You bring up some great points in this posting which I am responding to (I have cut most of it out to save space). For futures (I will use the ES as an example) there is a phenomena that can happen in all instruments I presume near critical s/r levels. This phenomena is called "stop-running", and many times traders are fooled by this into thinking there is a breakout taking place through a critical price level. For the ES, a "stop-run" is usually 1.5 points beyond the market profile level (what I use for s/r levels). This is merely commercial traders running the stops near these critical levels to grab inventory, to most likely flatten there positions that were carried to that s/r level. They are passing their held positions off to weaker hands (this happened 4 times at the 1347's on the 3'rd of Oct) at areas they determine support or resistance should hold. These are the same short bursts of initiated trading activity that many mistake for a breakout at key levels. The delta is the best way I have been able to differentiate initiated trade activity that is of "breakout" material versus stop-running activity at key s/r levels. Here is an example of the process of an actual "breakout" that was clear to me from yesterday at the 1347's which have been in play for two days now. Here was a SHORT off the 1347.25 market profile level bounce...... http://www.charthub.com/images/2006/10/04/ES_317_VB_5.png Here was a "snap-back" to trend LONG entry after a delta divergence up into the 1347 area......... http://www.charthub.com/images/2006/10/04/ES_317_VB_6.png Here you can see there was no real significant diminishing of the momentum as the 1347.25 MP level was approached......the commercials kept the gas pedal down as they finally popped the 1347's at this point. Price did not really lose momentum until we were then getting close the the recent ES highs at the 1350's..... http://www.charthub.com/images/2006/10/04/ES_317_VB_7.png Here is what the delta looked like when a real breakout again took place, and the busting out of the recent 1350.50 previous high level for the ES.......... http://www.charthub.com/images/2006/10/05/ES_317_VB.png As you can see, the delta can be used to differentiate when trading activity is a breakout or stop-running at significant s/r levels once the process is understood.
5pillars, thanks for very interesting information. If it is not a top secret how do you set stop-loss trading your setup (confirmed with delta)?
I use a dynamic "mechanical" entry method for all of my discretionary trading, which enables me to have the most optimal cost basis as possible. If you trade this with static entries (fixed target and stops after entry) you should probably have your stop at 5 to 6 ticks, with your first profit target at 5 to 6 ticks. After this you can adjust your remaining targets as you see fit while expanding the risk to reward beyond 1:1 .
Here was a good example of the delta divergence with shift to negative for a SHORT entry off todays highs......... http://www.charthub.com/images/2006/10/05/ES_317_VB_3.png
Also, it is important to mention that I prefer to have my entry within 4 to 5 ticks from the most recent pivot you are trading counter to.....anything less is even better imo. In this example, my entry was 3 ticks from the most recent pivot I am trading counter to........ http://www.charthub.com/images/2006/10/05/ES_317_VB_3.png
5pillars, Thanks for sharing. If you don't mind, I do have another question. Based on your 4 entries and even if I throw linear regression channel in to help, I have the feeling that I will still find quite a number of false entry signals. Granted, I have not tried this combination yet as under the old marketdelta, the candlestick charts were not available. But looking at your charts etc (and not just concentrating on the entries you took and realising that Linear regression channel will usually change ie what is shown at the moment will differ later on) + what I've noticed from my experience gives me this gut feel. My question then is how often are the false signals (if we consider only important levels and not just market profile levels)? If possible ,can you quantify it like say 20% failure rate on average? Thanks
I think in time if you had my set-up duplicated, you would know when the optimal entries are presented for you. My win rate is very high with all the variables I take into account for entry (market profile levels, the strength of the divergence and type, what the footprint is showing, etc.). I would say about 1/5'th of all my trade entries are scratch trades that I get out at roughly B/E or slightly better....so I do not allow a lot of trades to go against my entry. The monitoring of the delta once in the trade has enough information for me to know when to end a trade early, and this is important for the win/loss ratio. Still with what I have said, I can't think of a more precise way to make trade entries in the indexes other than using delta information (regardless if you use market profile or other indicators).
ive been using MD free trial for 2 days now and alli can say is that im blown away. it's like scalpers heaven when using teh 2min and 5min footprints. i also had a look at theinvestor r/t website and it seems that they are providing the the same prodct for a lot less. MD charhes $159 per month and i/rt charges $79. what is the core difference between these 2 products and does it matter if i only am interested in the footprints?
Loandfinder, I think (not sure) that if you use use IRT, then you will not have the footprints. BTW, curious, your footprint charts you are seeing is the 'bid*ask' and not just the delta? Thanks