Thursday, December 27, 2007

Synching to the markets

I think I have found a sweet spot in my seeking. Using the Kalman deviations, the fib retracements, the heiken ashi's and bring back the keltner's seems to have made a very big difference in the results from today. Without adherence to the value areas created by keltner exhaustion there were many smal losses today. With the keltner relationships in view, all trades went as planned. I don't expect to bat perfect but unlike the original enthios system I started out with, now I have a clear stop level so I can walk away from the screen when I have a trade on and not fear the ultimate disaster like in the past.

so to recap the setup aaaagain:

Start with a 4hr chart
plot the kalman deviations at the beginning of the week.
plot the previous weeks high and low fib extensions, high to low and low to high
Apply keltners to every chart.
For swing trades stay on the 4hr timeframe. When heiken's show a reversal on the close of the candle enter and target the next level of support or resistance.

For intra-day take the exact same method and use a 5 minute chart.

There is a slight nuance. Price should be on the correct side of the levels for entry, a heiken which signals beyond the  proper side of the levels is not valid. I won't take those until price comes back inside the levels. However if the heiken bars become too large I will either scale down a timeframe (1 min) or just walk away from the setup. No trade is worth an unncessary risk.

Wednesday, December 26, 2007

Kalman Levels

Sometimes I feel like there's a little demon inside never letting me rest with the systems I have in my arsenal. Like an addiction to the new and cutting edge. Well, the flavor of the day is VWAP or Volume Weighted Average Price. Since MT4 has no register of volume, I have to use the brokers tick data. SO out of necessity  enter the Kalman levels, a proxy for VWAP.

The Kalman levels are nothing more than the raw standard deviation of the of the initial Kalman equation

I have borrowed heavily from this idea here. 

I know I am slightly misinterpreting the faith more mathematically inclined systems traders have in actual formulas and their ability to give accurate readings on the market at the time of trading. In a sense trade management is all that separates a win from a loss, not the entry. The shifting back and forth adding a subtracting indicators and filters is mere vanity. The only consideration that really matters in each and every trade made is where is the price now and where is it going. And this realization is somewhat liberating. However it doesn't mean I don't want to keep up with appearances and vanity myself.

I seems an incredibly cynical departure to the strict reliance I have in trading to the mean. In the end though system after system always attempts to achieve the same result, reverting to the mean. It's just the vanity of finding the simplest most effective way of participating in the inevitable trajectory of price back to it!

So for now the method is even more simple than before. 3 elements all registering different variables. Heiken Ashi for trend, Fib levels taken from the previous sessions high and lows and now introducing the Kalman levels.


Trades are taken after a fib level and a Kalman level are touched and the Heiken Ashi bar shows a positive divergence away from the levels initially touched.

In my new method of the moment, I take this double touch pattern into consideration before any entry.

Let's see how this method plays out for the next few days.

Friday, December 21, 2007

Fib Clusters

Take the fib extension from last month, last week and yesterday. Plot them all on a 1 to 5 minute chart, apply normal system to it and look for fib clusters where monthly, weekly amd daily levels hover together. Consider them higher probablity levels of support and resistance.

Today the mini Nikkei gave an excellent buy signal with this theory. The overnight US session certainly helped with the upward bias, but the levels at which to buy were much clearer with this clustering effect.

Thursday, December 20, 2007

Today's Levels

Very tight ranges yesterday. I expect to see a correction upwards because of all the VPOC's on the Euro overhead.

VPOC .8610, .8777
.786 up .8618
1.272 up .8657
161.8 up .8684
.786 down .8574
1.272 down .8535
161.8 down .8509

VPOC  1.4390, 1.4627...
.786 up 1.4401
1.272 up 1.4448
161.8 up 1.4482
.786 down 1.4345
1.272 down 1.4297
161.8 down 1.4264

VPOC 15193, 15399...
.786 up 15243
1.272 up 15366
161.8 up 15452
.786 down 15103
1.272 down 14982
161.8 down 14895

Yesterdays Trades

We sat in a tight range late into the US session and the breakout didn't amount to much. All in all a scratch day. The Nikkei gave a clean performance early on. The use of hard stops today actually cut me up a bit, but all losses were made up on subsequent trades.

Wednesday, December 19, 2007

Today's levels

Will drop FGBL for now and stay forex related as more people follow it anyways. Will also start charting the mini nikkei as it ideally suits my 
timezone and seems to be a very clean trader.  Enter AUDUSD and NI225m

VPOC .8597
.786 up .8625
1.272 up .8670
161.8 up .8702
.786 down .8572
1.272 down .8527
161.8 down .8494

VPOC 15182, 15399
.786 up 15270
1.272 up 15415
161.8 15520
.786 down 15094
1.272 down 14945
161.8 down 14840

VPOC 1.4405, 1.4626...alot of overhead resistance
.786 up 1.4420
1.272 up 1.4453
161.8 up 1.4476
.786 down 1.4382
1.272 down 1.4348
161.8 1.4325

Yesterdays Trades

EurUsd gave an excellent buy signal in the early hours while the second signal came close to target but ultimately came unfocused and meandered into the close.

FGBL was flawless, both targets achieved without any deviation.

Tuesday, December 18, 2007

mini nikkei

Because I am based in South East Asia I am always at the mercy of time when it comes to finding the best market to trade. Now that I am more and more an early riser staying up through the night to trade is becoming more and more prohibitive. I'm watching the whctrader mini nikkei feed and forward testing mean reversion to see if its a viable market for me. I checked the margins and the comissions here and its an awful lot like trading mini dow futures. Only instead of starting work at 9 pm I'm in the market at 7am--a much healthier and sane time to trade. The only difference is I won't have a chat community like I do now on irc. Will have to seek out some other traders in SEA who trade the Nikkei futures...let me hear from you if you are already trading this shft!

Today's Levels

Back from vacation tanned and fatter than before (but man what great seafood!), ready for some new trades this week.

VPOC's 1.4378, 1.4627, 1.4720
.786 up 1.4427
1.272 up 1.4486
161.8 up 1.4528
.786 down 1.4356
1.272 down 1.4296
161.8 down 1.4253

Would expect a nice bounce with three VPOC's overhead. Let's see...

Friday, December 14, 2007

Sweet Spot

When the VPOC and the fib levels I watch converge for a setup, I have a very high level of confidence to enter the market.

There were two levels to exit at, both of which gave a very efficient proft.

With a stop above the swing high of the setup, the risk was in favor 2:1 so I entered with both hands and enjoyed the ride.

A great way to end a great week =)

Anatomy of a stop and reverse trade

I try and pick out reversal spots using my system and this works pretty well. But with todays news coming out just as EURUSD was about to achieve target, my trade failed and turned into a loss. When a new lod hit there was a decision to be made. We were already below 161.8 and the market was surely headed lower, but how much lower. Where to exit this tenuous short? I drew a new fib extension from the spike of the news and the trade worked out quite well.

Yesterdays trades

The absolute strength daily reading is usually a good filter for bad trades but the past two days have not helped as the best trades were definetly counter trend.

Todays Levels

VPOC 1.4721
.786 up 1.4701
1.272 up 1.4779
161.8 up 1.4834
.786 down1.4610
1.272 down 1.4532
161.8 down 1.4477

VPOC 113.18
VPOC 115.17
.786 up 113.28
1.272 up 113.54
161.8 up 113.73
.786 down 112.97
1.272 down 112.71
161.8 down 112.52

Thursday, December 13, 2007

Yesterdays Trades

Although not with the daily trend, the volatility pivot picked out a nice trade on FGBL at the 1.272 down level.

EurUsd had two mirror entries with the volatility pivot. I will keep this on my charts and see if it creates safer entries than just the stoch crossover.

Todays Levels

.786 up 1.4725
1.272 up 1.4778
.786 down 1.4662
1.272 down 1.4608
VPOC 1.4684

.786 up 113.73
1.272 up 114.23
.786 down 113.14
1.272 down 112.64
VPOC 113.61
VPOC 115.17

Wednesday, December 12, 2007

Todays Levels

Already missed a good trade on Euro on both the 1 and 5 minute. Touched the VPOC from a week back and sold off for an easy 35 pips.

VPOC 1.4705
VPOC 1.4866
.786 up 1.4726
.786 down 1.4662
1.272 up 1.4779
1.272 down 1.4608

VPOC 115.16
VPOC 113.62
.786 up 113.99
.786 down 113.55
1.272 up 114.36
1.272 down 113.18

Yesterday's Trades

With the FOMC any early trades would have to be met with caution while any trade during the FOMC would just have to be a watch and analyze. Pretty good day for mean reversion but no real profits.

Tuesday, December 11, 2007

Todays Levels

I will post the levels for the EUROUSD and FGBL March Contract. The spreads on the Forex are tight enough that trading the future contract no longer has any advantage imo.

Monday, December 10, 2007

A new look at Fibs

I was lucky enough to find out about an on-line presentation by a very dynamic and intelligent trader who posts his trades in an mirc room. One of the more interesting ideas he presented was that he only found two fib numbers signifgant in his intraday trading. .786and 1.272

Usually people go on and on about .618 and 1.618 but he didn't have much to say about them.

Coupled with dynamic chart patterns like gartleys, dragons, butterflys the numbers yield very high probability trades.

So I have done a simple experiment using yesterdays highs and lows as a projection for the future day, low and behold they are exceptionally powerful just as claimed.

I have posted a few sample trades to take a look at the power of .786 and 1.272!

Euro and Bund levels for today

I will try and post my daily levels to keep a more accurate assesment of my trades using the market profile levels I rely on.

The Bund is decidedly bearish and doesn't seem to have support anywhere. A good pop up above 114.15 is the ideal shorting area.

The Euro is in Bull mode again but daily indicators still remain slightly Bearish. In this area shorts can be considered if the volatility shows up in patterns I observe.

Saturday, December 8, 2007

Swing Mean Reversion

Today demonstrated the power of the swing trade with this system.

I got stuck in a long trade on Bonds coming in to NFP and got blindsided. A real wakeup call lost a whole point on FGBL.

It caused me to consider taking a step back and consider maybe I am looking too closely at the market. Forgot there is a forest in those trees.

I'm going to post all the trades I can find on the 30 minute chart for the Bund. So far it looks like a very smooth trader, but of course holding overnight is required occasionally. Perhaps a way to circumvent the dollar risk (or in this case euro) is to buy the options to hold for the overnight.

There was a long signal an hour before the Bund closing. Let's see how it plays out.

Thursday, December 6, 2007

Java based volume profile

Very cool charts. This site updates on a daily basis. You can see the the volume profiles for every major futures market.

Today only one line would have worked for my system, everything else was blown right through. The bottom early this am was a support level, otherwise every level has been ignored by the market.

Monday, December 3, 2007

Fear of missing out

This interview, perhaps one of the best I've ever heard in terms of hitting home exactly what trading really is about on the mental level while actually trading.

Best analogies to trading came from soccer and baseball.

The average time held in a soccer game for a player was less than 3 minutes, out of a ninety minute game!

In baseball a right fielder, perhaps they only touch the ball twice or three times in two hours!

How many times in 6 plus hours do we "touch the ball" when we ought to be waiting for our proven setup?

I've stripped the horizontal levels away from my charts hundreds of times and always get caught  up in a fantasy when looking at a particularly sweet day of trading where all the oscillator signals went.

Invariably I ignore the levels on the next trade and the fantasy crumbles as the previously perfect signal gets blown and price screams up to the anticipated level.  reality.

"{fear of missing out} leads to more trading losses than anything else" Hirschhorn hits it home in a way I haven't heard in a long long time.

Sunday, December 2, 2007

Ode to the Market Profile Setup

I owe a great deal of credit to Michael at Enthios for opening my eyes to a vision I had for this system many years ago. It seems my ideas weren't that original when they hit me on the head wading through breakout system after breakout and fail system. I think the main draw for people with breakouts is that you can enter a stop and a trailing stop and potentially gain the greatest return from being right or being wrong. But for me the percentages don't suit my temperament. I want to be in rhythm with the market. Mean reversion is about finding balance and riding a wave. Breakouts catch the biggest of all the moves but you get nicked time after time, in fact some of the greats say 70% of the time you'll get nicked, but the big returns will come eventually after time. I would prefer to have a system like that on auto-pilot like a kind of lottery trade that I don't bother with but still get to collect the windfalls when they finally do roll around. If I'm going to actively observe the market I want to be in tune with what it's telling me.

For the moment it's telling me that mean reversion will give and give and give and then 3 out of 7 times will take. It's a risk I would prefer to live with.

So here is my current setup. I grabbed a random chart off of my Metatrader charts to show exactly what I am looking at during the trading day. A huge difference between what I am doing and Market Profile purists do is that my Points of Control are not created in a cohesion of Volume and Price but strictly from price. This is not something I am doing to be subversive, it's more out of necessity since my free charts don't provide accurate volume information. Plus the clever Russians who make most of these amazing free indicators for Metatrader haven't found a way to make a 100% authentic Market Profile indicator =)

5 basic parts:

1)Price should be outside the Keltner bands

2)Stochastics should be outside the bollinger bands and crossing back up inside for a buy(the opposite for short). But they should be below the 35 level. Both the bollinger and the stochastics work together in the same range of 0-100 on my charts.

3)Daily Absolute Strength should be indicating bullish action for a buy and bearish for shorts. If Absolute strength is neutral or weakly biased trades on both sides of the range can be considered.

4)Point of Control should ideally be taken from previous days trading as the current POC can shift quite a bit intraday.

5)Virgin Point of Control levels from previous trading sessions are valid if not touched until the current days trading session. This is perhaps the most unique and fitting elegance of the original Enthios system as it implies that price must revert to a point of balance or as I like to think of it, as a reversion to a mean.

These are the annotations from the trade setup posted above.

1)Absolute Strength is indicating short so there will be no buys during this session.

2)Stochastics have crossed from above the 65 level down through the upper Bollinger band.

3) Virgin Point of Control (VPOC) has been touched. It is advisable to not take trades even if price comes close as most likely price will return and give a better entry later on. Patience is definitely rewarded with VPOC's. Note also that price is outside the Keltners  when signalling short.

4)Profits can be taken in one of two ways on the initial position. Either by touching the opposite end of the Keltners, or the median band if you want to be ultra-conservative about exits. Or...

5) If you wish to follow the wave to its end, you can wait for the stochastics to cross up through the Bollingers from the opposite end of the initial setup, in this case from below.

I hope you find this market sense a fresh perspective on a very tired pursuit, finding a psychologically manageable, risk averse and profitable method for extracting healthy profits from the intra-day markets.

Indicators and template are here