I thought I would start this thread to supplement the discussions in the indvidual trading forums. This helps keep things organzied and I can update easily. The big benefit will be that traders can see the value curve develop during the given month.
For TradeStation users, I have included the ELD if interested.
What is Price Distribution?
The Price Distribution study uses cells to show the range of prices for each interval within the price bar. In my case I use 30 minutes. The number of cells distributed on any one row or among several rows reveals in how many of the ActivityData intervals the price occurred.
My Price Distribution studies are not Market Profile although very similar. No volume is used since no volume is currently available for Forex from a centralized exchange.
If you do not understand the value curve, you should seek out information and study it as it is not the intent of this forum to teach it. The intent is simply to analyze price levels within the curve for short term trading.
Here we will focus on the monthly development.There are a few easy terms to understand.
The Longest Line - This price level represents the price at which the most trading has taken place during the month.
The Yellow Value Area - The box pictured represents a 2% deviation from the longest line. I also calculate the 1% deviations. I will list each of these levels in the updates.
Value Area Updates - As value develops during the month, the levels will change. It is entirely based upon where price trades within the curve. If the longest line changes, then the deviations will change. Early in the month, which is where we are as of this post, the changes are more frequent because the data is distributed over a smaller range (nromally). Later in the month, it may take a lot of activity to change values.
I will post updates as necessary and do my best to keep up so you can see how things work. Of course I refer to other months in my studies, but the space confinements here do not allow me to post big charts. This chart is probably too big for many already.
I will try to analyze what I see to help anyone who is interested. This can be a complete methodology if you are so inclined, or you may just like to use it as an additional piece of information in your current studies. As the month progresses, the levels can become quite large and this may not suit many traders. You can also do this on a weekly basis if desired.
UPDATED 5/7
+2% Deviation - 1.5579
+1% Deviation - 1.5521
Longest Line - 1.5462
-1% Deviation - 1.5404
-2% Deviation - 1.5359
Beginning Observations
Price traded today just above the bottom of value near the -2% level. This is an excellent buy area. If price moves up, expect a test of the longest line resistance at 1.5462.
The value area is becoming fairly well developed, however notice the monthly high price area. (Arrow) This area is not fully developed. As price approached 1.5650 it was rejected. Notice how the bottom of the curve at the highs began to develop and somewhat of a ledge is left. (Options Defense possibly). I have been EURO bearish recently, but this has changed my mind. I expect price to re-visit this area as it is unresolved. At this point I also notice that the bottom of the current value area needs to fill in a little better, so it would not surprise me if price tries to move up to 1.5463 or beyond and then back down to fill in.
As a result, I am long out of the bottom of the curve. What happens is that buyers and sellers will try to extend price into the extremes, beyond the 2% levels, to see if price is accepted. If it is value will develop. If it is not accepted it will quickly return to the value area. (As was the case this at the monthly highs of May). We have not test the area beyond the -2% yet, so this is the risk. You will find that the 2% levels provide an incredible amount of supply and demand. Recently, in the EURUSD, you can see that the -2% level around 1.5360 has held firm. The extreme extensions up or down can be quite aggressive and are usually trend days. One thing newer traders do not realize is that markets only trend a very small percentage of the time, I have this number around 6%. The other 94% of the time is spent developing value within the curve as bulls and bears do battle locally. Better know as Range Trading. This is an excellent area to make money. Not easy to define obviously, but this is what the dealers are doing to unsuspecting traders who hope for Porshe 911's early in their career.
Let's see what happens, as we progress this month. If you are a short term trader, try plotting the levels on a spare chart and play them for practice to see what you think.
Summary
I am long at 5417.
Target is an approach to 1.58 (as of now). I expect price to move to 1.5462 and possibly retreat. I could take some profit here and wait for price to move above 1.5462.
Risk is a move down below 1.5359 where value is accepted and begins to build. I will only cover if price settles below this area.
http://www.morrisfunds.com/storage/f...205-8-2008.PNG
For TradeStation users, I have included the ELD if interested.
What is Price Distribution?
The Price Distribution study uses cells to show the range of prices for each interval within the price bar. In my case I use 30 minutes. The number of cells distributed on any one row or among several rows reveals in how many of the ActivityData intervals the price occurred.
My Price Distribution studies are not Market Profile although very similar. No volume is used since no volume is currently available for Forex from a centralized exchange.
If you do not understand the value curve, you should seek out information and study it as it is not the intent of this forum to teach it. The intent is simply to analyze price levels within the curve for short term trading.
Here we will focus on the monthly development.There are a few easy terms to understand.
The Longest Line - This price level represents the price at which the most trading has taken place during the month.
The Yellow Value Area - The box pictured represents a 2% deviation from the longest line. I also calculate the 1% deviations. I will list each of these levels in the updates.
Value Area Updates - As value develops during the month, the levels will change. It is entirely based upon where price trades within the curve. If the longest line changes, then the deviations will change. Early in the month, which is where we are as of this post, the changes are more frequent because the data is distributed over a smaller range (nromally). Later in the month, it may take a lot of activity to change values.
I will post updates as necessary and do my best to keep up so you can see how things work. Of course I refer to other months in my studies, but the space confinements here do not allow me to post big charts. This chart is probably too big for many already.
I will try to analyze what I see to help anyone who is interested. This can be a complete methodology if you are so inclined, or you may just like to use it as an additional piece of information in your current studies. As the month progresses, the levels can become quite large and this may not suit many traders. You can also do this on a weekly basis if desired.
UPDATED 5/7
+2% Deviation - 1.5579
+1% Deviation - 1.5521
Longest Line - 1.5462
-1% Deviation - 1.5404
-2% Deviation - 1.5359
Beginning Observations
Price traded today just above the bottom of value near the -2% level. This is an excellent buy area. If price moves up, expect a test of the longest line resistance at 1.5462.
The value area is becoming fairly well developed, however notice the monthly high price area. (Arrow) This area is not fully developed. As price approached 1.5650 it was rejected. Notice how the bottom of the curve at the highs began to develop and somewhat of a ledge is left. (Options Defense possibly). I have been EURO bearish recently, but this has changed my mind. I expect price to re-visit this area as it is unresolved. At this point I also notice that the bottom of the current value area needs to fill in a little better, so it would not surprise me if price tries to move up to 1.5463 or beyond and then back down to fill in.
As a result, I am long out of the bottom of the curve. What happens is that buyers and sellers will try to extend price into the extremes, beyond the 2% levels, to see if price is accepted. If it is value will develop. If it is not accepted it will quickly return to the value area. (As was the case this at the monthly highs of May). We have not test the area beyond the -2% yet, so this is the risk. You will find that the 2% levels provide an incredible amount of supply and demand. Recently, in the EURUSD, you can see that the -2% level around 1.5360 has held firm. The extreme extensions up or down can be quite aggressive and are usually trend days. One thing newer traders do not realize is that markets only trend a very small percentage of the time, I have this number around 6%. The other 94% of the time is spent developing value within the curve as bulls and bears do battle locally. Better know as Range Trading. This is an excellent area to make money. Not easy to define obviously, but this is what the dealers are doing to unsuspecting traders who hope for Porshe 911's early in their career.
Let's see what happens, as we progress this month. If you are a short term trader, try plotting the levels on a spare chart and play them for practice to see what you think.
Summary
I am long at 5417.
Target is an approach to 1.58 (as of now). I expect price to move to 1.5462 and possibly retreat. I could take some profit here and wait for price to move above 1.5462.
Risk is a move down below 1.5359 where value is accepted and begins to build. I will only cover if price settles below this area.
http://www.morrisfunds.com/storage/f...205-8-2008.PNG
Attached File(s)
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