Apr 142010

As expected, the 1200 level became a fight zone this morning.  I was prepared to go either way, short or long.  The sellers came in at 1200.25 and quickly overwhelmed the buyers.  They were so quick that I missed the best trade entry at 1200 and got my short on at 99.75.  When I posted this morning’s commentary, 98.50 was a high volume price.  Since my post and during the first 20 minutes, the high volume price shifted down to 98.25 so I used that as my target.  This morning was a perfect example of how biases and opinions have little to do with what the market will do.  I thought the market was going to run new highs.  However, I also knew the market could turn and reject hard at the 1200 area.  Thus my trade was against my bias, but I could not argue with the sellers.

Once again, RG will post a chart a little later (we want to keep consistency of charts on the blog).

Update 1:45pm EST: For those of you who can sit through 2 hour trades, the long break out trade from 1200.50 to 1203 worked on the second move back up to the 1200 price area today.

 Posted by at 10:35 am

  5 Responses to “4/14/2010 Post Trading Analysis”

  1. Nice trading NJ. I wanted to short 1200 today but was indecisive and ended up spectating. Lack of experience at these key levels showed its hand today. Thanks for the comments. Jess

    • Thanks Jess. You have to have confidence in the information you are using to trade. The ‘key’ levels are rooted in auction market theory which basically says that markets are auctions where buyers and sellers are negotiating a fair price for the underlying instrument. Fair prices are price areas where a lot of buyers and sellers agree on price and therefore buy and sell. They show up as high volume areas on volume profiles. The low volume areas are prices where either the buyers or sellers are not comfortable with the prices thus little trading takes place. Thus we call the low volume areas rejection areas and the high volume areas acceptance areas. Price wants to move away from rejection areas to acceptance areas. Thus we generally focus on the rejection areas to watch how the buyers and sellers react by monitoring the bid and ask volume. If there is enough room for a decent risk/reward trade from the rejection area to a neighboring acceptance area, then a trade is worth taking once you see either the buyers or sellers are in control.

      Now traders determine fair value based on their expectations about future price movements. If they think price is cheap, they buy. If they think prices are expensive they sell. There are many things that can change trader expectations like news, technical breakouts, chart patterns, etc. Whenever trader expectations change, there is a search for a new price acceptance area. These can be dangerous times to trade (e.g. during a news event) as past acceptance and rejection areas are often ignored as a new acceptance price level is determined.

      LOL, I’m so wrapped up in the AMT explanation that I almost lost my point… 🙂 If you know that traders did not accept a price area in the past, they will probably not accept it again (at least not initially). It takes a while to build acceptance price levels. Thus rejection areas are price levels where price moves quickly and by monitoring the bid/ask volumes, you can pick trades in the right direction as price heads to a level where there is more acceptance. Hopefully by understanding the reasons behind the price levels, you can develop a confidence to trust them for your trading.


  2. I got long at 97.50 on the pullback after the push to 1200.50 I made 2 points on one lot to 99.50, then made a mistake moving my stop up and got taken out at 97.75…still looking for a good spot to get back in.

    Stops are tough for me. Letting profits turn into losses is a real morale killer….and watching the market go like today or any other day after making a good entry is also a morale killer. Trading in general can be a morale killer, but man I love it.

    NJ do you guys recommend any particular books for mp, or auction theory? I am currently reading mind over markets by dalton, any others? thanks in advance either way.

    • caljr,

      I spent a good 6 months studying Market Profile a few years ago. I read Steidlmayer’s original paper (a very tough read), Dalton’s Mind over Markets, and Steidlmayer on Markets (second edition with Steven B. Hawkins). I think the books have interesting information which provide models to think about the markets. However, I was never able to use the Market Profile day information in my day trading. It just takes too long to identify a day type and MP patterns for me to use the information. To me, the auction market theory which Market Profile is based is a useful framework for understanding the markets. The TPO profile and better yet the volume profile are great tools for seeing where prices are being accepted and rejected.

      The best information that I’ve seen on using MP concepts for trading is the introduction chapter from Steidlmayer’s Capflow software manual. I think I got more usable information from that chapter than the other 3 books combined. Steidlmayer’s 4 steps of market development and minus development concepts were eye openers for me. You can find it here: http://tinyurl.com/y74ct5l


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