Making of a method

Context for Sept 3

Long Term: The latest leg of the major uptrend from 2009 started on June 24th. The DL for this leg has been broken.

Med Term: A clear DT has been established at 3148. The congestion since the break of the DL has well defined R and S levels as price discovery unfolds, creating multiple value areas.

Short Term: The latest PA shows buying off the 3055 level, although it has not been a smooth trend up. Price has also rallied to just above the mp level of 3100 (of the swing from 3147 to 3052). This rally above the mp zone, along with the well defined S below, point to the LOLR being up. Traders are likely to test the highs of 3147 again. However, there will be R exerted by those who bought from 23rd to 26th.

Current Price 3106

R zone: 3116 (Lower boundary) 3122 (VAP max) 3126 (Upper boundary)
Quality: High VAP. This is a significant zone. Once it is crossed, there aren't too many trades for price to work through on it's way up to 3147.

R point: 3113 (A swing high from the 2nd)
Quality: Low VAP here. More of a reference point. Quality will increase if this point is tested during ON and PM before tomorrow's session.


S zone: 3098 3094 (SL from 2nd & VAP max) 3092
Quality: Very high VAP. Will provide S to the retest attempt of 3147. If it breaks, there are other high VAP levels right below.


S level: 3088
Quality: Both High VAP and a clear SL from the 29th.

S zone 3076 (VAP max) 3068
Quality: Very high VAP. If this zone is crossed, then S levels below are in danger. Crossing of this level would point towards the consolidation finally breaking down for a down leg.
 
FT Day 8 Sept 3

Review:

Trade 1: 3098 had been established as upper boundary zone of value area. Trade was entered on a ret as price went down to 98 and bounced up. Both LOLR and S/R were correct.

Trade 2: Taken in anticipation of trend continuation as price bounced up off the mp zone. Exited on a rally after spending time in the red. LOLR was correct but there was no strong S/R condition here.

Trade 3: Price had been compressing. Broke upside and failed. Then broke downside and bounced off the mp zone. LOLR and S/R correct here.

Trade 4: The downswing from 3113 rallied to the mp zone. Speed and extent of this swing shifted bigger LOLR down. So saw this as a good opp to go short once price faltered at the mp zone of the swing. The mp zone had R above it from all the congestion to the left. Aggressive on the immediate LOLR but ok on the S/R here.

Missed Opps:

1) After zooming up to 3111 in the first 3 mins after the open, price spent a lot of time testing/consolidating below this level. Upon breaching this level it could not follow through, with a substantial ret back to the value zone. It tried again and this time was rejected at the previous SH of 3113. The trend continuation case looked weak. However, I viewed the large number of trades during the flat action as S against any dramatic fall. Thus, the short was not taken.

However, my hypothesis could have been based on what price did not do. Price did not break through despite a lengthy consolidation period. And it turned down at a clearly visible previous SH point. This meant that a large number of trades taken with the intention of trend continuation would now be exited.

The sharp sell off could have been the result of capitulation by buyers as they kept holding onto longs, hoping for the breakout to come alive. Perhaps this is a good example of loss aversion.

2) I saw the downswing lose pace at the 3100 level. My hesitation was due a lack of remembering that 3100 was not only the mp of the downswing from 3147, but was also a high VAP level. If I had been clear about this, I would have not hesitated with the long.


http://www.sierrachart.com/image.php?l=1378253782998.png
 
Your comments recently have been very good, and your skill at seeing is showing continual improvement. All you need to do for the most part is to keep doing it. Practice. Keep detailed notes. Make suppositions and test them out. Make tentative conclusions and see if they pan out in practice.
 
"I go long or short as close as I can to the danger point, and if danger becomes real I close out and take a small loss."

Jesse Livermore

"Successful tape reading is a study of FORCE. It requires the ability to judge which side has the greatest pulling power and one must have the courage to go with that side. There are critical points which occur in each swing, just as in the life of a business or individual. At these junctures it seems as though a feather's weight on either side would determine the immediate critical trend. Any one who can spot these points has much to win and little to lose, for he can always play with a stop placed close behind the turning point or "point of resistance".

Richard Wyckoff

Phase transitions - small incremental changes in causes lead to large scale effects. Ex: Water freezes into ice as a phase transition. It remains a liquid - until suddenly it becomes ice. A small incremental change in temperature leads to a change from liquid to solid.

In complex systems, cause and effect are proportionate most of the time. But they also have critical points, or thresholds, where phase transitions occur.

Paraphrased from 'Think Twice' by Michael Mauboussin
 
Quote from game:

Phase transitions - small incremental changes in causes lead to large scale effects. Ex: Water freezes into ice as a phase transition. It remains a liquid - until suddenly it becomes ice. A small incremental change in temperature leads to a change from liquid to solid.

In complex systems, cause and effect are proportionate most of the time. But they also have critical points, or thresholds, where phase transitions occur.

Paraphrased from 'Think Twice' by Michael Mauboussin
More...

I like that. It's what I try to get across when I refer to inflection points, or tipping points.
 
Quote from dbphoenix:

I like that. It's what I try to get across when I refer to inflection points, or tipping points.
More...



The congruence between the concepts of Wyckoff/Livermore and the modern interpretation of the market as a complex adaptive system is striking. It's such an encompassing and yet forgiving framework.
 
FT Day 9 Sept 4

R: 3122
R: 3113 (Yesterday's high) VAP low
R: 3100 mp zone (VAP med)

S: 3094 (SH/Congestion from ON and PM) VAP high
S: 3088/3086 (SL & ON Congestion) VAP high
S: 3084 (ON S)
S: 3076 (yesterday's low) VAP high

Review:

I find myself trading very differently if the first few trades of the day are negative rather than positive.

Froze on the second short today. My style is based on immediate pressure changes at critical points. Unless there is a compelling reason to give the trade room (such as a well established LOLR for the day as in the case of the second long), I should practice getting out fast and re-entering if needed.

This will lead to more trades but will give me a sense of control and help maintain equilibrium - the maintenance of which is more important than paying a little bit more in commission.

Get out fast and return back to neutral to reassess. Doing this today could have led to a long in anticipation of breaking 3100 from below.

http://www.sierrachart.com/image.php?l=1378342368540.png
 
While I am gaining confidence with the strategy, execution remains poor.

Going forward I will be making the following changes:

1) Speak into a tape recorder during the session.

2) Draw lines on the empty white space to the right of the chart, so as to be warned of upcoming S/R zones

3) Always have an unfolding story at all times. Remain connected to behavior. Observe the PA to either confirm, modify or reject the story. Use the tape recorder for this.
 
Quote from game:

While I am gaining confidence with the strategy, execution remains poor.

Going forward I will be making the following changes:

1) Speak into a tape recorder during the session.

2) Draw lines on the empty white space to the right of the chart, so as to be warned of upcoming S/R zones

3) Always have an unfolding story at all times. Remain connected to behavior. Observe the PA to either confirm, modify or reject the story. Use the tape recorder for this.
More...

Tape recorder?
 
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