I pointed out a change in volume density characteristics early in the room today and as it turned out the view happened to have some merit. Essentially I said that for several sessions now as new highs were retested and/or broken we have seen the classic “P” shaped volume profiles so characteristic of aggregate short covering behavior. I’ve highlighted the recent profiles more indicative of short covering into recent new highs in green and contrasted in red the difference in today’s profile in the image below, along with the key structures in play in orange. Its pretty elemental actually. If the highest volume in a session occurs near/around the high of that session, what is more likely? Do new buyers generally like to buy the high tick, or is it prior sellers on the wrong side that tend to puke out at the high tick? So with that regarding today we noted that though we broke to a new high in Globex the profile this time just thinned out into nothing into the high indicating a potential change in trader expectations. We saw a ton of volume in pink on the retest of the OH in the cash session though, but once that flow was complete I mentioned in the room that the long side felt exhausted to me. It turned out to be true at least in the short run starting with the largest size leading out short on that last push up in pink followed by a steep second push failure in red on thin relative volume.
For those who did decide to sell into the retest as intraday swingers the structures below to look to scale into should have been very obvious starting with the yesterday RTH high potential former R turned S from above 90’s we had just broken out of. Remember guys, we can never control how close the structures will be and they will naturally expand and contract relative to each other with changes in volatility. So next we pulled back into the YH and saw new passive buyers looking to buy a pullback stepping up against late chasing sellers in light blue. Note once again size leading out against the market as net buyers into that push back down. I can’t imagine not scaling at least some into that action or the second push low failure on paper thin volume in dark blue that followed, but of course each of you has your own evaluation process. Though kind of on the fifty yard line I also highlighted more seller absorption in purple as a potential scale spot for the same zone as I did in light green as well with peak volume density around the YC 88’s. The next structure below for those running multiple scale overlays was the Globex low 86’s based on and meeting the prior super major former R turned S 85’s from 11/1 & 11/3. Plenty of trapped shorts on the first push down there in dark green ending with a strong long finish lift off the lows led by size followed by a paper thin second push failure in lime green from seller exhaustion and the world leading out long from there in the stats. Another textbook section of price action and flow illustrating the predictability of crowds around the known key market structures. Plenty for everyone today both shorts and longs, swingers and scalpers…
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Discovery Trading Group is a unique dojo focused on mentoring aspiring futures traders since 2010. It’s emphasis is on guidance in building bespoke processes and risk overlays rooted in market structure, price action and orderflow, with sound adaptable risk management as a priority.