Suggestions for new traders

continued from [www.researchtrade.com]

Baffled1 & Tanman, again thanks for the inputs.

When I started to do research about trading, almost all the data I was getting had to do with options. Being new maybe I am using the term options incorrectly? When I run a scan in thinkorswim, I select Scan in "All Options" Intersect with "All Symbols" I am guessing I probably need to learn alot more on the proper terminology because even though I have come across Delta, Gamma, Theta and Vega, I know absolutely nothing about them or how to read them.

In my initial research,I cam across some articles that described the many different styles of trading and me being an IT guy, I thought maybe technical trading would be a better forte at initial entry. My plan was to find the best probability in movement and select those stocks from indicators I had thrown together and see if I could land up instead of down. It is not my plan to make millions in the next couple of months. I thought if I could make 300 to 500 a day trading on the swing of 1000's of shares for 10-25 cents, I would be fine with that while I built up a portfolio enough to start day trading after a few months.

I have come across people talking about trading futures, but have found less articles on the net and youtube about how and the best way to get started doing it in thinkorswim. I am a very visual guy, reading the thoughts of how someone does it does not take as well as watching a video on it.



Edited 1 time(s). Last edit at 01/29/2016 11:26PM by bughatti.

Bughatti, Sorry, I know next to nothing about trading futures

Gamblers roll the dice; Traders load the dice.

Yes, Bughatti- I think Tanman covered it all very well. But, uhhh, let me say this about that. As you can see from his post in the other thread, options is a complicated racket. Stocks are the safest way to start your career, especially with the starting values you've mentioned (which I think are 'wayyy too big to start, but none of my business). In fact, as I said in linter's forex thread, nobody should start in forex with more than $20. Forex is bloody dangerous, and by time someone learns, they've pretty much gone bankrupt a dozen times. So Tanman suggests stocks as a learning ground, and maybe permanently. I agree. What I want to add is just a couple little things about how I perceive Trader Insanity Categories (TIC).

CATEGORY 1. The worst, absolute worst TIC is trading pink sheet stocks. That's where I cut my trading teeth 10 years ago. That's where I learned nearly every crooked thing a broker, company, or market maker can do. And I learned how to fight back.
CATEGORY 2. Tied for second place are Options traders and E-mini traders. Probably something in the water where they all come from. Tanman was exactly right- a two-year learning curve and that's exactly where I got off the train, a whole lot poorer and a little bit wiser.
CATEGORY 3. Forex traders own this spot. NEW Forexers with LOTS of cash belong in CATEGORY 1 with the pink sheet nutbags. Learning curve, if you keep it VERY small, can be less than 6 months, depending on trading frequency. If you live large, bankruptcy will educate you even faster. The key is tiny compounding at first, bigger compounding later. There is no value here in long-term trading, as there's a stiff diminishing return law relative to time, so pairs are either reverting to the mean or you risk a trade going far against you. Margin calls can be brutal.
CATEGORY 4. Stocks above about $2-3. Can sometimes get a little ugly, but it's where I drew my first serious blood meals. Risks are manageable, gains can run 3-7% per trade or sometimes more. A tame starting point or permanent home base. Have to muscle in with at least $500 to open, or fees will eat you alive.


Gamblers roll the dice; Traders load the dice.

I'm going chime in and add to the discussion on trading futures. If you want to blow out multiple accounts, trade futures. The HFT programs will eat you alive if you are going for 2 points with a 2 point stop on the S&P emini contract. I have traded futures off and on for the last 5 years without much success. As stated above, stocks are where the money is at. Also, all of the futures trading gurus who tell you that you can day trade, make money off of selling you their 200 to 2000 dollar course. A little research by myself has shown that none of them came make a dime trading. If you want to start off on the "right foot" in trading, start off with stocks and risk as little as possible. Almost anyone can be profitable if you risk 1-2% of your account per trade and learn to control your emotions. Save yourself some unneeded stress and trade stocks. Believe me, if you start off on the right foot you will thank yourself later. I'll even feel better if you follow my advice. I wish someone would have told me lol

Thank you all so much for the advice. I guess I am a bit confused by the term trading "stocks" I thought that is what I was doing? To me stocks is a generic term and even doing a search on google of trading stocks vs (anything else) does not explain very well. Would trading stocks be something along the line of staying within Nasdaq and S&P 500? or is it the time frame you decide to hold a stock. I have read up on day trading, swing trading, holding a stock long term vs short term and also shorting stocks. Im not looking for specifics for someone to give me a specific company to make money off of but can someone give me an example of equities trading in thinkorswim? Would it be something along the line of finding company xyz in the nasdaq or 500 that has a good indicator of an uptrend and purchase the stock for a week or 2?

Bughatti,

baffled1 and djpl8 have given great advice!

Yes, stock is a company XYZ in NASDAQ, S&P500, RUSSELL 2000 or Dow Jones Index etc. ETF's are derivatives of equities. Both are good for day trading purposes. For example AAPL is a stock and SPY is an ETF. AAPL is a symbol of Apple company stock and SPY is an ETF derivative of SPX which is the S&P 500 Index (disclaimer: this or any other equity mentioned in my posts does not constitute recommendation to trade AAPL, SPY or SPX or any other mentioned equity in any way). Stock options are leveraged derivatives of the stock. Stay away from options for now. ETF's can be leveraged also. DO NOT hold ETF's long term because they are leveraged and the way their leverage is reset at the end of each day, their price tends to drift away from the corresponding price of the underlying stock or equity. ETF's can be great for day trading or very short term swing trading because you can trade the underlying equity with a smaller account. See the following about risks of ETF's:

[www.istockanalyst.com]
[etfdb.com]

I agree that stocks are the safest and least risky way to trade. Trading can be intraday or day trading, swing trading or long term buy and hold. In day trading you close your positions before the end of the day and use smaller time frame charts. In swing trading you hold overnight for at least 2 days and up to a few weeks at the most and use longer time frame charts. I would recommend to stay away from buy and hold unless you have a large amount of cash stashed away and collecting dust, which you don't need at all for the next 20 or more years. Swing trading is for traders who don't have time for day trading due to being busy at work and unable to watch the charts constantly. Day trading is for those who have at least 2-3 hours available for trading every day. Day trading is the least risky out of these 3 ways. Swing trading is more risky because of the risk of gap down that can occur overnight, in which price can run through your stop loss and you can be stopped out waaaay lower than the stop loss price. Look at what happened to TTPH which was supposed to be a hot pharmaceutical company stock. On 9/8/2015 it closed at $44.78. Next day it gapped down 78% and opened at $9.64 because of bad news! I personally cannot sleep at night because of this gap down risk and I stay away from swing trading. It all depends on your personality and what you can handle.


Let me clarify about futures because I suggested sticking with stocks and futures. Futures are very speculative and can also be very risky because they are highly leveraged and control millions of dollars of underlying equity and you can lose large sums of money if there is a sudden large movement against your position. I won't recommend holding futures overnight unless as a hedge for an existing stock portfolio. The only time I would consider trading futures is in day trading and closing position within 24 hours. The reason I mentioned futures is because you can day trade even with a small account and there is no pattern day trader rule for day trading futures. Let me give you an example. If you want to day trade S&P 500 index, you cannot purchase shares of S&P 500 Index. Instead you have to trade an ETF like SPY which is about $190 or a leveraged derivative ETF of SPY like SSO or inverse leveraged ETF like SPXU. To day trade 500 shares of SPY you need $95,000. Instead you can day trade 1 contract of E-mini S&P futures for a margin of only $5,000 which will give you the same return as 500 shares of SPY. So you will get the same return with only a $5,000 account! If you want to day trade stocks you will need an account of at least $25,000 in USA because of pattern day trader rule. With E-mini S&P futures you can day trade even with a $5,000 account. E-mini S&P futures are traded almost 24 hours so you can day trade even after hours and late night if you are busy working during the day. Additionally E-mini S&P futures are very liquid and you can get instant fills on your orders with minimum slippage. Commissions in E-mini futures are also very low as compared to trading stocks which is very important if your account size is small and you are risking very small amounts on each trade.

I agree with djpl8 about tight stop losses. That is a sure way to blow up your account. If you day trade futures or stocks, your stop loss should be at a minimum of ATR x 2 (average true range) or more and it should be beyond an obvious support/resistance. In E-mini S&P futures, that comes out to about 3-5 point range. Using very wide stop losses is also not a good idea because then you have to trade less number of shares/contracts to reduce risk and your targets have to be wider to maintain a risk reward ratio of better than 1:1 which makes it less likely for you to hit your targets.

I also agree with djpl8 about the scam stock and futures educational and advisory services out there. 99% of them have ZERO experience trading with real money. They charge thousands of dollars for their courses and advisory services and their ONLY source of income is by selling their subscriptions and "educational" courses. They use demo accounts in their trading screens and will refuse to show you their performance records or brokerage statements of real money trading. A person (who I will not name) who runs a very famous trading education website has ZERO experience in trading. He used to be a mortgage broker and after the mortgage crisis few years ago, he suddenly became a trading education GURU OVERNIGHT and now runs a famous trading education website with hundreds of subscribers and making millions from subscribers! To this day he has not placed a single real money trade and continues to have zero experience in trading. He just happens to be a marketing genius.

If you want to learn how to perform brain surgery, will you learn from a surgeon who has performed many actual brain surgeries, or from someone with zero experience of performing an actual brain surgery? These scam trading gurus only have theoretical knowledge which looks extremely good on paper but doesn't work in actual real money trading. PLEASE STAY AWAY FROM THESE SCAM TRADING EDUCATION WEBSITES AND ADVISORY SERVICES unless you want to blow your account and go bankrupt. Try to find mentors who have actual real money trading experience and are trading successfully.

Following is one of the very few honest trading website reviewers who investigate these fraudulent websites and give you their honest assessment and review and can be very useful. This website was an eye opener for me. The reviewer is an ex-conman who was involved in a $400 million penny stock scam many years ago and therefore he can smell a scam a light year away! Now he has dedicated his time to exposing all these scams out there. You will be surprised to learn the truths about many of the famous trading gurus out there on this website:

[www.tradingschools.org]

If you like, I can start telling you about the basics and steer you in the right direction, only if you choose to day trade, because I don't have practical real money trading experience of swing trading or long term buy and hold. I have learned everything on my own for free from free educational material and from successful real money traders and with years of real money trading experience, and I am willing to teach everything I know for free within my time limitations.

If you are interested in day trading then start with the following guide book first to familiarize yourself with basic terminology and concepts. If I recommend any free material, usually there are solicitations in it to join the advisory or educational service of the authors. PLEASE DO NOT SUBSCRIBE TO ANY OF THOSE SERVICES. Just learn as much as you can for free, because all the accurate information necessary to make yourself a successful trader is out there on the internet, available for free!

[www.google.com]

As far as actual successful trading strategy for swing trading (all these strategies are fractal and what works for day trading also works for swing trading, only the time frame is different), your idea of identifying a stock in an up trend and then buying it at the right time (on a pullback in an uptrend) is an excellent one. The most important things you should learn are how to identify a trend, how to determine the exact Stop loss, Entry point, Target for profit taking and exit, and how to determine the Size for the trade (how many shares to purchase for a pre determined risk) or SETS. You should try to use as few indicators as possible and keep it simple. Any reasonable strategy will make you money in the long run if you have patience, knowledge, iron discipline and sound money management skills, and control the emotions of fear and greed. The strategies are not difficult but the other things can be very difficult to master and can take years!

There are only 3 basic strategies for trading.

1. Trend trading (which you mentioned)
2. Breakout trading (you buy a stock high hoping to go higher when price breaks out above a trading range or resistance)
3. Reversal trading (you buy a stock low hoping to go high near its support when it is reversing from a down trend)

Try to learn all three and master one of these which fits your personality the best.

The most important things are PRICE and VOLUME. Every indicator is derived from these two and if you learn how to read price action and how to analyze volume, you might not need any indicator at all or very few indicators. Additionally master how to read the market like SPY or NASDAQ. This is one of the most important skills you will need to develop for successful trading. It is called MARKET INTERNALS. Google that term and search for videos on market internals and you will learn a lot. You should always trade in context of the market. First you read the market, then employ the strategy right for that particular market context. For example if you do reversal trading in a strongly trending market you won't be successful. The correct trading strategy for a strongly trending market is trend trading or breakout trading. Similarly for a choppy market, the best strategy is reversal trading. You have to learn how to read the market, whether it is trending or chopping and how strong that trend or chop is and then employ the right strategy, or limit yourself to a particular strategy and employ it only when market context is appropriate.

I would recommend learning as much as you can about support and resistance and the psychology behind it, how to determine support or resistance on a chart, ADX indicator, ATR indicator, candlestick charting and the psychology behind the various candlestick patterns (learning the psychology behind it is more important than blindly learning the pattern), various moving averages and how to properly use them, importance of volume and momentum, average volume indicator, recognizing various price patterns and memorizing the strongest patterns, and actually drawing and looking at all these on an actual chart. Paper trade on a simulator first so you can learn the actual process of placing a trade and master a particular strategy before you trade with real money. Always have a written trading plan with all the exact steps of your trading strategy and refer to it before every trade. Stick to your trading plan and system like a robot, and don't let emotions guide you.

Try to stay away from stocks under $5. Create a watch list of trading stocks based on their chart patterns and other parameters. I would suggest focusing on stocks with following parameters in general:

1. Price $5 - $100 (depending on account size).
2. Daily average volume > 3,000,000 to ensure liquidity.
3. Bid/Ask spread of 1-2 cents to minimize slippage (0.05 to 0.1% for bigger stocks).
4. Daily ATR percent of 3 or more to make sure they have large daily price movements.

Some of these parameters will vary depending on the strategy you employ. For example in gap breakout trading you will look for stocks which gap more than 3%, daily average volume > 1,000,000, and daily ATR percent of 2 or more, because when they have a large gap, usually their volume is way higher than the daily average volume and liquidity is better, bid-ask spreads are narrower, and they move more than on average days.

As far as risk per trade, I would not recommend risking more than 0.5% to 1% of your account size on a single trade, which will limit the amount you can make per day on an average unless you have a large trading account. I personally do not risk more than 0.5% of my account size on each trade. For 1% risk on a single trade you will need around $150,000 if you want to aim for $200 to $500 per day (because an average swing trade lasts 7 days and you will have to risk at least $1400 on each trade to make a minimum of $1400 per week with a 1:1 risk to reward ratio). This also assumes that you make a 35 to 80% return in a year which is a difficult task unless you are an accomplished world class day trader.

Some useful articles on this subject:

[tradingsim.com]
[www.econ.yale.edu]
[tradingsim.com]

Swing Trading versus Day Trading and articles about day trading:

[tradingsim.com]
[tradingsim.com]
[tradingsim.com]
[tradingsim.com]
[tradingsim.com]
[tradingsim.com]



Edited 2 time(s). Last edit at 01/30/2016 01:48PM by tanman.

All readers,

Please watch the following videos. The first one is a seminar by Jack Schwager, author of Stock Market Wizards. Second video is interview of Mark Cook, one of the most successful day traders in history. He achieved a return of 563% in 1992, winning the US investing championship:

[www.youtube.com]
[www.youtube.com]

Even though I consider options very risky and not suitable for new traders, there is one more option trading strategy that can be very safe and can generate a steady monthly or weekly income stream. It is called covered call strategy. You buy a strong stock with juicy options and then sell calls against it every month or every week (if it has weekly options). This way you can generate a steady income stream and also lower the cost basis of owning the underlying stock.

For example there is a $3 stock which trades millions of shares every day and has juicy options with a low bid ask spread. Owning 1000 shares of that stock will cost $3,000 and you can sell 10 at the money calls for around $350, thereby generating about 11% return in just 19 days! If price goes down, you now own the stock at a lower cost basis of $2.65 and every month or week you can keep selling calls to keep lowering the cost basis. If price goes up, your options will be exercised and stock will be sold at the option strike price and you keep the money you generated by selling the calls. So it can be a very safe strategy, but should be employed only when you can afford to take a loss on the underlying stock.

what the heck is the "US investing championship"???

OMG!!!

Why the heck would I want to leave my career so I can sit at home and be tied to a stupid computer ALL DAY LONG!!!! That seems more like bondage than working 9 to 5.

No thanks, I like my way best.



Edited 1 time(s). Last edit at 01/31/2016 05:43PM by RichieRick.

Tanman, that long post of yours was really excellent. You should write a book! Bughatti, you still here or did you faint from all those experts' advice? Told ya, there are some smart people around here. Just adding one thing for stocks: You mentioned you read up on shorting. If/When things go bad, you definitely want a shorting-enabled account and know how to use it. On that note, in my opinion, and as Tanman already noted, stay away from leveraged ETFs of all kinds, especially 'til you know your way around better. They may look juicy but that cuts both ways. You can, in a sense, short whole markets, or certain commodities or sectors by going Long certain ETFs, fine and good. But don't go with the leveraged ones just yet.

Suggestion: When you're ready to start trading, google "free chat room" and set up a free chat for yourself. Then specify a time and invite us in to sort of help out. For stock choices, ToS you already know has an excellent scanner. For quick and dirty, also try http://www.finviz.com ("Screener" along top edge of screen) and it's easy to get a quick view of a chart just by hovering over a symbol.

Gamblers roll the dice; Traders load the dice.

Another book newbies can add to their reading list if you are learning on your own w/out training: Alexander Elder, Come Into My Trading Room. A classic. If you pickup nothing else you always want a decision/action chart to be going in the direction or in context of a larger trend chart. Daily in context of the Weekly, 60 minute in direction/context of Daily, 15 minute in the direction/context of the Hourly, etc. Just examples - you pick your timeframes. The exception is when the trend chart is at major support/resistance or has moved to an extreme level. Then you can consider reversal swings. JMHO. -NCT

EXCELLENT ADVICE by NCTrader.

The single MOST IMPORTANT thing for any swing or long term trader is to know how to determine the higher and lower time frame trend, and trade on lower time frame chart in the same direction as the higher time frame chart, provided there is no strong support/resistance nearby in the direction of the trade and the move is not extended. Best is to trade in the direction of the trend after a pullback or retracement. For this purpose one of the first things beginner traders should learn is how to determine support/resistance, how to determine trend, and how to recognize a pullback or retracement in a trend and how to differentiate it from a reversal.

The two MOST IMPORTANT things for any day trader are trading in the direction of the higher time frame trend as above and also trading according to the market context or environment. For this purpose, one of the first things a beginner trader shoud learn is how to determine the market context and how to read the market whether it is bullish, bearish or choppy in the lower time frame, and then trade appropriately and employ the right setup for the existing market context. For example, there could be an up trend in both lower and higher time frames, but if the general market is very choppy or bearish, then bullish breakout and trend trades in the direction of the trend will not be as successful. In this situation, the day trader will feel a "headwind" as soon as a bullish setup is traded, and the chances for the trade to fail and occurrence of false breakouts will increase, or the trade will make much lesser profit even if it wins than if market context was bullish. Similarly when the higher and lower time frames show sideways movement and market context is choppy, then reversal trades will be more successful at intraday support/resistance levels after an intraday extended or extreme move. When the market context is bullish, then reversal trades will be more likely to fail and only bullish breakouts and trend trades should be employed.

Even seasoned day traders sometimes ignore these 2 things and then end up with a losing trade which could have been avoided. Recently I was in a well known live trading room where the moderator is a seasoned and experienced day trader and he initiated a swing trade long in NFLX on a bullish market day after an intraday breakout, when stock was in a strong down trend on hourly and daily charts. He was ahead by 3 dollars at one point during that day and should have exited when price hit a strong resistance. Instead, he scaled in once when he was ahead $1 and then held it overnight and next day got stopped out at a loss. He should have never initiated a bullish swing trade to start with, in a strong down trend on larger time frames.

When I first started learning day trading few years ago, I learned everything on my own and didn't know how to read the market context. I attended a free webinar by a world class day trader early on, in which the speaker mentioned the importance of reading market context, but I ignored it because he didn't teach exactly how to read the market context in that webinar and wanted listeners to subscribe to his educational course for thousands of dollars in order to learn it. Subsequently my bullish breakout trades in a stock strongly up trending on larger time frames would mysteriously fail and I couldn't figure out why they failed. In the beginning I lost thousands of dollars and then slowly as my trading improved, I was breaking even overall and couldn't make further progress. It is only recently a few months ago that I found out about market internals and how to read them and determine the market context, and started to apply that in actual trading, and the percentage of successful trades as well as dollar profit amount has gone up since then. I wish I had learned how to read market context when I was a beginner day trader and someone would have drilled its importance in my head at that time. Now I watch SPY chart and market internals before initiating any trade, and monitor them like a hawk while trading a stock.

So beginners, the FIRST thing you should learn and master are determining trend in higher time frames and determining the market context, and only then start learning about setups and patterns so you can employ the right setup appropriate for the market context. Additionally learn and master all aspects of money management including stop loss, entry, targets and size of trade BEFORE you execute trades, even in simulation or demo mode, because otherwise you will be learning and developing bad habits which are EXTREMELY DIFFICULT and sometimes even impossible to unlearn and get rid of later on. Learn the correct and proper way from the beginning. You have to know the market context, longer time frame trend, exact stop loss, entry point, target points for exit, size of trade (how many shares or contracts to trade given your account size, stop loss and appropriate dollar amount of risk) and the risk reward ratio BEFORE you enter a trade, even in simulation or demo mode, and then stick to that trading plan with iron discipline.

An analogy would be learning how to drive a car and practicing it on a road with no traffic (demo mode), without checking the engine and oil, without checking tires and brakes, without a seat belt on, without checking rear view mirror before changing lanes, without headlights on at night on a dark road, and driving in the wrong oncoming traffic lane. Now chances are that if there was no traffic you will get away without any problem, but then you are learning bad habits. Subsequently when when you start driving in busy traffic, you know what is going to happen with high probability, but then it will take a long time to unlearn those bad habits completely.



Edited 2 time(s). Last edit at 02/06/2016 11:33AM by tanman.

Thanks Tanman
Here is some information on Market Internals
[www.traderslog.com]

Thanks Game0ver,

The link to videos in the article is not working so here are some videos on market internals:

[m.youtube.com]
[m.youtube.com]

More on internals Market Internals Beat the Herd good content but no pictures.

Gamblers roll the dice; Traders load the dice.

baffled1,

Thanks for the link for using market internals for contrarian reversal trading.

I personally find reversal trading more difficult based purely on contrarian strategy, because the oscillating indicators can stay at extremes for long periods of time also. I think the best way to use market internals is not to take a trade against the trend of the internals and to see if there is any divergence between trend of internals and trend of the general market or a disconnect between internals and market price.

One more general point for readers. Reading the market is not just analyzing the market internals alone. It is determining the entire context/environment which includes all of the following: analyzing market internals, determining presence or absence of long term and short term trend in the general market, and determining proximity or farness of price to major support/resistance zones. This should then be combined with trend of the individual stock on longer and shorter time frames and support/resistance areas in the stock to determine the optimal setup to be traded. When all of these line up you get the strongest setups.

I have recently learned how to use Volume Profile, which has been very helpful in day trading. I think it is a MUST LEARN for beginner traders and wish I had learned it at the beginning of my trading journey many years ago. It is an amazing tool to determine support and resistance levels, especially in futures and indices, and can be used for determining both entry at a good trade location and exit targets. Volume profile is so amazing that it can be used for day trading indices and futures without any additional indicators!

Another indicator that I have found really useful in day trading is VWAP, which is used by all the smart money including market makers and whale day traders out there. It can be used in combination with volume profile as a complimentary indicator. You can google "volume profile" and "vwap" and check out various articles and videos about them. VWAP becomes extremely reliable as support or resistance when it coincides with a low volume node on volume profile.

I have arrived at the conclusion that for successfully day trading futures and market indices, the only essential indicators are the following:

1. Market internals
2. Volume profile
3. Trend in larger time frame
4. Price based support and resistance
5. Volume with volume average
6. VWAP
7. ATR

Following video shows how to set up Volume Profile charts of futures in TOS:

[m.youtube.com]

Tanman did you find Pivots_ST study for ThinkorSwin platform? I was not able to find in the Shadowtrader.net ...

Is this what you are looking for

[theinfinitygroup.us]


#Hint: Value Area + Auto-Pivot Values + Opening Range Breakout
#Justin Williams,Justin@TheInfinityGroup.us,Twitter=@JwillSF,Chat=WaterFrontTrader

#08/31/11: Total redesign, added automated Pivot values, proximity plotting, new features.
#09/12/11: Added “ShowLevel4” option due to recent volitility. Will plot S4 & R4.
#12/11/11: Added “AfterHours” option to turn off plot after hours.
#12/21/11: Bug fixes due to TOS upgrades. Removed “AfterHours”, not workin correctly.
#01/25/12: Enter daily inputs as 4 digits and script will interpret.
# -added rounding to make the pivots appear as they do on the show.
#01/26/12: Removed ability to truncate inputs due to it only being accurate 99% of time.
#02/02/12: Small update to make sure "Auto Pivots" menu option functioned properly.
#06/07/12: Added (6)VPOC inputs, should be manually entered/deleted, displays when applicable.
#06/25/12: Removed some code and fixed a few bugs.
#07/09/12: Fixed one small but important bug.
#07/13/12: Added value bubbles, removed proximity plot function.
#08/13/12: Removed a lot of superfluous code plus a few upgrades.
#08/15/12: Fixed a bug that was giving false numbers.
#08/30/12: Fixed a bug that wasn't plotting the NQ profile.
#09/02/12: Reordered inputs and removed "LabelESonly" input.
#12/28/12: Made the plot hide on daily charts and updated code to current standards.
#01/04/13: Fixed a rare bug that hides labels if using tick charts.
#01/28/13: Added ability to hide each individual level.
#02/22/13: Fixed bug that made levels inaccuate on charts that were not 15 minute charts.

# Pivot values will be off the day following market holidays and possibly the day after rollover.
# On these days make "AutoPivots=No" and manually draw pivots. Change back to "AutoPivots=Yes" the day after.

#Inputs
input VAH = 0.00;#Hint VAH: Must be manually entered daily, tinyurl.com/3lbmu4o
input POC = 0.00;#Hint POC: Must be manually entered daily, tinyurl.com/3lbmu4o
input VAL = 0.00;#Hint VAL: Must be manually entered daily, tinyurl.com/3lbmu4o
input Pivot = 0.00;#Hint Pivot: Must be manually entered daily, tinyurl.com/3lbmu4o
input AutoPivots = yes;#Hint AutoPivots: Turns off pivot lines, value area stays on.
input Labels = {default "Proximity","Off","All","ValueAreaOnly"};#Hint Labels: Labels at top of chart.
input ShowPivotPoint = no;#Hint ShowPivotPoint: Hides Pivot Point plot.
input ShowLevel4 = no;#Hint ShowLevel4: Will display S4 and R4 for days with large moves.
input PivotBubbles = yes;#Hint PivotBubbles: Shows bubbles on pivot plot lines.
input ValueBubbles = yes;#Hint ValueBubbles: Shows bubbles on value plot lines.
input PlotStartTime = 0530;#Hint PlotStartTime: Move to earlier time to shift bubbles to the left.
input ShowCloud = yes;#Hint ShowCloud: Shows the value area as a cloud.
input CloudOpenOnly = yes;#Hint CloudOpenOnly: Will only cloud open candles.
input HideAfterHoursLabel = no;#Hint HideAfterHoursLabel: Hides "NoShadowPlotAfterHours" label.
input VpocBubbles = yes;#Hint VpocBubbles: Shows bubbles on VPOC plot lines.
input Vpoc1 = 0.00;#Hint Vpoc1: Manually enter/delete VPOC here, will display when applicable.
input Vpoc2 = 0.00;#Hint Vpoc2: Manually enter/delete VPOC here, will display when applicable.
input Vpoc3 = 0.00;#Hint Vpoc3: Manually enter/delete VPOC here, will display when applicable.
input Vpoc4 = 0.00;#Hint Vpoc4: Manually enter/delete VPOC here, will display when applicable.
input Vpoc5 = 0.00;#Hint Vpoc5: Manually enter/delete VPOC here, will display when applicable.
input Vpoc6 = 0.00;#Hint Vpoc6: Manually enter/delete VPOC here, will display when applicable.
input ShowS1 = yes;#Hint ShowS1: Hide/Show S1.
input ShowS2 = yes;#Hint ShowS2: Hide/Show S2.
input ShowS3 = yes;#Hint ShowS3: Hide/Show S3.
input ShowR1 = yes;#Hint ShowR1: Hide/Show R1.
input ShowR2 = yes;#Hint ShowR2: Hide/Show R2.
input ShowR3 = yes;#Hint ShowR3: Hide/Show R3.
input ShowORB = No;#Hint ShowORB: Displays 2 small, dashed lines at the top/bottom of opening range.
input OrbTime = 30;#Hint OrbTime: Defines the time range in minutes for the ORB.

def Na = Double.Nan;
declare hide_on_daily;

#Value Area Functions
def PPoint = if(Pivot>0,Pivot,Na);
def VArea = Between(close,VAL,VAH);
def VAreaabove = close>VAH;
def VAreabelow = close<VAL;

#Previous Day Functions
def Day = GetDayOfWeek(GetYYYYMMDD());
def CloseTime = SecondsTillTime(1600)>0;
def OpenTime = SecondsFromTime(0930)>=0;
def RegHrs = CloseTime and OpenTime;
def PLow = CompoundValue(1,if(Day==Day[1] and RegHrs and low<PLow[1],low,if(SecondsFromTime(0930)<=0 and RegHrs,low,PLow[1])),low);
def PHigh = CompoundValue(1,if(Day==Day[1] and RegHrs and high>PHigh[1],high,if(SecondsFromTime(0930)<=0 and RegHrs,high,PHigh[1])),high);
def PrevLow = if(Day!=Day[1],PLow[1],PrevLow[1]);
def PrevHigh = if(Day!=Day[1],PHigh[1],PrevHigh[1]);

#Time Functions
def CloseTime2 = SecondsTillTime(1600)>=0;
def OpenTime2 = SecondsFromTime(PlotStartTime)>=0;
def MarketOpen = OpenTime2 and CloseTime2;
def NewDay = IsNaN(close(period=“Day”)[-1]);
def Chart = MarketOpen and NewDay;

#Pivot Functions
def Res1 = (2*PPoint)-PrevLow;
def Supp1 = (2*PPoint)-PrevHigh;
def Res2 = PPoint+(Res1-Supp1);
def Supp2 = PPoint-(Res1-Supp1);
def Res3 = PrevHigh+2*(PPoint-PrevLow);
def Supp3 = PrevLow-2*(PrevHigh-PPoint);
def Res4 = PrevHigh+3*(PPoint-PrevLow);
def Supp4 = PrevLow-3*(PrevHigh-PPoint);

#Rounding Functions
def RI = RoundDown(Res1,0)-((Round(((RoundDown(Res1,0)-Res1)/0.25),0))*0.25);
def SI = RoundDown(Supp1,0)-((Round(((RoundDown(Supp1,0)-Supp1)/0.25),0))*0.25);
def RII = RoundDown(Res2,0)-((Round(((RoundDown(Res2,0)-Res2)/0.25),0))*0.25);
def SII = RoundDown(Supp2,0)-((Round(((RoundDown(Supp2,0)-Supp2)/0.25),0))*0.25);
def RIII = RoundDown(Res3,0)-((Round(((RoundDown(Res3,0)-Res3)/0.25),0))*0.25);
def SIII = RoundDown(Supp3,0)-((Round(((RoundDown(Supp3,0)-Supp3)/0.25),0))*0.25);
def RIV = RoundDown(Res4,0)-((Round(((RoundDown(Res4,0)-Res4)/0.25),0))*0.25);
def SIV = RoundDown(Supp4,0) -((Round(((RoundDown(Supp4,0)-Supp4)/0.25),0))*0.25);
def PivP = RoundDown(PPoint,0)-((Round(((RoundDown(PPoint,0)-PPoint)/0.25),0))*0.25);

#Plots
plot VH = If(Chart and VAH>0,VAH,Na);
plot PC = If(Chart and POC>0,POC,Na);
plot VL = If(Chart and VAL>0,VAL,Na);
plot R4 = If(Chart and AutoPivots and ShowLevel4 and RIV>0,RIV,Na);
plot R3 = If(Chart and AutoPivots and ShowR3 and RIII>0,RIII,Na);
plot R2 = If(Chart and AutoPivots and ShowR2 and RII>0,RII,Na);
plot R1 = If(Chart and AutoPivots and ShowR1 and RI>0,RI,Na);
plot PP = If(Chart and AutoPivots and ShowPivotPoint and PPoint>0,PivP,Na);
plot S1 = If(Chart and AutoPivots and ShowS1 and SI>0,SI,Na);
plot S2 = If(Chart and AutoPivots and ShowS2 and SII>0,SII,Na);
plot S3 = If(Chart and AutoPivots and ShowS3 and SIII>0,SIII,Na);
plot S4 = If(Chart and AutoPivots and ShowLevel4 and SIV>0,SIV,Na);
plot V1 = If(Chart and Between(Vpoc1,SIV-10,RIV+10),Vpoc1,Na);
plot V2 = If(Chart and Between(Vpoc2,SIV-10,RIV+10),Vpoc2,Na);
plot V3 = If(Chart and Between(Vpoc3,SIV-10,RIV+10),Vpoc3,Na);
plot V4 = If(Chart and Between(Vpoc4,SIV-10,RIV+10),Vpoc4,Na);
plot V5 = If(Chart and Between(Vpoc5,SIV-10,RIV+10),Vpoc5,Na);
plot V6 = If(Chart and Between(Vpoc6,SIV-10,RIV+10),Vpoc6,Na);

#Value Area Cloud
def CloudClose = SecondsTillTime(1615)>0;
def Cloud = OpenTime and CloudClose;
def ChartCloud = Cloud and Chart;
def CloudTest = if(CloudOpenOnly,ChartCloud,Chart);
plot cloudhigh = If(CloudTest and ShowCloud,VAH,Na);
plot cloudlow = If(CloudTest and ShowCloud,VAL,Na);
AddCloud(cloudhigh,cloudlow,Color.GRAY,Color.GRAY);
def AfterHours = OpenTime2 and CloudClose;

#Chart Labels
def Futures = between(close,close("/es"-15,close("/es"+15) or between(close,close("/nq"-15,close("/nq"+15);
def Label = Chart and Futures;
def ZeroTest = VAH>0 and VAL>0;
def PNotZero = PPoint>0;
def ChartLabels;
switch (Labels) {
case "Proximity":
ChartLabels = 1;
case "Off":
ChartLabels = 0;
case "All":
ChartLabels = 2;
case "ValueAreaOnly":
ChartLabels = 3;
}
AddLabel(ChartLabels == 1 and Label and AutoPivots and VArea and ZeroTest,“InsideValue”,Color.WHITE);
AddLabel(ChartLabels == 1 and Label and AutoPivots and VAreaabove and ZeroTest,“AboveValue”,Color.GREEN);
AddLabel(ChartLabels == 1 and Label and AutoPivots and VAreabelow and ZeroTest,“BelowValue”,Color.RED);
AddLabel(ChartLabels == 1 and Label and !AutoPivots and VArea and ZeroTest,“InsideValueArea”,Color.WHITE);
AddLabel(ChartLabels == 1 and Label and !AutoPivots and VAreaabove and ZeroTest,“AboveValueArea”,Color.GREEN);
AddLabel(ChartLabels == 1 and Label and !AutoPivots and VAreabelow and ZeroTest,“BelowValueArea”,Color.RED);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,VL,(RI+((RII-RI)/2))),"VH="+AsText(VH),Color.RED);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,VL,VH),"POC="+AsText(PC),Color.YELLOW);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,(SI-((SI-SII)/2)),VH),"VL="+AsText(VL),Color.GREEN);
AddLabel(ChartLabels == 1 and Label and AutoPivots and (close>VH or (Between(RI,VL,VH) and close>VL)),"R1="+AsText(RI),Color.RED);
AddLabel(ChartLabels == 1 and Label and AutoPivots and close>VH,"R2="+AsText(RII),Color.RED);
AddLabel(ChartLabels == 1 and Label and AutoPivots and close>(RI+((RII-RI)/2)),"R3="+AsText(RIII),Color.RED);
AddLabel(ChartLabels == 1 and Label and AutoPivots and ShowLevel4 and close>(RII+((RIII-RII)/2)),"R4="+AsText(RIV),Color.RED);
AddLabel(ChartLabels == 1 and Label and AutoPivots and ShowPivotPoint and close>SI and close<RI,"PP="+AsText(PP),Color.WHITE);
AddLabel(ChartLabels == 1 and Label and AutoPivots and (close<VL or (Between(SI,VL,VH) and close<VH)),"S1="+AsText(SI),Color.GREEN);
AddLabel(ChartLabels == 1 and Label and AutoPivots and close<VL,"S2="+AsText(SII),Color.GREEN);
AddLabel(ChartLabels == 1 and Label and AutoPivots and close<(SI-((SI-SII)/2)),"S3="+AsText(SIII),Color.GREEN);
AddLabel(ChartLabels == 1 and Label and AutoPivots and ShowLevel4 and close<(SII-((SII-SIII)/2)),"S4="+AsText(SIV),Color.GREEN);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,(V1-5),(V1+5)),"VPOC="+AsText(V1),Color.MAGENTA);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,(V2-5),(V2+5)),"VPOC="+AsText(V2),Color.MAGENTA);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,(V3-5),(V3+5)),"VPOC="+AsText(V3),Color.MAGENTA);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,(V4-5),(V4+5)),"VPOC="+AsText(V4),Color.MAGENTA);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,(V5-5),(V5+5)),"VPOC="+AsText(V5),Color.MAGENTA);
AddLabel(ChartLabels == 1 and Label and AutoPivots and Between(close,(V6-5),(V6+5)),"VPOC="+AsText(V6),Color.MAGENTA);
AddLabel(ChartLabels == 2 and Label and ZeroTest,"VH="+AsText(VH),Color.RED);
AddLabel(ChartLabels == 2 and Label and ZeroTest,"POC="+AsText(PC),Color.YELLOW);
AddLabel(ChartLabels == 2 and Label and ZeroTest,"VL="+AsText(VL),Color.GREEN);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"R1="+AsText(RI),Color.RED);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"R2="+AsText(RII),Color.RED);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"R3="+AsText(RIII),Color.RED);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero and ShowLevel4,"R4="+AsText(RIV),Color.RED);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero and ShowPivotPoint,"PP="+AsText(PP),Color.WHITE);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"S1="+AsText(SI),Color.GREEN);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"S2="+AsText(SII),Color.GREEN);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"S3="+AsText(SIII),Color.GREEN);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero and ShowLevel4,"S4="+AsText(SIV),Color.GREEN);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"VPOC="+AsText(V1),Color.MAGENTA);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"VPOC="+AsText(V2),Color.MAGENTA);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"VPOC="+AsText(V3),Color.MAGENTA);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"VPOC="+AsText(V4),Color.MAGENTA);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"VPOC="+AsText(V5),Color.MAGENTA);
AddLabel(ChartLabels == 2 and Label and AutoPivots and PNotZero,"VPOC="+AsText(V6),Color.MAGENTA);
AddLabel(ChartLabels == 3 and Label and VArea and ZeroTest,“InsideValueArea”,Color.WHITE);
AddLabel(ChartLabels == 3 and Label and VAreaabove and ZeroTest,“AboveValueArea”,Color.GREEN);
AddLabel(ChartLabels == 3 and Label and VAreabelow and ZeroTest,"BelowValueArea”,Color.RED);
AddLabel(!AfterHours and !Chart and !HideAfterHoursLabel,"NoShadowPlotAfterHours",Color.ORANGE);

#Chart Bubbles
AddChartBubble(IsNaN(VH[1]) and ValueBubbles,VH,VH,Color.RED,no);
AddChartBubble(IsNaN(PC[1]) and ValueBubbles,PC,PC,Color.YELLOW,no);
AddChartBubble(IsNaN(VL[1]) and ValueBubbles,VL,VL,Color.GREEN,no);
AddChartBubble(IsNaN(S1[1]) and PivotBubbles,S1,“S1”,Color.WHITE,no);
AddChartBubble(IsNaN(S2[1]) and PivotBubbles,S2,“S2”,Color.WHITE,no);
AddChartBubble(IsNaN(S3[1]) and PivotBubbles,S3,“S3”,Color.WHITE,no);
AddChartBubble(IsNaN(S4[1]) and PivotBubbles and ShowLevel4,S4,“S4”,Color.WHITE,no);
AddChartBubble(IsNaN(PP[1]) and ShowPivotPoint and PivotBubbles,PP,“PP”,Color.WHITE,no);
AddChartBubble(IsNaN(R1[1]) and PivotBubbles,R1,“R1”,Color.WHITE,no);
AddChartBubble(IsNaN(R2[1]) and PivotBubbles,R2,“R2”,Color.WHITE,no);
AddChartBubble(IsNaN(R3[1]) and PivotBubbles,R3,“R3”,Color.WHITE,no);
AddChartBubble(IsNaN(R4[1]) and PivotBubbles and ShowLevel4,R4,“R4”,Color.WHITE,no);
AddChartBubble(IsNaN(V1[1]) and VpocBubbles,V1,“VPOC”,Color.MAGENTA,no);
AddChartBubble(IsNaN(V2[1]) and VpocBubbles,V2,“VPOC”,Color.MAGENTA,no);
AddChartBubble(IsNaN(V3[1]) and VpocBubbles,V3,“VPOC”,Color.MAGENTA,no);
AddChartBubble(IsNaN(V4[1]) and VpocBubbles,V4,“VPOC”,Color.MAGENTA,no);
AddChartBubble(IsNaN(V5[1]) and VpocBubbles,V5,“VPOC”,Color.MAGENTA,no);
AddChartBubble(IsNaN(V6[1]) and VpocBubbles,V6,“VPOC”,Color.MAGENTA,no);

#Opening Range Breakout Functions
def ORBopen = SecondsTillTime(945)<=0;
def IsMarketOpen = ORBopen and CloseTime2;
def FirstBar = If(GetDay()[1]!=GetDay(),GetDay()-1,0);
def OpenRange = SecondsFromTime(945);
def PastOpeningRange = OpenRange>=(OrbTime-15)*60;
def DisplayedHigh = If(high>DisplayedHigh[1] and IsMarketOpen and ShowORB,high,If(IsMarketOpen and !FirstBar,DisplayedHigh[1],high));
def DisplayedLow = If(low<DisplayedLow[1] and IsMarketOpen and ShowORB,low,If(IsMarketOpen and !FirstBar,DisplayedLow[1],low));
def ORBHi = If(PastOpeningRange,ORBHi[1],DisplayedHigh);
def ORBLo = If(PastOpeningRange,ORBLo[1],DisplayedLow);
plot ORBHigh = If(Chart and PastOpeningRange and IsMarketOpen and ShowORB,ORBHi,Na);
plot ORBLow = If(Chart and PastOpeningRange and IsMarketOpen and ShowORB,ORBLo,Na);

#Plot Criteria
ORBHigh.SetDefaultColor(Color.MAGENTA);
ORBHigh.SetStyle(Curve.SHORT_DASH);
ORBHigh.HideBubble();
ORBLow.SetDefaultColor(Color.MAGENTA);
ORBLow.SetStyle(Curve.SHORT_DASH);
ORBLow.HideBubble();
VH.SetDefaultColor(Color.RED);
PC.SetDefaultColor(Color.YELLOW);
PC.SetStyle(Curve.LONG_DASH);
VL.SetDefaultColor(Color.GREEN);
R4.SetDefaultColor(Color.WHITE);
R3.SetDefaultColor(Color.WHITE);
R2.SetDefaultColor(Color.WHITE);
R1.SetDefaultColor(Color.WHITE);
PP.SetDefaultColor(Color.WHITE);
S4.SetDefaultColor(Color.WHITE);
S3.SetDefaultColor(Color.WHITE);
S2.SetDefaultColor(Color.WHITE);
S1.SetDefaultColor(Color.WHITE);
V1.SetDefaultColor(Color.MAGENTA);
V1.SetStyle(Curve.LONG_DASH);
V2.SetDefaultColor(Color.MAGENTA);
V2.SetStyle(Curve.LONG_DASH);
V3.SetDefaultColor(Color.MAGENTA);
V3.SetStyle(Curve.LONG_DASH);
V4.SetDefaultColor(Color.MAGENTA);
V4.SetStyle(Curve.LONG_DASH);
V5.SetDefaultColor(Color.MAGENTA);
V5.SetStyle(Curve.LONG_DASH);
V6.SetDefaultColor(Color.MAGENTA);
V6.SetStyle(Curve.LONG_DASH);
cloudhigh.SetDefaultColor(Color.RED);
cloudlow.SetDefaultColor(Color.GREEN);

When looking at larger time frames, what is the most justified time frames to compare. I can not seem to find a definitive answer on the internet about it. Currently I am using 1 min and 15 min. The biggest issue I find with 1 min charts are to much noise. Would a 5 min and 30 min be best, find the same trend direction on both and trade off the 5 min chart?

You are asking a loaded question. Ask 100 traders which larger timeframe to use and you might get 100 different answers. Remember this is subjective and in order to be successful you must accept that trading is an art. Many that read this forum have heard this before. In the markets 2+2 might equal 4 today, 5 tomorrow, and 3 the following day :-) On a serious note, the book recommendation I made above calls for a factor of 5. If you are trading the Daily then you want to be considering a Weekly trend, If you trade a 5 minute then you need to be paying attention to the 30 minute, etc. You definitely want to get off of the 1 minute chart.

All of that said, the market will back up all over you if you have no idea what the larger timeframes are doing. In other words, you can get as good as you want on the 5 min/30 min timeframes but if you are not paying attention to see the Daily/Weekly turning against your intended direction you can get burned quickly. I suggest letting others provide recommendations on actual timeframes to consider. I, as do many others in this forum, trade 4 hour and Daily while considering Weekly, and occasionally drop down to a two hour chart.

NCT

NCT, thanks for the info. I am solely looking at futures right now and I do understand your point about looking outwards as much as possible. To me that is one of the biggest things I have learned with looking at multiple charts and market internals, getting the context of what the market as a whole and wider time frames are doing. I do understand many people will give many answers, as I have come across many videos with many different time frames. I respect a lot of people in this forum and that is why I asked, to see what the other pro's on here are doing!

Bughatti,

I use the 2 minute or 5 minute charts for day trading and 1 hour chart for larger time frame trend. I try to look for setups on 5 minute chart and then look at 2 minute chart for entries. 2 minute chart has much less noise than 1 minute chart and gives earlier entries and earlier exits (therefore more profit) than a 5 minute chart but more false signals. So your win rate goes down but the average per trade profit goes up. You can also trade off 5 minute chart alone if you want to be more conservative and get lesser false signals, but 5 minute chart will give you slightly delayed entries and delayed exits which can result in less average per trade profit. You can also use a combination, using 5 minute chart for entries and 2 minute chart for earlier exits, giving you a more balanced approach. It all depends on how small a time frame you feel comfortable with. There are day traders out there who use tick charts which are even smaller and faster than 1 minute chart, but tick charts are too fast for my comfort level.

I also look at 2 minute or 1 minute chart for clarification and breakdown of 5 minute price action. For example, 5 minute chart might show a doji or long wick candle with high volume and looking at 1 or 2 minute charts will clarify if the high volume was on a green or red 1 or 2 minute candle, which gives me extremely useful information.

I would like to add one thing about volume profile. The speaker in the video recommends to close down the chart on right with the volume profile graph after values have been transferred to the code in the left chart. I would highly urge you not to do that and keep it open and watch it during day trading. The plots on the left chart are from values from the previous trading hours. Keep the volume profile graph chart on the right and watch the volume profile graph develop and dynamically change during the current trading day which is extremely helpful. You will watch the new high volume nodes (peaks) and low volume nodes (valleys) develop and you can use them to determine consolidation and support/resistance areas and use them in collaboration with previous day data for day trading.

The high volume nodes indicate consolidation areas where price spends a lot of time, and price usually keeps fluctuating above and below those areas at a choppy time. They can also indicate areas of support/resistance when VWAP coincides with them. I love the low volume nodes because they indicate support/resistance areas where price doesn't spend a lot of time. Price usually reverses from these areas (reversals) or crosses over (breakouts) and these low volume nodes are very reliable support/resistance areas, especially when they coincide with VWAP. Watch the volume profile graph develop over first hour of trading and then draw horizontal lines at the low volume nodes and watch price behavior at those areas. I am sure you will have a eureka moment! That's why I said in an earlier post that one can day trade using volume profile alone without any other indicators.

Continued from:

[www.researchtrade.com]

Netarchitech,

Thank you for the kind words. It is an honor and privilege to be noticed and appreciated by an experienced trader such as yourself, and I look forward to learning from your wisdom and years of experience in the market. I have had much less experience in the markets than you and am still in the process of learning the intricacies and finer points of trading. I appreciate your valuable comments and queries and will attempt to provide my input on this matter within the constraints of my limited knowledge and experience.

I have also come to the same conclusion that Price and Volume are the most important and "leading" indicators and my trading is primarily dependent on them. In my experience I have discovered the same i.e. all roads lead to price and volume and I believe one should be able to trade successfully based only on price and volume. I am slowly relying less and less on other indicators and "weaning" myself off that addiction. I also have not yet gotten around to learning Tape Reading. Personally I think Tape Reading is only important if you are scalping, and is not really essential for day or swing trading, but I might be wrong. 

As far as Volume is concerned, it is a vast and tricky subject and takes years to grasp fully. To analyze volume, currently I use Volume Average, VWAP, Volume Profile and Candlestick Analysis. I use Candlestick Analysis in combination with Volume Average instead of using Net Volume Indicator. I scripted the Net Volume Indicator for those more visually inclined to volume indicators, but candlestick analysis in conjunction with regular volume should give the same information.

I look at Volume as indicator of demand and supply rather than buyers and sellers. The problem with thinking in terms of buyers and sellers is that every single transaction requires both a buyer and a seller, so when buyers step in, sellers also have to step in at that price for the transaction to take place. If there are only buyers and no sellers then there will be no transaction, irrespective of the number of buyers that step in. I look at volume indicator more as a "pressure" in one direction or the other, either in demand or supply. A large green volume bar does not mean there are more buyers than sellers (they are actually equal in number), but more demand and "pressure" for price to move up. This maybe is a tricky concept to fully grasp, but I believe it gives a better and more accurate understanding of volume. Thinking of volume purely in terms of more buyers or more sellers is misleading and inaccurate in my opinion.

This demand/supply or "pressure" could be created by either institutional traders or retail traders and analysis of volume in relation to location of price and range of price bar gives important clues about this. So a large volume bar can give totally opposite information depending upon where it occurred in the price move. Usually large volume and small wick candle at the beginning of a price move generally indicates institutional traders and "real" pressure, and large volume and small wick candle after an extended price move generally indicates exuberant trading by retail traders chasing the price, creating "artificial" pressure in direction of price move, which can signal the end of that move.

On the other hand, large regular volume bar combined with a hammer (low net volume) after an extended price move usually indicates an initial "artificial" pressure created in direction of price move by retail traders, and then either institutional or retail traders stepping in to create a "real" or "artificial" pressure respectively in the opposite direction. This could signal either a reversal or a retracement depending on subsequent volume and price action. This is why I look at a series of consecutive volume bars in relation to price action, rather than look at isolated volume bars to form an opinion.

Of course all of this is not absolute but "probable", which is why trading is not an exact science but partly art based on probabilities, unless the full and complete trading information including insider trading information is available to the trader.


netarchitech Wrote:
-------------------------------------------------------

> 1. Without knowing Price was in the middle of a
> downtrend, with a large body, small wicks, closing
> near the low, above average Volume and Net Volume
> significantly above average, I believe the
> probabilities say the downtrend will continue. 

Not necessarily! It depends on where that small wick candle with large volume and large net volume occurred in the price move. If it was in the beginning of the price move, or while crossing a support, then yes, it is more probable that downtrend will continue. On the other hand, if the same candle with the same volume characteristics occurred after an extended price move, then it is more probable that downtrend will either reverse or retrace. Knowledge of location of such a candle is critical to form that opinion.

In this particular case, price was crossing an important strong support zone after being range bound for a while, and the high volume indicated that most probably downtrend will continue.

The average volume will usually be higher than the average net volume because volume can never be smaller than net volume, but net volume can be much smaller than corresponding volume depending on candle body size. Significantly above average net volume and just above average volume indicates there was some indecision in preceding price action.

> > Does the size of the Net Volume bar confirm the
> continuation of the downtrend?

No, as I explained above.

> > Does the significant size of the Net Volume bar
> alone confirm the presence of many more Sellers
> than Buyers?

Large volume and large net volume bar in combination confirm the presence of excessive supply. Significantly above average net volume with associated above average volume indicates some indecision in preceding price action.

> > Is there any correlation between the relative
> sizes of the Volume and Net Volume bars?

Large volume on a small wick candle will always have large net volume, but large volume on a large wick candle will have smaller net volume. In case of a hammer, in real time you will see a large red candle form initially, indicating excessive supply, and subsequently the body will be pushed up indicating excessive demand, which will result in smaller net supply or smaller net demand (indecision) depending on close of price in relation to the open. The red volume bar could be large indicating excessive supply when seen in isolation, which is inaccurate and misleading, but the net volume bar gives a more accurate picture about supply versus demand. The smaller net volume bar in relation to a large volume bar (only after an extended move) will signal either a reversal or a retracement.

When net volume is significantly above average and corresponding volume was just above average, it usually indicates there was some indecision in preceding price action.

> 2. With the continuation of the downtrend, Price
> forms a Hammer candle, with substantially above
> average Volume and surprisingly average Net
> Volume. With the information presented, I would
> prefer to believe the probability that the
> downtrend has ended, but the lack of Net Volume
> confirmation renders me indecisive.

Please see above for significance of net volume.

Such a candle and volume characteristics do not necessarily mean that a downtrend has ended. A hammer with high volume after an extended move could either signal a reversal or a retracement as mentioned above. This is why we need to look at all the volume bars from the beginning of the price move to the hammer, as well as subsequent volume bars. Following are the possibilities:

1. Light/average volume in down move, heavy subsequent volume after hammer -------> most likely reversal.
2. Light/average volume in down move, light/average subsequent volume after hammer --------> most likely range bound consolidation.
3. Heavy volume in down move, light/average volume after hammer --------> most likely retracement followed by resumption of downtrend.
4. Heavy volume in down move, heavy volume after hammer -------> most likely reversal.

> > Does the size of the Net Volume bar suggest
> weakness and the potential continuation of the
> downtrend?

No, it indicates smaller net supply/demand or indecision despite heavy volume traded, and depending on location of the hammer it indicates either a subsequent reversal or a retracement (if hammer occurs after extended move), or continuation of downtrend (if hammer occurs at beginning of price move). The location of hammer in price movement is important.

> 3. With an anemic uptrend underway, Price surges
> (Fed influence), with a large body, small wicks,
> closing near the high, slightly above average
> Volume and significantly above average Net Volume.
> With the information displayed and the reaction of
> the Markets to the Fed Announcement, I would be
> wary of the sudden run-up in Price in the middle
> of a lackluster uptrend...possible "hidden"
> selling. The probabilities say the uptrend may be
> coming to an end.

Since the small wick large green candle with above average volume occurred later in the price move, versus at the beginning, it signals either a reversal or retracement and not necessarily end of uptrend. I look at it more as "artificial" demand created due to exuberant trading by retail traders, rather than hidden increase in supply. If there was significant increase in supply which resulted in a turn around in price, the candle will have a large wick at the top.

> > Does the size of the Net Volume bar suggest the
> potential presence of "hidden" selling and an
> upcoming reversal?

Significantly above average net volume associated with just above average volume indicates indecision in preceding candles.

> 4. With the continuation of the current downtrend,
> Price forms what could be construed as a
> "bottoming"candle, although not quite a Hammer,
> with significantly above average Volume and
> average Net Volume. Once again the apparent lack
> of more Net Volume leaves me indecisive about the
> direction of Price. With that said, the
> probabilities say Price is more likely to reverse,
> due to the substantially above average Volume and
> Buyers coming in to buy the low.
> 
> > Does the smaller size of this Net Volume bar
> somehow suggest a potential upcoming reversal?
> > When compared to Example #2, is the buying off
> the low that fuels the reversal and resulting
> stronger uptrend in this case or is it more likely
> the strong Volume?
> > Does Net Volume play any role in this or are
> there times when it will prove to be
> inconclusive?

My answers would be the same as to example #2

It is my opinion that the upward price move is not stronger this time due to being on low volume again, similar to low volume upward price move from 2 to 3. This could either result in a range bound price movement for some time, or breakdown from support at 1800, due to higher volume down moves from 1 to 2 and from 3 to 4, UNLESS price breaks out above 1940 on heavy volume in this leg.

I hope what I said makes some sense and look forward to your reply

Tanman,

I thank you for being so gracious with your reply. Your response was, without a doubt, the best correspondence I have ever received in a forum. The honor is truly all mine…

As for learning, I look forward to establishing an exchange of ideas and sharing of solutions. I have already gained significantly greater insights as a result of reading your latest response here, as well as the numerous contributions submitted in the "Fun with ThinkScript" thread…

I'm glad to read that you concur when it comes to the subjects of Price and Volume. I know in my original post I came off strongly in favor of Price and Volume, but there are two additional elements associated with market dynamics that I forgot to mention previously, namely Volatility and Divergence…

Given your demonstrated prowess with the subject of Options, I certainly don't need to elucidate on the topic of Volatility, but I will say that I think that it gets a bad rap. I could be wrong, but it seems to me that the word is only mentioned when the market is selling off significantly. Since the vast majority of people are biased to the long side, I guess it makes sense. However, I look at Volatility as a critical force in the Market ecosystem, but, then again, I am a Contrarian at heart. With every Yin, there needs to be a Yang…

As for Divergence, I think it is another effective, yet elusive tool. With that said, I think I've made significant strides just recently in not only seeing divergences form, but being able to confirm what I think I see on the chart. This is where I spend most of time when it comes to evaluating the galaxy of "derivative" indicators out there. I would be most interested to read your thoughts on the subject...

I wholeheartedly agree with you when it comes to the topic of Volume. I guess that's why found myself so intrigued with your Net Volume indicator, especially since I am a "Visual" Trader. I have to admit I was somewhat surprised to read that you employ Candlestick Analysis in conjunction with Volume Average as opposed to your own creation, but after reading just a little further I certainly understand why

You make excellent points about Supply and Demand with regard to Volume. I find myself frequently lapsing into erroneously thinking that for every Buyer there is a Seller. Thank you for not only declaring your thoughts on the subject, but further providing excellent, additional analysis and insights...

Well, although I had hoped to be able to craft a complete reply in one sitting, alas, life and circumstance tend to get in the way of the plans I would prefer to make. In this case, time is the factor I'm up against...it's 3AM here and morning tends to come rather early round these parts. As a result, I hope to complete my full response tonight when the dust settles...

Tanman, thank you once again for not only responding to my initial post, but also for taking the time and employing your admirable command of the art of "letters". While I hope to not be overly effusive, I must say I find it encouraging to know effective communication has not been entirely lost in this rapidly changing world of acronyms, emoticons and twittering...

Stay tuned for Part II

It's a good thing fingers don't need to take a breath when typing. You guys used more words in two posts than I use for an entire week.

Just three phrases get me through a full week.

Hulk tired!
Hulk hungry!
Hulk smash pewny-little boss!


Hehehe.... Just wanted to toss in some humor. Carry on!

Before I delve into the second installment of my reply, I want to thank Richie Rick for injecting a little levity into the ongoing discussion. Humor is *always* welcome in my book, so long as I am not the butt of the joke...just kidding...hahaha

Picking up where I left off, Tanman, I believe I was responding to your insights with regard to Volume, Supply and Demand. I found the following in my archive echoing some of your expressed sentiments:

Quote

The first thing to understand about volume is that it’s not just the volume by itself we’re interested in. A major misconception is to think that for every buyer there is a seller and in turn volume is null and void. If that were really the case then prices would simply not move. What drives prices is the fear and greed of the buyers and sellers. It’s therefore the relationship and interaction between volume and price that shows us what is really occurring in the market.

Think of volume as the effort of one side and the price activity as the result of those efforts. If sellers are desperate to exit then they will be more inclined to sell at the bid rather than sit back on the offer. If there is not much buying demand below the market then prices are going to be driven lower until those sellers are fulfilled or are unwilling to pursue prices any lower. Conversely, if buyers are desperate they will buy the offer and not sit on the bid. If buyers are desperate and there is not much supply above the market then you’re going to see prices move up until those buyers are fulfilled or unwilling to pursue prices any higher.

- excerpted from The Hidden Strengths of Volume Analysis

With that said, I totally agree with your observation of "pressure".

Quote
Tanman wrote:
I look at volume indicator more as a "pressure" in one direction or the other, either in demand or supply.

Quote
Tanman wrote:
This demand/supply or "pressure" could be created by either institutional traders or retail traders and analysis of volume in relation to location of price and range of price bar gives important clues about this.

I often think of certain aspects of market dynamics in terms of physical forces. The one that immediately comes to mind is "gravity". When I see a parabolic move, it is an understandably natural reaction to be drawn to the lure of a potentially lucrative payday as the financial instrument struggles valiantly to achieve escape velocity. However, my contrarian nature tells me once "gravity" grabs hold, a greater reward awaits the patient, disciplined market participant...

Quote
Tanman wrote:
Of course all of this is not absolute but "probable", which is why trading is not an exact science but partly art based on probabilities, unless the full and complete trading information including insider trading information is available to the trader.

Yes! Excellent point. We are awash in a sea of statistics, media misinformation campaigns and ceaseless blinking lights. Probabilities provide a beacon in the fog, but knowledge, coupled with actionable information, illuminate the path forward...

OK, enough expounding on the esoterics. Given my proclivity for being a "visual" trader, I've gone back to my originally submitted illustration of your Net Volume Indicator, Volume and Price in order to follow along with your "play-by-play" analysis...

I'm finding that what I thought I knew is quite a bit different from reality. Not to be deterred, I have hardened my resolve to further study your analysis and augment by searching both the Internet and my own archive. Bottom line...I'm going to follow your lead and redouble my efforts to focus on Candlestick and Volume Analysis. Once again, all roads lead back to Price and Volume

In closing, thanks again for sharing your knowledge and time. I look forward to more discussions going forward, time and circumstances permitting...

Gee mister, you sure talk funny.

All these big words makes Hulk's head hurt. lol.

Yeah...I'm a stranger in a strange land, pushin' the envelope a little bit, blowin' off some steam...

My prescription...for what's it's worth...take two aspirin and stop throwin' military hardware around in the morning

"Tanks" again...