Probability Bands

Status
Not open for further replies.
Pro,

I have a Journal here and others better than I have a Journal here. I think it would be good if you have the time to start a Journal keeping a running total of your trades and profit. You might consider starting a new Journal and keeping the commercial benefit to you out of it. Just a trader making calls and helping others.

Michael B.


 
Hi Chris, care to elaborate how would you use different bands, 65%, 80%, 85%, and 95%? Why these 4 levels specifically?

I imagine you try to bounce off the 65%, if it doesn't work, you try to bounce off the next one? If the stock opens above the 95% band, will you go all in to counter the trend if the daily chart is in your favor?

TIA!
 
Here is the last 6 trading days Probability Bands for S&P500 using the SPY symbol.

On 5/7 Low was made and held 3 times at the 88% pLow.

On 5/10 Low was slightly lower than 88% pLow which held on second and third test.

On 5/11 High was the 80% pHigh which held twice.

On 5/12 Low went below the 88% pLow and reversed. Again these levels don't always hold to the penny and you can take entry based on other methods or when price goes above previous bar's high.

On 5/13 and 5/14 the market did not trade to these levels.

spyweek051404.gif
 
Quote from protradingsys:


My original post was meant to open discussion of probability bands and their uses. I have read many of the discussion forums here and few people share any specifics of how they trade and instead bash other users. I have and will continue to explain how I use them..
More...

Umm hmm. And you were threatened with physical harm if you didn't reveal your services and the conditions under which the software would be made available?

Spam.
 
I believe this is how probability band setup...

1.0 / 1.28 / 1.5 / 2.0 standard deviation x avg implied volatility of at the money put and call x .0523421 = x points added / subtracted to yesterdays close.

if I'm wrong, please let me know.
 
In all honesty... the lines are really random and I doubt they are any better than any other support resistance methods.

Personally I prefer floor pivots over anything else because they have a self fullfilling prophecy effect sometimes because most traders use them.. similar to the 50 and 200ma's.

Looking at his SPY chart.. on some days like 5/10 & 5/12 the lines were just noise. When I see chart like protrading's it reminds of what I read in William Eckhardt's Market Wizards interview... the eye can be very deceiving because it picks up only what u want it to see.


--MIKE
 
Quote from protradingsys:

Wrong. Most of the bands you are referring to are offset from a simple moving average of intraday price movement. The pivots are based on the average of the High/Low/Close and sometimes the next morning opening and the S1,S2,R1, and R2 levels are projected off the pivot based on the previous day's high and low.

Probability bands use the previous day's close and the indexes, sectors, or stocks volatility which is derrived from options prices. This indicator uses a completely DIFFERENT data source to calculate these bands. It is unlike any of the SIMPLE bands you discuss above. Also unlike the bands above these levels are available at the beginning of each trading day and DO NOT CHANGE all day long.




These are not new but they definitely are misunderstood. I hope this post clears it up.
More...

Actually you are wrong.

1. you can calculate BANDS off of the close or a MA.
2. your pictures only proved my point that the bands do often meet along with price per your charts.
3. sigma bands can be calculated along with any other standard deviation interval based off of any data point i.e. close, pivot, MA or volume. you can create a band from anything.
4. sigma bands are stagnant and if calculated off of the close they too will not change when overlaid on intraday price bars.
5. if you overlay pivot points they too will appear as a straight line on the chart that does not change.

what is your point?
that you wish to confuse the issue in an attempt to push your wares?

if you wish i too can post some charts to illustrate the point further. i also can post the EXACT calculation so that the ET community can profit from this concept for free as you said that you did not create this formula. right?:D
 
Here is the last 6 trading days Probability Bands for Dow Jones.

On 5/7 Small bounce of of 88% pLow.

On 5/10 First major low made at 95% level, which held two other times for nice scalps.

On 5/11 Narrow range day, no levels hit. Note: Tony Crabel wrote a wonderful book on volatility and Linda Rashke discusses it in her Street Smarts book. After NR4 or NR7 days (Narrowest Range in last X days) you OFTEN get big moves the following day.

On 5/12 Notice on the first 2 and the 4th leg down the probability bands held and there was a small, small, and large reversal.

On both 5/13 and 5/14 thwere was not enough momentum to hit any probability bands. They can still be useful in that you can place your tight stops right under neath them.

induweek051404.gif
 
These are the pivots on the ES... i think they do the best job.

They are just as good as anything else.. are totally free.. u dont need fancy software to calculate it... and they have stood the test of the time. This chart shows u how well they work.


--MIKE
 

Attachments

Quote from Trend Fader:

In all honesty... the lines are really random and I doubt they are any better than any other support resistance methods.

Personally I prefer floor pivots over anything else because they have a self fullfilling prophecy effect sometimes because most traders use them.. similar to the 50 and 200ma's.

Looking at his SPY chart.. on some days like 5/10 & 5/12 the lines were just noise. When I see chart like protrading's it reminds of what I read in William Eckhardt's Market Wizards interview... the eye can be very deceiving because it picks up only what u want it to see.

--MIKE
More...

They are not random at all and do require an additional data source to calculate.

Like any other indicator they do not always work but they do work as often as pivots and the reversals from these levels are usually much greater than S1 or R1. I have posted Monday's levels, you are free to see tomorrow how well they work or don't.

I am convinced that institutions use these and buy and sell at these levels. They use pivots too. But many years ago few people understood or use pivots and even now few know about the midpoints.
 
Status
Not open for further replies.
Back
Top