My Entry vs My Stop vs My Exit

[scalptrader]

The method posted, lets called it MW Pattern, no volume confirmation is needed. Price should be enough, thus is up to you how you modify this. Just remember the more variables you add, the less trades you will get...

The opposite to this logic, the W formation, is valid for buys. M for sells.

You can use tick charts, or anything else, key here is the time factor. Ill find some samples examples and post them shortly.

[walterw]

Thanks Scalp for contribution, you will see on the next posts ahead as I explain my aproach that I take much smaller M`s than the ones you mention... any way we must always have in mind that technical analisis is the same in any speed universe... (so we must trade on the speed universe that we feel confortable ) this method can be applied from tick charts all the way to weekly charts if you wish...

Ok... now that I explained the theory of the M pattern I will now explain the LEVELS I use for my trading and how I trade from does Levels... In terms of levels you can use fixed (mp, pivots, fibonnacci, etc) levels or dynamic (bands, market thresholds,etc) levels... in my experience dynamic levels became much easier and flexible than fixed levels... I DO believe in fixed levels but some of the drawdowns of fixed levels is that it leaves lots of good oportunities on the table because you didnt have any "reference level" in that place to trade, for example, an MP level derived from yesterday action that is too far from todays price action becomes useles on todays session, or you got a pivot too far from this actual excellent oportunity... so I do believe in fixed levels, but I simplified my life to some very simple and straightforward dynamic levels that really perform very nice...

My methodology was originally inspired on John Novak (nexgen) aproach, I never was able to purchase his software because it costs 9k , but they are enough generous to share a lot of educational material for free... their site is Fibonacci Day trading software - NEXGEN Software Systems now apart from his fibonacci indicator (propietary) I did find that the rest of the indicators are of public domain (averages, bands, etc.. ) so I did build my own (very similar) and began re-adapting a method of my own based on some good sound principles being thought by Novak... I Think I got something that its not the same but works pretty good...

My base speed universe is 110T on russell emini... (same as Novak`s) the curious thing and maybe new for most of you is that I use a 22T chart and a 3T chart ¡¡¡ (this guy is crazy) i yes I am... but you will find out that the spirit of the trade is at 110T chart... amazingly I discovered that noise some times can be very Usefull ¡¡ :rolleyes: now lets leave that for other post and lets get back to the level topic again... I attach a Chart of a 110T russell with my dynamic levels (Trend Bands)... and I attach also a theoretical explanation of how I use this dynamic levels... in further posts we will get inside the M aproach with detail... cheers Walter.

[fatdog1]

Hi everyone,

I want to add a bit to the discussion if I may. I am a discretionary trader only because I am not able to code what I do. I totally agree with Ant about the entry being as early as possible so as to reduce the initial risk. I also agree that with my method automated, I will miss many entries because the price will not reach the area exactly where I have my entry order placed. Mostly, a different index will reach an area of demand or supply and turn and take the rest of the indexes along with it. That happened at the end of the day with the S & P's. My entries are in areas of supply and demand which is price based only. Since it is price based, it does not lag or require math formulas.
I am able to find areas where price will turn consistantly with no doubt in my mind that until the area is absorbed, the laws of supply and demand will force the vertical move to cease, and the horizontal move to absorb the area to begin. In fact, I can post a Tradestation chart of any market you wish with areas of supply and demand marked off with horizontal lines with alerts. You will be able to observe in real time the market trade between the areas of supply and demand until either the supply is absorbed and the price moves higher, or the demand is absorbed and the price moves lower.
I will have additional areas of each marked off on the chart for when the original areas are absorbed. When price reaches the next area, the new trading range will be established.
If you can combine the Market Profile with what I do, it will lead to a more robust trading system. You will know when a trend day or a range day is likely by how many times price visits a level on either end of the Profile. The first time to an area is the highest odds, lowest risk trade. The more times a price visits a level of demand, the odds are reduced that there will be willing buyers at that level and the same for sellers at areas of supply. Once the area is absorbed, price moves on to the next area. The Market Profile shows these areas as vertical moves or horizontal rotations. In addition, P shaped rotations are near areas of supply being absorbed, and B shaped rotations are near areas of demand being absorbed.
Put the two together, and watch what happens to the Profile when the price reaches the areas I mark off. If it is the first time, it should be a normal bell curve Profile. If it is the second or third time, watch for the area to be absorbed by the shape of the Profile.
I have a screen shot of the S & P's below. I can't post a TS workspace here.
If someone here can help me code the patterns, then the lines could be added to the chart like the HVA and LVA are now.

Happy New Year everyone,
FD1

[torero]

Hi FD1, can you post one of @ER2? I'd like to see your observation on it. Since I'm still a newbie with MP, I would like to see what the experts out there use MP to trade properly. Thanks.

[fatdog1]

	Quote:	torero
	Hi FD1, can you post one of @ER2? I'd like to see your observation on it. Since I'm still a newbie with MP, I would like to see what the experts out there use MP to trade properly. Thanks.

Torero,
My observations on the areas of supply and demand for the Russell are below. The daily Market Profile will form on Wednesday between these areas.
That is the extent of my expertise in using the Market Profile. I use the Profile to observe what kind of bell curve forms, and where it forms so as to guage the likelyhood of a trend move once an area supporting or resisting the Profile is absorbed. For instance, on the Russell, I am looking for the area at 792.20 to act as support on Wednesday morning. The Russell has been in the area of demand at 792.00 already on Friday afternoon and it bounced 4 points off the low before selling back down near the day's low by the close.
It is possible on a selloff that the Russell could extend the range down to 790.40 which is a breakout line out of a trading range from the 21st and 22nd of December. I don't trade pullbacks to breakout lines that occur far away from the point of imbalance which is 786.77. There are no guarantees that there will be willing buyers that far away from the actual area of demand. The tape would have to get real positive near the 790.40 area for me to take a long trade there for confirmation. It is possible that the Russell could visit the area in the premarket too. If the Russell rotates back up to the 792.00 area after touching 790.40 in the premarket, I would be interested in a long position using the tape. The next breakout line at 787.36 is very near to the point of imbalance at 786.77. If there is an extreme selloff on Wednesday, that is the next place I will establish a long position without confirmation.
On the top, I am looking for the Russell to trade up to the 799.60 -800.00 area. I will reverse to a short once that area is reached since it is the first time back to the area of supply. My first target is 792.00.
A couple of possibilities for the future.
Once both areas at 792.00 and 799.60 are touched, (792.00 has been already) we will see if a downtrend will begin, or if the Russell will again trade near the area of supply and form a P shaped bell curve indicating a move to the old highs. However, a B shaped bell curve near 792.00 means we visit the 786.77 area, and I hang on to the rest of my short.

[torero]

Thanks. I'll keep that in mind. I am curious as to why you use 60min while the others use 30min to set up their MP.

[fatdog1]

	Quote:	torero
	Thanks. I'll keep that in mind. I am curious as to why you use 60min while the others use 30min to set up their MP.

Torero,

My trading style is simply this: I am a buyer at this price, I am a seller at this price. I use daily, weekly, 240, and 180 candlestick charts to find the big range areas of supply and demand that I expect the price to trade between. For the actual entries, I use a 60 minute candlestick chart to find the small range areas of supply and demand that I want to trade between by going long near demand and short near supply. Today is Monday, and I am planning to trade the Russell on Wednesday between 792 and 799 because the demand is near 792 and the supply is near 799.

The areas I speak about have nothing to do with Market Profile at all.
If the price trades between 792 and 799, the Wednesday Market Profile will automatically form between those two prices.
I use the Market Profile to tell me if a range day or a trend day is likely by the shape and location of the bell curve and the POC.
If a B shaped Profile forms near 792, then it is possible that a trend move lower could occur when the number of willing buyers drops to zero and a imbalance in the supply demand equaision occurs.

The possibility of a trend move lower exists because the 792 demand area is not peak demand anymore. Peak supply and demand are areas that price has not revisited since the initial imbalance in the supply demand equaision. The 792 area was revisited on Friday afternoon. That was the highest odds, lowest risk long entry at 792. It also happens to be the bottom of the Market Profile from Friday. It was the area of peak demand which shut off the selling and forced the rotation higher before the close.

I would still trade long again at 792, but, like you, I will now need confirmation before I enter a long trade. Like SoulTrader, I will use the tape before I enter to determine if there are buyers left at 792.

If the range is extended lower, I would next be a buyer near 786.77 which is the next area of peak demand. I don't need confirmation to enter long here.
My first target would be 792 where an imbalance in supply and demand will have occured if we trade below 792. I won't short 792 since the areas of supply and demand are close together, but I will move my stop to even on the rest of my position in case price revisits the 786.77 area.

I will still be a seller near 799 which is peak supply if it is reached on Wednesday or any other day as long as the distance between the areas of supply and demand are at least 3 to 1 at the time that price revisits 799.

Hope this helps.

[torero]

So far, your explanation makes perfect sense. But I see a few things unanswered. How do you determine where the peak demand or supply is? From MP? Price-by-volume indicator? And how do you determine the low/high zone where to place your stop when you go long on peak demand area or short on peak supply area? How do you make the entry? When momentum reverses in the opposite direction. Say, when and if it hits 787.6, do I wait for the next bar to go higher than the previous bar to go long?

The other question is, from last Friday's MP, I see a P shape, so this means that 792 is not absorbed yet but it's no longer peak demand area correct? Since we don't know what Wednesday's MP shape will be, we expect Wednesday to be in 792-799 action seeing Friday's MP shape?

[torero]

One other question? How many days must go by before the peak demand is disqualified as peak demand? Is virgin POC important?

[fatdog1]

	Quote:	torero
	One other question? How many days must go by before the peak demand is disqualified as peak demand? Is virgin POC important?

Very good question with a two part answer.
Peak demand and supply is peak until the first time price revisits the area.
There are areas of peak supply in the indexes like the S & P and Nasdaq from the bubble that have yet to be revisited. There will still be sellers when price revisits those levels. I find those areas on weekly and monthly charts.
Even though the Dow and Russell are near all time highs, they won't be able to advance very far without the S & P and Nasdaq advancing as well, and they will sell off when the S & P or Nasdaq comes into a large enough area of supply. On the rise from the July lows, areas of peak demand formed that will produce bounces when the price revisits them in the future. There are also areas of peak demand from the 2002 lows that will produce bounces should the market ever test those lows. The second part of the answer is to determine who is in control of the market now and try to trade with them. The market is making new highs, so I am buying pullbacks to areas of peak demand as they form. Once the current uptrend ends, I will switch over to shorting pullbacks to areas of peak supply as they form. The first chance to find out if the uptrend is ending is when the Russell trades up to the 800 area which is a area of peak supply that has recently formed.