Deviation levles

#1

Hi,

With the apex implied deviation levels what is the best time to use them? I used the crude oil deviation on an out of the money 2:30pm expiration. The market so far did not get to the +0.7 deviation level yet today of 106.63. The binary was for $106.50 I picked purchased it at $10.00. I did make a great profit and sold 15 contracts at $20.00 around 9:00am. My main question is does the market always hit or come very close to hitting the -1 and +1 deviation levels? I had my apex elite mvp chart up, no apex was formed in the morning, but I did see the crude chart going up in price. Now the market did flip and go other direction and is close to -1 deviation. Now I know there is 60 to 70% change of hitting the deviations, but my main question is how is it best to determine if the market will be up or down or does it hit -.07 and +.07 almost all the time? Buying an out of the money binary early in the AM hours with long expiration based just on deviation levels seems like a great strategy as it worked for me today, but I am new to trading and not 100% sure the best way. I saw the strategy on one of the videos on the forum it was a nadex webinar recording. Also how many times will the deviation levels be hit or touched on average each day? Am I correct that the deviation can be reached at anytime can be 1:00am and if you start trading trading at 9:00am and it already hit a deviation level, what is the chances if going long or short would it reach the level again?

Thanks

#2

David - the deviation levels are great tools. I did a lot of testing of them on my own with YM. You can search the forums for the tests I ran, all the data is there.

What I found:

  1. a set and forget strategy of buying or selling ITM/OTM binaries around deviation levels has only a small edge. It is much better to use them in conjunction with other signals (i.e. exceeding volume).

  2. The dev levels are remarkably accurate for bracketing the market, just look at how many times the instrument hit a +/- 1.0 dev level and turns around. Sure, there are days that it blows through it but they are few and far between and can usually be contributed to some sort of news coming out. Great for tightening stops…

In answer to your questions:

  1. What is the best time to use them? The dev levels are calculated after the close (not sure exactly when, I think 8 PM) and are valid until the close the following day.

  2. Does the market come close or hit the +/- 1 dev level? You answered that yourself. There is a 60-70 % chance ( standard deviation).

  3. How to best determine if the market will be up or down? My friend if I knew that, I can guarantee that I wouldn’t be typing an answer in a forum. I would be on my own private island!!! That is the thing, we don’t know which way it is going but, now with Darrell’s tools, we have a reliable measure of how far it is expected to go…

  4. How many times will an instrument hit a particular level? That depends upon the volatility of an instrument. Oil is more volatile, historically, than USD/CHF. Also, the +/- .5 deviation levels could be hit more often in a day than the +/- .7 levels, and the +/- .7 levels could be hot more often than the +/- 1.0 levels.

If you have other questions on dev levels let me know. I have done a LOT of backtesting of them. If I can help you figure something out or bounce ideas off, let me know.

Happy trading!! Brad

#3

Look like brad has you coverd :slight_smile:

Also check out the other information under the deviation menu link above it will help answer some other questions you may have.

#4

Thanks for the quick reply back. Really great information.

#5

I’m a statistician so I can’t help but point out that tying a 60-70% probability to a “deviation level” assumes a normal distribution which doesn’t quite hold water with the stock market. I’ve personally noticed the deviation levels are quite helpful, but I would recommend treading lightly when using probabilities unless you’ve already tested a particular asset to follow a normal distribution on a daily basis or have figured a different distribution to use. I’m sure Darrell has done a ton of work developing these so I’m probably just blowing smoke.

#6

listen here Mr “Statistician”; the last thing we need is numbers and science dictating how we make trades around here! (please detect the sarcasm) :slight_smile:

I agree with you, but if you take a sample of the market on most random distributions, these probabilities are pretty accurate. As you mentioned, Darrell has done extensive work on the subject and has an algorithm he uses to calculate these deviation levels which undoubtedly incorporate pending futures orders and volume. As I have learned on my short journey in this trading world, price action and volume is paramount to any kind of “prediction” of market movement.

#7

The % of statistics is actually very spot on.

Notice the levels themselves are simply a deviation from settlement. The actual IV is for a 1 deviation move high to low not simply from settlement. Hence why this is plotted on the chart with the deviation indicator. So we don’t just use the levels. Often you will hear me referring to the 1 deviation high to low just like i do on expected range. This is crucial

It’s not about standard deviation models. Which use that the “past performance” is indicative of future performance model which we all know is a disclaimer on everything that does not work as admitted by bernake in 2008 that the “bell curve” was broken.

We are not using standard historical price based deviation. Diagnostic Deviations Levels are using implied volatility (expected movement) built into options pricing. This is the market putting their money where their mouth is which is in turn released through the premium pricing built into options.

They will change each day based on IV.

However, regardless i would not simply trade off of them. You can of course but there are multiple methods to use deviations/pivots/fibs for. Where you bring other confrontational pieces into play. Most of the time the IV will be built into the options price anyway usually not giving you any real edge on multi directional unless you have a smaller than price in move (premium collection) or a smaller than expected premium - (ie news straddle) etc…

So you ususally are going to need to use direction if just using deviations.

There is a lot of ways to use them Let me know what specific questions you have that have not been answered already :slight_smile:

#8

[quote=dca78_00] 3) How to best determine if the market will be up or down? My friend if I knew that, I can guarantee that I wouldn’t be typing an answer in a forum. I would be on my own private island!!! That is the thing, we don’t know which way it is going but, now with Darrell’s tools, we have a reliable measure of how far it is expected to go…[/quote]

Hi guys. A few questions regarding direction of market. a ridiculously rookie question, and because a lot of the stuff on here pertains to Nadex, it probably wouldn’t matter in that the techniques and strategies on here are for the day trader, but…

In using any system or strategy on here, would it still be wise to pay attention to the overall direction the market is going? I mean very literally that say, for instance, if the overall market was rising would it be wise to mostly have my orders be longs (with a few shorts if I see a blatantly good opportunity, like a boomerang p2 before another p1 begins and the market goes back up from retracement down). to me its just common sense to ride the tides and yes its true the market can turn against me, which brings me to my next question: are market trends clearly going up or down in between news events? the news obviously plays a big role in price action, but does it a play a big enough roll in having the market consistently go in one direction until the next news release? (up or down depending on supply/demand). Would it be a good idea to trade a little after news, after having determined the general flow of the market (and reversing once deviations are hit) and to continue to place my trades in accordance with that direction until the next news report, where I wait and determine whether the market is still going to continue going up or change direction.

#9

Nobles, Regarding the question above, yes it is always important to know the general direction of the market, but it boils down to what system you are using. The questions you ask above all answered by what system you are using. There no magic answer as to whole the markets move between news events one direction or the other and no secret trick. You must do what the chart is telling you to do. For knowing the overall trend of the market and taking possible advantage of a larger trend, you would use the Apex Elite System or Trend Catcher. There is no magic system to trade a general trend for the whole week until the next news events. WE do not trade news after it hits a deviation and we determine general direction. So you must decide what system you are going to trade. Learn one system, master it and then learn another one. have more than one play in your playbook and learn when to use which system based on the market conditions that day. Is it a big news day? Is the marekt trending with lots of Apex entries? Is it a high volume day and you should therefore look for big moves, Elite trades and Momentum sclaps? There is not overall magic answer. You must do what the chart is telling you and trade the system that best fits the market condition of the day