Feb 162018
 

I happened to be in the room yesterday to comment on this test of the key Globex high line as it was being tested, so as always if you are a member of the dojo make sure to see the chat transcript each day as a companion to these educational examples. There may sometimes be extra info, thoughts from others in the room, etc. which you may find useful in tandem.

So we see here the very first push into the Globex high zone saw massive relative buyer absorption and seller response. Note in the stats size also leading out hard with short delta divergence. This was followed by a second push in pink one-ticking the case price, again showing more selling from size and this time also joined by the broad market. As I said in the room in DTG parlance its always good if key market structures get tight respect if only for one reason. And that is it will allow you to frame your trade with the lowest possible risk to the stop point relative to potential reward IF you happen to be on the right side relative to whatever that reward objective is. A sound strategy never has to be about being “right” trade after trade. You can’t outrun the unknown future guys, nor can you outrun the power of relativity of risk and reward objectives. Were you “right” for eight ticks but not nine? “Wrong” with a six tick stop but not seven? Case in point here…

If you were a bear from this zone and sold from the evidence in purple or pink that was fine of course – that would be the first short op of the “two for the show”. And those bears trading structure to structure would be looking for the next below being the pre-open Globex interim low 4’s by my measure. That’s a long way to go for a single scale obviously but if you even got half that it would more than double or even triple most risk overlays. It never got there obviously. Such will be the case on many of your bets. Get used to it…

And that brings me to again punctuate the power of the relativity of your risk overlay, whatever it is. How wide was your stop? Do you like to play your occurrences super tight with a lower hit rate and make big multiples on your event risk? Like in this case some members trading short from the purple and pink areas might only have a handle or so of risk to the stop point. If so, even if they scaled after realizing that the initial move failed to the downside (unmarked), they might have covered and still made 2x on their risk. Others risking wider may have been stopped out when the market rolled over and we saw MM’s pulling offers over the line at the bottom of the yellow section. And note at the top of that section all the thick print volume effectively in structural no mans land. Most of that flow of course initiated by stop elections and aggressive puking of prior shorts from the line below. But was your risk up and over that headfake as your model runs it wider naturally in increased vol conditions? Or are you a whiffleballer as we call it, which means you play initial entries tight and if they get stopped out you get back in post head or foot fake? Obviously the top of the yellow area or the subsequent hard rejecting high failures in red would be viable spots to get back in for those members – the second of the “two for the show” short ops here. Or perhaps your model doesn’t ever consider entry except post head or foot fake? No stop run behind a line, no countertrend entry is absolutely a potentially viable strategy over time and is likely in the rule sets of many members. All important food for thought items as you construct your models…

And as for the bulls, as I said in the room I’d expect those members to be looking for a firm break above the Globex high and a PB and hold from above. As I said in the room, those trading zone to zone would be looking for the next key structure above for a scale or flattening spot as the the 2/7 former MR line 26-27’s. As of this image snap we had pulled back into the area in blue, holding the line we just broke out of from above. Note the majority of size leading out long in the stats below, absorbing and responding to retail sellers. Certainly a viable spot to make your bet as a continuation long if so biased. This was the “one for the money” from this structure today…

Remember guys as I always repeat over and over, any analysis of any market metric can only tell you what IS happening as of right now, not what WILL be x minutes or hours in the future. The very next rotation can and will potentially show at least something to the contrary. Any market is a complex, ever evolving auction environment. Hence why any edges you find will occur over GROUPS of trades, not found one trade at a time. Erasing that mindset of, “if I win THIS trade it means I did something right, and if I lose it means I MUST have made some kind of mistake…”. Rubbish. This is simply ridiculous, amateurish thinking to be frank. And this is why from time to time for these examples I love it when I can manage to snap the image before the bigger move reveals itself and unfolds – hence the question marks above and below the last rotation in progress when I snapped it. I have no idea which way it will ultimately move and where it will be trading an hour from now. All I know is whichever side is “wrong” won’t lose much relative to what they would have won if they were “right”, and whichever side is “right” will most likely make a good multiple on their risk to the stop point trading from this structure in either direction…

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 & bankroll management as a priority.

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