Overlay: Is a plot of trading volume versus price for a chosen time period.
The time periods in the Visual Graphic are the last 5, 10 and 20 days.
It is a picture of the prices where heaviest/lightest trading occurred.
The trading volume used is a special type of volume called TPO volume.
The TPO volume at a particular price is the number of different 30
minute trading periods during which that price was traded at least
once. On the Visual Graphic the overlays are headed by the words
"20 day Overlay", "10 day Overlay" or "5 day Overlay". Below
the Overlay are words "Bracketing" if the Overlay is bracketing, or
the words "No Bracket" if the overlay is not bracketing. If the
overlay is not Bracketing, the number of distributions is given.
Distributions: These are accumulations of TPO volume in the overlay that
contain at least 4 prices. Distributions that are bell-shaped,
have price rotation within the distribution, contain the close
of the latest trading day and that are the only distribution in
the overlay are called brackets. For the overlays that are not
bracketing, the Visual Graphic lists the number of distributions
below the overlay, as well as the upper limit ('U') and lower
limit ('L') for the first 4 distributions. For an overlay that
is bracketing, there is just one distribution - the bracket.
Bracket: Is an overlay with one bell-shaped distribution of TPO volume
that has the latest day's close inside the distribution and
that has at least 4 prices. An overlay that is bracketing is in
balance. The price should not just form a bell shape but should also
show price rotation within the bracket. The Rotation profile (see
below) lets you determine this visually. For bracketing overlays,
the Visual Graphic displays the words "Bracketing" below each
Overlay and also lists the bracket limits('U' and 'L'), bracket
octants ('UO' and 'LO') and middle ('M') below each overlay. Also
shown below bracketing overlays are the Octant-to-middle $ amount
and the Octant-to-limit $ amount.
Bracket Limits: These are the extreme upper/lower price edges of the bracket.
Technically the edges are determined as the price at which
the TPO volume changes from 3 to 2 or less (5 and 10 day
overlay) or 5 to 4 or less (20 day overlay). These price limits
form the alerts for a breakout - the possible beginning of a
trend. They also form the stops for responsive trades. They are
shown on the Visual Graphic below bracketing overlays the
right of 'U' and 'L'.
Bracket Octants: The Octant price is 1/8 of the bracket width from a Limit.
This price is an alert for an extreme excursion of price
from the center of the bracket. They are shown on the Visual
Graphic below bracketing overlays to the right of 'UO' and
'LO'
Bracket Quadrant: The Quadrant price is 1/4 of the bracket width from a Limit.
This price is an alert to the return of price, that
previously broke out of the bracket, to the bracket center.
The Bracket Quadrant price is not shown on the Visual
Graphic.
Bracket Middle: Is the middle price of the bracket. It represents the price
that is most often traded in a bracketing market. Price
excursions from the middle price occur with a bell-shaped
probability. The middle is the target for responsive trades
since when price reaches the middle it has a 50-50 chance
of moving up or down. Of course not all markets are able to
move across the bracket from the octant to the middle in
one trading day. The middle price is show on the Visual
Graphic to the right of the 'M' that is displayed below
overlays that are bracketing.
Octant-to-middle $ amount: Is the price difference between either octant price
and the middle price translated into dollars.
This is the $ profit for responsive trade entry
at either octant with exit at the middle.
On the Visual Graphic this $ amount is to the
right of the Upper Octant Price (also to the right
of the Lower Octant Price)
Octant-to-limit $ amount: Is the price difference between upper octant and
upper limit of a bracket translated into dollars
(or lower octant and lower limit). This is the
$ risk for responsive trade entry at the upper octant
and a stop out at the upper limit; also the
$ risk for breakout trade entry at the upper bracket
limit and a stop out at the upper octant. (similarly
for lower octant and lower limit). On the Visual
Graphic this $ amount is to the right of Octant-
to-middle $ amount.
Breakout: Is the price movement outside of the bracket limits. This is
an alert to the begining of a trend. This can be the entry
price for a breakout trade. A Breakout is made easier to see
by the current day 30 minute bars ('30 m bars') on the extreme
right of the Visual Graphic.
False Breakout: Is a breakout that is not sustained but instead price
returns to the bracket and closes inside the bracket. A
false breakout is easier to see by the current 30 minute
bars ('30 m bars') on the extreme right of the Visual
Graphic.
Trend Continuation: When a market is in a trend we would like to know if the
trend will continue or not. Items of information that
help us determine this are the trading volumes, commmercial
capping against direction of the trend, node formation,
and new bracket formation.
Rotation Profile: Is a plot of the number of days there was at least one trade
at each price. It also identifies each day by a symbol so
that you can trace the rotation/non-rotation of price
day-by-day. The plot is for the last 20 days of trading.
On the Visual Graphic, the Rotation Profile 'RotProf' is
shown between the common price strip and the 20 day overlay.
The day symbols are 'a' through 't'. The 'a' is for 20
days ago and the 't' is for the latest day. The Rotation
Profile is used to verify that a bracket has price rotating
within it. It is also used to determine how many days price
has been accumulating within a node, congestion or bracket
Node: Is an accumulation of TPO volume around a narrow price-range over a day
or two. Nodes are established in a trending market. They are sometimes
a temporary pause in price movement and sometimes the start of congestion
and the formation of a new bracket. When two nodes are established after
a breakout, "value" has moved enough that the stop of a breakout trade
is moved from the old bracket octant to the last previous node. The
number of days of trading at each price is determined from the Rotation
profile.
Congestion: Is an accumulation of TPO volume around a well defined price-range
over more than a day but less than 5 days. Congestion is an alert
to the possible formation of a new bracket. The number of days
of trading at each price is determined from the Rotation profile.
Commercial Activity: The commercial traders are very influential in determining
market direction. They can choose to support/resist a
price movement. On the Visual Graphic we note if there
is upper and/or lower commercial activity for the last 10
days in the chart below the label 'cti2'. The vertical
lines give the daily high-low price ranges for the last
10 trading days. The star '*' at the high and/or low of each
daily high-low bar indicates upper and/or lower commercial
activity. For the latest trading day the commercial
activity is also shown at the current days high/low by
'uc' and/or 'lc' in the space between the Rotation Profile
and the 20 day overlay. Also for the latest trading day
the type of commercial activity is given below the
Rotation Profile to the right of 'U comm' and/or 'L comm'
with one or more of the symbols V, A, Q. For the latest
day one can often use the 30 minute high-low price bars
,shown on the extreme right of the Visual Graphic under
heading '30 m bars' to determine if the commercial
activity is supporting or resisting. If the close occurs
at the daily high or low the activity may be supporting
or resisting. If the close occurs in the middle of the
daily range the activity at earlier high and/or lows
is more likeley resisting (capping). The dashes on
the 'cti2' vertical bars are the daily closes and can
be used in the same way as the '30 m bars'.
The commercial activity is especially useful in determinig
if value has changed suddenly in the last day or two, so
that the center of the overlay bracket is no longer value;
and also for determining if a trend is near to ending where
the commercials could be capping (resisting) the trend.
Close: You can see the close of trading for the latest trading
day on the Visual Graphic between the Rotation Profile
and the 20 day overlay marked as 'cl'. Also the 30 minute
bars give the high-low range of the last 30 minutes of
trading. The data below the Rotation Profile gives the
closing prices 'C' for the latest and previous day. Also
the dashes in the commercial activity plot give the closes
for the last 10 days. In a bracketing scenario, the
location of the latest day's close in the bracket octant
region may be an alert for a breakout. After a breakout
from a bracket, a close inside the bracket nullifies the
breakout as a "false" breakout. A close at the daily
high or low along with corresponding commercial activity
may imply the commercials are resisting or supporting
price movement. A close in the center of the daily high-low
range may indicate that commmercial activity earlier at the
high and/or low was resisting price there (i.e. capping).
Volatility: Is the average number of price ticks in each 30 minute
time period during the day. If the volatility of the
market is too high (greater than 10 for Bonds) you
should avoid entering trading positions. Also this
volatility should not be large relative to the octant
size in a bracketing market. The volatility ('Vo') is
shown on the Visual Graphic under the Rotation Profile
for the current and previous trading day.
TF factor: Is the total number of on-floor 30 minute periods during
which a different price was traded at least once divided by
the total number of prices. This value is high (greater
than 5) for markets that have "shut down" - they have a
small high-low range during the day. A Bracketing market
with a high TF factor (shut-down market) is an alert for
a break-out. A market in a trend will have a small TF
factor except at the nodes. The TF factor ('Tf') is shown
on the Visual Graphic under the Rotation Profile for the
current and previous trading day.
Volume: The total, public and commercial volume for the current
and previous trading day are shown on the Visual Graphic
to the right of 'Tv', 'Cv', and 'Pv'. You should be alert
to increasing/decreasing volumes as well as large values.
For Bonds an average total volume is 100,000-400,000 and
a very high value is one above 500,000.
30 minute bars: These are shown on the extreme right of the Visual Graphic.
under the heading '30 m bars'. They represent the high-low
price ranges (bars) for every 30 minute time period for
the latest trading day. They let you track the intitial
balance price range (first two 30 minute periods) relative
to the rest of the trading day, see breakouts from brackets
more clearly, see price capping, see the local direction
of the market, and locate the closing range relative to
the bracket (or non-bracketing overlay).
Open,High,Low,Close: The prices for the Open, High, Low and Close for the
current and previous trading days are shown on the Visual
Graphic to the right of 'O', 'H', 'L', 'C' below the
Rotation Profile. The 30 minute bars also show the
high-low for the latest day as well as the opening and
closing ranges. The 'cti2' vertical bars show the
daily high-low range for the last 10 days and the
Rotation Profile 'RotProf' also shows the high-low range
for the last 20 days in profile form. The 'cti2' dashes
show the closes for the last 10 days. The close for
the latest day is also shown as 'cl' between the
Rotation Profile and the 20 day overlay.
For more information contact CISCO Futures at:
WEB address: www.cisco-futures.com
Postal Address: 14571 E. Mississippi Ave., #202, Aurora, Co 80012 USA
Telephone: 303-306-1521 or 1-800-800-7227
Fax: 303-306-1572
Email: dljones@cisco-futures.com