The Market Profile value areas and ShadowTrader Pivots for /ESH19 and /NQH19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
A slightly wider angle on the market profileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. chart this morning to show the current overnight action within the context of the entire recent rally.
Value continues to be overlapping to up with some “iffy” structure along the way.
Coming into this morning, overnight inventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day's settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most... is balanced to slightly net shortThe concept of being more short than long in an options spread by creating options spreads where you are selling more structures than you are buying or selling wider structures than the ones you are buying. Example would be a broken wing butterfly. This spread is made up of two structures, one long vertical and one short vertical. In the BWB, the short vertical is wider than the long vertical. When you are long this spread, you are said to be in an options position that is "net short"
. Given the recent context, I view that as short term bullish.
As of now we would open squarely within yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. range, thus gap rulesGuidelines to follow on any day that the futures open outside of the prior day's RTH range. Only opening outside of range is a true gap and puts gap rules in play. 1. Go with all gaps that don't fill right away. This means that if early trade doesn't start to correct the imbalance, then prices will probably move in the direction of the gap. 2. Larger gaps can often fail to fill on the first day or may fill only partially. 3. If the gap fills (meaning the prior day's RTH high is touched on a gap up or the prior day's RTH low is touched on a gap down) and value cannot get to at least overlapping, then the odds of a late day rally (on a gap up) or late day selloff (on a gap down) increase. 4. Gaps of larger than $20 in the /ES are difficult to trade and should be avoided early in the day as t... More do not apply. It should be noted that then entire overnight range is within the value areaA range where approximately 70% of the prior days volume traded. The range is derived from one standard deviation on either side of the mean which is roughly 70%. See: Market Profile as well. I generally feel that this has stronger odds of pointing to a rotational and balancing day. Obviously, the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. session is always a different animal than the overnight session, but it’s always good to think of different scenarios in your mind premarket and sort of rank them in terms of their odds of occurring. Yesterday was a perfect example of this. As I wrote, the 45 degree lineThe 45 degree line is an interesting market profile nuance. It occurs when a 45 degree line can be drawn from the lowest point of a distribution to its widest point (TPO POC). This is a sign that sellers have painted themselves into a corner near the lows of the session and creates potential for an upward reversal in the next session. As less and less time is spent the closer you get to the low of the session, sellers are essentially initiating shorts at less and less value. 45 degree line lows should be assumed to be secure until they are breached. The pattern is generally only noted in RTH sessions but they have shown to be relatively reliable signals in overnight sessions as well. The obvious question is always whether or not the 45 degree line can be drawn in from the high of the day t... in the overnight session was important and as such had high odds of acting as support during the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. session. That is exactly how the session ended up playing out as early weakness didn’t even get to the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. and then rallied hard from there to a new two day high.
For two sessions in a row now, the S&P futures have come within striking distance of the psychological 2600 level. Both of the last two RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. sessions have a lack of material excess but I would not consider them poor as there is minimal excess and the structure simply isn’t wide enough at the top to have me thinking that a large imbalance of buyers are trapped at bad prices at the top. There are definitely some, but the structure doesn’t imply that there are lots so far.
I would say that the upside reference for today remains the 2600.00 level in the futures as prices have shied away from just below it a couple of times now.
On the downside we would have to see acceptanceWhen the market profile begins to build out or develop in a certain area, it is said that the market is accepting those prices. This can be measured either in time spent or amount of volume that is transacted. It is generally understood that ShadowTrader defines acceptance as more of a time dynamic than a volume one. A good rule of thumb is to look for at least two TPO periods to print in the accepted area. The acceptance confirms that a significant amount of market participants are transacting at those levels. Acceptance is the opposite of rejection. More below yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low at 2562.00 to get anything meaningful going on the downside. One of the hardest things to reconcile (at least for me) is when the tone of the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. session completely ignores the tone of the overnight session. Keep that in mind. While I don’t think that the conditions are there yet for a trending day lower, anything can happen. Close your eyes and repeat after me…“I don’t need to know what the market is going to do to make money, I just need to react properly when it does. Whatever the outcome, I am ok with it. I will not impose my will or opinion on the market because I know that this can blind me to opportunities”….Aaauuuuuuuummmmmmmmmm. (You don’t need to do the “om” part, I just added that for fun)
ShadowTrader Trading Psychology Series
7 Hours & 19 Minutes of Video Lessons:
8 Modules in HD streaming (rewatch as often as you like)
Extensive .pdf workbook to print out and follow along as you learn
Have a nice day,