A Trader should always start by validating ‘expectancy’ using a proven method or system.
A method or system is often defined by a number of key components or technical indicators. Those components are based on the following…
Trends
Support & Resistance
Volume
Time and Price
Technical analysis using a combination of those components becomes part of a trading plan and methodology. A trading plan consists of Trading set-ups using support or resistance with precise entry and exit points.
Those Trading set-ups are often based on Selling resistance in downtrends, or Buying support in UP trends. Those set-ups are often categorized as ‘Swing trading’ or ‘momentum trading’
The key component of all trading thereafter is Trade & Money management: - Risk and Reward
Hello, my name is Frank Dilernia and I’m the developer of the Dilernia Model, Methodology & Principles ©
The Methodology has been developed using the majority of the components mentioned above (not Volume) to build a generic trading model that is used on all equities, futures,
forex and derivatives markets, with the sole purpose of finding low risk trade set-ups within a number of different
timeframes.
Why don’t I look at Volume?
Because I can never know when Volume will appear, but I can know where Support and resistance resides on any given Day, Week, Month or Quarter and use it to my advantage.
My primary analytical goal was to develop a trading model based on Time and Price that had an edge, that
wasn’t curve fitted after the event, and had a robust and realistic expectation that could easily define support-resistance and also define trends and likely
continuation of trends. I wanted to build a generic ‘objective’
mathematical trading model so that I could use, which was easy
identifiable and that each trade would have some
reliability & statistical expectancy.
So what is the Dilernia Model, Methodology, & Principles?
The
Dilernia Model is a
mathematical tool that is used to define Trends, Support and Resistance. The
Dilernia Methodology is the theory behind the model. And the
Principles are the rules & the trading set-ups that incorporate both the Model and the Methodology.
The critical components in the
Dilernia model are Time and Price. Whenever a ‘new’
timeframe begins a new 'dynamic' range is clearly defined, and by combining Time and Price to form one trading model, the trader has the ability to know where areas of
distribution, value, support and resistance are in advance. It is these moving parts that quantify the
continuation or the completion of trends. There is now a robust ‘
predictability’ for knowing that the passage of TIME is the critical factor in the markets changing from rotating to trending, when these times occur the probability-accuracy increases and the ‘risk-reward’ strategies become more clearly defined.
Don’t be overwhelmed with the concept of Time.
Time is a generic definition of a ‘period of Time’; The Day, the Week, the Month, the Quarter, and the Year are all components of Time.
Trends of the market are defined by each subsequent
timeframe in this order...
The Primary Trend of the market is defined by the Yearly timeframe. The Secondary trend is defined by the Quarterly timeframe. The Intermediate trend is defined by the Monthly timeframe, and the lesser trends are made up of the Weekly timeframe and the Daily fluctuations that occur each day.
Once you begin to read the reports you will notice a number of charts ,which I will describe in detail.
The first chart you’ll see is the
Dilernia model applied on Weekly and Daily charts.
Click charts below to enlarge....
The above chart is the
Dilernia model applied on the Weekly bar chart of the
SPI futures showing the monthly
timeframe. This is a generic model that is applied on all charts regardless of whether it is the
SPI, the DOW, S&P 500,
Forex or any stock.
The ‘blue channels’ (
Dilernia Model) define the Trend of the Market using the Monthly
timeframe, and likely areas of support and resistance. As each month ends the model defines new levels of the support & resistance for the current month.
Those blue channels
aren’t curve fitted to suit the highs and lows of the market. Those Monthly highs and lows have been calculated
mathematically in advance using the previous monthly ranges to project 'future' ranges.
In theory, it is a Time and Price model that uses previous ‘Time’ to predict the future ‘Time’ so that support and resistance levels can be known in advance.
If Price is above the Monthly 50% level, then the trend continues higher each month until price hits resistance. If price is below the Monthly 50% level then the trend is down and moving down into Support. As Each Month ends and the new Month begins all levels will shift dynamically and allows the trader to adapt to the new 'market dynamics'
When it comes to technical analysis the first plan is to always determine the larger Trends and then consider the lesser
timeframes. Without an
understanding of this you will struggle, without the concept of Direction, Trends, Support and Resistance you are guaranteed to fail.
Time is the only predictive element of technical analysis and it’s the only thing we know in advance. Because of this, Time effectively defines the dynamics of the market and allows us to have a better
understanding of where Price is likely to travel towards, and reverse away from using the most critical levels in the market; 'dynamic' support & resistance.
The next thing you’ll see on the Daily charts is the same Monthly model along with the brown dotted line, this being the Weekly 50% level.
And the same concept is used in the lesser
timeframes. If price is above the Weekly 50% level, then price travels towards the Monthly highs. If above the Weekly 50% level at the start of the new month, then price will often travel higher in the new month until price hits resistance once again; Monthly highs
If price is below the Weekly 50% level at the start of the month, then the trader would model a scenario that
statisitically price will push downward into lower support levels. However, if price
isn’t below the Monthly 50% level, then the
intermediate trend is still bullish.
There are 4 important principles of the Methodology that all traders must use and understand.
1. All trends originate from the 50% levels.
2. All trends are defined by the 50% level and follow the price outward.
3. All Trends end at support or resistance and rotate inward & towards 50% levels
4. A breakout of Support and probability suggests that the trend will continue down until the next timeframe support channel.
Or, a break of resistance and price will often continue higher into the next timeframe resistance level.
We can now see that the forward Monthly 50% level in the new month has ‘jumped’ upwards and price is currently below the Weekly 50% level.
Even though the month
hasn’t ended the trader is now beginning to
pre-
empt any future direction by the new Monthly 50% level, as all trends originate from the 50% level and push outward. If Price is below the new month 50% level, then the trend will often continue down towards the new monthly lows (Support)
The model maps out a market path and allows traders to make objective trading decisions using high probability levels that define support, resistance and likely trends.
The core theory of the Model is the 'rotation' of price towards central zones and then the extension of price as Time moves forward. The
Dilernia Model is designed to define probable ‘market paths’ and high probability patterns based on Time & Price.
The ‘
objective analysis’ is simply using an expectation, whilst price is above or below the
timeframe 50% level then there is an 'trending' path that Price follows, as Price continually rotates inward and then extends outward as ‘Time’ dynamically shifts the support & resistance levels along with the 50% level.
By
understanding the changing patterns reflected in the movement of Time, any trader now has the ability to
pre-
empt major changes in market dynamics by simply trading on the correct side of each 50% level.
There are only a number of things a trader can do:-
BUY low Sell High, BUY high Sell Higher, Sell high BUY low, and Sell low buy lower.
It is imperative to know when to do either trade, and this is done by trend
indentification, support & resistance.
The Trader Premium Reports
The reason for the
Trader Premium Report is to have an ongoing Daily and Weekly
Market update and analysis, and hopefully some high probability trading set-ups during the week.
There are two reasons for the Reports:- an ongoing education process using the
information from both my books, and also provide traders with the ability to
maximise the trading potential within the market structure on any given day,
week or month.
There many who are already successful traders, but still want an ongoing
education or analytical view of the markets. Each trader still wants to
improve, or find ways of improving. The most successful people anywhere
employ others in helping achieve more from their chosen field, in this case
achieving 'monetary-reward' and hopefully a better 'standard of living' & creating wealth.
There are a
multitude of different traders:- swing, momentum, breakout,
day-traders, position traders, and there are others who haven't done well
and continue to lose, and want help in turning things around. I personally
don't know what each person is doing or what other methods they use to make
their trading decisions, but regardless of any short-term techniques used,
the market direction and overall trends along with the movement between
support and resistance has to be understood to become successful along with
minimizing Risk
There might be many who don't want to trade short-term futures but are more
interested in 'option plays' using the larger
timeframes, cycles, and the
Dilernia Model (c) to take positions, or manage their own stock portfolios.
DAY TRADERS
Within the report we always start with the larger
timeframes and work our way down, however most day traders or
intra-day traders focus in minor indicators to trade but rarely focus on the larger
timeframes.
I now want to focus on the lesser
timeframes and apply the criteria of finding low risk trades using the same concept of trading away from support or resistance on any given day.
Regardless of whether you are short-term swing trader or an
intra-day trader, the movement over one single day has to be optimised to the trends in the larger
timeframes. Whilst there might be a Trader A or Trader B in the larger
timeframes, there are going to be a number of Trader A’s and Trader B’s in the lesser
timeframes all doing the same thing: - Buying support or selling resistance, or in the case of many
intra-day traders using their own systems to trade. And sadly there are many who still continue to do badly and lose money.
And this is why these reports are invaluable, because the point of these reports is to minimise Risk by eliminating high Risk trades and focus on low risk trades and ideal entry and exit points:
Trade & Risk Management
Because the 'methodology' is based on
timeframes and key levels in the market, short-term traders are going to find themselves trading patterns within a Daily range. Each Daily range has been defined by the previous 5-days of trading.
Even though most
intra-day traders trade using a plethora of minor indicators when trading the price action or ‘
intra-day noise’, the most robust set-ups normally align with the same patterns of trading with the trend: - SELL high, BUY low using key levels in the market:- support & resistance
The 5-day Range
The
Green channels each day are defined by previous 5-days. As each day ends the levels dynamically move, and the exact same theory that is occurring in the higher
timeframes is now being applied in the lesser
timeframes.
The most robust trades are always going to occur around or as close to the levels in the 5-day range, either using swing patterns from 5-day highs or 5-day lows lows, or momentum patterns as prices are thrust away from the 5-day 50% levels moving outward.
Keep in mind, that not every day will hit or reach those levels in the market, but there are other strategies we can use to try and trade profitably during the day & minimise Risk.
If the market is moving down and trading below the higher
timeframe 50% levels (Monthly and Weekly), then the trader wants to be finding high probability set-ups within those trends
And that is the key of high probability trading set-ups:- using the underlining trends of the higher timeframes and validating them with the lesser timeframes.
1. All trends originate from the 50% levels.
2. All trends are defined by the 50% level and follow the price outward.
3. All Trends end at support or resistance and rotate inward.
4. A breakout of Support or Resistance and probability suggests that the trend will continue until the next timeframe high or low channel.
Note:- not all support and resistance levels will hold and provide a profitable trade. They can fail and will fail because there is a larger trend pushing the market in the opposite direction.
That is why it is imperative to know where your stops should be placed, and don’t fight the trend if there is a breakout of a
timeframe channel, because price will often continue until the next
timeframe level is defined #4, as illustrated above. Monday’s breakout of the Daily low and price continues down into Tuesday’s Daily low:- random support.
Random support or Random resistance are levels in the market that can provide an opportunity to trade against the trend of the larger
timeframes.
Often these levels can support or resist the market during the trading day, and day-traders can use these levels to trade, but profits should be taken much earlier compared to 'shorting' a 5-day high in a Monthly downtrend.
Range trading and the Spiral filters.
The Average Range of the market is easily found by taking the past 3 months and working out the average True range day. However on most occasions the day session rarely travels or completes the average range, instead on most occasions the average range movement occurs overnight and the next day opens away from the close.
During the course of the week or month, there’s usually only a few times that the ‘daily’ range travels more than the Average True Range (
ATR), and it’s those days that keeps the Average range where it is. Once you closely look at the daily range you begin to realize that the movement each day is often around half the
ATR and can be less than half on many occasions.
As a
‘day trader' I would rather work with or below the average range and focus on trading half the range. If the average range is 80 points, then I would prefer to take profits below half the range @ 40 points, simply because on most occasions the market can reverse and move in the opposite direction due to program trading used by 'hedge funds'
The greatest range movements will always occur around the Monthly
timeframe levels, but it’s not always trading near a Monthly or Weekly level, instead price is often range bound within a dynamic 5-day range.
The chart above is the 5-day range of the SPI, or it can be any market. We can see that each day the Daily levels move, and even though the SPI is moving lower, price is still trading inside the 5-day range but following the levels dynamically.
The Bars you see are '42 point range' bars. Often the Market will move 41-44 points in one direction, but all of a sudden program trading from hedge funds swing the market around and the same range movement is now occurring in the opposite direction.
A day trader will need to focus on this phenomena, by trading away from those ‘points’, or as I call them ‘spiral points’ and focus on exit strategies as each of 41-44 point ranges complete.
For example:- If price is above a lower point (spiral), then the trader should be holding towards the 42 point high, or in the case of the SPI, a potential move of 42 x $25 = $1050 per contract
If price is rising UP from a spiral low or coming down from a spiral high and the trader has entered 10 points away from the ‘spiral point’, then the exit isn’t going to be 42 points, it has to be optimized to the range, so the exit is now 32 points x $25 = $ 800
In the chart above we can see two occasions the Daily lows broke out (support Failed) . One breakout continued down into the 5-day lows, which took 2-days (break and extend) , whilst the first breakout didn’t, instead it moved upwards. But we notice that the low of the market was a R42 low or spiral point:- program trading has kicked in and reversed the downtrend.
And that’s the crux of the day-trading, using those spiral points and the 5-day levels to our advantage because often program trading from hedge funds can come into play around those points and swing the market in the opposite direction.
A smart and adaptive trader will simply adjust to the market and either take a position, exit their position, or not trade at all and wait until the next pattern aligns with support or resistance.Trading the Open...
A day trader could be any person that either places ‘limit’ entries at specific levels using a broker or online platform.
A day trader could also be someone who has the luxury to screen trade the market, and often trades at market prices. Or it could be someone who is able to watch the open before work or at work and place trades.
If that is you then we move into Spiral filter trade set-ups, which I believe is probably the most robust discretionary trading method there is…
These spiral filter trade set-ups are important because not every day will open near a 5-day level or any other higher timeframe level. There isn’t any support or resistance to help minimize risk or define a high probability 'set-up'
However, there are those ‘spiral’ points that we can use to our advantage by filtering them with 'algorithms' to improve the performance (Optimised Entry & Exit strategies)
By incorporating 'genetic algorithms' we now have the ability to 'Sell near the top' and 'buy near the bottom' within the Daily range
The Chart on the left is the 5-day range and the 42 point ranges.
The chart of the right is the spiral filters pink and brown using 21 point ranges
As a day trader I want to be trading as close to those levels as possible, as long as my trades are being optimized to the market conditions:- trends, rotation and extension.
I want to be trading with the trend, but also utilizing the same patterns of selling resistance or buying support using a lesser range & spiral point.
By using these patterns there will be numerous occasions that I will be trading against the overall trend of the market but trading with the trend of price moving away from the spiral point.
Recap:- A spiral point is either the high or low of the range bar used. If I'm using a 42 point range then the spiral point is each high or low of the current Bar, and the same applies to the lesser range of 21 points.
In the chart above we can see the downtrend from the breakout of the Daily lows and prices moves down into the next daily lows, along the way the down move is occurring from minor R21 spiral ‘tops’ confirmed with resistance using the Spiral Filters:- pink and brown.
Once the 5-day low is reached @ 3669, price is rising up from a R21 spiral low.
It is not until price is trading above 3718 (pink) that ‘long’ positions can be added.
Why trade longs above 3718?
Because we are trading the pattern of price rising up from the 5-day lows and rotating back towards the 5-day 50% level:- extension and then rotation.
As a day trader, these patterns need to be optimized so that profits can be taken on the initial first 21 point range, and then leave positions open until the next ‘pink filter is formed.
For example:- short trading down from 3757 and expectation price is moving down 42 points, or into the next ‘pink filter’.
If price swings back up into the spiral filter than another position can be taken down into 3708.
If price is below 3708, then it fits in with the view that the market is heading down into the next day lows.
Just because a trader has entered and exited a trade, there are still opportunities to get back into the market if the trader has the ability too read the market correctly and has optimized the set-up to the market conditions:- Trends, rotation and extension
If you have been stopped out, then you know that you don’t have to 2nd guess the market, as it’s not moving in the direction, and stops are ‘tight, which in my case is normally between 5-7 points, whilst I'm trading 21-42 points.
Not a bad Risk-Reward strategy.
We can compare two differents 'short' trading set-ups this week, 3757 on Tuesday and then another short trade @ 3754 on Friday. What we notice is that Tuesday's trade is moving away from both spiral filters, whilst Friday's trade isn't, which might result in a small range trade:- take profits sooner.
Once again the trader is optimising the set-ups:- Entry,Exit and Money Management
The Trader Premium and Reports are updated each morning and throughout the day. I
encourage you to read it. I personally find it rewarding and fulfilling to be doing
this everyday. I get enjoyment from helping others, especially when a high-probability trade
comes along that all can profit by.
I believe that during any given week there are only 2 high probability
set-ups, and it's those days that provide the best trades. The rest of the
week is spent trying to minimise risk and stop over-trading, this is helped by the Spiral points
and the Spiral filters found within the 5-day patterns on a daily basis.
This is the only report you'll find that strips the market down from
top to bottom, and provides the most comprehensive analytical view of global
markets that you'll find anywhere.
To be profitable in the market the trader needs to develop a Trading plan based on a number of important factors….
1. Choosing the right market to trade.
2. Choosing the right price data to reduce noise (intra-filters)
3. Applying a simple filter to stay with the trend (Dilernia Model)
4. Using more filtering algorithms to improve the performance (Optimised Entry & Exit strategies using multiple timeframes.
5. Incorporating genetic algorithms to sell near the top and buy near the bottom: - 5-day pattern
6. Using functions to keep draw-downs to a minimum reduce the number of losing trades, and lower risk. (Optimised Spiral Filters & Money Management)
In Conclusion:-
The Dilernia Model and Methodology is a
discretionary model & methodology, and traders have to think
for themselves.
Most traders who don’t want to think for themselves develop
hardcoded systems with positive expectancy, which is a correct thing to
do. The system then has an edge, defines Risk/Reward based on
historical evidence, and hopefully makes the trader money and not
lose money.
However, hardcoded systems often fail and move into draw-downs
periods. Most hardcoded systems don’t know when those draw-down
periods will occur or how long they will last for.
Using my model can often help traders who use hardcoded
systems, because it helps optimize the systems as it clearly
establishes trends, the direction of trends, and likely areas of reversal
of trends within multi-timeframes.
My model doesn't use ‘hardcoded expectancy’ , but employs the Phenomena of Reliability (expectation) using hardcoded levels with a random outcome.
We have just seen the previous 3 months have precise tops in the
market, from a precise low in March.
For example:- having an expectancy that around the March lows and
‘support’ might provide a potential 30% UP swing in the 2nd Quarter: - random outcome until complete.
Or a 3rd Quarter Thrust pattern once lesser timeframes confirmed the
UP move.
Example:- why short a rising stock in Australia if the S&P has closed
above the 5-day highs? There is a high probability pattern that the next
day will gap up.
Not every trade will be a winner, and not every higher timeframe support
or resistance will hold, they often break, but it’s the filtering of those
higher timeframes using lesser timeframes that the trader uses:-
5-day patterns or Weekly ‘open’ patterns:- support/resistance
I’m not the one who coined the term the ‘adaptive trader’, but that’s
what the trader has to be, ‘adaptive’ and be aware on what’s going on in
the higher timeframes.
I’m completely bias, but that’s what my model and
methodology provides.What makes a good methodology is one that gives
an individual trader a good grasp and understanding of what the risk
and rewards are along with providing high probability set-ups with
the lowest ‘risk’. Another trader looking at the same model and
methodology should have the exact same understanding.
It’s there for all to see. It’s objective. There are rules and principles
to formulate your own trading strategy based on your own limitations or
the timeframe you choose to trade.
Lastly, in the reports you’ll see a number of lines within the 5-day ranges. Often these are either coloured, Yellow, Brown or light Blue.
These levels are based on 'Proprietary' levels and are optimised to each market and aren't generic. These levels will be different in other markets. These filters are used by intra-day traders to help define the direction of the current day & applying the same concept of support and resistance. We try and trade as close to them as possible and utilize the trends of the market:- high probability trades on a short-term basis
All the information is found in my books along with the coding of the Dilernia Model, the Methodology, and a description of the Principles
By using these reports you will continue to be at the forefront of statistical reliability,historical profitability and optimal price movements based on the Dilernia Model, Methodology and Trading Principles. ©
All Information is owned and copyrighted by Frank Dilernia 2003-2009
SPI Weekly and 5-day pattern
By understanding the changing patterns reflected in the movement of Time, any trader now has the ability to pre-empt major changes in market dynamics by simply trading on the correct side of each 50% level.
The 5-day Range
S&P Weekly and 5-day pattern
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