An Institutional "Look" at the S&P Futures

[steve46 12]

Kiwi, MidKnight;

 

Thanks gentleman for your kind words. I hope you find something of value in the comments or the charts.

 

Good luck

[steve46 12]

Alright so tonight I will post a corrected chart (I mislabeled the demand area in the previous post) and also talk a little bit about "price action"

 

First, in the chart displayed below, I corrected the lower "demand" area so that it properly displays the size of the imbalance (the range of prices where an imbalance exists). Why is this important? Well for one thing, this represents the (minimum) size of the stop loss you have to accept if you want to put a position on.

 

Next, notice the way price "leaves" an area of supply or demand. What we want to see is a display of momentum. The way we categorize moves from either supply or demand is (in order of strength)

 

1. Gap up or down (away from the supply/demand area)

2. Wide Range Bar(s) with parabolic arc up/down from the area with minor retracement

3. Stairstep move away from the area with periodic retracement

 

Looking at the chart you can see aspects of each type of move (except gaps), representing significant imbalances (more buy orders than sell, or vice versa)

 

At the end of the session, notice that price tests supply three(3) times. This is testimony to the fact that the imbalance (buy orders overwhelming sell orders) was significant. The last test was at the open of the Globex overnight market

 

As an aside, I think its important to note that for traders trying to learn this method, it is going to be psychologically difficult to take the trades. Most professionals consider the supply/demand boundary to be a "key reference area". The way it works is that we "read the tape"...(the time & sales strip and the NYSE Tick)...as price tests the boundary of a key reference area, the "rollspeed" (display) of the T&S changes, as well as the size on the bid/offer....then as price reaches equilibrium the market "rolls over" and the TICK "pins" or displays a local hi/lo reading...thats when the professional "pulls the trigger" (as the market stalls and price reverses). Its a difficult process to describe and even more difficult and time consuming to learn, but once you do, it makes trading the reference areas (like supply & demand) pretty much a walk in the park.

 

Hope this helps

 

Good luck

Edited December 9, 2010 by steve46

[steve46 12]

Okay so I been thinking about this and it appears to me that I have about oh, two weeks before I have to go back to work (trading the Euro and Bond Markets) and along about that time, I would have to call it quits posting, simply because the work load gets to be too much (I just don't have enough sleep time). I think we have covered quite a bit of material and unfortunately if I go too much further down this road, my employer is going to object.....

 

I think the best thing to do is to pull the plug now and wish everyone a Merry Christmas (or just Happy Holidays if you aren't into the Christmas tradition), and with luck it is my hope we all have a better more prosperous New Year ahead as well.

 

Steve

Edited December 9, 2010 by steve46

[MidKnight 12]

Hi Steve,

 

Thanks for the thread. Wishing you a warm, happy holiday season.

 

With season greetings,

MK

[suckassjuice 10]

Stop being a dick - OK. This isn't ET. While you may not agree with this thread, there is no need for you to create tension through useless posts like above.

 

I'm a dick? Have you read the whole thread? This is about dickish people making preposterous claims, and when called on it, their only response is to call the inquisitor names (like you just did) because they lack any substantive reply (Steve resorted immediately to calling me an ass simply for asking a politely worded question). In turn, this helps other readers realize just exactly what kind of caliber the person is behind the post (as well as certain supporters)...just in case it isn't obvious enough.

Moderated Message:

Removed this last line, please try and keep it civil - thanks.

[jim380 10]

Okay so I been thinking about this and it appears to me that I have about oh, two weeks before I have to go back to work (trading the Euro and Bond Markets) and along about that time, I would have to call it quits posting, simply because the work load gets to be too much (I just don't have enough sleep time). I think we have covered quite a bit of material and unfortunately if I go too much further down this road, my employer is going to object.....

 

I think the best thing to do is to pull the plug now and wish everyone a Merry Christmas (or just Happy Holidays if you aren't into the Christmas tradition), and with luck it is my hope we all have a better more prosperous New Year ahead as well.

 

Steve

 

It will be great if you continue sharing Steve.

[steve46 12]

It will be great if you continue sharing Steve.

 

Jim

 

I appreciate your comment, but its not possible. As mentioned in my last post, I simply don't have enough hours in the day to continue and still do a decent job for my employer.

 

What I will point out for you is the following. There's a significant group of traders who don't use indicators of any kind. They trade price and time. Specifically in my third post I show what the main "pivots" are on a yearly, quarterly, monthly and weekly basis. I also showed an example of how time comes into play when the weekly pivot is tested (just look at the chart attached on my third post). Because pay is tied to performance, these participants are likely to put money to work (significant amounts of money) to try to move markets AT SPECIFIC TIMES.

 

Also there is the idea of buying at wholesale levels (below value or at the low end of a local distribution) and selling back to the market at retail levels (above value or at the high end of a local distribution). Again this is a concept that can be used to back up your trade decisions. If you are looking for more information I would investigate Auction Market Theory, Market Profile and especially the concept of Volume Profile.

 

And last I would suggest you look into the concept of "reading the tape" meaning learning to interprete the "Time & Sales Strip" along with the NYSE Tick (set to 2 or 3 minute display).

Edited December 12, 2010 by steve46

[steve46 12]

Just for grins, here is one last chart showing another test of the weekly open

 

This was 12/09 and at 8:30am PST, the market tested down to the weekly open at 1221.25 to the tick.....and then never looked back as participants marked it up from there.

 

Personally if there was one idea that I would suggest paying attention to its this. It takes money to move markets and the people with money are the big institutions (its not the freaks with the silly names on this site). As we get closer to the end of the week (and year) this is one idea that becomes very important.....Check it out for yourself.....

 

My workday starts shortly so I have to stop now. Best of luck to you.

Edited December 12, 2010 by steve46

[suckassjuice 10]

For those who trade the ES, be advised, I have a considerable number of S&P contracts that I will be marking up tonight while people in the US are asleep.

[cloxy 10]

OMG , this thread i just too funny ...i was rolling on the floor laughing when i read that

"One way of accomplishing that is to move markets (S&P) north in the overnight, when a lot of folks are sleeping "

....it's unbelievable the clowns you see on these forums and the sad thing is they always find followers to defend them . Instead you should be thanking guys like Sukassjuice for calling them out on their BS

[steve46 12]

Here you go boys and girls

 

Couldn't resist posting one more chart showing the 20 pt move off a test of the weekly open on the 9th...

 

The move started at 8:30am PST and continued through the next day and into the Globex overnight session. The time of this post is 5:45am PST....so this mark-up move happened as participants in Asia, and Europe decided too act.

 

I am loving this..

 

One last thing....clearly this site has a troll problem....I think someone has to get up off their butt and do something about it. Ask yourselves why a professional would come here and share anything of value, and have to put up with the crap posts you read just above....? Figure it out folks otherwise you are going to be reading posts mostly from psychos or vendors wanting to make money off of you.

[mead 10]

steve46: What are you using as the weekly open? I am trying to reproduce your chart, using the weekly open starting Sunday afternoon and starting Monday morning. Either way, my weekly open is not what you're showing. There was a contract change last week, and perhaps that is why? But anyway, what do you consider the "weekly open" - Sunday afternoon, or Monday morning. Thanks for your posts.

[steve46 12]

Hello Mead

 

The chart I operate from primarily is a 30min futures chart (continuous 24 hour display). The attached Esignal is my backup data.

 

It shows the open on Monday 6th December at 6:30am PST (US time) at 1221.25

 

If by chance you use Esignal and choose "weekly" display for a 24 hour chart, the price you will see is based on 12:00 midnight (1223.25). That could be the problem you are having....For me the open is when the bell rings on the NYSE Exchange at 6:30am PST on that Monday....

 

I hope this helps.

Edited December 13, 2010 by steve46

[mead 10]

Thanks for your reply Steve46. For some reason, my data shows price for the test of the weekly open on the 9th much higher than 1221.25 - but again, possibly due to the contract change. Anyway, I have a couple more questions, if you don't mind. First, I noticed that price went through (below) the weekly open several times prior to the 9th - in the overnight session on the 7th - 8th, and once during the morning on the 8th. My question is, doesn't having price go through the weekly open several times make it less significant when it tests it on the 9th? And second: When you start the week on Monday, do you still reference the past week's open, high, and low? If so, at what point in the week would you shift from looking at the past week's #'s, to the current week's #'s? Thanks - I am enjoying your posts very much!

[steve46 12]

Sir, the weekly open I am referring to is on Monday the 6th December

 

The test of that open occurred on Thursday the 9th December

 

The premise is that as we move through the week, institutional participants are motivated to defend that opening price (established on Monday). The closer one gets to the end of that week, the stronger the motivation to make sure that we don't close below that opening price

 

The charts I posted show that as price tested the weekly open (the previous monday's open) participants decided to come in and defend that price point. In fact, price moved up significantly from that price into today's open. I assume that if you had known this was possible, you might have elected to establish a long postion. That position if held to today's open would have netted you approximately 20 points or $1,000 per contract.

 

and in answer to your question, I am only interested in what happens between the open on Monday 6th December and the following Friday. If price tests that open, what interests me is how the market reacts to each test (if in fact there are multiple tests). As I recall the low of that week was 1217.25 and there were multiple tests of 1221.25. Each time the market defended that price successfully. That tells me that there is an interest is moving the market higher. It makes sense to me in that I know that institutional traders get paid more (bonuses) if the market continues up rather than down...you see. I am not saying we couldn't have a downturn due to news or some other adverse event. Frankly, I have to ask, do you care if the market turns down from here as long as you were able to secure some profits on the move up that I outlined?

 

As of today, the weekly open that I will be monitoring is 1240.50 (the open at 6:30am PST in the US market). So we begin the process all over again, looking to see how the market reacts to tests of that price point.

 

 

I hope this helps you.

Edited December 13, 2010 by steve46

[mead 10]

Yes, thanks, that helps a lot.

[steve46 12]

You are welcome Mead

 

and I should mention that this is the second such "setup" that I have posted. If you go back to my third post, you will see that this happened (test of the weekly open) previously, and I posted the chart showing that test and the move up from there.....there is a reason why institutional traders use these prices as "pivots" as opposed to what retail traders call "floor pivots" which in my opinion are obsolete. Anyway if you have the time, I suggest you go back and re-read the first three posts. You will see that there are a number of time based pivots including the yearly, quarterly, monthly and weekly opens, highs and lows. Each one becomes more important as that time period comes to an end. Notice also that the "close" isn't even mentioned in my posts....except for end of year performance figures, its not considered important.

 

Good luck to you

[jim380 10]

 

and in answer to your question, I am only interested in what happens between the open on Monday 6th December and the following Friday. If price tests that open, what interests me is how the market reacts to each test (if in fact there are multiple tests). As I recall the low of that week was 1217.25 and there were multiple tests of 1221.25. Each time the market defended that price successfully. That tells me that there is an interest is moving the market higher. It makes sense to me in that I know that institutional traders get paid more (bonuses) if the market continues up rather than down...you see. I am not saying we couldn't have a downturn due to news or some other adverse event. Frankly, I have to ask, do you care if the market turns down from here as long as you were able to secure some profits on the move up that I outlined?

 

As of today, the weekly open that I will be monitoring is 1240.50 (the open at 6:30am PST in the US market). So we begin the process all over again, looking to see how the market reacts to tests of that price point.

 

 

Steve, glad that you are still around. Just a couple of qns to help me understand the game better. That is if it is fine for you to share

 

1. I have the impression based on the methodology presented, you or most institutional traders generally do not day trade. You guys have a relatively larger stop and are not looking at a few ticks only. Am I right?

 

2. Do institutional traders generally earn money on a rising market only? Would they not short the market as well? Instead of defending a certain level, why not push through it and break it for a profit by shorting?

 

3. Based on my limited experience on the T&S, I do observe that there can be both heavy selling and buying at the same time. Can I deduce big players do fight among themselves and in fact it is more profitable to take the other big guy out instead of the small retailers?

 

4. Many had mentioned that big players like to take out the stops of retail players, how true is this?

 

Thanks

Jim

[steve46 12]

Jim

 

I have some time before the bond opens so here goes;

 

Most institutional desks have orders to execute and also inventory of their own to deal with. So they have "books" of orders (now mostly electronic instead of paper stacks) that constitute "business' that has to be taken care of within a certain time frame. I can only speak for myself when I say that we don't daytrade. In my office we establish positions based on moves to what we believe to be extreme areas of a distribution and these areas represent either "wholesale" or "retail" value. At wholesale areas we are accumulating inventory, and at retail areas we are either adding inventory or selling it back into the market depending on our assessment of market status (trend).

 

In answer to your second question, see the last sentence above. We look to make money either side, but in a trending market we are trying to "go with" the flow, whereas some participants (hedge funds and commercial speculators) are also insterested in opportunities that involve shorting the market in order to move it to specific levels (associated with options investments, or with automated or "programmed" execution of different types). Understand also that the longer term "investor" we execute for is generally looking to make money on the long side so there is a general bias.

 

In answer to question three (3) there is always a conflict between long and short participants as outlined above. Hedge funds and various commericial speculators all have their agendas and programs designed to fit a niche. At this time the retail participant is largely out of the market and on the sidelines. This is probably because in recent years, they took significant losses as the markets fluctuated in response to the real estate fiasco

 

Finally, institutions do not go after stops...if you think about it, there is no reason to be concerned with where a retail participant trading a couple of contracts (or equity shares) has a stop...local floor traders however DO run stops to see if they can generate momentum based moves...and again if you think about it, it is pretty easy to see where the stops are going to be placed. For the few retail participants in the game, generally speaking the stops are closely positioned. Depending on the market, there is a tendency for price to take out recent swings high and low by a few ticks (this is called "shaking the tree") then resuming the primary trend.

 

I hope this helps you

[steve46 12]

For Mead and others interested in the "price/time-based" pivots concept

 

As mentioned in a previous post, this week's open was 1240.50

 

So here are on Tuesday and look at what price did. In the overnight Globex we tested down below that price point, then markets took it up (defended that point). As you can see we are trying to move it up now in front of the Fed Announcement.

 

If you knew this was going to be the case, you would have a tradeable edge wouldn't you? knowing there was a tendency to defend that price, you could have looked for a long entry with some confidence. I will leave it at that.

 

Now I need to get some sleep

 

Take care

[Alcoeus 10]

FYI, my data shows:

 

Weekly open of the 6th for the 12-10 ES contract - 1221.25

Low of the 9th for the 03-11 contract - 1221.25

 

Both $SPX and SPY the low of the 9th does not touch the weekly open.

[steve46 12]

Sir or Madam

 

The SPX is a cash index...we are concerned with futures

 

SPY is an ETF (exchange traded fund) that tracks the S&P 500 stocks...again we are not concerned with this type of product. We are talking about the futures market

 

If I may, I suggest you take a moment to do some research about these products. I am sure that as you learn about them, the differences in pricing will become more understandable.

 

Thanks

Edited December 15, 2010 by steve46

[mead 10]

Hi steve46: I've attached a chart below and am interpreting it with the "price/time pivots" I've learned from your posts. Would you please give me an idea of I am on the right track, or totally off base?

 

Starting out the week, I've identified the weekly open of 1240.50 and the weekly low made Sunday. I considered it a concern when on 12/14 @ 11:30 pacific time we tested the weekly high from the 13th (which also became the monthly high), but were unable to take it out. From there we came down to test the weekly low from Sunday, making a slightly lower low on 12/15 (which would have been a fine place to buy); however on 12/15, once again we were unable to even get as high as the weekly and monthly high. And we ended up coming down the the weekly low, testing it, and again....so far, it looks like a fine place to buy - although the fact that tomorrow is Thursday, we've already tried to establish a new weekly high on Tuesday and Wed and were unable is concerning to me.

I checked volume, and it looks pretty decent compared to recent days. I thought perhaps if today's action were on low volume, it might explain why we're just staying in this range - but as I said, I thought volume looked pretty good.

 

I'd appreciate any comments or suggestions you might have regarding my analysis. Thank you.

[Alcoeus 10]

Sorry if my pointed wasn't clear. I was trying to point out that the low of the 9th is a test of the weekly open only if you're using the 12-10 contract price for the weekly open and the 3-11 contract price for the low on the 9th (that was also rollover week). When two prices are compared between an instrument of different expiry dates, an adjustment value is usually applied to account for the calender spread - in this case 5pt. With this adjustment, the low of the 9th no longer corresponds to the weekly open (if you start using the new contract that Thursday). I was wondering if you disregard adjusting for calendar spread when comparing contracts with different expiry dates. Because if you do, the difference will add up especially when looking at price values from much earlier in the year.

 

With SPX and SPY I meant to say that the low of the 9th did not correspond to the weekly open respective to their own instrument. Rather with SPX it was more or less identical (minus the cash vs futures price difference) to ES with the 5pt adjustment when using the 03-11 contract starting that Thursday (or merely just looking at the same contract the whole week).

 

BTW I do find your thread interesting, thanks for posting.

[steve46 12]

Hi steve46: I've attached a chart below and am interpreting it with the "price/time pivots" I've learned from your posts. Would you please give me an idea of I am on the right track, or totally off base?

 

Starting out the week, I've identified the weekly open of 1240.50 and the weekly low made Sunday. I considered it a concern when on 12/14 @ 11:30 pacific time we tested the weekly high from the 13th (which also became the monthly high), but were unable to take it out. From there we came down to test the weekly low from Sunday, making a slightly lower low on 12/15 (which would have been a fine place to buy); however on 12/15, once again we were unable to even get as high as the weekly and monthly high. And we ended up coming down the the weekly low, testing it, and again....so far, it looks like a fine place to buy - although the fact that tomorrow is Thursday, we've already tried to establish a new weekly high on Tuesday and Wed and were unable is concerning to me.

I checked volume, and it looks pretty decent compared to recent days. I thought perhaps if today's action were on low volume, it might explain why we're just staying in this range - but as I said, I thought volume looked pretty good.

 

I'd appreciate any comments or suggestions you might have regarding my analysis. Thank you.

 

Sir

 

Your thought process is reasonable...I guess the question to ask is...based on your conclusions, can you find a good entry? At this point in time, I think it is clear that bullish participants have the upper hand...If you agree, I assume you will look at these tests as opportunities to get long. If you disagree, you will view the market differently. Personally I like to let the market show me what it wants to do...Ask youself, at each test area, how did the market act? Did participants come in to defend that area and move the market up....or did they sell it down? For me the answer seems clear. It may help you to look at longer time frames as well.

 

In terms of actionable data, you need to develop a rule set that works in regard to the idea of value. Professionals like to take advantage of price fluctuations above and below value (what we would term wholesale and retail value). If you can determine the range of prices that constitutes wholesale and retail value, you will have an edge over other participants. You may want to start by using Market Profile or Volume Profile data as a base for that judgement. Also you can simply take the extremes of your local distribution. These are prices at which you are likely to find significant swings high and low.

 

Now I have to get back to work.

 

Hope this helps

 

I hope this helps.

Edited December 16, 2010 by steve46