Friday, March 29, 2013

Initial Balance and other things

Have been using the Initial Balance more and more lately, and so doing some more research and testing with it. I found some great stuff:

60 minutes is still often quoted duration for the IB. I wonder if this is still valid in today's markets? I'd certainly put the minimum at 30 minutes. For the DAX, I would even extend it, since the volume (and therefore commitment) is low until London opens.

Whilst on Jim's site, I saw a number of other articles, that looked interesting:
  • Article 1 (general article on using market generated data, i.e. market profile)
  • Article 2 (structure of market profile)
  • Article 3 (timeframe tactics guide)
  • Article 4 (day time frame confidence)
  • Article 5 (knowing what to look for)
  • Article 6 (on selling & buying tails)
  • Article 7 (on Initial Balance, same as I linked above)
There are a number of other articles and guides on his blog.

NOTE: Some of the above links were broken - I guess the original articles were moved / removed. I tried to fix some of them, but wasn't totally successful. I recommend you go to Jim Dalton's site, and have a look around. It is very educational.

Thursday, March 28, 2013

FTSE chart with session lines

Here's the Session Lines indicator (also Gap Highlighter to get the initial gap). The day started in range of the previous range, and price auctioned both sides to set an initial balance area. This was tested to the low side first, with a small break, but there was no follow through, and responsive buying pushed price back into the range. A failed test like this would normally be expected to test the upper level next, it did so, and was initially rejected - but not by much. A further test broke through without any significant pull-back, and rallied all the way up to near Monday's high, also a High Volume Node (HVN) going back to last week. There was some chop and action during US trading, as S&P made new all-time highs.

The point I want to emphasis, is the role of the Initial Balance (IB high and IB low), in this case once the IB was broken it acted as support level for the rest of the day. Unfortunately, I was trading the DAX today, and the IB was not so well respected, especially early on.


PS: One other thing I just noticed. On the left hand edge, you can see the yellow VWAP line of the previous day, this was pretty much the low of today, where the responsive buying was. I missed that, at the time, but in hind-sight, seems that the market pushed down to that level to re-accumulate at a good price before driving higher.

Morning DAX trade

There were a number of possible ways to trade the DAX this morning. Unfortunately there was German employment data at 8:55 - a time at which I would be travelling, and I didn't want a position with that in the way. So, I stayed flat until after 9am.

The DAX gapped-down, and fell further before London open. This happens regularly, at about 15mins to London open there is a drop in liquidity (people taking off positions, or not entering new in anticipation of London reaction), this usually sets in a new high or low, and fading this move can lead to a small trade. I wasn't comfortable with it today though because I was expecting gap-down on FSTE. As it turned it, would have been a perfect trade, and the gap closed. The push higher met with responsive selling, and would have been another good entry.

Finally, poor employment data, and general bearishness on all things Euro-related, and DAX fell again, I didn't catch it (was travelling), but caught a retrace to a high volume node. Currently in the trade, but not moving much just now. Will monitor.


PS: Unfortunately, was stopped out on this one - seems the banks opened in Cyprus ;)

Session Lines Indicator

I'm using a new indicator that I created called SessionLines. It's quite simple, all it does is track and display the session's high, low, open, initial balance high (IBH), initial balance low (IBL) and VWAP. These are all key levels when trading stock session-based instruments like DAX, FTSE and S&P. Not so relevant for forex, since there is not a clearly defined "session start time".

The initial balance period can be adjusted to suit the instrument, typically 30 mins or 60 mins is used. For DAX, I usually set it a bit longer so that it covers the London open too.

I will look for signs of support/resistance at  these levels.

Wednesday, March 27, 2013

Supply/Demand webinar

Good webinar, found on TraderKingdom.com.

DAX open gap

Yesterday was small range and choppy. Cyprus issues still hovering around. The S&P500 moved up on the Globex overnight, and I expected a small gap-up on DAX and FTSE.

The DAX gap-up was to yesterday's high, which would act as resistance, and took a small short before London opened. I expected FTSE to gap-up also, and this also normally drives the DAX higher too. I had another entry at the same entry level. Unfortunately, the DAX gapped-up and took out the high causing a stop-run, which took out my trade. I managed a small scalp to reduce my loss on this trade. The trade went on to become very good (currently 55 pips looks like it will target yesterday's low). I should have been more wary of the stop-run, with hind-sight it was an obvious target.


PS: A couple of hours later, after UK GDP data, DAX was down by 90 pips. Kicking myself now that I didn't have better stop loss placement.

Monday, March 25, 2013

Weekend gap trade on DAX

Markets opened with a gap-up, on news of a deal for Cyprus. I attempted a couple of trades. The first was a fade of the DAX after UK opened. I was expecting some retracement since, although a deal was struck there are a lot of issues: it was not a good one for Cyprus, it has not been voted on by Cyprus' parliament (as far as I know), it still involves a haircut which will not please the Russians. However, there was sufficient buoyancy, especially on FTSE, to lift the markets and I was stopped-out.

The next trade was to buy the VWAP at 11am, this is often a low liquidity time and there is often a fade towards the VWAP (or other significant support) which can make a good entry. Whilst this looked ok initially, there was a lack of follow-through, and S&P and FTSE showing signs of weakness too, so I closed the trade at break-even.


PS: moments after taking this screenshot  the price broke-down, so getting out of the trade was the right move. US activity picking up now, I will see what opportunities turn up later in the day.

PPS: US activity eventually closed the gap. The US open is something I need to master; there was an initial push back up, then a reversal at 10:00-10:30 EST. I noticed that happens a lot lately. The gap closed as I thought it would (on fundamental grounds), but I was confused by the initial upwards direction, and despite scalping a little didn't manage to pick up anything significant. In hind-sight, my closed VWAP trade should have been a "stop & reverse".

Friday, March 22, 2013

DAX morning gap trade

Well, Cyprus situation still dominant. Overnight news that deals with Russian finance had not been made. S&P Globex down overnight. DAX opened gap-down as expected. I caught the 76% Fibonacci retracement and entered short. Took quick profits on a spike down in advance of German IFO data, also S&P in a narrow wedge so a breakout looks imminent.

Wednesday, March 20, 2013

Updated price list

I've updated the prices of some of the indicators on the products page.

Currency Strength Indicator and Multi-Instrument Compare are reduced in price. Footprint was increased in price to account for the increased functionality and efficacy of the latest version.

Tuesday, March 19, 2013

Great video from Tom Alexander

Caught this webinar on YouTube, hosted by TradersAudio.com.

(It's in 3 parts. It's a bit of a sales pitch to sell Tom's courses, but I still liked it)

Part 1
Part 2
Part 3

Here's another one...

Alexander Trading

FuturesTrader71 on BigMikeTrading

Great video with FuturesTrader71 on BigMikeTrading.

Interesting video/tweet from OrderFlowEdge.com

$ES_F, Selling into The Buy Stops and Buying into the Sell Stops, Video

Cyprus crazy price action

Wow, well today started out quite tame. I was expecting some movement, but it didn't really kick-off until later in the day. Actually, when US opened it was a fairly balanced action, eventually a move down to close the gap from yesterday and test a demand level, then signs of buying at these levels. All fairly normal so far.

And then... news from Cyprus that the finance minister was resigning (this was later denied), but it was enough to set the markets off. Would the vote go ahead? What would happen? Well, price went down, slowly at first and then a huge drop. All those longs from earlier in the day are now stuck on the wrong side of the trade!

The day continues with rumour and news, and the market chopping around not knowing which way to turn. Eventually, there is news that the Cyprus parliament rejected the savings levy. Ok, so is that good news or bad news? Well, savings will be ok - but what about the ECB bailout? There was a tweet that ECB will continue to provide liquidity using existing rules. But under what conditions?

There was a very good summary on FXstreet.com.
“Cyprus has rebuffed the outstretched hand” of its partners, Hans Michelbach, a German lawmaker from Chancellor Angela Merkel’s Christian Democratic bloc and the ranking member on parliament’s finance committee, noted in a statement. The vote is “an act of collective unreason” and “the people of Cyprus must now pay a high price.”

The ECB said it “takes note of the decision of the Cypriot Parliament and is in contact with its Troika partners” from the International Monetary Fund and the European Commission, according to a statement. “The ECB reaffirms its commitment to provide liquidity as needed within the existing rules.”
Here's what the price action looked like - showing the Footprint and gaps.

Post Cyprus news - everything fairly quiet ...?

I was expecting more of a sell-off yesterday. However, the promise to take another look at the savings levy seems to have calmed the markets, and many currencies and stocks retraced much of their losses on Monday. EUR was worst-hit of course, and still remains very subdued.

Was it all a storm in a tea cup? Or maybe the calm before the storm.

Cyprus have a modified bank levy deal, but it might not make enough money to satisfy EU and IMF. So, expect choppy waters.

Here's Currency Strength Meter, from start of the week.

Monday, March 18, 2013

FTSE gap today

Well, today was a big day, but it didn't quite go to plan. I was hoping for some retracement, then a big risk-off move. Instead we had mostly retracement. The banks in Cyprus are closed, and they will vote later about the savings deposit levy. So, maybe this was enough to calm the markets. I'm still expecting a little risk-off, I think maybe tomorrow.

Here's the FTSE100 opening gap. Huge gap down, which retraced 50% very quickly. I didn't get a comfortable place for an entry. In hindsight buying the opening would have worked out fine, but its never that straight forward when you trade live. Market got choppy when US opened, and I had to wait for the gap to close to enter a short. Unfortunately, this took me into the London close, and I closed out for just 12 pips (don't like keep overnight trades).

Equities gap-down on Cyprus news

Well, obviously there was a gap-down on equities as markets opened after the Cyprus savings levy news.

DAX and FTSE gapped-down, and currently retracing. I'm looking to the SPX500 as a guide to see what might happen. Currently, this has retraced back to its opening value, and there is obvious resistance level there. I suspect it will break out and continue up, maybe even closing the gap fully. However, I expect to see a big reaction once the US wakes up.

Sunday, March 17, 2013

Cyprus bailout - levy on savings

Well, the news from Cyprus was a surprise over the weekend.

In order to meet EU and IMF, the Cyprus government has decided to raise funds from ordinary savings accounts up to 9%. Cyprus has a top-heavy banking sector, and is considered somewhat of a tax haven, it has many foreign investors. Cash-machines already run dry as people take out their savings. The worry is that this "idea" could spread to other countries (Spain, Portugal, Itally?)

As the markets open in Asia, there were big gaps. Here's a view of several equity indices, USDOLLAR and gold.


Here's the gap in SPX500.


And here's the Euro.

Friday, March 15, 2013

DAX open gap-up fade trade

DAX opened up this morning, but with no follow-through. FSTE did not gap up, and this was signal for a DAX fade. Using Fibonacci levels to gauge the strength of the pull-back. Took profits at 50% and trailed the rest, which closed finally near the gap origin. This was "text book" - need to do more of these. Yesterday, DAX gapped-up and then continued up (without a good place to find an entry), but today was different - there were clear signs in first 15min candle that this was not going to rocket up, but wait for London.

Friday, March 8, 2013

Look at the NFP news with Footprint

Here's the S&P500 during and after NFP today. As normal, narrow choppy range as people jostle for a good position prior to the data release. The data was +236K, and unemployment better than expectations as 7.7%. Good news! However, this also means that less QE will be required, which is not so good for equities. There was initial rally, followed by some profit taking (it is Friday, and the equities at all time highs - nobody wants to be stuck at the top on a Friday).


Profit taking (long liquidation) means exiting some existing longs - not initiating more shorts, and the pull-back is short-lived. It produces a classic 'b' shaped profile.


It's Friday, and end of a busy week, I wouldn't expect anything too dramatic to happen from now on - just chopping around the current Value Area.

Here's the Footprint of FTSE100 over a similar period.



And here's the DAX, which shows a similar story. The Footprint shows were the volume is, and if price breaks from it, and re-visits later with less volume, it is usually a good chance for a scalp entry.

FTSE100 gap-up and chop prior to NFP

FTSE (and other equity indices) opened with an gap-up today after good numbers from China. However, there was no follow through, and the market retraced.

Today is NFP day, and there's probably a lot of traders sitting on their hands until after the news. In such conditions the markets get choppy, but usually revert to the mean (i.e. range bound market). This can actually be good for small low-risk trading opportunities.

In the following chart, I put a Fibonacci line on the opening bar (including the low from yesterday's close). I am finding that this gives quite a useful predictor for gap retracement or continuation. For example, after the initial move up there is generally a pull-back. If it pulls back to 0.50 Fib level and there is no sign of more demand, then it is very likely to close the whole way.

I'm using the Footprint as well, you can see the responsive buying and selling entering before the market changes direction. The moves are quite small, but predictable. I made a few scalps here today. But I am flat now awaiting NFP.

Wednesday, March 6, 2013

Average volume and range study

I performed a simple study of the hourly range and volume of the FXCM CFD's UK100 (FTSE100), GER30 (DAX) and SPX500 (S&P500). The volume data is tick data, and so is only representative of true volume (the absolute value should be ignored). The time axis is GMT.

UK100 (FTSE)

UK100 has largest average range at the 8:00 open, although the highest volume is at the US open (14:30). Around 12:00 there is particularly low volume, due to lunch and also in anticipation of US open. Low volume times are particularly subject to some manipulation, e.g. being driven higher or lower into a high liquidity zone.





GER30 (DAX)

GER30 has highest range at 8:00 and 14:30. The open of DAX is high, but it seems it likes to wait for UK to open before committing too far in a directional move. Low volume area at 12:00 again.





SPX500 (S&P500)

For the S&P the highest range and volume is the open at 14:30. There is also significant range at the UK open (8:00) and just before the close (20:00). There is low volume area around 18:00 which could be subject to some manipulation (i.e. being pushed into areas of liquidity).



Tuesday, March 5, 2013

Footprint volume tracking

The Footprint volume tracking shows extreme low or high volume on the Footprint profile. Here you can see that when price revisits the POC of the opening balance, there is very low volume and the price is rejected.

Order Flow Analytics

Q&A session hosted by BigMikeTrading.

On YouTube

Monday, March 4, 2013

Deep areas of liquidity

Interesting video. The guy is incredibly slow to get to the point (you might want to skip forward a bit since he says the same thing over and over again).

Sunday, March 3, 2013

VWAP Study

The VWAP (Volume Weighted Average Price) is defined in Wikipedia as follows...
"In finance, volume-weighted average price (VWAP) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price a stock traded at over the trading horizon.
VWAP is often used as a trading benchmark by investors who aim to be as passive as possible in their execution. Many pension funds, and some mutual funds, fall into this category. The aim of using a VWAP trading target is to ensure that the trader executing the order does so in-line with volume on the market. It is sometimes argued that such execution reduces transaction costs by minimizing market impact costs (the additional cost due to the market impact, i.e. the adverse effect of a trader's activities on the price of a security)."

It is calculated according to the following formula (from Wikipedia):


Of course, with MarketScope 2.0 there is only tick data, no real volume. However, here we assume that tick data is a reasonable proxy for real traded volume.

A simple implementation of VWAP applied to say a chart with 1 hour bars/candles, will compute the sum of price x volume, where the price is the closing price of the bar and the volume is the volume for the bar. However, this is clearly not the real case since the volume does not all appear at the closing price, it is spread throughout the whole bar. However, since this is an average the result will be the same if we assume that all the volume applies at some "centre of mass" in the bar. But how, is this "centre of mass" calculated?

I performed some experiments with a VWAP indicator applied to SPX500, using various timeframe data to compute the VWAP (tick data, 1min, 5min, 15min, 30min, 1hour).

The first thing to note was that the VWAP for tick, 1min and 5min data were almost identical. This is good, since working with tick data is resource hungry. Even 15min was very good, and probably fine for most analysis. Using 30min data and 1hour data led to poor results.

Here's a chart of the multiple VWAPs.


The other thing I wanted to asses was the price value used in the formula. I had seen various implementations using the closing price and typical price (defined as (high + low + close) / 3).

Using 1hour data, and tick VWAP as reference I evaluated 3 types of price: close, typical and median.

The worst performer was the closing price. On 1hour bars it gave significant overshoot. The best performer was median, which gave very similar results to the tick data. Here's the chart.


I conclude that on shorter timeframe charts (e.g. 1min or 5min), then these all had very close results, and the use of a tick-based VWAP computation was probably not overly beneficial (compared to the effort and hassle of using the tick data). On longer timeframe charts, e.g. 30min, 1hour or lager then it would definitely be better to compute the VWAP value from faster timeframe data (e.g. 1min or 5min). A 15min chart is somewhat in the middle, but probably adequate. Furthermore, median data gave the best results when approximating the "centre of mass" for the bar, although the close price is the one normally used in literature.

NOTE: the use of median or typical price assumes that this is computed correctly. In particular instruments that have session open gaps (e.g. DAX, FTSE) must use the correct open price otherwise than this could throw out the computation for the 1st few bars.

NOTE: although the use of close price was the worst for 1hour bars, it is probably the best choice for 1min and 5min bars.

Saturday, March 2, 2013

VWAP

VWAP = Volume Weighted Average Price.

Some educational links from internet: