[Value Area And Previous Days Range]

[Soultrader 12]

Trading video from Dec. 18th, 2006 based on value area and the previous days range. Feedback is welcome.

 

CLICK HERE TO VIEW VIDEO

 

Charts created by Tradestation

Presented by Traders Laboratory

[TinGull 10]

Certainly is an interesting concept! Wish I knew that before going into a couple trades today....You say that usually when the HOD and LOD are within 10-20 points of value they usually do this?

[Soultrader 12]

Yea... 10-20pts seems to be the magic number. Ive been watching this concept occur over and over again. Im usually careful about playing breakouts of value when the previous days range is right above/below it.

 

Keep an eye on it next time.

[TinGull 10]

Very interesting...will do!

 

Thanks James

[Bfbusa 10]

Good observation Soul. I have noticed lately that the YM trade has changed of late. I haven't been trading then long enough to know if this is seasonal or just that what previously worked isn't working and something new has started. I'll start to watch for this pattern. Thanks. Good observation.

[traderbong 10]

I will definitely keep on eye on this too. Thanks soultrader:D

[Anonymous 11]

Nice video Soultrader. Thank you.

 

My perceptions is a bit different. Looking at that chart there was a great opportunity to use the 80% rule trade.

 

The 80% rule trades states: if price moves outside of the Value Area and then re-enters, 80% of the time it will trade to the opposite end of the Value Area. Here, we had price move out of value to the upside and then re-enter. There is an 80% chance price will trade down to the lower end of the Value Area. If one had shorted at the high, then no worries. However, if one did not and was looking for a high probability trade, shorting once price closed back inside value would be such a trade.

 

By no means is this criticism, just an alternative take on it.

[Soultrader 12]

Hello PivotProfiler,

 

Welcome to Traders Laboratory I understand what you are saying regarding the setup. I do also play the "80% rule" although I like to refer to is as price rejection. Usually if the previous days high/low is not that close to the VAL, VAH pivots I would look to short as price makes a breakout failure above value high. This would be the "80% rule" setup.

 

However, whenever I see the previous days high/low right above/below VAL and VAH, I may even fade these high/low price levels. Of course I dont place these trades blindly but I am a hardcore tape reader so I can see the flow of price on a breakout and determine if it is valid or a fakeout.

 

I hope this clears it up a little. Im glad you joined us here... could always use a market profile trader.

[walterw 10]

Nice video Soultrader. Thank you.

 

My perceptions is a bit different. Looking at that chart there was a great opportunity to use the 80% rule trade.

 

The 80% rule trades states: if price moves outside of the Value Area and then re-enters, 80% of the time it will trade to the opposite end of the Value Area. Here, we had price move out of value to the upside and then re-enter. There is an 80% chance price will trade down to the lower end of the Value Area. If one had shorted at the high, then no worries. However, if one did not and was looking for a high probability trade, shorting once price closed back inside value would be such a trade.

 

By no means is this criticism, just an alternative take on it.

 

 

Pivotprofiler : I would like to know if this 80 % is based on some real backtest about this performance you refer to... thanks Walter.

[Z_trade 10]

...several trading methods as a summary / shared by Nqoos and Enthios/:

 

Category 1

Trading Methods For Market Profile

 

Only trade in the direction of the trend (Trend is determined by a rising or falling Point Of Control/POC)

 

 

Trade setup #1a: In a down trending market, when the current session opens below the previous day’s Value Area/VA enter a short trade at the previous day’s lower VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points above the previous day’s upper VA.

 

Trade setup #1b: In an up trending market, when the current session opens above the previous day’s VA enter a long trade at the previous day’s upper VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points below the previous day’s lower VA

 

Trade setup #2a: In a down trending market, when the current session opens within the previous VA enter a short trade at the upper VA placing a stop 1.5 points above the Day Before Yesterday’s/DBY POC or High Volume Level/HVL (the open price must be at least 2 points below the previous days upper VA)

 

Trade setup #2b: In an up trending market, when the current session opens within the previous days VA enter a long trade at the lower VA placing a stop 1.5 points below the DBY’s POC/HVL (the open price must be at least 2 points above the previous days lower VA)

 

Trade setup #3a: In a down trending market, when the current session opens above the previous days upper VA and below the DBY’s lower VA enter a short trade at the DBY’s lower VA and again at the DBY’s HVL placing a stop for both trades 1.5 points above the DBY’s upper VA (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)

 

Trade setup #3b: In an up trending market, when the current session opens below the previous days lower VA and above the DBY’s upper VA enter a long trade at the DBY’s upper VA and again at the DBY’s HVL placing a stop for both trades 1.5 points below the DBY’s lower VA (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the

remainder of the day)

 

Trade setup #4a: In a down trending market, when the current session opens above the DBY’s lower VA and below the DBY’s POC enter a short trade at the DBY’s POC and again at the DBY’s upper VA placing a stop 1.5 points abve the DBY’s High Of the Day/HOD (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)

Trade setup #4b: In an up trending market, when the current session opens below the DBY’s upper VA and above the DBY’s POC enter a long trade at the DBY’s POC and again at the DBY’s lower VA placing a stop 1.5 points below the DBY’s Low Of the Day/LOD (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the remainder of the day)

 

 

Profit targets for all trades should be in consideration of the risk of each respective trade and should be placed in consideration of the previous days POC, VA or HVL

 

 

 

 

Category 2

Trading Methods For Market Profile

 

Category 2 trades are based off the current sessions VA, HVL and POC with profit targets of approximately 2 points (they will generally setup after steps 1 and 2 have occurred in the market profile’s development)

 

When a Category 2 trade’s entrance level matches up with a previous days HVL It is referred to as a Category 2+ trade (category 2+ trades are generally good for 3 or more points)

 

Step 1 being vertical movement of price and step 2 being the capping of step 1

 

Step 1 will generally takes place during the Initial Balance/IB period of the day (the first 60 minutes) Step 2 often occurs during the IB period as well

 

Step 3 is when the market begins to move more in a horizontal direction than vertical direction and the bell curve begins to take shape

 

Step 4 is when the bell curve is becoming fully developed and its POC tries to drift towards the center of the IB, if it is not already in the center (occasionally steps 3 or 4 do not fully develop and the market enters step 1 again, this is known as minus development)

 

Minus development is very helpful in showing the direction of the market

[Mr. Hedgehog 10]

cool stuff. i recently started using VAH/VAL studies on S&P e-mini futures to gauge market bias for intraday option trades and EUR/USD and your observation is definitely interesting and worth keeping an eye on. thanks so much! *and thanks for the excel file!*

[olubaba 10]

can someone pls. explain the meaning of value area to me and how to determine it and use it profitably.Thanks.