"DKD" is an abbreviation for "Movement - Consolidation - Movement". From the point of view of market mechanics, this is the most basic working tactic, which contains competent logic and all the necessary variables.
I've done a lot of work to put this together for you, so please do your best: read, study, apply, like, repost, and subscribe. Peace to all!
Before studying a strategy, you need to understand the basis on which it is built, otherwise you risk remaining an artist and a dreamer for the rest of your life🤡(drawing lines and searching for pictures on charts).
Despite its apparent simplicity at first glance, the "DKD" strategy is quite complex for those who have traded using standard "retail" tactics (they are unprofitable by their nature). Nevertheless, I recommend understanding the simplest of profitable tactics, which will be your introduction to the world of competent trading.
In dealing centers, on brokers' or exchanges' websites, you will not be taught a competent approach using volumes, patterns and clear logic. You will be given simple tools for generating trading volumes and for further "draining" your funds within these very companies 🙈
My task is to give you a working algorithm of actions that will help you trade one pattern and be profitable at a distance.
I really hope that I can handle this, because the material is truly difficult to understand for those who have only used primitive tactics.
Market Participants
Here we will not talk about mythical "puppeteers" (read "market makers") who hunt for your stop order personally and secretly move the price. Even if this is so, then it is certainly not in our power to recognize such actions, much less predict them.
However, as intelligent traders, we have the right to study market mechanics to clearly understand the processes that make price move not only to the right, but also along the vertical axis up and down.
There are 2 types of participants:
Passive (market makers, not LGBT as you thought)
Aggressive (market takers)
Passive market participants (not the LGBT community) are those who place their limit orders, forming levels. In simple terms, by giving a Buy Limit order to a broker, you create a price level.
The level is not a line on the chart, the level is the interest of participants to buy/sell at a certain price, which they consider profitable at a given moment in time.
Pay attention to the table. It shows a stock exchange glass with passive market participants who place their orders at certain prices and in a certain direction (buy or sell).
ASK (Offer) orders are limit orders to sell. It is not difficult to guess that limit sales (Sell Limit) are nothing more than a market offer.
In turn, BID orders are limit orders to buy (market demand).
Each price contains a certain volume (number of contracts/lots/units) of orders. The table below shows us a price cut that gives us an understanding of the functioning of these levels.
We see the different participants (Client Order ID), the order of placement and the quantity.
It is not difficult to guess that until the total amount of volume from the level is purchased, the price will not move higher.
We have come to the most important thing, namely the reasons for price changes. Passive participants form levels of supply and demand at certain prices and with a certain volume of "goods" for purchase or sale.
Aggressive participants - they disassemble levels in the literal sense of the word. At the moment when you send your broker
Market order to buy or sell, you interact with the nearest Limit order.
This interaction is expressed in the following format:
You submit a market order to buy 100 contracts.
The broker finds the nearest seller and matches your orders with each other
The limit seller gets the opportunity to sell, and you, as a market buyer, get the opportunity to buy.
Please note that a market order does not contain such a parameter as "Price". In fact, you receive a guaranteed volume, but do not know the final execution price.
Simple example:
You were sent to the market for apples and told to buy 30 kg.
You came and noticed that the grandmother has 10 kg, who sells it for 5 yuan, and you can buy the remaining 20 kg for 7 yuan.
You are told to buy 30 and you have no choice, you take 10 at 5 and 20 at 7, getting an average purchase price of 6.6 yuan per kilo.
Your action resulted in you moving the bid price to 7 yuan per kilogram. You dismantled the passive bid level with your aggressive demand.
Let's return to the table again, but this time we'll take into account the price mark section (lower table).
On the left you see a market order to buy 100 units.
The broker is looking for the nearest ASK price of 2041.25 with a total volume of 150 contracts.
In the section we see that the volume is formed by different sellers with different position sizes. Your 100 units at market will be bought from ABC, XYZ and KLM.
Will the price move? The answer is no. Because the volume of orders at the level is higher than your aggressive order volume.
Congratulations, you are one step closer to understanding market processes!
It is worth understanding that a market order will not necessarily be instant. There are so-called pending Stop orders, which are often used to place stop orders or for breakout strategies.
Buy/Sell Stop orders are market orders and similarly analyze levels. If you look closely at the diagram of placing this type of order, you will see that a Stop order to buy is located above the current price, and a Stop order to sell is below.
An example of the impact of this order on the price:
You opened a purchase at a price of 10, expecting an increase to 13, but insuring yourself against loss in the event of a price drop to nine by placing a Sell-Stop order.
The price reaches 9 units and your pending order is executed.
The execution type is market, meaning you sell to the nearest limit buyer (BID price). If your order volume is greater than the limit order volume, you move the price down.
Now you understand that the chart is held at a certain price level due to the lack of a sufficient number of aggressive participants for a price breakout. And in the event of a breakout, the price often "flies out" with an impulse due to the large number of collected Stop orders, since they, similar to market orders (Market/MKT), disassemble Limit orders.
We have analyzed the reasons for the price movement.
The question is: "Why does the price sometimes hang in a range?"
There may be several reasons:
Lack of driver for market movement (no macro or fundamental background)
Position gains by major players
We are, of course, interested in the second case, because we want to work with large amounts of money, getting into profitable deals more often.
The market is kept in a range due to those same limit levels on price boundaries, but how can one still understand the reason for the price delay?
Volumes come to the rescue.
Vertical Volume is a quantitative indicator that shows the total number of contracts/lots/units traded in a specific interval.
To put it simply, it is a vertical column under each candle/bar that shows the amount traded per unit of time (linked to the timeframe for drawing).
The volume indicator is available in any terminal, but for research (analysis and search for ideas).
In the picture we see an indicator of the presence of volume within the range, which indicates that players are accumulating positions.
The volume indicator shows us something like a "cardiogram" where the market has a "pulse" that characterizes its activity.
And already in this picture we see that the price has entered the range, which contains minimal volumes and a smooth "cardiogram". We conclude that in such examples there is no accumulation, but simply no driver for movement.
The driver may be absent during a session with low activity, on trading days when there are general holidays, etc.
We must strive to find accumulations, and therefore ranges in which there is trading activity. Without volumes, this will not be possible.
For us, accumulations with high trading activity are important precisely because when the price is within certain boundaries, large players can, thanks to algorithms (methods of automatic order execution), accumulate the required volume within the framework of prices that are understandable to them.
You already know that limit orders help control the execution price, but imagine a situation in which one participant tries to gain a huge volume with a limit order in a moving (directional) market. Most likely, such a volume in the order book will "scare" the market and it will simply change direction.
To prevent this from happening, such participants form the required volume in accumulations or in counter movements (counter-trend).
The accumulation took place and the chart "shot"
It was not in vain that we studied market mechanics at the very beginning of the lesson and now we can understand the reasons for such movement.
Firstly, the market aggression of buyers reached its peak and Sell Limit orders at the upper limit of the range were taken apart (or the insurance orders of large players were removed in order to “release” the price in the direction they needed).
Secondly, Stop orders located above the maximums of this range continued to move the price due to the parsing of Limit orders.
Our logical conclusion about this situation is that major participants have gained positions and, based on the directional movement, they are already in profit.
Great news for them, and a strange benefit for us. That's probably what you thought, but we're talking about a trading strategy, so there is a benefit to this kind of price action for us.
We, as competent traders, will look for logic in everything (this is what distinguishes us from the artists and dreamers🤡, whom I mentioned at the very beginning of the lesson).
The preceding directional movement tells us about the active interest of aggressive market participants in this instrument (they are ready to buy at higher and higher prices).
The price exit from accumulation (in the same direction) confirms interest not only from small market participants, but also from large players who participated in accumulation.
All these accomplished facts give us nothing but the desire to keep an eye on this instrument, because a hint of a trading pattern has formed on the chart.
Let's imagine ourselves as a major player who, using algorithms (TWAP, VWAP, etc.), accumulated the required position volume in the instrument:
1. I have filled the position completely 😊
2. Didn't get enough 😭
In the first case, it may happen that the total number of small participants who were able to “get into” the movement is too large and these passengers need to be “dropped off” (your favorite scenario, when you just entered the movement and it turns around).
To do this, large participants form counter limit orders at the moment when the main aggression fades and, in parallel, hedge through a related instrument (option, futures, spot).
This leads to a price pullback.
In the second case, the price has already left accumulation due to excessive interest in the instrument, but large players, at the moment of fading aggression, form a similar strategy for resetting the price (which is basically described above) and, in the counter-trend, make up for the missing volume.
This is done in a counter-trend, since market participants, having seen a reversal, perceive the new direction as the main one and open new transactions in its direction, or begin to get rid of existing ones (if a purchase was opened, then when the price declines, a small participant begins to sell the asset).
For example, a major player needs to buy, therefore, he needs sellers (having formed a downward movement, the public is provoked into sales).
Phase I is the preceding movement, which demonstrates interest in the instrument.
Phase II - accumulation of positions by large players (we must check the volume).
Phase III is the exit from accumulation, which confirms the participation of not only small players (retail), but also large trading participants.
Phase IV - price return for one of the above reasons (removal of extra "passengers" or under-filling of the position).
As you have already noticed, we are interested in returning exclusively to the area of our accumulation range. From this point in time, having understood the mechanics, we can call it the "Base".
The accumulation base as a return point is a trading scenario based on a correction relative to the leading direction. That is why we take bases that contain all the above-mentioned phases in a clear sequence.
What does the correction to the Base give us:
The assumption that a major player is manipulating the price to his advantage
A clear entry point
A clear stop order to limit possible loss in a situation where we were wrong in our assumption (or due to a change in trend due to news)
These three points are the components of a Sound Trading Strategy.
Any TS (trading strategy/system) must contain logic on which the descriptive scenario is based, a clear entry point and a clear exit point.
I repeat once again for the "back desks". The strategy must necessarily contain a clear and understandable algorithm for setting the entry point and exit points (exit with a loss and exit with a profit).
I specifically added an example with a loss-making situation so that you would not suddenly believe that this TS is loss-free.
Entry into a position is carried out from the upper border of the base at the level that was most often tested by the price.
Exiting at a loss (something we can control in most cases) occurs after the price crosses the back of the base.
Exit with profit is realized at the opposite level with the opposite logic (if the base is on demand, then the target is the supply level).
Horizontal volume is the distribution of the number of contracts/lots/units traded at a specific price. This type of indicator shows us the main levels in the selected area, often this is necessary to determine a profitable entry point on a broad base and to set a high-quality target.
As I mentioned earlier, we need horizontal volume to determine the entry price on a broad base (the concept will be discussed below) and to correctly set the target.
In situations where there are a huge number of technical levels in the price’s path, we can get confused and ultimately not fully understand what to choose from this abundance.
A clear example of this is in the graph above.
To correct this situation, we take a fixed volume profile and apply it to the selected area.
We will be interested in the so-called maximum volume level or POC (point of control). A profit target is set before it.
In situations where there are standard deviation levels (maximums/minimums) in the way, there is no need to use the volume profile.
Here are standard situations with bases: entry from the border, stop order behind the lower level of the base.
Turn your attention to the first base, where the target is located on a classic mirror level (the volume profile is not needed here, since the level is very clearly shown).
On cryptocurrency exchanges, the volume will differ and I recommend taking a comparison of charts of the same instrument.
Place charts from top exchanges in one window and find the "golden mean" in horizontal volume.
Well, ladies and gentlemen, I hope you found it interesting and that my work in the direction of education is done.
You can trade this miracle on TF starting from 1 minute, preferably on liquid instruments like$BTC $ETH $BNB etc.
Sincerely, your grandfather.
