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Other Applications for the Universal You can use the UNI chart on other time frames as well. For instance, you can use it filtered, or unfiltered, on a 30-minute chart as a swing trading system.Be sure to use Ensign's built-in back test function to give you a quick look at how the trade would look on the instrument and time frame that you are considering.Simply click Charts -> Trade Detail. Very handy, when used in conjunction with the UNI chart!
- Note this gives you 'unfiltered' trades only, i.e. it assumes that you take all trades that have the UNI setup, regardless of whether it occurs at a VPC line.
- Note if you use the method on a 5 or 30-minute chart, you might want to consider 'upping' the time-frame of the Natural Trading Range accordingly, to give you a nice filter.Try a Weekly VPC, for example.
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Careful: Watch for early morning trades around 8:30, due to the narrow NTR.http://www.enthios.com/blogs/images/EE%202008-03-04-0645.png
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Here is an example of how the Keltner can be use to minimize the loss on a losing trade.Here the exit signal was almost at break-even.http://www.enthios.com/blogs/images/EE%202008-02-27-0758.png
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A note on using stops Stops are extremely subjective - that is, they depend as much upon your own personality as they depend upon the underlying trading system. There are many different stop methods.Here are a few:
[*]Fixed stop - a specified number of points, or a specified % of the trade value, from the point of entry.
[*]Market structure stop - using previous low or high, or some other visible support / resistance.
[*]Optimized Exit - using a predetermined indicator such as a moving average or Keltner band as your exit, regardless of whether the resulting exit is a profit or a loss.This chart from the YM trade today is a good example.The entry for the short was 12653, it then moved 88 points against us to 12741 before touching the Keltner to exit at 12689.-36 points is much better than -88 !Regardless of which method you choose, it pays to research trades for any particular method, to helpoptimize the stop and to understand what kinds of draw-downs to expect.I would recommend at least 100 trades of "data."The best way to do this is to record each trade in a spreadsheet and include all the 'what if's of each trade - the high point, the low point, and the nominal Keltner exit.Then use Solver (which comes with Excel0 to optimize the best stop based upon the criteria.
Trading with the Optimized exit can help you to achieve profits without getting stopped, and it can also help you to minimize your loss on a losing trade. But sometimes the market will move against you for as many as 10~20 ES points before a Keltner exit can be achieved. Make sure you build these into your scenarios so that you understand how frequently these may occur, and what your likely drawdown will be based upon the liquidity you have, the leverage you are using, and the particular rules of your online broker.
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On the difference between S/R based on Price Action, vs. arbitrary S/R:
<enthios> The NTR chart shows the Virgin POC above, and below, the opening price. So that forms a range, which I call the Natural Trading Range. When prices move up to the top (the next higher VPC), then we expect it to rebound back down. The difference is that the MP is not arbitrary; it is based on price action. The ones that are arbitrary - like harmonics - tend to be, umm, less so -at least, in my experiencehttp://www.enthios.com/blogs/images/EE%202008-02-25-1140.png
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Seed Wave and Fibonacci 1.618 target A "Seed Wave" is simply the first wave in a reversal.It is the seed because all subsequent waves are based upon the amplitude of the first wave.Typically the next wave - Wave 3(Wave 2 is the intermediate retracement) is usually a Fibonacci growth ratio based on the Seed.Typically it is in the area of 1.382 ~ 1.618.Here, it was exceeded.
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On why the Universal is not for "momentum trading" <cuzzo> So what we are doing is catching the reversal trade.
We are not going for the momentum move if the market is going up or down at the current time?
<enthios> Correct. This is not momentum, and the reason is simple: We NEVER know when there is going to be a momentum move, until it has ALREADY OCCURRED. It's a false idol. A dream.
<enthios> But we DO KNOW (with a reasonable degree of confidence) what will happen WHEN prices touch the VPC. We don't know which VPC the market will touch - whether it is the upper, or the lower - We have no idea.We only know what to do once one of the VPC's is touched. That's why the Universal is an objective method. Or, at least, as objective as they get. I don't' know of any other method that shows you, in advance, where you will go long or short. With clear targets, and a clearly defined entry and exit point
On using range charts: <omar> Does the range makes so much difference?
Or better say, any reason to use range and not ticks or volume or anything?
<enthios> tick should work fine. I used to use tick but in Ensign, using the IB data, they only had back data for 24 hours. If you wanted to go further back, they switched to a different data service. And the tick data was incompatible with the live tick data. However, you don't really need back data for tick charts. Only the most recent 24 hours. On the other hand, I now prefer range charts. Because you KNOW the high and low of the bar before it completes. That makes it much easier to enter a stop-limit trade for entry.
On fast charts vs. slow charts: <cuzzo> but if we want a faster chart what is a good choice?
<enthios> Here's the bottom line: You are watching the VPC. That is the point at which you want to enter a reversal trade. Once you reach that point, you can use any method you choose, to get into that trade. Use a 60-tick chart, or 1-minute, or 50 range, or 5 range. Totally up to you. Recognize that there will be a trade-off. The 'faster' you get in the trade, the 'earlier' you get in. And sometimes that is not good. The EARLIEST you can get in, is to simply place a limit order at the precise VPC, and ignore any stochastics or other method of getting in. That is pure and simple. But the fact is, often times the price moves past the VPC - so you don't necessarily want to get in precisely at the VPC. So you want to achieve a balance.
The advantages of Stop Limit orders Here is a good example of using a stop limit order to enter the trade.With the new price range indicator (thanks to "Sputnik" in our trading room!), you can see the price that is one tick above, and one tick below, the current bar. In this case, it enabled you to enter a stop limit order for the short at one tick below the low of the signal bar, which was 1347.75.As subsequent bar lows were higher, you simply move the stop limit upwards, trailing the stop entry until a retrace hits.The actual entry is shown here as the base of the second bar after the signal, at 1348.75.That's a savings of $50 per contract, on one trade.
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Look at the double pennant of the price histogram and notice that there is considerable support at the 1352~1352 area.
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Here is an example of using the standard Keltner exit to minimize a losing trade:
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Here is an example of applying the Universal method to a longer time period (30-mins) on a stock. The Apple short here was good for 30 points, and it shows now to watch for a long signal (not triggered yet).http://www.enthios.com/blogs/images/EE%202008-02-06-0734.png
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