[EMC2Trader]

It is very easy to lose the “Forest for the Trees,” or the big picture, when day trading. Part of the big picture is volume analysis, and part of the big picture is macro price analysis.

Since I am new to this forum, I wanted to mention a few things, and Ill stay brief. I am a passionate trader just like many of you here.

In browsing the forums, my sense is this a place for traders to offering interesting information to other traders, and that’s what Ill “try” to do here as well. (I’m sure for some this information will be interesting, for others it may be entertaining, and for others it will be meaningless and dismissed)

I will also be very upfront and say I trade, and have put together an approach to trade the ES market using this information, which can be found at Trading Creations, but I will certainly not use this forum to actively promote this approach.

I feel the information explains he basis for the way I look to trade, and can benefit traders no matter what approach you use.

In the end, it is my opinion, that you simply need some type of a solid plan that you have the confidence and discipline to follow on a consistent basis. The big picture, including macro price structure and volume analysis, can be very helpful

So, Ill begin by sharing my thoughts on big picture/volume analysis applied to the ES market that will hopefully be of some interest, and then Ill continue to show examples of how volume and big picture analysis comes together in the current ES environment, and of course respond to any questions/comments along the way, and truly, my only hope is for everyone to do well in their trading, no matter what style, or approach they use.


Day trading and Volume – If you have never considered “Big Picture Price Structure and Volume” in your day trading, maybe this information will provide something new for you to consider. It certainly can be applied in many different ways.

We know that price vacillates all over the place, up and down, in the day timeframe. For those of you who have studied Market Profile the following will make a lot of sense to you. Assume that price action up and down, is nothing more than price moving up and down to fill “Big Patient Orders” in the market.

In other words, forget about trends, support, resistance, or anything else other than the fact that all that is happening in the market is that whichever patient participant (buyer or seller) wins the tug or war battle for big orders, price is going to go there.

Conversely, if there are no patient orders in a certain price area, price will move to another area to seek out where the patient orders are.

With this perspective, you can see how lower prices are often not “sellers pushing price lower,” but rather price moving lower to find the big orders of patient buyers in control.

Higher prices do not have to represent “buying pressure,” but instead can be the only course price can travel, after “all” buyers have patiently bought lower, and now the only participant looking to act are the patient sellers up above. Price must go higher in response to this imbalance.

When you view price as nothing more than a vacillating entity looking to fill whichever patient participant is in control, volume analysis can be the shining light with regard to price movement, showing where the big orders are, when the big orders are drying up, and where price is likely to go next, either to seek out new participants, or continue on its path to satisfy the big orders of existing participants.

For trading purposes, we start by watching for volume extremes to develop, and then we watch to see what happens next.

Consider these two quick examples.

First, assume price makes a new high on heavy volume (patient sellers plus anxious buyers pushing price higher). Patient sellers are in control. A pullback occurs, and the patient buyers cannot gain control. What happens? The patient buyers become anxious buyers, and price rallies very fast to new highs. Therefore, the lower price creates very low volume because price doesn’t stay in the pullback area long, and anxious demand pushes price higher. Patient sellers with orders up above remain in control and price goes higher.

Second, assume price makes a new high on decreasing volume. Patient sellers in control are drying up in this area. Does this mean price will crash lower? No. It does mean price will either go much higher or much lower, depending if the patient buyers can take back control or not. Why? Because when patient sellers dry up in one area, they are now way above. If they continue to win the tug of war battle price moves way higher. If the patient buyers win the tug of war battle, then the patient sellers way above will cave in, become anxious sellers, and price will move way lower, as the cycle starts all over again in a new direction.

This is very much like a product that is priced too high, and not selling…Price going on sale will bring in heavy volume lower.

But if a product is selling well at higher prices, then a lowering of price will be a great bargain, and this lower price wont last long. A lack of volume develops at lower prices because demand pushes price back up fast.

I’m sure this is a lot of information to digest if you’ve never considered it before, but it is these patient and anxious buyer and seller tug of war battles and outcomes that cause big picture bracket, swing point, and consolidation areas to form, and when you watch the unfolding buyer and seller tug of war develop though volume analysis, and place these outcomes into the bigger picture context of price structure, it can lead to many high probability day trading opportunities.

For now, Ill post some charts of the big picture/volume structure that I see developing in the ES Market to try to make some of these points more clear

Again, I’m fully aware, this may be of interest to some, this may be entertainment for some, and this may be meaningless, or even offend some.

If it spurs some discussions about what is happening in the market, then great, because frankly, this is what I am most passionate about.

07-20-08

Here is a Daily ES chart (left), Intermediate ES chart (middle), and Shorter ES Term chart with Volume (right) in an effort to point out important: Swing Points, Brackets Areas, Consolidation areas, Volume Developments, etc.

The ES consolidated all day on Friday (middle), and volume completely dried up on both extremes (right), so the market is coiling between 1260-1250, the patient buyers and sellers are both way above and below now, so breakout move is coming from this consolidation. (Remember when a patient participant dries up in an area, price will move big either up or down).

On the daily chart (left) we see a steady one directional down move in place. Often, such moves will retrace 40-50-60 percent at some point. We can see that a breakout above 1260 will likely run to the bracket low area of 1280 (left) Then if we can get beyond this, a 40-50-60 retrace can move to the next 1330 swing area (dashed line)

On the downside, a break below 1250 consolidation will take price to the 1240swing area (middle), and if that breaks, it looks like another test of the 08 lows.

[BlowFish]

Welcome to TL. Interesting first post.

I wonder if it is worth talking a little about patient and anxious participants. I have a fairly good idea but it seems an important concept behind your approach so worth making sure everyone is on the same page.

Cheers.

[Marsupilami]

Hello EMC2Trader,

I have read your thread on ET, and frankly, I must say, I find your approach of looking at the market quite confusing. Although I'm by no means an expert at interpreting volume, the things I have read about VSA so far made much more sense to me than your concept of anxious and patient sellers/buyers etc.
Since there are a lot of knowledgeable members on TL, I'll leave it to them to discuss this concept.
I have also googled your website, seen the daily statements. Why don't you spend one or two days with some members in the chat room and discuss trades as they unfold, posting your entries and exits.

You will have to admit, these results are hard to believe ...10 points here, 18 there etc. You should be in control of the CME pretty soon, if you aren't already.
Regards,
Marsupilami

[BlowFish]

What do you find difficult? Seems kind of a straightforward way of looking at things to me. There are many ways of looking at the market base on fundamental structure.

Aggressive vs Passive (those that will bid the price up vs those that are prepared to place limit orders and wait for the market to come to them). This seems close to anxious and patient. Liquidity supliers vs takers. Again this fits in with the original premise. Those that need to trade vs those those that don't. Those initiating and those closing. Informed vs uninformed. The list goes on.

VSA as a technique has merit (imo) however some of the more marketing orientated claims are based on naive and fallacious assumptions. Of course its appealing when its sold as "follow the smart money" and "80% of the volume is the professionals" (which means a large number of professionals are not making profits btw). It's just rhetoric and no surprise that hucksters like <cough> 'professional trader GH' have jumped all over it). Let me be clear I'm not knocking VSA but if you really want to find out who trades, why, when & how, do yourself a favour and read Trading Exchanges & Market Microstructure for Practitioners by Harris. Not sure why its not a classic.

[atto]

I too have seen the ET thread, but I'm interested in what you have to say, and how you support your argument. What kind of thread do you want this to be?

The concept sounds good, and I get the premise. One thing I questioned is that how can you tell when there are "No Sellers"? The "no volume" area on the chart above looks about the same as the other valleys, which were met with more and more selling.

Thanks, welcome to TL, and hope you enjoy it here!

edit: Your track record looks extremely impressive, but I'd rather keep this discussion on your method than what you do outside of here (I think the moderators would agree with me too). If you wanted to join us in the chatroom during market hours, we'd love to chat.

[EMC2Trader]

First of all, I wanted to simply say thank you for some very respectful responses right off the bat. Ill simply say, I’ve heard that this is an excellent community of traders, and I have no doubt I can learn many things here too.

I don’t claim to know it all, or have the perfect way to trade or anything like that. I’ve simply studied Market Profile concepts since the beginning (Yes I have original Steidlmayer, CBOT stuff on my bookshelves), and have determined a pretty simple way to put it to some practical use.

As far as my trading, what you are all seeing is a very mechanical method of trades with consistent entry and exit rules that flow from the beginning of the trading session to the end. I have developed this too over many years of trying all kind of things in the market.

There are many winning and losing trades alike (like any method), and my contention is that when you tie these mechanically based trades into an understanding of bigger picture structure, this can be of great benefit, although every trade setup by itself is designed to be a higher probability set up according to a “go with the flow” approach of price action.

As I figure out how everything works here, I would be happy to drop into the chat room and tell you when entries and exits are taking place real time, etc…This is actually the easy part since they are all very mechanical, so while it may seem hard for you to believe the track record of trades I post every day, it is nothing more than a mechanically based way of going with price action flow in market that fortunately contains very volatile swings from the patient and anxious participants I reference.

But again, I didn’t even know there are chat rooms here, or how they work, who is in them and discussing what etc?. so I’m happy to learn more about this.

Finally, I truly am not here claiming to know it all about trading- far from it actually. I know I have integrated some things together nicely after trying many approaches for many years, and I equally know that what I’m doing can I’m sure be improved in some ways too, and that there are many other approaches out there that are equally effective, and probably much more so.

So, in terms of this thread, yes I’m not here to go over my trading. My passion comes from the analyzing the bigger picture of unfolding market structure, and I think when you are in sync with the big picture it can help all trading approaches.

So, I was just hoping to go over unfolding ES structure, discuss the way I look at it all technically, and answer any questions along the way, etc. and see if this information can help others the way it helps me.

I know some of this may seem confusing at first, but I was simply trying to lay out a foundation of why price moves in the market as I have learned, and then hopefully I can show how this comes together in a more practical way by continuing to look at the unfolding nature of ES price structure- assuming everyone doesn’t get a big headache first .lol.

I will go back and read some of the posts and start specifically answering some of the questions etc., and thanks for welcoming me here. I look forward to discussing, and learning things too.

[atto]

Sounds great, I hope we can all learn something. A few of us hang out in the TL chatroom, which is linked above (also: here). Feel free to drop by.

Hope you enjoy TL as much as I do.

[EMC2Trader]

Originally Posted by Marsupilami »

Hello EMC2Trader,

I have read your thread on ET, and frankly, I must say, I find your approach of looking at the market quite confusing. Although I'm by no means an expert at interpreting volume, the things I have read about VSA so far made much more sense to me than your concept of anxious and patient sellers/buyers etc.
Since there are a lot of knowledgeable members on TL, I'll leave it to them to discuss this concept.
I have also googled your website, seen the daily statements. Why don't you spend one or two days with some members in the chat room and discuss trades as they unfold, posting your entries and exits.

You will have to admit, these results are hard to believe ...10 points here, 18 there etc. You should be in control of the CME pretty soon, if you aren't already.
Regards,
Marsupilami

Marsupilami,

Yes, as you and Im sure others here know, I started this discussion on ET, and then I was told by several, that this is an excellent Traders site, so I apologize if some of the things overlap, and in time Ill figure out how to best handle this.

The approach Im discussing here is simply to get you in turne with the big picture of price action....Where are the brackets, swing points, consolidation areas, etc...how the patient and anxious participants form these areas, and how you can moniotor their behavior to make logical assumptions about what is taking place in the market.

Thank you for mentioning VSA...I am not familiar with it, and from the brief description, it sounds like this can be something very valuable from more of a trade timing standpoint...I use only price based entry and exit now, although because I use volume share bars, this makes volume my constant, so I am able to take advantage when price speeds up or slows down according to volume.

I look very much forward to learning about VSA to see if it can improve what I am now doing!

Finally, as stated, my results are very mechanical, and not every trade is a winner as you can see...I simply just look to do the same entries over and over again when they develop, and manage the trades without ever having a profit target ahead of time...

As far as running the CME..lol, I go into great detail describing how these trades put you in an excellent starting position to do well...What happens if you take 2 losing trades in a row, and quit for the day?... You are now down 3.5 points and the running the CME option doesn't look very good anymore.

But if you have the mindset to think in probabilites and stay the course with consistent execution (with my approach or any approach), then that is what I feel is most important with respect to outcome.