Trading with Market Statistics X. Position Trading

[jperl 11]

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.

Edited February 17, 2008 by jperl

[Soultrader 12]

Very interesting video Jerry. Thank you very much. I will be spending some time this week pouring and reviewing your threads so I can hopefully understand your methodology better and have some good questions for you.

[Soultrader 12]

Hi Jerry,

 

Do you ever use the average of the past few trading sessions for the opening play? Or do you only take the previous session data?

[jperl 11]

  Soultrader said:

Do you ever use the average of the past few trading sessions for the opening play? Or do you only take the previous session data?

 

I usually use only the last trading session for a position trade. Once I decide on a trade entry, I will then take a look at the VWAP and SD's from previous 2 days, 1 week, 1 month, 2 months and 1 yr data to see if there is anything that would block the progress of the trade. I haven't gotten around to preparing a thread on this for want of time. Probably do so when I get back from my China trip.

[Dogpile 10]

not much discussion in 'market profile' area.... thought I would point out that we closed today with a reasonably 'normal' distribution, price closed right on VWAP at 1498.50 and PVP was close by.

 

here is an example of combining statistics with a pattern or two. I put a short on very late in day at 1498.00 to play for an overnight gap. we've had 3 up days in a row but I am unimpressed by the last few days. I did try a long this morning but it didn't fill (missed by a tick) so I took the day off. I came back and this Head & Shoulder pattern had become evident but I did not want to fight the market while it built higher value so I waited until very late in the day to enter as the market appeared to find a home at 98.00 and could come out of this balance to the downside overnight. Effectively, I want to find a short in the morning and this trade is a hedge in case the short works overnight instead of in the morning (both could still happen too).

[darthtrader 10]

  jperl said:

Once I decide on a trade entry, I will then take a look at the VWAP and SD's from previous 2 days, 1 week, 1 month, 2 months and 1 yr data to see if there is anything that would block the progress of the trade.

 

Jerry, does this apply to all your trades or just position/breakout/no skew to the market trades?Or even just position trades/no skew?

Also, if yesterdays close is a HUP I take the high and low of yesterday is also a HUP?

If I ask you any stupid questions I'm sorry. This is kind of why I never did good in math classes in highschool or college. I get the first few videos but I learn top down then fill in the details where your building on the details.

 

Have fun in china, I don't know how you could not. That should be an interesting time to say the least.

 

When you get back though, HUP theory, please? I'm dieing to understand what you see there.

[jperl 11]

  darthtrader said:

Jerry, does this apply to all your trades or just position/breakout/no skew to the market trades?Or even just position trades/no skew?

Also, if yesterdays close is a HUP I take the high and low of yesterday is also a HUP?

When you get back though, HUP theory, please? I'm dieing to understand what you see there.

 

You are right on track Darth. There are two kinds of HUP, static and dynamic. The static ones are for example yesterdays high, low and close. The dynamic ones are all the VWAP and SD's from yesterday, 2 days ago, 1 week, 2 weeks, 1 month 2 month, 1 year ago. I think you can see that how these cluster will be important for determining price action. The rest of the story you will have to wait until I come back.

[Karish 10]

Hi Jerry, great thread I hope you will find soon the time to explain us your HUP concept.

In the meanwhile I invest the time to code the theory (I am using AMIBROKER) and practicing, no doubt it improved my stats.

I wonder if and how we can implement Market statistics trading strategy to longer term trading style such as swing of several days?

Thx

Karish

[BlowFish 10]

Im glad someone mentioned HUP's again before I did! I have a broad idea what they are but do wonder how Jerry uses them in trade decisions. Last I recall he was not quite sure how to present this. I hope that he comes up with something as I have enjoyed this series immensely and miss my Market Stats fix!

 

Cheers.

[jperl 11]

  Karish said:

Hi Jerry, great thread I hope you will find soon the time to explain us your HUP concept.

I wonder if and how we can implement Market statistics trading strategy to longer term trading style such as swing of several days?

Thx

Karish

 

I'm still working on a presentation for HUP. Hope to have the beginning of it sometime this week.

As far as swing trading goes, I don't do swing trading, but longer term stat analyis should be useful for swing trading as for day trading. The standard deviations will be considerably larger so you will have to have a larger risk factor to do swing trades.

[ckait 10]

I dont know if this is the right place to ask but does anybody have a volume histogram that prints on the Y axis intra day for trade station they would be willing to share?

[darthtrader 10]

  BlowFish said:

miss my Market Stats fix!

 

haha, yea maybe we need a little methadone maintance hit before the big HUP fix.

Jerry, any chance you could do a video on how you use the longer time frame stats? I think I remember you said you look at longer time frames stats even for intraday, maybe that ties in with hups though.

[jperl 11]

  darthtrader said:

haha, yea maybe we need a little methadone maintance hit before the big HUP fix.

Jerry, any chance you could do a video on how you use the longer time frame stats? I think I remember you said you look at longer time frames stats even for intraday, maybe that ties in with hups though.

Well if you read the position trading thread, you saw I used the previous days volume distribution data to decide on a trade for today. That's an example of using a longer time frame for today's trades.

You will see that HUP is an extension of that

[Dogpile 10]

  Quote

I dont know if this is the right place to ask but does anybody have a volume histogram that prints on the Y axis intra day for trade station they would be willing to share?

 

I have inquired on the Tradestation forum about this and they don't have it. They have an analysis study called 'activity bars' but they aren't any good. that is what they reference though when you ask them about it.

 

what I do is screen-capture the daily intraday volume histogram from the 'matrix' window each day. I then put notes on it and save them in a folder for future access.

 

I have actually found this process to be quite insightful. I summarize the daily daily volume distributions by hand into an excel spreadsheet. Doing this process every day really helps me understand 'value' (higher-volume) zones that tend to get re-tested and imprints on your brain important pivots.

[Râlex 10]

Is it possible to put in relation the differents Market Profile openings and the Jerry' strategy ?

 

Or, Jerry, would you have managed to use tools of your system to get ready for types of days of trading (as Dalton) ?

As the hubs !

 

With impatience, best regards.

 

bye Alex

[jperl 11]

  Râlex said:

Is it possible to put in relation the differents Market Profile openings and the Jerry' strategy ?

 

Or, Jerry, would you have managed to use tools of your system to get ready for types of days of trading (as Dalton) ?

As the hubs !

 

With impatience, best regards.

 

bye Alex

 

Alex,

The only tools I use to get ready for today's trading are the HUP lines from previous trading days, weeks,month and year. I don't use anything else. These are my support/resistance lines that will keep me in a trade or tell me to exit

[Râlex 10]

Hello to everybody and to you, jerry,

 

I wondered how reacts jerry's system when the day is a trend day!

 

How react the standard deviations ? What are then the points of entry ?

 

Is there a means to foresee this type of day and trade with it ?

 

Too, I wish you the good end of year and merry Christmas !

[jperl 11]

  Râlex said:

Or, Jerry, would you have managed to use tools of your system to get ready for types of days of trading (as Dalton) ?

As the hubs !

bye Alex

 

Other than putting the HUP lines on my chart, I don't do anything else to begin the day. I just follow the statisitics and what the price action tells me.

I will be cautious around key economic events that usually come out around 10:00 EST, but other than that there is nothing else that I do premarket.

[unicorn 10]

  jperl said:

Well if you read the position trading thread, you saw I used the previous days volume distribution data to decide on a trade for today. That's an example of using a longer time frame for today's trades.

 

Hello Jerry;

 

On certain days it appears that using the previous day's volume distribution data, is better suited to the price action, to decide on a trade even in the afternoon.

 

Have you developed a process to identify when this course of action is appropriate

OR

do you have a means to recognize this fact early in the day, and thus not switch to using today's volume distribution data?

 

Thank you.

Unicorn.

[jperl 11]

  unicorn said:

Hello Jerry;

 

On certain days it appears that using the previous day's volume distribution data, is better suited to the price action, to decide on a trade even in the afternoon.

 

Have you developed a process to identify when this course of action is appropriate

OR

do you have a means to recognize this fact early in the day, and thus not switch to using today's volume distribution data?

 

Thank you.

Unicorn.

 

Yesterdays distribution would always be more important than today's, early in the trading day during the period when today's distribution is still developing. If there is rapid price action early in the day, today's price action is not going to help you much. You can tell this by comparing the range of each bar to the standard deviation. When the bar range is the same size as the SD, you can't tell much by looking at today's statistics. So you either have to go to a faster time scale, or use a distribution that has developed over 1 or more days such that the SD is larger than the bars range.

[unicorn 10]

  jperl said:

Yesterdays distribution would always be more important than today's, early in the trading day during the period when today's distribution is still developing.

 

Hi Jerry;

 

When watching yesterday's and today's probability function and statistics, and both lead to the same trade assessment, the decision is easy.

How do you deal with situations when one trade assessment contradicts the other?

Do you go with today's assessment or yesterday's ?

 

I guess yesterday's statistics over-ride during the morning and noon.

How do you decide in the afternoon?

What is your thought process?

 

cheers.

Unicorn.

[jperl 11]

  unicorn said:

Hi Jerry;

 

When watching yesterday's and today's probability function and statistics, and both lead to the same trade assessment, the decision is easy.

How do you deal with situations when one trade assessment contradicts the other?

Do you go with today's assessment or yesterday's ?

 

I guess yesterday's statistics over-ride during the morning and noon.

How do you decide in the afternoon?

What is your thought process?

 

cheers.

Unicorn.

 

I was wondering how long it would take for someone to see this. Congratulations Unicorn, you are an astute observer.

If you are a NEWBIE trader, and you see a contradiction, you of course do nothing.

 

An advanced trader however would look at the VWAP's and SD's from various days as a series of HUP's (read the HUP thread to see what this is). The HUP lines are then treated as simply support/resistance lines. Decision to enter a trade would then depend on several factors:

a)The separation of the HUP's----is there enough open space for a trade or are they close together for just a quick scalp

b)The placement of the HUP's in case scale in would be necessary

c)is the HUP below a VWAP or above it?

d)Am I looking for a reversal or a continuation at the HUP?

e)Can I use the Shapiro effect for entry?

 

As you can see there are numerous things to consider, but after you practice this for a while, it becomes second nature. Sort of like learning to play an instrument.

[unicorn 10]

  jperl said:

there are numerous things to consider, but after you practice this for a while, it becomes second nature. Sort of like learning to play an instrument.

 

Thank you Jerry;

 

I would appreciate a few examples i.e. charts with your comments, at your convenience, as the market may provide them in the following days.

 

I think that I have understood the theory, but applying it real time is still a challenging task.

 

Take care.

Unicorn.

[shreem 10]

Hello Dear Jperl and all. First thing first, Jperl I really want to congratulate you for your excellent work on Market Statistic Threads. They are simply incredible and very much interesting.

 

I really like your way of approaching the markets with the PVP, VWAP and how we can use their relationship to decipher setups according to our trading style.

 

I have read all your threads in the past few days and will certainely read them again and again to incorporate every nucance of them.

 

As I am also using the Ensign Software, it is easy to get the same type of profile with the PH and VWAP and bands.

 

Right now, I just need to use a lot of screen time in real time (even with the playback feature of Ensign) to see the setups emerging in real time.

 

So, just wanted to say my deep gratitude to you to have started these great threads and as Unicorn said, hope to see others examples and videos when you have free time.

 

Sincerely

 

Shreem:)

[jperl 11]

  unicorn said:

Thank you Jerry;

 

I would appreciate a few examples i.e. charts with your comments, at your convenience, as the market may provide them in the following days.

 

I think that I have understood the theory, but applying it real time is still a challenging task.

 

Take care.

Unicorn.

 

I don't know if I will have the time to post more videos on these topics. Each one takes a considerable amount of my time. I have posted over 15 videos and 10 charts in these threads dealing with market statistics. There is of course considerable room for further expansion. But the basics are here for all to use. When there are topics related to this that I deem important I will make additional posts.