Tempo

Probably one of the most important and yet overlooked concepts in the market. The tempo is simply the ‘speed’ at which the market is moving. This is also referred to as confidence. Slow tempo is typical of range bound days where there is lots of responsive activityTwo sided trade going back and forth between traders that have a short term outlook and are keeping prices contained within a range. For example, when a market trades to or even slightly above a defined range, if sellers become dominant and push the market back down lower, they are said to be “responding” to higher prices. This is the opposite of Initiating Activity. Responsive activity is usually defined by short time frame traders such as daytraders, or pit locals whose inventory has become imbalanced and needs to be corrected. See Initiating Activity.. Fast tempo occurs when there is initiating activityA more one sided trade that takes place when the market pushes out and away from a current balanced area, into a new level where it establishes a new area of value. Initiating activity is generally dominated by the other time frame participants. When the market is experiencing initiating activity, you do not want to fade or go against the trend. You want to get aboard the train as early as possible and ride it to the next stop. See Responsive Activity, Other Time Frame., and market is breaking out of a range. This is not to say that the market can’t have fast tempo on days when it is rotational or moving between the extremes of a value areaA range where approximately 70% of the prior days volume traded. The range is derived from one standard deviation on either side of the mean which is roughly 70%. See: Market Profile. It certainly can. Effective intraday futures trading involves gauging the tempo and knowing that opportunities are fewer and smaller when the tempo is slow.
See S.O.H.Literally, “Sit On Hands”. A term used when the market is choppy or erratic and the odds of trades on either side of the market (long or short) have low odds of working out due to overall market indecision. This term is used often and is a warning against overtrading. Most professional traders are out of the markets much more than they are in them.