ant

I hear you. I think my error was ignoring the prior balance area high at 1484.75. ES traded to 1484.50 and then turned around. My first scale out for +2 pts did not get filled.

Man, I stepped away for a few minutes and when I came back I was stopped out. Oh well.

Very nice Dogpile.

I am long 3 contracts at 1482.50.

So far no trades for me today.

Agreed. Pinball buy would have worked well today.

It could be a trap, but I'm sticking to the plan I made outside the "heat of battle". I do want to see it clear yesterday's high on good volume before going long though.

Good volume at 11:25am EST (5-min chart) in the ES.

So far the day type of the ES today is a Normal Day. Despite its name, a normal day occurs about 5% of the time, so the odds favor range extension. Look for one of the IB extremes to be penetrated for a potential trade.

So far yesterday's selling tail and the overnight high provided resistance. It looks like the market will explore yesterday's lower range. Be alert for a directional move beyond the low (buying tail) of 8/31 at 1467.75. If volume confirms the move down, there is support at 1462, a prominent POC from 8/30, and 1454.75, a buying tail from 8/30.

Correction: In my post above, I stated that the upper bracket limit is 1484.75. That is incorrect because yesterday's trading (9/4) extended the range to 1499.25. So that is a key reference area for tomorrow, not 1484.75. By the way, when a market is balanced like the ES was today, it is usually a good idea to trade in the direction of any gap opening, if it exists.

So how could one have traded the ES today (9/5)? First, I would have identified the key reference areas above and below the ES open, which were: the gap above the opening the upper limit of the balance area above the opening yesterday's large buying tail below the opening (I will ignore this one, because the tail was erased within the Initial Balance period.) the gap/buying tail from 8/31 below the opening These key reference areas were expected to provide support/resistance today. As always, one should monitor price action as price approaches those levels to determine whether they would hold or not. For now, just keep those levels in the back of your mind. See chart below. After the Initial Balance (IB) formed, we had Range Extension (RE) to the downside. Note the low of the first swing low of the RE at 1469.75. The market then started to trade into the IB again (exhibiting low confidence). Note the high of the first swing high into the IB range at 1478.50. At this point in the day, the ES is developing into a Normal Variation Day (a high occurrence type of day). Yes, this day could have transformed into a neutral day or double distribution day, but at this time of the day, I was focused on the NVD since the swing high into the IB had been formed. Now, here is the key. Usually, price will be bounded by the swing low and swing high mentioned above for the rest of the day. See chart below. The play for the day was to fade the extremes of that trading range. Let's take a look at the ES in a 5-min chart. You can see the trade opportunities that existed throughout the day. However, if one considered the swing high to be the one by the yellow dotted line, then one extra trade opprotunity could have been had. Again, the day could have transformed into a neutral day or double distribution day, but I was monitoring price action at the extremes. There were some nice divergences that occurred at the extremes, which gave me confidence to enter the trades. The lower range of the day reached the lower reference areas mentioned above, but the reference areas above the open did not really come into play today. However, the selling tail that occurred within the IB and the opening price did provide resistance. The re-entry into the IB signaled hesitation by the sellers and I was thinking "low confidence action" and a potential for a trading range today. The profit target of these trades were the midpoint of the trading range. I won't get into entry tactics here, but I think you get the idea. If you trade multiple contracts, you could have scaled out part at the midpoint and the balance near the other extreme. Although the daily range was low, it still turned out to be a very nice trading day today. Although I'm presenting this strategy at the end of the trading day, the intent is for people, who use MP, to consider these trade setups in the future.

Good question Blu-Ray. I really should have started it from the swing low on 8/16, but I consider that day to be excess. Take a look at this chart.

Interesting thoughts Dogpile. I think Toby Crabel has a similar 3-day pattern in his book and Raschke also has a similar setup call 3-day triangle. I like the trade statistics! How big was the trade target and stop? Thanks.

Let's review the market action in the ES... Yesterday (9/4), the ES traded above the upper balance area limit at 1484.75 and traded as high as 1499.25. It was a trend day up. However, there was concern for the bulls because the move occured on low volume and the ES closed about 10 points off its daily highs. After yesterday's trading, the upside in the ES seemed limited. During the evening and overnight session, the ES sold off about another 10 points. Since volume in the overnight session is light, one should consider what occurs in that session with a grain of salt. Today (9/5), the ES gapped down in the open about 10 points, which put it back in the balance area - a potential false breakout. Throughout the day, the ES barely retraced any of the overnight losses, and in fact, traded lower. This indicates that the lower overnight prices have been accepted. See the chart below with the overnight and today's Market Profile and compare today's trading prices to those of the overnight session. Basically, today's trading range was contained within the upper balance area limit and the gap/buying tail from 8/31. See the chart below. Today's profile shape was "squat," meaning that it was a fairly tight range from the daily high to the daily low and it was wide from left to right. This indicates a balanced market in the day timeframe. As mentioned before, the play for tomorrow should be to trade with any directional move away from balance. Today's tight range is unlikely to hold tomorrow. Today's volume was also on the low end, but higher than yesterday. Although volume analysis is not as useful in a balanced market (the shape of the profile is more important), what I find interesting is that yesterday we had a trend day, which usually occurs on high volume, but it had lower volume than the balancing day from today (see chart below). Is this detail or nuance? You decide. Again, this market does not appear to bode well for the bulls and we should use this information as "context", not blindly short the market tomorrow. If we look at the composite profile from 8/20 to 9/5, the market appears balanced (i.e., a bell curve distribution), to break out of this balance area requires power (i.e., volume), something that the market has not been showing us. I don't know if the market will break out to the upside tomorrow, but it's not looking too good right now. We'll have to consider the overnight session and the developing trading tomorrow. Again, go with the directional move away from today's balancing day, but be aware of the possibility that the market might be capped at 1484.75, unless it can muster enough volume to break out. Note: My analysis is based on the Market Profile concepts described in Mind over Markets and Markets in Profile. I have been learning and practicing trading with Market Profile since Feb. 2006 and am still developing as a Market Profile trader. Writing down my market analysis is very useful and helps improve my market understanding. I suggest that all traders do this regardless of trading methodology. My trading has improved dramatically since I started doing this and being prepared for the next trading day. Market understanding and knowing yourself are perhaps the two biggest obstacles to consistent, profitable trading. For example, even if you can analyze a market accurately and identify some big moves, do you have what it takes to hold to trades long enough to capitalize on those big moves requiring you to withstand the adverse moves against you? The latter part is proving to be much tougher. As always, feel free to agree or disagree with any part of my analysis. In my next post, I will review how a Market Profile trader could have traded today's ES session. Stay tuned.

That's a good suggestion. In fact, I wrote an indicator to do just that. Check out the chart below. The yellow dot by each volume bar indicates the average volume for that 5-min time period looking back 20 days. That's a good point Steve. Thanks for sharing.

Aligning trades using multiple timeframes increases the probability of a trade versus taking a scalp trade that may be based on a single timeframe only. Why would I take a scalp trade or a less probability trade? Because based on research, the scalp trade may still have an edge, but it may not be as high as a trade that is taken with the longer timeframe trend. So I adjust trade size to compensate. For example, I would expect more profits from a trend day down that is with the longer term trend than a trend day down that is against the longer term trend. Anytime trade conditions and a trader's odds improve, whether it is by using multiple timeframes or because of increasing market volatility, for example, I will step up the leverage in my trading. I believe that knowing when to use more leverage is an important skill used by professional traders. It's sort of like doubling down in Blackjack when the odds are more in your favor. During the month of August, I definitely increased my trade size in general because of increased volatility. Increased volatility generates more profitable trades for me so I acted accordingly. I increased trade size within my risk parameters. I'm glad I did because August was my most profitable month this year thus far. I definitely operate from the point of view that most of my profits come from a few trades. How you use the daily charts is dependent on your trade plan, my point was that using the daily chart is usually advantageous, unless you are a scalp trader that only uses order flow. I use the daily charts to determine short-term to intermediate-term market condition and for support/resistance levels. But there are many other ways that it can be used profitably. For example, Dogpile uses the daily charts with the Taylor Technique. To each his own. There is no right or wrong way here. My point was that for most traders, the daily chart should be consulted.

"One timeframing" is when there is only a single longer timeframe trader in the market (buyers or sellers). When buyers are in control, the current bar does not violate the previous bar's low by more than a tick (vice versa for sellers). The lettering is useful for understanding what happened in a specific 30 min time period. Without the lettering, you wouldn't know what happened earlier or later in the day by looking at the profile. That's all. Use the Market Profile graphic as a tool to understand market behavior. Forget about trying to identify setups using Market Profile, first try to learn to read the market through the Market Profile. For example, look at the shape (e.g., symmetric or squat means balancing, elongated means trending, p-shape means short covering, b-shape means long liquidation, etc). Pay attention to tails, single prints, range extension, gaps (invisible tail), value areas, high/low volume areas, spikes, etc. and learn to interpret what each of these components is telling you about the market auction. Learn to identify the attempted direction and then gauge it's performance in moving in that direction. You can use volume analysis when the attempted direction is clear and use the profile shape when the attempted direction is not so clear. Also, look at value area placement. Again, the goal is to try to understand what is happening in the market so that you can position yourself with order flow. Once you have market understanding, then you can look for asymmetric trade opportunities (i.e., trades that have a chance of 50% or more of winning and have a win/loss ratio of 2 to 1 or more). One of the basic trades in Market Profile is to identify brackets and balance areas and then fade the extremes or play the breakout. But first, you need to understand context. Finally, learn about the four stages of market development as described by Steidlmayer (i.e., balance, transition to trend, trend, trend end - back to balance). Market Profile really is a great tool for understand market behavior. Hope this helps.

I like that comparison. Perhaps we will have a balancing (contraction) day tomorrow (with a high near 1510.50) since we had a trend day (expansion) today. I too will take a trend day down the following day in the direction of the intermediate-term trend. The chart below provides a reference to day 6 that Dogpile referred to.

In this post http://www.traderslaboratory.com/forums/f6/es-analysis-for-8-30-in-2371.html#post18091, I commented: Well today, the ES broke out of the balance area and traded to a high 1499.25. Although I had a target of 1510.50, I didn't expect it to get there in one day. Frankly, I didn't expect it to get to 1499 either. However, there were clues early in the day that should have kept a trader on the right side (long side) of the market today. For example, The ES opened around the previous day's VAL and auctioned up from the opening bell. Trading above the VAH on healthy volume provided confirmation for existing longs and the possibility of a directional move away from balance. The ES then traded above the upper bracket limit, again on good volume, where price was accepted. The ES was "one timeframing" for most of the day as it was a trend day up, whose daily Market Profile appeared elongated all day long. While a market is "one timeframing," it is usually wise to not try to fade the market. If you don't want to go with the directional move, then at least stand aside. The shape of the Market Profile graphic for 8/31 was fairly symmetrical and balanced. See chart below. Again, this points to the potential (not guarantee - we could continue to balance) that a directional move could develop. The ES was also trading near the upper bracket limit. See the chart below for an illustration of today's elongated Market Profile graphic (chart 1), 5-min chart of today's price action (chart 2), and the balance area the ES broke out of (chart 3). Although we traded above the balance area today, which should be considered bullish, there are areas of concern for the bulls, IMO. Since 8/16, the ES has been trading up but on the lightest volume of the year. See the chart below which shows the volume for all NYSE issues. Secondly, the composite Market Profile from 8/16 to 9/4 has formed a P-shape, which indicates short covering. This doesn't mean that the market has to turn on a dime though. See the chart below. In my opinion, trading the long side of the ES is becoming increasingly risky, and I think I will probably be treading softly on the long side in the ES. I wouldn't be surprised if today was a false breakout. Today, the ES closed about 10 points off its daily high which is a sign of profit taking, I think. But will the long liquidation be joined by new selling? I don't know yet. Overnight trading might provide some clues tomorrow morning. I will definitely be looking for weakness on any attempt to rally tomorrow. My guess (which I wouldn't use to trade off because it is a prediction), is that we probably won't see the ES trade above 1510.50, if it even gets there. What do you think? Am I way off base here? Look forward to your comments.

Dogpile, I like your flexibility when entering a trade based on your trade conviction and not wanting the trade to get away from you. I think it's important not to be so rigid with rules. However, you don't want to start chasing a market, it could be a slippery slope. With respect to the tick size of YM vs ES, I don't think it would make a difference to me. If I were to trade the YM, I would probably trade twice the number of contracts I trade on the ES, so giving up the spread would probably mean the same to me regardless of which contract I trade. But I never gave this that much thought.

See the post here http://www.traderslaboratory.com/forums/f6/es-analysis-for-8-30-in-2371.html#post18091

In this post http://www.traderslaboratory.com/forums/6/interesting-initial-balance-statistic-978-4.html#post18089, Dogpile asked: So here is my analysis. My analysis on the ES for the trading session of 8/30 is as follows. First, I look at the daily chart and identify high/low volume areas, balance areas, and other key reference levels. So for 8/30, I keyed on the high volume area around 1464.75-1468.75, the balance area between 1484-1434.50, and the swing high at 1510.50 as a potential trade destination. I also noticed that there an internal trend within the balance area, auctioning for the lower balance area extreme to the upper. See the chart below. Next, I focus on the daily Market Profile graphics. From the daily chart, I identified that the short-term market condition is balance (trading range) since we have a balance area from 1484 to 1434.50. The buying tail from 8/28 drew my attention because usually a "Tail" ends one auction and starts a counter-auction. That is, the buying tail of 8/28 indicated the end of the down auction that started on 8/27, now I was expecting an up auction on 8/29. I'll skip some of the details with the spike on 8/28 since it isn't that pertinent for trading on 8/30. Lastly, I keep in the back of my mind that the spike on 8/29 basically closed the gap formed during the 8/28 opening and also closed within the high volume area highlighted in the daily chart. The volume during the spike wasn't that impressive either. After a spike, the question becomes will value follow price or will price revert to the mean (POC)? 8/29 left a bunch of single prints from the range extension. See the chart below. Prior to the regualr trading session of 8/30, I take a look at the overnight session to see what happened and where the market may open. Nothing to note from the overnight session at this point. Now, the trading day starts on 8/30. Here is what I was paying attention to... The previous day's high and the high volume area. If we can cleanly take out those levels, I would look to get long. But the market gapped down and opened at the VAH of 8/29. At this point, I am looking for a volume or momentum divergence to get long. See chart below. I use the 400 and 1600 tick charts and the 5 and 15 min charts for entry. On the 1600 tick chart, I identify a momentum divergence (using the 3/10 oscillator) at the previous day's VAH. See the chart below. I put this together with the fact that we started an up auction within the balance and immediately think to get long with a target of the previous day's high or high volume area as seen on the daily chart. Note that on 8/30 the ES is "one timeframing" from 9:30 to 11:30am EST so I don't even consider fading at this time. "One timeframing" is when each bar fails to take out the previous bar's low and often puts in a higher high (I look at the 30 min chart here). This indicates high confidence amongst the buyers. I will only consider fading once the auction ends as signaled by a tail or the previous bar low being taken out, like what we saw after 11:30. As the ES moves above the previous day's high and high volume area, the move does not appear to convincing to me because of volume. See chart below. You can also see a momentum divergence in the chart above. If we re-enter the previous day's range, then this is telling me that buyers may be losing confidence and I would start thinking about getting short. I would use the previous day's POC and/or the start of the spike of 8/29 as a potential target, which serves as support. I won't go much further then this, but the market started to balance for the rest of the day providing fsome fading opportunities. Keep in mind that this all may seem complicated, but it really isn't because I have a trade plan and use a systematic approach. I do this everday during my trade preparation. I'm just trying to be thorough in my response, which requires a lengthy post. I also have all of my charts viewable on one screen so I am able to pick out these developments. By the way, trading on 8/30 resulted in a symmetric Market Profile graphic and established higher value. This is positive for the bulls. Pay attention to value and not price. On 8/31, the ES was balanced again and put in higher value. Although it stopped at the upper extreme of the balance area at 1484.75, we could see a break out of that balance area and a play for 1510.50. I haven't done my analysis for 9/4, but this is probably what I would be looking for. With a symmetric, balanced day like 8/31, one should trade with the directional move away from balance (up or down).

So it sounds like you don't require much from the daily chart - you only need to determine the Taylor bias off of the last few daily bars. That makes sense to me. However, it's not clear why the weekly charts would help you when the daily charts do not, beyond the last few bars. That is, how do the weekly charts affect your trade decisions? Also, why wouldn't you use the trend in the daily chart to increase your trade size when price moves in that direction in the lower timeframe charts (i.e., the one you trade off)? This doesn't mean that you can't take countertrend trades (scalps) relative to the daily chart though. I hope I don't appear to presumptuous with my questions, I just want to better understand your position on daily/weekly charts. EDIT: The trend in the daily chart is also important to the Taylor Technique; for example, if the market is in a trend according to the daily chart, you will often tend to get two buy days or sells days or so instead of one. That is, the swing cycle is shifted.

Dogpile, I agree with you. For a long trade, I would use the high, not the close for automated stops. Thanks for the stop info on the "Momentum High-Pullback" setup. I'm always hesitant to put a stop in that is less than 2 ATR, but I think the smaller stop could work well with that setup. By the way, that setup is probably the highest probability trade I've tested on multiple markets when playing for a small win. Q. When entering a trade, do you enter when the high/low of the previous bar is taken out or do you try to enter on the bid/ask (i.e., before price turns)? I always enter before price turns because I think a trader gives up too much when they wait for the high/low of the previous bar to be taken out.