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Questions on the Vegas documents

  • #21
  • Jun 5, 2006 11:18pm Jun 5, 2006 11:18pm
in any case that's not really important.


i still dont think that you can conclude this from the data alone. for example, you need to satisfy the 135 range component. ok. ill give an example.


market opens.
drops 35 points.
rises 135 points.

you got a range of 135 and the low is 35 from the open. everything is good.

or this could happen.

market opens.
drops 35 points.
rises 135 points.
drops 100 points, back to the same price as the open.

all this price movement is "hidden" in the data, but its still a possibility, isn't it?
  • #22
  • Jun 5, 2006 11:44pm Jun 5, 2006 11:44pm
Quoting clam61
This from the VWB II document, page 11.
1)




B)There is approximately a 75% probability that once the market moves farther than about 45 pips from the open, it isn’t coming back.

C)There is a 50% probability that when the market goes past 30 pips from the open it isn’t coming back.

How can you tell from the market data recorded from the excel file? The only input data in the excel file is open, high, and low. Everything else is derived from these data inputs. Wouldn't you need the close to figure out if it "came back"?
DOn't you think open for today is the closing for yesterday;-)
  • #23
  • Jun 6, 2006 12:31am Jun 6, 2006 12:31am
Quoting clam61
i thougth 30 pips is 50%
Look at the example again:

EX:
--------------------------
AAA/BBB (fake pair)

Median Range = 100 pips
Median Open to Nearest End = 20 pips
Median Open to Nearest End of Those > 20 pips = 30 pips
---------------------------
50% of the time the NE (Nearest End) is within 20 pips.

The median of the days it is above 20 equals 30. Thus 75% of the time the NE is within 30 pips.

You have to understand this idea or nothing else will make sense.

nate
  • #24
  • Jun 6, 2006 12:37am Jun 6, 2006 12:37am
Quoting clam61
wouldn't that be a 50% chance?

No, because 75% of the time, the Nearest End is within 30 pips of the open. So there is only a 25% chance that it would be 31 (or more) pips away.

nate
  • #25
  • Jun 6, 2006 12:55am Jun 6, 2006 12:55am
Quoting paplu
DOn't you think open for today is the closing for yesterday;-)
no, because it doesnt count aftermarket hours. gaps can occur

and even without aftermarket, gaps can still occur
  • #26
  • Jun 6, 2006 1:07am Jun 6, 2006 1:07am
Quoting clam61
in any case that's not really important.

i still dont think that you can conclude this from the data alone. for example, you need to satisfy the 135 range component. ok. ill give an example.

market opens.
drops 35 points.
rises 135 points.

you got a range of 135 and the low is 35 from the open. everything is good.

or this could happen.

market opens.
drops 35 points.
rises 135 points.
drops 100 points, back to the same price as the open.

all this price movement is "hidden" in the data, but its still a possibility, isn't it?
Of course it's possible. But the laws of probability still apply...

Honestly, when I said it took me days to wrap my head around this, I was serious. And I'm not going to lie, I don't think of myself as terribly slow. You are really going to have to sit down with this stuff, probably for hours, and work it out for yourself. I've tried to elaborate on the details of what Vegas goes into in VWBII and hopefully it will help clarify some things for you once you really get into it. But at the moment my main argument isn't even getting through, so there really isn't anything else I can say.

Paplu actually makes an interesting point that one day's open is (generally) the previous day's close. That didn't even occur to me (doh!).

I would love to talk about this stuff in more depth, but I think you're going to have to work this out for yourself. If you have other specific questions about this stuff let me know! Good luck to you! And if you find that you can point out (in detail) any glaring holes in my logic, hit me with it! That goes for anyone.. AAAANNNYYYYONNNEEEE - I'd love for someone who REALLY knows to comment on what I've said here. And if I am totally and utterly confused, that would be good to know!!

nate
  • #27
  • Jun 6, 2006 1:09am Jun 6, 2006 1:09am
Quoting clam61
no, because it doesnt count aftermarket hours. gaps can occur

and even without aftermarket, gaps can still occur
it's irrelevant anyway - but see my post above
  • #28
  • Edited 11:59am Jun 6, 2006 1:31am | Edited 11:59am
o oops, yes i was thinking about vegas' example, where 30 was the median. sorry! i do understand that principle.

sorry nate, but help me out please. there was some misunderstanding on my part and perhaps some confusion. lets start over. lets take a look at vegas' document.

here are the three facts we know

1. 50% of the time the near hi/low is 30
2. 75% of the time its 47
3. median range is 135

this all the data tells us so far, before we make logical conclusions.

ok so according to vegas, once it hits 30 away from the open, there is a 50% chance it keeps going in the same direction.

can you tell me step by step how you can arrive at that conclusion? that it keeps going and fullfils the range in that direction? what tells you that the price doesnt drop 30 from open, maybe move 10 more points in the same direction, then reverse and go up 175 points to hit teh 135 range. what tells you that this is less probable

Quoting natediggity
No, because 75% of the time, the Nearest End is within 30 pips of the open. So there is only a 25% chance that it would be 31 (or more) pips away.

nate
  • #29
  • Jun 6, 2006 2:24am Jun 6, 2006 2:24am
alright, let me sleep on it.. i will try a different approach in the morning. this is good, i am glad you replyed. i believe we are closer to an understanding than i thought.

nate
  • #30
  • Jun 6, 2006 12:13pm Jun 6, 2006 12:13pm
the price has two endpoints, a high and a low.


50% of the time, the nearest end is within 30 of the open. this means that 50% of the time, the other end is greater than 30 from the open. 75% of the time, the nearest end is within 47 of the open, which also means that 75% of the time the other end is greater than 47 from the open.

since we know that the range's median is 135, we know that the price has to keep on moving to hit this range.

Two key points:

1. I don't think the statement, the price doesn't "come back" means that the price will not hit the range then retrace. I think it just means that the price will hit the range.

2. The figures 50% and 75% are not completely accurate, because it does not take into account the fact that there are instances when the range for the price is very low. but if you look at the data, the range is generally near one hundred, so I am sure Vegas did not include that fact for sake of clarity and ease of calculation.

3. This also assumes that the way the price works is that it generally moves strongly in one direction once it picks up some steam by moving a certain amount from the open. This is what Vegas believes after all his years of trading and I think that generally this is what happens too.
  • #31
  • Jun 6, 2006 12:27pm Jun 6, 2006 12:27pm
This is a very interesting thread, I have asked Vegas the same question and got the same answer (its too long to explain). However its not in my nature to take it on faith so I have been trying to understand it myself. I still dont have a confidence in the underpinnnings of how he derives his probabilities either.

For a while I was keeping up spreadsheets with all this info for GBP/USD, EUR/USD, USD/JPY, USD/CAD and USD/CHF but my other job gets in the way alot these days.

Hopefully when I get some free time I will be able to review the posts more thoroughly and maybe add something useful.

Good luck,
Ah
  • #32
  • Edited 1:17pm Jun 6, 2006 1:11pm | Edited 1:17pm
Exactly! This is exactly what I was trying to say, clumsy as it was. Awesome.

I think your second point below is where columns J and N get factored in, although Vegas didn't really talk about it.

I would say point 3 below is also mostly correct, but I don't think that the first 2 points necessarily require point 3 to be true. It's entirely possible that price could bounce around all day from one end to the other while still putting in the appropriate range and having the nearest end less than 47 pips away from the open. However after price went more than 47 pips in either direction, regardless of how many times it bounces back down and up again, there is still a 75% chance that "the long end" is going to be the one that breached 47 pips.

We should also keep in mind what Vegas was using this data for (in the context of VWBII): if you know price has a 75% likelihood of having a range where the long end is above the open (after moving up more than 47 pips), you most likely would not go Short (due to all the potential for upside movement). Not to say price might not go down.. but even if it does, at some point during the day it is probably going to go higher.

Anyway while I think it might be possible to build a system around this kind of data, thats not what Vegas is doing here. This is just a tool for examining price action.

Glad we're on the same page!

nate

Quoting clam61
the price has two endpoints, a high and a low.


50% of the time, the nearest end is within 30 of the open. this means that 50% of the time, the other end is greater than 30 from the open. 75% of the time, the nearest end is within 47 of the open, which also means that 75% of the time the other end is greater than 47 from the open.

since we know that the range's median is 135, we know that the price has to keep on moving to hit this range.

Two key points:

1. I don't think the statement, the price doesn't "come back" means that the price will not hit the range then retrace. I think it just means that the price will hit the range.

2. The figures 50% and 75% are not completely accurate, because it does not take into account the fact that there are instances when the range for the price is very low. but if you look at the data, the range is generally near one hundred, so I am sure Vegas did not include that fact for sake of clarity and ease of calculation.

3. This also assumes that the way the price works is that it generally moves strongly in one direction once it picks up some steam by moving a certain amount from the open. This is what Vegas believes after all his years of trading and I think that generally this is what happens too.
  • #33
  • Jun 6, 2006 6:17pm Jun 6, 2006 6:17pm
you're right about point 3, i wrote all points as mutually exclusive.

now that we got that squared away, you wanna tackle my other question? look at post #2
  • #34
  • Jun 7, 2006 8:58pm Jun 7, 2006 8:58pm
Hi clam

To be honest, I can't really say for sure why Vegas went long there. The text from VWBII in question can be found below. The only thing I can think is that it was a kind of hedge. Price was moving towards what could have been seen as significant support in the 1.7825 area (from the earlier ranging price). He had no way of knowing that price would break through this area, which happened to be just above the 50% mark (~1.7813). Concept 3 says that if the 50% mark is taken out with force, there is more likely to be a reversal day.. but since support was in the way, perhaps a partial buy with a relatively small stop is a prudent way of protecting yourself in case of a sharp bounce. Thats all hypothetical on my part though, I'm open to other ideas.

nate

From VWBII, Pg 15:
This is the hourly candle of GBP/USD [spot] for January 25, 26, 27, 2006. This is a classic example of the 50% retracement rule and how I trade it with the other two concepts. On the 25th, not only did the market move quickly off the high [concept #2], it then violated the 50% rule. As many of you at forexfactory.com know, I initiated a short position at that time. Not much happened on the 26th, but on the 27th, after making a new low, the market raced too new highs [concept #1]. I covered a partial portion of my short position at 1.7829 [In essence I am “dancing” around my position]. After the market raced up to the 1.7880 area, it quickly started backing off. I knew that if two things happened, this stuff was toast. First, if it came back below the old high at 1.7831 quickly it was in trouble [to the downside], and second, if it violated 1.7813 it was in greater trouble [to the downside]. What I did was place the partial buys [at 1.7829] with a stop at 1.7819. The market tanked, and I basically have my initial position minus a 10 pip loss on a day-trade. Was that 10 pip loss worth more or less than the information it gave me [please refer to the 2nd to last paragraph of the Introduction]?



Quoting clam61
you're right about point 3, i wrote all points as mutually exclusive.

now that we got that squared away, you wanna tackle my other question? look at post #2
  • #35
  • Jun 7, 2006 9:23pm Jun 7, 2006 9:23pm
Actually you can get a better explanation of it from the man himself:

http://www.forexfactory.com/forexfor...3&page=4&pp=40

Check out post 150 by Vegas. Also this is a fantastic thread, huge I know, but well worth the read.

nate
  • #36
  • Last Post: Jun 8, 2006 6:16pm Jun 8, 2006 6:16pm
hey thanks!

so does anybody currently use the tunnel method? hows it working out?
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