Trading with Market Statistics V. Other Entry Points

[Nvesta81 10]

I'm thinking of switching to Ensign for my charts, any idea where I can find the VWAP and SD indicators? Thanks.

[nickm001 10]

I asked the same question several days ago.. Here is the answer:

 

Feature for ensign software:

Quote:-------------------------------

volume histogram: available

peak volume : available

VWAP : available

SD : not available but can be programmed by user as a DYO

Also if you ask Howard Arrington (owner of Ensign) he would probably make it available if there was enough demand.

 

My own software is presently not available for general use.

 

__________________

JERRY

[jperl 10]

The challenge is going to be when JPERL starts looking at the weeks PVP/POC with the weeks VWAP and SD bands and using that as a framework in framing the days statistics and taking trades that way.

 

I don't know for sure but I have a feeling JPERL is heading that direction.

 

Your ears must be ringing, dbntina, that's exactly where we are headed. But not quite yet as we still have some basic stuff and intermediate stuff to cover in the coming threads.

 

Also the POC is simply where the most 30M TPO's occur horizontally correct...this is not the same where the most volume traded at price correct? (PVP) Just want to make sure I have it correct before trying to code it.

That's correct.

[dupaski 10]

Also the POC is simply where the most 30M TPO's occur horizontally correct...this is not the same where the most volume traded at price correct? (PVP) Just want to make sure I have it correct before trying to code it.

 

 

Several packages let you use volume based PoC and VA instead of the original time based method. I use market delta and plot both areas. Usually they are pretty close, but on big trend days they tend to be further apart.

 

As all of these indicators also update in real-time during the day I would imagine it would be a good place to get the raw data needed to calculate VWAP and PVP/PoC, (I'm not a programmer so forgive me if this is off base).

[BlowFish 10]

The pvp is simple in theory but kinda fiddly in practice. All you need is an array with an element for each price level. (You'd probably just make it really big or does TS8 support dynamic arrays?) You would increment each array element with the volume at that level. The slight degree of trickiness comes from converting price to an array index while taking into account tick size. Fiddly rather than 'hard'.

 

Unfortunately I have a few commitments right now or would have a crack. I hope you will forgive my armchair generals point of view. Easier to sit back and offer advice rather than step up to the plate:). Was that too many metaphors hehe.

[Dogpile 10]

Jerry wrote: <<This is a good example of why hard stoplosses will slowly bleed you to death. In the next thread we will discuss an alternate paradigm called risk tolerance to replace hard stop losses>>

 

I just wanted to make a point to newbie traders out there. Trust me when I tell you that you are fighting a long uphill battle. Jerry is clearly an experienced trader and has many nuances to this strategy that he has not yet presented. Newbie traders really shouldn't be using this method for actual trades yet. A 'slow bleed' is not such a bad thing relative to most 'new trader' results.

 

In the example given (fridays mid-day YM VWAP touch with PVP > VWAP), isn't it possible that not initiating a trade at the VWAP level was perhaps a good choice -- rather than where your stop-loss was? For a newer trader, I would strongly argue that this was the best way to go. I would err on the side of 'too few' trades.

 

In my view, there were serious cross-currents to deal with on Friday. Adv-Decl line was bearish all-day. We have been in a downtrend and VWAP was lower than previous day (showing distribution) after 2 days of the market closing higher than its open. On the other hand, the put-call ratio was extremely high at 1.90+ -- indicating investors were very worried. The market started down and petered-out (volume was weak on the initial push down -- it was just an initial flush). But because of the initial push down, the futures markets all faced a ton of congestion above -- at the previous days equilibrium level of 1473-1474 on the S&P's. The market tested up away from this level late on thursday and then returned BELOW this equilibrium level and now 73-74 was going to be tough to get through to the upside -- though clearly a possibility. But essentially, we were stuck back just under Thursdays VWAP after an attempted break higher (bull trap) and an attempted morning break lower (bear trap).

 

I am just trying to help newer traders here by pointing out there is a lot more going on than just the PVP, the VWAP and the Std Dev of the days distribution. In my view, the cross-currents above called for a choppy range to fill-out with a break later in the afternoon. The dow (YM) did break up before down (another bull trap) -- but the S&P's did not and the failed spike up on YM was actually the best shorting opportunity of the day.

 

Until Jerry presents more, if you are thinking of trading this concept -- I would wait for only the cleanest set-ups and err on the side of undertrading. Believe me, I say this with complete respect for the methods Jerry is presenting here.

[Nvesta81 10]

Jerry wrote: <<This is a good example of why hard stoplosses will slowly bleed you to death. In the next thread we will discuss an alternate paradigm called risk tolerance to replace hard stop losses>>

 

I just wanted to make a point to newbie traders out there. Trust me when I tell you that you are fighting a long uphill battle. Jerry is clearly an experienced trader and has many nuances to this strategy that he has not yet presented. Newbie traders really shouldn't be using this method for actual trades yet. A 'slow bleed' is not such a bad thing relative to most 'new trader' results.

 

In the example given (fridays mid-day YM VWAP touch with PVP > VWAP), isn't it possible that not initiating a trade at the VWAP level was perhaps a good choice -- rather than where your stop-loss was? For a newer trader, I would strongly argue that this was the best way to go. I would err on the side of 'too few' trades.

 

In my view, there were serious cross-currents to deal with on Friday. Adv-Decl line was bearish all-day. We have been in a downtrend and VWAP was lower than previous day (showing distribution) after 2 days of the market closing higher than its open. On the other hand, the put-call ratio was extremely high at 1.90+ -- indicating investors were very worried. The market started down and petered-out (volume was weak on the initial push down -- it was just an initial flush). But because of the initial push down, the futures markets all faced a ton of congestion above -- at the previous days equilibrium level of 1473-1474 on the S&P's. The market tested up away from this level late on thursday and then returned BELOW this equilibrium level and now 73-74 was going to be tough to get through to the upside -- though clearly a possibility. But essentially, we were stuck back just under Thursdays VWAP after an attempted break higher (bull trap) and an attempted morning break lower (bear trap).

 

I am just trying to help newer traders here by pointing out there is a lot more going on than just the PVP, the VWAP and the Std Dev of the days distribution. In my view, the cross-currents above called for a choppy range to fill-out with a break later in the afternoon. The dow (YM) did break up before down (another bull trap) -- but the S&P's did not and the failed spike up on YM was actually the best shorting opportunity of the day.

 

Until Jerry presents more, if you are thinking of trading this concept -- I would wait for only the cleanest set-ups and err on the side of undertrading. Believe me, I say this with complete respect for the methods Jerry is presenting here.

 

 

Great post, I definitely agree with all of it. The example I posted was merely to compare charts and see if my interpretation of the VWAP/PVP was accurate, and I am not trading this method 'yet'. I think having a grasp of the overall market trend and how things are moving before entering long/short trades is a good thing to have in mind as well, that is something I am trying to work on before I start trading. The TICKS/TRIN along with put/call ratios are good things to have in sight when making decisions on your setups is what I am learning from all the stuff I have been studying lately. What Jerry has brought to the table is very interesting nonetheless and I look forward to his future threads.

[jperl 10]

I just wanted to make a point to newbie traders out there. Trust me when I tell you that you are fighting a long uphill battle.

I have no doubt about that. Even after I tell you everything that I know and do, you will still have a long uphill battle. Trading is like learning how to play an instrument. You need to know all the notes,scales,chords. But even then you still have to practice, practice, practice, and develop your own style.

 

Jerry is clearly an experienced trader and has many nuances to this strategy that he has not yet presented. Newbie traders really shouldn't be using this method for actual trades yet.

I agree with this too. Newbies shouldn't be trading with real cash until they can demonstrate consistent profits for at least a month in simulation mode.

 

A 'slow bleed' is not such a bad thing relative to most 'new trader' results.

A slow bleed is the worst thing that a new trader can have. It's insidious, because it makes him think that the methods he is using are ok, but they just need some fine tuning. So what does he do? He adds another indicator to his chart, discovers he still is bleeding and so adds another and another. Soon he's wrapped up in so many indicators, patterns,other market internals and externals, he doesn't know whether he's coming or going AND he is still bleeding. Which is why I'm suggesting a paradigm shift in the whole concept of stoploss.

 

In the example given (fridays mid-day YM VWAP touch with PVP > VWAP), isn't it possible that not initiating a trade at the VWAP level was perhaps a good choice -- rather than where your stop-loss was? For a newer trader, I would strongly argue that this was the best way to go. I would err on the side of 'too few' trades.

Dogpile, On the basis of what NEWBIE knew at the moment, the answer to your question is No. You then present a whole litany of arguments as to why NEWBIE shouldn't have taken the trade. I presented one simple reason why he might have stayed in the trade. Seems to me that simpler is always better.

 

I am just trying to help newer traders here by pointing out there is a lot more going on than just the PVP, the VWAP and the Std Dev of the days distribution.

I would agree with you on this. There is a lot more going on, and guess what it is related to? - The PVP, the VWAP and the Std Dev. We will understand a lot more when we discuss HUP in later threads. Guess what HUP is related to? -The PVP, the VWAP and the Std Dev.

 

 

Until Jerry presents more, if you are thinking of trading this concept -- I would wait for only the cleanest set-ups and err on the side of undertrading. Believe me, I say this with complete respect for the methods Jerry is presenting here.

When you understand risk tolerance which is coming up in the next thread, you will always err on the side of undertrading. Even pros err on the side of undertrading.

[Dogpile 10]

<<A slow bleed is the worst thing that a new trader can have. It's insidious, because it makes him think that the methods he is using are ok, but they just need some fine tuning. So what does he do? He adds another indicator to his chart, discovers he still is bleeding and so adds another and another. Soon he's wrapped up in so many indicators, patterns,other market internals and externals, he doesn't know whether he's coming or going AND he is still bleeding. >>

 

you just described probably 95% of traders first 6-9+ months of trading, including mine. I think this was ok though because my initial futures account was small relative to my total liquid net worth. I bled off money but the absolute amounts were small -- had I used wide stop losses, I probably would have blown through my account over and over again -- this is what I mean by a slow bleed not being the worst thing. If you blow your account out with bad trades and wide stop-losses, that is the worst thing. I was overtrading (bad trades) with tight stop-losses -- bad, but not as bad. If you makes good trades -- well then wide stop-losses are likely optimal -- but most newbies simply aren't going to make good trades, so wide stop-losses will just make them lose fast rather than slow.

 

personally, I followed my mentors advice -- which was to not trade a lot (err on undertrading) and to use reasonable stops. this has worked for me.

 

jerry, kudos to you for these videos. these have been great.

 

btw, I have preached us private traders need to work together to share ideas and take on the algorithmic machines of the world -- lately, I have been trading at very high % lately and then I read this:

 

"one of the largest firms specializing in algorithmic "black box" auto systems (market making), had taken a rather large hit the prior few days, and had turned off all their auto-trading systems. Another large firm specializing in the same game, claimed "technical difficulties" and had also shut off their auto trading systems. "

 

http://futurepathtrading.com/content/view/362/69/

 

interesting that my results (and many of the peers I chat with daily) just spiked up while black boxes have been getting abused lately.

[Nvesta81 10]

Here was a nice possible VWAP trade today in the YM.

 

[Dogpile 10]

<<For skewed data, that is data that deviates from normal behavior, the best estimate can be obtained using Chebysev's inequality, which states that no less than 50% of the data falls within 1.4 SD, and no less than 75% falls within 2 SD. No less than 89% falls within 3 SD. These numbers are quite a bit different than that for the normal distribution. >>

 

Let’s talk about this for a minute like you would a regular ‘1-tail test’ that many of us probably remember from Statistics classes.

 

In a normal distribution, you would look at 1 end (tail) of the bell-shaped distribution and say that ’97.5% of observations should fall ABOVE -2.0 standard deviations’ (1-tailed test is ½ of 5% since you are looking at ALL action except for 1 of the ‘tails’)….

 

So your equivalent of this would be that in a skewed distribution ‘75% of observations should fall between -2 Std Devs and +2 Std Devs' Right? Which would then imply something like 1/2 of 25%, or 12.5% of trading to occur BELOW -2.0 std devs... do 1-tailed tests work like that in skewed distributions?

 

I could go on to say that 1/2 of 11% (1.00-0.89%) or 5.5% of trading would be expected to occur BELOW -3.0 std devs....

 

thus, and maybe this is totally off but I will continue as a conclusion anyway:

 

'after taking a short at -1.0 std devs in a minus-skew distribution would have expectation of 25% of future trading be below -1.4 Std devs, 12.5% of trading below -2.0 std devs and 5.5% of trading below -3.0 std devs....'

 

is this a general expectation? if not, is there a correct interpretation and would you mind sharing it if so??

[jperl 10]

In a normal distribution, you would look at 1 end (tail) of the bell-shaped distribution and say that ’97.5% of observations should fall ABOVE -2.0 standard deviations’ (1-tailed test is ½ of 5% since you are looking at ALL action except for 1 of the ‘tails’)….

 

So your equivalent of this would be that in a skewed distribution ‘75% of observations should fall between -2 Std Devs and +2 Std Devs' Right? Which would then imply something like 1/2 of 25%, or 12.5% of trading to occur BELOW -2.0 std devs... do 1-tailed tests work like that in skewed distributions?

 

 

Unfortunately not. It's the very nature of skewed distributions that the "tail" on one side is not the same as the tail on the other side. So a tail test just doesn't make much sense.

[Dogpile 10]

so there is nothing statistical to be gained from Chebysev's inequality other than a general idea that the skewed distribution is somewaht more favorable for trading to occur at +/-2or +/-3 Std Dev level than a normal distribution is??

[jperl 10]

so there is nothing statistical to be gained from Chebysev's inequality other than a general idea that the skewed distribution is somewaht more favorable for trading to occur at +/-2or +/-3 Std Dev level than a normal distribution is??

That's actually saying a lot, considering that it applies to any type of skewed disitribution of arbitrary shape.

[nyctrader 10]

Jerry, I just want to thank you for these excellent threads, and the great videos. My knowledge and understanding have taken a great leap.

 

MG

[momentom 10]

jperl,

 

Great threads. Really opened up my mind.

 

 

 

Thanks for showing me this.

[mp_trader 10]

I asked the same question several days ago.. Here is the answer:

 

Feature for ensign software:

Quote:-------------------------------

volume histogram: available

peak volume : available

VWAP : available

SD : not available but can be programmed by user as a DYO

Also if you ask Howard Arrington (owner of Ensign) he would probably make it available if there was enough demand.

 

My own software is presently not available for general use.

 

__________________

JERRY

 

I posted a DYO for vwap with stdev bands here http://www.traderslaboratory.com/forums/6/vwap-q-and-a-and-how-2563-4.html

[unicorn 10]

Volatile for sure, but you don't want to be trading anything with large spreads .

So cooter how about giving us a list that you consider liquid and I will take a look at the volume distribution function.

 

Jerry,

what do you think of currency futures GBPUSD EURUSD; how suitable/appropriate is the market statistics method for trading them?

 

regards,

Unicorn.

[jperl 10]

Jerry,

what do you think of currency futures GBPUSD EURUSD; how suitable/appropriate is the market statistics method for trading them?

 

regards,

Unicorn.

 

I don't trade these, but I see no reason why market statistics data could not be used for these, as long as volume data is available.

[unicorn 10]

I don't trade these, but I see no reason why market statistics data could not be used for these, as long as volume data is available.

 

Thanks Jerry;

 

How important is that the daily volume be greater than 100,000 contracts, as mentioned earlier?

EurUsd usually exceeds that; but GBPUsd hovers around 40%~50% of this requirement.

[jperl 10]

Thanks Jerry;

 

How important is that the daily volume be greater than 100,000 contracts, as mentioned earlier?

EurUsd usually exceeds that; but GBPUsd hovers around 40%~50% of this requirement.

 

It's not fixed in stone unicorn. The point of having high volume is two fold,

a)You want enough data to generate proper statistics

b)you want enough volume to provide liquidity, so you don't get caught with your pants down.

36000 contracts traded/day would be about 5000 contracts/hour or

80 contracts/minute. That's not a lot of contracts.

[garciaal 10]

Jerry,

I really am a Newbie to this concept. You are gentleman & a scholar for giving us this information.

 

Could you explain the difference between PVP & POC.? I have read all the threads up to this point an watched the videos(excellent) and I may have missed the explaination.

 

Also has any one coded it for Ninja?? They use C#, and I'm not a programmer.

 

Thanks,

Al

[Nvesta81 10]

Could you explain the difference between PVP & POC.?

Al

 

As far as I know POC is the price at which the most transactions (trades) have taken place regardless of volume, whereas PVP is where the most volume has been traded at a specific price.

 

Jerry can probably explain it better, but I thought I'd give it a whirl.

[darthtrader 10]

Jerry,

 

Also has any one coded it for Ninja?? They use C#, and I'm not a programmer.

 

Thanks,

Al

 

if you look on the ninja forum there is a nice VWAP with all 3 dev bands. There are a few version, NWAP seems to be the most completely from what I've tried.

For PVP, probly the best thing is the volume profile that comes stock with ninja as its tick by tick. The only thing that sucks is it reloads if you do anything to the chart. You have to also eye ball the pvp though. There is another indicator that might work as a proxy called calculatevaluearea, you can do a volume weighted TPO profile that puts a line at the POC.

Its all on the ninja forum, I don't want to post someone elses work here.

[jperl 10]

Jerry,

I really am a Newbie to this concept. You are gentleman & a scholar for giving us this information.

 

Could you explain the difference between PVP & POC.? I have read all the threads up to this point an watched the videos(excellent) and I may have missed the explaination.

 

Also has any one coded it for Ninja?? They use C#, and I'm not a programmer.

 

Thanks,

Al

PVP refers to the peak volume price for the complete volume histogram. POC refers to the peak volume price (called Point of Control) for Market Profile, which is a 30 minute average of the volume historgram. Market Profile's POC will thus only show a slower variation of the peak volume price.

 

Can't help you with Ninja, since I don't use it.

JERRY