Start With An Idea One of the key elements to successful trading, as taught in the TIE Methodology, is to execute trades by starting with an idea, at a level, with the proper entry signals. The attached chart demonstrates the concept of starting with an idea. The Asian session begins with the letter V. Europe opens at 03:00 and is designated by the letter m. In both these sessions, you'll note that volume (the mode - designated by the color magenta) is below time (the point of control). This has also been the case for the prior two days. So initially, you would look for opportunities to go short the market. The overnight session sets the high or low of the day approximately 80% of the time. As you can see, price never exceeds the overnight high, but trades below the overnight low in C period. Once again, the day session closes with volume below time, leaving you with the idea of going short early on Thursday, unless something momentus happens overnight. Be sure to check the Asian and European session formations before making an early commitment.
7/24 Early Update From the previous post, we were looking to sell going into today, but look at what happened overnight. Asia was buying. Europe was buying. So do you change your idea going into the day. The answer is YES.
An Alternative Way To Trade The News A news announcement can be likened to a volume exhaustion bar trade. If a high volume bar occurs, watch to see where it closes. If it closes at or very near the high, continuation is likely. Buy stopping into the market when price trades above the high volume bar is a safe entry. Once you've entered, managing the trade to extract the maximum value is next on your list. In the attached example, bar #1 would be the earliest aggressive entry. Price had moved up 7/32nds going into the 10am news, and continued up. If you wanted to be more conservative, bar #2 would be your entry. When the ascending bars fail to close at or near their highs, it's time for an exit. The 10:15 bar closed near it's low, so this was as long as you would have wanted to stay with this trade. Had you entered when price traded above bar #1, the maximum available to you was 11/32nds ($343.75 per lot traded). If your entry was at the close of bar #2, the maximum available to you was 6/32nds ($187.50 per lot traded). Either entry would have allowed you to achieve a daily plan of 4/32nds ($125 per lot traded).
Develop Patience For High Percentage Opportunities The market on Friday, 7/25 had been selling steadily into the release of the Durable Goods Number at 8:30 EST. I've highlighted high volume areas (which act as both support and resistance). After the initial thrust, there was a 6 1/2 tick pullback, identified on the attached chart as point 1. Selling out the bottom of the 8:40 bar was a very valid short. If you missed it, be patient. Point 2 is another 6 1/2 tick pullback. This pullback offers only 2 ticks of opportunity, but you had 20 minutes to figure that out and exit. If you had not yet made your daily business plan, be patient. The best trading in the Bonds is almost always early in the day. Now there is a major pullback to point 3, a high volume area that had stopped the market on the way down after the news. When it became apparent that price would not trade through the high volume area, yoiu had another 10 minutes to put on your next short. This trade offered you 13 ticks with virtually no heat. If your business plan is 4 ticks daily, trading size, these three opportunities allowed you plenty of time to achieve your goal.
Overnight Weakness Turned Us Into Buyers Today When I split the overnight session at the "m" period, the European trading was decidedly a P formation. A P formation is indicative of higher prices. Charles Cochran's comments tell the rest of the story. F2 Comments: Started the day looking to be a seller. Stock market weakness in Europe and buying off possible support at 113-24 (OVN low) turned us into buyers. The market rallied to 115-12 before it paused. Setbacks were limited until after lunch. Short covering? Possible. New buying? Maybe. Will know after tomorrowâs action. Consumer Confidence is expected at 50.0%. If the ES is sideways to lower, want to buy early weakness in the ZB and see if 115-16/20 can be taken out. If near resistance holds, will exit the trade. First buy zone is 114-29/115-01. Back up buy is 114-21/25.
Example of a "P" Formation In the last post I referenced a P formation. Here is today's (7/28) Market Profile chart that shows the formation clearly.
Look For Evidence At Retest Of Low The Bonds had been selling since 6:40am EST when, at 10:45am, there was a 6 1/2 tick pullback. At 11:40am there was a retest of the low, but how will you decide if the selling will continue or if this is a turning point for the market. Let's examine the evidence. The volume histogram under the chart indicates that there had been some short covering - fewer contracts traded at the bid. By itself, this is important, but probably not enough, in and of itself, to convince you that this is a market turn. Adding to the evidence though was a blue square, indicating selling deceleration, an up arrow, indicating a potential swing low, and a green dot, indicating an exact double bottom. This additional evidence lends some weight to the reversal thought. For me, the final piece is the 11:45am bar. The mode (magenta line showing the highest volume traded on the bar) is higher than the bar that retested the low, and the bar closed at it's highest level. The trade is to go long at the close of the 11:45am bar. The market then rose 8 ticks, allowing you to make your business plan of 4 ticks a day.
I am an experienced options trader, and new to MP. I've read Dalton's books, the CBOT guide as well as others and am impressed with MP as a valuable tool. There appear to be two aspects to master - the tool itself and trading strategy using MP. Can you recommend a 'learning plan' for this? Reading materials provide theory, but not practical experience. Appreciate any insight you could provide.
7/30 The Slow Grind Down On Thursday the Bond began a slow grind down after the ADP Payroll News. Unlike most news events, this one didn't have a pullback, which is our preferred way of trading a single headline news event. There are scalper techniques you can utilize to trade the slow grind, once you realize that that is what's happening, but let's assume you are a more conservative trader. At some point, the market is going to pause and probably retrace. In this case, the market sold off for 28 1/2 ticks before pausing. This is virtually the average range for an entire day's trading in the Bond. So what are your choices - play the pullback and sell when you get deceleration or look for evidence that there might be a reversal. Had you chosen the first option, your maximum profit would have been two ticks. You probably wouldn't have made a cent, but you did have 15 minutes to recognize that the market wasn't going lower and exit. The key to making the right decision was the volume histogram under the chart. For 45 minutes, the bars were getting shorter and shorter. Shorts were covering. If you recognized this and began looking for a reversal, patience was the key. The market traded in a 4 tick range for over 45 minutes when it broke out of the box to the upside. Since the market had be trading down for the entire day, it is unlikely that a conservative trader would have taken the initial breakout, but taking the retest of the breakout is a reasonably conservative trade, and waiting until the market put in a higher high is an extremely conservative trade.