Illustrating All of the Concepts
The following example is from the afternoon of May 27, 2020. After a good long entry signal, the ratio went sideways as price was going higher. This example is similar to what you see as a losing trade. However there was never ratios that reached tradable distribution levels. This is however an example of the ratio indicator not following price. If there was going to be resistance, then the ratio indicator would be getting higher as price went higher. This is so important. This looks just like what you get in a losing trade.
Then what happens next is a set of trades that were all perfect setups. The blue line on the chart is a simple indicator created to show the middle point between the price high and price low. It is very common to see pullbacks to this area.
One each pullback to the mid line, there were good accumulation ratios. The 1st two times (1227 and 1300 hours), the trades were good for about 10 points. The third time (1334 hours) was good for over 18 points. Notice how the Special Divergence trade signals a 10 point short trade (1250 hours) with a good ratio, and then a long signal (1300 hours) on the opposite side. The divergence indicator then picks up accumulation divergence on the third long trade (1334 hours) from the mid line. Price trades into a strong trend (1438 hours) with a great ratio for over 12 points. Then a final accumulation divergence long signal (1535 hours) with Special Divergence at the low, into the close.
These trades illustrate every important concept of this trading idea.
- At each of the 7 areas circled in green, the indicator formed a good V shape and responded with price.
- The indicator going sideways as price rose illustrates an accumulation, and what to avoid, even if the ratio had been greater.
- Two trades saw increasing ratios as price was falling. This illustrates increasing limit order buyer support as price fell.
- Divergence patterns can be used to enter trades or add to existing positions.
- When price was in a strong trend at 1412 hours but with a good ratio, there was only a small retracement. The strong trend pattern that followed was a significantly better option with a higher ratio. This is why the software identifies strong trends so they can be avoided.
- As price was trading higher at 1520 hours, the ratio was falling, indicating less limit order resistance. The pullback was only 5 points.
- Notice what happened in the ratios before the 35 point higher. The buy ratios were -123, -82, and -78 respectively. The sell ratios were 43, 79 and 34. Who was more interested in committing their money to a trade? This is also why you see the ratio increasing into the strong trend trade at 1438 hours, and then what happened to the sellers that put up the 116 ratio?. They got stopped out into the close.
- Every trade illustrated here is not a ZoneTraderPro price pattern. Every move higher or lower is not going to be a pattern. Some will and some will not. However, when there is a pattern, especially a strong trend pattern, caution should be urged trading against it. If the ratios support the common patterns, (exhaustion, trend, reversal and broken reversal), then that information can support the trade.