MP Rule 1: Don't Fight A Coil Break -- 'Go-With' It

[darthtrader]

ohh...jerry and dogpile going at it with vwap, this could be the best thread ever.

dogpile, any chance you could do some videos like jerry has done? Simple stuff starting out? I would kill to know how you trade. I mean even like a "coil" makes sense seeing it on a chart in retrospect but in real time would be so much more educational.

[Dogpile]

jerry got me going on VWAP and I have to say -- it was a missing ingredient in my trading. I have replaced POC-watching with VWAP-watching. The way the market responds to the VWAP price and forms patterns around it is fascinating.

I just don't get the PVP part -- I mean I get it in principle but I just don't think its superior to what I was already doing -- but I do find it fascinating that many of the spots I am looking to trade line up with what Jerry is doing statistically. And I want to watch how I might be able to incorporate the PVP-VWAP-StdDev relationship into my trading.

To me, pattern-recognition trading isn't optimal by itself -- and statistical trading isn't optimal by itself -- but put the two together and it is quite powerful.

I will try a video out at some point and see what kind of response I get.... My view on trading is that us private traders need to work together to take on the massive program trading houses of the world. There are no secrets --- just good trading concepts. Every situation is a little bit different but having core concepts hard-wired into your brain lets you deal with whatever the market throws at you.

I know I have improved my trading skills since joining this site. Collaborating is something I am definitely interested in. I will think about how to do something in a video.

[Dogpile]

took a shot at a video. this helps explain where I am coming from on this volatility (std dev) stuff. I learned this principle years ago when I was swing trading stocks (my pre-futures days). but the concept is valid for any financial instrument that is liquid and active (has volatility and decent range of movement).

quality of video is lacking for some reason. it wasn't bad until I transferred it to youtube. but you can still see what I am doing, I think. I use an AAPL daily stock chart and then bring that back to show what I am talking about with the futures market (S&P futures).

to be clear, I am a student of this principle. I haven't seen it presented specifically like this but this is an 'old-school' concept that I think is quite relevant to recent discussions regarding volatility.

http://www.youtube.com/watch?v=lMGpD0y2VYM

comments/discussion are appreciated...

[Dogpile]

a good clean coil did not develop today. nonetheless, following the 'rules/concept' of this idea -- you should clearly not have been shorting this afternoon. The play was to be long or sit out. The market appeared to have substantial resistance above this afternoon but it powered right through it. Had you been following the std dev bands, you would have seen that the bands narrowed and then re-expanded -- the market on this intraday chart was bullish. the issue was whether the market would find sell pressure as it pressed up into the congestion of the last few days.

note I have also added an indicator at the bottom (labeled 'VWAP Std DevTrend') that attempts to show when momentum may be forming away from the VWAP level (expanding bands indicating the potential beginning of a trend) -- green for bullish, red for bearish. I am still tweaking this but you can see how it remained green or neutral all afternoon.

[darthtrader]

I don't know much about stats beyond trying to read "statistics without tears" but i assume PVP means something because its the mode of the volume distribution?

[darthtrader]

	Quote:	Dogpile
	to be clear, I am a student of this principle. I haven't seen it presented specifically like this but this is an 'old-school' concept that I think is quite relevant to recent discussions regarding volatility. http://www.youtube.com/watch?v=lMGpD0y2VYM comments/discussion are appreciated...

niiiiiice...i have to watch that a few more times before i get it in order to comment much. one thing though is don't you think std dev bands on vwap make more sense as far as market volatility than BBs? I've always been fascinated by BBs, I have Bollinger's book right in from of me. Maybe its just philosphical but it would seem to me the dev bands make more sense when you add volume over just what Bollinger tried to do.

some serious MP Dalton idea videos would rule

[Dogpile]

<<one thing though is don't you think std dev bands on vwap make more sense as far as market volatility than BBs? I've always been fascinated by BBs, I have Bollinger's book right in from of me. >>

the problem with bollinger bands is that they make the assumption that the moving average is the point of 'value' -- which seems kind of flawed.

<<Maybe its just philosphical but it would seem to me the dev bands make more sense when you add volume over just what Bollinger tried to do. >>

I think the difference in volume-weighting the prices versus just using the closing prices is not such a significant difference.

I have grown up on the key concept that 'momentum precedes price' -- such that just as a ball that is thrown up in the air deccelerates before it reverses its flight, a similar tendency occurs in the markets -- a strong directional move will often get a second push in the same direction (which may then be of lesser force). you can measure such with various oscillators. these oscillators are never volume-weighted -- volume is kind of just an adjacent concept. this is how I think of volatility bands -- yes, if the band widens on higher volume that is a more valid move if it doesn't. but a strong momentum push needs to still be respected to some degree. it gets tricky because what if the move is on less than average volume but that volume reading is higher than the immediately preceeding move -- is it valid or invalid then?

Many situations have kind of a 'grey area' aspect to them -- I think you have to just develop a sense for the various factors going on and weigh the ongoing buying and selling 'pressures' and not get caught up too much in all of the technical issues.

[cooter]

	Quote:	Dogpile
	I have grown up on the key concept that 'momentum precedes price' -- such that just as a ball that is thrown up in the air deccelerates before it reverses its flight, a similar tendency occurs in the markets -- a strong directional move will often get a second push in the same direction (which may then be of lesser force).

So is volume the motive force causing all of this? And is the use of MP a means of price-volume discovery?

[Dogpile]

<<So is volume the motive force causing all of this?>>

not necessarily, IMO... but volume is often important. earlier this year we had these days that just grinded up on low volume and then the market would launch further up and only THEN would the volume come in. volume would come in at bad prices creating a subsequent hard flush the other way ~2 days later. but following volume only left you not believing in the move.


<<And is the use of MP a means of price-volume discovery?>>

MP is good for its concepts. MP concepts are something that helps you with your 'trade location' -- Dalton says "the most important skill you can master to become a successful trader is to distinguish 'price' from 'value'" (pg 100). I don't know if this is the MOST important skill, but its an important one. My results got much better when I began combining my set-ups with concepts of 'value' (trade location). examples of such might be using 'single prints' and buying/selling tails to help pinpoint support/resistance. but momentum is also important. thus something like finding that 'first pullback following strong short-term momentum' combines both concepts -- the first pullback will generally have pretty good location relative to recent 'value' (equilibrium) and you are entering with high reward potential as price has just begun to 'auction' with momentum away from the last equilibrium level -- as it seeks a new level.

[Dogpile]

as I mentioned in the video I did over the weekend... the best coil is when volatility (std dev bands) contract AND you can draw a triangle... this occured today around 11:38am EST... the breakout occurs when price moves enough to get the bands to expand.

volume was weak on the move relative to previous day -- but you had a non-statistical long bias on days the fed is to announce a decision -- market tends to be safe until an hour or two before the fed announcement -- so the lack of volume was less concerning today.