As a long time proponent of range momentum bars to rid myself of some of the noise of the market, I have found that with the way that the markets and the participants are acting, adjustments have to be made.
For a long time, I often did not change the "periodicity" of my range bars. With the activity of the HFTs and the various worldwide impact from events, I have found that I am making range bar changes quite often. In fact, I may trade the morning in London with one range length and another in the London afternoon. Why? Because the markets often just trade differently and I need to make adjustments. Changing the range bar size is like zooming in and out. If I were to trade the ES during the NY lunch time, I would definitely look at a different range bar size as volume declined. Additionally, if I am scalping for fewer ticks I reduce bar size too.
One thing that should be borne in mind, the important thing for me in using range bars is that I get a smooth looking chart. The result of shorter bars can be tighter stops as well as closer targets. The reason is that if I am trading the peaks and troughs, the shorter range bars catch more micro moves. The risk is that the average profit per trade falls and that is something that needs to be tracked.
One thing that should be borne in mind, the important thing for me in using range bars is that I get a smooth looking chart. The result of shorter bars can be tighter stops as well as closer targets. The reason is that if I am trading the peaks and troughs, the shorter range bars catch more micro moves. The risk is that the average profit per trade falls and that is something that needs to be tracked.
While I may change the periodicity of a range bar, I do NOT change the methodology. My EMAs and CCIs remain the same in all time frames including day and week. Volume Breakdown is not as useful when I'm scalping as a lot of delta information can be, and is being hidden by the size traders in the very short term, although they can't hide their footprints. "Invisible Man".
EL - Have you ever used volume charts while keeping everything else in your methodology constant?
ReplyDeleteI second Tartan's question. You'd think while using volume bar charts you could have a very large number of settings to choose from since you can change the setting of the bars down to the single contract. You could essentially fine tune the setting of the chart to the specific market you're trading
ReplyDeleteYou could just backtest to see which setting would have been the most profitable for the most recent time period. For example, what setting would've been the most profitable for the past 5 trading days.
You could even take it a step further and backtest what setting would've be the most profitable for different periods of the day. Like one setting for RTH and one for ETH. Or one for the RTH morning, one for the RTH lunch time, and one for the RTH afternoon and so on.
EL - Thanks for the many useful posts. Question re today's post: How do large traders hide delta information? Given that deltas show whether trades are on the bid or ask, it's not clear how that can be hidden.
ReplyDeleteThanks,
Dave
I have used volume bars in the past. They are, for me, the second best after range bars. More noise and need to be changed a lot for different time zones as, eg, the volume in ES outside RTH is very different inside RTH. Range bars create smoothness.
ReplyDeleteAnon, lots of big orders are done by selling into strength at the offer and buying into weakness at the bid. I often see the market being held with these orders. Also, when stops are run at extremes you can often see the opposite large delta.