Accumulation Distribution Indicator – New Information

Accumulation Distribution Indicator

Please enjoy this short video on the Accumulation Distribution indicator.  This indicator is a real time indicator that shows when an accumulation or distribution is in process.  Also I highlight a couple of trades from yesterday and today.

What is also interesting is a spike in the Accumulation Distribution indicator that occurs at market turning points which is why I wanted to make this video.

 

 

Be sure to expand the video to full screen.

Crude Oil Trading From Friday July 21

Calling a Top in Crude Oil Trading

Because of lower liquidity crude oil trading is generally more volatile than the ES. However on Friday we saw some excellent trades using a combination of the power indicator and the accumulation distribution indicator.

Beginning at approximately five minutes after the open on Friday and continuing until about 0930 EST, the ZoneTraderPro accumulation distribution indicator indicated heavy distribution was in process.  This set up and exhaustion trade which called the top for the day. The ZoneTraderPro power indicator had been steadily falling into the trade. As price was rising the indicator was giving a sell signal in all three time frames.

72117 Short Exhaustion Trade
72117 Short Exhaustion Trade

Immediately following the exhaustion trade which was good for 15 ticks, this trade was followed by a series of trend short trades.

Series of Short Trend Trades
Series of Short Trend Trades

At approximately 1130 we again see and exhaustion trade calling a top followed by a perfect set up for a reversal trade pattern. We again see the accumulation distribution indicator indicating that contracts are being distributed.

Short Reversal Trade
Short Reversal Trade

After the market fell another 60 ticks we finally see a series where the accumulation distribution indicator is telling us that an accumulation is underway. There is a clear trade in this picture.  There is a long counter trend trade at 1255 hours which worked out for more than 20 ticks.

Accumulation
Accumulation

Notice how after reaching the blue countertrend zone at $45.85 the power indicator was deep green and the distribution indicator was red.  That indicates to me a seller who had significant contracts to sell, and once his supply was exhausted, price rose.

This is clearly a very hard call to make if you were long from this position. Because at this point you do not know who is going to win this battle, a big seller or a very strong commitment from buyers, as evidenced by the power indicator.

Crude Oil Trading and The Power Indicator

Crude Oil Trading and The Power Indicator

The new power indicator can be used with other instruments also, including crude oil trading.  Crude oil trading has different characteristics than the ES because there is less liquidity and more volatility.  But that doesn’t mean that the same rules can not be used successfully trading crude oil.

This first chart is from July 5 at the open.  What is important to look at is the accumulation distribution indicator down in the lower pane.  Notice how the indicator 3 minutes after the open shows distribution.  Then at 0913 hours the indicator again began showing distribution extremely close to the high of the day.

Crude Oil Trading 7/05/17. Note the Distribution Indicator
Crude Oil Trading 7/05/17. Note the Distribution Indicator on the bottom pane.

This indicator is not a timing indicator.  It is showing what the current sentiment is, and after 0913 hours, it was clearly bearish.

Now lets look at the actual trade setup.  The trade setup is a short trend trade, which is setup when the price first trades to the blue counter trend zone and then retraces to the red intermediate zone.  The buy sell power indicator is very weak and can only register a 55% buy when the indicator zigzags.

Crude Oil Trading 7/05/17 Trend Trade Setup
Crude Oil Trading 7/05/17 Trend Trade Setup

Note how hard the selling was as price reached the blue zone.  That strength carries the market down another 20 ticks.  What is important to see here, besides the absolute strength, is what the indicator does in all 3 panes.  A sharp V pattern is formed, but it immediately stabilizes and goes sideways while showing dark red.  This is what you expect to see to take a market lower.  Remember this point for the exit to the trade and compare the two charts.  This will take the market sharply lower and it represents the smart money move of the day.   In about an hour the market is down 140 ticks.

Currency Chart

The last piece of this puzzle is the ZoneTraderPro currency tool.  The currency tool is a composite of several forex currencies that highly correlate to the CL market.  Doing the correlation is a time consuming process but worth the effort.  There is a different correlation solution for the ES.  You would not use the same values for the CL and the ES.

Crude Oil Currency Tool 7/05/17
Crude Oil Currency Tool 7/05/17

Note the slope of the indicator line from 0909 hours and how the indicator is setting up dark red going into the trend trade at 0931 hours.  The rest is a history and a great setup to learn and use.

Trade Exit

What did the chart look like an hour later.  Again the accumulation distribution tells us the market is accumulating.  Price will spend over an hour down here, but the smart money has moved from sellers to buyers.  Again the accumulation distribution indicator is not calling the low, it is just telling you what is happening.

Crude Oil Trading Exit
Crude Oil Trading Exit

What is calling the exit is again the buy sell pressure indicator.  Notice how when price is trading at $45.20 at 11:00 hours, the indicator is deep red and getting even redder.  A buyer was there taking every contract thrown at him as the market tests the low.  This is the opposite of what happened to get into the trade.   This is not an example of a long trade entry, it is an example of a trade exit.  This buyer could run out of contracts he wanted to cover and then the selling could take the price sharply lower.  The previous low was a long exhaustion trade, again signaling a bottom.

Crude Oil Currency Trade Exit
Crude Oil Currency Trade Exit

The currency chart goes dark green twice 25 minutes before the eventual exit.  That is very close to the eventual low at $45.20.  The entry was clearer than the exit.  But you can see how the indicator is showing how that it is divergently higher at 1100 hours.  Or if you took profit then, you didn’t have to sit through over 30 ticks of retracement. Also note the ZoneTraderPro buy patterns indicated at that low.

Fed Day Trading – Winners

Fed Day Trading

The new ZoneTraderPro indicator did a tremendous job for June 14, 2017 which was Fed Day.  Normally I would avoid Fed Day Trading because it has a tendency to trade sideways up to the announcement and after the news breaks, things just get crazy.  But yesterday I identified approximately 20 tradable winners and just 1 loser.

This 1st series of trades begin about 0950 hours.  Looking at just winners doesn’t really teach anything, so I want to talk about the long tick divergence trade at 1015.

Long Tick Divergence Trade
Long Tick Divergence Trade at 1015 Hours

The trade was initially good for 10 ticks, however it is unlikely you would have exited 2437.75.  As price was trading there, the indicator was solid dark green and the target was 6 ticks away.  Then we had a pullback, which did not take out the previous low.  But the indicator had heavy selling while trading at the intermediate support zone and the TICK filter (red dot) appeared.

The market tested the high and the TICK could not make a higher high.  Again price traded back and the indicator showed stronger selling and again we got a TICK filter red dot.  The last chance you had to exit the trade for a profit occurred when the market traded to intermediate resistance.  Even as price traded 6 ticks higher, the indicator was displaying solid red in what is now essentially a trend short trade.

Every indicator on the chart was telling you to exit the trade and reverse it to a short.

Strong Trend Short Trade

It is important to understand all of the known ZoneTraderPro patterns.  One such pattern that is not coded into the script is the strong trend trade.  In the trade that occurred at about 1443 hours yesterday the price trades to strong trend support then retraces to minor resistance.  The reason this is not coded into the NinjaTrader script is because it is difficult to determine where your stop should be.

A strong trend trade when price trades to the pink strong trend support zone.  In a strong trend, price will retrace to minor resistance, which is exactly what happened.  The trend will then resume and in this case price traded only to the blue countertrend support zone and a Tick Divergence Exhaustion trade.  You can also see from the indicator that the selling percentages are not as strong.

Strong Trend Short Trade
Strong Trend Short Trade

However in this instance the indicator was dark red and going sideways.  Price is in a strong bear pattern and again trades to strong trend support.  It also illustrates why you would not take the long exhaustion trade.

Losing Trend Trade

There was one trade that had a near perfect setup going into it.  $TICK had made a higher high and the indicator was dark green going into the trade.  There are instances of the indicator on the chart, with 3 different settings.  The 7 setting is in the pane closest to the price chart.  6 is next and 5 is on the third instance of the indicator.  The Accumulation Distribution indicator is in the lowest pane.  The 7 setting encompasses 7 levels of price, so it is taking more data into account.  The 7 panel had fallen from 59% to 51% when price traded at the zone, so it was clearly selling off, but the percentage of buyers was still positive.

Long Trend Trade
Long Trend Trade

The only clue that the trade would fail is the Accumulation Distribution indicator which indicated there was more sellers than buyers.  After the trade loses, that indicator again clearly shows an accumulation and we see a winning long exhaustion trade.

After that the market trades up nearly 10 points, however there was only two more clearly defined winning long entries per my trading rules.  There was a short Tick Divergence trade that was good for 7 ticks, but would have been a scratch trade.  But as you can see from the indicator, it was clearly showing a lack of sellers and strong buying into the close.

Fed Day Trading Close
Fed Day Trading Close

What was important about this day was that if you waited for a good setup, you didn’t have to wait very long.  While this many trades is unusual, what is not unusual is how the indicator combined with the ZoneTraderPro patterns performed.

Accumulation Distribution With The New Buy Sell Pressure Indicator

Accumulation Distribution

This week I identified two instances of Accumulation Distribution after the trading day.  Previously I had said in the trading manual that you identify Accumulation Distribution as the market bounces between red and green intermediate zones, so it looks like Christmas tree lights.  Now I was able to see Accumulation and Distribution from the new Buy Sell Pressure indicator.  Fortunately for me, I was on the right side of one of these and took a small profit on the other.

Wednesday 4/26/17

This is a trade from Wednesday 4/26/17 at the end of the day.  Normally I would stay away from this scenario but because of news events, I was looking for an opportunity to short. In the picture below you see how each time the indicator spiked between 1442 and 1450 you had immediate selling and a V shape pattern.  I entered the trade where I have drawn the solid red vertical line and immediately had 2 points in my pocket and I relaxed a little.

My relaxation would not last long.  Price came back and I found myself with 3 ticks of adverse excursion, but what was worse is that the Buy Sell Pressure indicator was solid green and going sideways.  There wasn’t a sharp V shape this time.  But what was interesting and I only realized after the fact was that this was a distribution, as price could not even reach the blue counter trend zone.

4/26/17 Afternoon Distribution Trade
4/26/17 Afternoon Distribution Trade

Currency Tool

Here is what the currency tool looked like which shows the entry and exit to my trade.  At around 1532 hours there was a strong move down in the correlated currencies and I was back to relaxation mode while I waited for an exit.

4/26/17 Currency Chart
4/26/17 Currency Chart

Normally when the Buy Sell Pressure Indicator is solid green, price is rising. Even when the solid green lines’ slope is falling price is normally rising. We can see this in these two trades from the morning of 4/26/17 in the picture below. These were two huge long trend trades with perfect setups.  In the first trade you again see a distribution after price reaches 2390 at 1054 hours.  This is confirmed by the accumulation distribution indicator in the bottom panel.  There is a positive sloping green line but price goes nowhere until there is a small retracement.

But after the second trend trade price first rises on a flat slope dark green line then rises significantly on a downward sloping line.  Those shorts have been forced to give up and cover their positions and this is again confirmed by the Accumulation Distribution indicator on the bottom.

4/26/17 Distribution Morning Trade
4/26/17 Distribution Morning Trade

What I expect to see from price happens when the line is a dark green color after 1110 hours.

The next picture below is the end of that move up.  I have placed a vertical red line where the indicator turns light green and where the indicator flips from green to red.  Also on this chart you see a successful Tick Divergence trade with some very nice divergence in the indicator at the time of the trade and the next long trend trade also.  Notice all the reasons not to take the Tick Divergence short trade at 1211 hours.

4/26/17 Tick Divergence Trade
4/26/17 Tick Divergence Trade

Monday 4/24/17

This last picture is from Monday 4/24/17.  I was short from the intermediate resistance zone. Look at the dark red color in the indicator where I got short.  Price came down to the blue countertrend support zone.  Normally I would take profit here, but because the indicator was solid red, I held the trade.  When price rose to the intermediate zone I exited the trade with a small profit. I did this because the market was not reacting as I had expected it to.  There was an unsloping line but I hadn’t seen this before.  Then a distribution takes place again at the blue counter trend zone.  I did not short this because the indicator was solid dark green.

4/24/17 Accumulation Distribution
4/24/17 Accumulation Distribution

 This last chart is from the open on 4/24/17. You can see how when the indicator is solid red and going sideways and we have price moving as expected.

4/24/17 Open
4/24/17 Open

Conclusion

I did not identify the Accumulation Distribution pattern with the indicator until after the Wednesday trade when I went back and reviewed what had happened.  I had recognized the zones bouncing between intermediate support and resistance. The trade from Monday was also stuck in my mind because of how the price did not fall.  This is when I learned how to spot Accumulation or Distribution using the new indicator.

In reviewing my trade from Wednesday I was very lucky.  As price moved against me I considered taking a small loss. I decided against it because my stop was just two ticks away.  At that point it really didn’t matter and I stuck with the trade because of the theory I had going into the close.

The purpose of the post is not to identify a trading opportunity, but exactly the opposite.  The lesson to be learned is from what happened on Monday as I was holding for a deeper target.  If you find yourself in a trade such as I did on Monday and price reverses, you need to be prepared to immediately say you are wrong and wipe the trade.

Buy Sell Pressure Indicator Video

Buy Sell Pressure Indicator Video

I went and created a 20 minute video using the new buy sell pressure indicator.  The video illustrates 3 tremendous winning trades that were all setup using the buy sell pressure indicator.  But the point of the video is not to illustrate just the good trades.  I also look at the indicator and explain why other trades are either just marginal 6-8 tick winners, or losses.  The important takeaway from this video is that you learn what patterns will take a market higher or lower, and what patterns lead to reversals.

The video shows an extremely bullish first move, followed by a three short trades which ends up in nearly 20 ES points of profit in 3 trades.  You look at how the indicator told you to either stay in the trade, move a stop, and when to consider exiting a trade.  All from just the buy sell pressure indicator.  You can also see why other trading patterns during this period just did not work.

This is what is important.  I have always understood that ZoneTraderPro patterns work but have always needed a filter to explain why either a trade is marginal or will fail.  This indicator goes a long way in this understanding of what works and what doesn’t work.  This will allow you to create a trading plan where only the highest probably trades are taken.

Also explained in this video is how the accumulation distribution indicator works and the indicator setups for both.  You can see the accumulation distribution indicator in the lower panel of this picture.  This indicator is measuring the 5 levels in the Super Dom and displays whether there are net buyers or net sellers.

ZoneTraderPro Buy Sell Pressure Indicator
ZoneTraderPro Buy Sell Pressure Indicator

Be sure to expand the video to full screen in the lower right corner for the best viewing experience.

 

Live Trades With New Buy Sell Indicator

Live Trades With New Buy Sell Indicator

Here are a couple of live trades that I made today using the new Buy Sell Pressure indicator.  This article only represents my opinion and is not a guarantee that your results will be similar.  For the full risk disclosure, please read this.

In order to be have confidence in making live trades I needed a trading plan and for the past week I have been developing and testing a plan.  Based on the plan that I created, I created a Ninja workspace which had 3 instances of the new indicator and the accumulation distribution indicator.  I placed 3 instances of the indicator so I could look at 3 different ratio levels.  I wanted to look at the 5, 6, and 7 ratio levels.  A ratio level is the number of prices levels that are looked at.  Additionally, in my testing I used values of 45/55 as the extremes.  A value of 55 means that the line will turn dark green and you will see an arrow of the buying volume is 55% or more.  A dark red line will appear at 45% or more of buying volume.

Trades from 4/21/17

4/21/17 Live Trades
4/21/17 Live Trades

Today I made two short trades for a total profit of 5.25 points.  The 1st trade was trend trade and when the trade was entered it was 2 ticks above the bottom of the zone and the indicators were all within my parameters to enter a trade.  However just as I entered there was a push up which resulted in 3 ticks of adverse excursion.  My stop was 5 ticks and my original target was 2348.50, which I moved ended up moving up 1 tick and exactly called the bottom.  I considered pulling the trade as it traded into an exhaustion pattern, however when you look at the 7 ratio level (top indicator) it was a declining sloping line.  When the 6 ratio line spiked it formed a deep V shape.

Normally I would take profit at the blue countertrend zone, because approximately 50% of the time, there will be a 6 tick retracement.  However look at the 6 ratio level (2nd indicator) which is dark red, but with a slightly positive slope.  I really did not like the slope of that line and moved my stop to a 1 tick profit so the trade would be paid for or at worst a scratch, since I use a simulated stop.

What caused me to move my target 1 tick up?  I am also a tool called Bookmap.  Bookmap is a visual aid in showing where resting orders are sitting.  Where you see a solid white area, that represents orders that have been resting.  You also can see if orders are pulled as price approaches, which is spoofing. If those orders are not pulled, you know those are probably not spoofing orders.

4/21/17 Bookmap 1st Trade
4/21/17 Bookmap 1st Trade

In this image you can see the resistance building at 2353.00, but was briefly pulled as price approached the second time, but this was after my entry.  This was not a good sign and caused me to consider exiting.  Fortunately as I was thinking, price fell pretty rapidly.

Now look at the solid white line at the price where I had placed my target.  I then looked at where the strong trend support zone had printed at  2349.00 and decided moving up my target by 1 tick would be a good idea.  Obviously a good call.  You can also see the ZoneTraderPro Accumulation Distribution indicator is solid green.  This indicator is reflecting numbers in the Super Dom similar to information in the Bookmap.

Second trade

The second trade was a trend short trade.  The Bookmap showed resistance developing at 2351.50 and I took the trade after price touched and dropped two ticks.  I was filled with a limit order at 2351.25 and price immediately dropped from there.

4/21/17 Second Trade Bookmap
4/21/17 Second Trade Bookmap

Again my stop was 5 ticks but my target was 8 ticks at 2349.25.  I probably would have also moved the stop 1 tick based on the orders sitting at 2353.00 if price had gone against me. Normally I would have liked to have the 2:1 ratio but there already was support at 2348.75 and additional support had formed at 2349.00.    You can see that form in the 1st Bookmap picture above.  I interpreted this as a second big buyer who wanted to get long stepping in front of the contracts still sitting at 2348.50.  Also, the ZoneTraderPro intermediate support zone formed at 2349.00 and if this was going to be a test of the low, it seamed a reasonable exit and it was.  When price traded at the exit, there were 1300 more buy orders that you can see on the Bookmap.

4/21/17 Second Trade Exit
4/21/17 Second Trade Exit

The indicator formed a deep V shape, however I was already out of the trade at this point.  What I saw in my testing of the indicator was that a zone is not going to hold when the indicator is dark red / dark green (setting at 45/45) and the line is mostly horizontal.  You can see this in the 6 ratio level on the 1st trade.

Neither of these live trades were trade of the day material, but I had to leave the house in less than an hour.  Both trades were within my plan and the only tough decision was during the 1st trade when it went against me the second time in the exhaustion pattern.  I then had to move the stop which wasn’t a hard decision, but I was uncomfortable and did not like my odds for this trade.   I was extremely lucky to have properly read the indicators and exited at the optimum exit prices.

 

Trading Results With New Indicator

Trading Results

In this post we are going to look at a day of trades using the new Buy Sell Pressure indicator and look at the trading results.  When I use the term trading results, what I mean is not a winning percentage.  What we are going to look at is the trades themselves and what the new indicator was telling us going into the trade.  In this sense the trading results will be subjective because it is left up to you to determine, with the information available, would you have taken the trade.  You can then objectively judge the results.  For example, there may only have been 3-4 arrows telling you to take a trade and that trade gave you 7 ticks before reversing.  Another trade may have given you 6-7 arrows and resulted in 3.5 points.  Or there could have been arrows going against your position when it was time to take the trade, and that trade gave you adverse excursion and only a few ticks of favorable excursion.

Variables

What I have done differently is that I have used a different set of variables to assess a potential trade.  There are two main variables to this indicator which give it a great deal of flexibility.  Those two variables are the Deviation Points and the Ratio Levels.  Deviation Points is when we tell the formula that we have a zigzag.  The ZoneTraderPro indicator is based on a 6 tick zigzag and that is the red line you see on the price chart going from highs to lows.  When there is a zigzag, 90% of the time you are going to see the indicator spike.  This is expected.  For example, if we have just made a high, the % of the contracts will have been buyers.  When the sellers come in and drive price down and we have a zigzag, we are taking those buy contracts out of consideration, so you see the spike.

What is important about the spike is what happens after.  This picture indicates both behaviors.  The number can spike and form an immediate V shape.  The V shape is indicating a reversal.  The other behavior is where the indicator remains at/or increases in value.  The number you see in the oscillator pane is irrelevant and has no meaning.

Oscillator Reaction
Oscillator Reaction

The second variable is the ratio levels.  The ratio levels tell the indicator haw many ticks worth of information you want to look at.  So if you want to look at a 6 tick zigzag with 6 levels of price, you would use 1.25 for the Deviation Points and 6 for the Ratio Levels.  The Deviation Points is always 1 tick less than you want to see.

The last available variables is where you want to see the extremes at and print an arrow.  The defaults are set at 60/40, but you are highly encouraged to experiment using market replay and determine optimum settings.

What is used in this post are 4 different settings for the oscillator.  I made the deviation points / ratio levels at 4/4 ,5/5, 6/6 and 7/7 to see if one particular combination was better than another.  What I found was all 4 gave me information that I wanted.  The 4/4 gives a “fast” setting and the 7/7 is “slower” and looks at more information.

Trading Results From Monday 4/03/17

The Trading Results will look at Tick Divergence, Exhaustion, Reversal, Trend Exhaustion, and Trend trades from 0945 hours EST to 1545 hours.  I will place comments on the pictures.  The trading results are a lot easier to see on a live chart or when you use crosshairs.

This 1st picture illustrates the settings for the indicator.  The top panel (Panel 1) is the slow 7/7 setting and the bottom panel is the fast 4/4 setting.  A dark red horizontal line is placed in each panel at the 50% level.

Long Trend Trade
Long Trend Trade
Trend / Reversal Short Trade
Trend / Reversal Short Trade
Long Exhaustion Trade
Long Exhaustion Trade
Trend and Reversal Trade
Trend and Reversal Trade
Tick Divergence Exhaustion Trade
Tick Divergence Exhaustion Trade
Reversal and Trend Trade
Reversal and Trend Trade
Short Trend Trade
Short Trend Trade
Trend and Exhaustion Trade
Trend and Exhaustion Trade
More Trades
More Trades
Tick Divergence
Tick Divergence
40317-11
40317-11
40317-12
40317-12

Conclusion

There were some absolutely great setups and some marginal setups.  The point is that the arrows accurately tell you when you have a good setup, marginal setup, or a probable loser.  ZoneTraderPro was never meant to take every trade pattern.  Now without the use of other order flow programs, you can make the reading of a chart much easier.

New Indicator Tool – Buy Sell Pressure

The Buy Sell Pressure Indicator

With the new Buy Sell Pressure indicator, you are seeing the % of actual contracts being traded.  This simple indicator explains in very graphical form why some trades fail, others succeed and why some become home runs.  You have the ability in the indicator to set the extremes based on your preferences.  The Buy Sell Pressure indicator displays the % of buyers and sellers.  In the picture below you see extremes in dark red and dark green.

Buy Sell Pressure Indicator Lines
Buy Sell Pressure Indicator Lines

The ZoneTraderPro Difference

One of the huge advantages of ZoneTraderPro is that you can go back and create a trading plan based on what has happened in the past because nothing is going to re-print or re-draw.  You do not see disappearing signals with ZoneTraderPro. ZoneTraderPro was originally created to identify patterns.  Since ZoneTraderPro was created, new indicators based on real time information were developed. In the past I have illustrated how I personally use order flow to enter and exit a trade and the use of $TICK as a filter for entering a trade.

ZoneTraderPro doesn’t use MACD, CCI, or any other oscillator type of indicator for a simple reason.  These indicators are just a mathematical formula and have nothing to do with real buy or sell programs being executed.  Breaking news may be real reason why these indicators could also fail.

So how do you use this?  Let us analyze two successful long trades.

  1. There are two green spikes that lead into the Tick Divergence Trade at 1136 hours.  If you had taken the short trend trade at 1125 the trade would have gone only 7 ticks and the indicator remained green through the trade, indicating buying.
  2. At the entry to the long Tick Divergence trade, the buy volume was 45%.  That trade was good 3.25 points.
  3. It is normally a bad idea to take a trend trade after a Tick Divergence because it a reversal trade pattern.  This is no exception.
  4. After the trend trade fails and the market trades through the red intermediate resistance zone, you see 3 more dark green spikes
  5. Next we have two patterns print, a trend and a reversal pattern.  This trade is good for 4 points.
  6. As price increases, more green spikes as we reach a Tick Divergence trade short.  This trade has 4 ticks of adverse excursion, a 6 tick retracement, and then price continues higher.
Long Trade Examples
Long Trade Examples

Here is a group of short trades

  1. There is a short trend trade, but it has a $TICK red dot at the entry.  The trade works and there was no dark green, BUT the market traded back to the entry.
  2. Next we have a long Tick Divergence trade, but we have a red dot at entry and a deep red spike of the indicator.  There was 3 ticks of adverse excursion and only 5 ticks of favorable excursion.
  3. A perfect setup for a short trend trade then occurs.  There is a lower tick low and a lower tick high and we had the commitment of sellers from the previous move. But the indicator tells you why it doesn’t work.  The buying % remained at 47% and $TICK only got to -246.
  4. Next we have a Tick Divergence short setup.  The $TICK became slightly non-divergent after entry (but ZoneTraderPro still displays the entry).  Here the buy % was lower and the trade was good for 2.75 points.  The sellers come back into the market and buy % is a new low at 26%.
  5. This sets up the reversal and trend pattern.  Again another perfect setup occurs and this trade is good for 5.75 points.  Notice how the indicator never turned green into the entry of the trade.  Then as price reaches the blue countertrend zone, we have dark red selling which sends the market down a couple of points.
  6. At the bottom, there is divergence.  The indicator goes dark red again at the 1st touch of the low at 2367.25, but this is expected.  Here is the key,, look at the indicator at the second touch of 2367.25.  It is heading straight up and it is overcoming a ton of selling that occurred at 2367.50.  This isn’t an entry into a long trade, but it is a great reason to exit, because the indicator has moved up 13%, from 34% to 47%.  This same thing happened at the pink strong trend support zone at 2369.25 and would also have been a good exit zone.
Short Examples
Short Examples

Here we have a reversal short trade that works great and the indicator predicts the failure of the Tick Divergence / Exhaustion long trade.

Reversal Trade
Reversal Trade

Here we have several successful trades using the indicator.  But what is important is the last long trend trade.

  1. First look at the indicator and look at the divergence there is at the exhaustion trade.  The important aspect is the slope of the line as you go into the trade.  The buy % is making higher highs and higher lows.
  2. Then as the market sells off into the long trend trade, there is more than a 50% change in the indicator.  But price trades up 5 ticks.  Did you take the trade?  Are you feeling uncomfortable? You probably should be. The indicator is still red and dark red as price trades to 2336.50.  The %TICK will not give a red dot until the trade has significantly gone against you. The indicator tells you not to enter the trade.
Failed Trend Trade
Failed Trend Trade

Next we have a great counter trend setup.  The counter trend trade is what the auto trader is based upon.

  1. Going into the trade we have a red spike lower.
  2. Then we have indicator divergence at the blue counter trend zone.
  3. $TICK red dot almost immediately followed by a red spike at the green intermediate support zone.
  4. A red spike at the blue counter trend zone.  This is again important because normally it would be a good idea to take profit here.  Why? Approximately 50% of the time this is where price stops and retraces at least 6 ticks based upon the ZoneTraderPro statistics.  This now gives a reason why you could move a target to the strong trend support zone at 2335.00.
  5. When price touches 2335.00 to test the low at 1001 hours, the buy % is now 48% and the slope of the line is up.
Counter Trend Trade
Counter Trend Trade

What is great about this indicator is that it creates a really easy way to make a trade decision.  You don’t need to spend thousands of dollars to buy an order flow program and learn how to use it.  With the Buy Sell Pressure indicator you have a very easy way determine entries and exits for a trade.

This is not a holy grail type indicator.  Here is a successful long reversal trade followed by a great exhaustion trade.  But the Buy Sell Pressure indicator spiked going into the exhaustion trade causing you to pass on the trade.

Indicator Failed Example
Indicator Failed Example

This is why we have a set of rules.  Would it have been nice to have had a perfect entry and a great exhaustion trade? Absolutely.  But this is what we are avoiding by creating a set of rules to keep the losses small.

Green Spike
Green Spike

Buy Sell Pressure Parameters

There are a few parameters to this tool.  The important parameters are the ratio levels and deviation points.

Ratio Levels

The setting of 6 in the picture says that the tool will look at 6 tick levels of price.

Deviation Points

This is the setting for the zigzag function.  A setting of 1.25 on the ES means that you have a 6 tick zigzag on the ES.  A setting of .05 on the CL means that you have a 6 tick zigzag on the CL.

Buy Sell Pressure Parameters
Buy Sell Pressure Parameters

Here is an example of what the deviation points mean.  We want a 6 tick zigzag to match the 6 tick zigzag in the ZoneTraderPro indicator.  The contracts that traded on the first move down, are not counted in the second move down after we have a zigzag up.

Deviation Points Parameter
Deviation Points Parameter

 

This Buy Sell Pressure indicator only works in real time or in market replay.  ZoneTraderPro customers can contact me for the file.

Ratio Indicator Auto Trader Update

Auto Trader Update

It has been a while since I have been able to post to the blog.  I originally started trying to write an auto trader update post several months ago.  A WordPress plugin had broken the functionality of the blog so that it was impossible to write a post.  After many attempts to copy the blog content failed using backup plugins, the back up function from inside WordPress copied my content successfully.

If you had previously signed up to receive blog posts, you will need to sign up again on this page.

Just because the blog was not being updated didn’t mean ZoneTraderPro wasn’t working.  The Auto Trader was updated to include the Ratio Indicator.    The Ratio Indicator is also available for the ZoneTraderPro indicator for all of ZoneTraderPro customers.  The indicator works like this.  It looks at the market orders being made to move the market.  A ratio that is a 1 indicates the buyers and sellers are equal.  In the example below, you see a ratio of .9 going into a short exhaustion trade.  In this instance the sellers are greater than the buyers, which is exactly what we want to see going into the trade.  Then the indicator shows ratios between 3.0 and 1.6 as the selloff begins.

Auto Trader Update with Ratio Indicator
Ratio Indicator

The low ratios for the profit taking pullbacks and the high ratios for the downward legs then continue.  The Auto Trader Update which includes the Ratio Indicator will cancel the orders to buy based on the number that set in the parameters.  The parameters for the ratio allow you to adjust where the orders get cancelled at.  The settings for this chart said it would cancel orders at 2 ticks away from the blue zone, and to look back 5 tick levels to see if the ratio was exceeded.  The strategy also allows you to exit a position if the ratio has been exceeded after you have entered a position.

Data Miner Update

The Data Miner was updated to include numbers concerning drawdown.  Here is a comparison of 3 Market Replay tests.  These tests were for a green days trading long between January 4, 2016 and March 31, 2016.  There were 21 trading days that make up these numbers.  The parameters for these tests are the same, except that the Ratio Indicator was used in two of the tests.  One test used a ratio of 1.4 and the other used 1.5.  These tests are run to gather information.  You see 4 different contract positions.  This is super important.  Contract #3 has the worst risk reward, followed by Contract #2, Contract #1, and concluding with Contract #4 which has the best risk reward.

Contract Positions
Contract Positions
Ratio Test Results
Ratio Test Results

What we see is a pretty decent profit of over $6,000 ($300 a day just trading 2 contracts long) trading without a ratio from trading 2 contracts long, one contract from position 2 and one contract for position 3.  But we took 446 trades to get there.  However with a ratio of 1.4 we could double our profit per trade.  With just 47 trades there was a $1227 profit on just 47 trades from position #1.  That profit of $1227 was made on just 10.5% the number of trades.  The drawdown for that position and ratio was also the best at $644.  By trading the same number of contracts by using leverage at Position #1 we would take our 21 day long only profit from just over $6,000 to over $12,000.

This illustrates the decisions that a user will have to make when setting up a strategy.  Do you trade 2 contracts to get to $6000 taking every trade?  Or do you filter the trades and increase the leverage to get to that same number?  It is also important to remember this is only illustrating trading long on a green day.  You will see that different strategies work better trading short and trading on a yellow day.

What is also interesting is some recent tests that showed trading long and short on a red day, was more profitable than the test shown above, without using ratios to filter the trade.  Some of this is due to the fact that there has not been severe market turmoil involving Russia and China so far this year.  That market turmoil is what leads to illiquidity in the ES.  So when the market is opening down in 2016, you do not see liquidity being pulled and the system performs like a yellow day. Contract #2 was winning at 59% with nearly a 2:1 risk reward.  As with the above set of test results, these results are from January 4, 2016 and March 31, 2016.  There were 23 trading days that make up these numbers.  Shown below are two different strategy results trading long when the market opens down.  That is why there is a different profit from Contract #2 and #3 even though they took the same number of trades.  What was the difference between the two?  The stop was 1 tick higher, for the system that performed better.

Red Day Results
Red Day Results

Currently there are results from over 110 tests.  This represents a tremendous database of information for creating a strategy.  It takes 1 computer almost 2 days to run one Market Replay  simulation to test a strategy.  So it represents a large amount of data which is used to create future trading strategies.

Lease the Auto Trader

When you purchase the ZoneTraderPro indicator you receive the Auto Trader for free for one month.  Before you start to use the indicator you will work with ZoneTraderPro and create a trading plan.  That way when you are ready with a plan, you can start trading your plan in the Sim immediately.

More information about the Auto Trader can be found here.  Besides receiving a free month, the price of the Auto Trader has dropped to just $500 a month. As with all updates, there is never charge for the auto trader update, or any update to the ZoneTraderPro indicator, such as the Ratio Indicator.