GBPUSD trade shows the difference between using the TradersHelpDesk ADX and Directional Volume versus Cumulative Delta.

Directional Volume versus Cumulative Delta Difference in Trading

This morning there was a magenta peak on the 180 minute chart.  This instantly told me to focus on the 12 minute chart.  Price should turn the ATR to red (the magenta peak indicated a retracement down to the ATR) then retest the ATR.

This was the entry:

GBPUSD Entry 6/3/15

Notice on the left of the screen, is the Cumulative Delta chart. It is showing the order flow to the upside  but price was not going up (volume divergence or Wyckoff Upthrust Pattern).  I can see the same volume divergence in the Directional volume by simply analyzing the volume as it approaches the resistance area — price was retracing to the ATR and instead of getting stronger as it approached the ATR it was getting weaker. So I entered at 1.5363 with a 12 tick stop.

And what happened?

GBPUSD Trade Exit 6/3/15

I exited at 1.5270 (entry at 1.5363) with 93 pips per contract.  Of course, I was in the futures, spot forex and a binaries. So I turned one trade setup into 3 great trades.  Here is the 180 minute chart showing the divergence, followed by the magenta peak — which indicated a push down to the ATR (of course the 720 minute chart was also at the ATR further fueling the downward movement).

Directional Volume versus Cumulative Delta

The Directional Volume indicator was designed because I knew Cumulative Delta and the Wyckoff volume concepts.  I love Cumulative Delta but watching six timeframes would require an additional six charts with Cumulative Delta information – which is more than even my computer could handle.  I wanted to simplify it — so I designed the Directional Volume indicator.  Then I added the concepts I was already using — the ADX magenta peak indicating a retracemnt and the Trend ATR giving resistance above, it was a no brainer trade that made 93 pips while only risking 12 pips per contract (a risk to reward ratio of 1 : 7.75).

And, while some traders may feel that winning percentages are the most important thing in trading, actually it is the risk to reward.  It is making the numbers work for you.  Let’s presume that you only win 50% of the time.  If you are able to get a 1 to 7.75 risk to reward ratio (on average you will not), then your equity graph would look like this:

Risk to Reward 1 to 7.75

On average you will not be able to attain a 1 to 7.75 risk to reward ratio. But I try to make at least 1 to 2 risk to reward ratio on average.  Why?  Because I know if I can just be mediocre trader, with 50% wins, using this risk to reward ratio, I am still in the money.  Here is what the equity graph looks like using 1 to 2, 50% wins (10,000 trades):

Risk to Reward 1 to 2

But most traders don’t understand the numbers game and they use a 1 to 1 or even an inverse.  And this is what they end up with:

Risk to Reward 1 to 1

Trading is about numbers — I found this out the hard way.  Focus on the numbers, be realistic, and you can make it work.  That is using an honest approach in trading.

We have more training and courses at Fulcrum Trader website for those that want to learn the technique.  Multicharts also now offers the cumulative delta chart on its platform.