Price, (Volume), Support, Resistance, Demand, Supply . . .

[contrakt]

Understanding, modeling and anticipating the correlation impact

For those who are keeping a scrapbook, the following is related to a recent post on the matter:

http://www.trade2win.com/boards/showpost.php?p=192589

Note that when the NQ begins to fall out of its hinge, the ES and YM have already made at least one lower high using this bar interval, thus affecting the probability of success for the trade:

Correlation between indexes is a core principle in my intra-day trading approach. Making this concept part of my paradigm has brought up many interesting questions...............

My interest is deep understanding of how to use correlation to guide real-time decision of:
a-to (not) take a trade
b-the timing and size per entry
c-.........your wisdom.......

Lets say I only trade NQ.
Then the important correlation scenario's I will have to be prepared for are:
1.lagging NQ begins to show real intent in the direction of strong sisters. The most transparent (highest result?) play.
2.when a strong NQ is breaking away from her sleepy sisters. Full position in NQ only when sisters confirm.
3.where NQ and sisters have strong opposite momentum. Stand aside or play very small.
4.....your wisdom............

All setups and trades are in NQ, but the actual taking position and bet size in NQ will by design depend on (the lack of) convincing price-action in the sisters.



Please post and discus your most pertinent convictions on how (never) to utilise this correlation phenomenon among indexes.

Respect

 

[dbphoenix]

Even though the following is only tangentially related to the thread, there have been repeated requests on how to put all of this information into practice. Therefore, I'm copying this here so that I don't have to keep looking it up:

The essential elements of the scientific method are traditionally described as follows:

- Observe: Observe or read about a phenomenon.

- Hypothesize: Wonder about your observations, and invent a hypothesis, (sometimes one's hypothesis is initially nothing more than a "guess"), which could explain the phenomenon or set of facts that you have observed.

- Test a hypothesis

- Predict: Use the logical consequences of your hypothesis to predict results (e.g., measurable experimental values) that must be found if the hypothesis is to be judged correct -- whether it is 'complete' or not.

- Experiment: Perform experiments to test those predictions. (Note that great precision regarding a negative result might not be required to falsify a hypothesis.)

- Conclude: Failure to see the predicted results from a well designed and implemented experiment is clear indication that the hypothesis is defective. Try again. Seeing the predicted results is an indication that the hypothesis is acceptable though not 'confirmation' or 'proof' of its correctness.

- Evaluate: Search for other possible explanations of the result until you can propose no better account of your data. Formulate a new hypothesis which may better explain the experimental data and the original observation.

- Repeat

If one has trouble applying this to the markets, perhaps the following will be of help:

1. Study price movement.

2. Develop a set of preliminary hypotheses which take advantage of these movements and test them according to standard methodology.

3. Decide what strategy (breakout, retracement, reversal) will best take advantage of what you think you've found.

4. Decide what tactics you're going to employ to implement it.

5. Carefully define the setups which put these tactics in play.

6. Develop a trading plan around this strategy, these tactics, and these setups.

7. Evaluate the results.

8. Rinse and repeat.


Note that there is nothing abstract, theoretical, philosophical, cosmic, or ethereal about any of this. It does not require "compelling knowing". It's just work. Lots of it. It's not the only way. But it makes money. One can also buy Teach Me To Trade. Or strive to become in tune with the spheres, lightning-quick. Each to his own.

There are, of course, further levels of detail involved in defining and testing setups, much less in developing a trading plan, but these are well beyond the scope of this thread. If somebody wants to start a new one on these processes, I'll be happy to contribute to it if those who initiate it are willing to do more than just read the posts, i.e., spend some time at the library/bookstore.

--Db

 

[RUDEBOY]

Volume about price. Volume works. Why? Because the markets need volume! Volume creates and price creates volume. Big volume is not wrong! What will be wrong is personal approach to large amounts. Price and volume accomadate each other with absolute pricision, the way in which a person goes about deceiving themselves is up to them. RUDEBOY.

 

[Splitlink]

Volume about price. Volume works. Why? Because the markets need volume! Volume creates and price creates volume. Big volume is not wrong! What will be wrong is personal approach to large amounts. Price and volume accomadate each other with absolute pricision, the way in which a person goes about deceiving themselves is up to them. RUDEBOY.

So you believe that a person deceives himself into doing the wrong thing? That's a bit harsh on some students who have, really, taken a lot of time out in the study of volume.

My belief is that, although volume and price go together, a trader can study and follow through on his assumptions, but that is all that they will ever be- assumptions. There is nothing written in stone, here and where the student is deceiving himself is in believing that it can be understood and mastered by ordinary traders or, for that matter extraordinary ones. A lot of volume can produce a whole variety of price fluctuations throughout the day with the result that the price will go up, down or sideways for a week, or more. The only thing that the trader is faced with is the decision of whether to cut his losses early because the trade is not doing what was expected of it.

Volume does not work, with due respect to all who say that it does, if your meaning is that it can tell the trader how to enter or close a trade at an SR level and that he is deceiving himself if he does the wrong thing. That is blaming the student and not the teachers. Volume can be used to help trading techniques in an already rising trend but, even then, it is only a tool used to confirm a decision already made by the trader.

Volume analysis is not a mathematical fact. It must be accompanied by a very large amount of
sixth sense. This sixth sense is what gives a successful trader an edge.

Split

 

[SOCRATES]

So you believe that a person deceives himself into doing the wrong thing? That's a bit harsh on some students who have, really, taken a lot of time out in the study of volume.

My belief is that, although volume and price go together, a trader can study and follow through on his assumptions, but that is all that they will ever be- assumptions. There is nothing written in stone, here and where the student is deceiving himself is in believing that it can be understood and mastered by ordinary traders or, for that matter extraordinary ones. A lot of volume can produce a whole variety of price fluctuations throughout the day with the result that the price will go up, down or sideways for a week, or more. The only thing that the trader is faced with is the decision of whether to cut his losses early because the trade is not doing what was expected of it.

Volume does not work, with due respect to all who say that it does, if your meaning is that it can tell the trader how to enter or close a trade at an SR level and that he is deceiving himself if he does the wrong thing. That is blaming the student and not the teachers. Volume can be used to help trading techniques in an already rising trend but, even then, it is only a tool used to confirm a decision already made by the trader.

Volume analysis is not a mathematical fact. It must be accompanied by a very large amount of
sixth sense. This sixth sense is what gives a successful trader an edge.

Split

Your first paragraph above :~ It may be harsh and even cruel, but it is a fact.

Your second paragraph above :~ yes because the response is linked to paragraph one.

Your third paragraph above :~ agreed.

Your paragraph four above :~ the sixth sense comes first and everything afterwards, and this cannot be shared because this is the blade on which the edge is honed and sharpened.

This sixth sense is "awareness" or "knowing".

 

[SOCRATES]

And by the way, this "awareness" or "knowing" is not constrained by time in the conventional sense.

This means that when manipulated in a certain way, time has no value.

This is part of the reason that this "knowing" is able to deliver intngible cognition of the event even before it happens, and often to what extent it will happen with alarming accuracy.

I am convinced that you have to be "wired differently" in order to do this.

And I am further convinced that it is a natural gift, and therefore persisting in other ways is pointless.

Which means that those who can, can, and those who can't, can't.

But at a mechanical level, everyone is entitled to try...

 

[Anonymous]

I couldn't agree more about the "knowing".

A chess player may be able to foresee 1 step ahead, a good chess player may be able to foresee 3 steps ahead, a better chess player may be able to foresee 7 steps ahead.

And, foresight emcompasses many things, which includes a person's upbringing, natural, physical, or other agilities, the history that his/her family went through, the history learnt from previous kingdoms, whom to trust, whom not to. Many experiences he has undergone may combine and processed inside the subconscious and developes.

 

[dbphoenix]

Volume analysis is not a mathematical fact. It must be accompanied by a very large amount of sixth sense. This sixth sense is what gives a successful trader an edge.

Split

While I suppose a sixth sense might be helpful, there is certainly no "must" involved. All that is required to understand trading activity is an understanding of trader behavior, and that is achieved through observation and experimental analysis. Devoting oneself to the Obiwan Kenobi School of Trading Arts isn't necessarily a ticket to success.

Try removing the "volume" from your charts entirely and focusing on price movement as it relates to support and resistance. You may surprise yourself.

--Db

 

[Splitlink]

Devoting oneself to the Obiwan Kenobi School of Trading Arts isn't necessarily a ticket to success.

I've never travelled too "way out" in my desire to master the arts of trading! Don't worry, you are not dealing with a person desperate to try anything!

Try removing the "volume" from your charts entirely and focusing on price movement as it relates to support and resistance. You may surprise yourself.

The fact is, I don't use volume much, because I don't see what you and others see in it, which means that I already am using price without volume. Could you indicate what surprise you might expect me to find, favourable or unfavourable?

Split

 

[erierambler]

Volume does not work, with due respect to all who say that it does, if your meaning is that it can tell the trader how to enter or close a trade at an SR level and that he is deceiving himself if he does the wrong thing. That is blaming the student and not the teachers. Volume can be used to help trading techniques in an already rising trend but, even then, it is only a tool used to confirm a decision already made by the trader.

Volume analysis is not a mathematical fact. It must be accompanied by a very large amount of
sixth sense. This sixth sense is what gives a successful trader an edge.

Split

I respectfully disagree. Everyone may see something different in reading a chart. One needs to be available to what is happening for it doesn't always occur the same way in the same fashion. Here is an example for you to study. It is the studying that reveals the answers.

erie

 

[dbphoenix]

The fact is, I don't use volume much, because I don't see what you and others see in it, which means that I already am using price without volume. Could you indicate what surprise you might expect me to find, favourable or unfavourable?

Split

If you're not using it, then I'm not sure I understand what it is you're arguing about. Seems like all of you are simply looking for something to do over a long weekend.

If anyone has a serious question, I'll be happy to answer it. But the needling isn't worth responding to.

--Db

 

[Splitlink]

If you're not using it, then I'm not sure I understand what it is you're arguing about. Seems like all of you are simply looking for something to do over a long weekend.

If anyone has a serious question, I'll be happy to answer it. But the needling isn't worth responding to.

--Db

Looking at the posts that have appeared since 540, when I answered one with an opinion of my own, I will agree with you that the thread has degenerated again.

However, I object that you answer my post like that- I don't think that it was deserved. A person who puts forward a theory like yours must expect to be questioned and doubted by those who do not agree. I have not been rude and do wish to be associated with those who are. Neither do I care whether others agree with me or not, as far as my own ego is concerned, only that something interesting can be debated and that something can learned from the observations of
others.

Split

 

[dbphoenix]

What theory?

As for debate, it's not likely that debate will get far if you're not defining "volume" in the same way as those with whom you're debating. You've said you don't use volume "much" and don't understand what I and others "see" in it and see no value in it, so I don't understand your purpose. If you want to post charts with your questions, I'll be happy to address them. But free-floating opinions on undefined subjects don't advance the discussion.

--Db

 

[Splitlink]

What theory?

Your theory. You are putting forward a theory that price direction can be calculated by watching volume action on intraday charts. My view is that there is something else missing in the puzzle and that volume may be taken into consideration along with other factors, such as trend, for example, but that it is not necesarily reliable because of that missing factor.

Charts can be found that agree with you but, the fact is, that many more charts exist that do not.

As for debate, it's not likely that debate will get far if you're not defining "volume" in the same way as those with whom you're debating. You've said you don't use volume "much" and don't understand what I and others "see" in it and see no value in it, so I don't understand your purpose. If you want to post charts with your questions, I'll be happy to address them. But free-floating opinions on undefined subjects don't advance the discussion.

What other way is there to debate volume? I do not use volume much because, if I don't trust it, how am I going to trade with it? As I see it, there is a group of posters, here, who agree with each other and are only prepared to exchange posts with others who are of the same idea. However, if those ideas do not stand up to argument, what good are they? The fact is, you brook no argument and that is an unhealthy stance for a teacher to take.

 

[dbphoenix]

Your theory. You are putting forward a theory that price direction can be calculated by watching volume action on intraday charts. My view is that there is something else missing in the puzzle and that volume may be taken into consideration along with other factors, such as trend, for example, but that it is not necesarily reliable because of that missing factor.

Charts can be found that agree with you but, the fact is, that many more charts exist that do not.



What other way is there to debate volume? I do not use volume much because, if I don't trust it, how am I going to trade with it? As I see it, there is a group of posters, here, who agree with each other and are only prepared to exchange posts with others who are of the same idea. However, if those ideas do not stand up to argument, what good are they? The fact is, you brook no argument and that is an unhealthy stance for a teacher to take.

First, I'm not "putting forward" any theory that "price direction can be calculated by watching volume action" or by any other means. To the contrary, price direction is entirely unknowable.

Second, if you're doing to debate "volume", then first determine whether or not you're defining "volume" in the same way as those with whom you're debating.

Third, debate is not the same as argument is not the same as discussion. When you began posting here, I thought you were interested in learning about volume. Then you abandoned the thread five or six weeks ago, so I assumed you had either lost interest or learned whatever it was you wanted to learn. Now you're back debating "volume", so, again, I wonder what your purpose is. If it is to debate "volume", then what do you mean by the term?

--Db

 

[JumpOff]

Your theory. You are putting forward a theory that price direction can be calculated by watching volume action on intraday charts. My view is that there is something else missing in the puzzle and that volume may be taken into consideration along with other factors, such as trend, for example, but that it is not necesarily reliable because of that missing factor.

Uhh, Splitlink,
I wonder if you have missed something really important in the previous writings of dbphoenix, namely that price action takes precedence over eveything else, and that volume and other information only give additional information.

He is also very clear that he does not expect anyone to acccept his views without doing their own study - He expects you to do your own work and for your own results to be of more value to you than anything said on any discussion board. His point is that the effort of doing your own studies - (to see what phenonmena lead to a better likelyhood of outcome than random chance) will help you understand price action in a way you haven't seen it before.. And that keeping a trading journal enables you to see how your understanding of price action changes over time.

JO

 

[SOCRATES]

To the contrary, price direction is entirely unknowable.


--Db

No it is not, you may consider it to be so according to your own frame of reference, but it is not the case.

If the direction of prices were truly unknowable, all of this would be like a game of roulette in a casino, or like the final destination of a raindrop running down a window pane, which it is not.

 

[Mr. Charts]

Does volume change move price.....does it follow through........does it re-appear at some price levels.............is it dynamic within the time frame.....................do you see it after, when or before it appears...............................can you trade its manifestation successfully.....................................................do you understand that sometimes it is significant and sometimes not......................................................................
Richard

 

[JumpOff]

If the direction of prices were truly unknowable, all of this would be like a game of roulette in a casino, or like the final destination of a raindrop running down a window pane, which it is not.

Now Socrates, I can not resolve your statement above, with your many admonitions to keep a tight stop. If the future price is *knowable* (that is with absolute certainty), wouldn't a stop be unnecessay? I expect that both you and DBP agree that price action will always show you what the price is doing *now*, and that strength of the current movement may give a clue about how far it might go before the run peters out, and that if a large meteor fell unexpectedly out of the sky it might spook the herd or the major players might change their minds, - and then, - well isn't that why we use stops?

Certainly some situations seem to shout their clues louder than others, but aren't we all prepared to change our positions if our reasons for entering the trade no longer exist?

JO

 

[dbphoenix]

I expect that both you and DBP agree that price action will always show you what the price is doing *now*, and that strength of the current movement may give a clue about how far it might go before the run peters out

JO

I don't formulate any expectations based on the "strength" of a movement.

--Db