[ant]

Interesting thoughts Dogpile. I think Toby Crabel has a similar 3-day pattern in his book and Raschke also has a similar setup call 3-day triangle. I like the trade statistics! How big was the trade target and stop? Thanks.

[ant]

Originally Posted by Blu-Ray »

Just one quick question, when you do the composite profile, why do you pick that particular date (20th)?

Good question Blu-Ray. I really should have started it from the swing low on 8/16, but I consider that day to be excess. Take a look at this chart.

[Dogpile]

<<How big was the trade target and stop? >>

there was no target or stop used. just sell opening price, buy closing price. I ran it also for holding until 'following day close' (2 day hold) but it came out about the same -- it captured more big down days but that was offset by the times it didn't. I am not a mechnical trader.

just noticed this one that showed up too -- the Feb meltdown came 2 days after a 'cap'...

btw, I have filtered out the days when the trend day down occurs the day after the middle high day -- technically, that is still a 'cap' as 'how far down' the 3rd day goes doesn't matter to technically qualify as a cap --- but I have filtered those days out thinking that the horse has left the barn -- the good kind of cap can be thought of as kind of a slow motion top that has chopped up lots of the over-eager shorts before finally having the plunge...

2 other things: the strategy results are for 2 NQ contracts -- not 1 -- as I always do that due to the small tick value of the NQ e-mini -- otherwise it kind of understates the potential relative to ES.... also, fyi -- those results are for the last 5 years.

[ant]

So how could one have traded the ES today (9/5)? First, I would have identified the key reference areas above and below the ES open, which were:

• the gap above the opening
• the upper limit of the balance area above the opening
• yesterday's large buying tail below the opening (I will ignore this one, because the tail was erased within the Initial Balance period.)
• the gap/buying tail from 8/31 below the opening

These key reference areas were expected to provide support/resistance today. As always, one should monitor price action as price approaches those levels to determine whether they would hold or not. For now, just keep those levels in the back of your mind. See chart below.



After the Initial Balance (IB) formed, we had Range Extension (RE) to the downside. Note the low of the first swing low of the RE at 1469.75. The market then started to trade into the IB again (exhibiting low confidence). Note the high of the first swing high into the IB range at 1478.50. At this point in the day, the ES is developing into a Normal Variation Day (a high occurrence type of day). Yes, this day could have transformed into a neutral day or double distribution day, but at this time of the day, I was focused on the NVD since the swing high into the IB had been formed. Now, here is the key. Usually, price will be bounded by the swing low and swing high mentioned above for the rest of the day. See chart below. The play for the day was to fade the extremes of that trading range.



Let's take a look at the ES in a 5-min chart. You can see the trade opportunities that existed throughout the day. However, if one considered the swing high to be the one by the yellow dotted line, then one extra trade opprotunity could have been had. Again, the day could have transformed into a neutral day or double distribution day, but I was monitoring price action at the extremes. There were some nice divergences that occurred at the extremes, which gave me confidence to enter the trades. The lower range of the day reached the lower reference areas mentioned above, but the reference areas above the open did not really come into play today. However, the selling tail that occurred within the IB and the opening price did provide resistance. The re-entry into the IB signaled hesitation by the sellers and I was thinking "low confidence action" and a potential for a trading range today. The profit target of these trades were the midpoint of the trading range. I won't get into entry tactics here, but I think you get the idea. If you trade multiple contracts, you could have scaled out part at the midpoint and the balance near the other extreme. Although the daily range was low, it still turned out to be a very nice trading day today.



Although I'm presenting this strategy at the end of the trading day, the intent is for people, who use MP, to consider these trade setups in the future.

[ant]

Originally Posted by ant »

Again, go with the directional move away from today's balancing day, but be aware of the possibility that the market might be capped at 1484.75, unless it can muster enough volume to break out.

Correction: In my post above, I stated that the upper bracket limit is 1484.75. That is incorrect because yesterday's trading (9/4) extended the range to 1499.25. So that is a key reference area for tomorrow, not 1484.75.

By the way, when a market is balanced like the ES was today, it is usually a good idea to trade in the direction of any gap opening, if it exists.

[Blu-Ray]

Originally Posted by ant »

Although I'm presenting this strategy at the end of the trading day, the intent is for people, who use MP, to consider these trade setups in the future.

Ant

Superb in-depth analysis, thank you I really appreciate it.

Cheers

Blu-Ray

[ant]

So far yesterday's selling tail and the overnight high provided resistance. It looks like the market will explore yesterday's lower range. Be alert for a directional move beyond the low (buying tail) of 8/31 at 1467.75.

If volume confirms the move down, there is support at 1462, a prominent POC from 8/30, and 1454.75, a buying tail from 8/30.

[ant]

So far the day type of the ES today is a Normal Day. Despite its name, a normal day occurs about 5% of the time, so the odds favor range extension. Look for one of the IB extremes to be penetrated for a potential trade.