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Key Reference Areas Part 2 - Key Takeaways

The world of sports psychology can often offer great insights that can be used to improve your trading. An excellent book that does just this is “Golf is Not A Game of Perfect” by Bob Rotella. It talks about how at the top levels of golf, everyone can hit the ball well and everyone is very skilled, but what separates the great from the good is their ability to handle adversity and all of the imperfections of the game.

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119 views

Key Reference Areas Part 2 - Key Takeaways

The world of sports psychology can often offer great insights that can be used to improve your trading. An excellent book that does just this is “Golf is Not A Game of Perfect” by Bob Rotella. It talks about how at the top levels of golf, everyone can hit the ball well and everyone is very skilled, but what separates the great from the good is their ability to handle adversity and all of the imperfections of the game.

Uploaded by

mariano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Reading the Market Using Key Reference Areas (Part 2)

Key Takeaways
• Look at the high volume node as a general area where the majority of the horizontal volume
took place. It’s the “bulge” on the market profile graphic. Never try to be too precise with exact
single prices – the markets are too complex for that.

• This key reference area can give you great information about who is in control of the market,
while also often acting as either support (when we test it from above), or resistance (when we
test it from below). In the majority of the cases, expect some sort of price reaction there.

• When we get a move away from a high volume node on any given time-frame, the retest of
this key reference area will give us great information. In the case of retesting it from below (i.e.
the original move away from it was to the downside), if we reject it quickly, the odds are good
that sellers are still in control and that prices will go further down. If we fly higher right through
it, this is great information that the odds are good that there has been a major change in
control and now buyers will likely keep taking it higher. And if we just balance when we test it,
then anything is possible, but the odds are still higher (statistically) that it gets rejected and
prices eventually go back down, most likely due to the fact that many previous buyers in this
area are now at a loss in their position and as they sell, they cause prices to move lower. In the
case of retesting the area from above, simply reverse the scenarios and conclusions.

• Once we’ve made moves to both sides of a high volume node, and moved a significant distance
away, that high volume node becomes invalidated as a key reference area. We say a
‘significant’ distance because if price moves just slightly beyond it on both sides, it’s likely that
this isn’t actually a breakout move away from the balance, but rather a widening of it. i.e. the
market is still balancing but extending the area over which it’s building horizontal volume. This
is a judgment call and with experience you can become more adept at it. This applies to all
reference areas.

• The larger the high volume node (i.e. the more time it spans) the more important it is as an
area going forward. If you’re looking at the previous day’s high volume node as a key reference
area, it will only be important over the next several days. However, a high volume node formed
as part of a 2 week balance can remain important for months.

Copyright © 2012 OpenTrader Training, LLC. All rights reserved.

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