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Soultrader

Calculating Value Area

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This is a method used to calculate the value area.

 

Source: Mind over Markets

 

"First identify the price at which the greatest volume occurred. Then, sum the volumes occurring at the two prices directly above the high-volume price and compare it to the total volume of the two prices below the high-volume price. The dual price total with the highest volume becomes part of the value area. This process continues until 70% of the volume is reached."

 

For those who have no idea what that meant, take a look at the excel attachment below:

 

In the excel file, the greatest volume (2500) occurred at price 110. The total volume for the two prices above 110 is 3600 (sum of dual prices) and the two price total below is 3000. Since the upper total is greater, it is added to the high-volume price as part of the value area. The same process is repeated, comparing the next two lower prices 111 & 112 to 106 & 107again.

 

The upper total (106 & 107) is higher so it is added to the value area. Then you take 111 & 112 and compare it to 104 & 105. Since the lower total is higher (111 & 112) this is added to the value area. You repeat this process until the combined volume reaches 70% of the day's total volume.

 

Your value high pivot would be 116

Your value low pivot would be 104

Calculating Value Area.xls

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Hey Soultrader. I like how you approach the market. I don't believe in moving averages or any tinkering of raw information. It seems to me that you can attribute a quantitative probabilistic outcome to using different points in the value area. For example the odds of reversal could be calculated based on the volume at each price as a fraction to the day's total volume. Have you tried this?

 

second question, how effective is this strategy for you? you seem to be confident in it and it makes sense.

 

I'll be looking for Dalton's book.. any other recommended reads? Thank you for all your videos and posts, much appreciated.

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One point I don't understand is why we work on 2 price above and below each time. If we work on 1 price each time, we can get a result closer to 70%. Can anyone help me understand this?

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Good point achau. When you find that 2 prices will exceed 70%, you should take a step back and see if 1 price would have sufficed. Some programs do operate that way.

 

As to why the logic was originally designed to look at two prices at a time...I really don't know the answer to that....but my guess would be, in situations of double-distributions, looking at two prices might have helped the value area work it's way into that second distribution quicker (and get past a single price, with very low volume, which it would not have if looking at 1 price at a time).

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LS Chad,

 

Thanks for your information. Another challenge I am facing is picking the POC for TPO when there are more than 1 price with highest TPO count. I just don't know which price I should pick to start the Value area calculation. Do you know how the software in the market handle this situation.

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Well, there are a number of ways to handle this:

 

1) Closest to center of profile.

2) Closest to the VWAP

3) Closest to centroid

4) POC with most volume directly above & below it

 

I would just go with option 1. I think that's the most widely used (probably because it's the easiest to compute). Of course, that can also be a tie.

 

This link may be of interest to you: http://www.linnsoft.com/qa/a/123.htm

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This is a method used to calculate the value area.

 

Source: Mind over Markets

 

"First identify the price at which the greatest volume occurred. Then, sum the volumes occurring at the two prices directly above the high-volume price and compare it to the total volume of the two prices below the high-volume price. The dual price total with the highest volume becomes part of the value area. This process continues until 70% of the volume is reached."

 

For those who have no idea what that meant, take a look at the excel attachment below:

 

In the excel file, the greatest volume (2500) occurred at price 110. The total volume for the two prices above 110 is 3600 (sum of dual prices) and the two price total below is 3000. Since the upper total is greater, it is added to the high-volume price as part of the value area. The same process is repeated, comparing the next two lower prices 111 & 112 to 106 & 107again.

 

The upper total (106 & 107) is higher so it is added to the value area. Then you take 111 & 112 and compare it to 104 & 105. Since the lower total is higher (111 & 112) this is added to the value area. You repeat this process until the combined volume reaches 70% of the day's total volume.

 

Your value high pivot would be 116

Your value low pivot would be 104

 

Where do you get this information i.e. the volumes for specific price levels?

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Where do you get this information i.e. the volumes for specific price levels?

 

I may be misunderstanding the question..but the information is derived from Market Profile (TPO indicator on some apps) , Cisco Futures also has this data, as well as the Liquidity DataBase from CBOT....

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I may be misunderstanding the question..but the information is derived from Market Profile (TPO indicator on some apps) , Cisco Futures also has this data, as well as the Liquidity DataBase from CBOT....

 

Thanks Reaver.

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volprice-1.png

 

I used this stock because of its volatility in price and volume. It's a tool available at http://www.stockcharts.com, although it isn't available for intra day. Mind you the last break out was from a corporate buy-in and not public buying.

 

Very interesting. I've used volume by price before on there but never thought of using it as a value high or low concept.

 

Seems you can use that intraday except for indicies as stockcharts.com won't plot out intraday volume.

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Where do you get this information i.e. the volumes for specific price levels?

 

Many software packages look at the tick data, and place each ticks volume it's it's respective price level. If you only have 1-min data to work with, you can get a reasonable approximation by dividing each minutes volume up equally between the prices within the high/low range.

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Very interesting. I've used volume by price before on there but never thought of using it as a value high or low concept.

 

Seems you can use that intraday except for indicies as stockcharts.com won't plot out intraday volume.

 

On this chart how do you know what the volume is, as a specific number, represented by each bar at each price level? i.e. the longest bar at the 22-23 price level, what is the volume for this bar? There is no scale or at least I don't see one.

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On this chart how do you know what the volume is, as a specific number, represented by each bar at each price level? i.e. the longest bar at the 22-23 price level, what is the volume for this bar? There is no scale or at least I don't see one.

 

You really don't know the exact volume of the cross segment. The key with volume by price is it shows where the bulk of the volume took place price wise. It gives you a key range of price value to watch for big buyer or seller pressure during a breakout of that range.

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Was my last post considered -dun dun DUUUN- spam or something?

 

:o If you're referring to me, the answer is no. I've not been able to access the cisco site and thought that price by volume on the chart might be an alternative. Although it's really not because the volume amounts are not given.

 

I'm going to keep trying cisco.

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:o If you're referring to me, the answer is no. I've not been able to access the cisco site and thought that price by volume on the chart might be an alternative. Although it's really not because the volume amounts are not given.

 

I'm going to keep trying cisco.

 

I don't totally understand the Cisco issue. Do you need a chart for Cisco or some volume figures from a certain time frame? I can post a chart for you if you need.

 

Just let me know.

 

EDIT----

Never mind, I saw the other post and know what you meant now. :o

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Hello Soultrader,

Where have you hidden codes calculation in Excel? Start a topic, and anything concrete can not explain.

Why did you hide the formula in calculating excel?

In which time frame you have taken the data and why you ever started this topic if you do not know or will not answer specifically, but only in general ?

Would rather delete it and not bothering people.

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I use trade station and would like to build an insert analysis that calculates and displays the value area on any choosen instrument.I dont know how to use easy language but maybe you or someone has already designed this . if so please let me know.

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