steve46

Yes, and ironically its right in front of you on your chart. The strength of a reversal is easily seen, in the way that price "leaves" a swing high or low. If for example, price gaps up or down from a swing high or low, (I can only comment about my own training), that is considered the strongest move away from a price. If price moves away from a swing high or low on a wide range bar, or a series of parabolic bars or candles, that would be the second strongest type of move If price moves away from a swing high or low on a series of bars/candles with minor retracements along the way, that would be the next strongest type of move The logic is simple. The relative "strength" of the move shows the trader whether that market is in balance or out of balance. A strong move indicates significant imbalance (one side dominates), a less emphatic move (with periodic retracements for example) indicates a bit of a battle between longs and shorts with one side winning. Requires no indicators, just the ability to observe.

This will be the final chart in the series showing the whole move including today's regular trading hours session move of 15 points. Put in perspective you have a nice move with a minimum of pullback. A trader could have simply put on an options position and watched or traded the futures outright long, taking profits periodically. Personally I prefer to get on early and watch.. Best of luck to all

and this second chart is simply a closer view of the time period directly at the close of RTH (regular trading hours) and into the Globex or overnight market. I have marked the open of the Nikkei and HangSeng (Futures) markets. In both cases these markets serve as the backdrop for a nice move up. In fact the 2nd session of ther Hang Seng provides a nice retrace and test of the Globex low from which a trader could have got on board and simply monitored their position the rest of the evening. Of course this is interesting in light of the comment posted by members who thought it funny or dubious that a market would be marked up as US traders slept....I can appreciate a good joke myself, and am going to get some sleep now that my work "day" is over....

I post this chart in reference to my previous comment about the practice called "stealing the trade"...Simply put this is where participants decide to mark the markets up during the Globex period (the overnight market for US, which starts at 1330 hours or 1:30 PST, extending until right before the US open at 0630 hours or 6:30 PST) The information important to traders is simple. If you can identify these potential "mark-up" dates in advance, you have the opportunity to simply get on board and watch as others do the work of moving it up (to meet their profit targets). If you look at the range, you can see that it is about twice what the intraday RTH is....30pts vs about 15 during regular trade hours (RTH)

The "academic" papers suggest that there is "strong evidence" that futures lead, however it seems to me that it depends on the nature of the information that moves the market, whether it is general (about the world at large) or specific (about a single company or stock) and WHEN the information reaches the market. As an example, the news of the bailout of the Irish bank system was general information that hit the market during Globex session, when the US market was closed. As a result it was the overseas futures and the US Globex markets that reacted first, then when the US market opened, we saw the impact of that news on the cash market as well. If you want to explore the subject in detail you may also want to research the related subjects of "carry" or "cost of carry" and "arbitrage"... As an aside, there are many approaches to using both cash and futures for hedging risk and generating profit based on small inefficiencies between the markets. Most of these approaches require technologies that aren't available to the public or are too costly for individuals to implement. Some are technically demanding and require programming skills that most retail traders simply do not possess. This is a complex subject, and although I have a broad understanding of it, I don't have the expertise necessary to offer much more detail. One thing that may help you in terms of a general understanding is the simple concept of wholesale/retail similar to what your department store does where you live. I would suggest to you that if we set aside the technical details, all participants look to do the same thing, and that is to buy "inventory", be it shares of stock, debt, or futures contracts, at wholesales prices, and at some point, sell that product at retail prices, presumably for a profit. If you really look at what that means, you will not be surprised when I say that for the most part, I don't get involved at all until the markets reach an extreme (a significant swing high or low). When I see that or when I see the markets reach a price that by my metrics seems to be unusually high or low, I act to take advantage of what I see as mispricing of that asset by buying or selling and holding until it reaches my target price. I hope this is of some help

Actually what I am saying is that whatever direction the "large" European market moves, there is going to be less resistance from a Globex market moving on low volume. The market that has the volume is going to dominate.

Based on my previous posts, I think this chart should be self-explanatory Price opened and retraced down to wholesale levels, below the value area low (at 1186.50) At this level, one would be tempted to take the relatively low risk entry anywhere around 84 Why? because the risk is limited as seen on the chart to the previous low, and we assume that participants are motivated to move this market up to defend the previous month's open at 1186.25 and eventually to try to exceed the previous week's open at 1192. If that thinking is correct, then a profit target at or near 1195 would serve as a primary target, with a secondary target about 10 points higher at 1205+ Of course the best laid plans are only speculation. Any news event (the Irish bailout, news about Spain, Portugal, or some other event not on the horizon) could effect the markets negatively. We will see. Finally we want to inform all readers that our comments are offered for educational purposes only. Thanks Good luck

Okay, so I will answer this one with one example chart. The DAX market in Germany opens and the time is 11:00pm on the west coast USA, (2am on the East Coast USA) and if you look at the chart you can see that if they decide to mark that market up or down, the bulk of the move takes place throughout the night. I think its fair to assume that the majority of folks living in the continental USA are asleep at this time. Also if you were to look at either a DOM or a Time & Sales Strip for the ES contract, you would see that it is "shallow", that is to say there less volume transacting on the Globex during this period, and yet it moves for the most part in lockstep with the DAX.... Frankly I don't know of a simpler way to explain this...

Thanks for your question(s) First be aware that I am limited in what I can say regarding my practice. Second with regard to postion size, I will refer you to the CME for their limits...As you can see participants can move size if they want. http://www.cmegroup.com/rulebook/CME/I/5/5.pdf#page=54 With regard to how long a inventory is held, that depends on the participant and their goals, as an example, some institutions have a charter that defines how they will committ funds. If they are required to keep all monies in the market then that is what they will do. Others have discretion to keep a certain percentage of funds in cash, or to place funds in a variety of markets (not just the S&P). As mentioned in previous posts, when institutional participants find themselves with significant profits on their books, especially at the end of the year, it is not unusual for them to agressively manage risk by "taking some off the table". They can do this in a number of ways including use of options (called "buying insurance" in the industry) or "going to cash" (thus avoiding paying for insurance). Regarding stops unfortunately again I am restricted. What I can tell you is that stop size varies with participants, many of whom are using volatility based stops or have in place what you might characterize as "catastrophic" stops. For my personal account I often use a 6 point stop. Hope some of this helps

I am pretty sure I do realize that, because I work for one of those European desks, and if you find my comment offensive, I suggest you ignore it.....there problem solved. and finally, "who cares about a bunch of sleeping foreigners"...ah yes FINALLY....you see its not about foreigners champ.....its about SLEEPING....!!!! SO LETS SEE IF YOU OR ANYONE FOR THAT MATTER CAN GET THE POINT....we all have to sleep....therefore what better time to move markets with the least amount of resistance, than when a sizable percentage of participants are unconcious lol...... So once again (and I think for the final time since I am not a patient person) what works (for me at least) is to capitalize on the fact that markets are moved by human beings.....and those human beings act in predictable ways...knowing that...if a person is observant...he or she could take advantage (and I tried to show that some folks already do "take advantage") and in the process...make a nice profit... So as in all things, some will "get it" some will not, and like a good boy scout, I did my good deed for the day\week/month/quarter/and year....best wishes to everyone for a nice holiday season....good luck eveyone

and here's a bit an update on how that trade is working so far As you can see price retraced back down to test one of the wholesale entry areas. Then just before 3am, the market seems to have made a decision to test up (for the moment at least). I will mention the idea of trading "time & price" as distinct from the current fashion where folks claim that they only trade "price action"....to each his/her own I guess, but frankly I find that orienting to both time and price gives me a significant edge. You see I can be wrong about price and still find a nice entry based on my knowledge that certain times provide advantagous entry points. Conversely, I can miss an entry based on time, and still establish favorable entry based on price (based for instance on price in relation to the wholesale/retail concept)..... The attached chart might help people to see what I have been talking about.

Referring back to a previous post, I remembered Matrix (I think that his/her handle) mentioning correctly that professionals try to enter below value and/or near the low end of a local distribution, looking for a move up through that distribution (also known as "value" to Market Profile adherents). Tonight we have a decent example and I thought what the hell, I will post it before stopping As can be seen, the market drops down to test the local distribution, and you have the obligatory spike down to try to find more sellers. The "Long Entry at Wholesale Level" is (as far as I am concerned) a slam dunk. If the trader missed that one, I have marked another opportunity (see the horizontal line at midnight my time), and by coincidence, price spikes down to that level (attempting yet again to find sellers) in the process providing another long entry at wholesale levels (below value and near the lower end of the local distribution). The combination of a recent test of minor support followed by a spike test down (that failed to find sellers) and a "buying tail" (market profile folks call this "excess") are good enough for me to take a small exploratory position. As can be seen in the attachment, that entry made a few pennies, and after that in my opinion odds of an extended move up are slightly better than even. We'll see. Best of luck to everyone.

Yes I know some folks who got involved. One of them actually caught herpes just reading the material...... Ok, just kidding. Seriously though, you ought to give it a try, I think anytime a vendor offers a program with the word "Millionaire" in the title....clearly it is time to jump on it before that valuable program disappears.....right.... you know, I was giving this subject some thought...over the years I have tried quite a few "Millionaire" programs....lets see there was "Millionaire Dog Grooming"....that one sucked...."Millionaire Pest Control"...."Millionaire Tax Preparation" oh yeah and my favorite..."Millionaire Shoe Salesman"....and curently I am thinking seriously about buying the "Millionaire Real Estate Investor" program...you may want to look into that one as well.....

Hello Blowfish I thank you for a thoughtful comment. My experience with institutions is limited, but it seems likely indeed that they are often on the wrong side of the market they participate in, and I agree that it may be "better" to characterize participants as "informed" and "uninformed" or even "educated" and "uneducated"... I think the main concept that I learned and hope to get across to folks, is that the most valuable thing to learn about trading isn't how to use tools per se, but how to think conceptually about markets, and the human behavior that moves them. I think I mentioned this but let me just say that happily, I have already met my profit targets for the year, for both the Bond and the Euro, and my probationary period is over. I like what I am doing, however, the pressure to perform is significant and I certainly understand now why the turnover in this business is high. I am free to comment within certain boundaries, as long as I restrict myself to the S&P market. Frankly I don't plan to continue here very much longer. Best of luck in the markets

and now a final comment about the Globex. In terms of overall conceptual understanding, the reader/trader had a couple of interesting choices. The first, was a long entry based on retracement down to the previous week's open....that retrace was (in my opinion a low risk entry), but we see (in retrospect) that the market did not show continuation, instead it rolled over, coming back to fill the gap and in the process you can see (I hope you can see) a couple of nice short entries. My question to readers is....based on what I have proposed over a series of posts, "what do you think an institutional trader would have done this evening", and "what would a retail trader have done" given the same information (looking at the same charts)? If there's an interest I am glad to fill in the blanks, and if not, no big deal.

and here we are a bit later still, and you can see that indeed the market rolled over (confirming that my initial bias was wrong). If we get continuation, theres a fair chance that we will see the gap fill.

And here is the DAX during that time period, and as can be seen it seems to prefer heading south for the moment.

Cheers Nick Thanks for the kind words I was going to hold off on this, but I think I have a few moments before I have to make a decision so here are a few additional and hopefully educational comments First, what my employers want from me, it my analysis, to the extent that it provides a way of generating excess returns. In doing my analysis I look at data that experience tells me is predictive. This next chart is re-jiggered from the last one. I do this routinely (especially when I think there is a good chance that my initial "diagnosis" of the market is wrong) As you can see from the chart, the best entry so far was "with" the primary trend up from a re-test of the previous week's open at 1201.50. In my judgement, this was a good entry because it resulted in a multi-point profit without a great deal of risk....As is typical of these low risk entries, they happen quickly, you have only a few seconds to decide and then the market runs away, leaving the rest of us behind. Now at the high, if one were to "scan left" you would (if you knew what to look for, see a "stopping point"). These stopping points are places were previously you have inventory or resting orders. Because I can't comment further on that I will just leave that point for now. I show resistance as it is created in real time....I show support as it is created in real time and I show the probe down to find sellers. For retail traders, support develops by touching the same price (more than twice) and then failing to take it out. By the same token, resistance develops as price touches a price (more than twice) and fails to take it out. I use the terms support and resistance instead of supply and demand for good reason. Support and resistance are dynamic. That is to say, the nature of support and resistance changes in the (relatively) short term, while supply and demand levels, usually reflect the interest of players with a longer time horizon. As you will see from this chart, I add a horizontal line at midnight (my time) and I use that as a pivot. I do this because from experience I have seen the market act use that time as a "line in the sand"...(notice the test of that line) and what that signifies in my opinion is a sea change from upward market bias to downward market bias. We will see. By the way, the confirmation (whether ultimately I am right or wrong) is forthcoming as the DAX and other European markets open for business. At this very important point in time, what we term a "global handshake" is in process and these markets take the lead (until the US markets open).

As mentioned previously, one of the differences between retail and professionals is the ability to read the tape. In terms of success, this is critical I believe, because ultimately you have to accept and manage risk, and to obtain the confidence to do that, you need to develop confidence in your skills and your tools. Attached is one example of a "time & sales strip". What I have done is to take a time & sales chart and adapt it so that it takes the form of a vertical "strip". I position that strip next to my chart and I use it to read the market....prior to entry in order to select a favorable point of entry....after entry to confirm that my decision was correct, or if I am wrong to tell me so, as early as possible so that I can mimimize my losses. As mentioned previously I am not interested in teaching people to read the tape. That unfortunately is a difficult process that requires a lot of hand holding, hours of training and practice, and depending on the trader's aptitude, a lot of perseverance and patience. What I will say is that it is very advantegeous to learn to read enough to determine whether you "see" a "held" bid or offer. Specifically that means that as price tests an important area, you want to be able to see if buyers or sellers are able to hold their ground (thats what a held bid or offer is in practical terms).. Now I need to pay attention to what I am doing, so I will wish everyone good night.

So here we are its Sunday evening, and we are looking at the open of the S&P Globex market. What we see is a gap up off of friday's close. We know that participants were motivated to try to defend the previous week's open at 1201. We saw (if you read my previous post) that at the end of RTH, particpants tried to move it up to that level. Here we are, and lo and behold the market gaps up on the Globex open, then retraces down to test that NUMBER (previous weeks open). Coincidence?....then it moves up right along side the Nikkei and the HangSeng. Finally the DAX opens in Germany and (surprise) it also gaps up..... Now....there is a LOT more to this than I am willing to offer on a public site, and I am definitely not here to put on a seminar, but what I will do is point in a direction and suggest to those who are thinking about it....that there are some real and significant edges out there, and they don't require Stochastic, MACD, Channels, Fibs...etc.... Where is price going from here? Depends on where the big boys decide to take it. My opinion is that they want to defend what they have earned so far this year (performance bonuses) and they want to do that, with as little risk as possible. One way of accomplishing that is to move markets north in the overnight, when a lot of folks are sleeping. As pointed out previously, I proposed that the S&P would try to find support early in Nov, then continue up from that support into the New Year. Could I be wrong, sure. Lets see what happens.

I am always impressed at how sophisticated spammers have become...it is impressive. Second, at this point in my career I have no reason to mince words as regards my professional opinion. So to put it bluntly, actually PRICE ITSELF is a "lagging indicator"....this is especially true in currency markets where you have the influence of participants who can move the market ANYTIME THEY WISH and they aren't doing it to make a profit. Next, it is nice to see at least one person who has an idea of how to play the game. While it is true that professionals prefer entering at wholesale prices (below so-called suppport), the art of the game is how to judge where that is based on an arbitrary distribution (and it sure as hell isn't at traditional support), where your profit targets are, the impact of news and economic reports on the time horizon, and how to properly bet so that you can exploit a significant move (when you are right). On the positive side, once you have the resources to fund a decent exchange traded account, the way to go is to learn how the big players operate and find a niche (a way to take advantage little side edges that are available to smart, observant speculators). Its not impossible to do, but it does require more than just having someone tell you when to buy or sell. I think the bottom line is you have to be your own man (or woman) and you have to put in enough screen and study time to earn it yourself... Good luck

So today lets go one step further in terms of characterizing the S&P futures market Looking at the charts, one can make certain assumptions. First, one can observe that there is an agenda that explains market movement. That agenda is profit motive pure and simple, however there is also a time component, and for that reason, one can use the concept of "time and price" as a basis for action. Depending on the institution, incentives are offered based on the ability to produce alpha in the form of excess returns as measured against specific benchmarks. In terms of time, examples of "benchmarks" include the yearly, quarterly, monthly and weekly opens, highs and lows. Professionals are motivated to exceed these benchmarks and as we approach the end of each time period, if you are aware they exist, you can anticipate that participants will try to move markets in order to "defend" or to hit those marks. This year the benchmarks include Yearly open at 1113.75, high of 1224.75, low of 1002 Quarterly open at 1135.75, high of 1224.75, low of 1127 Monthly open at 1186, high of 1224.75, low of 1171 Weekly open at 1201, high of 1205.75, low of 1171 How is this useful, simple, if one were monitoring the charts on Friday, you would have seen that as we approached the close of regular trading hours, we were below the weekly open of 1201....As mentioned, these are areas that professional desks "target" and defend. Looking at the attached chart, you can see that in the last hour, we bounced off of support at 1195 and attempted to drive up to test that open (unsuccessfully). If one had known of this target and the motivation of players to exceed the number before the close of the week, you might have acted to enter at support and ride that move up. Its just one of many examples of how institutional traders (anyone for that matter) could use the principle of "time & price" to find a favorable entry. Actually we could go a bit further and suggest that after the open, where we saw a test drive down to 1187.50, the rest of the day was an attempt to defend and hit that benchmark. Clearly a skilled participant, aware of the motivation of institutions to defend and hit that benchmark, could have tried to obtain favorable position early, and then spent the rest of the day managing a profitable position.

Moving on with our overview of the market, we see a chart displaying the balance of the year 2010 (or nearly so). and the comment is perhaps obvious, The summer doldrums are marked by range bound activity as trading desks mark the market up and down. Notice the move down in July as again weak hands are shaken out ("shaking the tree") and then the retest as the players try to hit quarterly profit targets. The end of year rally provides nice symmetry to the overview, and here again, it provides a way for insitutional players to hit end of year targets. At this point, even though we have not yet reached December, many professionals have secured performance based bonuses and are thus "motivated" not to take significant additional risk. Incidentally if one were to scan left on that chart you would meet the lower boundary of supply at item 7 (probably just a coincidence lol)..... So what I suggest at this point, is that folks who read this take a moment to step back and simply consider what the implications might be. Although I used to use indicators (moving averages, channels, etc) I suggest that approaching the markets from a different angle might actually provide the basis for a tradeable edge.

What I will attempt to do is to give folks a "look" at how institutional participants characterize markets. I don't suggest that institutions have a homegenous view or that my view represents all institutional participants. I suggest simply that my interpretation of the S&P futures market differs significantly from a retail view. Further I suggest that in a market dominated by professional interests, it may benefit the retail trader to learn how institutional participants view this market. I will start by providing background, some of which I introduced in previous posts. The attached chart displays price from late 2009, showing the 2010 open at 1113.75 and moving on into the year. Assuming some have read my previous posts, I will simply restate a previous comment, that in a "professional" market, it is common to see an end of year rally as institutions try to hit their bonus targets (item 1 on the attached chart shows the end of year rally). Progressing further we see item 4, the open of 2010 at 1113.75. This open becomes one of the primary benchmarks by which institutions measure their (yearly) performance. In the process of moving from item 1 (the end of year rally) to item 4 (open of the new year), it is important to take note of items 2, 3, and 5 respectively. These areas are interpreted as demand, supply and "parked inventory". Because price moves towards volume, what we see in this chart are multiple examples of behavior that involves "tests" and "retests" In my opinion these tests provide two benefits to the primary participants. One is they allow participants to re-visit an area that might provide favorable entry at what is sometimes called "wholesale" prices, and "retests" offer institutional participants the opportunity to generate momentum by shaking out weak hands and activating both resting and discretionary orders from players who see these "retests" as a "second chance" to enter, to add to a favorable postion, to manage inventory or (as is often the case with retail participants) to minimize a losing postion by exiting at breakeven (or near to it) prices. If we re-visit the chart we can see that price did in fact rally into the open of 2010, and in the process, created an area of demand (item 2) then an area of extended horizontal development that is characterized as "parked inventory" (item 3). As is typical of this kind of development, markets are "moved" to create an area of supply just above the open. This is natural as it punctuates a prolonged move up and provide a way for institutions to do two things. One is to generate first quarter profits, and the second is to retrace down to test an area of prior demand (item 2). At this point (usually on bad economic news), participants are able to "shake out" the weak hands, defend parked inventory, and initiate a move to take out the open at 1113.75...and in the process generate additional quarterly profits. From February, on into mid April the market moves up steadily and then proceeds to develop horizontally (coincident with US tax season). As is usual, on bad economic news the next step is to move price down to retest prior lows. We can see the retest of supply at item 7 as markets get "marked down" into the slow summer season.