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Swing Trading the ES - simplicity and understanding price levels
It can be rather straightforward to look at the day's trade and see that a market is likely to sell lower due to trapped longs, for example, and looking at how traders are positioned and knowing the psychology behind such a move is a big edge and can be exploited.
Looking at larger macro themes, however -- you cannot possibly know what happened. The movers of the market know why things happened, but unless they told you, you don't know either. If you assert that you do, I'll ask you to prove it, and you won't be able to do so. I'd argue that it is not only not important, but it's harmful for most people to think this way.
The curiosity to know why a market moved can be a dangerous curiosity. Why? Asking the question presumes that you *can* know, and it introduces the thought that knowing is important. Not only is knowing not possible, but it is not important, in the least. When we formulate our opinion of why the market moved, it's usually to validate some desire we have to be right. Wanting to be right is even more dangerous, and strengthens the notion that being right is important, when being right is not critical to success in the least.
So, yes, thinking of how traders might be positioned and where liquidity might reside is an edge in itself -- but once we start labeling "smart money" and "algos" and "the fed's stepping in here" and the like, we are really guessing because we have no way to validate the guesses and it detracts from what is actually important.
I myself have once said that "indicators are useless" -- I've come to appreciate, however, that, even though I don't use traditional indicators, they may be useful to some and they may derive an edge from their use. Stating that "X is useless" as a fact, while some actually have proven the usefulness of X in the form of consistent profits, might mean that your perspective is simply not encompassing of their view of the market.
The curiosity to know why a market moved can be a dangerous curiosity. Why? Asking the question presumes that you *can* know, and it introduces the thought that knowing is important. Not only is knowing not possible, but it is not important, in the least. When we formulate our opinion of why the market moved, it's usually to validate some desire we have to be right. Wanting to be right is even more dangerous, and strengthens the notion that being right is important, when being right is not critical to success in the least.
Josh I agree with your post and I'm not sure my post was clear enough, but hopefully, the following will clarify my position on the matter:
While I agree with you, my previous post may actually just prove your point. I was just trying to point out the fact that to profit, a trader must be able to decipher what's going on under the hood of the market because In the long run, market will rearrange themselves to reflect their true value no matter how out of line they get in the short term. I'm sure you are aware of the fact that tracking market participants is the next best thing to having a crystal ball to read the market.
Big money leaves trail and only by looking at specific things, one may be able to form an assumption and position themselves accordingly. I find dealers positioning to be the most important and crucial piece of information there can be out there. The clues are in the data, one just has to be able to know what to look for. While I'm by no means an expert on the matter, trying to understand the other side has profoundly changed the way i look at the market and therefore changed the way I trade. Knowing what not to do is equally as important as knowing what to do. You might think everything I'm writing here is fluff but i still believe that the right assumption + price action is the best indicator there can be out there.
Now looking at the data during the most recent drop, a few things popped up
Going into December gamma was at a record high, on Dec 3rd around 25k were bought at the 2980 strike on SPX right around negative trade deal tweets and poor ISM number, ( Coincidence? I Beg to differ) creating a lot of deltas to sell. How would dealers hedge that? simply short futures.
As put buying dried up, volatility collapsed and large lots of puts get sold, more futures were bought and that created the beautiful mean reversion to 3150 high gamma strike we just witnessed. I'm oversimplifying it obviously but I'm very curious to know what your observations are.
I also wanna make it clear that this is forum that I use to learn not to pretend to be superior to anyone by displaying my views so any comment is welcome.
Thanks for the new replies and will respond in due course.
Initial thoughts is that they are classic trading responses that over complicate simple issues of supply and demand.
Some things to ponder.
With all the talk of gamma and delta, buy side and sell side positioning etcetc, it would be great people who are reading and commenting on this thread could ponder these questions. There's no need to reply if you're just reading.
Answer these questions with the following 3 things in mind:
A) On most trading days, there is no fundamental market changing news which can drive price to trade at much higher or lower prices.
B) In the absence of this market changing news, price will simply move around between major technical levels and react to them.
C) When important news that affects the markets is released, and is totally unexpected (Trump tweets or economic releases that are way outside of analyst expectations) then price will react violently as it will need to reprice to a new level to reflect this new information.
Questions:
1) When the market surprising news came out on Friday last week that far exceeded market/analyst expectations, would you have entered a position to buy or sell?
Why?
2) When price reached the beaten 30 min US open swing (Monday 12th Dec) from below and stopped dead, did you go long, short or do nothing?
3) Today, on 12th December, when price reached yesterday's highs and reversed, what did you do and why. Did you go long or go short. Or do nothing. Why?
Then answer these same questions based on the last few replies that discuss gamma, delta etc.
From an intraday swing trading basis, what helps you to understand why the price is reacting and the likelihood for success?
Apologies to Josh and TNTDollars for this post.
I think it's important not to get too caught up in detailed technical arguments that are fascinating to discuss but result in the muddying of the waters for traders that leads to analysis paralysis. I fail to see the relevance of gamma/delta discussion on an intraday swing trading thread.
Whilst the idea that "The curiosity to know why a market moved can be a dangerous curiosity" is absolute madness. If you make no attempt to be aware, on a broad level (nothing massively detailed) about the economic fundamentals of your chosen market then you're just a technical trader. You would have no context to the price action that occurred on Friday 6th December and would therefore have no idea why you were trading either long or short. That's a dangerous thing to be doing.
More soon!
Edit This oost was longer than I realised. I will respond to some specifics points that have been raised by tnt and Josh in a later message because there is a lot to go over, some of which is talked about in this one.
Then answer these same questions based on the last few replies that discuss gamma, delta etc.
From an intraday swing trading basis, what helps you to understand why the price is reacting and the likelihood for success?
I have one answer for all three questions: I have been long since October 10th (closed position today). Sold 5 2840-2820 Put credit spread expiring Next Friday. I also had 5 ES calls (2960), same expiration.
I do not day trade. I don't have the skills for it yet unless it's just an obvious move and I just happen to be there looking at the markets. But I absolutely do not stay glued to the screens and do not use a gazillion indicators. That is not for me. I Just swing trade. (only look at Pure Price action, MACD, Implied volatility, dealers aggregate positioning, dark pool aggregate positioning, and a variation of the MC lean indicator to track breadth of the market for confirmation of my assumptions.)
That is the style that fits me best. My main trading instrument is the ES (SPY and SPX for obvious move where I am 90% sure. In and Out of those the same day when I use them)
I don't try to front run or outsmart the market nor profit from news events even though I could. Just too stressful.
I look at what's presented to me and I use specific strategies to limit my risk and maximize my profit. I look at few names in the market and that is it (CL, ES, NQ, YM, TLT, AAPL, FB, NFLX, AMZN).
I mostly trade credit spreads ( also use iron condors sometimes when trying to bait the market) and go directional only when I have to. I make sure to sure to go out in time (lots of theta) when trading credit spreads and just break the legs and flip my deltas In the event my assumption is wrong. Only sell credit spreads when IV is greater or around 50%
I then use proceeds from trading to create real wealth using compounding (there are a lot of ways you can do this) and by investing in real assets. (perhaps The greatest thing I have learned from my mentors, when it comes down to wealth generation) That allows me to still have a life while enjoying my passion (trading)
Apologies to Josh and TNTDollars for this post.
I think it's important not to get too caught up in detailed technical arguments that are fascinating to discuss but result in the muddying of the waters for traders that leads to analysis paralysis. I fail to see the relevance of gamma/delta discussion on an intraday swing trading thread.
If you knew the amount of information you could get from the options market you would not be saying this. And to answer you, you absolutely need to know dealers positioning for swing trades. Absolutely my friend. I can't say much about day trading because that is not my arena since I'm still learning how to build automated systems (even though i'm sure you still do need to know positioning) but for swing trading it's a must. You need to know in which direction to trade and only by knowing (AGGREGATE) positioning from the main players can you form an assumption that if true can lead you to profit and not get ran over by a truck.
Whilst the idea that "The curiosity to know why a market moved can be a dangerous curiosity" is absolute madness. If you make no attempt to be aware, on a broad level (nothing massively detailed) about the economic fundamentals of your chosen market then you're just a technical trader. You would have no context to the price action that occurred on Friday 6th December and would therefore have no idea why you were trading either long or short. That's a dangerous thing to be doing.
I agree with you. This is true but again how can yo make an assumption without knowing big players positioning?
"I read somewhere that the only way you can be successful at trading is by "looking at the market through the eyes of other market participants." Who are those market participants? The buy side, the sell side and us little discretionary traders. The buy side looks at fundamentals, the sell side is there to provide liquidity, the discretionary traders are just completely clueless."
Remember we are still in a secular bull market. Earnings season is over and , 74% have beaten EPS expectations. This continues the trend seen in earnings for the past several years, especially since 11/8/2016 when earnings began accelerating. "hold price constant and move time forward and the market becomes undervalued". Assuming the S&P grew earnings 15% over the period, SPY should move to 334. Also The bull market is not over as we still in phase 2 of the economic cycle, the longest phase. Even if we drop to 2500 on ES now, I wouldn't be concerned. Most buy side analyst see us reaching 3500 because it's time to really start getting super cautious (of course a number of factors can invalidate this assertion as nothing is ever set and stone when it comes down to investing. But for now, I agree with their view)
It's important to know how this games works. The buy side closely track the real valuation of the market. The sell side is there to play both sides and help the move money for the buy side and act as liquidity providers for the big boys. They do this by using the news and other binary events to provide liquidity for them to reorganize their books.."
This makes little sense when applied to this thread. The subject is intraday swing trading. This shows that you and I are on different wavelengths.
You are talking about long term positioning as we are in a bull market. I don't do that. You do. I do look to see areas where big traders get involved, and look to see signs that they are jumping on in a way that means I can trade with them. They are what drives the markets after all.
Did you read the first post of this thread? I'm not sure that you have as you don't really discuss anything I have said. In later posts you have said that I can't possibly hope to know why price has moved because I don't know about positioning in the options market. Huh?!
I was short the SandP this morning (UK session) due to my own rules and ideas. But if I followed your idea I would not be short at all and only looking to buy because we're in a secular bull market. You are trying to fit your style of trading over my own.
Do you really think the market bounced on China trade deal hope? Absolutely not
this is what actually happened:
Donald Trump reimposed sanctions on metal (Argentina and Brazil) to send a signal to China that this time around he won't be messing around and at the same time tweeted about delaying phase 1 deal to get the market ready for the possibility of a "delayed resolution". Some algorithms induced selling on the news and the crowd followed. Price went pass the expected move triggering reaction from the market makers. The result is this mean reversion that we are currently observing.
When looking under the hood of the market, it was a purely mechanical move, yet it is reported as china trade optimism. Truth is, market makers are super exposed (look at third week of December SPX options expirations' and it will provide clues) and they always seek to remain delta neutral.....so when the price deviates too much from their "gamma neutral lines" they have to readjust their positions accordingly. This is a huge topic so I won't even open that door.
But I hope you can see where I am going with this. All indicators are completely useless. The only thing that matter is only to be able to see what the other side is doing. Let me know what you think.
As you have stated elsewhere you don't trade news. Fair enough. I do. I wait for big news to hit the wires that is against market expectations, therefore I can enter very quickly on the (very) brief pullback safe in the knowledge that the market has to reprice to different levels to reflect this new situation.
As I do trade the news, I was there when the market changing news came out which you are referring to. And I did very well on it too. As you state you don't trade the news and therefore weren't looking at the ES/SPX when it came out. I was. The market jumped as soon as it was released. So were the two unrelated? No. So how did I do it-luck?
Was it also luck when the surprise numbers came out on Friday meaning that I could go long safe in the knowledge that price had to move higher in order to reflect this new information? From what I can see it appears that this is what you're saying and you're stating that market makers balancing their books are responsible. I'm sure you're correct. But the thing is that there was no news to justify the price moving to new levels for the actions which you describe. The news provided the impetus. I traded the resulting move. You need to know the mechanics of it using gamma/delta/theta/wammajamma but I don't. Both ways work. Although it appears that you're trying to tell me that my way cannot possibly work?
The only thing I can think of is that we are arguing over semantics which I want to avoid as too many threads descend into this and I want to keep this very simple.
Since I started this Trump has just stated that they are close to a deal with China. Price has gone batsh*t crazy and has jumped higher and I went long about 10 seconds after the jump as my news feed told me the reason why it had jumped. Fundamental market moving news that was not priced into the market.
I have 3 questions for you from the Trump statement today:
1) How do you explain the jump in prices in terms of options and gamma/delta.
2) Did it help you trade it. If so-how?
3) Did you trade it.
I have one answer for all three questions: I have been long since October 10th (closed position today). Sold 5 2840-2820 Put credit spread expiring Next Friday. I also had 5 ES calls (2960), same expiration.
I do not day trade. I don't have the skills for it yet unless it's just an obvious move and I just happen to be there looking at the markets. But I absolutely do not stay glued to the screens and do not use a gazillion indicators. That is not for me. I Just swing trade. (only look at Pure Price action, MACD, Implied volatility, dealers aggregate positioning, dark pool aggregate positioning, and a variation of the MC lean indicator to track breadth of the market for confirmation of my assumptions.)
That is the style that fits me best. My main trading instrument is the ES (SPY and SPX for obvious move where I am 90% sure. In and Out of those the same day when I use them)
Well that's great but this thread is about intraday swing trading. You appear to be shoehorning your longer term perspective onto this thread. And then saying, as far as I can tell, that I cannot possibly swing trade intraday and that the only way to do things is your way. But that clearly isn't the case. Perhaps if you start a thread detailing your longer term trading theories I could jump in and say that what you are saying is irrelevant, you are looking at the wrong things and then describe my own shorter term perspective as superior?
As I've said already, I don't think you read the first long post in this thread because you never seem to reference it and then talk about not using a gazillion indicators. Where did I say that I used indicators? I use order flow, areas of interest shown by high volume and high levels of participation. And then I fit this into the framework of most days not being trend days and tending to pay around technical levels/areas of interest to large traders.
I don't try to front run or outsmart the market nor profit from news events even though I could. Just too stressful.
I look at what's presented to me and I use specific strategies to limit my risk and maximize my profit. I look at few names in the market and that is it (CL, ES, NQ, YM, TLT, AAPL, FB, NFLX, AMZN).
I mostly trade credit spreads ( also use iron condors sometimes when trying to bait the market) and go directional only when I have to. I make sure to sure to go out in time (lots of theta) when trading credit spreads and just break the legs and flip my deltas In the event my assumption is wrong. Only sell credit spreads when IV is greater or around 50%
I then use proceeds from trading to create real wealth using compounding (there are a lot of ways you can do this) and by investing in real assets. (perhaps The greatest thing I have learned from my mentors, when it comes down to wealth generation) That allows me to still have a life while enjoying my passion (trading)
That's great. I do something much shorter term. We have different ways of looking at the market and they both work fir us. Except you seem to be unwilling to accept that how I look at the market has any validity whatsoever, and is essentially luck (as far as I can tell) as I don't refer to options data. Well I did pretty well in about 2 minutes today thanks to a Trump tweet, but apparently without options data I would have no way of knowing why this move happened, bor was it possible to trade it well because I don't use options data. And nor do I understand the supply and demand dynamics. Except I do. They are just shorter terms than yours.
If you knew the amount of information you could get from the options market you would not be saying this. And to answer you, you absolutely need to know dealers positioning for swing trades. Absolutely my friend. I can't say much about day trading because that is not my arena since I'm still learning how to build automated systems (even though i'm sure you still do need to know positioning) but for swing trading it's a must. You need to know in which direction to trade and only by knowing (AGGREGATE) positioning from the main players can you form an assumption that if true can lead you to profit and not get ran over by a truck.
I think I've covered this. I think you are over intellectualising what is actually remarkably easy if the news that is released is well outside of market expectations and you understand the context of how the market is positioned regarding the news and whether it has priced it in already.
Whilst the idea that "The curiosity to know why a market moved can be a dangerous curiosity" is absolute madness. If you make no attempt to be aware, on a broad level (nothing massively detailed) about the economic fundamentals of your chosen market then you're just a technical trader. You would have no context to the price action that occurred on Friday 6th December and would therefore have no idea why you were trading either long or short. That's a dangerous thing to be doing.
I agree with you. This is true but again how can yo make an assumption without knowing big players positioning?
I think this says more about your trading style than it does about mine? I can see where large traders are positioned, and just as importantly where they are not interested in trading.
You trade longer term so this positioning is more important for you, therefore you need to know where and why traders are accumulating their positions as you hold your positions for longer. That's the only thing I can say to make sense of all this to be honest.
Are you long the SandP at the moment? I am. I don't know how options traders are positioned. Nor do I need to.
Sorry if this comes across as rude I'm banging this out whilst looking at my SandP position.
It does appear that you are implying that I don't really know what I am doing though.....
This makes little sense when applied to this thread. The subject is intraday swing trading. This shows that you and I are on different wavelengths.
Absolutely Right. I even regret jumping on this as we speak. Not sure where the animosity is coming from as we are all on the same path to master this art called trading.
The only thing I can think of is that we are arguing over semantics which I want to avoid as too many threads descend into this and I want to keep this very simple.
I have stated it earlier. I am here to learn and not argue over stupid stuff. I guess it's my mistake to jump on an intraday swing trading thread in the first place. I just saw stuff about china and got over excited. Maybe I should start another swing trading thread....
I have 3 questions for you from the Trump statement today:
1) How do you explain the jump in prices in terms of options and gamma/delta.
2) Did it help you trade it. If so-how?
3) Did you trade it.
1) Algorithms and a bunch of people are reacting to positive news. Pure and simple. Nothing is negative about this market. Looks like the tweet was confirmation that there will be a deal after all. I believe market was stagnant for a couple of days because people were waiting to see.
2 and 3) I did not trade.
Looking to see how the price will behave. 3 ways this can go in my humble opinion
- We will either retest previous highs, price consolidates then the trend continues (I will then open a PCS and Go long calls)
or
- this ends up being a false breakout and I will do absolutely nothing because I'm not shorting the market when gamma is so elevated
or
- the market just accelerates and price keeps climbing (i will wait for some type of price consolidation then PCS and In the money calls)
I can't tell you the specific prices because I haven't even looked at my option chains as of yet.
Well that's great but this thread is about intraday swing trading. You appear to be shoehorning your longer term perspective onto this thread. And then saying, as far as I can tell, that I cannot possibly swing trade intraday and that the only way to do things is your way. But that clearly isn't the case. Perhaps if you start a thread detailing your longer term trading theories I could jump in and say that what you are saying is irrelevant, you are looking at the wrong things and then describe my own shorter term perspective as superior?
As I've said already, I don't think you read the first long post in this thread because you never seem to reference it and then talk about not using a gazillion indicators. Where did I say that I used indicators? I use order flow, areas of interest shown by high volume and high levels of participation. And then I fit this into the framework of most days not being trend days and tending to pay around technical levels/areas of interest to large traders.
Dude nobody is talking about you nor your strategy in particular. You haven't once read me criticize what you do. I am merely exposing what I do but ok, i'll let you take this and run with it.
Except you seem to be unwilling to accept that how I look at the market has any validity whatsoever, and is essentially luck (as far as I can tell) as I don't refer to options data
Man, Where exactly do you get this stuff from. Again nobody is criticizing you nor your approach. if it works for you...kuddos. Hope you become the next Jim Simmons
Well I did pretty well in about 2 minutes today thanks to a Trump tweet, but apparently without options data I would have no way of knowing why this move happened
Again dealers are holding the market up. As long as they are exposed they won't let the market fall too much unless there is a drastic news that pushes us towards the gamma flip point. At that point instead of volatility being stifled it will be intensified. Assumption is to trade long at least until the end of this month where a lot of gamma comes off. At that point I will simply look at internals, positioning and make new assumptions.
Sorry if this comes across as rude I'm banging this out whilst looking at my SandP position.
It does appear that you are implying that I don't really know what I am doing though
I don't care about you being rude. I joined this forum to learn and not to get into senseless ego contests. I have Been an Elite member for 3 years and what just happened today is the reason why I barely post on here and just read mostly.
Not sure where in my post you have seen me mention or even imply that you don't know what you are doing. It's absolutely incredible.
Your desire to be right in front of all these people has literally blinded you from the fact that maybe I could be offering another way at looking at the markets. Isn't that what makes BMT so special in the first place? the fact that everyone can come on here and share their views? I chose not to attack nor disrespect you nor your approach.
What I take from this is that maybe I should look more into trading news events as you do and in the event the price validates my initial assumption. I have thought it to be extremely difficult due to to my lack of knowledge in automated systems but maybe i need to explore that avenue more and try to sharpen my skills.
See? I learned something from you today sir and this absolutely will be my last "back and forth" post. I understand this is your thread and my apologies for talking about "Non-Intraday" swing trading stuffs
One thing I was told which is fantastic is that price always retraces to give you a chance to get on board. It might be very quick indeed, but it will always give you a chance. This is the basis behind my news trading set up.
Live sqwawk came up with Trump's comments that a deal with China is close as they want it and so does the US. (This chart is different as my Sierra Charts all flipped on rollover but the heavy volume still remains on the Dec20 contract. So this chart derives from my TT data feed that is still on Dec 20 contract.)
It is a volume chart set to 2000vol and is used in these scenarios where major news hits. The way to trade is to wait for a small pull back to an area where hardly any volume was traded (using volume profile) which is not evident even in 1 min charts. A quick decision is required based on the following questions-is this really important market moving news (yes) and has the market priced it in already (no). Therefore you can take the long safe in the knowledge that there are fundamental reasons behind the move.
Or you could wait for the close of a 1 minute candle and see if price is still at the highs of the one minute candle and enter long but that's way too much time for me.
Exit on first sign of heavy selling meaning that sellers are stepping in as price has moved far enough thanks very much.
Area 1 is the initial spurt higher. Area 2 is the quick pullback to a low volume area on volume profile as indicated by the arrow. My order was slightly higher as i wanted to ensure that it was filled so I could get in on the move.
If you're talking about the order entry (I think you are?) then I do it manually. And fast! There might be an algo that could be programmed how to do it but I really have no idea how you would set the parameters.
Looking at the time stamps on the volume chart over each bar (not able to post it as they only come up when hovering over the relevant bar), the move started at 14:35. 39secs. Those little pullbacks occurred at 14.35.53 secs and 14:35. 58secs.
So yes it is fast but it's tradeable.
See below for the same chart but for the payroll news on Friday. I use these charts when there is news as they derive from my broker feed so there is no chance of a lag which has occurred with my other charts before (used to use Investor RT with IQ feed data).
The chart is once again set to 2000 volume and actually doesn't give a chance to get in for a while. I looked back with a setting of 1000 volume and there was still no pullback so am happy with the settings.
The two big bars that jump higher happen over 2 seconds (13.30. 02 secs). No chance of beating that! But the three bars where the price pauses and pulls back to a low volume area on the volume profile occurred at 09, 18 and 30 seconds. Price will ALWAYS give you a chance to enter. Hope I've explained it well enough.
