What is new about, a HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] surely this is just a traditional symmetrical triangle a longstanding technical analysis set up?

 

When looking at what I will present as examples, many of the examples laid out will be exactly that, Traditional Technical Analysis 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 HUNT VOLATILITY FUNNEL THEORY [HVF THEORY]’s qualify as traditionally defined triangles (mostly symmetrical ones), all symmetrical triangles are not HUNT VOLATILITY FUNNEL’s [HVF’s]

So to repeat The Hunt Volatility Funnel set up is a subset of triangles as defined by traditional 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. Trendline 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, or angled ‘trend’ lines, apart from horizontal, to some degree)
  2. As trendline theory is key, a minimum of 2 points are required to establish the trend line, with 3 or more being preferable
  3. The trendlines 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 trendline. See the chart below as an example

 

 

Symmetrical Triangle as analysed by traditional technical analysis

Symmetrical Triangle 1

  1. 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 trendline 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

Symmetrical triangle 2

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, i.e. ‘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.

 

1st HVF 3

  1. Prior trend is an explicit considered element. Set ups emanating from a choppy flat market are rejected and cannot be HUNT VOLATILITY FUNNEL THEORY [HVF THEORY]’s (or InvertedHUNT VOLATILITY FUNNEL THEORY [HVF THEORY]’s, where down trends exist prior to the set ups), in short a clear recent trend needs to be identifiable:

 

  1. From this continuation is expected in most instances
  2. The set up pattern commences only, when the trend has its ‘exhaustion point’, [whether a low or high point].
  3. Inflection points are only taken from after this first exhaustion point (H1/RL1)
  4. After the exhaustion high (or low – H1/RL1), the furthest exhaustive sell off point in this example, on what would normally be the opposing ‘trendline’ in the traditional technical analysis assessment. The HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory viewpoint is more focused on viewing the extent of countertrend relapse after the trend being overextended. This distance between H1 & RL1, 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.
  5. The traditional approach for technical analysts, of a trend line price level without corroboration of appropriate price action at this level, is considered irrelevant in HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] theory.
  6. In HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory all key inflexion points and measurements are supported by price action
  7. Each inflexion point must occur alternately after a swing low and subsequent high, we select the next highest high post the low (RL1), with each high (RH2) being lower than its predecessor (H1) and each subsequent low being higher than its previous low. Setting up the Squeeze.
  8. Hunt Volatility Funnel Theory, places far greater value and emphasis on the, obvious Volatility reduction, in the set up rather than competing trend lines approach. The Volatility approach provides far more benefits, that the Traditional Approach foregoes, such as:
    1. Orders can be placed at fixed levels, where the volatility is now deemed expansionary, rather than the trade being perpetually monitored and entry levels adjusting the longer the trade incubates before breaking
    2. Permitting ‘Set and Forget’ trading with the full trade idea being expressed in advance with a known potential Risk to Reward Ratio prior to break
  • Engaging the market at the rare moment in price action where the possibility of far tighter stops, will not be counterproductive
  1. The potential to capture an explosive move, taking your trade well away from entry levels early in its life
  2. Quick closure if inaccurate with a tight stop, leading to low time in trade for losers and longer time in trade for winners
  3. Far larger Risk to Reward Ratios for the above reasons
  • Far more emotionally comfortable trading as a result, meaning greater trader compliance to the strategy
  • An excellent strategy for Option trading too, with volatility adding to option value as well as the underlying market Delta move.
  1. We seek 3 alternating highs and lows (see the magic of the number 3section in a later submission)
  2. The Traditional Entry is taken at the RH3 or RL3 in bear/inverted HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] set ups, this signals price action has begun its expansionary price behavior post a period of low volatility price action or ‘Funneling’
  3. In excellent pre-break compliance, Early entries may be taken, according to HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory’s more advanced principles not covered here, that vastly increase Reward to Risk
  4. Multiple Time Frame Analysis utilizing HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory’s 3+1 approach provides further opportunity beyond the scope of this discussion [Further HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Tools exist to ensure directional accuracy of the break exist, and are beyond this discussion, for more details refer to the theMarketSniper.com or email Trader@TheMarketSniper.com], Shorter Timeframe set ups on lower timeframes known as primers may also ‘multiply’ potential returns. None of these huge ‘Multiplier’ gifts are captured by traditional technical analysis. Risk to Rewards of 1:43 have been obtained and regularly double digit RISK TO REWARD RATIO have been taken using just some of these advanced features of HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory, because of the focus on Volatility Suppression, and Multi Time Frame analysis.

 

Pattern View – USDSGD [H4]

USDSGD H4 image 4

Trigger Time Frame View – USDSGD [M30]

We take the slightly earlier entry of the primer pattern, with part of our unit of loss allowable, the Loss Stop becomes the far ‘Tighter Primer’ RL3 for a Multiplier return all the way to the Macro patterns larger Target as the primer’s break has triggered the larger patterns RH3 for

 

  1. Also high probability of outcome trades, but with unattractive Risk to Reward Ratios can be synthetically enhanced into Highly Rewarding trades utilizing the advanced features of HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory. See EURNOK.

 

 

M30 USDSGD image 5

EURNOK

In the top left corner of the chart we assess the RISK TO REWARD RATIO as 1.3 in its structure despite it displaying very high probability of outcome characteristics, this Reward is not special.

 

EURNOK TGT image 7

However, earlier entries that were sort at a key round levels of previous support at 8.7500, with an initial Loss top below RL2 [8.7031] and subsequently at RL3 [8.7265 approximately 235 pips from initial early entries at 8.7500] as price action asserted away, allowed for optimized RISK TO REWARD RATIO. As the Target remained just through the 9.000 levels [some 2500 pips away for a 1:10 RISK TO REWARD RATIO].

The high conviction of outcome brought about by the impulsive upside moves, with falling wedge slow pullbacks, and clear near term prior upside trend, gave confidence for the early entry strategy.

An initial 1:1,3 has been optimized leading to aRISK TO REWARD RATIO 1:10, there is little basis for achieving this utilizing Traditional Technical Analysis Triangle Theory. By retaining the value of horizontal Price point levels, HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory allows for order placement & pre trade reward evaluation & optimization. By focusing on two ‘trend’ lines descending & ascending to an apex, the traditional approach sets a moving target for which a trade plan cannot be statically fixed or assessed.

The key is the volatility squeeze, not the contradicting ‘trend’ lines.

The trend was established prior to the continuation pattern, on balance of probabilities, especially if the setup is being correctly analysed. Further HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Tools exist to ensure directional accuracy of the break exist, and are beyond this discussion, for more details refer to the www.theMarketSniper.com or email Trader@TheMarketSniper.com

 

There is a lot more to HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory than can be expressed here, I hope that this short synopsis of the how HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory considers the above set up against Traditional Technical Analysis goes someway to explaining the difference in approach.

 

Thank you for your Attention and Happy Trading.

 

Francis Hunt

HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Theory Originator

Founder of The Market Sniper

Director of Phoenix Total Trader Transformation

Trade Manager of the Fire Bird HUNT VOLATILITY FUNNEL THEORY [HVF THEORY] Fund