ZoneTraderPro Trend Trading Pattern
The ZoneTraderPro trend trading pattern is the basic trading pattern of the system. The theory behind the trend trading pattern is that when a trend is established the market will continue in the direction of that trend, following the pattern of profit taking and trend resumption.
ZoneTraderPro prints these areas of support and resistance in advance of the market trading at these zones. If you know where those zones are in advance, you can set limit orders at these zones. The blue counter trend zones are defined in advance of the market trading there. This is important because traders will want to place the target to take profit from the trade. It is extremely important to note that 50% of the time the market approaches a blue countertrend zone, price does not trade through the zone and the market retraces at least 6 ticks. Why give up 6 ticks of profit because you didn’t know the zone?
The trend trades are easily identified as the market moves from the blue counter trend zone back to the intermediate green zone. The blue counter trend zone is the typical area where the smart money will start to cover the bets they made when the trend initiated. At this point, the retail traders finally have a trading signal, but quickly find out they are the dumb money and weak hands, as the institutional traders cover their trades.
It is important to look at the light blue counter trend zones. By taking profit at that zone you left a little on the table, but not much, after two highly successful trades.
And because it is necessary to see what the order flow was saying we see a POC Extension and Absorption Buy signals at an exhaustion trade to mark the reversal of the move.
At the first trend trade there was a ZTP Order Flow Buy signal and a stopping ratio of .64. Also important to note is that support in the form of an extension zone had been created at the trend trade. At the exit we see a POC Absorption Sell signal.
At the second trend trade the order flow identifies Trapped Sellers and a stopping ratio of .69. Similar to the first trade, multiple extension zones had been created at the trend trade entry. At the exit we see a valid Tick Divergence pattern and a ZTP Order Flow sell signal, along with an extension being created, indicating a large market order to sell.
ZoneTraderPro Tick Filter
ZoneTraderPro has the TICK filter built into the pattern. In a long trading pattern, the TICK filter looks for higher-highs and higher-lows going into the trade. The filter setting can be adjusted to allow for minor adjustments to the rule. In the picture below we see two trend trades. The first short trend trading pattern has lower TICK lows and lower TICK highs going into the trade. The market trades into a second trend trading pattern also with a lower tick low and a lower tick high.
What did the order flow patterns tell us?
The first trend trade had a stopping ratio of .36, a ZTP Order Flow Buy signal and absorption. At the area where we expect to see selling, 2 bars indicated the ZTP Order Flow sell, a stopping ratio of ,04 and absorption.
The second trade had a ZTP Order Flow Buy Signal, a continuation ratio of 157, and absorption. At the blue zone where we would expect to take profit, there was a stopping ratio of .33. This illustrates why it is important to have a plan that includes where you enter and exit. If you exited at the blue zone you called the exit to the tick. However if you waited for the stopping ratio, you did not maximize the profit and gave back a couple of ticks.