I have a standing offer that customers who use the Jigsaw tools can send me their observations IF they follow the instructions in our "New to Jigsaw Tools" Video - https://www.youtube.com/watch?v=wOpQEvmtPto

The idea is that you focus on just a few items in the order flow for 60 minutes at a time and then stop. Then do this 1 or 2 times a day. People contact me asking what to look for and I tell them to do this for 5-6 hours and get back to me with their observations and I'll tell them my thoughts. The idea being that the person has some screen time, so we'll be able to discuss their experience as opposed to me talking about concepts they didn't see once yet.

I'd like to share the observations of "Jay" who has done his 6 hours and sent me a nice document for me to comment on. Jay has grasped things very well and I think his comments are valuable but also inspirational for those starting out.

The Speed of Trading

I was clearly able to see how the market rotates around high volume nodes (HVN) like, e.g. VPOC and how this “thick” trading is slower than if/when we trade with momentum and speed through an area of formerly low volume (LVN).  A thick are can give me time to get out, but would also not feel comfortable trading there, as I feel that it could be a 50/50 proposition if we go up or down.

Reply - The 50/50 depends a little on context and overall direction. You can certainly up the win-ratio on these trades by (for example) waiting for the offers to break before hitting into a long. Still, the beauty of trades in these areas is that you know very quickly if you are wrong or not. On some markets within 3 ticks. So whilst it's not 100% win rate, the risk is low and the trades have good potential to run.

Difference in # of contracts traded to get through a price level

I noticed that sometimes certain price levels break easily with only a smaller absolute number of contracts to trade through it and sometimes a significant number of contracts is needed to tick up or down (I saw values of over 4,000 e.g.).  Towards the close at 16:00 volume spikes and I can observe >3,000 contracts trading on both sides.  Also during the lunchtime doldrums volume drops, speed drops and I see more rotation.

Reply - Closing action needs to be considered separately, as behavior into the close is very specific. Certainly market can thickens up on one side and that often comes before a reversal. You also see that the market switches gear and it'll take lots of contracts to gradually move up. Those times you get very small pullbacks and you sometimes have to take a poorer price to enter. If you have an overall bias – like an intraday uptrend -  you should consider with trend and against-trend thickening up differently. One will be a better signal than the other.

Passive aggressiveness / Resting Orders stopping a price move

I observed that a moving market can and will be stopped by limit holders stopping price from advancing further.  These can be “hidden” S/R levels in the market that I do not see on a chart (in my case volume profile).  It may not be a LVN stopping price.  In fact the DOM helped me already by staying out of trades that would have been losers, where I would solely entered due to a price being a LVN and also helped me in taking profits early, as price was unable to move through an area of limit orders holding.  Later my target would have been reached at times, but I still like that I got out when passive aggression looked like it stops a move I am in.

Reply - Agreed, I have nothing more to add other than use context - a bias helps you filter out the failures.

Spoofing / The Flip /Limit Orders pressing

I was able to observe a large seller appearing above the market at a top and as price approached that level, the orders pulled and bids started stacking and we broke through the high.  I also noticed that sometimes a large order appears above or below the market 4-6 tiers below the inside prices.  I noticed that the market sometimes goes exactly to that level then, as if to check if the order is real or not.  Another thing I observed were offers in once case clearly pressing the market lower.  Bids kept pulling and large offers >1,500 per level followed the market down.

Reply - Any support or resistance level that is being observed by many will have higher depth just beyond it. It doesn’t guarantee a hold  but it does mean you aren’t alone in watching it. Large orders following the market down is good – but REALLY large orders at 3-4 levels following a move often means the move is over. So 1 order of 150o following a move is good. 3 orders of 3000 contracts is not what you want to see.

The Vacuum

A few times I noticed how price moved rapidly in one direction, only to then turn around again and drop effortlessly through the same price levels we just “ate” through.  Clearly a vacuum were the price was able to run.  “They” didn’t have time to repair the floors/ceilings.

Reply - Yes - we tend to think of fast moves as the strong ones but for the reasons you state they are really the weaker.

The Break-Out

One time price was ticking just short of the HOD.  We kept hitting into the offer.  Over and over again and all of the sudden, we pushed through and triggered stops on the other side.  In that instance I was able to “feel” that this time we would break through.  I loath breakout trading as need to constantly force myself not to do it, as I am usually the sucker that sells the LOD or buys the HOD and am the bag holder.  That time it appeared different on the DOM, though.

Reply - Understood, it’s an odd ‘feeling’ to feel the market is about to break. I don't think it's all just 'gut feel' though,  I think some of it is seeing market tick back down but not be able to hold a tick back down. So it might take 30 seconds to sell enough to tick down and then it stays down for just a few seconds. If you hit into a trade like that – it has to go OR you have to get out ASAP.

The Power Meter and Tape

Today was the first time I watched the Power Meters after I got into my regular trades.  This was different from the 6 hours of watching solely the DOM and no trading and nothing else.  I found them to be very helpful after my entry to gauge if I can stay in the trade or if it goes against me.

Reply - I mainly use the power meters once I am in a trade to see if the flow is on my side - but really just till I get 5-6 ticks on side and then I am happy to let things play out a bit. I just use the trades and snapshot meters. For depth, I prefer the actual numbers.

What I still struggle with

• Trend pullbacks – I am not able yet to see a price level that would indicate on a trend pullback that it would for me to join the trend there

• Drills – what drill could I do in order to work on my tape reading skills and maybe even learn to scalp, which would suit me – I am extremely impatient and dislike to being in the markets very long

• Confidence – staying in a trade is tough for me. Classic retail mistake – being afraid to give back a few ticks of profits.  I know that I am wrestling with the fear of losing and want to and need to progress to trading to win.

• Question: if I scalp say for 2-3 ticks, what should my stop loss be? Also 2-3 ticks or would I aim for a different R/R ratio?

• What should be my next steps Peter? I am willing to follow the process and do whatever it takes to become consistently profitable.    Thank you for your help!

Reply - well you are just 6 hours in.

• Pullbacks - make sure you clear the current trades column when it starts to pull back (or just clear in the direction of the pullback). The pullbacks are often uniform in length so on some days you'll see pullbacks of 9-12 ticks on the way up and see the same on the way down. So give it time to get to that sort of area. Then let's say the pullback is in an uptrend, market moves down and they are hitting the bids with moderate size and then mostly it just fizzles out. You might not get the exact low of the pullback but as the selling dies out - watch for the offers to pull and then that's the cue. I tend to get in when the offers pull so I'm getting onside fairly quickly and I have time to asses. Don't get in until you see selling has really stopped.
• For Drills - try Guy Bowers YouTube page - https://www.youtube.com/user/GuyBower/videos
• Confidence - comes with time. But cutting trades is a good skill to have.
• Scalping - it depends on your entry. If you enter at limit you save 1 tick on your stop. It also depends how close to the 'trigger' you get in. For instance if you think an iceberg is holding the market and you manage to join that iceberg - say you joined the bid, got a fill and there's still 800 contracts bid. Well you could stop out at that same price - say when the bid went down to 300 and you feel it's going to break down - or you could wait for it to hit the tick below.
• Your next steps depend on what you bring to the table - if you feel you already have good trade location, then I'd look to incorporate what you have learnt into that system. If not, then I'd look for short term trades off the volume profile as per our "Day Trading Without Charts" video - https://www.youtube.com/watch?v=5bpUm4_JYX0