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Trading Value (not price!) – A Real World Example Say I want to buy a new car…. I go on TrueCar.com and I get this chart of all the reported sales, So I know what everyone else has bought it for, what the average price is, etc. A) I find a dealer advertising the car brand new for $33.5k – Great! B) I find all dealers advertising the car brand new for $25k – Wait what? – What happened to the value of the car? Something’s changed! Do I still want to buy it? Is $25k the right price?? C) I find all dealers advertising the car brand new for $45k – Wait what? – Why is it so expensive now? Do I still want it? If I don’t buy it now, will it cost more later?? 2

Trading Value (not price!) – A Real World Example By knowing the car’s “value area”, I know: what everyone else bought it for, what’s a good price, what’s a steal, and at what price I’m the sucker at. But also knowing the value area, I can recognize when the price is outside of range and more actively participate in price discovery: – Below value: How low can I buy it for? I’ll wait to find out. – Above value: How low can I buy it for? How high will the price go? I can’t wait, but the seller can! 3 Value Area Low Value Area High Point Of Control Buyer Wins Dealer Wins Price Discovery Zone: Best Trade Price Unknown “ Do I hear 30…25…20…15…?” Price Discovery Zone: Best Trade Price Unknown “Do I hear 40…45…50…55…?”

Trading Value (not price!) 4 Value area on stock charts works the same way. Volume is charted on the X Axis and a profile is created. 70% of the profile is the value area. Buyers In Control, Sellers Step Away Sellers In Control, Buyers Step Away Price Time Buyers In Control Sellers In Control Fairest Price to Do Business Value Area Low Value Area High Point of Control Discovery (Auction) Zone “Do I hear 50…45…40…35…” “Do I hear 60…65…70…75…”

Trading Value (not price!) 5 Price Volume Price Time The Trading Plan: Participate in Price Discovery (Auction) Zones B – Buy A – Above S – Sell B – Below O – Or W – Wait W - Within I wait for breaks of the value area, I buy on a break above, I short on a break below. And I am cautiously watching/waiting when inside value.

Trading Value /ES on the 5min: Trading inside of value all day. How can it be traded? 6 Buyers Win Sellers Win

Trading Value (not price!) Example: /ES on the Daily: 7 Break above value, still bullish. Value Area Dec Jan Feb Bullish break above value

Introduction to Value Area Trading /CL short using 5min chart and provided targets… $1,200 profits and counting… In ThinkOrSwim add the study to a 5minute chart and use the following settings: Row Height: TICKSIZE Time per Profile: DAY Multiplier: 1 On Expansion: No Then draw lines from the previous day’s value area into the future so that you can reference it for trading the current day. 8

Introduction to Value Area I closed the /CL short position from at 51.12… $1,680 profits… Why? 9 Support at bottom of value for the week Daily Value Weekly Value