Showing posts with label Method. Show all posts
Showing posts with label Method. Show all posts
Market Excess
Watching at the bigger picture, last All Time High (ATH) shows decent excess on it.
Usually, market needs an excess high to call an end to the current bullish auction.
Lack of excess is created by nervous longs who continually sell their positions on each test of current high of day.
Often there will be some action a few ticks above that high but there will be no new buyers stepping in to push higher.
That action at highs is a sign that short term traders are in control and they are nervous at the top.
They are weaker hands that are selling into strength, not feeling conviction to hold. Here is a chart to see how an excess looks like.
An excess high is one which has a top on it that is excessive, meaning having a long single print tail. That tail can be created either by 2 scenarios:
1) A market opening high and having an early liquidation break back down which causes the spike.
2) A market that moves in a range and then shoots up 'out of balance' in an exhaustion rally to come back into range.
When an excess high appears on a chart in a new swing high area after a market has moved up for some time. It can be a signal that the recent up auction is over. An auction should have a "proper" end, with a shout and not a whisper.
Trade Management
These are some of the trade management topics.
What is Trade Management?
How is it different than Risk or Money Management?
Mechanical versus Arbitrary Trade Management.
Holding for a target: How difficult could that be?
You are only as good as your last trade?
Being a smart trader and getting smart during trades.
Difference between homework and in-trade analysis.
When does it make sense to move a stop?
How important is the entry really?
Checking target location before entering.
Keeping track of what is and isn’t working.
A business that doesn't keep records isn't a business for long.
Special thanks to FuturesTrader71
The Opening Plan
The Value Area represents the range of prices that contain 70% of a day’s trading activity. These are opening setups based on the prior day's value area and should be used after U.S. Opening (9:30 ET):
#1 Open Drive (OD)
A: When a market opens above the value area and then goes through the overnight high with volume at highs increasing, it's a bullish signal. Buy early nearest low volume node. Internals should be highly positive. The opening is dominated by initiative buying, do not trade against it.
B: When a market opens below the value area and then break through the overnight low with volume at lows increasing, it's a bearish signal. Sell early nearest low volume node. Internals should be well negative. The opening is dominated by initiative selling, do not trade against it.
#2 Open Test Drive (OTD)
A: When the market opens above the value area and remains above the value area high on the subsequent tests, it is a clearly bullish signal. Buy the high of value area. Internals should be positive. If the market begins to trade within the value area and volume increases at lows, it would be recommended to exit long positions.
B: When the market opens below the value area and remains below the value area low on the subsequent tests, it is a clearly bearish signal. Sell the low of value area. Internals should be negative. If the market begins to trade within the value area and volume increases at highs, it would be recommended to exit short positions.
#3 Open Rejection Reverse (ORR)
A: When a market opens above the value area but then fails to go through the overnight high and begins to trade back with volume at lows increasing, it is a signal of rejection. Sell the overnight high. Internals should be negative. There is a strong tendency to rotate all the way through the value area.
B: When a market opens below the value area but then fails to go through the overnight low and begins to trade back with volume at highs increasing, it is a signal of rejection. Buy the overnight low. Internals should be positive. There is a strong tendency to rotate all the way through the value area.
#4 Open Auction In/Out of Range (OAIR/OAOR)
When the market opens in/out of range within or near the value area it is showing signs of a balanced market. Trading from responsive versus initiative would be preferred. Fade the extremes of the value area. Internals should be neutral or not in trending mode.
Use market internals (ADSPD-VOLSP) to figure out strength or weakness.
Remember, don't try to use any setup as a rigid, systematic trading rule, blindly applied to all market conditions. Context is key.
Value Transition
VPOC stands for Volume Point of Control, usually called 'POC', and is the price level with the heaviest volume for the day. This is the price level with heavy Acceptance by both, Buyers and Sellers. The level signifies agreement by both parties on Value. Now, if the Buyers and Sellers agree that a certain price is fair, then the market could remain in balance trading around the VPOC until additional information changes the perception on Value or it could head in the opposite direction and test a previous area of Rejection (disagreement).
But how do you trade it? On a Non-Trend Day price could just rotate around the POC until new information (a catalyst) is introduced in the market and changes the opinion on Fair Value. The idea is to fade the extremes of the range around the POC. On a Trend Day, Price will make a directional move away from Value and Value will catch up to Price so any pullback will probably be bought before the POC could shift again.
Market auction is a discovery process, e.g. when price moves down and does not find enough buyers, we see thinner profiles until volume starts to show a peak. Sellers try to push down again but find new buyers. After time and more buying activity that peak becomes the POC, where both parties agree on fair value and sellers quit. Time to exit.
The POC is also a High Volume Node or HVN. Accordingly HVN or POC is where the real value is product. At this level buyers and sellers they agree that the price is reasonable (fair price). When the price moves away from its market value enters imbalance (Breakout Mode) with two obvious results: 'Rejection' and return to its original value to correct this inefficiency, or 'Acceptance' and in this new case, a 'Value Transition'.
Value Transition is the migration or movement of the POC value to a new level in which the perception of its value has changed. Market Profile will show a profile with a double distribution with two High Volume Nodes, but also, and most important, between HVNs will be a Low Volume Area, a zone where buyers and sellers have shown a lack of interest, and therefore, that price has been rejected.
The concept of 'VALUE TRANSITION' is one of the most important topic on the Auction Theory. The work of a Profile Trader is to figure out a potential change on value perception, if the price is acceptable (acceptance) or rejected (rejection). 'Price always precedes Value', the price is the announcement of the change of value, but its acceptance in a new level of perceived value must be confirmed with the volume. Price is Advertisement, Volume is Confirmation.
Trading Value
As day traders we always are looking for the divergences between price and value, so our first goal every day is to find value.
All markets must move to survive. Futures markets are not different than any other market. Consider a simple real estate market as an example. Auction up and down to find sellers and buyers.
Price+Time=High Volume=Value, trading at trade locations relative to value, not price. I define market value using Auction Theory. Even if you do not use it, you should because many CME traders use it.
Understanding the concept of Acceptance and Rejection is essential to apply Auction Theory and Volume Profile techniques. I look to trade from Rejection (LVNs) into Acceptance (HVNs) then back towards Rejection. This is the natural rhythm of the market.
Rule#1: Buy below and Sell above Value (HVNs) until the perception of Value (Breaking LVNs) has changed. Rule#2: Never forget Rule#1.
On a balanced day I fade the extremes. On a bullish/bearish trend day I look for pullbacks over LVNs below/above value.
On balanced range days we define easily where's value, on imbalanced trend days value shifts quickly with every new HVN. At LVNs (Low Volume Nodes) we will find wholesale price for entries and at the HVNs (High Volume Nodes) we will find retail prices.
The LVNs (Low Volume Nodes) are the logical spots for entries and the HVNs (High Volume Nodes) the logical spots for targets. That's make sense, only a few people would like to buy something at the most accepted prices. We always look for some advantages.
Trading FOMC
Eight times per year a branch of the Federal Reserve Board, known as the FOMC (Federal Open Market Committee), meets to set key interest rates. They also make decisions as to whether to increase (or decrease) the money supply, known as Quantitative Easing (QE).
The dates and the time of the FOMC meeting announcement is displayed on the Federal Reserve website.
Here is a simple strategy for trading the FOMC.
At the scheduled time of the FOMC meeting announcement, there is usually an initial big move in one direction – this is known as wave AB. This first major move is the “true” direction – i.e. where the market really wants to go. (Note: Do NOT execute any trade at this point yet).
Enter the market when the ES reaches the cluster of point C and key level (VAH-VAL-HOD-LOD-POC-HVE) with a 5 point stop and an open target. (Alternatively, you can scale in to this trade with half size, then add the remaining half after next bar high moves above entry bar high).
What follows is a big move which is in the same direction as the initial move (Wave AB). Close half your position once you have made 5 points on the trade, bring your stop to break even, and then use a trailing stop for the remaining half until AB-CD harmonic pattern has been filled.
The key is in the waiting, to play only the 3rd leg of this zig-zag move. That 3rd leg shows the real intent after the news and remember, don't try to use any setup as a rigid, systematic trading rule, blindly applied to all market conditions. Context is key.
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