Understanding the market leading up to the final hour better prepares you for this significant time of the day. It is usually best to go back and review the day from the opening to feel comfortable understanding what may be developing beneath the surface. We’ll give you some key tips to prepare and will provide a step by step review.
J Dalton Trading is offering 10 FREE Webinarswith Jim Dalton leading up to our May Market Master Series intensive program to help give you a flavor of the depth of the Market Profile Mastery Series Program.
Learn how to prepare for a morning trade, how to observe a market, the importance of “value” and much, much more!
We began the year anticipating increased volatility. Late Friday afternoon through Sunday evening, following the failure to pass the health care bill we experienced sharply increased price volatility. Monday’s opening represented the biggest decline of the year. The volatility quickly challenged many traders emotionally including Jim.
Jim’s emotional challenges were greatly magnified as three of our signature rules or guidelines collided. The spike trading rules, gap guidelines and overnight inventory observations were front and center on the opening. Drawing on the writings of Daniel Kahneman’s book, Thinking Fast and Slow, Jim made a crucial decision that positively slowed his emotions and allowed him to his capture overnight profits.
Jim would like to share his thought process with you in this important advanced webinar. Knowing how to think about markets holds the keys to trading survival.
You can purchase a summary version of Daniel Kahneman's book, Thinking Fast and Slow, here.
For this week’s Highlight Reel, we’ve selected the trading day of Monday, March 20. We chose this particular day because it allows you to see day timeframe development resulting in a late afternoon rally, while at the same time allowing you to see a market creating odds for a downside breakout in a higher timeframe.
With that in mind, we give you our…
Top 10 Tips for Watching This Week’s Highlight Reel
Watch as early trade looks below Friday’s low with no immediate downside follow-through re-entering Friday’s range.
Notice that once we re-enter Friday’s range, there is limited upside extension. The market was unable to hold above unchanged.
Value was developing as clearly lower.
Can you see how the high was poor with no excess? This is an extremely low-confidence session.
Observe how the market was attempting to auction higher with little success. The POC was remaining around Friday’s low.
See how a midday break eventually stopped at an exact fill of a gap from 3-14. An exact mechanical stop suggests weaker hands mechanical buying. Stronger institutional buying would not have come from such an exact level. Their size is simply too large to attempt an exact buy. They would likely be scaling in as the market dropped.
Look closely at how the afternoon low provided a very visible 45-degree line. These angles develop because the POC or fairest price doesn’t migrate lower with price. Traders are selling “short-in-the-hole.” OR, said another way: They are selling below value.
Notice the afternoon short-covering opportunity with price rallying back toward the POC. Price traders took prices higher overnight. Overnight inventory was long as we opened on Tuesday.
Observe the slow tempo and lack of upside follow-through as Tuesday began to trade.
Look for the final takeaway: Once price re-entered Monday’s range the rout was on. The biggest piece of information was Monday’s exact gap fill low. The buyers from there forward were likely weaker hand traders. Tuesday’s break was not out of the blue. There was a process in place.
We've summarized these observations in a PDF for safe-keeping. You can download it here:
Wednesday, March 22, 2017 | 11:00 am - 12:00 pm EST
Gaining a fuller appreciation of midday dynamics is important for two reasons; 1. Far too many traders get caught overtrading during these often quiet market times. This can be costly emotionally and financially and 2. Getting prepared for the important final hour.
We have chosen Tuesday, March 14 for the weekend Highlight Reel because it was a potentially difficult day for short-term traders. Failure to understand the context surrounding a day like this, very often, leads to significant whipsaw losses.
What do we mean when we say ‘to trade or not to trade’ during the first hour? This is more complex and important than the simple question suggests. For example, your initial intention may be to stay out of this early environment. However, a spike to an important reference may reveal an opportunity. We’ll discuss how to identify these potential opportunities. Many traders are too anxious to trade early expending both psychological as well as financial capital.
Part two of this two-part series will continue to discuss how to watch a market. The concentration will be split between rotational trading markets, where you are often going against the last short-term auction, and higher confidence markets that you should think twice about fading or going against.
We’ll also discuss one of the biggest errors traders make: fading high confidence markets. Additionally, we will discuss how to know what timeframe traders are dominating the current market. Outcomes vary widely depending upon which timeframe is dominating the auction.
Part one of this two-part series will show you how to observe a market starting with the opening. You’ll learn how to identify opening location relative to the previous day’s range, confidence surrounding the opening, weak and strong references, and tempo. Mastering this will more calmly allow you to decide whether to trade early or wait until the market has set up.
There is a Chart Style called "Monkey Bars" that shows the market profile. Only real difference is that it uses numbers for the periods instead of letters. Its not even close to WindoTrader Blue, but is free..