Introduction

The Volatility Response Model (VRM) is an algorithm that calculates short and long term trend channels and daily and weekly support and resistance levels. These form the road map through which the price action will move tomorrow and next week. The levels can be used on charts to follow the price action using an Exponential Moving Average (EMA) channel described in more detail on our Practice webpage.  The levels are colour coded and styled to show type.  Here are some examples with the EMA channel included.  The last section on this webpage describes the track record achieved by the VRM on the Forex Forum at trade2win.com.

Contents

  • EUR-USD long term trend channel
  • USD-CAD short and long term trend channels
  • GBP-USD daily and weekly VRM support and resistance levels
  • GBP-USD, EUR-GBP & EUR-USD triplet - 30 minute candlesticks
  • US Nonfarm Payroll - 1 hour candlesticks
  • GBP-USD, EUR-GBP & EUR-USD triplet - 10 minute candlesticks 
  • GBP-USD long term trend channel
  • trade2win Forex Forum
  • Summary
  • EUR-USD long term trend channel

    The chart below shows the top, middle and bottom of the long term trend channel in green for the FX pair EUR-USD.  The high, low and close each week are shown as black vertical bars with a red tab for the last 50 weeks.  From the 26th February 2018 EUR-USD has always closed the week below the middle of the long term trend channel, indicating a bearish market.  A bullish market has the weekly close above the middle of the long term trend channel.

    USD-CAD short and long term trend channels

    The chart below shows the top, middle and bottom of the long term trend channel in green and the top, middle and bottom of the short term trend channel in blue for the FX pair USD-CAD. The high, low and close each day are shown as black vertical bars with a red tab for the last 50 days.   The collision of the middle of the short term trend channel with the top of the long term trend channel about 26th June 2018 can be seen.

    GBP-USD daily and weekly VRM support and resistance levels

    The image below shows the weekly VRM levels in the top 3 hour candlestick chart for the week ending 9th March 2018 and the daily VRM levels in the bottom 30 minute candlestick chart for the day 9th March 2018 for GBP-USD.  The EMA channels are also shown.  Levels are colour coded and styled for identification.  GBP-USD can be seen moving between the weekly VRM sentiment levels lasting 5 days.  On Friday the 9th March the GBP-USD can be seen rallying to a cluster of three daily VRM levels.

    GBP-USD, EUR-GBP and EUR-USD triplet - 30 minute candlesticks

    The VRM algorithm exploits the arbitrage effects of triplets.  Here is an example for the triplet GBP-USD, EUR-GBP and EUR-USD.  Since

    EUR-GBP  X   GBP-USD   =   EUR-USD

    then the three FX pairs will move about their respective VRM levels in a coordinated fashion.  

    The image below shows the 30 minute candlestick charts for GBP-USD, EUR-GBP and EUR-USD on 13th April 2018.  The top row of charts shows the weekly VRM levels.  The bottom row of charts shows the daily VRM levels.  The three FX pairs can be seen coordinating their movements between their respective levels as the day progressed.

    US Nonfarm Payroll - 1 hour candlesticks

    Here is an example of GBP-USD, EUR-GBP and EUR-USD coordinating their price action about their respective VRM levels on 7th September 2018, the day of the US Nonfarm Payroll.  The top row of charts show 1 hour candlesticks for the three FX pairs with the weekly VRM levels shown.  The bottom row of charts show 1 hour candlesticks for the three FX pairs with the daily VRM levels shown.  The EMA channel is also plotted in all the charts.  EUR-USD can be seen bouncing off its short term trend channel middle at 1.1649 with GBP-USD rising to its high at daily level 1.3021.  Meanwhile EUR-GBP fell from its high at weekly level 0.9001 to its low at daily level 0.8921.

    GBP-USD, EUR-GBP and EUR-USD triplet- 10 minute candlesticks

    Here is another example of GBP-USD, EUR-GBP and EUR-USD coordinating their price action about their respective VRM levels on 20th July 2018.  The top row of charts show 10 minute candlesticks for the three FX pairs with the weekly VRM levels shown.  The bottom row of charts show 10 minute candlesticks for the three FX pairs with the daily VRM levels shown.  The EMA channel is also plotted in all the charts.

    GBP-USD long term trend channel

    The top, middle and bottom of the short and long term trend channels are places where bounces are likely to occur.  The image below shows the 1 hour candlestick charts for GBP-USD on 18th July 2018.  Weekly VRM support and resistance levels are shown together with the bottom of the long term trend channel coloured blue.  The EMA channel is also shown.  The bounce off the bottom of the long term trend channel at 1.3019 can be seen.

    trade2win Forex Forum

    VRM predictions have been posted on the trade2win.com Forex forum from December 2017 through September 2018 on a daily basis.  These predictions covered the 24 hour period ending 5 pm New York local time.  Actual results for this period were then posted to the forum thread after the New York close.  The charts of results include 5 minute, 10 minute, 30 minute and 1 hour candlesticks.  During this period there were more than 50,000 views of the thread.  Click on the next link to see the predictions and results.

    trade2win Forex Forum - Predicting future FX support and resistance levels using mathematics

    Summary

    The VRM provides a road map of future support and resistance levels for an FX market.  The interaction of the price with these levels as the market evolves is best seen with an Exponential Moving Average channel.  To find out more about the VRM use the link below to read the theory webpage then follow the link at the bottom of that page to find out about the format of the VRM charts and how this is put into practice.

    Theory > Charts > Practice >