Iterative Refinement

[Spydertrader]

Quote from nkhoi:

hm.. according to this post http://www.elitetrader.com/vb/showthread.php?s=&threadid=83604&perpage=6&pagenumber=893
10% = flaw, 90% = FTT but 40%-60% could be flaw , could be FTT, wait for more clue?

That post linked above doesn't say,

90% of previous bar's volume = FTT
10% of previous bar's volume = Flaw
40% to 60% = wait

The post says,

"We think in terms of FTT or Flaw when we 'see' these conditions"

and monitor for what must come next from that point.

In other words, you start with a hypothesis. The market then confirms or invalidates that hypothesis. Large disparities in Volume cause the trader to think (begin with a hypothesis of) Flaw instead of FTT. Small disparities in Volume between bars cause the trader to think (begin with the hypothesis of) FTT instead of Flaw.

Do you 'see' the difference?

FTT's can still happen with huge disparities in Volume and Flaws still devlop with next to no disparity, but we begin from a certain view based on how Volume develops.

- Spydertrader

 

[cnms2]

Understand!

Bar 3 was a Dip => we anticipate CONTINUATION (hold SHORT).
What must come next: increasing red volume, and price move lower.
If we're on the wrong side of the market: increasing black volume, and price move higher.

Bar 4 is also part of the Dip (even lower volume), and it is also an OB (on my chart) => CONTINUATION
What must come next: increasing red volume, and price move lower.
If we're on the wrong side of the market: increasing black volume, and price move higher.

Bar 5 BO both the OB (bar 4) and the Lateral Formation (bar 1) on increasing red volume, but closes back inside both the Lateral Formation and the OB: FBOs. => CONTINUATION
What must come next: increasing red volume, and price move lower.
If we're on the wrong side of the market: increasing black volume, and price move higher.

Quote from Spydertrader:

... what the market has shown us.

When what must come next doesn't, expect the trend to change.

- Spydertrader

Hint: Also note the Huge disparity in Volume from the Peak Volume Bar. What often has this Volume signature? What must come next? What must come next if we sit on the wrong side of the market?

 

[Atari]

So we have a dip and are looking for increasing red to continue down move, yes?

 

[bi9foot]

Quote from Spydertrader:

....
Once you know the answer, you know what must come next, as well as what must come next if you sit on the wrong side of the market.

The only type left is a Dip.

For what must come next is the resumption of the dominant trend.

What must come next if you sit on the wrong side of the market:
- Price creating a higher high.
- Volume does not really matter. (Increasing volume confirms the new dominant direction however decreasing volume still says we are heading higher)

 

[ehorn]

Quote from Spydertrader:
P.S. If you really didn't know everything I posted in this post, then guess what? You just figured out where you need to apply focus in order to create improvements to your trading.

With the annotations in place, I just see it as an internal formation (not so much a flaw), and, given the low black volume - I would expect a BO on increasing black volume as a signal of change and action or BO down on increasing red as a signal of continuation and hold.

But I must admit that my most troublesome area is that I tend to look for change TOO much, so I will spend time focusing on these areas.

Thanks for clarifying.

 

[Spydertrader]

Quote from cnms2:

Understand!

Yes! You sure do! Now, for the real kicker ...

You also know that the ES has given permission for you to go over and watch the YM in order to anticipate the break out. So, go look. What did the YM tell you?

- Spydertrader

 

[Spydertrader]

Quote from bi9foot:

The only type left is a Dip.

For what must come next is the resumption of the dominant trend.

What must come next if you sit on the wrong side of the market:
- Price creating a higher high.
- Volume does not really matter. (Increasing volume confirms the new dominant direction however decreasing volume still says we are heading higher)

Perfect. Now go watch the YM. What did it tell you, and what happened next??

- Spydertrader

 

[Spydertrader]

Quote from ehorn:

With the annotations in place, I just see it as an internal formation (not so much a flaw),

Exactly as you should, but you can also see the flaw hidden within the formation if you choose to. However, you for sure have permission to go 'see' what the YM has to say, so head on over and ask for a signal. The YM is happy to oblige.

Quote from ehorn:

and, given the low black volume - I would expect a BO on increasing black volume as a signal of change and action or BO down on increasing red as a signal of continuation and hold.

Of course. Now, what did the YM tell you?

Quote from ehorn:

But I must admit that my most troublesome area is that I tend to look for change TOO much, so I will spend time focusing on these areas.

Again, this exercise shows you where you need to focus to avoid future confusion.

Quote from ehorn:

Thanks for clarifying.

It is you who provided the clarification by noting where you need a review. I only provided the process for determining where to look. Nicely done.

- Spydertrader

 

[Spydertrader]

Quote from Atari:

So we have a dip and are looking for increasing red to continue down move, yes?

Correct. Now, go look at the YM (since our friend the ES was so kind to offer its blessing) and 'see' what the YM has to say.

- Spydertrader

 

[Avi 8]

Well I hope this doesn't ruin the party...

Quote from ehorn:

...I tend to look for change TOO much...

This is a consequence of not knowing the sequences. When one knows the possible sequences for the context, one ends up 'waiting' for change.

In other words, one knows how, when, and where 'change' will appear.

What are the possibilities of price and volume?

There are four:

1) Price inc, Vol inc
2) Price inc, Vol dec
3) Price dec, Vol inc
4) Price dec, Vol dec

Have you seen this before? This is all that ever happens day in and day out.

Now what are the sequences for each? It depends on the context.

Now let's apply this to the specific example above. The context is a down channel, already had a VE and now we are in a flaw. What kind of flaw? We have ruled out everything but 'dip'.

Ok, so now what are the sequences of each of the 'only' four possibilities the market could ever do?

1) Change, price heading up on inc vol, new up channel forming, specifically looking for a new pt2 up
2) Wait, still in a 'dip' and a lateral formation
3) Wait, price now moving in our direction, but anticipate change
4) Wait, 'show me the money'!

So most of the time one simply waits and continues to run the sequences through the mind.