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…

 

FOLLOWING THE AUCTION, LOOKING SPARSE UP HERE?

This week in Following the Auction, we’re looking at recent price action in the S&P 500 and recent action in the EuroStoxx 50. 

News this week from the worlds financial gurus was a riot with Warren Buffet declaring he did the research and 6-year-olds have the lowest death rate in the world, so he strategically developed a diet to mimic that of a 6-year-old boy. He’s enjoying his PB&J’s and lots of Coca Cola… 5 a day! (do you think he owns KO?)  Buffet is also known as a value investor as was another financial guru who passed away this week, Irving Kahn. Kahn, born in 1905, had an understanding of the concept of value investing prior to the stock market crash of 1929, when  he noticed that traders were bidding stock prices into the stratosphere. Selling short 50 shares of red-hot Magma Copper that June, Kahn wagered the price would plummet. When the market crashed on Oct. 29, his $300 investment, about $4,000 in today’s dollars, more than doubled. On an NPR interview in 2006 he said, “I wasn’t smart, but even a dumb young kid could see these guys were gambling. They were all borrowing money and having a good time and being right for a few months and, after that, you know what happened.” Interesting comment to think about… fear and greed… always an integral gear to the auction. 

Talking about value investing relative to our current market prices versus Europe and some say European stocks look very cheap, especially compared to the U.S.  investment strategists are mixed on whether to overweight or underweight Europe but agree investors would be wise to include some exposure in their portfolios. As futures traders we worry less about the investing aspect and more about volatility, ATR and margin. However, we track smart money footprints and resulting trends. With the financial worlds’ eye on Europe and Dragis’ QE, let’s take a closer look at the S&P 500 and the EuroStoxx 50. While the S&P 500 has 500 stocks and the EuroStoxx 50 has only 50 stocks, it nevertheless is a very liquid market and over the last decade has become more popular with day-traders in the US, and clearly longer term investors as well. Note the following information on both charts, please click to enlarge.

• High in 2000 – ES 1655.25 – EX 4941
• High in 2007 – ES 1466.75 – EX 4060
• Low in 2009 – ES 530.50 – EX 1188
• Current price (circled in yellow) in relation to above highs and lows
• Lower pane chart shows the United States Dollar vs the Euro currency.

Note these two indexes relative to the old highs from 2000 and 2007 and where they are now. The S&P 500 broke the trendline the end of 2012, the EuroStoxx 50 broke the trendline last month.  Not to be ignored are the currencies in the lower chart pane,  see the dollar in a short squeeze and liquidation on the euro. Note the euro has broken the 1.18/1.19 level (grey horizontal line) it has held as support over the last 10 years as the dollar is coming close to hitting the 1.00 level, it’s resistance over the last ten years. 

Clearly the trend is up on both indexes but the auction in the S&P got a little tired last week as evidenced by an RTH (regular trading hours) excess high. The last all-time-high at 2088.75 was a market profile ‘poor’ high which implies an unfinished auction. Wednesday’s high of day at 2117.75 left a 3 TPO ‘excess high’ and marks the end of the auction, for that period in time. While the excess certainly marked the high for last week, with 3 days of one-time-framing lower, value moving lower yet not quite reaching 2099.50, the lower BAE (balance area extreme) upper limit. Staying above 2099, LVN (low volume node) keeps the weekly trend up and challenges the excess high. Acceptance below the LVN targets the two prominent HVNs (high volume nodes) below at 2096.25 and 2093.25. Carry forward information, a poor low from 2/23/15, 2099.75 an additional poor low from 2/20/15, 2082.25 and a gap between 2070 and 2071.50. Two poor highs, Thursday and Friday.

A final day-trading comparison chart between the EuroStoxx 50 and the S&P 500. The charts compare last week, the EU on a 24-hour chart, the US day-session open marked with a grey vertical line. The ES chart is the day-session only. I think the arrows give a relatively good feel for how the week progressed in both markets. Please click on chart to enlarge.

Coming into the final month of the quarter, what shall we expect? Register for FREE on the website and then get your coffee and open Pat Tabet’s Pre-Market update, waiting for you upon login. Then, Charles Cochran posts commentary on the ES, ZB, CL and 6e with actionable trading levels based on volume profiling! Heading into the open, Lewis Borsellino will get down to business with the Man Over Market’s Morning Call. When you’re asking.. whaddawedonow?The MOM team has answers!  

Have a spectacular week! Trade smarter… not more often!

LIVE TRADING, WEATHER PERMITTING… TODAY’S CHARTS AND LEARNING

Enjoy this after the close! Lewis Borsellino’s ManOverMarket live trading and education videos are an hour packed with charts, trading (when the market is moving), proprietary indicator descriptions, market profile education and entertaining stories from Lewis’ Pit Days!  Watch this one later… catch the next one live! Check the twitter feed for upcoming dates and times so you can mark your calendar. Each session Lewis will answer questions from viewers through his ManOverMarket twitter feed. Listen to him explain how he leans on the bias and uses his chart indicators developed by Pat Tabet and ‘tweaked’ over 20+ years! Bring your questions next time… Traders… this is great stuff! 

Here is the link to today’s video.. http://t.co/bTsuPd1xdB 

FOLLOWING THE AUCTION – MARKET PROFILE TRADE, IT’S NOT GAMBLING!

This week in Following the Auction, we want to look at a classic low risk, high odds trade viewed through the Market Profile chart utilizing all of MOM’s tools to load your dice! After that, we’ll look at the same chart merged into a mico-composite to look at the classic high odds Market Profile BAE (balance area extreme) opportunity and show the results of trading the setup with a 3-lot unit management.

First, take a look at a market profile chart. The information on the chart came from Pat Tabet’s Pre-Market Update that’s available for FREE on our website before i’ve poured my first cup of coffee. We see the proprietary BULL/BEAR ZONE highlighted. Support is also indicated. Resistance and targets for the day are there as well. Also from the pre-market, we know the average rotations on recent activity. Lewis Borsellino posts his Morning Call youtube video indicating the MOM proprietary bias, his market analysis and his plan of attack on the day. Take a look, click to enlarge.

Additional support to keep your trading on the profitable side of the market comes in the form of Lewis’s twitter feed as he updates followers with current market movement, while watching MOM’s proprietary tools and following the auction, play by play through the entire trading day. Click to enlarge.

Finally lets cover Friday’s classic Market Profile low risk, high odds trading setup. The chart below shows the balance area that formed over the 5 days coming into Friday 2/20/15. The chart is the same as the chart above except the days of overlapping value have been combined to form a micro-composite. Note these charts are profile only charts and show no volume, however the trade would be best managed by watching the volume at BAE low when considering entry. The trader would not want to see increasing volume at BAE low if stalking the long entry. Note that 2082.75 marks the BAE (balance area extreme) on the low end of balance and 2099.50 markes the BAE on the high end of the balance area. After that it’s what we call the ‘If… then scenario”. If BAE low holds… BAE high will be tested. While there are many ways to approach this trade, I like to use 3 units. If you buy BAE low with 3 units, take one unit off at POC. The target for the 2nd unit is BAE high, leaving a final unit for a possible break-out. I wish we had trades like this daily, however what makes this one great is the time it takes to properly setup. But a developed balance area makes for a great ride! Click to enlarge.

That raps up this post! You can’t call it gambling when smart technical analysis informs your risk management! Remember, sign up on our website for Free and get this stuff! Listen to Lewis’s Morning Call and get in the game! 

Have a great week! Trade smarter… not more often!

FOLLOWING THE AUCTION – WE ALL WANT AN EDGE

This week in Following the Auction we’re talking about what everyone wants… an edge. The current hysterical discussion that’s all over TV and the internet is about balls. The NFL and literally everyone is being questioned… were the footballs intentionally deflated to less than what actual game balls are, by rule, supposed to be? Regulation standards say balls should be inflated to 12.5 to 13.5 pounds of air per square inch and weigh 14 to 15 ounces. Deflate gate is really an argument about Team A having an advantage, an edge… over Team B.  Clearly having an edge over your competitors is big business… ask the 1994 Cleveland Indians about their corked bat, ask the HFT traders (if you can find them), or… just ask Lance Armstrong. 

As traders we want an edge over our competitors. Part of our edge is preparation. And part of that preparation is knowing our competitors and what they’re doing. Jim Dalton, market profile master, looks at market trends and divides the market participants into 5 different categories.

• Innovators – These are the traders that have have insight into possible game-changing news.
• Early Adopters – These are the traders that see the balance and get in before the breakout.
• Early Majority – These are the traders that see the breakout and create the herd.
• Late Majority – These are the traders that see the developed trend and join the herd.
• Laggards – These are the retail traders that finally got the word… 

What happens next in the above cycle is usually profit taking by the innovators… the trend has run it’s course and there’s no one left to buy. So the auction develops excess and goes into balance as profit is taken and then trades lower in search of prices that will bring in new buyers to start the cycle again. So why talk about innovators and laggards? Let’s take a look at the Bund. Bunds are the German equivalent of U.S. Treasury bonds. Click on chart to enlarge.

The next chart is the same as above but a closer look at the most recent trend that started the day Draghi said… QE. 

The question for Bund traders is clear, where do we go from here? All this activity has brought a lot of attention on products that may be new to you. A traders’ edge is knowing the products he trades, a great place to learn about the Bund, the EuroStoxx 50 and the Dax is the Eurex Exchange website.

The question coming into this week is what’s going to happen with our own market? Monday, no news, Tuesday, Durable Goods, Consumer Confidence and New Home Sales, leading into Wednesdays FOMC at 1:00 pm CT. With Thursday’s rally on the European QE news, and Friday’s fizzle back to the safety of Thursdays value area… what do we expect for the week? Will you prepare – be an Innovator – take profits? Or will you join those Laggards – and pay the price?

Register for Free! on our website! Then you can access Pat Tabet’s morning updates with the ever popular Bull/Bear line and support and resistance plus lots of other information, including current rotations for the different time-frames. Join Lewis Borsellino first thing in the morning to get his colorful youtube video’s showcasing his preparation and Pat Tabet’s specially designed proprietary indicators. Then during the day Lewis will update on the twitter feed @ManOverMarket. Get with the MOM team! Lewis and Pat have been knocking it out of the park! And their bats aren’t corked!!! But their calls have an EDGE! 

Have a great week! As always trader smarter, not more often!

Following the Auction – The Auction Process

In this series Following the Auction, we will look at many of the terms covered in our Glossary, illustrating them with charts and visuals using current market conditions.

First we’ll look at the Auction Process. This is the process by which price is determined. Bids and offers come together in an open market environment. Bids in excess of offers exhibits demand and creates rising prices while offers in excess of bids exhibits supply and creates falling prices.  A market that trades within a range over a period of time is considered balanced and represents ‘fair price‘ as it is accepted by the market participants.  When there is a lack of buyers the market will move lower in search of a price that’s ‘too cheap‘, bringing in a wave of buyers whereas if there is a lack of sellers the market will move higher in search of prices that are ‘too expensive‘ bringing in the sellers. A trending market is one that has broken out of balance in search of the next price level where there are participants to conduct two-way trade. Market profile charts organize this information via time. Volume profile charts organize this information via volume.

In our chart below you will see both the alphabet TPO’s which represent Time, Price, Opportunity, overlay-ed with volume-at-price displayed as the blue horizontal bars. Click on the chart to enlarge.

A great definition of the Auction comes from James Dalton, author of two books, Mind Over Markets and Markets in Profile, both highly recommended for increasing your understanding of how market profile organizes market generated data as well as strategies for trading using the profile.

The Auction Process by James Dalton

• Price advertises all opportunity.
• Time regulates all opportunity.
• Volume determines the success or failure of the opportunity.

Have a great week! Watch your risk, use a stop and happy trading!