MetaTrader 5 - Examples The Price Histogram (Market Profile) and its implementation in MQL5 Market Profile tries to provide this internal logic in the context of the market. It is a method of analysis that starts off with the understanding that price alone does not communicate information to the participant, just as words without syntax or context may have no meaning. Volume is an integral part of the direct expression of the market - understand it and you understand the language of the the market. Robin Mesh A long time ago, looking through a magazines subscription I have found an article Market Profile and understanding the market language (October, 2002) in the Russian journal Valutny Spekulant (At present time it called as Active Trader). The original article has been published in New Thinking in Technical Analysis: Trading Models from the Masters . The Market Profile was developed by trully brilliant thinker Peter Steidlmayer. He found the natural expression of the market (volume) and organized it in a way that is readable (the bell curve), so that objective information generated by the market is accessible to market participiants. Steidlmayer has suggested to use the alternative representation of information about horizontal and vertical market movements that leads to completely different set of models. He assumed that there is an underlying pulse of the market or a fundamental pattern called the cycle of equilibrium and disequilibrium. Market Profile measures the horizontal market movement through the vertical one. Lets call that equillibrium through disequillibrium. This relationship is the fundamental organizing principle of the market. A traders whole style of trading may change depending on what part of the equilibriumdisequilibrium cycle the market is in. Market Profile can determine both when the market is going to shift from equilibrium to disequilibrium and how big the move is going to be. The two basic concepts of Market Profile are: The market is an auction, and it moves in the direction of the price range where the supply and demand are more or less equal. The market has two phases: horizontal activity and vertical activity. The market moves vertically when supply and demand are not equal or they are in disequillibrium, and horizontally when they are in equilibrium or balanced. The equilibrium market shown using the Market Profile in the chart below tends to form an almost perfect bell-shaped curve, rotated by 90 degrees because of the orientation of the chart: Fig 1. The Market Profile of equilibrium market The trend, non-equilibrium market also forms a bell-shaped curve, but its center is shifted up or down. Other configurations that form two peaks of bells, depending on the price movement and the confidence of market players, are possible. Fig 2. The Market Profile of disequilibrium (trend) market Use of the daily profile shapes to determine the degree of balanceimbalance level of the market can be useful, because it gives you a starting point in understanding the shifts of between various market participants. A trading opportunity with the greatest benefit appears when the shift from balance to imbalance is about to occur. Moreover, if you can identify that trading opportunity and accurately estimate the potential magnitude of that shift, then you can estimate the quality of that trade and the amount of time that is necessary for it. Its necessary to note that in this article well consider the code for drawing a simplified version of the Market Profile, the so called Price Histogram based on the realtionship between price and time. You can find the example of methodology of working with this tool can be found at enthios. where a group of traders has studied the Price Histrogram since 1998. The Enthios Universal strategy and example of its use you can also be found there. 1. Price Histogram The Price Histogram is a very reliable tool. Its a bit intuitive but extremely effective. The price histogram simply shows you the most convenient trading points of the market. This is aa leading indicator, because it shows the points where market can change its direction in advance. The indicators like moving averages or oscillators cannot specify the exact points of resistance and support, they can only show the fact whether the market is overbought or oversold. Usually, the Price Histogram (or Market Profile) is applied to 30 min. price charts to study the market activity during one day. I prefer to use the 5 min. charts for stock markets and 15-30 min. charts for FOREX. 2. Point of Control In the figure above you can see the level where the market was traded the maximum amount of time its outlined with the longest line in the histogram. Its called the Point of Control . or POC . Sometimes, as it seen in the figure, the histogram has two tops, one of them is a little bit lower. In such case, we see that the indicator shows just one POC, but in fact there are two of them, and it should be taken into the account. In addition, the percentage level of the range in the histogram also creates additional levels, so called Secondary POC levels : Fig 3. Points of control What does POC show The price that is remembered by most of traders. The longer market is traded at this price, the longer market remembers it. Psychologically POC acts as a center of attraction. The next chart shows what happened a few days earlier. Its a good demonstration of power of the Price Histogram. Fig 4. The Point of Control isnt absolute it shows the range of trade The Point of Control isnt absolute it indicates the range of trading. Thus, the trader should be ready to act when the market approaches to POC. It helps to optimize orders, using the historical observations. Lets consider the Fig. 4. The POC on 29.12.2009 is located at price 68.87. It is clear even without the histogram and POC line that the market was within the 68.82 68.96 range almost all the day. The market closed at the end of the day at 5 points below the POC. On the next day it caused the opening of the market with a gap down. Its important to understand that we cant predict whether the market will go up or down. We can only suppose that the market will return to the POC line and to the maximal accumulation of the histogram lines. But what will happen when the price touches the POC The same thing that happens with an elastic object that falls to the ground, it will jump back. If it happens quickly, like a tennis ball stroke back with a racket, the price will return very quickly back to the initial level. After the market opening on 30.12.2009 we see that it was a gap and then market touched the POC of the previous day, and then quickly returned to the open price and updated the minimum. Note that POC is not absolutely accurate (experienced traders know that there is no clear resistance levels when the price reaches a maximum, minimum or concentration range). What happens at this point depends on the market players. If the collective desire (for example, news publication) coincides, then market will pass through the POC, but its rare and it can be used to develop a trading system. Pay attention that the market behavior was the same on 31.12.2009. When the price touched POC, the buyers yielded to the sellers. 3. Virgin Point of Control The Virgin POC (Virgin Point of Contro) is a level that price hasnt reached in the next days. The logics is simple, as described above, the POC is an attraction point for the market. As the price moves away from the POC, the force of attraction increases. And the more the price goes away from the Virgin POC, the greater is the possibility that when it returns to this level the rebounce will occur and probably a price reverse will occur as well. Fig 5. Former and current Virgin POC At Fig. 5 the former Virgin POCs that were the support and resistance levels are marked with circles. The working Virgin POC are marked with price values. Once the price has touched the Virgin POC, it ceases to be a virgin. Psychologically, the market no longer sees it as a substantial level of support or resistance. The traders still can see the price levels, which initially has formed the POC, but as a simple accumulation of prices. You can more details about the price levels in the Master-trading: The X-Files book by Eric Naiman (Chapter 4, Price Level is a base line). 4. Price Histogram Implementation in MQL5 My first version of Price Histogram appeared in 2006 it was written in MQL4 in MetaTrader4 for personal use. During the development of this indicator I faced some troubles, here are some of them: very short number of bars in history for M5, not to speak of M1 the necessity to develop special functions for working with histrory, such as returning back by one day considering holidays, checking for the market close time on Friday, checking for the open and close time for CFD market, etc recalculation of indicator when changing timeframes and, as a result, terminal delays. Therefore when beta-testing of etarader5 and MQL5 has started, I have decided to convert it to MQL5. As people say, the first pancake is always a bit tricky, I have tried to implement it as an indicator. Lets start with the good: the presence of the long history of minute quotes for all symbols, the possibility of historical data obtaining for a certain time period at any time range. Now I will explain why it has turned out. I havent considered the features of the MQL5 indicators: the indicators runtime is critical the features of the indicators work after the timeframe changes. The execution of function OnCalculate(). which corresponds to Calculate event handler has a critical runtime. Accordingly, the processing of 260 days (annual period) using the minute bars history takes a long time, up to several minutes. Of course we can accept it, if the calculations performed at once after the indicator attaching to the chart. But this isnt the case for the timeframe changes. When indicator switches to the different timeframe, the old copy of the indicator is destroyed and created the new one. Thats why after the timeframe changes we have to recalculate the same levels again and it spends a lot of time. But as saying, if you dont know what to do - Read the documentation first, in our case, its the documentation of MQL5. The solution was very simple - to implement this indicator as Expert Advisor which doesnt trade. The advantages of Expert Advisor are: the processing time isnt critical for Init event handler in OnTick () the possibility to obtain the parameters of the handler OnDeinit (const int reason). The Expert Advisors are differing from the indicators the following: after the timeframe change the expert advisor just generates the DeInit event with REASONCHARTCHANGE reason parameter, it doesnt unload the Expert Advisor from memory and serves the values of global variables. It allows us to perform all calculations at once after Expert Advisor attaching, changing its parameters and new data appearing, in our case for a new trading day. Lets introduce some definitions that will be needed later. The Object-oriented programming (OOP ) - is a style of programming which basic concepts are the concepts of objects and classes. The Object is an entity in the virtual space, with specified state and behavior it has some values of properties (called as attributes) and operations with them (called as methods). In OOP the Class is a special abstract data type, characterized by means of its construction. The class is a key concept in OOP. The class is differing from the other abstract data types. The data definition in class also contains class methods of its data processing (interface). In programming there is a software interface concept that means a list of possible computations that can be performed by some part of the program, including algorithms, description of arguments and order of input parameters to proceed and its return values. The abstract data type interface has been developed for a formalized description of such a list. The algorithms itself and the code that will perform all these calculations arent specified and called as interface implementation. The class creation is creation of some structure with fields and methods. The entire class can be considered as a template for the objects creation, which are class instances. The class instances are created using the same template, so they have the same fields and methods. Lets get started. The source code is located in 4 files. The main file is PriceHistogram. mq5 . the other files are: ClassExpert. mqh . ClassPriceHistogram. mqh and ClassProgressBar. mqh . The files with. mqh extension contain the classes description and methods. All files must be located in the same directory, My directory is: MQL5 ExpertsPriceHistogram. The first statement in the source code is: The include compiler directive includes the text from the specified file. In our case it is description of class CExpert (discussed below). The next one is a block of input variables which are parameters of Expert Advisor. After that the variable ExtExpert (of CExpert class type) is declared. The next is the standard event handlers which are in MQL5-programs. The event handlers call for the corresponding methods of CExpert class. There is an only method which performs some operations before the execution of CExpert - its OnInit() method: When I wrote the first version of the Expert Advisor and run it, I have some trouble with understanding why it terminates with error after the client terminal restart or a symbol changes. And it occurs when the client terminal was disconnected or a symbol hasnt used for a long time. Its great that developers have added the debugger to MetaEditor5. I remember a lot of Print() and Comment() commands, used for checking of values of variables in MetaEditor4. Many thanks to MetaEditor5 developers. In my case, everything was easy the expert starts before connection to server and update of the historical data. To resolve this problem, I had to use the SeriesInfoInteger(Symbol(),0,SERIESSYNCRONIZED ), which reports that data is synchronized or not, and the cycle while (), the case of the connection absence it uses the counter variable err. Once the data has been synchronized, or the cycle has completed because of the counter in the absence of connection, we pass the input parameters of our expert class CExpert, and call the class initialization method Init (). As you see, thanks to classes concept in MQL5, our file PriceHistogram. mq5 has transformed into a simple template, and all further processing is in the CExpert class, declared in the file ClassExpert. mqh. Lets consider its description. The public section is open and accessible from the outside variables. Youll notice that names of the variables coincide with names of the input parameters section described in PriceHistogram. mq5. It isnt necessary because the input parameters are global. But in this case - is a tribute to the good breeding rules, its desirable to avoid using of external variables within the class. The private section is closed from the outside and accessible only within the class. I would like to outline the variable listobject of CList type, which is a class of the standard MQL5 library. The CList Class is a dynamic class with a list of instances of CObject class and its heirs. I will use this list for the references storage for the CPriceHistogram class elements, which is an heir of the CObject class well consider the details below. The CList class description is in the List. mqh, and it includes by using the compiler directive include ltArraysList. mqhgt. The following is a public methods section. As you have guessed these methods (functions) are available outside the class. And finally the brace with a semicolon completes the class description. Lets consider class methods in detail. The class constructor is a special block of statements, called when the object is created. Constructor is similar to the method, but differs from method that it hasnt explicitly a certain type of returned data. In MQL5 language, the constructors cant have any input parameters, and each class should have an only one constructor. In our case, the constructor is a primary initialization of variables. The destructor is a special class method that used for the object deinitialization (eg, free memory). In our case the method is called as Deinit (REASONCHARTCLOSE) The Init() is a method for the class initialization. This is the most important method of CExpert class the creation of histogram objects has performed there. Please look at the comments for the details. But I would like to consider there points. The first, to build up a daily Price Histogram we need the open time data for days to proceed. Here I would like to digress and draw your attention to the features of working with time series. For the data request from the other timeframes we needed a time, so the functions Bars () and CopyTime (), as well as other functions to work with timeseries arent always return the desired data from the first call. So I had to put this function in the do (. ) while () loop, but to make it finite, I have used the counter variable. Secondly, the minute history of MetaTrader 5 is equal to the days available, so it can take a lot of time to proceed, so its necessary to visualize the calculation process. The class CProgressBar (include ClassProgressBar. mqh) has been developed for this purpose. It creates the progress bar in the chart window and updates it during the calculation process. The third, in cycle, using the new statement, we create the CPriceHistogram object, configure it using its methods and initialize it by calling the Init(). If successful, we add it to the listobject list, overwise we delete the histobj by using delete statement. The CPriceHistogram class description will presented further, see comments in the code. The OnTick() is a method called when you receive a new tick for a symbol. We comparing the values of the number of days stored in the variable countbars with the number of daily bars returned by Bars (Symbol (), PERIODD1) and if they are not equal we forcedly call the method Init () for the class initialization, clearing the list listobject and changing the variable to NULL namesymbol. If the number of days has not changed, the loop goes through all objects stored in the class CPriceHistogram listobject, and execute a method Redraw (), for those who are Virgin ( virgin). The Deinit() is a method for class deinitialization. In the case of REASONPARAMETERS (input parameters were changed by the user) we clear the listobject list and set namesymbol variable to NULL. In other cases, the expert doesnt do anything, but if you want to add something, read the comments. The OnEvent() is a method for event processing of the client terminal. Events are generated by the client terminal when user working with chart. The details can be found in the documentation of MQL5 language. In this Expert Advisor the chart event CHARTEVENTOBJECTCLICK has been used. By clicking on histogram element the it shows the secondary POC levels and inverses the histogram color. The OnTimer(void) is a method for timer events processing. It doesnt used in my programs, but if you want to add some timer actions (for example, to show the time) - its here. Before use its necessary to add the following line to the class constructor: And the following line to the destructor: before calling the method Deinit (REASONCHARTCLOSE). iWe have considered the CExpert classit has been created for the demonstration of the CPriceHistogram class methods. In the description of the class, I tried to provide comments for class variables and methods. Lets consider some of them in details. This method uses three input parameters - the opening of the building, the closing time of construction and a flag indicating to construct a histogram, or only the levels of POCs. In my example (class CExpert) input parameters are passed at the opening day and time of opening the next day daytimeopen i PeriodSeconds (PERIODD1). But when you use this class, nothing prevents to ask, for example, the time of European, American session, or the gap size in the week, month, etc. In this method, the origin of all levels and the calculations of their construction, it is a closed private method, inaccessible from the outside. First, we get the minute bars history data for a certain period of time (iTime , iHigh, iLow). Then we find the maximum and minimum element of iHigh iand Low. Then we calculate the number of points (count) from minimum to maximum, and reserve the array ThicknessOfLevel with ThicknessOfLevel elements. In the cycle we go through the each minute candle from Low to High, and adding the data of the time period presence at this price level. Then we find the maximal element of the ThicknessOfLevel array, it will be the level at which price was the longest time. This is our POC level. The next step is to find the secondary POC levels. Recall that our diagram is divided. Recall that our histogram is divided into two ranges, the internal and external (displayed in different colors) and size range is defined in percentage of time of the price at this level. The range of the internal boundaries are Secondary POC levels. After finding the Secondary POC - Borders percent range, proceed to the construction of the histogram. It should be mentioned that in order to reduce the load on the terminal, I bring to the screen a maximum of 100 lines for each histogram. Lines of the histogram are stored in two lists, and ListHistogramInner ListHistogramOuter, which are the objects already known to us class CList. But these pointers are stored in a standard class of objects CChartObjectTrend. Why two lists, I think you can guess from the title, to be able to change the color histogram. I have tried to design the CPriceHistogram with all necessary methods, if it insufficient. you can add yourself, and I will help with it. Once again I would like to remind that the Price Histogram is reliable, but the intuitive tool, so the confirmation signals are necessary for its use. Thank you for your interest. I am ready to answer to all your questions. Translated from Russian by MetaQuotes Software Corp. Original article: mql5ruarticles17Surfing Risk Intraday - Volume Profile and Order flow Hi Risk Surfer, nice analysis in this thread, had some nice reading the pdf you posted too. Btw I had downloaded the mt4 indicator you posted, and I have some doubts to clarify. 1. Is the arrow I referring is the Point of Control 2. If it is, whats the reason for the different length of POC in each session 3. I realised the time start doesnt change even when I modify the time settings, is there a workaround to my prefer session Sorry if you do not use the indicator in mt4 at all. Yes thats the POC, I wish I could answer your questions better but Im not familiar with the MT4 platform and this indicator does seem very inflexible, I have played around with the settings and have the same result as you, inability to edit the start date. Im in the process of hunting around for a better one. Thanks for dropping in, Trade ideas posted daily with a follow up each night. See post 1 Hey risk, nice top down analysis there. However, I see to the bottom of the quotBUND-INTRADAYquot chart, are pieces of what I assume to be the cumulative delta on the charts. Do you use this as a confirmation of your trade entry or is the DOM the sole trigger Im still trying to piece together how to use the DOM, ala youtube, but finding reliable info is proving to be difficult. Confirming my entry is a bit trouble some. Kinspk, 1.I assume that the arrow is the POC. 2.The colour setting is from red to green. (Color Scheme1) Judging from the lack. I dont use delta for entries really, Its there more for an additional gauge of whos in control. For example if the delta is moving sharply higher (indicating a lot of traders lifting the offer) but price fails to move up as aggressively, this tells me that the sellers are actually in control as they absorbing all of the strong buying. Thats one of the ways I use it, there are quite a few others, Ill definitely cover them here at some point. BTW, is there any chance you could upload your MT4 profile indicator Im assuming it uses tick volume No worries if not Trade ideas posted daily with a follow up each night. See post 1 Hey Dave, Im based in the UK too, the only major clearer we have here is Marex, and they are not particularly accessible by retail traders. Theres no problem with having a US based broker, you can still keep your funds in GBP, they just loan you or Euros on margin to trade whatever you want. I probably shouldnt be recommending brokers publicly, and Im not allowed to PM you being a commercial member, but if you shoot me an email at adminrisksurfer I can point you in the right direction. Regarding. Hi RS I managed to get a trial Sierra chart running with data feed from S5 demo account. S5 helped with instructions. I have had a little play with adding the Volume by Price study, see chart attached, I see you also tried Sierra chart on post 113. Would you have any settings templates that you could share I want to try and learn from your signals when I subscribe. Dave Attached Image (click to enlarge) Hi RS I managed to get a trial Sierra chart running with data feed from S5 demo account. S5 helped with instructions. I have had a little play with adding the Volume by Price study, see chart attached, I see you also tried Sierra chart on post 113. Would you have any settings templates that you could share I want to try and learn from your signals when I subscribe. Dave Ive asked a colleague who uses Sierra and he kindly offered his templates for posting. Unfortunately I cant give you and advice on setup as I dont currently use that package, but heres the file anyway, let me know how you get on Commercial Member Joined Dec 2013 252 Posts Weekly 8211 Looking at the weekly chart we can see just how clear this up trend in stocks has been since the peak of the financial crisis in mid 2009. This trend is particularly stable as it is steep without being 8216parabolic8217 i. e. the gradient of the slope remaining constant, this is the sign of a healthy trend. The biggest pullback occurred in Summer 2011 over the debt ceiling fears, the pullback seemed very dramatic at the time, however given the action that followed it now looks moderately insignificant. It would be easy to imagine a second pullback, maybe even as deep as 1600, and the uptrend would still remain intact. It8217s quite amusing when permabears such as Zero Hedge are calling the collapse of the financial system when the SampP trades down 1-2. One look at the weekly chart tells you all you need to know about the health of the stock market. Attached Image (click to enlarge) From a fundamental perspective this is largely due to the Quantitative easing policies that have been in place since the depth of the financial crisis, however it is interesting to note that the much feared 8216tapering8217 began in December 2013, and stocks are still bouncing around their highs. Unlike some, I feel there is genuine stability and growth behind the strength of the stock market, and it will take a serious event (geo political or otherwise) to unearth this trend. Moving to a volume chart we can see a Value area between the 900 and 1400 levels. However, since this market is in an overall trend, the value areas (which normally represent balance) do not mean much from a technical perspective. The key takeaway from this volume chart is that there are some very prominent high and low volume nodes (I am more interested in the high volume) that should give us some reaction (support) if we trade down to them. Attached Image (click to enlarge) I am MUCH more aggressive in looking for longs in this market for obvious reasons, I will be very cautious on shorts unless there is an extremely good level to lean on as resistance. This approach remains valid even if the market is trading down 2-3 off its highs, as it has done early this year (2014). When we check the daily chart, we can see the selloff in January was completely taken back to make new all time highs in February. The highs left behind in DecemberJanuary were very weak and it was very likely they wouldn8217t hold as a major swing point. The more recent pullback (caused by the Crimea news) in March was much more shallow and the majority of it has taken back. This market is still looking extremely healthy and my hand in firmly off the sell button. I did take one short trade yesterday at 1864.50, as this was a very nice High volume node left by the recent action around all time highs (seen clearly on the 120 minute rolling chart). However I did not overstay the short due to the bullish nature of the market. This level is still holding as resistance (we are re-accepting the 1865.00 level) but I feel we are due for another push higher, perhaps to all time highs by the end of the week. Since we are looking mostly for longs, it is wise to check the daily chart for major levels that may hold as support. The most prominent high volume nodes are 1865 (may hold as support if we break higher and retest it). 1829.50, 1791.25 and 1774.50. I would expect all of these levels to hold as some kind of support if they should be retested. (Unless the sell off in fundamentally driven by economic data etc.) Attached Image (click to enlarge) For shorts to be taken seriously, I think it8217s very important they push price below (and sustain) the key low volume node at 1800 (also a psychosocial round number). This is something I will be watching very closely. If there is a swift move down through 1800 towards the 1774.50 High volume node, then I will assume that sellers are in short term control, and will start looking for shorts more aggressively. Attached Image (click to enlarge) Lets drill down to the intraday chart. As discussed, I am only looking for longs at this point. So I have no short levels in place. My first long level is at 1851-51.50. This is the open gap from the 17th-18th March. It is also the VPOC from the 17th March, I like this confluence and I would expect a bounce if we should trade down here again. The next long level is down at 1840.75-41.25. This is purely the VPOC from Friday 14th March8217s session, not usually enough to expect a bounce, but given the bullish nature of the market, the probability of it working is greatly increased. The third long level is at 1833.75-34.25. This is the open gap from the close of Friday 14th March (also a weekly gap giving it more significance). This is also a minor low volume node, seen on the rolling 120-minute chart. Attached Image (click to enlarge) Near-term target for shorts 8211 1829.50 High volume node (daily chart) Long term target for shorts 8211 1800.00 Low volume node and psychological level Near-term target for longs8211 1877.75 8211 All time high Long-term target for longs 8211 1900.00 8211 Psychological level Trade ideas posted daily with a follow up each night. See post 1 As requested by the OP, here is the MT4 MPVP indicator. All credit is due to the creator, BANDUNG. This was found in the Auction Market Thread. Also attached is a screenshot of the user controls he created. Be advised, the version posted here is 1.31 rev1 as the original version had a few bugs in it. With the advent of MT4 version 600 and beyond, I have no idea if this indicator will work. Thanks Bro Springger for the MT4 indicator. But somehow the lookback setting seems to miss at least 1 trading day. (See attached) If you have Skype and doesnt mind sharing your knowledge on this indicator, I will like to learn something from you, do PM me if you feel convenient. Bro Risk Surfer, I am sorry, doesnt mean to hijack your thread, just anxious to fix this indicator, so that maybe I can in-sync with your analysis thru mt4. Anyway, Ill will still remain a silent reader here, do continue your great analysis. Attached Images (click to enlarge) TA great as usual. Two question regarding the TA. 1. on the 120min chart, what are the settings for the volume profile. Do you have a fixed period of say 50 bars, or all bars on screen or monthly 2. on your last chart you have 3 areas which you are looking, why have you chose those. I see VPOC, but from earlier in the thread you have said you just dont take any VPOC 1. the 120min charts VP looks back 120 days only, so when a new day comes an old day falls off the back if that makes sense, just gives me a big picture view but weighted to only include more recentrelevant data 2. Two reasons for this, I think I mentioned in the analysis that I wouldnt usually take something like a VPOC in isolation, but given how bullish we are on the larger timeframes I have more confidence in doing this. If we were balancing on the larger timeframes (going no where basically) then I wouldnt take that entry. Additionally that is a particularly good looking VPOC, not something I can explain well especially over text. But some VPOCs just look good and some dont, regarding the volume distribution either side of it. Trade ideas posted daily with a follow up each night. See post 1 Regarding your FA thoughts, not sure I agree. Isnt really a fundamental thread, but when Klarman, Soros, Buffett and Icahn are singing from a similar hymn sheet it is time to pay attention. The interest rate hike is the elephant in the room, greater cost of borrowing, less corporate profits, lower bond prices and a higher discount rate tends to equal less lofty stock prices. Shiller PE tells us stocks arent cheap, margin to debt ratio says many people are already all in and much more, GDP to market caps tells us that the stock market is worth. Makes sense, Im sure youre far more qualified to discuss FA than me, Im pretty ignorant when it comes to fundamentals (Partly because Im not smart enough and partly because I intentionally make it this way so I dont end up with any groundless bias that might affect my decisions) My view is that, all the info regarding interest rate hikes and excessive PE ratios excessive debt etc are known by market participants and yet stocks remain resilient, this makes me feel that there is an underlying strength to the market that people arent giving it credit for. additionally I think there are too many bears out there still for us to be forming a top. I think history shows us that tops usually occur when the last bears die and everyone is excessively bullish. Thats just my opinion but as a I said, pretty worthless I know Trade ideas posted daily with a follow up each night. See post 1 As discussed, I am only looking for longs at this point. So I have no short levels in place. My first long level is at 1851-51.50. This is the open gap from the 17th-18th March. It is also the VPOC from the 17th March, I like this confluence and I would expect a bounce if we should trade down here again. The next long level is down at 1840.75-41.25. This is purely the VPOC from Friday 14th Marchs session, not usually enough to expect a bounce, but given the bullish nature of the market, the probability of it working is greatly increased. So the first level (1851.50) got wiped during FOMC, and then the market bounced 3 ticks ahead of the second level (1841.25), before rallying 80 ticks or so higher. In all truthfulness, neither trade should have been taken during the news, Tier one risk events such as FOMC are a pretty big gamble and the volatility can be excessive. Attached Image (click to enlarge) Hey TJ, good question, Off the top of my head Tier 1 FOMC statement FOMC minutes NFP ECB press conference (mostly affecting european fixed income markets) BOE interest rate policy statement (affecting gilts, ftse and GBP) US GDP (first reading) China PMI Tier 2 ISM manufacturing ISM non manufacturing US CPI, PPI and PCE (all inflation numbers) Philadelphia fed Chicago Fed Housing sales and housing starts figures Ill add to this list if I think of any more Trade ideas posted daily with a follow up each night. See post 1Forex price action scalping I am going to share my simple Forex price action scalping strategy with you. And I am going to give you two choices on how to learn the strategy. Choice one is to skip through all the important stuff and go straight to 8220the strategy8221 itself. If you want to do that, here is a handy link for you . Choice two is to read everything on this page. Choice two is the smart choice. The introduction and the few headings after it are more important than the actual strategy. So, lets get started My price action scalping strategy I did not come up with this strategy originally. The strategy was submitted to the private forum by one of my students, Viet. The strategy submitted to the forum is not exactly the same as the strategy shared below. I took the strategy Viet shared, and tweaked it to suit my trading style. This strategy is actively traded in the forum and we have gathered a lot of statistics on the profitability of this strategy. The statistics are based on my results, Viet8217s results, and the results of trades posted to the forum. I will share the statistics at the end of this article. What is Price Action I am not going to bore you with a lot of price action basics. I am going to assume you already know basic price action concepts. If you don8217t, I cover price action basics in the Forex education section . Price action trading is the analysis of price. Analysing price allows you to predict with a high degree of accuracy what price will do next. So what it all comes down to in the end is who has control of price: buyers or sellers. If buyers are in control, you want to buy. If sellers are in control, you want to sell. It all seems very simple right Well, some newbies make price action a lot more difficult than it needs to be. So let me tell you a secret that will help you be a better price action trader. Who8217s in control of price Those four words are vital when trading price action. If you ask yourself that question every single time you look at a chart. Every single time you do your analysis. Every single time you even think about entering a trade. You will be a better price action trader. I do most of my trading on larger time frames. And even on those larger time frames I constantly ask myself 8220who8217s in control of price8221 that question saves me from making huge mistakes, you can see how below. Who8217s in control of price Wow, that looks like a great short setup, I may want to enter soon. Time for some analysis8230 Who is in control of price Well, we had an extremely strong bullish trend that indicates buyers are in control. Buyers reached my resistance area and they stalled. Sellers pushed price down, look at that long lower wick. But it seems like at the end of the previous candle buyers pushed price back up. Given that sellers could not maintain their low, I would have to say that buyers are in control of price. Should I enter short if buyers are in control No, I am going to wait. Asking myself 8220who8217s in control of price8221 forces me to think about price objectively. It forces me to properly analyses price. Instead of making a hasty decision, I am forcing myself to make an informed decision. Now, if I ask myself that question when trading 12 hour charts. Imagine how much more important it is when I am price action scalping a 5 minute chart when I only have about 30 seconds to make a trading decision. So, if you want to trade my Forex price action scalping strategy, memorise that question. Who8217s in control of price Being able to answer that question quickly and effectively is vital. And, it is also very stressful, which brings me to my next point. The psychology behind price action scalping Good trading psychology is vital You probably won8217t want to hear this. If you are a newbie, I do not think Forex price action scalping is for you. Sorry8230 That is just the truth. Forex is not all about having a trading strategy. A trading strategy is important but Forex trading psychology is arguably more important. You could try my scalping strategy below and completely fail. Even while I am making consistent profits with it. Because I have been trading Forex for ten years. Over the last decade I have hardened my trading psychology. I can withstand the stresses of Forex price action scalping. When I was new to trading, my trading psychology was a mess. I would constantly close trades out too early out of fear. I would let bad trades run in the vain hope that they would come back in my direction. In short, I did not have a trading plan. And let8217s face it, even if I had a plan, I probably would not have followed it. These days I can handle the stresses of scalping price action. Through years of conditioning, I have toughened my trading psychology. I can trade my strategy with almost no fear. I have the absolute conviction that no matter how many trades I lose, I will always come out ahead. That is trading psychology. When I enter a trade I do not freak out because it moves against me a few pips. If I lose four trades in a row I do not lose faith in my strategy. I stick with it because I know that a few losing trades mean nothing. So, do you think you can handle the stresses of Forex price action scalping If not and if you think you would be better off trading something slower paced for a while. You should check out my normal free price action trading strategy. My normal strategy is traded on larger time frames. There may be less trades but you usually have hours to plan your trade, so much of the stress is removed. If you think you can handle scalping with price action, keep on reading. Price action scalping basics On larger time frames I specialise in reversal trading. I take price action based reversal from areas of support and resistance. On small time frames reversals do not work very well. This is because reversal trading relies on identifying the precise moment in which a trend dies. On small time frames there is too much noise to effectively identify the death of a trend. So a different approach is needed for Forex price action scalping. A few recent price action scalping trades on AUDUSD We will be trading trend continuations. We will be watching for price action signals which indicate a trend is strong. We will then trade a continuation when price pulls back to a area of support or resistance. This may sound simple but it is very stressful. One key component of this strategy is that you must maintain a risk to reward ratio of 1:3 at a minimum . So, let8217s sum up the basics. We will be looking for trend continuations. We will enter when price pulls back to our areas of support or resistance. We will only enter a trade if our target is 3x larger than our stop. That third point is the stressful one. When a trade is two pips from target and then reverses five pips8230 many people just close it out. You cannot do that, you must maintain the 1:3 ratio. Even if it means your stop being hit, you have to stick to 1:3. I will explain this in more detail later. For now, let8217s look at the actual Forex price action scalping strategy. First we need support and resistance You will need to draw the support and resistance areas yourself. Don8217t worry though, it is very easy. Let8217s start with the two golden rules of support and resistance. These rules do not only apply to scalping Forex price action, they are also used for my normal support and resistance areas: Recent data is always more important. Always . Body bounces are more important than wick bounces. Rule one is very simple. When placing support and resistance areas, fresh data is always better than old data . This is even more true on small time frames. Price action formations that occurred twenty minutes ago are more significant than formations that occurred two days ago. So when placing support and resistance, make sure you prioritize recent data. Generally I only look at the last . Rule two may be a little harder to understand. I will explain it in more detail in the examples below. Let8217s break support and resistance placement down into a three step process. Step 1: Identify bounces The first step to placing support and resistance is to identify bounces on your chart. Ideally you will want several bounces that line up nicely. Below is an AUDUSD 5 minute chart from July 7th 2015. I have highlighted three sets of obvious bounces. The lower set mark out a support area, they are highlighted green. The higher set mark out a resistance area, they are highlighted red. Step 1: Identify large bounces from the same area Bounces will not always be this obvious. However, the more obvious the bounce the stronger the area so you should only try to identify the most prominent bounces. Step 2: Draw a horizontal line and connect the bounces Once you identify several bounces, draw a horizontal line between them and join them. You can see the AUDUSD image from above with support and resistance areas now placed. Step 2: Draw horizontal lines to connect the bounces It is really that simple. You look for strong bounces and place lines there. Support and resistance can be more complicated on larger time frames. However, on 5 minute charts, it really is easy. Now remember rule two Body bounces are more important than wick bounces You will notice in the image above I place my line at the candle bodies, not at the wicks. I do not like placing support and resistance at the wicks. I prefer to have my support and resistance where candles are likely to form. I am considering adding a video on support and resistance placement. Feel free to send me an email to let me know if you need a video to clarify this subject. Second you need to know how to spot a setup You should now have a good understanding of how to place support and resistance areas. The next step is actually finding trade setups. And I am going to show you exactly how to do that. There might be a small problem though. If you do not understand candlestick pattern and trend basics, the stuff below might not make sense. If you find that your are struggling with the concepts below, jump over to my price action basics in the Forex education section. In there I cover basic price action and candlestick pattern concepts. Once you understand those concepts, the stuff below will be easy. What a trend continuation looks like I am sure you have heard the old saying, 8220the trend is your friend8221. Well in this case, that saying is kind of true. We want to use price action to determine the trend, get a good entry and ride it for a short while. You should already know how to identify a dominant trend, I talk about this in the education section linked to above. But the thing about trends is that they are rarely, if ever, smooth. If sellers control price for 24 hours on a five minute chart (288 candles) price won8217t move down smoothly every candle for 288 candles. Trends move like this: Real trends are messy See how buyers push back up to the former support after sellers break through it (marked in green) That is how a trend works. In a bearish trend, sellers are in complete control of price. Buyers try to take control all the time. Sometimes buyers take control briefly but sellers regain control and continue trending down. Here is an example of how trade continuation scalps play out. The image below is a gif, it will play like a video and show you how trade continuation trading works. How trading trend continuations works. The basic concept is to trade with the trend. Using candlestick analysis with support and resistance allows you to determine if the trend is still alive. If the trend is still alive, you enter a trade for a quick 10-20 pips. Now, let8217s look at some detail trade examples. The Forex price action scalping strategy You now know how to place support and resistance areas. You also know what a trend continuation looks like. All you need to do to trade this strategy is put these two things together. I am now going to show you how to do this with a lot of examples. We will start with and AUDUSD short trade from July 2nd 2015: A short scalp tradeon AUDUSD. In the image above you see AUDUSD is in a downtrend. An area of support is placed at 0.7633 based on the bounces marked in green. Sellers manage to break support at 0.7633. Buyers take brief control of price and push it up to the former 0.7633 support area. Buyers make several attempts at closing above the 0.7633 area. Since buyers cannot close above the 0.7633 area, a short trade is entered. The short is entered because price is trending down and it is clear buyers cannot regain control of price. That is a trend continuation . Why is the setup above a good trade Well, let8217s do some quick and simple risk analysis on the setup. This analysis would be done when price hits the resistance area and struggles to break above it. The major trend is bearish, this indicates sellers are in control of price (one point for sellers) Buyers caused a minor reversal back up to resistance, this indicates that buyers have some power (one point for buyers) Price is at a strong area of resistance (one point for sellers) Buyers are incapable of closing above the resistance area (one point for sellers) Sellers have three points, buyers have one point. This risk analysis is basic, we could do more complex risk analysis but a strategy like this does not need it. The idea here is simple. You are using price action analysis to make an educated guess as to what will happen next. If sellers have control of the major trend and buyers cannot close above resistance, the bearish trend has a good chance of continuing. So, you make an educated guess that sellers will continue and you short, why is this profitable The key to this strategy While making an educated guess about price works well on the 5 minute chart, it is obviously not perfect. You will find that you are right 50-60 of the time. However, being right does not matter at all. Remember how I said that your risk to reward ratio must be 1:3 at a minimum Trading with the bare minimum of 1:3 risk to reward, you need to be right only 25 of the time to break even. If you are right 33 of the time, you are making profit. My actual risk to reward ratio with this strategy averages out to 3.7 as some trades have a 1:5 ratio. That almost means that I can be wrong 75 of the time and still break even. The mathematics is on your side with this strategy. You use your understanding or price action to make an educated guess. As long as that guess is right 50 of the time, you should make profit. As long as you manage to actually stick to the 1:3 risk to reward ratio, you should do well. That is the problem though. If your trading psychology isn8217t good, you will probably mess up the most important part of this strategy, risk to reward ratios. Pairs and spreads The pairs you trade will usually be determined by their spreads. The common stop loss for this strategy is 5-10 pips. So you need to trade pairs with very tight spreads to be profitable. Your spread must be included in your stop. With a two pip spread, you would end up having a three pip stop on some trades, which is simply not viable. Here is a list of the pairs I trade with this strategy. There are of course other pairs with tight spreads. However, I stick to the ones above as they work best for me. Examples, examples, examples Okay, time for some example trades. These trades are all recent and they were either taken by me or members of the advanced course forum. I am going to try and shoot some live trade videos for this strategy soon. When I do I will post them here. AUDUSD short trade 2015-07-07 AUDUSD short trade taken on 2015-07-07 at around 7:20am UK time This was a very simple set up which formed on strong area of resistance. You can see clear bounces from the 0.7485 area over the course of ten hours. These bounces showed me obvious resistance in the area. Price eventually broke above the resistance area and resistance became support. There was actually a failed trade here which I will discuss later. The short trade was taken after price broke below the 0.7485 support area. After the break, buyers pushed back up the the 0.7485 and tried to close above it. The fact that buyers could not close above the 0.7485 indicated that sellers were in control of price and that the bearish trend would continue. A short trade was entered at 0.7482 at 07:25am UK time. The stop was 7 pips and the target was 21 pips. As you can see the target was easily met. The trade target was extended by 4 pips to 25 pips as there was great momentum. The overall risk to reward for this trade was 3.57, which is above the minimum of 3. How the AUDUSD short trade played out. AUDUSD long trade 2015-07-07 This trade triggered a few hours before the trade above. The set up was good but the trade never took off. The support and resistance area was placed at 0.7485 based on the first two bounces show in the image for the previous trade. When buyers broke above resistance price quickly dipped back down to test the area. Sellers could not close below the area so a long was entered at 0.7488 at 5:50am. The trade8217s target was 21 pips and the stop was 7 pips. This trade remained open for over an hour but in the end price dropped and hit the stop. AUDUSD long trade taken on 2015-07-07 at around 5:50am UK time Could I have done something differently to save myself from taking a 7 pip loss on this trade Maybe I could have, but it does not matter. The key to trading this strategy is to just take the trade and let it play out. DO NOT close trades early and DO NOT widen your stops. If the trade fails it does not matter, all that matters is that you maintain a minimum of 1:3 risk to reward ratio. If you take one hundred trades with this strategy and fail 60 of them you will still be profitable, have a look: 60 trades x -7 pips lost -420 pips 40 trades x 21 pips won 840 pips won 840 8211 420 420 pips up This is why it is vital to maintain a risk to reward ratio of 1:3 and this is why losses like the one above do not matter. Trading Forex is not about being right, it8217s about being profitable . Let8217s look at another recent example. USDCAD short trade 2015-07-24 This recent trade example really illustrates why this strategy can be psychologically tough. It also shows you why you must stick to the 1:3 ratio, no matter what. USDCAD short trade taken on 2015-07-24 at around 6:20pm UK time As you can see, the trade was open for only 10 minutes before price retraced to the entry. How do you handle this situation Do you panic and exit Do you calmly decide the trade is no longer good and exit You hold the trade. You need to trust your price action analysis and stick to the 1:3 ratio. Trades like this are quite common, trades will not always hit your target within 20 minutes. You need to be prepared to wait it out sometimes. Stops and Targets Stops and targets are pretty simple. Generally my stop is 5 pips and my target is 15 pips. If a pair is moving fast and a 5 pip stop is too tight, I may extend my stop to 10 pips and my target to 30 pips. Targets and stops are the most subjective part of this strategy. You should stick to a 5 pip stop and 15 pip target when you first start. As you become familiar with the strategy you will understand when to use a slightly larger target and stop. I will be adding a questions and answers section to forex4noobs this week. You should probably wait until the questions and answer section is up to ask questions abut this strategy.
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