THE VALUE ZONE (VZ) STRATEGY
WH Selfinvest regularly innovates in order to offer its clients the right tools for modern day markets. The value zone strategy can be used in the futures markets.
The strategy in detail
To work with this strategy, the trader applies the study KPL on the Futures contract of his/her choice. The following example shows the CAC 40 with its key levels (which appear in the form of a HeikinAshi type of chart) as well as the indicator called Key Price Levels which will by default open in its minimised form.
The three key levels found in the HeikinAshi-chart correspond to VA Low (the low range of the Value Zone of the previous session), VA High (the high range of the Value Zone of the previous session) and the area of equilibrium of the previous session as well:
The strategy's principle
The strategy is usually applied after the opening of the cash markets, so after the range of the first hour of trading (Initial Balance) is completed. It is based on the relative position of the Initial Balance (IB) compared to the Value Zone of the previous day of which the Key Levels are displayed on today’s session as described here above.
Let’s focus on the conditions that would trigger a trade:
When to open a position?
Opening a position is only possible if the range of the first hour is above the previous day VZ High or below the previous day VZ Low.
In the example here above, a long position is triggered as soon as VZ Low level of the previous session (mark 2) is crossed by at least one tick. The stop is placed 1 tick below the lowest price of the range of the Initial Balance (mark 4).
When to close a position?
The target for a long position (as shown in the example) is set at high range of the VZ High range of the previous day (mark 3). For short positions the target would have been set at the lower levels of the VZ Low (mark 2).
The idea behind the strategy
If the opening (mark 1) happens outside of "the value zone" of the previous day, this means that this zone is being abandoned by the traders and consequently the lower band of the VZ in our example (mark 2) will act as a relevant resistance level.
If the market re-enters the VZ of the previous day price, it may have been just a test ( a tick above the VA Low) or if the resistance gives way, then there’s a high probability that the price will continue all the way through the entire Value Zone to join VZ High again.
This translates (in our example) by a buy 1 tick above mark 2 (lower band of the value zone of the previous day to target the other band of this same value zone [mark 3 in the above chart]. The stop can be placed on the extreme other end of the session [mark 4]).