A Professional Approach to Trading Futures

[steven46]

Hello Everyone

I started another thread whose title is "Beyond Price Action"
as a trading journal.

I noticed that there were very few inquiries

I have been trading professionally for about 15 years

My background is diverse, with emphasis on Math (Statistics)

I have used the same tools for many years.

Volume Profile
VWAP
Analysis of Price Action

I hope struggling traders will take a look
and perhaps find something that they can
use to improve their results.

I did this to honor the memory of the gentleman
who trained me. I think he would be proud of my
work and my progress.

Good luck in the markets

 

[steven46]

I am located on the West Coast UsA

and in this instance it is often the case
that I will trade the London Open, because
it is possible to see profit taking at this point
in time

The chart attached below shows the basics
A VWAP envelope, and we add a fixed range
volume profile indicator. Our primary signal
originates from the "Statistical Skew", which is
the relationship between the POC and the VWAP
(the black dotted line). In this case that relationship
is negative, meaning that the odds favor price moving
back into the high volume area below

We also take note that at the top of the distribution
price tries twice to breakout long, and fails. This tells
us that the odds favor a short entry.

A short entry resulted in what professionals call a
"standard scalp"

 

[steven46]

and this follow up showing a reversal
as the algo programs kick in

Notice that they activate AT the POC
Again professionals (human traders
who actually make a living) anticipate
that this is probable and we know to
"go with" to pick up few extra points.

 

[Trader333]

I am located on the West Coast UsA

The London open is 8am GMT so if that is the case then are you trading at midnight your time and if so how long before you go to bed ? Also what charting package are you using ?

 

[steven46]

Hello Trader333

Thanks for your important question

I adjust my sleep schedule depending on my "read" of the current economic news
in UK and how it may affect the range (volatility) I use the weekly VWAP to help me
to anticipate when a strong move might occur. I don't recommend it to everyone, in
fact medical professionals say that getting enough sleep is critical to performance
and to health in general., so in the near future I will choose one (1) market and concentrate
on that alone. To answer more directly, I wait to see the US open. If it seems to be
a trading range open. I go to sleep and revisit the market about 4 hours later.

I use several trading platforms. Tradingview is what you are seeing on my chart posts
To me they are very similar and I don't have a favorite.

 

[steven46]

By the way folks, now that Mr. Starmer and his Labour Party are in control,, one assumes
that there will be some change in monetary policy (among other things).

The same thing may happen in the next few months in the US and we think it will be
quite an opportunity for skilled traders

 

[timsk]

Hello Everyone

I started another thread whose title is "Beyond Price Action"
as a trading journal. . .

Hi Steven,
Just curious as to the difference (if there is one) between this thread and your existing 'Beyond Price Action' thread? Perhaps this a continuation of that thread - part 2 as it were - or are you intending to take it in a different direction?
Tim.

 

[steven46]

I simply wanted to bring the content of the original thread to the attention of folks who
trade Index Futures

As mentioned, although there were many views of the thread, there were no substantive
questions, therefore we assume everyone had sufficient background to understand how
the tools of the trade are being used.

At this point we are 1) training fund hires (periodically) and trading our own money
to add posting at T2W becomes difficult. Since we have essentially fulfilled the
obligation that brought us here in the first place, this may be a good place to stop.

I think traders who have the right background should be able to create a reasonable
system of their own.

 

[steven46]

Local time at my location is 4:52 PST (West Coast USA). The S&P opens in about 90 minutes

Attaching an example of the chart markup I use

Because Asia (and London) opened in proximity to the all time high, I took the opportunity to
trade London's open. In this context (when we are close to an all time high, or to any "Key Reference"
odds favor a test of that area. From our perspective it is easy money to pick up. The trade starts to
setup about 30 minutes prior to London's open. On the 15 minute time frame you can see the
move up, followed by a pullback. Once that pullback completes, the Algo's are activated and
human traders also start to build positions. Entry was at 14 (approximately) and as of this time
skilled traders would start to exit (taking some profits at +10 pts). Some of course would stay the course
hoping for a net positive open of the US session.

Added Postscript

A couple of minutes ago the CFD's high an all time high (according to my news feed). The title of
that news feed was "Britain under new management".

 

[steven46]

And this last chart for today

I had to move the text over a bit
so that one could see the upside target
hit at 26

As I have mentioned previously I adjust my
sleep schedule so that I can trade these
kinds of opportunities. I will watch the US
session open, looking to identify a possible
reversal.

The scenarios for today (in my opinion) are

1) Breakout to the upside followed by a retest of
the all time high, and continuation up
2) Reversal to the downside, followed by retest of the all time
high, and then continuation to the downside targets
shown on the chart
3) Trading range, sideways trading in anticipation of
economic news
a)Fed Chairman Powell on Tues
b)and more from the Fed on Wed

Markets will be moved by inflation comments and data,
and Bank Earnings. I will be marking the "event candles"
and trading those reactions (as I have mentioned previously)

 

[steven46]

I have been asked to train another
group of fund hires, so (again) this will
be the last post for a while

I though I would show an example
of what I call a "1-2-3" Reversal
on the 5 minute time frame

The important things to notice are
as follows

1) London Opens and there are two (2)
unsuccessful attempts to move down
2) Price is positioned at the lower region
of the VWAP envelope, close to the 1st SD
3) Price creates a 1-2-3 reversal
4) The "Statistical Skew" is positive, indicating
a tendency for price to move into the higher
volume region overhead (see 2nd chart)

There is (much) more that can be said about the
"1-2-3" pattern, but I don't have enough time
to go into the details.

Long entry occurs as price moves up past
the VWAP median. If there were a "textbook"
on the subject, this would be the typical
example., with entry just above the VWAP
median, and profit taking at the opposite
1st SD band.

A couple of final thoughts as follows

Using these framing tools, professional
traders can decide in advance, whether
the risk is worth it to take the trade. In this
case the odds favor the move up, even
though the scalp is a small one (2 pts))
as seen in the 2nd chart, price evolves
into a trading range, which is also typical
for a session where Fed (Powell) will comment
for two (2) days.

So the overall strategy is to wait for what we
characterize as "event candles", to mark and
trade per our previous posts.


Good luck

 

[steven46]

Hello Everyone

This is an example of how a skilled operator would structure a trade
based on news. In our "playbook", it is called a "News Based Gap Trade"

The basic premise is that a news event is made public, and the market reacts
by gapping up or down. The behavior that confirms the move is called
the "Tell" and it is always a WRB (wide range bar). After you see this
you wait for a pullback to test a "Key Reference". The setup is a 1-2-3
continuation pattern. This is an easy one to execute. Skilled traders will
enter and hold to the profit targets shown on the right hand (Daily)
chart

 

[steven46]

About 45 minutes prior to the open of S&P Futures
and as seen in the attached chart, the profit targets
are being hit

This is expected and we are cashing out now to avoid
the potential volatility associated with the open

We won't be posting again today.

 

[steven46]

I am still trading so I will post the chart and add
comments at a later time

This is a simplified way of framing the markets that would
work for retail traders IF they understood the basics and
had the discipline necessary to wait patiently for a breakout

Two charts, one showing 15 minute candles, the other is
a daily chart (one day per candle). The statistical skew
shown (to the upside) on the daily chart makes it simple
to determine market direction.

The difficulty for most retail traders is to obtain an entry
and hold rather than "trade for ticks" which inevitably leads
to failure.

There were two entries today, for a total of 40 pts

 

[steven46]

Using the attached charts, I will show how the combination of VWAP and Volume Profile
are used by both Institutions and Commercial traders to frame the market

As I mentioned in previous posts (both threads) to make use of this protocol, one should
have a background in statistics. Interestingly, during the time I have posted, no one has
engaged or asked any questions. I assume that you all have that pre-requisite background.
excellent. This will be the last of my posts on this subject.

1) The first chart shows the relationship between the previous session VWAP and POC.
The primary thing to understand is that the relationship between the VWAP and POC
is used to make decisions. This is because, that relationship depends on the creation
of a "Statistically Significant Sample Size" (and that takes time).

2) The second chart shows the re-positioning of the POC.. As you can see the skew
remains to the upside (and price followed)

3) The third chart shows the final step for professionals (around the world) as the
US Market opens. The POC is anchored at the open of US Market. As can be seen
the developing skew goes from Symmetrical (no statistical preference up or down)
to increasingly "up" Skilled professionals see this, and know that it is a valid signal
to get long and hold (as long as bars close "strong". An easy day to trade

For those without background in statistics I strongly suggest you educate
yourselves.

 

[steven46]

It is Saturday 5:21pm on the West Coast USA

My most recent class closed out yesterday and I offered a comment about this
in my "other" thread ("Beyond Price Action").

I aspired to do something other than serve as a signaling service. That (to me) is
unsustainable, AND in my experience, it tends to attract a type of person that I
would prefer not to work with.

In contrast, in Beyond Price Action I outlined a method that was taught to me several
decades ago by a professional who provided various services to my family. The gentleman
was sharp, and thoughtful and he emphasized the role of quantitative methods and
the need to learn how to interpret context (his often repeated comment to me was
"context is everything"), and as we participated in a mandatory pre-market preparation
he always started with a review of the economic calendar, referring FIRST to the higher
time frames to determine how markets were responding to economic news. To this day
I always start with that same analysis.

Today and for the indeterminate future, I may decide to post periodically, to show how
I prepare, and that may include an example of the day's data, and how I refer back to
previous dates (previous week & month) to learn how the markets reacted to the release
of the same economic data.

As we got close to the end of the class I received many inquiries about the class, whether I
would continue, and unfortunately I will probably NOT do it again. To be blunt, I am not good
enough (in my opinion) to both trade and teach. I learned that teaching the technical aspects
of trading is not difficult, however what IS difficult is trying to show struggling traders how to
manage their emotions so that they can 1) have enough confidence to enter the most promising
trades and to 2) "Stay With" trades long enough to overcome the inevitable losses that are part
of this profession, and finally, to 3) Exercise the judgement necessary to minimize those losses (to
know when to get out).

 

[steven46]

Here is my Weekly Chart Markup. It is my "jumping off" point
for analysis of price action

I try to keep it as clean & simple as possible. The chart frames price
using a year long VWAP envelope & I also watch a 20 period EMA (in White)

I look at the formation of highs & lows to determine structure. The objective is to
come to a determination, whether we are in an up, down or trading range environment.
I also look for supply & demand zones, and for the formation of a very limited selection
of "setups". I review the charts every weekend, in a process that is called simply "what worked"
that is to say, I identify previous setups that worked, as well as those that did NOT work. Over
time I am able to create a record (a year's worth of data) that enables me to know how often
my setups work. I do this using a chart with Daily candles as well an integrate the data regularly.

In the attached chart I show the single setup that worked (breakout-pullback) in this case, several
times. This is not uncommon.

Attaching an example of the Weekly chart

 

[steven46]

And here is the Daily Markup, showing more detail

As can be seen, there were multiple "Breakout/Pullback"
Setups that worked well. This is consistent with our recent
data and confirms that this setup continues to work at a high level.

The "Take Aways" from this chart are as follows

1) We use this chart to identify current market structure. In this case
the recent structure is identified as trending up (a series of higher highs
and lows).
2) as we get to the end of the month, we see a "break of structure" to the
downside and at the same time price breaks below the 20 period EMA
3) The short entry is obvious, and to trade it we have options as follows below

a) Change to 15 min, 10 min or 5 min charts (we prefer 10 or 15 min candles)
b) Identify the Skew
c) Wait for the setup, enter in the direction of the primary charts
d) Manage and hold to the profit target(s) or to StopLoss

 

[steven46]

To the above summary, we add analysis of economic news
Prior to the open, we review pending economic news and
look at previous charts to show how the market typically reacts

We apply specific rules for interpretation of context to determine
what the likely range might be, at specific times during the session
This allows us to take trades and hold to specific targets and is usually
pretty accurate. The edge we obtain using this process allows us
to stay with a position early in the session, OR to wait, because we
believe that the early price action might be "TR" or trading range.
and in that case, we would want to stand aside, rather then get chopped
up waiting for price to move directionally.

The result is consistent, sustainable business model.

 

[steven46]

and an example chart showing 3 hour candles

We see the highs & lows marked, as well as the break of structure, prior to the reversal on Friday
The price action on Thursday "suggested" that a reversal was coming, and (as mentioned previously)
"Context" comes in to play. Specifically, 1) day of week (Friday) and Month (new month), 2) pending economic news
3) Setup (breakout/pullback). Skilled traders know that this is all about solving the puzzle prior to the open. Some of us
are better at it than others of course, but it helps greatly to have a system that directs your attention to the data that
is important. Experience is what counts most and we rely on it

Tomorrow (Monday) is also predictable (to a great extent). Expect 80% probability of early TR condition, buy algos may trigger
at or near hour 2, followed by attempt down by bears, that attempt should fail as buyers re-enter to bring the market back
to equilibrium (fair price as determined by the VWAP envelope we use).

Good luck