Combining Carry Trading with Auction Market Theory for High-Probability Setups

Setup Definition and Market Context

This article presents a sophisticated intraday forex trading strategy that combines the principles of carry trading with Auction Market Theory. By understanding how the market auctions for price, we can identify areas of balance and imbalance and use the carry factor to trade the transitions between them. The market context is a market that is constantly seeking value, and we can use the carry to our advantage in this process.

Entry Rules

• Timeframe: 30-minute chart.
• Tools: Volume Profile.
• Entry Trigger: Enter a long trade at the Value Area Low (VAL) of the previous day's profile, and a short trade at the Value Area High (VAH), provided the trade is in the direction of the positive carry.

Exit Rules

• Winning Scenario: Exit at the opposite end of the value area (VAH for a long, VAL for a short).
• Losing Scenario: Exit if the price breaks out of the value area in the opposite direction.

Profit Target Placement

• Method: The opposite end of the value area serves as the profit target.

Stop Loss Placement

• Method: A fixed pip stop loss.
• Placement: Place the stop loss a certain number of pips below the VAL for a long, or above the VAH for a short.

Risk Control

• Max Risk Per Trade: 1.5% of the account.
• Daily Loss Limit: 3% of the account.
• Position Sizing: Based on the fixed pip stop loss.

Money Management

• Method: Fixed fractional.

Edge Definition

• Statistical Advantage: The edge comes from combining the statistical support and resistance of the value area with the positive carry. The expected win rate is around 65-70%.
• R:R Ratio: The R:R ratio is typically around 1:1.

Common Mistakes and How to Avoid Them

• Mistake: Fading a strong trend that is breaking out of the value area.
• Avoidance: Pay attention to the volume at the extremes of the value area. High volume indicates a higher probability of a breakout.

Real-World Example

• Asset: ES
• Scenario: A hypothetical long trade on the E-mini S&P 500 futures. We will show how to identify the value area and execute a trade based on this setup.