My Entry vs My Stop vs My Exit

[fatdog1]

	Quote:	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?

Hi Torero,
I missed this post the first time, sorry:

"How do you determine where the peak demand or supply is? From MP? Price-by-volume indicator?"

I look for areas where there are imbalances in the supply demand equasion that are continuation areas in the current trend. Best way to describe this is a consolidation area preceeded by a up candle in a uptrend or a consolidation area preceeded by a down candle in a downtrend.
Let's use the 787.36 - 786.77 demand area as an example. I opened the screen shot to see the area so as to describe the area and the potential long trades better from the picture. There is a small area of peak demand at 786.77 and also a breakout area at 787.36. This means there could potentially be a trade near the 787.36 breakout line and another near the 786.77 peak demand area as well. Since after we based for a period of time on 12-22-06 between 785.50 and 787.36 we then went higher, there were
more buyers than sellers at that 787.36 level and therefore an imbalance in the supply demand equasion. The number of sellers dropped to zero at 787.37. That can be the only logical explaination for why prices traded higher.
It stands to reason that there will be willing buyers left behind wanting to buy when price trades there in the future. I don't use MP and a volume indicator to determine that. I just use the candles. That big candle tells me there was a lot of demand at that price.

"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? "

To determine where to place a stop loss, I look at the size of the area where supply and demand was in balance before the move higher and place a stop loss below the low of the area for a long. For a short near supply, I place
the stop above the high of the consolidation area. I make the entry with either a limit order at the price where the imbalance occured if the area is peak demand, or a buy or sell stop if the area is not peak, or if it is a breakout of a trading range that formed after a sell off.

" 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? "

Let's separate the two possible trades in the picture.
I re-read my post from Sunday and looked at the picture and I amended the 787.60 price to 786.77 for the area of peak demand. I will use a limit order at 786.80 and my initial stop loss will be 785.40 for that trade.
It is very possible that the price will turn higher when it hits the 787.36 breakout line. I will place a buy stop at 787.50 or 787.60 if that line is hit to catch the reversal and I will watch the tape for buyers.

"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? "

Correct. It is not absorbed until price closes below the 792 area on the 60 minute chart and it is not peak anymore.

"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?"

There is no way to determine the shape of the Wednesday Profile from Friday's. If the price trades between 792 for the low and 799 for the high, it could be a normal profile if the price rotates in the middle of the range, or a P shape if the price hangs out near the 799 area of supply, or a B shape if the price returns to the low of the day and rotates there.

[torero]

Thanks for the thorough answers. I'll reread it to get more questions.

Another question: "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."

So you're saying here if Wednesday is a B shape, then Thursday is a possible down trend day? So is there an inference that if the previous day has a B shape, chances of a trend break to the downside likely and if previous day with a P shape, an upward trend likely?

[fatdog1]

	Quote:	torero
	Thanks for the thorough answers. I'll reread it to get more questions. Another question: "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." So you're saying here if Wednesday is a B shape, then Thursday is a possible down trend day? So is there an inference that if the previous day has a B shape, chances of a trend break to the downside likely and if previous day with a P shape, an upward trend likely?

That is what a trend continuation move will look like on a MP.
The people who trade with the Market Profile noticed the P and B shapes before trend continuation moves and have written articles about it.
If the price hangs out near 792 on Wednesday, it will mean that the demand at that level is being absorbed. If there is a close on a 60 minute chart below 792 then the number of buyers has dropped to zero.

[walterw]

Fatdog, in order to keep the spirit of this thread, could you refer with more detail how would you manage Risk Reward Ratio on this setups you trade ? in this thread we are VERY interested about having tight stops vs large profits... doesnt care much wich technique you use... we believe that any technique properly handled should gives a good RRR... so please refer more clearly to this RRR topic on this thread... thanks Walter.

[walterw]

Ok.... I keep presenting my aproach that leads me to a good RRR.... and this is M trades from my dynamic levels...

I previously presented the advantage of M patterns in order to have a good RRR and I did present what levels I take into consideration (Outerbands and Mid Band) and what I do from there (Refresh to the mid band, Reject of the mid band ) now I present how I combine M patterns in this entire context.... I attach a Theoretical explanation...

What we basicly want is this M formation at the outerbands in order to refresh to the mid band "Refresh Trade", and we want this M formation at the mid band in order to reject to the outerbands "Reject Trade" ....

[walterw]

So... how do this M`s get formed ?... well believe it or not... I need noise for this¡¡... noise can be very handy for this setup... so I use a smaller time frame to get this noise and start to see this M formations... I attach the theoretical formation of this M on 22 T chart and example charts...

On the first example I pretend to refresh from the outerband to the mid band on the 110T chart, now you can notice its hard to see an M formation on the 110T chart because information its too compressed there... as I decompress information to a 22 T chart I can clearly see how this M gets formed and how it can help me to get a competitive entry in order to have a good RRR...

more examples attached... cheers Walter.

[ant]

Walter, I really like your ideas here, especially trading off the "M" or "W" pattern with good RRR and using the Keltner channel bands for targets. Sounds like a winning strategy. One comment I have is on the implementation itself and using the 110T and 22T charts. It seems like there are a lot of other "M" and "W" patterns that actually form pretty clearly on the 110T and 22T charts. However, you seem to trade patterns on a 22T chart that you really have to squint to see. I couldn't help asking myself is, "is that really an M or W pattern in the 22T chart?" Also, do you trade bigger M or W patterns that form on the 110T chart for a bigger target?

[walterw]

Ant, I really dont use the 110T chart as I trade, I am only showing the trendbands that come from that scale, and the concept of refresh and reject... I actually just focus on the 22T chart for my trading... (the trend bands on 22T are the same from 110T ) M and W are all over the chart... I really dont look for M`s Its too tricky to do so... the "1rst intention" (I call it) its what gets the pattern started... and that is the "crossing" of the trigerlines (blue/red) near to a dynamic level...(outerband,midban d) so its not just looking to all the M`s that get formed, you can loose your mind trying to do so... now once you had that "1rst intention"... the pullback to the area off the triggers gives you an excellent entry oportunity... I like your feedback and I would like to get more feedback on this formation, always taking into consideration the RRR as the central topic... remember RRR = live or die... you cant survive on this bussiness if you loose the same that you win...

[ant]

	Quote:	walterw
	I actually just focus on the 22T chart for my trading...

I guess timeframe is a matter of preference. I prefer to use a larger timeframe to catch a bigger moves as well as move away from the "noise". I'm not sure I agree/understand why you want to trade in the "noise" or how it helps. These "M" and "W" patterns are basically double tops/bottoms that occur because buying/selling dry up in the timeframe that you're trading. Why is the noise important? It seems that the noise would hurt you by having your tight stops hit more often.

	Quote:	walterw
	I really dont look for M`s Its too tricky to do so...

Can you elaborate here? Why are M's trickier to trade? It would seem to me that trading the "W" pattern within a trading range would get you chopped to pieces, but would work nicely in a trending market. I would say the opposite for the "M" pattern... That is, the "M" pattern would work out better in a rangebound market because you would be essentially trading near the limits of the trading range and looking for a trade back to the middle of the range. In a strong trending market, the "M" would get mowed over, similar to a divergence.

	Quote:	walterw
	the "1rst intention" (I call it) its what gets the pattern started...

Walter, I don't think I understand what you mean by first intention. Are you referring to the first peak of the "M" or "W" pattern?

	Quote:	walterw
	its not just looking to all the M`s that get formed, you can loose your mind trying to do so...

I agree that one should not try to trade every pattern on such a small timeframe. I guess what I was trying to say was that there seem to be higher quality "M" and "W" patterns that I would have traded before the ones you picked out, but I think I may be missing something here related to the setup...

I do look for double tops/bottoms in my trading, but instead of using the Keltner channel for entries/exits, I use key reference areas from Market Profile. By the way, I like using the Keltner channel, but I use it for other purposes. In fact, I usually have it up on one of my charts.

Good thread Walter... thanks again for sharing...

[walterw]

Ant... I think you are not really understanding the overrall Idea... as I stated on the first posts this technical aproach can be done on the speed universe you feel confortable... it can be 22T or 220T... doesnt matter, when I refer to M its all off them M and W... if you watch slowly at the M pattern formation excel spreadsheet you will notice that when the price "crosses" the triggers ("1rst intention") at a key level ( in this case Outerbands / midbands) you can use MP levels, pivots, fibbonaccis etc... when we pullback to this triggers, we got an RRR oportunity.... it may work, it may fail... BUT you got a RRR about 1:5 most of the times... so if you get 50% of the time cooked... you still make money thanks to the RRR that this entry provides... one more thing you pointed out on trending conditions is that you dont want to trade a refresh trade from the outerbands when market is trending... you must clearly detect signs of a cycling market to take a refresh trade... Refresh trades are countertrend so you dont want to take them on trending conditions...
About noise: it took me 2 years to understand the fact that when you decompress data and use decompressed data for your entry and then you trail your exit with compressed data you got a tickett to an excelent RRR..
My entry vs my stop is in 22T.... but my entry vs my exit is in 110T ... that makes a great difference on RRR... believe me... lets say you are confortable with a 30min chart ok.... make your enrty on a 5min chart and trail it on a 30min... and see what RRR you got...
let me share an example derived from a fixed level... and let me see if I can make it more clear... thanks for interacting... makes possible to enter on the details that a monologue cant make...