my cousin's been trading SPY lately with this volatility and made good change. me personally, i'm not into index or ETF trading for the most part, unless it's a commodity. i just like individual names and shorter timeframes.
I've been studying value areas lately. Haven't really taken any trades off it just yet but will do so this week. Spent the week watching and observing how it works and I'm satisfied enough to implement the strategy. Makes trading more methodical and less random for me.
I'm gonna try to be as clear as possible here so bare with me. To understand what I'm about to write, you need to check out the value area discussion video I have posted in the OP to get an idea how to set this up on your charts and use it. I use the value area for the month (if it's January, i'm drawing my lines from December's value area) and the day in my charts. For the month, I can draw my lines out and leave them for the entire month. For the day, I have to redraw them every morning since I'm using the prior day's information.
To get the month, I use the daily chart and switch the volume profile parameters from Daily to Month. Draw my lines and I switch back to the 15 or 5 minute and change the parameters back to Daily so I can get the value areas for that current day. I like to use the value for the month and the day simultaneously so I get a macro and micro feel for the stock.
If something is trading below value, the bottom of value should be resistance. If it breaks into value, that could be a long signal and there's a decent chance it will be magnetized to the point of control (the middle line). Usually you wanna take some profits at the point of control. If something is trading inside of value and tests the top of value, you can take a short at the top of value with a stop just outside of it, or you could buy the break above value with a stop just inside of it. If you take the short, you're looking for a move back to the point of control to take some profits. If it is within value and tests the bottom of value, you can play for a bounce with a stop just under value or you can take a short with the break below value with a stop just inside value.
Let's take a look at AAPL these past two days:
The pink lines is the value area for the month, the green are for the day.
View media item 1344454
As you see, it gapped above it's value area for the day and broke into value for the month. You could've taken a long here with your stop just outside of value and targeted a move to the point of control. I don't necessarily like taking shorts or longs off the point of control so I would've been finished with the trade at that point.
On Friday, it opened above value for the day but rejected it and traded back into value. You could've taken this as a short signal with a stop just outside of value. The point of control was really near the top of value so you could have taken a target at the point of control and left a little on as you saw it fail to provide support and you could've targeted the bottom of value. Conversely, you could've played the bounce off the bottom of value once it held value with a stop just under value targeting a move back to the point of control.
Nothing's perfect, but trading stocks is all about probability and this is an edge that looks decent and works well for a buddy of mine from the KOTM room.
FB today:
TOS cut off the bottom of value for the month so what's visible is the top of value and point of control for the month. The bottom is around 74.76.
View media item 1344455
I had two plans this morning and I always have two plans. It's what I learned from Investors Underground. My plan was to buy the break above value for the month, or short the rejection of value for the month.
Unfortunately, I had an AAPL call spread on and for whatever reason after I took profits this morning and closed the spread I lost buying power for the day so I couldn't follow through on my plan. But as you can tell, FB rejected the top of value for the month, rejected the top of value for the day and cut through the point of control for the day as well. It got near the bottom of value before finding support and rotating back to the point of control. (My bottom of value price level is a little sloppy since I put it back on real quick. You want to be more careful during market hours making sure your price levels line up correctly)
It's not a guarantee and deciding whether to play a bounce or short could be predicated on the stock's overall strength as well as the greater market, but once you get a feel for a few names, you sort of just know which to choose.
Trading value areas is a nice resource that gives you a defined risk and a bit of an edge you may not have otherwise had. Instead of obsessing over each tick, you have a plan outlined and you know what you're willing to lose from the get go. Follow your rules and this could be a lucrative strategy if it interests you.
