Please Comment On My New Strategy

[carltonp 10]

Hello Traders,

 

I have been working on trading strategy that I have been paper trading for a while. I will attempt to explain it in as much detail as I can - if I forget to add some crucial information let me know.

 

Let me start by saying the overall trading style is based on comparative relative analysis.

 

I'm going to first provide some of the detail in bullet point then elaborate.

 

• I'm trading YM.
  
• I am using the components of the Nasdaq 100 for comparative analysis.
  
• I use On Balance Volume and Advance / Decline of the 100 stocks mentioned above.
  
• I trade on 2 minute interval.
  
• I have programmed the stocks into Excel.
  

 

Now I will explain how I use the information and Excel.

 

As I'm sure you're aware at this stage that I use the 100 stocks to assess the likely direction of YM.

 

The data from the stocks are fed into Excel.

 

I have programmed Excel to compare the OBV values over two intervals - in this case two minutes. So, lets say the value of the OBV for a particular stock was 100 and the price was 20 at the end of one minute. Now, during the following minute Excel would compare the OBV and Price of the stock and if both OBV and Price were increasing for that particular stock Excel would add it to a table. Excel would do that for all 100 stocks individually and if say 85 of the 100 were increasing in both OBV and Price I would use that as indication as to where I think the YM might be going.

 

I have used the same calculation that is used for the NYSE Tick for the 100 stocks. So at any time I can see how many stocks are trading on an uptick vs how many are trading on a down tick over a two minute period. Again, this is achieved by programming Excel to compare stocks trading on an uptick and downtick over a two minute interval.

 

What is a little more tricky is programming Excel to alert me when the price of YM has remained stagnant for 3 seconds. I have no reason why I chose three seconds - it just seemed like a good number to make a decision if the stock has remained at a certain price level for three seconds or more.

 

 

So that is what is set up, now for my style.

 

If say 85 or more of the stocks are increasing in both OBV and Price there will be a pullback. Sometimes the pullback will turn into full reversal, but 8 - 10 times no matter how strong the move there will be some form of pullback/reversal. I won't actually place a trade on YM when I pullback is identified on the chart but I will only trade a pullback when the pullback is accompanied with an increase in OBV and Price on the stocks in my spreadsheet (to be honest I only use a chart for visual affect, not for actual trading)

 

Now once I've decided that the pullback is in full affect as described above I wait to see at what price YM has remained stagnant and how many times it has remained stagnant at a certain price. Let me give you an example:

 

1. Pullback is in full effect.
   
2. OBV and Price on stocks are going in the direction of the pullback.
   
3. YM has remained stagnant at say 11000 for three seconds.
   
4. After three seconds, the price has moved in the direction of the pullback or the direction of the OBV on stocks and is now 11002 and stays a further three seconds at 11002.
   
5. The price then moves to 11004.
   
6. I will then place a trade at 11004.
   

 

While all this is happening the direction of OBV and Price for the stocks are either moving in the direction of the pullback or the price of YM.

 

My exits are far simpler, but we can get into that another time.

 

I'm really sorry for the very long explanation but I think if I want decent feedback then I should provide as much information as possible.

 

It has been suggested that I forget about charts completely I use T&S. I've never used T&S but will learn if more people suggest its the way to go.

 

I'm sure there are aspects that I have missed, but just ask me any questions you like. I just need good honest feedback and suggestions.

 

I look forward to hearing from you all.

 

Cheers

[carltonp 10]

Traders,

 

Still no comments.

 

Do you find any benefit in knowing when a price has remained stagnant for a period of time, say 5 seconds? Is there a message in a price that has remained stationary for seconds that you guys use for your trading?

 

Give me something :-)

[brownsfan019 17]

  carltonp said:

Traders,

 

Still no comments.

 

Do you find any benefit in knowing when a price has remained stagnant for a period of time, say 5 seconds? Is there a message in a price that has remained stationary for seconds that you guys use for your trading?

 

Give me something :-)

 

Didn't we just discuss this in your other thread?

[carltonp 10]

  brownsfan019 said:

Didn't we just discuss this in your other thread?

 

Hi yes we did, and I am looking into T&S as a means of adapting my trading from using OBV or Trade Volume Index.

 

Don't get me wrong I really appreciate the suggestion and as I just mentioned it is something I'm seriously looking into, however, I was just wondering if there were others that agree with you.

 

Cheers

[Tams 20]

you should draw some diagrams to illustrate your thinking/logic.

a picture is worth a thousand words.

on a discussion forum, most people cannot read past the 100th word.

[MarketMole 10]

What is statistically significant about 3 second pauses? Or pauses at all? Have you measured the significance? Is there a significant probability increase only if you have OBV/Priced in trend? Or in counter trend?

 

Are you trading in line with OBV/Price or against?

 

It sounds like you're using OBV/Price composite (NDX) as your primary indicator. But something to do with YM pauses as a trigger. That doesn't seem very deterministic.

 

I like your OBV/Price composite concept, but would want a couple of price action confirmations on the YM (not just pauses and toggles) to trigger trades.

[carltonp 10]

  MarketMole said:

 

Are you trading in line with OBV/Price or against?

 

It sounds like you're using OBV/Price composite (NDX) as your primary indicator. But something to do with YM pauses as a trigger. That doesn't seem very deterministic.

 

.

 

You have made me soooo happy. Apart from a member called 'brownsfan' who kinda got I'm trying do, you are the only person that appears to truly understand what I'm trying to ahieve. I posted this exact thread word-for-word on other forums and no one gets it.

So at last I can have a conversation with someone without having to go through every detail again and again.

 

First, I appreciate your commnets, and at this stage there isn't any significance in a three second pause. The reason I introduced it into my trading because it stopped from going crazy watching price move up/down before I entered - I scalp. So initially I used the pause to give me a focus on when to watch the price. So, if the price paused for 3 or 4 seconds at 11000 I will be notifed with an alert. If after the pause the price moved to 11005 and then sat there for another four seconds I would be notified. After the second pause I would watch to see if the price moved in the direction of the OBV / Price of the majority of the stocks (remember by this time I already know which way the OBV/Price is going) I would enter.

 

I going to continue, I just want to send this thread now, so that you know that I'm here. I've lots more I would like to talk with you about - please stick with me on this.....

[carltonp 10]

My apologies for the bad grammar......:doh:

[carltonp 10]

  MarketMole said:

 

It sounds like you're using OBV/Price composite (NDX) as your primary indicator. But something to do with YM pauses as a trigger. That doesn't seem very deterministic.

 

 

You're 100% correct here. I think the only way to know if the pause has any significance is to do what 'brownsfan' suggested and watch the Tape.....

[carltonp 10]

MarketMole / Brownsfan019, are you guys around.

 

I have posted a snapshot of the Time and Sales for YM at the time that YM paused for over 4 seconds. The pause took place 09/08/11 at 11:12:14 to 11:12:20

 

Its this kind of thing that I need a strategy for my stagnation system, but I don't have the knowledge or experience to understand what is going on in T & S to make a judgement.

 

If there is anybody out there that can assist with this one I'll provide more examples - and if you're able to share with me some good strategies I'll happily share with you my Excel spreadsheet with all the formulas (that's if you're interested in it).

 

Cheers

[MarketMole 10]

I think I would try to embody the concept of a "pause" into something that could be modeled. For instance, imagine creating 5 second bars. A long pause in price change would be represented by a doji like bar. If a doji was followed by specific sequence of bars, say up and then a down with the close below the doji low, and your OBV/Price confirmed a short trade, then sell short the YM.

 

By packaging the trades as 5 second bars you could also perform statistical analysis on the pattern.

 

As far as watching the actual trade executions during a pause, you could capture that in the volume of the bar. Perhaps on a high volume doji like bar the probability of follow through is higher than on a low volume bar.

[carltonp 10]

  MarketMole said:

I think I would try to embody the concept of a "pause" into something that could be modeled. For instance, imagine creating 5 second bars. A long pause in price change would be represented by a doji like bar. If a doji was followed by specific sequence of bars, say up and then a down with the close below the doji low, and your OBV/Price confirmed a short trade, then sell short the YM.

 

By packaging the trades as 5 second bars you could also perform statistical analysis on the pattern.

 

As far as watching the actual trade executions during a pause, you could capture that in the volume of the bar. Perhaps on a high volume doji like bar the probability of follow through is higher than on a low volume bar.

 

Brilliant, absolutely brilliant. That might sound dramatic but that strategy is great not just because its an excellent strategy but it more importantly it opens up so many other ideas in my head.

 

Thanks man.