Iterative Refinement

[cnms2]

NOTE: all times beginning of bar and EST (add 5 for bar closing view)


SHORT position


ES 10:30
- increasing red volume => CONTINUATION (short)


ES 10:35
- SYM, decreasing red volume => wait

YM 10:36
- increasing red volume => continuation

YM 10:38
- increasing black volume => change (long)
- LM FBO => change (short)
- one cancels other
- price closes inside two LMs (larger one started 10:30, another one started 10:32 inside it) and inside previous bar => wait
- 10:36 bar was pt3 up

=> CONTINUATION (short)


ES 10:40
- SYM, decreasing black volume => wait

YM 10:40
- increasing black volume => change (long)
- IBGS (short) and LM FBO => change (short)
- long change cancelled

YM 10:42
- FBP decreasing volume => wait

YM 10:44 (1st minute)
- FTP, decreasing red volume => wait

=> CONTINUATION (short)

Quote from Atari:

A great Lateral Formation (beginning 10:35 bar) to test knowledge of context and sequencing. You are provided valid reasons for taking signals for change or holding. Anyone want to take a shot at some Analysis of this area and the Decisions they would have reached?

I'll provide the contexts/sequences I see, after some replies are provided.

ES Chart
YM Chart

-A

 

[Padawan]

Quote from Atari:

So now on the ES 10:40 bar we've had price try to continue down, but could not get the necessary volume so we end w/ a FBP. So ES alone probably does not give us a decision on this bar, you could hold with either position. If long, this failed attempt to go down on decreasing volume is potentially your FTT now (WMCN either increasing or decreasing black volume beginning a retrace). If held short, price has moved down in your direction, but could not continue overall down trend so potentially moving laterally to better p3 (as Bi9foot pointed out).

So now we have completed 10:36 bar in YM to provide further information.



Another good clue to pick up on. Also, how did price react to the MA on the YM and what is that telling us?

The 10:38 YM bar moves down on inc. red providing us with a P3 down and establishing a matching slope channel to the up channel we just came out of so short is looking like the right side at this point (but it did not BO of our Lateral formation).

The 10:40 YM bar fails to continue down, and instead, goes up on inc. volume giving us a RTL BO of down channel just established by previous bar; and also forming a P3 up as Bi9foot also pointed out. So now at the end of the 10:40 bar the YM has provided a change signal that can provide a valid Decision to get long.

However, what contexts exist that give us a clue that this change might not materialize on the ES?

-A

This walk-through is very cool.

At 1036 the YM approached and reacted off the 20 SMA on decreasing volume creating a spike bar. The 20 SMA is helping to contain price much like a RTL.


Context clues that suggest the change on YM might not materialize on ES:

1) There has yet to be a VE or flaw on the ES.

2) The YM is moving laterally indicating the possibility of price moving from Pt 2 to Pt 3 in a down channel, as you and bi9foot mentioned.

3) Increasing volume within lateral movement (YM) signals change... and a point 3 up and RTL BO at the same time. Trying to reconcile that, sorry.

4) It's not the FBP... Thanks for the correction, Spyder.

 

[Spydertrader]

Quote from Padawan:

4) The ES created a FBP and these tend to break down.

Bzzzzzzt. Incorrect. In a binary system, 'tends to' does not exist. We have only continuation or change.

- Spydertrader

 

[TIKITRADER]

ES M8 Daily Chart May / 22/ 2008


ES Daily bar formed an inside bar today closing as a SYM P.

Looking to form a point 2 of this down channel. Point 1 was formed on Monday with an FTT.


Total range of daily bar = 9.5 Points

Total range of previous bar = 28.25 POINTS

% Range to previous bar = 34%


Daily bar volume = 73% of previous bar.

Close of daily bar today = 34% of total day range.

 

[Atari]

Quote from Padawan:

3) Increasing volume within lateral movement (YM) signals change... and a point 3 up and RTL BO at the same time. Trying to reconcile that, sorry.

The context I'm thinking of relates directly to this issue, but I'm not quite sure it is valid analysis so hopefully Spyder will provide some guidance. It is possible to draw an up channel using the 10:40 YM inc black volume bar as confirmation of a P3, however, the previous bar was increasing red (an attempt to continue down), not what you expect for a retrace to p3. So I'm not quite sure this is a valid channel, it might be best considered as a P1.

Assuming we can use this as a valid channel, notice the slope of this channel and how it relates to the slope of the big picture down channel we just formed. This slope is too shallow to provide a proper BO channel. This context strengthens the first two contexts you mentioned - the Lateral Formation is in control and there is a good chance we are still just searching for a better P3 down.

If this should actually only be seen as a P1, as stated before, we have a change signal for long and YM leads the ES so we need to act accordingly. Since I was unsure with the context here, I decided to simply exit, lock in some profits and wait for a signal that cleared things up for me.

 

[Atari]

Quote from Padawan:

ES 1045 sym pennant within lat formation, decreasing volume throughout the lat formation/continue/hold short

YM 1044 lat formation, sym pennant decreasing volume (subsequent to another ‘get short’ signal, IBGS v+)/continue/hold short

In addition to what you pointed out about the 10:45 ES bar, we are also provided with some additional information by this bar. If just using ES and a trader had decided to get long on the 10:35 ES bar and then hold through the 10:40 bar, both of those decisions were based on the potential for a FTT so WMCN? Did it? Also what does the price movement, volume and volatility on the 10:45 ES bar tell you? So what's the decision here?

The 10:42 YM bar continues up on increasing volume as we anticipate after the 10:40 bar. However, once again, the price actively retreats from the MA letting us know that it is still acting as a RTL. The bar also finished with an IBGS. We have signals for change, either a potential FTT or P2 (depending on the proper context discussed in previous post).

The 10:44 YM bar has price moving up on dec volume forming a FBP. If the 10:40 bar should be considered a P1 and this bar is our potential P3, this slope still seems a little flat for channel BO.

Halfway through the 10:46 bar PRV is telling us to expect decreasing volume and we currently have a double top odd harmonic.

So at the end of 10:45 bar, all signs are showing the Lateral Formation is in control. I would not want to be long at this point.

Hope that was helpful.

-A

 

[Padawan]

Quote from Atari:

The context I'm thinking of relates directly to this issue, but I'm not quite sure it is valid analysis so hopefully Spyder will provide some guidance. It is possible to draw an up channel using the 10:40 YM inc black volume bar as P3, however, the previous bar was increasing red (an attempt to continue down), not what you expect for a retrace to p3. So I'm not quite sure this is a valid channel, it might be best considered as a P1.

Assuming we can use this as a valid channel, notice the slope of this channel and how it relates to the slope of the big picture down channel we just formed. This slope is too shallow to provide a proper BO channel. This context strengthens the first two contexts you mentioned - the Lateral Formation is in control and there is a good chance we are still just searching for a better P3 down.

If this should actually only be seen as a P1, as stated before, we have a change signal for long and YM leads the ES so we need to act accordingly. Since I was unsure with the context here, I decided to simply exit, lock in some profits and wait for a signal that cleared things up for me.

With regard to the channel's validity using the 10:38 bar as point 3 up, I thought it was ok to see increasing red temporarily when moving from a pt 2 to pt3 of an up channel. In this example, we had lateral movement within the 10:32 bar (and the 10:34 bar) to arrive at the uncertain bar point 3 at 10:38. Of course it's not a point three until we get increasing black at 1040. So we got a return of increasing red dominant volume for one bar that did not exit the lateral movement area. However, in so doing, price created an accelerated down channel. I would consider the shallow channel you mentioned to be a valid up channel using the 10:36 bar as point 2 and am definitely interested to see what Spyder says. I do remember him stating in a post about how a return to dominant volume of the original channel as price creates a point 3 in the opposite direction can "appear" to provide conflicting signals that really aren't conflicting at all.

If we were to use the 1038 bar as a point 1 of an up channel (despite all the clues that suggest pt 2 to pt 3 down), and the trader attempted to hold through the pt2 to pt3 retrace then you would know that the 1038 bar isn't a point 1 sometime during the forming of the 1048 bar? Such a scenario is a prime example of how I sometimes get turned around with my analysis and why going through this exercise is so beneficial. Thanks.

 

[chuy]

Quote from Jesus_Freak:

Hello all,
I have been absent for a couple of days. Had kind of a rough week trading..... getting WAY ahead of myself. Making old mistakes that I thought I was over.
Anyway, back to basics and learning trendlines. I am posting a chart for an equity which will probably be in DU tomorrow. I am just getting started on this so please excuse how bad it is. I am hoping by posting my first awful attempts I can correct my misunderstandings early. Anyway, any comments on it would be helpful, especially concerning where my misunderstandings are. Thanks!

JF

Your charts show very good micro detail with FTTs, BOs, etc., which I find time consuming to duplicate in QT so I apologize for doing a macro chart of the stock, VCGH.

My initial reaction when setting up a chart is to try and highlight any obvious trend so I use broad dark channel lines on a forest level to emphasize potential BOs. Thus, I keep forest level charts on numerous stocks and then further refine charts on the stocks which show a possible broaching of a trend line.

With the current lateral and shrinking dwindling volume, a protracted sideways is certainly possible. Hope my chart gives you another insight and is helpful.

 

[Jesus_Freak]

Quote from chuy:

Your charts show very good micro detail with FTTs, BOs, etc., which I find time consuming to duplicate in QT so I apologize for doing a macro chart of the stock, VCGH.

My initial reaction when setting up a chart is to try and highlight any obvious trend so I use broad dark channel lines on a forest level to emphasize potential BOs. Thus, I keep forest level charts on numerous stocks and then further refine charts on the stocks which show a possible broaching of a trend line.

With the current lateral and shrinking dwindling volume, a protracted sideways is certainly possible. Hope my chart gives you another insight and is helpful.

I see what you mean. With the larger trends in as well, it helps see how these smaller channels fir into the big picture. Which do you find is easier to do first, the macro or micro trends? In other words, is it easier to drill down into the details, starting with the big picture?

ALso, I am unfamiliar with the term "fat tape." WOuld that be a tape that is relatively established, yet without a well defined pt3?

Thanks!

JF

 

[Tums]

Quote from Jesus_Freak:
ALso, I am unfamiliar with the term "fat tape." WOuld that be a tape that is relatively established, yet without a well defined pt3?
Thanks!
JF

Do a search on "chubby tape".
There was a description and discussion in the last 48hrs.