I tried lots of tools, but these are the ones that really work for me:
1. Market Profile
2. Order Flow
3. Volume
4. Price Action
The purpose of these tools are to understand the underlying forces that move the market and spot the setups where the market is one sided, and that is the situation where the market tends to go in one direction. These tools work together and confirm each other. If not, our interpretation of the market is probably wrong.
Market Profile helps find the fair value. We trade the price but the price does not reflect the fair value all the time. When the price moves away from the fair value, that is an opportunity and two things could happen. The price moves back to the fair value or the fair value follows the price. The first one is a ranging market, the second one is a trending one. It is obvious that we need to follow different strategy in a ranging and trending market. Market Profile helps identify the relationship between price and fair value and helps choose the right trading strategy.
Reading Order Flow is the ability to understand the price movement from the ladder. The size of the orders and how they change for certain actions help us understand the real intentions of the market participants.
Market Profile tells what the market is doing, Order Flow tells why it is doing.
Volume measures the success of the auction in one direction. It shows if the market participants accept or reject certain price levels. Fair value attracts the most volume of trade.
In my opinion, this is the only useful indicator.
Price action helps find the situation where one side of the market trapped or the market is one sided for certain reason. Steidmayer said: "Price movement is influenced by participant willingness to hold on to positions." (Trading with Market Profile 153. p.). Understanding this is the key to make money in the market.
1. Market Profile
2. Order Flow
3. Volume
4. Price Action
The purpose of these tools are to understand the underlying forces that move the market and spot the setups where the market is one sided, and that is the situation where the market tends to go in one direction. These tools work together and confirm each other. If not, our interpretation of the market is probably wrong.
Market Profile helps find the fair value. We trade the price but the price does not reflect the fair value all the time. When the price moves away from the fair value, that is an opportunity and two things could happen. The price moves back to the fair value or the fair value follows the price. The first one is a ranging market, the second one is a trending one. It is obvious that we need to follow different strategy in a ranging and trending market. Market Profile helps identify the relationship between price and fair value and helps choose the right trading strategy.
Reading Order Flow is the ability to understand the price movement from the ladder. The size of the orders and how they change for certain actions help us understand the real intentions of the market participants.
Market Profile tells what the market is doing, Order Flow tells why it is doing.
Volume measures the success of the auction in one direction. It shows if the market participants accept or reject certain price levels. Fair value attracts the most volume of trade.
In my opinion, this is the only useful indicator.
Price action helps find the situation where one side of the market trapped or the market is one sided for certain reason. Steidmayer said: "Price movement is influenced by participant willingness to hold on to positions." (Trading with Market Profile 153. p.). Understanding this is the key to make money in the market.
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