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Learning to trade the ES using volume profiling
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Learning to trade the ES using volume profiling

  #171 (permalink)
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Weekend Update with profiler

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ES is still comfortably trending higher on the monthly and weekly time frames. The daily time frame is balancing now in the 1530 to 1485 bracket area. Volatility has markedly increased in the last week coincident with spoos at 5 year hi's which could be a sign of a topping process. Edge still goes to the upside until sellers crack lower bracket area with volume.

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This chart shows the last 5 days of action which, while volatile, has clearly established fair value at 1516. So bears finally got their foot in the door and dragged price down quite a bit but were unable to pull value down with it. I'm thinking this doesn't end well for bears but the market is the boss.

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  #172 (permalink)
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3-4 pre market

Economic data: none

ON Profile: Interesting looking profile, it has the frame of a nicely balanced profile but without enough time to flesh out. ES opened below friday's settlement/vpoc and quickly headed south, apparently due to some bad chinese numbers. So we had instant rejection of fridays/last 5 days fairest price and a move down to find buyers. The low is at 1507 and we have an MP single at 1507.25 from friday that could be the reason why it stopped there. Around 6am buyers stepped in and took it up to within a tick of nvpoc before stopping and reversing a few handles to where we are now at 1514. Volume is above average at 234k. Range is 9.5 pts. Vpoc sitting right in the middle at 1511. Distinct LVN at 1513.25 which has been happening in 3 of the last 4 sessions.

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I am expecting an OAIR inside value. With no data on tap and many people looking ahead to non farms on Friday I think we have a slow, rotational day. I think the 1516.5 level is the key to the day, if it continues to reject from below then downside to maybe 1505.25 is in the cards but if it can get through and hold as support then 1524.5 looms as resistance again to the upside. And quite possibly it could just become accepted again and rotate both above and below for an outside-in type of day. Bigger picture, longer term trends are still pointing higher, short term is balancing.

Levels Above: 1519 pHi, 1524.5 double top/2-20 LVN, 1528.75 RTH hi, 1530 ONHI

Levels Below: 1513.25 CHVN/ON LVN, 1510 CLVN, 1507.25 MP single/ON LO, 1505.25 3-1 LVN, 1502.75 CHVN/LVN 2-27

Hypo#1- ES opens OAIR inside value and chops around, pushes lower first to pick up buyers around 1507 then auctions higher thru ONHI to pHi at 1519 where sellers come in and closes around 1516.

Hypo#2- ES opens OAIR inside value and chops around, pushes higher first to 1519 pHi where sellers step in and auction it lower thru the day to 1507.


Last edited by Profiler; March 4th, 2013 at 09:44 AM. Reason: typo
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  #173 (permalink)
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3-4 trades and recap


1. Sold 1520 mc lvn on 3.25 pt move. Breadth +88 and tick +600. It has been a rotational day so far I put the trade on as a fade the edge type trade. Stopped after 2 min and .5 MF. Well, not sure if this just didn't work out or I mis-judged context.
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Recap
Spoos opened OAIR inside value and chopped around a bit and put in a very rotational day early but then broke vertical in the afternoon after putting in new lows but bouncing strongly from just above the 1510 CLVN. Value was established inside of yesterday, vpoc shifted lower by a few points. Price closed on the hi's, above pHi and well outside of value. Volume was lackluster at 1.6 mill. We end up with a neutral extreme.

I'm disappointed with myself today. I correctly anticipated the morning's action but was unable to latch onto any trades, particularily that bounce off the low. I had my 1510 bid in pre-market and was licking my chops as the 6 pt move down approached it but then saw that real weak print at 1510.5 and quick 1511 bid and realized that might be the bottom. I joined the 1511 bid but it was too late and I then watched it grind higher. I thought the one trade I did do had edge, based on the rotational type day we had to that point, did I not catch a massive change of context? Volume was weak/average all day until the break. No economic news, really didn't expect such a break although I did know it was possible...Anyways, I couldn't justify a long after that so ended up sitting on hands. Tomorrow looks to be a promising one...

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  #174 (permalink)
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Profiler View Post
1. Sold 1520 mc lvn on 3.25 pt move. Breadth +88 and tick +600. It has been a rotational day so far I put the trade on as a fade the edge type trade. Stopped after 2 min and .5 MF. Well, not sure if this just didn't work out or I mis-judged context.

Profiler,

Would you not want to try added or other information for entry decisions? MP is great for overall market structure, I'm not sure that it provides exact entry locations. While I know there are pro traders who consider it obsolete, I would disagree. It clearly shows the auction process over time. Do you use previous day high, low, open and close and the ON high and low? Previous points of rotation of the prior day has an exponential effect on the market.

For entry, a cum delta when observed at high volume areas is telling.

Thanks for listening. Your daily pre-market analysis hypothetical trade plan is must read for me every morning. Thank you for posting it. It provides me with additional context that is an area of my trading weakness.

Keep up the good work.

Ken "COTtrader"

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  #175 (permalink)
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COTtrader View Post
Profiler,

Would you not want to try added or other information for entry decisions? MP is great for overall market structure, I'm not sure that it provides exact entry locations. While I know there are pro traders who consider it obsolete, I would disagree. It clearly shows the auction process over time. Do you use previous day high, low, open and close and the ON high and low? Previous points of rotation of the prior day has an exponential effect on the market.

For entry, a cum delta when observed at high volume areas is telling.

Thanks for listening. Your daily pre-market analysis hypothetical trade plan is must read for me every morning. Thank you for posting it. It provides me with additional context that is an area of my trading weakness.

Keep up the good work.

Ken "COTtrader"

I am definitely open to other stuff for entry decisions but my thought is to do that down the road. I am aware of previous days hi and low and globex hi and low. my main concern now is to get a solid handle on the auction process and place my orders at known MP/VP points exactly to the tick so that I can measure what works best and then down the road introduce some other thing to help me finesse those entries. thanks for the kind words and your suggestions, i'm going to figure this out eventually and pay it forward!

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  #176 (permalink)
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Can I be wrong on the trade and still win?


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I am definitely open to other stuff for entry decisions but my thought is to do that down the road. I am aware of previous days hi and low and globex hi and low. my main concern now is to get a solid handle on the auction process and place my orders at known MP/VP points exactly to the tick so that I can measure what works best and then down the road introduce some other thing to help me finesse those entries. thanks for the kind words and your suggestions, i'm going to figure this out eventually and pay it forward!

Isn't the assumption that one methodology, MP, should work for you to accomplish your goal? For example, I use a footprint chart, Cum Delta, VWAP and bit of MP and trend lines on a 5 min to provide me with trade context and trade expectancy. Fortunately, it is then not necessary for the market to come to me within a tick of taking a trade but rather within a trade proximity.

A good example of such a trade happened today with Josh. We both looked at the 1510's as great entry potential. Within 2 ticks of the 10's the market quickly reversed, retraced a tad and shot up. Josh got in "overpriced" I think he said at 11.50. While to a Market Profiler it might have looked overpriced, it wasn't. Market determined price value when buyers piled in. Josh caught it on the Cum Delta. Trade within a proximity met price was fair game.

For myself, I try to "catch" momentum moves within expected areas of price pivot. I cannot be a 100% correct about my analysis given the lack of market transparency. When I get it right, it was a best guess at that.

My money is made on the second or third move after the open. Unless there is news release, I expect the market to make a 3 to 4 point move between market open and 10 o'clock. My stops are very tight and I will keep a 1 tick gainer assuming I was wrong on the trade. If I exited too early, then I will rethink the trade and look for a second opportunity.

Psychologically, a single tick win is a win. Defining for oneself the meaning of "win" and "loss" is critical. When I win (psychologically it doesn't matter by how many ticks), I remain enthused and easily focused. A loss creates reticence, apathy or a revenge trading response. I discounted trade psychology for years until I began to quickly cut trades and take short wins, assuming I was wrong on the trade.

Winning a basketball championship by one point is still a win and can be a thrilling one at that.

Great work, Profiler. Especially the premarket analysis. I enjoy reading it.


Ken "COTtrader"

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  #177 (permalink)
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1. Sold 1520 mc lvn on 3.25 pt move. ... Well, not sure if this just didn't work out or I mis-judged context.

You mis-judged the context on this one. I'm not sure the period of your composite profile you're watching, but IMHO all that matters in the 20 area is the trade that has taken place in February of this year, and there's just nothing special there. For a reality check, draw a horizontal line at 20, and see if you see any reactions off of it in the last month. I see two or three, but you can find two or three at a lot of prices. We had a double top at 24.50 from Monday and Thursday of last week, and on Friday we balanced in the 16/17 area. After the inability to get above that zone this morning, and then after the super strong reaction off the 10.50 LOD, once the market breaks above 18, 19, with the major resistance at 24.50 do you think it's reasonable that it will care much about 20? The context says, "breaking above prior balance, heading to next major resistance to auction for sellers," and the 20 is just not major IMO. This is a case of, go with the longs. For another perspective, scroll your chart to show what the market looked like before today, and show at least two weeks back; now ask yourself, if you were a serious seller, where are you looking to sell? 20? Probably not. Again, this is in the absence of something special on the profile, and from 18 or so on up for 2013 all I see is a gentle slope upward with no prices standing out.

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  #178 (permalink)
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Thanks @josh, those are the kinds of answers I am looking for. Well, from the pic above you can see I am using a 5 day composite which I thought was most relevant for todays action and you can see the 1520 LVN. Normally I would agree with you that there isn't much there but given the type of day we had up to that point (rotational, no economic data and I think it had .90 of 20d volume at the time and 1520 and change would give 10 handles of range on the day) and that I thought a close back near the 1516.5 mc vpoc was a very distinct possibility, I thought it was worth a shot.

I clearly didn't comprehend what that bounce off 1510.5 did to context. To me, at the time, it was most likely just the market putting in the low, not a signal for everyone to load the boat and get on the bus... You mentioned that it seemed to be initiative buying off the low but selling off the then-17.75 hi seemed to be corrective selling, i understand the difference, but what makes you say that?


Last edited by Profiler; March 4th, 2013 at 11:48 PM. Reason: typo
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  #179 (permalink)
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Well, from the pic above you can see I am using a 5 day composite which I thought was most relevant for todays action and you can see the 1520 LVN.

I don't see a reason to use the last 5 days in this case; even though it's the start of the selloff from 24.50, it seems a bit arbitrary to me. More important IMO is the Friday profile itself, and the 2013 profile that includes all the trading in this upper area.

But even if you want to use a 5 day, hide the bars and make it big enough to see, and walk 4 or 5 feet back from your monitor, and turn off the automatic lines; which areas stand out to you? Clearly, the 16s is the most important. Other than that, there is not a whole lot of consensus of value or rejection except for maybe 1497. Even above 18, all the way up to 24 the prices are pretty much equally traded. Yes, I see that 20 is the least traded up to 23.50 but it just does not stand out. To my eyes, it blends in with everything around it and is just not that special, certainly not enough to fade a move that has tested an important rejection area (10s) and has broken above the 16s/17s with only a 2 handle rotation in that area. This was a straight up breakout higher, and it's just not logical to fade it. But, you took a small loss, which is better than I can say for when I have faded strong moves.

One more thing: I don't know if you use the auto LVN/HVN feature in IRT, but IMO it just doesn't make sense. Just use your eyes, stand back, and look at what actually stands out to you; look for areas (think 4-6 prices) instead of individual prices, though sometimes a "zone" for me is just 2 prices or so.



Profiler View Post
I clearly didn't comprehend what that bounce off 1510.5 did to context. To me, at the time, it was most likely just the market putting in the low, not a signal for everyone to load the boat and get on the bus... You mentioned that it seemed to be initiative buying off the low but selling off the then-17.75 hi seemed to be corrective selling, i understand the difference, but what makes you say that?

Technically both the selling from 17.75 and the buying from 10.50 was responsive. What I meant when I said that it was initiative/impulsive was that buyers looked particularly aggressive. This is hard to describe, because if you look at the delta on the plunge from 17.75 to 10.50, it was quite negative, about as negative as the move back up was positive. All I can say is, the move down looked like it was done around 11, but the move up looked like it was hungry and wanted to inflict some pain. There was just no real selling, bids were strong, and the market wanted higher. It's as if the early attempts to go higher just did not have the conviction, but now that 10.75 had been tested and failed to produce initiative selling, there was now conviction and there was an "all clear" for new highs. Clearly, the market wanted to go higher, from the open onward, but there just was not enough money ready to commit. When sellers did not show up enough at the new lows at 10.50, then the desire of the market to go higher had more backers, and they pushed it up convincingly. There was an 8 tick rotation at the VWAP at 14.25, but there was no reaction at the VPOC at 15; this alone was reason to be cautious of shorting. I know this is a bit vague, but it's the best I can describe.

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  #180 (permalink)
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3-5 pre-market


Economic data: ISM

ON Profile: Distinct p-shaped profile on slightly above average volume so far (225k), with the majority of the action taking place above yesterdays hi and we are currently trading at 5 year hi's, above the 1428.75 RTH hi and 1430 ON hi. The low is 1424.5 which is no surprise given the significance that double top played last week. Vpoc sitting at 1429.5.

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We are set for a gap up today, potentially opening above every single price traded in the last 5 years, globex included. The table is set for a potentially wild day. I think the gap up has to be respected and one should try and position themselves long. However, if this gap up were to fail and prices are accepted back into yesterdays range I think very aggressive sellers will be encouraged to participate and wack it down through yesterdays very thinly auctioned zone (1526-1518) en route to the 1516.5 mc vpoc and potentially lower and on a bigger timeframe could end up serving as a blowoff top for a much larger correction.

Levels Above: none

Levels below: 1530 prior 5 yr globex hi, 1528.75 prior 5 yr RTH hi, 1526 pHi, 1518.75 LVN, 1516.5 mc vpoc, 1510 CLVN

Hypo#1: ES opens OAOR and is met by responsive sellers that push it back to 1528.75 level before buyers step in and auction it higher through the day.

Hypo#2: ES opens OAOR and after initial push higher (to???) sellers step in and auction it lower through the day, potentially very aggressively.

Hypo#3: ES opens OD, go with!

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