Traders Tee Time

Have the Courage to take big profit - thats how

2009-07-23T15:22:00.000-07:00

Thats it. I started writing this post in a techno - psychoanalytical description of the edge that good traders that I know have. 2 paragraphs later it was way too verbose and still didn't explain it - so I shredded it. In one sentence this is what they have - Courage to take big profits and walk away from a loss.

So lets say that you broke even yesterday or took some loss or better had the powder dry. Today, there were opportunities to get in pre-market at the short term balance point or POC around 948-50. Those who trade the eminis for a living do trade pre-market whenever it is the opportunity presents itself. So if some of you are going to say well..Woodie said dont trade before your wife is awake, then tough luck. Keep exploding yourself and your broker will get you that many virgins in heaven.

After today's open some bought the open price and it was never tested. But the IB was another buy point after the show of strength. Talking about entries and exits is not the point of this post though.

The serious trader loads well at any of those entries and puts his stop below a reasonable support which in our case would be the interim balance point. Not 2 points or 1.5 points or 5 ticks whatever bull. But below a reasonable support (supported by objective numbers). Then you calculate your risk/reward. If the support is so far away that it will result in my broker breaking down my front door for a margin call, then its not for me.

Load enough that you can peel like an onion. And let it run. Peel at strategic points with a time decay -- not at 5 ticks or 6 tick. Well, may be you can peel one at 12 ticks or so. But get the 5 points and 10 points 15 and may be 20. 20 pointer today was an achievement today because of the recent ranges...so congratulations to those who got it. But wasnt that the premise of this trade - the break from balance.

If you miss it though, don't try to get in with some CCI or TTM squeezy late in the game. Walk away if you don't have a trade... not saying you didnt but dont look for trades you did'nt pre-plan. It only looks good in highly edited newsletter videos from the gurus. Have you been to these rooms where they trade like they have a paint shop pro for a trading dome?I have. The guru goes like... "I sold it here " and marks a dot on the excel sheet right on top tick when its already retreated from the entry.. and then " oh shoot..". It blows up again and again and again. BTW if you know who I am talking about, don't ever go to those rooms. It will take you years of electric shock to reverse the brain damage!! seriously! I did for a month I think, many years ago. My damage is permanent.,lol. I have no hope.

Are super indicators enough?

2009-07-21T21:09:00.000-07:00

This is a topic that I have been preparing a post for. The conclusion though is this - NO.
Market profile by itself in inadequate. If you have an indicator just based on moving averages or candlestick - I think that is a ticking time bomb and you will blow yourself up someday. Volume or orderflow or tape read can kill your trades.

Successful traders have something in addition, thats more important than all the indicators combined. More in the next post. Dinner call.

Pull back but no selloff

2009-07-21T20:49:00.000-07:00

The morning weakness had great promise getting into range which did trigger
some block trades but did you notice the volume just died and there was broad
based strength that picked up across the market.

Sellers did not step up and there was little reason to. So at the lows where it lingered
for ages (or so it seemed) there were just no sellers at all. Days like these have not been common at these extremes but it speaks about the true tension in the market.
We need a new balance area but where?

Barring any bad bad news, we might indeed seek a higher balance upwards in the long run. Volume still not impressive which concerns me but clearly inventory is changing hands between timeframes. The likely hood of a new balance area in the 975s is real before we test support in my opinion.

Timeframes and capital

2009-07-20T16:41:00.000-07:00

The type of fish question eludes to an assessment of who the opponents are
and who are you swimming with. This week is a great snapshot of a price/value area
where multiple players are involved. If you chart the 3 monthly profile we are at the
top edge of profile. Such areas bring together multiple timeframes. More so then the balance areas. 1st those who are long at the these levels. And by that I mean not just the index but via different instruments or underlying stocks. Ultimately the S&P or Dow is simply an index isnt it?

I have friends, family, and my own portfolio that is long from these levels. How would these institutions behave, will they cover longs, and what about those short. And those who are long from the lows. We can have no idea until the players put their bets on. To some extent thats what volume and orderflow provides and so far it is unimpressive in the s&p index.

If we do open outside the range and trade back in range, orderflow at those levels might provide a clue - both for shorts and longs . But these trades need to there when the price hits it - expect fast rejection or lifting of offers. But the reason I brought this topic up is to highlight the perspective of timeframes.

At edges like this, I think it is a big mistake to trade just a fast chart. Simply because these are high risk and high reward areas. A lot of big fish will be involved whether they like it or not when the market attempts or rejects an important price level.
One big thing I like to look for is whether there is solid evidence of statistically higher, broad based buying. The lack thereof would result in a consolidation back into range initiated by desperate profit taking. The other significant factor is the location and size of the stop. Small stops are inherently at a big disadvantage at the extremes and those setups are better not played.

What kind of fish are you

2009-07-19T18:57:00.000-07:00

It was humbling to learn about accounts of some readers. And, i am quite surprised by the perception of some new traders of what trading really is. Whether stock, futures or forex, I think majority of traders starting out in the field start out wrong. Perhaps thanks to a lot of marketing and sales by gurus selling chatrooms and training and seminars. Some of these gurus have a seminar announcement/sales everyday. I think it is most important to figure out first what kind of fish we are. The most common new trader is out in the high seas with sophisticated software in a 15 foot boat competing with the commercial trawlers. I think just setting this perspective is extremely helpful in the decision whether to set sail on any morning. But does anyone actually teach this? I think the answer is no.

Houston..... do you read

2009-07-19T18:32:00.000-07:00

Checking back after a radio silence. There are so many things to update. I have communicated with some of you on the things that are developing that I would like to share at some point. I am still looking for help from a programmer/math guy for some custom analysis. My terminology for this thingie I want to develop is - Boundary Condition Money Velocity. It sounds very complicated - but is a simple concept. Trust me. However the variables and historical data involved is pretty involved. I promise I will explain in a later post.

End of B period

2008-10-08T07:31:00.000-07:00

There a lot of paper buying today. 50K positive delta on the big size lots. We do need to hold this vwap area within this area. Lot of volatility and risk of getting chopped. We havent seen any strength until today after the break down of the 1140 area. Still a very weak market in the near term.

Delta positive at the top of the hour

2008-10-01T10:10:00.001-07:00

Just like yesterday we have additional buying at these levels. Rarely you see a positive delta near the lower 2nd deviation of VWAP as seen in the B & C period today.
Remember that yesterday was an inside day. Finally we have some semblance of normal trading. However the volatility is in wait and come in at anytime a significant break in news surfaces. So the key is to be careful. Prior sessions has been very choppy on the profitability front. I remember a short that stopped me out at entry by 2 ticks and dropped like a rock and then Doc posts the perfect post.

Dips can be bought today if the financials continues strengthen. The inside day breakout is a small small possibility but until the end of lunch time we might not see the volume. Currently, it is not supportive of that bias. we could simply rotate and balance inside until the news (higher probability).

A different mood

2008-09-30T10:07:00.001-07:00

Todays market mood is opposite of yesterday before the failure of the bailout vote.
Note that the market had a bid delta negative. Today we are the opposite: 52K positive delta indicating covering and over 30K positive on the big delta. Financials are balancing as well and the PNF chart is not trying to make new directions. Market is comfortable here for today until the next directional news. VWAP provided two small buying opputunities and the price action is not too volatile. Careful of any whipsaws if there are any political comments or consensus. Time is running out.

Bailout woes

2008-09-29T10:49:00.001-07:00

Market tanks on possibility of a rejected bailout package. DJ down 700 points.
Rescue plan fails vote.

Bottom of the hour

2008-09-29T09:39:00.000-07:00

Lunch time! The S&P emini has indeed mananged a flush move to the downside. And we are at the support level of the 1160s. There were some buy response that came in at 9:28 and 9:33 PST in the chart below. Selling pressure has subsided and at the POC of the day we have a 2 way auction with some shorts covering. Note the delta is at -55K.

The 1180 area is key as it is VWAP, Dev VAH as well as a minor resistance today. This flush move to the downside gobbles up any long position from the 1160s from last week and prior session. An action market makers and locals love to orchestrate. Financials are still drag until now. We need financials to turn around significantly less than 2 hours for a true reversal. Regardless of indented direction there is a high likelyhood of price whipsaws. Given the negative delta we are at. We need a significant amount of covering and buying for a reversal. Currently, odds favour resistance at VWAP. If we get to VWAP it will be the nature of the buying or covering that determines the conviction. A significant volume in covering may change the game. So far though the big contracts are still -18k negative.

White house announces that they have enough votes for the bailout.

A market in wait

2008-09-26T13:05:00.000-07:00

The last two sessions has been balancing in a 20 point value area which is a break from the volatility. The 1225 level in the S&P 500 Emini is holding as a price rejection level. The market spent a lot of fuel yesterday on the buy side without getting much liftoff early on. That is a sign of temporary price acceptance of multi-time frames. Everybody is waiting on the word from the Hill on the bailout package. The market is preoccupied. There is still sign of mild accumulation as we entered the mid morning net delta positive. A moderate sign of price getting some responsive buyers. We are building additional TPO count in the upper distribution of the 3 day profile. Key area to watch is again- the 1225 and the 1187-1191 area overnight. Key to trading days like these is not to get killed by a thousand pricks. Taking very selective 2-3 trades and living with it. I was biased to the upside based on the delta but we did not test the 1225 level although we rotated through yesterday's value. The market just does not have the ammo quite yet. As we have seen in the past few sessions, any strong move in either direction will be preceded by a strong flushing move in the opposite direction. Sometimes small time players like us need to stay out.

A Trend following the Balance

2008-09-25T10:03:00.001-07:00

A trend following yesterdays balance. We are 83K net positive on the Big contracts and 93K in general. Indicating a strong potential for more upside.

2008-09-24T12:14:00.000-07:00

A balanced day so far. No sign of upward rotation as the big contracts are net negative and the general market is neutral. Good trading oppurtunity in the K period on the weakness of the test of the I period high. Having seen the late afternoon liquidations so far and the distribution yesterday, which was an multitimeframe liquidation as evident in the distribution, one should be poised in the direction of todays balance. The market is probably not going to commit until the bailout is clear. The direction from this distribution today may set the direction. You want to in that direction.

Day type in trading plan

2008-09-22T18:49:00.000-07:00

Here's todays profile. Notice the sharp downturn in IB both in the profile and in volume of the dominant flow as well in the direction. The PNF chart also had a down sloping angle through the morning. It was profitable day turned into a loser. I write this blog to bring up the point of incorporating the day type into the trading plan. And outside of value analysis, one needs to set aside days like the sessions we have had - then have a playbook for it. Did you notice the financial's steep down trend. I dont remember it turning around. So you can call it - special exception session - open below value etc. Price never closed above VWAP or the volume weighted moving average. The important sectors to watch were the commodities, the financials, the uncertainty of the bail out program. And how that played in the traders minds. The big contracts actually were buying below VWAP and net positive. The day intended to balance today - but capitulated in the L period. The mistakes in trading are made when one fails to recognize that the opposite flow has won out. It does seem like an excess low, however. An inevitable rotation down when price spends so much time below the POC at the bottom. Tommorows open and the price behavior at the settlement will determine the type of day. Look for long term players to be responsive at the settlement or todays (as well as overnight) LOD.

Clearly, financials and the bailout program needs to be watched intently.

A day to remember

2008-09-18T13:00:00.000-07:00

Palpitating fear in the market after initial balance. Great deal of volume. The Market structure (normal variation) we had yesterday extended with the range extension to the down side in the morning. It is an important detail to note that we had a buying tail in the G & H period. An important level for the future.

Markets rebounded first with the British Financial Services Authority put a temporary ban on betting on the short side. Wide speculations of a cross -border effort with many centralbanks. Then we had news of Paulson talking to lawmakers on a proposal to deal with the bad debt losses:

The U.S. Treasury Department and Federal Reserve declined to comment on Thursday on any discussions Treasury Secretary Henry Paulson may have had with lawmakers about a Resolution Trust Corporation-style fix for a financial market crisis.

"We're not going to comment on rumors," Treasury spokeswoman Jennifer Zuccarelli said.

A congressional aide told Reuters that Paulson has been discussing with lawmakers a proposal to create an entity to deal with bad debt that would be similar to the institution established in 1989 to clean up massive losses in the savings and loan industry. (Reporting by Mark Felsenthal; Editing by Dan Grebler)

A great trading day. Cutting losses quick (or breakeven) and letting runners run
works like a holy grail on days like these. One could rake in a huge profit with less than 50% win rate.

We ended up with a net negative delta of -50K in the genenral chart which indicates that short covering led the rally and some of the long term longs that were liquidated today were not put back on. The big contracts ended up with a positive delta and is in line with the last 3 days action by the big money.

Moment of truth

2008-09-17T10:51:00.001-07:00

We are here at the moment of truth whether this probe is going to hold. Many attempts to break the downside has not garnered the interest of big initiative sellers. The bigs delta is now net negative which led to the break down of the structure. So far the 60s are still holding. A failure of this probe will be significant for the strength of rotation upwards. Heres the PNF. If this probe does fail we need a big buy response to confirm the support. The buy response did not follow through during the prior probe of the 80 level. We need a much bigger volume than the prior upmove.

At the bottom of the hour

2008-09-17T10:24:00.000-07:00

Its 10:24 PST. Traders are getting back from lunch. We have turned from a net negative -15K to +13K in the big contracts. I am concerned a little bit about the market structure. After the C period extension, we havent traded into IB and we are forming a distribution in the bottom, indicating that the auction has brought more timeframes in play. The AIG bailout did not have much play today, at least not much that is visible. Lots of trading oppurtunities and nice fluid moves. The range extension to the downside has been consolidating with some buying interest in the 60s till now.

A day like this, a change of trading style is needed imo. Using shorter time frames in the extremes and looking for conviction in the direction of the moves.

Mood of the market

2008-09-16T12:38:00.000-07:00

Floor traders often talk about the mood in the pit. It is gauge of what the intended direction of the market is. An invaluable barometer in trying to understand what might unfold. In probability terms it is a bias in the dice. If you have been watching the last two sessions, you are aware of the overwhelming negative news that has come out of the financials . What has been surprising to me is that an analysis of the big contracts is yielding a bias on accumulation. It does not mean that this is the floor of the downleg. However it is clear that these levels are of interest to some long timeframe investors. There are buyers who are willing to be responsive players at these levels. That I think has been a small bias in the dice.

What did not happen yesterday? Yesterdays market structure was an even distribution. No broad based selloff. The big contracts were delta positive through the day. The imminent selling came as a tail in the M& N periods. The bias of the dice caused the structure to be balanced yesterday.

Today the dominant flow from the 60s found intense buying interest at these levels. However later in the day, these buyers did not initiate trades above certain level (mild initiative buying and mostly short covering only)

Yesterday and today are fairly similar in sense of mood. Gloomy but bottom feeding for another day in the future. Currently the 70s and 80s are valuable commodities. If you do not have volume analysis, you can get similar sense of buying with VWAP.

While the general market had been negative, look at the big contracts. A very different picture indeed emerges. A valuable clue in placing trades, making you alert of a possible surprise around the bend.

At some point soon in the future. I intend to post the market bias comments earlier in the morning. Hopefully that will help other traders.

Surviving the market cycle and profiting from it.

2008-09-11T14:13:00.001-07:00

Heres the daily market profile for the S&P 500. Trading the ES emini is probably the hardest job in the world. It is also the best job. Besides being heir to an oil field today. Dare I say that. But if you bought anywhere in the A, B or C period and held it till the N period or overnight, trading 5 contracts or less, I will officially award you the "tradersteetime knighthood" of trading. I have looked up the definition of day trading to see if they include holding a runner for a swing trade. They don't yet. But the market does not give very many opportunities like today for a swing trade.

Today was one of the easiest map and the probability played in our favor. However it was also one of the hardest to hold the winner. Now with 10 contracts and above, I would say it is possible to ride it out with runners. The contract rollover split the volume and that played havoc in volume analysis too. We did get the short squeeze in the end and the ride through the neck of the distribution was really nice. You should have seen the tape.

Now that we are finally in the upper distribution the test of the support below is the key event to observe for any clue where it finds value. Keep in mind the strength of the dollar is reaching forcing points of many inventories. Anybody held the gold short? - you are knighted.

Finally the squeeze - a pictures worth a thousand words. Before I forget, congratulations we survived doomsday.

Prayers and remembrance on September the 11th. Jupiter -may you rest in peace and always in our hearts.

Double distribution profile

2008-09-10T14:21:00.001-07:00

We did get to the globex high but we had price rejection today from the distribution above it. Couple of scale out opportunities and couple of adds. With a 10 point run to the high. I'd expect the market to attempt to rotate to the upper distribution of this double distribution formation. We might get a hook low tommorow before an attempt. Caution is the word. Very nice balance today. We did not see any major short covering either and it lends to the fact that a lot of the down move has beed aided significantly by intermediate/longer term long liquidation rather than all new shorts below the 47s. Will look at the COTs report to confirm that. If we rotate above to the upper POC we should see some swift covering. Theres unemployment news to watch @ 5:30 EST and financials as well as housing sectors are worth keeping in peripheral view.

Heres the daily and weekly distribution as well as monthly.

The perspective at mean

2008-09-10T09:04:00.001-07:00

We are in the F period. What is significant is the bounce of the low took us from 17-20K net negative delta on big contracts into positive territory here at mean. Overall market is still - 42k.

The long opportunity off the retrace to the VWAP is getting a little profit taking. Volatile in spurts and the mean could mean consolidation here for some time. Lunch time just around the corner.

Oh yes. At the bottom, notice we made lower low. However, quite buying (controlled buying) took out the -ve delta from -17k to -11k right before the hook (the sucker play to the downside). The hook is sometimes needed for propulsion. Notice the late shorts bailing quickly adding fuel to the move as they got caught in a hole. This is a different picture again from yesterdays break of the 47 area.

Above the mean, we need to be able to facilitate business above mean at 30.75 with increasing volume ( not yet evident) to be able to test the hod and possibly globex high. We have resistance galore above 36 area.

Todays IB had a good short opportunity at the overnight VAH, both in the A and B periods high, after the dominant flow @ 6.36 AM to the downside. It made those highs with a net -ve delta.
So far we are balancing around yesterdays value. I had expected a steeper drop ( a hook) than what we had so far before we retrace some of yesterdays value (the notorious 80% rule).

What a difference a day makes

2008-09-09T13:46:00.000-07:00

Notice yesterdays profile and compare that to todays. Not very dissimilar at the surface for the first half. We did open above the value area. Until the break down right before lunch I personally heard a pundit ( someone who is very well respected) assert that yesterdays lows will hold with quite a bit of confidence.

What was different today? Well first, it was a completely different market. the IB did an open drive to the downside like yesterday. Narrower IB (relative to the day before) with the dominant flow to the downside. However what was not visible in the chart and profile was the mood of the market. We had a double reject of the dominant flow during the IB. But the price rejection from the B period high was much stronger and the buying at the A period low. The mood began there. My trades got chopped a bit as well . The break of the IB low and range extension in the C period was a good entry with the dominant flow. At the low of CDEFG periods however there was a big difference in the mood (vs. yesterday). We were -20K delta in the big contracts, -50K in the general chart and failing to make higher highs. Read yesterday's post and see the difference. The retrace of the H period was a great high probability opportunity to the shortside. The same level that had the high confidence long trade had become very vulnerable. It did take a while to break that level. The news of Lehman's failed buyout talks took the financials down the toilet.

The importance of holding out

2008-09-08T12:24:00.000-07:00

I did not short the VWAP opportunity @ 7:45 AM today nor the IB high. Partly because my brain was still foggy;-). But mainly due to the overnight sentiment. After the the run up and the volume in overnight trading I was less inclined to short. Matter of fact, I had the opposite bias. The selling during the initial balance was very intense after 7:45AM. However it was quickly reversed in the big contracts chart. Though not as evident in the general chart. This is why following the big money is so important.

The best opportunity personally was the the low @ 11:01. Here the trin was markedly divergent, the big contracts were net positive at the low. Two extremely important factors that lent confidence in entering this trade.

This was a 20 point trade with an add opportunity @ 12:10 timeframe near the 2nd std. deviation. Arguably in my opinion, the best opportunity of the day. Will expand on that more in the next post.

Buying a high for a higher high

2008-09-05T11:54:00.000-07:00

I missed the long trade at VWAP as I was buying some stocks for investment ;-).
I dont personally like this trade but serves as a great example for tape entry.
Its all based on the orderflow.
Price fails to make a reversal. Every attempt to sell has been halted by resting bids.
Finally there is a big order to sell (3K)(11:41 bar with chart filtered @ 100 contracts above) that gets absorbed and more important an initiative lifting the offer of 1.5 K and 1K orders (see tape on top). A combination of events that gives you a very high probability entry for a quick trade. Flow with the bigger money.

The ominous resting bids

2008-09-05T10:08:00.000-07:00

The chart below illustrates the buying at resting bids that got reloaded @ 30.50-31.25 (10:05 pst). Trade yields a 3 point scale out so far and stop at BE. Notice the increase in volume and sustained bidding. Price is now trying to break above.

Toping for a possible rotation

2008-09-05T09:51:00.000-07:00

Nice little weak pullback. Opportunity for a short. Keep in mind. The bigs delta is 20K positive and we have come to a delta neutral overall. There is both covering and and moderate bargain hunting. We are very close to mean and might consolidate through this area. After lunch might bring some decisive direction. Place for a very tight stop personally. If the orderflow continues to be on the buy side, additional covering will bring us inside yesterdays range. Its important to rotate and break through the 30 level. Notice that the G period extended IB and the weakness needs to build for a reversion trade.

Price at VWAP and mean

2008-09-05T08:50:00.000-07:00

Price has come up to VWAP with a little buying by commercials.
The 100 contracts filtered chart has turned a +ve delta (7K). This makes it a dangerous selling at VWAP. The general Delta is still about -16K negative. So bigger money is slightly on the buy side (mainly covering). Mean is at 1224. With dynamic mean shoing a little shift upwards. So far it seems we might balance.

Dominant flow at a key level

2008-09-04T14:49:00.000-07:00

Todays action was very unorthodox. After the non-farms payroll got out @ 5:15 we got an early reaction, the unemployment claims came out as well @ 5:30 we got a reversal of a test of the 1272s. The dominant flow came at 5:45 and 6:11 to the downside which led to the test of the 62s.

The s&P500 opened right outside of value to the downside. Which was ominous. What surprised me though is the time it took for the sell off or a retest of the 62s. 6:48 bar got us the dominant flow of the IB. The lack of follow through was deafening. At that point I was thinking that a test of overnight high was possibly in store. Peter Steidlmayer, proposed the market profile with each time segment as half hour blocks. His reasoning was that this was about the time needed to gauge a true reaction of the market. It took substantially longer that that today. If you took a short at or before the open, it was one of the toughest, mentally. Especially since the low seemed to hold for a while and you are shorting against a key level that we have talked about for ages. However, the drying up of the buying interest at the 6:57 bar was a clue to the resting offers and soon enough the paper came in on the down side. Total Delta was -23k.

I failed to point out yesterday and post the 3 day profile which had an increased TPO count to the bottom of the distribution and it indicated a propensity to break to the downside. However yesterdays buying towards the close was convincingly deceptive and it brought it back to the days balance. This is why we need to adapt to a new reality everyday. Yesterday was a hook day. The macro news breakdown possibility that I posted came in the non-farm payroll and unemployment books. The open call right after the news at 5:15 AM pst brought it outside of balance. It created a new forcing point with which longer term participants have to view their inventory or the lack of.

It lead to a sustained and controlled, yet convicted, selling once the 1260s level was broken. Technically, the reaction at the current level of the 30s and potentially 1200s will be a key indicator of where long term participants see value. Todays auction as it stands remains incomplete.

Watch out tommorows non farm employment change report and unemployment change at 5:30 PST. It is going to be well read by all timeframes.

The trades at IB today were the hardest to take and toughest to hold at IB. The best oppurtunity was a VWAP and price never tested the vwap for the rest of the session.

An important non event day

2008-09-03T20:54:00.000-07:00

In my blog I would like to focus on things that my readers find useful or new. You all know what the indicators are doing in the daily and hourly charts so I wont repeat it for you. One thing though, we are testing the 50-day moving average on the daily chart. We had a good test of the 1260s. The chart above is monthly profile. Notice the TPO count vs. prior month. How crucial the 67s have become and profile still points a higher potential break up. Compare this with the chart in the bottom. Same story. You see the significance of holding this level. We are still within the short term balance.

Now back to today. Frankly, I like the volume and response today. It seems to me that the overall sentiment for the longer timeframe buyers have not yet changed. In other words we are still inside the forcing point threshold.

If you noticed todays profile being built. There was an embryonic double distribution sell off in the beginning half of the day. H period reclaimed the single distribution structure and the buying continued enough to erase out more than 30K of negative delta. So while price ended up doing - well not much, The buyers did come in and some major shorts were covered.

So unless their is a major sectoral breakdown. We have a good probability of holding support. However from a price action standpoint we are at a very crucial point. We need to break the resistance of 80-84 level and retest the 1290s. The price rejection from the 1267 area has been so strong that any break down through the 60s may be violent. It can more likely establish a double excess low (double bottom) that is a healthy technical bottom for a potential reversal. That is almost obvious. But the second wave of the economic downturn has just begun to be quantified as measurable data. Although most of has been built in, any new surprise in either macros or geopolitics is going to be very ugly. Take a peek at the hourly 3lb chart below.

What might be in store ? Well if we open above settlement and settlement is bought during IB, there is a good chance of a good test the 80-84 level covering the single tail there. and if we can do that without a dominant flow reversal, a quick test of the 90s is in store. However based on the price action and where the value is, a balance day is more likely if we open within range and value and make a wide IB like today.

Trade wise today was a small loser on the ES. Did not short the IB or C period because it did not give me a setup, although it was a very good short setup if you short VAL as it opened below VAL. The loser came from my short at VWAP which got chopped (was first profitable before the greed machine came on) with the ying yang. It eventually went my way before the true buying kicked in. Anyways should have gotten out at entry as Beige book was coming out. Did not. Note to self.

Frankly, I was busier in my CAG short which was beautiful. Great risk reward too. Was peaceful a trade as perhaps ice fishing. Nothing like the seesaw in the ES.

And finally the masterpiece of a 3lb daily chart below. No other chart can draw such a long story in so many words. Again, spells out the significance of establishing a good support here. BTW, which longer term of the longer terms are trading this chart? ;-) Puts everything back in perspective of the time frame universe. There are again infinite time frames. Good trading.

Double Whammy Tuesday

2008-09-02T13:41:00.001-07:00

A complete breakdown of structure from how the morning started. The dominant flows got reversed by the ISM news which showed shrinking factory activity trending towards contraction. Secondly, the hurricane Gustav good news was completely overshadowed by Hana and others that might follow.

The trade opportunities today were- B period short opportunity after the reversal. And a beautiful short opportunity at VWAP. There was another short opportunity at .382 retrace @ 10:40 PST (which I did not take). I just had the VWAP trade as winner. My B period trade got scractched on the pullback. I did take a long at the 85.75 level which got stopped at entry after a 3point scale out. That was the reason for the missed oppurtunity @10:40 pst ( you miss the train when you are riding the wagon).

It was one of those days where the retraces were shallow. Very difficult to read during the IB. Who knew the trade you scratch would be a 30 point winner. The key to the sell off read was what the big money was doing (orderflow) - reversal of dominant flow @ 7:12 pst. More importantly, how the news was received, crude oil and hurricane related news. Of course energy sector, and tech was a drag all day. It was a day if one was not in tune with the news and orderflow, would have had a bullish bias until it was too late.

Multi-time frames involved in the sell off. We have rotated 3/4 of our balance area (short term) in one day. The 63 level retest is just 10 points away.

The importance of a good start

2008-08-31T10:32:00.000-07:00

In sprint race, swimming or any speed sport, the start is one of the most important part of the performance. I have begin to realise that as a trader it the same. The first trades are mentally the easiest to take at least for me. My losing trades are statistically more concentrated in the starting trades as well. In the majority of days I find myself in the zone after the 1st trade or couple of hours of watching the market action. If you take 3-4 trades a day, its like in a 4x100m race, where would want the starting sprinters to get you in comfortable lead to build upon - or at the very least not be far behind.

That's one of the reasons why I like to trade after I get a good grasp of the structure, bias and type of day. The initial balance gives you a good introduction to the day that might unfold.

Friday was profitable day for me, netting me my average profit. It was however, not an easy day to start with. I had the notion that we might balance based on where we opened and price action preceding market open. The 3 line break chart gave an indication of a low volatile day, the .75x3 Pnf chart indicated that we were flat lined to downside based on the moving average. I don't trade setups on these charts but they are a good barometer, that takes away the noise of time.

I took a long in the E period based on order flow. As I did further research,
it was a trade that could have been taken but not the good quality (refer back to news etc. -consumer spending higher) and frankly better stayed out and waited on a direction. However the most important thing about trades like these is that you have to manage them very conservatively. Then came the news on income which was the lowest fall in 3 years. It was a profitable trade that instead of scratching at break even I let it stop me out, as the selling momentum went from a trickle to more desperate short terms getting out.

The interesting thing though is the effect of such a trade on your risk management and trades for the rest of the day.

I took a long in the F period after the news was absorbed and the selling dried up (dry up volume) and price found temporary support near DBY VAH. It was a half sized position (more conservative mainly because the buy response had not been seen yet). The order flow favored a retrace and when it initiated, I tightened my stop further. I took my profit near VWAP.

Now I recouped my loss and slightly in profit. I was looking at VWAP as possible shorting opportunity. But VWAP generally is close to the dynamic mean (which means chop). Finally the price is here where I want to get in the direction of the sentiment. The big contracts are delta more delta negative and the general market. Everything is lining up.

However I didn't want to end the day in a loss since the week's been descent. I entered 1/2 size short position 1 tick below the VWAP (90.75) on a down tick. Price went in my favor and then it stopped me out at even (generally mean requires a bigger breathing room). I reentered again when the general market parameters lined up again at VWAP (90.25) on a half size. Now under normal circumstances it would be full sized and perhaps an add to the position soon after follow through. I used a conservative strategy for the add as well.

I had order for 2 contracts add on a sell stop at 87.75 which was the swing low of this inverted M formation (double top). The reason is that the bailing out of late longs from the swing low often provides a momentum to the double top failure. However, due to the price action, I took out 1 add at entry (87.75) as it came back to me(again a conservative step). Took profit on another at 85.75 (preservation of profit) and I was all out at 83.75.

It was almost a 10 points move on which I got less that 1/2 the possible profit (all contracts). Simply because I let my guard down on the first trade and switch to conservative hat. Now this last trade was the best trade of the day in my opinion unless you shorted the 96-97 during IB. Like all good trades, it was the toughest to be in. The effect of a bad starting performance is that it puts you in a survival mode which restrains the rest of your trades working to full potential. Now, I have added to my strategy to be mindful to treat the first trade as the first sprinter of the 4x100m and focus on profit or breakeven.

The Trading Dilemma Zone.

2008-08-28T20:31:00.000-07:00

Imagine you are driving in a car, talking on the phone or pondering about something.
You are doing 50 miles an hour in a 40mph road. You are about 100 yards or so from the traffic light just as it turns yellow. Do you speed up or do you hit the brakes... that was a scenario I heard on NPR about a month ago on the program on the traffic dilemma zone. It was referred to as the dilemma zone for brain where it has to make a split second decision whether to make it or stop. I caught maybe 5 minutes of it so I cannot elaborate much. I cant find the recording either. I suspect at that moment the motor cortex takes over control on the decision. It calculates if you are going to make it or not, based on the visual information it is receiving. I think this is much simpler primal process but a good comparison to what we encounter everyday in trading.

Now imagine you are about to enter a long position today in the E period today. You have been waiting for a retrace all morning so you could get on the train. However, instead of a normal retrace, the market makes a steep dive down to approximately your level. You have been analyzing the rest of the markets, news and parameters to see if anything has changed to the long bias - it hasn't. But at the moment the price makes a steep dive to your entry location, you are in a dilemma zone, I suspect. I have fear that the momentum may take it further through me, perhaps the next major level. I have greed to be on the train.

I wrote my premise of my trades and bias today in my last blog. Again to recap. The market makes a strong open drive during A period opening above POC, value, range and the previous levels of resistances. The opening price is bought up on subsequent periods. Strong delta, strong big money delta as well. Price has stopped at strong resting bids @ 6:55, 7:11, & 7:28. Dominant flow is the first 2 bars (reversal of selling pressure). Then we have another at 7:56.

I entered my bid at 1289 at the 8:44 bar after it ticked up from the low just as I notice selling pressure subside significantly and a big block of order trade on the ask (confirming the show of hands @ 7:56) . It was VWAP as well. But by the time my bid was on the dome the market was at bid 1289, I was fighting the market already. I did'nt take the ask. I had maybe less than two or three seconds to take it. I wanted that tick. One of the main reason was that I wanted to stay at the bottom edge of the initial balance and give it a 2 point stop intially, then switch to a mental stop. But I think the bigger reason was because I was mentally in fight mode already. It is what I am calling the trading dilemma zone - when you make a decision to enter a trade. However I think there is a lot more involved to it than that. I don't remember being afraid so much as unwilling to take a higher price and then soon enough my unwillingness to chase (self trained) kicked in. In a matter of couple of seconds the time place opportunity was gone.

I would pose this question to Dr. Steenbarger and see what has to add on how to deal with this zone mentally. His blogs on trading psychology has been of great help. On the managed exit side of things there are couple of good articles
They are similar in nature I suppose yet need different strategies.

I did end up buying the 1st standard deviation of VWAP at 1294 in the J period for a much smaller trade. I thought I was lucky to get that retrace ( see prior midday update) because on days like this retraces can be very shallow. I did end up taking profit earlier because I caught myself dozing from the flu medication at one point (that much action today). I figured they don't let u drive (a much simpler activity) under medication, I might as well as preserve the profit towards trading costs and stop trading.

It is important to me to get the first great opportunity so I don't have to take a make up trade. I would rather be adding than initiating. I hope nobody took the short side of the market today. I posted the advise against shorting today from my well ingrained traumatic memories stored in permanent memory in my brain.

Trend day

2008-08-28T10:23:00.000-07:00

I wanted to post the chart above last night. Unfortunately, I passed out after a good dose of Flu medicine. Thanks to my kids daycare we get it from time to time. Thats a part of parenthood. Lots of ginger water, citrus and coffee and a wait out period.

Trend day so far. Open way above value and range (big gap open). And support to the bottom of open range. Notice the 4 point IB. These days are dangerous on the wrong side. We still have some shorts caught. The afternoon may bring further range extendsion if we can hold the 92 level. I put in an order long at 1289 after the E period low. At the same time I noticed a large block trade at ask. Never came to my bid again. I hope some of you caught that. That was the trade of the day to scale out the rest of the day. Good trading. Whatever u do. Never, never try fade the expanding edge of a trend day. The day looks dull on the surface. But days like this has a potential to explode. Did I say never fade this kind of day? I would rather be wrong than hanging upside down.

The day in review - top heavy

2008-08-27T20:31:00.000-07:00

Heres the Profile for today and clearly we have established value higher. However it has a topping formation meaning price rejection as of now above the 85s.

Look at the order flow at 9:53 pst. 1285 had a big amount of resting offers that got reloaded. Then they hit the bids too pretty heavily. There weren't enough timeframes involved to break the level yet. It was a good short opportunity on the second attempt. I did'nt take it though.

How big is the timeframe universe

2008-08-27T12:40:00.000-07:00

The buying at the 60s should not be confused as a signal for a bull market. In fact the very long timeframe, long, intermediate and short price trends are all down (intermediate/short term value is headed up slightly - see monthly and weekly profile). We do have a price rejection/support level in the short timeframe (although it has become a little porous after yesterdays action). And this support is provided by the participants who are outside the balance area of 1290s to 1260s. At the edges they play depending on their inventory. Now are they the same players every time- no. Are they all long terms - no. Will they bail when the level is broke - yes and no. Will they scale in if get to the 30s - some definitely yes. Some may be short and cover. Some may not until they find another attractive level. In the 30s we will encounter a new set of players some of the old and some new. So the timeframe universe is like a video game where advancing to a new level brings new players and new foes. The short time frame trend is flat lining. But whether its the 1200s, 1230s, or the 1260s the first embryonic conception of a market turn appears in the undercurrents just like so. And while the level is not significant as the turning point, it is the behavior of the market that has transformed in the last several weeks. Whether it will turn at the current level or not the is really not predictable and nobody really knows. What is predictable is that the journey will take us through many mini-balances like last week and this week. It is within those balances is where we play. An awareness of the boundaries and potential behavior there is what is paramount for the day traders to keep ourselves from being sucked out into thin space and our accounts with it. Remember we do not have intermediate and long term initiative buying quite yet which will bring us the volume and perhaps out of the balance. The same thing can be said of the sellers .

A thousand Qin Dynasty Warriors

2008-08-27T11:40:00.000-07:00

The S&P 500 emini contract opened today slightly above value. It goes on to test POC and you will see the response in the order flow. The significance of the 1268 area? weekly poc, monthly level, daily level. The daily profile below looks to me like Qin dynasty soldiers with their spears pointed forward at the 1268 level.

This is a setup where you buy the levels. Price opens above POC and Value combined with the information that we have gathered from the market so far. A high probalility trade.
I don't strictly buy the levels via resting limits. I use orderflow and buyers commitment at those levels before I enter. I sometimes pay a price for that by getting a fill that is a few ticks higher.
Nothing wrong with resting orders - just depends on your risk manangement plan.

Now here's why I made a market comment days ago. Crude jumped $3. That has been a significant thing ain't it. But what happened today? Why did we not dump 10 points? That is why I said in my earlier post that market is never the same. More importantly, the players are never the same. We think visually that patterns are repetitive, not quite that simple.

We had two dominant flow attempts that was bought up before 7:00 PST. In fact by the 7:00 bar, the dominant flow prior had reversed in the favor of the market structure. The buy of the POC area was a great trade on this bar and if you trade lots of contracts, scaling that out the rest of the day is a good strategy. I was out in the 78 area. I reentered in the D period on a smaller size which I ended up scratching for a few ticks loss and reentered again in the E period at VWAP which was a good run. We should not expect much out of a low volume market. In fact that brings me to the next post.

The play of infinite timeframes

2008-08-26T23:37:00.000-07:00

So whos buying the 60s and whos selling the 90s. Long term, short term or intermediate term? In my opinion its all of the above and all in between. There are levels though where certain players have more conviction, need for inventory or excess off and thats what causes the temporal balance. This balance migrates almost like a tornado shifting from pressure imbalances. And within these balances the respective players excercise relative control. Almost like taylors market cycles.

The dominant flow today occured @ 6:37 (there was one at 5:08 as well) and it was immediately bought up. That set the mood for IB until 8:40 pst when it sold off.
I generally dont get right on board in the IB, but my affinity to buy this level had grown root.

A dominant flow that gets reversed is significant at a support level and the bias is reversed as well. Especially if it happens during IB. I did not get a chance to enter @ the 6:37 bar as the buys reversed the delta to +ve. I did enter and scratch my trade @70 almost an hour later and seconds later it busted through the 72s. My bullish bias was the buying at support and subsequent orderflow. Very brief trade looking for immediate follow through. The 8:40 bar shifted the bias and it took the next four hours f0r the selling pressure to subside.

The involvement of the mutiple timeframes was evident from premarket tussle, to the IB reversal and as we extended the IB range in both direction. The balance area though drew far less interest and we ended the day in low volume.

Now heres the 2 day profile. It serves as the initial balance of the week. TPO count is 135/85 indicating higher probability for a rotation up. I am still concerned about the slight normal variation fattening the 63 area. Possibly suggesting that selling pressure through this level is mounting and value is shifting lower.

Paying the trading costs,,,,

2008-08-26T12:38:00.000-07:00

The S&P 500 spent so much time below value that I was concerned about the structure. I still am. It will have future ramifications as far as where the short term balance may shift. It has taken the confidence out of that level (lower 60s) since it means that the level is not as rare for the other timeframe players. There were many small attempts to break to the downside but resting bids absorbed it. It appeared that sellers did not have the conviction though (no sustained hitting the bids).

I generally don't buy on a buystop ( unless I am trading a longer timeframe) but my order for a buystop @ 65.50 (above the last probe high and above the highest trade @ offer traded) was based on the above possibility of support and the significance at the level. Most importantly, it was based on the order flow of decreased selling pressure, after the initial thrust failed to set newer lows or break the level. I did not like the risk reward though, based on my location of a buystop(thats why I don't like buy stops) vs. entry on a small pullback in the 64s. However, I was unwilling to buy it quite yet as the orderflow did not reveal any buying commitments. I wanted the buyers to commit to something that was not visible in the orderflow yet. Stop new LOD or Trin, Tick surprises.

12:06 bar brought some buyers that bailed. 12:11 bar gave me buyers remorse. I was however, not as much in pain as I would have been if I had fully sized into this position. Ah yes, the stop size needed for the trade, also determines the size too, not just the quality of the oppurtunity. Now lets look at the reward. Either POC or max extension to the high of the G period. Remember we are running out of time as well.

The last reason why I entered this trade is that there is an obscure rule in MP that when price leaves value and reenters, and if it spends more than a period inside value, there is an 80% chance that it might rotate the value range. Now this is a dangerous rule. Don't trade it at face value. However keep it in the back of your mind. Returning to value and spending time within value means to me that price still has an affinity for the value (remember, yesterdays value is what we mean). Don't bet the farm on it because retracing of the range may take the scenic route. The 80% rule does not say that it will not stop you out! However use the odds in your trading strategy.

BTW I took 5 points on this trade and that pays for weekly trading cost. Risk reward 3.25:5 pts. - ok but not a great ratio. Good opportunity but higher monetary risk.

Big small nugget here : whenever you have these kind of trades.. I mean higher risk etc. etc. Allocate it in your head towards your trading cost. Just tell yourself that its going to pay for your crapsignal vendors monthly fee or DSL. That way you dont get over greedy too. Don't forget to also ask - is the opportunity good enough for my crapsignal fee to depend on it?

Value today

2008-08-26T12:08:00.000-07:00

I am a little concerned about the structure of the profile today. Although we are very slightly down from yesterday. We have spent considerable amount of time in the low 60s in the later part of the afternoon. I missed the buy at the 64s as it happened during the IB and I was not ready to guess on the news. By the time it came out. I did not get a nice enough pullback to get on. I like to see a buying with conviction. Some profit taking (pullback) and then continued signs of initiative buying. Did not want to short either so ended up trading nothing really. Had a little long in the C period that I scratched. I went and scanned for stocks intead and made beer money on MRVL for the big part of the day. Marvel saved me from getting chopped during the extended lunch hour.

Now I have a long position on the ES on a whopping 1 contract on a buystop. I wanted to go lighter than that if possible;-). I will post more about that thought

Important correction

2008-08-25T15:49:00.001-07:00

Please note that I have made an edit to the Open call post. It is the 1/2 hour before the market open. Sorry for the typo. The 5:55 AM bar is what I referred to as the dominant flow during the open call. It 5 minutes early but that speaks of the desperation.

One final question...

2008-08-25T13:21:00.000-07:00

If you saw the auction today, you might agree that value was established lower much lower today. In fact we were trading in the lower range of DBY (day before yesterday) value (Friday i.e). We made several attempts at the DBY VAL and a final attempt at the DBY LOD. The question that lingers is, based on the auction that happened at the weekly POC and how we closed, was the auction able to come to completion? Or did we merely run out of time?

Day in review

2008-08-25T12:56:00.000-07:00

After the opencall, there were two nice entries. One in A period as price tested the VAL from yesterday or in the B period as price retraced to the open price. Very nice conviction on the part of the sellers. As a market profile trader. one could be managing the runners all day. It was not an easy day to hold positions though. Especially if you are like me and trade just a few contracts. Global saber rattling, crude oil, financials and materials played in the minds of investors. Trend days are tricky to enter into a position. They also don't telegraph their moves like today. If you were able to hold a short till the close of the session, hats off to you. I couldn't. The big question is though, did you take it home? why and why not? I am strictly a day trader but these questions are relevant for us as well.

The test of the 63-64 held but it happened towards the EOD. A lot of silent buying and selling. It was probably a high risk low reward trade to buy the 64s. But for what time frame?

Where we are

2008-08-25T12:28:00.000-07:00

Price has found a lower distribution and interest at the weekly POC. No surpise (this is where responsive buyers stepped in from the the other timeframe) .
It has spent 3 hours at this level. Now we do have a delta divergence from the first attempt at 9:30 PST. Indicating a possibility for a bounce to cover. Not the greatest risk reward though since our value today is way down there. Hats off to the sellers. If do we break we have the 63-64 area as the next level which could be an entry.

Open call and the dominant flow

2008-08-25T10:53:00.001-07:00

In an earlier post, we looked @ the dominant flow during the initial balance. On large majority of days the dominant flow occurs during the initial balance (meaning A, B or in some cases C period). It generally sets the tone of the day and the trades following the dominant flow can be analyzed to see whether there is likelihood of single or multiple participants during the day. More importantly whether it keeps price in balance or takes it out of balance ( a temporary excess) until value migrates to a new accepted level.

The price behavior in the first 1/2 hour before the market open is generally referred to as the open call. Thats an old term when the commercials call their floor brokers for their balance of orders that need to be executed. It is not always evident but sometimes you can read them. The dominant order flow that occurs during the open call can often be a prelude to what might happen when market opens during the IB and the subsequent periods. It rare that a dominant flow occurs with enough conviction premarket because liquidity is not in the favor of the executing broker. However, when it does, it often indicates the urgency in their positions. Today's open call for the S&P 500 had rare but strong dominant flow @ the 5:55 bar.

The significance of dominant flow also depends on where it occurs with respect to the value.

Is it raining or cloudy in Chicago?

2008-08-22T12:28:00.000-07:00

Its 77F and raining in Chicago says google. So maybe they left indeed. Wait a minute, wundergournd.com weather says mostly cloudy (not raining). Intellicast says 81F broken clouds - thats nice. Remember, they have very few days left there before it becomes a block of ice. Most locals must have left to enjoy the last few clouds.

All buyers are not equal

2008-08-22T12:11:00.000-07:00

Yesterday morning I posted a chart that is filtered on 100 contracts of more.
It showed an overwhelming skew of trades on the buy side vs. the comprehensive market volume analysis which included the public. We had a lot more buying on the commercial side then the public. Today there are more public buyers then commercials. We are delta neutral on the commercials and we have a net delta of about 19K on the trades less than 100 contracts . So unless the commercials show up we might be unable extend the range much further. As far as shorts, that is off the table for me right now until we see the selloff like we saw @ the 90-91 area (8:00 AM PST bar) from the commercials. So far the commercials has been quite since 8:00 pst. Currently it feels like we have no paper. Is the pit half empty?

Below is the volume for contracts above 100.

What is not happen yesterday and today's profile

2008-08-22T10:28:00.001-07:00

We have seen yesterday's bullish profile below. I thought it would be interesting to discuss what did not happen. We opened at VAL and was immediately bought up. It was very interesting to me that we did not probe below any recent lows (on pretty negative start and news). The 64-67 area was of interest to a lot of buyers and the commercial buying as shown in my filtered chart yesterday continued throught the day. In fact right after my post it went to make higher highs. From a trade perspective I had a long in the C period which I exited all out too early. And two shorts that took back a large portion of my profit.

Yesterdays dominant flow was indeed too dominant as was already evident in my post. I have noticed this time and again(but I am always surpised by it ;-))that when the other timeframe grabs clear control of the market, they are generally not deterred by short term news. My sense that the market might come to its senses and the weak longs bail (which is the reason why I exited early), did come true. But the weak longs simply sold into resting bids who were buying for a different time frame. The buying in the futures markets managed to pull the equities markets up.

In retrospect, here's the lesson I learned from yesterday. When you exit a trade too early. It causes you to enter into semi-revenge trades. Although I had thought I dont take revenge anymore ;-) the mind finds a way rationalize it (especially if price lingers at a level too long). You start getting visions of the future.

So here is today's profile so far. We gapped open higher well above value.

There was a a nice trade entry in the F period low and with oppurtunity to scale out as we semi-stalled in the I. I have a little runner to manage the rest of the session.

Todays dominant flow in the IB came in on the buy side. In the bid ask analysis below, the 6:50 bar got the first wave of paper in. And the 6:59 bar sell off was absorbed into the resting bids.

The PNF chart below shows where we have been flat lining. The PNF or point and figure chart is a great tool to understand what the price is trying to do. In fact it is the genesis of the Market Profile charting. It takes out a lot of noise in the traditional charting systems.

A futures driven day.

2008-08-21T11:56:00.000-07:00

Market was dealt the wrong day ( as far fundamentals & news) for a range extension to the upside by the longer timeframe players. Nevertheless, they found a way to do it. The day type so far is the normal variation of a normal day. We have found ourselves now all the way from the low value area to 1.8 times the initial balance. It was a rally led by the futures market.

If you noticed the market parameters, the future market dragged the Market Trin with with (in other words, the equities had no choice but follow the futures market). The futures rally off the lows was fairly broad based. It was clearly a day when longer term players took control of the market.

Where is the big money playing today?

2008-08-21T09:54:00.000-07:00

Nothing significant so far. Quite surprised on the contrary that some of the big momey has been on the buy side like yesterday. Some intermediate short term covering. Not much action. With crude making big gains, and weakened dollar. Watch out for any sign of inflection point with further weakness in dollar.

Heres a new view I am introducing. From time to time in the day I make the 30minute chart with a filter of 100contracts or higher. It gives you an idea of where the bigger money is flowing. So far we @ 26k positive delta. Which is a very different picture from the general market delta @ 6K or so. Again thus far.

Trading tools and the Palm Treo

2008-08-20T22:08:00.000-07:00

My Palm Treo 650 was part of my trading tools and now I miss it immensely.
This is how I used it. I have sprint as my wireless provider and have their unlimited data plan. I used the Treo as my backup connection in case the DSL went down. On at least 4-5 occasion the Palm's connection has bailed me out flawlessly. At least on 2 occasions I was in the middle of a trade and was able to manage it through my Palm (most charts on as well). I use a third party software to use the data connection. Ever since the timely demise of my Treo I have my dial-up ready but really not comfortable with it.

Now I had a big misunderstanding of Sprint's new deal and I have cancelled my 800w at least for now. I feel like I was misled a little. So for now I have activated another phone and until my upset state of mind come back to balance;-).

But from a trading perspective I think it will be cool to have a backup on their faster network. Sprint claims 350-500kbps upload and 600-1.4Mbps download. I like Palm and hope they would survive as company. They need to deliver on their promise of cool new things.

Having a nice backup is important. Dial up doesnot really cut it I think though it will get you out of a trade. Especially if you are like me analyzing tick by tick volume at entries. Hey, maybe I should call Sprint tommorow again!

2008-08-20T19:10:00.000-07:00

First here's the morning buy response in two waves.

And the 3 day profile. The 3 day profile is a good tool for the day trader. Since the Market spends 70% of the time in balance, it gives a good picture of short/intermediate term value. I mentioned in a previous post 3days ago ( @ the upper balance) that the market was exibiting increased TPO count below 1298 area and it was likely to balance downwards in the short term, althouth the longer term profile (30day) was in the opposite direction. We now have a b pattern indicative of some price absorbtion and skewed TPO count of 268/137 above POC indicating a possible rotation up within the balance.

The factor of dominant flow

2008-08-20T13:45:00.000-07:00

When I miss a big trade, my mind tends to be in the chase mode. I try to be conscious about rationals behind the next trade. By 10:55 the ES was having an increasingly difficult time facilitating business above yesterdays value. While I entered the next trade @ 10:56 based on order flow (higher highs but -ve delta), thinking that there could be a normal variation to the downside of the balance, I was not sure if I had entered this trade in chase mode. It was almost exactly at that point that the Trin make a big spike and validated my rational to stay in the trade. It was like a gust of tail wind right after you took a tee shot.

The important point here though is the target. The sell off was impressive but a slow grind. My entry was 68.75 which was near the I period high but not the greatest location. I got a lucky tailwind. My constant scan for any ground breaking events did not yeild much except for crude making modest gains. Initially G period low was the target for a scale out, but the orderflow gave the oppurtunity to stay. in. I set the second target at above LOD. I then remembered the buy response in the morning and took all the contracts out @ 4.75 pts when we failed to break and the odds of a balanced day increased(see the big trades at bid but price stagnant). The trin did not make any higher highs as well. It turned out to be a good decision as it also allowed me to enter at the edge for long trade that yielded 6-12 pts depending on how long you stayed in (6 for me)

The point I wanted to share is - remember the dominant flow of the day ( especially intial balance) and use it in the analysis. Secondly, dont be fixed with a target if the kind of day cannot offer you one. The target depends on the kind of day it is, as well as where your trade is located.

Missed trade and the chasing mind

2008-08-20T12:23:00.000-07:00

Todays balance was somewhat predictable but the open action was a little surprise. Open is not just about open calls from institutions, or paper that comes in. The lack of paper also allows the locals to play a bigger role then just execution. The sell off in the morning was more local pushing based on the volume, than paper. Especially if you look at the distance travelled and sell volume. The 1260 area was a good place to grab any stops from yerterdays lows. The buy response that took us from the lows was mostly covering and some buying but the real buy response came at yesterdays POC area of 67-68.

That buying brought us from the nearly neutral to 35K Delta. Now I was interested in the 1277.50 area for a reversal to current balance. It made a probe @ 8:13 PST and never got a chance for a second weak probe. It dropped quite steeply @ the 8:46 bar and personally it would have been a chase to enter 4-5 points below intended entry. But the key thing for me in this trade was location because of the strong buy response, the delta etc., if you want to short, you want a really really nice location and a good sign of potential weakness.

The sell response was equally impressive and by the time we got to the mean (bright gold spot in the Value bar) we were nearly neutral. Overall market was weak and the ES made its attempt to break to the upside of VWAP. There was a scratch trade @ VWAP (short) as the lack of follow through gave me no reason to stay (Fat part is the choppiest part). 10:24-10:55 made new probe highs but the dominant trade was on the sell side as evident in the delta below. The two trade that followed was extremely interesting. This was a small trade but an important point here in the next post.

Open Oppurtunity & Delta Divergence

2008-08-19T13:14:00.001-07:00

Heres todays profile and right off the bat you see the difference in todays open versus yesterday. S&P 500 opened outside of yesterdays range and went to test the value area. It got to overnight Value area low (VAL). Two important things, it could not get to settlement, and it could not test Day session VAL. A nice trade strategy is a short as it falls through open price. C period presented a nice oppurtunity to short at the confluence of both the open and the VWAP. There was another short at vwap in the G period which was a stop @ entry. I period presented another great oppurtunity to short the open.

Lets look at the open closely. I don't generally enter the cross of the open because of my risk management rules. I am a firm believer, that some of the most profitable strategy may not be right for you based on your risk management goals. If you entered the cross of the open as price went to the downside in the 6:44 bar. If you had a 3 point stop, the 6:45 bar takes you out. Now some may say 3 point stop is too small or too big. It is neither, because we do not know the possible range yet.

If you trade the open or IB, today's best open entry, in my opinion, was the 6:45 PST bar. We had the open test drive at 6:39PST and a moderately strong reject indicating some paper on the downside. This was not a strong show of hand (until 6:50). Nevertheless given yesterdays close (which was an incomplete aution ended by the lack of time), where it opened today (well underside of value and range), overnight activity etc. was a decent edge (not a certainty). So shorting a weak pullback gives you a decent risk-reward for the day. Of course the next bar, a lot of paper comes in and gives you an oppurtunity for an add perhaps. The second short oppurtunity came in the C period.

The third short oppurtunity in the I period was aided a little by the lack of buying and covering as seen in the footprint below. Its a 5 min chart showing bid ask volume traded at each price and cumulative delta in the bottom. The short in the I period had an oppurtunity for an add as well. This trade though tested your pain tolerance or the pain of the gain as coined by Dr. Brett Steenbarger.

However, given the structure of the day ( which was a balance day) and the fact that when you got to the bottom the delta was divergent, it was not a trade to let run. Note the total cum delta was more than when it was was in the E period LOD. This generally means we brought with us less shorts than last time. Notice also the high number of hitting the bids but price unable to probe lower. This generally indicates buying or reloading of the bids. It is a great great oppurtunity to exit (even if proven wrong) the trade given the structure of the day (balance). It is not quite by itself an oppurtunity to buy though. Soon enough all the late shorts bail with the day shorts and perhaps some short term shorts and price comes to today's fair value.

MP software and links.

2008-08-19T11:26:00.000-07:00

Many readers have asked about market profile software. There are many but ones that have serious emphasis on MP are

- Invester / RT,
- Market Delta and
- windotrader

I use Market Delta with DTN feed. I use their bid ask analysis, PNF and the regular candlestick charting as well. I dont know of any MP course that I can recommend. If anybody has one please do so. There are many good reads on MP. Daltons' Markets in Profile, especially, I have read at least 5 times.

I think learning MP is like internal medicine. I consider myself an intern. Everyday, every mini balance, week, and monthly balance brings new learning. Its a lesson that will never be quite complete. I am a firm believer that the Market is constantly changing and is never again the same. Its human element part of the market that remains somewhat predictable.

End of the day Monday

2008-08-19T00:18:00.000-07:00

I have been meaning to post the finale but unable to, my TREO 650 had a burial (still waiting for 800w). S&P 500 opened on a clear open drive ( the strongest of the opens ) to the downside. The volume was not big but the conviction was clear. One of the key things in MP is to go with the trend following a balance day. Here was the transition from Globex to CME in the morning

Many market profile experts take their position during the Initial Balance or the first hour of trading and then scale their positions out during the day. This is especially a good strategy on a trend day. The other strategy is to get on a retrace with a position in the direction of the trend. The ideal retrace came right at VWAP of the day or the high of the D period. Retraces like these are tricky in the absence of a strong level like vwap because it can just as easily go against your position. In those cases a PNF chart helps clear the noise.
I was looking for price to get to at least half back to the 98s which never came.

The S/R level of 1278 area had a battle for the rest of the day. The POC we have to remember is also the fair price. The longer it spends their the less action one should expect. It ended with a mild buying, selling then covering. That is the POC area for the last 30 days. It may not be visible on a bar chart but it is where we spent the most time during those days - at a price level percieved as fair.
What concerns me is the structure of the day which implies that the sell structure was broadly distributed down. Meaning that the other timeframe participants did not find it attractive enough to play (given their inventory, macro, geo-politics, stars alignment.. or what have you).

Expanded 30 day profile

2008-08-18T11:44:00.000-07:00

An expanded view of the 30 day profile at POC. .25 resolution presents the POC as 77.50 -78.50 area although the high volume node is 77.25. Price has traded in this range for about 50 minutes.

Dalton's Webinar extra

2008-08-18T11:12:00.000-07:00

Expanding on the take aways from Dalton's webinar, there are two types of trades. Go with/ and mean reversion. On trend days, one should worry about getting on the trend early not the location. On balance days however, one should worry greatly about the location ( you want to initiate trades in the edges and not the fat part or the mean area) Calculating risk-reward for each trade.

He suggests an exercise for EOD analysis where you can put red and green pins on a printout of the days profile. It will give you a visual idea how you are locating your trades.

Today & now

2008-08-18T10:46:00.000-07:00

Early today, during globex session, the ES traded up on razor thin volume. At the high the Globex delta was about 2k. Paper came in on the sell side on moderate volume. Housing data did not provide any new news.

Currently @ 11:01 PST. We have rotated down to the lower distribution and at the POC of 1278-79 area of the 30 day profile, a potential area of support. Any sign of responsive buying would provide an early clue. This area has been a relatively important s/r area. A break on high volume might take us to the next distribution below. Broad based weakness in the market. The fact that we have trended down from the current balance area is an important point that currently we are in intermediate /short term timeframe control. So the 78-79 area in my mind is an over-under level either for a continuation or reversal.

Which way is the elevator going?

2008-08-17T15:39:00.000-07:00

I dont trade the initial balance (1st one hour) of the market. Mainly because my trade plan builds off the IB. I watch it intently for the bias and momentum of the paper that comes in. I laid out the comparison of the 3 day profile and the 30 day profile in my previous post and we looked at two possibilities at edges of the current paradox.

On Friday we went on to test the overnight high and was quickly rejected and the support of the 1291 area held. The market set it self up for a possible balance by the reject in the C period. D and E periods provided excellent trade points to ask the question - is the market doing a great job in the longer time frame trend or is the shorter time frame trend more likely. We had 30K delta ( barely) and the markets were divergent. Russell was well off the highs. The Trin was well of the lows. Nothing was on fire. I mean it just was not the day it was going to bust through the seams and break out.

J& K periods provided yet another opportunity for a reversion to the mean trade. I did manage to make a mistake in the middle of the distribution waiting for the trade, in spite of my plan not to trade the fat part. I got tired of waiting for the market to come down to the edges. I have named them the Amygdala trades or the fear of losing oppurtunity trades. Fortunately the market gave me an exit and I was able to snap out of the trade (at a smaller loss) and catch the edge. Overall the day was a great balance trade day.

The long time frame buyers I mentioned in my first post were noticeably quite!

Major League Market and the Market Paradox

2008-08-17T15:08:00.000-07:00

I attended the tail end of a Dalton webinar which was excellent. (thanks to Brett's blog) for the listing. In that he brought out two things which I think was very important (I missed 70% of the webinar).

First, as any one of us start in trading, we play our first practice ( or real money if you prefer) game in the Major League Market (MLM). There are no pee wee leaques for trading, no high school or college programs. Certainly no minor leaques. We are hugely disadvantaged in the game. If I had accepted that fact many years ago, I would have just sat in front of the orderflow for years before I got myself a mouse to click.

So every day you walk away a winner (or a draw), you buy yourself a cigar (dont smoke it). Every week you walk a winner, treat yourself to the golf course. Every month you do so, take your family for a weekend trip. Because you have won against the system of the Ivy league graduates who are given all the training and resources in the world and a very very deep account. It is not neccessarily their money you've won, but you've played at the highest level. Every time you dont, prepare for game day (remember who you are up against). Wow ! this sounds like advice. Please remember, this blog is mainly note to self.

The second thing that is relevant to me as a daytrader is to always evaluate what kind of day it is and who is likely in control. It is from Dalton's books that I have begun to have an understanding of the significance of the day type and how to use it in trading. It is my understanding that knowing which time frames are likely in play during a days session is more important to the day trader than any other time frame trader. That simply does not mean volume of buy vs. sell but an overall picture of what is/is not affecting capital flow - macro news, currencies, commodities, bonds and a myriad of other things that affect the flow.

(I apologise for this late notice - but I am writing this blog strictly from a day time frame traders viewpoint. )

Elaborating on both the second point and my previous post on the current market paradox, we could ask - are we going to trend up (long time frame) or balance ( Short/intermediate time frame). If the market is not doing a great job at one than the other outcome is more probable, right!

Market and the Uncertainty principle

2008-08-17T10:59:00.000-07:00

I have often wondered what is the closest phenomenon that compares to the market. I have failed to come up with an answer. It reminds me of the scene in one of the matrix trilogy where the collective mind is tapped into. In my opinion, Market behavior cannot be simplified to a process or a phenomenon driven by a collective mind. It is far far more complicated than that. The market is an uniquely unnatural phenomenon.

However, there a quality of the market that I often compare to something we learn in high school. Its the Heisenberg uncertainty principle in Quantum physics. The market is constantly efficient for one time frame and at the same time inefficient for other time frames. When we try to define price and value for one time frame, we make the price and value uncertain for other time frames. Although I think there are infinite numbers of time scales that factor in the market behavior, we over simply it ( for sanity's sake) to a finite group of participants.

In the prior half of building of the 30 day distribution ( as it unfolded) below, short/intermediate term time frame was in control and the value was shifting lower. It was uncertain when (not whether) longer time frame participants would see value. Now longer time frame has appeared and the value has shifted higher but the short term value is uncertain.

The 30 day profile has developed a spike in the top distribution indicating shift in balance range ( &therefore value) upwards, the 3 day profile however is showing increased Tick and TPO count below the 98 level. We may be in a longer term trend phase, yet the market is showing greater propensity to balance in the shorter term time frame. Cisco futures provides an excellent resource on the Meta profile. I am not a subscriber to his service but I see great value in it.

The 3 day profile below is drawn without Fridays (8/15/08) data and the tpo count of 85/130 indicates a higher probability of a short term balance then a break out. Keeping in our minds that we have increased TPO count and a spike in the highest end of the distribution of the 30 day profile ( indicative of a potential for upside breakout), one has to be ready for both outcomes. I think this is the traders paradox everyday - and the key to it is figuring out who is in greater control. Friday was one such day. and we'll look at it in the next post.

Trading the undercurrents

2008-08-10T10:42:00.000-07:00

First of all, thanks to Brett Steenbarger for inspiring me enough to start my own blog. He does not know me but I owe a lot to him. His blog is a treasure trove all traders must hunt!

The market has been exhibiting price and volume behavior that represents buying by longer time participants for the last few weeks. There is evidence from prior weeks, but lets look at the last 6 days market profile of the S&P Emini futures september contract which provides a good perspective of what undercurrent was flowing in the market in those sessions.

Starting from the sell off on 8/1 that formed a b pattern in the market profile below, indicating longer term buyers absorbing the sell off. Price balanced on 8/4 forming a wide D shaped distribution. We gapped open higher on 8/5 and the double distribution on that day indicated multiple timeframes buying. On 8/6 we balanced again with continued buying in the afternoon. On 8/7 the short term positions sold off on financials weakness and news. Buyers continued to absorb the sell off through out the day and through late in the day, when the market sold off after establishing value higher in the 1274-1283 range for much of the session. What looked like a weak market on price alone, had infact become a very dangerous market to be holding a short position not only based on the p formation and narrow distribution ( in fact a single tail ) sell off, but along with the Bid/Ask Volume analysis for the session and inference from past few sessions.

Before the bid ask analysis lets take a look at the 180 minute chart below for the ES. Most of you are aware of the ascending triangle that had been developing.

Now lets look at the orderflow at the key test of the lower line of the triangle 0n 8/4. The chart below is a bid ask analysis chart set at 7 ticks reversal from Market Delta. For those who are not familiar with it, it takes the price to reverse 7 ticks in the opposite direction of the prior column to draw a new column. The red numbers are trades at bid and blue numbers are trades at ask. Simple enough. Oh, btw theses are transacted trades, not bids and asks ( that may or may not be transacted at all, like on a dome).

At 7:50 PST the price came down on very heavy selling to 1247.50. Notice at 47.75, 48.00, 48.25 and 48.50 we have a huge numbers of sellers but there were enough limit buy orders that got reloaded several times in the 10 minutes of battles that stopped the fall. It was not that we did not have enough sellers, but the price was of interest to some buyers who were buying for perhaps a different time frame. While this data is not enough to make a trade yet, the subsequent price probes show similar patterns. By 8:32 PST it was clear that there were more buying interest in those probes then selling pressure. Also at that point the NYSE TRIN and other markets were divergent. More importantly, 1247 was also a volume POC (point of control) on 7/29 which was the base (support) of the last up move and the support held.

The most interesting thing about 8/4 day however, was how it closed. It settled about 10 points to the downside but with a net positive of 16K delta (a significant delta divergence). Notice the late afternoon buying, a sell off ( mostly short term traders) then again limit buying in the 1247 area. Such days are indicative of program buying. Best buyside brokers bottom feed without showing their hands.

One can argue that strictly from a price perspective it was a negative close. However the underlying data in other dimensions hinted a possibility of a reversal from this prior support. Like the prior session, it was the kind of day when it was not advisable to take a short home.

On 8/5 we gapped higher. And it became evident that paper came in on the buy side. As we tested the now resistance (prior support) of 1265, notice how every attempt to sell are absorbed by the resting bids before it finally breaks through on heavy volume. This is FOMC day and the buying continued through the close.

In the afternoon session on 08/05 the same behavior continued although it might have looked like a weak top till about 7:41 PST on a price chart. The bid ask profile below show the true undercurrents as the market consolidates to test and break out from the 1276 area. Notice the unusually high amount of selling absorbed in the 1265 area and the value area and mean shifting upwards ( the gold bar is value area and bright gold spot is mean), while the price rotated around this area.

The same conditions occured on 08/06 as price consolidated in the 1280-85 area leading to the break out.

It then balanced on the 08/07 as short term profit takers sold to longer term buyers. US consumer credit data led to an afternoon sell off by short/intermediate term holders forming a p pattern again the market profile.

The market openned the next day on 08/08 and rallied back to the value of previous day as these weak shorts covered. And the buying continued through out the day as we busted through the 80s to the crucial 1290s.

In the top picture of Market profile for the last few sessions the uptrend days has well spread out distribution as price found acceptance higher. This is indicative of multiple timeframe participants in the market. If we look at other markets such as commodities ( the fall of crude and gold in particular), and the strength of US dollars in the recent times, it could be inferred that there has been major repositioning of capital in recent times. Perhaps markets are at the end of a beginning in the change of flow of capital . In other words the first waves of big money has already crept in -quitely.