⛓️Strategy "Critical imbalance"
Step 1. Go to "Add Widget" and open the Trading View tab.
Step 2. In the Trading View tab, select the trading instrument and the timeframe of interest.
Step 3. On the chart tab, open the "1EX Indicators", select the "Balance indicator" and turn it on.
Step 4. Next, you need to select the appropriate Rolling period
IMPORTANT!!!
The "Rolling period" field is the time interval for which the indicator calculates a certain value.
To get better results, you need to choose a period that will be a multiple of 20-50 times your working timeframe on the instrument chart. Lower multiplicity means higher sensitivity, higher multiplicity means lower sensitivity.
Example: TF = 5 minutes, Period = 4 hours (48 candles of 5 minutes each).
We get such a workspace window:
The value of the indicator lines:
Green line - relative value of the dominance of green candles (upward dynamics).
Red line - relative magnitude of the dominance of red candlesticks (downward dynamics).
Description of the trading strategy!!!!!
Theory: to determine the pivot point, you need to find a situation in which there is a critical preponderance between buyers and sellers (green and red candlesticks) using a balance indicator and identify at what point the preponderance will begin to recover. As soon as the overweight is restored and the price shows its reaction, in most cases, this may indicate a price reversal point.
Entry points to the deal
First, you need to determine what the critical imbalance will be, that is, how strong the dominance of one of the sides (red or green candlesticks) should be to determine the reversal.
The critical imbalance will vary depending on the type of traded instrument (more volatile, medium volatile, less volatile). The higher the volatility of the instrument, the higher the critical imbalance.
The optimal value is considered to be from 0.67, since this value corresponds to the "Two-thirds" rule - going beyond two-thirds has a low probability, therefore such values are considered critical (game theory).
As soon as the indicator shows a critical value, we can enter into a trade:
The signal is in Long - if the red line of the indicator reaches critical values.
The signal is Short - if the green line of the indicator reaches critical values.
If, after entering a position, the price did not go in your direction, and the imbalance continues to increase further or stops at the same values, then it is better to exit the position and wait for the indicator to go beyond the critical values, and then monitor the restoration of balance.
When there is a recovery, enter the transaction again on the return to the limit value.
When there is no recovery, it is more likely to mean continued movement.
(See screenshot below)
Exit points from the deal
Option №1:
Fix the position at the point where the balances are aligned.
The trading result in this situation is +1.06% excluding leverage and commissions.
Option №2:
Select a fixed percentage of profit and loss (risk/profit ratio).
The trading result in this situation with a risk/profit ratio of 1 to 2 = +1% excluding leverage and commissions.
Option №3:
Fixing a position at the beginning of a new one and the same imbalance.
The trading result in this situation is +1.66% excluding leverage and commission.
Additional criteria
Initially, the balance indicator was invented for trading in a sideways range (sideways), so this strategy will work very effectively if the price is in the sideways on the higher timeframe (for example, 5 min.), and on the lower timeframe (for example, 1 min.) a critical imbalance of 0.67 appears
The trading result in this situation is +1% excluding leverage.
When trading on a trend, the indicator works perfectly at the end of the movement. For example, there is a strong long trend and after it, a short imbalance of 0.67 appears at the end, in such a situation, we enter into a deal in the direction of movement, that is, in long
The potential of this transaction was 2.6% excluding leverage.
When trading against a trend, you need to determine its strength. To do this, you need to determine the slope of the trend itself. If the slope is strong, then you need to trade much more against the trend with an imbalance (for example, from 0.73 and above)
If the trend is strong, that is, it has a strong slope and an imbalance of 0.73 or higher provoked a price reaction, then when trading on the trend, it will be enough for the balance indicator to give values from 0.5 to 0.6 so that the price continues to move in the direction
The potential of the price move for a safe transaction is usually up to overcoming the extreme = +0.89% excluding leverage.
CONCLUSIONS:
You can use this strategy both independently and as one of the filters within a variety of trading strategies used by traders.
IMPORTANT! Trading involves risks. The user is solely responsible for their actions or inactions when using the described trading strategy. The strategy and its description are for informational purposes only. The information provided here does not constitute personalized investment advice. News, articles, expert comments, research, forecasts, and other information are presented without considering any specific investment profile, and the financial instruments or operations mentioned may not align with the expected returns, investment horizon, or acceptable risk levels for any particular user. Company 1EX is not responsible for any potential losses resulting from trades based on the described strategy or investments in the financial instruments mentioned in this publication.
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