Trading for Value, Part Two

In keeping with the “now for something completely different” theme, today we have a new post in a new series with a new instrument with a new strategy based on a new indicator by a new trader.

How’s that? Well, I’ve asked a couple of the Acme loyal to give some thoughts on how they Trade For Value™.

This particular trader and Rancho Dinero Pro Member is not new. In fact, he might be quite old. We’ve never met in person so I can’t say for certain. But in any case, I can say with certainly that he’s new to you and that he knows his stuff. He makes his living mostly from fossil fuels – namely trading the CL. As many of you know, the ES is my steed of choice. And so I thought it’d be interesting for everyone if we trotted out a horse of a different color.

The trader wished to remain anonymous, but let’s call him Danny. Why Danny? Well that was the male lead in Grease, of course. And this is about oil. So there you go. I can’t really believe I chose that name because in fact I can’t stand musicals of any kind. But there it is.

Danny has been working with me on a new concept I like to call value candles. Value candles are a new feature of the Acme Volume Profile VPOC study in the Acme Volume Profile Pack.

What’s a value candle? I’m glad you asked. Value Candles are per-bar volume profiles boiled down to their extreme visual essence. All you have to do to set up what’s shown below is create a chart, add the indicator and turn on the value area, as shown below:

Acme Volume Profile VPOC - Value Area On

… then adjust things to your liking.

The hypothesis we had was that, instead of letting the open and close form the body of the candle, what would new ways of seeing short-term price action could we discover if we use:

  • The per-bar value area range relative to the bar’s range
  • The VPOC’s position in relation to the value area range high and low
  •  The overall bar volume and range

… to form the basis of our interpretation of the price action?

Wordy there, I know. But the irony is visual vs literal. This way of seeing the price action could hardly be simpler, and it uses both price and volume in a new way.

So there’s the set-up. In some charts below, Danny walks us through a couple of swings on very short-term (1 minute) bars in the CL, and calling his actual trades as he goes. As you look over these charts, keep in mind what the factors above are telling you (and him) about what you’re seeing (and what he saw). Let go any pre-conceived notions you might have, and try to see the price action through the lens described above. Maybe it might inspire something new about how you trade your own instrument. You never know until you try, right?

Without further delay… let’s let Danny take it away.

Acme Value Candles 1 - CL

 

Acme Volume Value Candles 2 - CL

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We’ve really only tapped the well here, amigos, and it’s looking pretty deep. So look for more Trading for Value posts very soon. Watch this space and, of course, trade ’em well…

 

3 replies
  1. Robby
    Robby says:

    I think you are onto something here RD. It compacts the volume profile so one can more easily see the “weight” of the auction at that point in time as well as the Open ,Hi,Lo,and close of the bar. I see it on Market Delta’s floating VPOC in their new version but not like this. How about placing a intraday volume profile with a composite profile on the same chart with significant levels ( Opening Range, IBhi, opening Range, Cash Close, etc… and an intraday floating VPOC to bring the bigger picture into focus. Great creation Dude!

    Reply
    • El Duque
      El Duque says:

      Interesting idea, very interesting. This is a pretty new concept, so we’re figuring out how to play it along the way. So far the heavy volume of the ES makes this approach – very ironically – kind of hard to read on a short term basis. On thinner contracts with less volume and “conflict” of intent such as CL and others the level of clarity this provides is not like anything I’ve seen before, to be honest. My thinking is that it would be useful in the ES on a longer term basis, like you suggest. Stay tuned…

      Reply
  2. Derek
    Derek says:

    Though I’ve been less attentive to intraday value areas, I have been lightly testing some the ideas from Pete’s presentation on Volume Strips (which is essentially a dynamically created profile). Well, my understanding and application of the ideas 😀

    Along with a daily volume profile, I’m using 10 range bars with volume numbers and VPOC highlighted: http://screencast.com/t/FaUqlLRvT

    That’s a very naked chart for me.

    It’s early in the process, but I already feel I can echo the notion of more clarity in thinner markets. I normally default to the ES, but opted to pull up a 6E chart since it was late when I was brainstorming. So much more fluid and lyrical than the ES.

    Anyway, awesome efforts and ideas El Duque and Co. Thanks for sharing! 🙂

    Reply

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