What is new about, a HVF surely this is just a traditional symmetrical triangle a long standing technical analysis set up?
When looking at what I will present as examples, many of the examples laid out will be exactly that. traditional symmetrical triangles. The key element here is the approach to the set up and how it is handled, I look at the set up differently. Also whilst all HVF’s qualify as traditionally defined triangles (mostly Symmetrical ones). all symmetrical triangles are not HVF’s So to repeat The Hunt Volatility Funnel set up is a subset of triangles as defined by technical analysis. So let us clarify the difference between the two. Firstly there is a broad church on defining and exploiting ‘Symmetrical Triangles’ in terms of traditional technical analysis, with some variations, particularly on targeting. The key features that define traditional technical analysis revolve around the following:
1. Trend line theory is key and all triangles are essentially bound by two trend lines. (Note: Ascending Triangles have a flat resistance level and Descending Triangles have a flat support level, but most of our examples are symmetrical) 2. As trend line theory is key, a minimum of 2 points are required to establish the trend line, with 3 or more being preferable 3. The trend lines have predominance in establishing, the amplitude for targeting, and the point from which this amplitude is to be projected from, namely the break of the trend line. See the chart below as an example Symmetrical Triangle as analysed by traditional technical analysis
4. The trend line touch points have no specific criteria to qualify, apart from being aligned with the trend line drawn. I mention this in respect to its relevance to the price behavior in the pattern itself. By this I mean for example two points on the lower base trend line can occur concurrently without a requirement for a reciprocal move to the top trend line, or as I may refer to it going forward as an inflexion point occurring on the higher trend line in between the two lower points. In the example above, the trend environment prior to the set up is not explicitly referred to in terms of expected outcome, the trend prior to the pattern is upward and the first point taken on the pattern is at point ‘B’ and is on the lower trend line.
I have seen a variation of amplitude calculations for a symmetrical triangle. The most common is that represented in the Black dotted line from the first high point down to the trend line. Symmetrical Triangle target amplitude variations
However, I have also seen Targeting amplitudes run from when the price action first crosses in between the trend lines. An amplitude is run from this crossing over the lower trend line to the upper trend line whether there is price action engaged at this upper point or not (usually not) Another alternative is the first time the price behavior having crossed over between the trend lines first interacts with say the bottom trend line. In this instance the amplitude is extended from the first trend touch point vertically across to the other trend line, in this example the top trend.
All these derived amplitudes are projected up from the break of the top trend line, at the point this occurs, in this example in a purple box
The Hunt Volatility Funnels uniqueness In many ways it is more how we elect to look at the set up that is different rather than the particular price behavior of the pattern itself. For this reason I have taken the same price action and set up and contrasted how they maybe viewed by Technical Analysis and through Hunt Volatility Funnel Theory. Traditional technical analysis looks at the symmetrical triangle set up above and as the name suggests the price action is viewed through the aperture of trend analysis, namely that there are two competing trends seeking to manifest and the predominant one will see the other trend broken with momentum. By viewing this particular set up through the mindset of trend lines, trend lines and their limitations dictate the manner in which the set up is traded. Namely: 1. An angled line dictates when a break has occurred 2. Whilst Stop losses are rarely discussed in this set up, it is assumed that the stop is placed just outside the opposite trend line vertically below (above) the point of break and entry. The problems with this approach are:
An angled line is given precedence over a price level, A price level is that which people and market participants react to. So by definition a horizontal price level line is subordinated by a line representing various price points at different time frames. As it is not know when the break may occur the actual price for the break is not known, this rules out the use of pending orders at the break level, as these cannot be know till after the fact By definition from the point above, the trader actually has to be present, observing and in a position to enter a trade at market as and when the break occurs As these breaks are sudden and high momentum at the point of break, ie. ‘impulsive’, trade fills maybe poor and slippage may occur or even entry failure till the trade has moved too far, and the trader is left wondering whether to chase the trade. Not an ideal position to be. Loss stops cant be determined till the break occurs, as the stop placement is vertically below the entry (upside break) just below the lower trend line The same applies for target calculation as this is dependent on break level for the projection to be placed at the right point on the descending trend line.
Given all these trade related simultaneous pressures, trade sizing and Risk: Reward assessments have little time to be done appropriately.
Here is some of the points where the approach to viewing the same set up through the eyes of Hunt Volatility Theory and The Hunt Volatility Funnel differs from the very broad definition that exist for a Symmetrical Triangle. We will also highlight the inherent benefits therein.
1. Prior trend is an explicit considered element. Set ups emanating from a choppy flat market are rejected and cannot be HVF’s (or Inverted HVF’s, where down trends exist prior to the set ups), in short a clear recent trend needs to be identifiable a. From this continuation is expected in most instances b. The set up pattern commences only, when the trend has its ‘exhaustion point’, whether a low or high point. c. Inflection points are only taken from after this first exhaustion point (H1/L1) d. After the exhaustion high or low (H1/L1), the furthest point on what would normally be the opposing ‘trend line’ in the traditional technical analysis assessment. The HVF Theory viewpoint is more focused on viewing the extent of countertrend collapse after the trend overextended. This becomes the primary target amplitude (AMP1) and is dictated entirely by the extremities of the price action in its initial exhaustion, subsequent pullback to its final natural support level. A trend line price level without corroboration of appropriate price action, is considered irrelevant in HVF theory all key inflexion points and measurements are supported by price action
e. Each inflexion point must occur alternately after a low, we select the next highest high, with each high being lower and each low being higher f. We seek 3 alternating highs and lows (see the magic of the number 3section) g. Rather
