Pre-market Trade

I don't usually trade pre-market, but the picture of imbalance was so clear that I was compelled to take the trade. A strong component of what made the opportunity so compelling was the fact that larger timeframe demand was so far down that it doesn't even appear on the chart. This makes for a very large profit margin potential, which is just another way of stating the market was then very from from equilibrium. Here's where my analysis started...

The supply level (denoted the shaded blue rectangle) was touched well before I got to my computer. I would have taken that trade, but just wasn't there. So, being that demand was so far below, I simply looked to see if any smaller timeframe supply level presented itself. Take a look at the 5 minute chart below...

In this case, I placed my order to sell short at the dotted blue line. Shortly thereafter, price returned to the level, hit my entry and price dropped. Here it is...

I only took one contract, so missed out on a big move; but the smart thing is always to take profits when price reaches an opposite level. The nice thing was the whole trade took literally about 2 minutes!

Current market conditions require a great deal of patience. Why? Simply because the swift moves in the emini S&P500 are occurring in a relatively thin order book. This tends to cause sharp moves with harmonic rotations much longer than average. This in turn means that the supply and demand levels I key trades off of are much farther apart than is typical. So, with the levels  further apart, naturally it can take longer for trades to set up.

Yesterday, I took no trade at all. Today, a nice setup formed based on the larger time frame supply level as shown in the 30 minute chart below...

Because this level was not a particularly strong level (that is didn't have all the attributes I'd like to see) I zoomed into my 5 minute chart and watched for a smaller time frame supply level to setup. Then, I'd key off that level for a short. Here is the chart...

Once the lower edge of the larger time frame supply level was touched, I began watching the 5 minute chart (above) for the fractal supply level. Such a level did form and is shown by the blue outlined-rectangle. Once price fell from that level I placed a limit order to sell (see the order confirm window below).

You can see with this method how relaxed trading can be. I placed the limit order at 9:33, well before price revisited the level at 9:50... more than 15 minutes later. Original target was 1154 based on price action on the 5 minute chart. However, I always manage trades with the MarketDelta Footprint. Because of the patterns in the order flow I decided to exit early. It's a fairly mechanical process to assess Footprint order flow.

While there are numerous subtleties, the main characteristics of the order flow which caused the early exit was a delta divergence indication opposite to my trade, immediately followed up by a retest of the pivot low on very light volume. Notice the print at the low is showing only 5 contracts traded.

Yes, price did eventually continue in my direction, but when order flow changes you gotta watch out. There is no way to no in advance the outcome of any trade, so you take profits when they are presented.

After a long summer break from trading, I opened the charts this morning just before the open. I hadn't done any real homework, so before even considering a sim trade (which is all I would do first day back after such a long break) I would at least need to locate the trade-able supply level above and demand level below. I took a quick glance at a daily chart to see price in the emini S&P is in a trading range. So, I zoomed into to the 30 minute chart you see below.

This is a 30 minute chart and I drew a rectangle around an area that price was showing some degree of acceptance in. Immediately following was a very wide range candle. That wide range can ONLY happen because the price acceptance area marked had a hidden imbalance between willing buyers and willing sellers.

Now, one could just attempt to short this market when/if price retraces to the origin of the imbalance. However, a protective stop would realistically need to be placed just above the upper limit of the rectangle. In this case, that's a pretty good size stop. So, let's zoom in again; this time down to a 5 minute chart...

The larger rectangle shows the same area of interest as on the 30 minute chart. The smaller, blue shaded, rectangle shows a micro-acceptance zone. From that zone, we can see the exact origin of the move down. That's exactly where the imbalance occurred. And, exactly where we'd want to take a trade from. Here's what the trade result looked like...

Readers of my blog will note I've done this trade with only price action. No order flow indicators, no indicators of any sort. Not even volume. As a trader builds skill, much of the other stuff becomes like training wheels; especially when the origin of the imbalance is so clear cut. However, I promise you I'll be looking at all my order flow indications from the Footprint chart and the Volume Breakdown indicator as I fully get back into trading.

When I don't have access to the order flow indicators, I'll usually only take a trade with a clear imbalance (as in this case) and simply enter using a limit order (again, as in this case).

There is something else to look at here. Check out the 5 minute chart below. Look at all the green candles screaming up to my proposed entry point. The trend, to anybodies eyes, at that point is up. And I'm going to short! Also, consider that a significant news report was being release as price rallied into this level. Think about the emotions you might be experiencing: second-guessing? fear? worry? doubt? Those are the emotions that need to be conquered to consistently participate in such successful trades.

Shorting under these circumstances can feel most uncomfortable. Yet, it's the safest place to enter. Accepting that paradox into you trading personality is perhaps the single most powerful self improvement you can work on. Look at the pay off in just minutes...