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

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

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

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.