Iterative Refinement

The following post assumes a trader only uses the ES and YM in conjunction with Price (Channels) and Volume (Gaussians). One need only these two inputs to trade these methods profitably. No need for STR-SQU, DOM, Tic Charts or any MACD or Stochastic Indicators.

One must innately understand the sequences which systematically, and repeatedly, unfold as Price moves through a channel. Once thoroughly internalized, the P-V Relationship signals the trader each and every bar - 81 times a day.

When ES Price reaches a Left Trend Line (including a Volatility Expansion), we begin the process .....

Since price sits on an extreme, the ES has given the trader permission to go and view the YM in order to 'see' if a signal exists. Several environments might exist with respect to the interaction of Price and Volume on the YM, and the trader easily differentiates these into a simple determination of change or Continuation. Such an evaluation is made easier by the fact that the trader has performed a complete and thorough annotation of the YM prior to looking to the YM for a 'signal.'

At the point in time where the ES has given permission to the trader to go and 'see' what the YM might be offering, the YM may show several different signals - but only signals one at any given point in time. For example, the YM might show, increasing Price on increasing Volume, The YM might show decreasing Volume on increasing Price, or the YM might find itself within a formation (or 'forming' Formation). Two of these scenarios indicate continuation, and the third, indicates change. Change may signal the trader to reverse (depending on context), and continuation signals the trader to hold. In each case, the trader takes an immediate action. Hold is an action.

Now, what must come next?

Assuming the YM provided the signal for change, and assuming the trader executed an immediate (and appropriate) action, the trader would now find them self entering the Non-Dominant Traverse. Once receiving the signal from the YM, the trader's focus now rests with the ES 5 minute chart. As such, what must come next arrives in the form of decreasing Non-dominant Volume with Price moving toward the Right Trend Line. Such events may materialize in several different ways, but each follows the same sequences moving price away from Point One and toward Point Two.

Along the way, the ES provides several opportunities for the trader to go back to the YM. Since the ES 5 minute chart gives permission to the trader to view the YM 2 minute only when Price sits on a Right or Left Trend Line (including Volatility Expansions), in addition to Price sitting within a Pennant or Lateral Formation (including 'forming' Pennants and Laterals), the trader knows exactly when to focus on the YM, and when to monitor the ES. As a result, the ES provides brief opportunities for the trader to 'check in' with the YM, as Price traverses the channel. When the ES fails to provide permission, the trader monitors only the ES - other than to perform the 'housekeeping' duties of annotation on the YM.

As Price moves from Point One and Arrives at Point Two, another signal for change arrives - again signaled first by the YM. However, for many traders this signal for change does not apply to their trading resolution level. Price has simply arrived at Point Two, and has yet, made its way to Point Three. As price moves toward Point Three, one often receives what appear to be conflicting signals. The appearance of these 'so-called' conflicting signals results out of context. should the resulting changes from Point Two to Point Three occur within the previous channel, one can often 'see' Volume return to increasing Dominant. Such events also occur when the trader 'misses' a trend line (as in not seeing an accelerated channel) or watches Price and Volume Break Out of a formation. Again context is king. Should a formation continue to move Price laterally, one then needs to view such a scenario as a Left to Right Traverse - which also allows for Price to move from Point Two to Point Three.

Once reaching point Three Price has one responsibility remaining - continuation on increasing Volume. While Volume often arrives late (and not precisely on the 'Point Three Bar' itself), one must have increasing Volume after a Point Three in order to confirm a Point Three Channel. Without increasing Volume after a Point Three, then one does not have a channel.

Once increasing Volume confirms the Point Three channel, the trader then looks for a Flaw / Formation / VE to materialize prior to repeating the above process.

Wash, Rinse, Repeat - 81 times a day.

Of course, the above sequences of events may appear to change ever so slightly throughout the trading day. However, such changes represent nothing more than changes in context. And as we all know, when context changes, the answer to 'What must come next?' also changes.

In addition, a trader must also consider 'What must come next' for the market to signal the trader has placed them self on the wrong side of the market. In such a fashion, when the market signals continuation, or change, the trader recognizes the signal and immediately takes action again.

As a result of the above sequences repeating throughout the trading day, the question about "How much heat, wiggle-room, leeway, dollar amount against you" does a trader take when entering appears as illogical as asking anyone, how many times do they inhale on a daily basis. Nobody focuses on the number of times they breathe in a single day, just as no trader should focus on Price "moving against them" when monitoring the market for signals. The market doesn't know or care where an individual trader entered. In addition I can guarantee you all that no signal is ever generated out of the P & L part of your trading platform.

Instead of focusing on the amount of wiggle room, focus on whether or not one needs to go view the YM. Focus on "What must come next. Focus on taking immediate action (instead of looking for confirmation). Focus on internalizing the sequences as Price moves from Point One, to Point Two, to Point Three.

Focus on 'seeing' all the signals provided by the market (even if those signals do not apply to your resolution level), and you'll have all that you'll ever need.

If a trader cannot 'see' the signals provided using only the ES and YM Price and Volume charts, then no amount of finer tools, no amount of indicators, no amount of hope is going to provide the trader with profitability. The P-V relationship (See Jokari Window) combined with context (Channels and Gaussians) provides all the sufficient data required to trade profitably.

As proof of this, everyone should be able to pull up a chart, locate the trade Avi 8 recently posted, and understand why he entered, held and exited. If anyone cannot 'see' the signals, then the time is right for a review. Please post any difficulty which arises from this exercise.

Good trading to you all.

- Spydertrader
 
ftt-4.png



As price moves up we see a Volatility Expansion, we start anticipating an FTT. In the meantime, we keep an on YM to see what's happending. We see decreasing black and an FTT, it's a screaming short. :D
 
Spyder,

In chat the other day, you talked about range of which I think you equate to volatility and change. I'm assuming your using the principles of volume spread analysis.

Does bar range equal volatility to you?

Also, would you comment on my attached chart? I know its not perfectly annotated but I am trying to figure out how to determine longer term trend and I believe the original and fanned out LTL's are key.

Any thoughts are appreciated.
 

Attachments

Quote from PTVtrader:

I'm assuming your using the principles of volume spread analysis.

I do not use Volume Spread Analysis

Quote from PTVtrader:

Does bar range equal volatility to you?

During the coversation in the ET Chat Room, I used the term 'volatility' in place of Range (High - Low)

Quote from PTVtrader:

Also, would you comment on my attached chart?

Once Price breaks a Right Trend Line on increasing Volume, the channel ends. No need to extend the trendlines to the end of the day.

Quote from PTVtrader:

Any thoughts are appreciated.

Identifying the correct 'context' begins with a fully (and correctly) annotated chart. Irrespective of one's goals in referrence to trading, correct annotations provide much more than lines on a chart.

- Spydertrader
 
Quote from PTVtrader:

couldn't range be the same and volatility be completely different?

Simply, substitute Range where I used the word 'volatility' in order to eliminate any confusion.

- Spydertrader
 
Quote from Spydertrader:

Simply, substitute Range where I used the word 'volatility' in order to eliminate any confusion.

- Spydertrader

Thanks Spyder, I wasn't trying to pick a fight. I'm trying to learn.

My goal is not SCT, and as you have said, "many before have taken parts of this method and incorporated it into their own trading style."
 
Quote from Spydertrader:

The following post assumes a trader only uses the ES and YM in conjunction with Price (Channels) and Volume (Gaussians).......

Man this sounds familiar :D :D
 
Thanks for the feedback Spyder.
I post all my experiences here for all to read.
I will only benefit doing so from all the feedback.
Greatly appreciate your response and all your time.
 
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