Enthios Universal
The concept of the Universal system is simple:
That’s it. The rest is just putting together a set of indicators that allow you to use that concept in an objective manner - one that takes all of the “fear” and “uncertainty” out of trading. So let’s build that. Here is a brief explanation. We’ll get to the specifics of settings up your charts, further down. |
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- Look for areas of strong support/resistance. The best support/resistance I’ve found is the Market Profile, which some charting programs call the Price Histogram. Most MP charts are time based (not volume). The most common chart is a 5-minute or 30-minute chart that builds a histogram for each day. The bell-curve histogram that shows how much time was spent at each price point. The price point at which the market spent the most amount of time during the day is called the Point of Control (POC). It is illustrated here:
The POC formed one one day, becomes strong support or resistance on the next day. The logic is simple: it represents the price point where the market was “most comfortable” or “most in balance” on a previous day. So if, on the next day, the market opens below that POC, and traders are long, they many will exit their trades at this point. They will sell. We will buy from them, as selling pressure exhausts.It is also helpful to look back in time to the other POC’s that occured. It is even more helpful to look at those POC’s that are still “virgin,” i.e. they have not yet been touched by prices. This next chart shows a series of Virgin POC’s, which we call VPC’s:
Each of these is a key support/resistance point. This may seem obvious, but each day, the market opens with a VPC above, and a VPC below (there are some exceptions, for example when the market is breaking out to new historical highs. This range range we call the Natural Trading Range (”NTR“). We mark this on our charts each morning. Here is an example:
In the above chart, the market will open somewhere between the lower VPC (704.70) and the upper VPC (757.90). So that is our NTR. We sit and wait for the market to either come up to the 757.90 VPC, or down to the 704.70 VPC. When the market comes up to a VPC from below, we look for a short because we are expecting traders to be exiting their long trades. When the market comes down to a VPC from above, we look for a long because traders will be exiting their short trades.That brings us to the second step of this simple method. - Trade the bounces from the support/resistance points. How to do this? Well, in the above example, you could simply enter a short limit trade at 757.9, and a long limit trade at 704.7. But oscillator indicators can help us “make sure” that we are getting into the trade at the right point in time. Common oscillator indicators include Moving Average, CCI, Stochastic, and MACD. You can use any of these. In the end, they are all the same because they oscillate.I use a stochastic. But I combine two stochastics - a longer term one, and a shorter term one. Why? The longer term one tells me that the market, in the longer term, is overbought or oversold. The shorter term one gives the entry point. It’s like being double-safe. Only take a short trade when both the long term stochastic, and the short term stochastic, are in alignment.The next chart shows the entry point. Three things have to happen:(1) The long term stochastic must be above 80.
- When this occurs, as a visual aid, I have colored the panel grey.(2) The short term stochastic must be above 80, and must cross down.
- When this occurs, as a visual aid, I have colored the short term stochastic. So here, the entry point is when it switches from green to pink.
- Also, as a visual aid, I have small orange arrows. These are automatically painted whenever (1) and (2) are in alignment. Note, however, that you do not yet have a Universal trade until (3) is also true:(3) Prices have crossed above the VPC, from below. (Shown here as a white line, 1344.75).
And that leads us to the final part:
- Maximize your exit. There are many methods one can use for maximizing an exit. Here I use the Keltner bands (shown in orange, above) because they take simple multiples of the average true range. That means, when prices move to the other end of the band, they have reached the other end of the average trading range. Good place to exit. At least, for half of your trade.How you minimize losses and stops is a completely different matter. But one way to minimize a losing trade is to do exactly the same as above: just exit at the other end of the Keltner. Here are two examples, one is a winning trade and the other is a losing trade:
The losing trade example above also illustrates another trade maximizing point: note how the trade became profitable, and almost touched the lower Keltner band at about 11:15. Then prices moved away. This is slightly subjective, but if I have a winning trade and I’ve just missed the Keltner exit by only a tick or two, then I will enter a break-even stop. Why? Because the “push” that gave us the trade will be over, if it retraces back to the entry point. Here, a break-even stop would have saved us a losing trade. However, the Keltner exit - even at a loss - saved us from potentially losing even more.If you trade larger quantities, you may want to divide your trade into two halves. In that case, you can exit half at the Keltner and hold the second half. At the point where you exit the first have, it makes sense to enter a break-even stop on teh second half.A good place to exit the second half of the trade is when both the slow and fast stochastics have completed a full oscillation, as illustrated here:
There are other ways to maximize the second half of the trade. Another way is to use Fibonacci to determine the ideal Wave 3 exit point. Refer to my book, or to the sections on this web site, about Fibonacci trading.
That’s it!
Settings in EnsignWe use two charts for each instrument that we trade: a 5 or 30-minute Price Histogram chart, and a Range chart with the Stochastic and Keltner studies. You can download the chart templates here. For more detail on how the charts work, see our separate section below.The recommended charts and templates to use are shown below. Right-click, download, save in your Ensign Templates folder.
| Price Histogram TemplateLatest: templates/MP-2008-0205.dat Older: templates/MP-2005-0223.dat | 5-min. or 30 min. Chart |
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| Universal Template Latest (2/22/2008) See update information below.
Previous: templates/UNI-2008-0205.dat Older: templates/UNI-2005-0223.dat |
Ensign Sound Set
Unzip this file into your folder c:/ensign/sounds
If you don’t have a Sounds folder, create one.
Manual Settings for Other TradersRemember that this is a two-chart system:
- Market-Profile or Price Histogram (Preferably 5 min, or 30min if you need to “look back” farther It is easy to set up the charts yourself, assuming your charting program has a Market Profile or Price Histogram indicator. If not, you can still mark your charts manually by checking our blogs each morning: http://www.enthios.com/blogs/esblog.htm
http://www.enthios.com/blogs/er2blog.htm
http://www.enthios.com/blogs/ymblog.htm - Universal Chart with oscillators and exit targets. (Preferably 50-range for es and er2).
- Fast Stochastic: 9,3,3 with an adaptive average. In Ensign, we use Howard’s special version.
- Slow Stochastic: 81,27,27 with an adaptive average. Note this is 9x the faster stochastic.
- Keltner: 3, 60 for es; 3.8, 60 for ER2; 3, 60 for ym; with an adaptive average.
We have had many requests from users of other charting programs that do not use Range charts, for how to “port” the settings over. The most important chart for intraday trading is the Market Profile or Price Histogram. Of lesser importance is the Univeral. Instead it is important to understand what the Universal does: it simply uses oscillators (one short term, one longer term for confirmation) to help you get into the trade. It then uses a Keltner band, which is an average of the trading range, to target the exit. You can use any oscillator, including MACD, CCI, RSI, or even two moving averages.
As for time frames, if your charting program does not have Range bars then we would suggest you use tick charts (start with 100~300 tick), or a 1-minute chart. You can “map” the time frame to ours by observing the charts that we post to the blogs.
That’s it!
How the Universal Template works in Ensign.Price HistogramYou don’t really need to download the Price Histogram template, just set your PH study as shown. Here are the settings in Ensign for the Price Histogram indicator that show only the Virgin POC’s. This was created specifically for us by Howard! It is yet another reason why I prefer to use Ensign - Howard is very receptive to traders’ needs.
Universal TemplateThe first thing you must do is set the VPC’s manually each morning, based on the lines from the Price Histogram study or whatever other source you may use. For this we use the DPL (Daily Price Lines) study. On your Universal Template, it is the second study from the top: 
This is what you should see:
Note that I have it set to sound an alert when prices hit any of the VPC lines. Quite helpful. Be sure to set your own alerts to your own sound files, as they may not match mine. You can turn it off by clicking “silent.”
What Are All Those Arrows?
Key (number colors match to color of arrow or indicator)
| (1) | These small orange arrows appears above the high, as a short indicator, each time BOTH (a) the slow stochastic [13] is above 80, AND (b) the fast stochastic [14] is above 80 and crosses down. It appears below the low, as a long indicator, for longs. |
| (2) | Unfiltered Universal Short Trade (Automatic): A larger Yellow down arrow appears if it is the beginning of a trade. That is, if the previous trade has exited and we are ‘flat.’ Note this has nothing to with trades based on the VPC’s, it is just an ‘open trade’ system that trades the Universal every time there is an entry signal. |
| (3) | Unfiltered Universal Long Trade (Automatic): same as above, but for a long. Notice that these all have a (1) arrow with them. I hope you understand why. |
| (4) | Unfiltered Universal Trade Exit (Automatic): this large arrow indicates the exit from a long trade as prices hit the opposite Keltner band. |
| (5) | Unfiltered Universal Trade Exit (Automatic): this large arrow indicates the exit from a short trade as prices hit the opposite Keltner band. |
| (6) | Unfiltered Universal Trade “In Trade” color band. This simply indicates that you are in a trade - green (long) or pink (short). |
| (7) | Unfiltered Universal Trade: Entry Price. You can use this to confirm how close you got to the optimum entry price. |
| (8) | Unfiltered Universal Trade: Exit Price. This is the price at which the Keltner was hit. Note you can actually look at the cumulative profit & loss of these unfiltered trades by clicking on Charts > Trade Detail. |
| (9) | Kelter band price. This is a DPL study that I created to paint the Keltner band prices. That makes it easier for you to set your limit sell price to exit your trades. |
| (10) | VWAP Price. This is worth watching. It’s similar to the intraday POC. |
| (11) | These little dots indicate each time the fast stochastic [14] is above 80 (or below 20) and does a cross. |
| (12) | The 80 band turns light grey when the slow stochastic is above 80. This is means as a visual cue to tell you that a short trade is setting up. Same applies if it is below 20. You will notice a visual alert as well “Alert: Short Condition” or “Alert: Long Condition” |
| (13) | Slow stochastic |
| (14) | Fast Stochastic |
How Do I Match Your Sounds?
Unzip this file into your folder c:/ensign/sounds
Now Trade the ChartsSuggestions:
- Paper trade this system with each individual instrument that you intend to trade on, for at least 50 trades (this could take up to two months).
- Keep a record of every paper trade: entry, exit, max and min of each trade. This way you can begin to optimize for stops and exit targets.
- Once you have obtained objective information for stops and targets, begin trading with only one contract.
- Bracket each trade with the optimized target and stops, so that you do not have to worry about execution in case of an internet disconnect. I use Ninja Trader with the IB platform.
- To study the methods, please refer to our blog archives. Usual disclaimers exist - these are only indications, etc.
- Read more about the Market Profile and Price Histogram, so you understand how they work.
- Read more about other pivots, which you can also use with the Universal.
Templates are also available in Investor/RT and eSignal. I did not create these, so if you have any questions, please join our Yahoo Discussion Group and ask some of our members there.
Chart Program Chart Templates eSignal Click here to go to eSignal Central (These need to be updated) Investor/RT
(PC and Mac)Download these and import directly as chart definition files:
templates/Universal 050928.txt
templates/Market Profile 050928.txt
Where to Trade with us, Ask Questions, or just ChatWe have three places you can trade the Universal, all free.
- Live Chat Room in IRC
- Type “/server irc.othernet.org”
- Then type “/join #enthios”
- For more information, click here.
- Enthios Group on Yahoo (2,000+ members)
- Here you can discuss the Universal, and other methods, with thousands of other traders.
- The Group is private to keep spammers out, so just send an email to info@enthios.com with the words “Join Enthios Yahoo Group” in the subject heading. (If you click the link, it will already be entered!)
- Yahoo! Instant Messenger (limited to 300)
- Here we send out real-time alerts to the trades.
- Just send an email to info@enthios.com with the words “JOIN ENTHIOS ALERT SERVICE” in the headline.
- We will then send you a set of instructions.
A trade with the Universal
2/29/2008Winning trades are easy, in hindsight. I prefer to show how to do a losing trade. But the beginning is always the same.First thing you do each morning is check your Price Histogram chart. If you don’t have one, then you can just get the numbers manually from our web site. We post the NTR each morning on each of our blogs (ES, ER2, YM, NQ). The Price Histogram chart is 5 or 30-minute, day session only.
Conditions for a TradeNow, move to your UNI chart. Mark the VPC lines manually in your UNI chart. One you have done so, you don’t need to look at the Price Histogram chart again. Make sure your UNI chart is set to “All Sessions” (not day session only).A long trade is signaled when prices move down to the VPC from above, as shown here.
We have two indicators to alert you to a long trade setup. First, the 20 band panel will turn light grey when the slow stochastic is < 20. Also, a text alert will pop up in the upper right hand corner: 
Anticipating the trade entryTrade entry is always difficult. I have set up the charts specifically to make trade entry as easy as possible. After all, isn’t that what charts are for?Once prices have touched or moved below the VPC line, and assuming (1) and (2) from the above chart are also true, you are then looking for the %K to cross above %D on the fast stochastic. The fast stochastic is the green and pink spread line in the stochastic window. When the color changes from red to green, that is a cross. - Note you can anticipate the color change because the spread bars get shorter as they get closer to a cross.- Note I have colored the price bars in the main chart window to be the exact same color as the stochastic spread bars. So you can see the impending color change in the main window.- Note the color will start to change as the bar is in the process of being created (from one or two minutes, to a few seconds). During this time, you may see the color flash back and forth between pink and green. Or you may see it hold green for a while.
Entering the TradeYou are now waiting for the green price bar to complete. Once it is complete, you can enter the trade.Here we have set up two price arrows that show you the price that is one tick above, and below, the current price bar. So as the entry bar is about to complete, (in this example) you can look and see that 12416 is one tick above the high. So you can prepare your stop market long order using your broker, or an bracket trader. Note that the initial exit target is also shown, here 12469. So if you use a bracket trader, you can input that information as well.
As soon as the bar “prints” and a new price bar is started, you will see a Blue Arrow confirming the entry bar. It will also print a price, for reviewing later. Why do you place a market stop order? Sometimes, prices might continue to fall. If so, you may want to trail your stop entry price downwards with each successive bar, to give you a more advantages entry price.
So what do you do when the trade moves against you? Read on.
Following our Alerts for a Trade:If you are in our chat room or receiving our live alerts from Yahoo Messenger, as prices approach the VPC, you will get an alert to go to the blog page. It shows the trade signal is approaching. Note how you can also see the target, which is the other end of the Keltner band. Trade SetupThis confirms the VPC line and number, and shows roughly what the trade should look like after it signals. It uses a curved dotted arrow.
Signal ConfirmationThe next chart confirms the trade entry. It uses a straight dashed arrow, and also shows the initial Keltner exit target.
Trade Exit and “Natural Stops”
We then use a solid arrow to confirm the trade. The charts automatically paint a yellow highlight around the exit bar as it touches the Keltner.
Here the trade moved against us. You can use stops or not; that is totally up to you. However if you do not use stops, then the Keltner exit provides an excellent Natural Stop. It is the same target you would exit at on a winning trade. Note how it minimizes the loss on this trade, which went as much as 63 points against us before exiting at -22.
Warning: Trading without stops is dangerous. You should always do your homework first, and be aware of ‘worst case’ situations where the market makes sudden moves. A “9/11 failsafe stop” is a good idea. Another good idea is a stop based on your own liquidity, which of course your broker will do for you if you are not careful. That’s also known as an ‘electronic margin call.’
