Yesterday the 1m and 1597tick chart told the same story of the sell-off in the June NQ futures contract.

It's a story about price range per bar and per wave in comparison to the volume traded, and it's over 100 years old. It was first told by Richard Wyckoff and it's still as actual and useful in today's markets as it was then.

Supply overcame demand which led to a markdown followed by an accumulation phase. After making a double bottom price printed the 1st higher high (HH) followed by a spring where buyers stepped in (Sign of Strength, SOS). The sellers tried once more to take price down but the heavy volume on the test of the low/spring wasn't enough to make a new low (Effort vs Reward, E/R) indicating that selling was absorbed by the buyers. Once it was clear a low was in, and defended by the buyers, one could go long with a stop below what now had become support.

230502_NQ_1597t


230502_NQ_1m

Trading the FOMC. I am not a big fan of using exotic charts with all kind of indicators disturbing the view on price action but I think it's important to use charts which represent price and volume best in terms of trend, momentum, levels, liquidity pools and effort versus reward. One such chart is the Point-and-Figure chart.

I used a 4x2 PnF chart with HiLo bars for judging price movement of the June '23 ES futures contract. After the two o'clock FOMC Statement price made a (double bottom) swing low followed by a swing high establishing a range. Sell and buy orders gather below and above this swing low and -high providing liquidity ($$$$).

Half an hour after the FOMC Statement price broke through the low. Large operators used the liquidity provided by the resting sell orders to build a position. The OverNigth Low (ONL) was tested and acted as support. Then price was markedup and the same occured on the other side at the swing high. Here, at higher prices, they sold their longs and build a short position for the big move down. After the move up from the low, price printed a flag with a resistance level clearly visible on the PnF chart. Within the flag prices made higher lows. The last red bar before the breakout showed who was in charge. This bar traded as much contracts as six red bars prior but the range was short (E/R) and it didn't make a new low. Supply was absorbed by the buyers. I bought on the breakout for a run to the high and sold at the prior swing high target for 5.75 points. I should have sold the high after that (while cheering my winner). That's for next time. Know what to look for, and when.

230503_ES_4x2_PnF

A lot is happening in one bar. Demand is met till there are no more buyers left anymore, ending in a failed breakout.

It no longer belongs to the Dutch anymore but be warned we are still here.

On perfection

"Il semble que la perfection soit atteinte non quand il n’y a plus rien à ajouter, mais quand il n’y a plus rien à retrancher."

“It seems that perfection is attained not when there is nothing more to add, but when there is nothing more to remove.”
-Antoine de Saint Exupéry

Late David Weis reintroduced the idea from Richard Wyckoff to look upon price movement as waves. He developed the so-called Weis Wave to enable us to see the volume traded per wave and as a result we should be able to foresee potential price turns. I use a Point-and-Figure chart to visualize price waves, for example 3t waves in the ES or, as in this case, 4t waves in CL.

A Point-and-Figure chart is a very straight forward pure price based chart which represents price action very accurate. There is very little filtering as is for example in a 1m or 5m chart. The only filtering is the number of ticks before changing direction. Based on the range of the bars/waves in relation to the volume one is able to determine strength or weakness in the market. It's like a tape reading chart.

Below is a 1x4 PnF chart of the CL September '23 contract. I could see the small bull bars after breaking out with deminishing volume followed by wider bear bars on increasing volume signaling supply is coming in. I waited for a last push up on little volume and sold on a break of this low volume no demand bar for a 10t counter-trend scalp with a 5t stop just above the entry bar.

230718_164603_CL_PnF



I am not sure people like to see this kind of executed trades?

.

Not all trades go that smooth. This morning I went long the DAX but I was a little early. There was a sign of diminishing supply but not a clear sign of increasing demand yet. I got scared and bailed out for +4t. It seems better to place my stop just below the low and let the trade go, win or lose. A second error I made was to not re-enter on a pullback after seeing the higher volume bull bars on the PnF chart. But yeah, after trading for 10+ years I got used to the fact that there is always something I could have done better. It's important to keep one's composure and to not get frustrated.

Don't try

"You don't try. That's very important: not to try, either for Cadillacs, creation or immortality. You wait, and if nothing happens, you wait some more. It's like a bug high on the wall. You wait for it to come to you. When it gets close enough you reach out, slap out and kill it. Or, if you like its looks, you make a pet out of it."

-Charles Bukowski

Mies 

I am not sure people like to see this kind of executed trades? .

Of course. This is why people read other people's trade journals -- to see what they did, why they did it, whether it worked, whether it's something they would like to try.

Bob.