How to find traces of ‘managed money’ with the help of the Cluster Search indicator in ATAS
It is very important for traders to decide at what levels they will trade. One of the rational variants is to follow the managed money. In this article, we will look at big trades and the limit side of trades since, in most cases, they know where to buy and sell.
We will look for big limit orders with the help of the Cluster Search indicator. There will be a bonus in the form of a video.
Cluster Search is a very flexible indicator with a big number of settings, that is why any trader can find a proper variant for his trading strategy.
Variant 1. Intraday
The first variant, which we will consider, is better suited for intraday traders since it works on minute time-frames and requires fast reaction and constant chart monitoring. We will use two or four Cluster Search indicators for detecting levels, at which there was a severe fight between buyers and sellers.
Quite often, absorption of market orders by limit ones takes place at the end of focused movement and, consequently, the price reverses. Namely such levels can be detected by the Cluster Search indicator. If a trader wants to separate the European and American sessions, it is necessary to use 4 indicators: two for each session – one for buys and the other one for sells.
You can separate trading sessions with the help of the ‘time filter’ set-up. See Picture 1.
How to set up the indicator
Several words about the indicator settings in this template. By the way, you can download the template from our web-site and import it to the chart without adding and setting anything manually.
The first Cluster Search looks for clusters with the Delta predominance of +150 on three joined price levels and marks these clusters red. It means for traders that there were much more market buys than market sells but limit sell orders prevented the price from sharp increase.
The second Cluster Search looks for clusters with the Delta predominance of -150 on three joined price levels and marks these clusters green. It means for traders that there were much more market sell orders than market buys but limit buy orders prevented the price from a sharp decrease.
The next chart shows the found cluster in green colour. It is an enlarged version of the upper chart and the first green bar to the right. See Picture 2.
After clusters appear in the chart, traders mark the level and wait for the price reaction. The price could either break this level or bounce from it – depending on this a short or long trade could be opened.
However, you should remember that settings will be different for different instruments. Our template works for the Euro futures (6E). Due to different liquidity of every individual instrument, clusters could not be displayed or, on the contrary, there will be too many of them. In other words, you should adjust indicator settings manually.
Parameter values could be set by trial and error:
- If there are many levels in the chart, the Delta filter value should be increased.
- If in the approximately two-week chart an accumulation of clusters appeared at extreme points or reversals, it means that the Delta filter value was set correctly.
- If the price doesn’t test levels or constantly breaks and ignores them, it means that the Delta filter value should be changed.
- If volatility grows, it means that indicator settings should also be adjusted.
The HRange indicator could be added to the chart as an additional filter. This is a custom-made indicator, which builds levels as soon as two bars are formed one after another outside the local extreme point. See Picture 3.
For example, a red cluster appeared and a range was formed on the local high in the minute Euro futures (6EH1) chart. The price tests this range extreme point twice in points 1 and 2 and starts to move down after that.
Variant 2. Time filter
We use an additional time filter as the second variant of the Cluster Search settings with the Delta filter.
We will look for joined clusters, on which the price spends more than 90 seconds. We will keep the Delta filter settings similar to the ones in the previous example: +/-150.
If the price spends much time at one level, it means that absorption of market orders by limit ones could take place there. This variant is suited for position traders because it could be set up for big time-frames. For example, as it is in our example – 10 minutes. These settings will be better suited for the stock market since less signals will appear in the chart.
Let’s consider an example of the 10-minute NVIDIA stock chart. See Picture 4.
We selected ‘time’ as the calculation mode, checked the minimum value item and specified 90, which is time in seconds.
Let’s consider this chart more attentively. See Picture 5.
Market sellers tried to push the price down in point 1 but limit buyers were stronger. A successful test of this level takes place in point 2 and the next trading session opens with the gap up.
You can see the cluster cross-section of bar number 1 in the following chart. See Picture 6.
The third test of the local high takes place in point 3. This time, market buyers tried to break the level but limit sellers turned out to be stronger.
This is an ideal trading situation – the stop is small and the potential profit is ten times bigger than the stop because the price may close the gap. The price passes through the VWAP indicator, which is an additional confirmation of the price fall.
The Cluster Search indicator allows various types of traders to improve their trading strategies and view the market situation at their own angles. Any trader can find his own unique combination of settings for increasing the number of profitable trades.
As it was promised, here comes the bonus – a video about limit order analysis with the help of the Cluster Search indicator.