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Strategy on Teak Volume

Thursday, 18 January 2018 10:10
Стратегия на тиковых объемах

This trading strategy on teaks is a trading method in the Forex market, which allows determining the entry of market makers in the market. These are large traders, who can lead to a substantial change in the power balance between bulls and bears, and also can drive smaller players out of the market.

It is quite difficult to identify a true volume of trade; however, indicators allow measuring a volume of teaks – some price changes for a certain time.  If to capture an activation of big traders meanwhile, it is possible to create advantageous positions and get a tangible profit.

Fundamentals of Strategy

This method is based on the following tools:

  1. The indicator of volumes;
  2. Market Facilitation Index.

You do not need to make complex settings, all necessary parameters have been already set by default. Now, we will consider each of them in detail.

Volume Indicator

The strategy is based on the theory of the synchronous change of tick and real indicators.

  1. When teak parameters and low activity are growing in the conditions of an upward trend, you should expect the development of price movement. A similar statement is also correct for a bearish trend.
  2. If there is a situation from the first paragraph on the chart and the volumes grow, it indicates a likely reversal. When this indicator decreases, you should count on a long-term directed movement of the asset price.

Market Facilitation Index

In Strategy on teak volumes, this indicator performs the function of the estimation of the trend resistance. When the columns of this diagram grow, you should look at the Volume. If its data shows the rapid decline, it indicates a steady trend.

As a rule, each turn of the trend is preceded by jumps in volumes, with a static price direction. It looks like a discrepancy with a level of the asset price, and also, indicates a growing difference between the bullish and bearish power.

For more objective technical analysis the strategy suggests the Bulls & Bears Power application.

  • If the MFI grows, it can be concluded that there are only small traders.
  • The fall of its values with the simultaneous increase of the Volume indicates a strong fight between buyers and sellers. In this case, a trend often reverses or breaks through the support/resistance lines.

Also, following this strategy, it is important to pay attention to the color of the histogram columns.

  • A green color indicates a growth of transactions and the continuation of the trend. It is better to refrain from opening positions.
  • Brown columns indicate closing orders: traders are not ready to trade in an opposite direction. The intensity of the price dynamics decreases, which is significant for the strategy.
  • A blue color indicates the continuation of a directed movement of the chart and the presence of small traders, which are driven out by market makers.
  • A pink color indicates a fading of the trend and the growth of volumes. As a rule, it is accompanied by the formation of a price channel, with the following reversal. If you combine the strategy with additional tools of technical analysis, and reversal candle patterns appear, or MACD displays a divergence, then chances of changing the trend increase.

Trading Algorithm by Strategy

To enter with a Buy position, wait for the following signals:

  • A blue MFI grew by more than one-fifth;
  • The chart draws a white candle;
  • The Volume is colored in red.

To set a Sell order, you need the similar signals with the MFI growth by one-fourth and a bearish candle.

Stop Loss and Take Profit Orders

To limit the losses, the strategy uses simple formulas.

Specify the difference between a maximum and minimum price value as a, a price minimum as L, a maximum as Н.

Then, for purchasing a Stop Loss level is calculated as follows:

L - a/3

For sales this formula looks different:

H + a/3

The strategy recommends following a classic rule of money management, placing a Take Profit twice as much than a Stop Loss.

Advantages of the strategy

This method demonstrates the best results on long and middle timeframes. Also, among the advantages of the strategy is the lack of cumbersome algorithms. The price chart is not overloaded, which makes this method relatively simple, even for novices.

We recommend testing this tactic on a demo account before starting real trading.

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David Melton
David Melton

Financial expert. I work with investors and different companies. I write analytical reviews for newspapers and TV channels and I also manage researching projects