Today turned out to be fortuitous for newer members working on developing their own non-predictive model variants rooted in the ‘trifecta’ of market structure, price action and orderflow as we call it. This is one of those examples where the respect of the case prices of the key structures was so strong the price action and orderflow concepts literally leap right out at you off the page. As it turned out I also happened to be in the room every step of the way from before this move all the way through it narrating it in real time for those following along. Be sure to see the chat transcript today especially if you weren’t in the room and run this back with tick data replay if you have the means.
So we had made another new high early in the session but sold off back below the former day RTH high 43-44’s structure shown here. As I said in the room short biased members might stalk seeing if continuation bears would effort to resell a PB to the case 44.75 from under, and/or bulls would show signs of total lost interest in rallying back through that line. To say that both ended up being true would be an understatement. The very first pullback under the line in purple was shallow and on thin volume. Note size leading out with strong short delta divergence into that very first attempt back up. Next we saw the super thick auctions in pink as buyers loaded in across a relatively wide range but were still unable to break the case line as they were met by both passive and initiative sellers saying, “give us all you’ve got…”. The stage was now set. LOADS of positions trapped to the long side. What do you suppose they might feel and/or do if pressured and they came to realize price wasn’t going to go up in the near future? Puke-O-Rama Wednesday edition. lol. And with that stage set we had one last attempt back up, this time unable to retest the case high and putting in a failure. Note the volume into the high there in red is paper thin due to total buyer exhaustion and disinterest. Also note in the stats there as well the strong short delta divergence. It was only going to take a feather to push the market over at this point, and as usual we could count on the top of book market makers to be that feather. Note the thin volume in through the top of the range in yellow leading into the thicker volume at the bottom there. Market makers pulling bid liquidity to speed up the fall and induce puking of trapped longs. Business as usual in the S&P…
As I pointed out in the room the next structure below to look to scale into for those who sold from the 44’s was framed by the prior close and then current Globex low 36-38’s. By my measure the relative volume on the first push in light blue down there was unremarkable. I can’t really blame anyone for not scaling/flattening there, but given the size of the move I also can’t fault being more proactive than normal and scaling/flattening in spite of it either. The second push in dark blue was a different story, this time showing a hard lift off the low there led by size. I can’t imagine not scaling/flattening there ever, but for any still holding on this was followed by one last push showing very strong seller absorption and buyer response in green which finally legit tested the case price at the back of the zone. Again, overall a great stretch of action to watch on replay if you have the means as it really shows the synergy of PA and orderflow and how they come together to tell the immediate story quite predictably around key market structures…
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Discovery Trading Group is a unique dojo focused on mentoring aspiring futures traders since 2010. It’s emphasis is on guidance in building bespoke processes and risk overlays rooted in market structure, price action and orderflow, with sound adaptable risk management as a priority.
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