Taylor Trading Technique

[waveslider 10]

Hi dogpile, from my angle the screen looked blurry - it there a way to fix that?

 

I particularly like how you take the POC and place a purple line where it was for the day. Wouldn't it be great if we had the code to do that automatically?

 

What I am finding particularly useful in taylor analysis, as it seems you are, is observing whether the high or low of the day came first or last.

 

The three day cycle has some inherent problems. When it's there, great, but then it disappears. When a market is strong, or becoming more volatile, it will go through an "inverse" - some of you know what I am talking about already. If you don't, an inverse is usually a halfway point in a trend. It is where the market would normally reverse if the previous cycle had remained intact.

 

A quick comment for why? - sorry if I came across a little frustrated with your style of contribution. Please contribute what you will, but keep your remarks about your "software" to yourself - they do the rest of us no good.

 

Most of us would never be able to immediately duplicate what you spent 7 years creating anyway. If you wish to share the software, great. Many of us have posted code here on the forum for the benefit of all. You can be assured that every trader uses a tool with a different approach, so it is unlikely that your edge would disappear after posting. You can also do what antonio did (with his killer marketprofile code - those were the days) and make your code working for only a finite period of time .

 

Anyway, no hard feelings.

 

ws

[Dogpile 10]

yes, the screen lost some clarity in the upload to youtube.. not sure how to correct that.

 

I particularly like how you take the POC and place a purple line where it was for the day. Wouldn't it be great if we had the code to do that automatically?

 

the code on that is very simple. for a 2-minute chart on Tradestation, just use:

 

----------------

vars: aa(0);

 

if time =1314 then aa=vwap_h;

 

Plot1(aa,"VWAP[1]");

 

---------------

 

re. code-sharing, here is my view.

 

I have realized that what I am doing now is always going to be a bit different than what I will be doing in X months. The concepts are the same but set-ups are kind of transitory -- they work for a while, then they don't, then they work again once you figure out a new twist on the same concept.

 

I feel it is best to share your techniques. The more you share, the more depth you will GAIN as others ask questions and point things out you may not have thought of...

[waveslider 10]

USE VWAP

For some reason I couldn't think of it that way - is it pretty accurate? (I mean close to the POC)

I guess you are a west coaster too, with the time you gave. Nice time of year here!

[smoothdrive 10]

Okay then, since no one has volunteered to start assembling the “The Taylor Trading Technique Summary Notes†I guess I’ll volunteer. : )

 

Now wait a minute – I’m really serious. I started reading the book in earnest today and as I went along I just typed my own interpretations, rules etc in Word because Mr. Taylor’s writing method is --- well, you know! And, just now I got to thinking that perhaps some of you good guys who have been reading/using Taylor for some time might have also jotted down your interpretations.

 

Here’s my suggestion. You send me what you have via private message; I’ll assemble the summary notes under applicable headings, and then I’ll post them on the open forum. No name will be identified with any particular passage, but I will list all those that contributed if they so desire. Don’t worry about typos, editing etc because my dear wife is an English teacher and she can help where I need it. Additionally, as someone creates a new note, I’ll revise the final document.

 

It’s my hope that there are multiple interpretations of some items, as that will enhance the thought process for all concerned.

 

Lastly, I’m obviously suggesting this for my own newbie benefit, but perhaps it will be useful to everyone from beginner to advanced trader.

 

TIA

 

Gary Fox

[RAVIN 10]

Okay then, since no one has volunteered to start assembling the “The Taylor Trading Technique Summary Notes†I guess I’ll volunteer. : )

 

Now wait a minute – I’m really serious. I started reading the book in earnest today and as I went along I just typed my own interpretations, rules etc in Word because Mr. Taylor’s writing method is --- well, you know! Lastly, I’m obviously suggesting this for my own newbie benefit, but perhaps it will be useful to everyone from beginner to advanced trader.

 

TIA

 

Gary Fox

 

Sounds like a great idea. My scientific background compels me to find some logic in any methodology, sometimes it can be a drawback for many would state that since the market reflects human behavior, it is futile to seek logic there:) , however when I first approached VSA at first it was counterintuitive e.g strength appears on down bars, weakness appears on upbars. But dig deep and the light comes on especially in the light of how professional money operates.

Linda Raschke in her excellent article (available free on her website) "Notes from a Swing Trader , 1993 lecture) has placed great emphasis on this aspect including those of watching price action around previous high, low, support and resistance created by previous swing highs/lows., relationship of close and open etc

 

1) From what I can gather it appears that on a Buy Day - prices are marked down at the open , this provides opportunity for the Smart Money to step in and buy (sounds very much like an accumulation phase and also consistent with the VSA adage, strength appears on falling bars especially on heavy vol) - Linda states that ranges also expand on these days .

 

2) This is followed by Zig Zag days (Linda's term) or Sell Day for pros to start unloading (distribution)

 

3) Ideally the 3rd day is a SS day, where the market is taken up (bull trap) and then off to the races south.

 

Linda then refers to 4 or 5 day cycles and ofcourse whether the market is trending or in congestion

 

From reviews it looks like Taylor's book is unreadable, however surely this is not exactly rocket science. If an effort can be made to start analysising each day starting from today which would I guess be a SS day as Friday was not, then I am sure we all can benefit and come to our own conclusion as to whether or not there is some merit in this methodology and can be incorporated in our existing strategies to create that extra edge.

 

IMO this would be much more productive that engaging in establishing who is right or wrong or who possesses the secret codes or the key to unlock the secrets:)

[waveslider 10]

I agree with Ravin on all his points. To me Friday looked like a SS day, as does today as long as the morning high remains intact.

So that would make tomorrow a buy day? And a low can be expected in the morning.

 

I am having a little issue here with "shoving square pegs into round holes". If friday was a sell short day. I think the problem is in the naming of the days - it just sounds too definitive to label a day when you don't know what will happen tomorrow. IMHO it should be called a "potential SS day" until confirmed. But when its confirmed its too late!

 

It seems like what the goal here is, is to fade the direction and look for signs that confirm your fading intentions. Friday gapped up and couldn't hold those levels, as today is doing - so far. There have been some adequate "buy days" to alleviate an oversold condition. So start fading short!

 

What if a longer term time frame is over-riding this 3 day cycle and that underlying trend strength negates all sell short days?

 

I know I am rambling here, and I need to re-read the method. However, the three day cycle seems a little too simplistic to me. Observing when the high/low of the day came in seems very useful, as Dogpile noted.

 

Gary is taking a noble quest up, it could be worthwhile. It would be nice to have a reference of "if....then" type scenarios to place the methodology in perspective.

[Dogpile 10]

we had 2-period ROC sell set-up coming into the day --- this is from Rashkes 'Street Smarts' book.

 

we traded above Fridays high early in the session --- a high violation.

 

we traded into a 50-53 high-volume resistance zone.

 

no matter if it was sell day, buy day, sell short day --- it was a short.

[waveslider 10]

Agree with that analysis. 50-53 high volume resistance zone? what's that?

[Dogpile 10]

sorry, 1550-1553 was a high-volume resistance zone from Oct 16 - Oct 18...

 

we traded up and got pinned up to 1548 area this morning pre-market open. A push above that level went directly into more resistance in 51-53 zone.

[OAC 10]

<<Didn't you pay attention to Thursday's VAH ?>>

 

yes but going long there was under the 1530 resistance zone. playing long there would be in expectation of a trap -- not something I generally do. I am a 'go with' the short-term momentum type and my oscillators made momentum lows there. Clearly, not a great spot to short since the oscillators were quite depressed at that point -- but also a difficult long entry -- I just skipped it altogether. This type of price action is consistent with low-ADX environment -- which is not really my sweet spot in terms of trading strengths. I prefer less 'bar overlap' tradign environment (expanding ADX). You are right though in that it would have been good entry from pure price perspective -- just didn't line up with my kind of trading. hope you caught it.

 

.

 

Dogpile:

 

This is what I like to do provided if you have enough capital is become a market maker in some of these closed-end equity fund or ETF. Nowaday you get 4 to 1 intraday margin which is not bad. When the market is coming down hard, you just bid for it, usually these fund have a decent spread.They are slow like mules and their trading desk is probably manned by some new interns with Harvard MBAs. These guys have no ideas what a fake out, bear trap , bull trap is. So it doen't matter if the market bounced off yesteday's high , VAH,POC VAL,PVP,HUP...etc, you are guaranteed to get out on the offer and hopefully a lot higher. Just an idea.

[Dogpile 10]

<<When the market is coming down hard, you just bid for it>>

 

sounds interesting, can you give an example?

 

you mean you bid for it at some depressed price I assume and offer out for XX cents higher immediately and just play off the bad ETF traders? please tell more as there could be some nice gravy in that trade.

 

I am guessing you mean to just let ES enter major support/resist zone and stick out a bid for an ETF 20 or 25 cents beyond wherever it is and play it back for the spread? I love this idea, which ETF(s)? you mean only in the morning?

[RAVIN 10]

we had 2-period ROC sell set-up coming into the day --- this is from Rashkes 'Street Smarts' book.

 

we traded above Fridays high early in the session --- a high violation.

 

we traded into a 50-53 high-volume resistance zone.

 

no matter if it was sell day, buy day, sell short day --- it was a short.

 

It has been over 5-6yrs since I looked at ROC etc, Last week pulled out my old spreadsheet and plugged in YM values.

have attached it here, from the way I read it, the close on Friday is higher than the pivot, so today should be LONG or was it going Long from Friday and selling today.

Would it be possible to see your spreadsheet values on ES

ROC.xls

[Dogpile 10]

review of day:

 

morning violation of previous day high

day traded 'high made first' (lowest price of day came AFTER highest price)

built higher value

lower high and higher low made in afternoon (triangle)

 

VWAP closed 1546.25

1546.50 was most popular price (in terms of volume traded)

closing price was 1547.50

 

closed with 15-min ADX < 15 and market is 'in balance'

where VWAP=PVP= Price

[RAVIN 10]

To me Friday looked like a SS day, as does today as long as the morning high remains intact.

So that would make tomorrow a buy day? And a low can be expected in the morning.

I am having a little issue here with "shoving square pegs into round holes". If friday was a sell short day. I think the problem is in the naming of the days - it just sounds too definitive to label a day when you don't know what will happen tomorrow. IMHO it should be called a "potential SS day" until confirmed. But when its confirmed its too late!!

What if a longer term time frame is over-riding this 3 day cycle and that underlying trend strength negates all sell short days?

Gary is taking a noble quest up, it could be worthwhile. It would be nice to have a reference of "if....then" type scenarios to place the methodology in perspective.

 

You may have hit the nail on the head, anybody trading TT method in realtime with real money should be able to provide unequivocal response.

 

WHY? emphasized the need to determine the cycle, well it was established that:

1. Wed, 24-10 was a Buy Day

2. 25-10 was a Sell Day

3. Hence Friday 26-10 ideally would be a Short Sell Day with market expected to close lower than the open, this did not materialise.

4. Fine, so we rephase, and look for Monday 29-10 as a Short Sell Day, once again this does not happen, so the question is how was this day traded from the open.

Here clearly there is a need for "If....then" scenarios as you point out.

 

5. Have we now moved from 3 day cycle to a 4day or a 5day......???

 

6. So now Today 30-10 should be Short Sell day, Dow is already showing signs of weakness on the Globex, plus we have consumer confidence report around 10a.m EST and FOMC meetings etc., Are we once again looking for price above previous day's highs to short???

 

confusing??? you bet.

Now before somebody jumps in with smart a.... remarks like go and read the book, that can be applied to any thread on any methodology, then what would be the point of opening a discussion in the first place:)

[Dogpile 10]

Ravin,

 

trust me. just stick with the concepts and don't worry about all the labeling.

 

it looks like we are going to get a 'low violation' this morning -- a violation of previous day low. This factor makes it a potential LONG, regardless of the day. I stress the word 'potential' because a low violation is not enough to actually trade long. You need 'the tape' to confirm it.

 

The market can form a low first or a high first right? The ES futures traded 'high to low' yesterday and are gapping down.

 

George Taylor writes:

 

"[The Book Traders] plays are an even break that he will make a profit, much greater when he wins then the loss when he loses. Any method or system that gives you a 50/50 chance is a pretty good one with all its faults."

("The Taylor Trading Technique" page 11).

 

Thus, the Taylor technique is more about finding good location on trades than it is about actually getting direction right, which even Taylor thought of as 50/50. In general, selling a high violation and going long a low violation is all about getting good location relative to the previous days trading.

 

With this low violation today, location favors a long. That said, you could make an argument that yesterday mornings 'high violation' marked an end to the upswing and we have begun a downswing. A 'high could be made first' today. Thus, it really comes down to your short-term trading ability. You have a bias long this morning because of the low violation (location of long better than location of short) but respect the ability of the market to go down from here 50% of the time, in which case you would want to find a short-trade.

 

Personally, I am looking both long and short today -- but my underlying preference is long, simply because location favors that play over the long-run.

[Dogpile 10]

One other thing:

 

I am marking 1533.50 as a good support zone and 46.00 as a resistance zone.

 

Thus, a short could be a reasonable play and cover somewhere above 1533.50.

 

A long could be a reasonable play and sell somewhere below 46.00.

 

That is my take anyway.

 

Added edit: the target for a Taylor short-term long btw is somewhere around the previous day low... thus, go long somewhere below the low and sell into the test of the low.

[RAVIN 10]

One other thing:

 

I am marking 1533.50 as a good support zone and 46.00 as a resistance zone.

 

Thus, a short could be a reasonable play and cover somewhere above 1533.50.

 

A long could be a reasonable play and sell somewhere below 46.00.

 

That is my take anyway.

 

Added edit: the target for a Taylor short-term long btw is somewhere around the previous day low... thus, go long somewhere below the low and sell into the test of the low.

 

There you go, now that is making much more sense, remaining flexible as I did last Friday which was a SS day, there was a short and a long.i.e let the price action guide your trading decisions rather than getting bogged down in a bias. As waveslider pointed out the 3 day cycle is far too simplistic, there are other forces on different time frames which can enter or leave the market at any time.

 

Tests of High and Lows of previous day is the essence of Taylor's Trading method as pointed out by Linda Raschke, after a few comments on buy day and sellshort day (p.60) and she adds "Taylor kept a rigid mechanical trading book, but he also had all sorts of quirky rules for shorting on buying days and vice versa. We do not want to get that complicated "

 

This way it would be much more productive to monitor the markets on a daily basis via TT method.

appreciate your comments.

[waveslider 10]

http://traderfeed.blogspot.com/2007/10/intraday-movement-in-s-500-index.html

 

for the quant people, some data on hitting highs/lows of previous day

[Dogpile 10]

excellent post waveslider,

 

note that the Taylor technique is basically about fading a move outside the previous days range. Steenbarger (in the link you posted) states that:

85% of days trade outside the previous days range and ~51% of those days CLOSE back inside the range. traders like Linda Rashke advise just looking for price to trade back towards the range and make a few points that way. Steenbarger does not discuss what % of the time the market violates the previous days high or low and then merely trades back into it but it is clearly a very strong tendency.

[RAVIN 10]

excellent post waveslider,

 

note that the Taylor technique is basically about fading a move outside the previous days range. Steenbarger (in the link you posted) states that:

85% of days trade outside the previous days range and ~51% of those days CLOSE back inside the range. traders like Linda Rashke advise just looking for price to trade back towards the range and make a few points that way. Steenbarger does not discuss what % of the time the market violates the previous days high or low and then merely trades back into it but it is clearly a very strong tendency.

 

You are right, Linda Raschke's take on TT appears to more pragmatic, any found the following via google search:

Meaning no disrespect to LBR, she somewhat *******ized Taylor's work to some degree. George Douglass (that's right 2 S's) Taylor was primarily a floor GRAIN trader. No computers or charts involved. Just staying IN the moment with paper, pencil, and arithmetic.

 

The only stock mentioned in his one and only book was US Steel (USX) which he apparently traded over and over since their were specific examples dating back to 1933 (the book was written in 1950).

 

The crux of his method is measuring the swings. The high from day 1 to the low of day 2 he designated DCL. The low from day 1 to the high day 2 as RLY. Grapically, this makes an "X"

 

Futhermore, any Day 2 high that exceeded day 1's high was quantitfied and labeled BH. Any day 2 low that was below day 1's low was designated BU

 

Additionally the trader observes whether the high or low was made FIRST each day.

 

In the context of being long only, the intent is to buy near the low of Day 1 and sell near the high of day 2. Day 3, was considered the short day. A buy day is LMF, a short day is HMF, and the sell day can be EITHER (what LBR refers to as a zig zag day)

 

Putting these actions in a matrix:

 

BH HMF..............................................Short

 

BH LMF..............................................H old ALL day

 

BU HMF............................................... AVOID

 

BU LMF............................................... BUY

 

Obviously "they" don't ring a bell telling you if today is LMF or HMF, that's where trading intution, and skill play their role.

 

With respect to measuring swings, simply put, you cannot have a large RLY day without a small DCL.. A small DCL implies a prior day close somewhat NEAR the prior day high.

 

The preceding is valid but Taylor's concept of a 3 day cycle Buy/Sell/Sell Short may have been more reliable in 1950 than today (due to program trading, instantaneous info, and multiple market makers).

 

And, ............in the US, unless you have 475 tax status, trading in the same stock over and over (occasionally taking a loss albeit small loss) would run into a wash sale obstacle.

 

 

Now I have no idea if this right or wrong, as you have slogged through the book perhaps you may be able to shed more light, and expand on what DCL, RLY, HMF, LMF etc stand for.

[waveslider 10]

HMF=high made first

LMF=low made first

I don't know about the others...

Good points made.

What about BU and BH?

[smoothdrive 10]

Hello Ravin,

 

Good input. That VSA material is very interesting.

 

I haven't even had a chance to come by since my last post as I'm a dirty rotten government staffer and it's budget time -- long days for another week or two - and then I can do some homework : )

 

Had a little time tonight, and put down the last 60 or so days of GE OHLC data in excel; batched them into groups of 10; picked the lowest low in each 10; created the B S SS etc. Bottom line: You have the 3 day cycles coming and going. So, if one person started at 10 x days and another started at 10 y days they have different B S SS days. (What started this was: I set up an excel ss to follow along with chapter II)

 

I very much appreciate WHY?'s Taylor knowledge and perhaps his real edge is a definative way to establish the B S SS cycle. And, perhaps that was Taylor's and he just never gave up that golden goose. Or, perhaps I'm missing something in greenhorn land.

 

Take care,

 

Gary

 

 

Sounds like a great idea. My scientific background compels me to find some logic in any methodology, sometimes it can be a drawback for many would state that since the market reflects human behavior, it is futile to seek logic there:) , however when I first approached VSA at first it was counterintuitive e.g strength appears on down bars, weakness appears on upbars. But dig deep and the light comes on especially in the light of how professional money operates.

Linda Raschke in her excellent article (available free on her website) "Notes from a Swing Trader , 1993 lecture) has placed great emphasis on this aspect including those of watching price action around previous high, low, support and resistance created by previous swing highs/lows., relationship of close and open etc

 

1) From what I can gather it appears that on a Buy Day - prices are marked down at the open , this provides opportunity for the Smart Money to step in and buy (sounds very much like an accumulation phase and also consistent with the VSA adage, strength appears on falling bars especially on heavy vol) - Linda states that ranges also expand on these days .

 

2) This is followed by Zig Zag days (Linda's term) or Sell Day for pros to start unloading (distribution)

 

3) Ideally the 3rd day is a SS day, where the market is taken up (bull trap) and then off to the races south.

 

Linda then refers to 4 or 5 day cycles and ofcourse whether the market is trending or in congestion

 

From reviews it looks like Taylor's book is unreadable, however surely this is not exactly rocket science. If an effort can be made to start analysising each day starting from today which would I guess be a SS day as Friday was not, then I am sure we all can benefit and come to our own conclusion as to whether or not there is some merit in this methodology and can be incorporated in our existing strategies to create that extra edge.

 

IMO this would be much more productive that engaging in establishing who is right or wrong or who possesses the secret codes or the key to unlock the secrets:)

[Dogpile 10]

yesterday really screwed with the concepts.

 

we had a very low close on Tuesday, then a 'high violation' on Wednesday morning which was a 'gap out of entire previous days range'...

 

We had 2 'high to low' days coming into Wednesday. Thus, we had 'conflicted' structure. Thought, we might have been due for a 'low to high' day but we had a morning high violation -- and end of month buying along with up-bias on morning of a FOMC decision.

 

But, we traded into overhead resistance with a high violation right at the open... this sets up a short-trade. We the traded down about -4 pts and you could see by watching action relative to VWAP that we were not going to have a 'dynamic down day'. Thus, we 'crept' up.

 

Then you had the FOMC movement which went and tested previous pivots perfectly. Finally, you had a 'bull trap'/selling tail.

 

The bull trap and downside gap this morning means we are trading -16 pts under yesterdays most popular price. This is not good initial location for a short but is also not yet a 'low violation'. Thus trading down further could set up a long or testing up scould set up a high to low day, IMO.

[trustdnb 10]

This is an old thread, but just checking to see if anybody is still using Taylor and keeping track of buy days/sell days, etc? I've been working my way through the Taylor Trading Technique, which I must say is no easy read, but offers some valuable concepts. I am less interested in mechanically counting 3 day cycles than trying to figure out how to use the Taylor concepts at bit more flexibly to anticipate likely buy/sell/short sale days. Is anybody else incorporating buy/sell/SS day strategies into their trading?

[gio 10]

hello trustdnb

 

im new to this thread but i do post at mypivots and i also use the TTT

 

i was referred here by someone at mypivots who saw this forum

 

if you're interested, there is a service that i use and the person that owns that service has done great work in compiling the TTT work in to an Excel spreadsheet

 

im having great success with it and i hope others will too

 

http://www.taylortradingtechnique.net/

 

btw, i am not affiliated with this site , im a subscriber and trader like the rest

 

the person who owns the service is Richard Boisvert

 

good luck

 

gio