Monday, April 26, 2010

Naked VPOC close (Guest post by mmTesla)

Ok so the trade I would like to introduce all of you to is a naked VPOC close, reversal intraday trend play. I know it’s a mouthful but it isn’t very complicated. Basically it is the part of the market’s price discovery process and is the most common and agreed upon price. Imagine trading in a 20pt range for a week, breaking out, then testing the naked VPOC to see if buyers and sellers still agree it is a buy at those levels before continuing up. Basically a fancy volume based re-test play.

On this chart are 3 naked VPOC plays that worked this last week. Ovals are either reversals or VPOCs, red lines are naked VPOC levels (key ones anyways). By the way Monday’s low to the tick was a Naked VPOC.


Intrigued? So I will show how I traded one of them and then leave the rest up to. 

Ok so we have a buy zone set up by looking at our hourly charts and you can also see the red line (naked VPOC) got closed. How to play it, well green close on the 5min jump in at the CLOSE of the candle and place stop underneath the wicks by .5pt or so, this is an emergency stop, your real stop is if a bar closes .25pts below the middle of the 5minute candle. This trade was good for quite a few points.


Managing a trade is the hardest part, I’ve given you my entry plus stop methodology. You can throw on cum delta, if you want (I don’t). The other one that was interesting was Friday. Basically buying came in strong in the morning, off of the hourly buy zone, naked VPOC close reversal easy entry short, MAJOR candlestick reversal which was also a double bottom in the buy zone, easy close and reverse set-up. The other tell was a VPOC shift up during the day that caused buyers to get trapped. A few places for a long reversal on the 5min if you were short during this time, but the 15min tells a nice story with a bearish harami and doji hammer in the buy zone, and double bottom, however the tape was hard to adequately play on the counter trend play. Like I said, managing is the hardest part, the best play for Friday would be to close longs and sit tight and buy back at double bottom. If short the correct play would be to scale out on reversals on 5min and let the market take you out since shorting is counter trend and flip long at the double bottom and hourly buy zone. Definitely a few ways to play Friday’s tape, very difficult to solely play the counter trend Naked VPOC reversal, that is where the other fancy stuff comes into play I guess.

Here are the charts:



My two cents, if it lines up with hourly buy/sell zones it has more value.  Have fun with it, I hope this helps.



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