A Look At a Few Charts: Revisited

As a follow-up to the charts I posted before my annual August hiatus, here’s what happened for each of those names. The yellow line in each of these charts is July 17, when I posted the charts before.

SPY:

The broad market ended up having a big drop as August started, but mostly recovered since then. If you tried to trade breakouts you got chopped to pieces. If you tried to fade breakouts you had to take a lot of heat during the chop for not a lot of benefit. This chart is textbook for how I used to give away a lot of my gains for the year by forcing trades during this time. I’m happy I sat this out. Things seem bleak for the markets going forward with global slowdowns and recession indicators flashing. I’m leaning toward taking more defensive long term positions here.

AAPL:

Earnings were good, AAPL spiked and then sold off all the gains. Then it dropped, and shorts got burned in that chop. In the end, it’s at the same level today as it was when I posted the chart before. Nothing but pain in August.

ROKU:

ROKU was the exception to my August rules. After some contraction before earnings, it popped and didn’t look back. If I weren’t sidelined by rule, I would have gone long on the Swing VWAP breakout at about $135. I have liked ROKU all year and in this case, breaking my rule would have paid off. Missing things like this and accepting it are important to having the right trading mindset. There have been so many good setups in ROKU this year, and I’ve been able to catch a few of them. It’s ok if I don’t get every one. Greed is a killer, as is fear of missing out, and begrudging any moves you may have missed.

TSLA:

TSLA ended up being pretty volatile with the earnings report and different news stories during August. Any of my typical setups would have lit me on fire. Lots of chop, lots of heat whether you traded breakouts or faded them. The only edge was in knowing the news and earnings beforehand, which is basically impossible unless you are cheating with inside info. Another good chart to watch rather than trade.

Going into the fall, I’ll keep an eye on any setups that may occur. I’m biased toward the bearish side, but we’ll see how things pan out.

A Look at a Few Charts Right Now

Going into August is the time I have historically lost the most in my trades. I overtrade and try to push something through when the markets are in a choppy, listless environment. So one of my rules is that I don’t trade from the end of July through Labor Day.

That said, here’s a few daily charts I’ve been watching and what I think my indicators are telling me. I’m mainly looking at the ProSwingVWAP and the Multi-Divergence Indicator v2 on the RSI(20). Also plotted in a gray line is an indicator I’m working on called AdaptiveSuperSmoother. I prefer it over moving averages. More on that later. On to the charts:

$SPY (S&P 500 ETF)

The broad market. As far as divergence, there isn’t any. No hint of weakness on a longer timeframe. The lower Swing VWAP is far below, so no definitive trend change. Since the middle of June we’ve broken the upper Swing VWAP 6 times. Today’s weakness doesn’t look good for continuing that streak, however. This looks like a textbook chart for sideways chop. This tells me take August off.

$AAPL (Apple Computer, Inc)

I am always and everywhere a big Apple fan. Slightest of slight bearish divergence. Nothing compared to what we saw at the end of April. I’d ignore that here. The upper Swing VWAP points are barely grinding higher, so no real bullish drive. Not near the recent high in May. The lower Swing VWAP is well below the current price, so no likely trend reversal indicated yet. All signs point to blowing up your account overtrading it in August.

$ROKU (Roku Inc.)

Roku has been a monster all year. Into June, a large bearish divergence showed up as it pushed above $100. We got a 10% drop after that, and the divergence ended. In the first part of July there was an upper Swing VWAP breakout at about $95. I most recently went long there at $97. Pushed back up to new highs where we are now. The drop today seems like a rejection of that newest high. The lower Swing VWAP is down at $100. Below $100 I’d look for a trend change to bearish. It would take strength above $114 to look like a continued uptrend. Another sideways chart, though I see more of a downside risk here. I’m still long here but wouldn’t add at this time, and will watch $100 closely.

$TSLA (Tesla Motors, Inc.)

Tesla is interesting here. A bullish divergence back in early June signaled a potential trend change upward. Tesla demolished upper Swing VWAP’s from that point onward. The lower Swing VWAP from that big reversal has still not been tested. Strong uptrend. The latest weakness today after another upper break doesn’t inspire confidence, and we are far from the Adaptive Super Smoother “average” price. Kind of extended. It looks like Tesla’s bull trend is still intact, but this isn’t the time to get on board, especially with the broad market likely to languish for a while. The upside target would likely be about $290 resistance from the April highs, but I wouldn’t expect that to happen until the fall. With earnings coming up between now and then, it’s a wait-and-see chart here.

So it’s a whole lot of nothing out there. Sit on your hands or play with Bitcoin pinless hand grenades. Crypto is making biotech names seem like investment grade. With the yield curve inverting and possible recession looming, the end of the year should be interesting.

Example Swing VWAP / RSI Divergence Trade: $AAPL

Here’s a trade I entered in Apple about 2 weeks ago where I used the Swing VWAP and the RSI MultiDivergence indicators.

Back in January, the market had gone through a good decline. I was watching the RSI divergence on AAPL. Around that time, a big divergence showed up. This was about the largest in the last two years, and is circled on the chart below. Because of that context, I wanted to look for a long entry. After the swing low on January 3, AAPL kept above the Swing VWAP. It pulled back close to the Swing VWAP, and then on January 15 it had a bullish reversal candle (white arrow). That means the bears are losing, since it couldn’t penetrate the lower VWAP. I entered at the end of the day (yellow line) with a stop at the prior day’s low Swing VWAP (red line), and a target at $185 based on prior resistance.

So far, the trade is going according to plan. My stop is at $160 now, and I just have to manage when I take profits–at the predetermined target or in a discretionary manner. I’m really liking the Swing VWAP for how it tracks what side is winning and what side is losing. As a trader, your money comes from the losers. Markets move because they have to, and that happens because people are blown out of their incorrect positions.

ProSwingVWAP: Combining Swing Points with volume-weighted prices to define trends

Hello, it’s been a long time.  Life finds a way to get you off track.  I’m trying to get things here up and running again.

This is something I was working on a long time ago, and I just re-visited it this last week.  I think it’s interesting, so here it is: ProSwingVWAP.

A VWAP is a volume-weighted average price.  I talked about VWAPs more here.  The idea for this indicator is to use Swing Points to define the period where we start tracking the volume-weighted value.  The chart above shows it in action.  I like using a VWAP as the price input, so you get a running volume-weighted total of each bar’s VWAP.  Kind of a VWAP squared.  You can use close, high, low, etc. as well.

Once a swing point (white dot) is charted, that swing point becomes the first value for that SwingVWAP.  From there, the price value you choose to average for the VWAP is volume-weighted on each bar and the running VWAP is adjusted.  This is done for swing highs (green dots) and swing lows (red dots) separately.  As long as a new swing high / low hasn’t been made, that long / short VWAP value will just continue to build.  A new swing high or low will reset the VWAP and start again.  I added optional paintbars to show green when a bar close is above the swing high VWAP, red if a bar closes below the swing low VWAP, and grey if it closes between them.  I also hide the VWAP value if bars close beyond them.

Because swing points need to have some future values to know if it really is a swing, there is a delay in this indicator.  The more forward bars you require to decide if a swing is in, the longer it will take for the data structure to be confirmed.  If you set the “FlagEarly” input to yes, then paintbars are yellow during this unknown stage.  The fastest reaction is if you use a value of 1 for Swing Forward, but you get more false positives this way too.  I usually use a value of 1 or 2.  The more bars back you look (Swing Back), you get fewer swings but they are bigger ones.  I mess with this value based on the timeframe and the particular name I’m working with, but I’ll usually use 8 or so.

I’m still in the research phase of this one, so I haven’t decided exactly what to do with it yet.  I like how it defines trends.  A bull trend is present when price is closing above the long SwingVWAP, and a bear trend when price is closing below the short SwingVWAP.  I also like the way it shows when a pullback is on, and when the trend resumes.  On the chart above of $SPY, the period from June to October is a prime example.  The market bottomed out at the end of July and then started an uptrend.  When a new swing high was in, the long SwingVWAP (green dots) told us when we were still in the pullback. Once price closed above the long value again, the trend was back on.  The short SwingVWAP kept trailing along below, reminding us that we were in a bull trend.  Then, as October started, we closed below the short SwingVWAP very dramatically, and the correction was on.  Now we seem to be right back in the middle of the two in a holding pattern.

For now it’s a just a context indicator rather than a trading signal, but it looks like it has some potential.  You can get ProSwingVWAP in the “Donors Only” folder in “Released Thinkscript Studies” at my Google site.  It will work on desktop or mobile, but paintbars only work on the desktop platform.

If you’d like to become a blog donor, hit the button below:

Adaptive Opening Range Indicator for Think or Swim

The trades I have been taking lately are dependent on defining an opening range. I’ve noticed a few things that I want to trade from:

1. There is usually a good move off the open during the first half hour. I want to trade INSIDE of this move. I won’t get the whole thing, nor do I want to at this point. I’ll be happy with 1 or 2 ES points out of it.

2. Watching a 133 tick chart (the fastest available in ToS), I’ve observed something I’m calling the Opening Balance. Basically, there’s a swing one way, a swing the other way, and then a retrace to the middle of the two. Once we get the retrace, we’ve balanced the first moves off the open, and we’re waiting to see which way the scale tips. This can take anywhere from 10 seconds to 5 minutes or more.

3. I want a few early longs and early shorts to jump in and commit on the bell. That sets up some loser fuel right there! When the next push comes, one way or the other, there’s a new loser that needs to bail out, which is what pushes price. Burning losers are the jet fuel of the markets. (I should know)

My strategy is to go in the direction that the market moves right after the opening balance is made, possibly with confirmation from the internals like the NYSE A-D line and the NYSE Tick. In the past, I’ve been using a 1min time window to define the opening range, and I’ve watched how that compares to this idea of opening balance. The problem with this is that the opening balance I’m looking for could happen in the first 1min, 5min, or any other amount of time. I got whipsawed the other day when the opening balance wasn’t complete for about 5 minutes and I used a 1min OR.

I had the idea to combine my swing points indicator with the shaded opening range indicator. This way, the opening balance can be calculated according to the two price swings instead of an arbitrarily chosen time window. The result is an adaptive opening range indicator that plots the Opening Balance as I’ve defined above:

I am beat and dying for time right now, so instead of writing a tutorial, I will post my early beta version of the indicator as an example of how to do it for the home-gamers, and the final indicator is on my Google site for donors. Note that for either, if you put the start time as the market open, you can’t use market hours only data. The Pro version has the ability to hide or show the swing points as well as changing the lookback and lookahead for defining swing points as an input. (I like 5 back and 3 forward.)

So existing donors, go grab it on the Google site under Released Thinkscript Studies. Look for “AdaptiveOR_ProSTUDY”. Feel free to donate again if you feel this is valuable to you, but it’s not required.

If you are new and want to become a donor, send me a donation through my Paypal:

For everybody else: Thinkscript time! This code will create an adaptive opening range using the definition of highest high three bars forward and three bars back for swing highs, and vice versa for swing lows.

#Start with inputting the start time you want:

Declare fullrange;
Input StartTime = 0930;

#Next define recursive functions to hold your high and low values while waiting for the OR balance to complete:

plot ORStart = if IsNaN(secondsFromTime(StartTime)) then 1 else if secondsFromTime (StartTime) >= 0 then 1 else 0;
plot ORbar1 = if barNumber() == 1 and ORStart then 1 else if ORSTART and !ORSTART[1] then 1 else 0;

rec highs = if ORbar1 then high else if high > highs[1] then high else highs[1];
rec lows = if ORBar1 then low else if low < lows[1] then low else lows[1];

Def swinghigh = if high >= high[1] and high >= high[2] and high >= high[-1] and high > high[-2] then 1 else 0;

Def swinglow = if low <= low[1] and low <= low[2] and low <= low[-1] and low < low[-2] then 1 else 0;

plot sh = if swinghigh then high else double.nan;
plot sl = if swinglow then low else double.nan;

Rec countswinghigh = if barNumber() == 1 then 0 else if !ORStart then 0 else if ORStart AND swinghigh then countswinghigh[1] + 1 else countswinghigh[1];

Rec countswinglow = if barNumber() == 1 then 0 else if !ORStart then 0 else if ORStart AND swinglow then countswinglow[1] + 1 else countswinglow[1];

rec ORHigh = if !ORStart then double.nan else if countswinglow * countswinghigh <> 0 AND countswinglow[1] * countswinghigh[1] == 0 then highs else ORHigh[1];

rec ORLow = if !ORStart then double.nan else if countswinglow * countswinghigh <> 0 AND countswinglow[1] * countswinghigh[1] == 0 then lows else ORLow[1];

Plot ORH = if ORStart then ORHigh else double.nan;
Plot ORL = if ORSTART then ORLow else double.nan;
AddCloud(ORH, ORL);

sh.SetLineWeight(3);
sh.SetStyle(curve.POINTS);
sh.AssignValueColor(color.white);
sl.SetLineWeight(3);
sl.SetStyle(curve.POINTS);
sl.AssignValueColor(color.WHITE);