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jperl

Trading with Market Statistics VII. Breakout Trades at the PVP

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We are now in a position to discuss trading aspects at points in the volume distribution function near the PVP.

 

WARNING!! This is not for new traders. If you have not read and understood threads [thread=1962]I[/thread],[thread=1990]II[/thread],[thread=2008]III[/thread],[thread=2101] IV[/thread],[thread=2130] V[/thread], and[thread=2189] VI[/thread], and practiced with entries, exits and scale-ins using simulation mode until you are comfortable, then entries described in this thread are not for you (click on the thread numbers to see them). This is a dangerous place to be entering a trade. Anything and everything can happen and you can be caught with your pants down.

 

You are probably asking, why is JERRY telling me about this place to trade if it is so dangerous? Two reasons. If you are a basic trader taking entries at the VWAP and 1st SD, you might find yourself caught in this trap and not know what to do.

Secondly, if you like excitement and like living on the edge, like the bikers in the first attachment (a picture I found on the internet), and if you have a correct entry, there are lots of bucks you can pull out of the market by trading here.

 

So what's this all about? Well it has to do with price action at and around the PVP. The PVP as you've learned in [thread=1962]part I[/thread], is the dividing line between the low volume zone and the high volume zone. All of the trades we have discussed so far have been in the direction of the skew at the VWAP or its 1st SD in the high volume zone. When price action is around the PVP, it's decision time for the market. The market has to either move back into the high volume zone and continue trading there, or look for new territory in the low volume zone. Thus like the bike riders in the picture, you as a trader will be riding a fine line between the safety of the high volume zone, and the sudden fall into the abyss.

 

How does price action end up at the PVP anyway. There are only two ways: a)the PVP suddenly jumps to where the price action is or b) Price moves there. In either case, if you are in a trade, you are going to want to know what to do. If you are not in a trade, but want and exhilarating experience, here's your chance to do or die.

 

In case a) the skew suddenly flips its sign from positive to negative or vice versa. (Remember the skew is proportional to VWAP - PVP). While skew flips can occur anytime during the day, they usually occur early in the trading day when the volume distribution is beginning to form. Sometimes this is a sign of an imminent reversal. What should you do if you are in a trade and find yourself in this situation? Simple answer: GET OUT!, Dump the trade, win, lose or draw.

 

 

When price action is near the PVP, price is sandwiched between the VWAP and an SD or betwen 2 SD's. You might notice that price will tend to oscillate back and forth for a while between the VWAP and the SD, across the PVP line or oscillate between the 2 SD's. The market is thinking. Do I want to go back to the safety of the high volume zone where most of the trading has taken place or am I adventurous and want to discover new territory in the abyss of low volume. Don't trade in this region unless you are a scalper. Just wait. Wait for the market to decide what it wants to do, before you decide what you will do.

 

In the first video, we see price action in the PVP area with the VWAP on the downside. The Video shows when to take a trade to the upside on the break out of the 1st SD.

 

YM BREAKOUT TRADE

 

In the second video, we again see price action in the PVP area, but this time price breaks through the VWAP. We show how to apply the Shapiro Effect discussed in post 16541 to enter the trade.

 

YMVWAP WITH SHAPIRO EFFECT TRADE

 

And finally in the third video, we show a skew flip, where the PVP suddenly jumps to the price action. A trader may have taken a trade just before the flip as shown in the video and exited before the flip occurred, but if he didn't he should exit at the flip price.

 

ESSKEW FLIP

 

Regardless of whether price action has moved to the PVP or the PVP has moved to the price action, the effect is the same. You are now looking at a zone where trade entry is precarious, so be cautious.

 

In the next thread [thread=2285]Part VIII[/thread], we will discuss what to do when the skew is close to or equal to zero and the volume distribution function is symmetric.

mtb-cliffs-of-moher.jpg.4b3826c7f7edc41a4048af5c4a51aa3a.jpg

YMbreakoutAug10.swf

YMVWAPTradeAug10.swf

ESskewflipAug10.swf

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Jerry,

 

seems to me that each contract has its own nuances relative to VWAP. for example, the S&P futures really seem to react as you would expect around the VWAP price -- generally finds support or resistance there -- unless its a strong move -- whereas other contracts (NQ/YM) seem to violate the VWAP without the same regard for it. has this been something you have noticed?

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Jerry,

 

seems to me that each contract has its own nuances relative to VWAP. for example, the S&P futures really seem to react as you would expect around the VWAP price -- generally finds support or resistance there -- unless its a strong move -- whereas other contracts (NQ/YM) seem to violate the VWAP without the same regard for it. has this been something you have noticed?

I haven't investigated this in any detail Dogpile, but my feeling is that the nature of the instrument your trading shouldn't matter that much. As long as the statistics are valid, any violations of the VWAP or SD should occur in a random fashion. Use of the Shaprio Effect should help find those.

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Haha, the cliffs of moher image. Those guys look like they are out in full force to try to win a darwin award.

keep it coming. Great examples for the Shaprio Effect. I didn't get your text explanation but those videos made total sense. Seems like a great way to have a little system to make sure to get in on a retrace.

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When using Shapiro Effect trading with the skew, how often have you seen prices breakout against the skew and stop you out, and how much wiggle room should one allow the market to have before you bail? I know in previous threads you mentioned a %2 risk of your account balance, which makes sense. So let's say I enter at VWAP retest, put a 100 point stop, and prices go against me back to PVP, this would be a very scary thing...

 

I also assume that when prices do go your way, you immediately place a break-even stop when you're up 10-20 ticks? I know this system is difficult to back-test so I'm just curious to know what kind of stats you have accumulated using this method... I'm wondering if a 100 point stop gives the market enough room to revert back in the direction of the skew if I were unfortunate enough to get caught in a break-out... but at that point you wonder if the trade was good to begin with, very hard on the nerves I imagine... at that point discretion comes into play would you say?

 

Great threads, keep em coming!

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When using Shapiro Effect trading with the skew, how often have you seen prices breakout against the skew and stop you out, and how much wiggle room should one allow the market to have before you bail?

If you are afraid of using risk tolerance as a trading philosophy, then you need to have a nearby hard stop for your trade. If you entered short using the Shapiro Effect, then you entered below the low of a nearby up bar. Set the stop 1 tick above the high of that bar. Simlarly for longs.

 

I know in previous threads you mentioned a %2 risk of your account balance, which makes sense. So let's say I enter at VWAP retest, put a 100 point stop, and prices go against me back to PVP, this would be a very scary thing...

If that's your risk tolerance, then by definition you are comfortable with it. If you are not comfortable with it, then you need to redefine a different risk tolerance.

 

I also assume that when prices do go your way, you immediately place a break-even stop when you're up 10-20 ticks?

The number of ticks up where I would set a break-even stop depends on what I'm trading. For me a break-even stop is discretionary, it depends how the trade is going.

 

I know this system is difficult to back-test so I'm just curious to know what kind of stats you have accumulated using this method...

I hope you are not thinking that I am giving you a method to trade, rather than a tool to use for understanding price action. The "method" will depend on your trading style. Exact entry, stoploss points, and profit targets will depend on your trading style which only you can develop for yourself.

That being said, the stats for trading wil be based on your trading style. If you know where and how I trade, then you know my stats. But my stats won't be anyone else's stats using the same tools.

 

I'm wondering if a 100 point stop gives the market enough room to revert back in the direction of the skew if I were unfortunate enough to get caught in a break-out... but at that point you wonder if the trade was good to begin with, very hard on the nerves I imagine... at that point discretion comes into play would you say?

 

If you have to wonder whether the trade is any good, then you probably shouldn't have been in the trade in the first place. Before you enter a trade you must have all your ducks set up so you know exactly what you will do when the market decides to move against you.

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If you are afraid of using risk tolerance as a trading philosophy, then you need to have a nearby hard stop for your trade. If you entered short using the Shapiro Effect, then you entered below the low of a nearby up bar. Set the stop 1 tick above the high of that bar. Simlarly for longs.

 

 

If that's your risk tolerance, then by definition you are comfortable with it. If you are not comfortable with it, then you need to redefine a different risk tolerance.

 

 

The number of ticks up where I would set a break-even stop depends on what I'm trading. For me a break-even stop is discretionary, it depends how the trade is going.

 

 

I hope you are not thinking that I am giving you a method to trade, rather than a tool to use for understanding price action. The "method" will depend on your trading style. Exact entry, stoploss points, and profit targets will depend on your trading style which only you can develop for yourself.

That being said, the stats for trading wil be based on your trading style. If you know where and how I trade, then you know my stats. But my stats won't be anyone else's stats using the same tools.

 

 

 

If you have to wonder whether the trade is any good, then you probably shouldn't have been in the trade in the first place. Before you enter a trade you must have all your ducks set up so you know exactly what you will do when the market decides to move against you.

 

Good reply. I should have probably put more thought in my post. I'm still very new to this game and I have so many questions...:D. I am just really impressed with this information you have forwarded to us and I really hope someday I can include it in a method of my own. So many ways to trade the market it's really overwealming at first, I admire you veteran traders who stuck with it for so long and became successful. Props!

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1 valid short on the russel today.

 

Yes that would have been a good basic short trade O66.

 

Vwap seems to slow for russel and is most of the day above pvp

 

"VWAP seems to slow" is an interesting way to put it. What you are observing is the slope of the VWAP is going to zero with price action sitting in the PVP zone as described in this thread. A difficult place to initiate a trade as you are learning. There were several attempts at a break out to the downside from this zone starting at 12:42 (East Coast time) with the final break out occurring at 13.54.

 

Here is where risk tolerance plays a crucial role. The first false breakout at 12:42 was below the SD @ 774.92. Could you have tolerated the market moving back to the VWAP at 778.76? which it did at 13:36. That's $400/contract. If the answer is yes and you stuck with it, you would have had a good short trade of at least 4 points and more to the downside. If the answer is no, then you would have been stopped out.

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Jerry,

 

I really like the concept of risk tolerance over using stops and quickly moving your stop to breakeven because of constant bleeding of account and getting stopped quickly before catching a good move.

 

That is what attracted me so much to this method. I like the concept of scaling in at 1st SD and VWAP with stop at PVP or opposite 1 SD.

 

Most of the time the market may have a general drift bias but the way it moves is back and forth, back and forth rotating between levels with a slight bias. Trying the trade the conventional way for me has been an exercise in futility and constant stopouts and breakeven trades with an occasional runner that you hope compensates you for the stopouts.

 

It seems that the breakout trade goes against the risk tolerance, give the market room situation that you described earlier in your posts. It seems like you would have a lot of breakeven or stopout trades that would not be made up by taking the trade off at the next standard deviation.

 

Anyway, with the introduction of the shapiro effect, if you had a skew to the downside and the market retraced up to the lower 1SD and gave a valid shapiro signal and you went short, would you put a stop at the high bar or if it comes all the way up to the VWAP scale in short again on another shapiro signal if you get it? It seems that if I start using these close stops again...I am in the same boat I was in before? I was under the impression that was what you were cautioning against using these close stops all the time (which I can definitely resonate with).

 

I understand some may be more comfortable with tight stops but were you just showing others how they could use the tools with tight stops, but you still use the risk tolerance scale in method? Just want to make sure I understand correctly.

 

Also, Howard said that as far as Ensign computing the volume distribution bars they are taking the price if it trades over three price levels and the volume is 3000, then the volume is 1000 at each price level. When I compare the PVP based off tick by tick to the 2 minute coded PVP on my charts there are times when they are considerably different.

 

Thanks,

 

dbntina

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It seems that the breakout trade goes against the risk tolerance, give the market room situation that you described earlier in your posts. It seems like you would have a lot of breakeven or stopout trades that would not be made up by taking the trade off at the next standard deviation.

 

Yes, this is the problem with breakout trades against the skew in general. There can be several pseudo breakouts that fail. This is why they are so difficult to execute properly and why I don't like them.

 

Anyway, with the introduction of the shapiro effect, if you had a skew to the downside and the market retraced up to the lower 1SD and gave a valid shapiro signal and you went short, would you put a stop at the high bar or if it comes all the way up to the VWAP scale in short again on another shapiro signal if you get it?

If you are using risk tolerance, then yes, wait for the market to retrace to the VWAP and scale-in. If risk-tolerance is not your cup of tea, then you have to set a hard stop and it might as well be the high of the entry bar.

 

It seems that if I start using these close stops again...I am in the same boat I was in before? I was under the impression that was what you were cautioning against using these close stops all the time (which I can definitely resonate with).

Correct, that's why I suggest using a risk tolerance approach to trading

 

I understand some may be more comfortable with tight stops but were you just showing others how they could use the tools with tight stops, but you still use the risk tolerance scale in method? Just want to make sure I understand correctly.

Correct, I use risk tolerance with scale-in rather than tight stops for trades in the skew direction. For break-out trades against the skew, I will use a break even stop quickly, but if I can't do that, I will put a stop just below the VWAP. There really is no good scale-in point.

 

Also, Howard said that as far as Ensign computing the volume distribution bars they are taking the price if it trades over three price levels and the volume is 3000, then the volume is 1000 at each price level. When I compare the PVP based off tick by tick to the 2 minute coded PVP on my charts there are times when they are considerably different.

That's interesting. How many ticks different are they?

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I thought this might be of interest. I have modified the setup a bit because I don't have all the indicators in place just yet. I use another chart showing time at price to tell me where the PVP is, and I have a volume weighted MA on my chart to estimate the VWAP. As can be seen this trade worked well, betting against the breakout. I should have stay in longer.

snapshot-72.png.90872621e2002db87ed227e9c1700ae4.png

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As can be seen by this next chart, there is good reason (in my opinion) to use the "Shapiro Effect" rule for exits as well as entries. Staying in this trade, either by scaling out, or simply holding would have resulted in a significant additional profit. Given that volatility has expanded so much this last month I will have to remember to scale out rather than exit in one piece.

snapshot-73.png.474b769e539e5f40736b69e0bce5f1b8.png

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Here is where risk tolerance plays a crucial role. The first false breakout at 12:42 was below the SD @ 774.92. Could you have tolerated the market moving back to the VWAP at 778.76? which it did at 13:36. That's $400/contract. If the answer is yes and you stuck with it, you would have had a good short trade of at least 4 points and more to the downside. If the answer is no, then you would have been stopped out.

 

Thanks for your comments jperl.

 

vwap was above pvp and i thought only longs were allowed in this scenario.

 

i understand now from your comments (and after watching again the 1st video in this thread) that the first attempt to break down the sd to the downside @ 12:42 (18.42 on my chart) was a valid short (had to take the heat while retracing to vwap)

was so focused on the vwap below vpv thing for shorts that i missed the new setup

 

is waiting for breaking down and retracing back (with shapiro) to sd a good way to avoid the false breakouts?

 

thanks

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Everyone,

 

I have the two eld's complete that will plot the tick by tick pvp on a minute based chart using ADE (Kudos to BAMBOO..Thanks :) in Tradestation and it is integrated so that you can see the VWAP and SD bands with the tick by tick PVP all on one chart.

 

I do not want to post indicators here because I just don't want to be that formal and try and support a bunch of questions, etc. It works fine for stock indexes but for some reason different computers with different versions have to make slight modifications to a section of the code dealing with the minmove keyword.

 

The code is set up for price increments less than a point. It would be easy to modify the code for other prices...but I am not trying to create professional level software for all situations right now. Just creating accurate code for following JPERL's threads currently in ES and NQ.

 

So I don't feel comfortable posting the code for all futures...stocks etc. But if you are a tradestation user and you would like the code...email me here and I will send it to you.

 

The code is keeping track of volume at every price on a tick by tick basis so would not be hard to plot trendlines as a histogram so eventually I will go there but I don't know how soon I will get to it.

 

Cheers :D

 

 

Hope it helps,

 

dbntina

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is waiting for breaking down and retracing back (with shapiro) to sd a good way to avoid the false breakouts?

 

thanks

 

Probably not, but I haven't investigated this in any detail. When the real breakout occurs, there won't be any retrace. It just goes.

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Jerry,

 

I am enjoying the threads, thank you for sharing your ideas.

 

I need to find a concrete example for you on the difference between

PVP on a tick by tick and the PVP on a 2 minute chart with equalized volume over the bar tomorrow while I am watching it.

 

I wrote the code for the 2 minute and compared it to the tick by tick PVP and I want to say it was off by at least 2 points or more (ES). It happens when there is a higher peak above then another peak several points below it and because of the way the volume is portioned out the PVP can stay higher/lower for a while even though the PVP on a tick by tick has already moved. Then in general it will be a couple ticks off also.

 

I will wait for a concrete example and take a screenshot of both, one calculated the ensign method on a 2 minute and one calculated tick by tick and post it if I get an example tomorrow for you.

 

dbntina

 

;)

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Also,

 

I have no problems if someone else who has the pvp, vwap and sd bands wants to take the code and post it themselves here and offer support for it.

 

I had some help from blowfish and I would just like the code be free for anyone who wants it. If anyone wants to add to it spruce it up feel free.

 

It is completely open code.

 

dbntina

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I will wait for a concrete example and take a screenshot of both, one calculated the ensign method on a 2 minute and one calculated tick by tick and post it if I get an example tomorrow for you.

 

 

OK thanks dbntina. If you get a comparison, I would like to send something to Howard in this regard.

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Hi Jerry,

 

In your last video series (I think it was the first of the 3) on BO trades I noticed that Ensign updates the histogram at the close of the bar. It seems to evenly distribute the volume across all price levels of the bar.

 

Cheers,

Nick

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Jerry,

 

Here is yesterdays NQ chart.

 

The blue dotted line is the tick by tick pvp.

 

The red dotted line is the averaging bar volume over the price levels PVP.

 

You can see the 2 minute is way off.

 

You can see the 1 minute is a little closer.

 

It can be way off at times when you have peaks that are close at two different levels.

 

Here are the two charts.

 

Hope it helps,

 

dbntina

5aa70df24f342_PVPCompare2Minute.png.eb422cacc9ec18c0922656acf26e13ca.png

5aa70df253f48_CopyofPVPCompare1Minute.png.e4be6c1acab8e91f389be308d2b24413.png

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Hi Jerry,

 

In your last video series (I think it was the first of the 3) on BO trades I noticed that Ensign updates the histogram at the close of the bar. It seems to evenly distribute the volume across all price levels of the bar.

 

Cheers,

Nick

Yes, that is correct. Dbntina has also verified this. Thanks

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    • No trades for the 16th, actions for the 17th.  I'm tying myself in knots watching the lowest time frames, it might be worthwhile watching higher time frames once the trade is open.
    • This is what I have been looking for but didn't get anywhere. Thanks again.   _____________________________________________________ Anthony Constantinou CEO CWM FX  
    • Date : 17th April 2019. MACRO EVENTS & NEWS OF 17th April 2019. FX News Today * 10-year Treasury yields are up 0.7 bp at 2.598% and JGB yields climbed 1.8 bp to -0.015%, as stock market sentiment got a boost from Chinese data releases that beat expectations. * Chinese GDP growth came in at 6.4% y/y, in the first quarter, unchanged from Q4, while production surged 8.5% y/y and retail sales 8.7% y/y. * Data were taken as a sign that the government’s stimulus measures are starting to take effect. While it may be too early to call the all clear on the world economy, together with signs that US-Sino trade talks are making progress,  * the data will go some way to bolster confidence, especially after positive surprises on credit and housing data last week. The data underpinned Asian stock markets, as Topix and Nikkei posted gains of 0.29% and 0.27% respectively. The Hang Seng is up 0.01% and CSI 400 and Shanghai Comp gained 0.11% and 0.34%. * Broader Asian indices are at the highest level since last July, even as the ASX underperformed and closed with a loss of -0.35%, dragged down by the materials sector. * US futures are also posting broad gains and the front end WTI future has moved up to now USD 64.50 per barrel. Charts of the Day Technician’s Corner * EURUSD moved past 1.13 early today and has been moving towards the 1.1315 Resistance level. Key Resistance remains at 1.1320 while the Support at 1.1279 is still strong after being hit twice yesterday. Indicators support an upwards move. * GBPUSD has been moving downwards but is so far unable to break through the psychological 1.30 level, fluctuating around the 1.3067-1.3026 levels. Indicators are giving mixed signals. * USDJPY found support again under the 112.00 mark, and continued to trade there yesterday, with the Japanese data releases causing only some volatility. Indicators are showing mixed signals. * XAUUSD is trading at lows, after breaking through the 1285 Support level. Gold appears unable to break through the 1275 level, with the MACD and Stochastics showing upwards signals. Main Macro Events Today * UK RPI and CPI inflation (GBP, GMT 08:30) – Both the RPI and the CPI are expected to have declined in March, reaching 2.1% and 1.6% respectively, down from 2.5% and 1.9% respectively. * EU CPI inflation (EUR, GMT 09:00) – Both the core and the overall CPI inflation rates are expected to have remained at the same levels, at 0.8% and 1.4% respectively. * Canada CPI Inflation (CAD, GMT 12:30) – The BoC Core price index is expected to have remained at 1.3% y/y, while the overall CPI index is forecast to rise to 1.9% y/y in March compared to 1.5% in February. Support and Resistance Levels Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HotForex Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Dr Nektarios Michail Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • BNB trading: BNB Falls After Posting $20, The Bulls May Resume Rally   Binance Coin (BNB) Price Analysis – April 15   For the past two weeks, Binance Coin has been trading below $20.5, the yearly high, following a bearish sentiment. While BNBBTC market consolidates, BNBUSD is actually playing out on a decline as the sellers target next support level. However, a bullish breakout may continue an upward direction.   BNB-USD Market   Key Levels: Resistance levels: $20, $21 Support levels: $17, $16   BNBUSD performance has been quite impressive since the beginning of the year 2019; recording its all-time high at $20.5 in early April. After the steady drop to $17 area, the bulls increased momentum as price retested the ATH area; carving a descending broadening wedge formation.   BNBUSD-4H-Chart-April-15   In the last few hours of trading, the bears appeared to be resuming the rally. A selling pressure is gradually aiming $17 and $16 supports; respecting the trend line.   The important RSI is currently facing downward, signaling a bearish play. Reaching the oversold area may position the token at the mentioned price levels. A bullish play is likely to retest $20 resistance level. Surpassing the level may lead to a bullish continuation.   BNB-BTC Market   Following the market structure, BNBBTC is bearish on a medium-term trend as the price trades within a channel pattern. The fall began slowly after a double-bottom pattern at 0.0044 BTC high, which led the bears to the lower trend line at 0.0033 BTC before the bulls walk to 0.0039 BTC; testing the upper trend line.   BNBBTC-4H-Chart-April-15   Since yesterday, the price action has remained below 0.0039 BTC resistance level. A cross above this resistance could poise BNB for an upside trend. A long position could meet resistance at 0.0042 BTC resistance level. On the other hand, a downward move is likely at 0.0034 BTC and 0.0033 supports.   As revealed on the 4-hours RSI, the cryptocurrency is trading below the overbought level.     Please note: insidebitcoins.com is not a financial advisor. Do your own research before investing your funds in any financial asset or presented product or event. We are not responsible for your investing results.     How to buy Bitcoin with Paypal:  https://insidebitcoins.com/buy-cryptocurrency/buy-bitcoin-paypal   Best brokers for 2019:  https://insidebitcoins.com/forex-brokers    
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