Intraday FX Player

Well done Guys on the calls. CV we had a break down as you saw except it was after hours fiddling with the prices and that was corrected for the open so the box is still intact. You will probably find that will effect hoe you now see the move.

There are two readings necessary for Mondays. One is the closed market reading and then again Monday realtime because the open can gap away from Friday's close.

At the monent the short term pressure is to the upside inside the box but that is a divergence against a falling CCI. That tells us a lot that PA alone can't.

 

THOUGHT FOR THE DAY: PA IS A DERIVATIVE THAT LAGS INDICATORS!
I’m going to take a contrarian view to the popular “PA Rules All” type of ET posts and take PA into the witness box to see if the evidence supports their verdict. The pet theory goes something like this: “Indicators are a derivative of PA so they all must lag PA and thus provide no benefit whatsoever.” To prove this is correct PA-Only types run a single indicator on a single TF thru a back test and produce abysmal results. My belief is it’s closer to the other way round (PA lags indicators) so let’s examine the evidence and institutional weight of money.

When a trade is placed it is recorded as three distinct components or dimensions… Price, Time & Volume (PTV). Without all of these a trade ticket is incomprehensible. Yet “PA Only” folks reduce this to Price Alone rules everything e.g. P&F, Line, Range Bars etc., or for others Price & Time Bars are seen as supreme. Yet for some DOM traders or T&S Tape Readers, PTV is the only true PA because the fact is… Price or Price & Time are just derivate/subsets of the original PTV trade.

So while PTV was essential to make sense of the initial trade, TA allows the technician to use any one or combination of PTV to arrive at meaningful conclusions. If we think of PA as only P or PT we are clearly only dealing with a portion of the information available when each trade was made.

Time is bizarre. Generally we think of time as a linear series of events thus A happens, then B happens etc. The reality is time is a physical property that can be changed so Space Time is different from Linear Time (e.g. take 2 atomic clocks round the earth at the same speed/circumference but in opposite directions and return at exactly the same time, yet the time registered for the journey on each clock is different). This has major implications for P&F, Cycle or Range Bar traders and indicator results… TL’s are different on P charts to PT but still they are perfect. Sigma traders see the TL’s as curves instead of straight lines.

And lastly volume can be dissected and displayed in different ways like Total Volume or Ask Vs Bid Volume and shown as V (histogram below P) or PV (e.g. standard Volume bars) or PTV (fat/thin bars) etc.

Then just as the technician has many ways to construct and analyse the PTV Trade so the math programmer has many ways to inform us of the complex dynamics of compound mathematical relationships that exist between PTV in every trade by constructing a myriad of indicators.

But 1st we must define what an Indicator is or what it is designed to do before we can pass any judgement on its merit. Here’s the dictionary definition of an Indicator: a device to measure the pressure, volume, condition or the presence/concentration of a certain constituent. So an indicator provides a lot of crucial information and that makes understanding how to read and use it a highly skilled ability. In any other complex business management where high risk is involved, if someone tried to draw meaningful conclusions by the rule Take Critical Action up thru 20 or down thru 80 on a single indicator, they would be imprisoned for professional negligence when the folly of their stupidity became clear by the destruction of the business. Trading is no different.

 

Take as an example a Nuclear Reactor: the 1st thing we want to know is that effective Risk Management is in place but we hope it will never be called upon. Instead we hope they will continually evaluate the indicators for Supply/Demand, current energy levels and future potential Demand Action Points, safety and many other issues. If the manager had left control in the hands of a rookie with the instruction do such and such around 80 or around 20 on a single indicator we would want a public hanging. Yet PA traders seem to think that’s how indicators work and merrily back test to prove how clever they are.

Any TA indicator can take sampled historical components of PTV and provide us with a range of information that (P or PT, referred to as) PA cannot. An indicator can tell us such things as the Supply/Demand or Fear/Greed or Emotion/Energy or Risk/Reward in a single Price Bar or group of bars and much more. In other words it can tell us if this bar has energy to breakout and run hard before there is any PA signal of a breakout. Indicators allow us to read energy levels and at times say when to pull the trigger where PA is messy and inconclusive. It can warn in advance of a false move and that a reversal/continuation trade is about to happen that PA can often only show after the event. But the indicator is a tool that requires skilled use to enhance excellent PTV reading skills. It is designed to be read with PTV.

To prove PA can lag behind an indicator lets take a confirmed Trend Line as a simple indicator. In plane geometry it takes a straight line between 3 historical points and uses P or PT to project a future Trade Action Point ahead of lagging PA. This future point can be “ATM Time” when lagging PA eventually catches up.

Or take the example of institutional VWAP where the Volume Weighted Average Price is so powerful institutions trade huge amounts of money in the belief that lagging PA will move to the VWAP moving average. Here we have billions of $ betting PA alone does not tell all nor determine the market direction. P will move in the future to the PVT Moving Average (calculated as VWAP) even if that requires a strong reversal… because PA lags and lacks the information needed for this future projection.

Next let’s take horizontal S&R. Like it or not it is an indicator we are projecting into the future and when lagging PA gets to this S/R we have a Trade Action Point. However, Wyckoff discovered that if we only look at PA we are not building a complete picture of all the information the market provides, because PA at that point is only a derivative of PTV. There are 3 dimensions present at the trade and critical to Wyckoff. PA with just two is totally inadequate to read the condition of a single bar or group of bars.

Thus the candle can show exactly the same formation as the last time PA reached this S/R but Volume often tells what Future PA will do before the next candle forms… because PA is a lagging derivative. Wyckoff says we must compare like with like and that means comparing all PTV’s at S&R’s and never a single PA alone. PTV1 (where 1= average volume) and PTV4 at the same S/R is very different from two Price Bars that look identical. If we know that V4 comprises 3 sellers for every 1 buyer and the next bar starts strong selling we can sell short well before any PA signal is available (well before the bar completes)… because PA is lagging the indicator.

 

I could go on and on but the examples become more sophisticated. It is sufficient to say many institutions have sacked their high paid TA’s because sophisticated computer models have been developed that are faster and yield better results. Yet “PA Rules – Indicators Lag” is a favourite mantra in ET. What really lags is traders abilities to keep pace with developments in trading (unlike Institutions who dispense with TA’s) and their ability to understand the spectrum of information an indicator provides and how to design, read or employ indicators. It is impossible for one indicator to interpret all the complex mathematical relationships between current and prior PTV. A minimum of two indicators with a completely different math basis is required.

While a TL or S&R are simple indicator projections from a few prior Trade Action Points, indicators can involve millions of calculations that qualify present PA and project future Trade Action Points, or tell the best action to take now when PA gives no clue of the significance of the imminent move. But to really understand all the information oscillator indicators provide requires multiple TF’s and an awareness of the full spectrum of information each provides rather than just Buy over 20 etc.

The fact is PA is always a derivative of PTV and simple analysis shows PA not only lags certain indicators as in the examples above, but indicators provide quality information not yet available with PA until after the next move has happened. There is a constant evolution of methods to predict where lagging PA will go or it’s current condition and energy and so the biggest volumes of money are traded using these future indicator predictions (like VWAP).

Meanwhile the PA-Only Brigade insists on using naked techniques that often predate Henry’s Model T Ford. While these old techniques work most of the time and I traded them in the past… this is the computer age when millions of calculations per second are available and I just wanted to move on and find something better in chop and small TF’s and with better prediction capabilities.

So my reason for mentioning all this is to encourage you not to stop at excellent PA skills, which is a sure moneymaker, but to use multiple TF indicators that encompass the whole trade (PTV) to earn more than you would with PA alone because… PA is a derivative and thus often lags indicators. Do not be put off by those PA-only types who have tried and failed to make indicators work. They demand to see a perfect single indicator that works in one single TF with typical Buy thru 20 Sell thru 80 signals. When your expectation is flawed your experimentation will be more flawed. Use combined indicators to tell you the condition of a bar or group of bars in a multiple TF view. Oscillators Indicators should be read in conjunction with your Bar/Candle Signals and TL and S&R work and not in isolation.

Back testing a single indicator in an isolated TF shows a total lack of understanding of the spectrum of information an indicator provides or how it is used, yet this is the favoured evidence that indicators don’t work and lag PA.

My expert witness proving the simple subset incorrectly referred to as PA lags behind an indicator is Institutional Money. If you want to discover truth… follow the money! They sacked their TA’s and bet $bn’s that PA lags indicators. Now you know the prize, can you guess the effort involved? That’s why those who crack indicators feel no desire to show off their wares – it’s their edge. That’s how I can stick my neck out and predict the day’s game plan and when the ATM time is about to happen, when a move will fail and I can not only micro and swing trade the trend but also trade chop against it.

So I put it to you PA is a simplistic derivative that lags indicators and having presented TL’s, S&R, WMA and daily game plans in advance of PA as real time evidence in this thread of indicators leading PA, I now present my evidence of VWAP as a lead indicator to the subset referred to as PA. I rest my case.

 

a sample VWAP chart

 

yoohoo when u trade from your living room or office ,the indicators are all u have,but when u trade from the pit if you can't trade pa you'll get buried,the pit trader has no idea what those indicators are for and most don't even look at charts,and once u start using all the indicators,you sort of have information overload and u can't see the pa,so its hard to be both a technical trader and a pa trader,you need to be one or the other

 

Morning Guys..


Short HSIK8@636@10:20, stop at B/E

 

I have to agree and disagree. I don't think you have read the thread - we major on PA first. When pits close for good and floor traders become screen traders they usually fail because floor trading involves many dynamics that no chart or indicator will show. That's why many traders use a squawk box. Some floor traders do refer to charts and a very few use indicators but on the whole it's hit the stops, run with the named volume traders and use the pivots and listen to the noise. P&F on the back of a packet of ciggs is not unusual. We have an ex-floor trader in the thread.

Starting to use multiple TF's causes information overload as does developing your TF's. Later adding indicators causes the same overload problems but it can be learned. You are correct it is hard. If it was easy everyone would do it. I disagree that you have to be one or the other because it is possible to combine both and be more effective.

 

stopout trailling 600..

 

RE: THOUGHT FOR THE DAY: PA IS A DERIVATIVE THAT LAGS INDICATORS!


thanks for this mighty post YH, will catch up on this this lunch close..