Education- Articles - Value Trading Basics
Auction Market Development
In the iTradePod Trading Room, we use this potent combination of leading indicators together with our Market Profile® and Order Flow knowhow to give our clients an indication of how price is continuously ebbing and flowing (see Fig. 2) in relation to value, on an intraday basis. In fact, our Trading Room clients have learned to consistently leverage this edge in a similar manner to how the remarkable 'The Wisdom of the Crowd' method continues to yield a competitive edge for huge data farming corporations such as Google.
Our traders have developed a trading method that exploits our Financial Algorithms partner’s Market Profile® style TPO Chart indicator that plots prior and unfolding value areas. Our algorithm specialists have also gone one stage further. They have developed an indicator that provides you with what is equivalent to a real-time value area in the form of the volume weighted average price and standard deviations from this average price.
Fig. 2 Typical Auction Market Development
It is amazing to see how price respectfully fluctuates between these regions back and forth, day after day. This is why we make these key levels avaialable daily in the Market Data area on our website. Understanding how price interacts with the VWAP price and its standard deviations dramatically fine tune both entries and exits and gives our clients a professional edge. For example, knowing that the price rarely extends beyond the 3rd standard deviation presents high probability trading opportunities and an excellent trade location. In Fig.1 the market structure that unfolded was neutral. Note how the price interacts and extends beyond the VWAP testing the 1st upper standard deviation. Typically the 1st upper standard deviation lines provide resistance with the lower standard deviation lines providing support. In the example shown in Fig.1, the Value Area Low (VAL), which coincided with the 2nd standard deviation line, formed strong support i.e. demand from buyers overcame the selling pressure. This is even more evident when examined on an order flow footprint chart like the one our clients observe during our Live Trading Room session.
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