[UrmaBlume]

The ability to recognize the formation of local and session extremes in time to take advantage of the information is key to intra-session success.

Maybe this thread could become a discussion and demonstration on how we colletively recognize local and session extremes.

Day to Day so many of these local/tradeable extremes form the same way with regards to commercial activity and order flow that the ability to recognize them in real-time might offer value to astute traders.

While it was not a huge trade Today's price and trade flow action in ES at 0732 -0742 PST provided a text book shot of the face of many local and session extremes.

The first shot below is of an 8k chart showing between the vertical blue lines 0732 -0742 the formation of a top or maybe a continuation.

The second chart below is of a 1k chart that shows the same period of trade. In this chart you can see strong commercial topping activity at 0372 as 0741 the chart reflects a double top with strong divergence between where price is and the power that put it there/negative divergence.

This top was only good for a few points and may not be a session high (good for over 2 hours at this writing) but it is a pattern that repeats itself through these indicators multiple times every week.

These charts demonstrate 2 components of many local highs and lows - Strong opposing commercial activity and a divergence in the comparison between price and the relative strength of the order flow that put it there.


8k Topping



1k confirming top w/strong opposing commercial activity and price order flow divergence




Cheers

UB

[steve46]

In a nutshell I only trade extremes based on standard deviation and supply/demand analysis (related to order flow)...I can use any chart system that allows me to go back in time far enough to locate areas of previous balance and imbalance just prior to a significant move up or down. It takes a while to get used to but basically you can see where participants have decided to put money to work. Once you have that in place you look at where price went after that move...I want to see a significant excursion away from that origin, followed by a basing action and then a retrace to that point...the first test is what I look for. They are high probability entry points, AND they usually deliver significant profits in either direction (although I will prefer the trend side). It works on any time frame, but the longer the time frame the bigger the profit target (since risk and reward are always proportional). Most of the hardware and software required to to do this is located between your ears.

Good luck
Steve

[UrmaBlume]

Steve,

To all those words, I present this simple explanation and this graphic.

Today's High in ES was formed at 1206 PST. Like the previously demonstrated high it was formed on a divergence between price action and both the order flow and net commercial trade.

In the graph below the middle sub-graph reflects order flow and the bottom sub-graph shows net commercial trade.

The divergence between price and the power that moves price is plainly demonstrated.

It is not about price action, it is not about volume - It is about the degree to which that trade volume is imbalanced.




Please Click to enlarge image


Cheers


UrmaBlume

[steve46]

Well thats nice, and it all looks very impressive indeed...except that it is only part of the picture...you see if one or more institutional participants decides to put money to work...they WILL move the market, no matter what your software says about the degree of imbalance....look what happened on Friday...as the market came down to test the yearly open......participants were trying to mark it down bigtime, and they were winning, until somebody decided (at around 1263.50) "thats enough"...thats when size came in to move it back up..At this point in time, no one has written a program that anticipates when a institutional player is going to make the decision to move capital...and I am pretty sure no one is going to be able to do that in the foreseeable future.

[gianno]

Originally Posted by steve46 »

At this point in time, no one has written a program that anticipates when a institutional player is going to make the decision to move capital...and I am pretty sure no one is going to be able to do that in the foreseeable future.

How you you be so sure? I believe such programs exist. They are not advertized and they are not for sale. They anticipate large moves of capital in the next minutes to an hour with very high success rate. I've seen one at work but it was developed in-house. They work based on some math model.

[jurotraderslab]

Steve, you are right, no one can tell exactly when institutional players decide to step in, the question for UB is whether or not he can take ALL these set ups as shown and trade them automatically based on a fixed set of rules. One trivial example: when both trade velocity and net new trade diverge on a local swing high/low, take a trade with predetermined stop/target. Does this setup (or a "sufficiently smart" modification thereof) produce net positive alpha if it's executed automatically? If yes, then he's in business, but I guess it may not since if it did, he would be already trading it instead of writing about it on TL. I am just writing this because
a) I think there is some value to what UB says
b) it's not as easy as UB seems to make it (local extremes are only a subset of all situations in which these divergence setups occur, the profitability then depends on how you can separate these setups from the ones which are followed by a continuation as opposed to a reversal).

[UrmaBlume]

Of course some indicators CAN sport and classify the most important kind and magnitude of commercial trade (the kind of trade that forms local or session extremes). This indicator does it several times a day.

The high of today's trade in ES happened 37 minutes after the open at 0707 PST and the highest reading today in commercial topping activity happened at.......oh yea, the high of the day.

This formation of above threshold of significance spike in commercial activity and/or divergence between price and the balance of trade happened again today as it did yesterday and it does on most days.

The screenshot shows the High, so far, in today's trade in ES. This kind of trade can be seen by indicators smart enough to register trade that can only be machine executed and only commercial auto execute with such intensity.

This formation is not on every extreme but it is on many and the traders I know that use this indicator find it useful.

cheers

UrmaBlume

[UrmaBlume]

Originally Posted by gianno »

How you you be so sure? I believe such programs exist. They are not advertized and they are not for sale. They anticipate large moves of capital in the next minutes to an hour with very high success rate. I've seen one at work but it was developed in-house. They work based on some math model.

You couldn't be more correct. And in some cases they look like these:

Some say it can't be done and some said the earth is flat.

cheers

UrmaBlume