16 April, 2017

Thin Spot

Rationale & Trading Techniques

Not all prices are equal. The market will sometimes spend a lot of time in price areas (‘acceptance’, ‘balance’) as this range of prices is acceptable to many buyers and sellers. When price is rejected or a market moves out of balance, prices will be passed over quickly and not much trade is facilitated. Depending upon the tools used to analyse the market, we may refer to these areas as low volume nodes or if no trade has occurred in these areas, gaps. The Thin Spot indicator allows ‘low volume’ on the bid or ask to be defined as a percentage of the total bid or ask volume traded within the bar and will highlight these price levels that have experienced low volume on the bid (or ask) and a corresponding imbalance on the opposite side of the trade.

The market exists to facilitate trade, discovering prices where buyers and sellers can do business with each other. If the market finds a price level unacceptable, when price next approaches it, we may well again reject it quickly, passing through it or back away from it.

The Thin Spot indicator highlights prices where the market’s traded volume is showing us an absence of buying or selling. These areas are indicated by a Forward Projection Zone. With the knowledge that these prices are likely to be rejected or defended, we can regard them as areas for potential pullback entries knowing that price is likely to move away from these areas quickly or as near-term price targets if we are holding a position and price is moving towards one of these prices.


Examples

Note how the lack of buying volume in the 14:01:49 bar continued to serve as resistance over the next three bars before price continued to fall. Also note how the potential support in the 14:45:09 bar was tested and failed, subsequently becoming resistance as price continued to move downwards.

Thin Spot - Emoji Trading Order Flow Suite

Thin Spot Settings


Input Name Description
Thin Spot Volume % Enter the percentage filter below which volume traded on the bid (or ask) as a percentage of the bar’s total volume traded on the bid (or ask) will be considered as a Thin Spot.
Imbalance % The percentage level used for diagonal bid/ask volume imbalance calculations.
Extend Until Future Intersection? Select whether Extension Lines are enabled/disabled for the Thin Spot price levels within the current price bar.
Extension Line Label Text indicator for the Extension Lines.
Forward Projection Zone The number of bars forward from the bar that a Forward Projection Zone will be drawn at each Thin Spot price.

Indicator Subgraphs

Subgraph ID Subgraph Description
SG1 Lowest Thin Spot Bid Level Provided to assist the development of Spreadsheet Trading systems and Automated Trading systems using ACSIL.
SG2 Highest Thin Spot Bid Level Provided to assist the development of Spreadsheet Trading systems and Automated Trading systems using ACSIL.
SG3 Thin Spot Bid Extension Line Use to set the drawing properties for the Extension Lines drawn from the Thin Spot bid prices. 
SG4 Lowest Thin Spot Ask Level Provided to assist the development of Spreadsheet Trading systems and Automated Trading systems using ACSIL.
SG5 Highest Thin Spot Ask Level Provided to assist the development of Spreadsheet Trading systems and Automated Trading systems using ACSIL.
SG6 Thin Spot Ask Extension Line Use to set the drawing properties for the Extension Lines drawn from the Thin Spot ask prices.