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Two day balance with almost identical distributions on the market profileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. which is leading us in to a large gap down this morning below those two RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. ranges. Let’s have a closer look…
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Before we get into the usual prognostications, let’s just recap what we know about the last two days, information which needs to be carried forward into today’s session and beyond.
Yesterday’s distribution has a very prominent TPO(MP) Stands for “Time Price Opportunity”. It is the smallest unit of measure displayed any market profile graphic, denoted by a single letter. Each TPO represents a point of time where the market being charted trades at a specific price. A single TPO is printed on the chart every time that a certain price is touched during any time period. Typically, the periods are set to 30 minutes. Therefore, every different letter that you see in the market profile distribution denotes a different 30 minute period. POCPoint of Control, also known as the "fairest price to do business". It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day's distribution where the most TPO's printed going across from left to right, indicating that that was the price where the most time was spent. It's important to pay attention to both the volume POC and the TPO POC. at 2730.75. Prominent POC’s have higher odds of being revisited (think: “high volume node”) than not so prominent ones. Therefore if it’s a fadeWhen a stock moves opposite the direction of its gap on an intraday basis today, that gives you a nice, faraway target to shoot for.
The two almost identical ranges form a two day balance. Both of the last two RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. sessions could be labeled as what I refer to as tattoo profiles because they are just too perfect and would be the exact shape that you would get if you were to get a market profileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. tattoo. That’s really here nor there, just know that it’s a sign of a market that is in balance. The settlements are also very close to each other at the 2730 area which is also that POCPoint of Control, also known as the "fairest price to do business". It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day's distribution where the most TPO's printed going across from left to right, indicating that that was the price where the most time was spent. It's important to pay attention to both the volume POC and the TPO POC.. Definitely a level to carry forward in your narrative.
This morning we are slated to open on a large gap of double digits, currently minus 16 in the S&P futures and minus 47 in the Nasdaq 100 futures. These are true gaps in both of the futures and as such gap rulesGuidelines to follow on any day that the futures open outside of the prior day's RTH range. Only opening outside of range is a true gap and puts gap rules in play. 1. Go with all gaps that don't fill right away. This means that if early trade doesn't start to correct the imbalance, then prices will probably move in the direction of the gap. 2. Larger gaps can often fail to fill on the first day or may fill only partially. 3. If the gap fills (meaning the prior day's RTH high is touched on a gap up or the prior day's RTH low is touched on a gap down) and value cannot get to at least overlapping, then the odds of a late day rally (on a gap up) or late day selloff (on a gap down) increase. 4. Gaps of larger than $20 in the /ES are difficult to trade and should be avoided early in the day as t... are in play. Let’s recap for the new people:
-Go with all gaps that don’t fill right away. That means that if the gap doesn’t start to retrace back towards the prior day’s range quickly, then there is probably a trade in the direction of the gap.
-Larger gaps often won’t fill on the first day or may fill partially. This is important to remember especially if you are of the opinion that all gaps must fill.
-If the gap fills and value cannot get to at least overlapping then the odds of an afternoon selloff increase. We define a gap fill as a touch of the prior day’s high or low, not a move back to the settlement.
-Gaps of $10 or more are often very tricky to trade early and can bring on very choppy and wild price action early as the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. market digests the overnight move, oftentimes going nowhere fast. And I mean that very literally, as tempoProbably one of the most important and yet overlooked concepts in the market. The tempo is simply the ‘speed’ at which the market is moving. This is also referred to as confidence. Slow tempo is typical of range bound days where there is lots of responsive activity. Fast tempo occurs when there is initiating activity, and market is breaking out of a range. This is not to say that the market can’t have fast tempo on days when it is rotational or moving between the extremes of a value area. It certainly can. Effective intraday futures trading involves gauging the tempo and knowing that opportunities are fewer and smaller when the tempo is slow. See S.O.H. will seem fast, the tape will be moving quickly with a lot of prints, but price will ping-pong in a relatively small range, filling just a little of the gap and the grinding lower in the direction of the gap. Use caution.
Ok, cut to the chase and just tell me what the market is going to do today so I can do it and make some &$!#@ money!
I have no way of knowing that for sure but here are the various scenarios that could play out:
1. The ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. at 2708.75 doesn’t get taken out early and thus the overnight inventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day's settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most... which is 100% net shortThe concept of being more short than long in an options spread by creating options spreads where you are selling more structures than you are buying or selling wider structures than the ones you are buying. Example would be a broken wing butterfly. This spread is made up of two structures, one long vertical and one short vertical. In the BWB, the short vertical is wider than the long vertical. When you are long this spread, you are said to be in an options position that is "net short"
will start to rebalance quickly. That means you would get long with a stop under the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. and be targeting 2722.25 which is yesterdays’ RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low for the gap fill. Keep gap rulesGuidelines to follow on any day that the futures open outside of the prior day's RTH range. Only opening outside of range is a true gap and puts gap rules in play. 1. Go with all gaps that don't fill right away. This means that if early trade doesn't start to correct the imbalance, then prices will probably move in the direction of the gap. 2. Larger gaps can often fail to fill on the first day or may fill only partially. 3. If the gap fills (meaning the prior day's RTH high is touched on a gap up or the prior day's RTH low is touched on a gap down) and value cannot get to at least overlapping, then the odds of a late day rally (on a gap up) or late day selloff (on a gap down) increase. 4. Gaps of larger than $20 in the /ES are difficult to trade and should be avoided early in the day as t... #2 and #4 in mind as you attempt this. If you can see that there is acceptanceWhen the market profile begins to build out or develop in a certain area, it is said that the market is accepting those prices. This can be measured either in time spent or amount of volume that is transacted. It is generally understood that ShadowTrader defines acceptance as more of a time dynamic than a volume one. A good rule of thumb is to look for at least two TPO periods to print in the accepted area. The acceptance confirms that a significant amount of market participants are transacting at those levels. Acceptance is the opposite of rejection. starting to happen within the prior day’s range then aggressive traders can add to positions there, targeting VALValue Area Low and the POCPoint of Control, also known as the "fairest price to do business". It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day's distribution where the most TPO's printed going across from left to right, indicating that that was the price where the most time was spent. It's important to pay attention to both the volume POC and the TPO POC..
2. New sellers will come into the market early and take out the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. and continue lower. This is very bearish as it means that the overnight players were right and lower prices are attracting sellers rather than being rejected. If internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. are bearish enough, then this is the “go with” trade that has chance of developing into a trending day. Pick your spot and try and hang on as long as possible. If this is to work out, then you should see all of the single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. from the 2/7 session being repaired. That means a move down to at least 2707.00. Keep that 2/4 distribution in mind today since this gap is putting it in play.
3. It’s neither a fadeWhen a stock moves opposite the direction of its gap on an intraday basis or a go with and prices remain below yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. range but also don’t take out the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day.. Or they do take out the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. but there aren’t enough new sellers to get prices much lower and prices come back into the overnight range and remain in a small range without enough confidence to rally back into yesterday’s range. This would obviously be the hardest outcome to trade. As today’s gap represents a breakout from a two day balance, I think this outcome has the lowest odds of happening.
Lastly I’ll mention that we need to be cognizant of the VIX dropping below 16 for the last couple of sessions. Just know that if you are a day timeframe player then you live and die by how far things travel. A higher VIX, things travel far, a lower VIX, things travel not so far. If we start to settle into a slow grind higher over a long period of time, this is an important point to remember.
Time regulates all opportunities…
-peter
