Beyond Price Action

[steven46]

Respecting students wishes, I am posting this end of session trade AFTER the close

Notice the 4 hour chart on the left side of the screen. We place the only fib we use (50%)
on that chart and we transfer the price onto the 30 min chart on the right. This creates
a time based opportunity for a short trade into the close.

This combination of factors repeats often as follows

1) Identify a Key Reference (in this case a 50% fib number)
2) Identify a Time Based Entry Window (in this case a final trade can happen at any time after 10:30 PST (local time)
3) Identify Skew (statistical tendency for price to move directionally)
4) Identify the setup
5) Take the trade, and hold to Profit Targets or End of Session

 

[steven46]

Once again and with my student's blessing I am posting this "end of day" chart

All of the students are done for the day, and have made money (thankfully)
and they were able to do that because they have learned to recognize opportunity
when the market presents it

WEDGE

Although I am not a fan of Elliot Wave, one has to admit that the markets do move
in a fashion that could be interpreted as "wave-like". I like to use the word "push"
and I use the label "wedge" to describe a price pattern composed of three (3) impulse
moves as seen in the chart. This happens regularly

CONVERGENCE OF PRICE & TIME

Students are informed that price moves at predictable times during each session. This is
well known to professionals who start their work early, make money and then get out
thus managing risk, while making a good living. More on this (possibly) at another time
Current time in London is 6:08pm and my UK students are finished for the week.

The chart on the left shows 30 minute candles, from which the students are asked to
characterize "structure", meaning they are asked, "do you see higher highs & lows"?
or the opposite?. Based on that simple analysis and the information we provide about
the convergence of time & price (day of the week and time of day), they were looking to
buy.

"Best Practice" suggests that they watch until they see a tradable pattern. In this instance
we saw a "Wedge" pattern develop based on an imbalance (chart on the left). The first
push completed, then the next was the logical place to enter long, trading the 2nd "push"
Typically these pushes are good for scalps. The third push was also tradable although the
odds of success are not as good (as for the 2nd). In this instance we rely on the "skew'
As long as it remained positive, traders continued to trade long assuming that the third
push would conclude in profit taking (notice the long tail at the top of the distribution
as institutions exited.

Final comment

We know that the probability of success for these types of trades starts at about 55-65%
however we add to that by incorporating "skew". This tool provides an added edge of
about 8% and so we are looking at an overall probability of success of 63% to 73%
for trades taken on Friday's, using this method

Postscript

I just revised (hoping to simplify) the 30 minute chart. I removed the VWAP envelope
and added a more focused explanation. Hope this helps the reader. I am ready to address
any questions that may arise.


Good Luck Everyone

 

[steven46]

"folding my tent" so to speak, as I am done
when I saw this computer generated trade
At this time of day, Euro traders (and most others
for that matter) have gone home. The only "traders"
left are computers, which as we know, do not sleep
or eat lunch, or use the bathroom, so as price comes
down to take final profits (also automated), institutional
computers placed orders to buy as price tested the VWAP
(black dotted line). Thousands of buy orders came in all
within seconds of that retest.

Pleasant weekend everyone

 

[steven46]

This chart shows the simple Market Structure Analysis that we suggest
retail traders use as a starting point.

Simply put, it allows the trader to obtain a direction in which to orient their
trades. After they identify the preferred direction, all that is left, is to identify
an imbalance in that direction, apply the skew to confirm, and then find a
way to get long or short by identifying a setup. This in summary is the
method that we suggest for traders who are struggling.

As with all things, there is nuance and we fill in those gaps. For example
we teach traders to "think" in terms of the big picture. They learn that what
matters (for professionals) is NOT what happens on a daily basis, but what
occurs on a weekly, monthly, quarterly, and yearly basis. They learn to analyze
their performance to identify where they have an edge, and how to emphasize
that (time in trade is one way), where (and when) they are likely to lose, and
how to avoid those conditions.

Good Luck Everyone

 

[steven46]

Here is my weekend Markup chart.

As can be seen, the London Session is just now opening. Price is reacting
to the Liquidity Zone we identified

 

[steven46]

Referring to the previous post, we offer the following comment

1) Overnight (US time) Asia drifted down from the open (as often happens)
and at the open of London Session, price reacted up briefly, but failed
and the distribution expanded to the downside. This is critical information
for the professional trader. Why? because it is counterintuitive. The initial
reaction up was five (5) points (a scalp). Normally that would have been
followed by another 5 point swing to the upside. What matters is the LOGIC
behind this behavior. I interpreted it as follows

Critical Importance of Understanding "Context" & Market Logic

2) On a Monday, anticipating significant earnings reports, institutions will protect
profits using the London Session as a "Pivot". Notice that London opened and
moved down, followed by a late session reversal to the upside. Then at the open
of the US Session, price attempted to take out 5900 but could not. Notice that
the Skew was negative (above the VWAP) confirming the statistical tendency
to move down. Institutional computers calculate this and send sell orders. As
price closes BELOW each "Key Reference" (the Standard Deviation Band, and
the VWAP), it signals other institutions to "Go With" (Sell the Market Down)
and that is what they do....this short setup had very high odds of success, and once
the students heard the logic they took the trade. A solid early profit to start the session.

After this early move down, institutions slow down and wait for prices to stabilize
At the low, we see price RE-ENTER THE VWAP ENVELOPE FROM BELOW AND the skew
reverses (see the chart). This signals a) accumulation at discount prices, and b) a reversal back up

Prior to the US session open, during our review, students asked the obvious question
how can I know this, and aren't there other equally valid scenarios? The answer is yes,
of course there are other ways to interpret the data, however after more than fifteen (15)
years of experience and thousands of hours of screen time, I have a record that I can trust,
and so I take the trades (and hold my position) and if I am stopped out, (suggesting that I
am wrong) I make the appropriate adjustment. Today worked out as forecast.

The Markup chart shows the skew at various intervals throughout the session. I notice that
there are many YOUTUBE traders who suggest that they know how to do this, and explain
THEIR logic using all kinds of jargon. As far as I can tell, the skew is the only volume based
tool that works consistently, when used in a skillful way (anchored and interpreted properly)
I notice that there are no other "Internet traders" using it, and that is understandable. Early
in this and my other thread, I suggest that struggling traders take the time to learn basic
statistics. Interestingly the response was negative. I get it, but remind folks that the time is
going to go by anyway, and without the proper background, I don't see how a retail trader
can complete. In the long run, they will give back whatever they win using various indicators.

Good Luck

 

[steven46]

This chart emphasizes use of the Skew
(the difference between VP/POC & VWAP).

To repeat, the "Skew" is the difference between
the Red line (Volume Profile POC) & the VWAP (Black
Dots). When the Red line is above the Black Dots, the
"Skew" is negative, indicating a statistical tendency
for price to move lower. When the Red Line is below
the Black Dots, the Skew is positive, and it confirms a
statistical tendency for price to move higher. When
the Red line is at or very near the Black Dots, the market
is considered to be symmetrical, thus there is no statistical
preference up or down.

The challenge for retail traders, is to monitor the position
of the Red line, and when it sets up, to get ready to enter
the market using the next (best) developing setup.

On this chart, we also identify a strong setup, which consists
of two (2) "failed" pushes, followed by a reversal. This setup
occurs quite often (twice on this 15 min chart). During our
review of the previous week's price action, the setup occurred
fourteen (14) times and was successful ten (10) times.

 

[steven46]

Here is an example of the preliminary prep
for Tuesday 22nd October

1) Earnings Reports List-7am EST to 9am EST
PFE
TMUS
QCOM
MRNA
UBER
SQ
ARBNB

2) Previous Price Patterns (July Quarter)

22nd July---Trending Trading Range 7am Reversal up, 9am Reversal up
23rd July---As above, Liquidity Zone Entry Long at 6:15am and 7:45am
24th July---Strong Trend from Open, Entry at 7:15am Short
25th July---Reversal Day, Strong Up move at 10:15am

Based on these (previous) patterns, we monitor premarket price action
from 4am PST to 6am PST. Looking to identify trending or trading range
behavior

3) At Close of London, we mark Session High & Low. Objective is to create
a framework and to wait for a sweep of either buy or sell side liquidity, aligned
with the patterns from the previous Quarter's Earnings Week.

3) Harker (FED) speaks at 10am EST
Potential adjustment at 10:30am & 11am EST latest

 

[steven46]

An easy day for traders

Suggest folks refer to the previous session chart to note similarities
and to the previous post above for the prep process. Notice that our
pre-market objective is to "wait for a sweep of either buy or sell side
liquidity" (then refer to today's chart). As sometimes happens during
earnings season, the markets take a while to digest the announcements
(some are pre-open, some occur after the close)

The final (for me) element to discuss with students is mental approach
There are many ways to make money in this market. The most successful
traders combine effective risk management with cautious selection of entry
I know some colleagues who simply look for one (1) good entry per session
and they make a very good living.

Today, we waited for price to sweep the low (buy side) and to reverse (as it often
does). There is always risk involved, there is no getting around it and so I tell
students to evaluate their risk tolerance, to accept risk with eyes wide open,
to cut losers quickly and hold winners as long as possible. I realize these statements
have become cliché however, they still work. Best practice is to hold winners based
on local volatility (look at how long it takes for previous session winners to hit a
reasonable target, and that is your "Local Vol" number). Today, about half the class
got +10, and a one obtained +20. No one (except myself) hit +30 and that is because
I was looking for a touch of 5900 (see my previous posts). That is what skilled traders
call a "magnet".

Good luck

 

[steven46]

Here is an example (taken from the previous chart) shows what I teach
to retail traders, called the "Breakout Model". Once this model is fully
understood, and the rules internalized, traders can use it in virtually
every situation to trade profitably. Although it takes a bit more than
can be shown here, it is consistently profitable when combined with
prudent risk management.

The added element here is the release of earnings, the timing of which
affects the market significantly. In this instance, earnings are released
prior to the US Session Open, and then (30 minutes later) at the open
the US market reacts, breaking out to the upside, retracing back down
to test the open, and then resuming the upside breakout (for the rest
of the day), a significant move to the upside "magnet" (5900).

 

[steven46]

This post shows one of the tools that I use regularly to obtain
an edge. Notice in this instance that price created an "Equal Low".
Professionals use this price action pattern regularly because it
is different than what is commonly taught as "support & resistance"
So different that, if you trade traditional "support & resistance"
you will most certainly lose (eventually). There is another way to
trade, using "liquidity areas" and for those who know how it works
you wait (for the sweep), you get in later, AND you obtain better (more accurate)
entries.

The posted chart using 3 hours candles is one of my favorite tools because
one of the candles opens at midnight (my local time) which is the start of London
and another starts at 6am (local) which happens to be at the end of the pre-market
earnings release. THIS provides me with better visibility (I can see the reaction sooner)
and decide whether to trade it prior to the formal opening of the US session 30 minutes
later. Institutions know this of course and they use it to "preposition" themselves so
that they enter the session with a buffer (in the professional world, this is called "buying a stop").
If they are right, they continue to add to positions, if wrong, they either buy lower (to scale in)
or wait for better visibility.

 

[steven46]

The first chart is as simple a chart as I can make it

Using only price, and a 20 period EMA

We mark this up to show successive highs & lows,
and a volume occurrence called a "liquidity sweep"
as price dips below an "equal low" to activate resting
orders to buy and sell. This creates the fuel that
institutions use to create a reversal (up).

The 2nd chart shows a zoomed in view of a smaller area
and we can see how price breaks up, retraces, and then
resumes the upward move (for the rest of the session.
In this chart we include a tool known as "the skew"
which tells us whether their is a statistical tendency for
price to move up or down. We have covered this in
previous posts, so we will not be going into detail
at this point in time. The bottom line is that using this
tool we obtain an additional statistical advantage of
about 8%

 

[steven46]

This chart shows how institutions use "Sweeps" to activate resting orders
just prior to moving price towards profit targets

As the note on the chart explains, this is done in the context of either a trading range
or a trending trading range. The purpose is to activate resting orders above or below
an area, prior to moving the market toward a profit target.

 

[steven46]

A simple day. Short from the beginning
All traders had to do, was wait for the signal

Breakout Setup

As I have said (multiple times). Wait for a breakout
followed by a retest of that breakout (in this case
a retest of the open). Then as price resumes back
down you get short (and you hold)

I don't want to be mean spirited but at times I lose
patience with folks who can't see what price is telling
them. Some students seem to have learned this lesson
Price is the truth. If you decide to fight it and put on
countertrend trades, the odds suggest you will lose
If not in the immediate present, most certainly in the future
Historically countertrend traders are net losers. The only folks
who can make this work are institutional traders who
use other people's money.

Refer to the previous posts charts and to the one posted
today (its a continuation of the previous day). Started
with a sweep of the buyside, then a reversal down. This foretold
of today's down move. Finally, the skew confirms (as it always
does) a statistical tendency for price to move to the downside
as sell volume came into the market.

Chart on the right side shows the larger context (3 hour candles)

Done for the day


Good luck

 

[steven46]

Daily Chart Example with a comment
regarding context.

 

[steven46]

Preparatory Notes (prior to US session open at 6:30 am PST)

1) Economic Calendar

Initial Jobless at 5:30 am PST (US time)
S&P Global PMI at 6:45 am PST
New Home Sales at 7am PST

2) Earnings Reported 4am to 6am PST

3) Previous Price Action/July Quarter= Strong Trend Down that started at 7:15am PST

4) Forecast
Continuation down starting at 7:30 am PST
Reversal at or near 10:30 am PST

5) Adjustments
Entry based on Breakout Setup or Low 2
Entry at or near 7:30 to 7:45 am PST, based on reaction to earnings and/or economic surprise

 

[steven46]

With my students kind approval, I am posting this early entry example
with no further comment, other than the previous post (Prep)
and I have taken 1/2 off, and am holding the balance with a B/E stop

And anticipating a positive "New Home Sales" number I am out of
the balance.

 

[steven46]

Another easy day

Revision of my original post as follows;

I want to make this simple. One of the problems I am facing
as I try to teach retail traders, is to make a professional approach
accessible. So here goes

First, I want folks to look at the previous "Preparatory Notes"
Notice that I start by reviewing an economic calendar (I use
"investing.com"). I list the high impact releases that will affect
the next session (the US Session). I can talk more about this
if there is interest. What I will say now is that this is important
Skilled traders use this information.

After that I look at other data (earnings for example) and in particular
the earnings reports about the "big 10" (the 10 biggest public companies
like Apple & Nvidia for example). These earnings reports have the potential
to impact markets, especially if they are surprising to the upside or downside

Finally I review the price action that occurred during the previous earnings date
back in July. Experience has proved (to me) that using these patterns as a template
is useful, and is often (not always, but often) predictive of what may happen in future.

From this information I add my experience, my intuition and my sense of "Market Logic"
and I come up with a prediction. This is something that I can teach. This is something that
retail traders CAN learn if they want to.

IF you review what I wrote prior to yesterday's US session, you will see that I was mostly correct
about the price action that we saw. I was correct as regards the open, and a little off regarding
the timing of the reversal (it happened sooner than I thought it would).

The utility of this process is all about confidence. IF like me, you have a record of success, then
as the market opens, you watch, you compare what you see, with what you think might happen
and when you RECOGNIZE opportunity, you enter, and most importantly, you HOLD that entry long
enough to make a nice profit. Also, it allows you to monitor, observe, and pass, on setups that
don't fully align with what I call "Market Logic".

 

[steven46]

A typical Friday

Early move up to hit a target shown on the 3 hour chart
then watch and protect profits.

As if often the case, students were reluctant to take this
first trade, so (some) missed the entry and are watching
(instead of managing a winner). A strong lesson (trust
the pre-market markup and learn to take advantage of
"repetitive behavior" (see the previous charts and posts)

Addendum at 7:03 PST.....adding a chart to show profit target 2
hit just now

Addendum at 8:30 PST....as seen in the added chart the market
reversed after hitting the "round number"
This happens because the algos (computer
systems are insuring that profits are protected
early. As with the previous session my estimate
of when this would happen was off. Early profit
taking

The late day reversal I suggested might happen has already begun

 

[steven46]

Weekend Prep Process

During this weekend prep session, we analyze price structure
by identifying highs & lows. This simple analysis allows us
to see changes in momentum

At the Open

This chart is the basis for identifying direction (both London and US sessions)
Prior to each open, we review and add skew and identification of preferred setups. From this
point forward we ask students to 1) document, 2) justify and after the session
is over, 3) defend their choices.


After Action Meeting

In an "after action" meeting, we review, and make sure that all students
see where they were right (or wrong) and why.

Results

Thus far, this process has been effective, and the students have shown significant
improvement from session to session, so much so that they are reluctant to leave
at the end of course. As mentioned previously, we recommend that they maintain
contacts with each other and try to establish their own support networks.

Good luck