[shooting star] Tweezers & Shooting Stars

[james_gsx 16]

To be 100% honest I do not really understand how SD works - all I know is that after observing it for over a year price rarely goes much further than the 2nd SD. Since trading is a probabilities game knowing that the 2nd SD is a price extreme gives me a little edge. Add a significant resistance level and vavoom! (felix the cat)

 

 

It's actually quite simple, since you're using 2nd SD the idea is most of the data is constructed within that range - so it would make the 2nd SD an extreme. If we assume the data is a regular bell shaped curve we can use the empirical rule, so your 2nd SD covers 95% of that curve. You can Google Empirical Rule if you want to see a picture of it. Your risk lies outside of that range, if price moves beyond that level, albeit rare from a statistical point of view, then the extremes are much more volatile - hence why risk management is important here.

 

For example, Big Important Investment Bank (BIIB) says our Value at Risk is $x, they are saying if we experience a 3rd standard deviation event, we can expect to lose X amount of money. This is fairly accurate, since that takes up 99.7% of your distribution. But again, that .3% is where everything goes to hell, because it can easily flare from 3rd SD to say, 6.

 

If we think about this from a trading perspective, it also makes sense you see a shooting star. As price hits that extreme, people are naturally less apt to participate in the move, so it's easy to fade. Again, it's at that 95% extreme, hence where it mathematically makes sense at a very basic level.

 

Sorry for the long rant, but hopefully now you have a better idea of what you're looking at when you see price touch that level.

 

Overall looks like an interesting and simple strategy. Good job.

[enochbenjamin 10]

Your risk lies outside of that range, if price moves beyond that level, albeit rare from a statistical point of view, then the extremes are much more volatile - hence why risk management is important here.

 

My stop is never more than a tick or two above the shooting star. If the wick is very long, say more than 10-15 ticks away I will pass on the trade. So for me it is always a low risk trade.

 

Also thanks for the very understandable explanation of standard deviation. It confirms my belief that fading the 2nd SD is a very high probability, low risk trade.

[gooni 10]

The 2nd SD only contains 95% of values within a normal distribution. Not to put water on anyone's fire, but market movements are hardly normally distributed. Regardless, they will occur at the edges of an extended market - as long as you can manage your risk on the smaller percentage of days that consistently stretch beyond, it is a viable strategy.

[Grey1 10]

Tweezers at any significant support or resistance level are usually pretty reliable.

 

 

note: in the image i mistakenly labeled S as R. The tweezers formed at support.

 

The tweezers formation ( double exhaustion ) is best when it either hits 3 Over bought levels/Oversold levels or hits S/R...

 

10 , 30 , and 60 min are the time frames for intra day trading. As soon as these levels are reached look either for tweezers or shooting star . These are high probabality reversal pattern.

 

Now,, in extreme trending market the retest of exhaustion levels( tweezers levels) is very possible ,, so if your entry is not spot on then the price might go your way first to come back to haunt you before eventually going your way ,,

 

one Further point :-

 

if tweezers are formed against the strong trend ( this is what most traders do and is in correct ) then this is counter trend trading and over a long period the reward does not justify the risk as statistically not more than Reward/Risk= 1 is attain able. How ever if the tweezers are formed in the direction of trend then this is where the major wins are and trader should take a Full postion ( against 1/2 position if anti trade trending )

 

Grey1

[brownsfan019 17]

 

10 , 30 , and 60 min are the time frames for intra day trading.

 

10,30, and 60 min timeframes are incredibly way too long for daytrading.

 

 

Just the other side of the coin. One's opinion does not necessarily reflect absolute truth. I could not imagine using a 60 min chart to 'day' trade from...

[Zunaa 10]

Yep,

 

I can use 10m or 15 m but thats my max for daytrading, although I prefer to use less then 5m.

 

That said, a lot of traders do use 30m & 60m to daytrade.

[sep34 10]

Zunaa, I agree ...beyond 10-15m is really to high for daytrading. After all Time is an important variable in daytrading as there is a limited amount of it in each session.

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

 

The only difference between a 1m price pattern and 60m price pattern is TIME.

 

That same price dynamic that causes Tweezer pattern or Long hammer line or Inverted Hammer or any other reversal pattern ( too many to list ) has specific dynamic/pattern that can be seen on any interval. no need to limit your self to a specific Interval to see high probability reversals -- at the same time there is nothing wrong with using a 30 or 60m or what ever chart as a confirmation if its needed.

 

For example what is a 60min Tweezer if not a Double Bottom/Top on a lower interval ??

 

The key piece of the puzzel is where these patterns occur, other wise they are not as high probability.

[Grey1 10]

Yep,

 

 

That said, a lot of traders do use 30m & 60m to daytrade.

 

Agree,,,the main time frame for tweezers formation or exhaustion is 1 minute,, the 30 and 60 time frames are only to meausre the OB/OS levels using any available oscillator such as RSI or CCI ..

 

if you was position trading trading then the best time frame to meausre OB/OS would be daily /weekly /monthly or any proven S/R

 

Grey1

[enochbenjamin 10]

I think the timeframe you use depends on the markets you trade and the only way to know for sure is to put in the screen time.

 

On CL I think 5 mins works best as far as the reward aspect goes although I have traded the reversal candles on both 1 min and 3 min. 5 just gives you less head fakes.

 

[brownsfan019 17]

The exhaustion or formation of tweezers are on 1 min charts only but the OB /OS levels are on much higher time frame such as 10 , 30 , 60 min ,, shorter time frames reduce R/R to less than 1

 

you are right one's opinion is not absolute truth and you show such a resistance to learn and know the truth

 

Grey1

 

Not this again w/ you.

 

You show up, provide some gibberish talk that reminds me of Jack Hershey speak and then disappear into the sunset.

 

And then reappear to tell everyone how great you are and everyone else is wrong.

 

Fact - I trade the CL on a timeframes under 10 minutes.

Fact - I trade it profitably (and prove it).

 

So you can ramble on and on about knowing the 'truth' (whatever that means) but your opinions are just that and I was providing an opposite view of you (shocking).

[brownsfan019 17]

I think the timeframe you use depends on the markets you trade and the only way to know for sure is to put in the screen time.

 

On CL I think 5 mins works best as far as the reward aspect goes although I have traded the reversal candles on both 1 min and 3 min. 5 just gives you less head fakes.

 

 

Exactly - there is no perfect one size fits all answer, even if grey1 wants to ramble on about how he knows it all.

 

The CL is a marvelous instrument to trade and can be traded on a variety of timeframes.

[Grey1 10]

Not this again w/ you.

 

You show up, provide some gibberish talk that reminds me of Jack Hershey speak and then disappear into the sunset.

 

And then reappear to tell everyone how great you are and everyone else is wrong.

 

Fact - I trade the CL on a timeframes under 10 minutes.

Fact - I trade it profitably (and prove it).

 

So you can ramble on and on about knowing the 'truth' (whatever that means) but your opinions are just that and I was providing an opposite view of you (shocking).

 

 

I once told an ignorent that the probability of throwing a coin is 50/50 and he told me look

 

FACT ,, I just threw the coin 3 times and i got 3 heads so it cannot be 50/50

 

I did not continue the argument

 

Grey1

[BlowFish 10]

Grey I wonder if English is your first language? I think the way you write things might sound different to what you mean. Your write as if the way you do things is the only way to do them e.g.-

 

In one post you say "formation of tweezers are on 1 min charts only" (patently false. they can form on any TF chart). In the next post you say" the main time frame for tweezers formation or exhaustion is 1 minute,". (At least this acknowledges they can exist elsewhere but is a judgement call expressed as a fact). They actually mean quite different things. What I think you actually mean is ' I use tweezers on a 1 minute chart' to detect exhaustion'?

 

Just an observation.

 

P.S. I am utterly useless at written English which I am sure shows despite me making an effort

[Dinerotrader 10]

Grey I wonder if English is your first language?

 

I bet that is it or maybe he has no idea how to post in a forum in a constructive way. Every comment he makes destroys the learning process and information exchange of the thread. If is very easy to change one's posting style to one that is constructive but he apparently refuses to do so.

 

Its funny how the wisest people you'll ever meet or read about understand and freely admit that they know hardly anything but simply have many postulations about what really is.

 

Enochbenjamin, get some charts up here to get this thread back on track.

[enochbenjamin 10]

It doesn't get any better than this. If I had the patience to wait for set ups like this I would never lose!

 

[Tams 20]

It doesn't get any better than this. If I had the patience to wait for set ups like this I would never lose!

 

 

 

no need to wait,

 

you can set up an audio signal...

 

or get your charting program to send you an email, or SMS...

 

or even enter the order for you.

 

 

.

Tweezers_at_2SD.wav

[Kiwi 16]

Zunaa, I agree ...beyond 10-15m is really to high for daytrading. After all Time is an important variable in daytrading as there is a limited amount of it in each session.

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

 

The only difference between a 1m price pattern and 60m price pattern is TIME.

 

That same price dynamic that causes Tweezer pattern or Long hammer line or Inverted Hammer or any other reversal pattern ( too many to list ) has specific dynamic/pattern that can be seen on any interval. no need to limit your self to a specific Interval to see high probability reversals -- at the same time there is nothing wrong with using a 30 or 60m or what ever chart as a confirmation if its needed.

 

For example what is a 60min Tweezer if not a Double Bottom/Top on a lower interval ??

 

The key piece of the puzzel is where these patterns occur, other wise they are not as high probability.

 

 

I was having coffee monday with a guy who trades the equivalent of tweezers and shooting starts (pinbars, buobs, beobs) on daily charts. Having looked at those formations on a daily to hourly map I would suggest that they are more than double bottoms.

 

Why? Because the pinbars, and outside bar formations also (for him anyway) require a certain size to show that price was rejected solidly. So not only did you get a double bottom but price ended up leaving it and progressing strongly away from it.

[bathrobe 10]

I thought I would post this here because as much as I like this setup the only problem I see with it is on days when CL hugs the 2nd sd and rides it up, to add to your chances of success I would add another kind of filter, in this case, based on analysis I did Monday evening as it traded up to the 2nd sd it traded out of the recent value area and had a very good chance of selling off much more than it did.

 

To enter this I would have used a sell stop and continued to follow the market up with it (the probabilities are on my side for a large sell off). Although you cant see it the up bar that went to just below 81 is a shooting star. For me today below 7750 and above 8050 were unfairly priced as you can see by the red and blue profile at the far left.

 

The chart was to crowded with the vwap and sds on it but the move up to the high was hugging the 2nd sd.

[bathrobe 10]

I thought I would post this here because as much as I like this setup the only problem I see with it is on days when CL hugs the 2nd sd and rides it up, to add to your chances of success I would add another kind of filter, in this case, based on analysis I did Monday evening as it traded up to the 2nd sd it traded out of the recent value area and had a very good chance of selling off much more than it did.

 

To enter this I would have used a sell stop and continued to follow the market up with it (the probabilities are on my side for a large sell off). Although you cant see it the up bar that went to just below 81 is a shooting star. For me today below 7750 and above 8050 were unfairly priced as you can see by the red and blue profile at the far left.

 

The chart was to crowded with the vwap and sds on it but the move up to the high was hugging the 2nd sd.

 

I was wrong when I posted that price hugged the vwap on the way up. I still think a second filter is a good idea because price will hug the sd on a rally.

 

Today's (3/2) chart with profile and vwap, and 2 sd's

 

[ochie 10]

As a possible filter, you might consider the bar length compared to the distance between the SDs. You have bars approx. the same length or larger than the SD length. I think somewhere in the market stats thread this was brought up as a possible reason to pass on a trade. Another thought is this indicates the current SDs are not properly describing the volatility level and maybe a 3rd SD could be useful.

Edited March 3, 2010 by ochie

[bathrobe 10]

As a possible filter, You might consider the bar length compared to the distance between the SDs. You have bars approx. the same length or larger than a SD length. I think some where in the market stats thread this was brought up and a reason to pass on a trade.

 

Thanks , I will look into that. I was just passing along my current way of filtering when I trade oil, which is not a lot (mostly when the ES is slow), and my understanding of oil and deliverable futures contracts is probably not as much as others posting on this thread.

 

Chris

[enochbenjamin 10]

I thought I would post this here because as much as I like this setup the only problem I see with it is on days when CL hugs the 2nd sd and rides it up, to add to your chances of success I would add another kind of filter, in this case, based on analysis I did Monday evening as it traded up to the 2nd sd it traded out of the recent value area and had a very good chance of selling off much more than it did.

 

I agree that on days when price "hugs" the 2nd SD it gets a bit tricky. I have been searching for a secondary filter for a few months now and have determined that the best filter is good money management and accepting that there will be days when this just flat out does not work. With oil there is usually at least 1 day per week when price gets outside the 2nd SD and gives many false star/tweezers. On those days I used to lose big, but now I just accept a daily loss limit and look forward to the next day.

 

That being said I will start monitoring the value area as that would be a great way of selectively entering trades. One question - did you use the current days developing value area or the previos days?

[enochbenjamin 10]

Another thought is this indicates the current SDs are not properly describing the volatility level and maybe a 3rd SD could be useful.

 

Price traveling to the third SD is so rare that I don't think its worth the effort to add it to the charts. Also if price gets to the third SD then the market is REALLY trending and any fades would be unwise in my humble opinion.

 

This morning I was chatting with a fellow trader and I recall saying I was going to be VERY CAUTIOUS today because at 6:30 AM all the vehicles I monitor were outside of the 2nd SD. If price gets outside of the 2nd SD by more than a shooting star or tweezers you really should just pass on trying to fade. Just my opinion.

[bathrobe 10]

That being said I will start monitoring the value area as that would be a great way of selectively entering trades. One question - did you use the current days developing value area or the previos days?

 

I think your money management for oil that you first presented in the thread is very good and as we both know that is the key to trading success. I am sure you would be extremely successful trading oil with out any other filter because of your money management.

 

I used the value area beginning last Monday up until yesterday -red and blue, the white are daily- (I did my homework for today last night). Today's value area does not really matter to me but the unfair price, vwap and sd's do.

 

I usually use 3 days or 5 days, merged together. I posted them individually so it hopefully make more sense to people not familiar with MP and related analysis. I thought it would trade through the value area down near the lows from last Monday's lows, obviously it did not but it did hit the poc starting from last Monday to present.

 

Also, I thinkk the only way to enter Oil is using a sell stop.

 

I hope this answers your question,

 

Chris

Edited March 3, 2010 by bathrobe

[enochbenjamin 10]

Today there were 4 tweezer/shooting star set ups in CL. I only took the last one (+35). The reason I did not take the beautiful shooting star is because the risk would have been too great for my style. I put the SL 1 or 2 ticks beyond the candle that provides the star/tweezer. The reason I did not take the next two tweezers was because price was well beyond the 2nd SD and to me that was in no mans land - scary! The third set of tweezers was also outside of the 2nd SD but it was not so far away and was just coming out. It was a judgement call. Shorted at 8100 with a 8 tick stop. Because it was the end of the day I decided to ride her down to the 1st SD + some. From the way things ended I got out just in time.

 

 

A side note on the above tweezers. I don't like em. I prefer for tweezers to have long wicks. However, according to the candlestick sensei Steve Nison "Tweezers are two or more candlestick lines with matching highs or lows." He goes on to state "The tweezers could be comprised of real bodies, shadows, and or doji." (page 88, Japanese Candlestick Charting Techniques)

Edited March 3, 2010 by enochbenjamin
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