Joe Ross consolidation

Dear BS Forum Members,

In my Trading I often come back to ideas, that I found in books of Joe Ross. I'm pretty sure, that most of you know, who Joe Ross is (if not, then it is the best time to use googe :D). When I analyse particular stock, I use Ross Trading Software as well as I use Bullcharts.


Edited by charlie_8 - 20 Sep 2011 at 6:53am

Thank you for the answer Charles!

I think, I'll try explain this concept of consolidation and how I use it in my trading in more detail. My writing skills in English are far away from perfect, so I`m sorry for that and will try my best hoping that my post will be easy to read.

In my trading I tried to find the way, where I not have to use any technical indicators or predict any swings / reversal. I dont use VSA and dont pay any attention to volume, although I have read Wycoff's Trading Course, "Mastering the Markets" and both Volumes of Gavin Holmes. I found it very useful for expressive explanation of the past (like Gavin does it on YouTube), but not for making any decisions for the future price action. In most cases, using classical methods of support / resistance levels and HH / LL one would achieve same results (if not better), than using VSA without facing what I called for me the TMI problem (Too Much Information). It means, that if we incorporate in our decision making more and more logical steps (entities) with more then one possible outcomes, we have to summarize and weight all the possible outcomes, what in turn makes desicion makig much complcated. But equity markets are simplier: they go up or down or sideways. (About misleading volume data one may find this article interesting: http://articles.businessinsider.com/2011-01-04/markets/30003404_1_stock-market-technical-analysis-trading-system). I also bought this book of Grimes because I found there some price action ideas close corresponding to mine.

So I'm seekeng simlicity, but one, that based on the market reality. For me the only market reality that we have is the market price. A particular market goes higher, because price breaks high(s) of previous bar(s) and from time to time in strong uptrends bars will close higher, than high(s) of previous bar(s). A particular market goes lower, because price breaks low(s) of previous bar(s) and from time to time in strong downtrends bars will close lower, than low(s) of previous bar(s). (It seems to be obvious, but many traders tend to use moving averages instead of that simple observation). And theres is time, when a market gose nowhere, and the it is worth to take a closer look to this market.

Quite simple, isn't is? But what does it mean, that the market goes nowhere? If you goolgle "consolidation" or "trading range" you would find pictures with price bars (or candlesticks), that fluctuate building swings and pivot points mostly between two horizontal boundaries. But I trying to exclude swings from my trading because they are highly unpredictably. So I searched  for the way, where I could to determine the volatility contraction without paying attention on swings, misleading boundaries and otherways without using indicators like Bollinger Bands or any mean reversion volatility concepts. And one day I read in one of Ross's book about how he determine the consolidation. It is not his core conceps like 1-2-3 Formations or hooks, therefore it took some time before I started to watch this idea somtig deeper.

Take a look on the monthly chart of LNC (the same stock that you Charles used for introducing stepped indicator):


We see, that after volatility exansion (trend), we see at least 4 bars, that open or closes, or open and close within the range of the bar (no hard boundaries), that called "measuring bar" and it is the end bar of volatility expansion.  Let's us take a look on the whole history of LNC (that I have).



So what is the simliest way to trade volatility expansion? Let's zoom the year 2007.



I'm using mutiple timeframes for analysis and trading. So if I see an consolidation on Monthly graph, I would search for entries on Weekly (may be also Daily) timeframe. There are many possibilities to step into position, but the simpliest one would be to go with the market after first correction after breakout.



As iI said, this is the simpliest way to step into position. 

So I only described here the core idea of trading of such kind of volatility expansion. If someone would find it interesting or useful, feel free to post suggestion / question to me.

umfortinatly the code in my first post wasn't coorect, I saw it  some time after I allready posted it. But becaise nobody has answered, I forgot about this. I'm sorry for that. I will try to explain the construction of such consolidadion soon in my new post. 

Charlie-B