Beyond Price Action

[steven46]

Hi Steven,
Thanks for the reply.

I don't doubt that having a sound understanding of statistics is likely to be helpful to all traders. That said, I presume you don't expect beginners or experienced traders alike to take a minimum of one - and preferably two - 20 week classes in statistics simply in order to be able to understand your methodology?

Re, VWAP - I plotted it at the start of last Mondays session to cover the entire week - as you specifically refer to weekly VWAP in your previous post. So, you're now recommending a daily VWAP plotted at the start of each session - is this correct?

You write: "If the POC is above the VWAP the skew is down, conversely if the POC is below the VWAP the skew is up." That's clear enough, but you don't mention where price is in relation to the two indicators. Is it relevant - does it matter?
Tim.

Hello

Now that I have advised you as to how to prepare, I have no further concern. Choose as you wish

As regards whether to use weekly or daily data for the higher time frame chart, It doesn't matter
Markets are fractal, so you can use either time frame.

As regards price action relative to skew. for a positive skew, you want price to be trending up. and
For a negative skew, trending down. When the POC is at or very near the VWAP, there is no statistical
tendency up or down Traders with a background in stats, characterize this as a "symmetrical" or
"Trading Range" market, requiring knowledge of how to trade using limit orders. I don't expect to
be posting long enough to cover that subject matter.

 

[steven46]

Before I stop posting I want to attach a chart showing the basic "framing" format for
Trading Range days. The framing process is straightforward. I monitor price action
until I identify the "day type" as either a trend day or a trading range day. Based on
some very simple rules, I can do this accurately (about 90% of days) within the first
15-30 minutes

Once I identify a "Trading Range" condition I begin to markup my chart is a specific
way. Simply put I extend horizontal lines from the highest and lowest closes, AND
I move those lines as the high & low closes change.

I also monitor for price to exceed the 1st & 2nd standard deviation bands.

The entry process is simple to describe but difficult for amateurs to execute.
Once price exceeds the 1st or 2nd SD Band, I will enter as price moves back
into the envelope. My stop loss is above or below the high or low, and my
profit target is two tiered. The first target is at the VWAP median, the next
target is the opposite 1st SD band. There are nuances of course, but I am
not going to have time to elaborate. The general principle is that trading
range days are very forgiving, and if price DOES exceed the 1st or 2nd
SD band, it is not going very far.

 

[steven46]

Although I will try to maintain a presence here., I am trying to complete documents for my Blog ("Beyond Price Action"
and I have a responsibility to several clients as well. So here is an example of how the London Market could be traded
(when volatility permits).

As seen in the charts attached, on the left is an hourly chart, and the important thing to notice is that the price action
is clearly "trading range". Trading range price action is characterized by overlap of bars and (in many cases) prominent
tails. Also the range is relatively constrained. There are several approaches that professionals use as follows

1) Mark the highest and lowest closes and wait for retests. In this case, the professional wants to enter at the extreme
using limit orders to minimize slippage. In addition, traders know that they can scale in, and still make a profit, because
price is (generally) not going to move far past the 2nd SD. Generally, retail traders should not be trading this way,
because they lack the prerequisite skills (framing, and execution using limit orders)

2) Retail traders who want to trade the London Session, may be able to do so, by extending horizontal lines from the
previous RTH session (as seen in the attached chart example), then waiting for setups that include "Test/Retest" and
or "Repetitive Behavior". The first is obvious. Price closes on one side of a key reference, exceeds or "takes out" that
level, then pulls back. Entry on the next bar. Repetitive Behavior is seen in the chart example as price tests and bounces
off the extended horizontal line once, and then again. Aggressive traders can take both moves, while less aggressive
traders should wait for the 2nd test to enter. Entry (in our opinion) should be close to the line. Stop loss should be at
least five (5) ticks above/below