Next Wednesday, February 15th, I'll be doing a live webinar. It's free and open to all. I apologize for the sizable group desiring this be done on Tuesday, but I plan on enjoying a long, fun day out with my spouse that day.... Valentines day!
Market conditions what they are, we may not even get a trade to show up. But we can play a fun game: flip a coin to go long/short. Then use the Footprint and order flow tools to manage the trade. I'll do my best to narrate how I see the Footprint in real time.
Of course, I'll be happy to answer other questions too, time permitting. Register with the widget just below...
Thursday, February 9, 2012
The Delta/Price Relationship
Many who follow the markets from an auction market theory perspective have been expecting price declines in the US equities markets in recent days (if not weeks). I'm one of those. However, one also needs to be in the moment, in sync with whatever the most recent and complete data is telling us.
Today, for reasons contained in my trading plan, the first opportunity the market presented was a short around 1346-ish. The chart below (orange lines) depicts the virgin supply zone I was interested in shorting. I have a very specific definition of what virgin supply is, but that's a story for another day.
Today, I want to focus on the benefit of following order flow transitions via cumulative delta. Take a gander at the two bars circled in orange in the lower pane. Those two bars contained near -20,000 delta. This occurred shortly after price touched the supply zone. For many new to delta tools, all that selling is a sign of comfort if short. For me, it was a sign to tighten stops and NOT take any second stab at a short.
Why? Because there is a tight correlation between delta and price. Price doesn't exist in a vacuum and neither does delta (or volume if you wish). When that correlation is disrupted, it's telling you something. Statistically speaking, that much negative delta should have moved price at least 5 full ES points, probably more. What did it do? It dropped 6 ticks from the supply zone. That's a HUGE amount of selling with almost no reciprocation by price.
Think of it like friction. In this case, the friction being resting orders to buy. This relationship between price and delta can provide excellent feedback throughout the day on what traders are doing.
Today, for reasons contained in my trading plan, the first opportunity the market presented was a short around 1346-ish. The chart below (orange lines) depicts the virgin supply zone I was interested in shorting. I have a very specific definition of what virgin supply is, but that's a story for another day.
Today, I want to focus on the benefit of following order flow transitions via cumulative delta. Take a gander at the two bars circled in orange in the lower pane. Those two bars contained near -20,000 delta. This occurred shortly after price touched the supply zone. For many new to delta tools, all that selling is a sign of comfort if short. For me, it was a sign to tighten stops and NOT take any second stab at a short.
Why? Because there is a tight correlation between delta and price. Price doesn't exist in a vacuum and neither does delta (or volume if you wish). When that correlation is disrupted, it's telling you something. Statistically speaking, that much negative delta should have moved price at least 5 full ES points, probably more. What did it do? It dropped 6 ticks from the supply zone. That's a HUGE amount of selling with almost no reciprocation by price.
Think of it like friction. In this case, the friction being resting orders to buy. This relationship between price and delta can provide excellent feedback throughout the day on what traders are doing.
Monday, January 23, 2012
MarketDelta Footrpint Analysis
As a follow-up to the last post on potential heavy supply in the market, let's examine this mornings trade on a transaction level basis. The tool of choice for such analysis is the MarketDelta Footprint chart. An example of this chart is shown below.
My apologies for not having a trading blotter to post, but I was doing some mentoring and unfortunately not trading myself today. However, I can describe the trades that were taken, and why. If you refer back to the prior blog post, you'll see the lower edge of the Daily supply zone was right around 1316. That was our first line in the sand for a short.
You'll note on the Footprint, at roughly the 1316 area, on the first bar (when price was going up) volume printed 7348X12417. At that time, that was sufficient volume to shift the VPOC right up to our 1316 level. At the time (before price continued up to a high of 1318.25) the VPOC shift was followed immediately selling pressure, as witnessed by volume accumulating on the bid. That was our signal to go short.
The weak part of the trade was market internals. Currently, the one thing I focus on is the NYSE TICK. The TICK just refused to budge, and when volume started coming in on the offer, and overwhelmed what had already printed on the bid (which was the basis for our entry) we bailed on the trade for a very small loss (I believe it was 2 or 3 ticks per contract; trading a 3 lot).
The second stab worked out better. This trader's plan called for a second try IF the price level to be traded was based on a Daily time-frame analysis (and not a smaller time-frame) and the lot size was reduced to 2 contracts.
The same VPOC shift pattern occurred again, this time with even more selling (note the -7049 in the red box above the footprint bar, which shows how much net buying or selling came in since the high was made). Gratification was not instant, because the TICK was still printing positive. However, price stop moving up, the selling volume which came in was not mitigated by further buying, and price began to sink. Once the TICK started printing negative, we could breath and just manage a winner.
If you're interested, the exits were at 1315 (due to a stall in price accompanied by the TICK printing positive again) and then again at 1313, which was the origin of the up move.
Today's' price activity (at the time of this writing we've further dropped to 1308) is supporting the notion that the overhead supply is holding sway. I'll still be watching for smaller time-frame supply levels to form and trade off of. Be careful if/when price retraces to 1290ish (and the other stacked daily demand levels immediately below) as we never know in advance how price will react to the demand.
My apologies for not having a trading blotter to post, but I was doing some mentoring and unfortunately not trading myself today. However, I can describe the trades that were taken, and why. If you refer back to the prior blog post, you'll see the lower edge of the Daily supply zone was right around 1316. That was our first line in the sand for a short.
You'll note on the Footprint, at roughly the 1316 area, on the first bar (when price was going up) volume printed 7348X12417. At that time, that was sufficient volume to shift the VPOC right up to our 1316 level. At the time (before price continued up to a high of 1318.25) the VPOC shift was followed immediately selling pressure, as witnessed by volume accumulating on the bid. That was our signal to go short.
The weak part of the trade was market internals. Currently, the one thing I focus on is the NYSE TICK. The TICK just refused to budge, and when volume started coming in on the offer, and overwhelmed what had already printed on the bid (which was the basis for our entry) we bailed on the trade for a very small loss (I believe it was 2 or 3 ticks per contract; trading a 3 lot).
The second stab worked out better. This trader's plan called for a second try IF the price level to be traded was based on a Daily time-frame analysis (and not a smaller time-frame) and the lot size was reduced to 2 contracts.
The same VPOC shift pattern occurred again, this time with even more selling (note the -7049 in the red box above the footprint bar, which shows how much net buying or selling came in since the high was made). Gratification was not instant, because the TICK was still printing positive. However, price stop moving up, the selling volume which came in was not mitigated by further buying, and price began to sink. Once the TICK started printing negative, we could breath and just manage a winner.
If you're interested, the exits were at 1315 (due to a stall in price accompanied by the TICK printing positive again) and then again at 1313, which was the origin of the up move.
Today's' price activity (at the time of this writing we've further dropped to 1308) is supporting the notion that the overhead supply is holding sway. I'll still be watching for smaller time-frame supply levels to form and trade off of. Be careful if/when price retraces to 1290ish (and the other stacked daily demand levels immediately below) as we never know in advance how price will react to the demand.
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