Reading Charts in Real Time

[thalestrader 14]

Hello Thales!

 

I hope you are doing fine!

 

Just one question about the setup:

 

If you anticipated that there could be support where you drew the uptrend line, why did you decide to go short at that point?

 

Thanks four feedback!

Leandro

 

Trend lines are meant to be broken.

 

I was actually going to make a point about how to draw trend lines according to Trader Vic but I got caught up in other things and never got back to it. I do not find trend lines to be particularly valuable. I have a friend who considers them a potential edge. I prefer trading according to highs and lows.

 

Best Wishes,

 

Thales

[traderbrazil 10]

Trend lines are meant to be broken.

 

I was actually going to make a point about how to draw trend lines according to Trader Vic but I got caught up in other things and never got back to it. I do not find trend lines to be particularly valuable. I have a friend who considers them a potential edge. I prefer trading according to highs and lows.

 

Best Wishes,

 

Thales

 

 

OK. Agreed!

 

But let me rephrase my question then...

 

I'm assuming that you already had that trendline drawn before you took the trade. In hindsight I can see that after price went below it, it could potentially become future resistance.

 

But what was its importance, if any, when you decided to take the trade?

 

I'm not sure if my question is clear enough.

 

Thanks once again,

Leandro

[thalestrader 14]

But what was its importance, if any, when you decided to take the trade?

 

It was of no importance whatsoever. I had drawn it to illustrate a point to someone else and I just never followed through and made the point. I rarely draw such trend lines myself.

 

Best Wishes,

 

Thales

[gooni 10]

re TVGR I have a section in the Guide to trading TTT that covers TVGR with some examples. This section came about after a long period of watching daily gap on the US indices. I included a PDF of that section of the book. I know it has nothing to do with TTT but i find it a usefull tool.

I don't normally post in this thread but follow it most days. Just wanted to comment on TVGR since it's come up a bit recently. Over the last 6 years on the ES I ran the time distribution for when a gap is closed:

 

Days - 2269

Total - 1557 / 2207 ( 70.5%)

 

Bars (Count) ( Pct) ( AccPct) Histogram

3 ( 648) ( 29.4%) ( 29.4%) ###############

6 ( 188) ( 8.5%) ( 37.9%) ####

9 ( 154) ( 7%) ( 44.9%) ###

12 ( 79) ( 3.6%) ( 48.4%) ##

15 ( 75) ( 3.4%) ( 51.8%) ##

18 ( 51) ( 2.3%) ( 54.1%) #

21 ( 36) ( 1.6%) ( 55.8%) #

24 ( 28) ( 1.3%) ( 57%) #

27 ( 16) ( .7%) ( 57.8%)

30 ( 25) ( 1.1%) ( 58.9%) #

33 ( 16) ( .7%) ( 59.6%)

36 ( 22) ( 1%) ( 60.6%)

39 ( 18) ( .8%) ( 61.4%)

42 ( 9) ( .4%) ( 61.8%)

45 ( 19) ( .9%) ( 62.7%)

48 ( 20) ( .9%) ( 63.6%)

51 ( 12) ( .5%) ( 64.2%)

54 ( 10) ( .5%) ( 64.6%)

57 ( 12) ( .5%) ( 65.2%)

60 ( 16) ( .7%) ( 65.9%)

63 ( 18) ( .8%) ( 66.7%)

66 ( 20) ( .9%) ( 67.6%)

69 ( 15) ( .7%) ( 68.3%)

72 ( 15) ( .7%) ( 69%)

75 ( 17) ( .8%) ( 69.7%)

78 ( 8) ( .4%) ( 70.1%)

81 ( 10) ( .5%) ( 70.5%)

 

The bars column is in 5 minute bars and each row represents 3 bars, so 15-minute periods. This tells us that:

 

1. 70.5% of gaps close (this is fairly consistently between 65% and 75% most years).

2. 50% of all days close the gap within the first hour - this means another 20% close over the rest of the day (very low odds) and another 30% don't close at all.

 

So, while the original TVGR rules (90% to 95% of gaps close in 15 minutes) aren't quite right, the odds are still against a closure once the first hour has passed. And yes, the above stats mean that just under 50% of gaps that eventually fill will fill in the first 15 minutes.

[thalestrader 14]

The bars column is in 5 minute bars and each row represents 3 bars, so 15-minute periods. This tells us that:

 

1. 70.5% of gaps close (this is fairly consistently between 65% and 75% most years).

2. 50% of all days close the gap within the first hour - this means another 20% close over the rest of the day (very low odds) and another 30% don't close at all.

 

So, while the original TVGR rules (90% to 95% of gaps close in 15 minutes) aren't quite right, the odds are still against a closure once the first hour has passed. And yes, the above stats mean that just under 50% of gaps that eventually fill will fill in the first 15 minutes.

 

Thank you for sharing. The only thing I would tweak would be to point out that when Vic used the 90%-95% odds, he was saying that if the Gap did not fill soon after the open, there was a 90-95% chance that the gap would not fill during that session, and would likely close in the direction of the gap. Thank you for posting this here.

 

Best Wishes,

 

Thales

[gooni 10]

Thank you for sharing. The only thing I would tweak would be to point out that when Vic used the 90%-95% odds, he was saying that if the Gap did not fill soon after the open, there was a 90-95% chance that the gap would not fill during that session, and would likely close in the direction of the gap. Thank you for posting this here.

 

I understand. Vic's odds are still wrong (but may have been right at the time..). If we just look at gaps that close (70% of days), 50/70 of those (about 70%) close in the first hour. In the first 15 minutes, only 30/70 (43%) close. Vic states 90% to 95%, not 43%.

 

I'm completely ignoring the days that don't close the gap at all. I'm also not considering the final close for the day, just whether the gap is filled. Perhaps he doesn't care about the gap fill, but just the final close. Personally, I want to know where price shouldn't visit, rather than just where it might end up. Stats for where it closes would be worthwhile to run.

 

If I'm still missing something, please point it out. Otherwise, while TVGR is still a very useful rule, one must understand the true odds.

[thalestrader 14]

I'm completely ignoring the days that don't close the gap at all. I'm also not considering the final close for the day, just whether the gap is filled.

 

I am not following you here. No matter how many times I read the above sentences, I cannot understand what you are doing there. I'm not criticizing you, and I suspect any fault lies with me. I'm just saying I do not get what you mean,. I think I am especially confused by what you mean when you say you are ignoring the days that don't close the gap at all.

 

Have you run the back test on the cash S&P index?

 

Have you run the data on the NYSE index?

 

Best Wishes,

 

Thales

[gooni 10]

Heh, I guess I'll try to be clearer.

 

Odds of gap filling: 70%

Odds of gap filling in first 15 minutes: 30%

Therefore, odds of gap filling after first 15 minutes: 40%

 

So, if gap doesn't fill in first 15 minutes (30% of days), there are still two options. One option is that the gap fills some other time in the day. This happens on another 40% of days. The second option is that the gap doesn't fill at all. That happens on the last 30% of days.

 

In any 10 days, 3 days the gap will fill in 15 minutes, 4 days it will fill in the rest of the day, 3 days it will not fill at all.

 

I didn't mean to derail the thread, but I hope this is clear. This was run on futures data so 4:15pm close was taken. Yes, on rollover this may cause slight discrepancies but this hardly effects the odds.

[jands 10]

Heh, I guess I'll try to be clearer.

 

Odds of gap filling: 70%

Odds of gap filling in first 15 minutes: 30%

Therefore, odds of gap filling after first 15 minutes: 40%

 

So, if gap doesn't fill in first 15 minutes (30% of days), there are still two options. One option is that the gap fills some other time in the day. This happens on another 40% of days. The second option is that the gap doesn't fill at all. That happens on the last 30% of days.

 

In any 10 days, 3 days the gap will fill in 15 minutes, 4 days it will fill in the rest of the day, 3 days it will not fill at all.

 

I didn't mean to derail the thread, but I hope this is clear. This was run on futures data so 4:15pm close was taken. Yes, on rollover this may cause slight discrepancies but this hardly effects the odds.

 

Your tedious work is appreciated:)

[thalestrader 14]

Heh, I guess I'll try to be clearer.

 

Odds of gap filling: 70%

Odds of gap filling in first 15 minutes: 30%

Therefore, odds of gap filling after first 15 minutes: 40%

 

So, if gap doesn't fill in first 15 minutes (30% of days), there are still two options. One option is that the gap fills some other time in the day. This happens on another 40% of days. The second option is that the gap doesn't fill at all. That happens on the last 30% of days.

 

In any 10 days, 3 days the gap will fill in 15 minutes, 4 days it will fill in the rest of the day, 3 days it will not fill at all.

 

I didn't mean to derail the thread, but I hope this is clear. This was run on futures data so 4:15pm close was taken. Yes, on rollover this may cause slight discrepancies but this hardly effects the odds.

 

No problem, you aren't derailing anything at all.

 

The one addendum I have always added to the TVGR, going back as long as I have incorporated an awarenss ofthe TVGR, which is years upon years (and jands, who has known me for years, can attest to that fact) is that I include the further requirement that price immediately trend in the direction of the gap. In other words, TVGR becomes very useful if the market gaps and trends in the direction of the gap, and itis not nearly so useful if the market gaps and stalls, goes sideways, or, obviously closes the gap. I'm wondering if that 30% where the gap does not fill also are days in which the low of the day (for gaps higher) or high of the day (in the case of gaps lower) was printed, say, within the first 15 minutes of the open (and quite possible within the first 15 seconds). I would bet that is the case, because your 30% figure sounds right as far as a gap being indicative of a trend day in the direction of the gap.

 

Best Wishes,

 

Thales

[patrader 10]

No problem, you aren't derailing anything at all.

 

The one addendum I have always added to the TVGR, going back as long as I have incorporated an awarenss ofthe TVGR, which is years upon years (and jands, who has known me for years, can attest to that fact) is that I include the further requirement that price immediately trend in the direction of the gap. In other words, TVGR becomes very useful if the market gaps and trends in the direction of the gap, and itis not nearly so useful if the market gaps and stalls, goes sideways, or, obviously closes the gap. I'm wondering if that 30% where the gap does not fill also are days in which the low of the day (for gaps higher) or high of the day (in the case of gaps lower) was printed, say, within the first 15 minutes of the open (and quite possible within the first 15 seconds). I would bet that is the case, because your 30% figure sounds right as far as a gap being indicative of a trend day in the direction of the gap.

 

Best Wishes,

 

Thales

Excellent observations Thales.Trends from the open are rare but usually occur when the market gaps big and never looks back closing at or near its high of the day.This type of day traps countertrend traders repeated all day who don't recognize the type of day early on and just fuels the trend.Days that close the gap early are usually either trading range or trending trading range days where trading both sides of the market can be successful depending the size of the range.

When the market waits to close the gap till later in the day you usually get a spike and channel followed later by a retrace of the channel and then a closing of the gap.HTH

[gooni 10]

No problem, you aren't derailing anything at all.

 

The one addendum I have always added to the TVGR, going back as long as I have incorporated an awarenss ofthe TVGR, which is years upon years (and jands, who has known me for years, can attest to that fact) is that I include the further requirement that price immediately trend in the direction of the gap. In other words, TVGR becomes very useful if the market gaps and trends in the direction of the gap, and itis not nearly so useful if the market gaps and stalls, goes sideways, or, obviously closes the gap. I'm wondering if that 30% where the gap does not fill also are days in which the low of the day (for gaps higher) or high of the day (in the case of gaps lower) was printed, say, within the first 15 minutes of the open (and quite possible within the first 15 seconds). I would bet that is the case, because your 30% figure sounds right as far as a gap being indicative of a trend day in the direction of the gap.

 

Best Wishes,

 

Thales

 

Interesting observations. I tested this in various ways (gaps up only at first):

 

1. Market opens, first 15 minute bar doesn't close gap and closes up, second 15 minute bar breaks above first bar high. Chance of gap closure by close? 37%. This happens on 7% of days.

 

2. As above, but market opens above previous day high (big gap up). Chance of gap closure by close? 27%. This happens on almost 3% of days.

 

3. As above but using first and second 30 minute bar instead and odds drop to 29% and 24% respectively. This is expected since an OR30 breakout is more directional than a OR15 breakout, and there's less time in the day. Of course, this happens slightly less often.

 

4. If we consider the odds provided above in order as 37%, 27%, 29%, 24% - the corresponding odds for gaps down are 32%, 23%, 25%, 23%, so marginally less likely to close. These happen happen about as often (6% to 8% for regular gap downs, 2% to 3% for gaps below previous days low).

 

I hope everyone is clear how useful this information is. On around 15% of days, the market will gap and break out of its 15 or 30 minute opening range away from the gap. If this breakout bar also closes away from gap, you would want a lot of momentum back towards the gap to trade against this TVGR.

 

The numbers are good - not 90% to 95% good, but good enough to not trade against without good reason.

[gooni 10]

Just one addendum to the above, gap closures once the first 30 to 60 minutes have played out happen at any point during the day - fairly random distribution, slightly correlated to the expected volatility at that time of day. That is, for the 30% of days that defy the odds and close the gap, it can happen at any point. So be mindful of the reversal...

[BlowFish 10]

I understand. Vic's odds are still wrong (but may have been right at the time..). If we just look at gaps that close (70% of days), 50/70 of those (about 70%) close in the first hour. In the first 15 minutes, only 30/70 (43%) close. Vic states 90% to 95%, not 43%.

 

I'm completely ignoring the days that don't close the gap at all. I'm also not considering the final close for the day, just whether the gap is filled. Perhaps he doesn't care about the gap fill, but just the final close. Personally, I want to know where price shouldn't visit, rather than just where it might end up. Stats for where it closes would be worthwhile to run.

 

If I'm still missing something, please point it out. Otherwise, while TVGR is still a very useful rule, one must understand the true odds.

 

Playing thread catchup so forgive me if this has been mentioned. I think there might be a minor issue in interpretation.

 

Apparently Vic says that if the gap does not close in the first hour we will close up. The way I read this is the day will close up. The 30% that never close the gap will almost certainly close the day up. (unless they close the day within the gap in which case they are up with respect to yesterdays close but down with respect to todays days open).

 

With respect to the 20% of gaps that close later in the day, provided 15%+ of them finish the day up with respect to the open (i.e fill the gap then move back in the gaps direction) his statistic is good.

 

If that makes ny sense

[gooni 10]

Without the 'trending' criteria I outlined earlier, compared to the open it will close in the direction of the gap between 50% and 55% (no edge). Compared to the previous days close, it will close in the direction of the gap between 70% and 75% of the time (if the gap isn't closed in the first 30 minutes).

 

Now, if I add the trending component (only on 30 minute bars again), the chances of closing up are 85% (compared to previous close) and 65% to 70% compared to current open.

 

There are two options here:

 

- Vic's stats are wrong

- His stats were right in his time and the market has changed

 

If I were to write a TVGR for today's ES market (note that's the only market I analysed, being short on data and time), it would say:

 

"If the first 15 to 30 minutes of market open trends in the direction of the gap, then there is greater than 80% chance the market will close in the direction of the gap for the day. Furthermore, there is only between 25% and 35% chance the gap will fill at all during the day. This is in stark contrast with the usual gap fill chance of 70%".

 

As it stands, I believe much of this phenomenon has to do with the distance the market is away from the gap at the point that these statistics kick in. There is already a very strong correlation between gap size and gap fill chance. I wouldn't be surprised to find that these stats are indicative of the percentage chance of a reversal move of N points being made once a market closes twice in any direction. I may yet test this...

[BlowFish 10]

I don't see any figures for close in the direction of the gap in your tables gooni. Maybe I am missing something. Could you post the full table with the close in direction of gap column? it would make it easier to follow.

 

Edit: i see you said earlier "I'm also not considering the final close for the day, just whether the gap is filled. Perhaps he doesn't care about the gap fill, but just the final close" This is all he cares about (well it is all the statistic he presents cares about). The price could go limit down but as long as it closes back in the direction of the gap then he includes it in the 90%. Just saying you can not comment on his stat without considering the direction of the close as that is exactly what it pertains to.

 

Just trying to clear up the confusion Keep up the good work!

Edited May 3, 2010 by BlowFish

[gooni 10]

My apologies if I didn't make this clear earlier - I've been running many different tests other than the one I posted the full breakdown for. I find the full breakdown unnecessary unless there is an interesting 'time' component to the results.

 

So where I'm spitting out percentages, they are generally based on different tests which I've tried to articulate. Testing how the day closes compared to both the previous days close and the current days open is the last set of tests I did, as per the clarification you highlighted. This is different to the initial run.

 

I may start another thread on ES statistics if there are questions people would like answered, especially regarding intraday tendencies based on contextual setups (setups can be both intraday and across many days, and can include complex analysis such as market profile for example). I could use the research practice, I'm a bit rusty.

 

Anyway, back to your regular scheduled programming.

[BlowFish 10]

Ahh OK.

 

I would certainly be interested in such a thread. A poster named Frank has posted odd findings now and then. I once did a study of 'floor' pivots (previous days (h+l+c)/3) and discovered a couple of interesting stats. It was as much an exercise in coming up with a process (I used excel). Incidentally what do you use to calculate your figures? I guess things like MatLab or R are overkill. A data mining focused package might be interesting to fiddle with.

 

It is quite appealing to look for strategies based on simple phenomena than have a solid statistical basis.

[thalestrader 14]

Current view of the USDJPY monthly. I have been posting this as ti develops since the beginning of the year. Last month the long entry triggered, after which price declined below entry testing some near term support better seen on daily charts, and it is now poised more or less at entry. Blue is entry, red is stop loss (which could probably be moved up to just beneath last month's low), green are profit targets ...

 

 

 

Best Wishes,

 

Thales

[gooni 10]

Ahh OK.

 

I would certainly be interested in such a thread. A poster named Frank has posted odd findings now and then. I once did a study of 'floor' pivots (previous days (h+l+c)/3) and discovered a couple of interesting stats. It was as much an exercise in coming up with a process (I used excel). Incidentally what do you use to calculate your figures? I guess things like MatLab or R are overkill. A data mining focused package might be interesting to fiddle with.

 

It is quite appealing to look for strategies based on simple phenomena than have a solid statistical basis.

 

NeoTicker :-) Great piece of software if you know how to use it. You can google "Time Distribution Analysis" along with "NeoTicker" for an idea of how I did these tests (although I rewrote that indicator to allow it to do quite a few extra bits and pieces).

[BlowFish 10]

NeoTicker :-) Great piece of software if you know how to use it. You can google "Time Distribution Analysis" along with "NeoTicker" for an idea of how I did these tests (although I rewrote that indicator to allow it to do quite a few extra bits and pieces).

 

I used to use Neo some while back. Really excellent software for a whole bunch of stuff. It has a steepish learning curve but once mastered the power is really impressive. Actually I was thinking of going back to it to do some research on tick by tick order book analysis. Not many packages have an architecture that can accommodate that. Laurence is a sharp guy.

[Plaste 10]

On the question of opening gaps here are some stats you might find useful.

From S&P futures.

If the open - close yesterday is greater than 0.1 x 10 day ATR then buy open:

 

Trades 1326

Win 176 points

Win % 54.3

 

If the close yesterday - open is greater than .2 * 10 day ATR then sell open:

 

Trades 781

Win 292 points

Win % 49.17

Stats from 19970101. No slippage or commission.

 

Not much information on their own but definitely useful when combined with some kind of 'move off the open' strategy as advocated by Thales. Eg yesterday it helped to make 7 points at a time of the month when I would normally only be going long.

[Plaste 10]

On the question of opening gaps here are some stats you might find useful.

From S&P futures.

If the open - close yesterday is greater than 0.1 x 10 day ATR then buy open:

 

Trades 1326

Win 176 points

Win % 54.3

 

If the close yesterday - open is greater than .2 * 10 day ATR then sell open:

 

Trades 781

Win 292 points

Win % 49.17

Stats from 19970101. No slippage or commission.

 

Not much information on their own but definitely useful when combined with some kind of 'move off the open' strategy as advocated by Thales. Eg yesterday it helped to make 7 points at a time of the month when I would normally only be going long.

 

But despite the big gap down and move away from the open this morning the system hasn't given a signal. An interesting day ahead.

[Marko23 10]

Just a sign of life from me.

 

EUR/USD had a nice Long signal this morning

[Marko23 10]

Short possible, but above support zone.