Strategy of trading by Delta and Vertical Volume. Examples

Important! First of all, we want to underline that this article doesn’t describe a trading system, which guarantees profit. Risks will always be present and you need to take your own responsibility for them. It is also important to understand that the below described rules could be unacceptable due to a unique character of every trader, his experience and preferences.

If you agree with these statements, let’s consider a variant of the market entry rules.

For example.

Sell signal:

1. splashes on the Delta and Volume indicators;
2. the hourly candle is descending;
3. the hourly candle size from high to low is bigger than the sizes of the two previous candles.

The third item is important for entering the market, which is in the impulse.

Similarly, but with a mirror reflection for buying:

1. splashes on the Delta and Volume indicators;
2. the hourly candle is ascending;
3. the hourly candle size from high to low is bigger than the sizes of the two previous candles.

Well, we know how to identify the pattern, which sends us a signal about activity of major players. How to enter the market?

Let’s consider the ‘rebound’ entry technique. In this case we will post buy limit and sell limit orders.

The pattern is considered to be formed after closing the hourly bar. After that:

• We post a sell limit in the middle of the last candle (50% level). A rebound within 50%-65% is considered to be acceptable. Only in this case, a favourable trading window ‘opens’ for profit making.
• Stop loss is above the hourly high, at which the pattern is formed.
• We do not limit the profit but the minimum one is 25 points.

We will add one more rule to increase the strategy effect. It will also help to identify how long you should hold your position.

The hourly candle, on which we entered the market, should close below the entry point after opening a short position. In the event this condition is not met, you should close your position at the market price or post the minimum stop loss of 10 points.

This is a simple and minimum condition for staying in a short position.

Conditions are similar for entering buys, but with a ‘mirror reflection’.

The picture below shows 3 candles, which send signals:

• one signal for buying (to the left) on the ascending impulse;
• two signals for selling on the descending impulse (to the right);
• delta on the signal candle could be both positive and negative.

We used red and black lines to show the levels where you should post pending orders for entry/exit.

As a variant, let’s consider the market entry with pending sell stop and buy stop orders. In other words, we will apply the ‘breakout’ technique.

We will use splashes on the Delta and Volume indicators as a signal candle (we described this pattern above). And then we will act in accordance with the logic:

• if the Delta is positive on the signal candle – we post a buy stop above it;
• if the Delta is negative on the signal candle – we post a sell stop below it.

Example 5.

We identified 2 signal candles in the chart above and specified that sell orders should be posted under their lows.

In our next example, we have a positive Delta splash. Consequently, we post stop buys above the signal candle.

Example 6.

Acting in accordance with the ‘breakout’ entry technique, we would recommend to use mathematical values for a stop loss and take profit. For example:

• a stop loss of 11 ticks;
• a take profit of 25 ticks.

Let’s add two more conditions for making the position management clearer:

• Within 5 minutes after opening a position, we should see the minimum profit of 10 ticks.
• The take profit should be activated within 30 minutes.

In the event one of these two conditions is not met, you should close your position at the market price.

We considered an example of building a strategy on the basis of 2 indicators – Delta and Vertical Volume. The strategy is designed to take a quick profit when the market is in the impulse.

But this is not a magic wand – unfortunately, you cannot avoid losses.

The goal of this article is to show you in practice:

• how to use indicators for strategy building;
• how to ‘join’ the impulse, caused by the major player activity;
• what risk management techniques should be applied in this event.

As a result, we described a rather rational method, which deserves your attention.

Pros of the method:

• minimalism and simplicity of the used instruments;
• trade of recurring regularities;
• use on various time-frames;
• minimum time spent in front of the trading terminal.

Cons:

• it is necessary to conduct a statistical study on the historic data for identifying the pattern indicator parameters for entering the market.

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