Enthios Economics
Method #1: The Universal (“UNI”)
Method #1
The Universal Trade (“UNI”)
The Fundamentals
There are two important observations about the Market Profile™ POC. They are related. The first observation is the logic behind the UNI trade, and the second observation is the logic behind the JT trade. In both cases, the fundamentals are even more important for previously untouched POC’s, which I call “Virgin POC’s” or “VPC:.
- The VPC is strong support/resistance because it represents the a single price point at which the market was most “comfortable” trading on a previous day.
- The VPC is a great price attractor because people will be looking to take profits at the single price point at which the market was most “comfortable” trading on a previous day.
The Logic
The market will reverse, or at least try to reverse, when prices move down into a VPC from above, or up into a VPC from below.
The Trade
Trade the bounce from a VPC as long as prices have moved from a sufficient distance away. (If the market opens at or near a VPC, the trade is invalidated).
The Indicators
On the S&P Emini, I use a 100-Range chart with three indicators:
- Slow stochastic 80 bars, 27 %K, 27 %D
- Fast stochastic 9 bars, 3 %K, 3 %D
- Keltner Channel (average true range) 60 average, 3.3 multiplier
Long Trade Entry
- The opening price must be outside both sides of the Keltner Channel when the market opens. (This allows sufficient “distance” for the market to “move in” then “rebound.”
- The Slow stochastic must be below the 20% line.
- The Fast stochastic must also be below the 20% line.
- The %K of the Fast stochastic must cross up over the %D of the Fast stochastic.
- Trailing Stop Limit entry one tick above the high of the signal bar in step 4. If prices continue down but signals 2~4 still remain valid, then trail the stop limit entry down to get a more favorable entry.
Short Trade Entry
- The opening price must be outside both sides of the Keltner Channel when the market opens. (This allows sufficient “distance” for the market to “move in” then “rebound.”
- The Slow stochastic must be above the 80% line.
- The Fast stochastic must also be above the 80% line.
- The %K of the Fast stochastic must cross down below the %D of the Fast stochastic.
- Trailing Stop Limit entry one tick below the low of the signal bar in step 4. If prices continue up but signals 2~4 still remain valid, then trail the stop limit entry up to get a more favorable entry.
Exiting the Trade
Exit when prices hit the opposite end of the Keltner channel -regardless if it is a profit, or a loss. (This “natural stop” method is simple, intuitive, and logical – but sometimes difficult to “stomach.”)
Maximizing the Trade
If the reversal ends up being a Seed Wave (or Wave 1 or A in an Elliot reversal), then you can us Fibonacci to target an advantageous exit for the second half of the trade. However you will not have this information until the first wave is complete, which is basically your Keltner exit. So – exit the first half of your trade at the Keltner, move your stop on the remaining half to break-even, and use your Fibonacci tool to trace the amplitude of that first reversal wave that you just got out of. If the amplitude is “1″, then the ideal exit point of the next wave up will be 1.618. For more info on Fibonacci, read my first book, New Frontiers in Fibonacci Trading. It’s the first book ever written about applying Fibonacci to intraday trading.
More on the UNI Trade
There’s a lot more on this trade than what you see on this crib sheet. Enough to write a book about. In fact, I’ve just done that. To learn more, get Just A Trade A Day. My publisher has a hard cover version with over 100 charts, a PDF version, an iPad version (available on the iBook store), an epub version that you can read on your Kindle, and even a Japanese version in case 日本语 is your preferred language.
UNI Chart
This 100-Range chart shows an example of two UNI trades that took place on October 27. It also shows the two JT trades that occured on the same day. Note JT trades are made on a 3-min chart. For more information about the JT trades, and to see a 3-min chart that shows those trades as well as these UNI trades in context, see the page Jardine Trimesters (“JT”). Tap to fill your screen.
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