Spydertrader's Jack Hershey Futures Trading Journal
- Thread starter Spydertrader
- Start date
- Status
Stretch / Squeeze
With the arrival of April (and oddly enough, April Fool's day), we move to the next portion of our syllabus - Stretch / Squeeze.
What is Stretch / Squeeze (STR/SQU), and how does it work? Why does STR/SQU create a dangerous situation for those individuals who choose not to use it correctly? How does one calculate STR/SQU?
To understand STR/SQU, one must first understand how the futures and cash markets interact. In a general sense, STR/SQU seeks to provide a 'signal for change' based on fair value in relation to the premium. For Jack's explanation of STR/SQU, see this post. For a detailed discussion from last year regarding STR/SQU, review this discussion.
STR/SQU creates a dangerous situation for a trader who fails to use it correctly because doing so places the trader on the wrong side of the market. As I discussed in this post, a trader on the correct Resolution Level only monitors change at certain 'Action Points' throughout the trading day. Just as we have seen with all other tools, we also need to use STR/SQU only at those same 'action points.' In other words, using STR/SQU at the incorrect time can cause negative results.
To calculate the STR/SQU we use the following formula:
((YM07M -INDU) -'offset')
Several methods exist for calculating the 'offset' value. Some have chosen to use the 'premium' value from indexarb.com, while others, choose to simply use the offset created by the difference between the YM and the INDU to 'zero out' the formula. In this fashion, one can chart the STR/SQU value over time (using a one minute chart of Histogram design). Mak has used a third method for STR/SQU comparing the ES to YM while adding some IF1IF2 logic for good measure.
Determining which method to use for each individual trader, best results by, determining which method works within a specific charting platform (or Excel).
For Qcharts users, Place the following formula (copy it exactly) into a quotesheet, and create a one minute chart of that formula (in Histogram Style). See attached screen capture.
((YM07M -INDU) -72)
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1420617>
Please, remember to recalculate the 'offset' value (at minimum) prior to the beginning of each market day. On occasion, one will need to recalculate the offset intra-day. When you see the STR/SQU values 'skewed' to one direction or another, you'll know it is time to recalculate.
I calculate the 'offset' value using the close of the 15:58 PM Eastern Time bar for the YM and the close of the INDU. I recalculate during periods of calm (e.g. CCC or no price movement), when noticing my histogram skewed away from the zero line.
In an environment where the futures lead the cash, we say STR/SQU provided a signal when we see levels exceed +2 (Stretch) or fall below -2 (Squeeze) on our chart. In other words, STR/SQU provides both signals for continuation and change. When STR/SQU falls within the -2 to 0 to +2 zone, we say STR/SQU sits at neutral.
By example, if a trader had just entered short, a 'Squeeze' signal (below -2) on STR/SQU provides continuation. However, had the same trader entered long, the same 'Squeeze' signal (below -2) on STR/SQU, provides a signal for change. Keep in mind, we use STR/SQU only on our 'action points' as determined by our individual Resolution Level.
To monitor STR/SQU manually, feel free to use this log file.
O.K. So where do we go from here? Spend some time monitoring STR/SQU through the day. Learn how it can provide two different signals within the same bar during periods of High Volatility. Note also, how such a fine level monitoring (Bug Level) currently sits far beyond our current focus. Take some notes to 'see' how STR/SQU acts around FTT's, Point Threes and Spike Bars. In other words, spend some time learning this new tool before working it into a regular position within your monitoring paradigm.
Lastly, If a trader has not yet spent the appropriate time monitoring the YM and the ES, or if a trader hasn't yet mastered PRV Volume, Price Channels and Gaussians, then one should not add STR/SQU until completing the previously mentioned tasks - and practiced to an appropriate level of proficiency.
I hope you all find the above information useful.
- Spydertrader
With the arrival of April (and oddly enough, April Fool's day), we move to the next portion of our syllabus - Stretch / Squeeze.
What is Stretch / Squeeze (STR/SQU), and how does it work? Why does STR/SQU create a dangerous situation for those individuals who choose not to use it correctly? How does one calculate STR/SQU?
To understand STR/SQU, one must first understand how the futures and cash markets interact. In a general sense, STR/SQU seeks to provide a 'signal for change' based on fair value in relation to the premium. For Jack's explanation of STR/SQU, see this post. For a detailed discussion from last year regarding STR/SQU, review this discussion.
STR/SQU creates a dangerous situation for a trader who fails to use it correctly because doing so places the trader on the wrong side of the market. As I discussed in this post, a trader on the correct Resolution Level only monitors change at certain 'Action Points' throughout the trading day. Just as we have seen with all other tools, we also need to use STR/SQU only at those same 'action points.' In other words, using STR/SQU at the incorrect time can cause negative results.
To calculate the STR/SQU we use the following formula:
((YM07M -INDU) -'offset')
Several methods exist for calculating the 'offset' value. Some have chosen to use the 'premium' value from indexarb.com, while others, choose to simply use the offset created by the difference between the YM and the INDU to 'zero out' the formula. In this fashion, one can chart the STR/SQU value over time (using a one minute chart of Histogram design). Mak has used a third method for STR/SQU comparing the ES to YM while adding some IF1IF2 logic for good measure.
Determining which method to use for each individual trader, best results by, determining which method works within a specific charting platform (or Excel).For Qcharts users, Place the following formula (copy it exactly) into a quotesheet, and create a one minute chart of that formula (in Histogram Style). See attached screen capture.
((YM07M -INDU) -72)
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1420617>
Please, remember to recalculate the 'offset' value (at minimum) prior to the beginning of each market day. On occasion, one will need to recalculate the offset intra-day. When you see the STR/SQU values 'skewed' to one direction or another, you'll know it is time to recalculate.
I calculate the 'offset' value using the close of the 15:58 PM Eastern Time bar for the YM and the close of the INDU. I recalculate during periods of calm (e.g. CCC or no price movement), when noticing my histogram skewed away from the zero line.
In an environment where the futures lead the cash, we say STR/SQU provided a signal when we see levels exceed +2 (Stretch) or fall below -2 (Squeeze) on our chart. In other words, STR/SQU provides both signals for continuation and change. When STR/SQU falls within the -2 to 0 to +2 zone, we say STR/SQU sits at neutral.
By example, if a trader had just entered short, a 'Squeeze' signal (below -2) on STR/SQU provides continuation. However, had the same trader entered long, the same 'Squeeze' signal (below -2) on STR/SQU, provides a signal for change. Keep in mind, we use STR/SQU only on our 'action points' as determined by our individual Resolution Level.
To monitor STR/SQU manually, feel free to use this log file.
O.K. So where do we go from here? Spend some time monitoring STR/SQU through the day. Learn how it can provide two different signals within the same bar during periods of High Volatility. Note also, how such a fine level monitoring (Bug Level) currently sits far beyond our current focus. Take some notes to 'see' how STR/SQU acts around FTT's, Point Threes and Spike Bars. In other words, spend some time learning this new tool before working it into a regular position within your monitoring paradigm.
Lastly, If a trader has not yet spent the appropriate time monitoring the YM and the ES, or if a trader hasn't yet mastered PRV Volume, Price Channels and Gaussians, then one should not add STR/SQU until completing the previously mentioned tasks - and practiced to an appropriate level of proficiency.
I hope you all find the above information useful.
- Spydertrader
Can anyone help out regarding mak's prv/str/squ excel app? I have downloaded the IB version from the link provided earlier in the thread and typed my username in the appropriate spot. It still tries to run (myusername).exe and also MYID.exe when i start it. It asks me this about 20 times and then stops, but no data comes in. I have read through countless pages of discussion regarding this and I am sure it is something small I am doing wrong but I just cant figure it out. It would be very helpful if someone could snap out a 'mak's tool for dummies' instruction list to help get it setup. Sorry to interject this into the thread but I am assuming there will be alot more people with this problem....
Thanks in advance
Thanks in advance
Permit me a comment, as I once implemented this idea in NQ. The fundamental problem is that premium rises as price rises, and premium falls as price falls, all very slowly. Therefore your approach of periodically adjusting the offset is weak at best, and at worst masks the more subtle changes of premium on a faster scale that you are looking for. Ultimately I found the whole exercise to be a waste of time, as all it did was reinforce what you can already see happening in price and volume. Used alone, it is an absolute disaster, as it will shake you out of a run that still has legs.
1. Your assertion above fails to account for several variables - one of which is when the cash and futures invert. 2. The temporary changes in premium value provide superior signals during periods of odd harmonics (See Jack Hershey, Grob109, Bubba7). 3. We seek to monitor the temporary differences which materialize from time to time, and not every wiggle, head-fake and / or short term retrace (at this point in the learning process).
Adjusting the offset from time to time places the formula back at the 'zero' line when signals become skewed in one direction or another. Adjusting does not mask subtle changes. More importantly, adjusting the 'offset' (when needed), prevents the development of 'false' signals.
Perhaps, we could agree to allow others to determine their own value, rather than, have someone of dubious credibility proclaim the entire exercise 'a complete waste of time' each time I introduce a new monitoring tool? After all, you have gone on record as saying your efforts amount to nothing more than dissuading others from learning what you so often already use.
Let's try 'reading for comprehension', shall we? Please link to the post, sentence, phrase or word which indicated in your mind where I recommended 'using it alone.'
I hope you find the above clarification useful.
- Spydertrader
I just downloaded the prv tool and after some similar problems I it seems to be working with IB. After making the changes I cut and pasted the entire sheet into a new sheet, closed it and then reopened it. Perhaps that will work for you.
This also enlarged the format, but I'll worry about that later.
However, there is nothing about STR/SQU in this application, so maybe you have something else.... If you post the link you used, I'll let you know if it's the same.
Hope this helps.
palinuro
Here is PDF to show how to set up for Ensign. Please PM if you have questions in order to keep thread clean.
- Status