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Soultrader
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Posts posted by Soultrader
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Ive posted an interesting chart. As you can see, there is a cluster of the value low pivot and the 50% range of yesterdays trading day and todays low.. This can act as a powerful pivot.
How I obtain the 50% range: Simply take a fibonacci retracement line and plot if from the high of yesterday to the low point of today. The low point was made during the morning session. Then you look for key fib resistance levels: 50% and the 61.8%.
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One setup that I will always take is fading the value low/high pivots. Whenever you have the markets trading below value there is market imbalance. If the markets can not re-enter value, there is market acceptance below the value area in the new zone. Thus, both buyers and sellers agree that prices should remain in this new zone and I will look to fade any attempt to the value low pivot. Unless there is a shift in market sentiment, strong fundamental news, large institutional buying, we are less likely to see prices return back into value after trading below it during the entire morning session. In this chart not only did prices find resistance at the value low pivot, the RSI also peaked adding further confirmation.
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A gap fill will also act as a line of resistance or support. In this example, notice how the gap fill acted as a pivot and prices dropped for a quick 40 points. This is an opening gap setup. You have to be quick to pull the trigger.
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Break of value trade setup
Here is a chart of a particular trade setup I took. As soon as prices broke the lower value low pivot, I shorted the retracement back to the pivot.
Some rules and guidelines: Try to enter a short 2-3 ticks before the pivot to make sure you get filled. I always use a 10point stop for this setup. I scale out half my position at plus 10pts, a quarter at plus 20pts, and will hold on to the last quarter using a smart trailing stop.
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I am surprised to see the numerous amount of traders who trail there stops based on percentage or points. From my experience trailing stops blindly is a sure way to get stopped out just to see a further move in your favor.
When I trade the Dow mini's I will always use a smart stop. Instead of trailing a stop by certain amount of points, I will manually move them 3 ticks above a pivot point. For example, if I am short the Dow and the market breaks below S1, I will move my stop +3pts above S1. If if then breaks S2, I will move my stop +3pts above S2.
Another method I use is by taking the 50% range from the point of entry and the price where the Dow is currently trading at. For example, if my entry is at 11200 and the market is trading at 11150, I will move my stop to 11175. The idea behind this is that if the markets retrace by more than 50%, the down trend is no longer valid.
Note: I scale out on all my trades. My basic rule of thumb is to scale out half at +10, a quarter at +20, and the last quarter using smart stops.
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Short video explaining the 61.8% double fib setup.
Charts created by Tradestation
Presented by Traders Laboratory
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This is my core trading concept: using pivot point cluster levels.
I am mainly a pivot point player entering and exit around key price levels instead of using indicators. I want to show you how I obtain these numbers:
First, I will plot the daily, weekly, and monthly pivots. I use midpoints only for the daily pivots. By rank, I place importance on the Daily Pivot (PP), then S1 - S3 & R1 - R3, then the midpoints. I use the midpoints primarily for exit targets and not much for entries. Then I will plot the value high (VAH), value low (VAL), and point of control (POC). I will then plot yesterdays high and low and the 50% range of yesterdays action. I will also plot any unfilled gaps (I keep a daily spreadsheet for all this data).
I know this seems like alot of levels but they are not as complicated as you may think. Once every level is plotted I will look for cluster zones. Anytime two or more pivots line up with each other by less than 10pts (on the Dow mini) I plot this as an ultra key level. These are the levels that I will be looking to trade.
I will erase any pivot point that are not significant. When prices do reach these pivot cluster zones, I will watch the tape carefully to look for quick price rejection. I also use a combination of market profile mainly to understand the bigger picture.
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Pattern Failure Setup:
This is a neat little setup that I use to take advantage of common technical analysis patterns. Alot of new traders will discover price patterns and think they have discovered the holy grail. This setup takes advantage of crowd misunderstanding.
For example, in a head-n-shoulders pattern new traders love shorting the break of the neckline or at the right shoulder. However, in a pattern failure setup I will place a buy stop right above the right shoulder. New traders love trading this pattern but they do not realize that the shorter the time frame, the less valid the pattern.
If I do get filled, prices usually rally because of the triggered stops that are placed by traders above the right shoulder and the head.
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Interesting market action. We had sellers coming in rejecting price above value leading to a rapid 110pt decline. Once the markets fell below value, both the value high and low pivots acted as resistance.
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This is a short video explaining a divergence between price and the TICK. In my personal analogy, the TICK resemebles the engine and price is the car. When the engine gives out 400 horse power but the car seems slow, there are external factors causing the car to slow down. If you run the engine at 400 horse power and the car takes off, price is following TICK and can be considered a good sign.
Charts created by Tradestation
Presented by Traders Laboratory
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In a choppy morning session, I will usually bracket prices by taking the morning low and high indicated by the two dotted blue lines on the chart below. Instead of getting chopped around the entire morning session, simply place a buy order above the highs and a sell order below the lows. Notice that the markets did break lower for roughly 50 points. One of the key elements of trading success is patience and identifying a market with opportunities from a market with no opportunities.
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Chart picture of the market at close. Prices remained in balance throughout the entire trading session. Hence, the importance of understanding market concept with market profile. On a bracket day like today, you have to understand to take profits quickly instead of holding on hoping for a trend to develop.
Also notice the unfilled gap in line with the value high at 11288. This will be a key level I will be looking at tomorrow.
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Notice how prices retraced to the midpoint indicated by the dotted green line between the VAH and VAL. The TICK also made a new high indicating a shift in market sentiment. The value high pivot is also in line with the gap fill and daily pivot. Although the markets are still in balance at this point, we could see a possible lift to the upside.
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Notice how the value low held as key support. Unless prices break out of value the markets are in balance.
The two dotted red lines represent the value high and value low.
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Chart post of the opening 30min action. Notice how buyers and sellers share similar opinion on where value should be. The market is in balance at this point. Both the value low and high can act as key pivots to fade.
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Let me begin with a simple definition of a gap. A gap is the difference between the previous days close and todays open. For example, in order to set a gap chart you would set the close of a S&P emini chart to 4:15pm eastern and the opening to 9:30am eastern. Any action that takes place overnight which shifts the closing price is a gap.
Why do they exist?
Gaps exist due to a variety of reasons. Buyers/sellers may need to unload their inventory aftermarkets causing an imbalance in supply and demand. Significant overnight news can cause market participants to react overnight shifting price. Smaller gaps of less than one S&P point should not be considered significant while larger gaps of 6 S&P points or more should keep you alert. Here is the reason why:
Most gaps fill in the same trading day. Therefore it is crucial to understand whether price is accepted or rejected at these new levels. One way to determine this is to scan premarket volume for SSF's (single-stock futures). A full comprehensive list can be obtained here. When the SSF's trade significantly above average volume during the premarket, there is a good possibility that the gap will be a professional gap. In other words, the gap will continue in the direction of the gap and will not fill. Another method I use is to determine price has gapped away from yesterdays value and range. If prices do gap above/below value area and are accepted by the markets during the first 5 minutes of the opening session, I look to go with the gap.
A professional gap is not the norm but the exception compared to the amount of gaps that do end up getting filled. Always ask why the gap occurred and when you can not find 2 good reasons, there is a chance for a gap fill.
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Wanted to post a chart picture of a market trading inside of value. What does this mean?
There is market acceptance of price perceived by the sellers and buyers. Market value has not shifted from Fridays action. One thing to note.... the value area was created mainly from Fridays afternoon session. If prices do break above value, we will see significant resistance at Fridays high which is a cluster with S1.
If the markets break below value, this is also a break away from Fridays low range. This will indicate price rejection and will likely send prices lower to S2 or even S3.
Some trading strategies based on this pre-market information: Look to fade the value high with confirmation of tape. Both the value high and low can act as a bracket for todays trading session. However, the value low will probably hold stronger than the high because it is in line with Fridays low. Any break from value and look to use the the VAH as support and VAL as resistance.
I will post another chart after the market closes.
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Key terms:
1. Initial balance - market activity in the first hour
2. Range extension - price action extending beyond the initial balance
3. Range - range from high to low
4. Single print buying tails - any single print TPO's at the lower extreme of the profile
5. Single print selling tails - any single print TPO's at the upper extreme of the profile
6. Point of control (POC) - price level of most volume. POC indicates an area of greatest market activity
7. TPO - stands for Time Price Opportunity. Letters are used to build the market profile structure. Each letter represents a half hour period. The letter is also known as the TPO.
8. Value area - price range in which approximately 70% of the market volume took place.
9. Value high - the upper pivot of the value area
10. Value low - the lower pivot of the value area
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This is a tutorial explaining the TRIN. Remember the TRIN has an inverse relationship with price. Although many trading books will teach you the that TRIN shows how bullish or bearish the market is, this is not the correct way to analyze this useful indicator. The numbers bullish below 0.6 or bearish above 1.0 are not that important. What is important is the TREND of the TRIN. When the TRIN is choppy, you can always wait for the breakout of the TRIN. Range breakouts of the TRIN are one of the most powerful trading setups that you can use.
Charts created by Tradestation
Presented by www.TradersLaboratory.com
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Different types of pivot point formulas. Simply divide the pivots by 2 to find the midpoints.
Classic Formula
R4 = R3 + RANGE (same as: PP + RANGE * 3)
R3 = R2 + RANGE (same as: PP + RANGE * 2)
R2 = PP + RANGE
R1 = (2 * PP) - LOW
PP = (HIGH + LOW + CLOSE) / 3
S1 = (2 * PP) - HIGH
S2 = PP - RANGE
S3 = S2 - RANGE (same as: PP - RANGE * 2)
S4 = S3 - RANGE (same as: PP - RANGE * 3)
Woodie Pivot Points
R4 = R3 + RANGE
R3 = H + 2 * (PP - L) (same as: R1 + RANGE)
R2 = PP + RANGE
R1 = (2 * PP) - LOW
PP = PP = (HIGH + LOW + OPEN + OPEN) / 4
S1 = (2 * PP) - HIGH
S2 = PP - RANGE
S3 = L - 2 * (H - PP) (same as: S1 - RANGE)
S4 = S3 - RANGE
using OPEN = TODAY'S OPEN, and yesterday's HIGH and LOW
Camarilla Pivot Points
R4 = C + RANGE * 1.1/2
R3 = C + RANGE * 1.1/4
R2 = C + RANGE * 1.1/6
R1 = C + RANGE * 1.1/12
PP = (HIGH + LOW + CLOSE) / 3
S1 = C - RANGE * 1.1/12
S2 = C - RANGE * 1.1/6
S3 = C - RANGE * 1.1/4
S4 = C - RANGE * 1.1/2
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Most traders have a speciality in a particular stock, contract, or currency. Tell us why and the advantages.
CBOT: mini-Dow futures $5
I like this contract by far compared to the emini S&P. One of my biggest reason is you can trade the dow mini using at 10pt stop. In the emini S&P this is equivalent to approx 1pt. It is fairly hard to trade the S&P using a 1pt stop.
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The problem with most trading systems are that they are trend following systems. The markets trend 30% of the time compared to 70% in a bracket. Thus, systems can produce false signals of a trend development and instead the market can reverse. In discretional trading, you are able to point out retracements (short squeezes for example) which may or may not fuel a new trend. In mechanical trading, it is alot harder to define a new trend from just a retracement.
I trade 100% discretional relying on proven setups that I have crafted over the years. To me pure information is the ability to read tape, price patterns, and market profile. I can not quite rely on signals and technical indicators.
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From the Inside Flap
The Encyclopedia of Chart Patterns, recognized as the premier reference on chart pattern analysis, extends its lead with this Second Edition. This definitive text includes new bull and bear market statistics, performance sorted by volume shape and trend, more than a dozen additional chart patterns, and a new section covering ten event patterns. Significant events—such as earnings announcements, stock upgrades and downgrades—shape today's trading, and Bulkowski gives readers the best information on what happens after those events occur. He also shows you how to trade them and uses reliable statistics to back it all up.
In each chapter of Encyclopedia of Chart Patterns, Second Edition you'll learn the following about each pattern:
- Results Snapshot—A statistical summary of pattern behavior, including its performance rank, breakeven failure rate, average rise or decline—all separated by breakout direction and market type (bull or bear)
- Tour—A broad introduction to the pattern
- Identification Guidelines— Characteristics to look for
Focus on Failures—What failed patterns look like, why they failed, and how to avoid them - Statistics—The numbers and what they tell you, separated into bull/bear markets and breakout direction, including average rise or decline, failure rates, volume shapes, performance by size, and busted pattern performance
- Trading Tactics—Strategies to increase profits and minimize risk
- Sample Trade—Puts it all together, showing the chart pattern in action, with hypothetical or actual trades using real data
- For Best Performance—A table of selection tips to boost performance
Encyclopedia of Chart Patterns, Second Edition also includes summary tables ranking chart- and event-pattern performance for easy reference; a glossary; a chapter on methodology explaining what each statistical table entry means and how it was calculated; and a visual index to make chart pattern identification a snap.
The result is today's most comprehensive and valuable technical analysis reference—one that will save you critical time in identifying chart patterns and increase your likelihood of buying near the price bottom and selling near the top.
- Results Snapshot—A statistical summary of pattern behavior, including its performance rank, breakeven failure rate, average rise or decline—all separated by breakout direction and market type (bull or bear)
Mind over Markets by James F. Dalton, Eric T. Jones, Rober B. Dalton
in Books
Posted
This is by far my favorite trading book. The concept that you can learn from Market Profile? is pure information. Market Profile? teaches you market understanding, a method different from trading signals based on technical indicators. Dalton does a terrific job explaining Market Profile? in a very simple yet sophisticated way. If you are trading without the knowledge of Market Profile?, you are trading blind. Market Profile? will open your trading vision to understand the bigger picture and to be aware of other time frame market participants. It will help you answer two important trading questions:
1. Which way is the market trying to go?
and
2. Is it doing a good job in its attempt to go that way?
I read this book once a month and I never fail to gain new insights.