Trading with Market Statistics X. Position Trading

[jperl 11]

I guess the question is is whether it causes one to miss more bad trades than good trades. It might be useful to give confidence in some of the riskier trades (break out springs to mind) if it is in the direction of the larger data set.

 

If confidence is what you are looking for, then yes. Sort of like the Shapiro effect- wait for confirmation. As far as missing bad trades, it depends on how you define a bad trade.

I've never been one to define a trade as bad (except when I was a newbie and didn't know better). There is only bad trade management and bad money management most of which has been discussed in these threads.

[BlowFish 10]

If confidence is what you are looking for, then yes. Sort of like the Shapiro effect- wait for confirmation. As far as missing bad trades, it depends on how you define a bad trade.

I've never been one to define a trade as bad (except when I was a newbie and didn't know better). There is only bad trade management and bad money management most of which has been discussed in these threads.

 

I had a feeling you might say something along those lines from some of the titbits you have sprinkled through the threads about how one might manage positions that have not moved in the anticipated direction

[mushin2003 10]

Hi Jerry, Nick,

I was wondering if you guys are still around or have moved on to other ideas?

 

Anyway, I have been going thru the Market Statistics tutorial this MLK holiday. Jerry I am very impressed you have found a tradable edge and are willing to share it with others. I have alot of the same enthusiasm I saw early on when Part1 was started and have loaded a few different versions of the indicators for Tradestation & ToS. I am using ThinkOrSwim's OnDemand to practice.

 

Jerry, one thing that kinda of caught my attention (at least when you view all the videos & read thru all the posts, over a 3 day time frame) was that early on (Parts1-5) there was mention of how you became a successful trader only when you started managing your trades using risk tolerance, typically showing very wide stops at the PVP area typically and scaling-in techniques. There were also a few side threads on this w/DogPile about the merits of it. I believe around Part6-7 when you started covering entry techniques involving the Shapiro effect and the more advance videos you frequently mentioned how conservative your trading style is and your motto "Never let a winner turn into a loser" and the use of significantly tighter stops than before. I believe Nick asked you about this in one of the threads as well. How do you manage or what criteria do you use for these 2 different risk management styles?

From what I can tell, these tighter stops seem to be related to the type of trade you are entering such as a breakout, an entry into a symmetrical distribution day, scaling. For a position trade and a newbie type of trade are you still focusing on in long trades of using the PVP-1 as your stop loss area?

I have for a few years been trading the equities markets and recently the ETFs IWM which seems to offer good volatility and liquidity for this idea on a 2min chart.

Seems alittle foolish to post even this much on a 3.5 year old thread so I will stop. It has been a great read seeing the presentation and the evolution of questions and traders.

Thanks,

Rob

[jperl 11]

Hi Jerry, Nick,

I was wondering if you guys are still around or have moved on to other ideas?

We are still around.

 

 

Jerry, one thing that kinda of caught my attention (at least when you view all the videos & read thru all the posts, over a 3 day time frame) was that early on (Parts1-5) there was mention of how you became a successful trader only when you started managing your trades using risk tolerance, typically showing very wide stops at the PVP area typically and scaling-in techniques. There were also a few side threads on this w/DogPile about the merits of it. I believe around Part6-7 when you started covering entry techniques involving the Shapiro effect and the more advance videos you frequently mentioned how conservative your trading style is and your motto "Never let a winner turn into a loser" and the use of significantly tighter stops than before. I believe Nick asked you about this in one of the threads as well. How do you manage or what criteria do you use for these 2 different risk management styles?

This all depends on your trading style. Newbie's always use stop losses, which usually gets them into an overall losing position. As you develop confidence, you will find that if a trade moves against you, and you know what your risk tolerance is, you can stick with the trade, by scaling into it or even reversing it with scale ins. It's this risk aspect of trading that I use rather than stop losses. If a trade moves in my direction, then of course I will use something like a breakeven stop to exit.

 

From what I can tell, these tighter stops seem to be related to the type of trade you are entering such as a breakout, an entry into a symmetrical distribution day, scaling. For a position trade and a newbie type of trade are you still focusing on in long trades of using the PVP-1 as your stop loss area?

Well if you are a newbie, yes. If you are not a newbie, and you have discovered the paradigm shift of risk tolerance, then no.

Seems alittle foolish to post even this much on a 3.5 year old thread so I will stop. It has been a great read seeing the presentation and the evolution of questions and traders.

 

Old threads if they are good ideas never die.

[mushin2003 10]

Thanks Jerry for the update and answer. I believe the trade management and risk tolerance you are talking about are keys to success in this business, perhaps the most important. I also am looking for reseach and trying to learn more about how institutional size traders manage risk these days.

 

I encountered your articles on Market Statistics as I was searching for confirmation ideas for my discretionary strategy. I am impressed by the way you teach and your approach to trading. I do not know if you have the time or desire but I was wondering if I may be able to present my trading strategy to you for some objective comments? I will say it is not really based on a statistical or mathematical model.

I am not sure how the PM works so if you might be able to review it just shoot me an email -> mushin2003 @ hotmail dot com.

 

Thanks,

Rob

[BlowFish 10]

Good to see you are still around Jerry!

[jperl 11]

Thanks Jerry for the update and answer. I believe the trade management

 

I do not know if you have the time or desire but I was wondering if I may be able to present my trading strategy to you for some objective comments? I will say it is not really based on a statistical or mathematical model.

 

Your best bet instead of PMing me is to post your strategy in the appropriate thread here at TradersLaboratory. Don't be shy. People here are very helpful and you will get lots of feedback.

[mushin2003 10]

Hi Jerry,

I am not sure how to phrase this question so let me tell you where I am going with it first. Is knowing when to reverse a trade learned more from experience or is there something on the chart that may give clues?

In theory I can establish any stop loss price I want and be comfortable with that say down to only buying 1 share. In reality though I am targeting price moves between the SD1&2 or VWAP lines on my chart. I prefer not to use these though as stop loss areas due to the price distance involved affecting my entry size. It is not that I cant use them. So instead I typically look for a stop loss area on the other side of a HUP near my entry price. On trending days with moderate pullbacks I find I am getting kicked out 3-4 times looking for a reversion back to a SD or VWap.

Or stated another way is there something I can key in to know when to ride the trend?

 

I believe there was talk of this before: when you may have 2 symmetrical spikes within ex. 90% total volume of each other would you consider the more recently created spike perhaps as more relevant in its physical location on the chart to the VWAP?

For example, we have 2 volume spikes one of 100k (PVP) from 10AM the other 95k from 2PM with the VWAP in between these. Price is moving up from SD1. Typically I would be looking for shorts but could I justify taking a long trade here based on the size relationship between the 2 spikes and the time frame for this example is 3PM.

 

I tried to attach a chart showing 2 days of data one a trending day and the other a nice range day that had the VWAP in between 2 large spikes until the close when the PVP moved again. If you want to could you comment on how you would have traded these 2 days assuming your current risk tolerance. The purple line is the VWap.

 

Thanks,

Rob

[jperl 11]

I am not sure how to phrase this question so let me tell you where I am going with it first. Is knowing when to reverse a trade learned more from experience or is there something on the chart that may give clues?

I don't think I ever discussed trade reversal in the Market Statistics threads, but in any event the "clues" as you call it are places on the chart where if you are say presently long you should be short and vice versa. However this involves very careful trade management prior to your initial entry. You should be asking yourself several questions prior to the long entry. For example, a)what is my risk tolerance on this trade? b)If I have to reverse this trade, where would it be? c)would I still be within my risk tolerance if I reverse this trade with increase in size? If you can't answer these questions, then don't take the initial trade.

 

I believe there was talk of this before: when you may have 2 symmetrical spikes within ex. 90% total volume of each other would you consider the more recently created spike perhaps as more relevant in its physical location on the chart to the VWAP?

This has been discussed on these threads before but I don't recall where. It's called a two boob day. There are some who believe that when price touches the second boob, it will bounce back to the first boob. My preference would be to trade between VWAPs rather than boobs, but this can get complicated and you will have to find your own way through the maze.

[igork11 10]

not yet, just want to know what it is

[Marcelo 0]

On 09/09/2007 at 8:58 PM, jperl said:

Position Trading is generally described as a trade which you enter and expect to hold for a considerable period of time during the day. Such a trade can be entered at any time after the open. My personal preference for a position trade is at the beginning of the trading day using market statistics from the previous day as my guide for determining entry, profit target, stoploss and scale in points if necessary. The direction of the trade is based on interpretation given in the last 9 "Trading with Market Statistics" threads but using the previous days statistics as the starting point. Position trading is thus no different than any other type of trading that I have previously described.

 

Here is the idea:

 

a)Set up a chart with yesterdays volume histogram, PVP, VWAP and SD's on it. Leave sufficient room to the right of yesterdays close so that at the open you can continue to add to the statistical data as todays market begins to unfold. In effect you are continuing to update yesterdays volume distribution as more data is added to the chart.

 

b)Before the open, decide on your trading plan. Pick a direction for the trade, an entry point, profit target and stoploss based on what you see in the volume distribution function. It will help to reread the previous threads to determine what you should be looking for.

 

c)When the market opens, execute the plan.

 

In the following video on trading the ER2 (Emini Russell 2000), you will see that the previous days volume distribution ended the day in a symmetric state with the VWAP = PVP. I then concluded that I should look for a countertrend trade back toward the VWAP as described in [thread=2285]"Trading with Market Statistics Part VIII"[/thread].

 

Watch the video to see what I did on September 06, 2007.

 

ER2PostionTradeSep06

 

This trade was a good position trade which would have been even better if I had traded more than one contract. After having climbed up to the 2nd SD above the VWAP, the price action continued on down below the VWAP to the 1st SD and then evenutally to the 2nd SD, a very typical signature of a symmetric distribution.

Please, anyone know how to download this video? It looks like the link has been lost.

Thanks

Marcelo