Spydertrader's Jack Hershey Futures Trading Journal

THINK VERY CAREFULLY FOLKS!

What separates some of us is knowing how to know. For me, it is an excercise in logic followed by the usual "aha" because now I see it which then solidifies the belief system.

Think about how a 2pair looks like on a DOM. Then think about how you can scroll this picture from the DOM. So the picture Jack threw up moons ago, was before there was ever a way to chart the picture he knew and could visualize. I don't want to lose folks so I won't dump out a 5 page dissertation on the logic simply because, the market is open and active for some .

So let's zoom out a bit. Let's say you were just observing your price bars. You can actually see two pairs at the EXTREMES on your price bar especially your Pt1s, 2s, 3s... Ask yourself what a 2pair at those critical point looks like if you only had bars. Easyrider saw them and he did not look at DOM or TICK charts. OK, so I admit, the tick chart is a misnomer of sorts. It is not intended to be price ticks. I intended it to be BID/ASK PRICE PAIR TICKS (ie. DOM TICKS). WHY???

Well if you look at your bars, perhaps some of you can see that there is the close thingy flailing at times. Some know the part that sticks out as simply the flag. Well when you watch it, you see that it bounces back and forth largely between 2 prices (ie. the bid and the ask). So for me, when I am looking at a 2 pair, it is really 3 price points since ultimately it is the DOM that is doing the 2pairing. In other words, the 2 pair is a reflection of the BID/ASK pair movement which directly corresponds to the minority balance.

At the point at which you are 2pair calibrated, all you care about is which of the 2 pairs is dominant (ie. an upper pair like 1400.25B/1400.50A or a corresponding lower pair like 1400.00B/1400.25A).

For me, the point of using the range charts is so that I can more closely match the DOM pair. Yes, I admit that it is not perfect since the ideally, one would want to plot the DOM price as opposed to the executed price (T&S). However, if you believe your trading requires the DOM & TICK charts to make the difference between banking and not banking, then the effort one will make in sorting this FINE RESOLUTION detail out will be fruitless....

MAK

 

that's what I noticed as well... and adapted to position my trades accordingly. ;-)

 

I was reviewing my notes and noticed a conflicting description what the forest level should be.

I have attached a figure of what I interpret as the correct definition of the forest and tree level is and how long a trader in the tree/forest level holds a position. This is assuming someone trading FTT to FTT at each level and not considering the Feb instructions of waiting for RTL break to exit.

Confirmation if correct or correction if wrong would be appreciated.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=1569061">

 

08-15-2007 ES Chart

- Spydertrader

 

Looks good to me. Nice drawing.

- Spydertrader

 

Hello,

I must admit I really don't understand much of what is written here. I guess I don't really know (yet) what is a "2 pair"....

I use a one tick range chart and on critical moments (FTT, BO, pt1, 2, 3) I check the tick chart (among others) when price is bouncing between two values. Then I try to discover which side is dominant (by checking the gaussians) and how price behaves at turning points. When I take a position and the tick chart suddenly invalidades what I thought that would happen then I immediately exit. This is reliable and imo a very early exit (usually no loss).

It that how I am supposed to use it?

regards,
Ivo

 

Hey Bi9,

Cool illustration. The Tree level holds make sense to me but I question whether or not one can actually trade at the Forest level resolution FTT to FTT. It seems to me that if one attempts to trade Forest Level FTT's, you have to zoom in to the Tree level, perhaps unknowingly.

For example, in your drawing, one really doesn't know if the Forest FTT is an actual Forest FTT until much later in time (Forest RTL BO, etc). So, if one reversed at this FTT, you've really zoomed in to the Tree level.

It occurs to me now that this may be the reason other "guidelines" were invented to trade the Forest level. If I'm on track, these guidelines help keep one at the Forest resolution.

Makes sense anyone?

spooz

 

I do agree that one might have to drop down to the tree level when looking for the FTT at the Forest level because the forest FTT will also be the tree level FTT.

With regards to finding the real FTT on the Forest level if one monitors for continuation/change one will find the real FTT (maybe after a few reverses to get back on the right side if one mistook a flaw for a FTT).

Your question got me thinking about the Forest level FTT->FTT hold and <b> if it is in fact possible</b> to hold like I have shown in the diagram. The problem I see is that a trader does not have a forest channel until the forest point 3 is formed. If one is long from Pt1, the person is still long through the duration of down pt3 channel without knowing where the FTT will occur for the forest pt3. My drawing is one scenario, instead of that the pt3 down channel could go below the pt1 entry. Maybe the trader stays long unless
1) a forest level R2R forms or
2) a flaw in the forest non-dom direction forms.

Spy do you mind sharing you thoughts on this OR is a point 3 entry the solution for the forest level since one knows the price boundaries for the forest channel?

 

To understand the true nature of your problem, one needs to review why a Beginning Trader might choose to trade on the Forest Level Resolution. Remember, many beginning traders experienced difficulty locating an FTT (when the Journal first Commenced Last January). As such, we created a 'Point Three' Level Rule Set which - among other things - had the Beginning Level trader take action only along the Right Trend Line. The Forest Level Resolution provides a learning environment (for understanding how to find FTT's) while providing a strict construct for following the market, and taking the first steps toward differentiating between - continuation and change. One should not only look for FTT's on the Forest Level Resolution. One should look for FTT's among the Trees as well. Why? One could experience an FTT on The Forest Level without having an FTT on the Tree Level (old parlance - traverse). As such, technically one cannot trade FTT to FTT on the Forest Level.

Some traders have altered this method (Forest / Tree) somewhat and choose to enter on the Point Three, and then, exit on the Left Trend Line. However one chooses to learn to trade, the single most important facet is learning to differentiate between continuation and change. Which fractal one uses to do so, is immaterial.

- Spydertrader

 

How to 'know' I have a pt 3.

There has been some discussion about trade execution previously in the journal. As I found out, trading with real or simulated money before one is ready is detrimental to learning each step, and mastering each step, before the next step is taken. The syllabus has trade execution later in the year but, I am now jumping slightly ahead and practicing sim trading. I mentioned this to the OP and got the ‘green light’ to write this ‘homework assignment’.

Trade execution has already been mentioned; it is a separate skill that needs to be mastered. So for the easiest place to practice it I go back to the beginning of the journal for our modified beginner trade rule: enter on pt 3 and exit on RTL break. Which leads us to ‘how to know we have a pt 3’?

First the obvious, pt 3 follows pt 2, just as pt 2 follows pt 1. So we have a sequence of price events that always occur to form a PT 1 2 3 channel.

A pt 1 is usually but not always a FTT, sometimes it is on the LTL. A pt 2 usually but not always is an initial extreme price move away from pt 1. The initial extreme price can be greater than pt 2 based on the slope of the channel (which we don’t know yet) because we are waiting on pt 3 (which determines the slope). This is a dominant price move. A non dominant price move away now gives us pt 2. Our pt 3 occurs when price moves in the original pt 1 to pt 2 dominant direction. What leads this pt 3 price? Increasing dominant pro rata volume.

The pt 1 to pt 2 is the new dominant trend but will show decreasing volume relative to the old trend until BO of the old trend’s RTL, then increasing volume follows. (Note; this is on a lower Gaussian resolution). Pt 2 to pt 3 will have decreasing volume relative to the pt 1 to pt 2 volume. The pt 3 is the start of the dominant trend on increasing volume and rarely starts on the low price tick of the bar; therefore, we usually have an intra bar Gaussian shift – from decreasing non-dominant volume, to increasing dominant volume. We use pro rata volume for this. Note also the non-dominant traverse to pt 3 can be a lateral channel where decreasing volume still applies.

When using just the ES chart, we are using the coarsest tool and our entry price will be in a ‘zone’ not an exact tick. The only way to get a better price is to look at finer tools.

For our sufficient data set in the context of waiting for the pt 3, we have price in a non-dominant traverse from pt 2 on decreasing volume. No need to look any further. We are ‘continuing’ the retrace and anticipating ‘change’ at the pt 3. To see change using only the ES chart, all we need is increasing pro rata volume in the new dominant direction.

If more information is needed, then a look at the YM chart would already show a pt 3 and price moving in the dominant direction on increasing volume.

If still more information is needed, (YM chart forming pt 3 at the same time, i.e. no signal from YM) then look to the STR/SQU.

If yet more information is needed, go to the depth of market (DOM) and, time and sales. Still no signal? Go to the tick charts.

This is how to improve price for entry: go down the rabbit hole (lower resolutions) and then quickly come back out again once the price bar is complete, then start back only on the ES chart again.

So how do I ‘know’ I have a pt 3?

Using only the ES chart:
1)Already have a pt 1 and pt 2
2)Price in a non-dominant traverse on decreasing volume
3)On ES chart, pro rata volume goes to increasing dominant volume

When you know you have a pt 3, enter the trade.

I only covered the coarse tool here; we can discuss the finer tools also.



So how do ‘you’ know you have a pt 3?

Or if trading at a different resolution, how do you ‘know’ when to enter, reverse or exit?

What clues tell you it's time to trade?

-Mike