TREX is a signalling oscillator designed specifically for trading the E-mini
S&P 500 during
TREX and CREX are the same indicator but presented in different formats. TREX appears as colored arrows on the chart while CREX appears as a histogram in a separate study panel. I will refer to both indicators as TREX from here onwards.
- TREX is currently only available on eSignal.
- TREX will only work between 09:45 and 16:00 EST.
- It is only available for the ES and should not be used to trade any other symbol.
- Configuration settings should be adjusted if your computer's time zone is not EST.
What is TREX?
TREX is an indicator that helps time entries. If you're looking to short the ES and TREX is saying buy then you have a high probability of getting a better entry price by waiting until TREX turns to sell.
What signals does TREX give?
TREX issues weak, medium, and strong buy/sell signals that are colored as follows:
WEAK SELL - CYAN
MEDIUM SELL - YELLOW
STRONG SELL - RED
WEAK BUY - CYAN
MEDIUM BUY - GREEN
STRONG BUY - LIME
If the background of your chart is any of these colors then the signal won't show up on your chart.
The weak and medium strength signals are given as a "heads-up" signal to warn you that the signal is strengthening and to watch out for a strong signal.
Why does TREX only work from 09:45 to 16:00 EST?
TREX uses a number of data sources to calculate its value and some of these data sources (such as the cash price for the S&P 500, $TICK, $TRIN etc.) are only active during these hours.
What symbols does TREX work for?
TREX should only be used to trade the ES. It is designed for trading this symbol and no other symbol because the inputs into this indicator use data that is only relevant to the ES.
How should I configure TREX?
If your computer's time zone is not set to EST then you should right click the chart and choose TREX/CREX and set the offset parameter to the number of hours ahead or behind EST that your computer is set to. For example, if you're in California you would enter -3 and in Germany you would enter +6.
The multiplier is used to increase/decrease the sensitivity of the influence of the price of the ES in the calculation of TREX. The default is 10 and works best.
When does TREX work best?
- When the ES opens with a gap of 4 to 10 points and then trades in a sideways 2 to 5 point range.
- During sideways lunchtime trading.
- For sell/buy signal timing in a down/up trend.
TREX works under other market conditions but listed above is when it is most reliable and produces the highest probability trades.
When does TREX not work?
- Counter trend signals in fast moving and strongly direction markets.
Under these circumstances TREX will often signal early.
Nuances with eSignal: If you wish to view a previous session's chart using TREX then you should set up a time template from 09:30 to 16:00 EST (or the equivalent for your time zone) in order to get TREX to line up correctly as it would do during real time trading. This is a problem with eSignal and not the indicators. During real time the indicators will line up correctly with a 24 hour time template.
All the charts below are 1 minute ES charts using a time template of 09:30 to 16:00 EST.
There are 13 strong buy/sell signals on the charts from Friday 30 July 2004.
Let's consider these signals in isolation of any other trading signal and see if we could have scalped profits of 1 point per signal using TREX using a 1 point stop.
|Signal #||P/L||Exit reason|
|Comm||-1.625||(0.125 points per trade)|
Trades 6, 8 and 13 could have been profitable (gray lines) but I've assumed the worst case scenario and marked them down as losses or break even trades appropriately.
The charts showing the trades are presented below.
This simple entry/exit strategy and subsequent trade/money management clearly
doesn't work (today) and would need to be combined with other market timing
indicators and signal reading techniques. But before we look at that (below)
let's take another look at TREX in isolation with the signals presented to us
this Friday and see how we could have improved performance just using TREX.
I'm going to add another simple rule: If we start to see counter position signals (weak and medium strength TREX signals) then look at scratching the trade at best possible price.
How would that have affected today's trades?
#4 +0.00 instead of -1.00
#6 +0.50 instead of -1.00
#8 +0.50 instead of 0.00
That gives us a +3.00 points improvement making the loss for the day -1.875 points.
The example that you've seen (above) is from the most recent day of trading when I wrote this page (1 August 2004) and is a day picked at random. People that sell trading indicators won't show you this sort of performance from their trading indicators. They will pick days when the indicators worked exceptionally well and show you the setups that worked and gloss over what doesn't work. This is the worst possible way that you can (in my opinion) approach trading. You need to look at what you would do under the most adverse conditions and measure your ability to survive when the signals and the system and the rules you use to trade don't work.
Those that have been with us for sometime know the value of this approach.
The chart below is from the same day from 14:00 to 16:00 EST and on it you
can see the same TREX signals. Instead of having CREX in the panel below I've
replaced this indicator with version 2 of our DeltaT indicator.
Points 1, 2, and 4 are all DeltaT divergence short signals and point 3 is a DeltaT divergence long signal. Signals 1, 2, and 3 work well with very small draw downs and multi-point gains. Signal 4 fails with a small initial gain and then a loss if you held the position.
Given the information shown on this chart, which is the most probable signal
for success? My answer would be the short at point 4 because we have both DeltaT
divergence and a strong TREX signal together. This is also the only signal that
doesn't work out.
Equal second on probability of success I would put signals 2 and 3 because of the DeltaT divergence and the medium strength TREX signals and the least probable I would say was signal number 1 because we had no confirming TREX sell signals here.
So far the combination of these 2 signals hasn't bought us much...
The chart below is the same as the chart above except I've added in 1 more indicator: Volume.
The volumes that have been circled and marked as points 5 and 6 show volume spikes which is something that we look for to confirm exhaustion in a particular direction and improved chance of reversal if we're looking for a counter trend trade. Given this new piece of information and another look at the chart we can ask the same question: Which of signals 1 to 4 shows the highest probability of success?
That depends on how you value and want to play your hand. How much are you going to bet on this trade? Think of it as a game of poker. The signal at point 1 is a pair, at point 2 we have two pairs, at point 3 we have a straight and at point 4 we have a full house. How many chips are you going to bet on each hand?
In other words, what sort of weighting do you give each signal? In this example I've given the signal at point 3 the highest value because of the combination of 3 important factors: (1) DeltaT divergence, (2) TREX medium strength buy signal and (3) volume spike over 5K.
Consider these 2 tables and the weightings that I've given to each type of signal:
|Signal Number||DT div||TREX||Vol spike||Total|
|Signal Number||DT div||TREX||Vol spike||Total|
In table 1 I've given each of the TREX signals a value of 10% so that weak TREX signal is worth 10% and a strong signal is worth 30% etc. In table 2 I've given these signals a higher weighting of 15%. To balance the higher weighting that I've given the TREX signals in table 2 I've dropped the weighting that I assign to a volume spike over 5K from 30% in table 1 to 15% in table 2.
When we add up the weightings in each of these tables we see that signal 3 comes out as the most probable signal of those 4 and signal 1 as the least probable to succeed in table 1. In table 2, both signals 3 and 4 have an equal probability of success because of the way that we've weighted the individual signal numbers.
Remember that using a table of weightings such as that above can be used to give a signal judgement to each and every bar on a chart. I've just used the 4 bars at points 1 through 4 to weigh those signals. If you look at the first bar on that chart which has a signal (TREX strong short just before 14:00) and you used the tables above you would give that trade a value of 30% using table 1 and a value of 45% using table 2. The following bar (next minute) has a value of 20 and 30% for tables 1 and 2 respectfully.
This write up appears to have gone off topic but I believe that everything said in here is extremely relevant and will make you a more profitable trader and that's why it's here.
Trading is a game of probabilities. The more high probability trades you identify and take the more the law of large numbers and probability will work in your favor.
There are 2 things that you should be aware of here:
A failed high probability signal is a signal in itself
If a highly probable trade fails then this is in itself a good signal that should not be ignored. i.e. If everything says go long and the market cracks down then reverse short as quickly as possible. The market is telling you something very important here. It's saying that I'm far to weak to bounce and there is plenty of "strength" of the downside. In fact that is one of the strategies that we use with the multi-bar DeltaT buy/sell signals. Even though these are called buy/sell signals and are counter-trend we expect them to fail because they are multi-bar and indicate strength in the market for a continuation in the prevailing direction.
Don't use similar indicators to confirm signals
Be careful of using corroborating indicators that are based on the same math. A simple example will illustrate my point. Chart ES1Min below is a 1 minute chart with a 20 SMA (simple moving average) on it and chart ES2Min is a 2 minute chart with a 10 period SMA on it. Although not identical, both of the SMAs on these 2 charts measure the SMA over the last 20 minutes. Using a simple SMA cross strategy you get a buy signal at point 1 on each chart. These "indicators" are probably 99.9% correlated and do not confirm each other. This is a simple example because it is easy to understand. Something more complex but equally misleading might be watching stochastics on say the YM and ES. The YM and ES follow each other so closely that a buy/sell signal based on the same indicator would not be a confirmation.
Other indicators in this Pack/Series: