Daytrading- Big Picture and Volume Analysis

[EMC2Trader]

Clarification - After a question I received yesterday I just wanted to make something very clear for those of you out there following along.

This is never an exercise in prediction or making calls of any kind, but rather an exercise in observing unfolding market structure (ie.. brackets, swing points, consolidations, etc.), then seeing where volume/price extremes develop within this unfolding structure, and then making higher probability assumptions of what will happen next from a trade entry standpoint.

Here a few examples.

1. If price breaks an intra-day support/resistance area on a volume extreme, a pullback would be a good place to enter.
2. If price is moving strongly in one direction, and a volume extreme develops in the opposite direction, expect imbalance to turn into balance for a period of time
3. If price works its way to a prior volume extreme area on low volume, price will move strongly away form this area, either up or down..
4. Volume extremes inside lengthy consolidation areas represent the anxious, not patient participants, and send a high probability clue as to where price is likely to go next.

So, this has nothing to do with “prediction.”

The premise is you can look at unfolding market structure, watch where volume and price extremes develop within this structure, and then make higher probability decisions about what to look for from a trading standpoint.

It is a cycle that is never ending, and continuously shifting, from areas of balance, to imbalance, to balance, over and over again..

 

[EMC2Trader]

CounterTrend example - I have mentioned how I look to trade with the trend, and rarely consider "countertrend" trades, and the only ones I personally consider have volume divergences in line with key big picture points, and of course these occur less frequently than other setups.

But this morning was one of those classic examples so I thought Id point it out. I had the daily chart (left) up for a while now highlighting the pullback points if the pullback rally continued.

Yesterdays break above three day consolidation set the stage for the rally to pullback point 1.

There we got a perfect volume divergence so this was a good sign to try a countertrend trade if you were so inclined. Of course "countertrend" is always relative to the timeframes you are following.

In my example a straight move up from 1260-1290 set the stage for a countertrend reaction to this move.

 

[EMC2Trader]

First, I just wanted to say thank you to all of you who have sent me comments of support for presenting this material. I also understand this is a community of very successful traders who find little use for this information, so I think I’m going to work on setting up a “blog” of some sort to continue to present this information to those that may continue find this of value, and of interest, going forward.

I’ve tried to present a foundation for all of this to start, and then provide a variety of ongoing examples in an effort to make it more clear for practical trading purposes, etc. because it’s a cycle that truly repeats over and over again.

Here are the very basics of how this all fits together when applied to today’s trading, and you’ll see the same thing tomorrow, the next day, and the day after that.

I’ve marked 5 points on today’s chart, showing the flow of activity for the day. First, it was easy to be long in the morning before point one, as patient seller control continued over from yesterday.

1. This was the volume divergence at key big picture resistance after a 30-point move up (Application = Countertrend trades, lighten up longs)
2. Countertrend move finds Patient Sellers (Application- Look for balance or new patient seller control)
3. Pullback, shows patient buyers cannot generate balance (Application=Short trade with patient sellers in control)
4. Patient Buyers enter for new tug of war (Application= Look for balance, or new patient buyer control).
5. Patient Sellers stay in the game, and this sets up balance for the rest of the day. We now monitor for a break from this balance, which will lead to great trading conditions again.

I hope this shows there is no predicting with any of this. I hope this shows that it is clear to observe unfolding developments in real time, (not after the fact) with plenty of time for decision-making. And, of course I hope this shows, that if you can follow the bigger picture of the market like a roadmap, you can increase the probability for your trading decisions, which was my main point for all of this right from the start.

 

[prop_99]

"Price moved down and the patient sellers halted the decline. "

This statement causes a lot of confusion- when price is going down, it is not perceived as "seller" control, rahter its lack of buyers and sellers are getting hurt by lowering the price in which they can find a bid to sell.

Rethink wording possibly- makes no sense

Quote from EMC2Trader:

07-15-08 Mid day

I mentioned looking at the most conservative place to look to buy this market- a break above consolidation higher, or a move lower with either patient buyers drying up, or patient sellers halting the decline.

Price moved down and the patient sellers halted the decline.

This dosesnt mean price will immediately go higher or lower, but it does mean developments have changed, and the pateint sellers are now back in the tug of war with the patient buyers.

Price started to move to test the lows on very low volume, and this finally cleared the way to look to buy in the most conservative way possible according to the big picture.

Also, we identified the 1225 bracket low reisistance, so it made perfect sense price paused here on the way up.

Again, Volume and Big picture macro price structure together, opened the door for a high probabaility daytrading zone for long trades from the 1208 area up to 1225 using whatever entry rules your trading plan allows for.