In this post, we cover key concepts in market exhaustion on two levels that can really help you to know how to manage positions and where market reversals are highly likely.
Why is this post for members only? This article is well worth a monthly subscription. So if all you did was sign up and read this post, you would receive full value for your order, but the Oil Trading Room is much much more than this a hundred times over. If you are serious about your trading, Join us, learn, advance your skills and knowledge and come into alignment with your higher trading powers!
In this article, I will be very brief. Give critical thought to what I am saying here and the opportunity will reveal itself to you. If you have questions, ask in the room.
Below is a probability Inversion Table for the present date for raw unfiltered data:
How do you interpret this? If you are at a reversal bar and wonder what are the chances of going one more bar without regard to any other factors, then the answer is 67% for up continuation and 67% down continuation. What are you trading for? Continuation, of course. But note at the point you go from 20 ticks to 25 ticks, the probability drops to 45%. This is 65% against. Therefore, it is always an edge to enter in the areas before this on the table.
The above is related to bar level logic. If you are aligning with other room principles, then probabilities go higher. Get this idea under your belt, trading TTO Pumps, T2s, Head and Shoulder patterns etc. and continuation patterns we teach i the room while triggering on background color changes and you will benefit. Add understanding of range expansion, then probably even more. With practice and keeping of a proper trade log, you will soon grow as a trader.
The next principal is that of 30 minute extension statistics. For example, how many ticks pasta prior 30 minute high or low can you go before the stats are really against you? See the table below, which is a current expanded 3 Period Probability Walk (3PPW) Table in the green area:
Each of the Dist% are set to 5 ticks. So Dist1% is 5 ticks past a prior 30 minute high or low. Dist2% is 10 ticks, Dist3% is 15 and Dist 4% is 20 ticks. >25Ticks is self explanatory.
The chart below shows I period taking out H by 20 ticks at the low:
So, the question is, what is the probability of a reversal there? Look at the 3PPW table above and note that I does this only 33% of the time (Dist4%). Therefore, the probability of reversal here is about 67%.
We could possibly have more information however to add to this. The Probability Inversion table may also be telling us, if it was a straight run of continuation bars, that the probability is stacking against.
What is being shared here is not necessarily an invitation to counter trend (or not), but at the right time of day and market circumstances, this kind of thinking can really teach (and benefit) you a lot. It is recommended, you watch such patterns and movements and benefit from the market understanding you will gain in the process of seeing this in action.
One more observation... Note how the probabilities for these extensions tend to decline as the day progresses. Then also note what is happening with the ranges in the range columns.
And.. a question worth pondering and sharing your observations on in the room: If you exceed the probabilities is the Dist% columns of the 3PPW table, are you trending?
And another critical reasoning question... Note the similarity or relationships in the Probability inversion table / concept and the extensions to prior 30 minute periods in the 3PPW. Can you tell what that relationship is that is representing similar tendencies?
Please keep questions in the room.
That's all for now!
* Note, in the 3PPW table, the >25T column has a rounding error due to the nature of the test within 30 minute bars and can therefore show a higher probability than the previous ((Dist4%) column in some cases.