12/2 Session Review

Today I will share my ideas and trade with you, explaining what I was thinking and how I interpreted what was occurring.

12/2 Market Profile and Tick Charts (time and activity views of the auction)

Coming into the day, my emotions are already a bit off balance - yesterday I booked a few losers that should have been excellent winners.  The market simply didn't co-operate.  I know this is going to happen from time to time, since trading is a game of probabilities.  This is why there simply aren't ever going to be "If then, then that. Always." rules to make profits in the market that will eternally work exactly the same every time. This is different from many other contexts in which events are controlled (such as software inputs and outputs), but it is part of what makes trading challenging and enjoyable - winning trades give that sense of accomplishment, of beating the odds and the market.

So, I'm risk-averse already, checking and double checking everything with extra care.  First, let's look at the previous session: a big fat profile with a wide range - very balanced, no anomalies or areas that really pop out - though there is a downwards gap separating it from the previous session.

It's 8:30 and the market opens inside the previous value area.  Immediately the market moves up a few points with not a single print under the open, which is the first indication it will be a trend day.  In the interest of risk management (and my state of mind) I'm not just going to jump in long off of one indication - I want to see what happens next.  Also, an econ was releasing at 9, so I do have a little time, as I very rarely hold a position into one.

The updrive continues, but then stalls out around 58 as it begins to fall down.  There really isn't an obvious intraday support level underneath for it to test, so I continue watching to see if the sellers can get the upper hand and reverse the push, taking it below the opening print.  9:00 hits, uncertainty is relieved as the econ releases, and the market repeats what it did on the open & leaps up a few points, trapping all the sellers as it makes a new high (A).  Leaping up again after that, I'm seeing higher prices not being fought by the sellers and the market looking like it's leaving yesterday's value area, the second indication we are having a trend day.

Now the market moves up yet again, printing a new high at 63 and developing a nice balance right at the high, which indicates another acceptance of higher prices.  Looking at the chart, I place my bid at the nearest well-defined level of anticipated support with the following information backing me up:

1. There has not been a single print under the opening print
2. There have been several demonstrations of upward momentum bursts (such as A), but no demonstrations of downward momentum
3. The Market Profile is clearly showing rejection of lower prices via a long buying tail escaping yesterday's value area
4. Sellers have not been able to push back against the wave of buying as demonstrated by the continual upslope in the tick chart and each new MP period having a higher high/higher low than the previous one
5. I have a strong area to enter at that is supported by the tick and market profile charts

As soon as I'm filled (the blue X) I begin monitoring price action not only in the ES, but also the Dow and the Nasdaq futures.  Since all three US equity market indices do tend to move together, they can reveal important information about the future of each other, and my trade.  I observed the NQ take the lead (which is usually does, it's a very excitable market) and press on its high, while the Dow just wallowed around off its high, lagging behind & having a very hard time catching a bid.  The ES became stuck between them, unable to go up due to the lack of push from the Dow, but also unable to tank due to the NQ staying at its high.

This went on for over 10 minutes before the Dow finally gave in and began slowly moving upwards.  What the Dow does is incredibly important.  I've found the ES does not move unless the Dow can move with it, it is the anchor.  A very, very heavy anchor.

Well, it dropped.  After slowly moving upwards, the Dow just failed and fell down further than where it was trading when I was filled.  Coupled with the NQ also unable to smash its high and now also coming down, I quickly realized that the ES was also going to move downwards and against me, as it hadn't made a new high either.  And so, 25 minutes later I killed the trade, not knowing what was going to happen next but having enough indications from the other markets that upward momentum was stalling out.

From the chart I was about an hour early in cutting my trade, but in that hour several interesting things happened.  First, the market marked the high (B) before swinging down against my killed trade at C.  Then, it swung back up above B as the Dow & NQ changed their tune, deciding to continue the uptrend.    Between 12:30 and 1:00 the ES balanced nicely at its high, once again indicating acceptance of higher prices.  This time I had a very well defined level to enter at (D), where you can see my working bid.

Unfortunately, the level was so strong no sellers could even get down there to probe it, hence why my working order was never hit, which occasionally will happen, even when you do everything right.

I did however, manage risk to the best of my ability in an environment of uncertainty.  And, I booked a few ticks on the trade I killed - so it wasn't all bad either.  With wider ranges and more activity in the market, I'm looking forward to what else the week brings!