Volatility Illuminated: Empowering Forex, Stocks, Options & Futures Traders (Volume 1)

363 Pages·2009·17.04 MB·English

by  Mark Whistler

VOLATILITY
ILLUMINATED
Mark Whistler
ark Whistler is a trader, author and analyst.
Whistler has appeared on CNBC and is a
regular contributor to FXStreet.com,
discussing currency trading and global
markets.
Whistler is also a contributing Senior Market
Strategist toTradingMarkets.com.
His books include 2034 The Corporation
Post 2012 (CreateSpace, 2009), The Swing Trader's Bible (John Wiley
& Sons, Inc.) - co-authored with CNBC/Fox News regular guest Matt
McCall, Trade With Passion and Purpose (John Wiley & Sons, Inc.
2007), Trading Pairs (Wiley, 2004), Profit from China (Investment
U/Wiley, 2006) and Profit from Uranium (Investment U/Wiley,
2006.)
Mark Whistler is also the founder of WallStreetRockStar.com,
fxVolatilty.com and InstitutionalIndexResearch.com. Whistler is also
a regular columnist for Investopedia.com. In his spare time, Mr.
Whistler operates Eats For The Streets, a growing organization -
dedicated to helping homeless across America and the
MarkWhistlerGallery.com , an unbiased Internet art gallery open to
all artists (globally) seeking to display their works.
Volatility Illuminated by Mark Whistler
Copyright © 2009 Mark Whistler -All rights reserved.
Media@ fxVolatility.com
www.fxVolatility.com.com
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will most likely be granted by the Author upon request, as he believes in Capitalism and that free
markets provide opportunity. The author requests permission queries be addressed to:
[email protected].
Limit of Liability/Disclaimer of Warranty: While the author has used his best efforts in preparing
this book, he makes no representations or warranties with respect to the accuracy or
completeness of the contents of this book and specifically disclaims any implied warranties of
merchantability or fitness for a particular purpose. No warranty may be created or extended by
sales representatives or written sales materials. The information contained herein may not be
suitable to be taken as empirical truth. You should consult with a professional when and where
appropriate. Neither the author, the editor, nor the publisher shall be liable for any personal, or
commercial damages, including but not limited to special, incidental, consequential, or other
damages.
Library of Congress Cataloging-in-Publication Data:
ISBN 1441490795 EAN-13 X9781441490797
Printed in the United States of America, New York, New York
First Edition June2009/First Printing June2009
Limit of Liability/Disclaimer
of Warranty (EXTENDED)
PairsTrader.com, Inc. LLC, [WallStreetRockStar.com, FXVolatility.com and Mark
Whistler] ("Company") is not an investment advisory service, nor a registered
investment advisor or broker-dealer and does not purport to tell or suggest which
securities or currencies customers should buy or sell for themselves. The principals,
analysts and employees or affiliates of Company may hold positions in the stocks,
currencies and/or industries discussed here.
You understand and acknowledge that there is a very high degree of risk involved
in trading securities and/or currencies.
The Company, the authors, the publisher, and all affiliates of Company assume no
responsibility or liability for your trading and investment results. Factual statements on
the Company's website, or in its publications, are made as of the date stated and are
subject to change without notice. It should not be assumed that the methods, techniques,
or indicators presented in these products will be profitable or that they will not result in
losses. Past results of any individual trader or trading system published by Company
are not indicative of future returns by that trader or system, and are not indicative of
future returns which be realized by you.
In addition, the indicators, strategies, columns, articles and all other features of
Company's products (collectively, the "Information") are provided for informational and
educational purposes only and should not be construed as investment advice.
Examples presented on Company's website are for educational purposes only. Such
setups are not solicitations of any order to buy or sell. Accordingly, you should not rely
solely on the Information in making any investment. Rather, you should use the
Information only as a starting point for doing additional independent research in order
to allow you to form your own opinion regarding investments. You should always
check with your licensed financial advisor and tax advisor to determine the suitability of
any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN
INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD,
SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT
BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE
TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE
UNDER-OR OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN
MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING
PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE
DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING
MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR
LOSSES SIMILAR TO THOSE SHOWN.
ADDITIONAL NOTICE TO
FOREX/CURRENCY TRADERS
Trading foreign exchange on margin carries a high level of risk and
may not be suitable for all investors. The high degree of leverage can work
against you as well as for you. Before deciding to trade foreign exchange,
you should carefully consider your investment objectives, level of
experience and risk appetite. The possibility exists that you could sustain
a loss of some or all of your initial investment and therefore you should
not invest money that you cannot afford to lose. You should be aware of
all the risks associated with foreign exchange trading and seek advice from
an independent financial advisor if you have any doubts.
THE INFORMATION AND STRATEGIES IN THIS BOOK DO NOT
MAKE ANY PROMISE, OR GUARANTEE. MARKET CONDITIONS
CONTINUALLY CHANGE AND THUS, INFORMATION PROVIDED IN
VOLATILITY UNLIMITED COULD CHANGE AS WELL.
YOU SHOULD SEEK PROFESSIONAL ADVICE PROACTIVELY,
DURING AND AFTER ATTEMPTING TO IMPLEMENT ANY
STRATEGY/INFORMATION NEW TO YOU AND YOUR TRADING
KNOWLEDGE, OR STYLE.
NEARLY 95% OF ALL RETAIL TRADERS LOSE.
PLEASE DO NOT ATTEMPT TO TRADE FOREX IF YOU FEEL THE
AFOREMENTIONED EVEN REMOTELY APPROACHES YOUR RISK
TOLERANCE. THE BEST ADVICE TO MOST INDIVIDUAL'S
CONSIDERING TRADING FOREX – IS UNLESS YOU HAVE
PROFESSIONAL HELP – DON'T.
ACKNOWLEDGEMENTS
Sandy and Ed –Thank you! I love you!
Karen, Mike and brilliant Ryan! I love you!
Thank you FxStreet…Maud and Vicki… Your patience is amazing! Thank
you Marcel ter Beek for your feedback and patience! Thank you Michael Soni
for your time and guidance (and the initial 'poison tree' metaphor.) I really
appreciate all that you've done! Thank you Alvin Yu, Adam Huo and all of
ECTrader.Net in Guangzhou, China. To Francois, thanks for still believing in
me…we're almost there!
To Mark and Tanya Harrison… Mark I am very excited for your new book
on Mortgages to hit shelves soon! Mark, you're an incredible writer! Thank
you Ed Carson for your friendship, past guidance and continued support.
Thank you to TradingMarkets.com and to Investopedia.com -Chris! Thank
you Carl Killough, your trading is brilliant buddy –perhaps one of the best I
know!
Thank you to everyone who I have not mentioned who stuck by me during
the composition of Volatility Illuminated… The project pushed every ounce of
everything I have to the brink… I cannot thank you enough for not giving up!
Last, but not least, thank you Joe O'Connor for editing the 1st version of the
probability article!
Table of
Contents
LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY (EXTENDED)
ADDITIONALNOTICETOFOREX/CURRENCYTRADERS
ACKNOWLEDGEMENTS
PART ONE 2
PARADIGM AT SEA
CHAPTER ONE
WHYSUPERMANWEARSHISUNDERPANTSONTHEOUTSIDE 2
THE MAJORITY IS ALWAYS WRONG –ESPECIALLY RETAIL TRADERS 19
THE PRINCIPLE OF BUOYANCY INMARKETS 22
CHAPTER TWO 30
WHYINDICATORSAREFAILINGINTHECURRENTMARKET 30
RETAIL VERSUS INSTITUTION 31
LOCK,STOCK AND DOGMA 33
HIIVEFFECT IN ACTION 36
FINDING SANITY WITHIN THE CHAOS 38
CHAPTER THREE 41
BEHINDTHECURTAIN 41
THE PHILOSOPHY OF LOOKING BEHIND THE CURTAIN,EVEN IF IT'S NOT SOCIALLY APPROPRIATE
42
THE STORY OF BLACK MONDAY-1987 47
THE CONFESSIONOF MASSMEMORYFAILURE 52
ADATE WITHBLIND DEVOTION 56
MEDIA MADE MALADAPTIVE MEMORY 67
THE ACCEPTED STANDARD OF NOTHINGNESS 76
TOSEEVOLATILITYILLUMINATEDYOUMUSTBEWILLINGTOSEEINFORMATION
CLEARLY 80
CHAPTER FOUR 86
FIBONACCI&PITCHFORKS 86
FIBONACCI IN NATURE 87
THE FIBONACCI PROPHECY 88
FIBONACCI RETRACEMENT VOLATILITY 96
AS SIMPLE AS A PITCHFORK 98
MACRO TO MICRO PITCHFORKS 103
DAILY CHART IN ACTION 106
4-HOUR CHART 108
NOTE 113
CHAPTER FIVE 114
VOLATILITYADJUSTEDFOREX FIBONACCI PITCHFORK STRATEGY 114
RULES TO FOLLOW 124
AFEW FINAL NOTES 125
CHAPTER SIX 126
QUADCCI–THETRADITIONALVOLATILITYPARADIGM 126
STANDARD STAN AND THE FOUR HORSEMEN 142
IDENTIFYING POTENTIALREVERSALS WITH CCI 148
PART TWO 154
VOLATILITY 154
ILLUMINATED 154
CHAPTER SEVEN 155
INFORMATION ACCELERATION IN THE 21ST CENTURY AND THE VOLATILITY PARADIGM 155
PRE-LOADING MAJOR 158
MARKETS FOR VOLATILITY 158
MARKET VOLATILITY THROUGH EINSTEIN'STHEORYOFSPECIALRELATIVITY 172
CRITICAL MASS AND CONSCIOUS UNAWARENESS 179
THE TIPPING POINT OF INFORMATION MASS 185
CHAPTER EIGHT 197
VOLATILITY AND PROBABILITY THROUGH THE MOVEMENT OF DISTRIBUTIONS 197
WORDS OF CAUTION 200
TRANSCENDING MARKETS THROUGH VOLATILITY AND PROBABILITY 201
GAUSSIAN CURVE REVISITED 208
THE EXPANSION AND COMPRESSION OF SUBSET DISTRIBUTIONS 224
CHAPTER NINE 239
VOLUME WEIGHTED AVERAGE PRICE (VWAP) 239
CHAPTER TEN 255
-WVAV - 255
WHISTLERVOLUME 255
ADJUSTEDVOLATILITY 255
WHAT IS WVAV? 256
MEASURING MASS AND ENERGY 257
MASS AND ENERGY THROUGH STANDARD DEVIATIONS 267
WHAT THE MULTIPLIER EFFECTMEANS TO US 269
WHY DO WE LOOK FOR VOLATILITY SPIKES? 271
WVAVVOLATILITY/ENERGY 274
CHAPTER ELEVEN 285
THE PHILOSOPHY OF ORDERFLOW AND MARKETS 285
MOST RETAIL TRADERS NEVER CONSIDER THE TERM 'BENCHMARK' 290
BIOVAPMAN AND THE INSANITY OF DR.WATERMELON STUFFER 295
BUY SIDE/SELL SIDE 296
CHAPTER TWELVE 306
WAVE•PM 306
WAVE•PM,WVAVAND QUAD CCI 314
CHAPTER THIRTEEN 319
THE DYNAMIC MOVEMENTS OF SUBSET DISTRIBUTIONS 319
THE NEVER-ENDING SEARCH BEHIND PROBABILITY DISTRIBUTIONS 321
CHINESE RESTAURANT PROCESS,PROBABILITY/VOLATILITY AND DISTRIBUTIONS 324
PROBABILITY DENSITY 327
FUNCTION (PDF) 327
RULES OF 331
TRADINGDISCIPLINE 331
SIX COREPRINCIPLES 333
OFTECHNICALANALYSIS 333
ADDITIONAL DISCLAIMER 334
CUSTOM INDICATOR CODE I 335
WAVE●PM 335
CUSTOM INDICATOR CODE II 339
DUEL CCIWITH SIGNAL 339
CUSTOM INDICATOR CODE III 343
WVAV 343
BIBLIOGRAPHY /RECOMMENDED READING 347
END NOTES 349