The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning
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Monstrous gap lower on tariff threats from President. Lots to discuss here so on to the market profile……
Chart by WindoTrader – (702) 800-4628 Speak with Terry about the ShadowTrader Discount
The first order of business on any gap is to always discern whether or not it’s a true gapThere is a lot of discussion as to what constitutes a gap. Is it measured to the prior day's close, or to the prior day's high or low. Here at ShadowTrader we believe that it is always and only to a prior day's high or low, thus creating a true gap or space on the chart between one day and the next. Thus a true gap is one that has price opening completely outside of the prior day's range (either above the high or below the low) and anything else is just a gap that has far less import. As a gap is a "reordering of thinking", only a true gap really changes the tone and creates opportunity to trade early rather than later. or not. Today’s gap is a true gapThere is a lot of discussion as to what constitutes a gap. Is it measured to the prior day's close, or to the prior day's high or low. Here at ShadowTrader we believe that it is always and only to a prior day's high or low, thus creating a true gap or space on the chart between one day and the next. Thus a true gap is one that has price opening completely outside of the prior day's range (either above the high or below the low) and anything else is just a gap that has far less import. As a gap is a "reordering of thinking", only a true gap really changes the tone and creates opportunity to trade early rather than later. and also the largest that we’ve had in a long time.
The next thing is 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... position, is it net long or short. Today’s is 100% 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"
. Whenever I think of that, I immediately look at where the current price is in relation 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.. The closer, the more bearish. In today’s case, we are nowhere near 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. which tells me that overnight panic may have taken it a bit too far and that some vicious snap back could be in order. Accent on the word “could”. Remember think in terms of “potential”, not letting yourself ever get locked in to high expectations of just one specific scenario.
Let’s look at a candlestick chart of the futures that shows the Sunday night gap and where we are trading in relation to the lows.
/ESM19 – 15 minute (picture taken at 8:26am EST)
The picture above shows very clearly how much we are off of 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. at 2883.50. I’ve drawn in two trendlines as well from the open which is also the ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. (2917.75). I put them both to illustrate that whether you use the “swing out” method or the “first touch” method of drawing the lines, they are both broken. That is a somewhat less bearish sign (I hesitate to say bullish when futures are down 45) than if we were bumping around at the lows and these lines were intact.
The ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. at 2917.75 is the main upside reference. A market that is going to have a large fadeWhen a stock moves opposite the direction of its gap on an intraday basis is going to be able to take this level early. If it does, then note that 2931.25 would represent the full gap fill to Friday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low. As the 2900 level was strong support on Thursday’s low and is not seeming to act as resistance on the way back up through it, my initial thought is that a scenario where buyers see bargains here is definitely possible.
So what so what so what’s the scenario?
1. Early trade doesn’t find any buyers and futures sell off from the open on strongly bearish internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick.. If internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. are bearish, then potential is there for trending day lower. Get short early but have a stop over the high of the day as any reversal could be very violent. Watch ticks constantly in this scenario. They should not get positive until at least 10:15 am EST if trending day is to unfold. If this is the move, note all of the structural nuances that need to be repaired/tested below us in 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. graphic above. Weak lows, VPOC’s, gap, you name it, it’s there.
2. Opening move is strong and it is apparent that a fadeWhen a stock moves opposite the direction of its gap on an intraday basis is on. This can happen one of two ways. Either there is an opening drive upwards that trends all morning from the open, or there is minimal selling early that either takes the 2900 just by a little or fails to take it out and reverses back to the high of the day. The second way is easier because you know where to buy on the cross of the HODHigh of Day. In such a move, target the aforementioned ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. and then possibly the whole gap fill.
3. As with any market prediction, the infamous door number three is always the possibility. This would be a scenario where the market spends the day balancing off the overnight activity and there is neither a breach of 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. or the ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. and responsive tradeA responsive trade is a counter-trend trade taken against a specific level. The theory is that when two sided trade is taking place, there will not be enough momentum to push past key levels and buyers or sellers will respond to those areas, essentially pushing prices away from them. This is the opposite of breakout or initiative trade which is more directional in nature and is generally taken in the direction of the prevailing trend. is the move. This is obviously the hardest scenario because most traders don’t plan for it, they are locked into either #1 or #2 above. Don’t be that trader.
Currently (8:46 am EST) S&P futures are trading around the 2900 level. I am carrying that forward as I think it will be significant near the open. Those with a longer timeframe outlook may be sellers if they see the market below it early today. That will be a big tell whether or not stronger sellers step in if the market trades below that level today.
Lastly, if you are trading in the day timeframe, remember that targets and stops need to be widened out as volatility will be higher.
Forex Trading Strategies by Blake Young
Use Blake's techniques to create trading systems
Over 4 1/2 hours of instruction
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May the volatility be with you,
-peter
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