Risk Structure

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RISK STRUCTURE

Volatility Indices are used to identify the underlying risk condition or STATE a market is currently in. The PriceMap sentiment bias or R LEVEL for the underlying security or futures contract defines the RISK STRUCTURE of the RISK STATE.  Observing price action of the underlying security or futures contract, within the RISK STRUCTURE, in the context of the VIX RISK STATE provides awareness to markets vulnerabilities.

Example

The image below shows the Monthly, Weekly and Daily R LEVEL sentiment bias for the SP500 E-Mini.   In general: Trading above the R LEVEL is positive and below negative. Observing the differential between the current price and the R LEVEL provides insight to its influence as either a repellent when near or attraction when far away. The influence is also determined by the time frame of the structure. The available time frames are Monthly, Weekly and Daily which outline the RISK STRUCTURE of the market.

UNDERLYING RISK STUCTURE

Daily, Weekly, Monthly R-LEVEL Risk Structure

In the example above the ES futures market price is above the Monthly, Weekly and Daily R-LEVEL, identifying RISK OFF structure. Confluence of this fact with the RISK STATE of the underlying VIX provide clarity to the real vulnerabilities of the market. The example below shows that the VIX is below its Monthly R LEVEL. The Monthly time frame being the highest value in terms of market influence. As long as the VIX is below the 12.35 DIR (DIRECTIONAL) R LEVEL, volatility is in a RISK OFF position. Combining this with the fact that the ES futures are trading above all 3 sentiment bias time frames puts the current rally in a strong position with supporting volatility expectations.

The CBOE (Chicago Board of Options Exchange) and the CFE (Chicago Futures Exchange) has expanded coverage of volatility indices or VIX into grains, currencies, crude oil and interest rates along with sector ETFs and individual stocks. Knowing the fact associated with a markets RISK STATE and STRUCTURE  improves awareness and offers an indicator of confluence to standardize trading tactics into a more structured approach.

For more information Click HERE.

 

Risk State

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RISK STATE

Hedging is about managing risk which can be defined in term of volatility. Volatility Indices identify the RISK STATE or condition of the underlying security or futures market. The price points at which the RISK STATE will change are identified in the RISK STRUCTURE of a markets associated VIX. The RISK STRUCTURE alignment can be used as the foundation framework to create a hedge strategy in the underlying security or futures market position to be hedged. This is done by observing the current price position in relation to the PriceMap R LEVEL within the PriceMap framework of a markets VIX.

R LEVEL

The R LEVEL is the dynamic point of equilibrium that defines the Sentiment Bias for the trade period. It is the price level where the bias shifts from positive to negative and vice versa. Where the R LEVEL is on the PriceMap framework determines the RISK STATE. In terms of a Volatility Index like the SP500 VIX the bias shift can be looked at as RISK ON /RISK OFF flip switch for the RISK STATE.

Example

The following is a Hedge Strategy Overlay example applying JSAnalytics to the SP500 VIX. The example shows how to identify the current risk condition and the specific action qualifiers that will trigger shifts in that condition along with the recommended strategy themes and tactics to construct a hedge to protect against an increase in volatility.

RISK STATE

$VIX RISK STATE

The image above shows the Monthly structure for the cash VIX Index which is in a LOW RISK condition below the R LEVEL. A move above the R LEVEL will change the state to a RISK position.  Knowing the FACTS of the RISK condition or State provides clarity, which can be used as the basis to construct a systematic approach to managing risk and constructing a Hedge Strategy.

The CBOE (Chicago Board of Options Exchange) and the CFE (Chicago Futures Exchange) has expanded coverage of volatility indices or VIX into grains, currencies, crude oil and interest rates along with sector ETFs and individual stocks. Knowing the fact associated with a markets RISK STATE improves awareness and offers an indicator of confluence to standardize trading tactics into a more structured approach.

For more information Click HERE.

 

R LEVEL – Market Structure Bias (MSB)

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SENTIMENT BIAS – The R LEVEL

The R LEVEL [Reversal Level] is the “Over-Under” number for the trade period. Trading above the R signals a positive buy break bias and trading below the R signals a negative sell rally bias. This is the inflection point where sentiment shifts from positive to negative and vice versa.

r-level

The R LEVEL is the most significant price level on the PriceMap as it defines the session bias and is the best actionable starting point when using the analytics. Traders should be aware of price activity in relation to the R level and note if the current action is with or against the bias. In a general sense, signals in the direction of the R bias should be expected to be smoother, with follow through potential, and signals against the R bias to be more laborious and unlikely to be sustained.

Market Structure Bias (MSB)

The R LEVEL represents the sentiment bias for the trading period which further defines the market State expectation by its position on the PriceMap. Where the R level is on the PriceMap Framework will skew the condition of the market state and define a Market Structure Bias (MSB). There are 9 potential R LEVEL positions on the PriceMap Framework each with its own unique influence on the current condition. Trading tactics should be aligned with the MSB skew to improve their effectiveness.

pricemaprlevelpositions

PriceMap Framework R LEVEL Positions

Market Structure Bias (MSB) R LEVEL positions

R =DIR

The R LEVEL equal to the DIR (Directional) is in a classic pivot point position, as sentiment is balanced or “on the fence”. The market is indecisive or is preparing to make a move. Any market State condition with the R=DIR structure bias should respect the pivotal nature of sentiment. Typically, when the R LEVEL is in this position it will either just breakout and “go” producing a linear move or a difficult rotational trade will consume the market for the trade period within the CR+ and CR- validation levels.

msb-image-dir

R=UP

The R LEVEL at the top of the Critical Range defines a “hard” resistance point at the UP (Upside Pivot). Energy is centered at this price point and a violation should be expected to produce sharp interest. A downside failure below the DP (Downside Pivot) however should NOT be expected to have the same energy and have a more measured expectation. This structure bias identifies a corrective expectation for positive trend type states and the optimal entry area for negative trend states.

msb-image-up

R >UP

The R LEVL above the UP but less than the UT1 creates a RESISTANCE BAND with the UP. Trading tactics should focus on the entire zone for signal acceptance. Typically this would be on the sell side as this is a resistance band but will transition into a support band if the market violates the R LEVEL and starts to transition higher. This structure bias identifies a corrective expectation for a positive trend type states and the optimal entry area for negative trend states.

msb-image-gt-up

R =UT1

The R LEVEL = to the UT1 (Upside Target #1) creates an even wider resistance band with the UP. Signal acceptance anywhere in the price band is acceptable however it is best to commit to opportunities closer to the UP or UT1. As the R LEVEL moves farther outside the CriticalRange the energy in the market place is skewed higher. Any lower price movement should be expected to be move measured and any positive turn from lower levels should be expected to target the R LEVEL. This structure bias identifies a corrective or digestive expectation for positive trend type states with the R LEVEL defining current lid for the underlying positive momentum. For negative trend states the R LEVEL identifies where the real selling energy is and the optimal entry area to get back on the down trend.

msb-imageut1

R >UT1

The R LEVEL above the UT1 identifies the high point for any price squeeze against the underlying trend if it is going to resume in the session. A market in this position has an underlying negative tone and any sell signals within the UP to R LEVEL range, are an actionable opportunity. Sales below the DP is a lower value opportunity and the threat of a corrective squeeze up to the R LEVEL is real. Typically the market will attempt some type of corrective move when the R LEVEL is in this position. A good “tell” is either an exhaustive REVERSAL signal at the DP or a transitional positive BREAKOUT at the DIR targeting the R LEVEL.

msb-image-gt-ut1

R =DP

The R LEVEL at the bottom of the Critical Range defines a “hard” support level at the DP (Downside Pivot). Energy is centered at this price point and a failure should be expected to produce aggressive offers. An upside breakout above the UP (Upside Pivot) however should be expected to NOT have the same energy and any upside breakout to be more measured. This structure bias identifies a corrective expectation for negative trend type states and the optimal entry area for positive trend states.

msb-image-dp

R <DP

The R LEVEL below the DP but greater than the DT1 creates a SUPPORT BAND with the DP. Trading tactics should focus on the entire zone for signal acceptance. Typically this would be on the buy side as this is a support band but will transition into a resistance band if the market violates the R LEVEL and starts to transition lower. This structure bias identifies a corrective expectation for a negative trend type states and the optimal entry area for positive trend states.

msb-image-lt-dp

R =DT1

The R LEVEL = to the DT1 (Downside Target #1) creates an even wider support band with the DP. Signal acceptance anywhere in the price band is acceptable however it is best to commit to opportunities closer to the DP or DT1. As the R LEVEL moves farther below the DIR the energy in the market place is skewed lower. Any higher price movement should be expected to be move measure and any negative turn from higher levels should be expected to target the R LEVEL. This structure bias identifies a corrective or digestive expectation for negative trend type states with the R LEVEL defining current floor for the underlying negative momentum. For positive trend states the R LEVEL identifies where the real buying energy is and the optimal entry area to get back on the up-trend.

msb-image-lt-dp

R < DT1

The R LEVEL below the DT1 identifies the low point for any price squeeze against the underlying trend if it is going to resume in the session. A market in this position has a defined underlying positive tone and any buy signals within the DP to R LEVEL range are an actionable opportunity. Buys above the UP are a lower value opportunity and the threat of a corrective squeeze down to the R LEVEL is real. Typically the market will attempt some type of corrective move when the R LEVEL is in this position. A good “tell” is either an exhaustive REVERSAL signal at the UP or a transitional negative BREAKOUT at the DIR targeting the R LEVEL.

msb-image-lt-dt1

MarketMetrics – APMD (Average PriceMap Distance)

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Average Price Map Distance (APMD)

APMD (Average Price Map Distance) = the price segment distance the MKT is trading in for the defined trade period.

IF we know the price segment distance the MKT is trading in, THEN we can forecast or anticipate price movement.

Markets are in a constant state of expansion and contraction. The ebb and flow of the expansion and contraction can be measured as a function of the APMD. Typically a MKT moves in ½, x1 and x2 APMD segment impulses. This is “typically”, or rather, what is more likely to occur, as x3 and x5 segment moves do happen during event conditions. As a general rule x1 APMD is a good measure for a “decision point”, when a MKT reaches the point of dynamic equilibrium and “decides” to either continue expanding or start contracting. The PriceMap Framework defines this market structure and the APMD represents the distance between these points to dynamic equilibrium.

In the example below the CRUDE OIL contract demonstrates this well over the 3 sessions.

marketmetric-apmd-1

 

Normalizing Exit Targets

Understanding the relationship between the PriceMap Framework and the APMD provides a metric to normalize exit targets for a TradeStrategy.

As a general rule the APMD should be used as the the minimum expected profit potential for a TradeStrategy executed at one of the PriceMap Action Qualifiers. R LEVEL strategies can go for more and be positioned for a x3 APMD move. A trade from the CriticalRange extremes has a minimum x1 APMD target but should go for x2 APMD and a DIR (Directional) trade x1 APMD. Any Validation level entry should base risk on a ½ APMD reward.

APMD Practical Application

Observing price action and the position of the LTP (Last Traded Price) within the PriceMap Framework provides awareness to the value of an opportunity. Trading tactics can be normalized by focusing signal acceptance at market structure points using the APMD as a measure of profit potential to define exit targets.

Identifying the relationship of LTP and the R LEVEL provides additional insight to the current expectation or “behavior” of price action. Momentum moving in the direction of the Sentiment Bias is more likely to follow through in the direction of that bias. The farther away from sentiment the LTP is, the farther away it is from the real “energy” or “liquidity”. Markets that expand >x2 APMD away from the R LEVEL may start to look “extended” and are more vulnerable to a “contraction” Even if that contraction is only ½ APMD. Keeping TradeStrategy signal acceptance in alignment with the Sentiment Bias is prudent, as is making position size or risk adjustments in accordance to the APMD distance between the R LEVEL and LTP.

Awareness is further enhanced by the significance the level has to the STRUCTURE of the STATE as well as the price segment distance the MKT has already achieved to get to the LTP level.

Example

In the example below, the MKT is in a BULL TREND state with sentiment positive, below the market equal to the DP (Downside Pivot). The UP represents the high point for any “contraction” of the positive trend and a valid SELL FADE opportunity. Prior to the UP being tested it was after a x1 APMD move from the DIR (Directional). This FACT combined with the R LEVEL being  x2 APMDs away from the UP, identifies lower positive energy at the top of the CriticalRange. The result of these  FACTS produce a x1 APMD “correction” back to the DIR where prices stabilize and produce a rally that is in alignment with Sentiment Bias for the trade period.

marketmetric-apmd-6

 

PlayBook Strategy Themes

MARKET STATE AWARENESS is improved by monitoring PRICE ACTION within MARKET STRUCTURE in the context of the MARKET STATE.

Specific strategy themes are inherent in the state structure dynamic and each theme has a profit expectation that is based on the APMD.

marketmetric-apmd-9

The image below identifies the Optimal and Hedge strategy themes for a BULL TREND MARKET STATE with the R=DP, that played out during the session along with expansion “E” and contraction “C” signals that produced ½ and x1 APMD segment moves.

marketmetric-apmd-10

The APMD MarketMetric provides reward expectations to normalize a TradeStrategy by identifying the price segment moves the market is trading in.  Many times it is not IF the market is going to make a x1 APMD move it is just a matter of how it is going to do it. Observing price action within market structure in the context of the market state provides awareness to opportunities. The APMD defines what those opportunities are worth so proper size and risk management can be applied.

 

Applications JSDesktop and Sierra Chart Price Map Chart Overlay

 

 

PriceMap Qualifiers CriticalRange

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CriticalRange

The PriceMap defines the structure of the market state by identifying the key price band or CriticalRange for the trade period. The Upside Pivot [UP] and Downside Pivot [DP] directional levels encapsulate the CriticalRange which will behave like key resistance and support levels,  defining the behavioral area of indecision or neutral zone for the trade period. 

 cr-basiccr-post-2

The CriticalRange is broken up into 6 quadrants, defined by a directional level mid point and minor levels on either side of the UP and DP. This structure and the inherent meaning of each level are key to interpreting market “tells” in real-time.

DIRECTIONAL

The DIR (Directional) is the mid-point of the Critical Range but is not necessarily symmetrical. The DIR acts as a classic pivot point for the trading session that the market will rotate around to find its immediate bias within the CriticalRange.

cr-post-2 cr-post-8

A held trade above the DIR gives the market a positive lean and below negative, targeting the UP and DP CriticalRange extremes. Trading within the CriticalRange represents a neutral posture for the market. A breakout of the CriticalRange signals a directional bias and possible trend move for the session.

 CR + and CR –

The CR+ and CR – define the interior quadrants of the CriticalRange. These minor levels will come into play as the market rotates around the DIR, either tightening the coil of a digestive trade or preparing for a transitional BREAKOUT.

  • Classic rotational trading within the CR+ and CR- range is typical for NON TREND type consolidation prior to a move. A market that has tested both the CR+ and CR- and has maintained the integrity of each, is a “tell” that a sideways trade will persist producing a NON EVENT session.

cr-post-4 cr-post-5

  • A breach of the CR+ or CR- after a rotational trade around the DIR will give the market a bias targeting the CriticalRange parameters (UP/DP). If the signal is valid and “ready to go”, price action will maintain structure at the DIR after a CR+ or CR- breach. If it does not, it is a sign of digestion or potential reversal.

CRX + and CRX –

The CRX +/- are the Critical Range Breakout extremes. These are the price points that must be taken out to confirm a structural break or “Breakout” and can result in good exhaustive extremes.

  • Exhaustive Extreme – The CRX+ and CRX – identify the CriticalRange thresholds and represent an exhaustive extreme for any false CriticalRange BREAKOUT. If the integrity of the CRX + or CRX – remain intact any BREAKOUT signal must remain suspect. These levels can be used as stop levels for any FADE or REVERSAL strategy at the UP or DP as they are the “squeeze” high or low for any momentum exhaustion.

cr-post-6 cr-post-7

  • Structure Break – The CRX+ and CRX – identify the confirmation points that must be violated to confirm a BREAKOUT. Once the CRX + or CRX – has been violated the market should maintain that bias above or below the respective CR + or CR-. The best BREAKOUT scenarios have the market hold structure above the UP or below the DP and just “go” with only one shot, if any, after a CRX +/- violation. Trading back inside the CriticalRange to the CR + or CR – will take some of the energy away from the BREAKOUT signal and is a “tell” for more of a “stop and go” trend condition.

PRACTICAL APPLICATION

* Use the price action within the CriticalRange to provide insight to the markets next move.

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* Use the CR +/- and the CRX +/- to confirm or deny a trend move.es-nt2-11-5-2015-5-08-34-pm

* Note tactic signals at these minor levels for position management of STRATEGY themes.

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PriceMap Qualifiers R LEVEL Positions

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The PriceMap is the framework of the market STATE and the R LEVEL defines the behavioral sentiment bias for the trade period. Where the R level is on the PriceMap will skew the condition of the market state. The R LEVEL is a floater number which can be in one of 9 PriceMap positions each with its own identity that is outlined below.

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R LEVEL Positions

R =DIR – The R LEVEL equal to the DIR (Directional) is in a classic pivot point position, as sentiment is balance and “on the fence”. The market is indecisive or is preparing to make a move. Any Market State with the R=DIR should respect the pivotal nature of sentiment. Typically when the R LEVEL is in this position it will either just breakout and “go” producing a linear move or a difficult rotational trade will consume the market for the trade period.

msb_345 msb_105 msb_265

R =UP – The R LEVEL at the top of the CriticalRange defines a “hard” resistance point at the UP (UpsidePivot). Energy is centered at this price point and a violation should be expected to produce sharp interest. A downside failure below the DP (DownsidePivot) however should be expected to NOT have the same energy and any downside breakout to be more measured.

  msb_346 msb_106 msb_266

R >UP – The R LEVL above the UP but less than the UT1 creates a RESISTANCE BAND with the UP. Trading tactics should focus on the entire zone for signal acceptance. Typically this would be on the sell side as this is a resistance band but will transition into a support band if the market violates the R LEVEL and starts to transition higher.

R =UT1 – The R LEVEL = to the UT1 (Upside Target #1) creates an even wider resistance band with the UP. Signal acceptance anywhere in the price band is acceptable however it is best to commit to opportunities closer to the UP or UT1. As the R LEVEL moves farther above the DIR the energy in the market place is skewed higher. Any lower price movement should be expected to be more measured and any positive turn from lower levels should be expected to target the R LEVEL

msb_348 msb_108 msb_268

Same Images for R>UP and R=UT1

R >UT1 – The R LEVEL above the UT1 identifies the high point for any price squeeze against the underlying trend if it is going to resume in the session. A market in this position has a defined underlying negative tone and any sell signal, especially at higher levels, below this price points are actionable. Sells below the DP are a lower value opportunity and the threat of a corrective squeeze up to the R LEVEL is real. Typically the market will attempt some type of corrective move when the R LEVEL is in this position.

  msb_349 msb_109 msb_269

R =DP – The R LEVEL at the bottom of the CriticalRange defines a “hard” support level at the DP (DownsidePivot). Energy is centered at this price level and a failure should be expected to produce aggressive offers. An upside breakout above the UP (UpsidePivot) however should be expected to NOT have the same energy and any upside breakout to be more measured.

msb_344 msb_104 msb_264

R < DP – The R LEVEL below the DP but greater than the DT1 creates a SUPPORT BAND with the DP. Trading tactics should focus on the entire zone for signal acceptance. Typically this would be on the buy side as this is a support band but will transition into a resistance band if the market violates the R LEVEL and starts to transition lower.

R =DT1 – The R LEVEL = to the DT1 (Downside Target #1) creates an even wider support band with the DP. Signal acceptance anywhere in the price band is acceptable however it is best to commit to opportunities closer to the DP or DT1. As the R LEVEL moves farther below the DIR the energy in the market place is skewed lower. Any higher price movement should be expected to be move measure and any negative turn from higher levels should be expected to target the R LEVEL.

  msb_342 msb_102 msb_262

Same Images for R<DP and R=DT1

R < DT1 – The R LEVEL below the DT1 identifies the low point for any price squeeze against the underlying trend if it is going to resume in the session. A market in this position has a defined underlying positive tone and any buy signal, especially at lower levels, above this price points are actionable. Buys above the UP are a lower value opportunity and the threat of a corrective squeeze down to the R LEVEL is real. Typically the market will attempt some type of corrective move when the R LEVEL is in this position.

msb_341 msb_101 msb_261

PRACTICAL APPLICATION

* The R Level position itself can be a condition on its own to align trading tactics. For example any time, in any market state that the R=DIR it is a sign that the market is in a “pivotal” position, as sentiment is balanced. Trading tactics that perform well in pivotal market states can search out all markets that have an R=DIR.

* The R Level significantly above R>UT1 and R=UT1 or significantly below R is a “tell” that a corrective trade may develop targeting the R LEVEL. Identifying a break in PriceMap STRUCTURE is typically the 1st signal that a corrective move is in play.

* Always note the differential between the last traded price an the R Level as this is the price point that defines the rik for any trade.

PriceMap QUICK START

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PRACTICAL APPLICATION

The PriceMap provides traders with the ability to anticipate opportunity at key structure points and create risk defined strategies with improved trade vision of expected price movement. The method is scalable as a unified approach across all markets and asset classes.

 

pricemapleveldefinitionsfull_v13

SIGNAL ACCEPTANCE – Focus trading and signal acceptance at PriceMap level structure points. Avoid trading “in the middle”.

SIZE MANAGEMENT – Value trade opportunities and position sizing based on the PriceMap qualifier weighting. As a rule of thumb the R LEVEL should carry the greatest value or position size followed by the CRITICAL RANGE extremes (UP and DP). The DIR “Directional” (+++ +++) and *** 3 star PriceMap level target next followed by the ** 2 and * 1 star PriceMap levels. The +c and -c are major “target” levels but should be integrated as a directional pivot for insight to market momentum in the next session.

TRADE OPPORTUNITIES – Use the PriceMap as a “ladder” for trade management. Think in terms of price segment trade vision with opportunities defined as 1/2, full and X2 APMD (Average Price Map Distance) profit targets.

POSITION MANAGEMENT – Use the PriceMap as a “ladder” for position management. Markets make trend moves by holding positive or negative structure. Use price action within the PriceMap as a position management tool, adjusting stops as the market breaches a PriceMap level anticipating that it will go to the next level by holding above/below the breached level. If the breached level cannot sustained the violation it is a “tell” that the market may be set to REVERSE for a test of the opposing level on the PriceMap.

PriceMap Definitions

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JSServices PriceMap Analytics use quantitative methods to objectively define the price STRUCTURE of the market STATE. The knowledge of the market STATE STRUCTURE and the awareness of current price action within it, provides clarity to the value of an opportunity and the risk and reward associated with it.

 

PriceMapLevelDefinitions_V13

OVERVIEW

Price levels in the PriceMap series followed by stars *** are minor structure and major target “support and resistance” levels. The star *** value weights are determined by their structural significance to the market state alignment. Alignment defined as the price point that will have an influence on the market maintaining structure or not. The more stars ***, the more value a level has and the greater significance to the structural integrity of the price framework of the market STATE. Prices followed by symbols (+++ +++ (DIR), UP, DP, R, +c and – c) are directional pivots or trend indicators. These levels are the actionable points of the PriceMap, as they define where potential transitional shifts in STATE will occur and are the preferred entry levels.

In a general sense trading within the CRITICAL RANGE (UP–DP) represents a neutral posture for the market and trading outside a trend posture with the DIRECTIONAL (+++ +++ the classic pivot point within this range. The ***# levels are Upside/ Downside Target (UT/DT) projections the for a CRITICAL RANGE breakout.

The R Level qualifier represents the sentiment bias for the trade period. Trading above the R signals a positive buy break bias, while trading below signifies a negative sell rally bias. A price violation or failure at the R Level would reverse this bias.

+c and – c symbols represent Continuation Momentum numbers that define the technical event extremes.

JS PRICEMAP QUALIFIER KEY

R = REVERSAL LEVEL is the SENTIMENT BIAS level for the trade period, positive bias above, negative below.

UP = UPSIDE PIVOT is a key resistance point for the trade period and the top of the CRITICAL RANGE

DP = DOWNSIDE PIVOT is a key support point for the trade period and the bottom of the CRITICAL RANGE

 

MAJOR LEVELS

 DIR (+++ +++) DIRECTIONAL is a classic pivot point that sets the bias for trading within the CRITICAL RANGE [CR]

UT1 (***1) UPSIDE TARGET #1 is the minimum target for a CR BREAKOUT

UT2 (***2) UPSIDE TARGET #2 is the expected target for a CR BREAKOUT

UT3 (***3) UPSIDE TARGET #3 is the best case objective for a CR BREAKOUT

UT4 (***4) UPSIDE TARGET #4 is an event extreme target

+c     +CONTINUATION MOMENTUM defines the technical extreme

DT1 (***1) DOWNSIDE TARGET #1 is the minimum target for a CR BREAKOUT

DT2 (***2) DOWNSIDE TARGET #2 is the expected target for a CR BREAKOUT

DT3 (***3) DOWNSIDE TARGET #3 is the best case objective for a CR BREAKOUT

DT4 (***4) DOWNSIDE TARGET #4 is an event extreme target

-c      -CONTINUATION MOMENTUM defines the technical extreme

MINOR LEVELS

 *       MINOR 1 STAR LEVEL represent a minor support or resistance level

**     MINOR 2 STAR LEVEL represent a good minor support or resistance level

CRX+ CRITICAL RANGE EXTREME + defines the CRITICAL RANGE positive extreme

CR+  CRITICAL RANGE + defines the interior +quadrant of the CRITICAL RANGE

CR-   CRITICAL RANGE – defines the interior -quadrant of the CRITICAL RANGE

CRX- CRITICAL RANGE EXTREME – defines the CRITICAL RANGE negative extreme

 

MARKET METRICS

 VAR = VARIANCE – defines the optimal area influence of a Major or Minor Level

AD = ALERT DISTANCE – defines the area of signal acceptance and structure thresholds for a Major Level

MSD = MAXIMUM STOP DISTANCE – Defines the maximum area of influence of a Major Level

 

PriceMap R LEVEL

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R LEVEL

The PriceMap defines the price structure of the market state by identifying the sentiment bias for the trade period. It is the specific price point where shifts in state occur and where increased levels of liquidity can be anticipated to offer the most consistency.

The R LEVEL represents the equilibrium level within the PriceMap structure. It is the “Over-Under” number for the day and identifies the session’s trend bias.

R-Bias

Trading above the R LEVEL signals a positive buy break bias and trading below the R LEVEL signals a negative sell rally bias. It is this inflection point where sentiment shifts from positive to negative and vice versa.

The R LEVEL is the most significant price level on the PriceMap as it defines the session bias and is the best starting point when using the service. Traders should be aware of price activity in relation to the R LEVEL and note if the current action is with or against the R LEVEL bias.

Signals with the trend should be expected to be smoother, with follow through potential, and signals against the R LEVEL bias to be more laborious.

Because the R LEVEL is so significant price action around this level can be rotational as equilibrium balances its self out.

R LEVEL Overview

The R LEVEL can be used as a criteria filter for signal acceptance as well as a size and position management tool. If a signal is accepted that is counter to the R LEVEL bias, lower size is recommended along with a more aggressive position management with the target objective for the trade being the R LEVEL itself.

R-Level-Corrective

 

Note: the R LEVEL represents the optimal risk / reward entry level for any directional opportunity.

In situations where the current Price is significantly above or below the R LEVEL, any trades initiated in the direction of the R bias are ultimately at risk to and through the R LEVEL. A position is not “wrong” until the R-LEVEL is taken out. Trading action early in the session in the direction of the R LEVEL bias but significantly away from the R LEVEL is vulnerable to a “corrective” move later in the session. The market has a lot of room to “play” as counter session trend moves will not mean much as long as the R LEVEL is not violated.

Practical Application

The FTSE MIB over the past few sessions has provided corrective, directional and rotational examples of the R LEVEL behavior.

CORRECTIVE

JULY 28 2015 – FTSE MIB

On the OPEN the MIB broke structure producing a positive “corrective” rally targeting the R LEVEL. This type of corrective action is typically and a difficult trade. The market produces a trade against the R LEVEL bias which takes all session to play out. These types of opportunities typically happen after a negative signal the session prior with the R LEVEL significantly above the market . The “tell” being a break in structure at the DIR (Directional).

MIB-7-28-2015-10-35-37-PM

 

DIRECTIONAL

JULY 29 2015 – FTSE MIB

On the 29th the MIB was in a NEUTRAL DIGESTION market state identifying NON TREND condition. In NON TREND market state conditions we have a sideways expectation for price action. On the OPEN the MIB gaps higher against the R LEVEL bias and immediately turns in the direction of the R LEVEL bias. This example is interesting as the price action could not reach the R LEVEL and exhausted in front of the top of the CRITICAL RANGE at the UP (UPSIDE PIVOT). The market does not always give us what we want but it does tell us what it wants to do.

The price action around the 23380 * (CR+ = Critical Range + Minor Level) signaled a break in the OPEN positive momentum and the alignment with the R LEVEL bias. This signal, although a lower size opportunity, forecasts a “play” for the bottom of the CRITICAL RANGE at the 23055 DP (DOWNSIDE PIVOT). NON TREND market states have a sideways expectation to “digest” and the CRITICAL RANGE identifies the digestive extremes. After a “test” of resistance at 23505 UP and a break in structure at 23380 * in agreement with the R LEVEL bias, a lower forecast should be anticipated. The opposite would be true had the R LEVEL been below the market with  a positive break in structure.

MIB-7-29-2015-3-52-21-PM-1024x768

ROTATIONAL

JULY 30 2015 – FTSE MIB

On the 30th the index remained in a NEUTRAL DIGESTION market state but the equilibrium R LEVEL was balanced in the middle of the CRITICAL RANGE.

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The R LEVEL equal to the DIR (Directional) is in a classic pivot point position, as the sentiment bias is basically “on the fence”. The market is indecisive or is preparing to make a move. Any Market State with the R=DIR should respect the pivotal nature of sentiment. Typically when the R LEVEL is in this position it will either just breakout and “go” producing a linear move or a difficult rotational trade will consume the market for the trade period. The price action in this session is an example of the later.

MIB-7-30-2015-3-52-25-PM-1024x745

Note: When the R LEVEL = the DIRECTIONAL there is a higher probability that a rotational trade will occur, especially if there is a break in structure early in the session. This happened in the above example, after the OPEN above the DIR R LEVEL and then followed by a failure below. This “fact” and the bottoming out at the 23195 (CR- minor level) is a tell for a rise up to the 23425 (CR+ minor level). In a typical “coil” the rotational price action will be contained within the 2 minor levels (CR +/-) on either side of the DIR. In the above example the summer sideways trading condition provided a head fake to the upside but stayed true to form of the no follow through expectation of the NON TREND market state.

Market Strategy Insight

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FACT FOUNDATION

When you look at a chart at the end of the day the price action seems self-evident even though at the moment it was anything but. The reason is that the trade vision at the moment is clouded with bias and opinion hiding what the market is “telling” you what is wants to do.

When we view the market with a fact focus, though a MARKET STATE lens, the “tells” are revealed in real time by the price action within the MARKET STRUCTURE, identifying the STRATEGY THEMES that are dominating the session so opportunities can be anticipated and trading tactics aligned.