FOLLOWING THE AUCTION – GOING DOWNTOWN

This week in Following the Auction let’s review how last week ended with a multi-day stop-run. Then we’ll look at our charts and some of the research.  

News, news, news… now which one of these was responsible for making Thursday so unhappy?

• Rise in inflation and Fed rate-hike fears
• International news sparks turbulence, Greece, Greece, Greece
• Earnings season hiccups? Google, Microsoft, Starbucks… and more this week!
• China, China, China
• BLOOMBERG GOES DOWN!!!!   

maybe just all together… or maybe the simple fact is, nobody really wants to buy new highs, except laggards, and I doubt there’s enough of them to do anything except get flushed… so the market had to go back downtown, back where the peeps are cackling to ‘buy low’. Remember the auction moves lower to find buyers and higher to induce sellers. Apparently new highs where not in the cards last week. Just as in the daily TPO’s and a series of 5, 15 or 30 minute highs or lows present a stop-run opportunity, Friday was knocked off it’s balancing act perhaps with all the news or perhaps as Dalton says… “traders do what works, til it doesn’t”. So with price at highs and 3 great areas for stops below, and a lack of new buyers…a liquidation break cleared out the closest stops, starting with Thursday’s poor low, removed overnight.. After the stops were out, a peek into the bullish conviction ‘singles’ and buyers took price right back to the neighborhood VPOC in the 2075 area. Please click to enlarge.

Volume – Notice the volume histogram at the bottom, set for rising and falling volume not price, there has been a decrease in volume, as many are pointing to as the reason the market is struggling without continued buying. The chart below is ES CME Volume from the beginning of the year through last week. Easy to see the trend is down on volume, yellow is actual, the red line represents the 10-day Average.

Rotations – As day-traders knowing the expected or average move in a rotation is key to planning your targets and stops. As this varies with instrument, we’re looking at just the ES. Note the following time frames from recent research shows on 100 days of pit-session only, the rotations are…

• 5 minute – 16 ticks or 4 points
• 15 minute – 27 ticks or 6.75 points
• 30 minute – 38 ticks or 9.50 points

Ranges – Friday’s day range was 22.5 points. This is only slightly over the average, as coming into Friday, day’s ranges were compressed. The way to use this information is knowing the compression will lead to expansion. See the chart below for actual ranges from the beginning of the year. The range has compressed overall from the beginning of the year

The next chart shows the average ranges above the open and below the open. What is useful about these statistics is knowing some ways to employ them in your trading. For example there are zero occurrences of a look below the open by .25 that held from the beginning of the year. Twice recently when the market looked .25 below the open and rallied, looking for a nice LVN above to short provided a high probability opportunity for price to trade back below the open. Let’s say you believe the low is in, if the average range is 18 points, or even 10.50 (average) above the open, use this in your planning, it will help free your mind from the unprofitable scalp mindset.

Last chart is a market profile chart, day-session only. There are singles from 2080 to 2087 from Friday’s high, a 5 tick buying tail off Friday’s low at 2064.50. Value considerabbly off the highs but overlapping the prior weeks auction. Looking below is like looking over the cliff… singles mostly down to 2047, the all time highs have unfinished business. 

What’s up this week? Check in with the team on Monday morning! Lewis @ManOverMarket joins TopStepTrader @MarketBroadcaster to go over his charts here… http://www.topsteptrader.com/chat_rooms/1009

As always, have a great week! Trade smarter… not more often!

FOLLOWING THE AUCTION – 3 Things to know about Market Profile Singles

This week in Following the Auction, we’re looking at ‘singles’ on a market profile chart.  A ‘single’ is a market profile term representing  one or more TPOs that stand alone within a whole day’s profile.  Keeping in mind market profile is not a trading system but a way of organizing data, one cannot understand profile development without recognizing one fundamental fact, it’s an auction. Let’s start with a picture, the easiest way to explain, please click to enlarge.

Given the market is continually moving from balance to imbalance and this process plays out over all time frames, this is how the day time-frame on 4/9/15 developed. Looking at the 3 charts above, the first a regular 30 minute candle chart. The second is a Market Profile chart in an expanded view (each TPO, covers a price increment on the horizontal scale, the same as a candlestick). The balance areas circled in yellow are where price has rotated back and forth between unfair highs and lows, probing to search for and confirm value. High volume nodes are formed in this process and are another way of saying time spend at price = value.

Here are the 3 things all traders must understand about single prints…

1. Single prints are the opposite of value! They express a perceived change in value and a participant driven, generally emotionally charged, auction to a new price level. Singles are the opposite of High Volume Nodes or HVNs which develop out of the rotational nature of price movement in an accepted area and = value.
2. Single prints are a sign of strong conviction by either buyers or sellers. Singles are frequently seen on trend days as price extends from balance to balance, as well as on balance days at the range extremes as buying or selling tails. A line of singles can mark reversals in trend and show rejection with price either too cheap or too expensive at that point in time.
3. Single prints are key day-trading references. In an uptrending market, a pullback to an area of singles, if sentiment has not changed will represent a buying opportunity. However context is king and a long term bullish trend has many smaller time-frame bearish days, even weeks. If a price above an expanse of ‘bullish conviction singles’ is deemed ‘too expensive’ by the auction participants, a trading opportunity also exists… the single prints below will be retraced, without a doubt. 

Last week the market developed a balance area between 2065 and and 2080. Friday’s low at 2066.75 left the profile with an 8 tick (singles) buying tail, showing rejection out of the lower extreme of the range. The if/then scenario became to test the top of the range and possible continuation as the balance area was quite developed. And that’s exactly what happened, the entire balance area was traversed! Then after spending some time building value at the upper end of balance, price made another push higher, then chopped into the close. The chart below goes back to mid-February and shows the recent balance circled in yellow with the prominent VPOC at 2074.50 in pink below price and another prominent VPOC at 2101 from the prior balance area above. A magnet and also an area to watch as previously prices above 2100 have shown little ability to attract new buyers, could earnings season change that? We’ve heard positive and negative excuses for quarterly results, and projections. As always with any auction, price is the advertising mechanism, regulated by time, the success of which is determined by volume. The end of an auction is marked by excess, balance, followed by decline. Whether you’re bullish or bearish keep an eye on volume near these highs for indication of acceptance or rejection on this third attempt to be solidly accepted above 2100.

Connect with Lewis Monday morning, watch the ManOverMarket twitter feed for all the updates. Get the pre-market research here on the blog. Join us and join the conversation… this week Lewis is back on YouTube LIVE… you can ASK HIM ANYTHING!

Have a great week! Trade smarter! Never more often…