I received a set of questions following on my How to identify price targets for your trades post from the other day.
Can this tool be implemented in swing trade? If yes, which markets are more suitable? If I am keen in the Forex markets, then which currency pair is more sutiable? What about commodity markets like mini gold futures etc ?
What about applying this method on US stock markets , maybe certain stocks with the appropriate options to swing trade, after considering the month of expiration, B/A spread, IV of options etc.
Lastly, can this tool be applied to Asian markets, like Nikkei or even Singapore’s small futures market, the SIMSCI futures.
What I would really boil this down to is two questions:
Can the price distribution methodology be used on any market?
Yes. It’s really that simple, but I’ll explain a bit.
The basic ideas of technical analysis imply that it’s universably applicable to any publicly traded market. Price distribution charting and analysis is a technical method, so by extension it’s universally applicable.
Taking it a little deeper, this methodology is based on the way prices move in all markets. Markets and makers aren’t different from market to market. They all operate to maximize transaction flow, and to do so they are going to move their bids and offers to the price levels where they think the highest volume is going to take place. There may be little structural difference between markets, but that doesn’t change the basic premise upon which price distribution analysis operates.
I personally most use the methods in my analysis of the S&P 500 futures. This is simply a function of the work I do on a daily basis, though. I have also used it in my own forex trading, and when I used to cover fixed income and energy futures I used it then as well.
2) Can the price distribution techniques be applied to any timeframe?
Again, most technical methods (especially ones not indicator based) are timeframe independent. At extreme timeframes (very short or very long) there can be some indicators and methods which might breakdown, but for the most part what you can use on an hourly chart works just as well on a weekly chart.
Price distribution charting is no different, really. My feeling is that it might stronger for shorter-term application (swing trading and shorter) than for longer-term use (i.e. position trading), but I have not empirical evidence for that.
In my Following the Quest for Value course I cover the price distribution methodology in much more detail – discussing market and timeframes, along with identifying support and resistance levels and picking out good risk/reward trade entry points.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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