Early Warning - Again

[UrmaBlume 10]

We do not trade longer than the session and usually consider reference to longer time frames more of a distraction than a help but the magnitude of late in the divergences between longer term price movemtments and buying and selling volumes is historic.

 

On the second of May we made an intermediate term high in the S&P. At the same time, as reflected by the chart below, there was a huge negative divergence between price and our indicator of Net New Trade. For the next 2 months price clung to the areas of this high while NNT continued to reflect an increasing divergence between trade volumes/order flow and price action.

 

Price broke and made a bottom on the 9th of August. The S&P then rallied for about 40% of the total drop into a zone of consolidation.

 

During that rally of 109 S&P points NNT rose by a total of 87,082 contracts. Of note is that in mid April there was a smaller rally of 83.25 points and the attendant rally in NNT was 350,829 contracts. This divergence could prove to be as significant to pice as the divergence that spawned this most recent break in price.

 

While this sort of notation is way beyond the time frames of consideration of the intra-session trader it is useful background for traders of any timeframe. Of note also is the old TA axiom that as a rule a horizontal consolidation is a formation of continuance, not reversal, around 2/3 of the time, and that further the move out of the consolidation is usually in the same direction as the move into the consolidation and of equal or greater length.

 

For the trading done by me and mine this is an observation of a time frame that is of the LEAST importance but the nature of the formations and the size of the divergences are hard to ignore.

 

Please click to enlarge image

 

 

Cheers

 

UrmaBlume

[UrmaBlume 10]

While we seldom play in these higher time frames, a new low in Net New Trade within the session usually foretells a new low in price.

 

Today's day session trade in ES summed to -87,575 contracts which produced a new low in the longer term NNT as shown below:

 

 

Please click to enlarge image

 

 

cheers

 

UrmaBlume

[getwore 10]

UB,

 

Thanks for posting. This is interesting and different perspective that i used to.

[clmacdougall 11]

Pat, when it comes to changes in net new trade are you basing it on differences in average cumulative volume for a time period or are you actually basing it on buyer seller imbalances? Thanks, Cory

[UrmaBlume 10]

Pat, when it comes to changes in net new trade are you basing it on differences in average cumulative volume for a time period or are you actually basing it on buyer seller imbalances? Thanks, Cory

 

Cory,

 

We think that of the time/price/volume continuum, time is by far the least important and is given practically no weight in any of our calculations. The only time based chart we ever use is the daily shown here.

 

The only place where time motivates price, that we know of, is related to premium decay in certain derivatives. The passage of time does not motivate change in price, it is the occurence of trade that motivates price. More specifically it is an imbalance in that trade that is the prime mover of price.

 

 

cheers

 

pat

[clmacdougall 11]

Thanks Pat

 

When I check out your website it seems to break down imbalances in normalized trade and normalized volatility in your scanset 2.0. Are both of these metrics based upon imbalance in the now or are they based upon a comparative behaviour of x number of days worth of average volatility / volume. The reason I ask is wouldn't the chosen number of days in your average begin to skew your results/analysis if the nature of the markets change in the short term.

[UrmaBlume 10]

Thanks Pat When I check out your website it seems to break down imbalances in normalized trade and normalized volatility in your scanset 2.0. Are both of these metrics based upon imbalance in the now or are they based upon a comparative behaviour of x number of days worth of average volatility / volume. The reason I ask is wouldn't the chosen number of days in your average begin to skew your results/analysis if the nature of the markets change in the short term.

 

Cory,

 

To some degree, here, we are starting to talk about both apples and oranges. Scanset 2.0 is more about target/instrument selection than it is about trading protocol.

 

The operative terms when talking acout this application are Relative and Normalized.

 

It takes an unusual commitment of capital to produce unusual relative relative volume and it takes unusually imbalanced trade to produce unusual relative price volatilities.

 

To make these calculations relative they must first undergo a process we call "serial normalization," that is normalized for instrument, time segment and time of day.

 

Since all of the target instruments are normalized under the same process then changes in the longer term market becomes irrelevant as the results are relative rather than absolute. 200% of relative volume still compares the same way to an instrument with 80% of relative volume regardless of the time/days considered.

 

This kind of processing is an essential part of preprocessing inputs to the development of intelligent agents and data mining operations.

 

cheers

 

pat

[clmacdougall 11]

Thanks Pat, my learning curve is still steep. Forgive my ignorance!!:doh: I'm learning to identify imbalance and entrance of strong anti trend participation. Thanks for the reply!

[UrmaBlume 10]

Again - while our experience has not much to do with longer than the session time frame, recent market action seems to be screaming clues for every time frame.

 

Yesterday's NNT made lower lows. Friday's open was straight up.

 

At one hour into the session, classic top signals by commercial trade and certain other indicators nailed what would prove to be the session high and from there price action produced a reversal day down and further new lows.

 

Here is the graph that nailed Friday's High:

 

Please Click to Enlarge Image

 

Further lower lows in the longer term Net New Trade, as of Friday's close, are demonstrated here:

 

Please Click to Enlarge Image

 

 

 

cheers

 

UrmaBlume

[steve46 12]

We also "nailed" the high, based a simple use of the Bollinger Bands

 

As you can see price comes to a point of exhaustion...this is characterized by a close outside the band...with the next open inside...

 

At this point to confirm our entry, we read the tape...and from there its a walk in the park....

 

Today the market was propped up by commercial activity but the broad market didn't participate much, as a result when the commercials stepped back the market dropped...

 

If you had some experience to call on, it was a relatively normal Friday.

 

Good luck everyone

Steve

Edited August 19, 2011 by steve46

[getwore 10]

Steve 46,

 

Thanks for your post. What setting are you using for your BB ? if it not Proprietary Indicator.

[steve46 12]

Steve 46,

 

Thanks for your post. What setting are you using for your BB ? if it not Proprietary Indicator.

 

Ok So you have to take few moments to tune this to the local volatility. For me that means manually backtesting using both 15 min and 2 min charts with candles (no bars please)

 

Also the standard setting is fine to begin with, but you should do some research on the technical basis of Bollinger Bands, and what I mean by that is....the statistical properties that you want to exploit should be understood before you try this strategy...I go over these elements in my class....however there's no reason you can't do this homework for yourself..

 

 

For the current vol (average about 33 over the last few days on the S&P Futures) I have been using 2 min with BB set to 3SD most of the time.....

 

and finally, I read the tape....I have said this often and it bears repeating....I never pull the trigger without reading the tape..once you learn how to do it....it becomes pretty easy to confirm your entry....

 

Hope this puts you on the right course...

 

Good luck

Steve

[clmacdougall 11]

I think the thread has moved

[MadMarketScientist 11]

I think the thread has moved

 

Hi,

 

To keep this thread on topic, I've moved all the vendor talk to another thread: http://www.traderslaboratory.com/forums/general-discussion/10633-vendors-vendors-vendors.html

 

thanks,

MMS

[UrmaBlume 10]

Intra-session when NNT makes new lows and price is sideways it is usually a warning that new lows in price are soon to come:

 

Given that the current formation is a horizontal consolidation and that they are most often formations of continuation rather than reversal and as an odds person - I put the odds at 2 to 1 in favor of a 100 point decline below the current formation over a 100 point rise above the current formation.

 

Todday's session NNT was a minus -57,299 contracts for another new low in NNT.

 

Please click to enlarge image

 

 

cheers

 

UrmaBlume

[onesmith 10]

While moving ALL vendor talk to another topic, you missed the post by steve46 (two posts above yours) in which he says "...I go over these elements in my class...."

 

 

Hi,

 

To keep this thread on topic, I've moved all the vendor talk to another thread: http://www.traderslaboratory.com/forums/general-discussion/10633-vendors-vendors-vendors.html

 

thanks,

MMS

[steve46 12]

I suspect he did that because I don't sell anything (my class is closed), while Urma Blume continues to sell his product(s)

 

I realize that this is not an important distinction on your planet....

 

 

Live long and prosper

Steve

Edited February 5, 2012 by steve46

[onesmith 10]

UrmaBlume has a tangible product and he adds content to the forum.

 

I suspect he did that because I don't sell anything (my class is closed), while Urma Blume continues to sell his product(s)

 

I realize that this is not an important distinction on your planet....

 

 

Live long and prosper

Steve

[steve46 12]

You know I have changed my mind....I think everyone should buy Urma's wonderful indicator

 

I look forward to a world where everyone trades using it....

 

Steve

Edited February 5, 2012 by steve46

[Kiwi 16]

Wasn't it amusing when Urma came out of the closet. After denying that he would sell anything to anyone here ... whoops ... he was what I always accused him of "an egotistical old fraud or a vendor."

 

I was never sure which one it would be - comfort with uncertainty is important don't you think? :helloooo:

 

I join you Steve in hoping that your antagonist shut the fxxx up and buy some of Urmas stuff. Then he can tell us how wonderful it was if he survives the experience. Which of my suppositions about ub will prove more correct?

[steve46 12]

Yes sir, that is how I see it as well....