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the interpretation and application of price action concepts

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We all share a similar path in Trading. Even though you may not be a consistently profitable trader now, you can chose to enjoy the path. This alone may make the difference in your success.

 

 

The Market Shaman - Bill Duryea


(2008 I have not been to the room since it became a paid room. I am not endorsing the room since I have not been in it since it changed to a fee room.

 

080104 - 

Bill, is a proponent of Auction Market Theory . He emphasizes reading price volume market action,  with attention to market profile, bid/ask and volume.  Bill uses four tools in addition to  Market Profile to help him do this.

1- MarketDelta software. A free trial for this software is available. The MarketDelta website contains many videos explaining its use.

2- BISP Calculator software. 

3- 30 minute Bar Analyzer software.

4- a 30 minute bar chart

When entering trades Bill uses a scaling in method. In order to use this scaling method it is best to use the TradeMaven order entry platform software. TradeMaven video showing some of is capabilities

Bill often has his order entry program showing live real-time on Hotcomm. Not often you see that. Doing so enables Bill to easily show and teach his scaling-in trading style.

If you haven't found something that clicks for you yet or are interested in adding to an already successful trading methodology and have interest in Market Profile, volume and support and resistance then Bill offers a opportunity to learn and improve on your current methods.

If you decide to study with Bill make the commitment for a few months. Screen time is always the answer to master trading tools.

...NQoos 8-)

 

 

 


BELOW IS AN EXAMPLE OF THE NIGHTLY WRAP-UPS BILL PRESENTS ON HIS SITE

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Thursday, July 29, 2004  

The NYSE closed the session on Strong Buying Interest  

Market Internals were: Adv 71%, Dec 29% AVol 73%, DVol 27%  

The S&P 500 closed @ 1100, up +5 points

The Dow 30 closed @ 10129, up +12 point

The Nasdaq 100 closed @ 1398, up +14 points

 

Total NYSE volume was 1.542 billion shares. Volume was stronger at the open (52%) and weaker at the close (48%) of the session.  

The Broad Benchmark S&P 500 “gapped” up in the overnight session to a new high @ 1101.75 and spent the majority of the trading session consolidating support. The price pattern was back to rally mode. Price auctioned down to fill the gap and rally off the test of support to a new high @ 1103. The interpretation is bullish and the S&P seems poised to move higher.  

The market is setting up to move higher. The upper trading range is now well defined. The Low is 1078 and the high is 1165. The blueprint of support and resistance is there from the previous two advances. Everyone knows what to expect. Watching the market rebuild the support base will be interesting.  

There are two basic emotions that rule the behavioral patterns of the stock market: Greed & Fear. They are called the animal spirits, no offence to the animals intended. The emotions are more human than animal and you can see them manifest on big rally and sell off days. Once the idea settles in that price is not going any lower, greed will appear in the form of buying on every dip. Just as when the market participants get the idea in their collective mind that price isn’t going any higher, they sell into every advance.  

Greed and Fear is what creates excess in the market; price inevitably auctions to high or to low.  In the language of the Market Profile this is referred to as price getting ahead of value.  

Value is the area on the chart where the most volume has accumulated. The formula is Price x’s volume = value. It applies to all goods and services. When goods or services sell in large quantity, at a consistent price value is established.  Within the daily price fluctuation we observe in the market there are certain reoccurring prices. Volume accumulates at these prices. When the current price auctions above these price levels they act as support below. When price auctions below these price levels they act as resistance above. The astute trader makes note of these support and resistance levels. When the inevitable excess of price getting ahead of value occurs the experienced trader knows what “too far to fast means”.  

As the rally gets under way support has to build upon support. Areas of volume will begin to form as it did today. Price will consolidate, break out and consolidate again. These are the two phases of price volume action. They are best studied with the aid of the Market Profile. The center of volume is defined by the areas in which 66% of the day’s volume has traded. This volume area represents the first standard deviation.  

Several days can be combined so that the volume distribution of specific areas can be analyzed. The current trading activity at the recent bottom is a perfect example of an area worth studying.  The consolidation range at the bottom consists of the following 5 days, starting on July 22, 23, 26, 27, and 28. 

    

The center of the accumulated volume area is 1088. The upper limit is 1093 and the lower limit is 1083. If for some reason the S&P where to decline tomorrow there is a high probability it would find support at 1088. In other words, there is sufficient volume at the 1088 price level to at least temporally halt a decline and possible reverse the downward movement. This is the definition of support.  

As price trends higher it will pause and consolidate, forming other areas of accumulated volume. This process of trend, consolidation and again trend is the ongoing phenomenon referred to as price volume activity. Knowing where the areas of volume accumulation are, both above and below the current price, is the essence of being able to develop a trading strategy.  

As price rallies off the bottom a burst of short covering will occur. The short covering will typically take price above value. This creates the opportunity to buy on the retracement back to support. Most of what we witnessed yesterday was short covering.  A study of the volume patterns during Wednesday’s rally reveals that the Buying Interest which initiated the short covering occurred down around the 1088 price level.  There was modest buying today. This was evident by the fact that very few of today bars traded on above average volume.    

Now, let’s take a look at today’s chart.  

The 30 minute bar analysis

 

The starting point of intraday 30 minute bar analysis is the previous day’s closing and settlement bar. Following Wednesday’s strong reversal off the morning low, price “gapped” up in the overnight session making a new high @ 1101.75. The S&P spent the majority of Thursday’s session auctioning in consolidation at the high. 

 

The Opening Range  

The S&P “gapped” up overnight above the previous day’s close @ 1098 to a new high @ 1101.75. Investor sentiment was improving at Wednesday’s close and that positive investor bias carried over into today’s session. However the “floor traders” were unable to auction price back to the over night high and price rotated lower to test support at 1096.  

There was no trend during the opening range. Bar #2 (B period) makes a lower low and a lower high. Bar #3 and 4 are inside bars. The interpretation is; consolidation at the open, suggesting a non trend day. The price range and number of contracts traded during the first three bars of the opening range are below the statistical average indicating a lack of interest. Bar #4 and 5 remain below average. However, the positive market internals (See BISP) suggested there was not any Selling Pressure.  

 

The Mid-day Range  

Bar #5 (E period) was neutral (inside bar). Inside bars suggest change and typically precede a move out of consolidation. F period (bar#6) initiated the upper rotation which resulted in the test of the overnight high and a new high @ 1103 which occurred during bar #7 (G period). The 4 point range during Bar #6 modestly exceeds the statistical high (3.75), but volume did not follow the move higher. Volume did increase during bar #7 (G period) but the point range contracted. While making a higher high, the bar closed on the low suggesting a reversal. Indeed the G period completed the upper rotation and price auctioned lower afterwards.

 

The Closing Range and the Settlement Bar

The closing range began with bar #10 (J period) auctioning price down to 1094, filling the overnight gap. The statistical data for bar #10 was at the extreme, which suggested that price might penetrate support and auction down into yesterday’s range. However, support held and bar # 11 and 12. Price then rotated up through the entire daily range. However, bar #12 (L period) was a reversal bar (higher high close on the low) and price rotated back down to the point of control (center of the day’s accumulated volume area).  Price Settled at the point of control (POC).

 

Trading Strategy  

Your assignment (should you choose to accept it) for tomorrow, is to the review a long term Price Volume Histogram below.

 

 

 

Create a daily bar chart of the S&P 500 ($SPX) going back to May 7th the previous test of the bottom of the consolidation range. Study how price traded on the way up from the previous test.  

Create a second daily bar chart ($SPX) going back to December 12, 2003. This date marks the beginning of the final leg of the current rally. Locate on the chart all the areas of price consolidation and trend.   

Plot the Fibonacci retracement levels from the 52 week high to the present low @ 1077.  Study the price at the different Fibonacci retracement levels. Determine which Fibonacci levels correspond with the areas of consolidation on your charts.  

You are now ready to organize your trading plan.   

Part I  

Explain, in writing, should price continue to advance, where you would consider going short. Under what conditions (Buying Interest & Selling Pressure) would you be a seller. If you have any questions about the assignment you are welcome to discuss them with me.  

Part II  

Start familiarizing yourself with the support level below. Assuming S&P continues to advance above the present price level where would you consider being a buyer on the retrace to support? Where on the chart (or market profile) would be the likely place for price to retrace, should it recover and auction up to the 50% Fibonacci level?  

This is a major part of preparing yourself for the eventual price swing off the low and the evitable correction off whatever the next high is. As you contemplate the possibility of a recovery rally, ask your self, “Where would you consider being a buyer on a tradable retracement”?  

Start thinking ahead. Visualize the auction process it in your mind. This is the path which leads to your becoming an astute trader: an expert “maven”.  If you put in the effort you will reap the rewards.

 

Key Support and Resistance Reference Points  

Resistance:   1163 The 52 Week High

Major            1108 R 3 Third Level Resistance

Key              1105 R 2 Second Level Resistance

Minor            1102 R1 First Level Resistance

                                     

Key Price Pivot 1097

 

Support:

 

Minor            1092 S1 First Level Support

Key              1089 S2 Second Level Support

Major            1084 S3 Third Level Support

                   1090 the 200 day price average (Primary Trend)  

“The price volume data generated by the market is the trader’s best source of information.”  

That’s it for today.  

If you would like to join our live trading workshop all you have to do is register at www.marketshaman.com  

See you online at the open  

The Market Shaman  

For a free copy of the Market Profile Workbook go to: http://www.cbot.com/cbot/docs/handbook.pdf


 

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