The theme of today’s educational example is an old favorite. Handicapping prospective structures on one more axis – time of day. Once again a reminder that there is always one thing more reliable than market structures drawing predictable action, and that is current context shaping outcomes. Time, along with other contextual changes often turn “right” into “wrong” depending on the risk/reward overlay, and can even manifest into situations where neither longs or shorts realistically get paid relative to their objectives – even when their initial hypothesis was correct. Such was the case on both sides at the key 83’s structure we discussed at length in the room. So as always be sure to see the transcript if you weren’t around in chat today.
I said early in chat that within the current vol even a move from the mid to high 90’s into the 83’s in one shot could easily qualify for an “incentive bounce”, and given that being such a key structure below it was definitely a spot to stalk if either long or short biased from there. We eventually got there late in the day as seen here in green and saw the case 83’s reject to the tick on strong seller absorption and a stalling rotation. Did we get a bounce? Yes, but in real time I noted that the bulls initially had a tough time with market makers pulling offers but the buyers reacting timidly unwilling to lift offers in a big way. This was the situation just under the red box where passive shorts eventually swarmed in and absorbed new buyers. Just before that in the room I said that it felt like with all the trapped buyers below around the 83’s the market still felt weak, and that perhaps the MM’s would rather pull bids to put those longs to the test which might result in many puking and a quick burst lower taking out the long stops. As it turned out that move DID happen, but not until around the cash close which can be seen in yellow. But guess what? It didn’t work. Market makers pulled bids which started the slide on thin prints and trapped new short deltas, but it immediately petered out and most momentum short players didn’t get paid. Why? The RTH session was over. Nobody left in the book to play.
In sum, the main message here is that from this key structure today we saw the market bounce but only back into the 85’s-87’s line before losing steam. Any swingers trading from the green area who didn’t recognize at the very least the time of day context and scale into the buyer absorption in red likely had to scratch at best. Those holding out for more sat and watched the bulls pick away with solid aggression across the rotations in blue but never get anywhere as the intraday clock ran down. Likewise the classic market maker driven stop run play was set in motion right at the end of the day but never materialized for obvious contextual reasons. If either the long bounce from the 83’s in green, the continuation short on the pullback to the 85-87’s in red, or the bid pull move in yellow had occurred earlier in the day would the ultimate outcomes likely been entirely different? I’d bet on on it. Where you are at in the session alone can be a really, really big deal depending on your strategy specifics and objectives. When you map out your spots to stalk ahead of the session perhaps consider some simple time based context considerations at the very least. “If we sell off hard to the 83’s structure early, I’ll consider a bounce trade. But not if its late because there won’t be enough time on the clock for it to play out…”. You get the idea. From there contextual reads can be expanded to include things like general sentiment, news, correlated market action, etc. Context is everything. Obey your thirst…er, I mean context.
About the Author
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.