Apr 302010

First off, all this crazy vol and nonsense is just low volume stuff. Market makers really get a foothold when it is thin like this for no reason. That said, it doesn’t make for great opportunity, though if you trade size you can’t get as many on as you would like. Our levels were spot on again today as you can see. We felt the OL range was REALLY setting up wide. As far as the market was concerned, the OL was being treated as such everywhere from 2.50 all the way down to 1.25. We scalped the OL bounces many times across all those prices and have included a few (as always in purple) as examples. We got the big volume shift with retail chasers on the second push down to the OL, got long with a fill at 2.50 and traded into the next stall hopping out with a point. You can see our breakout trade short under 1201 worked out perfectly, but we passed on that one. It was just acting too whippy on the light volume and to be honest, we were confident 1200 would hold. I guess we were wrong about that. Dead wrong. But it just wasn’t a high probability trade in our eyes. We waited for the bottom around yesterday’s low and grabbed another point there with a long fade and a few more scalps. Done for the day with a bunch of winners. Hope you all caught some good stuff around these levels. I’m betting we grind back up and base in around 1200 or so. Have a good weekend guys. See you Monday.

 Posted by at 10:32 am

  5 Responses to “4/30/2010 Post Trading Analysis”

  1. Hi RG,
    Question about how volume shifts setup. My understanding of volume shifts, as you’ve described them, are when the volume on one side overtakes the volume on the other side.

    For example, in the green-box indicated trade at the left (1068×1404), first, the sellers drove the price down by selling into the bid. Eventually, buyers step in and buy at the ask, driving the right number up, and eventually overtaking the sellers.

    I replayed the two areas around your green-box indicated trades.

    In the first one, the 1068×1404 volume shift at 1202.50, the buyers pushed the buy volume to 1404 and the price almost immediately rose.

    In the second one, the volume shift occurred with buyers overtaking sellers at 1197.00 and 1197.25. Trade continued for a while at lower prices 1196.25-1196.75, then eventually broke above the volume shift area.

    I figure volume sets up differently every time and it’s a matter of watching lots of them to develop a feel. Do you have any suggestions of other specific things to look for as volume shifts occur around key price levels?

    Thanks and have a great weekend!

    • No, that is not how best to interpret it as you are missing one really key element. Good question though and it will all be clear to you on the third webinar. Yes, feel is a part of it – a big part of it. You need to notice the RELATIVITY of total prints at price on both sides first. What we are looking for is first a shift of TOTAL volume to near the bottom of the bar. What that means is initially, it didn’t take sellers hitting bids many contracts to push price down due to less supply. That is momentum. But then as we approach the key price we were headed towards which was the OL, total prints started to build up as the sellers found supply. This is why you see the really dark red on the bid size. Despite more and more contracts traded the sellers find it harder to advance price. With all that momentum, weak retail down on their tick charts trading patterns starting thinking this was significant and started chasing the move. That was all their trades at that dark red price. When it stopped dead and couldn’t advance they panic and start buying to cover which is like gas on the fire and price rips back up. Notice all the exit volume was about a point away? That is their stops. Like I said, we are predators. lol. That is the “stop run” play. We know the market makers are going to see it and trade it. We are just trading with them. So that is the three step to that play. 1. Wait for the highest volume price for the bar to shift down (or up) to near the egde of the bar. 2. Wait for price to stall where it can’t move much despite more and more prints and watch quailty of prints (size) diminish on the tape. 3. Either jump in on feel or wait for price near the high volume price (in this case the two prices above) to see significant buying or better yet a dominant side to shift to the other side. That is it. BTW, this is why I like the split ladder view the best and set up to shade the dominant side as you can see that color shift pretty clearly. I don’t recall if there was that hard shift on that one but now I’m betting you see what you were missing? It is also key that it occur at a key price and then it is REALLY high probability. The second one had the really strong buyer shift, but we felt strongly about that price as it was YL so I anticipated that one a bit. But again, the same set up. Shift of volume, supply slows it down, retail momentum traders get trapped, then all it takes is light buying to propel the market fast in our direction as it is the DUMPING of their positions, not new buyers causing the move. Always best to win trades on fear of others, not greed. Fear is more powerful than greed. Make sense now?

      • Thanks for the detailed response. I’ll run replay again and observe in more detail.

        Your description of the stop run makes a lot of sense. There’s a certain rhythm to it that happens again and again.

        Working on getting the “prey” target off my back 🙂 I want to be a predator!

    • BTW, on my entry chart other than the pivots the thicker red line is always the OL, the thinner red line is always YL, the thicker grey line is OH, the thinner grey line is YH, and the dashed black line is YC. The purple boxes are the VWAP calculated since the cash open only. I have two pivots – one for retail and one for pit guys. Retail tend to use sites and software default indicators so those pivots are most always based on the whole previous 24 hour session. The old schoolers, institutions and floor guys trading the big S&P, etc. tend to ignore overnight stuff in the grand scheme of position working and as such like pivots calculated on day session only. You will be surprised how often these will cause stalls so when you have levels already important and it is a pivot too it will be even stronger. And trust me when I say you will be glad you have both pivot calcs. PS: The strongest days of all are when the overnight session is “inside” yesterday’s session and the 24 hour and day session pivots are the same. Food for thought. Are you using our chart defs?

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