A Very Very Very Clear Example of Context and Why to Not Always Fade the ES

[TheNegotiator 13]

As I hope more and more people will be realising the importance of context, I hope it was fairly obvious to most what was going on yesterday in the ES and I am in fact wasting my time in pointing it out. Given all the context heading into the ECB, fading the market should have been out of the question for traders. The ES had balanced and balanced and balanced some more with the VPOC (volume point of control - price at which the most contracts have been traded) moving closer to the middle as the balance progressed. The fact that breakouts often originate from the middle of balances shouldn't have gone unnoticed. Then after the ECB (even if you had no idea of what was said or the implications) on RTH open with the market gapping up (range and session) and immediately driving away from the gap not into it, it was very, very clear that it was a market to not fade and go with. See chart below.

 

[BlueHorseshoe 10]

As I hope more and more people will be realising the importance of context, I hope it was fairly obvious to most what was going on yesterday in the ES and I am in fact wasting my time in pointing it out. Given all the context heading into the ECB, fading the market should have been out of the question for traders. The ES had balanced and balanced and balanced some more with the VPOC (volume point of control - price at which the most contracts have been traded) moving closer to the middle as the balance progressed. The fact that breakouts often originate from the middle of balances shouldn't have gone unnoticed. Then after the ECB (even if you had no idea of what was said or the implications) on RTH open with the market gapping up (range and session) and immediately driving away from the gap not into it, it was very, very clear that it was a market to not fade and go with. See chart below.

 

 

I'm pretty sure I understand what you mean, but I think you need to clarify your statement a little . . . Pressumably you mean not to fade the up moves? Fading down moves, on the other hand, seems like the ideal scenario.

 

For instance, having identified the direction of the trend for the day using techniques such as you describe, then why not fade every significant pullback?

 

The only issue here is that some trend days (such as yesterday's) never really contain the kind of significant retracements that can provide low risk entries. I think that this then becomes a psychological issue - can I bear to sit on the sidelines and watch a market go parabolic without me on board, just because some specific entry opportunity hasn't presented itself?

 

As far as trading the ES in higher timeframes goes, range expansions such as yesterday's tend, for the most part, not to exhibit significant follow through. So fading the ES at yesterday's close would not have been a completely foolish thing to do, though when we're in a clear uptrend fading an expansion to the downside would be a much safer bet.

 

BlueHorseshoe

[TheNegotiator 13]

The only issue here is that some trend days (such as yesterday's) never really contain the kind of significant retracements that can provide low risk entries. I think that this then becomes a psychological issue - can I bear to sit on the sidelines and watch a market go parabolic without me on board, just because some specific entry opportunity hasn't presented itself?

 

Exactly. So if you really want to get involved and believe me you absolutely do not have to (ES does not exhibit this kind of trading activity that often), then you try to get in on the best pullback you can where you can place risk the other side of what you judge would provide some sort of decent support should a deeper retracement take place. Ideally, the sooner you spot these days the better and then (at least I feel this way sometimes) it is a controlled leap of faith!

 

As far as trading the ES in higher timeframes goes, range expansions such as yesterday's tend, for the most part, not to exhibit significant follow through. So fading the ES at yesterday's close would not have been a completely foolish thing to do, though when we're in a clear uptrend fading an expansion to the downside would be a much safer bet.

 

To me, the use of range expansion is slightly misleading in this sense. Range by definition is high to low. However, trading ranges are usually seen as brackets - i.e. a balance in which two-way auctions happen. Specifically in this case, saying it's a range expansion re:the balance range I have outlined is not yet certain and potentially quite inaccurate. To me, a range expansion is just that. It pushes a little further then reverts to it's originally balance activity. The whole point of my post was that I believe that considering everything and at least for yesterday, the likelihood is that we are not balanced anymore.

[BlueHorseshoe 10]

Hi Negotiator,

 

Thanks for replying.

 

Exactly. So if you really want to get involved and believe me you absolutely do not have to (ES does not exhibit this kind of trading activity that often), then you try to get in on the best pullback you can where you can place risk the other side of what you judge would provide some sort of decent support should a deeper retracement take place. Ideally, the sooner you spot these days the better and then (at least I feel this way sometimes) it is a controlled leap of faith!

 

My ability to identify trending or range-bound days early in the session is very poor. This is something that I wish to work on developing. Each day you post charts in the e-mini thread showing volume distributions - if I were to pick up a good general book on MP, would this enable me to understand how you are using these and the associated terminology, or are you employing a more specific approach with MP?

 

To me, the use of range expansion is slightly misleading in this sense.

 

This is just due to a different use of the word 'range', I think. By 'range expansion', I just mean a day with a high-to-low range that is significantly larger than it's predecessors. I'm using the term in the way that an author like Larry Williams or Toby Crabel might.

 

Cheers,

 

BlueHorseshoe

[TheNegotiator 13]

My ability to identify trending or range-bound days early in the session is very poor. This is something that I wish to work on developing. Each day you post charts in the e-mini thread showing volume distributions - if I were to pick up a good general book on MP, would this enable me to understand how you are using these and the associated terminology, or are you employing a more specific approach with MP?

 

Should do. Read Markets in Profile and Mind Over Markets. Above all you should ask me or others in the e-mini thread if there's something you don't get. More than happy to help.

 

Working out what it might do in the session is a synthesis of technical and macro information plus experience of being smashed for six when trying to do certain things. If you have a framework to work with, recognising market behaviour is quicker imho. Market profile and auction principles outlined in the two books will give you a solid foundation for that framework. Then, you have to apply your various strategies within this framework.

[BlueHorseshoe 10]

Should do. Read Markets in Profile and Mind Over Markets. Above all you should ask me or others in the e-mini thread if there's something you don't get. More than happy to help.

 

Working out what it might do in the session is a synthesis of technical and macro information plus experience of being smashed for six when trying to do certain things. If you have a framework to work with, recognising market behaviour is quicker imho. Market profile and auction principles outlined in the two books will give you a solid foundation for that framework. Then, you have to apply your various strategies within this framework.

 

Thanks Negotiator!

 

BlueHorseshoe