Friday, November 23, 2007
11/23/07 Degrees of confluence!
Degrees of confluence. I found the Holy Grail. Seriously.... I did. OK, maybe not since there is no such thing but this has helped to make me profitable. I will call it Degrees of Confluence.
What does this mean? Well this is about the simpliest thing I've ever run across
If you are anything like me you tried trading just about every type of system out there and haven't traded it well. I have.
I've tried trading Pivots, Moving averages, Fibs, Support and Resistance, and Market Profile. I have not made money trading any of these except market profile. Market Profile has been profitable for me but I think I found a way to improve on even this.
Have you ever traded say pivots and had some trades just work perfectly... almost to the tick. the you will have the same setup at another time and the market just doesn't react the same. Why sometimes it will and others it won't? I think I have an answer. Degrees of confluence.
When I was trading some support/resistance lines by fading them with expectations of reversion to the mean I had a friend that was trading MP (Market Profile) and I found out that some of our numbers overlapped with an above randon frequency.
What I began to notice was that the numbers that overlapped had a much better chance of being a point of change of direction. Much higher % than the numbers that were just floating out there in space all by themeselves. I had and idea.
I went to a trading seminar where they told us to build a number ladder. Take all the major numbers from all the main systems and put them down on a piece of paper and just take a look at which ones have overlap. Are there numbers where a fib, a pivot and maybe a MA all fall in the same place? Those numbers have a higher degree of confluence. When you have 2 or more numbers in the same place (or area... say withing 1-2 points) you are much more likely to have a point that will have some reaction there. Those are the numbers that you should be trading.
Does this make sense? It works. If I have a MP number that doesn't match anything else I will be much less likely to take it. When I have an MP number with a fib or pivot on that same number I will take that trade without fail because it is much more likely to work.
Why? Because you have many more traders watching that same exact number! the more people watching it the more likely it will react.
Simple enough? You bet!
Trader X
What does this mean? Well this is about the simpliest thing I've ever run across
If you are anything like me you tried trading just about every type of system out there and haven't traded it well. I have.
I've tried trading Pivots, Moving averages, Fibs, Support and Resistance, and Market Profile. I have not made money trading any of these except market profile. Market Profile has been profitable for me but I think I found a way to improve on even this.
Have you ever traded say pivots and had some trades just work perfectly... almost to the tick. the you will have the same setup at another time and the market just doesn't react the same. Why sometimes it will and others it won't? I think I have an answer. Degrees of confluence.
When I was trading some support/resistance lines by fading them with expectations of reversion to the mean I had a friend that was trading MP (Market Profile) and I found out that some of our numbers overlapped with an above randon frequency.
What I began to notice was that the numbers that overlapped had a much better chance of being a point of change of direction. Much higher % than the numbers that were just floating out there in space all by themeselves. I had and idea.
I went to a trading seminar where they told us to build a number ladder. Take all the major numbers from all the main systems and put them down on a piece of paper and just take a look at which ones have overlap. Are there numbers where a fib, a pivot and maybe a MA all fall in the same place? Those numbers have a higher degree of confluence. When you have 2 or more numbers in the same place (or area... say withing 1-2 points) you are much more likely to have a point that will have some reaction there. Those are the numbers that you should be trading.
Does this make sense? It works. If I have a MP number that doesn't match anything else I will be much less likely to take it. When I have an MP number with a fib or pivot on that same number I will take that trade without fail because it is much more likely to work.
Why? Because you have many more traders watching that same exact number! the more people watching it the more likely it will react.
Simple enough? You bet!
Trader X
