Trading with price action

[harrytrader]

Market walks not as pure random walk but by a serie of jumps. At each step it will coil (contract) and then expand. My model shows that there is often a price break zone at the beginning of the period: this explains why the 30 first minutes range are often used by traders waiting for the break.

Quote from OPC:



Would anyone mind to sum up the basics of expansion/contraction in range, as related to market trend forecasting? Actually my question is: how did Paul Tudor Jones put it?

OPC

 

[OPC]

Quote from harrytrader:

Market walks not as pure random walk but by a serie of jumps. At each step it will coil (contract) and then expand. My model shows that there is often a price break zone at the beginning of the period: this explains why the 30 first minutes range are often used by traders waiting for the break.

Basically it means that any reasonable move will be preceded by a sharp range expansion? It sounds like it's about the same approach used for options timing, isn't it?

OPC

 

[OPC]

Quote from OPC:

Basically it means that any reasonable move will be preceded by a sharp range expansion? It sounds like it's about the same approach used for options timing, isn't it?

Oops... I mean, any reasonable move will be preceded by a range contraction....

 

[traderkay]

So Camarilla stuff works as described, eh?

Quote from harrytrader:


There is also another pivots system like the floor traders which is called camarilla discovered by a mathematician who was studying volatility but it is not free and stays secret - It is sold 150$ per month (because they don't show you the formula but just the results) - I've looking at it for a full year now and knowing the formula yes it is rather magic since it approximate sometimes rather well my own calculation based on a much more complex model. Of course my model gives the full path of the market and so can give a much broader palette of strategies and also can avoid days when Camarilla doesn't work.

 

[traderkay]

I'm in Lobster's boat here. I've never found a way to trade off pivots with cut and dry, disciplined rules. For example, what happens when the price starts chopping around the pivot, stopping everybody out (both the faders and the breakouters)? So you'd fade, get stopped, reverse and get stopped again. The signal/failed signal=signal strategy works well when the price either plows thru the level or bounces off it pretty neatly. But what if it chops?

Quote from harrytrader:

There is a blue paper with these levels distributed to the floor traders on the pit so it seems that officials want to incite them to use these levels . But every floor traders know the formula

Pivot= (high + low + close)/3
1st resistance : (2*pivot) - low

etc.

to use them you have to be very disciplined : you sell when it approaches the resistance with a tight stop and if it failed you then buy agressively expecting a big move. So you must understand that a FAILED signal is also ... a signal, in fact a very strong signal because what makes the market move dramatically are traders having committed ERRORS.

Only traders on the wrong side are in a hurry whereas the others stay on the sideline . When I say that failed signal is a signal novices do not understand generally, they think it is just an excuse to be wrong

 

[Maverick1]

Quote from traderkay:

I'm in Lobster's boat here. I've never found a way to trade off pivots with cut and dry, disciplined rules. For example, what happens when the price starts chopping around the pivot, stopping everybody out (both the faders and the breakouters)?

Excellent point. The market will chop up those who rely on these levels mechanically. I think that using a mechanical entry/exit only makes sense if it is based on an intelligent and logical setup as opposed to a blind trade around a number.

You can't trade the number, imo. You've got to trade the reaction around the number, and of course that implies giving some upside or downside but doing so increases your win/loss ratio. Then it's up to you to control the risk.

Look at the action on the sp futures on friday. The market went right through R1 at 826 and then topped out at 831 before putting in a reversal bar. Now a mechanical trader might say, ok, R1's been broken so let's get in. He buys at 826.50 and puts a stop in a 823.20 and within minutes is in the green. However suddenly, the market reverses. He might take profits on half and then gets stopped out on the remaining half for a tiny overall profit.

The smarter trader will also take the entry but will not stop there. He/she will realize that 823,827 and 829 are a fib confluence zone and that it represents significant resistance. So now what?

The market has shot through R1 on the upside. But now it is failing. Floor traders are getting ready to short through a recross of R1. But the advised trader knew that the 827-829 zone might offer resistance and when the first reversal bar closes at 826.80 he/she is ready to short, with a first target at the .50 ret of the prior upswing and protective stop at 829. When the first target is met, half could be taken off and the stop could be trailed down to 824 and further profits taken at lower prices. Also notice how the relation of the opening to the close on the bar that took you to 831, the selling pressure was evident on that bar.

I don't trade pivots per se, my system had me in earlier on Friday but I hope the above helps.

don't trade the numbers blindly, let the market tip its hand and then act. You can only win by taking intelligent risks.

 

[jack hershey]

Quote from goldenarm:



Can you repeat this in layman's terms for me? It sounds like chaos theory mumbo jumbo!

I think you are describing basic tape reading using scientific terms. Matrix of paces? Cells migrating through paths and market operating points? Can't you just say that when you sense an order imbalance where buyers outnumber sellers, as dictated by the tape, then a stock will most probably appreciate in price?

I am descibing the market. the market moves from one operating point to another. Think of the two imensions of the operating point as pace and price data signal indicator.

I use a 7 pace by 5 price set of cells. Use for your convenience seven letters and five numbers. There are 35 cells. The operating point moves from cell to cell.

Think of a path such as 5b to 6c to 6d
to 5c to 4b to 3b.

 

[traderkay]

The posts describing the beauty of trading off price action are nice. "No need for indicators, etc. etc." But would anyone take up the task of doing a journal illustrating trading off price action every day, with charts? Well.. that's why the beauty of price action will remain just words to many newer traders reading this thread, including me.

 

[dbphoenix]

Quote from traderkay:

The posts describing the beauty of trading off price action are nice. "No need for indicators, etc. etc." But would anyone take up the task of doing a journal illustrating trading off price action every day, with charts? Well.. that's why the beauty of price action will remain just words to many newer traders reading this thread, including me.

The Keeping It Simple thread under Futures describes how to trade using price action alone. It's not a journal, but there are a number of chart examples provided. And questions are answered whenever they are asked.

It's a long thread, tho. Don't start any earlier than 12/21 unless you're a masochist.

--Db

 

[Maverick1]

Quote from traderkay:

The posts describing the beauty of trading off price action are nice. "No need for indicators, etc. etc." But would anyone take up the task of doing a journal illustrating trading off price action every day, with charts? Well.. that's why the beauty of price action will remain just words to many newer traders reading this thread, including me.

That's why some of the more successful gurus out there charge big cachingos to let you watch them trade. No one is going to do that for you for free, I'm afraid.

The guys who do trade successfully have gone through many years of sweat and toil to reach a certain level of comfort in the markets.

I honestly think there is no substitute for experience and learning from the best.

You just have to learn as much as you can and then get out there and do it. Take what you know about trading price only, write it down, systematize it, then trade. Create your own journal and learn from your mistakes. That has helped me a lot.

As far as getting the knowledge, some of the helpful names are:
Linda Raschke, Tony Crabel, Larry Williams, Larry Pesavento, Vic Sperandeo.

Good luck.