Your Thoughts on TradeMaven 3-2-1 Approach

[AgeKay 10]

This thread is about this thread on EliteTrader. TradeMaven Group is obviously trying to market their software/chat room/brokerage there (in which in am not interested in the least), but I am only interested in discussing the ideas outlines in that thread, specifically how past volume distributions might show you potential support/resistance points and when you should enter or stay out of the trade. I know there are a lot of experienced traders on this forum and that's why I am asking for your opinion. Do you think that the statements (their "rules") made in that thread are valid? Do you personally use them or some derivation of them in your trading?

 

Their basic "rules" are these:

 

Rule #1: In commercial or hedge markets, low volume numbers are support and resistance – they stop activity – and should be traded as such.

[...]

Rule #2: High Volume areas represent value and are attractors. They serve as support and resistance the first time touched only. If not immediately rejected, you can expect to trade around the high volume numbers for one to two hours. Here’s why: It’s where new moves start. New moves come out of the middle. The way the market confirms this is through the retest – it’ll retest a breakout. If it holds, more people will come in and trade.

[...]

Rule #3: Don’t fade Moves out of the Middle (MoMs). New moves start when the market has come into balance, off the Balance Point, Point of Control, or Mode.

 

I can see why rule #1 might be true, because there isn't going to be much volume past a prior high/low since this is where price turned around and did not trade much. But I don't know about rule #2 & #3. I guess you can only verify it by having looked at this data for some time.

 

I am grateful for any shared insights!

[MightyMouse 12]

They are interesting rules. But, the rules do not seem to have any practical application before the fact. In other words, I do not think you can create real time trading rules around them that will give you a favorable risk /reward. If the rules don’t do that, then what is the point?

 

Anyone can look at a yesterday’s market profile and say you should have done this or that.

[AgeKay 10]

Actually the volume distribution shown on the right is based on volume of past last year, so I do not understand why you think this could not be applied in real-time since this information is available bevor the trading session has even started. Could you please elaborate? I might be missing something...

[dandxg 10]

I think rule 1 makes no sense at all. From what I seen and read with PV it's the opposite. How is low vol. going to stop a thing? I have seen there thread. It's look fancy with their prop. bar and stuff, that's about it.

[steve46 12]

High volume often signifies "acceptance" of a price or range of prices by market participants. By acceptance we mean that the majority of market participants find value there.

 

Low volume signifies rejection of a price or range of prices. By rejection we mean that participants believe that price or range of prices does not represent fair value.

 

The concept of "time at price" is an important part of the concept of value. In Market Profile terms, if a lot of time is spent at or around a particular price, that means that participants accept that price (or prices) as representing fair value. Conversely if very little time is spent at a price, it signifies rejection of that price (or prices).

 

I think the best advice I can give is to suggest that readers buy James Dalton's book "Mind Over Markets" and check out the complete concept. A lot of good professionals use this approach.

 

Best of luck

 

Steve

[AgeKay 10]

First of all, thanks for chiming in Steve. Your kind of response is what I was hoping for.

 

The concept of "time at price" is an important part of the concept of value. In Market Profile terms, if a lot of time is spent at or around a particular price, that means that participants accept that price (or prices) as representing fair value. Conversely if very little time is spent at a price, it signifies rejection of that price (or prices).

 

I think the best advice I can give is to suggest that readers buy James Dalton's book "Mind Over Markets" and check out the complete concept. A lot of good professionals use this approach.

 

Regarding the quoted piece, I've read all the MP boooks, but I could not confirm the validity of the concept of "time at price". For example in European markets like the Dow Jones Euro Stoxx (FESX) you will see that during lunch hour and especially in the last 2 hours price might not move that much and thus stay for a long time at certain prices, but that's not because the participants accept that price, it's because most participants have gone to lunch or home. You can see this because there is usually a lot less volume, the sum of the volume from 17:30 to 18:00 is most days as much as during 18:00 and 22:00 o'clock, that's 30 min vs. 4 hours.

[MightyMouse 12]

Actually the volume distribution shown on the right is based on volume of past last year, so I do not understand why you think this could not be applied in real-time since this information is available bevor the trading session has even started. Could you please elaborate? I might be missing something...

 

Sure it's available. No question, but, then, given the information, how you develop real time trading rules that offer a favorable risk/reward using the 3-2-1 approach? If you can't figure out a way to trade it so that your gains are larger than your losses, what is the point?

 

Bottom line, why should you pay these people for this info?

 

Also, I think that there are no net distinctions between commercial or hedge markets and non commercial or hedge markets. MP works with every market. I trade many different markets using MP. Each market has a different "personality", but MP is equally applicable. You can certainly prefer to trade one market over the other and defend your decision with religious fervor, but that doesn't make one better than the other for everyone else.

[AgeKay 10]

Mighty, thank you for your response.

 

Bottom line, why should you pay these people for this info?

 

I don't think you should either. I said in my initial post that I am not interested in their software/chat room/brokerage. I just read that thread and found their ideas interesting and that's why I wanted to hear feedback from other traders on it.

[janus 10]

slight deviation from the topic. Their software uses eSignal data and eSignal doesn't provide Tick data for one year. How they generate Volume at price data for one year? They must have some algorithm to generate Volume at Price data using Minute/daily data. The point is that the cumulative volume histogram on their charts is not based on true Tick data.

[bh_trade 10]

I believe Trademaven addressed this point in their ET thread and they emulate tick/volume histograms using 1 minute bars. Not a perfect solution, but should be close, especially over larger cumlulative timeframes.

 

slight deviation from the topic. Their software uses eSignal data and eSignal doesn't provide Tick data for one year. How they generate Volume at price data for one year? They must have some algorithm to generate Volume at Price data using Minute/daily data. The point is that the cumulative volume histogram on their charts is not based on true Tick data.

[AgeKay 10]

I believe Trademaven addressed this point in their ET thread and they emulate tick/volume histograms using 1 minute bars. Not a perfect solution, but should be close, especially over larger cumlulative timeframes.

 

slight deviation from the topic. Their software uses eSignal data and eSignal doesn't provide Tick data for one year. How they generate Volume at price data for one year? They must have some algorithm to generate Volume at Price data using Minute/daily data. The point is that the cumulative volume histogram on their charts is not based on true Tick data.

 

One more reason not to buy their software. I am currently developing a program that will display this kind of information since I have to make sure this is implemented correctly using actual volume of each trade.

[BlowFish 10]

I guess the problem is fining a data source that provides not only historical data for trades but of bid ask changes as well. These will need to be time stamped correctly too. You can assume that volume on an uptick is likely to be at the ask but that is an approximation too is it not?

[Guest forsearch]

I guess the problem is fining a data source that provides not only historical data for trades but of bid ask changes as well. These will need to be time stamped correctly too. You can assume that volume on an uptick is likely to be at the ask but that is an approximation too is it not?

 

It is indeed. I think Sierra Charts has historical data with bid ask changes, or at the very least you can save the data from a real time feed yourself.

 

More info here: http://www.sierrachart.com/index.php?file=doc_DataSourceSettings.html

[AgeKay 10]

I think this is no problem since you can buy tick data directly from the exchange, at least this is the case for CME Group and Eurex, which is always time stamped correctly. I don't see what you need the inside market for to create the volume distribution. Even if you don't have that information, using up-ticks for trades at the ask and down-ticks for the trades at bid is a very very accurate approximation.

 

Blowfish, what is your general opinion on this volume analysis?

[BlowFish 10]

Blowfish, what is your general opinion on this volume analysis?

 

Well it clearly adds another dimension of data. But despite looking at it on and off for I guess a couple of years (or maybe more) I have not really found a satisfactory way to integrate it into my trading. I wonder if it's a forest and trees scenario? This is fairly much tree type information, sometimes looking at less produces better results. I also wonder whether often you can get pretty similar information just looking at pure volume.

 

I still remain open minded to the idea that I might be able to use this type of information to provide a better read than simple volume however.

 

On the subject of Tradmaven I think it's a good illustration on how a sponsor can run a thread in a professional manner. It's one of the few at ET that I follow.

[AgeKay 10]

BlowFish, thanks for your comment.

I have one more question: What do you mean by 'pure volume' or 'simple volume'? Do you mean the volume histogram that is shown on the bottom on bar/candle charts where there is a volume bar for each bar/candle or do you mean volume per trade that is shown time & sales?

[BlowFish 10]

Yup, thats exactly what I mean.

[AgeKay 10]

Well, which one? Or do you mean both?

[BlowFish 10]

Yes in comparison to using a bar chart with a 'regular' display of volume below it. Call it simple pure old fashioned or whatever you will.

[ammo 10]

on your ques about low volume and higher vol,pete stodlemier said if you sell a sweater(assuming you own a sweater store) at $30 and you sell out in one day,then you raise the price,eventually your selling 1 sweater a week for $150 so you lower the price til they start selling again,supply and demand,so on your mp chart where there is 1 letter at the top ,they only sold one sweater. You can see this with the chart,i don't know that you need volume indicators to confirm it.

[ammo 10]

the nip on the chart represents where the most buyers and sellers were in agreement on price,the previous days untested nips show where most of them got short or long and would be anxious to get flat without a loss

[AgeKay 10]

on your ques about low volume and higher vol,pete stodlemier said if you sell a sweater(assuming you own a sweater store) at $30 and you sell out in one day,then you raise the price,eventually your selling 1 sweater a week for $150 so you lower the price til they start selling again,supply and demand,so on your mp chart where there is 1 letter at the top ,they only sold one sweater. You can see this with the chart,i don't know that you need volume indicators to confirm it.

 

I never really like steidlemeyers examples in his books. They make sense when you read them, but they don't make much sense in the futures markets. The margin requirement does not change when the price goes up (unlike sweaters), so the actual prices of a futures contract does not matter to anyone. When you enter a trade, do you care that it's now so much more 'expensive' since it is 100 points higher than last week? No, you don't. The only people that care are those that have a position in that market because they are account is currently up or down based on that price change. Volume can show you where traders entered their position. Ammo, gave a great example in the previous post how you can interpret that volume.

 

Another difference is that when you buy a sweater in a store, you don't have to sell it back to the store, but in the futures markets you do (eventually).

[ammo 10]

when a gal buys a sweater,which does she enjoy more,buying it or returning it?

[BlowFish 10]

Actually the MP chart is a proxy for volume PS has said as much (though please don't ask me to try and find the quote!). The assumption is that if price only stays at a level for one TPO that the volume transacted at that level is likely to be lighter than if it remained at that level longer. Also the sweater analogy is a about volume@price (over a sample time of a week).

 

Ignore me I am just being picky

[AgeKay 10]

Actually the MP chart is a proxy for volume PS has said as much (though please don't ask me to try and find the quote!). The assumption is that if price only stays at a level for one TPO that the volume transacted at that level is likely to be lighter than if it remained at that level longer.

 

BlowFish, I am glad you mention this. I always wondered why MP traders don't use volume@price instead of MP since it is more accurate since time@price was only used as approximation because they did not have real-time volume information when the "father's of MP" created it. And the MP approximation for volume falls short when there are times of constantly low volume like the last 4 hours of trading in the European markets. Or do you think time@price has another significance?

 

Also the sweater analogy is a about volume@price (over a sample time of a week).

 

I was also talking about volume@price when I showed that the sweater analogy is non-sense and the time period does not matter since still only those traders care that have an open position.