Disliked{quote} {image} Here's a great example. When you're finding the overnight distribution you're looking at how much of the overnight price action is above or below the prior day's close. The reason that this can be beneficial is that when the overnight session is net long or net short there can be a countermove to balance out the inventory. In the pic you see that there are only a few bars above the prior day's close. Then you see intense selling which leads to price generally staying near the low of the overnight session until the open. Once the...Ignored
Ratios & Harmonics: a Different Way to Trade
- #20,442
- Sep 11, 2016 11:44am Sep 11, 2016 11:44am
- | Joined Mar 2016 | Status: Trader | 1,068 Posts
Sup Stavro, yeah when I'm mapping out the PRZ I use a few different factors.
Since we've basically abandoned the idea of using traditional harmonic patterns (bat, butterfly, etc) in this thread, Damian has advised us to project the 1:1 and then bring out the fib extension. So we are looking for an ABC move and then project the 1:1 / AB extension in order to ride the orderflow and map out an area where we may possibly see a pause / correction so that we can tighten stops and manage the position a little more aggressively. So in hindsight our charts may look like this:
Side note: there are a few different ways you can map that AB extension:
When using the BC projection you are taking into account how far the C point retraces into line AB, and then using a fib extension of BC to project the PRZ. To understand what the correct ratios are to use for the PRZ, you use reciprocal ratios:
C point = BC projection
38.2 = 261.8
50 = 200
618 = 161.8
78.6 = 127.2
88.7 = 113
What this is saying is that if you have a move retrace to the 618 then you should expect price to touch the 161.8 BC projection where you *could* see a pause or correction. If your C point retraces to between the 618 and 786 then you should expect price to hit between the 127.2 and 161.8 BC projection.
Going back to our example, C point retraces to between the 382 and the 50 of the AB move. Using the reciprocal ratios above, you come up with an expectation that price should hit between the 200 and 261.8 BC projection:
Usually your 1:1 projections will place price in the PRZ that you have mapped out:
You can add the AB extensions back in as well if you like:
You can create these PRZ's to use for taking profits when you are following orderflow but they can also be used for reversals. Keep in mind that when you are using them for reversals you are going against order flow so managing them more aggressively might not be a bad idea, unless you are using them to take a reversal so you can get back in the direction of a larger prevailing trend.
When I look to take a PRZ reversal so that I can play an overnight inventory rebalance I will usually not enter at a first touch of the PRZ, I like to see order flow breakdown. In this example, if you took that first touch then you would have been stopped out if you had placed your stop just beyond the swing high at the 224. If you wait for orderflow confirmation then you have a safer trade imo. One downside however is that sometimes that orderflow confirmation does not come and price reverses without you. I'm ok with this trade-off because I'd rather take the safer trade when going against order flow:
Sometimes to lend strength to an area I will try to find an X point so I can add some XA extensions:
And sometimes price will fall through a PRZ so I try to see if XA extensions will help locate a reversal point:
If you choose to research these further then you'll see they don't work all the time and the setups are not always clear-cut.
Whenever I explain something I always cherry-pick A+ examples so that when I illustrate the concept the information comes across clear and concise. Picking these out in real time is difficult and setups fail often.
Just keep this in mind
Since we've basically abandoned the idea of using traditional harmonic patterns (bat, butterfly, etc) in this thread, Damian has advised us to project the 1:1 and then bring out the fib extension. So we are looking for an ABC move and then project the 1:1 / AB extension in order to ride the orderflow and map out an area where we may possibly see a pause / correction so that we can tighten stops and manage the position a little more aggressively. So in hindsight our charts may look like this:
Side note: there are a few different ways you can map that AB extension:
When using the BC projection you are taking into account how far the C point retraces into line AB, and then using a fib extension of BC to project the PRZ. To understand what the correct ratios are to use for the PRZ, you use reciprocal ratios:
C point = BC projection
38.2 = 261.8
50 = 200
618 = 161.8
78.6 = 127.2
88.7 = 113
What this is saying is that if you have a move retrace to the 618 then you should expect price to touch the 161.8 BC projection where you *could* see a pause or correction. If your C point retraces to between the 618 and 786 then you should expect price to hit between the 127.2 and 161.8 BC projection.
Going back to our example, C point retraces to between the 382 and the 50 of the AB move. Using the reciprocal ratios above, you come up with an expectation that price should hit between the 200 and 261.8 BC projection:
Usually your 1:1 projections will place price in the PRZ that you have mapped out:
You can add the AB extensions back in as well if you like:
You can create these PRZ's to use for taking profits when you are following orderflow but they can also be used for reversals. Keep in mind that when you are using them for reversals you are going against order flow so managing them more aggressively might not be a bad idea, unless you are using them to take a reversal so you can get back in the direction of a larger prevailing trend.
When I look to take a PRZ reversal so that I can play an overnight inventory rebalance I will usually not enter at a first touch of the PRZ, I like to see order flow breakdown. In this example, if you took that first touch then you would have been stopped out if you had placed your stop just beyond the swing high at the 224. If you wait for orderflow confirmation then you have a safer trade imo. One downside however is that sometimes that orderflow confirmation does not come and price reverses without you. I'm ok with this trade-off because I'd rather take the safer trade when going against order flow:
Sometimes to lend strength to an area I will try to find an X point so I can add some XA extensions:
And sometimes price will fall through a PRZ so I try to see if XA extensions will help locate a reversal point:
If you choose to research these further then you'll see they don't work all the time and the setups are not always clear-cut.
Whenever I explain something I always cherry-pick A+ examples so that when I illustrate the concept the information comes across clear and concise. Picking these out in real time is difficult and setups fail often.
Just keep this in mind
- #20,447
- Sep 12, 2016 2:48am Sep 12, 2016 2:48am
- Joined Jan 2013 | Status: Trader | 1,410 Posts
Even though I walk through the darkest valley, I will fear no evil
- #20,449
- Sep 12, 2016 7:20am Sep 12, 2016 7:20am
- | Joined Mar 2016 | Status: Trader | 1,068 Posts
YM
Mapped out some areas of interest this morning.
Some details I'm being mindful of:
- We lost a major support from 8/2 and have not back tested the breakdown yet.
- We just about touched the 50% retracement from Brexit lows.
- We are 100% net short again in the overnight inventory.
- Price has bounced at the confluence zone that Rocky highlighted in his roadmap.
I am not excited to press short at open. I'm most likely going to be very patient unless I see a good opportunity to get long for a move up.
Mapped out some areas of interest this morning.
Some details I'm being mindful of:
- We lost a major support from 8/2 and have not back tested the breakdown yet.
- We just about touched the 50% retracement from Brexit lows.
- We are 100% net short again in the overnight inventory.
- Price has bounced at the confluence zone that Rocky highlighted in his roadmap.
I am not excited to press short at open. I'm most likely going to be very patient unless I see a good opportunity to get long for a move up.
- #20,455
- Sep 12, 2016 12:58pm Sep 12, 2016 12:58pm
- | Joined Dec 2013 | Status: Trader | 1,118 Posts
{image}
Nice call!
- #20,457
- Sep 12, 2016 1:46pm Sep 12, 2016 1:46pm
- | Joined Mar 2016 | Status: Trader | 1,068 Posts
{quote} Nice trade. I like the idea of having a reasonable daily goal, I think I might adopt that. And thank you for answering my question about net long/ net short. the concept is sort of like filling in the gap but with information. If I understand this correctly. I was looking to get back in the chair today but ended up sleeping in 2 hours. Ay yi yi! Haha!
Having the daily quota has definitely helped out my trading I feel, mostly because before every trade I'm asking myself "Does this trade have a good chance of hitting 20+pts?" So I'm avoiding a lot of questionable setups that I'd have probably taken before I started adhering to a daily goal. In July / August I was getting destroyed making dumb mistakes and one of them was that I was trying to kill every swing basically. I realize some traders can do that, I'm not one of them yet. Right now it makes the most sense for me to try and hit a consistent goal and then start adding contracts.
Slept in 2hrs, too much partying over the weekend?
- #20,459
- Edited 2:12pm Sep 12, 2016 1:59pm | Edited 2:12pm
- Joined Mar 2008 | Status: Trader | 1,728 Posts
{quote} POW! and this is why your the man
