledges and cleavage it leaves are great

[BlowFish 10]

Hi Jerry,

 

This thread and the next one (Counter trend trades in a symmetrical distribution) are pretty important imo. Even Newbie could benefit by passing on trades that might find themselves back at the PVP.

 

I attach a screen shot from your first video. It shows what I believe is a valid SD1 trade. Two questions.

 

1) Is there anything that might tip you off that price might be heading back to the PVP?? on this chart I think not, maybe the last few days or last weeks stats or other HUPs might have held clues.

 

2) If price finds it's way back to the VWAP and you already have a contract on from SD1 would you use the shapiro effect at the VWAP? I might be inclined just to pull the trigger. If price zooms through as it did here would you be inclined to think OK we are done with this trade lets close it out?

 

There is another difficulty with averaging in (apart from accepting the risk) and that is psychological. If I already have a position and that is short I find that this can give a 'bias'. Actually the bias is justified probably as the scew is in our favour (VWAP<PVP) and the trend is in our favour (Price<VWAP) furthermore we have a plan to add 1 contract at the VWAP.

 

I realise of course that how a trader deals with this situation is largely up to them but any words of wisdom would still be welcome

 

Finally thanks for continuing to 'support' these threads.

Cheers.

Nick

Edited July 20, 2008 by BlowFish

[jperl 11]

I attach a screen shot from your first video. It shows what I believe is a valid SD1 trade. Two questions.

 

1) Is there anything that might tip you off that price might be heading back to the PVP?? on this chart I think not, maybe the last few days or last weeks stats or other HUPs might have held clues.

 

You are correct. From this chart alone there is nothing that would tip you off about a short failure. Which is why I introduced the concept of HUP. If there were a HUP just below the short entry, you might have passed up the short trade.

2) If price finds it's way back to the VWAP and you already have a contract on from SD1 would you use the shapiro effect at the VWAP? I might be inclined just to pull the trigger. If price zooms through as it did here would you be inclined to think OK we are done with this trade lets close it out?

Here is where trade management becomes important. If you were a NEWBIE, you most likely would set a stop at the VWAP and be stopped out.

If you were a more advanced trader, you might pull the trigger at the VWAP and enter a second contract short PROVIDED doing so was still within your risk tolerance.

The other scenario and one that I have never discussed but probably should have is as follows:

You enter the short trade based on the Shapiro effect. But then the trade starts to fail. If price moves above the high of your entry bar, reverse the trade and go long. A very aggressive trader would not only do this but also increase size.

Keep in mind all of this is possible PROVIDED you are within your risk tolerance.

You can see how using risk tolerance rather than stoplosses gives the trader considerably more flexibility.

 

There is another difficulty with averaging in (apart from accepting the risk) and that is psychological. If I already have a position and that is short I find that this can give a 'bias'. Actually the bias is justified probably as the skew is in our favour (VWAP<PVP) and the trend is in our favour (Price<VWAP) furthermore we have a plan to add 1 contract at the VWAP.

 

Yes, the psychological aspect of the trade is one that is difficult to control.

Everything seems to be in your favor for the short, and your emotions tell you that this trade can't be wrong.

In fact you must think differently. When you enter the short, the first thing that you must do is decide exactly what you will do if the trade moves against you. Will you wait for the price action to move to the VWAP? Will you reverse the trade? Will you increase size?

The easiest thing to do is set a stoploss and forget about it. In my opinion this will never lead to profits.

Active management is the key to a successful outcome of every trade.

[ammo 10]

the next ES res is 1280 and cleavage at 86 from the day of 7/2

[scad 10]

Everyone,

 

I have the two eld's complete that will plot the tick by tick pvp on a minute based chart using ADE (Kudos to BAMBOO..Thanks in Tradestation and it is integrated so that you can see the VWAP and SD bands with the tick by tick PVP all on one chart.

 

I do not want to post indicators here because I just don't want to be that formal and try and support a bunch of questions, etc. It works fine for stock indexes but for some reason different computers with different versions have to make slight modifications to a section of the code dealing with the minmove keyword.

 

The code is set up for price increments less than a point. It would be easy to modify the code for other prices...but I am not trying to create professional level software for all situations right now. Just creating accurate code for following JPERL's threads currently in ES and NQ.

 

So I don't feel comfortable posting the code for all futures...stocks etc. But if you are a tradestation user and you would like the code...email me here and I will send it to you.

 

The code is keeping track of volume at every price on a tick by tick basis so would not be hard to plot trendlines as a histogram so eventually I will go there but I don't know how soon I will get to it.

 

Cheers

 

 

Hope it helps,

 

dbntina

Hi Dbntina,

Would appretiate the ELD code for PVP. Have coded something myself but still buggy.

Looks like this method must be quite mature by now. How have you been doing with it.

Trading eminis for 12 years.. always fun to try new things.

Cheers

Bruce

[BlowFish 10]

Have a look in the indicator section here, dbntina hasn't been around for quite a while.

[sbatrader 10]

I use Interactive Brokers. Anybody out there knows how to plot Standard Deviation (SD) on the charts on the IB platform? Thanks

[jperl 11]

I use Interactive Brokers. Anybody out there knows how to plot Standard Deviation (SD) on the charts on the IB platform? Thanks

 

I'm not aware that IB provides SD for anything. VWAP may be available as and algorithm.

Check the help file in IB for VWAP.

[Tams 20]

I use Interactive Brokers. Anybody out there knows how to plot Standard Deviation (SD) on the charts on the IB platform? Thanks

 

bollinger bands is based on SD