Jul 132010

The first potential short area was the 90.50/92.25 area which price reached after 10am.  There was a lot of buying in the area, but price was unable to advance beyond 1091 which was a strong line of resistance created by the June 23 daily high.  Price rotated down a full 3 points, enough to take out the stops of many of the resistance zone buyers.  On the next up rotation, price could not get past 1089.75.  In fact, someone was dumping a lot of contracts at 89.75 and kept the open contracts on the ask around 4000, about double most of the other bid open contracts.  This up rotation bar was about 70% selling with little buying to move price up.  Although price did not move back up towards the resistance area as much as we would like, the heavy selling was enough to take a bet on trading short.

 Posted by at 12:32 pm

  4 Responses to “7/13/2010 Post Trading Analysis”

  1. I think there was a lot of positive delta even in the 100+ contracts at the top of the bar you entered on. Kept me out of the trade as I thought they would push it back up. When did you know it would fail?

    • The 100+ delta was +97 contracts on the bar close which was slightly positive on 587 contracts total which was very light. Most of the buying was at the top of the bar and there was very large relative selling in most of the bar. This is a case where resistance was holding (although there was room for price to move up further), selling overwhelmed the bar, and institutions were not interested. We did not know it would fail, but there was enough evidence to make a short bet.

  2. Again, we don’t mechanize with those deltas. Very dangerous and analysis in general is less important. We really just like to bet the market will rotate at key levels more than it doesn’t. The foundation of all trades is just that. Order flow, prints, big trader activity is just icing on the cake and is not what makes you win trades. Consider this: hundred lot volume averages only 5-7% of all trading. It doesn’t move markets. It is a minor clue that can help prevent obvious losses sometimes, not pick winners. The auction process itself around key levels is the edge – almost all of it. Mostly we just bet that the market will rotate at our levels enough for us to get our profit. We bet them blind more than 70% of the time probably. We discuss a lot of this stuff in the private forum. Not sure if you are one of the members, but if so be sure to register for the forum and digest all that stuff in there. Those items in the webinar about big traders and print slowing and trapped traders were more for illustration of examples one can use to filter and refine. They aren’t the meat of the matter. If you sit and wait for 100 lots to turn a color on the close of a bar you are going to miss a lot of what is really happening. Word to the wise: you never “know” if a level will hold or fail. You bet the probability it will rotate through natural rejection from the auction process.

    PS: We use many size filters and the hundred is not enough on its own. You need to change with volatility and conditions. We use 50s and 75s and 200s and 500s also. But again, icing on the cake, not a trading system. We have no trading system and we win about 85% of our trades. We gamble plain and simple. We gamble that the market will rotate at rejection areas. Plain and simple. Just like one does on the floor. Pure trading…

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