ZoneTraderPro is pleased to announce that the system has been converted to ZoneTraderPro For NinjaTrader 8 and has been updated. The first beta ZoneTraderPro for NinjaTrader 8 has been received and is currently in testing. The initial testing does not show any significant bugs that need addressing. Visually you are not going to see much difference between the NinjaTrader 7 version and this version. But one of the huge under the hood differences can be seen in the new and improved Order Flow Power indicator.
Order Flow Power Indicator
The Order Flow Power indicator has also been updated. Previously the percentage of buying and selling was based on the ZigZag indicator. When a ZigZag occurred, a new ratio percentage would be displayed. This feature is still available in the new version, however the ratio may now be displayed based on a look back of X number of bars.
One of the reasons that NinjaTrader 8 is superior to the 7 version is its ability to build a bar without having to use market replay. So the order Flow Indicator will now print on the historical chart. The Accumulation Distribution indicator still needs a live feed for its information.
Here you can see the difference between the two indicator settings. The indicator in Pane 2 has the bars back setting of 15. So what it is telling you is the ratio of buyers to sellers over the last 15 bars. This is a great way to spot divergences, especially at the Tick Divergence trade. The Power indicator in Pane 3 is using a 6 and 6 setting. That means it is based on a 6 ZigZag setting looking at 6 price levels.
In the following example you have good divergence. There is also a nice V shape pattern. V shaped patterns are a good indication of reversal.
What happens when there is no divergence? We can see from the following trade that there was a tiny fraction of divergence.
The trade went 6 ticks in your favor and then entered a strong trend. What is even more important is what the indicator is telling you at the next Tick Divergence trade. The indicator is solid green and going sideways. There is no selling and only strong buying. Price rises to strong trend resistance and keeps climbing. This is where the indicator becomes invaluable for trading. The Power Indicator keeps you from making bad mistakes.
Upgrade to the ZoneTraderPro NinjaTrader 8 indicator for free if you have purchased a NinjaTrader 8 lifetime license. The indicator will be in testing for several weeks. If you would like to have the beta version please contact me.
With the newest version of NinjaTrader 8, they released charts that can now show order flow. You need to have a lifetime license for these. I have already made a programming request to have some very highly profitable patterns coded to take advantage of the new NinjaTrader functionality. These patterns will identify exhaustion, trapped buyers and sellers, ratios, and order flow divergence. All of these patterns will be extremely helpful in your trading, so stay tuned.
I wanted to highlight some live trade examples from this week. Examples are both good and bad, but fortunately more are good than are bad. But I feel it’s very important to do this type of review to both learn from your mistakes and learn from your successes.
The first trades we will review our from Tuesday, January 9 at the open. I initially entered a short exhaustion trade shortly after the open at a price of 2751.50 with a five tick stop. In looking at the bid ask power indicator the line was light green but basically flat. After approximately two minutes price spiked very rapidly and I was using a NinjaTrader simulated stop. That simulated stop was not filled in time and I lost an extra tick.
This highlights a decision that you need to make ahead of time and it is unique to the exhaustion trade. The exhaustion trade is a reversal trade pattern that begins as either a test of a top or bottom. In this case there was six ticks between my entry and the bottom of the blue countertrend zone. By taking the trade at this position I was accepting additional risk and I initially chose not to place the stop above the blue countertrend zone because I was trading the open.
I still wanted to get short. I was watching both the tick and the bid ask power indicator all dropping in real time. In addition, a significant amount of volume was being absorbed by the sellers at the blue countertrend zone. Approximately 10,000 contracts were absorbed by sellers at the blue countertrend zone. Because of this I reentered the short trade from a price of 2752.75. The biggest cause for concern in this trade was when price reached the dark green intermediate supports zone. And immediately you see a five tick response when price traded at that zone. However the bid ask power indicator was dark red and moving sideways as prices rising. I attempted to short an additional contract that was not filled at the same price of 2752.75. Unfortunately this wasn’t filled. I had a target of 2747.75 based on prior support.
As price fell the sellers begin hammering the trade and this is reflected on the power indicator. This is a reason that I did not use the zone as an exit as I normally would. The power indicator gave me confidence in my original target. As price traded down towards my target a deep V can be seen in the power indicator. Because of this deep V pattern I reset my target to 2748.25, which essentially called the bottom of the move.
This deep V pattern is an extreme signal that I use to exit a trade. Notice how the power indicator was rising sharply as price was falling. This is super important to note this divergence. This V pattern will be coded into a future version of the power indicator.
I entered a second short trade at 2750.25, again a target of 2747.75, which was based on previous support. I made three critical errors in the placement of this target. The previous low of 2748.00 was traded to and touched and the market bounced. The first error was not respecting the previous low. The second error was not paying more attention to the power indicator which again was divergent and rising as price was falling.
In fact the ratios had already turned positive as price touched 2748.00. Another chart marker that I missed was the deep V pattern in the accumulation distribution indicator, which is the third pane in the chart. The deep V spike here indicates buyers placing limit orders and coming into the market. The third, and probably worse mistake was to lose four ticks having not moved my stop, even after the power indicator had gone dark green.
The point of showing this is to show mistakes and really bad mistakes. This unfortunately fell into the second category of a really bad mistake thanks to taking a loss on the trade.
I entered another short trade at 2752.75 after the marketed traded through the blue countertrend zone and the power indicator was dark green and falling. The mistake I made here was that there was not a significant V-shape to justify the trade. The reason I wanted to take the trade was that there had been significant resistance at the open at this price level, and price had again traded at that level and been rejected. I gave it a very small three tick stop, which was hit on the stop run 10 minutes later. As you can see from the chart, I ended up buying the high when the sim stop was triggered. I did not attempt to reenter because there was no V pattern in the power indicator. But notice the spike in the accumulation distribution indicator which was higher than previous spikes.
The next trade is probably the worst example of an entry that I’ve made in some time. I was probably feeling very frustrated at having the direction correct and having been stopped out on a stop run. There would’ve been a legitimate short entry at 2752.00 when the power indicator turned dark red. Unfortunately I tried to get short several times on a limit order and wasn’t successful. I finally entered at 2749.25 with a target only six ticks away.(Hello, risk-reward?) Again, I missed the deep V pattern that was in the process of forming. Because the market had traded through the intermediate support zone, this sets up a reversal trade.
Due to the order flow that I saw at the time I entered a second contract short at 2750.50. As price fell very sharply and very rapidly the power indicator again made the deep V pattern as price was trading at the low one tick from my target. I again made the same mistake and did not place the target at 2748.00, although I probably would not have been filled as only 307 contracts traded at that price. Although you cannot see it in the picture, a long exhaustion trading pattern had formed.
Fortunately by this time I had recovered from the previous frustration, read the situation properly and exited the trade at 2749.00 for a small profit. When the power indicator turned green I entered a long trade at 2749.75. I set a target of four points at 2753.75 which was the previous high that had been tested twice since the open. I realized and considered that there could’ve been buy stops above this price. As price traded to the target the consideration was that the power indicator was only light green almost the entire way to the target. When price traded through the target buy stops were in fact hit and the market traded almost 5 points higher. But at this point I was up 6.75 points (after making a couple of mistakes) and called it a day.
One thing that also affected me was Remy. This is Remy.
When he wants something he is very loud and he keeps jumping on the desk and trying to sit in front of the monitors. As if trading wasn’t hard enough.
I had a good day on Wednesday, but neglected to take pictures of the charts and could not make them show up on replay.
1/11/18 Live Trade Examples
The following trades are from Thursday, January 11. The first trade was shortly after the open going long from 2753.25. There was support from the blue countertrend zone and again significant volume had traded at 2753.25 and 2753.50. The power indicator and accumulation distribution indicator both had deep V patterns. This trade was fairly easy and I used the blue countertrend zone at 2755.50 as my target.
The next couple of trades were not as easy but there was no significant mistakes made. The market had made a strong trend and traded to 2759.50. I had seen support in the order flow and entered long at 2756.75 with a three tick stop. The power indicator had turned light red and the accumulation distribution was spiking and showing accumulation. The market traded down and the simulated stop was hit at 2755.75.
I reentered long at 2755.25. I had a target of the intermediate resistance zone of 2757.50. There was additionally strong buying however we are trading into a short reversal pattern, because of the adverse excursion of the green intermediate supports zone. I took this into consideration when I made the trade and why I was using the intermediate resistance zone for an exit. Because I was aware that there was a very high likelihood of a short trade pattern I did not like seeing the V pattern in the power indicator and exited the trade with a three tick profit. This was the correct read of the chart as the market sold into a tick divergence exhaustion trade.
After price had traded 2753.50 the market responded with buying, and I got long at 2754.25. Almost immediately price traded down and stopped me out at 2753.25, again on a stop run, resulting in a little frustration. I looked at the power indicator and decided to reenter the long trade at 2754.00. The three-point target of 2757.00 was hit and filled. Price would trade one point higher before retracement. I did not see strong enough buying in the power indicator to justify raising my target to 2758.00.
That is 4 points on the day. I also made a ZN trade based on order flow that was a 7 tick winner. Note how I respected the prior low for the exit.
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.
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.
Immediately following the exhaustion trade which was good for 15 ticks, this trade was followed by a series of trend short 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Be sure to expand the video to full screen in the lower right corner for the best viewing experience.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.