Bob Volman for the D1 chart

Trading Systems
1

I am currently trading price action on the D1 of all the major pairs. My approach is very much informed by Bob Volman and his book ‘Understanding Price Action’. I am exclusively using the five setups he lists in his book. These are:

  1. The pattern break;
  2. The pattern break pullback;
  3. The pattern break combi;
  4. The pullback reversal; and
  5. The trade-for-failure.

So far, the approach has been working quite nicely, and I would like to generate some discussion about these setups. This is because, while Volman is exceptionally thorough, his book is written for the M5 of the EURUSD. His 10/20 pip bracket was calibrated for that setting, and he makes no claim that it was optimal even then; it was just a simple trading plan through which to demonstrate the greater price action strategy.

To kick things off, I would say that I have already noted the following differences:

a) Overall, I think that the EMA(25) is too fast on the D1 to correctly illustrate the ‘dominant pressure’ and to act as a filter for pullback reversal trades. The EMA(50) has been working much better for me in that regard.

b) Regardless of whether the EMA(25) or EMA (50) is used, price seems more comfortable heading away from the moving average for exended periods on the D1. Our sense of what is ‘too far’ from the EMA is going to be slightly different than Volman’s. It would be fantastic if we could come up with an objective filter for this. Some multiple of the ATR, perhaps?

c) Buildups appear to involve fewer candles, generally, on the D1. I suspect that this is a function of the speed at which humans make decisions. On the scale of minutes, you can see traders hesitating indecisively on the charts. On the scale of days, traders have plenty of time to analyse, plan, and react.

d) Pattern lines are somewhat less clear-cut. This isn’t really an issue, and I suspect that if you were to look at this ‘margin of error’ as a percentage of the relevant price range, the two charts would be pretty similar. But visually, there is a difference. I also note that Volman sets his charts to display only to the nearest pip (rather than pipette), which is not a function that I have on MT4 for android. It is worth remembering, though, that Volman is artificially (but transparently) tidying up his charts to better see the pattern lines.

e) The M5 brackets are clearly not relevant on the D1, and I have been using technical levels to set stop losses and profit targets. Multiples of the ATR would be another approach.

f) Trade volume (on a per month basis) is quite low, and trade management, in the form of locking in profit, seems more important than on the M5, where upcoming news events could simply be avoided. I’m currently using a chandelier stop, but I’d be interesting in hearing other approaches.

Has anyone else has taken Volman’s approach to the D1, or if there is any interest in doing so?

2 Likes
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I like his book - but I’m not sure that very much of the information is directly tranferrable to D1.

As I understand it, the basic principles are a derivative of Wyckoffian observations - and Wyckoff drew his charts on a D1 basis.

W also was not trading Forex and Forex seems to me to have somewhat unique properties in comparison to stocks and commodities.

As I said - I like the book, especially insofar as it gives fairly frequent trades (1 or more most days) and a fairly high “Hit rate” depending on those properties he leaves to your own discretion (like “risk appetite”) and your ability to “skip trades” correctly)

What do you do about “skip trades” on D1 ?

I think the “patterns” you speak of should be ok on D1 since they are pretty well recognised generally.

As you say - SL and TP become much less obvious as the timeframe increases - and that implies a much smaller “pip bet size” and the need to decide which Support and Resistance levels to accept or ignore.

It is a really good book, which explores in detail the 5 minute chart action but I know it is a derivative of his “Tick chart” version - which I do not have and that one may be even better.

Just how much of it is directly transferable though to D1, I am unsure - but I shall watch your thread and comment if I feel I can be of help.

atb

F

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Thanks for the reply. I’ve only been working on this approach for a couple of months, and while the results so far are good, I recognise that is is still a small sample size.

What really drew me to his tool-set, as opposed to other price action traders like Al Brooks, is that most of Volman’s setups are simply different ways of looking at the compression trades that I’ve been using on the H1 for years. When price compresses, it is usually followed by a rapid expansion. Pattern breaks are just Volman’s way of finding price compressions, rather than the Bollinger Bands I’ve previously used.

Put in those terms, much of what he’s doing intuitively makes sense to me, and applying his strategy feels quite natural.

Right now, as I build my experience base, I’m approaching the strategy in what Volman would call a conservative way. I’ve skipped a number of setups that I spotted, but was unsure about, and then followed the subsequent price action while keeping my money safe.

You are absolutely right that using technical levels means adjusting your position size to maintain a proper risk profile. I don’t use technical levels (directly) for profit targets, but rather a multiple of my stop loss. This lets me maintain a fixed R:R ratio for half my trade (the other half is open ended).

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Here’s a question: Should we avoid signals that would require a breakout on a Friday?

This is not something that Volman has to deal with, of course, but Friday often seems to be an ‘odd’ day on the D1. Volume is lower, and people are closing out positions for the weekend. I have no problem holding positions over the weekend, and I’ve been successful with trades that triggered on a Friday, but generally not until the following week. Would it be better simply to skip those trades and see what the new week offers?

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Some follow-up thoughts as I continue to trade the system.

a) Overall, I think that the EMA(25) is too fast on the D1 to correctly illustrate the ‘dominant pressure’ and to act as a filter for pullback reversal trades. The EMA(50) has been working much better for me in that regard.

I’m now using the simple 50 period moving average. Doing some reseach, it seems that the SMA is more popular on the lower time-frames. The clinching argument, for me, was when I saw that Al Brooks used the EMA(20) on the M5, but the SMA(50) on the D1.

Giving this some thought, it occurs to me that during the day market conditions instantly, and artificially, change with each new session open, and the intraday trader needs indicators that respond quickly to those new activity levels. Conversely, D1 traders want indicators that do not over-react to a ‘news day’.

[b) Regardless of whether the EMA(25) or EMA (50) is used, price seems more comfortable heading away from the moving average for exended periods on the D1. Our sense of what is ‘too far’ from the EMA is going to be slightly different than Volman’s. It would be fantastic if we could come up with an objective filter for this. Some multiple of the ATR, perhaps?

I’m no longer using this as a metric. Far or near is a function of which moving average you use and the scaling of your display. Volman has a custom display that fixes the scaling at a chosen level, while MT4 Android cannot do this.

e) The M5 brackets are clearly not relevant on the D1, and I have been using technical levels to set stop losses and profit targets. Multiples of the ATR would be another approach.

Interestingly, the technical level that I gravitate to is nearly always within a few pips of the ATR(25). This would not be true if I were taking the most agressive positions, but in my case it makes the ATR a decent ‘sanity check’ in situations where technical levels are not clearly defined.

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I too think that option is highly undervalued by the chart providers !

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I believe so. On Friday, because of impending market weekend closure at the end of the US session, even if there is a breakout showing clear signs of a particular directional bias. Most market participant may not want to leave their already in profit positions over the weekend and choose to book profits early, causing a heavy pullback.

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Greetings @Drekieyja. I am a HUGE fan of Bob Volman and have read his book several times to digest the information (happy to share the outline i created). I am currently aspiring to trade on the 5 min as his book suggest and I was wondering if you were still working through this trading plan ?

Additionally i was wondering how you came up with the correct moving average for the suggest time period. I am not fully convinced either that the 25EMA is appropriate even for the EUR/USD on the 5 min.

Lastly are there any considerations/suggestions that you have to help me on this track? Whether it be strategy enhancements, suggested research/reads, backtesting tactics, exit & entry modifications, or just any way to further digest the material !

Greatly would appreciate your advice on these questions! Thanks in advance

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I was able to fix scaling using trading view by locking price axis and just plotting a reference point to maintain scaling positing. Its a bit trouble some but it gets the job done. Hopefully trading view works through it soon

10

Great topic.

Not sure how I only just stumble on to this thread now as I have been on Babypips for the last year and I have been trading Bob Volman’s strategy on the D1 charts for the last just over 12 months as well.

I actually use EMA 21 and it works exceptionally well. Recently USDJPY gave me 3 winning trades in a row with the latest one winning 7-8 RR.

Trading the D1 chart is the way to go and moving on to utilising Bob Volman’s theory has been the best decisions have made in my trading career.

Happy to give any pointers or tips if people are looking to take up this trading style/strategy.

3 Likes
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yeah bro Cloudninee, i’m very happy to see a trader using Bob’s stategy on Daily chart. I’m using EMA21 on Daily chart too. Could you share more your set ups or experience to me. For me, i’m using EMA21 + trendline + Price action.

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I’m pretty much the same. Trading breakouts of trendline or horizontal level on pullbacks while the price is being pressured against the EMA without violating it too much. Have been thinking about trying to utilise the 4H to give me more trading opportunities but I think the D1 provide enough too with much more accurate setups.

13

This is a very good analysis and thank you for sharing it here.