Price Attraction Points

These areas meant when combined with VAP or VbP on stock charts always show little volume.

Anyone in to the challenge to setup an example with forex?

does this work. want to go short so bad but too chicken

good example of W retested.

but when do you take the trade?

[quote=wmd;4297425]Practically every trading system/method/approach i've seen, read or heard about is based on finding a Reason for Entry.

Its a trend line or s/r level, its a moving average or a momentum indicator, its a harmonic step or a fibo or a fibo confluence, its mercury crossing venus, its even an airplane in the night sky like a shooting star (save your wishes for later).


I have an awkward habit of over complicating the elementary, so by way of example consider the following:

If you knew that the euro would reach 1.60, rather it must reach 1.60, you would buy and wait. You would not panic if the position was against you for a while (time aside), because the price must go to 1.60. You would not panic if the position was against you several hundred pips (leverage aside) because the price must go to 1.60.

Wow!!!

[quote=xman;4341554]
and price was 1.29 when he said it!!!!

come on Will. spill the beans

voir par vous-même

[quote=plasmapants;4345890]
Yes, yes, incredibly !

[quote=plasmapants;4345890] Come on Will, give as little bit more crumbs, please.

I spend a lot of time looking at these price levels and noting them on one of my chart sets. I look at several time frames and note all that I can id. My experience is basically that the market will return to these levels. It is just a matter of time. I break them down into short term to long term levels, but I trade each day the short term levels (unless there is a break to one of the longer term levels).

There seems to be a lot of interst in the break out strategy described above, but this concept can be broadly defined to include more that just this break out approach. If you are interesting in another study, think about taking any time frame, look at every candle, and find out where every candle's open price is revisisted, or at least .618 of the candle is revisisted. I've studied this for a long time and it may change your views of entry and exit.

WMD thanks!!! for starting this thread it really can be beneficial to seasoned traders. Most discussions in forums leave a lot to be desired when theory meets the real trading world. Buy at a support level or sell a resistance level, pin bar here, rsi is oversold, or ma cross. None of this will give you a long term edge because its just a minimal part of the trading equation. Well enough about that but this thread is different some real professionals may just chime in on this one.

I'm currently spending a lot of effort on this principle you are discussing so I was quite happy to find this thread. In general the most promising discoveries for this concept involve the market profile structure and Auction Market theory. Chart patterns don't reveal enough information to be professional grade. Thats not to say it cant be used but without good information one is not operating in the market intelligently. You simply cant have the proper confidence that your level will be retested.

What got me started in thinking about this was why does the market backfill gaps or why does the market backfill dislocation points in a rapid manner. Like for example when that glitch happened last summer in the equity markets and the dow lost like 1000 points very rapidly. Which technically wasn't a glitch because trades existed at the lows and on the way down. Or in 2008 when the congress didn't first pass the TARP bill prices sunk like 600 pts. Both instances and many more price came back relatively quickly to the levels right before the major move. This past December I was lucky enough to have an intern position on the Merc in the S&P pit. I discussed this very concept with a few really knowledgeable traders. My theory has always been its minor manipulation those in know allow price to come back. Either they profit from it or at least don't fight it. Kind of like a gentleman's agreement. Important professionals (Goldman and the like), dealers and market makers got caught rapidly on the wrong side of the market so they bring it back or close to those levels where they can readjust their books at favorable levels. I gave extreme examples but I think this very principle happens everyday but not really with the collusion or manipulation part taking place. Basically a key operator will begin creating a position. Say price goes against him 50 pips from where he initiated but nothing has changed fundamentally or in the inter-market way. He will most likely still be trading around his position or even acquiring more longs or shorts at a more favorable level. He will at least bring price back to a key level where he will show some sort of profit. Sorry for the run ons I didn't put careful thought into what I wrote.

Anyhow what does all this mean and how can it be traded. Firstly targets will backfill 80% of the time and 20% of the time it won't backfill in a practical amount of time. Just a rough estimate I dont have data to back that up. I think price comes back like 99.5% of the time but if you have capital tied up to long its just not practical. The key is be on defense for a trend day and don't trust anything on those days because something much bigger may be in the works and that is where you will lose your money insisting that statistically that a level needs to be backfilled. Quite simply in a range market this principle is a great way to accept risk. In a trending market its kind of shady and you can lose all you made over a long period of time very quickly. So really just turn it off when markets go to trend mode. There is a lot of quantative information out there in the public domain to help one determine when ranging environment is shifting to a trending before its totally apparent to the naked eye.

Here are some articles that can assist in the thought process of this principle. They are from Dr. Steenbarger a truly great educator.

How I Trade: Handicapping the Odds of Hitting Pivot Points

Pivot pointsare prices that have been used to identify potential spots of support and resistance. Can we use information generated during the day to help us identify when we're likely to hit pivot points? For this study, I calculated the market pivot as simply the average of the previous day's high, low, and close. The first resistance level (R1) was (Pivot x 2) - Yesterday's Low. The second resistance level (R2) was Pivot + (Yesterday's High - Yesterday's Low). The support levels were the reverse: first support (S1) at (Pivot x 2) - Yesterday's High; second support (S2) at Pivot - (Yesterday's High - Yesterday's Low).

Since 2004 (N = 762 trading days), we've had 387 occasions in which today's market hit R1 and 339 occasions of hitting S1. We hit R2 151 times and hit S2 156 times. Now let's look at whether today's NYSE TICK is greater than the average TICK level for the previous 20 trading sessions. This is the Adjusted TICK measure reported daily inthe Weblog.

When the TICK has been greater than its 20-day MA (N = 385), we have hit R1 on 271 of those occasions: a bit over 70% of the time. We have also hit R2 on 131 of those occasions: around a third of the time. At those times, we've hit S1 on only 89 of the days (less than 25% of the time), and we've hit S2 on only 20 occasions (less than 6%).

When the TICK has been less than its 20-day MA (N = 377), we have hit R1 on 116 occasions--a little less than a third of the time. We've hit R2 only 20 times. On those occasions, however, we've hit S1 250 times (about 70% of the time) and hit S2 136 times (a little over a third of the time).

When the Adjusted TICK was in the top quarter of its values (i.e., very much stronger than the 20 day average), we hit R1 on 159 out of 190 days. We hit S1 on only 24 of those days.

When the Adjusted TICK was in the bottom quarter of its values (i.e., very much weaker than the 20 day average), we hit R1 on only 49 out of 190 days, but we hit S1 on 153 occasions.

When TICK was very strong (weak), we hit R2 (S2) a little over half the time.

Now imagine that we add volume at the market bid and volume at the offer as a handicapping tool (a la Market Delta) and imagine that we use the pivots as price targets for exits, leaving a piece of a position on when we have signs of extreme buying or selling. Imagine using historical market patterns to identify likelihood of heavy buying or selling.

That, folks, is pretty much a summary of how I trade.

From Dr. Steenbarger

Defining Profit Targets and Formulating Targeted Trading Plans

In a past post, I wrote about how I use pivot-based support and resistance points to establish price targets for trade ideas. The basic approach is to define potential targets in advance and then use unfolding price/volume/indicator action to handicap the odds of hitting those targets. For example, once I see the Cumulative NYSE TICK trending higher, I will enter a long position to hit the R1 and R2 price targets. (Please consult that earlier post for details re: conventional ways of calculating the upside R1/R2 and downside S1/S2 targets).

In general, I've found those conventional ways of calculating targets to be helpful, but not optimal. My current methods of calculation are based on historical analysis going back to the year 2000. Since that time, the P pivot level from the previous day has been touched by the market during regular trading hours about 75% of the time. The market touches the S1 *or* the R1 level calculated from the previous day's data about 75% of the time. The market touches the S2 *or* the R2 level about 55% of the time.

Let's say that SPY opens near its pivot (P) level. The market chops around in the first half hour of trading and then moves briefly lower on negative economic news at 9 AM CT. The NYSE TICK, however, goes only modestly negative and quickly bounces back to positive territory, as SPY moves above P. Noticing the upward trend in TICK and the themes of risk-seeking across related asset classes, I wait for the first pullback in TICK that stays above P and then go long SPY with a target of R1. If TICK turns negative and we move below P--a sign of a range day--I will stop my position with a modest loss. If we continue to see buying interest, I will consider adding to the position on the way to the target(s) on pullbacks in TICK.

Should the upswing occur with strong TICK on enhanced volume, the odds of hitting R2 are enhanced, and I will leave at least a piece of the position on to hit that target. Because volume is closely correlated with volatility, keeping tabs on relative volume--how today's volume compares with the 20-day average--is quite useful in estimating the odds of hitting R2 or S2.

My newer, proprietary way of calculating P, S1/S2, R1/R2 adjusts the targets for the market's volatility, so that I'll naturally seek more modest moves in slower, narrower markets and larger moves in more active, volatile markets. Because I target the exits in advance, I'm better able to gauge the risk/reward of each trade by comparing how much I'm willing to lose in the trade (the distance to my stop point) with how much I stand to gain. This makes the target points very useful in trade planning.

Recalculating Daily Profit Targets by Dr. Steenbarger

As regular readers are aware, a cornerstone of my preparation for the day is calculating price targets for the trading session, so that I can handicap the odds of hitting those objectives. Having concrete, backtested targets in advance is helpful in holding winning trades.

What makes the targets I calculate different from normal "pivot levels" is that I adjust the targets for recent market volatility, so that the odds of hitting a distant target in a high volatility environment are similar to the odds of hitting a more modest target when volatility is low.

In the last couple of years, I've made several adjustments to my calculations so that the targets work as well as possible in providing guidance in terms of how far we're likely to move up or down. Over the last few days, I've made yet another adjustment. I'll be keeping the methodology proprietary for now, but will continue to post target levels in my morning Twitter posts

Markets have memory. The longer in time price spends at any level the more it is ingrained in the memory of the market. The greater the volume associated with a particular price, the more that price is ingrained in the market's memory.

From a market structure point of view the price that the market remembers most is the Point of Control (POC). Time based POCs and Volume based POCs tend to be the same. Because it is centermost in the market's memory, it is the place the market most wants to revisit. That is to say, price is attracted to previous Points of Control (POCs).

Whether the POC is "support" or "resistance" is secondary. The primary principle is that prior POCs are price magnets, or attraction points. This is why the large players pay attention to Virgin or untouched POCs. They know that the market is predisposed to trade to them.

This is true in all dual auction markets from the eminis to rough rice to spot forex.

Hidden Gap,

What data source are using to determine volume based POC for the foreign exchange market? Have you ponied up for a Bloomberg or Reuters terminal? Otherwise isn't the volume data not to be really trusted? I would love to know if there is something out there where I can get fx vol. based figures for relatively inexpensive cost? BTW, hiddengap I like the name they are a very important part of my analysis process.

Firstoff, a big THANKS for this thread.

As for pin bars, and hammers, they are some of my favorite triggers, along with engulfings.

They more often than not don't mean true reversals, and they are every bit as solid of a price attraction point as the quad bo setup.

In spot forex it is not true traded volume but we can get tick volume. Tick volume works great. I believe someone did a study and found tick volume to be approx. 98% correlated with actual volume.

currently I am using FXCM to get the tick volume data but the best source of tick volume for forex is from Esignal's GTIS feedl.

Hiddengap: thanks for the suggestion for esignal gtis I will look at that more carefully. I have heard both cases for and against tick volume and I don't think its 98% but its definitely better than nothing.

Bruce Flea: can you please explain in what structure do pins, hammers and engulfings become attraction points. Furthermore what time frames are you talking H1 or greater or M15 or anything in between. For example are you saying that if a clear bullish pin takes place and then price goes in the direction proving it to be a price rejection bar it will come back and retest what? The upper part of the pin or the midpoint or the lower point. Or are you saying a clear bullish pin takes place and then price destroys that level to the downside leaving anyone that bought the pin deep underwater? Will price come back to test what part of the pin. And how far away do you consider that pin to be no longer in play? One full figure (100 pips) or two full figures or more? All of this information is quite important I would love to hear what you think. And pin can be used interchangeably for just about any bar configuration. Thanks in advance!!!

Look at a chart, find a pin bar, and look at what followed.

Any time frame is applicable, although I generally play 1 hour and up.

After a pin bar appears, how often does that wick fill back in all the way to the bottom or top?

Engulfings on a 1 hour chart are often pin bars on a 4 hour chart. So you take the ride up, with an eye on the ride back down. It will often tell you to the pip where a reversal is likely, and a great t/p exit point.

Chart please....?