VALTOS SR LEVELS

From Orderflows.com For NinjaTrader 7 & 8

March 2017 [Email address]

How to use order flow to determine support and resistance levels the first time the market trades at that level.

Welcome to the Valtos SR Levels. SR is short for Support and

Resistance. This indicator highlights areas of support or

resistance based on the order flow.

Support and resistance is something traders talk about a lot

without really understanding what it really is. Most traders just

look at a chart and find areas where price has touched a few

times and call it support or resistance. That is a very lazy way

to approach the market.

Have you ever really asked what is support and resistance and

why they occur at certain price levels?

Traders tend to over simplify support and resistance levels.

There is a school of thought that the more price touches a level

the stronger it is. They draw trend lines and call it support and

resistant which it really is not. I do appreciate trend lines in

trading, I traded with them for a long time. But I wouldn’t call

them support and resistance

Order flow analysis gives the trader the opportunity to see the

volumes that actually trade and make an educated decision

based on the information generated by the market.

I had the Valtos SR Levels coded because it will allow a trader

to spot support or resistance on the first touch. When the

market trades at a level the first time. Order flow allows you to

do that. If you draw support and resistance levels when price

touches a level multiple times you are missing the opportunity.

The whole reason I use order flow analysis is to find areas of

interest. I don’t need to live and die by each tick. If I know from

looking at the order flow that there is strong selling at an area

after a rally and the market sold off from there and then the

market works its way back to that area, either the sellers are

going to be there again or they are not. I don’t need the market

to trade back to that level then sell off again before I can say

“there is selling there.” I can anticipate it.

Of course, price doesn’t always retest that area and instead just

moves directly away from a level.

News doesn't drive prices, technical indicators don't drive price,

VWAP doesn't drive prices, trader's perception of value drives

prices and that perception is constantly changing and how

traders are reacting shows up in the order flow in the form of

traded volume.

When you understand order flow there are things about trading

that you probably never considered. It becomes clear that not

all prices are created equal. For a trade to work out, not only

does it require price to move in your direction, but it also

requires a certain set of behaviour from the rest of the market

participants. They have to be positioning themselves in the

same direction as you are. Support is a price level at which

buyers are expected to enter the market and prevent price from

falling further. Resistance is a price level where sellers are

expected to enter the market in sufficient numbers to prevent

further increases in price.

I created the Valtos SR Levels indicators as a way to highlight

areas in the order flow where there are order flow driven

support and resistance levels.

To understand the importance of order flow driven support and

resistance levels you have to understand the different types of

traders in the market: Passive traders and Aggressive traders.

Passive traders let the market come to them.

Aggressive traders go to the market.

Futures markets are two-way auctions. There is a bid and there

is an offer.

Traders who work a bid or work an order below the bid are

passive buyers.

Traders who work an offer or an order above the current offer

are passive sellers.

Traders who sell into the bid, hit the bid, sell at the market are

aggressive sellers.

Traders who buy the offer, lift the offer, buy at the market are

aggressive buyers.

Passive buyers provide support to the market.

Passive sellers provide resistance to the market.

Aggressive buying has the ability to move the market up if the

aggressive buying is more than the passive selling.

Aggressive selling has the ability to move the market down if

the aggressive selling is more than the passive buying.

By monitoring the order flow a trader can determine the amount

of passive buying, passive selling, aggressive buying and

aggressive selling taking place at any given moment.

The Futures markets were created to enable producers and

users hedge their risks, so a majority of the time what you see

in the order flow is the market doing what it is supposed to do –

facilitate trade between market participants. However, there are

times when market generated information reveals areas of

potential support with abnormally strong passive buying or

areas of potential resistance with abnormally strong passive

selling.

Sometimes traders confuse supply and demand with support

and resistance. But they are actually two different things.

One of the best books on technical analysis is the book titled

“Technical Analysis Of Stock Trends” by Robert Edwards and

John Magee. It the book support is defined as buying in

sufficient volume to prevent and further downward movement in

price for an appreciable period. Resistance is selling, the

opposite of buying in sufficient volume to satisfy all the buyers

and prevent prices from going higher.

A support level is a price area where buyers are willing to step

in and buy enough contracts to temporarily stop and often times

reverse a downtrend.

A resistance level is a price area where sellers are willing to sell

enough contracts to temporarily stop and possibly revers and

uptrend.

When you look at support and resistance in terms of supply and

demand, support is the price area where demand exceeds

supply and resistance is the price area where the supply of

something exceeds the demand.

As long as demand exceeds supply price moves up. There are

more aggressive buyers than sellers in the market.

When supply exceeds demand price moves lower. There are

more aggressive sellers than buyers.

So what is the difference between supply and demand and

support and resistance? When support and resistance appear

in a market it tends to stop a move and create a reversal, while

when supply or demand is dominant the market moves in that

direction.

In short, support and resistance stop moves, while supply and

demand cause the market to move.

But what is the real importance of support and resistance

levels? To predict where prices will rebound? No, they are not.

Support and resistance levels are areas that traders need to

take a closer examination of and determine if prices will hold

those levels. At least that is my opinion. I believe in trading

based on what the market is telling me right now. If the market

tells me that there is a strong bid present and other bidders are

coming in to support the market that is a prime trading

opportunity.

So how to trade Valtos SR Levels? There are many ways

traders trade support and resistance. However the interesting

thing is, and this is what separates Valtos SR Levels from

standard support and resistance levels where price just touches

a price area it just visited, that Valtos SR Levels tell you as

soon as the support appears in the market or as soon as the

resistance appears in the market.

You are not looking at areas where price visited a few times.

Instead you are letting the market tell you that at a particular

price level there was supportive buying, which coupled with

other order flow analysis may be reason enough to buy. But

more importantly you know ahead of time when price comes

back to that level if you see some supportive buying appearing

it can be a good buying opportunity.

A selling opportunity would be the opposite of a buying

opportunity. When the market tells you there is resistance type

selling going on, heavy offers that are absorbing all the buying

and still appearing, you might want to take a naked sell – a sell

with no other indicator to back it up. Or you can wait for price to

revisit that level in the future and get ready to sell there.

If you are trading on a pull back there is the chance the market

might never pull back. That happens with market generated

real time support and resistance.

Valtos SR Levels highlight areas where supportive buying and

resistive selling appear as they appear. You can have a Valtos

SR Level buy signal appear at or near a low as well as a Valtos

SR Level sell signal appear at or near a high and in both cases

the market may never retest those levels.

It is a fact that no short-term level of support or resistance level

can hold forever. If it would, then the market would not move.

Support and resistance may hold for a few minutes, hours or

days, but eventually price will break through.

After a support level is penetrated, it often becomes a

resistance level. This happens because traders want to limit

their losses and will sell when prices approach the former level.

After a resistance level is broken, it often becomes a support

level.

Understanding and using support and resistance can

dramatically improve your trading results. It will enable you to

forecast where prices are likely to find more buying when a

correction occurs or can help you determine when a market

rally is ending and offer you a chance to get short or reverse

your position.

Knowing where strong levels of supportive buying and strong

levels of resistant selling are located, coupled with knowing and

understanding how the level is affecting price, will enable a

trader to take more profitable trades.

Settings:

There are several settings that you will want to experiment in

your own trading. Do you want to use this indicator to look for

swing highs and lows or do you want to use this indicator to

help you ride moves that are underway?

Alert:

Enable Sound Alert: False = Off, True = On.

Sound File Name: The sound file you want to go off.

Lookback Filter:

On: True = On, False = Off.

Period: Default is 25 (how many bars back do you want to look

back over, if you want to look only at the last 9 days, you would

change it to 9).

Parameters:

Support Resistance Ratio: Default set to 30%. This ratio helps

determine the amount of passive buying or selling. The higher

the ratio setting the more weight you are putting on it. The

higher you set it the less trades you will get.

Longer Duration: Default set to True. This setting is important

when it comes to the type of bars you are using if you are

trading a longer time frame, say a 5 minute bar chart or an 8

range or 10 range chart it is recommended to set it to TRUE. If

you are trading a shorter duration, such as 1 minute chart or 4

range chart it is recommended to set it to FALSE.

Unfinished Auction: Default set to True. If set to True it will take

into account that there is an unfinished auction that occurred in

this bar. If set to False it won’t care if there was an unfinished

auction.

Volume Threshold: Default set to 0. You can set the minimum

volume that needs to trade in the bar for the indicator to give a

signal. If you set it to 500 and are trading CL, for a signal to

appear it would have to trade over 500 contracts and the

conditions are met. This setting may be important to you if you

are trading a thin market.

Use Delta: Default set to True. This looks for Delta Divergence.

When set to True for a sell you would need positive delta and

for a buy you would need negative delta. Why? Because when

you have negative delta and the market is rallying it tells you

there was net aggressive selling in the bar which was met with

passive buying and the market closed higher. When you have a

positive delta in a bar that closed lower it signals that the

passive sellers absorbed all the aggressive buying until buyers

gave up.

Enable Signal On Doji: Default set to False. If you want the

indicator to signal on a Doji Candle (bar that opened/closed at

the same level) change the setting to True.

Signal Plot:

Up Color: Default set to Blue.

Down Color: Default set to Red.

Plot Height: Default set to 3. This is how tall the zone you want

to appear. I use the zone as my stop level.

Plot Opacity: Default set to 20. You don’t need to change. This

refers back to the Up and Down color when it draws out the

zone. At 20 it just uses a shade of the UP and Down color.

Plot Width: Default set to 20. This is how many bars out from

the signal bar you want the indicator to print. I use 20 when

using the indicator for turning points. I use 5 when using the

indicator while looking for confirmation support/resistance in a

trend.

Plot Displacement (Ticks): Default set to 0. This is how far

away from the top or bottom of the bar you want the signal

shape (see below) to appear. If set to 1 it would appear 1 tick

away. If set to 2 it would appear 2 ticks away.

Signal Shape: Default set to arrow.

Data:

Don’t need to change any of the settings.

Visual:

Don’t need to change any of the settings.