jperl

It depends on what you mean by "importance". Today's "value areas" aren't any more or less important than previous days,weeks,months,years value areas. (I put that in quotes, because my definition of value area is different from the standard market profile definition; but more on that at another time). A value area as a pivot point is only a price point where price action pauses before deciding which direction to move in. So if price action moves down say to yesterdays value area, it will simply pause there, before continuing down or possibly reversing. What happens after the pause depends on other factors. If you are in a trade, the value area touch would thus be a good point to take a partial exit. If you are not in a trade, then it's a good point to consider an entry. JERRY

You need to read my post between the lines blowfish. Of course I don't believe in shock therapy; but no matter how many times you will tell newbies to practice before they leap and that they are going to lose half their capital otherwise, it's not likely they will listen. The lure of the markets are like the sirens on the rocky coast. JERRY

thundertrader, I believe in shock therapy for learning how to trade. First, ignore everything you've read on this thread. Second don't bother reading Mark Douglas' book. Third, you should start trading immediately with real money using whatever method suits your fancy. After about a year, if you are profitable, keep it up. However, if you are like most traders you will have lost half your capital. At that point, if you still believe that you can become a profitable trader, then come back and carefully reread this thread and start reading Mark Douglas' book. JERRY

It's interesting brownsfan that you mention this problem about charts cluttered with lines. I use VWAP bands from yesterday, 1 week, 1 month and 1 year as pivot lines on my charts. Sometimes the lines are far apart, sometimes they cluster, sometimes they are all close together. I've discovered that when they are close together, it usually means that the trading day will have a narrow range, and I probably want to stay away. If they are far apart, it means we will have a very active day with high volatility. I particularly like days when they cluster, those are usually good bounce points for reversal trades. Seems like the pattern of pivots give you a good idea what the day will be like. JERRY

Cooter, Price action rarely touches the 3rd SD. When it does, it's because prices are rising or falling very rapidly. You will usually see reversion back to the VWAP at least once during the day except perhaps on trend days. The shape of the VWAP for the day depends on where you start the computation. Starting the VWAP at say midnight usually only has a small effect, mainly due to the fact that there is not much volume until the start of RTH. I usually start the VWAP at the 9:30 EST open, and simply ignore any overnight data. JERRY

Very good walter. The blue line is indeed the daily VWAP, the green and red lines are the 1st, 2nd, and 3rd Standard Deviations of the VWAP. Taken together, they form a natural and convenient set of pivots from which to enter and exit trades. These pivots do not depend on the type of chart you use to display them. So for example if you start the VWAP computation say at the open of the day, then the pivots look the same on a 1 minute, 2 minute, 5 minute etc chart. I use these plus the weekly, monthly and yearly VWAP data for all my trades. JERRY

While we are on the subject of pivots.... here is the same YM chart from May 30 (233 tick chart) with my pivot lines on it. Unlike standard pivots which are fixed in cement for the day, these pivots change as the price changes. They are natural pivots in the sense that they are independent of the type of chart you use them on (tick, time, range etc). Anybody recognize what they are?

The idea that support becomes resistance and vice versa is in my opinion not a good description to use. It gives the impression (often false) that when price moves down (up) to one of these points, it will bounce back up (down). So what are support/resistance points? They are points where the price action PAUSES, before either moving on in the same direction, or reversing. There is usually low volatility at these points and so they represent a good place to either exit a trade if you are in one, or initiate a new trade. The direction the market will go in from these pause points will of course depend on other factors. Looked at in this way, s/r points then become decision points for you the trader.

You enter an intraday trade long, and the trade immediately goes against you. What do you do? Here are several possibilities: 1)You exit the trade at your preset stop and wait for a new entry 2)When the price action hits a support point, scale in 3)When the price action drops below a support point, reverse the trade and increase size. 4)exit on the close of the day and take a loss whatever that is. 5)exit when my risk tolerance is hit. There may be other options. Let's here from you and tell us what you would do.

A good general discussion of the Normal or Gaussian distribution can be found here: Normal distribution - Wikipedia, the free encyclopedia This is the type of statistical distribution that most TA users assume their TA rules for entry and exit will follow when they do back testing of their rule based trading plan. Unfortunately, most TA users never check this. If they did they would be shocked to discover that their TA rules don't fit a NORMAL or Gaussian distribution of results. The reason for this is quite obvious. The data themselves used to generate the rules, don't follow a Gaussian distribution, so nothing derived from it will either. The normal distribution is what also occurs on what MARKET PROFILERS call a NORMAL DAY. Market profile is a subset of the volume or price histogram. On a NORMAL DAY, the volume histogram looks like a NORMAL distribution function, hence the name NORMAL DAY. One of the important characteristics of a NORMAL DAY is the symmetry of the trading volume about the peak in the distribution (the point of control or POC). You can easily tell when a NORMAL DAY is occuring, or when a day is approaching a symmetric distribution (Gaussian or not), by computing the Volume Weighted Average Price (VWAP). When VWAP=POC we have a symmetric distribution of traded volume. VWAP>POC we have a skewed distribution of traded volume data toward higher prices. VWAP<POC we have a skewed distribution of traded volume data toward lower prices. Knowledge of the VWAP and its dynamic then has some important consequences for price action even when the distribution function cannot be analytically written down. I dont' have the room here to go into all of the consequences of the VWAP. At some point perhaps I will contribute and article about it. JERRY

I hate to be cynical about this, but there is no evidence to support the use of technical analysis as a way to be profitable. In fact the vast majority of traders who use TA lose money. We can have a long discussion here as to why TA does not "work", but the bottom line is, TA is based on a linear representation of market data when in fact market data is very much non-linear in behavior. You need only to draw a linear regression line through as many data points as you like and then note that as you add more data, the linear regression line changes. Another way to understand this is to look at the price or volume histogram of a series of price points and note that it is very much non gaussian (that is to say it doesn't have a NORMAL DISTRIBUTION). In addition whatever distribution it has today, will be different tomorrow. Since most TA is based on the distribution being NORMAL, any TA analysis will be a poor representation of the data. What does that leave you with? Not much. What you can be sure of is what the distribution looks like right now (you can plot a histogram of it) and hope it will stay that way long enough for you to pull some money out of the market. JERRY

As a daytrader, I have no initial bias at the start of the trading day. In fact, I think if you have an initial bias when you start the trading day, you will miss trading opportunities because of it. Any bias I have for the day will develop as the day progresses. It is based on just one observation; The value of todays VWAP (volume weighted average price). If price action is above the VWAP, I will look only for long trades. If price action is below the VWAP, I will look only for short trades. When price action is near the VWAP, I don't trade. JERRY

Yes, I've been trading for more than 30 years. Electronic trading for the average trader didn't come into its own until the arrival of the internet. As far as differences between stocks and futures, if I were to put up two live charts, one of an equity and another of a futures contracts, I doubt you could tell the difference. The real difference lies in the leverage you have. A $70000 futures contract for instance requires you to put up only $2000 to $3000 of capital compared to 50% for equities. That's a real difference.

Well, I think of my own background. I started out trading stocks back in the days when there were no electronic trading platforms, and you had to call a broker to do anything. Futures? what were those? something farmers and cattle ranchers used for hedging. Most brokers couldn't or wouldn't handle them. I eventually did start trading futures manually (calling a futures broker to make trades) but found that unlike stocks you had to be on top of what was happening on a daily basis or you could get nailed quickly. I stopped trading them because I wasn't ready to give up my day job. Today of course, with the ease of electronic trading, futures trading is in my humble opinion the best way to get the most bang for your buck. I'm a dedicated futures trader, and haven't looked back