Take a glance at the chart below as I walk you through my thought process. As always, the first consideration is whether or not price is at/near a predetermined level that I wish to do business at. The light-red band indicates just such a level.
However, you can see from the annotation on the chart, price has already revisited that level once before. More often than not, once a level is traded off of, the imbalance between buyers and sellers at that level has diminished and the odd's of a second trade working at the same level is not great.
The two important concepts I want to share in this post are the reasons this level was deemed solid enough to trade off again. First, look at the light-red band again. Notice how price barely nicked my band (bear in mind that the bands are drawn in a very specific way, so the edge of the band is meaningful). This suggests that a significant imbalance between buyers and sellers still exists. Second, look at the annotation which says "Lower Low". The point is that after the first time to the light-red band, price dropped lower than the level it dropped from the initial point of imbalance (the small consolidation zone at left edge of light-red band). This simply means the trade has a significant potential profit margin.
At the RTH open, we experienced a gap up almost right into the level. That gap up was caused by a lot of exuberant traders and one must ask, after the gap up into a price where there is a buy/sell imbalance, who is left to buy? I would suggest.... NO ONE!
The actual entry involved a Footprint divergence, neutralization of peak to peak open interest ( I use cummulative delta as a surrogate for real time open interest), and a delta momentum divergence.
Here is the result of the trade...
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