ES Analysis for 8/30 (in hindsight)

[ant 10]

In this post http://www.traderslaboratory.com/forums/6/interesting-initial-balance-statistic-978-4.html#post18089, Dogpile asked:

 

  Dogpile said:

curious what your 'post-mortem' on 8/30 is ant? how do you think about the structure for that day in context with previous action?

 

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).

[Dogpile 10]

I agree with your thinking here. very bullish pattern (ABC down with a buy div after a strong afternoon trend up = 'power buy') -- the tricky part of 8/30 was that it bottomed almost exactly on the open... trading at this time can be a humbling experience as many days will just chew you up trying to enter a position around there -- whether in a support zone or not..

 

very nice analysis.

[rocketer 10]

Excellent explanation Ant, I am Newbie on futures this is gold for me, thanks.

[Blu-Ray 10]

Ant

 

Excellent post, thanks for the insight.

 

Blu-Ray

[Dogpile 10]

August 30th is a really interesting day to study closely...

 

Here is some of my insight:

 

a few factors to think about, IMO -- best shown in context of what are 'higher conviction days' (8/28 and 8/29).... see attachment for visual aid.

 

8/28 showed very strong conviction to downside as measured by the down-up volume ratio at the top of the attached chart. moreover, all volume was occuring below the previous days closing VWAP. here you have a very bearish combination of high down volume/low up volume all occuring at lower prices (vs previous day closing VWAP).

 

8/29 morning session showed very little down-volume (consistent with the gap up) -- but the volume was occuring below the previous days VWAP -- this can be considered a mixed situation with not much selling going on but you could still consider it a bearish consolidation due to where it was occuring -- it has trapped bears below vs previous day close -- this is bullish.. . but in general, trading that occurs below previous days closing vwap should be considered a negative factor among the positive factors that are emerging. thus we have a mixed reading at first glance.

 

price attempts to push below VWAP but peters-out early in the 8/29 day -- another sign that sellers aren't showing conviction. pattern-wise, you have a higher low and a 'bear trap' that has formed off the 8/28 closing 'excess low'...

 

I have added ants 5-min volume indicator at the bottom as well. here you can see how price pushes up on good vulme and then the volume on the mid-day pullback occured on low volume and that price found support at VWAP... effectively, you have a triangle here -- and price eventually auctions up hard out of this mid-day 'balance'... up volume is strong and vast majority of trading has occured above current-day VWAP and all trading above previous day low. moreover, I posted one of my favorite 'oscillator patterns' here:

 

http://www.traderslaboratory.com/forums/attachments/6/2587d1188439940-potential-afternoon-es-action-8-29-15-min-first-cross-buy.png

 

thus, you have very strong afternoon trend up and a key rejection of the previous days closing price -- IBD calls this day a 'follow-through day' and the kind of day that often ends major corrections (to be determined though).

 

on to the day for comparison...

 

8/30: very interesting day to study. price gaps down but stays above previous days closing vwap. any big gap will skew the upside/downside volume indicator so you have to monitor action and not rely too much on this indicator. ant analyzes this day very well. you can see how price moves up immediately off the open (after the globex 'abc down'/1600t buy divergence). price holding above previous day VWAP is a clue of 'positive consolidation' going on... Responsive buyers come in and push price up above VWAP where it continues up. as price extends above previous day high, can see the up/down volume ratio trending in the right direction but is not in 'high conviction' mode --- where the ratio would certainly be well above 2.0.... Again, a triangle forms mid-day and price breaks below VWAP for an attempt down. volume never really picks up though and the sellers exhaust themselves after a decent move down. net net, the day ended down on a close to close basis but built higher value and the attempt down that peters out is a positive sign that there just aren't many sellers around -- that was a good chance to break lower --- and it ran out of gas --- closing essentially right on the VWAP level.