There are so many trading axioms out there such as "the trend is your friend", "don't pick tops and bottoms", "never catch a falling knife", "never short a dull market", "never add to a losing position", and the list goes on. Now, there's nothing wrong with these rules but in my experience, almost all of them can be broken in certain market conditions. The last rule on Dennis Gartman's 22 Rules of Trading states: "All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked!", and that couldn't be more true.
So, you can break the rules but only if you know that you're breaking the rules, which brings us to the point of this post: Know Your Trade! Know exactly what type of trade you're in. There's nothing wrong with "catching a falling knife" as long as you know you're catching a falling knife and then manage risk accordingly, i.e. you don't continue to add to the losing trade. Same goes for picking tops and bottoms -- nothing wrong with it, as long as you know you're attempting to pick a top or bottom. Once you know and acknowledge the type of trade you're taking, you can then proceed to manage that trade accordingly. For example, how I manage a Trend Trade differs from how I manage a Counter-Trend trade. My risk management is tighter on counter-trend trades because my reason for getting in the trade may be exhaustion at a Resistance Area, and if we get continuation beyond the high of the move, then obviously we haven't reached an exhaustion point yet and I should take a small loss and re-enter at a more favorable price. If I'm taking a trade in direction of Trend within the Context of a Trend Day, I may actually add to the "losing" position if price moves against me by a few ticks as long as everything else still supports my trade idea and my original stop-loss level isn't threatened.
In conclusion, just be honest with yourself. Know what type of trade you're in, and then have a plan for managing each type of trade. If you can't identify the type of trade you're about to take, it's probably a good idea to skip that trade because you're obviously confused on the trade idea from the get-go, and won't have the conviction to see the trade through. I hope you find this helpful, and as always, I welcome your insights on this topic.
Tuesday, August 31, 2010
Saturday, August 28, 2010
My Thoughts on VPOC Shifts
VPOC stands for Volume Point of Control and is the price level with the heaviest volume for the day. This is the price level with heavy Acceptance by both, Buyers and Sellers. The level signifies Agreement by both parties on Value. Now, if the Buyers and Sellers agree that a certain price is Fair, then the market could remain in balance trading around the VPOC until additional information (a catalyst) changes the opinion on Value or it could head in the opposite direction and test a previous area of Rejection (disagreement). VPOCs serve as great Targets.
Given the above definition, what do you think a shift in the VPOC represents and how should you trade it? For starters, a shift in the VPOC represents a shift in the opinion on Value. But how do you trade it? It depends on the Context. To keep it simple we'll just say Context is either a Trend Day or a Non-Trend Day. Majority of the days are Non-Trend Days so we'll cover that first.
Non-Trend Day Context
For our first example, lets assume we're trading within the Context of a Non-Trend Day and the VPOC shifts Up. Suppose you're Long from 1050 and the VPOC shifts up from 1045 to 1055. The Shift Up tells us that the opinion on Value has changed, but more importantly, it tells us that Buyers and Sellers AGREE on Fair Value at 1055. If they agree on Fair Value, and there's no additional catalyst in the market to change that opinion, then it makes sense to exit or scale out of your Long position because price could just rotate around the VPOC now until new information (a catalyst) is introduced in the market and changes the opinion on Fair Value. Price may also reverse here and test a previous area of rejection (Low Volume Node). The bottom line is, odds of continuation up are now lower and you need to ask yourself whether you would Initiate a new Long position at 1055. If the answer is No, then why shouldn't you scale out or even exit your Long position here?
Trend Day Context
The concept of Value is slightly less critical on a Trend Day because the market is searching for Value. This is where looking at a Composite Volume Profile chart can be really helpful because price will typically head towards a previous Area of Acceptance or Rejection, but on a larger time-frame. On a Trend Day, Price will make a directional move away from Value and Value will catch up to Price. Value is catching up to Price when you see the ES consolidate in a range for a couple of hours after an initiative move. You will save yourself so much money if you're able to identify Trend Days early in the morning but that's a whole separate topic/post. Even on Trend Days, lightening up your position on a VPOC Shift is not a bad idea but just know that the pullbacks will probably be bought and the VPOC could shift again (double-distribution trend days anyone?).
I hope this post clarifies and answers some questions on VPOC Shifts. It's a simple and brief post, and I certainly don't expect it to answer all the questions. This is just my own logical way of interpreting VPOC Shifts. The learning never ends, and I'm open to your insights and welcome your comments on this topic.
Given the above definition, what do you think a shift in the VPOC represents and how should you trade it? For starters, a shift in the VPOC represents a shift in the opinion on Value. But how do you trade it? It depends on the Context. To keep it simple we'll just say Context is either a Trend Day or a Non-Trend Day. Majority of the days are Non-Trend Days so we'll cover that first.
Non-Trend Day Context
For our first example, lets assume we're trading within the Context of a Non-Trend Day and the VPOC shifts Up. Suppose you're Long from 1050 and the VPOC shifts up from 1045 to 1055. The Shift Up tells us that the opinion on Value has changed, but more importantly, it tells us that Buyers and Sellers AGREE on Fair Value at 1055. If they agree on Fair Value, and there's no additional catalyst in the market to change that opinion, then it makes sense to exit or scale out of your Long position because price could just rotate around the VPOC now until new information (a catalyst) is introduced in the market and changes the opinion on Fair Value. Price may also reverse here and test a previous area of rejection (Low Volume Node). The bottom line is, odds of continuation up are now lower and you need to ask yourself whether you would Initiate a new Long position at 1055. If the answer is No, then why shouldn't you scale out or even exit your Long position here?
Trend Day Context
The concept of Value is slightly less critical on a Trend Day because the market is searching for Value. This is where looking at a Composite Volume Profile chart can be really helpful because price will typically head towards a previous Area of Acceptance or Rejection, but on a larger time-frame. On a Trend Day, Price will make a directional move away from Value and Value will catch up to Price. Value is catching up to Price when you see the ES consolidate in a range for a couple of hours after an initiative move. You will save yourself so much money if you're able to identify Trend Days early in the morning but that's a whole separate topic/post. Even on Trend Days, lightening up your position on a VPOC Shift is not a bad idea but just know that the pullbacks will probably be bought and the VPOC could shift again (double-distribution trend days anyone?).
I hope this post clarifies and answers some questions on VPOC Shifts. It's a simple and brief post, and I certainly don't expect it to answer all the questions. This is just my own logical way of interpreting VPOC Shifts. The learning never ends, and I'm open to your insights and welcome your comments on this topic.
Sunday, April 4, 2010
Introducing, E-Mini Player Premium
Going forward, the nightly Key Support/Resistance Areas as well as the Daily Market Review will be posted over at www.EminiPlayer.net.
This public blog will remain in-place, and will continue but the technical analysis will be limited to subscribers at EminiPlayer.net. If you've found my analysis and insights to be helpful to your trading, please head over to www.EminiPlayer.net and sign up through the Subscribe link to gain instant access.
Thanks for your support!
This public blog will remain in-place, and will continue but the technical analysis will be limited to subscribers at EminiPlayer.net. If you've found my analysis and insights to be helpful to your trading, please head over to www.EminiPlayer.net and sign up through the Subscribe link to gain instant access.
Thanks for your support!
Thursday, April 1, 2010
Thursday 04/01/2010 - E-Mini S&P 500 Futures Review/Analysis
E-Mini S&P 500 Futures
Some nice action in the S&Ps today. As I mentioned in yesterday's review, we've observed Responsive Buying and Responsive Selling all week, and today was much of the same. Responsive Sellers quickly rejected higher prices, and once price moved below 1167, Responsive Buyers quickly pushed price back up. 1167-1169 was the Area of heavy acceptance this week. This up move is losing momentum though. The previous week's high was 1176.50, and the high for this week so far is only one handle higher at 1177.50. If price gets below 1158, and longs begin liquidating, we could easily get a pullback to the 1139-1141 area.
Btw, I've received questions regarding the arrows on the 5-Minute charts I post in the daily reviews. To clarify, the arrows are NOT plotted automatically. I manually place those arrows on the charts where I see good setups (a lot of times within the Key Areas posted the night before). Some of the arrows are actual trades that I took (e.g. I shorted 1177 and went long at 1167 today). But not all of them are my trades. I don't plot all my trades on the 5-minute chart; just the setups. Hope that clears things up.
The markets are closed tomorrow for Good Friday, so enjoy the day off and have a good weekend!
ES 5-Minute Chart
ES Day Session Volume Profile Chart
Some nice action in the S&Ps today. As I mentioned in yesterday's review, we've observed Responsive Buying and Responsive Selling all week, and today was much of the same. Responsive Sellers quickly rejected higher prices, and once price moved below 1167, Responsive Buyers quickly pushed price back up. 1167-1169 was the Area of heavy acceptance this week. This up move is losing momentum though. The previous week's high was 1176.50, and the high for this week so far is only one handle higher at 1177.50. If price gets below 1158, and longs begin liquidating, we could easily get a pullback to the 1139-1141 area.
Btw, I've received questions regarding the arrows on the 5-Minute charts I post in the daily reviews. To clarify, the arrows are NOT plotted automatically. I manually place those arrows on the charts where I see good setups (a lot of times within the Key Areas posted the night before). Some of the arrows are actual trades that I took (e.g. I shorted 1177 and went long at 1167 today). But not all of them are my trades. I don't plot all my trades on the 5-minute chart; just the setups. Hope that clears things up.
The markets are closed tomorrow for Good Friday, so enjoy the day off and have a good weekend!
ES 5-Minute Chart
ES Day Session Volume Profile Chart
Wednesday, March 31, 2010
Thursday 04/01/2010 - E-Mini S&P 500 Futures Key Support/Resistance Levels
E-Mini S&P 500 Futures
The current range for the WEEK is 12.50 points (1161.25-1173.75)! We've built acceptance between 1167.75 and 1169.75, and every move above and below that area has been met with Responsive Buying and Responsive Selling. We need a catalyst to drive this market outside of this range, at which point, I would anticipate some Initiative Activity. Tomorrow could be a trend day when price finally pushes to 1150 or 1183...or we could just get more of the same (chop). When everyone gets complacent (comfortable) within the current range, we'll probably get a surprise move that will force one party (either buyers or sellers) to liquidate their positions. As long as we hold above 1163, my bias remains (cautiously) to the upside. Trade well!
Econ Data
Motor Vehicle Sales, Jobless Claims at 7:30 AM (CT), Construction Spending and ISM Mfg Index at 9:00 AM (CT), EIA Natural Gas Report at 9:30 AM (CT).
ES - Daily Chart with Volume Profile and Key Levels
The current range for the WEEK is 12.50 points (1161.25-1173.75)! We've built acceptance between 1167.75 and 1169.75, and every move above and below that area has been met with Responsive Buying and Responsive Selling. We need a catalyst to drive this market outside of this range, at which point, I would anticipate some Initiative Activity. Tomorrow could be a trend day when price finally pushes to 1150 or 1183...or we could just get more of the same (chop). When everyone gets complacent (comfortable) within the current range, we'll probably get a surprise move that will force one party (either buyers or sellers) to liquidate their positions. As long as we hold above 1163, my bias remains (cautiously) to the upside. Trade well!
Econ Data
Motor Vehicle Sales, Jobless Claims at 7:30 AM (CT), Construction Spending and ISM Mfg Index at 9:00 AM (CT), EIA Natural Gas Report at 9:30 AM (CT).
ES - Daily Chart with Volume Profile and Key Levels
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