[innovation]

I would like to identify instances where the shrewd application of W's principles of market interpretation can be practically applied for profit. Specifically I am looking to reduce price risk to its sensible limit by getting in to a trade as early as possible and by identifying instances where prior price and volume action indicate high probabilities of a specific outcome, reduce the information risk side of the equation when compared to a current price action only standpoint.

I can't find the exact quote but I seem to remember that W said something like: Whatever happens in the market is a result of what has gone before.

I am not looking for certainties but factors that when present will load up the likelihood of movement in one direction over a movement in the opposite or indeed no useful movement at all.

Things I am currently looking at in my testing/trading are:

• Hinges
• Climax - Test
• Rejection at previously established S or R
• Penetration of previously established S or R
• Breakouts from consolidation after testing interest

I am still working through trying to understand the possible buying and selling dynamics at work in these situations and any PAV 'tells' that might favour one direction to the other. I will have a stab at hinges here as I have spent more time on those.

Btw I understand that where these things occur in the context of other things will have a bearing on likely outcomes but for the sake of discussion lets assume that the context is neutral.

Hinges

The dynamics of a hinge, as I understand are that buyers and sellers disagreement on 'value' reduces over time until a point is reached where there is so few trades occurring that one side or other takes the initiative and exerts pressure on the other side trying to move price to a level that they now view as 'value' in the hope of profiting from their effort.

Say buyers take the initiative as in my chart, then the sellers try to oppose the momentum created by the buyers as they believe 'value' to lie below the current price level. The buyers exert more effort/pressure than the sellers and price rises. Once price rises above the supply line of the hinge some of the original sellers may become buyers (cutting losses, changing bias, accepting the outcome of the struggle) adding fuel to the buyers fire.
The mid point of the hinge acts as S/R as that is the point at which the struggle began and so the point which the buyers will want to defend, assuming the same level of commitment that initiated the move in the first place.

Moves that happen on low volume which would indicate (assuming a long move) that there are few sellers (low selling pressure) or that all market participant roughly agree on where true 'value' lies (up). As everyone agrees (has the same bias) few trades occur and price moves easily with very little effort (volume). This type of move can be easily reversed just because there have been few trades conducted during it, there are few participants with any vested interest in it being sustained.

How can any of this be of practical value?

Well, I am still relatively new to all this but have noticed that moves that result in break out of a hinge sometimes begin on the opposite side (demand or supply) to the resulting break out. The potential to enter prior to the actual breakout which would be a low info risk, high price risk trade would mean that you would have a low price risk (as your SL could be just under LSL) and potentially low info risk trade (assuming this occurs with any reliability).
Has anyone noticed this behaviour or is it a sacrificing virgins to volcano, coincidental, sort of thing? Any views, observations or comments on increased probability of price moving one way or other out of a hinge would be most welcome. In fact I would like to know if anyone looks to previous volume as an indicator of future events or only as a confirmation of current action.

Oh and I found this excerpt from Sect 14M - Volume Studies

"Some people regard a stock (or the market) in this (springboard) position only when
it breaks through an old line of resistance or support into a higher or lower field. I
claim that the beginning of the springboard move is at the bottom of a range of
accumulation, or in the upper levels of a range of distribution."

If this is in the wrong place feel free to move it, I thought about posting to the Hinges thread but as hinges are only part of the posts subject I thought here was the best place.

[DbPhoenix]

I don't know that this belongs here either, but I don't know where else to put it, so here is as good a place as any.

Are you saying that you had no idea which way price was going to go before it broke out of the hinge?

[innovation]

Originally Posted by DbPhoenix »

Are you saying that you had no idea which way price was going to go before it broke out of the hinge?

In this instance I had an idea that price would break out to the long side based on the increase in volume after the last bounce off of the demand line (not including prior PA). I guess I wanted to know if this was a valid/reliable indication of breakout direction or coincidental.

I also wanted to see if my current understanding of the dynamics of the creation of the hinge are accurate.

[DbPhoenix]

Originally Posted by innovation »

In this instance I had an idea that price would break out to the long side based on the increase in volume after the last bounce off of the demand line (not including prior PA). I guess I wanted to know if this was a valid/reliable indication of breakout direction or coincidental.

In and of itself, not so much. But there's a lot more here.

I also wanted to see if my current understanding of the dynamics of the creation of the hinge are accurate.

Yes.

Since you're using Volume At Price, what does the VAP tell you in your chart?

[DbPhoenix]

Originally Posted by MRW »

Just some observations - it seemed like this was the place to post them perhaps.

It would seem, based upon my learning curve so far, that one of the most important things in trading is the way one thinks about the market. For example, does a price move mean something to you about supply/demand pressures or is price movement a function, say, of your mathematical model?

It would also seem that a progression in learning might go from first getting one's thoughts in order, to practicing seeing the way various supply/ demand pressures work themselves, to practice one's observations by taking small, low-risk raes, to gradually working up in size as judgement becomes better.

The first step then being to know what you're looking for/at, then gainig experience spotting these things, then working out some guidelines for actually trading them.

Sorry for the somewhat rambling, semi-coherent thought process here - I'm just starting to get this straight (assuming I'm not way off base), I think.

Would love to hear the thoughts of others!

It isn’t so much what one thinks as what one believes. One who believes the market is random will trade it one way; one who believes that it’s non-random will trade it another. One who believes that it’s a vast, manipulative conspiracy out to trick him will trade it differently from one who does not. One who believes that the keys to the kingdom lie in a bar chart, or a T&S display, or “the book” will trade differently from one who does not. One reason why so many of the "discussions" on message boards fragment so easily is that everyone is operating on different belief systems.

This is largely what Douglas is all about, that our behavior stems from our values which in turn stem from our beliefs. In that context, he proposes what he calls the "five fundamental truths":

1. Anything can happen.
2. You don’t need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

#2, for example, may or may not be realistic or practical depending on one’s beliefs. If one believes that he must know what will happen next in order to make money, then his focus shifts toward being right, and a focus on being right invites all the ego issues which so many beginners talk about. On the other hand, if he believes that he doesn’t need to know what’s going to happen next in order to make money, a great weight is lifted.

But regardless of the set of beliefs with which one begins his study, at some point the strategy will either be profitable or it will not. If it is not, then whatever one believes is immaterial. The most fervently-held belief will not turn a loss into a profit.

Therefore, if one is able to apply the scientific method to his study, he may be able to begin doing fairly well rather quickly and "psychology" may play only a small part, if any. But if he drags along a lot of baggage, he may never achieve any success at all.

[Tannism]

3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.

Is he saying that the edge is the probability the trader through skills, beliefs, baggage, experiences, etc. brings to the moment in time?

[innovation]

Originally Posted by DbPhoenix »

Since you're using Volume At Price, what does the VAP tell you in your chart?

It tells me that price is above a short term level of support established between 09:40 and 10 ish (the lower red box), this was tested successfully around 10:20.

Price then failed to make a new high and returned to the demand line and potentially stronger area of S/R (middle red box).

The top red box probably had a different VAP histogram associated with it prior to price leaving the hinge, so I don't know how useful it is.

You say there is a lot more here, please elaborate...

Cheers

[Shamal]

Db,
is this the case where at 'A' price attempts to penetrate with high vol showing buying intent, and then at that moment supply is able to push it back to the demand line.

But when price approaches the demand line, the vol is less i.e less selling interest, plus a higher bottom and then when volume does come in prices are able rise, suggesting the breakout should be to upside.

Going by what I have read here and in Vadym's book although I could be wrong.