“Stock trading is like fishing; long periods of inactivity, waiting, concentrating, watching your line, then sudden swift decisive action when the bobber bounces, a short period in which the fish are caught.” unknown
Stochastic: (from the Greek στόχος for aim or guess) means random. A stochastic process is one whose behavior is non-deterministic, in that a system’s subsequent state is determined both by the process’s predictable actions and by a random element. However, according to M. Kac[1] and E. Nelson,[2] any kind of time development (be it deterministic or essentially probabilistic) which is analyzable in terms of probability deserves the name of stochastic process.
512t: The stochastic hook on the 512 tick chart is used during snap back retracement trades. It is used for timing entry upon pullback
60 minute chart: Used as an anchor chart to define trends also using the 15 minute and defining if the daily pivot point is above or below the current price.
15 minute chart: Used as an anchor chart to define intraday trends in conjunction with the 60 minute chart and relation to the daily pivot.
Point of Interest:
When looking at trading we are most profitable when we can take advantage of panic and maximum pain. One way to take advantage of other traders panic or loss is to wait for confirmation of the weakness or strength. When the market moves in one direction there are always traders that get caught up in the move and begin trading with emotion. Every pro knows that when there is emotion in the market, there is an advantage to the emotionless traders.
As wrong way traders enter incorrect trades, the pros begin to look for where the weak would begin panicking when the trade goes against them. This is the point of interest. Where the stops will outweigh the limit orders and has a possibility of accelerating thru that price.
When looking at the point of interest “poi”, we first look at the trends of the market to filter out the useless trades and information by looking at the 5 pma and the 20 pma on the 15 and 60 minute chart and we look to see if the Daily Pivot is above or below the current price. We look at the 3 minute chart with slow stochastic and Keltner bands. When all trends are in agreement it will be considered trending
When we are in a trending market, for example upwards we look at the point of interest below the market to see if there is support at that price level. It becomes even more significant to resumption of the trend when it is rejected. When we are looking at a point of interest above the current price, we want it to confirm the resumption of the trend.
When we are in a NR7 day, or trading within the Keltner Bands, we look at the point of interest for confirmation that there is a reversal of price at the top or bottom Keltner band.
Using a three minute chart with Keltner Bands and slow Stochastic, watch for a momentum bar to break out of a trading range and begin to attract more traders in the direction of the momentum. If we are in a trending day the point of interest is most probable when the stochastic are in your favor, meaning if we are in an uptrend, we want the stochastic oversold and hooking up to validate the trade and vice versa. Price moves the stochastic… not the other way around. So, at what price will the stochastic begin to hook? Using the 3 minute chart, the top of the momentum bar is where most weak traders will place stops to protect from loss or lock in profits when they are shorting and trying to pick a top. We want to see the price accelerate one tick above the high of the momentum bar showing that there are stops to be ran and flush out the weak and wrong way traders. This price movement makes lagging indicators like the stochastic move after the price has moved helping our trade out by getting stochastic followers in the trade after we have entered.
When a point of interest is rejected in any type of market, trending or NR7, it does not confirm the move and shows us that there are limit orders waiting at the point of interest price instead of stop orders. When this happens, we want to become part of the limit orders instead of the stop order crowd.
When a momentum bar is very strong and breaks out significantly, the high or the low of the next bar on the 3 min chart becomes the point of interest due to the fact that the weak trader that got in late does not want to take a risk by putting a stop at the momentum bar point of interest, the stop may be too far. Once again, the wrong way traders are showing the pros another stop level.
When a trigger forms, there is a point of interest in the high or low of the previous bar, or momentum bar if the trigger is formed immediately after the breakout. Once again it is a place where stops could be placed by wrong way traders and if that price is touched we want to see if it is rejected or confirmed.
In summary, the point of interest is a price where weak traders could be taking a stop or begin to panic. It is also a place to enter on a pull back if the point of interest is rejected. Watching these price points along with reading tape and taking room calls can refine entry and possibly keep us out of trades in moves that have not been confirmed. If you are already in a trade and looking to cut losses or lock in profit, using a point of interest could make, or save you nice green.
Tape is red: Traders aggressively trading the bid on the time and sales tape.
Triple Witching hour: The term “triple witching” refers to the extra volatility resulting from the expiration dates of the three financing instruments, and is based on the witching hour denoting the active time for witches.
Rollover: 1) The Friday in which contracts expire
2) When a trend changes, then heads in a different direction
The Pit: Where professional stock or index traders, on the actual exchange trading floor using open outcry auction.
Pit noise: sounds made by traders in the trading pit. Tis noise can be listened to and used to warn or indicate that activity is changing
NQ: NASDAQ 100 futures contract
Advance/Declines: Also called market breadth. The net balance between advancing issues of the NYSE and the declining issues based on price.
W: A price pattern where a temporary lower high is broken and price climbs higher.
ES: S&P 500 index futures
TF: Russell 2000 index futures
YM: Dow Jones Industrial Avg. index futures
Sim: Simulator for trading without risk. Also called “paper trading”
Buying Pressure: A price area where the buyers are more aggressive than the sellers.
Selling Pressure: A price area where the sellers are more aggressive than the buyers.
Low Tick: The lowest printed price in a given range or price bracket.
Flat: Little change in an index, neither going up nor going down. Or, not in any positions or trades.
Paper: A derogatory term used by the traders in the pit referring to the orders coming in to the pit from traders and institutions outside the exchange trading floor (the pit).
Hook: a pattern in which the price or indicator reverses direction.
Internals: Next to price, the purest form of market information. $ADD is the advance/ decline ration of the NYSE and $TICK is the net tick of the NYSE. Used in relation to price to determine the strength or weakness of the price moves, or lack of.
Pulling the bid: When the price that is bid decreases without being traded upon.
Go long: Buy with the expectation that the price index will rise, selling higher to realize profit.
Go short: Sell with the expectation that the price index will fall, buying it back at a lower price for profit.
Target: The price point at which a position, or trade, is closed or risk is reduced in the trade.
Live: Actually assuming risk from a trade, in other words trading with real money, not trading on the simulator.
Contracts: Binding contract to buy or sell a commodity at a fixed price, on or before a certain date. Commodity futures are standardized in terms of the quantity, quality, and delivery time for each commodity-except the price which is determined (at the time the contract is entered into) according to the demand and supply situation. In practice, physical delivery of the commodity rarely occurs because the delivery contracts are exchanged or closed out (traded out) before their expiration date. Also called security futures.
Counter trend: Trading against the current trend of trading
Buzzing: Notifying listeners that a trade has commenced
Tape: The purest form of information, PRICE. Read on time and sales.