Jigsaw Trading Blog

Customer Video - DayTrading Headfake on the ES.

Written by Peter Davies | Feb 28, 2014 4:53:55 AM

Here is a video from a new customer YouTube channel. The customer is using a combination of Price Action and Order Flow.

 

Start - we can see that the market has moved down to around 1837 and is now at 1843.25. The bottom right chart shows that the TICK has been mostly bearish and has just started to turn up. The volume profile shows lots of volume trading between 1840.75->1843.50 (remember these prices) Then above us there is little volume but it starts to build again from 1845.50 and up. Large trades tape is mixed but slightly more sell market orders than buys.

00:50 -> 1:00 Traders will be fading the top of that higher volume area and you can see that as we push through, there is a rush of selling, this looks very much like stops being hit. It's usually the pace of the orders that tells you stops are being triggered - at each price, they all get triggered at once and there is a flood of orders and the market shoots up 2-3 ticks.

1:00 -> 1:30 When we get to 1:00 - the stop run is over and regular trading resumes.  We get 923 buy market orders into 1845.00 and 2599 market sell orders into 1844.75 and the market ticks down. At this point we have a higher volume node at 1844.75 with 6119 contracts traded in total. Then we have 1579 sell market orders hit 1844.50 and 300 buy market orders hit 1844.75 and another tick down. We also see some size hitting in 44.50 with individual sell market orders of 528 and 829 hitting into the market. Still - the TICK in the bottom left is still bullish.

1:30-> 2:30  We then see buyers step up again, and the market pushes up.

2:30 ->  3:10  Watch the large reconstructed tape. We see large buy market orders of 45.00x 341, 45.25x176, then at 45.50 we see 200, 155, 272, 316, 118, 684 contracts - and no tick up....  Then at 2:43 we tick down. There's a total of 2749 buy market orders traded into 1845.50. Not all of them will be short term directional traders - but some of them will be. They are now wondering if they are left "holding the bag". At 3:06 we tick down again and we see some sell market orders coming in. We are also now at 1844.75 - where we had the higher volume created previously. That makes this area pivotal - longs will want 1844.75 to hold (see our Day Trading Without Charts  video for more info).

3:10 -> 4:45 At this point, the current trades are cleared as well as the strength meter. It's always a good idea to clear this when you enter a key area. We continue to build more volume at this area. TICK is coming of slightly and sell market orders are approximately 1.5 x the buys. At 3:51, I'd still be neutral in this area personally. At 4:02, we get back to 45.25 and just 2 contracts print there. Just after that the sellers step in on the large trade size and we see the market push down back to the top of the high volume area on the volume profile. At 4:47, we can see a large sell market orders from 45.00 to 44.50 and price is now at 44.25 - so the sellers are getting price movement for their efforts. We can also see on the strength meter that total sells since the reset is 3414 contracts vs 1898.

So at this point we saw...

- pop out from the top of a high volume area

- buyers at 45.50 getting nothing for their efforts - effectively getting trapped/absorption on the offer

- a pop back up to 45.25 and only 2 contracts traded - no will to buy those prices

- sellers stepping in and pushing the market down

4:40 ->  5:30 The customer sells into 1844. Note also the TICK is now at 54.33 - it's trending down int he short term. This would be a tricky trade for me - you are selling into the top of the high volume area, so trading the fact that the move up was effectively a "headfake" out of that area and that market will now go back in and travel to the opposite end - to 1840.75. It's not a bad trade but you are trading into an immediate hurdle - the top of high volume @ 1843.50. So you have to be cautious with  a trade like this.

After entry we can see the large trades still hitting the offer, the strength meter still showing sell market orders exceeding buys. At 5:20 we are at the top of the high volume area 1843.50 and then it breaks pretty convincingly with more large orders stepping in.

After this point, the market moves down to 1840.75 - the bottom of the high volume area we mentioned at the start of this post - and we then move up again. This was to be expected based on what we know about the volume profile.

What is interesting about this trade is that the trader is mostly a price action trader but the two methods -  chart based price action & volume profile analysis ended up at similar conclusions about where to trade.

I will say that for me, when looking for daytrading headfake trades, I usually don't hit them if the market moves so far from the top of the volume profile but there was a lot of confirmation as we came back down - absorption, buyers fading on a retest and sellers stepping in.

Good video "M" - I hope there's more to come!