Volume 5 - Traders Laboratory

Spydertrader’s
Jack Hershey Futures
Trading Journal
As compiled by
Pr0crast Volume 5:
Fundamentals Review
May 2007
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TABLE OF CONTENTS
Editor’s Note ............................................................................................................................... 1 Fundamentals Review ................................................................................................................. 1 Spyder’s introduction .............................................................................................................. 1 Bundlemaker trades through a flaw ......................................................................................... 4 Lightbody overcomes his troubles with Gaussian levels......................................................... 5 Spydertrader’s 5-1-2007 ES chart with color-coded Gaussians .............................................. 6 Spyder reviews some jokari & Gaussian stuff......................................................................... 7 Jander posts a good example of handling “spike” bars in Gaussian ....................................... 8 Pepe updates his eSignal PRV script ....................................................................................... 9 Spydertrader’s 5-2-2007 ES chart with color-coded Gaussians ............................................ 10 Spyder answers more questions on using STR/SQU before synch ....................................... 11 Spyder answers even more questions on Gaussian basics ..................................................... 11 Spyder and ticktrade have an exchange ................................................................................. 12 Spyder on using PRV to get a feel for momentum ................................................................ 15 Bundlemaker offers his most recent two cents ...................................................................... 16 Spyder comments on sufficiency ........................................................................................... 17 Spyder digs up some more background material................................................................... 18 Spyder reviews FT3s and steeper RTL exits ......................................................................... 18 Spydertrader’s 5-9-2007 ES chart (FOMC day wooooo!) .................................................... 19 Bundle observes STR/SQU on FOMC day ........................................................................... 20 Spyder comments on some flaws .......................................................................................... 20 Cferret has some STR/SQU questions .................................................................................. 22 GregorS has a change/continuation question......................................................................... 23 Aurum has an AHA moment ................................................................................................. 24 Spyder says to not worry about double-bottoms being flaws................................................ 24 Tums has an AHA moment regarding Gaussians synching with channels ........................... 25 GregorS has an AHA moment on trading through a flaw ..................................................... 26 Guavaman makes me laugh… ............................................................................................... 26 PointOne’s idealized coarse-level commentary .................................................................... 27 ii
More nuggets from Spyder .................................................................................................... 29 Ivob translates one of Jack’s old STR/SQU posts ................................................................. 31 Guavaman makes me laugh again… ..................................................................................... 32 Ivo says “Look for CHANGE, not CONTINUATION” ....................................................... 32 PointOne on change/continuation.......................................................................................... 32 Ivo posts a STR/SQU example video .................................................................................... 33 Spyder reviews the Jokari window ........................................................................................ 34 Tums posts his collection of Jack STR/SQU nuggets ........................................................... 35 Pr0crast posts a PRV tool for Quotetracker........................................................................... 35 Spyder on perception and perspective ................................................................................... 36 Ivob posts another str/squ video example with commentary ................................................ 37 More insight into Spyder’s execution .................................................................................... 37 Excav8r, Pr0crast and PointOne get STR/SQU working in Quotetracker ............................ 38 Spyder walks through his thought process for a complex flaw identification....................... 41 Pr0crast watches STR/SQU a bit ........................................................................................... 43 Spyder on picking CO point 1s.............................................................................................. 45 Spyder on recycling point 1s ................................................................................................. 45 Bundlemaker on escaping the entry/exit mentality ............................................................... 46 Bundlemaker on different kinds of PT1 ................................................................................ 46 Laziness 101 .......................................................................................................................... 49 Pr0crast posts link to video review/discussion of Gaussians ................................................ 49 A discussion on flaws ............................................................................................................ 49 Pr0crast experiments with Gaussian annotation .................................................................... 52 Pepe asks Spyder if this is a stall ........................................................................................... 53 Spyder on sufficiency (again) ................................................................................................ 54 An attitude adjustment from Spyder ...................................................................................... 54 Bi9foot asks Spyder about a dip ............................................................................................ 55 Pr0crast gets better at IDing HVSs ........................................................................................ 56 Spyder posts a mini-glossary for Jack’s upcoming novel ..................................................... 56 Hershey talks flaws (part 1) ................................................................................................... 58 Spyder chat log regarding an HVS ........................................................................................ 62 iii
Pr0crast asks about another HVS .......................................................................................... 63 Spyder makes a suggestion for people having trouble with flaws ........................................ 65 iv
EDITOR’S NOTE
If you wish to read the May section of the journal on Elitetrader in its entirety, it can be accessed
at this link:
http://tinyurl.com/2es7fx
FUNDAMENTALS REVIEW
Spyder’s introduction
I want to thank everyone who spent time answering my Housekeeping Questionnaire by posting
their viewpoints to the Journal, as well as those, who sent me their opinions via PM or email. I
appreciate your efforts and consideration. If you have not yet had an opportunity to respond,
please feel free to do so. The process not only helps me to 'see' where we need to go next, but
also, it helps each individual 'see' where they need to focus in order to make the next step.
I realize many reading along want to move forward and begin to study the DOM and learn how it
provides signals for change. Some have already moved into this arena. Before I posted my
questions today, the vast majority of individuals who sent PM's, IM's, emails or posted their
thoughts about moving forward, felt ready and eager to forge ahead. However, after reviewing
the posts from this afternoon and this evening, I see many opportunities for improvement. In
other words, while each individual may feel ready, it doesn't necessarily follow that they are
ready to move onto the next step.
In addition, It is at this very point (during past attempts at transference of these methods) where
the "One More Tool" Phenomenon has manifested itself. I have seen the same sequences develop
within this thread as well. Already, I sense many believe, 'If I only had (Insert Tool Name Here),
I could improve and become profitable."
Nothing could be further from the truth.
When Jack traded these methods (on hand drawn charts, mind you), he only had the S&P
Futures, The DOW Futures, Channels, Gaussians and STR / SQU as his tool set. He did not have
20 SMA, MACD, Stochastics (of any flavor), DOM, T&S, or Tic Charts. As a result, it only
stands to reason, that we should be able to do the same.
Therefore, after careful consideration, and after thorough review of many posts and charts shared
across the last month, I feel delaying the introduction of the DOM until next month, while at the
same time, spending the month of May focusing on the fundamentals required to trade these
methods profitably provides the best course of action needed to create a strong foundation for
success. I understand some may feel disappointed that we (once again) have delayed moving
forward, but if people experience difficulty now, it certainly doesn't become easier as we add the
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fine level tools. Much better to fix things now, rather than, wait until later.
To that end, I have a request for each of you.
While reviewing many of the responses, I noticed some people had experience in one area, but
lacked proficiency in another. Each respondent had different areas of expertise and different
areas where they experienced challenges.
Those of you who feel you can easily 'see' things (using one tool or another or all the tools) as
they unfold, please take a moment to attempt to articulate why you 'see' the market as you do. If
you still have difficulty in one area or another, leave that part out for now. Try to express as
clearly as possible how you Draw Channels, Annotate Gaussians, Use PRV, Use YM, Use Str /
SQU to assist you to locate the FTT or Point Three. Please discuss areas where you feel you have
a proficiency in an effort to help those who have difficulty. If everyone contributes in this
fashion, each post provides the assistance needed for another trader. Those of you who feel you
cannot 'see' things clearly, please attempt to articulate (as clearly as possible) how you monitor
and make decisions throughout the trading day - include how you decide to finally 'take action'
on a trade (mentally, for real or on a sim). In this fashion, others who do have an expertise in one
area can 'see' how your monitoring and decision making differs from their own. As a result, we
as a group can provide assistance to each other in a much more rapid and helpful manner.
Use charts where possible.
Also, if anyone sees something during the trading day they find confusing, please post the time
and situation you found challenging as soon as possible. In this fashion, I can focus in on an
explanation - similar to Bundlemaker's Chart and Question with respect to Friday Morning's
HVS.
Lastly, I plan to review any response made to the 'Checkup Questionnaire' and seek to provide
some additional clarity with respect to the areas of challenge mentioned in the individual posts.
In addition, I plan to take each area identified as needing improvement and provide examples of
correct vs. incorrect use of the tool or annotation, as well as, provide explanation as to how one
should use the information. In other words, I plan to reinforce the importance of trading in the
NOW, rather than, 'seeing' things after they happen.
I appreciate the patience afforded me by those who feel the time has come for them to move
forward with their studies, rather than, undergo a review. It is not my place to point out who
should, and who should not, begin to study the DOM. I leave that choice up to the individual
trader. However, I strongly believe this delay provides everyone a benefit. Those that help to
assist others will definitely see the benefits of the 'See One, Do One, Teach One' Paradigm - as
they reinforce that which they already have internalized. Those that need assistance in one area
provide benefit to another, while receiving assistance from someone else. Following such a
process makes everyone a winner in the end.
Once again, thank you all for your patience.
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Attached, please see the updated Syllabus.
- Spydertrader
Optioncoach: Same would apply here, the spending of another month of hammering the basics
is important. Can anyone here truly say they have MASTERED the basics of channel and
volume? Honestly if you have, you would not need any other tools in my humble opinion. So
my suggestion is that a major part of the review focuses on reading volume.
Spydertrader: I agree. As a result, our review begins with insuring we all understand how
Gaussian Volume Formations must match the channels - every channel. The Gaussian Volume
Formations appear to create challenges when the Price and Volume Bar color (at the close) fails
to match the lines we draw above the volume bars. In addition, varying volume levels (when the
volume bars don't develop in the exact fashion as represented by the hand drawn examples
provided in the past) creates a source of confusion (Is this increasing? Is this decreasing? It
started red, but now its black, so how do I draw this line?).
See the attached chart snippet.
Note the (thin line) red down channel with black bars at either end. Setting aside the Kelly Green
up Channel for a moment and focusing only on the (thin line) red down channel, we annotate
volume as red volume from the high down to the low Price Bars (circled red). We annotate in
such a fashion due to the fact that Price moves lower on red volume. The flip side is also true. In
an up channel, we annotate increasing black as Price moves higher within the channel from the
low to the high Price Bars.
Today, everyone should force themselves to make sure every Gaussian Volume Formation
matches every Price Channel currently monitored. In other words, had one monitored the Kelly
Green Channel in the attached snippet, they would annotate their Gaussians differently from
someone monitoring the red down channel. Ask yourself constantly throughout the day, what
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resolution level do I monitor, and am I correctly monitoring Volume
on that resolution level? If anyone comes across an area where they
feel confused, post the time here in the Journal.
Remember, your Gaussians must match every channel. Expect to
find examples where it appears following such a rule proves
difficult. However, after we all work through the logic, things
should become clearer in this areas where some have experienced
challenges in the past.
As always, one should see decreasing volume back to the right trend
line with increasing volume on a breakout. The same rules apply as
before, but beginning today, we all need to make sure we strictly
follow the Gaussian Formations. In such a fashion, everyone should
begin to see clarity as how Volume Leads Price.
If anyone finds the above instructions confusing, please let me
know.
- Spydertrader
Bundlemaker trades through a flaw
Quote from bundlemaker:
This morning on bar 4 (about 1/2 way through bar) I called an
FTT. Early in bar 5, the volume situation made it look more like
a flaw to me and I reversed to short.
Spyder: Nicely done. When PRV shows significantly less volume (40% to 60% less) than the
previous bar, my brain begins to think, "We might have a Flaw." While not always the case
(FTT's still can develop at these volume levels), once you train your brain, to switch into
"Possible Flaw here" mode, you'll catch these more often and with greater consistency. In such
circumstances, a trader then continues the bar to bar monitoring (normally only performed at
individual resolution level 'action points') to the next bar in an effort to 'see' continuation in the
direction of the dominant trend.
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Quote from bundlemaker:
I was happily rewarded. This is the first time I recognized a flaw of this nature so early on.
Credit is due to the review of Fridays' HVS. But also, I noted throughout several minutes
that S/S seemed to persist more below minus 2 than above positive 2. This didn't occur at
any specific decision point, but throughout the flaw. Is this a valid way to use S/S or was it
coincidence?
Spyder: You have correctly observed how one goes about switching to Intra-bar monitoring
and remaining on that resolution level until the close of the bar. You observed multiple and
repeated STR / SQU signals indicating change. Once received, you immediately acted upon the
signal, and continued to monitor to insure no opposing signal for change developed Intra-bar.
On the next bar, you could see by increasing PRV (red) that you continued to remain on the right
side of the market. Nice job.
Lightbody overcomes his troubles with Gaussian levels
At the start of this journal I was having real trouble with Gaussian formations. (Not that I am an
expert now but I am getting better.) What really helped me was distinguishing between the forest
and the trees. One day in desperation, I started drawing the forest lines in big thick lines and
insisting that they match up with the price formation on the forest level. As the day went by, I
also drew in the finer levels in thin lines. Again, I made sure that they absolutely matched the
corresponding lines on the price chart.
A few days of this really helped me see the big picture better and understand the real essence of
this. I am attaching a chart I did couple of weeks ago. While it looks very confusing at first
glance, I made this special emphasis on the forest Gaussians which really helped me.
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Spydertrader’s 5-1-2007 ES chart with color-coded Gaussians
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Spyder reviews some jokari & Gaussian stuff
Price moves higher in an up channel on increasing black volume. Sometimes, we have a bar
make a new high on increasing black, then turn and end up closing below its open creating a
situation where it appears price went higher on increasing red volume. We see such a
circumstance in the areas marked on your chart. I match up my Gaussians by how price moves,
and not by how the bar closes. PRV tells me increasing Black Volume, then I anticipate
improved Price in an up channel. Should the Price bar 'spike' and head lower after making the
new high, I still mark the bar as increasing black.
Keep in mind, STR / SQU gives us the 'heads up' during Intra-bar Gaussian shifts. In other
words, we need a different tool (other than Volume) to show us continuation or change. IF we
opened a 2 minute ES Chart, you could see the Gaussian change more clearly when it happens
Intra-bar on the 5 minute charts.
If I need to 'fan out' a channel (when price leaves the channel on decreasing volume) I usually
fan from my last Point Three. Not only does the decreased slope of the new (fanned) channel
visually represent a reduction in market pace, but using the Point Three vs. recycling the Old
Point One normally results in fewer fans as time moves forward. Either way works. Choose
whichever you feel best allows you to 'see' the market.
I hope the above information helped to provide some clarity for you. If not, please let me know.
- Spydertrader
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Jander posts a good example of handling “spike” bars in Gaussian
That volume spike bar can make it hard to see increasing/decreasing volume bars... Check out
this snippet in addition to Spyder's comments and I think you will get the idea. Hope it helps
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Pepe updates his eSignal PRV script
I made some changes on the "Pro-rata Volume" indicator for eSignal that I found here (I don't
know who the programmer was, but I hope he doesn't mind )
if someone wants to use it fell free
Changes:
- Removed the hard coded 5 min Period. Now it works automatically with any period (can be
used for "YM 2 Min", "ES 2 Min" or "ES 15 min"). (YM use is nice...)
- Changed the color for "Pro-rata" from "DarkGrey" to "Green"
- Thicker volume bars
- It starts to inform for PRV 5 sec from new bar start (it was 30 sec before)
- I rounded the PRV for not show "fractions of contracts"
- "Wild Volumes limit" changed to 100.000 from 25.000
- Clear the previous bar "Prorate" indicator
- No Maxscale limitation. Now it automatically scales for all volume bars in current window
Problems not solved yet:
- The rays for DU, VDU, slow, medium, fast are only for "ES 5 Min"; I will use parameters to be
defined in each use
(Don’t' know this levels for YM 2Min)
http://tinyurl.com/2r7dgr
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Spydertrader’s 5-2-2007 ES chart with color-coded Gaussians
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Spyder answers more questions on using STR/SQU before synch
Quote from ivob:
1. When using str/sq to enter you keep on monitoring str/sq during that same bar for
signals in the opposite direction until the bar is over. Are we talking here about YM bars or
ES bars? I suppose it's YM as str/sq involves YM and not ES. Just want to make sure.
I wait until the close of the ES bar.
Quote from ivob:
2. Do you give any importance to str/sq during the opening?
STR / SQU doesn't work until market sync takes place - usually around Bar Four. Until then, I
don't even look at STR / SQU except to possibly find what looks like a better offset from what I
had the previous day.
It is because STR / SQU fails to work as an effective tool before market sync and after 4:00 PM
that Jack only trades the ES during those times. (9:45 AM - 4:00 PM)
- Spydertrader
Spyder answers even more questions on Gaussian basics
Quote from The Swordsman:
When you mention price must breakout on increasing vol, what does this mean exactly? To
what are we comparing the volume of a potential breakout to? Thanks!
I apologize for missing you post the first time through.
For price to move higher in an up channel, it must do so on Increasing Black Volume. For Price
to head lower in a down channel, it must do so on increasing Red Volume. Increasing Volume
refers to Volume as Price traverses the channel. In other words, (in an up channel) from the most
recent Low (Price) to the most recent High (Price), Volume always increases as Price traverses
the up channel from low to high - always. Similarly (in a down channel), from the most recent
High (Price) to the most recent Low (Price), Volume always increases as Price traverses the
down channel from High to Low - always.
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Both of the above examples represent dominant traverses - those where Price moves in the same
direction of the channel.
Non-dominant traverses occur in the opposite direction (and opposite color) of the dominant
direction of the Price Channel. In other words, (in an up channel), from the most recent high
down to the most recent low, Volume always decreases (and is red) as Price traverses back down
to the right trend line. Similarly, (in a down channel), from the most recent Low back to the most
recent High, Volume always decreases (and is black) as Price traverses back to the right trend
line.
Price can leave a Price Channel in two ways. When Volume continues to increase as Price
approaches the left trend line, increasing levels of Dominant Volume (in the same color) cause
Price to break out of the left trend line creating Volatility expansions - a widening of the Price
Channel. As Price approaches a right trend, increasing levels of levels of Non-dominant
Volume (in the same color) causes Price to Break Out (BO) of the trend - subsequently ending
the previous trend.
We measure increasing or decreasing Volume across the entire Price Channel when Price
remains within the trend channel itself (including when Price creates Volatility Expansions
thereby widening the channel). We measure increasing or decreasing Volume bar to bar when
price exits the trend channel on a Break Out of the RTL (Right Trend Line).
I hope the above provides the clarification you need. If not, please let me know.
- Spydertrader
Spyder and ticktrade have an exchange
Quote from ticktrade:
I continue to have a hard time understanding ftt's. I know what they are and I see them. I
don't trade them usually but would still like some clarification. Last time I asked I was told
to read the beginning of the journal, which I did for hours and found many things helpful.
Just so I can make sure we are all on the same page, you have: read through the entire Futures
Journal, Reviewed the Building Channels Document, Got 'up to speed quickly' by clicking the
link to Journal II to review how to spot an FTT (2 months of posts there), watched
Bundlemaker's Video and Reviewed Posts I, II and III from the Journal beginning posts which
also describe FTT's all in under two months?
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I have no trouble with the channels and Gaussians and being able to trade this method but
could not trade ftt to ftt successful at this time.
O.K. You've got the channels and Gaussians down well, and can trade profitably entering on a
Point Three and exiting on a Right Trend Line Break (This is The Forest Level), but find it
difficult to 'see' and FTT forming in real time?
If so, this is when you should continue to trade on the Forest Level while monitoring the market
to observe the Price and Volume changes which occur at an FTT. You'll make mistakes at first confusing flaws for FTT's. Over time, you'll learn how to spot the differences and find yourself
ahead of the class.
A few bars in question.
9:50 is see as a dip but at the time thought it was an ftt.
When flaws begin, they look very much like an FTT. Hint: monitoring Volume provides a clue
to whether you observe a flaw or see in FTT in the making.
9:55 looks like the dip bar to me until the next bar was finished.
Dips occur over three bars, 9:45, 9:50 and 9:55. It is the 9:50 bar which looks like an FTT as it
begins, but later we see that it was not an FTT. The 9:55 bar simple has us finishing the Dip
formation and then continuing onward.
Am I supposed to see the difference on the bar or wait for the next bar to confirm. If I wait
til the next bar it would make trading the ftts much riskier at this resolution.
Eventually, the differences between what is and what is not an FTT become clearer. Most flaws
won't show their true colors until the next bar after the bar you thought was an FTT, so you won't
know until later that you incorrectly viewed a particular bar as an FTT. I have discussed this
before with respect to making errors (and I recommend you review once again) and how, "First
by accident, and then by design" you'll see that errors are not to be avoided. Focus on quickly
recognizing your errors, and then, immediately fixing your errors provides the road to success.
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15:50 bar I thought was an ftt.
On my chart, the 15:50 Bar shows a Volatility Expansion. This bar could not be an FTT.
Perhaps, your charts showed you something different.
Sometimes people note ftt's when vol. increases on the bar and sometime when vol
decreases. I'd appreciate it if someone could provide some clarification.
Sometimes FTT's develop during high volume and sometimes they develop during periods of
low volume.
The Journals (and background material links) contain a wealth of information. Quickly reading
over the posts often results in a less than complete understanding of the basic concepts. I
encourage you to review areas where you may have overlooked the important fundamentals
discussed.
I hope you find the above information helpful.
- Spydertrader
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Spyder on using PRV to get a feel for momentum
Quote from Steve Tvardek:
My question is, what do you specifically that tells you that we aren't going to make it to the
RTL of the down channel (for a potential BO or FBO) rather turn around and head lower?
While nothing is 100% sure, when I see PRV Levels which indicate significantly less Volume
compared to the most recent Peak Volume Levels (13:20 & 14:20), I remain relatively confident
that the bar in question isn't going to 'have the stuff' needed to sustain enough momentum to
break on through to the other side. Again, anything can (and often does) happen, but when I see
decreasing levels of Peak Volume, I view it as an indicator of Market Sentiment. In other words,
my brain thinks, "Fewer People than before felt up was the correct direction." As a result, I can
then anticipate a smaller retrace, or more importantly, a retrace instead of a reversal.
Would you view the 15:20 bar as an FTT potentially, all other things being equal?
If on your chart, the 15:20 bar failed to reach the RTL, then yes, it makes perfect sense to view it
as an FTT. On my chart (and chalk this up to variances among data providers), Price did hit the
LTL. As such, it cannot be an FTT (again, on my chart). Still a signal for change, but not an
FTT. However, how you viewed the market matters most, and according to your charts, you had
an FTT. As a result, you had a signal for change, and acted accordingly. As I see it, you followed
the market exactly as you should have. However, after the market failed to provide you with the
anticipated continuation data (on subsequent bars), you had an additional signal for change indicating Price had no intention of continuing higher. What Jack calls, "What wasn't That?"
(and others have described as WTF?!?!), reared its ugly head - meaning you didn't continue to
see decreasing black volume nor Price continuing to head back up across the channel. At this
point, the dominant trend continued (down) and hopefully, you observed this data in time to
execute a reversal back to short.
Perhaps this could be an early warning that we will FTT again on the ES? One thing I am
really trying to avoid is watching the YM too closely all the time, rather just focus on it at
points of change (FTT, PT3, RTL). Do you agree this is the right thing to do?
Yes, The YM leads the ES at points of change. However, keep in mind, Intra-Bar Gaussians
Shifts (changes in sentiment occurring within the bar itself), we can only see using the fine level
tools. Over time, you'll settle into just how frequently to swing back and forth between
monitoring the YM and ES, and based on market pace, how closely to follow each. Jack calls
this 'sweeping' for data sets.
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Bundlemaker offers his most recent two cents
For those of you still struggling or doubtful, I thought I'd add my most recently available 2 cents.
Without question I am seeing things that I couldn't before. I'd have swore what I now see didn't
even previously exist, and of course, that's ridiculous.
The three things I'm doing to achieve this new found skill are as follows:
1) Force the Gaussians to fit the channels: doing so teaches one how to really see the split bars
correctly and to stay on the right resolution level
2) I started to trust what the volume was telling me, particularly with potential flaws. This has
kept me out of more mistakes than I can begin to mention.
3) Try something different, anything different. There is an old saying in the NLP world: you
can't see what you can't see. Human sight is highly subjective and filtered. Instead of getting
angry that you can't see what others are, try going for a walk, laughing out loud (this really really
is powerful) or the opposite of what you normally do (which requires you to be aware of what
you normally do, not an easy task by any means). Doing any of these causes physiological shifts
which change in a very real way how your brain processes things.
I am still in observation/annotation mode, but I can tell you that most of my annotations for
points, ftt's, hvs, etc are usually right on the bar I annotate. I am seeing into the future often by as
much as 3 or 4 bars. And the occasional outlier bar (eg: a single bar with odd volume) no longer
causes me to panic).
I hope this post helps someone, if I can think of other internal shifts I've made I will post.
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Spyder comments on sufficiency
Quote from PepeIlegal:
Today was an amazing day... this high volatility was too much for me....
I should have gone fishing instead of watching the market from 11:15 AM Eastern Time onward.
Expect more of the same until Wednesday around 14:15 PM Eastern time.
This signal, I think, must alert someone to wait for another signal of change, not to act
immediately..
This is what Jack talks about when he mentions 'Sufficient Data Sets, in his posts. It's sorta' like
"knowing when you know you have enough information to act."
On day's like today (when volatility has declined to nothing and volume sits at anemic levels),
one can trade, but the risk certainly outweighs the reward. In other words, a trader cannot expect
to make a lot of money per unit time. In addition, the signals for change often occur at such
subtle levels (and for only a brief moment), traders often miss them entirely. Lastly, during
periods of Lateral Price movement, tools, we have not yet discussed, play an increasingly
important role. For these reasons, Jack often advises new traders to sideline during periods when
the market flatlines.
Setting aside days like today, we normally want to look for multiple signals of change, not in an
initial signal / confirmation sense, but in terms of multiple data points saying the same things.
One signal may arrive seconds before another (e.g. STR / SQU heads below - 2 moments before
the YM heads lower) or one signal may arrive several minutes before another (YM begins to
head lower a few minutes before the ES heads south). If one thinks in terms of change
sequences, considering during each 'sweep' of the data "what do I need to see at this moment in
time?", a trader can then begin to 'see' the market and its dominos as they begin to transition
from a period of change into a mode of continuation.
Unfortunately (as if we needed enough things to keep in our heads), context plays a major role as
well. Since the current context in which we currently find ourselves (with respect to the 'right
side of the market') constantly changes, so too does the definition of 'sufficient data set' change
throughout the day. When price breaks out of CCC, a sufficient data set might mean increasing
PRV of a particular color. Yet, when price finds itself on a left trend line around 10:00 AM, the
sufficient data set might include STR / SQU and the DOM Wall.
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As you can see, experience (knowing when you know enough) determines when you have
sufficiency. Based on your post, it looks to me that you have yourself on the right track.
- Spydertrader
Spyder digs up some more background material
I ran across this thread today during a search on another topic. I noticed I had neglected to
include it in the original Background Material on page one of this Journal. I include it now in
case someone finds the information helpful.
http://tinyurl.com/2wl9q2
Spyder reviews FT3s and steeper RTL exits
Quote from CFerret:
One is after I enter on PT3, do I wait for the initial RTL (which was formed using this PT3)
to be broken only or additional RTLs which appear later also suit for this?
In an effort to protect profits earned, one may choose to exit on a RTL break of a 'steeper' Point
Three Trend Line. One can then begin to look for a Point Three in the opposite direction.
Remember to always match the Gaussians with the channels.
And another is what if I enter on a PT3 and then see an FTT which is at the same time PT3
inside the current channel is it a valid reverse signal or should I wait until the break of
RTL to stay in a forest level?
If one sees two FTT's (the second which forms a Point Three in the trend), then one has a new
Point Three Channel in the opposite direction. Waiting until the second FTT to reverse often
allows the trader to avoid the FBO's which often develop after a single FTT.
- Spydertrader
18
Spydertrader’s 5-9-2007 ES chart (FOMC day wooooo!)
Spyder’s video of STR/SQU for today: http://tinyurl.com/33w7sj
19
Bundle observes STR/SQU on FOMC day
Ok, that was pretty cool. I had a pt3 just form on the YM before FOMC and got PRV inc red as
report came out. S/S went way negative and you could follow S/S all the way down for a 7 to 8
point ride. All the while S/S went back and forth from <-2 to neutral. At the bottom S/S went >2
and up we go.
Spyder comments on some flaws
Quote from vjr:
I have a question about flaws. I know we are suppose to just hold through them at our level
for now. I see you have marked at CCC 10:40 to 10:55. I got short at 1511.00 during the
10:55 bar. This is also my RTL. I
ended up losing a tick, but my
question is shouldn't prices continue
lower? or is this just a WFT?
See the attached chart snippets.
At the time you describe above, we have
the market creating a volatility
expansion as Price heads lower (red
circle). Price then bounces and heads
higher and into a period of CCC. Since
Price entered CCC moving higher, we
anticipate Price continuing higher once
it leaves the lateral CCC channel
(follow the pink arrows)
Also the HVS from 15:05 to 15:20. I
would think prices would continue
lower because the current trend is
down and down vol is dominant
within the flaw?? I remember you
talking about this the other day when
a few of us had some confusion off the open. I think you said try to figure out where prices
are coming from and also look at the volume bars and that should tell a story as well.
In your second example (the HVS), we have price heading lower at first within a 'tape' channel
(not drawn in). What we later come to see as a Point Two (red 2) first appears as an FTT (red
circle) of the tape. By following the Pink arrows, we can see how Price moves through this
20
particular HVS creating a left to right traverse. Price came up from the low (first red bar) and
into the HVS from below. Remember, we (in real time) most likely felt the Black Price bar (also
red circled) formed an FTT of the tape. Later (as we begin to see decreasing red and black
Volume), do we begin to realize we have an HVS. Once realized, we simply figure out where the
HVS began (black bar since we mistakenly assumed originally it was an FTT), as well as, how
price entered the lateral (in this case from below). Once we know how price entered the lateral,
we can correctly anticipate how Price plans to exit the lateral (assuming no over-riding signal for
change develops inside the lateral).
I hope you find the above information useful.
- Spydertrader
21
Cferret has some STR/SQU questions
Cferret: I have one question regarding STR/SQW:
When looking at yesterday's FOMC action (thanks Spyder, after reading your link I made this
indicator right) I noticed not only switch from -2 -> +2 which indicated a reversal, but also a
huge extreme up spike to 20+ area which also accompanied a strong reversal. In the last case
waiting for it to go below -2 would miss most of the move, so the question is:
are these super huge spikes in Str/Squ also can provide some reversal clues aside from -2/+2
lines?
Mak: Very keen observation and it is an advanced item. So let me preface this by saying that
FOR ME, extreme spikes are actionable items assuming there is no data freeze issues. On
FOMC, I am inclined to STR/SQU my way through the announcement simply because the
STR/SQU signal has a very high signal to noise ratio. We know this because our noise is in +2 to
-2. Readings like +5, +10, +15, +20 are very extreme and thus extremely strong signals. As a
result, I regard STR/SQU over my trend lines and ride the STR/SQU action as long as the signal
to noise ratio is strong...
Ivob: I'll try to answer this. Long and sustained (value staying there a long time) is better than
short and (more) neutral. The spikes is what is all is about. The only thing that matters is what
the value is at a certain moment. It doesn't matter where the bar "closes" etc. So it's important not
to confuse them with normal price bars.
So for example. We have strong stretch value (+6) and price goes up. Then str/sq value goes to
strong squeeze (-6). Then we reverse (if we still live in the same bar on ES). If str/sq moves from
stretch to neutral then this is not significant.
From my observation on moves like this if str/sq moves from +10 to -3 then this is not
significant either. A move from +10 to -8 is.
If str/sq has been neutral all the time and suddenly moves from +1 to -3 and stays there a little
while then this is significant. So it's all relative. When the bar is over we move to bar-to-bar tools
again (eg PRV, YM, tapes). So if we have a strong bar up on high stretch values and the next bar
show some retracement (not on incr. volume) and moderate squeeze values then this is nothing to
worry about. Str/sq does give false alarm, you just have to know when to look at it. (action
moments) Strong values are very important.
BTW I do believe that smart money tends to move more (meaning smart players take action)
after fomc moments and other reports. But this is just from observing a few months.
regards,
Ivo
Mak: Yes, excellent commentary Ivob...
22
GregorS has a change/continuation
question
Just came back from holidays and I'm back to
learning.
I have a question about this morning’s ES
change of direction. After the 3rd bar, the
volume went down. I was thinking it’s a retrace
(my orange channel). I was watching to see if
there would be a change or continuation. At the
beginning of the 6th bar there was red volume
up and the price started going down (seen also
on YM at 9.54). Just as I pressed SELL, price
changed direction.
The question is, when and where did you notice
that the direction was about to change?
Spyder: Compare the attached chart snippet to your
own previously posted chart. I did not see your
'carryover' channel from the previous day (red Down
Channel). The first two bars of the day show increasing
Price on decreasing black Volume -characteristic of a
retrace of a down channel). As Price breaks through the
red down tape (skinny red lines), it does so on
increasing black volume (our first indication something
has changed). In addition, As Price moves from point
Two to Point Three (of the Green Channel) it does so on
decreasing red volume (characteristic of a retrace in an
up channel). Now, it is important to note that the green
up channel, still represents a retrace of the entire red
channel.
As to when exactly do we see a signal indicating
something has changed? Do you see the FTT on bar
Four?
Good trading to you. – Spydertrader
23
Aurum has an AHA moment
I had an exhilarating "AHA" moment this afternoon.
As I watched the 13:10 bar fire down and then start to pull back, I thought to myself "Well, this
could be a FTT. We are going to have increasing volume, and price has pulled back a bit. So, if
this is a FTT, I expect to see decreasing black volume." The aha moment came though when I
glanced over at the YM and watched that very thing play out before my eyes. A bunch of
provisional beliefs - the YM leads the ES, the same sequences play out over and over, and
anticipating the next moves - became firmly cemented in my mind.
If you are still struggling to see the things being discussed in the journal, don't despair. Continue
to follow along and monitor the market on a regular basis. Keep working at it and at some point
it will click - and when it does there's no going back.
Spyder says to not worry about double-bottoms being flaws
Quote from ivob:
Mmm. I agree about the vol expansion. the double bottom told me: possible flaw. We had
lower volume than the previous bar (I would say about 70-80% of the previous bar). This
also told me: flaw. Price closed where it opened and also this told me: flaw.
1. I recommend reviewing some charts. Double Bottom (2 consecutive bars) in a down trend
should indicate an FTT (especially when it occurs after Peak Volume levels).
2. Decreasing non- dominant Volume marks a retrace. Significantly disparate Volume compared
to the previous bar normally indicate flaws.
3. When Bar 4 forms its double bottom, we have no idea where Price will close, nor do we need
to know.
The double bottom FTT (in a down channel) or the double top FTT (in an up channel) remain the
easiest of all FTT's to spot in real time. Viewing these Price formations as 'flaws' adds an
unnecessary level of difficulty.
Good trading to you all.
- Spydertrader
24
Tums has
h an AHA
A momentt regardingg Gaussianns synchinng with channels
My lessoon of the day
y.
A should haave happenedd in January,, but it popped up today,, so I will shhare it with you.
y
This AHA
On 15:055, I drew a RTL
R from 13:30, thinkingg this might be a new Ptt3 for a new up channel.
Then I coonsult Mr. Gau.
G He said the reds are increasing. i.e. this dow
wn move from
m 14:30 wass not
a retrace,, but a domin
nant traversee of a down channel.
I quicklyy erased the trend
t
line.
25
GregorS has an AHA moment on trading through a flaw
I was waiting for pt.3 of my blue channel, I thought I had it at 10:32. At the end of the next bar,
the volume and price went up, then PRV and volume dropped on bar 15 (10:40). I was thinking
it’s an FTT and went short. The beginning of bar 16 PRV was showing even less then 15, but I
noticed that the price behaved strangely. Then it clicked, it wasn’t an FTT, but a flaw, a stall
most likely, so I immediately reversed and caught the move up as it continued after the flaw.
Guavaman makes me laugh…
I am looking for detailed information on the Price - Volume relationship. Can anyone
recommend a specific thread?
26
PointOne’s idealized coarse-level commentary
Following on from my previous post about sequences, I have done a short commentary of the
key action points on Friday to show what I believe is the ideal approach at the coarse level.
Comments welcome, especially where the real time experience differed significantly from this
hindsight analysis.
My experience in real time is that I over-analyze and look for more information than is actually
required to make money.
===
11 May 2007
Idealized coarse level commentary (hindsight), 5 actions:
09:30 Monitor and annotate from open until you see Pt3 Long at 0945. Annotate YM also.
09:45 Enter L on seeing Pt3 incr Black PRV. LTL+. Be alert for FTT.
0950: FTT. Reverse. (sufficient data: LTL+ followed by FTT + check YM).
09:55 R2R at TL BO => HOLD.
10:00 Be alert for BO up. TL holds. Double bottom: be alert for reversal.
10:05 FTT. They don't come much clearer than this: low tested 3 times then ticks up away from
FTT. Wait for next bar, if you prefer, to confirm decr Black PRV.
10:10 Reverse after second FTT (wait for Black). BO up on decr V - want to see B2B so be alert
for possible FBO (Pt3 short). Watch YM/INDU carefully - is YM moving or just the cash? (FBO
warning).
10:15 B2B => HOLD
Lateral entered from below. HOLD
10:45 Resume from Pt3 long
10:50 Cont. LTL+. Peak Volume. Be inclined to hold until very clear FTT presents (allow for
momentum).
10:55 HOLD - this is not the FTT you are looking for, it is a hitch, expect another thrust up after
peak volume.
11:00 Another very clear FTT. Wait for next bar to confirm decr Red PRV.
27
11:05 Decr Red PRV. Reverse.
11:20 R2R on BO as expected. HOLD.
11:50 Consider exit after LTL+ on high volume.
Get lunch and relax. PM session optional, you've made your numbers.
28
More nuggets from Spyder
Alrighty then. We have spent the last couple of weeks focusing on insuring a match exists
between the Gaussians and the Channels. By always matching the correct channels to the correct
Gaussian Volume Formation, a trader gains the ability to 'see' the market as never before.
However, we need to place some emphasis on PRV at this point as well. Mentally calculating
PRV every few seconds or so permits a trader to anticipate continuation or change by
comparing the previous Bar Volume with the current anticipated Volume based on PRV
calculations. Such calculations remain a critical component of analysis as Resolution Level
Action Points (e.g. Forest level: Point Three and Right Side Trend Line BO). The rest of the time
(i.e. Price does NOT reside at a Resolution Level Action Point), we use PRV as a learning tool
in an effort to 'see' the changes taking place within the market itself, and to better understand
time of change at the next lower (finer resolution) level down the rabbit hole (We learn about the
Trees while sitting in a Forest).
During the next week (while continuing to match Gaussian Volume formations to their correct
Price Channels), we need to focus on learning (or reinforcing) how PRV plays such an important
role in this methodology. Now, for educational purposes only, I want everyone to begin to
calculate PRV on every bar and throughout the entire bar.
The process should go something like this: "What kind of Volume do I have now? based on that
number (and color), what Volume do I anticipate at close of this Bar? How does the anticipated
Volume compare to the previous Bar? How does the anticipated Volume compare to my last
FTT bar? How does the anticipated Volume compare to the Peak Bar in this cycle?
Wash. Rinse. Repeat. Each Bar. Throughout the Entire bar.
Some Things you'll begin to notice:
1. Decreasing Volume of the same color as the previous bar showing a slowing down of pace and
warning of an upcoming change in market direction.
2. Flaws appearing before an FTT.
3. Changing Direction in both Price and Volume within the same Price and Volume Bars
(previously referred to as FT3's in this Journal).
4. Volume starting out as a slow pace or decreasing volume, only to change gears and show
faster pace or increasing volume. Volume starting out as a fast pace or increasing volume, only
to change gears and show slower pace or decreasing volume. Note what happens next after these
two situation develop.
5. Slowing of Pace (the rate at which volume flows into the Volume Bar) often provides a
warning of upcoming change. Increased pace shows continuation.
If this task becomes mentally draining, use one of the many PRV Tools posted throughout this
29
Journal and log the observations made throughout the day. Use the debriefing time (at End of
Day) to reinforce the lessons learned, and not simply as a means to critique the errors made.
The above exercise should show everyone, what they already have witnessed many, many times,
but for whatever reason, the brain prevented them from 'seeing' correctly: Volume always leads
Price. (I'll have more proof on this when we discuss the DOM next month).
For those individuals struggling to find their way with STR / SQU, I have a few items for you as
well. First, STR / SQU is not an 'indicator' as those familiar with indicators understand the
definition. In other words, it isn't always saying something to you, nor should anyone expect it to
do so. However, at certain points in time, STR / SQU provides extremely important information.
In fact, looking at STR / SQU at any other time, might show erroneous data, or worse. Right
about now many are saying to themselves, "That's all well and good Spyder, but you think
maybe you could give us a Hint as to when these certain times might appear?"
Happy to...
When monitoring the YM and you believe YM has reached a 'critical place' (such as during End
Effects) Glance over at the STR / SQU for a few moments. What does the STR / SQU say at
this point in time? When the YM approached the left trend line, also Glance over at the STR /
SQU for a few moments looking for signal of change. In addition, practice the same technique
when the YM approaches its right trend line. Lastly, Glance over at STR / SQU when The YM
Gaussians Peak or create a Trough.
As one can see by the examples above, we want to look at STR / SQU when the market
approaches a 'decision point' - a place where we would expect to 'see' change take place.
Sometimes, (such as during volatility expansions), we don't see the anticipated change at these
points, we see continuation. At times of volatility expansion, we may not receive the expect
change signal from the STR / SQU, or it might only signal a temporary one.
Note how the instructions above have the trader already monitoring the YM before heading over
to the STR / SQU. We already know the YM leads the ES at Points of Change. Just as we don't
follow every wiggle and wart on the YM during periods of continuations on the ES, so too do
we avoid monitoring STR / SQU unless YM Price approaches an area where we should
anticipate change. In other words, we don't say, "The YM leads the ES on every tic." We say
instead, "The YM leads the ES at Points of Change." As such, we don't think, "STR / SQU leads
the YM on every tic. Rather, we think, "STR / SQU provides an early signal for change at the
YM points of change.
Understanding this fine distinction remains of critical importance to everyone's success. Just as a
Forest Level Resolution trader has no need to stay glued to the ES on every tic (only focusing
instead on Point Three's and RTL BO's), so too must the same lesson apply as we move further
down the rabbit hole. We already know Channels and Gaussians have a fractal nature. The very
same fractal nature applies to the lessons learned as well.
Right Place. Right Data. Right Time = Right side of the market.
30
I apologize for the lengthy post, and if anyone finds my words confusing in any way, please let
me know. I am more than happy to provide additional clarification.
- Spydertrader
Ivob translates one of Jack’s old STR/SQU posts
The more I learn the more I notice we are not looking for what's happening but we are looking
for what's not happening. Like price NOT reaching LTL (FTT), smart money NOT moving,
high volume NOT continuing, etc. Exactly like the water on the stone. If it cannot go one way, it
has to go the other way...
I wrote down my interpretation of Jack's post. Maybe it's interesting for others.
About reversals
Smart money is holding back as a spike begins to arrive. This is a signal of reversal over just an
exit and it occurs before the bottom of the spike. So in other words: there's a strong spike and
str/sq gives a signal of change. Smart money is refusing to proceed.
About stalls
Stalls are end of trends. Price is just moving in a range. These stalls can take some time. You can
sideline if direction is not defined / not clear. Str/SQ can give different signals during the stall.
Hitch
A hitch is a short lived low volatility (volume) stall where the trend is resumed quickly. At first a
hitch looks exactly like a stall. However, ES volume should pick up quickly. If not, we have a
stall.
About hitches and stalls
What we are looking for is the resumption of the trend at the end of mud (stall) or hitches. Smart
money goes first, so Str/Sq should give the signal.
About stretch / squeeze and breakouts
If cash goes first and what you are seeing is smart money not going at all there is going to be a
failure to breakout.
regards,
Ivo
31
Guavaman makes me laugh again…
Can someone explain what PRV is?
(dude…)
Ivo says “Look for CHANGE, not CONTINUATION”
Just a quick comment Esteban before I go back to sleep :-)
You mention bars where you feel continuation was in force. Also you mention candidates for
continuation and I don't know if this even qualifies as a CONTINUATION situation.
All this makes me think you are looking for continuation :-) and this is the wrong point of view.
Using this method there is always continuation unless there is change. Continuation or "hold" is
always in force. If a bar is not clear, you have continuation and we just continue to monitor. We
look for change.
We started with last day's carryover channel and where price opens today. Today the market
opened at the same price as where it ended yesterday and nothing happened overnight =
continuation. My carryover channel was an up channel so the bias was up until we got this FTT
about 15 minutes into the opening = change (Spyder marked it as point 1). After that -> HVS =
hold assuming you were short. etc.
If you think you missed an FTT get out at RTL or at pt3 (reverse)
Anyway. Anyone pls correct me if I'm wrong but the point is we don't look for confirmation of
continuation. We look for change. If there is no clear signal of change then there is continuation.
regards,
Ivo
PointOne on change/continuation
Your chart tells me that you do not understand what continuation means in this context.
You have to be very clear which fractal you are on. Price is always changing but in the context of
the channels price forms it is continuing. You only take action on change (hold is not an action).
You hold while the dominant signal being carried in the channel continues.
A non-dominant traverse (retrace) of a forest channel is change, then continuation, at the tree
level (think thin tapes) but more importantly is continuation at the forest level (think thick Pt 3
channel). Read that again.
32
A retrace that starts from an FTT is an early sign of change. If you subsequently see the new
direction become dominant then that is continuation following change.
If you look at individual bar formation you will see ftt's of the bars themselves - but that doesn't
mean it is efficient to take every one as actionable change. Much of the price movement is noise,
not dominant signal.
To take an extreme example to illustrate the point: if you take an FTT on a weekly chart to enter
then you would hold until you see signs of change on the weekly channel. You may drop down
as far as the daily occasionally to finesse the turns, but you don't want to be frantic and caught up
in noise so you get back on the weekly ASAP. Mellow.
Ivo posts a STR/SQU example video
Here is an example of a an FTT + stretch from yesterday followed by confirming PRV. It's a
small avi file.
First we had the FTT. (I marked it on my ES chart as point 2 but this should be a point 1).
After that this FTT is confirmed by a strong stretch (two in a row, no contrary signals).
A little later we get +PRV as indicated in the movie, confirming the move up.
I think this is the "domino effect" that Spyder was talking about regarding what to expect after
we experience "change"
FTT + Stretch example followed by PRV (http://tinyurl.com/354vwh)
regards,
Ivo
33
Spyder reviews the Jokari window
Gaussians, in Combination with PRV, represent a visual definition of the Jokari Window / P-V
Relationship. Pull up the attached .pdf and scroll down to the P-V Relationship. Read the
following lines and then read the Jokari Window sentences (Symbolic Rendition):
Dominant Volume:
In an uptrend ....
Increasing black Volume with Increasing Price = Continuation
In a down trend ...
Increasing Red Volume with Decreasing price = Continuation
Non-Dominant Volume:
Decreasing Red Volume represents either a retrace of an up channel or lateral movement in a
down channel.
Decreasing black Volume represents either a retrace of a down channel or lateral movement in
an up channel.
The above Dominant / nonDominant descriptions accurately
portray what The Jokari Window
represents: The Price - Volume
Relationship with one additional
corollary Jack added long ago:
The Four O’clock Drift. In other
words, the lessons learn from
trading Hershey Equities apply
directly to trading Hershey
Futures. Hence,
"Any market, Any timeframe provided sufficient liquidity
(and volatility) exist."
Good trading to you all.
- Spydertrader
34
Tums posts his collection of Jack STR/SQU nuggets
http://tinyurl.com/2uffvv
Pr0crast posts a PRV tool for Quotetracker
Earlier I mentioned that I may have gotten the Medved brothers to code an update for QT that
includes a bouncing-ball like PRV indicator that can be placed directly on the volume chart.
Here it is, folks... Straight from the horse's mouth... In the future it will probably be included in
software updates, but for now you can follow these instructions:
Quote from Mike Medved:
Please take the file http://download.quotetracker.com/download/stocks.zip unzip it into
your QuoteTracker directory to replace the STOCKS.EXE there (make sure you're not
running QT at the time), then run it.
The Volume and Volume+EMA will now have a checkbox in parameters for projection.
Projected volume only works with normal and tick charts, of course, since it is meaningless
for others.
Here's a snag of it in action:
35
Spyder on perception and perspective
Quote from Pr0crast:
Is this a laid-back exercise for you, or does a day with that many actions stress you out?
Even a little?
It's all a matter of perception and perspective. When I first began to learn about trading Futures, I
felt overwhelmed - so many damn things to do!! Channels on the YM, Gaussians on the ES,
FTT, FBO, 1,2,3 WTF!!! Aaarggh!
Slowly, but surely (over time and as my skills improved) my mental state transitioned from, "Oh
geez, hurry, hurry! Need to make a decision now - quick!" to a significantly more relaxed,
almost mundane, feeling throughout the day. As those who have traded with me live can attest, I
often step outside for a smoke, dial up people around the country to chat over the phone, or
simply 'chill' for a few moments while awaiting the next market cycle. I now even find myself
(on occasion) telling the market to, "hurry the hell up and move because we both know you’re
going down!" In other words, the same five minute bar, which (at one time) I perceived to be not
nearly enough time to monitor (let alone analyze, decide and then act), now feels like an eternity.
Also, keep in mind, the level of detail of these charts increases significantly because I post the
charts at the end of the day, so I spend a good deal of the day finding time to 'double check and
confirm' the annotations (channel colors match FTT / FBO colors, etc.) which I would have no
need to do otherwise.
Again, the whole process stems from asking oneself (frequently and persistently throughout the
day),
"What do I need for continuation, and what do I need for change?"
Good Trading to you all.
- Spydertrader
P.S. Nicely done with the lobbying efforts for the Quotetracker PRV Add-on Tool. I watched it
work yesterday for the ES and YM in real time. I think many will find the tool very helpful.
Thanks also to Jerry Medved and his crew for responding to the request. Now, if Jerry can just
fix Quotetracker to chart STR / SQU, I'll dump Qcharts tomorrow.
36
Ivob posts another str/squ video example with commentary
I have created a small video with comments of an example where we had stretch and squeeze
within the same bar and we took action. It is an 1.69 MB avi file and concerns yesterday's
market.
The squeeze actually occurred when YM was heading for a point 3 up.
The file can be downloaded here. (http://tinyurl.com/2u42rr)
Pls feel free to comment etc.
regards,
Ivo
More insight into Spyder’s execution
Quote from ivob:
Does this situation occur while being in the market or when you are waiting to get in?
When I am already in the market short awaiting the move down. You know the time. Somewhere
in the middle of the previous bar, the market went into DU. I don't mean the bar closes below
2500 contracts traded. I mean everything just sorta' pauses for a second or three as Price finds
itself at the right trend line. PRV at this moment says DU, but we still have a few minutes to go
before bar closes. The YM begins to creep a little lower and you can almost feel the market
wanting to move. It's the same quiet pause one feels just before a powerful summer storm rolls
into the area. You know what comes next, you just have to wait for it to arrive.
Spyder what % of the day do you have a position open? Isn't it risky to go out for a smoke
while being in the market?
Most of the day I have an open position. If I find myself confused about something, I'll exit for a
moment, then once finding clarity again, back into the market I go. With respect to 'stepping out'
for a smoke, I can see the monitor from the deck, so it isn't as if I am too far away in case the
storm rolls in before anticipated.
- Spydertrader
37
Excav8r, Pr0crast and PointOne get STR/SQU working in Quotetracker
There are two ways to do STR/SQU in Quotetracker. One gives you the numerical value (+3,+2,
-4, 0, etc) and the other gives you a chart. The numerical value is however, worthless since it
rounds. The first method is for that value:
1)
2)
3)
4)
5)
set up a separate portfolio call it STR/SQU
enter in the symbol for YM, then symbol for INDU, then $CASH
in the quantity field enter a 1 for YM (Long position)
in the quantity field enter a -1 for INDU (Short position)
in the quantity field enter a –X for $CASH (where X is the offset)
6) save the portfolio
7) once you bring up that quote page the str/squ value will show as the Total
38
The second method allows you to create a chart for monitoring STR/SQU.
1) Follow all the steps above.
2) Set QT to chart the portfolio value (not value change) by going to
Options>Edit Prefs>Misc, then find the checkbox for “$ Value” in the Portfolio charts
menu
3) Double click where it says “total” and an intraday chart will pop up.
4) Set your STR/SQU color scheme by right clicking the chart.
39
5) Now right click on the right side of the chart to change the scale to Absolute. As a range
use -1.75 to 1.75, and then use the arrows on the chart to get the right part in your sights.
6) Place horizontal lines where our -2, 0, and +2 are.
7) Create paintbars to provide a visual cue for STR/SQU signals. Add a paintbar indicator to
the chart and include the following rules
The end result:
40
Spyder walks through his thought process for a complex flaw identification
Quote from ivob:
How could I have noticed this was not an HVS?
Walk with me as we review the price action at the time. If you can follow the decision-making
process, you should see how (and when) you 'know' what the market says to you.
See attached. The Price pattern begins with Bar 7, however, we cannot confuse Bar Seven with
an HVS as it is a Breakout Bar. On bar 8, we see what we (at the time) think is an FTT. We then
check Volume and note (based on PRV) everything appears simply fine and dandy. We have
just the right amount of Volume coming in to form our FTT (decreasing red in an Up Channel).
As normal, we need to continue to monitor bar to bar at our "Points of Change" while asking
ourselves what do we need for continuation? (decreasing red) and what do we need for change
(anything black). Bar nine opens and begins to head lower (again confirming in our minds Bar 8
as an FTT). After forming an equivalent bottom with Bar 8, Price, on Bar 9 heads higher).
Immediately, we think, "Uh-oh" as PRV Volume no longer shows red, but black (and decreasing
to boot.) At this point (just as Price on Bar 9 moved above the Open), we need to determine what
we have in terms of the Price formation. Clearly, we did not have an FTT on Bar 8 as we once
thought, but we do we have? We can axe CCC from the list as Volume already is way too high.
Hitch doesn't fit as the Price Bars have too much range. As such, we are left with Dip, Stall and
HVS. As Price continues to move higher within Bar 9, we can scratch Dip off the list (we don't
have the typical Price 'bowl shape' typical of a Dip) - leaving us with Stall or HVS. As Price
forms an equivalent Top Between Bar 8 and Bar 9, we axe Stall from our list of possibilities as
well and only HVS remains.
Now that we have seemingly decrypted the Price formation, all we need to do is determine how
we entered the HVS and how we exit. No worries, we entered from below, and expect to leave
through the top. All set right? Well, not quite.
We still need to ask ourselves, "What do we need for continuation and what do we need for
change?" to make sure we have no erred on our determination of this Price Formation. No
problem, since Price always exits how it enters a lateral channel, we expect increasing black to
drive Price higher on the exit. Now, everything does look fine, but we need to make sure.
Because, if we made an error and we actually did have an FTT on Bar 8, then (since that FTT
created a Point Three), we are going to have increasing red Volume driving Price lower.
Whoops! On Bar 10 we do not see increasing black. We see increasing red (possibly decreasing
red at first, but red none the less). Since increasing red does not drive Price higher, we realize we
have made a second error (First on the FTT [it actually was an FTT] and second on the
misidentification of the HVS).
41
Now, when we look back, and wonder, "WTF?" we note how price did move lower off the FTT
creating a Point Three. In the process, Bar 9 becomes the actual Flaw Bar (a stall), as Price
moves lower through the dominant traverse of the down channel.
Probably, the best way to make sure we correctly read Price formations is to always ask the
question, "What do we need for continuation, and what do we need for change?" In addition,
flaws forming at or near trend lines deserve closer inspection that normal.
I hope you find the above useful.
- Spydertrader
42
Pr0crast watches STR/SQU a bit
As we approach the LTL, we are on the alert for an FTT. Pace seems to appear to be slowing
down on the YM, and we also get a SQU signal. What happened next? FTT.
43
As we approach FTT territory on the ES while still having +PRV, we see an FTT on the YM as a
surge of dom red volume comes in. Simultaneously we witness SQU. What happened? FTT.
44
Spyder on picking CO point 1s
Quote from PointOne:
That was an inspired choice for the Pt1 of the carryover channel. Was it chosen as the best
fit or is there an absolutely objective way of choosing?
"It looked like the place to draw it."
That's best answer I can give you with respect to why I chose that particular Point One. If you
note the previous day's chart, I had that channel already in place at EOD Monday (The Channel
color is red on Monday. I changed it to Orange before Tuesday Open) As the market indicated I
needed to 'fan' additional channels, I simply recycled the same point. While I would normally
recycle a Point Three into a new Point One (as I do later on the chart for Tuesday), doing so in
the morning created a wide lateral channel - not something which helps give clues to market
direction.
With respect to more details on laterals, let me have a few days to think over what might help
best. For now, focus on how Price moves into the lateral. Keep in mind to start with the bar you
felt was an FTT - and not the bar prior to the false FTT bar. This should help you decide how
Price entered the lateral better. Also, watch for FTT's or FBO's within the lateral. These
overriding signals for change can often alter the outcome of a lateral channel.
- Spydertrader
Spyder on recycling point 1s
Quote from bundlemaker:
I'm not seeing the specific logic of doing a pt1 at 13:15 and am wondering about possibly
having a pt1 at the BO of the earlier CCC (around 12:45).
When fanning out channels, Jack recycles his previous Point One. Because I look at a need to fan
as a slowing down of market pace (and therefore, potentially providing an opportunity for the
market to begin to roll over), I choose instead to recycle Point Three's into new Point One's.
Doing so causes me to have to 'fan' less often, and allows me to 'see' the change in pace better.
During the time frame you posted above, my original Point Three started waaaaay back. To me,
recycling from that point, so far away, didn't make sense. Instead, I chose to recycle from an
FBO that bounced off the RTL. In this fashion, I mirrored the use of a 'Point Three' - just further
down the line. In other words, Any time I have Price return to the RTL, only to bounce directly
off and move higher, I consider using that point as a new Point One, if need be - especially when
45
the Points One and Three started so far back in the day from where I need the fan.
I hope the above provides some clarity.
- Spydertrader
Bundlemaker on escaping the entry/exit mentality
I just had a pretty neat experience and thought it worth sharing. I've had some fairly frustrating
attempts at going to the sim. After some help from the arachnid world, helping me to see I was
changing resolutions without realizing it, I started this afternoon afresh.
While the shift in thinking that was suggested to me was as important as anything, there is one
major change in how I approached using the sim that I suspect turned out to be useful. Keep in
mind that my mind has been sullied with years of "set up" (or edge) trading mentality. So, while
I know I am supposed to be thinking change or continuation, my behavior (actions with the
mouse at the sim) was one where I kept looking for the right "set-up" to enter. For example, I
would only enter at the FTT or at the pt3. That behavior I now realize caused me to focus on my
entry point no matter how hard I tried to avoid it. I tended to keep questioning whether I got the
right entry and then kept mentally whipsawing myself. Talk about painful. I had this so bad that I
would do anything to avoid trading if I didn't make the opening bell. It hurt to just jump in
middle of the day.
This afternoon I did something wacky. I determined what the trend was IN MY RESOLUTION,
and when price got closer to the RTL than the left, I just got in and continued to monitor for
change or continuation. For some reason this just felt much much easier and more comfortable.
Without writing a book on what I'm driving at, I'm not sure if any of you will get what I'm
driving at. Perhaps just try this if it seems appropriate for where you're at. Spyder, if this seems
off track or wrong I'll delete this post, it just seemed to help me so much.
Bundlemaker on different kinds of PT1
The scenario I am about to describe seems to be one of the last sticking points I have to deal
with. The attached chart is from just moments ago. I called the last FTT annotated on the chart
and marked the pt1. Then the up tape to pt2 occurred and the retrace to pt3 began. All appeared
well as the retrace was on decr red prv for that whole first red bar and roughly half of the second
red bar. Then, intrabar, inc red kicked in and took us to a new low, at which point I labeled the
pt2 as an FBO.
First: at the forest "plus" level at which I’m trading (entering on the FTT not the pt3), I really
couldn't tell the pt3 wasn't going to happen until the trade was roughly b/e (+ or -). Do I have this
correct and does my process look correct?
46
I also would have been hesitant to get short again, even on the incr red prv because the volume
wasn't near that of the last Gaussian peak. At this point I don't feel confident about what's going
on so I would probably just wait until things became clear again.
This brings up a question regarding pt3 channels. There are three different ways to get a pt1 (pt1
forms at the LTL, beyond the previous extreme price, or shy of the previous extreme price) and
pt2 can form within the previous channel or after the break out or even failed breakout. Is this
micro analyzing or do these various combinations tell us something?
Spooz: FWIW, If you fan a new RTL on the 11:05/11:10 bar (pt 1 10:30), then the Gaussian
peak at 10:55 followed by the retrace synchs, IMO. At this steep channel RTL "action point",
you noted increasing Red. From a "change" or "continuation" point of view, you would have
need to seen increasing black (B2B) for "change", right? So, unlike the 10:05 FTT that led to
"change" , the 11:00 FTT FBO'd the steeper RTL and led to "continuation".
I hear you on the PV interpretation ("... volume wasn't near that of the last Gaussian peak"...).
IMO, this is yet another example of price making new lows on decreasing red volume. Of
course, the volume was still extreme but significantly lower than the Gaussian peak at 10:55.
47
Pr0crast: Here are my thoughts on what happened. The FTT that you acted on was indeed an
FTT, and it was a signal for change. HOWEVER, it was a signal for change on the traverse level.
The dominant traverse finished and the non-dominant traverse was beginning. By drawing a
"PT1" it seems as if you were treating it as a signal for change at the forest level, though I could
be mistaken if you were drawing the PT1 strictly for the nondom traverse. I would have
absolutely been expecting that "R2R" that slapped you because we have not yet had a signal for
forest change (B2B, forest FTT). We got our FBO and continued the next dominant traverse.
Again, my view on FTTs is that if it reaches the LTL or makes a VE on its dominant traverse,
there cannot be a forest level FTT until some sort of retrace has occurred. There can still be a
traverse level FTT though if after the VE there is a double top or something like that... but to me
that just means the dom is over and the nondom is beginning, and after the nondom we will get
another dom unless I am told otherwise.
Hope this provides some perspective...
Spyder:
I apologize for taking so long to respond. The
market had my attention.
Before you go too far down the road of over
analysis, please view the YM during this time
frame, and see what information one might have
gleaned from it.
- Spydertrader
48
Laziness 101
Bullz n Bearz: In layman's terms, what are Gaussians?
Avi 8: gaus·si·an (gous-n)
adj.
1) Relating to or described by German mathematician and astronomer Karl Friedrich Gauss
(1777-1855)
2) Relating to or describing a process where one reads the beginning of futures journal where
most questions have been answered in the previous 600+ pages.
Pr0crast posts link to video review/discussion of Gaussians
http://tinyurl.com/2lnrpw
From Tucson IBD Meetup 5-24
A discussion on flaws
Pr0crast: there was a real nugget revealed by Spy in the
May 25 ET chat transcript. I've edited it up below b/c I think
it deserves some extra discussion/examples in the future:
The secret to finding reversals: Flaws only develop in
dominant traverses. Therefore, if you see a flaw before the
next dominant traverse in the current channel, that means
there has been a change in sentiment and the dominant
switched. Again: If flaws ONLY happen in dominant
traverses, then a flaw in a non-dom must mean the OLD
dominant channel is no longer operating.
Pepe: Yes, indeed.
This seems to be a very nice hint when looking for change in
dominant sentiment. The problem is: for me, I find it very
difficult to recognize 'Stalls' (or 'Hitches') in Real Time, the
reason of course is because I fail to understand the
'particularities' of each of them
49
'Dips' seemed ok, as they have a very peculiar shape (very low volume, small bar), HVS can be
found sometimes by paying attention to decr red and black volume in a lateral move.
Now 'Stalls' (and 'Hitches') are very hard to understand even in hindsight. I tried to do some
research about flaws this weekend, and I found among several information, a hand drawn image
in this thread (it is at page 149 of pr0crast Volume 1) that shows an example of each flaw. This is
referred as a 'temporary pause' being two small bars in different directions...it seems to me like
an 'extension' of a dip.
I also found a quote from Jack about Stalls, that as I understand it, is contrary to the above
explanation, as it says 'Stall are ends of trends where you can exit ...'
Stalls are ends of trends where you can exit and sit sidelined during risk periods where
direction is not defined. What you see are consecutive bar crossovers of the INDU by the
YM. This is because smart money is sitting on a narrow price range and the INDU is
flaming up and down around those values in a hyper manner. I could have said the picture
by commenting in the opposite way vis-a-vis INDU and then YM. We need to stay on YM
as smart money which is leading the cash which in turn, by the signals we take leads ES.
Stalls last quite a while and the cash is relatively volatile. here in mentoring the person
working tells me it is "mud". We sit out mud.
Hitches are intermediately occurring formations during longer trends. They are small
short lived low volatility stalls where the trend resumes. At first no one can differentiate a
stall from a hitch. So do not exit at first until a stall is evident. No rush no change in value
of exit . A 2 pair oscillation in ES is a likely thing during this early time. You either get a
trend resumption on ES volume picking up or you exit as the time duration of a hitch is
exceeded and you then know a stall is evident.
Also, when I analyze 'Stalls' in Spyder's charts I can't find any major characteristic that relates
them, for instance:
- It’s not a low volume bar (some of them are >20K)
- It’s not a trend contrary bar
- It’s not a small volatility bar
What I found was this:
- It is a one bar flaw
- Sometimes YM is near the SMA20 when 'Stalls' happened in ES.
Due to Jack’s quote, I am now curious in find out if STR/SQU can be a used as a Stall finder, or
at least be of some help to provide some more clues to this.
50
'Hitches' are even more mysterious, as are rarely seen.
'Seeing' flaws in YM also seems very difficult as there are a huge amount of 'potential'
candidates
I hope this can add some help to this discussion...
R/R: The attached .pdf file is a compilation of some discussion on flaws from the ET Chat last
week. I edited it for my own use and reference but it should be useful to others.
http://tinyurl.com/22zvdw
I thank CFerret for engaging Spyder in the conversations and creating the discussion.
Its a given that I also thank Spyder for his generosity!
R/R: Here's an index I recently started for quickly linking to Spyder's daily ES chart posts. This
has helped me to quickly pull up charts for review since I don't print them out.
Hope others find this useful also.
I use Open Office instead of MS Office. Hope this Excel conversion worked ok.
http://tinyurl.com/28p6j6
51
Pr0crast experiments with Gaussian annotation
52
Pepe asks Spyder if this is a stall
Not Quite. Neither of the bars represent stalls. Together, both of
the bars create a retrace (red tape) of a traverse (thick blue) of a
channel (thick red). Please note how the red volume bar at 14:25
continues to exceed the levels of the black volume bars prior to
it (i.e. Increasing Red still holds dominance).
As such, the first red bar forms a Volatility Expansion (or a Left
Trend Line Bounce - depending on how one draws in their
channel lines). The second red bar creates an FBO of the
Traverse (and a Volatility Expansion of a tape). Such detail
represents trading at a much finer resolution level (in this case,
limbs and leaves) than one should normally monitor at a
Beginner Level. If one has chosen to head further down the
rabbit hole before obtaining the necessary experience to do so,
then one has far greater concerns than differentiating between
'types' of flaws.
In the original posting of this chart, I avoided annotating the
finer resolution levels in an effort to dissuade others from
heading down the rabbit hole too quickly. Just as FTT's do not
exist on every bar, so too do we see relatively few flaws
throughout the day. At this resolution level, we do not need to
know the subtle differences between each particular type of
flaw. We simply need to know what happens after an FTT, and
when to anticipate the likelihood of flaws developing (Volume
provides the clue). When what happens next doesn't begin to
materialize in a timely fashion, we know we must have a flaw.
Learn to differentiate flaws from FTT's and it won't matter what
type of flaw you see. As I pointed out several times in the
beginning of this Journal, developing the ability to quickly
recognize errors made during observation allows the trader to
wash, or better yet, profit from, their errors (thinking FTT when
one actually has a flaw). By focusing on the differences between
flaws and FTT's (and given some time and experience) you'll 'see' on your own the subtle
differences between flaws as they develop on the price charts.
I hope you find the above information useful.
- Spydertrader
53
Spyder on sufficiency (again)
In your up channel, we see Price flirting with the RTL. When we see Price approach either trend
line, we move to the next tool in our bag - the YM. If we find the YM also sits on its trend line,
we move to the next tool (and so on and so forth until we 'see' the sufficient data set). In other
words, Price already has moved to the trend line. Trying to apply the 'flaw' guidelines here is a
bit like closing the barn door after the horse has already departed the farm.
An attitude adjustment from Spyder
Quote from ivob:
I cannot imagine myself making a profit on a day like this. The last half hour is okay by the
way.
Then you need to immediately change this mindset. This type of thinking unknowingly places a
hurdle in front of your progress. I'm not one of these 'New Age', touchy-feely, sit around the
campfire singing Kumbaha, Oprah-watching type of guys, but you cannot create your own
obstacles to success.
Take a look at the problem from a different angle. Go back and debrief the market. What did you
miss? What did you monitor that you should not have been monitoring? What or How could
you have seen things differently? Did you monitor too closely? Not close enough?
Ask yourself the difficult questions and form honest answers to those questions. Only then, can
you begin to 'see' how everyone can end up profitable on day's like today.
The above post isn't designed to 'bust your chops' over your comments. Rather, I intended the
words to provide a 'wake-up call' for how one can unknowingly plan to fail in all areas of life not just trading. Today presented a difficult market for some - agreed. But not impossible.
Obstacles represent nothing more than opportunity. As such, I recommend applying the
necessary adjustments needed to develop a similar viewpoint.
Good Trading to you all.
- Spydertrader
54
Bi9foot asks Spyder about a dip
Quote from bi9foot:
At what time did you determine it was a dip?
As soon as I watched the 9:55 Bar bounce off a small DOM Wall and then
turned into decreasing black Volume on a PRV basis. I do not recall the
exact time.
The reason I ask is that through the whole duration of the 9:50 bar, the
PRV volume indicated the bar looked like a FTT and the volume ended
up very close to the previous bar (Flaw is not even in my mind due to
the vol). It was not until about 9:56:40 of the 9:55 bar did we see the
increasing black PRV.
Not all flaws show significantly less Volume than the previous bar. If they
did, we wouldn't see so many people have difficulty differentiating flaws
from FTT's.
I want to make sure I did not miss any clues that might have alerted me
to the dip sooner.
Unless STR / SQU provided a signal (I do not recall if it did or it did not),
then you didn't miss anything in the 9:50 AM Bar (based on the current tool
set).
Does the narrow range of the bar (compared to prev bar) or the fact that the price
oscillated for a while around a bid/ask pair during the 9:50 bar provide hints?
Yes. The oscillation at the current Bid / Ask Pair (Tic Chart) in combination with the DOM and
T&S does provide clues, but we have yet to discuss those tools in this Journal. I plan to begin the
DOM discussion later this week.
Could the 9:50 bar be a very short non-dominant retrace as opposed to a dip?
Nope. It's a Dip.
55
Pr0crast gets better at IDing HVSs
Getting better and better at separating the HVSs from the FTTs etc.
Here's a sequence from this morning that was good practice--hopefully
I got through it correctly.
1) We have a retrace of the green channel, bounded by the thin red
trend lines.
2) Price is oscillating in this retrace channel on decreasing volume...
thus we assume HVS.
3) HVS = flaw, so we should see continuation downwards after the
flaw is over (increasing red), UNLESS we get an FTT.
4) We get increasing red volume like we wanted, but it FTTs. time to
reverse long!
Spyder posts a mini-glossary for Jack’s upcoming novel
Level I - Tapes (leaves)
Level II - Traverses (limbs)
Level III - Channels (Trees / Forest)
MADA - Monitor, Analyze, Decide, Act
Translation - Continuous Price Movement in one direction across Bid
/ Ask pairs (Tic Chart)
LSL - Long, Short, Long
SLS - Short, Long, Short
Internals - A positive way to say, 'flaws'
Drift - STR / SQU Offset not exactly correct (due to changes in market
dynamics throughout the trading day) resulting in skewing of the
Premium Chart above or below the Zero Line.
Mode - Continuation or Change
56
WARNING
LOTS OF HERSHEY-SPEAK AHEAD!
57
Hershey talks flaws (part 1)
The topic can be wedged into your learning process after advanced beginner and before the start
of intermediate in the syllabus. We will take up this as a consequence of getting the traverses
(level 2) of the beginner Level 3 of JAN/FEB. Basically, we can look at this as getting in touch
with the Traverses (level 1) of the level 2 movements across the level 3 outer limits of SCT.
The name we came up with for dealing with the decision logic is: "beginner internals." There are
many successful trading styles and approaches out there. The more common ones and the larger
capitalized ones come into play during the day and they either advance price movement or
impede price movement. They all show up as formations and patterns that subtend the level 2
traverses, usually but occasionally they can come into play on lower volume portions of the level
3 on goings.
I will pick up the discussion in an order that is directly related to the duration of the internal
formations ("flaws"). As JAN/FEB unfolded a great deal of foundation building occurred and
we all came out of the FTT trading having good annotation skills and the MADA routine well in
hand. That took care of getting Level 3 built by growing form two adjacent bars (level 1 moves)
to level 2 synthesis of level 1's and again on up to level 3 by synthesizing level 2's.
The foundation is cast by building upwards on P and V annotations. So now we have three
levels of P and V working and our focus has been to trade FTTs and then learn to trade traverses
at LTL and RTL turning points. We saw how volatility expansions on the LTL lead to wider
channels and finally FTT's happening on the more difficult width of traverse on dominant
movement. We saw BOs of RTL's subsequent to the end of the non-dom retrace after the FTT
occurred. The BO initiated the first dominant traverse of the new Level 3 forming channel.
All of this is supported by the P, V relationship and the annotations of the channels for P and the
Gaussians for V. We stepped into the notion of leading indications by applying each and every
part of the above to the YM, which at critical times of focus and consideration (turning points) is
leading the ES. This worked out terrifically to reinforce the ES annotating learned first. A pair
of markets then became available to us for tuning our MODE continuation and change part of the
trading day. ALL of this demonstrates that we are using a BINARY (and vector valued, at that)
way of operating. Using observations that have one of two possible values keeps us all in a
manner of operating that tells us that if one thing is going on the other possibility is NOT going
on. This is where the three feelings originate for doing the M of MADA (monitor). Monitoring
for data that is either one way or the other lends certainty to observations and certainty evokes
feelings of support, comfort and confidence.
We have been taking data sets each sweep of the routine of MADA. You have been for months
assembling data sets that tell YOU that YOU KNOW. This is call "contraction" in the nonprobabilistic modeling of info gap theory (Its other half is "nesting" that roughly equates to
58
throwing everything at the wall to see what sticks). WE collect data sets to have "sufficient" data
to know that we know. All the elements of the set are binary and that means that the element of
data is "certain" because only one other possibility exists. We are headed to advanced
intermediate and then on to expert. This path will continue to be binary for all observations and
further the data sets will not become larger and cumbersome.
Up to now we have just examined the MODE from the viewpoint of continue or change. That
will remain the same. And we will begin the skills acquisition upward to the last two additional
levels of skills. Precision best describes all the path steps that remain to get done by the end of
August. To keep the data sets clear, concise and crisp, we will begin to "steer and focus".
Batting means being at the right place at the right time to take the swings that are appropriate.
This is MADA where logical decision making comes to the fore as a consequence of being in the
right place at the right time. We have the channels on three levels; we have the Gaussians on
three levels. Now we add the third leg of the stool and it is called critical thinking and we will
use a binary logical decision making approach for looking deeply into what the market is telling
us.
As you would imagine there is a logic tool that is just as powerful as channel annotations and just
as powerful as Gaussian annotations. We have already built it into your thinking and now we
will be apprising you of how to make the best of it.
You KNOW how to stay on the right side of the market. You KNOW how to detect when a
movement is coming to an end on levels 2 and 3. These are all in the class of things called
boundary conditions. By beginning with outer boundaries you rode through all perturbations
within the boundaries and just followed the coarse sentiment of the markets. Then, you traded
the traverses of the outer boundaries.
The stretch squeeze exemplified the first effort we made to use external indicators of the two
markets we learned to traverse. Now we begin the look-see at internals of the three levels of
channels to come to understand "making money."
The warm up drill has been seeing "flaws" that express pending near term upcoming "change,"
our MODE condition for taking ACTIONS.
This is like the "glances" at STR/SQU. You glance to see that you are running +/- 2 and it's
steady as you go. Occasionally you see the boundary violated or you see "drift." You can
periodically adjust the "drift" and also know who is going to step in and when to "arb" the drift.
This stuff is not found in ET anywhere so far. We will pick it up in a month or so. So with price
and volume we are now up to seeing "flaws" just like we see the S/S rattle the cage once in a
while.
59
Here is the job that I am going to do now to complement the journal's thrust:
1. Introduce the reading of flaws as "internals" that may or may not represent money
making opportunities.
2. Introduce the reading of leading indications that a flaw is coming.
If you are becoming more and more aware of the market's operations (YOU definitely are doing
great at this), then you need to be able to begin to know where to look and when to look to see
what is coming up on the horizon.
We will use before "flaws" and begin to STEER our attention. Once our eyes get to where they
are going we will "focus" and enlarge the focus to be able to use "flaws" as neutral "internals"
that can make another level of money velocity inside the traverses on level 2 that we are now
trading.
The expert level focuses, later in the year, on all of this for sure and it will be adding the major
piece de resistance of OPTIMIZING turns with the ultimate precision by looking at the right
thing at the right time.
Here is the very fortunate thing about all of this. It turns out in binary vector analysis to induce
the info gap "contraction," we use but one and only one fundamental decision logic construct.
We have NLP'ed that to you already. Now we dust it off and get it to come up to speed as the
third leg of the stool that has the P and V leg in full swing.
Here is the (counter intuitive) basis for seeing what and how internals function. The minority
controls as we know from supply/demand type financial theory. The effect of scarcity
imbalances the market and precipitates price change as the minority is used up by the majority
facing the minority. What is going on with the majority when their needs (goals and targets) are
satisfied? Obviously, they then, at that time join the minority whom they were most recently
facing. This happens, as we know, harmonically.
We have many tools for dealing with this and now we will sharpen them. For our purposes we
see price moving as a translation in the dominant traverse of a level 3 movement. The level 1
taping is the unflawed movement. The flaws show in an order: hitch, stall, and dip. They relate
to the third bar of any observation.
What we will do from now on is make sure the transition of a flawless taping is always deemed
to be the segway into any flaw. The +/- 2 is always the segway into the STR or SQU. The price
tape and the “V” first portion of a Gaussian is in effect. Bar 3 disturbs this money making you
are doing. "Disturbs" is not a problem for us. Currently we handle it as a temporary slowing of
making money. We have three levels of sentiment and we may see that the least of these is not
in synch with the two larger ones. We recognize that three moves (LSL tapes or SLS tapes) on
level 1 can get us across a level 2.
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The middle portion is what and when we glance. We are now at a point where we know by pace
and volatility quite a few things. By dealing with the internals (a positive NLP view of "flaws").
we are availing ourselves yet one more level of opportunity to make more money per unit time in
trading. Naturally, I will flesh this out in spades and you will see most of the 80 edges showing
up in the prose. We will, as usual be front running these.
Get this concept. Our binary (certainty-based, no risk) world relates to two consecutive bars. we
keep our eyes peeled and at all times know if we have translation. If and when translation stops,
then we are alert to the beginning of an internal.
We are now beginning to move into intermediate and expert territory to finish up the journal in
2007 by the beginning of the fourth quarter. We then get 1 quarter of expert trading in the end
the year.
In the equities journal, I will begin to get the intermediate and expert trading done there too. We
will deal with batting orders, being prepared for trades, and doing crossover trading. All of these
are designed to compress the trading cycle and cream the best parts of the moves. The effect will
be to move the compound exponent from 40 to 60 to 80 and to 100 for 10% cycles in a year.
This is similar to the steer and focus on the internals and then expert trading turns per day.
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Spyder chat log regarding an HVS
Spydertrader (May 31, 2007 3:28:33 PM)
ok anybody have difficulty knowing in advance which way price was going to break out of the
HVS?
Avi 8 (May 31, 2007 3:29:04 PM)
no, but watching cautiously as I had it on a RTL
WGTrader (May 31, 2007 3:31:23 PM)
Spy, would you mind giving us a play-by play as we went into the HVS? I thought it was but
didn't know it until the 15:05 bar
Spydertrader (May 31, 2007 3:32:48 PM)
Ok you have price moving lower from 14:55 and comes right to the trend line at 15:00
Spydertrader (May 31, 2007 3:33:28 PM)
15:05 appears to be an FTT but price maintains an equivilant high and low from the previous bar
(you think maybe not an FTT but possibly a flaw)
Spydertrader (May 31, 2007 3:33:33 PM)
now to find what kind of flaw
Spydertrader (May 31, 2007 3:34:25 PM)
15:10 shows price headed higher on decreasing black ok so what do we have eliminated ? Can't
be ccc (too much volume) can't be hitch (price bars to volatile) can't be a dip (highs and low
equal, so we might have stall or HVS
Spydertrader (May 31, 2007 3:34:56 PM)
as the 15:10 bar closes you see more equivalent highs and lows noting for sure it is an HVS (as
stalls only one bar)
Spydertrader (May 31, 2007 3:35:24 PM)
so since it’s an HVS lateral and you know flaws mean continuation you have to 'se' which way
we came in to 'know' which way we head out
Spydertrader (May 31, 2007 3:35:29 PM)
we entered from above
Spydertrader (May 31, 2007 3:35:52 PM)
we expect to exit out the bottom
Spydertrader (May 31, 2007 3:36:10 PM)
so now we watch to make sure we don't see some overriding signal for change (an FTT or an
FBO)
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resinate (May 31, 2007 3:36:10 PM)
spy, nice, clear, explanation
Spydertrader (May 31, 2007 3:36:44 PM)
since we had NO FTT or FBO, we know price will exit bottom
Pr0crast asks about another HVS
Spy, would you mind walking through this series of bars... You have it listed as an HVS, but I
did not perceive it as that at the time. The big red bar seemed to me like an FTT. And if the next
bars DO form an HVS, doesn't there need to be an additional FTT somewhere since it came in
from the top, and must come out from below, barring any overriding signals of change? What did
I miss? I suppose if the big red bar IS an FTT, which signifies a change in sentiment, then we are
coming into the HVS from the bottom and out from the top........ right?
Also, from the chat:
"Spydertrader (May 31, 2007 3:34:25 PM)
15:10 shows price headed higher on decreasing black ok so what do we have eliminated ? Can't
be ccc (too much volume) can't be hitch (price bars to volatile) can't be a dip (highs and low
equal, so we might have stall or HVS"
I caught the HVS there, but just wanted to note that I had increasing black where you had
decreasing black. Leave it to Qcharts to come up short on vol #s...
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Spy’s response: See Attached. I have a channel (Pink Lines)
drawn in slightly different than your (thin lined) Orange Channel.
The different slopes of our two channels create how we both
viewed the Price Action at that time. The first red bar in my chart
creates a Left Trend line bounce. As a result, I cannot consider
this bar an FTT. The next Bar (black on my chart, purple on
yours) does form an FTT, but it does so only in the context of the
Pink Channel (Yellow Highlight). After this bar (black on mine /
purple on yours) Price exits the Pink Channel effectively ending
that trend.
However, on a more Coarse Resolution Level (Orange or Brown
Channel on my chart), the 13:35 bar does not show decreasing
black Volume with increasing Black Price as we would expect
after an FTT. As a result, we know we have a flaw. All that
remains is for us to figure out what kind of flaw we see.
While the 13:35 bar forms, we can eliminate several flaws from
consideration. CCC we can throw out right away (as Volume
remains way too high). Also, we can axe a Hitch from
consideration (as Price Volatility is too high). Still in the 13:35
Bar, we see our possibilities now as Dip, Stall and HVS. As we
see the 13:35 Bar approach it’s time to close (13:40), we now eliminate Stall from our list (as we
would need to see increasing red Volume and Price being driven lower). Dip remains a
possibility until we see the 13:40 bar open and Price head higher. This leaves us with an HVS.
We know flaws represent continuation on the Forest / Tree level. As such, we need to determine
how we entered the HVS, so we can determine how price plans to exit.
Back to the very first red bar again we see the Left Trend Line Bounce caused Price to head up
and into the HVS. As a result, we expect continuation to take us up and out of the HVS. Now
that we have correctly determine the Price action, all that remains is for us to make sure we have
no over-riding signal for change (FTT or FBO) while awaiting the increasing black PRV Volume
which alerts us to the upcoming Break Out of this Lateral Channel.
On your chart, you did have an FTT (Orange Channel) which provided a signal for change
(reverse long from the previous short position). See, you really do know this stuff. Don't let your
mind confuse you. Allow yourself to know that you do know.
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Spyder makes a suggestion for people having trouble with flaws
For those having difficulty distinguishing between Flaws and FTT's, take a look at my chart
posted below. Go through each Traverse (bar by bar) and note how many Traverses show an
FTT forming after a Flaw or after a Volatility Expansion.
I hope everyone finds the above information useful.
- Spydertrader
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