This seller capitulation event has two confirmation elements: a large ROUND indication for EMOTION capitulation and a subsequent small one for PRICE capitulation.
This sell exhaustion has a single confirmation element: a large SQUARE capitulation indication of evidence of both EMOTIONAL and PRICE capitulation.
The GREEN PLOT in this example shows the execution sentiment index and demonstrates a lot of activity in the market on BUY emotion and RICH UPWARDLY BIASED EXECUTION SPREADS
One of the most powerful elements of e-Tick Tools is the ability to speak succinctly to the nature of behavioral market events and their character. What is occurring at all e-Tick Tools exhaustion’s is a form of CAPITULATION. Small or large, fast or slow, on low volume or large volume. What is transpiring at a Sell and Buy Exhaustion and why they can be so important? Why this feedback can tell us something about the light switches in the markets that often flip sentiment at specific prices and places? Occasionally, traders can identify with some confidence when Capitulation in the markets may be occurring but rarely with consistency, accuracy and/or perspective. e-Tick Tools activates this capability on an unprecedented and dynamic scale.
What is capitulation?
The e-Tick Tools Definition of Capitulation is:
Disorderly market executions containing chaotic “unmanaged position closing” or “position flipping” via 'market orders'.
This can be further defined:
Events of market stress that are resolved via an unusually high number of Manual Market Orders or Stop Market Orders at an unusual velocity combined with diffuse/low-quality price executions on both sides of the order book.
X-TICK Core Concepts
One of the most powerful elements of e-Tick Tools is its ability to speak of the nature of the market events and character in a fairly concrete matter. Let's examine what is transpiring at a Buy or Sell Extreme and why they are so important and moreover why they can tell us something about the light switches that flip sentiment as specific prices and places. What is happening at all extremes is CAPITULATION. This capitulation can be small or large. It can be fast or slow. It can be on small volume or large volume. Occasionally traders can identify capitulation in the markets but not with color or perspective.
Let's examine "What is Capitulation"
The e-Tick Tools Definition of Capitulation is Disorderly market executions composed of chaotic unmanaged market order closing or flipping of positions. This can be classified in several ways of market stress that is resolved with unusually high amounts of Manual Market Orders, Stop Market Orders at unusual diffuse price executions on both sides of the order book.
e-Tick Tools watches the market for this kind of activity and cross-references each metric that defines capitulation with its database indexes of extreme trader behavior on any of those metrics. When a sufficient amount of capitulatory behavior is approached, e-Tick Tools begins tracking the prices of the ost capitulatory events. This is when the price-tracking indication will appear. Subsequently, when a market begins to revert to an orderly execution environment, capitulation is deemed to be complete and one of several types of CONFIRMATION indication displays. There is no other tool that we know of that knows how to do this analysis of trade tickets activity in real time. This is the most unique and powerful core capability of e-Tick Tools.
If we now understand that each of the e-Tick Tools Buy or Sell Extreme are capitulatory - we know a lot about the traders executing trades at these points. We can watch for key subsequent behavior from the various classes of trader. Professional traders (a class of trader in our case) prefer to operate when the market becomes disorderly. Therefore, they prefer to short highs where the consensus market participants (another class of trader in our model) elect to stop out of short risk. Additionally, they also prefer to buy lows where the consensus trader is reducing or close long risk. e-Tick Tools knows this and draws a line in the sand (Price Tracking). As professionals act at these capitulatory locations, the prices will become Support or Resistance and likely be defended. If price tracking levels break in a significant manner then it is a definite clue that the most skilled traders are vacating or being evicted from their positions. At these points, capitulation extremes may be able to be deemed to have been part of a larger directional momentum.
One of the most powerful concepts implemented by e-Tick Tools as a way to view this data is the stratification of ways to represent the measurement of it: Normal capitulation, Lazy Capitulation, and X-Treme Capitulation. The difference between Lazy and Normal capitulation is not very significant for the user though this distinction is imperative for e-Tick Tools internally. Normal capitulation can be emotional market behavior that ranks in the top 70 percentile of extreme aberration and capitulatory behavior. For X-Ticks (X-Treme Capitulation) this must score in the top 7% or 93 percentile of all emotional behavior in the markets in the last 15+ years in the e-Tick Tools Database. These are remarkably valuable data analysis that is not price dependent or reactive to latent analysis. This analysis occurs instantly.
The next Core Concept in e-Tick Tools is that each capitulatory extreme that appears for any single day MUST distinguish from the previous one in some way that makes it more extreme and more significant. So, in the BUY EXTREME examples (white signal) labeled above, each successive Extreme (1) (2) (3) (4) (5) (6) is more significant than the previous one. So, number (3) is much more significant than number (1). Number (6) requires MUCH MUCH more market effort to trigger than Extremes (2) (3) or (4). This is the same for the Sell Extremes labeled (A) (B) (C).
This convention enables the ability to rank instinctually market participation in an organic way and also a sensible and innately understandable way for humans. It also allows this understanding to transmit very quickly. The other capability enabled by this type of convention is the ability to evaluate price behavior progress in a totally new way. For example, if the market has been rallying (as in the above chart) and then gets the strongest SELL EXTREME (orange signal) of the day which does not break below a previous Sell Extreme or make a lower swing low - this demonstrates clearly that the sellers pushed the hardest they could so far that day but accomplished little price progress. The same is valid in reverse. These types of examples will be detailed more in other slides.
Lastly, X-TICK’s are among the most powerful feedback that can be gleaned from a market. Most often the level of capitulation occurring at an X-TICK is strong enough to spike put/call ratios and the VIX INDEX alike up or down. However, its subsequent reaction or follow through that matters. Once these EXHAUSTIONS confirm with their confirmation indications - Support or Resistance is created. If these levels are broken-out professionals taking the opposite side are being run over and taken out. If they hold then professionals have committed, and the levels will likely be significant stopping points. Impacts from X-TICK’s are usually more significant than for an hour or two. Quite often, they can be a pivot to a major and extended longer-term market reaction.