To save time and to provide context, I have inserted a video below that demonstrates what I use to make trade decisions. This will not fully address the levels or exact signals I use but will give you an idea of what I am looking for in trades. I am still in the process of reviewing protective stop losses and targets, as well as loss limits for a particular day. I will get to those points, perhaps in brutal ( or boring for a lot of you) detail as time progresses. The video is below:
The main aspects of this model require:
A price chart with a volume profile analysis for use in targeting. This one has a 50 period (in this case, 50 15-minute bars) analysis: Anything in purple is essentially 1 to 2 standard deviations from the yellow volume weighted average price control point (VWAP control point). Once price crosses over into the orange/red area, there are many commercial traders buying and selling in those areas, and they represent support or resistance (in this case, resistance).
The price oscillator which is a mixture of price change and price acceleration: I will very soon also reverse engineer once I get the volume imbalance indicators to more cleanly represent price reversals at turning points).
The volume imbalance indicator (which I reverse engineered and modified again to represent where the true volume imbalance points are): This replaced that previously used ratio analysis. I used neural nets inside of an AI agent to break down what the components were, and it allowed me to see where imbalance was occurring. I was really surprised at how well that software worked to factor how much influence up volume and down volume had in providing direction of major price shifts. As I mentioned in the video, it is NOT perfect (and nothing ever is). It is highly effective however in doing that in its current form.
The volume binary indicator looks at a mathematical analysis of total up volume and down volume to provide and indication of how much strength buyers and sellers have over the course of trading in the timeframe used to trade: In this case, this is a 15 minute chart.
As time moves forward, I will discuss now this model can be applied to things like the “Inner Circle Trading” model. That model has its own serious flaws because the terms have been bastardized by people claiming they created the model. Most of us who have been trading for a while know that all trading indicators in public domain are derivative at best. Most of them are nearly worthless, and they are totally worthless if one does not backtest the indicators in context to the total trading plan.
I will stop here for now. I will be working on the last three months of trades as I make tweaks to the trade plan. As I build it out, I will show you how I go about the analysis.
Thanks as always for supporting the Buffalo Trader’s Writing Desk! More will come soon.