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I always go into the session with a directional bias, which is based on the value areas of the prior day and the value area of the current day as determined by either the pivot range or the VWAP. That bias needs to be changed, if not confirmed by price action.
Below is a sample chart. In the beginning of the trading day
-> price is below yesterday' VWAP (1)
-> yesterday's VWAP is below the value zone defined by the VWAPs calculated over the prior 2 and 3 days
This is as good as ideal order moving averages and describes a downtrend. As prices were trending down yesterday, you may expect a mean reversion price move back to test value. My bias is short, and I would try to enter a short position near value (near yesterday's VWAP, near upper2SD band of today) in order to ride the trend, if it continues. My first exit would be near the lower 2SD band.
The first decisive battle took place at yesterday's low. The first swing saw prices down to 134'17. Price then retraced to the current day's VWAP. The problem now is the second swing. The bears could not drive prices down to perform a real test of yesterday's low, but the bulls took control shortly after the open of the bond market.
When price took successively out the night session high and the value area, it was clear that the bulls had taken control, and the bias had now changed to long.
Thanks for your interest. I use InvestorRT for my charts and those are custom indicators I developed for my trading method. Forgive me as I have not disclosed the exact calculation and this is my first chart post outside of my Elite Journal. All I have disclosed thus far is that the levels are based off of price action and market internals.
I originally coded the lines to help me identify and manually back test how I was interested in trading the ES. As I reviewed the lines I found they often appeared to act like dynamic support and resistance areas. It has taken some time and patience to figure out my trade entries around these lines and I'd have to say I'm still refining the details. I consider the level set at the close of the bar and the way I calculate the level the value will not change. It may not be obvious from last Friday's charts, but price action can change the level. A good example of this is in the 1-minute chart.
You can see just before and after the 9:20 time mark where a secondary level (fine green line) was pushed lower for three consecutive minutes until it merged with a primary level (bold green line). I revised the chart and added Red Arrows to show the area. Note that even the Primary level gets pushed lower just before my entry criteria is met. The labels 1 and 2 on the chart point to the bars that defined my entry.
My point for this thread was that I feel volume helps point the "immediate" trend direction. I forgot to warn that you have to be on the lookout for spike volume reversals that indicate the end of the trend and not the actual trade direction.
John, thanks for the reply and detailed explanation. And good job on coding those indicators. I remember a while back wanting to ask you about the volume indicator with the line showing past volume levels by comparison. Kudos on both of them!
I tend to avoid most indicators as the lagging nature of them conflict with my generally aggressive style of entering trades with a preference of price over conformation, but I must admit there are a few out there that catch my eye, and those two of yours definitely do that.
I'm new to trading (2 months new, still in SIM), and I'm subscribed to about 60 futures.io (formerly BMT) threads (of which your Journal is one of them), so I just want to thank you for journal and posts, I find them informative and helpful to my learning process.
Nice thread and pretty relevant. I had the same problem for discretionary...never was into automated/mechanical. Going in head strong with a bias. For ex:- if i had a long bias i would keep getting long no matter what the market did. Stuff never would sink in that hey move on ...the market is not long. Same applied to shorts.
But after looking at market structures, key areas and ofcourse volume n tape....i changed to move direction at will if the market showed me. Recent ex:- everything on last friday indicated that market is long and you could see that ..hence my shorts were quick fades and out. The volume n tape can tell a story.
So basically if I am wrong I will get out of a losing trade as fast as i can....at times before it hits my stops. What i think helps me is also this thinking "a)markets are right....follow the market. b) the market can do whatever it wants at any point c)my view in the market can be right momentarily but if wrong go with overall market tone d)market can humble me at an instant so i will not fight the market e) market such as ES can whipsaw at anytime so keep losses small f) let market hit my stop, i will not move my stop.....will come back to fight another day
So this was two years ago. A lot has changed since then. Directional bias may still be there but I can change it at the drop of a hat now. It just took time in the charts and the knowledge that even though I might have a bias, the market just doesn't care.
I now trade only with what the market says to do. A few days ago I was short biased all day but ended up with only one short trade. Everything else was long.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
Make it easy on yourself and think about the fundamentals of what moves the market.
What moves the market in very simple terms?
Money in money out.
More money up the market goes up.
More money down market goes down.
How to find the bias
Become good at reading order flow. Order flow is how you track the money and how you track big players. The players that move the market.
You dont need to know what direction the market is going. What you need to know is what they are doing. And when they step up to the plate so do it.
Its not how money reacts to price. Its how price reacts to money.
A trader could be buying a shit load and the market isnt moving up? Why is that?
Maybe theres some larger trader selling at that price because he bought 4 ticks lower and is trying to cover. If he has more size he will push the market down. Simply speaking that is.
Follow the money. That's how you develop the bias.
I have this problem also, and at this time I just walk away. Case in point was last Wed. I wanted to get long for the "run to new highs", and it did not work out at all. I got long shortly after 9:00 CT. Thought we had found support there, and just got ran over. Only good news is, I took the stop and walked away.
(I had a buddy who just would not take a stop out, I have seen him upside down 30 handles. Unfortunately he is no longer trading.)
I still think it is better to pick a direction and trade that way. Maybe with more experience, I will be able to, for example, be short in the am, long after lunch. We'll see about that.
Thanks for posting the topic. I think this is very important.
