In this video we are going to go into a bit more detail about using what we can't see as well as what we can.
At this time, the markets have slowed down considerably, we can see we are 70,000 contracts below the average for the day. We aren't long after the open and we've tested the prior days Value Low once and now we are going down to it again. We can see the DOW is at it's lows and the NASDAQ going towards it's highs, the NYSE TICK hasn't put in any extremes, so we are definitely looking for a range trade. We can see the volume profile is "D" shaped and so we are looking at the extremes as potential entry points. So in terms of trade location, we have built the profile a little, we can see the lower extreme lines up with yesterdays value low.
In more normal market conditions, we might expect to see momentum come in on our side after entry. The trouble is when a market has slowed down to this extent, we rarely see that. What we see is more of a lazy grind up to the opposite end of the range.
So if you want to stick with the same market through this period, then you'll have to look for different things in the order flow. Or in some cases, for the lack of things.
So we have a trade entry at 64.50, really for no other reason than we saw over 600 contracts trade there which isn't a great deal but it's more that we saw at other levels on the way down. It goes past our entry point a couple of ticks to retest the value low and then we start to move up I got in a bit early because I was afraid of not getting a fill any lower. We don't see a lot of contracts trade. There is no huge imbalance in the strenght meter. We don't see an imbalance on the reconstructed taoe. The Nasdaq is supporting our trade but the DOW isn't. Trade is balanced but the trade location is still on our side, so unless we see size coming in against us and price moving down, we'll stick with the trade but obviously not let it run too far offside.
Now, as we finally see some upside momentum come in, we can see it's still balanced. The Point of control is 2165, which means that's where the most contracts traded and also where we are likely to trade each time we get to that price. The open price, a common reversal point is at 2165.75, so we have our first target just ahead of that. Again, that is just based purely on trade location and not order flow.
As we get up to the top of the range, we get a fill then as we move down, we can see that over 1000 contracts trade into 2166. So it appears at that point that the offers are absorbing buying which would give us a signal to the short side. I tend not to reverse trades, I like to step back and have a think between trades. But this would have been a valid signal to trade to the other side of the range, knowing that if you get a couple of ticks through the price those 1000 contracts traded, you are wrong.
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