What is cluster analysis in Forex trading?
The main objective of a successful Forex transaction is to enter the market in the same direction that large investors consider promising. To search for strategic places where large merchants pour smart money, a volume analysis has been developed. How to determine the price levels at which significant cash injections into the asset occurred? What is cluster analysis and why is it needed? Where can I find information on trading volumes and how to use it in practice?
Cluster Analysis Definition
A cluster is called a specific block or element with its inherent properties. In the financial market, this is a horizontal block with information on the volume of trading held at each specific price. Each candlestick consists of a group of clusters, so the chart has an unusual appearance. Looking at the home screen, you can get much more information than in the case of a bar or candle display of prices.
Clusters are a kind of “cut” of a candle. Each unit corresponds to a specific price. There is no information on volumes in the Forex market, just as there is no single operations processing center for the spot market. Volume data refers to the futures for a specific asset. This information is used by Forex traders for intraday, medium and long-term trading.
Cluster analysis is a market research based on volumes at each specific price and the application of this information in their trade. What tools are needed to implement it? What basic concepts does a trader seriously studying the topic of volumes need to know?
The working area (black screen) is presented in the form of Japanese candles, however, their appearance here is slightly different than in the MetaTrader 4 trading terminal. The body of the candle looks like a vertical dashed line in green and red (ascending and descending candles, respectively). The clusters to the right of the candle contain information on trading volumes at this price. Filled lines with volumes above and below the body of the candles are its shadows.
There are two important terms in cluster analysis. Market profile or Market profile is the total volume of all transactions that have passed over a given period. It is located on the left side of the screen opposite the price in the figure above. In other types of cluster graphs, in addition to numbers, the Market Profile contains a visual part of the information. So, for example, in the footprint chart near the volumes there is a histogram that clearly shows the ratio of sellers and buyers.
Where to find the cluster graph?
Cluster analysis in trading is not the most common among traders, so in standard terminals such as MetaTrader 4 you will not find the display of prices in the form of clusters. Cluster chart is in the ATAS and Volfix trading programs. If you trade in the MetaTrader 5 platform, you have the option to set the YuClusters indicator. Unfortunately, you have to pay for it.
The Footprint indicator is available for the Ninja Trader trading platform. Access to the terminal is possible only after payment, however, if you intend to trade with your broker (for example, at Forex4You or Alpari), you can use the free demo version for conducting cluster analysis of the market. The validity period of access to the demo account is two weeks. To take advantage of the platform for longer, it is enough to re-register every 14 days.
It is also possible to see the cluster graph online on the ClusterDelta website. Among the disadvantages of this method, it is worth noting the delay in data flow by 20 minutes. For intraday trading, this method is not suitable, and for the work on long-term strategies this delay will not have a significant impact.