ES Journal - 2019/2020

[Laissez Faire]

I have to ask because I keep seeing this stuff continue to pop up from a few of you.

Could you please explain the significance you are always referring to when you talk about "unfilled gaps" and "there is a lot of air above / below" ?

There always seems to be this allure around gaps eventually having to be filled and what not.

Even Spooz just the other day mentioned still having a lot of air below us.

What's this all about?

There's a lot to be said about gaps - both intraday and long term. Some type of gaps are more likely to fill than others and some may only receive a partial fill. Some are filled the same day while some are filled the next day or later on. Some are left behind for good.

There's plenty of people who lost money on blindly fading a gap. Often - a gap may indicate continued movement in the direction of the gap. That relates to the kind of gap and additional parameters.

To understand which - I suggest to research it in depth if you feel the idea have any validity. A quick visual backtest should be helpful. Data in tables is usefeul and probably even necessary to get this done.

One of the best traders I've had the fortune to talk to does not pay any particular attention to RTH values or gaps at all and simply charts 24/7, so it's certainly not the end all/be all.

But for me, it's a part of many things I'm looking at.

PS: Right now the next open gap above is at 3127. So, I will be anticipating that as a target for the next push higher. When we get there - price may reverse or it may not. If momentum should increase to the downside and we can take out the 3K level, I'd be looking for a fill of the gap at 2859.

There's also unfilled gaps even lower, but having moved this far, I don't think it's rational to believe the market will drop just because there's a gap lower below. But if the market does sell off, they're targets for sure.

 

[Giovanni218]

I read an article the other day the markets have had massive outflows the past 2 months . They stated this whole rise is short covering. Look at the most famous investors in the world .The past month everyone from Cuban to Jeffrey Gundlach have come out how overvalued the mkt is or they've been shorting for weeks on end . Look at yesterday we had 2- 20 pt plus pops in the es within minutes . Thats short covering . Its self fulfilling now . If you yell boo the shorts scramble to cover .

 

[syswizard]

If you yell boo the shorts scramble to cover .

Indeed. If you look at the Put-Call ratio, we are near all-time lows. Put buyers have been getting crushed.
https://www.optionstrategist.com/weekly-charts
Note that this indicator has quite a lag (4-8 weeks), so despite this current low level, the market can still go up.

 

[Laissez Faire]

On the subject of gaps:

We now have two consecutive weekly + gaps were either weren't (completely) filled. As far as I can see this is unprecedented over the last 15 years. If anyone find that I'm wrong - please correct me.

Not only that, but the strength of the weekly open is very rare too.

How often do we open the week at + 2 % or more?

As far as I can see it's only 12/776 times over the last 5 years. That's pretty rare. Now we have two of those in a row.

One thing is to be bullish, but to me this seems irrational and 'too much, too fast'. Then again, the underlying conditions and forces in play seems unprecedented too. So who the hell knows where this madness ends.

Even bull markets retrace and "Nature abhors a vacuum", so, if that's to happen then next week is as good as any.

 

[Relentless]

Market profile is good for understanding market structure. Statisticians can give you the numbers on gaps.

A chart attachedView attachment 229212

Hey this is a fantastic chart writeup! I've got a few questions for ya:

1) What exactly am I looking at with all of the small blue numbers at extremes in the 200s/300s value ranges?

2) Are there typical reasons causing the "thinner" trading? Devoid of larger interest for investors or traders to put on standard to higher positions in these areas? Or just Globex being thinner than RTH in general and possibly super thin some sessions?

3) Also I'm trying to understand why it would be considered as "poor structure" as opposed to just very bullish / very bearish during those periods of PA movement. Markets are way more efficient than they used to be so I'm trying to understand why gaps or certain PA durations would be considered poor structure.

Market profile / VWAP / market footprint is something I haven't gotten into studying just yet though I've been aware of it for some time.

In any case thank you very much for taking the time to build that chart. Very help - much appreciated.

There's a lot to be said about gaps - both intraday and long term. Some type of gaps are more likely to fill than others and some may only receive a partial fill. Some are filled the same day while some are filled the next day or later on. Some are left behind for good.

There's plenty of people who lost money on blindly fading a gap. Often - a gap may indicate continued movement in the direction of the gap. That relates to the kind of gap and additional parameters.

To understand which - I suggest to research it in depth if you feel the idea have any validity. A quick visual backtest should be helpful. Data in tables is usefeul and probably even necessary to get this done.

One of the best traders I've had the fortune to talk to does not pay any particular attention to RTH values or gaps at all and simply charts 24/7, so it's certainly not the end all/be all.

But for me, it's a part of many things I'm looking at.

PS: Right now the next open gap above is at 3127. So, I will be anticipating that as a target for the next push higher. When we get there - price may reverse or it may not. If momentum should increase to the downside and we can take out the 3K level, I'd be looking for a fill of the gap at 2859.

There's also unfilled gaps even lower, but having moved this far, I don't think it's rational to believe the market will drop just because there's a gap lower below. But if the market does sell off, they're targets for sure.

Appreciate the response but you aren't really saying much here other than study and backtest it. I mean - I could have told anyone that

The point was to draw from your wisdom / experience as a trader. Obviously I don't have any issues doing my own research as I am always researching - this just happened to be a starting point for me on this subject matter.

People keep referencing gaps / air above or below / etc. and do not really say why so I was simply trying to understand why you or anyone else have found it to actually be important. Easy to say "oh look at ABC gaps at XYZ price levels..." or "be careful of all that air in said range...". Yet noone ever says why so thus far it has felt like one of those observations or statements people keep making but haven't provided an explanation as to why.

Easy to say something is an important point of interest. It's more rare that it actually gets quantified or proven useful.

Anyway thanks for the response.

 

[Builder17]

Hey this is a fantastic chart writeup! I've got a few questions for ya:

1) What exactly am I looking at with all of the small blue numbers at extremes in the 200s/300s value ranges?

2) Are there typical reasons causing the "thinner" trading? Devoid of larger interest for investors or traders to put on standard to higher positions in these areas? Or just Globex being thinner than RTH in general and possibly super thin some sessions?

3) Also I'm trying to understand why it would be considered as "poor structure" as opposed to just very bullish / very bearish during those periods of PA movement. Markets are way more efficient than they used to be so I'm trying to understand why gaps or certain PA durations would be considered poor structure.

Market profile / VWAP / market footprint is something I haven't gotten into studying just yet though I've been aware of it for some time.

In any case thank you very much for taking the time to build that chart. Very help - much appreciated.



Appreciate the response but you aren't really saying much here other than study and backtest it. I mean - I could have told anyone that

The point was to draw from your wisdom / experience as a trader. Obviously I don't have any issues doing my own research as I am always researching - this just happened to be a starting point for me on this subject matter.

People keep referencing gaps / air above or below / etc. and do not really say why so I was simply trying to understand why you or anyone else have found it to actually be important. Easy to say "oh look at ABC gaps at XYZ price levels..." or "be careful of all that air in said range...". Yet noone ever says why so thus far it has felt like one of those observations or statements people keep making but haven't provided an explanation as to why.

Easy to say something is an important point of interest. It's more rare that it actually gets quantified or proven useful.

Anyway thanks for the response.

I think what he meant is while many people talk about gaps existing as if they are important, the PA comes first. and gaps should or could be looked at as targets in the context of trend direction and not magic magnets that HAVE to get hit with any specific certainty on any time frame.

 

[Laissez Faire]

Yet noone ever says why so thus far it has felt like one of those observations or statements people keep making but haven't provided an explanation as to why.

Does the why really matter?

I don't know the why to be honest. Just like there's other exploitable patterns I can't say for sure why play out.

Easy to say something is an important point of interest. It's more rare that it actually gets quantified or proven useful.

Generally, it's my experience that people or institutions who actually do research and find something useful don't see a purpose of sharing it publicly.

To me, intraday gaps are quantified and proven useful a long time ago.

I don't have hard data on long term gaps being filled as a % probability, but I've seen enough of them fill over the years to know that they do.

 

[Relentless]

I think what he meant is while many people talk about gaps existing as if they are important, the PA comes first. and gaps should or could be looked at as targets in the context of trend direction and not magic magnets that HAVE to get hit with any specific certainty on any time frame.

Thanks for weighing in Builder - but aren't gaps technically a part of PA? Seems as though they would be to me.

Does the why really matter?

I don't know the why to be honest. Just like there's other exploitable patterns I can't say for sure why play out.



Generally, it's my experience that people or institutions who actually do research and find something useful don't see a purpose of sharing it publicly.

To me, intraday gaps are quantified and proven useful a long time ago.

I don't have hard data on long term gaps being filled as a % probability, but I've seen enough of them fill over the years to know that they do.

So in a sense it's kind of like other metrics that work depending on context e.g. Fibonacci levels or a 50% retrace. People can't seem to give a logical explanation as to why these are commonly watched or used - but it's obvious there is something to them if you watch the PA on charting long enough. Regardless of where they originated from, they are perhaps relevant for use simply because a large % of traders use / watch these levels including whales.

The why doesn't necessarily matter to me so long as something can be utilized and it works in the end. But generic chatter or referencing of "gaps" and "air" do not explain much.

Fun discussion anyway. Always trying to learn and grow is all. Thanks for the multiple responses.

 

[Builder17]

Thanks for weighing in Builder - but aren't gaps technically a part of PA? Seems as though they would be to me.

not sure honestly. I don’t see them as that way anyway. As someone who used to pay close attention to gaps, I now rarely do and I don’t see it affecting my trading. I agree with LF that they are interesting questions you’re posing, but likely the “why” doesn’t matter, in regards to gaps, at least in my opinion.

 

[Relentless]

not sure honestly. I don’t see them as that way anyway. As someone who used to pay close attention to gaps, I now rarely do and I don’t see it affecting my trading. I agree with LF that they are interesting questions you’re posing, but likely the “why” doesn’t matter, in regards to gaps, at least in my opinion.

Got it.

Thanks again for the feedback.