Questions about the "extremes" and a Return to Value

[Enigmatics 10]

Hey guys, a few quick questions about how you approach your VAL's and VAH's.

 

1. What cues do you look for to determine whether or not they're legitimate and a trade in the opposite direction is to be taken?

2. If you take the trade, which major previous POC's do you target?

3. What's to stop it from slowly building out a new value area with a POC or large HVN?

 

 

For me, it's much easier to differentiate these things on an intraday chart than it is on a long term chart because the activity happens more swiftly, but I would like to improve on the latter.

[MightyMouse 12]

Hey guys, a few quick questions about how you approach your VAL's and VAH's.

 

1. What cues do you look for to determine whether or not they're legitimate and a trade in the opposite direction is to be taken?

2. If you take the trade, which major previous POC's do you target?

3. What's to stop it from slowly building out a new value area with a POC or large HVN?

 

 

For me, it's much easier to differentiate these things on an intraday chart than it is on a long term chart because the activity happens more swiftly, but I would like to improve on the latter.

 

MP was a volume estimation tool which was useful back when trading volume was delayed. It is still a useful tool on instruments where aggregate volume is not being reported.

 

With MP I remove the daily boundaries and treat a balance area that extends for multiple days/weeks as one balance area. It gives me a much better perspective without the limitations of a daily MP. You will see balance areas and areas that were not balance. The non balance areas I left as exactly that; an area on non balanced traded

 

1. As above a daily VAL or VAH could really be nothing more than just a rotation in a larger balance area and one shouldn't make much of it , meaning i would expect price to continue to the larger extreme rather than to rotate back through or to the daily POC. The VAL or VAH of the larger balance area has far more significance. In either case, you will need other tools to help you determine if you should fade or not. For example, to break from a large VAL, you need a tremendous amount of volume; otherwise, you might just expect price to rotate back upwards. However, you cannot use volume alone to make such a determination.

 

2. I do not use POCs as targets. You need other tools to determine where price might stop to maximize your profit. A POC could be merely a circumstance of an area where buyers and sellers disagreed on price direction for a long time.

 

3, That is exactly what happens all the time.

 

First, you want to determine direction. Second, you want to determine if there is continuation. You need to use t&s, dom, time, delta, price, and volume as tools if you are trading short term.

[Enigmatics 10]

With MP I remove the daily boundaries and treat a balance area that extends for multiple days/weeks as one balance area. It gives me a much better perspective without the limitations of a daily MP. You will see balance areas and areas that were not balance. The non balance areas I left as exactly that; an area on non balanced traded

 

Ironically that is what I like about Stockcharts and their volume-by-price. It already does that, so I'm not looking at a pile of micro POC's and balance areas. I typically view them through a 3month, 6month, and 1 year lens if I'm identifying a possible trade from the extremes.

Edited December 18, 2013 by Enigmatics