Posted by forex at 9:31 AM
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1. Plot 'value areas' for the particular futures instrument you wish to trade. Value areas are shown only on specialized charting programs that utilize the 'Market Profile' style of charting. A value area shows the price range where approximately 70 percent of the previous day's trades took place. If the day opens within this range, you can reasonably expect futures prices to halt as they approach one end of this extreme, as many traders worldwide follow value area lines. A high-profit day trade may present if you trade at these extremes with the expectation of a reversal. If correct, you may have successfully purchased futures at the lowest point of the day, which is as good as it gets. However, if the value area does not hold, you could lose a significant amount of capital.
2. Calculate the initial balance range of the current trading day. The initial balance usually refers to the first hour of trading. If the futures market opens the day at a price of 1020 and, one hour later, is trading at 1035, then the initial balance range is 15. If the prices move outside the range of 1020 to 1035 during the rest of the day, this is 'range extension.' Many traders initiate trades based on the notion that few trading days offer range extension that is more than the range of the initial balance itself. Thus, this futures drop below 1020 is unlikely to fall below 1005, or 15 below 1020. If you buy at this area, 1005, you may be entering the market at its lowest point of the day. This could yield a high-profit trade if the range extension halts at this point.
3. Chart a daily candlestick chart of the futures instrument you trade. Candlestick charts are widely available in nearly any trading platform due to their popularity. A candlestick is simply a visual shape that uses the opening, closing, highest and lowest prices of a trading day in its display. If you see an 'engulfment,' where a day's price range fully engulfs the previous day's range, while trading in the opposite direction of the previous day, this is a high-profit signal that the instrument may continue the trading direction on the next day. If you trade at the beginning of the following day, you may have a high-profit trade that lasts not only the rest of the day but potentially for weeks, as engulfments can also be long-term reversal signals.